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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 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
incorporation or organization) Identification No.)
12621 Jeffrey Road
Irvine, California 92720
(Address of principal executive offices)
Registrant's telephone number, including area code: (714) 559-4444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 1, 1997, there were 10,226,184 shares of Common Stock of Hines
Holdings, Inc., par value $.01 per share, outstanding and 20,498,816 shares of
12% Cumulative Redeemable Junior Preferred Stock of Hines Holdings, Inc., par
value $.01 per share, outstanding. As of such date, none of such shares were
held by persons other than affiliates and employees of the registrant, and there
was no public market for such shares.
<PAGE>
ITEM 1. BUSINESS
Introduction
Hines Holdings, Inc. ("Holdings" or the "Company") is a leading producer
and distributor of a wide variety of horticultural products. Holdings is a
holding company that conducts its business through two operating divisions: its
nursery division, Hines Nurseries ("Hines"), which conducts its operations
through the Company's wholly-owned subsidiary, Hines Horticulture, Inc. ("Hines
Horticulture"), and its peat moss division, which conducts its operations
through Sun Gro Horticulture, Inc. ("Sun Gro-U.S."), a wholly-owned subsidiary
of Hines Horticulture, and Sun Gro Horticulture Canada Ltd. ("Sun Gro-Canada"
and together with Sun-Gro U.S., "Sun Gro"), a wholly-owned subsidiary of Sun
Gro-U.S. Hines is the largest commercial nursery operation in North America,
producing one of the broadest assortments of ornamental container-grown plants
in the market. Hines has the leading share in the highly fragmented North
American nursery products market. Sun Gro is the largest North American producer
of sphagnum peat moss and peat-based potting and growing mixes. The Company
distinguishes itself from its competitors based on its ability to provide
consistent, high quality products in large volumes, its nationwide distribution
and its value-added services.
History
Hines was founded in 1920 by James W. Hines, Sr. in San Gabriel,
California. Hines was a family owned business until its acquisition by the
Weyerhaeuser Company in 1976. Holdings was incorporated in Nevada in June 1990
by a private investment group and certain members of management of Hines to
acquire the assets of Hines' business from Weyerhaeuser. In June 1993, the
Company and certain members of management of Sun Gro acquired Sun Gro-U.S. and
its subsidiaries from Fisons plc in order to diversify the Company's operations
and expand its share of the market for horticultural products.
In January 1995, Hines completed the acquisition of the assets of Oregon
Garden Products ("OGP"), including a nursery in Hillsboro, Oregon which was
subsequently moved to Forest Grove, Oregon. The total purchase price for OGP
(including the real property acquired by an affiliated entity) was $17.6
million, including a cash investment of $3.5 million, the repayment of certain
long-term debt and the assumption of certain specified liabilities. The OGP
acquisition broadened Hines' product mix and, as a result of the Oregon
nursery's undeveloped acreage, has provided Hines with significant opportunities
for expansion.
On August 4, 1995, Madison Dearborn Capital Partners, L.P., a private
venture capital firm ("MDCP"), together with certain members of management who
were minority stockholders of Hines Horticulture and its subsidiaries, acquired
the Company in a private transaction.
On August 30, 1996, Hines Horticulture acquired substantially all of the
assets of Iverson Perennial Gardens, Inc. ("Iverson") for a total consideration
of $10.3 million in cash plus
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the assumption of certain liabilities. Iverson, based in Trenton, South Carolina
is a producer of high quality perennial flowers and plants which are sold to
home centers, mass merchandisers and other retail customers primarily located in
the Southeast, East and Midwestern regions of the United States. The Company
believes the Iverson acquisition was attractive because Iverson provides Hines
with increased market presence in the eastern and southeastern United States,
increased penetration into the perennial plant market and expansion capacity at
the South Carolina nursery location.
On November 27, 1996, Hines Horticulture acquired all of the outstanding
shares of Flynn Nurseries, Inc. ("Flynn") for approximately $11.7 million in
cash. Flynn, located in Fallbrook, California, north of San Diego, produces
ornamental container-grown plants, flowering plants and perennials which are
sold to various retail customers throughout the United States. The Company
believes that the Flynn acquisition was attractive because of the proximity of
its location to Hines' Irvine, California nursery operations and the significant
customer and product overlap between Flynn and the Company. Management believes
this overlap will result in significant cost and market synergies as Flynn is
integrated into the business of Hines.
Business Overview
Hines produces approximately 4,000 varieties of ornamental container-grown
plants at six nursery facilities located in Southern California, Northern
California, Texas, Oregon and South Carolina. Most of these varieties fall into
the following categories: broadleafs, flowering color plants, conifers and
specialty plants. Hines sells to over 1,700 retail and commercial customers,
representing over 6,000 outlets throughout the United States and Canada. Hines'
retail customers include home centers such as Home Depot and Lowe's, mass
merchandisers such as Wal-Mart, Target and Kmart, garden center chains such as
Frank's Nursery and Crafts and Pike's Family Nursery, and numerous independent
garden centers. In 1996, Hines generated approximately 84% of its revenue from
sales of products to retail merchandisers. The remaining 16% was generated from
commercial customers such as rewholesalers and professional landscapers. Most of
Hines' products are sold under the Hines Nurseries(TM) tradename. Hines
generated approximately 56.1% of the Company's consolidated revenue in 1996 and
approximately 55.6% of the Company's consolidated revenue in 1995.
Hines' business strategy is to increase its penetration of sales to the
rapidly growing home center chains as well as the lawn and garden departments of
mass merchandisers and independent garden center chains. Hines intends to
continue to offer an ever increasing variety of high quality plants to its
customers coupled with improved merchandising and sales support. Hines intends
to expand its already strong position in value-added flowering color plants and
specialty products. In order to satisfy the increasing demand from its key
customers, Hines intends to invest in capital projects which will increase the
production capacity of its existing nursery sites. Also, when appropriate and
when permissible under the terms of its senior and subordinated debt, Hines will
pursue selective acquisitions which provide the Company with the opportunity to
broaden or complement its product lines or economically expand production
capacity.
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Sun Gro produces high quality, sphagnum peat moss and value-added peat-
based potting and growing mixes. Sun Gro harvests peat moss from over 27,000
acres of peat bogs located in western, central and eastern Canada, and produces
its peat moss and peat-based mixes in seven facilities strategically located
across Canada and the United States. Sphagnum peat moss, a naturally
regenerating organic material, is considered the highest quality growing medium
available due to its excellent water retention and aeration characteristics. In
1996, Sun Gro generated approximately 76% of its sales from the professional
market, which includes greenhouse growers, nursery growers and golf course
developers. The remaining 24% was generated from the retail market through sales
to customers similar to those of Hines. Sun Gro generated approximately 43.9% of
the Company's consolidated revenue in 1996 and approximately 44.4% of the
Company's consolidated revenue in 1995. Sun Gro's products are sold under the
Sunshine(TM), Parkland(TM) and Fairway(TM) tradenames.
Key to Sun Gro's operating strategy will be a focus on internal efficiency
improvements such as improving production costs and transportation and logistics
costs. Sun Gro's business strategy is to improve its operating performance by
focusing on providing high quality products and services primarily to its
commercial customers. Sun Gro intends to supplement its existing product lines
through the introduction of new peat-based mixes utilizing other high quality
growing media substances. Sun Gro will also attempt to improve its market
penetration among retail customers by introducing several new and improved
retail growing media products.
Hines Nursery Business
Hines produces approximately 4,000 varieties of ornamental container-grown
plants, most of which are sold under its Hines Nurseries(TM) tradename. Most of
Hines' varieties fall into the following categories:
. Broadleafs, including varieties such as azaleas, hibiscus and camellias;
. Flowering color plants, including annual varieties such as marigolds,
daisies and petunias, and perennial varieties (which reflower annually)
such as daylilies and carnations;
. Conifers, including varieties such as pine, cypress and junipers; and
. Specialty plants, including varieties which include plants that are
packaged in unique containers or grown in unusual shapes or forms, such
as topiary or dwarf plants.
Since 1991, Hines has added numerous plant varieties to its product
line. Recently, Hines has aggressively expanded its offerings of flowering color
plants. Hines has also pioneered the development of patio-ready products, which
it markets under the names of Patio Tropics(TM) and Festival Pots. These
products generally command premium prices and improve profit margins. The
Company anticipates that sales of these products will continue to grow over the
next several years.
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Hines sells its products to over 1,700 retail and commercial customers
representing over 6,000 outlets throughout the United States and Canada. Hines'
retail customers include home centers such as Home Depot and Lowe's, mass
merchandisers such as Wal-Mart, Target and Kmart, garden center chains such as
Frank's Nursery and Crafts and Pike's Family Nursery, and numerous independent
garden centers. The following table sets forth the estimated percentage of
Hines' net sales by customer type for the period indicated:
<TABLE>
<CAPTION>
Customer Type 1996 1995 1994
------------- ---- ---- ----
<S> <C> <C> <C>
Home centers and mass merchandisers.. 52% 48% 43%
Independent garden centers........... 21 22 25
Garden center chains................. 11 12 14
Rewholesalers........................ 13 14 14
Landscapers and Other................ 3 4 4
---- ---- ----
Total....................... 100% 100% 100%
==== ==== ====
</TABLE>
The Company believes sales to home centers and mass merchandisers have
increased significantly during the past several years as a result of the rapid
growth of this channel of distribution. Management believes the Company enjoys
competitive advantages in selling into this channel due to its ability to
provide a broad assortment of consistently high quality products in large
volumes, its nationwide distribution and its value-added services such as custom
labeling, bar-coding and full electronic data interchange and technical support.
Management expects to participate in the overall growth in this channel to a
greater extent than its competitors that do not offer such services. Hines' top
ten customers accounted for approximately 48% of its net sales in 1996. No
single customer accounted in 1996 for more than 15% of Hines' revenues or for
more than 10% of the Company's consolidated revenues.
Research and Development. Hines' product sourcing and development yields
unique plant varieties, which are marketed under a tradename and patented
whenever possible. The Company applies for patents on plant varieties that are
significantly different from existing varieties. Differences among plant
varieties may include coloration, size at maturity or hardiness in drought or
cold conditions. These varieties command higher prices, provide higher unit
margins and enhance the Company's reputation as a product innovator.
Sales and Marketing. Each Hines nursery facility has a separate sales
force, which includes a sales manager, in-house customer service
representatives, direct sales consultants and various support personnel. Hines
employs 75 direct sales consultants and key account managers. National accounts
are serviced through "National Account Task Teams" comprised of a senior
management member and direct sales personnel from each nursery supplying the
account. Hines also markets its products through trade shows, print advertising
in trade journals, direct mail promotion and catalogues.
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Competition. Competition in the nursery products segment of the lawn and
garden industry is based principally on breadth of product offering, consistency
of product quality and availability, customer service and price. The nursery
products segment is highly fragmented, comprised of approximately 30,000
primarily small and regionally based growers, with the top 100 growers
accounting for approximately 22% of the industry volume in 1996. Management
believes Hines is one of only two growers able to serve every major regional
market in North America; its only national competitor being Monrovia Nursery
Company. Hines competes in several markets with regional growers such as Oda
Nurseries in California, Clinton Nurseries in the Northeast, Zelenka Nurseries
in the Midwest, Wight Nurseries in the South and many other smaller regional and
local growers. Hines' key competitive advantage is its ability to provide
consistent, high quality products in large volumes, its nationwide distribution
and its value-added services.
Sun Gro Peat and Peat-Based Products Business
Sun Gro sells peat moss under its Sunshine(TM), Parkland(TM) and
Fairway(TM) tradenames in both the professional and retail markets in four
different grades: fine, medium, coarse and super coarse. Medium grade is
typically sold in the retail market, while the other grades are sold to
professional growers.
Sphagnum peat moss is regarded by both professional growers and experienced
retail consumers as an optimal soil conditioner. Sphagnum peat moss is partially
decomposed sphagnum moss, a plant whose unique cellular structure consists of
large cavities that absorb air and water like a sponge. Because the right
balance of air and water is essential for root development and plant growth,
organic sphagnum peat moss is considered the highest quality growing medium
available. No alternative soil conditioner of comparable quality and value
currently exists. There are less expensive and lower quality products on the
market that are used for similar purposes, such as top soil, manure, bark, mulch
and composts made from yard and/or sewage wastes. However, these products do not
contain the superior soil aeration and water retention characteristics of peat
moss.
Capitalizing on its leading position in the professional peat moss market,
Sun Gro has become one of the leading North American suppliers of value-added,
peat-based growing mixes used for specific professional applications such as
seed germination, cutting propagation and container plant production. As a
result of Sun Gro's success with this product line, higher margin professional
growing mixes now constitute a greater percentage of Sun Gro's professional
market sales than pure peat moss.
Sun Gro potting mixes utilize the same blend of ingredients as its
professional growing mixes, but are specifically targeted to home gardeners. By
offering these mixes in attractive, conveniently sized packaging and
highlighting formulations for specific plant varieties such as "tropicals,"
"cacti," "succulents" and "African violets," Sun Gro has effectively expanded
its product offerings to the retail customer.
Sun Gro distributes peat moss and peat-related products throughout the
United States, Canada, Mexico and Japan and, to a lesser extent, to other
countries in the Far East and South
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America. Peat moss is sold to both the professional and retail markets, while
growing mixes are sold to the professional market and potting mixes are sold
exclusively to the retail market.
Sun Gro's professional customers consist of greenhouse growers, growers
of specialty crops such as mushrooms and seedlings for certain vegetables, and
golf course developers. Sun Gro's retail customers are similar to Hines. The
following table sets forth the estimated percentage of Sun Gro's net sales by
customer type for the period indicated:
<TABLE>
<CAPTION>
Customer Type 1996 1995 1994
- ----------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Professional:
Greenhouse growers............................. 55% 54% 49%
International/others.......................... 10 8 11
Vegetable farmers and golf course developers.. 11 11 10
--- --- ---
Total Professional....................... 76 73 70
--- --- ---
Retail:........................................
Home centers and mass merchandisers........... 16 18 20
Independent garden centers.................... 5 6 6
Garden center chains.......................... 3 3 4
--- --- ---
Total Retail............................. 24 27 30
--- --- ---
Total Professional and Retail.......... 100% 100% 100%
=== === ===
</TABLE>
Sun Gro plans to increase sales of its professional products by
further developing international markets such as Mexico, the Far East and
Central and South America and continuing to improve the quality and breadth of
its product line. Sun Gro seeks to increase its market share for retail products
by expanding its presence in regions of the country not currently served,
broadening its potting mix line and leveraging Hines' retail account
relationships. As is the case with Hines, Sun Gro has the capacity and
distribution network necessary to effectively service and distribute to national
and large regional retail chains. Sun Gro's top ten customers accounted for
approximately 30% of its net sales in 1996. No single Sun Gro customer
accounted for more than 10% of the Company's consolidated revenues in 1996.
Research and Development. Sun Gro operates a dedicated research facility
which provides technical services to its professional customers. Professional
customers use Sun Gro's technical services to improve their growing methods and
the overall quality of their crops. This service enhances Sun Gro's reputation
for technical expertise and builds strong customer loyalty, which management
believes provides Sun Gro with a significant competitive advantage. The research
facility also develops new products to complement its existing product lines.
Recent product developments include specialty bark mixes and a professional
growing mix formulated for specific applications.
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Sales and Marketing. Sun Gro sells its products on a direct basis and
through a network of 200 distributors located throughout North America.
Approximately 70% of Sun Gro's professional sales and 40% of its retail sales
are conducted through this distributor network (which the Company believes is
the largest network of its kind in the industry). Sun Gro's distributor network
provides broad market coverage, reduces credit exposure and distributes products
to smaller growers cost effectively. The remaining 30% of professional sales and
60% of retail sales are conducted on a direct basis by Sun Gro's 31 person
salesforce. Sun Gro's salesforce is highly trained in the technical applications
of its products.
Competition. Competition in the peat moss and professional growing and
potting mix segment of the lawn and garden industry is based principally upon
product quality, distribution, service and price. Management believes Sun Gro's
sales of peat moss account for approximately 28% of all such sales in North
America. Sun Gro's principal competition comes from Premier Canadian
Enterprises, Ltd., a Canadian producer of peat moss, and The O.M. Scott & Sons
Company, which competes mostly in the retail growing mix and potting mix
markets. Sun Gro's key competitive advantages are its control over high quality
peat moss reserves, its strong relationships throughout its distributor network
and its ability to provide significant technical support.
Financial Information on the Company's Foreign Operations
See Note 19 to the Company's consolidated financial statements, which
are included as a separate section of this Report beginning on page F-1.
Seasonality
The Company's nursery business is highly seasonal in nature, with the
strong retail demand for lawn and garden products typically occurring in the
first half of the year. The Company's peat moss business is more heavily
weighted towards the professional markets, which do not typically experience the
large seasonal variances present in the retail market. The table below sets
forth quarterly net sales, as a percentage of total year net sales, for the
Company during the year ended December 31, 1996:
<TABLE>
<CAPTION>
Percentage of Total
Quarter Year Net Sales
------- --------------------
<S> <C>
First Quarter 24%
Second Quarter 43
Third Quarter 17
Fourth Quarter 16
---
100%
===
</TABLE>
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Patents and Trademarks
The Company has built an excellent reputation in the horticulture industry
and regards its service marks as a valuable asset. The Company has registered
numerous trademarks, service marks and logos used in its businesses in the
United States and Canada. In addition, the Company has developed and continues
to develop specialty plants for which it holds patents registered with the U.S.
Patent and Trademark Office. The Company currently holds 22 patents with 3
patent applications pending.
Government Regulation
The Company is subject to certain United States and Canadian federal,
state, local and provincial health, safety and environmental laws and
regulations regarding the production, storage and transportation of certain of
its products and the disposal of its wastes. The Company's operations and
activities, including but not limited to water runoff and the use of certain
pesticides in its nursery operations, are regulated by the EPA and similar state
and local agencies. With respect to its peat moss operations, the Company has
various operating, monitoring and site maintenance obligations, which are
prescribed by various Canadian and U.S. agencies. The Company does not
anticipate that future expenditures for compliance with such environmental laws
and regulations will have a material adverse effect on the Company. No
assurances can be given, however, that such compliance, or compliance with other
environmental laws and regulations that may be enacted in the future, will not
have such an adverse effect.
Hines obtains certain irrigation water supplied to local water districts by
facilities owned and operated by the United States acting through the Department
of Interior Bureau of Reclamation ("reclamation water"). The use and price of
reclamation water, including availability of subsidized water rates, is governed
by Federal reclamation laws and regulations. Hines utilizes reclamation water
as one of the water supplies for its Northern California and Oregon facilities.
While the Company believes it is in compliance with applicable regulations and
it maintains a continuous compliance program, there can be no assurance that
changes in law will not reduce availability or increase the price of reclamation
water to the Company.
Employees
As of December 31, 1996, the Company employed approximately 2,284 persons,
including approximately 405 seasonal employees. Of this total, approximately
1,734 were employed by Hines, including approximately 175 seasonal employees
(seasonal employment peaked at 692 in April), and approximately 550 were
employed by Sun Gro, including approximately 230 seasonal employees (its peak
seasonal employment). Approximately 420 of Sun Gro's employees were employed in
Canada. All of Hines' employees are non-union. The non-management employees at
Sun Gro's Canadian peat processing facilities, which vary seasonally in number
from approximately 200 to 300, are represented by various labor unions, with
collective bargaining agreements in effect for all such facilities. Sun Gro's
agreement with the United Food and Commercial Workers Union, which covers 137
employees at its Manitoba facility, expires in May 1999. Its agreements with the
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Brotherhood of Carpenters and Joiners of America, which cover 79 employees at
Sun Gro's Lameque, New Brunswick facility and 61 employees at its Maisonette,
New Brunswick facility, expire in December 2000 and August 1998, respectively.
The Company's management believes its labor relations are good.
ITEM 2. PROPERTIES.
The Company owns approximately 2,611 acres related to its nursery
facilities and approximately 1,100 acres of harvestable peat bogs in Canada. In
addition, the Company leases approximately 876 acres related to its nursery
facilities and approximately 26,200 acres of harvestable peat bogs in Canada
from provincial governments and various private parties. Sun Gro has
approximately 50 such leases, which have an average term of ten years. Sun Gro
has historically been able to renew its leases upon expiration. However, no
assurance can be given that Sun Gro will be able to do so in the future. The
Company's management believes that its owned and leased facilities are
sufficient to meet its operating requirements for the foreseeable future.
The Company's facilities are identified in the table below:
<TABLE>
<CAPTION>
LOCATION DESCRIPTION STATUS
-------- ----------- ------
<S> <C> <C>
HINES
Irvine, California..................... 453 acre nursery and headquarters Leased
Fallbrook, California.................. 263 acre nursery Leased
Lake Elsinore, California.............. 85 acres of undeveloped land Leased
Northern California(a)................. 446 acre nursery Owned
Forest Grove, Oregon................... 1,205 acre nursery Owned/leased(b)
Fulshear, Texas........................ 450 acre nursery Owned
Trenton, South Carolina................ 585 acre nursery Owned/leased(c)
SUN GRO
Seba Beach, Alberta.................... 53,000 square foot processing and mixing Owned/leased(d)
facility and 3,982 acres of peat bogs
Elma, Manitoba......................... 73,700 square foot processing and mixing Owned/leased(d)
facility and 16,977 acres of peat bogs
Julius, Manitoba....................... 39,000 square foot processing facility and Owned/leased(d)
1,801 acres of peat bogs
Lameque, New Brunswick................. 50,400 square foot processing and mixing Owned/leased(d)
facility and 3,571 acres of peat bogs
Maisonnette, New Brunswick............. 47,900 square foot processing facility and
1,000 acres of peat bogs Owned/leased(d)
Quincy, Michigan....................... 83,700 square foot mixing facility Owned
Terrell, Texas......................... 55,800 square foot mixing facility Owned
Surrey, British Columbia............... 30,000 square foot depot/storage yard Leased
Niagara Falls, Ontario................. 8,000 square foot depot/storage yard Owned
</TABLE>
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<TABLE>
<CAPTON>
<S> <C> <L>
Montreal, Quebec....................... 33,000 square foot depot/storage yard Owned
Bellevue, Washington................... 13,000 square foot office (headquarters) Leased
Warwick, New York...................... 15,000 square foot office (research facility) Leased
</TABLE>
(a) The Northern California nursery consists of sites in Vacaville and
Allendale, California.
(b) The Company owns 1,190 acres and leases 15 acres.
(c) The Company owns 525 acres and leases 60 acres.
(d) These peat processing facilities are owned by the Company but are situated
on land owned and leased to the Company under long-term contracts with the
provincial governments and various private parties. The Company leases all
but 1,100 acres in the aggregate of these peat bogs.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. Management believes that none of the
matters in which the Company is currently involved, either individually or in
the aggregate, is expected to have a material adverse effect on the Company's
business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
There is currently no established public trading market for the Common
Stock of Holdings. As of March 1, 1997, there were 47 holders of Common Stock.
Holdings has not paid any dividends on shares of its Common Stock. The payment
of dividends is restricted under the terms of the Company's senior credit
agreement and subordinated note indenture.
RECENT SALES OF UNREGISTERED SECURITIES
On May 24, 1996, in a private placement transaction exempt from
registration under Section 4(2) of the Securities Act, Holdings sold, for an
aggregate consideration of $880,000, (i) 283,360 shares of its Common Stock and
596,640 shares of its 12% Cumulative Redeemable Junior Preferred Stock (the
"Junior Preferred") to certain members of management at a price of $1.00 per
share.
On November 27, 1996, in a private placement transaction exempt from
registration under Section 4(2) of the Securities Act, Holdings sold, for an
aggregate consideration of $20,000,000, (i) 20,000 shares of its 12% Cumulative
Redeemable Senior Preferred Stock (the "Senior Preferred") at a price of $958.50
per share and (ii) presently exercisable warrants to purchase 830,000 shares of
Common Stock, with an exercise price of $.01 per share, at a price of $1.00 for
each warrant to purchase one share of Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical consolidated financial data for the
years ended December 31, 1992 through December 31, 1995 have been derived from
the Company's consolidated financial statements, which have been audited by
Arthur Andersen LLP, independent accountants. The selected historical
consolidated financial data for the year ended December 31, 1996 has been
derived from the Company's consolidated financial statements, which have been
audited by Price Waterhouse LLP, independent accountants, as indicated in their
report included elsewhere herein. The following selected historical
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements and the related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Annual Report on Form 10-K.
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Hines Holdings, Inc.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1992 1993(a) 1994 1995(b) 1996(c)
(dollars in thousands)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $49,590 $ 85,006 $134,781 $156,909 $164,323
Cost of goods sold 24,898 40,457 60,827 72,245 80,812
------- -------- -------- -------- --------
Gross profit 24,692 44,549 73,954 84,664 83,511
Operating expenses:
Selling and distribution expenses 8,899 21,097 36,789 39,904 43,308
General and administrative expenses 6,081 9,465 13,102 17,467 18,239
Management fees to related parties(d) 419 617 919 789 --
Other operating expenses (income)(e) (897) 273 (536) 232 (790)
Unusual expenses(f) -- -- -- -- 830
------- -------- -------- -------- --------
Total operating expenses 14,502 31,452 50,274 58,392 61,587
------- -------- -------- -------- --------
Operating income 10,190 13,097 23,680 26,272 21,924
------- -------- -------- -------- --------
Other expenses (income):
Interest expense 3,677 6,014 7,555 13,274 20,140
Amortization of deferred financing costs 403 1,079 1,069 4,557 940
Other expenses (income)(g) (150) (225) 798 -- --
------- -------- -------- -------- --------
Total other expenses (income) 3,930 6,868 9,422 17,831 21,080
------- -------- -------- -------- --------
Income before provision for income taxes 6,260 6,229 14,258 8,441 844
Provision for income taxes 2,247 2,248 3,635 2,850 636
------- -------- -------- -------- --------
Income before loss (income) from discontinued 4,013 3,981 10,623 5,591 208
operations
Loss (Income) from discontinued operations (h) -- 8 (26) (3,307) --
------- -------- -------- -------- --------
Income before extraordinary loss 4,013 3,973 10,649 8,898 208
Extraordinary loss, net of taxes(i) -- -- 2,487 2,513 --
------- -------- -------- -------- --------
Income before minority interest 4,013 3,973 8,162 6,385 208
Minority interest in earnings of subsidiary 803 1,131 2,740 3,958 --
------- -------- -------- -------- --------
Net income $ 3,210 $ 2,842 $ 5,422 $ 2,427 $ 208
======= ======== ======== ======== ========
Net income (loss) from continuing operations
per common share n/a n/a n/a $ 0.23 $ (0.35)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $29,334 $ 35,845 $ 26,132 $ 42,825 $ 29,561
Total assets 63,157 143,713 140,906 188,544 228,092
Long term debt 29,664 67,310 63,107 157,742 152,769
Redeemable preferred stock -- -- -- 31,460 54,910
Shareholders' equity (deficit) 9,493 12,508 9,930 (67,798) (70,708)
OTHER DATA:
Capital expenditures $ 1,267 $ 4,899 $ 7,389 $ 7,684 $ 8,752
Cash dividends paid -- -- 8,000 -- --
</TABLE>
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<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) The Company acquired Sun Gro on June 30, 1993. The financial results for
the year ended December 31, 1993 include the operations of Sun Gro since
the date of the acquisition.
(b) The Company acquired OGP on January 27, 1995. The financial results for
the year ended December 31, 1995 include the operations of OGP since the
date of the acquisition.
(c) The Company acquired Flynn and Iverson on November 27, 1996 and August 30,
1996 respectively. The financial results for the year ended December 31,
1996 include the operations of Flynn and Iverson since the date of their
acquisition.
(d) Management fees to related parties represents amounts paid to affiliates of
the former controlling shareholder under management agreements which were
terminated upon consummation of the acquisition of the Company by MDCP and
members of the Company's management.
(e) Other operating expenses (income) consist of amortization of goodwill and
negative goodwill, the write-off costs relating to the evaluation of the
acquisition of land which was not consummated, litigation settlement costs
and foreign exchange (gains) and losses.
(f) Usual expenses consist of certain severance and other reorganization costs
incurred in fiscal 1996.
(g) Other expenses (income include payments received (net of related expenses)
relating to a road expansion project, the write-off of certain deferred
financing costs and certain fire insurance proceeds.
(h) Loss (Income) from discontinued operations relates to the sale of Sun Gro's
Green Cross business.
(i) Extraordinary loss, net of taxes includes the write-off of unamortized
deferred financing costs and prepayment penalties relating to the early
extinguishment of debt.
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<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS.
The discussion in this document contains trend analysis and other forward
looking statements. Actual results could differ materially from those projected
in the forward looking statements throughout this document.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995.
Net Sales. The Company had consolidated net sales of $164.3 million for the
fiscal year ended December 31, 1996. This represents an increase of $7.4
million, or 4.7%, from net sales of $156.9 million for the comparable period in
1995. Net sales of the Company's nursery products increased 5.7%, reflecting
both increased sales volumes and prices. Sales in 1995 included approximately
$1.6 million of brokered material at the Oregon nursery which were not repeated
in 1996 as they were not profitable. Excluding these brokered sales, the
increase in sales for the fiscal year ended December 31, 1996 for the Company's
nursery products was 7.7% from the comparable period in 1995. The increased
sales volumes resulted primarily from increasing sales to home centers and mass
merchandisers as well as increased sales volumes of flowering color plants. Net
sales of the Company's peat moss and peat-based products increased 3.4%,
reflecting increased sales volumes primarily to the professional market. These
increases were partially offset by lower peat prices which were more significant
in the retail market. Peat moss sale price 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 the first half of 1997 and will continue to adversely affect
gross profit margins in the Company's peat moss business.
Gross Profit. Gross profit of $83.5 million (50.8% of net sales) for the
fiscal year ended December 31, 1996 decreased $1.2 million, or 1.4%, from gross
profit of $84.7 million (54.0% of net sales) for the comparable period in 1995.
The 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 lower production and harvest volumes and
inefficiencies due to poor product mix. Gross margins on the Company's nursery
products remained relatively unchanged from the comparable period in 1995.
Operating Expenses. Operating expenses of $61.6 million (37.5% of net
sales) for the fiscal year ended December 31, 1996 increased $3.2 million, or
5.5%, from $58.4 million (37.2% of net sales) for the comparable period in 1995.
The increase was attributable to the Company's higher selling and distribution
expenses incurred as a result of higher overall sales volumes and general cost
increases. Included in operating expenses for the fiscal year ended December 31,
1996 is $0.8
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<PAGE>
million of non-recurring expenses representing severance and other
reorganization costs incurred by the Company's Sun Gro business.
Operating Income. Operating income of $21.9 million for the fiscal year
ended December 31, 1996 decreased $4.4 million, or 16.7%, from $26.3 million for
the comparable period in 1995. The decrease was attributable to the Company's
peat and peat-based products due to the reasons described above. In addition,
included in the 1996 operating income is $0.3 million of operating losses
relating to the Iverson and Flynn operations since the date of their
acquisition.
Interest Expense. Interest expense of $20.1 million for the fiscal year
ended December 31, 1996 increased $6.8 million from $13.3 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 obtained in conjunction with the
acquisition of the Company by MDCP on August 4, 1995.
Income before income from discontinued operations, extraordinary loss and
minority interest. The income before income from discontinued operations,
extraordinary loss and minority interest of $0.2 million for the fiscal year
ended December 31, 1996 decreased by $5.4 million from income of $5.6 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.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994.
Net Sales. Net sales of $156.9 million for the fiscal year ended December
31, 1995 increased $22.1 million, or 16.4%, from net sales of $134.8 million for
the comparable period in 1994. The OGP acquisition in January 1995 accounted for
$17.4 million of the increase. Excluding OGP, the Company generated net sales of
$139.5 million for the fiscal year ended December 31, 1995 which represents an
increase of $4.7 million, or 3.5%, from net sales of $134.8 million for the
comparable period in 1994. Net sales of the Company's nursery products,
excluding the OGP acquisition, increased 11%, reflecting both increased sales
volumes and prices. Net sales of the Company's peat moss and peat-based products
decreased 3%, primarily due to lower peat volumes into the retail market and
lower peat prices due to the effect of the excess peat supply in the Company's
eastern markets resulting from the unusually favorable peat moss harvest in
Eastern Canada in 1995.
Gross Profit. Gross profit of $84.7 million for the fiscal year ended
December 31, 1995 increased $10.7 million, or 14.5%, from gross profit of $74.0
million for the comparable period in 1994. The OGP acquisition accounted for
approximately $7 million of the increase. Excluding OGP, the Company's gross
profit was $77.7 million (55.7% of net sales) which represents an increase of
$3.7 million, or 5%, from gross profit of $74.0 million (54.9% of net sales) for
the comparable period in 1994. The increase was primarily attributable to the
higher average selling prices and unit sales volume increases for nursery
products. These volume increases resulted in
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<PAGE>
improved fixed production cost absorption which lowered the average unit cost
for nursery products. Gross profit for peat and peat-based products decreased by
$3.4 million due to the lower peat volumes and sales prices resulting from the
excess peat supply.
Operating Expenses. Operating expenses of $58.4 million for the fiscal year
ended December 31, 1995 increased $8.1 million, or 16.1%, from $50.3 million for
the comparable period in 1994. The OGP acquisition accounted for approximately
$4.3 million of the increase. Excluding OGP, the Company's operating expenses
were $54.1 million (38.8% of net sales) which represents an increase of $3.8
million, or 7.6%, from $50.3 million (37.3% of net sales) for the comparable
period in 1994. The increase was attributable to the Company's higher selling
and distribution expenses incurred as a result of higher overall sales volumes
and general cost increases. Included in operating expenses is $1.0 million and
$1.3 in fiscal 1995 and 1994, respectively, relating to payments made to
affiliates of the former controlling shareholder.
Operating Income. Operating income of $26.3 million for the fiscal year
ended December 31, 1995 increased $2.6 million, or 11%, from $23.7 million for
the comparable period in 1994. The OGP acquisition accounted for approximately
$2.6 million of the increase. Excluding OGP, the Company's operating income was
$23.7 million (17% of net sales) which represents no change from $23.7 million
(17.6% of net sales) for the comparable period in 1994. This was primarily due
to the lower sales volumes and prices of the peat and peat-based products as
described above.
Interest Expense. Interest expense of $13.3 million for the fiscal year
ended December 31, 1995 increased $5.7 million from $7.6 million for the
comparable period in 1994. 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 obtained in conjunction with the
acquisition on August 4, 1995.
Income before income from discontinued operations, extraordinary loss and
minority interest. The income before income from discontinued operations,
extraordinary loss and minority interest of $5.6 million for the fiscal year
ended December 31, 1995 decreased by $5.0 million from income of $10.6 for the
comparable period in 1994. This decrease was primarily attributable to 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 $75 million revolving credit facility pursuant to a Credit
Agreement dated as of August 4, 1995, as subsequently amended, by and among
Hines Horticulture, Sun Gro-U.S. and Sun Gro-Canada, as borrowers, the lenders
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<PAGE>
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
occurring in the third and fourth quarters. The Company amended the Bank Credit
Agreement to increase the revolving credit facility from $50 million to $60
million on August 30, 1996 and intends to amend the Bank Credit Agreement to
increase the revolving credit facility from $60 million to $75 million in March,
1997. The Company had $5.3 million of unused borrowing capacity under its
revolving credit facility on March 21, 1997. 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. On November 27, 1996, the Company acquired all of
the outstanding shares of Flynn Nurseries, Inc. for approximately $11.7 million.
In conjunction with these acquisitions and the nursery division's capital
expansion projects, on November 27, 1996, the Company issued an additional $20
million of cumulative 12 percent Senior redeemable Preferred Stock with warrants
to purchase 830,000 shares of the Company's common stock at an exercise price of
$.01 per share.
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
Senior Subordinated Notes. The Company's principal repayment schedule for the
$25.0 million term loan 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 with borrowings available under the revolving credit facility 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. In addition, 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
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<PAGE>
Agreement causing all amounts owing under the Bank Credit Agreement to become
immediately due and payable.
The Company's capital expenditures totaled $8.8 million for the fiscal year
ended December 31, 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 which the Company intends to
develop for its nursery products operations. The Company's capital expenditures
for 1997 are expected to be approximately $16.3 million which will be used for
the acquisition of the land currently being leased at the Fallbrook nursery
location, capacity expansion at certain of the nursery operations and other
maintenance type capital expenditures. These capital expenditures will be funded
from operating cash flow and borrowings under the revolving credit facility.
EFFECTS OF INFLATION
Management believes the Company's results of operations have not been
materially impacted by inflation over the past three years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information in response to this item is submitted as a separate section
of this Report on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
On October 28, 1996, Holdings dismissed Arthur Andersen LLP as its
independent accountants. The reports of Arthur Andersen LLP on the consolidated
financial statements for the past two fiscal years contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. Holdings' Audit Committee and Board of
Directors participated in and approved the decision to change independent
accountants. In connection with its audits for the two most recent fiscal years
and through October 28, 1996, there have been no disagreements with Arthur
Andersen LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Arthur Andersen LLP would have caused them to
make reference thereto in their report on the consolidated financial statements
for such years. During the two most recent fiscal years and through October 28,
1996, there have been no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)). Holdings has requested that Arthur Andersen LLP furnish
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<PAGE>
it with a letter addressed to the SEC stating whether or not it agrees with the
above statements. A copy of such letter, dated December 6, 1996, was filed as an
exhibit to the Company's Form 8-K/A dated December 9, 1996, and is filed as
Exhibit 16.1 to this Form 10-K.
Holdings engaged Price Waterhouse LLP as its new independent accountants as
of October 28, 1996. During the two most recent fiscal years and through October
28, 1996, Holdings has not consulted with Price Waterhouse LLP on items which
(1) were or should have been subject to SAS 50 or (2) concerned the subject
matter of a disagreement or reportable event with the former auditor (as
described in Regulation S-K Item 304(a)(2)).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is the name, age as of March 1, 1997, and a brief
account of the business experience of each person who is a director and
executive officer of Holdings. Such information is also provided with respect
to each director and executive officer of Hines Horticulture and Sun Gro-U.S.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Douglas D. Allen 54 Chairman of the Board of Hines Horticulture, Vice President
and Director of Holdings and Director of Sun Gro-U.S.
Stephen P. Thigpen 41 President and Chief Executive Officer and Director of Hines
Horticulture and Director of Holdings and Sun Gro-U.S.
Claudia M. Pieropan 41 Chief Financial Officer of Holdings, Hines Horticulture and
Sun Gro-U.S.
Paul R. Wood 43 Chairman of the Board and President of Holdings, Director,
Vice President and Assistant Secretary of Hines Horticulture
and Director, Vice President and Assistant Secretary of Sun
Gro-U.S.
Thomas R. Reusche 42 Director, Secretary and Treasurer of Holdings, Director, Vice
President and Assistant Secretary of Hines Horticulture and
Director, Vice President and Assistant Secretary of Sun Gro-U.S.
Gary J. Little 46 Director of Holdings, Hines Horticulture and Sun Gro-U.S.
David F. Mosher 41 Director of Holdings, Hines Horticulture and Sun Gro-U.S.
</TABLE>
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<PAGE>
The Board of Directors of each of Holdings, Hines Horticulture and Sun
Gro-U.S. presently consists of seven directors with one vacancy. All directors
hold their positions until the next annual meeting of shareholders and until
their respective successors are elected. Executive officers are elected by and
serve at the discretion of the Board of Directors. The directors of Holdings
have been elected in accordance with the terms of the Stockholders Agreement.
See Item 12, "Security Ownership of Certain Beneficial Owners and Management--
Stockholders Agreement."
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
MR. ALLEN has served as Chairman of the Board of Hines Horticulture since
September 1995 and as Vice President and a director of Holdings and as a
director of Sun Gro-U.S. and Hines Horticulture since August 1995. Prior to that
time, he served as President of Hines Horticulture from 1984 to August 1995.
Previously, Mr. Allen held positions within Weyerhaeuser's Paper Division as a
General Manager from 1975 to 1984 and as a Sales Manager from 1971 to 1975. He
has been a director of Hines Horticulture since 1990. He received his
undergraduate degree in business from Ball State University in 1964.
MR. THIGPEN has served as President, Chief Executive Officer of Hines
Horticulture since September 1995 and a director of Hines Horticulture, Holdings
and Sun Gro-U.S. since August 1995. Before that, he served as General Manager of
the Vacaville Nursery for Hines Horticulture from 1985 to August 1995 and as
Technical Resource Manager for Hines Horticulture from 1984 to 1985. Previously
Mr. Thigpen was Research and Development Program Manager with Weyerhaeuser's
Nursery Products Division from 1982 to 1984. Mr. Thigpen received his BS in
Plant & Soil Sciences from the University of Massachusetts in 1977. Mr. Thigpen
also received a Ph.D. in Plant Physiology from the University of California at
Davis in 1981.
MS. PIEROPAN has served as Chief Financial Officer of Holdings, Hines
Horticulture and Sun Gro-U.S. since January 1996, Vice President of Finance and
Administration of Sun Gro-U.S. since October 1991 and Secretary and Treasurer of
Sun Gro-U.S. since September 1995. Prior to that time, Ms. Pieropan spent 14
years with Price Waterhouse in Montreal, Toronto and Vancouver. Ms. Pieropan
received a Bachelor of Commerce--Accounting & Marketing in 1977 and a Graduate
Diploma in public accounting from McGill University, Montreal in 1979. She
received a Chartered Accountant Designation in Canada in 1979 and her CPA in the
state of Washington in 1994.
MR. WOOD has served as director and President of Holdings, a director of
Hines Horticulture and Vice President and a director of Sun Gro-U.S. since
August 1995 and as Chairman of the Board of Holdings, Vice President and
Assistant Secretary of Hines Horticulture and Assistant Secretary of Sun Gro-
U.S. since September 1995. Since its formation in January 1993, Mr. Wood has
served as a principal of MDCP and as Vice President of Madison Dearborn
Partners, Inc. ("MDP"), its indirect general partner. Prior to that time, Mr.
Wood served as Vice President of First Chicago Venture Capital, which comprised
the private equity investment activities of First Chicago
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<PAGE>
Corporation, the holding company parent of First National Bank of Chicago. Mr.
Wood serves on the board of directors of a number of private companies.
MR. REUSCHE has served as Secretary and Treasurer and a director of Holdings,
Assistant Secretary and a director of Hines Horticulture and Assistant Secretary
and a director of Sun Gro-U.S. since August 1995 and Vice President of Hines
Horticulture and Vice President of Sun Gro-U.S. since September 1995. Since its
formation in January 1993, Mr. Reusche has served as a principal of MDCP and
Vice President of MDP. Prior to that time, Mr. Reusche was a senior investment
manager at First Chicago Venture Capital. Mr. Reusche serves on the board of
directors of a number of private companies.
MR. LITTLE has served as a director of Holdings, Hines Horticulture and Sun
Gro-U.S. since August 1995. Since its formation in January 1993, Mr. Little has
served as a principal of MDCP and as Vice President of Finance of MDP. Prior to
that time, Mr. Little served as Vice President of Finance and Administration of
First Chicago Venture Capital.
MR. MOSHER has served as a director of Holdings, Hines Horticulture and Sun
Gro-U.S. since August 1995. Since its formation in January 1993, Mr. Mosher has
served as a principal of MDCP and as a Vice President of MDP. Prior to that
time, he served as an investment manager of First Chicago Venture Capital.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation of the Company's Chief
Executive Officer and the Company's four most highly compensated executive
officers as of December 31, 1996 (the "Named Executive Officers:") during the
three years ended December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION COMPENSATION (2)
--------------------- ------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1)
- --------------------------- ---- ------ ---------
<S> <C> <C> <C> <C>
Paul R. Wood 1996 - - -
Chief Executive Officer of Holdings 1995 - - -
1994 - - -
Douglas D. Allen 1996 $202,161 - $ 5,631
Vice President of Holdings 1995 $295,842 $361,920 $ 3,507
Chairman of the Board of Hines Horticulture 1994 $253,762 $107,397 $ 4,175
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Stephen R. Thigpen 1996 $210,135 $ 13,904 $ 5,861
President and Chief Executive Officer of Hines 1995 $181,221 $184,904 $ 2,108
Horticulture 1994 $128,147 $ 66,610 $ 2,231
Michael R. Crowe (3) 1996 $209,496 - $19,953
President of Sun Gro-U.S. in 1996 1995 $212,815 $ 81,938 $17,935
1994 $186,445 $ 31,048 $23,636
Claudia M. Pieropan 1996 $150,000 - $13,563
Chief Financial Officer of Holdings, Hines Horticulture 1995 $116,024 $ 31,907 $13,366
and Sun Gro-U.S. 1994 $100,204 $ 11,754 $14,646
- --------------
</TABLE>
(1) Represents annual incentive compensation paid during the calendar year.
(2) Represents (i) the dollar value of premiums paid by the Company with
respect to health and term life insurance, (ii) the leased value of Company
automobiles attributable to personal use by the Named Executive Officer,
(iii) a one-time gain on the sale of a Company automobile purchased by Mr.
Crowe from the Company upon lease expiration, and (iv) contributions on
behalf of Mr. Crowe and Ms. Pieropan under Sun Gro-U.S.'s 401(k) Plan.
(3) Mr. Crowe departed from the Company effective February 17, 1997.
PENSION PLAN
The Company's defined benefit plan, the Sun Gro Horticulture Inc. U.S.
Executive Supplemental Retirement Plan (the "Pension Plan"), covers only senior
management of Sun Gro. The following table shows the estimated annual pension
benefits payable to a covered participant upon normal retirement at age 65 under
the Pension Plan based on the remuneration that is covered under the Pension
Plan and years of service:
<TABLE>
<CAPTION>
Pension Plan Table
Annual
------
Remuneration Years Of Qualifying Service
- ------------ ------------------------------------------------
15 20 25 30 35
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$150,000 $ 40,871 $ 54,494 $ 68,118 $ 68,118 $ 68,118
200,000 55,871 74,494 93,118 93,118 93,118
250,000 70,871 94,494 118,118 118,118 118,118
300,000 85,871 114,494 143,118 143,118 143,118
400,000 115,871 154,494 193,118 193,118 193,118
</TABLE>
Of the Named Executive Officers, Mr. Crowe, who resigned as an officer
and director of the Company and its subsidiaries effective February 17, 1997, is
the only participant in the Pension Plan. Mr. Crowe had 11.5 years of credited
service on December 31, 1996. Benefits under
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<PAGE>
the Pension Plan are calculated based on 2% of the participants' final average
salary multiplied by the years of qualifying service, up to a maximum of 50% of
final average salary, reduced by certain specified offsets.
BONUS PLANS
The Company has two bonus plans, the Hines Horticulture, Inc. Executive
Variable Compensation Plan (the "Hines Bonus Plan") and the Sun Gro Horticulture
Inc. Executive Bonus Plan (the "Sun Gro Bonus Plan"). Bonuses under these plans
are designed to be a significant portion of the management team's compensation.
The plans are directly tied to operating cash flows (defined as earnings before
interest, taxes, depreciation and amortization and after maintenance capital
expenditures and certain changes in working capital). The Hines Bonus Plan
provides for a compensation pool equivalent to 6.7% of operating cash flows of
Hines for each fiscal year. The Sun Gro Bonus Plan provides for a compensation
pool equivalent to 4% of operating cash flows of Sun Gro for each fiscal year.
EMPLOYMENT AGREEMENTS
The Company and each of Messrs. Allen, Thigpen and Crowe and Ms. Pieropan
are parties to employment agreements (the "Employment Agreements"). The
Employment Agreements provide that the executives shall devote full time (half
time in the case of Mr. Allen) attention, skill and ability to discharge the
duties assigned and to use their best efforts to promote and protect the
interests of the Company. Except for the Employment Agreement with Mr. Allen
which is terminable "at will" by Mr. Allen but not by the Company, the
Employment Agreements are terminable by each of the respective parties thereto
at any time, for any reason and with or without cause, upon 30 days' advance
written notice. The Employment Agreements provide, among other things, for an
annual base salary, an annual cash bonus in an amount determined by the Board of
Directors and certain other benefits. If any such executive's employment is
terminated for any reason, other than for cause, death or the executive's
voluntary "at-will" termination, the executive will receive the following: (i)
in the case of Mr. Allen, he will receive an amount equal to his annual base
salary multiplied by 230%, plus a pro rata share of his bonus for the fiscal
year in which such termination occurs, and (ii) in the case of each of Messrs.
Thigpen and Crowe and Ms. Pieropan, the executive will receive an amount equal
to their annual base salary multiplied by 200%, plus a pro rata share of their
bonus for the fiscal year in which such termination occurs. On March 20, 1997,
Sun Gro-U.S. paid Mr. Crowe $418,992 in connection with his departure from the
Company.
COMPENSATION OF DIRECTORS
During 1996, the directors received no compensation for serving as
directors. However, all directors were reimbursed for all travel-related
expenses incurred in connection with their activities as directors.
- 23 -
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
Wood, Reusche and Allen. Messrs. Wood and Reusche each serve as principals of
MDCP and Vice Presidents of MDP. MDCP holds, of record, and beneficially in
excess of 5% of each class of the Company's equity securities.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as to the beneficial
ownership of Holdings's Junior Preferred Stock and Common Stock as of March 1,
1997 by (i) each person known to Holdings and the Company to own beneficially 5%
or more of the Common Stock or Junior Preferred Stock, (ii) each director and
Named Executive Officer of the Company and (iii) all executive officers and
directors of the Company as a group. The holders of the Junior Preferred Stock
have the right to vote together with the Common Stock on a one vote per share
basis in the election of directors.
- 24 -
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership(1)
-----------------------------------------------------
Number of Number of
Shares of Shares of
Junior Percent Common Percent
Beneficial Owner Preferred of Class Stock of Class
------------------------------------------------------ ---------- -------- --------- --------
<S> <C> <C> <C> <C>
Madison Dearborn Capital Partners, L.P./2/ 16,383,050 79.9% 7,864,950 71.1%
California State Teachers' Retirement System -- -- 705,500 6.4%
Douglas D. Allen 278,942 1.4% 171,058 1.5%
Stephen P. Thigpen 433,910 2.1% 266,090 2.4%
Claudia M. Pieropan 111,577 * 68,423 *
Paul R. Wood(2) -- -- -- --
Thomas R. Reusche(2) -- -- -- --
David F. Mosher(2) -- -- -- --
Gary J. Little(2) -- -- -- --
All Executive Officers and Directors as a Group
(7 persons) 824,429 4.0% 505,571 4.6%
</TABLE>
_______________
* Denotes less than one percent.
(1) "Beneficial owner" generally means any person who, directly or indirectly,
has or shares voting power or investment power with respect to a security
All of the stockholders of Holdings are party to the Stockholders
Agreement, pursuant to which such stockholders have agreed to vote their
shares in the election of directors in accordance with the terms of the
Stockholders Agreement. The number of shares indicated in this table does
not include the shares of Junior Preferred Stock or the shares of Common
Stock that are held by other stockholders subject to the Stockholders
Agreement. See "Stockholders Agreement." Unless otherwise indicated, the
Company believes that, except with regard to the provisions in the
Stockholders Agreement, each stockholder has sole voting and investment
power with regard to shares listed as beneficially owned by such
stockholder.
(2) The address of Madison Dearborn Capital Partners, L.P. and Messrs. Wood,
Reusche, Mosher and Little is Three First National Plaza, Suite 1330,
Chicago, Illinois 60602. Messrs. Wood, Reusche, Mosher and Little are
executive officers of Madison Dearborn Partners, Inc., the general partner
of Madison Dearborn Partners, L.P., the general partner of MDCP, and
therefore may be deemed to share voting and investment power over the
shares owned by MDCP and therefore to beneficially own such shares.
25
<PAGE>
(3) The address of the California State Teachers' Retirement System is c/o
Abbott Capital Management, 1130 Avenue of the Americas, Suite 2800, New
York, New York 10019.
STOCKHOLDERS AGREEMENT
The Management Stockholders and MDCP, who together hold all of the voting
stock of Holdings, are parties to a Stockholders Agreement dated August 4, 1995
(as subsequently amended, the "Stockholders Agreement"). Pursuant to the
Stockholders Agreement, the disposition and voting of the shares of Junior
Preferred Stock and Common Stock of Holdings held by the Management Stockholders
is restricted. MDCP and the Management Stockholders have agreed to vote their
shares to elect a board of seven directors of Holdings, consisting of four
directors designated by MDCP and three directors who shall be members of
management. The Stockholders Agreement also contains (i) certain "co-sale"
rights exercisable by the Management Stockholders in the event of certain sales
by MDCP of Junior Preferred Stock or Common Stock, (ii) certain "drag along"
sale rights exercisable by MDCP in the event of certain "approved sales" and
(iii) certain "piggyback" registration rights in the case of primary and
secondary offerings. The restrictions on disposition and voting and the co-sale
and drag along rights will terminate upon the occurrence of a public offering
registered under the Securities Act of Common Stock having an aggregate value of
$30.0 million and a per share price of at least three times the original cost of
the Common Stock to the Management Stockholders, except that the voting
restrictions may terminate sooner on the earlier of the tenth anniversary of the
date of the Stockholders Agreement or such time as MDCP, together with its
partners and affiliates, hold less than 30% of the Junior Preferred Stock and
Common Stock held by MDCP on the date of the Stockholders Agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTIES.
ISSUANCE OF COMMON STOCK AND PREFERRED STOCK
On November 27, 1996, MDCP, the record owner of more than 5% of (i)
Holdings' Common Stock, (ii) Holdings' 12% Cumulative Redeemable Senior
Preferred Stock ("Class A Preferred") and (iii) Holdings' 12% Cumulative
Redeemable Junior Preferred Stock, purchased 2,000 shares of Class A Preferred
and warrants to purchase 83,000 shares of Common Stock for an aggregate
purchase price of $2,000,000. This purchase by MDCP was on the same terms and
subject to the same conditions as the sale of Class A Preferred and warrants to
purchase Common Stock to other unaffiliated persons. See Item 5, Market for the
Registrant's Common Equity and Related Stockholder Matters.
26
<PAGE>
BLOOMING FARM TRANSACTIONS
On August 4, 1995, Oregon Garden Products ("OGP"), a then wholly-owned
subsidiary of Hines Horticulture which was subsequently merged into Hines
Horticulture, acquired the assets of Gales Creek Nurseries, L.P., a Delaware
limited partnership ("GCN"), including in excess of 640 acres of agricultural
land. Under applicable Federal Reclamation law, however, Hines Horticulture and
its affiliates were eligible to receive federal water for only 640 net irrigable
acres. Accordingly, MDCP and the senior management stockholders of Holdings
formed Blooming Farm, Inc., a Delaware corporation ("Blooming Farm"), which is
not an affiliate of Hines Horticulture under applicable Federal Reclamation law,
to hold title to approximately 290 acres of the GCN property. The stock of
Blooming Farm held by MDCP and the senior management stockholders of Holdings is
held in direct proportion to their stock ownership of Holdings at that time.
Simultaneously with the acquisition of assets of GCN by OGP, OGP sold to
Blooming Farm approximately 290 acres of the agricultural land it acquired from
GCN. As payment in full for such land, Blooming Farm issued a secured five-year
amortizing promissory note to OGP in the amount of $826,625. Blooming Farm and
OGP then entered into a five year Agricultural Lease pursuant to which Blooming
Farm currently leases the property to Hines Horticulture (as successor-in-
interest to OGP). Hines Horticulture subsequently pledged the note and security
instruments to BT Commercial Corporation as security under the Bank Credit
Agreement.
In June 1996, Hines Horticulture discovered that approximately 53 acres
of land purchased from GCN had inadvertently not been disclosed on the Federal
Reclamation forms it had filed. As this additional land caused Hines
Horticulture to be over the 640 acre net irrigable acre limit, on June 21, 1996,
Hines Horticulture sold the 53 acres of agricultural land to Blooming Farm in
exchange for a secured five-year amortizing Promissory Note in the amount of
$151,050. Blooming Farm and Hines Horticulture then entered into a five year
Agricultural Lease pursuant to which Blooming Farm currently leases the property
to Hines Horticulture. Hines Horticulture subsequently pledged the note and
security instruments as security under the Bank Credit Agreement.
The Company's management believes that the terms of the sale-leaseback
transactions with Blooming Farm are at market rates and are at least as
favorable as those which could be negotiated with an unaffiliated third party.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. The financial statements listed in "Index to Financial
Statements."
2. The exhibits listed in "Index to Exhibits."
(b) Reports on Form 8-K.
On November 1, 1996, the Registrant filed a Current Report on Form
8-K dated October 28, 1996 stating that effective October 28,
1996, Holdings had engaged the independent accounting firm of
Price Waterhouse LLP to serve as its independent auditors. Price
Waterhouse LLP had served as the independent auditors of Sun Gro-
U.S. and Sun Gro-Canada since July 1993. Price Waterhouse LLP
replaced Arthur Andersen LLP, which had served as the independent
auditors of Holdings and Hines Horticulture since July 1990. There
were no material disagreements with Arthur Andersen LLP with
respect to the Company's accounting policies.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly cause this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 26, 1997.
HINES HOLDINGS, INC.
By: /s/ Paul R. Wood
------------------------
Paul R. Wood
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person on behalf of the
registrant in the capacities indicated on March 26, 1997.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ Paul R. Wood President and Director (principal executive officer)
- -------------------------
Paul R. Wood
/s/ Claudia M. Pieropan Chief Financial Officer (principal financial and
- ------------------------- accounting officer)
Claudia M. Pieropan
/s/ Thomas R. Reusche Secretary, Treasurer and Director
- -------------------------
Thomas R. Reusche
/s/ Douglas D. Allen Vice President and Director
- -------------------------
Douglas D. Allen
/s/ Stephen P. Thigpen Director
- -------------------------
Stephen P. Thigpen
/s/ David F. Mosher Director
- -------------------------
David F. Mosher
/s/ Gary J. Little Director
- -------------------------
Gary J. Little
</TABLE>
29
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
The registrant has not sent an annual report or proxy material to its
security holders during the period covered by this report.
30
<PAGE>
HINES HOLDINGS, INC. and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------------
<S> <C>
Report of Independent Accountants - Year Ended
December 31, 1996 - Price Waterhouse LLP F - 2
Report of Independent Public Accountants - Years Ended
December 31, 1994 and 1995 - Arthur Andersen LLP F - 3
Consolidated Balance Sheets as of December 31, 1995 and 1996 F - 4
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996 F - 6
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1994, 1995 and 1996 F - 7
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 F - 8
Notes to Consolidated Financial Statements as of
December 31, 1994, 1995 and 1996 F - 9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors
and Shareholders of
Hines Holdings, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of Hines
Holdings, Inc. and its subsidiaries at December 31, 1996, and the results of
their operations and their cash flows for the year in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Costa Mesa, California
March 19, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors of
Hines Holdings, Inc.
We have audited the accompanying consolidated balance sheets of HINES HOLDINGS,
INC. and subsidiaries as of December 31, 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1995. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Sun Gro Horticulture Inc., which statements reflect
assets and revenues of 50 and 53 percent, respectively, of the consolidated
totals at December 31, 1994 and assets and revenues of 39 and 44 percent,
respectively, at December 31, 1995. Those statements were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to the amounts included for that entity, is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Hines Holdings, Inc. and subsidiaries as of December
31, 1995, and the results of their operations and their cash flows for each of
the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
April 5, 1996
F-3
<PAGE>
HINES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
------
1995 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 181 $ 631
Accounts receivable, net of allowance for
doubtful accounts of $1,165 and $1,019 14,645 15,644
Inventories 76,894 95,224
Prepaid expenses and other current assets 2,846 3,177
-------- ---------
Total current assets 94,566 114,676
-------- ---------
FIXED ASSETS, net of accumulated depreciation
and depletion of $8,962 and $14,169 74,064 81,870
-------- ---------
DEFERRED FINANCING EXPENSES, net of
accumulated amortization of $295 and $1,235 7,039 6,352
-------- ---------
OTHER ASSETS - 613
-------- ---------
GOODWILL 12,875 24,581
-------- ---------
$188,544 $228,092
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 4
<PAGE>
HINES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1996
(Dollars in thousands except share data)
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 6,453 $ 7,875
Accrued liabilities 9,028 5,358
Accrued payroll and benefits 2,537 5,957
Long-term debt, current portion 4,058 4,897
Revolving line of credit 12,693 29,357
Deferred income taxes 16,342 31,402
Other liabilities 630 269
-------- --------
Total current liabilities 51,741 85,115
-------- --------
LONG-TERM DEBT 157,742 152,769
-------- --------
DEFERRED INCOME TAXES 15,399 6,006
-------- --------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE REDEEMABLE SENIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share;
liquidation preference of $1,000 per share; 30,000
shares authorized; 10,000 and 30,000 shares issued 10,487 30,921
at December 31, 1995 and 1996
CUMULATIVE REDEEMABLE JUNIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share;
liquidation preference of $1 per share; 22,000,000
shares authorized; 20,000,000 and 20,498,816
shares issued at December 31, 1995 and 1996 20,973 23,989
SHAREHOLDERS' DEFICIT
Common Stock
Authorized - 30,000,000 shares $.01 par value;
Issued and outstanding - 10,000,000 and
10,226,184 shares at December 31, 1995 and 1996 100 102
Additional paid-in capital 8,440 5,600
Deficit (76,338) (76,410)
-------- --------
Total shareholders' deficit (67,798) (70,708)
-------- --------
$188,544 $228,092
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HINES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
SALES, NET $134,781 $156,909 $164,323
COST OF GOODS SOLD 60,827 72,245 80,812
-------- -------- --------
Gross Profit 73,954 84,664 83,511
-------- -------- --------
SELLING AND DISTRIBUTION EXPENSES 36,789 39,904 43,308
GENERAL AND ADMINISTRATIVE EXPENSES 13,102 17,467 18,239
OTHER OPERATING EXPENSES (INCOME) 383 1,021 (790)
UNUSUAL EXPENSES - - 830
-------- -------- --------
Total operating expenses 50,274 58,392 61,587
-------- -------- --------
Operating income 23,680 26,272 21,924
-------- -------- --------
OTHER EXPENSES:
Interest 7,555 13,274 20,140
Amortization of deferred financing expenses 1,069 4,557 940
Miscellaneous expense 798 - -
-------- -------- --------
9,422 17,831 21,080
-------- -------- --------
Income before provision for income taxes, minority
interest, income from discontinued operations and
extraordinary loss 14,258 8,441 844
PROVISION FOR INCOME TAXES 3,635 2,850 636
-------- -------- --------
Income before minority interest, income from
discontinued operations and extraordinary loss 10,623 5,591 208
MINORITY INTEREST IN EARNINGS OF
SUBSIDIARIES 2,740 3,958 -
-------- -------- --------
Income before income from discontinued
operations and extraordinary loss 7,883 1,633 208
INCOME FROM DISCONTINUED
OPERATIONS, net of tax (26) (3,307) -
-------- -------- --------
Income before extraordinary loss 7,909 4,940 208
EXTRAORDINARY LOSS, net of tax 2,487 2,513 -
-------- -------- --------
NET INCOME 5,422 2,427 208
Less: Preferred stock dividends - (1,460) (3,775)
-------- -------- --------
NET INCOME (LOSS) applicable to common stock $5,422 $967 ($3,567)
======== ======== ========
Net income (loss) per common share:
Income (loss) before income from discontinued
operations and extraordinary loss $0.04 ($0.35)
Extraordinary loss (0.60) -
Income from discontinued operations 0.79 -
-------- --------
Net income (loss) per common share $0.23 ($0.35)
======== ========
Weighted average shares outstanding 4,166,667 10,125,841
========= ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
HINES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1994, 1995 and 1996
(Dollars in thousands except for share data)
<TABLE>
<CAPTION>
Common stock
no par value Common Stock-A Common Stock-B
------------------- ------------------ ------------------- Additional Retained Shareholders'
Number of Number of Number of Paid-In Earnings Equity
Shares Amount Shares Amount Shares Amount Capital (Deficit) (Deficit)
--------- ------- --------- ------ ---------- ------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 360 $3,600 -- $ -- -- $ -- $433 $8,475 $12,508
Dividends paid -- -- -- -- -- -- -- (8,000) (8,000)
Net income -- -- -- -- -- -- -- 5,422 5,422
------- -------- ------- ------ ---------- ---- ------ --------- --------
BALANCE, December 31, 1994 360 3,600 -- -- -- -- 433 5,897 9,930
------- -------- ------- ------ ---------- ---- ------ --------- --------
Exchange of common stock
for minority interests -- -- 684,783 32 24,709,622 247 27,674 -- 27,953
Merger transactions -- -- -- -- 1,000 -- 1 -- 1
Repurchase and retirement
of stock (360) (3,600) (684,783) (32) -- -- (3,644) (84,662) (91,938)
Cumulative undeclared
dividends -- -- -- -- -- -- (1,460) -- (1,460)
Exchange of common stock
for preferred stock -- -- -- -- (14,710,622) (147) (14,564) -- (14,711)
Net income -- -- -- -- -- -- -- 2,427 2,427
------- -------- ------- ------ ---------- ---- ------ --------- --------
BALANCE, December 31, 1995 -- -- -- -- 10,000,000 100 8,440 (76,338) (67,798)
------- -------- ------- ------ ---------- ---- ------ --------- --------
Issuance of stock -- -- -- -- 283,360 3 168 -- 171
Redemption of stock -- -- -- -- (57,176) (1) (57) -- (58)
Additional cost of
repurchase and
retirement of stock -- -- -- -- -- -- -- (280) (280)
Cumulative undeclared
dividends -- -- -- -- -- -- (3,775) -- (3,775)
Issuance of warrants, net
of discount -- -- -- -- -- -- 824 -- 824
Net income -- -- -- -- -- -- -- 208 208
------- -------- ------- ------ ---------- ---- ------ --------- --------
BALANCE, December 31, 1996 -- $ -- -- $ -- 10,226,184 $102 $5,600 ($76,410) ($70,708)
======= ======== ======= ====== ========== ==== ====== ========= ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-7
<PAGE>
HINES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,422 $ 2,427 $ 208
Adjustments to reconcile net income to
net cash provided by (used in) operating activities -
Depreciation, depletion and amortization 3,631 8,385 5,902
Write-off of deferred financing costs 3,927 3,993 -
Currency remeasurement (gain) loss on
Canadian term debt (1,275) 462 -
Minority interest in earnings of subsidiaries 2,740 3,958 -
Gain on sale of discontinued operations - (4,871) -
Deferred income taxes 614 3,942 508
Other 171 21 525
--------- -------- ---------
15,230 18,317 7,143
CHANGE IN WORKING CAPITAL ACCOUNTS:
Accounts receivable 6,277 836 824
Inventories 4,775 (8,605) (4,270)
Prepaid expenses and other assets (3,138) 1,169 (815)
Net assets of discontinued operations (5,544) - -
Other assets - - (577)
Accounts payable and accrued liabilities (880) (951) (3,500)
Other liabilities 1,630 (1,000) (361)
-------- -------- --------
Net cash provided by (used in) operating activities 18,350 9,766 (1,556)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (7,389) (7,684) (8,752)
Proceeds from sales of fixed assets 491 1,417 175
Acquisitions, net of cash acquired (686) (3,498) (21,915)
-------- -------- ---------
Net cash used in investing activities (7,584) (9,765) (30,492)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 13,778 77,911 202,785
Repayments on revolving line of credit (23,309) (83,596) (186,121)
Proceeds from the issuance of long-term debt 39,800 255,000 -
Repayments of long-term debt (43,746) (160,567) (4,209)
Proceeds from other financing arrangements 11,246 - -
Deferred financing costs (1,203) (9,833) (253)
Dividends paid (8,000) - -
Currency swap break fees - (1,030)
Repurchase and retirement of stock - (91,938) (280)
Issuance of preferred and common stock - 11,673 20,612
Other (1,160) (90) (36)
-------- ------- --------
Net cash provided by (used in) financing activities (12,594) (2,470) 32,498
-------- -------- --------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,828) (2,469) 450
CASH AND CASH EQUIVALENTS, beginning of year 4,478 2,650 181
-------- -------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 2,650 $ 181 $ 631
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE>
HINES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1. COMPANY BACKGROUND AND ORGANIZATION
DESCRIPTION OF BUSINESS
Hines Holdings, Inc. (Holdings) 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."
Hines is a national supplier of ornamental, container-grown plants with nursery
facilities located in California, Oregon, Texas and South Carolina. Hines
markets its products to retail customers in North America.
Sun Gro produces, markets and distributes a range of peat-based horticulture
products for both retail and professional customers. Sun Gro markets its
products in North America and various international market areas. Manufacturing
is conducted in facilities located in Canada and the United States.
ACQUISITIONS
FLYNN NURSERIES
On November 27, 1996, Hines acquired all of the issued and outstanding shares of
Flynn Nurseries, Inc. (Flynn) for $11.7 million. The acquisition was accounted
for using the purchase method. The purchase price allocation is summarized as
follows:
F-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Cash $ 39
Accounts receivable 642
Inventories 11,644
Prepaid expenses 48
Fixed assets 3,162
Goodwill 5,279
Accounts payable and accrued liabilities (3,981)
Long-term debt (16)
Deferred tax liability - non-current (5,164)
-------
Total purchase price $11,653
-------
</TABLE>
Iverson Perennial Gardens
-------------------------
On August 30, 1996, Hines acquired certain assets and assumed certain
liabilities of Iverson Perennial Gardens, Inc. (Iverson) for $10.3 million. The
acquisition was accounted for using the purchase method. The purchase price
allocation is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 1,181
Inventories 2,416
Prepaid expenses 40
Fixed assets 1,296
Goodwill 6,114
Accounts payable and accrued liabilities (691)
Long-term debt (55)
-------
Total purchase price $10,301
-------
</TABLE>
Oregon Garden Products
----------------------
On January 27, 1995, Hines acquired certain assets and assumed certain
liabilities of Oregon Garden Products (OGP) for $17.6 million. The acquisition
was accounted for using the purchase method. The purchase price allocation is
summarized as follows:
F-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Cash and short-term deposits $ 2
Accounts receivable 1,103
Inventories 16,131
Fixed assets 1,690
Deferred financing expenses and other 854
Deferred tax asset-non-current 1,215
Accounts payable and accrued liabilities (2,198)
Deferred tax liability-current (1,215)
-------
Total purchase price $17,582
-------
</TABLE>
The consolidated financial statements reflect the operations of Flynn, Iverson
and OGP since the date of their acquisition. The following is a summary of the
condensed consolidated unaudited pro forma results of operations for the years
ended December 31, 1995 and 1996, as if the acquisitions had occurred on January
1, 1995 and January 1, 1996, respectively:
<TABLE>
<CAPTION>
December 31
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net sales $177,624 $185,857
Income before income from
discontinued operations and
extraordinary loss $ 1,344 $ 77
Net income $ 2,138 $ 77
Loss before income from discontinued
operations and extraordinary
loss per common share $ (0.03) $ (0.37)
Net income (loss) per common share $ 0.16 $ (0.37)
</TABLE>
Earnings per share are computed by dividing the pro forma net income for each
respective year, after deduction for preferred dividends of $1,460 and $3,775
for the years ended December 31, 1995 and 1996, respectively, by the weighted
average shares outstanding.
Shareholder Transaction
-----------------------
On August 4, 1995, Madison Dearborn Capital Partners, L.P. (MDCP) and certain
members of management who were minority shareholders of Hines and its
subsidiaries (the Management Shareholders) became owners of Holdings in a
transaction in connection with which (i) Hines, Sun Gro-U.S. and Sun Gro-Canada
first each became wholly-owned (direct or indirect) subsidiaries of the Company
through the exchange by the Management Shareholders and other investors of their
minority interests therein for stock of the Company, (ii) MDCP and the
Management Shareholders became the sole shareholders of Holdings through a
merger in which the shareholders of the Company (other than the Management
Shareholders) exchanged their shares for cash, (iii) certain assets were sold to
or acquired from entities owned by certain of the current and/or former
shareholders of
F-11
<PAGE>
the Company and (iv) Hines, Sun Gro-U.S. and Sun Gro-Canada incurred $35.8
million of indebtedness under the Bank Credit Agreement and Hines incurred $110
million of indebtedness under the Senior Subordinated Credit Facility, which
indebtedness together with MDCP's equity investment was used to pay off certain
existing indebtedness of the Company, to pay the consideration owing to the
shareholders of the Company who exchanged their shares for cash in the merger,
and to pay related fees and expenses.
The transaction was accomplished by the Management Shareholders and certain
other investors exchanging their stock in Hines and certain of its subsidiaries
for stock in Holdings, followed by the merger of a newly formed company (in
which MDCP was the sole shareholder) into the Company. In the merger, the
shareholders of Holdings other than the Management Shareholders received cash
for their stock, and MDCP and the Management Shareholders became the sole
shareholders of Holdings. Immediately following the merger, the Management
Shareholders exchanged a portion of their stock in the Company with MDCP for
cash.
The financial statements for the year ended December 31, 1995 reflect purchase
accounting for the exchange by the Management Shareholders and other investors
of their minority interests for stock of Holdings. The repurchase by Holdings of
its own stock from shareholders (other than the Management Shareholders) was
recorded as a repurchase and retirement of treasury stock.
The allocation of the purchase price of the minority interests acquired resulted
in goodwill of $14.7 million which is being amortized over a 35-year period. The
purchase price allocation was pushed down to the separate financial statements
of the subsidiary to which the minority interest related.
On October 19, 1995, Hines refinanced the $110 million indebtedness under the
Senior Subordinated Credit Facility discussed above and reduced the balance
outstanding on its revolving lines of credit by issuing $120 million of Senior
Subordinated Notes due in 2005.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Holdings and its
wholly-owned subsidiaries Hines and Sun Gro including Sun Gro's wholly-owned
subsidiary, Sun Gro-Canada. All material intercompany accounts and transactions
have been eliminated in consolidation.
F-12
<PAGE>
CASH AND CASH EQUIVALENTS
During the year ended December 31, 1994, the Company invested in highly liquid
investments with original maturities of three months or less, which are
considered to be cash equivalents for purposes of the Consolidated Statements of
Cash Flows.
REVENUE RECOGNITION
The Company recognizes revenue upon product shipment to the customer. The
Company is subject to credit risk primarily through trade receivables. Credit
risk on trade receivables is minimized as a result of the large and diverse
nature of the Company's customer base throughout North America. The Company does
not require collateral for its accounts receivable. Certain customers are
granted deferred payment terms (dating). At December 31, 1995 and 1996,
significant amounts of accounts receivable are subject to dating terms.
DEPRECIATION AND DEPLETION
Fixed assets are stated at cost. Depreciation has been provided for on a
straight-line basis over the following estimated economic useful lives:
Buildings 20 to 60 years
Machinery and equipment 2 to 25 years
Vehicles and trailers 2 to 15 years
Furniture and fixtures 5 years
Bog depletion is based on the volume of peat produced during the year at rates
which will amortize the bog acquisition costs, as well as the initial bog
clearing and development costs, over the period of production of peat from the
bog.
AMORTIZATION OF DEFERRED FINANCING EXPENSES
Deferred financing expenses are being amortized using a method which
approximates the effective interest method over the term of the associated
financing agreements.
GOODWILL AND NEGATIVE GOODWILL
In connection with its acquisition of Hines, the Company recorded $6.1 million
of negative goodwill. Negative goodwill equals the excess of the fair market
value of the acquired net assets over the acquisition purchase price after
reducing the amount allocated to the fixed assets acquired to zero. The Company
is amortizing negative goodwill on a straight-line basis as a component of other
operating expenses over the period from June 29, 1990 to December 31, 1997.
F-13
<PAGE>
In connection with the acquisition of the interests of minority shareholders for
stock in the Company, approximately $14.7 million of goodwill was recorded and
is being amortized over a 35-year period as a component of other operating
expenses.
In connection with the acquisitions of Flynn and Iverson, the Company recorded
$11.4 million of goodwill which is being amortized over a 35-year period as a
component of other operating expenses.
At each balance sheet date, the Company reviews the recoverability of intangible
assets by comparing projected operating income on an undiscounted basis to the
net book value of the related assets.
Impairment of Long Lived Assets
-------------------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets" (SFAS
121) in 1996. Under the provisions of SFAS 121, the Company reviews the
recoverability of long-lived and intangible assets by comparing cash flows on an
undiscounted basis to the net book value of the assets. In the event the
projected undiscounted cash flows are less than the net book value of the
assets, the carrying value of the assets will be written-down to their fair
value. Adopting SFAS 121 in 1996 had no effect on the Company's financial
statements.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Hines' nursery stock has an average growing period of approximately eighteen
months. The nursery stock is classified as a current asset based on Hines'
normal operating cycle.
Foreign Currency Translation
----------------------------
The Company considers the U.S. dollar to be the functional currency of Sun Gro's
Canadian operations. Monetary assets and liabilities are translated at the
foreign exchange rate in effect as of the balance sheet date. Non-monetary
assets and liabilities are translated at historical rates and revenues and
expenses at average exchange rates for the period.
Income Taxes
------------
Hines' operations are agricultural in nature. Hines reports its results for
income tax purposes on the cash basis.
The Company accounts for income taxes using an asset and liability approach
which requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement and tax bases of assets and liabilities at the applicable enacted tax
rates. A valuation allowance is provided
F-14
<PAGE>
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized.
Derivatives
-----------
Gains and losses related to qualifying hedges of firm commitments or anticipated
transactions are deferred and are recognized in income when the hedge
transaction occurs. Gains or losses on forward foreign currency exchange
contracts that do not qualify as hedges are recognized currently and are
included as a component of other operating expenses in the consolidated
statements of income.
Advertising
-----------
The Company expenses advertising costs at the time the advertising first takes
place. Advertising expense was $1,374, $1,544 and $1,658 for the years ended
December 31, 1994, 1995 and 1996, respectively.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share are computed by dividing the net income (loss), after
deduction for preferred dividends, by the weighted average shares outstanding.
Fully-diluted earnings per share is not presented in 1996 since inclusion of the
outstanding warrants would be anti-dilutive.
The Company's common stock was held by a limited number of stockholders until
August 4, 1995, at which time a significant change in capital occurred.
Earnings per share is not presented in 1994 as the information is not considered
to be comparable. Additionally, for purposes of calculating earnings per share
for 1995, the weighted average number of shares excludes the effect of the
shares outstanding prior to August 1995.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform with current year
presentations.
F-15
<PAGE>
3. Inventories
-----------
As of December 31, 1995 and 1996, inventories consist of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1995 1996
-------- -------
<S> <C> <C>
Nursery stock $65,696 $85,611
Finished goods 5,686 2,975
Materials and supplies 5,512 6,638
------- -------
$76,894 $95,224
------- -------
</TABLE>
4. Fixed Assets
------------
As of December 31, 1995 and 1996, fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1995 1996
------- -------
<S> <C> <C>
Land and land improvements $ 4,418 $ 8,959
Peat reserves and bog costs 48,640 48,887
Buildings 8,931 12,690
Machinery and equipment 18,526 22,785
Construction in process 2,511 2,718
------- -------
83,026 96,039
Less-Accumulated depreciation
and depletion 8,962 14,169
------- -------
$74,064 $81,870
------- -------
</TABLE>
5. Financial Instruments and Risk Management
-----------------------------------------
Sun Gro has entered into forward exchange contracts and options for hedging
future anticipated expenses denominated in Canadian dollars. As of December 31,
1996, Sun Gro holds American style call options totalling $29,700 Cdn., each in
the amount of $3,300 Cdn. per month expiring at the end of each month with the
last one expiring on September 30, 1997. The premium paid was $264 U.S. which is
being amortized over the life of the hedged transactions. As of December 31,
1995, Sun Gro held an American style call option for $25,000 Cdn. The premium
paid was $708 U.S. which was being amortized over the life of the hedged
transactions. On June 20, 1996, Sun Gro sold the unexercised balance of this
option of $12,000 for proceeds of $364 U.S., and recorded a gain of $158 U.S.
representing the excess of the proceeds over the unamortized premium.
Amortization expense was $354 and $363 for the years ended December 31, 1995 and
1996, respectively.
F-16
<PAGE>
As of December 31, 1995 Sun Gro had forward foreign exchange purchase contracts
totaling $4,000. These foreign exchange contracts represented U.S. dollar
equivalents of commitments to purchase Canadian currency. These contracts had
terms through March of 1996. Sun Gro records market adjustments for its forward
foreign exchange contracts as foreign exchange gains or losses as they do not
qualify as hedges for financial reporting purposes. As of December 31, 1995 and
1996, Sun Gro had no "sell" positions of U.S. dollars for foreign currency.
6. Revolving Lines of Credit
-------------------------
On August 4, 1995, the Company terminated its previous revolving loan agreements
and entered into a new agreement. The new agreement, as amended on November 14,
1996, provides a line of credit equal to the lesser of $60 million or a
percentage of accounts receivable and inventory balances as stipulated in the
agreement. Borrowings under this line bear interest at rates approximating the
U.S. prime rate plus 1.5 percent or the Eurodollar rate plus 2.5 percent. The
line of credit is secured by substantially all of the assets and common stock of
Hines and Sun Gro-U.S. as well as a pledge of 66% of the common stock of Sun
Gro-Canada. The agreement contains covenants which, among other matters,
establish minimum interest coverage and maximum leverage ratios and minimum
earnings and maximum capital expenditure amounts. The average daily amount of
the unused portion of the line of credit is subject to a commitment fee of 0.5
percent per annum. The line of credit expires on December 31, 2000.
The weighted average borrowings outstanding under the Company's revolving lines
of credit during 1994, 1995 and 1996 were approximately $20,673, $22,503 and
$21,756, respectively. The weighted average interest rates at December 31,
1994, 1995 and 1996 were approximately 9.2 percent, 10.1 percent and 9.0
percent, respectively.
7. Long-term Debt
--------------
Outstanding Principal Amounts
-----------------------------
<TABLE>
<CAPTION>
December 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Senior term debt, interest at the bank's reference
rate (8.25 percent at December 31, 1996) plus 1.5
percent or the Eurodollar rate plus 2.5 percent.
Principal payments due on June 30, September 30
and December 31 through 2000 ranging from $500
to $3,250 as specified in the loan agreement,
secured by inventories and fixed assets. $ 25,000 $ 21,500
Senior subordinated notes, Series B, interest at
11.75 percent payable semi-annually on each June
30 and December 31, maturing on October 15,
2005. 120,000 120,000
</TABLE>
F-17
<PAGE>
<TABLE>
<S> <C> <C>
Note payable, interest at 10 percent, non recourse,
secured by specified real property, monthly interest
payments only until June 1, 1992, blended
payments of $81 per month from July 1, 1992
through June 1, 2005, with all remaining principal
due on June 28, 2005. 8,309 8,162
Note payable, interest at 10 percent, until June 1,
1995, and 11.75 percent, thereafter, non recourse,
secured by specified real property, monthly interest
payments only until June 1, 1992, blended
payments of $77 per month for 36 months
commencing July 1, 1992, with blended payments
of $88 per month from July 1, 1995, through
June 1, 2005, with all remaining principal due on
June 27, 2005. 7,957 7,833
Capital lease obligations and equipment financing
contracts due at various dates through 1999,
secured by leased equipment. 534 171
-------- --------
161,800 157,666
Less-Current portion 4,058 4,897
-------- --------
$157,742 $152,769
======== ========
</TABLE>
ESTIMATED PRINCIPAL MATURITIES
- ------------------------------
Estimated principal maturities of long-term debt outstanding at December 31,
1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 4,897
1998 5,340
1999 5,878
2000 6,920
2001 468
Thereafter 134,163
--------
$157,666
========
</TABLE>
Senior Subordinated Notes
-------------------------
The Senior Subordinated Notes were issued by Hines and are redeemable, in whole
or in part, at the option of the Company, on or after October 15, 2000. In
addition, prior to
F - 18
<PAGE>
October 15, 1998, the Company, at its option, may redeem the notes, in part,
with the net proceeds of one or more public equity offerings, provided, however,
that after any such redemption the aggregate principal amount of notes
outstanding must equal at least 65 percent of the aggregate principal amount of
notes originally issued. Upon a change of control, each holder will have the
right to require the Company to repurchase such holder's notes at a price equal
to 101 percent of the principal amount thereof plus accrued interest, if any, to
the date of repurchase. The notes are unsecured and subordinated to all existing
and future senior debt and unconditionally guaranteed on a senior subordinated
basis by Holdings and Sun Gro-U.S.
Restrictive Covenants
---------------------
The indenture governing the Senior Subordinated Notes imposes certain
limitations on the ability of the Company to, among other things, incur
additional indebtedness, pay dividends or make certain other restricted payments
and consummate certain asset sales. In addition, the Company must also meet
certain specified financial covenants related to its Senior Term Debt.
8. Commitments
-----------
The Company leases certain land, office and warehouse facilities under various
renewable long-term operating leases which expire through 2010. Certain of
these leases include escalation clauses based upon changes in the consumer price
index and/or the fair rental value of leased land. One of the operating land
leases requires the Company to pay rent equal to the greater of 2.25 percent,
increasing to 3 percent by the year 2010, of the sales derived from the related
land or a minimum per acre amount as defined in the agreement. Two of the
operating land leases provide the Company with the option to purchase the
property at the appraised fair value through 1997 or renew the leases, effective
June, 1997, at the fair rental value for periods of five to twenty-five years.
Total rent expense under these operating lease agreements for the years ended
December 31, 1994, 1995 and 1996 was $935, $1,068 and $1,302, respectively. As
of December 31, 1996, the Company's future minimum annual payments under its
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 2,401
1998 2,197
1999 1,981
2000 1,780
2001 1,760
Thereafter 6,803
-------
$16,922
-------
</TABLE>
F-19
<PAGE>
9. Contingencies
-------------
From time to time, the Company is involved in various legal proceedings arising
in the ordinary course of business. Management believes that none of the
matters in which the Company is currently involved, either individually or in
the aggregate, is expected to have a material adverse effect on the Company's
business or financial condition.
10. Redeemable Preferred Stocks
---------------------------
On August 4, 1995, the Company issued $10 million of cumulative 12 percent
senior redeemable preferred stock (the Senior Preferred Stock) and $20 million
of cumulative 12 percent junior preferred stock (the Junior Preferred Stock).
The Senior Preferred Stock is redeemable on December 31, 2006, and is non-
voting. The Company has the option to redeem all or any portion of the Senior
Preferred Stock at any time prior to the scheduled redemption date. Upon
redemption, the Company is obligated to pay the holder a $1,000 liquidation
value for each share of Senior Preferred Stock plus any accrued but unpaid
dividends.
The Junior Preferred Stock is redeemable on January 1, 2007. The Company has the
option to redeem all or any of the Junior Preferred Stock at any time prior to
the scheduled redemption date. Upon redemption, the Company is obligated to pay
the holder a $1 liquidation value for each share of Junior Preferred Stock plus
any accrued but unpaid dividends. The holders of the Junior Preferred Stock are
allowed to vote (one vote for each share) in the election of the Company's
directors, but not in any other matters. The Company is prevented, without prior
consent from a majority of the holders of the Senior and Junior Preferred Stock,
from redeeming, repurchasing or otherwise acquiring any junior securities or
paying or declaring any dividends on any junior securities without first paying
the full amount of any preferred stock dividends accrued but not paid.
In June 1996, the Company issued an additional 596,640 shares of cumulative 12
percent Junior Preferred Stock and 283,360 shares of common stock to certain
employees for cash of $283 and promissory notes totalling $597. The promissory
notes bear interest at a rate of 6% per annum, compounded annually. The
principal amount, together with all accrued and unpaid interest thereon, will be
due and payable in three equal installments on March 31, 1996, 1997 and 1998, or
earlier upon an event of default under the promissory note or
F-20
<PAGE>
in certain other limited events. In December 1996, 20,340 shares of the Junior
Preferred Stock and 9,660 shares of the common stock were redeemed and the
promissory note relating to this stock, in the amount of $20, was cancelled.
On November 27, 1996, the Company issued an additional $20 million of cumulative
12 percent Senior Preferred Stock with warrants to purchase 830,000 shares of
the Company's common stock at an exercise price of $.01 per share during a
period which expires at the earlier of (i) ten years from date of issuance; (ii)
a qualified public offering or (iii) the sale of the Company. An amount
approximating the fair value of the stock of $830 was allocated to the warrants
at the date of issuance and is being accreted using the interest method over the
period from issuance until redemption first becomes available to the holder of
the stock.
11. Income Taxes
------------
The provision for income taxes is comprised of the following for the years ended
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
-------- ------ ------
<S> <C> <C> <C>
Current:
Federal $ 1,245 $ 942 $ 264
State 105 81 34
Foreign - 92 -
------- ------ -----
1,350 1,115 298
------- ------ -----
Deferred:
Federal 3,180 1,276 456
State 396 197 74
Foreign 662 262 (192)
------- ------ -----
4,238 1,735 338
------- ------ -----
Adjustment to beginning of
the year valuation
allowance (1,953) - -
------- ------ -----
$ 3,635 $2,850 $ 636
======= ====== =====
</TABLE>
F-21
<PAGE>
The reported provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate of 34 percent to income before
provision for income taxes for the years ended December 31, 1994, 1995 and 1996,
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------ ----
<S> <C> <C> <C>
Provision computed at statutory rate $ 4,848 $2,870 $287
Increase (decrease) resulting from:
State tax, net of federal benefit 492 278 71
Current year loss producing no
tax benefit 386 - -
Foreign taxes - (38) (95)
Goodwill (324) (217) (127)
Meals and entertainment 57 92 100
Change in valuation allowance (1,953) - 328
Other 129 (135) 72
------- ------ ----
$ 3,635 $2,850 $ 636
======= ====== =====
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at December 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred expenses $ 87 $ 1,116
Capital loss carry-forward 727 618
Net operating loss
carry-forward 10,723 14,732
Investment tax credit
carry-forward 635 439
Other 793 156
Valuation allowance (1,362) (2,916)
-------- --------
Gross deferred tax asset 11,603 14,145
-------- --------
Deferred tax liabilities:
Accrual to cash adjustment $(22,387) $(31,567)
Deferred currency gain - (533)
Fixed asset basis
differences (17,675) (15,318)
Investment in foreign
subsidiary (1,184) (1,178)
Other (2,098) (2,957)
-------- --------
Gross deferred tax liabilities (43,344) (51,553)
-------- -------
Net deferred tax liability (31,741) (37,408)
------- -------
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Deferred income tax liability,
current (16,342) (31,402)
Deferred income tax liability,
non-current (15,399) (6,006)
-------- --------
$(31,741) $(37,408)
======== ========
</TABLE>
At December 31, 1996, for federal income tax reporting purposes the Company has
approximately $31,481 in net operating loss carry-forwards. The Company's net
operating losses begin to expire in 1999.
At December 31, 1996, Sun Gro-Canada had capital loss carry-forwards, net
operating loss carry-forwards and investment tax credits of approximately $2,108
Cdn. ($1,538 U.S.), $9,477 Cdn. ($6,917 U.S.) and $602 Cdn. ($439 U.S.),
respectively, related to Sun Gro-Canada. Their use is limited to future taxable
earnings of Sun Gro-Canada. A substantial valuation allowance has been recorded
against the deferred tax assets associated with the capital loss carry-forwards
and the investment tax credits. The capital loss may be carried forward
indefinitely and the net operating loss carry-forwards and the investment tax
credits expire as follows (Canadian dollars):
<TABLE>
<CAPTION>
Year of Expiration Net Operating Losses Investment Tax Credits
- ------------------ -------------------- ----------------------
<S> <C> <C>
1997 $ - $ 53
1998 8,669 90
1999 - 165
2000 - 150
2001 808 123
2002 - 21
----- ----
$9,477 $602
====== ====
</TABLE>
12. Employee Benefit Plans
----------------------
Sun Gro sponsors benefit contribution plans for certain salaried U.S. employees,
certain salaried Canadian employees and certain hourly Canadian employees.
Participants of the salaried U.S. investment plan may make voluntary
contributions to the plan up to 15 percent of their compensation (as defined).
Sun Gro contributes five percent of each participant's compensation (as defined)
up to a maximum of $3,500 per participant.
Participants of the salaried and hourly Canadian investment plan must contribute
3 percent of their compensation (as defined) and may make voluntary
contributions to the plan up to 18 percent of their compensation (as defined).
Sun Gro contributes up to 5 percent and 3 percent of each participant's
compensation (as defined) with no maximum for the salaried and hourly plans,
respectively. The total expense related to these plans was $342, $368 and $395
for the years ended December 31, 1994, 1995 and 1996, respectively.
F-23
<PAGE>
13. Related Party Transactions
--------------------------
During the years ended December 31, 1994 and 1995, Hines and Sun Gro paid
management fees of $919 and $789, respectively, to certain individuals who
through affiliates were the former owners of the Company. During 1994 and 1995,
Hines and Sun Gro paid a total of $240 and $140, respectively, to these
individuals to cover administrative expenses incurred by these individuals for
office space. These expenses are included in general and administrative expenses
in the accompanying financial statements.
During the year ended December 31, 1995, the Company entered into an agreement
to receive financial advisory services from a company controlled by a former
minority shareholder. Under the terms of the consulting agreement, the Company
agreed to pay a financial advisory fee equal to a percent of the amount by which
the value of Agri Holdings, Inc's., a former subsidiary of Holdings, common
stock exceeded $2.5 million upon the occurrence of a change of control (as
defined in the agreement). As a result of the shareholder transaction described
in Note 1, the Company paid $3.3 million to this related party under the terms
of this agreement.
14. Discontinued Operations
-----------------------
Sun Gro incorporated its Green Cross division as a wholly-owned subsidiary,
Green Cross Garden Products, Ltd. (GCGP), effective May 31, 1994. Immediately
thereafter, Sun Gro adopted a plan to discontinue operations of GCGP and entered
into an asset purchase agreement with Monsanto Canada, Ltd. (Monsanto). In
accordance with the agreement, Sun Gro agreed to sell to Monsanto the operating
assets of GCGP on January 4, 1995, for an amount equal to $15,800 Cdn. ($11,262
U.S. at December 31, 1994) but subject to certain conditions and an adjustment
based on the amount of GCGP's working capital. Monsanto advanced $11,246 to GCGP
of which $5,702 represented term debt and $5,544 represented a working capital
loan. Simultaneously, operational control of GCGP was transferred to Monsanto
pursuant to a management operating agreement.
The operating loss incurred by GCGP during the phase-out period (June 1 to
December 31, 1994) was approximately $55 and was deferred. Sun Gro also deferred
wind-down expenses of approximately $533 relating to the decision to discontinue
the GCGP operation. GCGP operating results for the period January 1 to May 31,
1994, net of applicable taxes, are presented in the accompanying consolidated
statements of income as income (loss) from discontinued operations. Revenues of
GCGP during the period January 1 to May 31, 1994, amount to $7,586.
In January 1995, the sale to Monsanto was closed, and Sun Gro realized a gain of
$3,307, net of estimated taxes of $1,564, related to the transaction. The
advances from Monsanto were repaid upon closing of the sale.
F-24
<PAGE>
15. Extraordinary Losses
--------------------
During 1994, Hines prepaid its $10,900 subordinated term debt. As a result of
this early extinguishment of debt, Hines wrote off $3,927 in related unamortized
deferred financing expenses and paid a $218 prepayment penalty. These amounts
are reflected as an extraordinary loss, net of the related estimated income tax
benefit of $1,658.
During 1995, as a result of retiring long-term debt prior to maturity, the
Company recorded an extraordinary loss of $4,272 less the related estimated
income tax benefit of $1,759. The loss was comprised primarily of unamortized
deferred financing costs and prepayment fees.
On June 30, 1993, Sun Gro entered into a combined interest rate and currency
swap related to its former subordinated debt which was denominated in Canadian
dollars. Sun Gro exchanged a notional amount of $15 million U.S. bearing
interest at 10.65 percent and received a notional amount of $19 million Cdn.
bearing interest at 12 percent. The swap had the effect of hedging subordinated
debt interest and principal payments at an exchange rate of $1.28 Cdn. to $1.00
of U.S. As a result of the change in ownership described in Note 1, this
agreement was terminated and a fee of $1,030 was paid which is included as a
component of extraordinary loss in 1995.
16. Supplemental Cash Flow Information
----------------------------------
Cash paid for interest amounted to approximately $8,611, $8,689 and $23,702 for
the years ended December 31, 1994, 1995, and 1996, respectively.
Cash paid for income taxes amounted to approximately $131, $3 and $4 for the
years ended December 31, 1994, 1995, and 1996, respectively.
Supplemental disclosure of non-cash investing and financing activities were as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------- -------
<S> <C> <C> <C>
Fair value of assets acquired $ - $20,993 $31,822
Cash paid for assets and stock - 3,498 21,915
----- ------- -------
Liabilities assumed $ - $17,495 $ 9,907
----- ------- -------
</TABLE>
During the year ended December 31, 1995, minority shareholders exchanged their
shares of common stock in Hines and Sun Gro for $27,953 of common stock of the
Company.
17. Fair Values of Financial Instruments
------------------------------------
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
F-25
<PAGE>
CASH
The carrying amount reported in the balance sheet for cash approximates its fair
value.
SHORT-TERM AND LONG-TERM DEBT
The fair value of the senior subordinated notes is based on the closing price of
the debt securities at December 31, 1995 and 1996. The carrying amount of the
Company's other long-term debt approximates its fair value based upon borrowing
rates currently available to the Company. The carrying amount of the short-term
debt approximates the fair value based on the short-term maturity of the
instrument.
REDEEMABLE PREFERRED STOCK
The fair value of the redeemable preferred stock approximates its carrying value
as the stock was recently issued.
OFF-BALANCE SHEET INSTRUMENTS
The fair values associated with the foreign exchange contracts and foreign
currency options have been estimated based on broker quotes and published
foreign currency market rates.
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash $ 181 $ 181 $ 631 $ 631
Short-term debt 12,693 12,693 29,357 29,357
Long-term debt (including
current portion) 161,800 164,200 157,666 167,266
Redeemable preferred
stock 31,460 31,460 54,910 54,910
Off-Balance Sheet Financial Instruments:
Forward exchange contracts $ 209 $ 209 $ - $ -
Forward currency call options 354 872 255 29
</TABLE>
F-26
<PAGE>
18. VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
For the years ended December 31, 1994, 1995, and 1996, activity with respect to
the Company's allowance for doubtful accounts receivable is summarized as
follows:
<TABLE>
<CAPTION>
December 31
--------------------------
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
Beginning balance $ 704 $ 622 $1,165
Charges to expense 189 678 225
Amount written off (271) (135) (371)
----- ------ ------
Ending balance $ 622 $1,165 $1,019
===== ====== ======
</TABLE>
19. GEOGRAPHIC INFORMATION
----------------------
Geographic information for the years ended December 31, 1994, 1995 and 1996, is
summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States
Sales to unaffiliated
customer $125,817 $148,355 $155,136
Canada
Sales to unaffiliated
customers 8,964 8,554 9,187
Transfers to other
geographic
areas 16,949 16,530 14,531
Eliminations (16,949) (16,530) (14,531)
-------- -------- --------
$134,781 $156,909 $164,323
======== ======== ========
Operating income:
United States $ 17,174 $ 24,438 $ 21,379
Canada 6,404 1,834 545
Eliminations 102 - -
-------- -------- --------
$ 23,680 $ 26,272 $ 21,924
======== ======== ========
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total assets:
United States $ 94,307 $154,486 $197,156
Canada 60,117 58,489 54,689
Eliminations (13,518) (24,431) (23,753)
-------- -------- -------
$140,906 $188,544 $228,092
======== ======== ========
</TABLE>
Export sales from the United States totalled $6,177, $6,244 and $6,780 for the
years ended December 31, 1994, 1995 and 1996, respectively.
20. 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 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 Securities Exchange Act of 1934 because
management believes that they would not be material to investors.
Holdings has no material assets other than the common stock of Hines, 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 shows (a) Holdings on a parent
company basis only as the parent guarantor (carrying its investment in
subsidiary under the equity method), (b) Hines 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)
elimination's necessary to arrive at the information for the parent guarantor
and its direct and indirect subsidiaries on a consolidated basis and (f) the
parent guarantor on a consolidated basis as follows:
. Condensed consolidating balance sheets as of December 31, 1995 and 1996;
. Condensed consolidating statements of income and condensed consolidating
statements of cash flows for the years ended December 31, 1994, 1995 and
1996.
F-28
<PAGE>
20. Guarantor/Non-guarantor Disclosures - (Continued)
Consolidating Condensed Balance Sheet
As of December 31, 1995:
(Dollars 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
Defered income taxes - - 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
GOODWILL, net - 12,007 - 868 - 12,875
DEFERRED INCOME TAXES - 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 - 5,286 2,126 1,714 - 9,126
Accrued payroll and benefits - 1,373 686 380 - 2,439
Long-term debt, current portion - 2,308 - 1,750 - 4,058
Revolving line of credit - 11,813 880 - - 12,693
Deferred income taxes - 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 - 144,492 - 13,250 - 157,742
DEFERRED INCOME TAXES - 1,439 1,243 13,206 (489) 15,399
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 10,487 - - - - 10,487
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 20,973 - - - - 20,973
SHAREHOLDERS' EQUITY
Common stock 100 3,971 13,190 1,777 (18,938) 100
Additional paid-in capital 8,440 21,364 - - (21,364) 8,440
retained earnings (deficit) (76,338) 8,494 12,931 6,818 (28,243) (76,338)
-------------------------------------------------------------------------------------------
Total shareholders'
equity (deficit) (67,798) 33,829 26,121 8,595 (68,545) (67,798)
-------------------------------------------------------------------------------------------
$ 40,088 $135,084 $24,407 $58,489 $(69,524) $188,544
===========================================================================================
</TABLE>
F-29
<PAGE>
20. Guarantor/Non-guarantor Disclosures - (Continued)
Consolidating Condensed Balance Sheet
as of December 31, 1996
(Dollars 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
----------------------------------------------------------------------------------
ASSETS
- ------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ - $ 631 $ 91 $ (91) $ - $ 631
Accounts receivable, net - 5,316 8,679 1,649 - 15,644
Inventories - 88,361 1,455 5,408 - 95,224
Prepaid expenses and other current assets - 1,074 991 1,112 - 3,177
Deferred income taxes - 50 603 - (653) -
------------------------------------------------------------------------------
Total current assets - 95,432 11,819 8,078 (653) 114,676
------------------------------------------------------------------------------
FIXED ASSETS, net - 32,851 4,540 44,479 - 81,870
DEFERRED FINANCING EXPENSES, net - 5,020 43 1,289 - 6,352
OTHER ASSETS 577 - 36 - - 613
GOODWILL, net - 23,738 - 843 - 24,581
DEFERRED INCOME TAXES - 10,163 - - (10,163) -
INVESTMENTS IN SUBSIDIARIES 40,296 15,606 7,729 - (63,631) -
------------------------------------------------------------------------------
$ 40,873 $ 182,810 $ 24,167 $ 54,689 $ (74,447) $ 228,092
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ - $ 4,048 $ 1,426 $ 2,401 $ - $ 7,875
Accrued liabilities - 2,718 2,127 513 - 5,358
Accrued payroll and benefits - 4,270 1,318 369 - 5,957
Long-Term debt, current portion - 2,147 - 2,750 - 4,897
Revolving line of credit - 24,201 5,156 - - 29,357
Deferred income taxes - 31,942 - 113 (653) 31,402
Other liabilities - - 63 206 - 269
Intercompany accounts 56,671 (65,199) (9,023) 17,551 - -
------------------------------------------------------------------------------
Total current liabilities 56,671 4,127 1,067 23,903 (653) 85,115
------------------------------------------------------------------------------
LONG-TERM DEBT - 142,269 - 10,500 - 152,769
DEFERRED INCOME TAXES - 2,377 1,235 12,557 (10,163) 6,006
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 30,921 - - - - 30,921
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 23,989 - - - - 23,989
SHAREHOLDERS' EQUITY
Common stock 102 3,971 11,414 - (15,385) 102
Additional paid-in capital 5,600 21,364 5,793 1,777 (28,934) 5,600
Retained earnings (deficit) (76,410) 8,702 4,658 5,952 (19,312) (76,410)
------------------------------------------------------------------------------
Total shareholders' equity (deficit) $(70,708) 34,037 21,865 7,729 (63,631) (70,708)
==============================================================================
$ 40,873 $ 182,810 $ 24,167 $ 54,689 $ (74,447) $ 228,092
==============================================================================
</TABLE>
F-30
<PAGE>
20. Guarantor/Non-guarantor Disclosures - (Continued)
Consolidating Condensed Statement of Income
For the year ended December 31, 1994
(Dollars 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>
SALES, NET $ -- $62,888 $62,929 $25,913 ($16,949) $134,781
COST OF GOODS SOLD -- 32,294 29,875 15,607 (16,949) 60,827
-------------------------------------------------------------------------
Gross Profit -- 30,594 33,054 10,306 -- 73,954
OPERATING EXPENSES -- 18,698 30,921 1,230 (575) 50,274
-------------------------------------------------------------------------
Operating Income -- 11,896 2,133 9,076 575 23,680
-------------------------------------------------------------------------
OTHER EXPENSES:
Interest -- 4,506 602 2,345 102 7,555
Other, net (5,422) (4,189) (7,388) 2,996 15,870 1,867
-------------------------------------------------------------------------
(5,422) 317 (6,786) 5,341 15,972 9,422
-------------------------------------------------------------------------
Income (loss) before provision for income taxes,
minority interest, income from discontinued
operations and extraordinary loss 5,422 11,579 8,919 3,735 (15,397) 14,258
PROVISION FOR (RECOVERY) OF
INCOME TAXES -- 2,315 2,451 (1,131) -- 3,635
-------------------------------------------------------------------------
Income (loss) before minority interest, income
from discontinued operations and extraordinary loss 5,422 9,264 6,468 4,866 (15,397) 10,623
MINORITY INTEREST IN EARNINGS OF
SUBSIDIARIES -- -- -- -- 2,740 2,740
-------------------------------------------------------------------------
Income (loss) before income from discontinued
operations and extraordinary loss 5,422 9,264 6,468 4,866 (18,137) 7,883
-------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS,
net of tax -- -- -- (26) -- (26)
-------------------------------------------------------------------------
Income (loss) before extraordinary loss 5,422 9,264 6,468 4,892 (18,137) 7,909
Extraordinary loss, net of tax -- 2,487 -- -- -- 2,487
-------------------------------------------------------------------------
NET INCOME (LOSS) $ 5,422 $ 6,777 $ 6,468 $ 4,892 ($18,137) $ 5,422
=========================================================================
</TABLE>
F-31
<PAGE>
20. Guarantor/Non-guarantor Disclosures - (Continued)
<TABLE>
<CAPTION>
Consolidating Condensed Statement of Income Sun Gro
For the year ended December 31, 1996 Hines Sun Gro Canada
(in thousands) 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 $ - $ 87,222 $ 61,133 $ 25,084 ($ 16,530) $156,909
COST OF GOODS SOLD - 42,874 30,886 15,015 (16,530) 72,245
------------------------------------------------------------------------------
Gross Profit - 44,348 30,247 10,069 - 84,664
OPERATING EXPENSES - 24,786 25,371 8,235 - 58,392
------------------------------------------------------------------------------
Operating income - 19,562 4,876 1,834 - 26,272
OTHER EXPENSES:
Interest - 11,031 486 1,757 - 13,274
Interest - intercompany - (343) 284 59
Other, net (2,427) 1,021 (1,269) 364 6,868 4,557
------------------------------------------------------------------------------
(2,427) 11,709 (499) 2,180 6,868 17,831
------------------------------------------------------------------------------
Income (loss) before provision for income taxes,
minority interest, income from discontinued
operations and extraordinary loss 2,427 7,853 5,375 (346) (6,868) 8,441
PROVISION FOR (RECOVERY) OF INCOME TAXES - 1,655 841 354 - 2,850
------------------------------------------------------------------------------
Income (loss) before minority interest,
income from discontinued operations and
extraordinary loss 2,427 6,198 4,534 (700) (6,868) 5,591
MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES - - - - 3,958 3,958
------------------------------------------------------------------------------
Income (loss) before income from discontinued
operations and extraordinary loss 2,427 6,198 4,534 (700) (10,826) 1,633
------------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS, net of tax - - - (3,307) - (3,307)
------------------------------------------------------------------------------
Income (loss) before extraordinary loss 2,427 6,198 4,534 2,607 (10,826) 4,940
Extraordinary loss, net of tax - 1,101 176 1,236 - 2,513
------------------------------------------------------------------------------
NET INCOME (LOSS) $ 2,427 $ 5,097 $ 4,358 $ 1,371 ($ 10,826) $ 2,427
==============================================================================
Consolidating Condensed Statement of Income Sun Gro
For the year ended December 31, 1996 Hines Sun Gro Canada
(in thousands) Holdings Hines U.S. (Subsidiary
(Parent) Horticulture (Subsidiary) Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
------------------------------------------------------------------------------
SALES, NET $ - $ 92,214 $ 62,922 $ 23,718 ($ 14,531) $164,323
COST OF GOODS SOLD - 45,650 33,544 16,149 (14,531) 80,812
------------------------------------------------------------------------------
Gross Profit - 46,564 29,378 7,569 - 83,511
OPERATING EXPENSES - 26,393 28,170 7,024 - 61,587
------------------------------------------------------------------------------
Operating income - 20,171 1,208 545 - 21,924
------------------------------------------------------------------------------
OTHER EXPENSES:
Interest - 18,420 536 1,184 - 20,140
Interest - intercompany - (672) 552 120 - -
Other, net (208) 1,485 867 299 (1,503) 940
------------------------------------------------------------------------------
(208) 19,233 1,955 1,603 (1,503) 21,080
------------------------------------------------------------------------------
Income (loss) before provision for income taxes, 208 938 (747) (1,058) 1,503 844
PROVISION FOR (RECOVERY) OF INCOME TAXES - 730 98 (192) - 636
------------------------------------------------------------------------------
NET INCOME (LOSS) $ 208 $ 208 ($845) ($866) $ 1,503 $ 208
==============================================================================
</TABLE>
F-32
<PAGE>
20. Guarantor/Non-guarantor Disclosures - (Continued)
Consolidating Condensed Statement of Cash Flows
for the year ended December 31, 1994
(Dollars 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>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ - $ 4,099 $ 10,873 $ 1,406 $ 1,972 $ 18,350
----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (4,696) (802) (1,400) - (6,898)
Acquisitions, net of cash acquired - (686) - - - (686)
Advances to affiliates - - (610) - 610 -
Proceeds from tax sharing agreement - 2,132 - - (2,132) -
------------------------------------------------------------------------------
Net cash used in investing activities - (3,250) (1,412) (1,400) (1,522) (7,584)
------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments on) revolving
line of credit - - (4,331) (5,200) - (9,531)
Proceeds from the issuance of long-term debt - 39,800 - - - 39,800
Repayments of long-term debt - (31,498) (4,800) (7,448) - (43,746)
Proceeds from other financing arrangements - - - 11,246 - 11,246
Deferred financing costs - (1,203) - - - (1,203)
Dividends paid - (12,000) - - 4,000 (8,000)
Intercompany - 450 - - (450) -
Other - 2,840 - - (4,000) (1,160)
------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities - (1,611) (9,131) (1,402) (450) (12,594)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH - (762) 330 (1,396) - (1,828)
CASH AND CASH EQUIVALENTS, beginning of year - 863 1,095 2,520 - 4,478
------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ - $ 101 $ 1,425 $ 1,124 $ - $ 2,650
==============================================================================
</TABLE>
F-33
<PAGE>
20. Guarantor/Non-guarantor Disclosures - (Continued)
Consolidating Condensed Statement of Cash Flows
For the year ended December 31, 1995
(Dollars 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>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ 4,000 $ 10,608 $(6,649) $ 5,807 $(4,000) $ 9,766
--------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets -- (2,970) (1,007) (2,290) -- (6,267)
Acquisitions, net of cash acquired -- (3,498) -- -- -- (3,498)
--------------------------------------------------------------------------
Net cash used in investing activities -- (6,468) (1,007) (2,290) -- (9,765)
--------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments on) revolving line of credit -- (3,987) (1,698) -- -- (5,685)
Proceeds from the issuance of long-term debt -- 240,000 -- 15,000 -- 255,000
Repayments of long-term debt -- (146,799) -- (17,768) 4,000 (160,567)
Deferred financing costs -- (8,257) -- (1,576) -- (9,833)
Repurchase and retirement of stock (91,938) -- -- -- -- (91,938)
Issuance of preferred and common stock 11,673 -- -- -- -- 11,673
Intercompany 76,426 (85,019) 7,583 1,010 -- --
Other (161) 2 346 (1,307) -- (1,120)
--------------------------------------------------------------------------
Net cash provided by (used in) financing activities (4,000) (4,060) 6,231 (4,641) 4,000 (2,470)
--------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH -- 80 (1,425) (1,124) -- (2,469)
CASH AND CASH EQUIVALENTS, beginning of year -- 101 1,425 1,124 -- 2,650
--------------------------------------------------------------------------
CASH, end of year $ -- $ 181 $ -- $ -- $ -- $ 181
==========================================================================
</TABLE>
Consolidating Condensed Statement of Cash Flows
For the year ended December 31, 1996
(Dollars 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>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ (577) $ (8,963) $ 884 $ 3,084 $ 4,016 $ (1,556)
--------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets -- (5,761) (1,446) (1,370) -- (8,577)
Acquisitions, net of cash acquired -- (21,915) -- -- -- (21,915)
--------------------------------------------------------------------------
Net cash used in investing activities -- (27,676) (1,446) (1,370) -- (30,492)
--------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments on) revolving line of credit -- 12,388 4,276 -- -- 16,664
Repayments of long-term debt -- (2,459) -- (1,750) -- (4,209)
Deferred financing costs -- (87) (44) (122) -- (253)
Dividends received (paid) -- 7,427 (7,427) -- -- --
Repurchase and retirement of stock (280) -- -- -- -- (280)
Issuance of preferred and common stock 20,612 -- 4,016 -- (4,016) 20,612
Intercompany (19,755) 19,820 (132) 67 -- --
Other -- -- (36) -- -- (36)
--------------------------------------------------------------------------
Net cash provided by (used in) financing activities 577 37,089 653 (1,805) (4,016) 32,498
--------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH -- 450 91 (91) -- 450
CASH, beginning of year -- 181 -- -- -- 181
--------------------------------------------------------------------------
CASH, end of year $ -- $ 631 $ 91 $ (91) $ -- $ 631
==========================================================================
</TABLE>
F-34
<PAGE>
INDEX TO EXHIBITS
3.1 Restated Articles of Incorporation of Holdings.
3.2 By-laws of Holdings.*
4.1 Indenture dated as of October 19, 1995 between Hines Horticulture,
Holdings and Sun Gro and IBJ Schroder Bank & Trust Company, as trustee
(including form of Exchange Note and Senior Subordinated Guarantees).*
4.2 Purchase Agreement dated October 16, 1995 between Hines Horticulture,
Holdings and Sun Gro and BT Securities Corporation and Bear, Stearns & Co.
Inc.*
4.3 Registration Rights Agreement dated as of October 19, 1995 between Hines
Horticulture, Holdings and Sun Gro and BT Securities Corporation and Bear,
Stearns & Co. Inc.*
4.4 Credit Agreement dated as of August 4, 1995 among Hines Horticulture, Sun
Gro-U.S., Sun Gro-Canada, various lending institutions and BT Commercial
Corporation as Agent (the "Credit Agreement").*
4.5 First Amendment to Credit Agreement dated as of October 11, 1995.*
4.6 Second Amendment to Credit Agreement dated as of October 26, 1995.*
4.7 Third Amendment to Credit Agreement dated as of March 15, 1996.
4.8 Fourth Amendment to Credit Agreement dated as of April 28, 1996.
4.9 Fifth Amendment to Credit Agreement dated as of November 14, 1996.
4.10 Sixth Amendment to Credit Agreement dated as of February __, 1997.
4.11 Company Security Agreement dated as of August 4, 1995 by and between Hines
Horticulture and BT Commercial Corporation as agent.*
4.12 Domestic Subsidiary Security Agreement dated as of August 4, 1995 by and
between Sun Gro-U.S. and BT Commercial Corporation as agent.*
4.13 Company Pledge Agreement dated as of August 4, 1995 by and between Hines
Horticulture and BT Commercial Corporation as agent, as amended by Company
Pledge Agreement dated as of October 19, 1995.*
4.14 Domestic Subsidiary Pledge Agreement dated as of August 4, 1995 by and
between Sun Gro-U.S. and BT Commercial Corporation as agent.*
<PAGE>
4.15 Company Guaranty dated as of August 4, 1995 by Hines Horticulture in favor
of BT Commercial Corporation as agent.*
4.16 Domestic Subsidiary Guaranty dated as of August 4, 1995 by Sun Gro, Agri
Holdings Inc., Oregon Garden Products Inc. and Gaston-Fulshear Corporation
in favor of BT Commercial Corporation as agent.*
10.1 Acquisition Agreement dated as of July 20, 1995 by and among Holdings,
Madison Dearborn Capital Partners, Inc. and Hines Horticulture, Inc. as
amended by Amendment No. 1 to Acquisition Agreement dated as of August 4,
1995.*
10.2 Stockholders Agreement dated as of August 4, 1995 by and among Holdings
and the other parties signatory thereto.*
10.3 Amendment No. 1 to Stockholders Agreement dated as of November 27, 1996.
10.4 Employment Agreement dated as of August 3, 1995 between Hines Horticulture
and Douglas D. Allen.*+
10.5 Employment Agreement dated as of August 3, 1995 between Hines Horticulture
and Stephen P. Thigpen.*+
10.6 Employment Agreement dated as of August 4, 1995 between Sun Gro-U.S. and
Michael R. Crowe.*+
10.7 Sun Gro Horticulture Inc. U.S. Executive Supplemental Retirement Plan.*+
10.8 Hines Horticulture, Inc. Executive Variable Compensation Plan.*+
10.9 Sun Gro Horticulture Inc. Executive Bonus Plan.*+
10.10 Purchase and Sale Agreement dated as of August 4, 1995 by and between
Oregon Garden Products, Inc., as seller, and Blooming Farm, Inc., as
buyer.*
10.11 Promissory Note dated August 4, 1995, from Blooming Farm, Inc., as maker,
to Oregon Garden Products, Inc., as seller, and Blooming Farm, Inc., as
buyer.*
10.12 Trust Deed, Security Agreement, Assignment of Leases and Rents and Fixture
Financing Statement dated August 4, 1995 from Blooming Farm, Inc., as
trustor, to Ticor Title Insurance Company, as trustee, and Oregon Garden
Products, Inc., as beneficiary.*
10.13 Agricultural Lease dated as of August 4, 1995 between Blooming Farm,
Inc., as lessor, and Oregon Garden Products, Inc., as lessee.*
<PAGE>
10.14 Asset Purchase Agreement among Iverson Perennial Gardens, Inc., Ronald
C. Iverson and Hines Horticulture, Inc. dated as of August 30, 1996.
10.15 Stock Purchase Agreement dated as of November 27, 1996 by and among Flynn
Industries, Inc., Andrew M. Clarkson, William C. Rowe, Kent V. Berchiolli,
Merle E. Welti and Hines Horticulture.
10.16 Purchase Agreement by and among Holdings, California State Teachers'
Retirement System, Chilmark Fund II L.P., and MDCP dated as of November
27, 1996.
10.17 Stock Purchase Warrants dated as of November 27, 1996 of the Company in
favor of MDCP.
10.18 Stock Purchase Warrant dated as of November 27, 1996 of the Company in
favor of California State Teachers' Retirement System.
12.1 Statement re Computation of Ratios.
16.1 Letter from Arthur Andersen LLP re change in certifying accountants.
21.1 Subsidiaries of Holdings.*
27.1 Financial Data Schedule.
___________
* Incorporated by reference to Registration Statement on Form S-4, File No.
33-99452, filed on November 15, 1995 and amended on December 22, 1995 and
January 8, 1996.
+ Management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
of
HINES HOLDINGS, INC.
ONE: The name of the Corporation is Hines Holdings, Inc.
---
TWO: The principal office of the Corporation within the State of
---
Nevada is located at c/o CSC Services of Nevada, Inc., 502 East John Street,
Carson City, Nevada 89706.
THREE: The purpose for which the Corporation is organized is to
-----
engage in any lawful activity.
FOUR:
----
AUTHORIZED SHARES The total number of shares of all classes of capital
-----------------
stock which the Corporation has authority to issue is 52,030,000 shares,
consisting of:
(1) 30,000 shares of 12% Cumulative Redeemable Senior Preferred
Stock, par value $.0l per share (the "Class A Preferred");
-----------------
(2) 22,000,000 shares of 12% Cumulative Redeemable Junior
Preferred Stock, par value $.0l per share (the "Class B
-------
Preferred"); and
---------
(3) 30,000,000 shares of Common Stock, par value $.0l per share
(the "Common Stock").
-------------
The Class A Preferred and the Class B Preferred are collectively
referred to herein as the "Preferred Stock." The Preferred Stock and the Common
---------------
Stock are collectively referred to herein as "Stock." The shares of Stock shall
-----
have the rights, preferences and limitations set forth below.
A. CLASS A PREFERRED STOCK
-----------------------
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the Corporation's
------------------
Board of Directors (the "Board") and to the extent permitted under the General
-----
Corporation Law of the State
<PAGE>
of Nevada (the "Nevada Act"), the Corporation shall pay preferential dividends
----------
in cash to the holders of the Class A Preferred as provided in this Section 1.
Dividends on each share of the Class A Preferred (a "Class A Share") shall
-------------
accrue on a daily basis at the rate of 12% per annum of the sum of the
Liquidation Value thereof plus all accumulated and unpaid dividends thereon from
and including the date of issuance of such Class A Share to and including the
first to occur of (i) the date on which the Liquidation Value of such Class A
Share (plus all accrued and unpaid dividends thereon) is paid to the holder
thereof in connection with the liquidation of the Corporation or the redemption
of such Class A Share by the Corporation or (ii) the date on which such share is
otherwise acquired by the Corporation. Such dividends shall accrue whether or
not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends.
The date on which the Corporation initially issues any Class A Share shall be
deemed to be its "date of issuance" regardless of the number of times transfer
----------------
transfer of such Class A Share is made on the stock records maintained by or for
the Corporation and regardless of the number of certificates which may be issued
to evidence such Class A Share.
1B. Dividend Reference Dates. To the extent not paid on March 31,
------------------------
June 30, September 30 and December 31 of each year, beginning on March 31, June
30, September 30 and December 31 following the date of issuance of a Class A
Share (the "Dividend Reference Dates"), all dividends which have accrued on such
------------------------
Class A Share outstanding during the three-month period (or other period in the
case of the initial Dividend Reference Date) ending upon each such Dividend
Reference Date shall be accumulated and shall remain accumulated dividends with
respect to such Class A Share until paid to the holder thereof.
1C. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Class A Shares, such payment shall
be distributed pro rata among the holders thereof based upon the number of Class
A Shares held by each such holder.
Section 2. Liquidation. Upon any liquidation, dissolution or winding
-----------
up of the Corporation (whether voluntary or involuntary), each holder of Class A
Shares shall be entitled to be paid, before any distribution or payment is made
upon any Junior Securities, an amount in cash equal to the aggregate Liquidation
Value of all Class A Shares held by such holder (plus all accrued and unpaid
dividends thereon), and the holders of Class A Shares shall not be entitled to
any further payment. If upon any such liquidation, dissolution or winding up of
the Corporation the Corporation's assets to be distributed among the holders of
the Class A Shares are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid under this Section 2, then
the entire assets available to be distributed to the Corporation's stockholders
shall be distributed pro rata among such holders based upon the number of Class
A Shares held by each such holder. Prior to the liquidation, dissolution or
winding up of the Corporation, the Corporation shall declare for payment all
accrued and unpaid dividends with respect to the Class A Shares. Not less than
60 days prior to the payment date stated therein, the Corporation shall mail
written notice of
-2-
<PAGE>
any such liquidation, dissolution or winding up to each record holder of Class A
Shares, setting forth in reasonable detail the amount of proceeds to be paid
with respect to each Class A Share, each share of Class B Preferred Stock and
each share of Common Stock in connection with such liquidation, dissolution or
winding up. Neither the consolidation or merger of the Corporation into or with
any other entity or entities (whether or not the Corporation is the surviving
entity), nor the sale or transfer by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the Corporation nor any other
form of recapitalization or reorganization affecting the Corporation shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 2.
Section 3. Priority of Class A Preferred on Dividends and
----------------------------------------------
Redemptions. So long as any Class A Shares remain outstanding, without the
prior written consent of the holders of a majority of the outstanding Class A
Shares, the Corporation shall not, nor shall it permit any Subsidiary to,
redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare any
dividend or make any distribution upon (i) any Junior Securities or (ii) any
equity securities issued by the Subsidiaries other than any Subsidiary which is
directly or indirectly wholly-owned by the Corporation; provided that the
Corporation may repurchase shares of Class B Preferred and Common Stock from
present or former employees of the Corporation and its Subsidiaries in
accordance with the provisions of the Stockholders Agreement and the Management
Stock Agreements.
Section 4. Redemptions.
-----------
4A. Scheduled Redemption. The Corporation shall redeem all of the
--------------------
shares of Class A Preferred (or such lesser number then outstanding) on December
31, 2006 (the "Scheduled Redemption Date"), at a price per Class A Share equal
-------------------------
to the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon).
4B. Optional Redemptions. The Corporation may at any time and from
--------------------
time to time redeem all or any portion of the Class A Shares then outstanding.
Upon any such redemption, the Corporation shall pay a price per Class A Share
equal to the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon). No redemption pursuant to this paragraph may be made for less than
100 Class A Shares (or such lesser number of Class A Shares then outstanding),
and redemptions made pursuant to this paragraph shall not relieve the
Corporation of its obligation to redeem Class A Shares on the Scheduled
Redemption Date.
4C. Redemption Payments. For each Class A Share which is to be
-------------------
redeemed hereunder, the Corporation shall be obligated on the Redemption Date to
pay to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such Class A Share) an amount
in immediately available funds equal to the Liquidation Value of such Class A
Share (plus all accrued and unpaid dividends thereon). If the funds of the
Corporation
-3-
<PAGE>
legally available for redemption of Class A Shares on any Redemption Date are
insufficient to redeem the total number of Class A Shares to be redeemed on such
date, those funds which are legally available shall be used to redeem the
maximum possible number of Class A Shares pro rata among the holders of the
Class A Shares to be redeemed based upon the number of Class A Shares held by
each such holder (plus all accrued and unpaid dividends thereon). At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of Class A Shares, such funds shall immediately be used to redeem
the balance of the Class A Shares which the Corporation has become obligated to
redeem on any Redemption Date but which it has not redeemed. Prior to any
redemption of Class A Shares, the Corporation shall declare for payment all
accrued and unpaid dividends with respect to the Class A Shares which are to be
redeemed.
4D. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Corporation shall mail written notice of each redemption of any Class A Shares
to each record holder thereof not more than 60 nor less than 30 days prior to
the date on which such redemption is to be made. In case fewer than the total
number of Class A Shares represented by any certificate are redeemed, a new
certificate representing the number of unredeemed Class A Shares shall be issued
to the holder thereof without cost to such holder within five business days
after surrender of the certificate representing the redeemed Class A Shares.
4E. Determination of the Number of Each Holder's Shares to be
---------------------------------------------------------
Redeemed. The number of Class A Shares to be redeemed from each holder thereof
- --------
in redemptions hereunder shall be the number of Class A Shares determined by
multiplying the total number of Class A Shares to be redeemed times a fraction,
the numerator of which shall be the total number of Class A Shares then held by
such holder and the denominator of which shall be the total number of Class A
Shares then outstanding.
4F. Dividends After Redemption Date. No Class A Share shall be
-------------------------------
entitled to any dividends accruing after the date on which the Liquidation Value
of such Class A Share (plus all accrued and unpaid dividends thereon) is paid to
the holder of such Class A Share. On such date, all rights of the holder of
such Class A Share shall cease, and such Class A Share shall no longer be deemed
to be issued and outstanding.
4G. Redeemed or Otherwise Acquired Shares. Any Class A Shares which
-------------------------------------
are redeemed or otherwise acquired by the Corporation shall be canceled and
retired to authorized but unissued shares and shall not be reissued, sold or
transferred.
4H. Special Redemptions.
-------------------
(1) If a Change in Ownership has occurred or the
Corporation obtains knowledge that a Change in Ownership is proposed to occur,
the Corporation shall give prompt
-4-
<PAGE>
written notice of such Change in Ownership describing in reasonable detail the
material terms and date of consummation thereof to each holder of Class A
Shares, but in any event such notice shall not be given later than the
occurrence of such Change in Ownership, and the Corporation shall give each
holder of Class A Shares prompt written notice of any material change in the
terms or timing of such transaction. The Corporation shall redeem all of the
Class A Shares outstanding at a price per Class A Share equal to Liquidation
Value thereof (plus all accrued and unpaid dividends thereon) prior to the later
of (a) 21 days after date of the Corporation's notice (but in no event later
than the date of the consummation of the Change in Ownership) and (b) five days
prior to the consummation of the Change in Ownership (the "Expiration Date").
---------------
The term "Change in Ownership" means any sale, transfer or issuance or
-------------------
series of sales, transfers and/or issuances of Common Stock or other capital
stock by the Corporation or any holders thereof which results in any Person or
group of Persons (as the term "group" is used under the Securities Exchange Act
-----
of 1934), other than the holders of Common Stock as of the date of the Purchase
Agreement, owning (a) capital stock of the Corporation possessing the voting
power (under ordinary circumstances) to elect a majority of the Corporation's
Board of Directors or (b) more than 50% of the Common Stock outstanding at the
time of such sale, transfer or issuance or series of sales, transfers and/or
issuances.
(2) If a Fundamental Change is proposed to occur, the
Corporation shall give prompt written notice of such Fundamental Change
describing in reasonable detail the material terms and date of consummation
thereof to each holder of Class A Shares, and the Corporation shall give each
holder of Class A Shares prompt written notice of any material change in the
terms or timing of such transaction. The Corporation shall redeem all of the
outstanding Class A Shares at a price per Class A Share equal to the Liquidation
Value thereof (plus all accrued and unpaid dividends thereon) prior to the later
of (a) ten days prior to the consummation of the Fundamental Change or (b) ten
days after the date of the Corporation's notice (but in no event later than the
date of the consummation of the Fundamental Change).
The term "Fundamental Change" means (a) any sale or transfer of more
------------------
than 50% of the assets of the Corporation and its Subsidiaries on a consolidated
basis (measured either by book value in accordance with generally accepted
accounting principles consistently applied or by fair market value determined in
the reasonable good faith judgment of the Corporation's Board of Directors) in
any transaction or series of transactions (other than sales in the ordinary
course of business) and (b) any merger or consolidation to which the Corporation
is a party, except for a merger in which the Corporation is the surviving
corporation, the terms of the Class A Shares are not changed and the Class A
Shares are not exchanged for cash, securities or other property, and after
giving effect to such merger, the holders of the Corporation's outstanding
capital stock possessing a majority of the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of Directors
immediately prior to the merger shall continue to own the Corpora-
-5-
<PAGE>
tion's outstanding capital stock possessing the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of Directors.
Section 5. Voting Rights. Except as otherwise provided herein and as
-------------
otherwise required by applicable law, the Class A Shares shall have no voting
rights; provided that each holder of Class A Shares shall be entitled to notice
of all stockholders meetings at the same time and in the same manner as notice
is given to all stockholders entitled to vote at such meetings.
Section 6. Conversion.
----------
6A. At least 60 but not more than 120 days prior to effecting a
Qualified Public Offering, the Corporation shall deliver written notice to each
holder of Class A Shares describing the conversion rights of the holders of
Class A Shares under this Section 6. At least 5 business days prior to the
consummation of such Qualified Public Offering, any holder of Class A Shares may
require, at its option and by delivering written notice to the Corporation, the
conversion of all, but not less than all, of the Class A Shares (including any
fraction of a share) held by such holder and its Affiliates into a number of
shares of Common Stock computed by multiplying the number of Class A Shares to
be converted by the Liquidation Value of such shares (plus all accrued and
unpaid dividends thereon) and dividing the result by the Corporation's offering
price (net of any sales or underwriting commissions) of one share of Common
Stock actually sold in such Qualified Public Offering. Any such conversion
shall only be effected at the time of and shall be subject to the closing of the
sale of shares of Common Stock pursuant to such Qualified Public Offering.
6B. Except as otherwise provided herein, the conversion of any Class
A Share shall be deemed to have been effected as of the close of business on the
date of the consummation of the Qualified Public Offering, notwithstanding
whether the certificate or certificates representing the Class A Share to be
converted have been surrendered for conversion to the Corporation at its
principal office or otherwise. At the time any such conversion has been
effected, the rights of the holder of the Class A Shares converted as a holder
of Class A Shares shall cease and the Person or Persons in whose name or names
any certificate or certificates for shares of Common Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
6C. The conversion rights of any Class A Share subject to redemption
hereunder shall terminate on the Redemption Date for such Class A Share unless
the Corporation has failed to pay to the holder thereof the Liquidation Value of
such Class A Share (plus all accrued and unpaid dividends thereon).
6D. As soon as possible after the conversion has been effected, the
Corporation shall deliver to each converting holder:
-6-
<PAGE>
(1) a certificate or certificates representing the number
of shares of Common Stock issuable by reason of such conversion in such name or
names and such denomination or denominations as the converting holder has
specified; and
(2) the amount payable under paragraph 6H below with
respect to such conversion.
6E. The issuance of certificates for shares of Common Stock upon
conversion of Class A Shares shall be made without charge to the holders of such
Class A Share for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion and the related issuance of
shares of Common Stock. Upon conversion of each Class A Share, the Corporation
shall take all such actions as are necessary in order to insure that the Common
Stock issuable with respect to such conversion shall be validly issued, fully
paid and nonassessable, free and clear of all taxes, liens, charges and
encumbrances with respect to the issuance thereof.
6F. The Corporation shall not close its books against the transfer
of Class A Shares or of Common Stock issued or issuable upon conversion of Class
A Shares in any manner which interferes with the timely conversion of Class A
Shares. The Corporation shall assist and cooperate with any holder of Class A
Shares required to make any governmental filings or obtain any governmental
approval prior to or in connection with any conversion of Class A Shares
hereunder (including, without limitation, making any filings required to be made
by the Corporation).
6G. Prior to the consummation of a Qualified Public Offering, the
Corporation shall reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of issuance upon the conversion
of the Class A Shares, such number of shares of Common Stock issuable upon the
conversion of all outstanding Class A Shares. All shares of Common Stock shall
be duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. The Corporation shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance).
6H. If any fractional interest in a share of Common Stock would,
except for the provisions of this subparagraph, be delivered upon any conversion
of Class A Shares, the Corporation, in lieu of delivering the fractional share
therefor, shall pay an amount to the holder thereof equal to the market price of
such fractional interest as of the date of conversion.
Section 7. Registration of Transfer. The Corporation shall keep at
------------------------
its principal office a register for the registration of Class A Shares. Upon
the surrender of any certificate representing
-7-
<PAGE>
Class A Shares at such place, the Corporation shall, at the request of the
record holder of such certificate, execute and deliver (at the Corporation's
expense) a new certificate or certificates in exchange therefor representing in
the aggregate the number of Class A Shares represented by the surrendered
certificate. Each such new certificate shall be registered in such name and
shall represent such number of Class A Shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Class A Shares
represented by such new certificate from the date to which dividends have been
fully paid on such Class A Shares represented by the surrendered certificate.
Section 8. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing shares of Class A Preferred, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Class A Shares represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Class A Preferred represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
Section 9. Events of Noncompliance.
-----------------------
9A. Definition. An Event of Noncompliance shall have occurred if:
----------
(1) the Corporation fails to make any redemption payment
with respect to the Class A Shares which it is required to make hereunder,
whether or not such payment is legally permissible or is prohibited by any
agreement to which the Corporation is subject;
(2) the Corporation or any Subsidiary (a) makes an
assignment for the benefit of creditors or admits in writing its inability to
pay its debts generally as they become due, (b) an order, judgment or decree is
entered adjudicating the Corporation or any Subsidiary bankrupt or insolvent,
(c) any order for relief with respect to the Corporation or any Subsidiary is
entered under the United States Federal Bankruptcy Code or under any similar
laws of Canada, (d) the Corporation or any Subsidiary petitions or applies to
any tribunal for the appointment of a custodian, trustee, receiver or liquidator
of the Corporation or any Subsidiary or of any substantial part of the assets of
the Corporation or any Subsidiary, or commences any proceeding (other than a
proceeding for the voluntary liquidation and dissolution of a Subsidiary)
relating to the Corporation or any Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, (e) or any such petition or application is
filed, or
-8-
<PAGE>
any such proceeding is commenced, against the Corporation or any Subsidiary and
either (1) the Corporation or any such Subsidiary by any act indicates its
approval thereof, consent thereto or acquiescence therein or (2) such petition,
application or proceeding is not dismissed within 60 days; or
(3) the Corporation breaches or otherwise fails to perform
or observe in any material respect any other material covenant or agreement set
forth herein or in the Purchase Agreement and fails to cure such breach or
failure within 15 days after receipt of written notice of such breach or failure
from any holder of Class A Shares.
9B. Consequences of an Event of Noncompliance.
-----------------------------------------
(1) If an Event of Noncompliance as set forth in paragraph
9A(2) has occurred, any holder of Class A Shares may demand (by written notice
delivered to the Corporation) immediate redemption of all, but not less than
all, of the Class A Shares owned by such holder and its Affiliates at a price
per share equal to the Liquidation Value thereof (plus all accrued and unpaid
dividends thereon). The Corporation shall give prompt written notice of such
election to the other holders of Class A Shares (but in any event within five
days after receipt of the initial demand for redemption), and each such other
holder may demand immediate redemption of all or any portion of such holder's
Class A Shares by giving written notice thereof to the Corporation within 7 days
after receipt of the Corporation's notice. The Corporation shall redeem all
Class A Shares as to which rights under this paragraph have been exercised
within 15 days after receipt of the initial demand for redemption.
(2) If an Event of Noncompliance as set forth in paragraph
9A(1) or (3) has occurred, the number of directors constituting the
Corporation's board of directors shall, at the request of the holders of a
majority of the Class A Shares then outstanding, be increased by one director,
and the holders of Class A Shares shall have the special right, voting
separately as a single class (with each share being entitled to one vote) and to
the exclusion of all other classes of the Corporation's stock, to elect one
individual to fill such newly created directorship, to remove any individuals
elected to such directorship and to fill any vacancies in such directorship. The
special right of the holders of Class A Shares to elect a member of the Board of
Directors may be exercised at the special meeting called pursuant to this
subparagraph (2) and, to the extent and in the manner permitted by applicable
law, pursuant to a written consent in lieu of a stockholders meeting. Such
special right shall continue until such time as there is no longer an Event of
Noncompliance under subparagraph 9A(1) or (3) in existence, at which time such
special right shall terminate subject to revesting upon the occurrence and
continuation of any Event of Noncompliance which gives rise to such special
right hereunder.
At any time when such special right has vested in the holders of
Class A Shares, a proper officer of the Corporation shall, upon the written
request of the holder of at least
-9-
<PAGE>
10% of the Class A Shares then outstanding, addressed to the secretary of the
Corporation, call a special meeting of the holders of Class A Shares for the
purpose of electing directors pursuant to this subparagraph. Such meeting shall
be held at the earliest legally permissible date at the principal office of the
Corporation, or at such other place designated by the holders of at least 10% of
the Class A Shares then outstanding. If such meeting has not been called by a
proper officer of the Corporation within 10 days after personal service of such
written request upon the secretary of the Corporation or within 20 days after
mailing the same to the secretary of the Corporation at its principal office,
then the holders of at least 10% of the Class A Shares then outstanding may
designate in writing one of their number to call such meeting at the expense of
the Corporation, and such meeting may be called by such Person so designated
upon the notice required for annual meetings of stockholders and shall be held
at the Corporation's principal office, or at such other place designated by the
holders of at least 10% of the Class A Shares then outstanding. Any holder of
Class A Shares so designated shall be given access to the stock record books of
the Corporation for the purpose of causing a meeting of stockholders to be
called pursuant to this subparagraph.
At any meeting or at any adjournment thereof at which the holders
of Class A Shares have the special right to elect a director, the presence, in
person or by proxy, of the holders of a majority of the Class A Shares then
outstanding shall be required to constitute a quorum for the election or removal
of any director by the holders of the Class A Shares exercising such special
right. The vote of a majority of such quorum shall be required to elect or
remove any such director.
Any director so elected by the holders of Class A Shares shall
continue to serve as a director until the expiration of the lesser of (a) a
period of six months following the date on which there is not longer any Event
of Noncompliance under subparagraph 9A(1) in existence or (b) the remaining
period of the full term for which such director has been elected. After the
expiration of such six-month period or when the full term for which such
director has been elected ceases (provided that the special right to elect
directors has terminated), as the case may be, the number of directors
constituting the board of directors of the Corporation shall decrease to such
number as constituted the whole board of directors of the Corporation
immediately prior to the occurrence of the Event or Events of Noncompliance
giving rise to the special right to elect directors.
Section 10. Definitions. For purposes of this Part B, the following
-----------
terms shall have the following definitions:
"Junior Securities" means any capital stock or other equity securities
-----------------
of the Corporation, except for the Class A Preferred.
"Liquidation Value" of any Class A Share as of any particular date
-----------------
shall be equal to $1,000.00.
-10-
<PAGE>
"Management Stock Agreements" means the several Management Stock
---------------------------
Agreements entered into as of May 24, 1996 by the Corporation and employees of
Subsidiaries of the Corporation, or any similar agreements entered into from
time to time by the Corporation and employees of the Corporation or its
Subsidiaries.
"Purchase Agreement" means the Preferred Stock and Warrant Purchase
------------------
Agreement, dated as of November 27, 1996, between the Corporation and the
Persons named therein.
"Qualified Public Offering" means the sale in an underwritten public
-------------------------
offering registered under the Securities Act of 1933, as amended, of shares of
the Corporation's Common Stock having an aggregate offering value of at least
$10 million.
"Redemption Date" as to any Class A Share means the date specified in
---------------
the notice of any redemption at the Corporation's option or the applicable date
specified herein in the case of any other redemption; provided that no such date
shall be a Redemption Date unless the Liquidation Value of such Class A Share
(plus all accrued and unpaid dividends thereon and any required premium with
respect thereto) is actually paid in full on such date, and if not so paid in
full, the Redemption Date shall be the date on which such amount is fully paid.
"Stockholders Agreement" means the Stockholders Agreement, dated as of
----------------------
August 4, 1995, by and among the Corporation and the stockholders named therein,
as amended from time to time.
"Subsidiary" means any corporation of which the shares of outstanding
----------
capital stock possessing the voting power (under ordinary circumstances) in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
Section 11. Amendment and Waiver. No amendment, modification or
--------------------
waiver shall be binding or effective with respect to any provision of this Part
A hereof without the prior written consent of the holders of a majority of the
Class A Shares outstanding at the time such action is taken; provided that no
such action shall change (a) the rate at which or the manner in which dividends
on the Class A Shares accrue or the times at which such dividends become payable
or the amount payable on redemption of the Class A Shares or the times at which
redemption of Class A Shares is to occur, without the prior written consent of
the holders of at least 66 2/3% of the Class A Shares then outstanding or (b)
the percentage required to approve any change described in clause (a) above,
without the prior written consent of the holders of at least 66 2/3% of the
Class A Shares then outstanding; and provided further that no change in the
terms hereof may be accomplished by merger or consolidation of the Corporation
with another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Class A
Shares then outstanding. In exercising its rights hereunder, the Company shall
exercise such rights in the
-11-
<PAGE>
same manner with respect to each holder of Class A Preferred. The Company shall
not enter into any other agreement or conduct any course of dealing which alters
the rights or obligations of any holder of Class A Preferred with respect
thereto, without first offering to each other holder of Class A Preferred the
opportunity to enter into such agreement or course of dealing. The failure of
any party at any time to insist upon strict performance of any condition,
promise, agreement or understanding set forth herein shall not be construed as a
waiver or relinquishment of the right to insist upon strict performance of the
same or any other condition, promise, agreement or understanding at a future
time.
Section 12. Notices. Except as otherwise expressly provided
-------
hereunder, all notices referred to herein shall be in writing and shall be
delivered by registered or certified mail, return receipt requested and postage
prepaid, or by reputable overnight courier service, charges prepaid, and shall
be deemed to have been given when so mailed or sent (i) to the Corporation, at
its principal executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless otherwise
indicated by any such holder).
B. CLASS B PREFERRED STOCK
-----------------------
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the Board and to the
------------------
extent permitted under the Nevada Act, the Corporation shall pay preferential
dividends in cash to the holders of the Class B Preferred Stock as provided in
this Section 1. Dividends on each share of the Class B Preferred (a "Class B
-------
Share") shall accrue on a daily basis at the rate of 12% per annum of the sum of
- -----
the Liquidation Value thereof plus all accumulated and unpaid dividends thereon
from and including the date of issuance of such Class B Share to and including
the first to occur of (i) the date on which the Liquidation Value of such Class
B Share (plus all accrued and unpaid dividends thereon) is paid to the holder
thereof in connection with the liquidation of the Corporation or the redemption
of such Class B Share by the Corporation or (ii) the date on which such share is
otherwise acquired by the Corporation. Such dividends shall accrue whether or
not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends.
The date on which the Corporation initially issues any Class B Share shall be
deemed to be its "date of issuance" regardless of the number of times transfer
----------------
of such Class B Share is made on the stock records maintained by or for the
Corporation and regardless of the number of certificates which may be issued to
evidence such Class B Share.
1B. Dividend Reference Dates. To the extent not paid on March 31,
------------------------
June 30, September 30 and December 31 of each year, beginning on March 31, June
30, September 30 and December 31 following the date of issuance of a Class B
Share (the "Dividend Reference Dates"), all dividends which have accrued on such
------------------------
Class B Share outstanding during the three-month period (or other period in the
case of the initial Dividend Reference Date) ending upon each such Dividend
-12-
<PAGE>
Reference Date shall be accumulated and shall remain accumulated dividends with
respect to such Class B Share until paid to the holder thereof.
1C. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Class B Preferred, such payment
shall be distributed pro rata among the holders thereof based upon the number of
Class B Shares held by each such holder.
Section 2. Liquidation. Upon any liquidation, dissolution or winding
-----------
up of the Corporation (whether voluntary or involuntary), each holder of Class B
Preferred shall be entitled to be paid, before any distribution or payment is
made upon any Junior Securities, an amount in cash equal to the aggregate
Liquidation Value of all Class B Shares held by such holder (plus all accrued
and unpaid dividends thereon), and the holders of Class B Preferred shall not be
entitled to any further payment. If upon any such liquidation, dissolution or
winding up of the Corporation the Corporation's assets to be distributed among
the holders of the Class B Preferred are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be paid under this
Section 2, then the entire assets available to be distributed to the holders of
the Class B Preferred pro rata among such holders based upon the number of Class
B Shares held by each such holder. Prior to the liquidation, dissolution or
winding up of the Corporation, the Corporation shall declare for payment all
accrued and unpaid dividends with respect to the Class B Preferred. Not less
than 60 days prior to the payment date stated therein, the Corporation shall
mail written notice of any such liquidation, dissolution or winding up to each
record holder of Class B Preferred, setting forth in reasonable detail the
amount of proceeds to be paid with respect to each Class B Share and each share
of Common Stock in connection with such liquidation, dissolution or winding up.
Neither the consolidation or merger of the Corporation into or with any other
entity or entities (whether or not the Corporation is the surviving entity), nor
the sale or transfer by the Corporation of all or any part of its assets, nor
the reduction of the capital stock of the Corporation nor any other form of
recapitalization or reorganization affecting the Corporation shall be deemed to
be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 2.
Section 3. Priority of Class B Preferred on Dividends and
----------------------------------------------
Redemptions. So long as any Class B Preferred remains outstanding, without the
- -----------
prior written consent of the holders of a majority of the outstanding shares of
Class B Preferred, the Corporation shall not, nor shall it permit any Subsidiary
to, redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare any
dividend or make any distribution upon any Junior Securities, if at the time of
or immediately after any such redemption, purchase, acquisition, dividend or
distribution the Corporation has failed to pay the full amount of dividends
accrued on the Class B Preferred or the Corporation has failed to make any
redemption of the Class B Preferred required hereunder; provided that the
Corporation may repurchase shares of Class B Preferred and Common Stock from
present or former employees of the Corporation and its
-13-
<PAGE>
Subsidiaries in accordance with the provisions of the Stockholders Agreement and
the Management Stock Agreements.
Section 4. Redemptions.
-----------
4A. Scheduled Redemption. The Corporation shall redeem all of the
--------------------
Class B Shares (or such lesser number then outstanding) on January 1, 2007 (the
"Scheduled Redemption Date"), at a price per Class B Share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends thereon).
4B. Optional Redemptions. The Corporation may at any time and from
--------------------
time to time redeem all or any portion of the Class B Shares then outstanding.
Upon any such redemption, the Corporation shall pay a price per Class B Share
equal to the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon). No redemption pursuant to this paragraph may be made for less than
1,000 Class B Shares (or such lesser number of Class B Shares then outstanding),
and redemptions made pursuant to this paragraph shall not relieve the
Corporation of its obligation to redeem Class B Shares on the Scheduled
Redemption Date.
4C. Redemption Payments. For each Class B Share which is to be
-------------------
redeemed hereunder, the Corporation shall be obligated on the Redemption Date to
pay to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such Class B Share) an amount
in immediately available funds equal to the Liquidation Value of such Class B
Share (plus all accrued and unpaid dividends thereon). If the funds of the
Corporation legally available for redemption of Class B Shares on any Redemption
Date are insufficient to redeem the total number of Class B Shares to be
redeemed on such date, those funds which are legally available shall be used to
redeem the maximum possible number of Class B Shares pro rata among the holders
of the Class B Shares to be redeemed based upon the number of Class B Shares
held by each such holder (plus all accrued and unpaid dividends thereon). At any
time thereafter when additional funds of the Corporation are legally available
for the redemption of Class B Shares, such funds shall immediately be used to
redeem the balance of the Class B Shares which the Corporation has become
obligated to redeem on any Redemption Date but which it has not redeemed. Prior
to any redemption of Class B Preferred, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Class B Shares
which are to be redeemed.
4D. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Corporation shall mail written notice of each redemption of any Class B
Preferred to each record holder thereof not more than 60 nor less than 30 days
prior to the date on which such redemption is to be made. In case fewer than the
total number of Class B Shares represented by any certificate are redeemed, a
new certificate representing the number of unredeemed Class B Shares shall be
issued to the holder thereof without cost to such holder within five business
days after surrender of the certificate representing the redeemed Class B
Shares.
-14-
<PAGE>
4E. Determination of the Number of Each Holder's Shares to be
---------------------------------------------------------
Redeemed. The number of Class B Shares to be redeemed from each holder thereof
- --------
in redemptions hereunder shall be the number of Class B Shares determined by
multiplying the total number of Class B Shares to be redeemed times a fraction,
the numerator of which shall be the total number of Class B Shares then held by
such holder and the denominator of which shall be the total number of Class B
Shares then outstanding.
4F. Dividends After Redemption Date. No Class B Share shall be
-------------------------------
entitled to any dividends accruing after the date on which the Liquidation Value
of such Class B Share (plus all accrued and unpaid dividends thereon) is paid to
the holder of such Class B Share. On such date, all rights of the holder of such
Class B Share shall cease, and such Class B Share shall no longer be deemed to
be issued and outstanding.
4G. Redeemed or Otherwise Acquired Shares. Any Class B Shares which
-------------------------------------
are redeemed or otherwise acquired by the Corporation shall be canceled and
retired to authorized but unissued shares and shall not be reissued, sold or
transferred.
Section 5. Voting Rights. The holders of the Class B Preferred shall
-------------
be entitled to vote in the election of directors of the Corporation, together
with the holders of the Common Stock voting together as a single class, with
each Class B Share entitled to one (1) vote per share. Except as otherwise
provided by law, the holders of the Class B Preferred shall not be entitled to
vote on any other matter.
Section 6. Registration of Transfer. The Corporation shall keep at
------------------------
its principal office a register for the registration of Class B Preferred. Upon
the surrender of any certificate representing Class B Preferred at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Class B Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Class B Shares as is requested by the holder of the surrendered certificate and
shall be substantially identical in form to the surrendered certificate, and
dividends shall accrue on the Class B Preferred represented by such new
certificate from the date to which dividends have been fully paid on such Class
B Preferred represented by the surrendered certificate.
Section 7. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing shares of Class B Preferred, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new
-15-
<PAGE>
certificate of like kind representing the number of Class B Shares of such Class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Class B Preferred represented by such new certificate from
the date to which dividends have been fully paid on such lost, stolen, destroyed
or mutilated certificate.
Section 8. Definitions. For purposes of this Part B, the following
-----------
terms shall have the following definitions:
"Junior Securities" means any capital stock or other equity securities
-----------------
of the, Corporation, except for the Class A Preferred and the Class B Preferred.
"Liquidation Value" of any Class B Share as of any particular date
-----------------
shall be equal to $1.00.
"Management Stock Agreements" means the several Management Stock
---------------------------
Agreements entered into as of May 24, 1996 by the Corporation and employees of
Subsidiaries of the Corporation, or any similar agreements entered into from
time to time by the Corporation and employees of the Corporation or its
Subsidiaries.
"Redemption Date" as to any Class B Share means the date specified in
---------------
the notice of any redemption at the Corporation's option or the applicable date
specified herein in the case of any other redemption; provided that no such date
shall be a Redemption Date unless the Liquidation Value of such Class B Share
(plus all accrued and unpaid dividends thereon and any required premium with
respect thereto) is actually paid in full on such date, and if not so paid in
full, the Redemption Date shall be the date on which such amount is fully paid.
"Stockholders Agreement" means the Stockholders Agreement dated as of
----------------------
August 4, 1995 by and among the Corporation and the stockholders named therein,
as amended from time to time.
"Subsidiary" means any corporation of which the shares of outstanding
----------
capital stock possessing the voting power (under ordinary circumstances) in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
Section 9. Amendment and Waiver. No amendment, modification or
--------------------
waiver shall be binding or effective with respect to any provision of this
Section B hereof without the prior written consent of the holders of a majority
of the Class B Preferred outstanding at the time such action is taken; provided
that no such action shall change (a) the rate at which or the manner in which
dividends on the Class B Preferred accrue or the times at which such dividends
become
-16-
<PAGE>
payable or the amount payable on redemption of the Class B Preferred or the
times at which redemption of Class B Preferred is to occur, without the prior
written consent of the holders of at least 66 2/3% of the Class B Preferred then
outstanding or (b) the percentage required to approve any change described in
clause (a) above, without the prior written consent of the holders of at least
66 2/3% of the Class B Preferred then outstanding; and provided further that no
change in the terms hereof may be accomplished by merger or consolidation of the
Corporation with another corporation or entity unless the Corporation has
obtained the prior written consent of the holders of the applicable percentage
of the Class B Preferred then outstanding.
Section 10. Notices. Except as otherwise expressly provided
-------
hereunder, all notices referred to herein shall be in writing and shall be
delivered by registered or certified mail, return receipt requested and postage
prepaid, or by reputable overnight courier service, charges prepaid, and shall
be deemed to have been given when so mailed, or sent (i) to the Corporation, at
its principal executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless otherwise
indicated by any such holder).
C. COMMON STOCK
------------
Section 1. Voting Rights. Except as otherwise provided in this Part
-------------
C or as otherwise required by applicable law, holders of Common Stock shall be
entitled to one (1) vote per share on all matters to be voted on by the
stockholders of the Corporation.
Section 2. Dividends. After dividends on the Preferred Stock shall
---------
have been paid or set apart for payment (to the extent such Preferred Stock may
be entitled thereto), subject to the provisions of Section 3 of Part A, the
Board may declare a dividend upon the Common Stock out of the unrestricted and
unreserved surplus of the Corporation. As and when dividends are declared or
paid thereon, whether in cash, property or securities of the Corporation, the
holders of Common Stock shall be entitled to participate in such dividends
ratably on a per share basis.
Section 3. Liquidation. Subject to the provisions of the Preferred
-----------
Stock, the holders of the Common Stock shall be entitled to participate ratably
on a per share basis in all distributions to the holders of Common Stock in any
liquidation, dissolution or winding up of the Corporation.
Section 4. Registration of Transfer. The Corporation shall keep at
------------------------
its principal office (or such other place as the Corporation reasonably
designates) a register for the registration of shares of the Common Stock. Upon
the surrender of any certificate representing shares of any class of Common
Stock at such place, the Corporation shall, at the request of the registered
holder of such certificate, execute and deliver a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares of such class represented by the surrendered certificate, and the
Corporation forthwith shall cancel such surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
shares of such class as is requested by the
-17-
<PAGE>
holder of the surrendered certificate and will be substantially identical in
form to the surrendered certificate. The issuance of new certificates shall be
made without charge to the holders of the surrendered certificates for any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such issuance.
Section 5. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 6. Notices. All notices referred to herein shall be in
-------
writing, shall be delivered personally or by first class mail, postage prepaid,
and shall be deemed to have been given when so delivered or mailed to the
Corporation at its principal executive offices and to any stockholder at such
holder's address as it appears in the stock records of the Corporation (unless
otherwise specified in a written notice to the Corporation by such holder), and
said Restated Articles of Incorporation shall continue in full force and effect
until further amended and changed in the manner prescribed by the provisions of
the Nevada Act.
FIVE: The number of members of the Board may be increased or
----
decreased in the manner provided in the Bylaws of the Corporation; provided that
the number of directors shall be at least one. The address for each of the
directors is c/o Hines Holdings, Inc., 12621 Jeffrey Road, Irvine, California
92720. The names of the current directors of the Corporation are:
Paul R. Wood
Thomas R. Reusche
David F. Mosher
Gary J. Little
Douglas D. Allen
Stephen P. Thigpen
Michael R. Crowe
SIX: The stock of the Corporation shall be nonassessable.
---
-18-
<PAGE>
SEVEN: The Corporation shall indemnify its directors, officers,
-----
employees and agents to the fullest extent and under the circumstances permitted
by the Nevada Act, as the same may be amended and supplemented, indemnify under
said law from and against any and all of the expenses, liabilities, or other
matters referred to in or covered by said law, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
EIGHT: The holders of a majority of the issued and outstanding shares
-----
of Common Stock which have voting power shall constitute a quorum at a meeting
of stockholders for the transaction of any business.
NINE: Subject to the provisions of paragraph FOUR, Part A Section
----
11, and Part B Section 9, the Corporation reserves the right to amend, alter,
change, or repeal any provision contained in these Restated Articles of
Incorporation in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
TEN: The name and address of the original incorporator of the
---
Corporation are as follows:
Name Address
---- -------
Steven J. Tonsfeldt Brobeck, Phleger & Harrison
One Market Plaza, Spear Street Tower
25th Floor
San Francisco, California 94105
ELEVEN: The holders of capital stock of the Corporation shall not
------
have a statutory preemptive right to acquire unissued shares of capital stock,
treasury shares or rights to acquire such shares under the Nevada Act or
otherwise.
* * * *
-19-
<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>
<CAPTION>
<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>
<CAPTION>
<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.
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<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
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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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<PAGE>
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>
EXHIBIT 4.8
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".
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<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.
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<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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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
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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.
10
<PAGE>
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
11
<PAGE>
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>
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
<PAGE>
EXHIBIT 4.9
HINES HORTICULTURE, INC.
FIFTH AMENDMENT AND CONSENT
TO CREDIT AGREEMENT
This FIFTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this "Amendment")
is dated as of November 14, 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, that certain Third Amendment dated as of March 15, 1996, and that
certain Fourth Amendment dated as of August 28, 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, Borrowers and Lenders desire to amend the Credit Agreement to
(i) increase the aggregate Revolving Loan Commitments by $10 million (from $50
million to $60 million), (ii) adjust certain of the financial covenants set
forth therein, and (iii) make certain other amendments as set forth below; and
WHEREAS, Company has requested that Lenders consent to the acquisition
by Company of all of the issued and outstanding shares of capital stock of Flynn
Nurseries, Inc. ("FN"), Flynn Rainbow Nurseries, Inc. ("FRN"), a wholly-owned
Subsidiary of FN, and FRN, Inc., a wholly-owned Subsidiary of FRN; and
WHEREAS, subject to the terms and conditions of this Amendment, Lenders
are willing to agree to such amendments and consent to such acquisition.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
1
<PAGE>
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:
"'Fifth Amendment' means that certain Fifth Amendment and Consent to
Credit Agreement dated as of November 14, 1996 among Holdings, Borrowers,
FN, FRN, FRN, Inc., Agent and Lenders."
"'Fifth Amendment Effective Date' has the meaning assigned to that term
in the Fifth Amendment."
"'FII' means Flynn Industries, Inc., a Nevada corporation."
"'Flynn Acquisition' means the acquisition by Company of all of the
issued and outstanding shares of capital stock of FN and each of FN's
Subsidiaries pursuant to the Flynn Acquisition Agreements."
"'Flynn Acquisition Agreements' means collectively, (i) the Flynn Stock
Purchase Agreement, (ii) that certain Escrow Agreement dated as of November
27, 1996 among Company, FII, the other stockholders of FN and an escrow
agent, (iii) that certain non-competition agreement dated as of November 27,
1996 by and among FII, Donald Flynn, FN and FRN, (iv) the Flynn Oregon
Agreements, (v) the New Preferred Stock Purchase Agreement, (vi) the New
Warrants, and (vii) any agreement or document entered into by any Loan Party
in connection with any of the foregoing, in each case (for clauses (i)
through (vii) above) as any such agreement or document may be amended from
time to time after the Fifth Amendment Effective Date to the extent
permitted by subsection 7.15 or 8.17."
"'Flynn Oregon Agreements' means (i) that certain Custom Farming
Agreement dated as of November 27, 1996, entered into by and between FRNO
and FRN, pursuant to the Flynn Stock Purchase Agreement and (ii) that
certain Equipment and Inventory Purchase Agreement dated as of November 27,
1996 by and between FRNO and FRN."
"'Flynn Purchase Option Payments' means the Consolidated Capital
Expenditures by FRN in connection with its exercise of the purchase options
with respect to the Real Property Assets described in Schedule 3.31 annexed
to the Flynn Stock Purchase Agreement and costs relating thereto."
"'Flynn Stock Purchase Agreement' means that certain Stock Purchase
Agreement dated as of November 27, 1996 by and among FII, certain individual
2
<PAGE>
stockholders of FN and Company, as such agreement may be amended from time
to time after the Fifth Amendment Effective Date to the extent permitted
under subsection 7.15."
"'FN' means Flynn Nurseries, Inc., a California corporation."
"'FRN' means Flynn Rainbow Nurseries, Inc., a Hawaii corporation."
"'FRN, Inc.' means FRN, Inc., a California corporation."
"'FRNO' means Flynn Rainbow Nurseries (Oregon), Inc."
"'New Preferred Stock Holders' means Madison Dearborn Capital Partners,
L.P., California State Teachers Retirement System, Chillmark Fund II, L.P.
and Abbott Co-Investment, L.L.C."
"'New Preferred Stock Purchase Agreement' means that certain Purchase
Agreement dated as of November 27, 1996 by and among Holdings and New
Preferred Stock Holders, as such agreement may be amended from time to time
after the Fifth Amendment Effective Date to the extent permitted under
subsection 8.17."
"'New Warrants' means those warrants dated as of November 27, 1996
issued by Holdings to the New Preferred Stock Holders, which warrants, if
exercised, represent approximately 7.5% of the outstanding Holdings Common
Stock on a fully diluted basis, and any warrants issued in replacement of or
in substitution for such warrants, in each case as such warrants may be
amended from time to time after the Fifth Amendment Effective Date to the
extent permitted under subsection 8.17."
B. Subsection 1.1 of the Credit Agreement is hereby further amended
by deleting the definition of "Company Borrowing Base" therefrom in its entirety
and substituting the following therefor:
"'Company Borrowing Base' means, as at any date of determination,
an aggregate amount equal to:
(i) eighty-five percent (85%) of Eligible Accounts Receivable of
Company and FRN plus
(ii) the lesser of (a) fifty percent (50%) of Eligible Inventory
of Company and FRN and (b) an amount which, when aggregated with the
amount calculated pursuant to clause (ii) of the definition of Sun Gro
Borrowing Base (as set forth in the most recent Borrowing Base
Certificate
3
<PAGE>
delivered to Agent) at such date of determination, equals $30,000,000
(it being understood that the amount calculated pursuant to this clause
(ii) and the amount calculated pursuant to clause (ii) of the
definition of Sun Gro Borrowing Base shall not at any time exceed
$30,000,000), minus
(iii) the aggregate amount of reserves, if any, established by
Agent in the exercise of its Permitted Discretion against Eligible
Accounts Receivable and Eligible Inventory of Company and FRN;
provided that Agent, in the exercise of its Permitted Discretion, may (a)
increase or decrease reserves against Eligible Accounts Receivable and
Eligible Inventory of Company and FRN and (b) reduce the advance rates
provided in this definition, or restore such advance rates to any level
equal to or below the advance rates in effect as of the Closing Date."
C. Subsection 1.1 of the Credit Agreement is hereby further amended by
adding after the reference to "Company" appearing in the first line of the
definition of "Eligible Accounts Receivable" the word, "FRN".
D. Subsection 1.1 of the Credit Agreement is hereby further amended by
deleting the first sentence of the definition of "Eligible Inventory" in its
entirety and substituting therefor the following:
"'Eligible Inventory' means, with respect to Company, FRN or Sun
Gro, the aggregate amount of Inventory of such Loan Party deemed by Agent
in the exercise of its Permitted Discretion to be eligible for inclusion in
the calculation of the Borrowing Base minus, in the case of Eligible
Inventory of Company or FRN, the Inventory Scrap Reserve."
E. Subsection 1.1 of the Credit Agreement is hereby further amended by
inserting the phrase "or FRN" after each reference to "Company" appearing in the
definition of "Inventory Scrap Reserve" and inserting the phrase "or FRN's"
after the reference to "Company's" appearing in such definition.
F. Subsection 1.1 of the Credit Agreement is hereby further amended
by inserting the phrase ", the Flynn Acquisition Agreements, the Iverson
Acquisition Agreements," after the reference to "the Acquisition Agreement,"
appearing in the first line of the definition of "Related Agreements."
1.2 Amendment to Section 2: Amounts and Terms of Commitments and
Loans
Subsection 2.1A(iii) of the Credit Agreement is hereby amended by
deleting the reference to "$50,000,000" contained therein and substituting
"$60,000,000" therefor.
4
<PAGE>
1.3 Amendments to Section 5: Representations and Warranties
A. Takeout Securities Indenture. Subsection 5.2E is hereby amended
by adding the following at the end of subsection 5.2E(iii):
"The Loans and all other monetary obligations of Company under the
Credit Agreement and the other Loan Documents, including reimbursement
obligations with respect to the Letters of Credit, constitute `Senior
Debt' and `Designated Senior Debt' as defined in the Takeout Securities
Indenture and are senior to Company's obligations under the Takeout
Securities Indenture. The Loans and all other monetary obligations of
Holdings, Sun Gro and any other Loan Party (other than Company) under
the Credit Agreement and the other Loan Documents, including
reimbursement obligations with respect to the Letters of Credit,
constitute `Guarantor Senior Debt' and `Designated Senior Debt' as
defined in the Takeout Securities Indenture and are senior to
Holdings', Sun Gro's and such Loan Parties' obligations under the
Takeout Securities Indenture."
B. Flynn Stock Purchase Agreement. Section 5 of the Credit Agreement
is hereby amended by adding thereto at the end thereof the following:
"5.18 Flynn Stock Purchase Agreement.
A. Company has delivered to Lenders complete and correct copies
of the Flynn Acquisition Agreements and of all exhibits and schedules
thereto.
B. Except to the extent otherwise set forth herein or in the
schedules thereto, each of the representations and warranties given by
FN Shareholders (as defined therein) to Company in the Flynn Stock
Purchase Agreement is true and correct in all material respects as of
the Fifth Amendment Effective Date, subject to the qualifications set
forth in the schedules to the Flynn Stock Purchase Agreement.
C. Each of the representations and warranties given by Company to
FN Shareholders (as defined therein) in the Flynn Stock Purchase
Agreement is true and correct in all material respects as of the Fifth
Amendment Effective Date.
D. Notwithstanding anything in the Flynn Stock Purchase Agreement
to the contrary, the representations and warranties of Borrowers set
forth in subsections 5.18B and 5.18C shall, solely for purposes of this
Agreement, survive the Fifth Amendment Effective Date for the benefit
of Lenders."
5
<PAGE>
C. No Material Adverse Change. Section 5.4 is hereby amended by
adding after "Since December 21, 1994" the following: "and except as set forth
on Schedule 5.4".
D. Employee Benefit Plans. Section 5.11D is hereby amended by
deleting the reference to "$400,000" contained therein and substituting
"$600,000" therefor.
1.4 Amendments to Section 6: Borrower's Affirmative Covenants
A. Supplemental Actions. Subsection 6.10 of the Credit Agreement is
hereby amended by adding the following at the end of Subsection 6.10:
"G. Borrowers shall deliver to Agent, within 45 days after the
Fifth Amendment Effective Date, (i) certificates of insurance naming
Agent on behalf of Lenders as loss payee under all casualty insurance
policies maintained by FN, FRN or FRN, Inc., and as an additional
insured under all liability and business interruption insurance
policies maintained by FN, FRN or FRN, Inc., all as required pursuant
to Subsection 6.4 or pursuant to the Collateral Documents (which
certificates of insurance shall contain such endorsements as are
reasonably requested by Agent), (ii) certificates of title with respect
to all rolling stock of FN, FRN or FRN, Inc. and the taking of all
actions necessary to cause Agent to be noted as lienholder thereon or
otherwise necessary to perfect the first priority Lien granted to Agent
on behalf of Lenders in such rolling stock, and (iii) Lock Box
Agreement or Blocked Account Agreement executed by each person that is
a party thereto with respect to each Deposit Account of FN, FRN or FRN,
Inc.
H. Borrowers hereby represent that FRN, Inc. does not own assets
exceeding $5,000 in the aggregate and does not have any Indebtedness or
Contingent Obligations (other than under the Loan Documents).
Borrowers hereby covenant that FRN, Inc. shall not at any time own any
assets in excess of $5,000 in the aggregate and that FRN, Inc. shall
not at any time have any Indebtedness or Contingent Obligations (other
than under the Loan Documents). Borrowers hereby covenant that they
shall cause FRN, Inc. to be merged with and into FRN (with FRN become
the surviving corporation) within 30 days of the Fifth Amendment
Effective Date, with the terms and documents relating to such merger
being in form and substance satisfactory to Agent in all respects (it
being understood that failure to comply with such covenant shall be an
immediate Event of Default)."
B. Additional Mortgages. Subsection 6.12 of the Credit Agreement is
hereby amended by deleting the parenthetical language which appears immediately
after
6
<PAGE>
the reference to "as soon as practicable after the acquisition of such Covered
Real Property Asset" contained in clause (ii) therein and substituting therefor
the following:
"(and (w) 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 ninety 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 (the
"Fourth Amendment Effective Date"), (x) in the case of any Covered Real
Property which is a Material Leasehold acquired in connection with the
Flynn Acquisition, to the extent any Loan Party shall have obtained the
applicable landlord consents necessary to encumber such Material
Leasehold, as soon as practicable after the consummation of the Flynn
Acquisition but in any event within sixty days after the Fifth
Amendment Effective Date (it being understood that with respect to each
such Material Leasehold, the Loan Parties shall use their reasonable
best efforts to deliver all landlord and any other third party consents
necessary to encumber such Material Leasehold within such sixty day
period); provided, however, that if Agent or its counsel do not deliver
initial drafts of such Additional Mortgages on or before thirty days
after the Fifth Amendment Effective Date, the time period for executing
and delivering such Additional Mortgages shall be extended (beyond such
sixty day period) by one day for each day past such thirty day period
until Agent or its counsel deliver such initial drafts, (y) in the case
of any Covered Real Property Asset which is a Fee Property acquired in
connection with the Flynn Acquisition, as soon as practicable after the
consummation of the Flynn Acquisition but in any event within forty-
five days after the Fifth Amendment Effective Date; provided, however,
that if Agent or its counsel do not deliver initial drafts of such
Additional Mortgages on or before thirty days after the Fifth Amendment
Effective Date, the time period for executing and delivering such
Additional Mortgages shall be extended (beyond such forty-five day
period) by one day for each day past such thirty day period until Agent
or its counsel deliver such initial drafts and (z) in the case of any
Covered Real Property Asset acquired in connection with the exercise of
any purchase options with respect to any Real Property Asset leased by
Company or any of its Subsidiaries as of the Fifth Amendment Effective
Date, as soon as practicable after such exercise of such purchase
option but in any event within forty-five days after the date of
acquisition of such Real Property Asset in connection with such
exercise; provided, however, that if Agent or its counsel do not
deliver initial drafts of such Additional Mortgages on or before thirty
days after the Fifth Amendment Effective Date, the time period for
executing and delivering such Additional Mortgages shall be extended
(beyond such forty-five day
7
<PAGE>
period) by one day for each day past such thirty day period until Agent
or its counsel deliver such initial drafts)".
1.5 Amendment to Subsection 7.6: Financial Covenants
A. Minimum Interest Coverage Ratio. Subsection 7.6A of the Credit
Agreement is hereby amended by deleting the table contained therein in its
entirety and substituting the following therefor:
<TABLE>
<CAPTION>
Minimum
"Period Interest Coverage Ratio
------------------------ -----------------------
<S> <C> <C>
3rd Fiscal Quarter, 1995 1.65:1.00
4th Fiscal Quarter, 1995 1.65:1.00
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 1.45:1.00
1st Fiscal Quarter, 1997 1.45:1.00
2nd Fiscal Quarter, 1997 1.55:1.00
3rd Fiscal Quarter, 1997 1.55:1.00
4th Fiscal Quarter, 1997 1.55:1.00
1st Fiscal Quarter, 1998 1.55:1.00
2nd Fiscal Quarter, 1998 1.70:1.00
3rd Fiscal Quarter, 1998 1.70:1.00
4th Fiscal Quarter, 1998 1.75:1.00
1st Fiscal Quarter, 1999 1.85:1.00
2nd Fiscal Quarter, 1999 1.90:1.00
3rd Fiscal Quarter, 1999 1.90:1.00
4th Fiscal Quarter, 1999 1.95:1.00
1st Fiscal Quarter, 2000 2.00:1.00
2nd Fiscal Quarter, 2000 2.10:1.00
3rd Fiscal Quarter, 2000 2.10:1.00
4th Fiscal Quarter, 2000
and each Fiscal
Quarter thereafter 2.20:1.00"
</TABLE>
B. Maximum Leverage Ratio. Subsection 7.6B of the Credit Agreement is
hereby amended by deleting the table contained therein in its entirety and
substituting the following therefor:
8
<PAGE>
<TABLE>
<CAPTION>
"Period Maximum Leverage Ratio
------------------------ ----------------------
<S> <C> <C>
3rd Fiscal Quarter, 1995 5.25:1.00
3rd Fiscal Quarter, 1995 5.25:1.00
4th Fiscal Quarter, 1995 5.60:1.00
1st Fiscal Quarter, 1996 6.50:1.00
2nd Fiscal Quarter, 1996 5.60:1.00
3rd Fiscal Quarter, 1996 6.25:1.00
4th Fiscal Quarter, 1996 6.40:1.00
1st Fiscal Quarter, 1997 7.00:1.00
2nd Fiscal Quarter, 1997 5.75:1.00
3rd Fiscal Quarter, 1997 5.75:1.00
4th Fiscal Quarter, 1997 5.75:1.00
1st Fiscal Quarter, 1998 6.35:1.00
2nd Fiscal Quarter, 1998 5.10:1.00
3rd Fiscal Quarter, 1998 5.10:1.00
4th Fiscal Quarter, 1998 5.10:1.00
1st Fiscal Quarter, 1999 5.60:1.00
2nd Fiscal Quarter, 1999 4.50:1.00
3rd Fiscal Quarter, 1999 4.50:1.00
4th Fiscal Quarter, 1999 4.50:1.00
1st Fiscal Quarter, 2000 5.00:1.00
2nd Fiscal Quarter, 2000 4.00:1.00
3rd Fiscal Quarter, 2000 4.00:1.00
4th Fiscal Quarter, 2000
and each Fiscal
Quarter thereafter 4.00:1.00"
</TABLE>
C. Minimum Consolidated Adjusted EBITDA. Subsection 7.6C of the
Credit Agreement is hereby amended by deleting the table contained therein in
its entirety and substituting the following therefor:
9
<PAGE>
<TABLE>
<CAPTION>
Minimum Consolidated
"Period Adjusted EBITDA
------------------------ --------------------
<S> <C> <C>
3rd Fiscal Quarter, 1995 $30,500,000
4th Fiscal Quarter, 1995 $31,000,000
1st Fiscal Quarter, 1996 $31,000,000
2nd Fiscal Quarter, 1996 $31,000,000
3rd Fiscal Quarter, 1996 $29,000,000
4th Fiscal Quarter, 1996 $29,000,000
1st Fiscal Quarter, 1997 $29,500,000
2nd Fiscal Quarter, 1997 $32,000,000
3rd Fiscal Quarter, 1997 $32,000,000
4th Fiscal Quarter, 1997 $32,250,000
1st Fiscal Quarter, 1998 $32,500,000
2nd Fiscal Quarter, 1998 $35,000,000
3rd Fiscal Quarter, 1998 $35,000,000
4th Fiscal Quarter, 1998 $36,000,000
1st Fiscal Quarter, 1999 $37,250,000
2nd Fiscal Quarter, 1999 $38,500,000
3rd Fiscal Quarter, 1999 $38,500,000
4th Fiscal Quarter, 1999 $38,500,000
1st Fiscal Quarter, 2000 $39,000,000
2nd Fiscal Quarter, 2000 $39,000,000
3rd Fiscal Quarter, 2000 $39,000,000
4th Fiscal Quarter, 2000
and each Fiscal Quarter
thereafter $39,000,000"
</TABLE>
1.6 Amendment to Subsection 7.8: Consolidated Capital Expenditures
Subsection 7.8 of the Credit Agreement is hereby amended (i) by
deleting the table contained therein in its entirety and substituting the
following therefor:
<TABLE>
<CAPTION>
Maximum Consolidated
"Period Capital Expenditures
------------------------ --------------------
<S> <C> <C>
Closing Date to
December 31, 1995 $ 2,750,000
Fiscal Year 1996 $ 8,350,000
Fiscal Year 1997 $12,100,000
Fiscal Year 1998 $ 9,300,000
Fiscal Year 1999 $ 8,300,000
Fiscal Year 2000
and each Fiscal
Year thereafter $10,800,000"
</TABLE>
10
<PAGE>
and (ii) by (a) deleting the reference to "and" and adding"," at the end of
clause (ii) of the last proviso contained therein, and (b) adding the following
after clause (iii) of the last proviso contained therein, but before the last
period: ", (iv) Company may incur additional Consolidated Capital Expenditures
on or before November 29, 1996 in an aggregate amount (including all fees and
expenses relating thereto and including Indebtedness assumed by Company or its
Subsidiaries in an amount equal to $7,500,000, which Indebtedness is paid in
full by Company and its Subsidiaries on the Fifth Amendment Effective Date) not
to exceed $12,500,000, consisting of the Flynn Acquisition, and (v) FN or any of
its Subsidiaries may incur additional Consolidated Capital Expenditures on or
before December 31, 1997 in an aggregate amount not to exceed $3,500,000
consisting of Flynn Purchase Option Payments."
1.7. Amendment to Subsection 7.15: Borrower's Negative Covenants
Amendments of Certain Documents. Subsection 7.15B of the Credit
Agreement is hereby amended by deleting the comma appearing at the end of clause
(i) thereof and substituting therefor the phrase ", or any material terms of any
of the Iverson Acquisition Agreements, in each case as in effect on the Fourth
Amendment Effective Date, or any material terms of any of the Flynn Acquisition
Agreements, in each case as in effect on the Fifth Amendment Effective Date."
1.8 Amendments to Section 8: Events of Default
A. Change in Control. Subsection 8.12 of the Credit Agreement is
hereby amended by adding after the end of clause (vi) the following clause:
"(vii) the occurrence of a "Change in Ownership" or "Fundamental
Change" or "Event of Non-Compliance" under the restated articles of
incorporation of Holdings; or".
B. Failure to Consummate Acquisition or Merger. Subsection 8.16 of
the Credit Agreement is hereby amended by inserting after the reference "reason"
appearing therein the following:
"or the issuance of the preferred stock of Holdings on the Fifth
Amendment Effective Date shall be unwound, reversed or otherwise
rescinded in whole or in part for any reason".
C. Amendment of Certain Documents of Holdings. Subsection 8.17 of
the Credit Agreement is hereby amended by (i) inserting after the reference
"Holdings Certificate of Designation" appearing therein the phrase "(other than
the amendment effected pursuant to the Restated Articles of Incorporation of
Holdings as in effect on the Fifth Amendment Effective Date)" and (ii) inserting
after the reference "Closing Date," appearing therein the phrase "or any of the
New Preferred Stock Purchase
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Agreement or the New Warrants, in each case as in effect on the Fifth Amendment
Effective Date, in each case".
D. Equity Contributions. Section 8 of the Credit Agreement is hereby
further amended by deleting subsection 8.19 in its entirety and substituting
therefor the following:
"8.19 Equity Contributions.
(i) Holdings shall not have received from the New Preferred
Stock Holders on or prior to the earlier of the Fifth Amendment
Effective Date and November 29, 1996 an equity contribution in an
aggregate amount equal to or greater than $20,000,000 (the "Parent
Equity Contribution"); or (ii) Company shall not have received from
Holdings on or prior to such earlier date 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 exceeds
the aggregate outstanding principal amount of Revolving Loans, to
prepay all Term Loans in accordance with 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)):"
1.9 Substitution of Schedules
Schedules 2.1, 4.1C, 5.5, 5.6 and 5.13. Schedule 2.1, Schedule 4.1C,
Schedule 5.5, Schedule 5.6 and Schedule 5.13 to the Credit Agreement are hereby
amended by deleting said Schedule 2.1, Schedule 4.1C, Schedule 5.5, Schedule 5.6
and Schedule 5.13 in their entirety and substituting in place thereof a new
Schedule 2.1, Schedule 4.1C, Schedule 5.5, Schedule 5.6 and Schedule 5.13 in the
form of Annex A to this Amendment.
1.10 Amendment of Exhibits
Exhibits V and VIII. The third paragraph of Exhibit V to the Credit
Agreement is hereby amended by deleting the reference to "$50,000,000" and
substituting "$60,000,000" therefor. Exhibit VIII to the Credit Agreement is
hereby amended by
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deleting Annex 1 to said Exhibit VIII in its entirety and substituting in place
thereof a new Annex 1 to Exhibit VIII in the form of Annex B to this Amendment.
1.11 Amendment of Schedules
Schedules 5.4 and 5.8C. The schedules to the Credit Agreement are
hereby amended to include a new Schedule 5.4 in the form of Annex A to this
Amendment. In addition, Schedule 5.8C to the Credit Agreement is hereby amended
by deleting the reference to "1. Bridge Note Agreement" of said Schedule 5.8C.
Schedule I to the Company Security Agreement is hereby amended by adding thereto
under the heading "Assigned Agreements" the following:
"1. That certain Stock Purchase Agreement dated as of November 27,
1996 by and among Flynn Industries, Inc., certain individual stock holders
of Flynn Nurseries, Inc. and Hines Horticulture, Inc., as such agreement may
be amended from time to time after the Fifth Amendment Effective Date to the
extent permitted under subsection 7.15.
2. That certain Escrow Agreement dated as of November 27, 1996
among Hines Horticulture, Inc., Flynn Industries, Inc., the other
stockholders of Flynn Nurseries, Inc. and an escrow agent, as such agreement
may be amended from time to time after the Fifth Amendment Effective Date to
the extent permitted under subsection 7.15 or 8.17.
3. That certain Acquisition Agreement dated as of August 30, 1996
by and among Ronald C. Iverson, Iverson Perennial Gardens, Inc. and Hines
Horticulture, Inc."
Section 2. PRO RATA SHARES
Upon the effectiveness of this Amendment, each existing Domestic Lender
which increases its Revolving Loan Commitment (an "Increasing Lender" and
collectively, the "Increasing Lenders"), as set forth on Schedule 2.1 to the
Credit Agreement, as amended by this Amendment, shall pay to Agent by wire
transfer of immediately available funds such amount, if any, as calculated by
Agent, as reflects such Increasing Lender's increased Pro Rata Share of the
outstanding Revolving Loans (and, if applicable, such Increasing Lender's
increased Pro Rata Share of any participations which have been funded by
Domestic Lenders with respect to outstanding Letters of Credit). Agent shall
promptly pay to each other Domestic Lender such amounts, as calculated by Agent,
as may be necessary to reflect such other Domestic Lender's then Pro Rata Share,
as set forth on Schedule 2.1 to the Credit Agreement, as amended by this
Amendment, of the outstanding Revolving Loans (and, if applicable, such other
Lender's then Pro Rata Share of any participations which have been funded by
Domestic Lenders with respect to outstanding Letters of Credit).
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Section 3. CONSENT
3.1 Consent to Flynn Acquisition
----------------------------
A. Subject to the terms and conditions set forth herein and in reliance
on the representations and warranties of Company contained herein, Lenders
hereby consent to the Flynn Acquisition by Company for a total consideration
(including all fees and expenses relating thereto and including Indebtedness
assumed by Company or its Subsidiaries in an amount not exceeding $7,500,000,
which Indebtedness is paid in full by Company and its Subsidiaries on the Fifth
Amendment Effective Date) not exceeding $12,500,000.
B. Subject to the terms and conditions set forth herein and in reliance
on the representations and warranties of Company contained herein, Lenders
hereby consent to the following transactions between Company and Blooming Farm,
Inc. ("BFI"): (i) Purchase and Sale Agreement, dated June 21, 1996, between
Company, as seller, and BFI, as buyer, for that certain 53-acre parcel of real
property described therein, as unamended; (ii) Warranty Deed, dated June 21,
1996, from Company to BFI, for the transfer and conveyance of such real
property, as unamended; (iii) Secured Promissory Note, dated June 21, 1996, from
BFI to Company in the amount of $151,050.00 as payment of the purchase price for
such real property, as unamended; (iv) Trust Deed, dated June 21, 1996, from BFI
to Company to secure BFI's payment of such Promissory Note, as unamended; and
(v) Agricultural Lease, dated June 21, 1996, between Company and BFI for the
lease of such real property by BFI to Company, as unamended.
3.2 Limitation of Consent
---------------------
Without limiting the generality of the provisions of subsection 10.6 of
the Credit Agreement, the consent set forth above shall be limited precisely as
written and relate solely to the Flynn Acquisition 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 any
other term, provision or condition of the Credit Agreement or any other
instrument or agreement referred to therein (whether in connection with the
Flynn Acquisition or otherwise); or
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.
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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 "Fifth Amendment
Effective Date"):
A. On or before the Fifth 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 Fifth Amendment Effective
Date:
1. Certified copies of its Articles or Certificate of
Incorporation, or a Certificate of the corporate secretary or assistant
secretary for each of Holdings and each Borrower certifying as of the Fifth
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. Certified copies of the Certificate or Articles of
Incorporation of FN, FRN and FRN, Inc., each dated a recent date prior to
the Fifth Amendment Effective Date;
3. Copies of the Bylaws of FN, FRN and FRN, Inc., each
certificated as of the Fifth Amendment Effective Date by the applicable
corporate secretary or an assistant secretary;
4. A good standing certificate of Holdings, each Borrower, FN, FRN
and FRN, Inc. from the Secretary of State of the jurisdiction of its
incorporation and the jurisdiction in which its principal place of business
is located, each dated a recent date prior to the Fifth Amendment Effective
Date;
5. Resolutions of Board of Directors of each of Holdings, each
Borrower, FN, FRN, and FRN, Inc. approving and authorizing the execution,
delivery, and performance of this Amendment, each of the other Loan
Documents entered into on or about the Fifth Amendment Effective Date and
the Flynn Acquisition Agreements and, in the case of Company and Sun Gro,
approving and
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authorizing the execution, delivery and payment of each Allonge to Revolving
Note, substantially in the form of Annex C to this Amendment (collectively,
the "Allonges"), certified as of the Fifth Amendment Effective Date by the
applicable Loan Party's corporate secretary or an assistant secretary as
being in full force and effect without modification or amendment;
6. Signature and incumbency certificates of officers of each of
Holdings, each Borrower, FN, FRN and FRN, Inc. executing this Amendment,
each of the other Loan Documents entered into on or about the Fifth
Amendment Effective Date and the Flynn Acquisition Agreements;
7. Copies of this Amendment executed by Holdings, each Borrower,
FN, FRN, FRN, Inc. and each Lender, and the Allonges, each executed by
Company and Sun Gro, drawn to the order of each Domestic Lender;
8. Executed originals of the Domestic Subsidiary Guaranty, a
Domestic Subsidiary Pledge Agreement, a Domestic Subsidiary Security
Agreement and a Domestic Subsidiary Trademark Security Agreement, executed
by each of FN, FRN and FRN, Inc. and an executed original of a Pledge
Amendment to the Company Pledge Agreement pursuant to which Company pledges
to Agent all of the issued and outstanding capital stock of FN and certain
intercompany promissory notes;
9. Evidence in form and substance satisfactory to Agent that
Holdings, Company and Company's Subsidiaries have taken or caused to be
taken such actions (other than the filing or recording of items described in
clauses (ii), (iii) and (iv) below) in such a manner so that Agent has a
valid and perfected first priority security interest as of the Fifth
Amendment Effective Date in the entire personal and mixed property
Collateral of FN, FRN and FRN, Inc. Such actions shall include, without
limitation, the following:
(i) delivery to Agent of certificates (which certificates shall be
registered in the name of Agent or properly endorsed in blank for
transfer or accompanied by irrevocable undated stock powers duly
endorsed in blank, all in form and substance satisfactory to Agent)
representing the capital stock pledged pursuant to the Domestic
Subsidiary Pledge Agreements executed by FN and FRN or the Pledge
Amendment to the Company Pledge Agreement and delivery to Agent of
intercompany promissory notes executed and duly endorsed by FN, FRN,
FRN, Inc. and Company in form and substance satisfactory to Agent and
all other instruments (duly endorsed where appropriate) evidencing the
Collateral pledged pursuant to such Domestic Subsidiary Pledge
Agreements or such Pledge Amendment;
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(ii) delivery to Agent of Uniform Commercial Code financing
statements as to the Collateral of FN, FRN or FRN, Inc. for all
jurisdictions as may be necessary or desirable to perfect the security
interests in such Collateral;
(iii) delivery to Agent of the IP Collateral Documents of FN, FRN
or FRN, Inc., together with accurate and complete schedules thereto and
any cover sheets, if required, for filing with the United States Patent
and Trademark Office (the "PTO");
(iv) delivery to Agent of a deposit account notice with respect to
each Deposit Account listed on Schedule I annexed to the Domestic
Subsidiary Security Agreements of FN, FRN or FRN, Inc. (it being
understood by each party hereto that Company shall deliver to Agent a
Lock Box Agreement or a Blocked Account Agreement executed by each
Person that is a party thereto with respect to each such Deposit
Account within forty-five days after the Fifth Amendment Effective
Date); and
(v) delivery to Agent of such other documents and instruments that
Agent reasonably deems necessary or advisable to establish, preserve
and perfect the first priority Liens granted to Agent on behalf of
Lenders under the Collateral Documents of FN, FRN or FRN, Inc.;
10. A Borrowing Base Certificate substantially in the form of
Annex B annexed hereto, prepared as of a recent date prior to the Fifth
Amendment Effective Date;
11. Executed copies of the Flynn Acquisition Agreements (including
all schedules, exhibits and amendments thereto), each in form and substance
satisfactory to Agent;
12. Uniform Commercial Code, tax, judgment and other Lien searches
relating to any personal or mixed property of FN, FRN and FRN, Inc. in form
and substance satisfactory to Agent and 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 any personal, mixed or real property of FN, FRN or
FRN, Inc. in favor of any third parties (other than UCC-1 financing
statements filed pursuant to item 9 above) in form and substance
satisfactory to Agent;
13. 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:
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(i) the Flynn 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 Flynn Acquisition set forth in the
Flynn 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 Flynn Acquisition shall have occurred in accordance
with the Flynn Acquisition Agreements; and
(iv) the aggregate purchase price for the Flynn Acquisition
(including all fees and expenses relating thereto) does not exceed the
sum of (x) $4,500,000 in cash ($500,000 of which shall be in an escrow
account in accordance with the Flynn Acquisition Agreements) plus (y)
the assumption of Indebtedness not exceeding $7,500,000, all of which
Indebtedness is paid in full on the Fifth Amendment Effective Date plus
(z) the payment of fees and expenses not exceeding $250,000 (other than
fees payable to Agent or Lenders);
14. (i) Pro forma balance sheet of Company and its Subsidiaries
as of October 8, 1996 after giving effect to the Flynn Acquisition and the
financings contemplated thereby, (ii) 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 Flynn Acquisition, and (iii) financial statements
of FN and FRN attached to the Flynn Stock Purchase Agreement as Schedules
3.8 and 3.9 thereto, all of the foregoing in form and substance satisfactory
to Agent and Lenders;
15. Any and all environmental reports relating to any facilities
of FN, FRN or FRN, Inc. received by Company from FII, FN, FRN or FRN, Inc.
or obtained by Company or any of its Subsidiaries from any independent
consultants;
16. Evidence in form and substance satisfactory to Agent that
Holdings has received from New Preferred Stock Holders an equity
contribution in an aggregate amount equal to or greater than $20,000,000 in
cash and that Company has received from Holdings an equity contribution
equal to such amount in cash, and an Officers' Certificate of Holdings and
Company in form and substance satisfactory to Agent to such effect;
17. Evidence in form and substance satisfactory to Agent
(including an Officers' Certificate of Holdings and Borrowers to such
effect) that:
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(i) FRNO and Company have entered into the Flynn Oregon Agreements
and that all of the equipment and inventory of FRNO have been
transferred to FRN;
(ii) all of the "C" stock investments and "C" stock loans made in
or to FN by Farm Credit Systems of California have been repaid in full
or redeemed in full, as applicable, prior to the consummation of the
Flynn Acquisition and all Liens relating thereto have been released;
(iii) all of the Indebtedness outstanding under the Credit
Agreement dated as of October 20, 1995 among FN, FRN, FII and Farm
Credit Services, as amended (the "Existing Flynn Credit Agreement"),
shall have been repaid in full, that the Existing Flynn Credit
Agreement and all related documents have been terminated and that all
Liens relating thereto have been released;
(iv) all intercompany Indebtedness owing by FN, FRN or FRN, Inc.
to FII have been paid in full or cancelled prior to the Flynn
Acquisition;
(v) after giving effect to the Flynn Acquisition, none of FN, FRN
or FRN, Inc. will have any outstanding Indebtedness or Contingent
Obligations (other than under the Loan Documents) except (a) the
Indebtedness under the Existing Flynn Credit Agreement (as herein
defined), all of which shall have been repaid on the Fifth Amendment
Effective Date and (b) capital lease obligations described in Schedule
5.5 annexed to the Credit Agreement; and
(vi) all of the Von Kempf shares shall have been cancelled;
18. A copy of each of the leases to which FN, FRN or FRN, Inc. is
a party (as a lessee or as a lessor), each of which (including any purchase
option provisions contained therein) shall be in form and substance
satisfactory to Agent;
19. Unless waived by Agent, (i) a Non-Disturbance Agreement (as
defined in the Flynn Stock Purchase Agreement) from each lender encumbering
any Real Property Asset of FN, FRN or FRN, Inc., (ii) a Real Property Lease
Consent (as defined in the Flynn Stock Purchase Agreement) from each lessor
of any such Real Property Asset, and (iii) an Estoppel Letter (as defined in
the Flynn Stock Purchase Agreement) from each landlord, lessor, sublessor or
licensor of any such Real Property Asset, in each case (for clauses (i),
(ii) and (iii)) in form and substance satisfactory to Agent, in each case
other than Non-Disturbance Agreements, Real Property Lease Consents and
Estoppel Letters relating to two Master Lease Agreements dated June 30, 1997
with William Tomlinson and certain related parties;
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20. Evidence in form and substance satisfactory to Agent
(including an Officers' Certificate of Holdings and Borrowers) that (i) on
the Fifth Amendment Effective Date, the aggregate amount of outstanding
Indebtedness under the Existing Flynn Credit Agreement does not exceed
$7,500,000, and (ii) Company and its Subsidiaries have repaid in full all
amounts outstanding under the Existing Flynn Credit Agreement and have
terminated any commitments to lend or make other extensions of credit
thereunder. Company and its Subsidiaries shall have delivered to Agent all
termination statements, terminations of lockbox agreements, blocked account
agreements and collateral account agreements, assignment documents,
satisfactions, reconveyances, releases and similar documents as to any
financing statements, mortgages, deeds of trust, assignments and other
agreements or instruments creating or perfecting liens or security interests
which shall release all liens securing any and all indebtedness under the
Existing Flynn Credit Agreement; and
21. An Officers' Certificate of Holdings and each Borrower, in
form and substance satisfactory to Agent, to the effect that the
representations and warranties in Section 5 of the Credit Agreement are
true, correct and complete in all material respects on and as of the Fifth
Amendment Effective Date (both before and after giving effect to the Flynn
Acquisition and this Amendment) to the same extent as though made on and as
of that date (or, to the extent such representations and warranties
specifically relate to an earlier date, that such representations and
warranties were true, correct and complete in all material respects on and
as of such earlier date) and that Holdings or such Borrower shall have
performed in all material respects all agreements and satisfied all
conditions which this Amendment and the Credit Agreement as amended by this
Amendment provide shall be performed or satisfied by it on or before the
Fifth Amendment Effective Date except as otherwise disclosed to and agreed
to in writing by Agent.
22. A fully executed and notarized modification, in form and
substance satisfactory to Agent, to each of the Initial Mortgages, each of
the Additional Mortgages that have been executed by any of the Borrowers or
their Subsidiaries on or before the date hereof, and the Pledge and
Collateral Consent Assignment dated as of October 2, 1995, executed by Hines
Horticulture, Inc., in favor of Agent (collectively, the "Mortgage
Modifications").
23. CLTA Endorsements 110.5 (or the applicable state equivalent)
to each of the Initial Mortgage Policies and Additional Mortgage Policies
(collectively, the "Title Endorsements"), assuring Agent that the applicable
Initial Mortgages and Additional Mortgages remain valid and enforceable
first priority mortgage liens on the respective Initial Mortgaged Properties
and respective Additional Properties, free and clear of all defects and
encumbrances except Permitted Encumbrances, which Title Endorsements shall
be in form and substance reasonably satisfactory to Agent; provided,
however, that this condition
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may also be satisfied by the issuance of new lender's title policies, in
form and substance reasonably satisfactory to Agent, and which new lender's
title policies shall generally be in the form of the Initial Mortgage
Policies and Additional Mortgage Policies (including, without limitation,
all title endorsements thereto) dated as of the date of recordation of the
applicable Mortgage Modification and assuring Agent that the applicable
Initial Mortgages and Additional Mortgages, as modified by the applicable
Mortgage Modifications, are valid and enforceable first priority mortgage
liens on the respective Initial Mortgaged Properties and respective
Additional Properties, free and clear of all defects and encumbrances except
Permitted Encumbrances. In addition, the Initial Mortgage Policies and
Additional Mortgage Policies shall be modified and/or endorsed to provide
for any other matters that Agent may reasonably request, including, without
limitation, to provide for affirmative insurance and such reinsurance as
Agent may reasonably request, all of the foregoing in form and substance
reasonably satisfactory to Agent.
24. (i) A copy of each document described in Subsection 3.1B,
(ii) a Pledge and Collateral Assignment Agreement executed by company, as
pledgor, and BFI, as landlord, in favor of Agent, to be recorded in the real
estate records of Washington County, Oregon, (iii) a UCC-1 Financing
Statement, executed by Company, as debtor, and Agent, as secured party, to
be filed with the Oregon Secretary of State, and (iv) a copy of any title
insurance policies issued in connection with any of the foregoing.
B. On or before the Fifth Amendment Effective Date, Lenders and their
respective counsel shall have received (i) originally executed copies of one or
more favorable written opinions of Kirkland & Ellis, Schreck, Jones, Bernhard,
Woloson & Godfrey, Rutan & Tucker, and Carlsmith, Ball, Wichman, Case & Ichiki,
in each case counsel to Loan Parties, in form and substance reasonably
satisfactory to Agent and its counsel, dated as of the Fifth Amendment Effective
Date, substantially in the form set forth in Annex D, Annex E, Annex F, and
Annex G hereto, respectively, and as to such other matters as Agent acting on
behalf of Lenders may reasonably request, (ii) originally executed copies of a
written opinion of Canadian counsel to Loan Parties in form and substance
reasonably satisfactory to Agent and its counsel, and (iii) copies of written
opinions of (x) Schreck, Jones, Bernhard, Woloson & Godfrey to New Preferred
Stock Holders, and (y) Heller, Ehrman, White & McAuliffe, and Woodburn & Wedge,
in each case to Loan Parties, together with reliance letters relating thereto in
form and substance satisfactory to Agent.
C. Agent and each Lender shall have received the fees payable by
Company on the Fifth Amendment Effective Date in such amounts as have been
separately agreed upon.
D. On or before the Fifth Amendment Effective Date, all corporate and
other proceedings taken or to be taken in connection with this Amendment and all
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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. COMPANY'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 hereto has all
requisite corporate power and authority to enter into this Amendment, each of
the other Loan Documents entered into as of the date hereof, and each of the
Flynn Acquisition Agreements, and to carry out the transactions contemplated by,
and perform its obligations under, the Credit Agreement as amended by this
Amendment (the "Amended Agreement"), such other Loan Documents, and each of the
Flynn Acquisition Agreements, and Company and Sun Gro have all requisite
corporate power and authority to issue the Allonges.
B. Authorization of Agreements. The execution and delivery of this
Amendment, each of the other Loan Documents entered into as of the date hereof,
the Allonges, and each of the Flynn Acquisition Agreement, the performance of
the Amended Agreement, such other Loan Documents, and each of the Flynn
Acquisition Agreement, and the payment of the Notes as amended by the Allonges
(the "Amended Notes") have been duly authorized by all necessary corporate
action on the part of each Loan Party thereto.
C. No Conflict. The execution and delivery by each Loan Party hereto
of this Amendment, each of the other Loan Documents entered into as of the date
hereof, and each of the Flynn Acquisition Agreements, the execution and delivery
by Company and Sun Gro of the Allonges, the performance by each Loan Party
hereto of the Amended Agreement and such other Loan Documents and each of the
Flynn Acquisition Agreements, and the payment of the Amended Notes by Company
and Sun Gro 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 (including without limitation FN and 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 any
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
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of Holdings or any of its Subsidiaries, except for such approvals or consents
which have been obtained on or before the Fifth Amendment Effective Date and
disclosed in writing to Lenders.
D. Governmental Consents. The execution and delivery by the Loan
Parties hereto of this Amendment, each of the other Loan Documents entered into
as of the date hereof and each of the Flynn Acquisition Agreements, the
execution and delivery by Company and Sun Gro of the Allonges, the performance
by the Loan Parties party hereto of the Amended Agreement and such other Loan
Documents and the Flynn Acquisition Agreements and the payment of the Amended
Notes by Company and Sun Gro 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, except for
(i) filings required by federal or state securities laws, (ii) such other
registrations, consents, approvals, notices or other actions which have been
made, obtained, given or taken on or before the Fifth Amendment Effective Date
and (iii) filings and recordings which are required to be made to perfect
security interests in the Collateral.
E. Binding Obligation. This Amendment and each of the other Loan
Documents entered into as of the date hereof and the Amended Agreement have been
duly executed and delivered by each Loan Party hereto, the Allonges have been
duly executed and delivered by Company and Sun Gro, and each of this Amendment
and such other Loan Documents, the Amended Agreement and the Amended Notes are
the legally valid and binding obligations of each Loan Party thereto,
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. The subordination provisions
of each of the Takeout Securities are enforceable against the holders thereof in
accordance with their terms and the Loans, Letters of Credit and all other
monetary Obligations under the Credit Agreement (after giving effect to the
increase in the Revolving Loan Commitments contemplated by this Amendment) are
within the definitions of "Bank Indebtedness," "Senior Indebtedness" and
"Designated Senior Indebtedness" included in such provisions.
F. Issuance of Preferred Stock. All shares of preferred stock of
Holdings issued pursuant to the New Preferred Stock Purchase Agreement have been
duly and validly issued, fully paid and nonassessable. No stockholder of
Holdings has or will have any preemptive rights to subscribe for any additional
preferred stock of Holdings. Any issuance of any preferred stock of Holdings,
upon such issuance and sale, will either (a) have been registered and qualified
under applicable federal and state securities laws or (b) is exempt therefrom.
G. Subsidiaries of FN. FN has no Subsidiaries other than FRN and
FRN, Inc.
23
<PAGE>
H. Patents of FN, FRN and FRN, Inc. FN, FRN and FRN, Inc. have no
right, title or interest in any patents or patent applications under any law.
I. 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 Fifth Amendment
Effective Date (both before and after giving effect to the Flynn Acquisition and
this Amendment) 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.
J. 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.
K. Receivables Facility. The Receivables Sale and Contribution
Agreement dated May 31, 1996 by and between FRN and FRN, Inc. (the "Receivables
Agreement") and all related agreements have been terminated and FRN has not
sold, transferred, contributed or conveyed whether outright or by way of
security at any time any accounts, accounts receivable, documents, chattel
paper, and general intangible, or any other property to FRN, Inc., and no
obligations are outstanding to Capital USA Funding, L.P., Commerzbank
Aktiengesellschaft, New York Branch, Boatmen's Trust Company of Arkansas or any
other financial institution under the receivables facility relating to the
Receivables Agreement.
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
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, a Domestic Subsidiary Security Agreement, the
Domestic Subsidiary Pledge Agreement, a Domestic Subsidiary Trademark Security
Agreement, and a Domestic Subsidiary Patent Security 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 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 Company has created liens in favor
of Agent on certain Collateral to secure 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
24
<PAGE>
Collateral to Agent to secure the obligations of Holdings under the Holdings
Guaranty. Each of FN, FRN and FRN, Inc. has become a party to the Domestic
Subsidiary Guaranty, a Domestic Subsidiary Security Agreement, a Domestic
Subsidiary Pledge Agreement, a Domestic Subsidiary Trademark Security Agreement,
and a Domestic Subsidiary Patent Security Agreement pursuant to which such Loan
Party has (i) guarantied the Obligations and (ii) created liens in favor of
Agent on certain Collateral to secure the obligations of such Loan Party under
the Domestic Subsidiary Guaranty. Company, Sun Gro, Sun Gro Canada, Holdings,
FN, FRN, and FRN, Inc. 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 Fifth 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.
25
<PAGE>
Section 7. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(i) On and after the Fifth 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 Sections 1, 2 and 3 hereof, the
26
<PAGE>
effectiveness of which is governed by Section 4 hereof) shall become effective
upon the execution of a counterpart hereof by each Lender and each of the other
parties hereto 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]
27
<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.
BORROWERS:
HINES HORTICULTURE, INC.
(formerly known as Hines Nurseries Inc.)
By:
-------------------------------
Title:
----------------------------
S-1
<PAGE>
SUN GRO HORTICULTURE INC.
By:
-------------------------------
Title:
----------------------------
S-2
<PAGE>
SUN GRO HORTICULTURE CANADA LTD.
By:
-------------------------------
Title:
----------------------------
S-3
<PAGE>
HINES HOLDINGS, INC.,
(formerly known as Hines Horticulture Inc.) (for
purposes of Section 6 only) as a Credit Support
Party
By:
-------------------------------
Title:
----------------------------
S-4
<PAGE>
FLYNN NURSERIES, INC.
(for purposes of Section 6 only) as a Credit
Support Party
By:
-------------------------------
Title:
----------------------------
S-5
<PAGE>
FLYNN RAINBOW NURSERIES, INC.
(for purposes of Section 6 only) as a Credit
Support Party
By:
-------------------------------
Title:
----------------------------
S-6
<PAGE>
FRN, INC.
(for purposes of Section 6 only) as a Credit
Support Party
By:
-------------------------------
Title:
----------------------------
S-7
<PAGE>
LENDERS:
BT COMMERCIAL CORPORATION,
as a Domestic Lender and as Agent
By:
-------------------------------
Title:
----------------------------
S-8
<PAGE>
BT BANK OF CANADA,
as a Canadian Lender
By:
-------------------------------
Title:
----------------------------
S-9
<PAGE>
BANKERS TRUST COMPANY,
as an Issuing Lender
By:
-------------------------------
Title:
----------------------------
S-10
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By:
-------------------------------
Title:
----------------------------
S-11
<PAGE>
FLEET BANK OF MASSACHUSETTS, N.A.,
as a Domestic Lender and Canadian Lender
By:
-------------------------------
Title:
----------------------------
S-12
<PAGE>
LASALLE NATIONAL BANK,
as a Domestic Lender
By:
-------------------------------
Title:
----------------------------
S-13
<PAGE>
NATIONSBANK OF TEXAS, N.A.,
as a Domestic Lender and Canadian Lender
By:
-------------------------------
Title:
----------------------------
S-14
<PAGE>
UNION BANK OF CALIFORNIA, N.A.,
as a Domestic Lender and Canadian Lender
By:
-------------------------------
Title:
----------------------------
S-15
<PAGE>
WELLS FARGO BANK, N.A.,
as a Domestic Lender and Canadian Lender
By:
-------------------------------
Title:
----------------------------
S-16
<PAGE>
BANK OF MONTREAL,
as a Canadian Lender
By:
-------------------------------
Title:
----------------------------
S-17
<PAGE>
TREASURE VALLEY LAND COMPANY, L.C.
By: Jeff Hollingworth, its sole Manager
By:
-------------------------------------
Title:
---------------------------------
Address: 1550 S. Redwood Road
Salt Lake City, UT 84104
Attention: Michael Frei
S-2
<PAGE>
EXHIBIT 4.10
HINES HORTICULTURE, INC.
SIXTH AMENDMENT TO CREDIT
AGREEMENT
This SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as
of February __, 1997 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"), 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, as amended by that certain First Amendment thereto, that
certain Second Amendment thereto, that certain Third Amendment thereto, that
certain Fourth Amendment thereto and that certain Fifth Amendment and Consent
thereto (as so amended, the "Credit Agreement"), by and among Borrowers, Lenders
and Agent. 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
amend the definition of the terms "Company Borrowing Base", "Sun Gro Borrowing
Base" and "Eligible Inventory";
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
Subsection 1.1 of the Credit Agreement is hereby amended by deleting
the two references to "$30,000,000" appearing in the term "Company Borrowing
Base" and substituting therefor "$38,000,000" for each such reference and by
deleting the two references to "$30,000,000" appearing in the term "Sun Gro
Borrowing Base" and substituting therefor "$38,000,000" for each such reference.
Subsection 1.1 of the Credit Agreement is hereby further amended by
adding the following immediately before the "or" appearing at the end of clause
(c) of the definition of the term "Eligible Inventory": "provided, however, that
prior to July 31, 1997, any Inventory which is located on property that was
formerly leased by
1
<PAGE>
FRN and that is currently leased by Company shall not be excluded from the
definition of 'Eligible Inventory' solely because such Inventory is not subject
to a Collateral Access Agreement executed by the lessor of such property."
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 "Sixth Amendment
Effective Date"):
A. On or before the Sixth Amendment Effective Date, Company shall
deliver to Lenders (or to Agent for Lenders with sufficient originally executed
copies, where appropriate, for each Lender and its counsel) (i) executed copies
of this Amendment, (ii) 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 Sixth Amendment Effective Date
by its corporate secretary or an assistant secretary as being in full force and
effect without modification or amendment, and (iii) signature and incumbency
certificates of officers of each of Holdings and each Borrower executing this
Amendment.
B. On or before the Sixth 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. BORROWERS' 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 party hereto 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.
2
<PAGE>
C. No Conflict. The execution and delivery by each Loan Party party
hereto of this Amendment and the performance by each Loan Party 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 any 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 Sixth Amendment Effective Date and disclosed in
writing to Lenders.
D. Governmental Consents. The execution and delivery by the Loan
Parties party hereto of this Amendment and the performance by the Loan Parties
party 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 party hereto 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 and the Other Loan Documents. 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 Sixth Amendment Effective Date (both before and after giving
effect to this Amendment) 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. Other than a potential breach by Company of
subsection 7.6B as of December 31, 1996, 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
3
<PAGE>
Default. In no event shall the execution and delivery of this Amendment be
deemed to be a waiver of any breach of subsection 7.6B.
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 to
secure the Obligations 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 Company has created liens in favor of Agent on certain
Collateral to secure 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 repre-
4
<PAGE>
sentations 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 Sixth 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.
Section 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(i) On and after the Sixth 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.
5
<PAGE>
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) shall become effective upon the execution of a
counterpart hereof by Requisite Lenders, Requisite Class Lenders for Domestic
Lenders and each of the other parties hereto 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]
6
<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.)
By:
-------------------------------
Title:
----------------------------
SUN GRO HORTICULTURE INC.
By:
-------------------------------
Title:
----------------------------
SUN GRO HORTICULTURE CANADA LTD.
By:
-------------------------------
Title:
----------------------------
HINES HOLDINGS, INC., (formerly known as Hines
Horticulture Inc.) (for purposes of Section 4
only) as a Credit Support Party
By:
-------------------------------
Title:
----------------------------
BT COMMERCIAL CORPORATION, as a Domestic Lender
and as Agent
By:
-------------------------------
Title:
----------------------------
S-1
<PAGE>
BT BANK OF CANADA, as a Canadian Lender
By:
-------------------------------
Title:
----------------------------
BANKERS TRUST COMPANY, as an Issuing Lender
By:
-------------------------------
Title:
----------------------------
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By:
-------------------------------
Title:
----------------------------
FLEET BANK OF MASSACHUSETTS, N.A.,
as a Domestic Lender and Canadian Lender
By:
-------------------------------
Title:
----------------------------
LASALLE NATIONAL BANK,
as a Domestic Lender
By:
-------------------------------
Title:
----------------------------
S-2
<PAGE>
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:
----------------------------
WELLS FARGO BANK, N.A.,
as a Domestic Lender and Canadian Lender
By:
-------------------------------
Title:
----------------------------
BANK OF MONTREAL,
as a Canadian Lender
By:
-------------------------------
Title:
----------------------------
S-3
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT
This Amendment No. 1 to Stockholders Agreement (the "Amendment") is
made as of November 27, 1996.
Reference is made to the Stockholders Agreement dated as of August 4,
1995 by and between Hines Holdings, Inc., a Nevada corporation (the "Company"),
Madison Dearborn Capital Partners, L.P. ("MDCP"), and the executives listed on
Schedule I thereto (the "Stockholders Agreement"). Capitalized terms used
herein but not otherwise defined shall have the meaning given to such terms in
the Stockholders Agreement.
WHEREAS, the Company and MDCP are parties to a Purchase Agreement
dated as of the date hereof (the "Preferred Stock Purchase Agreement"), pursuant
to which the Company is selling shares of its preferred stock and warrants
(collectively, the "Equity Securities") to the investors who are a party thereto
(together with their permitted transferees, the "New Investors");
WHEREAS, paragraph 7D(iv) of the Preferred Stock Purchase Agreement
provides the New Investors with certain contractual "piggyback" registration
rights with respect to shares of Common Stock to be issued to the New Investors
upon conversion or exercise of their Equity Securities (the "New Investor
Common");
WHEREAS, paragraph 8(b) of the Stockholders Agreement provides that
the holders of Stockholder Shares shall have priority over other holders of
contractual piggyback registration rights bestowed by the Company;
WHEREAS, the New Investors and the parties hereto desire that the
holders of Stockholder Shares and the holders of New Investor Common have equal
priority in all piggyback registrations in which the holders of New Investor
Common and the holders of Stockholder Shares are entitled to participate (the
"Piggyback Registrations"); and
WHEREAS, it is a condition to closing of the transactions contemplated
by the Preferred Stock Purchase Agreement that this Amendment be entered into by
the requisite parties to the Stockholders Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be bound, agree as follows:
1. In connection with any Piggyback Registration, solely for
purposes of the "cutback" provisions contained in paragraph 8(b) of the
Stockholders Agreement, (i) the definition of "Registrable Securities" in
paragraph 8(a) of the Stockholders Agreement is hereby amended to include the
New Investor Common and (ii) the phrase "holders of Stockholder Shares" in
paragraph 8(b) of the Stockholders Agreement shall be deemed to include holders
of New Investor Common.
<PAGE>
2. This Amendment may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one and the same Amendment.
* * * * *
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first written above.
HINES HOLDINGS, INC.
By: _______________________________________
Its: _____________________________________
INVESTOR:
MADISON DEARBORN CAPITAL PARTNERS, L.P.
By: Madison Dearborn Partners, L.P.
Its: General Partner
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: _____________________________
Paul R. Wood
Vice President
EXECUTIVES:
___________________________________________
Stephen P. Thigpen
___________________________________________
Claudia M. Pieropan
___________________________________________
Kenneth A. Corman
-3-
<PAGE>
___________________________________________
Bud Summers
___________________________________________
Robert A. Ferguson
___________________________________________
Douglas D. Allen
___________________________________________
David Fujino
___________________________________________
Michael R. Crowe
___________________________________________
Timothy P. Ryan
___________________________________________
Albert Dorish
___________________________________________
Alan A. Hollman
___________________________________________
O. Gerald Taylor
-4-
<PAGE>
EXHIBIT 10.14
ASSET PURCHASE AGREEMENT
Among
IVERSON PERENNIAL GARDENS, INC.,
RONALD C. IVERSON
and
HINES HORTICULTURE, INC.
dated as of
August 30, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1.................................................................................. 1
DEFINITIONS.............................................................................. 1
1.01 Definitions................................................................ 1
ARTICLE 2.................................................................................. 5
PURCHASE AND SALE OF ASSETS........................................................... 5
2.01 Purchase and Sale of Assets................................................ 5
2.02 Limited Assumption of Liabilities.......................................... 9
2.03 Purchase Price............................................................. 12
2.04 Closing.................................................................... 13
2.05 Assignment of Contracts.................................................... 13
ARTICLE 3.................................................................................. 13
CONDITIONS TO CLOSING................................................................. 13
3.01 Conditions to Buyer's Obligation........................................... 13
3.02 Conditions to Seller's Obligations......................................... 17
ARTICLE 4.................................................................................. 18
ARTICLE 5.................................................................................. 18
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER.............................. 18
5.01 Organization and Power; Capitalization; Subsidiaries and Investments....... 18
5.02 Authorization.............................................................. 19
5.03 No Breach.................................................................. 19
5.04 Financial Information...................................................... 20
5.05 Inventories................................................................ 20
5.06 Notes and Accounts Receivable.............................................. 20
5.07 Absence of Undisclosed Liabilities......................................... 21
5.08 No Material Adverse Changes................................................ 21
5.09 Absence of Certain Developments............................................ 21
5.10 Title and Condition of Properties.......................................... 24
5.11 Contracts and Commitments.................................................. 27
5.12 Proprietary Rights......................................................... 29
5.13 Product Warranty........................................................... 30
5.14 Licenses and Permits....................................................... 30
</TABLE>
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<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.15 Litigation and Other Proceedings........................................... 30
5.16 Compliance with Laws; Certain Operations................................... 30
5.17 Environmental and Safety Requirements...................................... 31
5.18 Employees.................................................................. 32
5.19 Employee Benefit Plans..................................................... 32
5.20 Insurance.................................................................. 34
5.21 Tax Matters................................................................ 35
5.22 Customers.................................................................. 35
5.23 Suppliers.................................................................. 35
5.24 Brokerage.................................................................. 35
5.25 Affiliate Transactions..................................................... 36
ARTICLE 6.................................................................................. 36
REPRESENTATIONS AND WARRANTIES OF BUYER............................................... 36
6.01 Organization and Power..................................................... 36
6.02 Authorization.............................................................. 36
6.03 No Violation............................................................... 36
6.04 Governmental Authorities and Consents...................................... 37
6.05 Litigation................................................................. 37
6.06 Brokerage.................................................................. 37
6.07 Closing Date............................................................... 37
ARTICLE 7.................................................................................. 37
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING........................................ 37
7.01 Survival of Representations, Warranties and Covenants...................... 37
7.02 Liability for Environmental Matters........................................ 37
7.03 Indemnification............................................................ 38
7.04 Mutual Assistance and Records.............................................. 41
7.05 Press Release and Announcements............................................ 42
7.06 Expenses................................................................... 42
7.07 Further Transfers.......................................................... 42
7.08 Non-Competition; Non-Solicitation.......................................... 43
7.09 Communications............................................................. 44
7.10 Compliance with Bulk Sales Laws............................................ 44
7.11 Employees.................................................................. 44
</TABLE>
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<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.12 Confidentiality............................................................ 44
7.13 Taxes; Recording Charges................................................... 44
7.14 Prairie Haven Agreement.................................................... 45
ARTICLE 8.................................................................................. 45
MISCELLANEOUS......................................................................... 45
8.01 Amendment and Waiver....................................................... 45
8.02 Notices.................................................................... 45
8.03 Assignment................................................................. 46
8.04 Severability............................................................... 47
8.05 No Strict Construction..................................................... 47
8.06 Captions................................................................... 47
8.07 No Third Party Beneficiaries............................................... 47
8.08 Representations and Warranties; Disclosure Schedules....................... 47
8.09 Complete Agreement......................................................... 47
8.10 Counterparts............................................................... 47
8.11 Governing Law.............................................................. 47
</TABLE>
-iii-
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (this "Agreement") is made as of August
---------
30, 1996 by and among Iverson Perennial Gardens, Inc., a Delaware corporation
("Seller"), Ronald C. Iverson, the sole shareholder of Seller ("Shareholder"),
- -------- -----------
and Hines Horticulture, Inc., a California corporation ("Buyer").
-----
On the terms and subject to the conditions set forth in this
Agreement, Buyer desires to acquire from Seller and Shareholder, and Seller and
Shareholder desire to sell to Buyer, substantially all of the assets and
properties of and relating to the green goods production and distribution
business conducted by Seller in South Carolina (the "Business"), and Buyer
--------
desires to assume, and Seller and Shareholder desire to assign and transfer,
certain limited liabilities of Seller and Shareholder incurred solely in
connection with the Business.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.01 Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings set forth below:
"Accounts Receivable" shall mean all accounts receivable, including
-------------------
without limitation, all trade accounts receivable, notes receivable from
customers, vendor credits and accounts receivable from employees and all other
obligations from customers with respect to sales of goods, whether or not
evidenced by a note.
"Affiliate" of any particular Person shall mean any other Person
---------
controlling, controlled by or under common control with such Person.
"Affiliated Group" shall mean an affiliated group as defined in
----------------
Section 1504 of the Code (or any analogous combined, consolidated or unitary
group defined under state, local or foreign income Tax law) of which Seller is
or has been a member.
<PAGE>
"Assumed Liabilities" shall have the meaning set forth in Section
-------------------
2.02(a).
"Balance Sheet" shall have the meaning set forth in Section 5.04
-------------
hereof.
"Business" shall have the meaning set forth in the preamble hereto.
--------
"Buyer Group" shall have the meaning set forth in Section 7.03(a)
-----------
hereof.
"Closing" shall have the meaning set forth in Section 2.04 hereof.
-------
"Closing Date" shall have the meaning set forth in Section 2.04
------------
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Consulting and Noncompetition Agreement" shall have the meaning set
---------------------------------------
forth in Section 3.01(i) hereof.
"Contracts" shall have the meaning set forth in Section 2.02(a)(i)
---------
hereof.
"Controlled Group" shall have the meaning set forth in Section 5.19(e)
----------------
hereof.
"Employee Pension Plans" shall have the meaning set forth in Section
----------------------
5.19(a) hereof.
"Employee Welfare Plans" shall have the meaning set forth in Section
----------------------
5.19(a) hereof.
"Environmental and Safety Requirements" shall mean all federal, state,
-------------------------------------
local and foreign statutes, regulations, ordinances and similar provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, agricultural chemicals,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"Escrow Account" shall have the meaning set forth in the Escrow
--------------
Agreement.
-2-
<PAGE>
"Escrow Agreement" shall have the meaning set forth in Section 3.01(k)
----------------
hereof.
"Excluded Assets" shall have the meaning set forth in Section 2.01(b)
---------------
hereof.
"Excluded Liabilities" shall have the meaning set forth in Section
--------------------
2.02(b) hereof.
"Financial Statements" shall have the meaning set forth in Section
--------------------
5.04 hereof.
"Indemnitee" shall have the meaning set forth in Section 7.03(d)
----------
hereof.
"Indemnitor" shall have the meaning set forth in Section 7.03(d)
----------
hereof.
"Iverson/IPG Lease" shall have the meaning set forth in Section
-----------------
3.01(g)(vii) hereof.
"Latest Balance Sheet" shall have the meaning set forth in Section
--------------------
5.04 hereof.
"Licenses" shall have the meaning set forth in Section 5.14 hereof.
--------
"Liens" shall mean any mortgage, pledge, security interest,
-----
conditional sale or other title retention agreement, encumbrance, lien,
easement, option, debt, charge, claim or restriction of any kind.
"Losses" shall have the meaning set forth in 7.03(a) hereof.
------
"Material Adverse Effect" shall have the meaning set forth in Section
-----------------------
4.02(a)(ii) hereof.
"Material Customer" shall mean any customer of the Business who
-----------------
accounted for at least $50,000 in total sales during 1995.
"Multiemployer Plan" shall have the meaning set forth in Section
------------------
5.19(a) hereof.
"Noncompetition Period" shall have the meaning set forth in the
---------------------
Consulting and Noncompetition Agreement.
"Other Plans" shall have the meaning set forth in Section 5.19(a)
-----------
hereof.
"PBGC" shall mean the Pension Benefit Gauranty Corporation.
----
"Permitted Encumbrances" shall mean (i) minor imperfections of title,
----------------------
if any, none of which materially detracts from the value or impairs the use of
any such asset subject thereto,
-3-
<PAGE>
(ii) lessor's, materialmen's, mechanics', warehousemen's, carriers', repairmen's
or other like liens arising in the ordinary course of business for amounts not
yet due and which are not individually or in the aggregate material to the
Business or the Purchased Assets, (iii) liens for current taxes, assessments or
other governmental charges not yet due, (iv) statutory liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money
bonds, and similar obligations which are not yet delinquent and (v) liens or
encumbrances created by Buyer.
"Person" shall mean any individual, sole proprietorship, partnership,
------
joint venture, trust, unincorporated association, limited liability company,
corporation, or governmental entity (whether federal, state, county, city or
otherwise and including, without limitation, any instrumentality, division,
agency or department thereof).
"Plan" shall have the meaning set forth in Section 5.19 hereof.
----
"Products" shall have the meaning set forth in Section 7.08 hereof.
--------
"Proprietary Rights" shall have the meaning set forth in Section
------------------
2.01(a)(x) hereof.
"Purchase Price" shall have the meaning set forth in Section 2.03
--------------
hereof.
"Purchased Assets" shall have the meaning set forth in Section 2.01(a)
----------------
hereof.
"Real Property" shall have the meaning set forth in Section 5.10(b)
-------------
hereof.
"Returned Assumed Liabilities" shall have the meaning set forth in
----------------------------
Section 7.03(f) hereof.
"Seller's Knowledge" shall mean to the actual knowledge of Shareholder
------------------
or Sam Rizzi after due inquiry and reasonable investigation. "Seller's
--------
Knowledge" shall be deemed to exclude implied, imputed, constructive or any
other type of knowledge.
"Survey" shall have the meaning set forth in Section 3.01(g)(vi)
------
hereof.
"Survival Date" shall have the meaning set forth in Section 7.03(a)
-------------
hereof.
"Tax" shall mean any federal, state, local or foreign income, gross
---
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, real property gains, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall
-4-
<PAGE>
profit, environmental, customs, duties, real property, personal property,
capital stock, social security, unemployment, disability, payroll, license,
employee or other withholding, or other tax, of any kind whatsoever, including
any interest, penalties or additions to tax or additional amounts in respect of
the foregoing; the foregoing shall include any transferee or secondary liability
for a Tax and any liability assumed by agreement or arising as a result of being
(or ceasing to be) a member of any Affiliated Group (or being included (or
required to be included) in any Tax Return relating thereto).
"Tax Return" shall mean any return, declaration, report, claim for
----------
refund, information return or other document (including any related or
supporting schedule, statement or information) filed or required to be filed in
connection with the determination, assessment or collection of any Tax of any
party or the administration of any laws, regulations or administrative
requirements relating to any Tax.
"Temporary Lien" shall mean a vendor's perfected, unrecorded,
--------------
temporary purchase money security interest created pursuant to Article 9 of the
Uniform Commercial Code as enacted in the State of South Carolina.
"Unpaid Loss" shall have the meaning set forth in Section 7.03(f)
-----------
hereof.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
---------------------------
2.01 Purchase and Sale of Assets.
---------------------------
(a) Purchased Assets. On the terms and subject to the conditions
----------------
contained in this Agreement, on the Closing Date, Buyer shall purchase from
Seller or Shareholder, and Seller or Shareholder shall sell, convey, assign,
transfer and deliver to Buyer, free and clear of all Liens (except for the
Permitted Encumbrances and the Assumed Liabilities) by appropriate special
warranty deeds, bills of sale, assignments and other instruments reasonably
satisfactory to Buyer and its counsel, all assets, properties, rights, titles
and interests of every kind and nature owned or leased by Seller or Shareholder
(including indirect and other forms of beneficial ownership) as of the Closing
Date, which are used in or otherwise associated with the Business (including,
without limitation, all assets located on the premises of the Business), whether
tangible, intangible, real or personal and wherever located and by whomever
possessed, including, without limitation, all of the following assets used in or
otherwise associated with the Business, but excluding all Excluded Assets
(collectively, the "Purchased Assets"):
----------------
(i) all Accounts Receivable;
-5-
<PAGE>
(ii) all prepayments and prepaid expenses;
(iii) all interests in real estate (including, without limitation,
land, buildings, fixtures, fittings and improvements thereon, and
easements, licenses, rights of way, permits, and the other appurtenants
thereto, including appurtenant rights in and to public streets, whether or
not vacated), whether owned in fee, leased (except as set forth in Section
2.01(b)), subleased or otherwise owned by Seller or Shareholder and used in
connection with the operation of the Business;
(iv) all inventory, raw materials, manufactured and purchased
parts, work-in-process, finished goods, supplies and packaging materials,
and all growing stock and Day Lilly clumps located at Seller's Illinois
facilities or in transit to Seller's South Carolina facilities;
(v) all fixed assets, including all machinery, equipment, tools,
dies, jigs, molds, patterns, furniture, automobiles, trucks, tractors,
trailers and other vehicles, spare parts and supplies, computers and all
related equipment, telephones and all related equipment and all other
tangible personal property;
(vi) all rights existing under supply and distribution agreements
and arrangements, sales and purchase agreements and orders, under all
Contracts, agreements and arrangements entered into in the ordinary course
of business in a manner consistent with past custom and practice including,
without limitation, those listed on the attached "Contracts Schedule" and
------------------
the attached "Leases Schedule";
---------------
(vii) all distribution systems and networks (including, without
limitation, all rights to employ sales representatives) and all rights to
hire employees;
(viii) all lists and records pertaining to customers (whether past or
current), suppliers, distributors, personnel and agents and all other
books, ledgers, files, documents, correspondence, computer programs,
studies, reports, creative and advertising materials, business records and
all other printed or written material of every kind and nature;
(ix) all claims, deposits, prepayments (including, without
limitation, payments received for goods not yet delivered by Seller),
warranties, guarantees, refunds, causes of action, rights of recovery,
rights with respect to cash advances or other loans to employees, rights of
set-off and rights of recoupment of every kind and nature, other than those
relating exclusively to Excluded Assets or Excluded Liabilities;
(x) all patents, patent applications, patent disclosures and
inventions (whether or not patentable and whether or not reduced to
practice); all registered and unregistered
-6-
<PAGE>
statutory and common law copyrights; all registrations, applications and
renewals for any of the foregoing; all trade secrets, confidential
information, ideas, formulae, compositions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, improvements, proposals,
technical and computer data, financial, business and marketing plans, and
customer and supplier lists and related information; all license agreements
and sublicense agreements to and from third parties relating to any of the
foregoing; all other proprietary rights (including, without limitation, all
computer software and documentation); and all copies and tangible
embodiments of the foregoing (in whatever form or medium) (all of the
foregoing (other than items constituting Excluded Assets) are referred to
herein as the "Proprietary Rights"); all income, royalties, damages and
-------------------
payments due at Closing or thereafter with respect to the Proprietary
Rights and all other rights thereunder including, without limitation,
damages and payments for past, present or future infringements or
misappropriations thereof, the right to sue and recover for past, present
or future infringements or misappropriations thereof; all rights to use all
of the foregoing forever and all other rights in, to, and under the
foregoing in the United States of America;
(xi) all permits, licenses, franchises, orders, registrations,
certificates, variances, approvals and similar rights obtained from
governments and governmental agencies, including, without limitation, those
listed on the attached "Licenses Schedule" and all data and records
-----------------
pertaining thereto;
(xii) all trademarks, service marks, trade names, trade dress, logos
and corporate names and all goodwill associated therewith;
(xiii) all goodwill as a going concern and associated with the
Business and the Purchased Assets;
(xiv) all insurance, warranty and condemnation proceeds received
after the Closing Date with respect to damage, non-conformance of or loss
to the Purchased Assets;
(xv) all rights to receive mail and other communications addressed
to Seller and relating to the Business or the Purchased Assets including,
without limitation, Accounts Receivable payments; and
(xvi) all books, records, ledgers, files, documents, correspondence,
lists, studies and reports and other printed or written materials, except
as set forth in Section 2.01(b) (v) hereof.
-7-
<PAGE>
(b) Excluded Assets. Notwithstanding the foregoing, the following
---------------
assets are expressly excluded from the purchase and sale contemplated hereby
(the "Excluded Assets") and, as such, are not included in the Purchased Assets:
---------------
(i) Seller's rights under or pursuant to this Agreement and the other
agreements contemplated hereby;
(ii) all cash and cash equivalents;
(iii) amounts due to Seller from Shareholder in an amount not to exceed
$17,211.19;
(iv) all prepayments, deposits, claims, rights of action, refunds,
reimbursements or other recoveries with respect to any Excluded Asset,
Excluded Liability or income tax paid by Shareholder;
(v) Seller's general ledger, accounting records, tax records, minute
books and corporate seal; provided that Buyer shall be given copies of the
general ledger, accounting records and tax records as such documents exist
as of the Closing Date;
(vi) any life insurance on Shareholder, including the cash surrender
value thereon;
(vii) all claims and rights of recovery with respect to that certain
lawsuit entitled Iverson's Perennial Gardens, Inc. v. Logistics Edge, Inc.
---------------------------------------------------------
and Timothy Wendt;
-----------------
(viii) any right to receive mail and other communications addressed to
any Seller relating exclusively to the Excluded Assets or the Excluded
Liabilities;
(ix) all contracts, agreements and arrangements and all leases and
subleases of Seller not entered into in the ordinary course of business or
in accordance with the past custom and practice of the Business, including
without limitation, those which are expressly specified to be not assumed
by the Buyer on the "Contracts Schedule" or the "Leases Schedule;"
------------------ ---------------
(x) any assets relating to any program, Plan, policy or arrangement
(whether or not terminated) (A) which is or has been maintained,
established, or offered by Seller, (B) to which Seller contributes or has
contributed, (C) to which Seller has or has had any obligation to
contribute or (D) to which any Seller has or has had any liability or
potential liability and under which current or former employees, retirees,
individual contractors (or their spouses, dependents or other
beneficiaries) may receive benefits or have received benefits, including
but not limited to any Plan;
-8-
<PAGE>
(xi) any assets and property located at Seller's Illinois
facilities, including the proceeds from the sale of such assets (other than
the growing stock and Day Lilly clumps, wherever located), and the
receivables due to Seller or Shareholder arising exclusively from the sale
of Seller's retail nursery located in Illinois to Prairie Haven, Ltd.;
(xii) the three bedroom house located across the street from Seller's
main office in South Carolina;
(xiii) the personal art collection of Shareholder located in Seller's
main office in South Carolina;
(xiv) Seller's van used primarily by Shareholder; and
(xv) Seller's seed germination equipment to the extent such
equipment is not used by Seller in connection with the operation of the
Business.
2.02 Limited Assumption of Liabilities.
---------------------------------
(a) Limited Assumed Liabilities. On the terms and subject to
---------------------------
the conditions specified in this Agreement, from and after the Closing Date,
Buyer will not assume or in any way be responsible for any liabilities or
obligations of Seller or Shareholder or any other liabilities or obligations
whatsoever related to the operation of the Business or condition of the
Purchased Assets at any time prior to the Closing Date, except as specifically
provided below. Except as specifically provided in this Section 2.02(a), and
notwithstanding any disclosure made by Seller or Shareholder in Article 5
hereof, Buyer shall not assume any liability or obligation relating to or
arising out of or as result of (1) any transaction, status, event, condition,
occurrence, situation, charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand existing, occurring or arising on or prior to the
Closing Date, whether arising through any action or failure to act by Seller,
its officers, directors, employees or agents or the Shareholder, or otherwise or
(2) any violation of law, breach of contract, fraud, breach of warranty, tort or
infringement occurring on or prior to the Closing Date. To the extent such
liability or obligation is not an Excluded Liability (as defined below) or arise
as a result of a breach of any representation, warranty or covenant of Seller or
Shareholder, Buyer will be responsible for all liabilities and obligations
arising after the Closing Date resulting solely from Buyer's operation of the
Business and ownership of the Purchased Assets. Subject to the provisions of
Section 7.03(f) hereof, from and after the Closing Date, Buyer will assume and
agree to pay, defend, discharge and perform as and when due only the following
specific liabilities and obligations of (i) Seller that relate exclusively to
the Business or (ii) Shareholder that relate exclusively to the assets being
purchased from Shareholder pursuant to Sections 2.01(a)(iii) and 2.01(a)(x)
(collectively, the "Assumed Liabilities"):
-------------------
-9-
<PAGE>
(i) liabilities and obligations to the extent arising after the
Closing Date pursuant to all contracts, leases, licences, instruments,
arrangements, purchase orders or other agreements entered into in the
ordinary course of business in a manner consistent with past custom and
practice including, without limitation, those contracts and leases which
are set forth on the "Contracts Schedule" or the "Leases Schedule"
------------------ ---------------
(collectively, the "Contracts");
---------
(ii) liabilities resulting from express product warranties given by
Seller in the ordinary course of business in a manner consistent with past
custom and practice including, without limitation, those product warranties
set forth on the "Assumed Product Warranties Schedule;"
-----------------------------------
(iii) liabilities to former employees of Seller, other than
Shareholder, for unused 1996 vacation days to the extent specifically
described on and for the number of days set forth on the "Assumed
-------
Liabilities Schedule," which schedule shall be true and complete as of a
--------------------
date not prior to July 31, 1996, plus liabilities to such employees for
unused vacation days accrued by Seller in the ordinary course of business
in a manner consistent with past custom and practice after the date of such
schedule through and including the Closing Date, and excluding any
liability or obligation of Seller to its employees for payment in cash for
accrued vacation days in lieu of time off;
(iv) liabilities and obligations for all accounts payable and
accrued expenses related exclusively to the removal and transfer of growing
stock and Day Lilly clumps from the Seller's Illinois facilities to the
Seller's South Carolina facilities; and
(v) liabilities and obligations, whether arising under any Contract
or otherwise, for all accounts payable and accrued expenses related
exclusively to the Business and incurred by Seller or Shareholder in the
ordinary course of business in a manner consistent with past custom and
practice including, without limitation, all accounts payable and accrued
expenses specifically described on and in the amounts set forth on the
"Assumed Liabilities Schedule."
-----------------------------
(b) Excluded Liabilities. Notwithstanding anything to the contrary
--------------------
contained in this Agreement and regardless of whether such liability is
disclosed herein or on any schedule hereto, Buyer will not assume or be liable
for any of Seller's debts, liabilities or obligations of any nature whatsoever,
whether accrued, absolute or contingent, whether known or unknown, whether
disclosed or undisclosed, whether due or to become due, and whether arising out
of, related to or associated with the Business, the Purchased Assets or
otherwise, and regardless of when or by whom incurred, other than the Assumed
Liabilities, including, without limitation, the following liabilities and
obligations of Seller (the "Excluded Liabilities"):
--------------------
-10-
<PAGE>
(i) liabilities or obligations for any contracts, agreements,
leases or other arrangements, accounts payable, accrued liabilities or
other short-term liabilities other than those described in Section 2.02(a)
hereof, or any contingent liabilities;
(ii) liabilities or obligations with respect to all Taxes (other
than those included in Section 2.02(a)(v) hereof), including without
limitation, all income taxes of Seller and Shareholder relating to the
ownership or operation of the Business and/or the Purchased Assets on or
prior to the Closing Date and all Taxes arising out of or relating to any
of the transactions contemplated hereby;
(iii) liabilities or obligations of Seller or Shareholder for costs
and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby (except to the extent
set forth in Section 7.06 hereof);
(iv) liabilities or obligations of Seller under this Agreement or
the agreements contemplated hereby;
(v) liabilities or obligations arising out of, resulting from or
relating to the Excluded Assets;
(vi) liabilities or obligations arising out of the business of
Seller conducted in Illinois including, without limitation, all accounts
payable relating thereto (other than those included in Section 2.02(a)(iv)
above) and set forth on the Excluded Accounts Payable Schedule;
(vii) liabilities or obligations of Seller for indebtedness for
borrowed money or any capitalized leases;
(viii) liabilities or obligations of Seller arising out of or related
to the same facts or circumstances as those which gave rise to that certain
lawsuit entitled Iverson's Perennial Gardens, Inc. v. Logistics Edge, Inc.
---------------------------------------------------------
and Timothy Wendt, including, without limitation, any liability or
-----------------
obligation of Seller to Logistics Edge, Inc. or Timothy Wendt;
(ix) liabilities or obligations for any claims (whenever made) or
proceedings arising out of, relating to, resulting from or caused by any
products delivered and sold by Seller or any of its Affiliates with respect
to the Business (or any predecessor) at any time on or prior to the Closing
Date (except to the extent set forth in Section 2.02(a));
(x) liabilities or obligations for any claims (whenever made)
arising out of, relating to, resulting from or caused by any transaction,
event or occurrence existing, arising or occurring (A) in connection with
the ownership or operation of the Business and/or the
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<PAGE>
Purchased Assets on or prior to the Closing Date or (B) in connection with
Seller's or any of its Affiliates' businesses or activities at any time
prior to or on or after the Closing Date (except to the extent set forth in
Section 2.02(a));
(xi) liabilities or obligations for any claims (whenever made)
arising out of or relating to any claims by employees or former employees
or independent contractors (including dependents, spouses and other
beneficiaries) of Seller, its subsidiaries or Plan Affiliates (or any
predecessors) for (a) medical costs and expenses incurred as a result of
claims made or injuries occurring on or prior to the Closing Date
including, without limitation, any claims, costs or expenses relating to or
arising under any Plan, if any (including any claims, costs or expenses
related to continuation coverage as set forth in Section 601 of ERISA
provided to any former employee or dependent thereof as of or prior to the
Closing Date, other than accounts payable or accrued expenses existing as
of the Closing Date, but excluding any accounts payable or accrued expenses
arising on or after the Closing Date), and (b) costs, expenses and other
liabilities under any workers compensation laws, regulations, requirements
or programs to the extent related to any claim arising from or alleged to
arise from or in connection with any fact, event, claim, injury or
condition existing on or prior to the Closing Date; (Notwithstanding the
foregoing, Seller will continue to perform the administrative functions of
processing after the Closing such medical and workers compensation claims
contemplated hereby. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person, firm or
corporation, other than the parties hereto and their respective permitted
successors and assigns, any rights or remedies under or by reason of this
Agreement.);
(xii) with respect to all current and former employees, independent
contractors, their spouses, dependents and beneficiaries, all obligations,
duties, contributions and liabilities relating to any claims for severance
pay, vacation pay, accrued vacation pay, death, disability or other welfare
or fringe benefits, including, without limitation, any benefit offered or
available under any Employee Welfare Plan, payable as a result of facts,
actions or conditions existing on or prior to the Closing Date or which are
provided to any person who is not an active employee (or a dependent
thereof) of Seller, its subsidiaries or any Plan Affiliate on or
immediately prior to the Closing Date, except as provided in Section
2.02(a) hereof;
(xiii) any liabilities or obligations (including but not limited to
any claim of any governmental agency, any trustee, any fiduciary, any plan
administrator, any person dealing with any Plan, any employee or any
beneficiary and without regard to whether such liability or obligation
arises prior to or after the Closing Date or results from an event, prior
to or after the Closing Date) which relate to (A) program, plan, policy or
arrangement (whether or not terminated) (i) which is or has been
maintained, established, or offered by Seller, (ii) to
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which Seller contributes or has contributed; (iii) to which Seller has or
has had any obligation to contribute; or (iv) to which Seller has or has
had any liability or potential liability and under which current or former
employees, retirees, individual contractors (or their spouses, dependents
or other beneficiaries) may receive benefits or have received benefits,
including but not limited to any Plan; (B) any Tax, penalty, assessment,
fine or other liability relating to any such program, plan, policy, or
Plan, which may result as a violation of law, including any violation of
the Code, ERISA or any proposed, temporary or final regulation thereunder
or (C) any liability, including any potential or actual liability, relating
to any failure to comply with the requirements of the Code and/or ERISA; or
(xiv) any liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) or obligations (whether investigatory,
corrective, remedial or otherwise) arising under any Environmental and
Safety Requirements with respect to the operation of the Business or
condition of the Purchased Assets prior to the Closing Date, whether or not
set forth on any schedule to this Agreement or otherwise disclosed to or
known by Buyer prior to the date hereof (including without limitation any
liability for attorney and consultant fees, personal injury, property
damage, onsite or offsite cleanup costs or damage to natural resources).
2.03 Purchase Price. Subject to the conditions contained in this
--------------
Agreement, the total consideration to be delivered at the Closing by Buyer for
the Purchased Assets (the "Purchase Price") shall be (i) $1,000,000 payable by
--------------
wire transfer of immediately available funds to the Escrow Account, (ii) payment
by wire transfer of immediately available funds of amounts directed and
authorized by Seller and Shareholder in the "Payment Authorization Letter"
attached hereto as Exhibit F, (iii) payment by wire transfer of immediately
---------
available funds of amounts due under certain mortgages on real property being
purchased by Buyer from Shareholder hereunder in the amounts and to the parties
as set forth on the "Mortgage Payoff Schedule" attached hereto, (iv) $9,045,000
minus the sum of amounts paid under clause (ii) and (iii) above, payable by wire
transfer of immediately available funds to an account designated by Seller and
(v) the assumption by Buyer of the Assumed Liabilities.
2.04 Closing. Subject to the satisfaction or waiver of the conditions
-------
contained in this Agreement, the closing of the transactions contemplated by
Sections 2.01, 2.02 an 2.03 hereof (the "Closing") will occur at the offices of
-------
Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois 60601, at 10 a.m.
on August 30, 1996 or at such other time and on such other date as the parties
hereto mutually agree (the "Closing Date").
------------
2.05 Assignment of Contracts. Seller shall obtain all consents and
-----------------------
approvals necessary to assign to Buyer any Contract, permit or other asset of
Seller that is included in the Purchased Assets. To the extent that the
assignment hereunder by Seller to Buyer of any Contract is not permitted or is
not permitted without the consent of any other party to the Contract, this
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Agreement shall not be deemed to constitute an assignment of any such Contract
if such consent is not given or if such assignment otherwise would constitute a
breach of, or cause a loss of contractual benefits under, any such Contract, and
Buyer shall assume no obligations or liabilities thereunder. Seller shall advise
Buyer promptly in writing with respect to any Contract under which it knows or
has reason to believe it will not receive the required consent. Seller shall
take all actions requested by Buyer and cooperate with Buyer to obtain such
consent or any new Contract (if necessary) on substantially similar terms and
conditions as those under the existing Contracts. Without in any way limiting
Seller's obligations to obtain all consents and waivers necessary for the sale,
transfer, assignment and delivery of the Contracts and the Purchased Assets to
Buyer hereunder, if any such consent is not obtained or if such assignment is
not permitted irrespective of consent and the Closing hereunder is consummated,
Seller shall continue to use its reasonable best efforts to obtain such consents
and shall cooperate with Buyer in any arrangement designed to provide Buyer with
the rights and benefits (subject to the obligations) under the Contracts.
ARTICLE 3
CONDITIONS TO CLOSING
---------------------
3.01 Conditions to Buyer's Obligation. Except as otherwise expressly
--------------------------------
provided in this Agreement, the obligation of Buyer to consummate the
transactions contemplated by this Agreement is subject to the satisfaction of
the following conditions on or before the Closing Date:
(a) the representations and warranties set forth in Article 5 hereof
will be true and correct at and as of the Closing Date;
(b) Seller will have performed all of the covenants and agreements
required to be performed by it under this Agreement prior to the Closing;
(c) there will have been no material adverse change in the assets,
liabilities, condition (financial or otherwise), operating results, employee,
customer or supplier relations, business activities or business prospects of
Seller, and Seller will not have lost any Material Customer (or any material
portion of any Material Customer's business), since January 1, 1996;
(d) all consents and approvals by governmental agencies that are
necessary or (in the opinion of Buyer) desirable for the consummation of the
transactions contemplated hereby or the other agreements contemplated hereby or
by third parties that are required in order to prevent a breach of, or a default
under or a termination or modification of, any instrument, contract, lease or
other agreement to which Seller is a party or to which the Purchased Assets is
subject and releases of all Liens on the Purchased Assets (other than the
Assumed Liabilities) will have been obtained on terms and conditions no less
favorable to Buyer than they are to Seller;
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<PAGE>
(e) all licenses, permits and authorizations that are required to
own and operate the Purchased Assets and to carry on the Business as now
conducted will have been transferred to or obtained (or, if not required at
Closing, applied for) by Buyer on terms and conditions no less favorable to
Buyer than they are to Seller;
(f) no suit, action or proceeding before any court, arbitrator or
government body will be pending or threatened which, in the judgment of Buyer,
made in good faith upon advice of counsel, makes it inadvisable or undesirable
to consummate the transactions contemplated by this Agreement;
(g) on the Closing Date, Seller will have delivered to Buyer at
Seller's expense (unless otherwise specifically provided herein) each of the
following:
(i) a certificate from an officer of Seller in the form set forth
as Exhibit A attached hereto, dated the Closing Date, stating that the
---------
preconditions specified in subsections (a) through (f) hereof, inclusive,
have been satisfied;
(ii) certified copies of the resolutions duly adopted by Seller's
board of directors and shareholders unanimously authorizing the execution,
delivery and performance of this Agreement and the other agreements
contemplated hereby, and the consummation of all other transactions
contemplated hereby and thereby;
(iii) copies of all necessary governmental and third party consents,
approvals, releases and filings required in order for Seller to effect the
transactions contemplated by this Agreement and the other agreements
contemplated hereby;
(iv) such instruments of sale, transfer, assignment, conveyance and
delivery (including, without limitation, a special warranty deed for
Shareholder's real property subject only to the Permitted Encumbrances, and
all vehicle titles), in form and substance satisfactory to counsel for
Buyer, as are required in order to transfer to Buyer good and marketable
title to the Purchased Assets, free and clear of all Liens (other than
Temporary Liens on inventory and the Permitted Encumbrances);
(v) the following title insurance commitments, policies and
endorsements:
(A) With respect to each parcel of owned real property
listed on the "Owned Real Property Schedule" and included in the
----------------------------
Purchased Assets, an ALTA Form B - 1970 Owner's Policy of Title
Insurance (or equivalent policy acceptable to Buyer if the Owner Real
Property is located in a state in which an ALTA Form B - 1970 Owner's
Policy of Title Insurance is not available) issued by a title insurer
reasonably satisfactory to Buyer, in an amount equal to the value of
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<PAGE>
each such parcel of owned real property (including all improvements
located thereon) set forth on the "Allocation Schedule" attached
-------------------
hereto, insuring title to such owned real property to be in Buyer as
of the Closing, subject only to the Permitted Encumbrances.
(B) Each title insurance policy delivered under Section
3.01(g)(v)(A) above shall (1) insure title to the real property
subject thereto and all recorded easements benefitting such real
property, (2) contain an "extended coverage endorsement" insuring over
the general exceptions contained customarily in such policies, (3)
contain an ALTA Zoning Endorsement 3.1 (or equivalent), (4) contain an
endorsement insuring that the real property described in the title
insurance policy is the same real estate as shown on the Survey (as
defined in Subsection 3.01(g)(vi) below) delivered with respect to
such real property, (5) contain an endorsement insuring that each
street adjacent to the real property is a public street and that there
is direct and unencumbered pedestrian and vehicular access to such
street from the real property, (6) if the real property consists of
more than one record parcel, contain a "contiguity" endorsement
insuring that all of the record parcels are contiguous to one another,
(7) a tax parcel number endorsement and (8) such other endorsements as
Buyer or Buyer's lender may reasonably request. Shareholder shall be
responsible for and shall pay all of the costs and expenses incurred
in connection with the delivery and procurement of the title policies
required under this Section 3.01(g)(v).
(C) Such further affidavits, agreements and assurances
reasonably required by the title insurer in order to facilitate
Buyer's efforts and ability to obtain the ALTA Owner's Policies of
Title Insurance identified in this Section 3.01(g)(v).
(vi) With respect to each parcel of owned real property listed on
the "Owned Real Property Schedule" and included in the Purchased Assets, an
----------------------------
update of those certain surveys of owned real property prepared by C.
Ashley Abel, dated November 25, 1994 and December 29, 1994, respectively,
and certified to Buyer, the title insurer, any third party lending
institution designated by Buyer and any other party reasonably designated
by Buyer, prepared by such surveyor and conforming to current Minimum
Standards Manual for the Practice of Land Surveying for South Carolina (the
"Survey"). The Survey shall not disclose any survey defect or encroachment
------
from or onto the real property subject to such Survey which is material to
the Business or the Purchased Assets. Shareholder shall be responsible for
and shall pay all of the costs and expenses incurred in connection with the
delivery and procurement of the Surveys required under this Section
3.01(g)(vi).
(vii) A termination of that certain unrecorded lease agreement
between Shareholder, as landlord, and Seller, as tenant, for the owned real
property (the "Iverson/IPG Lease") in form and substance reasonably
-----------------
satisfactory to Buyer and Buyer's lenders.
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<PAGE>
(viii) An assignment of lease for each of the Leases set forth in the
Leases Schedule, in form and substance reasonably satisfactory to Buyer.
(ix) Such other documents or instruments as Buyer reasonably
requests to effect the transactions contemplated hereby.
(h) Seller shall not have lost any of its sales representatives or
any of its employees who, in the opinion of Buyer, constitute key employees;
(i) Shareholder and Buyer will have entered into a consulting,
confidentiality and noncompetition agreement in the form of Exhibit B attached
---------
hereto (the "Consulting and Noncompetition Agreement"), and the Consulting and
---------------------------------------
Noncompetition Agreement will not have been amended or modified and will be in
full force and effect as of the Closing;
(j) Buyer will have received from Seller's counsel, Rudnick &
Wolfe, an opinion with respect to the matters set forth in Exhibit C attached
---------
hereto, addressed to Buyer and dated the Closing Date, in form and substance
reasonably satisfactory to Buyer;
(k) Seller, Shareholder and Buyer will have entered into an Escrow
Agreement in the form of Exhibit D attached hereto (the "Escrow Agreement"), and
--------- ----------------
the Escrow Agreement will not have been amended or modified and will be in full
force and effect as of the Closing;
(l) Seller, Shareholder and Buyer will have entered into an Access
License Agreement in the form of Exhibit E attached hereto (the "Access License
--------- --------------
Agreement"), and the Access License will not have been amended or modified and
- ---------
will be in full force and effect as of the Closing; and
(m) all proceedings to be taken by Seller in connection with the
consummation of the Closing and the other transactions contemplated hereby and
all certificates, opinions, instruments and other documents required to effect
the transactions contemplated hereby reasonably requested by Buyer will be
reasonably satisfactory in form and substance to Buyer and its counsel.
Any conditions specified in this Section 3.01 may be waived by Buyer; provided,
that no such waiver will be effective unless it is set forth in a writing
executed by Buyer.
3.02 Conditions to Seller's Obligations. Except as otherwise
----------------------------------
expressly provided herein, the obligation of Seller to consummate the
transactions contemplated by this Agreement is subject to the satisfaction of
the following conditions on or before the Closing Date:
(a) the representations and warranties set forth in Article 6
hereof will be true and correct in all material respects at and as of the
Closing Date;
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<PAGE>
(b) Buyer will have performed in all material respects all the
covenants and agreements required to be performed by it under this Agreement
prior to the Closing;
(c) all consents and approvals by governmental agencies that are
required for the consummation of the transactions contemplated hereby by Seller
or Shareholder or the other agreements contemplated hereby will have been
obtained on terms and conditions reasonably satisfactory to Seller;
(d) no suit, action or proceeding before any court, arbitrator or
government body will be pending or threatened which, in the judgment of Seller,
made in good faith and upon advice of counsel, makes it inadvisable or
undesirable for Seller to consummate the transactions contemplated by this
Agreement;
(e) Buyer and Shareholder will have entered into the Consulting and
Noncompetition Agreement, and the Consulting and Noncompetition Agreement will
not have been amended or modified and will be in full force and effect as of the
Closing;
(f) Seller, Shareholder and Buyer will have entered into the Escrow
Agreement, and the Escrow Agreement will not have been amended or modified and
will be in full force and effect as of the Closing; and
(g) Seller, Shareholder and Buyer will have entered into the Access
License Agreement, and the Access License Agreement will not have been amended
or modified and will be in full force and effect as of the Closing; and
(h) all proceedings to be taken by Buyer in connection with the
consummation of the Closing and the other transactions contemplated hereby and
all certificates, opinions, instruments and other documents required to effect
the transactions contemplated hereby reasonably requested by Seller will be
reasonably satisfactory in form and substance to Seller and its counsel.
Any condition specified in this Section 3.02 may be waived by Seller; provided,
that no such waiver will be effective against Seller unless it is set forth in a
writing executed by Seller.
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<PAGE>
ARTICLE 4
[INTENTIONALLY OMITTED]
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER
---------------------------------------------------------
As an inducement to Buyer to enter into this Agreement, each of Seller
and Shareholder hereby jointly and severally represents and warrants to Buyer
that as of the date of this Agreement and as of the Closing Date:
5.01 Organization and Power; Capitalization; Subsidiaries and
--------------------------------------------------------
Investments. Seller is a corporation duly organized, validly existing and in
- -----------
good standing under the laws of Delaware. Seller is qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in which its
ownership of properties or conduct of business requires Seller to be so
qualified, except for jurisdictions where the failure to be so qualified will
not have a material adverse effect on Seller's ability to perform its
obligations hereunder. Seller has all requisite corporate power and authority
and all licenses, permits and authorizations necessary to own and operate the
Purchased Assets and to carry on the Business as now conducted and as presently
proposed to be conducted. Seller has all requisite power and authority to
execute and deliver this Agreement and the other agreements contemplated hereby
and to perform its obligations hereunder and thereunder, subject to the consents
and approvals required to be obtained and listed on the attached "Restrictions
------------
Schedule," all of which shall have been obtained at or prior to the Closing.
- --------
The attached "Capitalization Schedule" accurately sets forth the authorized and
-----------------------
outstanding capital stock of Seller and the name and number of shares of capital
stock held by each stockholder of Seller. Seller does not own or control
(directly or indirectly) any stock, partnership interest, joint venture
interest, equity participation or other security or interest in any other
Person. The certificate of incorporation and bylaws of Seller that have
previously been furnished to Buyer reflect all amendments thereto and are
correct and complete in all material respects.
5.02 Authorization. The execution, delivery and performance by Seller
-------------
and Shareholder of this Agreement, the other agreements contemplated hereby and
the transactions contemplated hereby and thereby have been duly and validly
authorized by Seller and Shareholder and no other corporate act or proceeding on
the part of Seller, its Board of Directors or its stockholders is necessary to
authorize the execution, delivery or performance by Seller of this Agreement or
any other agreement contemplated hereby or the consummation of the transactions
contemplated hereby or thereby. All of the shareholders of Seller have approved
and consented in
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writing to the consummation of the transactions contemplated by this Agreement.
This Agreement has been duly executed and delivered by each of Seller and
Shareholder and this Agreement constitutes, and the other agreements
contemplated hereby upon execution and delivery by Seller and/or Shareholder, as
appropriate, will each constitute a valid and binding obligation of Seller
and/or Shareholder, as appropriate, enforceable against in accordance with its
terms, except to the extent that the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, rehabilitation, moratorium and similar
laws now or hereafter in effect relating to creditors' rights generally or
general equitable principles.
5.03 No Breach. Except as set forth on the attached "Restrictions
--------- ------------
Schedule," the execution, delivery and performance by Seller of this Agreement
- --------
and the other agreements contem plated hereby and the consummation of the
transactions contemplated hereby and thereby do not and will not (a) violate,
conflict with, result in any breach of, constitute a default under, result in
the termination or acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any notice under, Seller's certificate
of incorporation or bylaws, or any contract, agreement, indenture, mortgage,
loan agreement, lease, sublease, license, sublicense, franchise, permit,
indenture, mortgage, obligation or instrument to which Seller is a party or by
which it is bound or affected or to which any of the Purchased Assets is bound
or affected, (b) result in the creation or imposition of any lien, security
interest, charge, restriction or encumbrance upon any of the Purchased Assets,
(c) require any authorization, consent, approval, exemption or other action by
or notice to any court, other governmental body or other person or entity under,
the provisions of any law, statute, rule, regulation, judgment, order or decree
or any contract, agreement, lease, sublease, license, franchise, permit,
indenture, mortgage, obligation or instrument to which Seller is subject, bound
or affected or to which the Purchased Assets are bound or affected or (d)
violate or require any consent or notice under law, statute, regulation, rule,
judgment, decree, order, stipulation, injunction, charge or other restriction of
any government, governmental agency or court to which Seller or any of the
Purchased Assets is subject, bound or affected. Except as set forth on the
Restrictions Schedule, no permit, consent, approval or authorization of,
declaration to or filing with, or notice to, any governmental authority or any
third party is required in connection with the execution, delivery and
performance by Seller of this Agreement or the other agreements contemplated
hereby, or the consummation by Seller of any other transactions contemplated
hereby or thereby.
5.04 Financial Information. The attached "Financial Statement
--------------------- -------------------
Schedule" contains the following financial statements (the "Financial
- -------- ---------
Statements"):
(a) the audited balance sheet of Seller as of December 31, 1995 (the
"Balance Sheet") and the related reviewed statements of income, changes in
- --------------
stockholders' equity and cash flow for the twelve-month period then ended; and
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(b) the unaudited balance sheet of Seller as of June 30, 1996 (the
"Latest Balance Sheet"), and the related unaudited statements of income, changes
- ---------------------
in stockholders' equity and cash flow for the six-month periods then ended.
Each of the foregoing Financial Statements (including in all cases the notes
thereto, if any) is consistent with the books and records of Seller (which are
true, accurate and complete in all material respects) and presents fairly in all
material respects the financial condition and results of operations of Seller in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered thereby (unless otherwise noted in the footnotes
thereto or in the accompanying letter from Seller's independent public
accountants); provided, however, that the interim Financial Statements are
subject to normal year end adjustments (which, individually or in the aggregate,
will not be material) and lack footnotes and other presentation items.
5.05 Inventories. The inventories of Seller (a) are properly
-----------
reflected on Seller's books and records in accordance with generally accepted
accounting principles consistently applied at the lower of cost or market on a
first-in, first-out basis and (b) are not obsolete or damaged. All of the
inventories of Seller (other than inventory in transit) are located on its
premises in South Carolina or in Illinois.
5.06 Notes and Accounts Receivable. All Accounts Receivable (a) are
-----------------------------
valid receivables incurred in the ordinary course of business, (b) are properly
reflected on Seller's books and records in accordance with generally accepted
accounting principles consistently applied, (c) are not and will not be subject
to any valid counterclaim, deduction, credit, set-off or other offset, and (d)
are current and as of the Closing Date are collectible within a commercially
reasonable period of time at full face amounts without offset, subject to a
reserve for bad debts established in a manner consistent with the reserve for
bad debts reflected on the Balance Sheet, and not varying therefrom in any
material respect, and further subject to customary discounts and adjustments,
which shall not be material either individually or in the aggregate. The
attached "Accounts Receivable Schedule" contains a true and complete list of all
----------------------------
Accounts Receivable of Seller as of the effective date of such schedule,
relating to or arising out of the Business.
5.07 Absence of Undisclosed Liabilities. With respect to the Business
----------------------------------
or the Purchased Assets, to Seller's Knowledge, Seller has no debts, liabilities
or obligations of any nature (whether accrued, absolute, contingent, direct,
indirect, perfected, inchoate, unliquidated or otherwise, whether due or to
become due) arising out of transactions entered into at or prior to the Closing,
or any transaction, series of transactions, action or inaction at or prior to
the Closing, or any state of facts or condition existing at or prior to the
Closing (regardless of when any such liability or obligation is asserted),
including, without limitation, Taxes with respect to or based upon
transactions or events occurring on or before the Closing, except (a) material
liabilities and obligations under agreements, contracts, leases or commitments
described on the Leases Schedule or the Contracts Schedule (none of which
relates to any breach of contract, breach of warranty, tort,
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infringement, or violation of law or arose out of any charge, complaint, action,
suit, proceeding, hearing, investigation, claim or demand), (b) liabilities and
obligations to the extent specifically reflected and reserved against on the
Latest Balance Sheet, (c) liabilities and obligations expressly described on the
attached "Undisclosed Liabilities Schedule" and (d) liabilities and obligations
--------------------------------
of Seller as provided in Section 2.02(a) hereof and incurred in the ordinary
course of business since the date of the Latest Balance Sheet.
5.08 No Material Adverse Changes. Except as set forth on the attached
---------------------------
"Developments Schedule," since the date of the Latest Balance Sheet, there has
---------------------
been no material adverse change in the assets, liabilities, condition (financial
or otherwise), operating results, or employee or supplier relations of Seller
and to Seller's Knowledge Seller has not lost any Material Customer (or any
material portion of any Material Customer's business).
5.09 Absence of Certain Developments. Except as set forth in the
-------------------------------
Developments Schedule attached hereto:
- ---------------------
(a) Since the date of the Latest Balance Sheet, except as otherwise
expressly provided herein, Seller has:
(i) conducted the Business only in the usual and ordinary course of
business in accordance with past custom and practice (including placing
purchase orders only for reasonable quantities and at reasonable prices and
accepting customer orders only for reasonable quantities on reasonable
terms and at rates and in amounts consistent with past custom and
practice);
(ii) used reasonable best efforts to keep in full force and effect
its present business organization and the Business;
(iii) used reasonable efforts to (A) retain the employees of the
Business who are performing satisfactorily, (B) preserve the present
business relationships with all customers and all material suppliers and
distributors of the Business, to the extent such relationships are
beneficial to the Business, (C) preserve the goodwill of the Business and
(D) promote the smooth transition of such customers, suppliers and
distributors from Seller to Buyer;
(iv) maintained all of the material Purchased Assets in good
repair, order and condition, except for ordinary wear and tear not caused
by neglect, and maintained insurance reasonably comparable to that in
effect on the date of the Latest Balance Sheet; and
(v) conducted the cash management customs and practices of the
Business (including the collection of receivables and payment of payables
and maintenance of inventory control and pricing and credit practices) in
the usual and ordinary course of
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<PAGE>
business in accordance with past custom and practice, or as of the Closing
Date failed to pay any account payable on or prior to the date on which
such payment was first due, notwithstanding any extension or waiver.
(b) Since the date of the Latest Balance Sheet, except as otherwise
provided herein, Seller has not, with respect to the Business:
(i) incurred any liability other than in the ordinary course of
business consistent with past custom and practice;
(ii) entered into any transaction, arrangement or contract
(including, without limitation, any transfer of the Purchased Assets or
placing a Lien on any of the Purchased Assets) except on an arm's-length
basis in the ordinary course of business consistent with past custom and
practice;
(iii) entered into any transaction, arrangement or contract with any
officer, director, partner, stockholder or other insider or Affiliate of
Seller including, without limitation, any sale, transfer, assignment or
conveyance of inventory;
(iv) instituted any material change in the conduct of Business or
any change in its method of purchase, sale, lease, management, marketing,
operation or accounting;
(v) made any purchases for the Business other than in the ordinary
course of business consistent with past custom and practice;
(vi) discharged or satisfied any material lien or encumbrance or
paid any material obligation or liability, other than current liabilities
paid in the ordinary course of business consistent with past custom and
practice, or canceled, compromised, waived or released any right or claim;
(vii) except as set forth on the "Licenses Schedule," modified,
-----------------
sold, assigned, transferred, abandoned or permitted to lapse any licenses
or permits which, individually or in the aggregate, are material to the
Business or any portion thereof, or any of the Proprietary Rights or other
intangible assets, or disclosed any material proprietary confidential
information to any Person, except in the ordinary course of business
consistent with past custom and practice, or granted any license or
sublicense of any rights under or with respect to any Proprietary Rights;
(viii) made or granted any bonus or any wage or salary increase to
any employee, officer or director, or directly or indirectly made any other
material change in employment
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<PAGE>
terms for any employee, officer or director, other than bonuses and
increases in the ordinary course of business to non-executive employees
consistent with past custom and practice;
(ix) made or granted any increase in, or amended or terminated, any
existing plan, program, policy or arrangement, including without
limitation, any Plan, employee benefit plan or arrangement, or adopted any
new employee benefit plan or arrangement, or amended or renegotiated any
existing collective bargaining agreement or entered into any new collective
bargaining agreement or multiemployer plan;
(x) made any capital expenditures or commitments therefor such that
the aggregate outstanding amount of unpaid obligations and commitments with
respect thereto shall comprise in excess of $25,000 of Assumed Liabilities
on the Closing Date;
(xi) made any loans or advances to, or pledges or guarantees for
the benefit of, or entered into any transaction with any employee, officer
or director, except for the transactions contemplated by this Agreement,
and for advances consistent with past custom and practice made to
employees, officers and directors for expenses incurred in the ordinary
course of business;
(xii) suffered any extraordinary loss, damage, destruction or
casualty loss or waived any rights of material value, whether or not
covered by insurance and whether or not in the ordinary course of business
or consistent with past custom and practice;
(xiii) received notification that any Material Customer or supplier
will stop or decrease in any material respect the rate of business done
with Seller;
(xiv) borrowed any amount or incurred or become subject to any
material liabilities, except liabilities under Seller's existing bank
facilities or current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary
course of business consistent with past custom and practice;
(xv) pledged to make any charitable or other capital contribution;
(xvi) made any capital investment in, any loan to, or any
acquisition of the securities or assets of any other Person or taken any
steps to incorporate any subsidiary;
(xvii) entered into any other material transaction, other than in the
ordinary course of business consistent with past custom and practice; or
(xviii) committed to any of the foregoing.
-24-
<PAGE>
(c) Seller and Shareholder represent and warrant that between July
24, 1996 and the Closing Date, neither Seller nor Shareholder has (and has not
permitted any Affiliate, employee, officer, director, stockholder, agent or
other person acting on its behalf to) discussed any possible sale of, solicited
or accepted any offer to, or negotiated, agreed to or sold, all or any part of
the securities or assets of the Business (other than the sale or other
disposition of inventory or other assets in the ordinary course of business
consistent with past custom and practice) to or with any other party (other than
Buyer or its representatives) or provided any information to any other party
(other than Buyer or its representatives) concerning Seller (other than
information which Seller provides to other parties in the ordinary course of its
business consistent with past custom and practice, so long as Seller has no
reason to believe that the information may be utilized to evaluate a possible
acquisition).
(d) Seller has not at any time made or committed to make any payments
for bribes, kickback payments or other illegal payments.
(e) Seller has not accelerated, terminated, modified, or canceled any
contract, lease, sublease, license, sublicense or other agreement set forth on
the attached "Contracts Schedule" or "Leases Schedule" (except for the
------------------ ---------------
cancellation of agreements entered into between Seller and Shareholder), and to
Seller's Knowledge, no other party has accelerated, terminated, modified, or
canceled any contract, lease, sublease, license, sublicense or other agreement
set forth on the attached "Contracts Schedule" or "Leases Schedule" (except for
------------------ ---------------
the cancellation of agreements entered into between Seller and Shareholder).
5.1 Title and Condition of Properties.
---------------------------------
(a) Owned Real Property. The attached "Owned Real Property Schedule"
------------------- ----------------------------
lists and sets forth a legal description of all real property owned by Seller or
Shareholder and to be transferred to Buyer. Except as set forth in the Owned
Real Property Schedule, with respect to each such parcel of owned real property:
(i) the identified owner has good and marketable title to the
parcel of real property, free and clear of any Lien, easement, covenant or
other restriction, except for the Permitted Encumbrances;
(ii) there are no (A) pending or to Seller's Knowledge threatened
condemnation proceedings relating to the property, (B) pending or to
Seller's Knowledge threatened litigation or administrative actions relating
to the property, or (C) to Seller's Knowledge other matters affecting
adversely the current use, occupancy, or value thereof;
(iii) to Seller's Knowledge, unless shown to the contrary on the
Surveys, the buildings and improvements are located within the boundary
lines of the described parcels
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<PAGE>
of land and do not encroach on any easement which may burden the land, and
access to the property is provided by paved public right-of-way with
adequate curb cuts available;
(iv) to Seller's Knowledge, except as may be shown on the title
commitments, policies and endorsements, and except as shown on the Surveys,
the buildings and improvements located on the property are not in violation
of applicable setback requirements, zoning laws and ordinances (and none of
the properties or buildings or improvements thereon are subject to
"permitted non-conforming use" or "permitted non-conforming structure"
classifications), the land does not serve any adjoining property for any
purpose inconsistent with the use of the land, and the property is not
located within any flood plain or subject to any similar type restriction
for which any flood hazard insurance, permits or licenses necessary to the
use thereof have not been obtained;
(v) all facilities have received all approvals of governmental
authorities (including licenses and permits) required in connection with
the ownership or operation thereof and have been operated and maintained in
accordance with applicable laws, rules, and regulations;
(vi) there are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any party or parties the
right of use or occupancy of any portion of the parcel of real property;
(vii) there are no outstanding options or rights of first refusal to
purchase the parcel of real property, or any portion thereof or interest
therein;
(viiii) there are no parties (other than Seller) in possession of the
parcel of real property;
(ix) all facilities located on the parcel of real property are
supplied with utilities and other services necessary for the operation of
such facilities, including gas, electricity, water, telephone, sanitary
sewer, and storm sewer, all of which services are adequate for Seller's use
and in accordance with all applicable laws, ordinances, rules, and
regulations and are provided via public roads or via permanent, irrevocable
(subject to applicable South Carolina law governing the taking of property
by the government), appurtenant easements benefitting the parcel of real
property;
(x) each parcel of real property abuts on and has direct vehicular
access to a public road or access to a public road via a permanent,
irrevocable (subject to applicable South Carolina law governing the taking
of property by the government), appurtenant easement benefitting the parcel
of real property; and
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<PAGE>
(xi) the parcel of real property has access to water resources for
irrigation purposes as reasonably required for the cultivation of nursery
stock in the ordinary course of the Business, the Seller's or Shareholder's
access to and use of such water resources is not dependant upon the
ownership of any real property or interest therein, contractual rights,
governmental permits or other rights or privileges of any kind which are
not included in the Purchased Assets. Seller and Shareholder are in
compliance with all laws, rules or regulations governing the use of any
such water resources.
(b) Leased Property. Other than the Iverson/IPG Lease to be
---------------
terminated at Closing, the leases described on the attached "Leases Schedule"
---------------
constitute all of the leases, subleases, licenses, concessions or other
agreements held by Seller or Shareholder for the use or occupancy of real
property in connection with the Business (the "Leases") under which Seller or
------
Shareholder holds a leasehold interest in real estate and/or personal property
used in connection with the Business. The real estate described on the "Owned
-----
Real Property Schedule" and the Leases described on the "Leases Schedule"
- ---------------------- ---------------
constitute all of the real estate owned, leased, used or occupied by Seller in
connection with the Business (collectively, the "Real Property"). Except as set
-------------
forth on the attached "Leases Schedule," the Leases described on the Leases
---------------
Schedule are in full force and effect and Seller hold a valid and existing
leasehold, subleasehold, license, concession or other such interest under each
of such Leases. Seller has delivered to Buyer complete and accurate copies of
each of the Leases described on the Leases Schedule and none of such Leases have
been modified in any material respect, except to the extent that such
modifications are disclosed by the copies delivered to Buyer. Except as set
forth on the attached "Leases Schedule," Seller is not in default and no
---------------
circumstances exist which would result in such default, under any of such
Leases, and no other party to such Leases has the right to terminate, accelerate
performance under or otherwise modify (including upon the giving of notice or
the passage of time) any of such Leases. No third party to any such Lease is in
default in any material respect under any of such Leases. All properties
leased, used or occupied under such Leases have unqualified access to public
roads and have access to all utilities necessary to conduct the Business as
presently constituted.
(c) Title. Seller owns good and marketable title, free and clear of
-----
all Liens (other than the Permitted Encumbrances), to all of the personal
property and assets shown on the Latest Balance Sheet or acquired thereafter or
otherwise included in the Purchased Assets and all intangible personal property
and assets of Seller included within the Purchased Assets, except for rights of
licensors and lessors of such Purchased Assets which are subject to license or
lease as described in the "Contracts Schedule" or the "Leases Schedule," Liens
------------------ ---------------
for current Taxes not yet due and payable and Liens disclosed on the attached
"Liens Schedule." At the Closing, Seller will convey, assign and transfer good
- ---------------
and marketable title to all of its real and personal property and assets
included within the Purchased Assets, free and clear of all Liens (other than
rights of licensors and lessors of such Purchased Assets which are subject to
license or lease as described in the Contracts Schedule or the Lease Schedule,
or Permitted Encumbrances or Temporary Liens on inventory). The Purchased
Assets so conveyed will include all of those assets (real, personal, tangible
and intangible) used
-27-
<PAGE>
during the twelve months prior to the Closing Date (other than inventory or raw
materials used, sold or consumed in the ordinary course of business) and will
enable Buyer to operate the Business in the same manner as operated by Seller
prior to and as of the Closing Date.
(d) Condition. All of Seller's or Shareholder's buildings,
---------
improvements, machinery, equipment and other tangible personal property and
assets are in good condition and repair in all respects and except as set forth
on the attached "Condition of Property Schedule", except for ordinary wear and
------------------------------
tear not caused by neglect, and are useable in the ordinary course of business.
The Purchased Assets, together with the Excluded Assets, include all assets
necessary to the conduct of the Business as presently constituted and all assets
which were used to conduct the Business since the date of the Latest Balance
Sheet, other than assets sold or otherwise disposed of in the ordinary course of
business to non-affiliated third parties (except as set forth on the Contracts
Schedule) in accordance with past custom and practice.
(e) No Violations. To Seller's Knowledge, except as may be shown on
-------------
the title commitments, policies and endorsements, Seller is not in violation of
any applicable zoning, building code or subdivision ordinance or other law,
regulation or requirement relating to the operation of properties described on
the Leases Schedule or any of the Purchased Assets (including applicable
occupational health and safety laws and regulations), which violations,
individually or in the aggregate, could have a material and adverse effect upon
the assets, liabilities, condition (financial or otherwise), operating results,
employee or customer or supplier relations of Seller (a "Material Adverse
----------------
Effect"). Within the three (3) years prior to the date of this Agreement,
- ------
Seller has not received any notice of any such violation or any condemnation
proceeding with respect to any properties described on the Leases Schedule or
any of the Purchased Assets.
5.1 Contracts and Commitments.
-------------------------
(a) Except as set forth in the attached "Contracts Schedule," Seller
------------------
is not a party to or bound by any written or oral:
(i) collective bargaining agreement or contract with any labor
union or written contract for the employment of any officer, individual
employee or other Person on a full-time, part-time or consulting basis;
(ii) agreement or indenture relating to the borrowing of money,
mortgaging, pledging or otherwise placing a Lien on any of the Purchased
Assets;
(iii) agreement or commitment with respect to the lending or
investment of funds to or in other persons or entities;
-28-
<PAGE>
(iv) guaranty of any obligation for borrowed money or otherwise,
other than endorsements made for collection in the ordinary course of
business;
(v) lease or agreement under which it is lessee or lessor of or
holds or operates any personal property owned by any other party for which
the annual rental exceeds $10,000;
(vi) lease or agreement under which it is lessor of or permits any
third party to hold or operate any property, real or personal, owned or
controlled by it for which the annual rental exceeds $10,000;
(vii) contract or group of related contracts or orders with the same
party for the purchase or sale of products under which the undelivered
balance of such products or services has a price in excess of $50,000;
(viii) contract relating to the supply or distribution of Seller's
products;
(ix) contract or group of related contracts with the same party
continuing over a period of more than six (6) months from the date or dates
thereof that is not terminable by each party thereto on thirty (30) days or
less notice without penalty;
(x) license or royalty agreement;
(xi) agreement, arrangement or understanding with any officer,
director, partner, stockholder or other insider or Affiliate of Seller
(other than for employment in customary terms);
(xii) contract which prohibits it from freely engaging in business
anywhere in the world; or
(xiii) other agreement material to the Business or the Purchased
Assets, whether or not entered into in the ordinary course of business.
(b) Except as disclosed in the Contracts Schedule, (i) to Seller's
Knowledge no contract or commitment included in the Purchase Assets has been
breached in any material respect or canceled by the other party that has not
been duly cured or reinstated, (ii) Seller has in all material respects
performed all of its obligations required to be performed by it under such
contracts and commitments to the date of this Agreement and is not in receipt of
any written claim of default under any such contract or commitment, (iii) no
event has occurred which with the passage of time or the giving of notice or
both would result in a breach or default under any such contract or commitment,
(iv) Seller has no Knowledge of any anticipated breach by any other party to any
such contract or
-29-
<PAGE>
commitment and (v) to Seller's Knowledge, Seller is not a party to any contract
or contracts which, individually or in the aggregate, could have a Material
Adverse Effect.
(c) Buyer has been supplied with a true and correct copy of all
written contracts as specified on the Contracts Schedule, together with all
amendments, waivers or other changes thereto.
5.12 Proprietary Rights.
------------------
(a) The Proprietary Rights Schedule attached hereto contains a
complete and accurate list of (i) all patented and registered Proprietary Rights
owned by Seller and all pending patent applications and applications for the
registration of other Proprietary Rights owned or filed by Seller, (ii) all
trade or corporate names used by Seller, (iii) all licenses and other rights
granted by Seller to any third party with respect to the Proprietary Rights and
all licenses and other rights granted by any third party to Seller with respect
to the Proprietary Rights and (iv) all coexistence agreements, permissions or
agreements to which Seller is a party (or which is currently under negotiation
for Proprietary Rights.
(b) Except as set forth on the Proprietary Rights Schedule (i)
Seller owns and possesses a legally protectible right, title and interest in and
to all Proprietary Rights, (ii) Seller owns or has the valid right to use all of
the intellectual property necessary for the operation of Seller's business as
presently conducted or as currently proposed to be conducted, (iii) no claim by
any third party contesting the validity, enforceability, use, or ownership of
any Proprietary Rights has been made, is currently outstanding or is threatened
and there are no grounds for any such claim, (iv) neither Seller nor any
employee or agent of Seller has received any notices of, nor are they aware of
any facts which indicate a likelihood of, any infringement or misappropriation
by, or conflict with, any third party with respect to the Proprietary Rights,
nor has Seller or any employee or agent of Seller received any claims of
infringement or misappropriation of or other conflict with any intellectual
property rights of any third party and (v) Seller has not infringed,
misappropriated or otherwise conflicted with any rights of any third parties,
nor is Seller aware of any infringement, misappropriation or conflict which will
occur as a result of the continued operation of the Business as presently
conducted or as currently proposed to be conducted.
(c) The Proprietary Rights constitute all of the intellectual
property necessary for the operation of the Business as currently conducted.
Seller has taken all necessary action to protect the Proprietary Rights so as
not to materially and adversely affect the validity, enforcement, use or
ownership of such Proprietary Rights. The Proprietary Rights owned or used by
Seller immediately prior to the Closing hereunder will be owned or available for
use on identical terms and conditions immediately subsequent the Closing
hereunder.
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<PAGE>
5.13 Product Warranty. All products sold and delivered by Seller in
----------------
connection with the Business at any time prior to the Closing Date have been in
conformity with all applicable contractual commitments and all express or
implied warranties. No material liability exists for replacement thereof or
other damages in connection with such sales or deliveries at any time prior to
the Closing Date. No products heretofore delivered or sold by Seller in
connection with the Business or products with respect to which any offer or
agreement to sell has been made by Seller are now subject to any guarantee or
warranty, except to the extent described on the attached "Product Warranty
----------------
Schedule."
- --------
5.14 Licenses and Permits. The attached "Licenses Schedule" contains
-------------------- -----------------
a complete listing and summary description of all permits, licenses,
certificates, approvals and other authorizations of foreign (if applicable),
federal, state and local governments or other similar rights (collectively, the
"Licenses") used by Seller in the conduct of the Business. Except as indicated
--------
on the Licenses Schedule, Seller owns or possesses all right, title and interest
in and to all of the Licenses that are necessary to own and operate the
Purchased Assets and to conduct the Business as presently constituted,
including, without limitation, all Licenses required under any federal, state or
local law relating to public health and safety, employee health and safety,
pollution or protection of the environment. Seller is in compliance in all
material respects with the terms and conditions of such Licenses and has
received no notices that it is in violation of any of the terms or conditions of
such Licenses. Seller has taken all necessary action to maintain such Licenses.
To Seller's Knowledge, no loss or expiration of any such License is threatened,
pending or reasonably foreseeable other than expiration in accordance with the
terms thereof. Except as indicated on the Licenses Schedule, all of the
Licenses are transferable to Buyer and will be transferred by Seller to Buyer on
or before the Closing Date.
5.15 Litigation and Other Proceedings. Except as set forth on the
--------------------------------
attached "Litigation Schedule," there are no actions, suits, proceedings,
-------------------
hearings, orders, investigations, charges, complaints or claims pending or to
Seller's Knowledge threatened against or affecting Seller, the Business or the
Purchased Assets (or pending or to Seller's Knowledge threatened against or
affecting any of the officers, directors or employees of Seller with respect to
the Business), or to which Seller or the Purchased Assets may be bound or
affected, at law or in equity, or before or by any federal, state, municipal,
foreign or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and there is no basis for any of the
foregoing; Seller is not subject to any judgment, order or decree of any court
or governmental agency; Seller has not received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may have a Material Adverse
Effect on the Business or the Purchased Assets.
5.16 Compliance with Laws; Certain Operations. Except as disclosed on
----------------------------------------
the attached "Compliance Schedule," Seller, and with respect to the Business and
-------------------
the Purchased Assets Shareholder, are in material compliance with and has not
violated any applicable law, rule or
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<PAGE>
regulation of any federal, state, local or foreign government or agency thereof
which affects the Business or the Purchased Assets, including, without
limitation, the Sherman Act, the Clayton Act, the Robinson-Patman Act, the
Federal Trade Commission Act, or any other federal or state acts (including
rules and regulations thereunder) regulating or affecting antitrust or trade
regulations or the Immigration Reform and Control Act of 1986, as amended.
Except as disclosed on the attached "Compliance Schedule," no notice, claim,
-------------------
charge, complaint, action, suit, proceeding, investigation or hearing has been
received by Seller or Shareholder or filed, commenced or to Seller's Knowledge
threatened against Seller or Shareholder alleging a violation of or liability or
potential responsibility under any such law or regulation which affect the
Business or the Purchased Assets or to which Seller may be subject and which
have not heretofore been duly cured and for which there is no remaining
liability, except as set forth on the Compliance Schedule.
5.17 Environmental and Safety Requirements. Except as set forth and
-------------------------------------
described with particularity on the attached "Environmental Schedule":
----------------------
(a) Seller has complied and is in compliance in all material respects
with any applicable Environmental and Safety Requirements;
(b) Seller has obtained and complied with, and is in compliance in
all material respects with, all permits, licenses and other authorizations that
may be required pursuant to Environmental and Safety Requirements for the
occupation of the Facility and the operation of the Business which such permits,
licenses and authorizations may be relied upon by Buyer for the lawful operation
of the Business and the Facility on and after the Closing without transfer,
reissuance or other governmental action;
(c) Seller has not received any written notice, report or other
written information regarding any actual or alleged violation of Environmental
and Safety Requirements, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to the Business or
the Real Property and arising under Environmental and Safety Requirements;
(d) none of the following exists at any property or facility owned or
operated by the Seller in connection with the Business (i) underground storage
tanks, (ii) asbestos-containing material in any form or condition, (iii)
materials or equipment containing polychlorinated biphenyls or (iv) landfills,
surface impoundments, or disposal areas;
(e) Seller has not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or operated any
property or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to material
liabilities, including any liability for response costs, corrective action
costs, personal injury, property
-32-
<PAGE>
damage, natural resources damages or attorney fees, or any investigative,
corrective or remedial obligations, pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA") or the
------
Solid Waste Disposal Act, as amended ("SWDA") or any other Environmental and
----
Safety Requirements;
(f) no facts, events or conditions relating to the past or present
facilities, properties or operations of Seller or the Business will materially
prevent, hinder or limit continued compliance by the Business with Environmental
and Safety Requirements, give rise to any material investigatory, remedial or
corrective obligations pursuant to Environmental and Safety Requirements, or
give rise to any other material liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage;
(g) neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements; and
(h) Seller has not expressly assumed or undertaken any liability,
including without limitation any obligation for corrective or remedial action,
of any other person relating to Environmental and Safety Requirements.
5.18 Employees. Except as contemplated by this Agreement, to Seller's
---------
Knowledge, no key employee and no group of employees has any plans to terminate
employment with Seller. Seller has complied in all material respects and is in
compliance with all applicable laws relating to the employment of labor,
including laws relating to wages, hours, equal opportunity, collective
bargaining, immigration and the payment of social security and other taxes.
There are no administrative charges or court complaints pending or, to Seller's
Knowledge, threatened against Seller before any government agency. Within the
last three (3) years, Seller has not experienced any union organization
attempts, labor disputes or work stoppage or slowdowns due to labor
disagreements. There is no labor strike, dispute, work stoppage or slowdown
pending or to Seller's Knowledge threatened. There is no request for
representation pending and no question concerning representation has been
raised. There is no grievance or arbitration proceeding pending which might have
a Material Adverse Effect on Seller or the Business. Seller is not a party to
any labor, collective bargaining or union agreement relating to the Business.
Seller has not implemented any plant closing or mass layoff of employees as
those terms are defined in the Worker Adjustment Retraining and Notification
("WARN") Act of 1988, as amended, or any similar state or local law or
regulation.
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<PAGE>
5.19 Employee Benefit Plans.
----------------------
(a) Except as set forth on the attached "Employee Benefits Schedule,"
--------------------------
with respect to current or former employees of Seller, independent contractors,
or the spouses, beneficiaries or dependents thereof, Seller does not maintain,
contribute to or have any liability or potential liability with respect to any
(i) ongoing or terminated funded or unfunded employee welfare benefit plan (as
defined in Section 3(1) of ERISA) ("Employee Welfare Plans"), (ii) ongoing or
----------------------
terminated employee pension benefit plan (as defined in Section 3(2) of ERISA)
("Employee Pensions Plans") or (iii) plan, policy, program or arrangement
-----------------------
(whether or not terminated) which provides nonqualified deferred compensation
benefits, bonus benefits or compensation, incentive benefits or compensation,
severance benefits or compensation, "change of control" (as set forth in Code
Section 280G) benefits or compensation or any program, plan, policy or
arrangement which provides any health, life, disability, accident, vacation,
tuition reimbursement or other fringe benefits ("Other Plans"). Seller does not
-----------
maintain, has not contributed to and has no actual or potential liability with
respect to any defined benefit plan or arrangement (whether or not terminated)
(as defined in Section 3(35) of ERISA). Seller does not and has not participated
in or contributed to any multiemployer plan (as defined in Section 3(37) of
ERISA) ("Multiemployer Plan") nor does Seller have any other liability,
------------------
including any potential withdrawal liability, with respect to any Multiemployer
Plan, and Seller has not incurred any current or potential withdrawal liability
as a result of a compete or partial withdrawal (or potential partial withdrawal)
from any Multiemployer Plan. Seller does not maintain or have any obligation to
contribute to (or any other liability with respect to) any funded or unfunded
Employee Welfare Plan or Other Plan which provides post-retirement health,
accident or life insurance benefits to current or former employees, current or
former independent contractors, current or future retirees, their spouses,
dependents or beneficiaries, other than limited medical benefits required to be
provided to former employees, their spouses and other dependents under Code
Section 4980B ("COBRA"). Seller has complied with the requirements of COBRA.
-----
(The Employee Pension Plans, the Employee Welfare Plans and any Other Plans
shall be referred to herein collectively as the "Plans").
-----
(b) All Plans (and related trusts and insurance contracts) comply in
form and in operation in all respects with the applicable requirements of ERISA
and the Code and the Employee Pension Plans which are intended to be "qualified
plans" under Section 401(a) of the Code, are so qualified and each such Employee
Pension Plan has received a favorable determination letter from the Internal
Revenue Service.
(c) All required reports and descriptions (including Form 5500 Annual
Reports, summary annual reports and the summary plan descriptions) with respect
to all Plans have been properly and timely filed with the appropriate government
agency and distributed to employees and/or their beneficiaries.
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(d) With respect to each Employee Pension Plan, all contributions
which are due have been made, and all contributions which are not yet due
(including with respect to the current plan year for the period ending on the
Closing Date) have been made or adequately accrued for as a liability on the
Latest Balance Sheet. With respect to all Employee Welfare Plans and all Other
Plans, all premiums and/or contributions, whether or not due, for prior plan
years and the current plan year for the period ending on the Closing Date and
all payments or other benefits payable, have been paid or, to the extent not yet
due, have been adequately accrued for as a liability on the Latest Balance
Sheet. None of the Plans maintained by Seller have any unfunded liabilities.
Seller has disclosed on the "Employee Benefits Schedule" all former employees of
--------------------------
Seller (and their dependents) who are eligible as of the Closing Date for
continuation coverage under COBRA. Seller has no liability to pay any severance
benefit or other separation pay to its current or former employees, and no event
contemplated by this Agreement would cause any such benefits or pay to become
payable.
(e) Neither Seller nor any of its subsidiaries have incurred any
liability to the PBGC, the Internal Revenue Service, the Department of Labor,
any other governmental agency, any Multiemployer Plan or any person with respect
to any Plan currently or previously maintained by members of the controlled
group of companies (as defined in Section 414 of the Code) that includes Seller
and/or its subsidiaries (the "Controlled Group") that has not been satisfied in
----------------
full, and no condition exists that presents a material risk to Seller or any of
its subsidiaries or any other member of the Controlled Group of incurring such a
liability.
(f) Except as disclosed on the Employee Benefits Schedule, with
respect to each Plan, (i) there have been no prohibited transactions as defined
in Section 406 of ERISA or Section 4975 of the Code, (ii) no fiduciary (as
defined in Section 3(21) of ERISA) has any liability for breach of fiduciary
duty or any other failure to act or comply in connection with the administration
or investment of the assets of the Plans, (iii) no fiduciary has engaged in any
transactions with respect to the Plans which could subject Seller, any
fiduciary, any plan administrator or any party dealing with any such plan to
either a civil penalty assessed pursuant to Section 501(i) of ERISA or the tax
or penalty on prohibited transactions imposed by Section 4975 of the Code, and
(iv) no actions, investigations, suits or claims with respect to the assets
thereof (other than routine claims for benefits) are pending or threatened, and
Seller has no knowledge of any facts which would give rise to or could
reasonably be expected to give rise to any such actions, suits or claims against
any Plan, any fiduciary with respect to such Plans or the assets of such Plans.
(g) With respect to each Plan, Seller has furnished to Buyer true and
complete copies of (i) the plan documents, summary plan descriptions, any other
document required to be filed with a governmental agency or any document
distributed to any employee, participant or beneficiary of such Plan, (ii) the
most recent determination letter received from the Internal Revenue Service,
(iii) the last Form 5500 Annual Report and actuarial report, and (iv) all
related trust agreements, insurance contracts or other funding agreements which
implement the Plans.
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5.20 Insurance. The attached "Insurance Schedule" sets forth an
--------- ------------------
accurate description of each insurance policy to which Seller is a party, a
named insured or otherwise the beneficiary of coverage. All of such insurance
policies are legal, valid, binding and enforceable and in full force and effect,
except to the extent that the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, rehabilitation, moratorium and similar laws now or
hereafter in effect relating to creditors' rights generally or general equitable
principles. Seller is not in any material breach or default with respect to its
obligations under such insurance policies.
5.21 Tax Matters. (a) Seller has timely filed all Tax Returns
-----------
required to be filed by it, each such Tax Return has been prepared in compliance
with all applicable laws and regulations, and all such Tax Returns are true and
accurate in all respects. All Taxes due and payable by Seller (whether or not
shown on any Tax Return) have been paid.
(b) Other than as set forth on the attached "Taxes Schedule" (i) no
--------------
deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Tax has been proposed, asserted or assessed by any
taxing authority against Seller, (ii there is no action, suit, taxing authority
proceeding or audit now in progress, pending or, to Seller's Knowledge,
threatened against or with respect to Seller with respect to any Tax, (ii no
claim has been made by a taxing authority in a jurisdiction where Seller does
not pay Tax or file Tax Returns that Seller is or may be subject to Taxes
assessed by this jurisdiction within ten years prior to the date hereof and (iv
Seller has withheld and paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, creditor, independent
contractor or other third party.
(c) The only states, territories and jurisdictions (whether foreign
or domestic) in which Seller is required to file Tax Returns relating to the
Business are the States of South Carolina and Illinois.
(d) On or before the Closing Date, Seller will provide to Buyer a
certification that Seller is not a foreign person in the form provided in
section 1.1445-2(b)(2)(iii)(A) of the United States Treasury regulations.
5.22 Customers. The attached "Customers Schedule" lists all Material
--------- ------------------
Customers. Seller has not received any notice and to Seller's Knowledge no
Material Customer intends to terminate or materially reduce its business with
Seller and no Material Customer has terminated or materially reduced its
business with Seller in the last twelve (12) months.
5.23 Suppliers. The attached "Suppliers Schedule" lists Seller's ten
--------- ------------------
(10) largest vendors. Seller has not received any notice and to Seller's
Knowledge no such vendor intends to terminate or materially reduce its business
with Seller and no such vendor has terminated or materially reduced its business
with Seller in the last twelve (12) months.
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5.24 Brokerage. There are no claims for brokerage commissions,
---------
finders fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Seller or Shareholder or any Affiliate thereof.
5.25 Affiliate Transactions. Except as set forth on the Affiliate
----------------------
Transaction Schedule attached hereto, no officer, director or employee of Seller
or any Person related by blood or marriage to any such Person, or entity in
which any such Person owns any beneficial interest, is a party to any agreement,
contract, commitment or transaction with Seller or its Affiliates or which
pertains to the Business or the Purchased Assets, or has any interest in any
property, real or personal or mixed, intangible or tangible, relating to the
Business or the Purchased Assets. The Affiliated Transaction Schedule describes
all material intercompany or affiliated services provided to or on behalf of
Seller by its Affiliates and to or on behalf of such Affiliates by Seller.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
----------------------------------------
As an inducement to Seller and Shareholder to enter into this
Agreement, Buyer represents and warrants to Seller and Shareholder that:
6.01 Organization and Power. Buyer is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the State of California.
As of the Closing, Buyer will be qualified to do business and will be in good
standing in each jurisdiction in which the ownership of properties or the
conduct of business requires it to be so qualified, except for jurisdictions
where the failure to be so qualified will not have a material adverse effect on
Buyer's ability to perform its obligations hereunder.
6.02 Authorization. Buyer has all requisite corporate power and
-------------
authority to execute and deliver this Agreement and the other agreements
contemplated hereby and to perform its obligations hereunder and thereunder.
The execution, delivery and performance by Buyer of this Agreement and the other
agreements contemplated hereby and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
requisite corporate action, and no other corporate act or proceeding on the part
of Buyer, its board of directors or shareholders is necessary to authorize the
execution, delivery or performance of this Agreement or the other agreements
contemplated hereby and the consummation of the transactions contemplated hereby
or thereby. This Agreement has been duly executed and delivered by Buyer and
this Agreement constitutes, and the other agreements contemplated hereby upon
execution and delivery by Buyer will each constitute, a valid and binding
obligation of Buyer, enforceable in accordance with its terms, except to the
extent that the enforcement thereof may be limited by bankruptcy,
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insolvency, reorganization, rehabilitation, moratorium and similar laws now or
hereafter in effect relating to creditors' rights generally or general equitable
principles.
6.03 No Violation. The execution, delivery or performance of this
------------
Agreement and the other agreements contemplated hereby and the consummation of
the transactions contemplated hereby or thereby will not breach or violate
Buyer's certificate of incorporation or bylaws, any applicable law, rule or
regulation of any governmental authority, or any agreement, instrument, license
or permit, or subject to any order, writ, injunction or decree.
6.04 Governmental Authorities and Consents. No permit, consent,
-------------------------------------
approval or authorization of, or declaration to or filing with, any governmental
or regulatory authority or any other party or person is required in connection
with the execution, delivery or performance of this Agreement by Buyer, or the
consummation by Buyer of the transactions contemplated hereby and thereby.
6.05 Litigation. There are no actions, suits, proceedings, orders or
----------
investigations pending or, to the best of Buyer's knowledge after due inquiry,
threatened against or affecting Buyer, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which would adversely
affect Buyer's performance under this Agreement, the other agreements
contemplated hereby or the consummation of the transactions contemplated hereby
or thereby.
6.06 Brokerage. There are no claims for brokerage commissions,
---------
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer.
6.07 Closing Date. All of the representations and warranties
------------
contained in this Article 6 and elsewhere in this Agreement are true and correct
in all material respects on the Closing Date.
ARTICLE 7
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING
-----------------------------------------------
7.01 Survival of Representations, Warranties and Covenants. Subject
-----------------------------------------------------
to the provisions of Section 7.03(a) and 7.03 (c), all of the representations,
warranties, covenants and agreements set forth in this Agreement, the agreements
contemplated hereby or in any writing delivered to Buyer or Seller in connection
with this Agreement shall survive the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby indefinitely,
regardless of any investigation, inquiry or examination made for or on behalf of
or any
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knowledge of Buyer, Seller or any of Buyer's or Seller's Affiliates, partners,
officers, directors, employees, agents, or representatives or the acceptance by
Buyer or Seller of any certificate or opinion.
7.02 Liability for Environmental Matters. Except for accounts payable
-----------------------------------
and accrued expenses incurred in the ordinary course of business in accordance
with past custom and practice, and assumed by Buyer as Assumed Liabilities
pursuant to Section 2.02(a) hereof, Seller and Shareholder shall assume and be
solely responsible on a joint and several basis for all obligations, duties,
claims and liabilities relating to any fact, event or condition existing or
threatened on or prior to the Closing Date (whether or not disclosed in any
schedule hereto) pertaining to the operation of the Business or the condition of
the Purchased Assets prior to the Closing Date, which at any time interferes
with or prevents continued compliance with, or gives rise to any investigation,
claim or liability under any Environmental and Safety Requirements.
7.03 Indemnification.
---------------
(a) Seller Indemnification. Seller and Shareholder, jointly and
----------------------
severally, shall indemnify Buyer, its Affiliates, stockholders, officers,
directors, employees, agents, representatives, successors and permitted assigns
(collectively, the "Buyer Group") and save and hold each of them harmless
-----------
against and pay on behalf of or reimburse such party as and when incurred for
any loss (including, without limitation, diminutions in value and consequential
damages), liability, demand, claim, action, cause of action, cost, damage,
deficiency, Tax, penalty, fine or expense, whether or not arising out of third
party claims (including, without limitation, interest, penalties, reasonable
attorneys' fees and expenses) and all amounts paid in investigation, defense or
settlement of any of the foregoing (collectively, "Losses") which any such party
------
may suffer, sustain or become subject to, but reduced by (1) the amount of any
insurance proceeds received on account of such loss, less the reasonably
anticipated present value or any increase in insurance premiums to be incurred
by Buyer, (2) the amount of any tax benefits reasonably expected to be actually
realized within one year from the date any Loss is incurred and (3) any recovery
or reimbursement from any other party to the extent actually received, as a
result of, in connection with, relating or incidental to or by virtue of:
(i) any misrepresentation or breach of warranty on the part of
Seller or Shareholder under Article 5 of this Agreement;
(ii) any nonfulfillment or breach of any covenant or agreement
on the part of Seller or Shareholder under this Agreement or any agreement
or instrument delivered pursuant to or in connection herewith; or
(iii) the imposition against Buyer of any Excluded Liability.
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<PAGE>
With respect to claims for breaches of representations and warranties
contained in Article 5 hereof (except for Sections 5.01, 5.02 and 5.10(c)),
Seller and Shareholder will not be liable with respect to any breaches of such
Article 5 representations and warranties unless written notice of a possible
claim for indemnification is given by Buyer to Seller on or before the first
anniversary of the Closing Date (the "Survival Date"), it being understood that
-------------
so long as such written notice is given on or prior to the Survival Date, such
representations and warranties shall continue to survive until such matter is
resolved. Notwithstanding the foregoing, any willful or fraudulent breach of any
other representations or warranties or Seller or Shareholder contained herein,
or any breach of a representation or warranty contained in Sections 5.01, 5.02
and 5.10(c) hereof, or the covenants and agreements of Seller or Shareholder
contained herein, including, without limitation, any breach of the covenants and
agreements contained in this Article 7, or in any instrument, document,
certificate or agreement delivered to the Buyer at the Closing will not be
subject to any time limitations. For purposes of determining the amount of any
Losses that are the subject matter of a claim for indemnification hereunder (but
not for the purpose of determining whether any breach of a representation or
warranty has occurred), each representation and warranty contained in this
Agreement shall be read without regard and without giving effect to any
materiality standard or qualification contained in such representation or
warranty. With respect to any Losses giving rise to a claim for indemnification
by Buyer under Section 7.03(a) hereof, to the extent permitted by law, the
remedies provided herein shall be exclusive and shall preclude assertion by any
party hereto of any other rights or the seeking of any other remedies (other
than in any appropriate case, any equitable remedies, including injunction and
specific performance) against any other party hereto.
(b) Buyer Indemnification. Buyer shall indemnify Seller, Shareholder
---------------------
and each of their officers, directors, employees, agents Affiliates,
representatives, successors and permitted assigns and hold each of them harmless
against and pay on behalf of or reimburse such party as and when incurred for
any Losses which any such party may suffer sustain or become subject to, as the
result of or in connection, arising out of or by virtue of:
(i) any misrepresentation or breach of warranty on the part of
Buyer under Article 6 of this Agreement;
(ii) any nonfulfillment or breach of any covenant or agreement on
the part of Buyer under this Agreement; or
(iii) the imposition against Seller or Shareholder of any Assumed
Liability.
With respect to claims for breaches of representation and warranties
contained herein, Buyer will not be liable for any Losses unless written notice
of a claim for such breach is given by Seller to Buyer on or before the Survival
Date. Notwithstanding the foregoing, any breaches of the representations and
warranties contained in Sections 6.01 and 6.02 hereof and of the covenants
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and agreements of the Buyer contained herein, including, without limitation, any
breach of the covenants and agreements contained in this Article 7, or in any
instrument, document, certificate or agreement delivered by the Buyer at the
Closing will not be subject to any time limitations.
(c) Certain Limitations. Neither Seller and Shareholder on the one
-------------------
hand, nor Buyer on the other hand, will be liable for Losses incurred pursuant
to Sections 7.03(a)(i) or 7.03(b)(i) hereof, unless the aggregate amount of all
such Losses suffered by the other party exceeds $200,000, and if the aggregate
amount of all such Losses exceeds $200,000 then such party shall be liable for
the total amount of Losses in excess of the first $200,000 of Losses. Neither
Seller and Shareholder on the one hand, nor Buyer on the other hand, will be
liable for Losses incurred pursuant to Sections 7.03(a)(i) or 7.03(b)(i) hereof
in an aggregate amount in excess of $1,000,000. For purposes of determining
the amount of any Losses that are the subject matter of a claim for
indemnification hereunder (but not for the purpose of determining whether any
breach of a representation or warranty has occurred), each representation and
warranty contained in this Agreement shall be read without regard and without
giving effect to any materiality standard or qualification contained in such
representation or warranty. The limitations on indemnification set forth in this
subsection (c) shall not be applicable to any willful breach of any
representation or warranty by Seller, Shareholder or Buyer, or to any covenant
or agreement contained in this Agreement (whether willful or otherwise)
including, without limitation, the agreements to indemnify for Assumed
Liabilities and Excluded Liabilities contained in this Section 7.03, or to any
claim based on fraud.
(d) Defense of Claims. Any party making a claim for indemnification
-----------------
under this Section 7.03 (an "Indemnitee") shall notify the indemnifying party
----------
(an "Indemnitor") of the claim in writing promptly after receiving written
----------
notice of any action, lawsuit, proceeding, investigation or other claim against
it (if by a third party) or discovering the liability, obligation or facts
giving rise to such claim for indemnification, describing the claim, the amount
thereof (if known and quantifiable), and the basis thereof; provided, that the
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder except to the extent such failure shall have harmed the
Indemnitor. With respect to any third party claim, any Indemnitor shall be
entitled to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to Indemnitee's claim for
indemnification at its expense, and at its option (subject to the limitations
set forth below) shall be entitled to appoint lead counsel of such defense with
a nationally recognized reputable counsel acceptable to Indemnitee; provided,
that prior to Indemnitor assuming control of such defense it shall first (i)
verify to the Indemnitee in writing that such Indemnitor shall be fully
responsible (with no reservation of any rights) for all liabilities and
obligations relating to such claim for indemnification, subject to the
limitations set forth in Section 7.03(c) and that it will provide full
indemnification (whether or not otherwise required hereunder) to Indemnitee with
respect to such action, lawsuit, proceeding, investigation, or other claim
giving rise to such claim for indemnification hereunder and (ii) furnish the
Indemnitee with evidence which, in the sole judgment of Indemnitee, is and will
be sufficient to satisfy any such liability; provided further, that:
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(i) The Indemnitee shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such purpose,
the fees and expenses of such separate counsel which shall be borne by
Indemnitee. Notwithstanding the foregoing, the fees and expenses of such
separate counsel incurred prior to the date the Indemnitor effectively
assumes control of such defense shall be borne by the Indemnitor;
(ii) The Indemnitor shall not be entitled to assume control of
such defense and shall pay the fees and expenses of counsel retained by the
Indemnitee if (A) the claim for indemnification relates to or arises in
connection with any criminal proceeding, action, indictment, allegation or
investigation; (B) Indemnitee reasonably believes an adverse determination
with respect to the action, lawsuit, investigation, proceeding or other
claim giving rise to such claim for indemnification would be materially
detrimental to or materially injure Indemnitee's reputation or future
business prospects, (C) the claim seeks an injunction or equitable relief
against Indemnitee or (D) upon petition by Indemnitee, the appropriate
court rules that the Indemnitor failed or is failing to vigorously
prosecute or defend such claim; and
(iii) if the Indemnitor, with the consent of the Indemnitee, shall
control the defense of any such claim, the Indemnitor shall obtain the
prior written consent of the Indemnitee (which shall not be unreasonably
withheld) before entering into any settlement of a claim or ceasing to
defend such claim, if pursuant to or as a result of such settlement or
cessation, injunction or other equitable relief will be imposed against the
Indemnitee or if such settlement does not expressly unconditionally release
Indemnitee from all liabilities and obligations with respect to such claim
and all other claims arising out of the same set of facts and circumstances
out of which such claim arose, without prejudice.
(e) Amounts paid to Buyer as indemnification shall be treated as
adjustments to the Purchase Price.
(f) Waiver. Seller and Shareholder agree that to the extent any
------
certificate of incorporation, bylaw or agreement between Seller and Shareholder
conflicts with, contradicts or is inconsistent with any of the representations,
warranties, covenants and agreements of Seller and Shareholder set forth herein
(including the schedules and exhibits hereto) or in the documents executed in
connection herewith, the representations, warranties, covenants and agreements
of Seller and Shareholder set forth herein (including the schedules and exhibits
hereto) or in the documents executed in connection herewith shall govern and
control, and Shareholder and Seller hereby waive all rights to raise any defense
to a claim by any member of the Buyer Group for indemnification hereunder based
upon such certificate of incorporation, bylaw or agreement between Seller and
Shareholder.
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<PAGE>
(g) Escrow. Pursuant to Section 2.04 hereof, at the Closing
------
$1,000,000 shall be set aside in the Escrow Account as security for payment of
Seller's and Shareholder's indemnification obligations set forth in this Section
7.03 or elsewhere in this Agreement. The Escrow Agreement shall be Buyer's
exclusive remedy for breaches of the representations and warranties of Seller
and the Shareholder contained in Article 5 hereof.
7.04 Mutual Assistance and Records. Buyer, Seller and
-----------------------------
Shareholder agree that they will mutually cooperate in the expeditious filing of
all notices, reports and other filings with any governmental authority required
to be submitted jointly by Buyer and Seller in connection with the execution and
delivery of this Agreement, the other agreements contemplated hereby and the
consummation of the transactions contemplated hereby or thereby. Subsequent to
the Closing, Seller and Buyer, at their own cost, will assist each other
(including by the retention and provision of access to relevant records) in the
preparation of their respective Tax Returns and the filing and execution of Tax
elections, if required, as well as in the defense of any audits or litigation
that may ensue as a result of the filing thereof, to the extent that such
assistance is reasonably requested. The Purchase Price shall be allocated among
the Purchased Assets in the manner set forth in the "Allocation Schedule"
-------------------
attached hereto. Buyer and Seller each hereby covenant and agree to prepare and
timely file all applicable Tax Returns and information reports in accordance
with the Allocation Schedule, which allocations are intended to comply with
Section 1060 of the Code. Seller acknowledges and agrees that from and after
the Closing, except as set forth in Section 2.01(b), Buyer will be entitled to
possession of all original documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Business and the
Purchased Assets. Buyer shall provide the Seller reasonable access during
regular business hours to the documents, books, records, agreements and data of
the Business that relate to the period before the Closing Date and that are
described in a writing provided to Buyer a reasonable time in advance of the
date on which Seller desires access to such materials; provided that Seller has
a valid business purpose unrelated to any matter in dispute between the parties;
and provided further that Buyer may, in its sole discretion, terminate all or
any portion of Seller's access rights hereunder at any time Buyer in good faith
determines that Seller's interests are adverse to Buyer's with regard to a
matter arising in connection with this Agreement or otherwise. Buyer shall
notify Seller in writing upon making a determination that Seller's access rights
hereunder are terminated.
7.05 Press Release and Announcements. Unless required by law,
-------------------------------
after the Closing Date, neither Seller nor Shareholder on the one hand, nor
Buyer on the other shall make any press releases, announcements to the
employees, customers or suppliers of Seller or other releases of information
related to this Agreement or the transactions contemplated hereby without the
written consent of the other.
7.06 Expenses. Except as otherwise expressly provided herein,
--------
Buyer, on the one hand, and Seller and Shareholder, on the other hand, will each
pay all of their own fees and expenses (and Shareholder will pay all of Seller's
fees and expenses, none of which will be paid with the assets
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<PAGE>
of Seller) in connection with this Agreement and the consummation of the
transactions contemplated hereby. Seller agrees that it has not paid to any
third party, and will not pay any amount to any third party until after the
Closing, with respect to the fees, costs and expenses of Seller arising from,
related to or in connection with this Agreement or any other instrument or
agreement contemplated hereby or any of the transactions contemplated hereby or
thereby, and that such fees, costs and expenses whenever paid, shall be paid out
of the proceeds of the sale of the Purchased Assets and not with the Purchased
Assets themselves.
7.07 Further Transfers. Each of Seller and Shareholder will, and
-----------------
will cause its Affiliates to, execute and deliver such further instruments of
conveyance and transfer and take such additional action as Buyer may reasonably
request to effect, consummate, confirm or evidence the transfer to Buyer of the
Purchased Assets. Seller and Shareholder will execute such documents as may be
necessary to assist Buyer in preserving or perfecting its rights in the
Purchased Assets. Buyer will execute and deliver such further instruments and
take such additional actions as Seller may reasonably request to effect,
consummate, confirm or evidence the assumption by Buyer of the Assumed
Liabilities.
7.08 Non-Competition; Non-Solicitation. As condition precedent
---------------------------------
to Buyer to enter into and perform its obligations under this Agreement, Seller
agrees that:
(a) During the Noncompetition Period, it shall not, anywhere in
the United States of America, directly or indirectly, either for itself or for
any other Person, own, operate, manage, control, engage in, participate in,
invest in, permit its name to be used by, act as consultant or advisor to,
render services for (alone or in association with any Person) or otherwise
assist in any manner, any Person that engages in or owns, invests in, operates,
manages or controls any venture or enterprise which directly or indirectly
engages or proposes to engage in the distribution or sale of the Products. For
purposes hereof, "Products" shall mean any products or goods sold or delivered
--------
by the Business during the Noncompetition Period, or any products or goods that
are similar to, may be used as substitutes for, are in competition with or may
detract from any products or goods sold or delivered by the Business prior to
the Noncompetition Period. Nothing herein shall prohibit Seller from being a
passive owner of not more than 2% of the outstanding stock of any class of
securities of a publicly traded corporation engaged in such business, so long as
it has no active participation in the business of such corporation.
(b) During the Non-Competition Period and for a period of one
year thereafter, Seller will not directly or indirectly offer employment to or
hire (in any capacity) any former employee of Seller who is hired by Buyer
without the prior written consent of Buyer.
(c) If, at the time of enforcement of this Section 7.08, a court
shall hold that the duration, scope, geographic area or other restrictions
stated herein are unreasonable under circumstances then existing, the parties
agree that the maximum duration, scope, geographic area
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<PAGE>
or other restrictions deemed reasonable under such circumstances by such court
shall be substituted for the stated duration, scope, geographic area or other
restrictions.
(d) Seller recognizes and affirms that in the event of breach by
it of any of the provisions of this Section 7.08, money damages would be
inadequate and Buyer would have no adequate remedy at law. Accordingly, Seller
agrees that Buyer shall have the right, in addition to any other rights and
remedies existing in its favor, to enforce its rights and Seller's and
Shareholder's obligations under this Section 7.08 not only by an action or
actions for damages, but also by an action or actions for specific performance,
injunction and/or other equitable relief in order to enforce or prevent any
violations (whether anticipatory, continuing or future) of the provisions of
this Section 7.08 (including, without limitation, the extension of the Non-
Competition Period by a period equal to (i) the length of the violation of this
Section 7.08 plus (ii) the length of any court proceedings necessary to stop
such violation). In the event of a breach or violation by Seller of any of the
provisions of this Section 7.08, the running of the Non-Competition Period (but
not of Seller's obligations under this Section 7.08) shall be tolled with
respect to Seller during the continuance of any actual breach or violation.
7.09 Communications. All mail and other communications relating
--------------
to the Purchased Assets, Assumed Liabilities or the Business received by Seller
at any time after the Closing Date shall be promptly turned over to Buyer by
Seller. All mail and other communications not relating to the Purchased Assets,
Assumed Liabilities or the Business received by Buyer at any time after the
Closing shall be promptly turned over to Seller by Buyer.
7.10 Compliance with Bulk Sales Laws. Seller hereby agrees to
-------------------------------
indemnify Buyer for any Losses suffered as a result of any failure to comply
with the requirements of any so called "bulk sales" or transfer laws of any
jurisdiction in connection with the sale of the Purchased Assets to Buyer,
provided, however, that Seller shall not be liable to Buyer for any Losses
arising as a result of any noncompliance with such laws which shall arise as a
result of Buyer's failure to discharge obligations owed to creditors with
respect to the Assumed Liabilities as they become due.
7.11 Employees. Seller shall terminate the employment of all its
---------
employees immediately prior to the Closing. Immediately after the Closing,
Buyer shall offer employment to the employees employed by Seller immediately
prior to the Closing Date only to the extent expressly set forth on the attached
"Employee Schedule."
-----------------
7.12 Confidentiality. After the Closing, Seller shall continue
---------------
to maintain the confidentiality of all information, documents and materials
relating to the Business, except to the extent disclosure of any such
information is required by law or authorized by Buyer or reasonably occurs in
connection with disputes over the terms of this Agreement, and Buyer shall
maintain the confidentiality of all information, documents and materials
relating to Seller (other than that relating to the Business) which Buyer has
obtained in connection with this Agreement or with the
-45-
<PAGE>
transactions contemplated herein, except to the extent disclosure of any such
information is required by law or authorized by Seller or reasonably occurs in
connection with disputes over the terms of this Agreement. In the event that any
party reasonably believes after consultation with counsel that it is required by
law to disclose any confidential information described in this Section 7.12, the
disclosing party will (a) provide the other party with prompt notice before such
disclosure in order that any party may attempt to obtain a protective order or
other assurance that confidential treatment will be accorded such confidential
information and (b) cooperate with the other party in attempting to obtain such
order or assurance. The provisions of this Section 7.12 shall not apply to any
information, documents or materials which are, as shown by appropriate written
evidence, in the public domain or, as shown by appropriate written evidence,
shall come into the public domain, other than by reason of default by the
applicable party bound hereunder or its Affiliates.
7.13 Taxes; Recording Charges. All sales, use, transfer, stamp,
------------------------
conveyance, income, gains, value added or other Taxes, and all title insurance
premiums arising out of the sale of the Purchased Assets or otherwise incurred
in connection with this Agreement or the consummation of the transactions
contemplated hereby and all charges for or in connection with the recording of
any document or instrument contemplated hereby shall (subject to Section 7.06
hereof) be paid by such party hereto as is customary in the jurisdiction in
which such transaction occurs (as reasonably determined by the parties). The
Buyer shall provide Seller with resale certificates with respect to any
inventory included in the Purchased Assets in accordance with applicable state
and local sales, use or transfer tax laws.
7.14 Prairie Haven Agreement. Seller and Shareholder shall
-----------------------
indemnify and hold Buyer harmless from and against any and all Losses arising
out of or relating to the Agreement entered into by and between Seller and
Prairie Haven, Ltd., dated as of November 8, 1995 relating to the sale by Seller
of certain assets related to Seller's Illinois garden center business. Seller
hereby covenants to Buyer that it will fully enforce the provisions of paragraph
7 (entitled "Prairie Haven Covenant Not to Compete") of such agreement against
Prairie Haven, Ltd. and will take all actions reasonably necessary (at its sole
cost and expense) in connection with such enforcement.
ARTICLE 8
MISCELLANEOUS
--------------
8.01 Amendment and Waiver. This Agreement may be amended, and
--------------------
any provision of this Agreement may be waived; provided, that any such amendment
or waiver will be binding on Seller and Shareholder only if such amendment or
waiver is set forth in a writing executed by Seller and Shareholder and that any
such amendment or waiver will be binding upon Buyer only if such amendment or
waiver is set forth in a writing executed by Buyer. No course of dealing between
or among any Persons having any interest in this Agreement will be deemed
-46-
<PAGE>
effective to modify, amend or discharge any part of this Agreement or any rights
or obligations of any person under or by reason of this Agreement. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute, a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
8.02 Notices. All notices, demands and other communications to
-------
be given or delivered to Buyer, Seller or Shareholder under or by reason of the
provisions of this Agreement will be in writing and will be deemed to have been
given when personally delivered, sent by reputable overnight courier,
transmitted by facsimile or telecopy (followed by overnight delivery by
reputable courier) or mailed by first class mail, return receipt requested, to
the addresses indicated below (unless another address is so specified in
writing):
Notices to Seller or Shareholder:
--------------------------------
IVERSON PERENNIAL GARDENS, INC.
P.O. Box 390
Orange, Virginia 22960
Attention: Ronald C. Iverson
with a copy to:
RUDNICK & WOLFE
203 North LaSalle Street
Chicago, Illinois 60601
Attention: Stephen A. Landsman, Esq.
Notices to Buyer:
----------------
HINES HORTICULTURE, INC.
12621 Jeffrey Road
Irvine, California 92720
Attention: President
with a copy to:
MADISON DEARBORN PARTNERS, INC.
Three First National Plaza, Suite 1330
Chicago, Illinois 60602
Attention: Paul R. Wood
and
-47-
<PAGE>
KIRKLAND & ELLIS
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Michael H. Kerr, P.C.
8.03 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of Buyer, Seller, Shareholder and
their respective successors and assigns. Neither this Agreement nor any rights,
benefits or obligations set forth herein may be assigned by Seller, Shareholder
or Buyer, except that Buyer may assign this Agreement and any of the provisions
hereof without consent of Seller or Shareholder (i) to any Affiliate of Buyer,
(ii) in connection with the sale of all or a substantial part of its assets or
business or (iii) to any of its financing sources as collateral security,
provided that no such assignment by Buyer shall relieve Buyer of its obligations
hereunder.
8.04 Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
8.05 No Strict Construction. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
8.06 Captions. The captions used in this Agreement are for
--------
convenience of reference only and do not constitute a part of this Agreement and
shall not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement shall be enforced and
construed as if no caption had been used in this Agreement.
8.07 No Third Party Beneficiaries. Nothing herein expressed or
----------------------------
implied is intended or shall be construed to confer upon or give to any person,
firm or corporation, other than the parties hereto and their respective
permitted successors and assigns, any rights or remedies under or by reason of
this Agreement, such third parties specifically including, without limitation,
any investors of Buyer, employees or creditors of Seller or insurers of any
parties hereto.
8.08 Representations and Warranties; Disclosure Schedules. Any
----------------------------------------------------
event, fact or circumstance described with particularity in any schedule
attached hereto shall be deemed to be a disclosure for purposes of all other
representations and warranties contained in Article 5 hereof. Notwithstanding
any representation or warranty of Seller or Shareholder contained in Article 5
hereof, or any matter described by Seller or Shareholder in any schedule
attached hereto, Buyer is
-48-
<PAGE>
purchasing only the Purchased Assets and assuming only the Assumed Liabilities
pursuant to this Agreement.
8.09 Complete Agreement. This document and the documents
------------------
referred to herein contain the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way.
8.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one and the same
instrument.
8.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Illinois without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Illinois or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Illinois.
* * * * *
-49-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
HINES HORTICULTURE, INC.
By: /s/ Paul R. Wood
-----------------------------
Its: Vice President
----------------------------
IVERSON PERENNIAL GARDENS, INC.
By: /s/ Ronald C. Iverson
-----------------------------
Its: Chairman
---------------------------
/s/ Ronald C. Iverson
--------------------------------
RONALD C. IVERSON
-50-
<PAGE>
LIST OF SCHEDULES
-----------------
<TABLE>
<S> <C>
Assumed Product Warranties Schedule 2.02
Assumed Liabilities Schedule 2.02
Leases Schedule 2.02
Excluded Accounts Payable Schedule 2.02
Mortgage Payoff Schedule 2.03
Capitalization Schedule 5.01
Restrictions Schedule 5.03
Financial Statements Schedule 5.04
Accounts Receivable Schedule 5.06
Liabilities Schedule 5.07
Developments Schedule 5.08
Owned Real Property Schedule 5.10
Liens Schedule 5.10
Leases Schedule 5.10
Condition of Property Schedule 5.10
Contracts Schedule 5.11
Proprietary Rights Schedule 5.12
Product Warranty Schedule 5.13
Licenses Schedule 5.14
Litigation Schedule 5.15
Compliance Schedule 5.16
Environmental Schedule 5.17
Employee Benefits Schedule 5.19
Insurance Schedule 5.20
Tax Schedule 5.21
Customers Schedule 5.22
Suppliers Schedule 5.23
Affiliated Transactions Schedule 5.25
Allocation Schedule 7.04
Employee Schedule 7.14
</TABLE>
LIST OF EXHIBITS
----------------
Exhibit A - Officer's Certificate of Seller
Exhibit B - Consulting and Noncompetition Agreement
Exhibit C - Opinion of Seller's Counsel
Exhibit D - Escrow Agreement
Exhibit E - Access License Agreement
Exhibit F - Payment Authorization Letter
-51-
<PAGE>
EXHIBIT 10.15
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
---------
into as of November 27, 1996, by and among Flynn Industries, Inc., a Nevada
corporation ("FII"), Andrew M. Clarkson, William C. Rowe, Kent V. Berchiolli,
---
Merle E. Welti (together with FII, the "FN Shareholders"), and Hines
---------------
Horticulture, Inc., a California corporation (the "Buyer").
-----
WHEREAS, the FN Shareholders own all of the issued and outstanding
shares of capital stock of Flynn Nurseries, Inc., a California corporation
("FN");
--
WHEREAS, FN owns all of the issued and outstanding shares of capital
stock of Flynn Rainbow Nurseries, Inc., an Hawaii corporation ("FRN") (FN, FRN
---
and all subsidiaries and divisions thereof are collectively referred to herein
as the "Company"); and
-------
WHEREAS, the parties desire to enter into this Agreement to provide
for the purchase by the Buyer of all of the issued and outstanding shares of
capital stock of FN from the FN Shareholders.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Purchase and Sale of Stock. On the Closing Date (as hereinafter
--------------------------
defined) the Buyer shall purchase from the FN Shareholders and the FN
Shareholders shall sell, transfer, deliver and convey to the Buyer, 483,500
issued and outstanding shares of capital stock of FN, which represents all of
the issued and outstanding shares of capital stock of FN (the "Shares"), and
------
shall deliver to the Buyer, free and clear of all claims, liens, charges,
encumbrances and other restrictions of any kind, certificates representing all
of the Shares, duly endorsed in blank or accompanied by duly executed assignment
documents.
1.2 Purchase Price. The total purchase price for the Shares to be
--------------
paid shall be Four Million Five Hundred Thousand Dollars ($4,500,000) (the
"Purchase Price").
- ---------------
<PAGE>
1.3 Payment Terms. The Purchase Price for all of the Shares shall be
-------------
paid at the Closing (as hereinafter defined) by the Buyer as follows: (i)
$3,584,905 to the FN Shareholders by wire transfer of immediately available
funds in accordance with instructions of the FN Shareholders set forth in the
Payment Authorization Letter attached hereto as Exhibit A, (ii) $500,000 to an
---------
escrow account pursuant to the terms of the escrow agreement attached hereto as
Exhibit B (the "Escrow Agreement"), dated as of the date hereof, by and among
- --------- ----------------
the Buyer, the FN Shareholders and an escrow agent and (iii) the assignment
provided in Section 5.5 below.
ARTICLE II
CLOSING
2.1 Closing Date. Subject to the satisfaction of the conditions
------------
specified in Articles VIII and IX of this Agreement, the consummation of all the
transactions agreed to hereunder (the "Closing") shall take place on or before
-------
December 2, 1996 (unless, extended by mutual agreement of the parties) (the
"Closing Date") at such place as may be mutually agreed upon by the parties. At
- -------------
the Closing, the FN Shareholders and the Buyer shall each deliver to each other
all funds, documents, certificates and instruments contemplated herein to be
delivered on the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE FN SHAREHOLDERS
As a material inducement to cause the Buyer to enter into this
agreement and consummate the transactions contemplated hereby the FN
Shareholders represent and warrant to the Buyer as of the date of this Agreement
and as of the Closing Date as follows:
3.1 Organization, Etc. FII, FN and FRN are corporations duly
------------------
organized, validly existing and in good standing under the laws of the states of
Nevada, California and Hawaii, respectively, and have full corporate power and
authority to carry on their businesses as presently conducted and to own the
properties and assets they now own. Each of FN and FRN are corporations duly
qualified to do business as a foreign corporation and in good standing in all
jurisdictions as are necessary for its ownership of properties and the operation
of its businesses as presently conducted. Each FN Shareholder has all requisite
capacity to enter into, execute and deliver this Agreement and the other
instruments and agreements contemplated hereby and to consummate the
transactions contemplated hereby and thereby. At the Closing, FII, FN and FRN
will deliver to the Buyer copies of their Articles or Certificate of
Incorporation and By-Laws, each of which copies will be true, accurate and
complete as of the Closing.
3.2 Authority. The execution and delivery of this Agreement and the
---------
other instruments and agreements contemplated hereby and the consummation of the
transactions
-2-
<PAGE>
contemplated hereby and thereby have been duly authorized by FII. FII will
deliver to the Buyer at the Closing complete and correct copies, certified by
its Secretary or Assistant Secretary, of the resolutions duly and validly
adopted by its Board of Directors evidencing such authorization (which
resolutions will not have been modified, revoked or rescinded in any respect
prior to, and will be in full force and effect at, the Closing). No other act or
proceeding on the part of any FN Shareholder (or with respect to FII, its
shareholders) is necessary for the due and valid authorization or performance of
this Agreement or the transactions contemplated hereby.
3.3 Capitalization of FN and FRN.
----------------------------
(a) Each FN Shareholder holds of record and owns beneficially
the number of Shares set forth next to its name on Schedule 3.3 attached hereto,
free and clear of any restrictions on transfer, taxes, security interests,
options, warrants, purchase rights, contract rights, equities, claims and
demands, other than restrictions imposed by applicable securities laws. Other
than this Agreement, no FN Shareholder is party to any option, warrant, purchase
right or any other contract or commitment that could require any FN Shareholder
to sell, transfer or otherwise dispose of any capital stock of FN or any
subsidiary thereof (other than this Agreement). No FN Shareholder is party to
any voting trust, proxy or other agreement or understanding with respect to the
voting or transfer of any capital stock of FN or any of its subsidiaries.
(b) The entire authorized capital stock of FN consists of
5,000,000 shares of common stock, par value $1.00 per share, of which 483,500
are issued and outstanding and all of which together constitute all of the
Shares. All of the Shares have been duly authorized and are validly issued,
fully paid and nonassessable, and are held of record by the respective FN
Shareholders as set forth on Schedule 3.3. The FN Shareholders have the complete
and unrestricted right and power to sell, transfer, convey and deliver all the
Shares to the Buyer, free and clear of all claims, liens and encumbrances, at
the Closing. Other than the Shares, there are no outstanding shares of capital
stock of FN or options, warrants or rights to purchase or acquire any capital
stock of FN, or any phantom stock or stock appreciation rights, or securities
convertible into or exchangeable for capital stock of FN, and there are no
contracts, commitments, understandings, arrangements or restrictions by which FN
is bound to issue any additional shares of its capital stock or any such
options, warrants, purchase rights, phantom stock, stock appreciation rights, or
convertible or exchangeable securities.
(c) As of the date of this Agreement, FN is the sole owner of
all of the issued and outstanding capital stock of FRN consisting of 1,000
shares of common stock, without par value. Other than the shares of FRN's common
stock held by FN, there are no outstanding shares of capital stock of FRN or
options, warrants or rights to purchase or acquire any capital stock of FRN, or
any phantom stock or stock appreciation rights or any securities convertible
into or exchangeable for capital stock of FRN, and there are no contracts,
commitments, understandings, arrangements or restrictions by which FRN is bound
to issue any additional shares of its capital stock
-3-
<PAGE>
or any such options, warrants or purchase rights, phantom stock, stock
appreciation rights, or convertible or exchangeable securities.
(d) Except for FRN, FN has no subsidiaries, and owns no interest
in and has not made any investment in any other person. Except for FRN, Inc., a
California corporation, FRN has no subsidiaries, and owns no interest in and has
not made any investment in any other person.
3.4 Binding Obligation. This Agreement constitutes the valid and
------------------
legally binding obligation of each of the FN Shareholders, enforceable against
each of them in accordance with its terms, except as they may be affected by
bankruptcy, insolvency, moratorium or similar laws related to or limiting
creditors' rights generally or by general equitable principles.
3.5 No Violation.
------------
(a) Neither the execution and delivery of this Agreement nor the
consummation by the FN Shareholders of the transactions contemplated hereby will
(i) violate any statute or law, or any rule, regulation, order, writ,
injunction, judgement, order, decree or other restriction of any court or
governmental authority or (ii) violate or conflict with or constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or will result in the termination of, or accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any property or asset owned or held by FN
or FRN under any term or provision of (x) the Articles or Certificates of
Incorporation or By-Laws of FII, FN or FRN or (y) any lease, contract,
commitment, understanding, arrangement, agreement or restriction of any kind or
character to which the Company is subject or by which any of its Properties or
any Real Property (each as hereinafter defined) is subject (other than the
Credit Agreement dated as of October 20, 1995 (as subsequently amended or
amended or restated, the "Credit Agreement") among FN, FRN, FII and Farm Credit
----------------
Services, and related documents). Except for filings, consents, approvals or
authorizations which will have been made or obtained or actions which will have
been taken by the FN Shareholders at or prior to the Closing, with respect to
which the FN Shareholders shall make such filing or obtain such consent,
approval or authorization and shall notify the Buyer in writing, no filing with,
or consent, approval, authorization or action by, any governmental authority is
required in connection with the execution and delivery by the FN Shareholders of
this Agreement or the consummation of the transactions contemplated hereby.
(b) To the knowledge of any of the FN Shareholders (the "FN
--
Shareholders' Knowledge"), the Company has complied and is in compliance with
- -----------------------
all applicable laws (including rules, regulations, codes, plans, injunctions,
judgements, orders, decrees, rulings and charges thereunder) of federal, state,
local and foreign governments (and all agencies thereof), and
-4-
<PAGE>
no action, suit, proceeding, investigation, hearing, charge, complaint, claim,
demand or notice has been filed or commenced against any of them alleging any
failure to so comply.
3.6 Title to Properties. FN and FRN have good and marketable title
-------------------
to, or a valid leasehold interest in, all personal property used by them or
shown on the Most Recent Financial Statements (as hereinafter defined) or
acquired after the date thereof (collectively, the "Properties"), free and clear
----------
of any mortgage, pledge, lien, encumbrance, charge or security interest, except
only non-material (either individually or in the aggregate) (i) liens imposed by
law or incurred in the ordinary course of business for obligations not yet due
to carriers, warehousemen, laborers, materialmen and the like; (ii) liens in
respect of pledges or deposits under workers' compensation laws or similar
legislation; (iii) liens for property taxes, assessments or like governmental
charges not yet delinquent and payable without penalty; (iv) defects and
exceptions to title of any Property, none of which materially interferes (either
individually or in the aggregate) with the use by the Buyer of any of the
Properties of the Company for the purposes for which they are held; and (v) the
liens and encumbrances described in Schedule 3.06 attached hereto.
3.7 Damage or Transfer. Since the date of the Most Recent Financial
------------------
Statements there has not been:
(a) Any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting any of the Properties or the Real
Property; or
(b) Any sale, lease or abandonment of any of the Properties or
the Real Property except for transactions in the ordinary course of business.
3.8 Annual Audited Financial Statements. Attached hereto as Schedule
-----------------------------------
3.8 are the audited financial statements of FN and FRN for the fiscal years
ended March 31, 1994, 1995 and 1996, respectively. The audited financial
statements of FN and FRN (including any notes thereto) have been prepared in
accordance with U.S. generally accepted accounting principles applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of FN and FRN as of such dates and for the fiscal years then
ended and are consistent with the books and records of FN and FRN, which are
correct and complete.
3.9 Interim Financial Statements. Attached hereto as Schedule 3.9
----------------------------
are the unaudited financial statements of FN and FRN as of September 30, 1996
and for the six-month period then ended (the "Most Recent Financial
---------------------
Statements"). The Most Recent Financial Statements have been prepared in
- ----------
accordance with U.S. generally accepted accounting principles consistently
applied on an interim basis and present fairly and completely the financial
position of FN and FRN at September 30, 1996 (subject only to normal year-end
adjustments which will not be material either individually or in the aggregate
with respect to the period ending on the Closing Date and except that such
financial statements lack footnotes), and are consistent with the books and
records
-5-
<PAGE>
of FN and FRN, which are correct and complete. No fact has come to the attention
of any of the FN Shareholders which would lead them to believe that such
financial statements are misleading or inaccurate in any respect.
3.10 Leases. Schedule 3.10 attached hereto lists (i) each lease
------
included in the Properties providing for lease payments in excess of $5,000 per
year and (ii) each lease included in the Properties with a term in excess of one
year and not cancelable upon thirty (30) or fewer days' notice without any
liability, penalty or premium (the "Leases"). True and complete copies of the
------
Leases, including all amendments thereof and modifications thereto have
previously been made available to the Buyer. Except as described in Schedule
3.10, neither FN nor FRN (nor to the FN Shareholders' Knowledge, any other
party) is in default with respect to any of the Leases, and all such Leases are,
and immediately after the Closing of the transactions contemplated hereby will
be, valid, binding and enforceable by and for the benefit of the Company in
accordance with their respective terms, in full force and effect without
modification. Neither FN nor FRN (nor to the FN Shareholders' Knowledge, any
other party) is in default with respect to any other leases that are included in
the Properties, and all such other leases are, and immediately after the Closing
of the transactions contemplated hereby will be, valid, binding and enforceable
by FN or FRN, as the case may be, in accordance with their respective terms, in
full force and effect without modification. Except as described on Schedule
3.10, there is no sublease with respect to any Lease or any leases.
3.11 Patents, Trademarks, Trade Names, Etc.
--------------------------------------
(a) Schedule 3.11 sets forth a complete and correct list of all:
(i) patented or registered Intellectual Property (as hereinafter defined) and
pending patent applications or other applications for registrations of
Intellectual Property owned or filed by or on behalf of the Company; (ii) all
trade names and unregistered trademarks and service marks owned or used by the
Company; and (iii) all licenses or similar agreements or arrangements for
Intellectual Property to which the Company is a party.
(b) Except as set forth in Schedule 3.11: (i) the Company owns
and possesses all right, title and interest in and to, or has a valid and
enforceable license to use, all Intellectual Property necessary for the
operation of the business as currently conducted, free and clear of all liens,
security interests, encumbrances and other restrictions; (ii) no claim by any
third party contesting the validity, enforceability, use or ownership of any
Intellectual Property has been made, is currently outstanding or is threatened,
and there are no grounds for the same; (iii) the Company has not received any
notices of any infringement or misappropriation by, or conflict with, any third
party with respect to the Intellectual Property (including, without limitation,
any demand or request that the Company license any rights from a third party);
and (iv) the Company has not infringed, misappropriated or otherwise conflicted
with any intellectual property rights or other similar rights of any third
parties.
-6-
<PAGE>
(c) The term "Intellectual Property" shall mean all of the
---------------------
following owned by, issued to or licensed to the Company: patents, patent
applications and patent disclosures and any reissues, continuations,
continuations-in-part, revisions, extensions or reexaminations thereof;
trademarks, service marks, logos, trade names and corporate names, together with
all goodwill associated therewith (including, without limitation, all
translations, adaptations, derivations and combinations of the foregoing);
copyrights; and registrations, applications and renewals for any of the
foregoing, including, without limitation, the items set forth on Schedule 3.11
attached hereto.
3.12 Litigation. Except as set forth in Schedule 3.12 attached
----------
hereto, there are no actions, suits, investigations, hearings or proceedings
pending or, to the FN Shareholders' Knowledge, threatened against, the Company
or with respect to the Properties the Real Property or the transactions
contemplated hereby, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, agency,
instrumentality or authority.
3.13 Employee Agreements and Employee Benefits.
-----------------------------------------
(a) Except as set forth on Schedule 3.13, with respect to
current or former employees of the Company, the Company does not maintain or
contribute to or have any actual or potential liability with respect to any (i)
nonqualified deferred compensation, bonus or retirement plans or arrangements,
(ii) employee pension benefit plans (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), (iii) employee
-----
welfare plans (as defined in Section 3(1) of ERISA) or (iv) material fringe
benefit plans or programs (collectively, the "Plans"). The Company does not and
-----
has not within the last five years contributed to nor does it have any actual or
potential liability with respect to any multiemployer pension plan (as defined
in Section 3(37) of ERISA). The Company does not maintain or contribute to or
have any liability with respect to any employee welfare benefit plan which
provides health, accident or life insurance benefits to former employees, their
spouses or dependents, other than in accordance with Section 4980B ("COBRA") of
-----
the Internal Revenue Code of 1986, as amended (the "Code").
----
(b) The Plans (and related trusts and insurance contracts)
comply in form and in operation in all material respects with the requirements
of applicable law including ERISA and the Code; and no such Plan is intended to
be a "qualified plan" under Section 401(a) of the Code.
--------------
(c) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports and Summary Plan Descriptions) with
respect to each Plan have been properly and timely filed with the appropriate
government agency or distributed to participants, and the Company has complied
with the requirements of COBRA.
-7-
<PAGE>
(d) With respect to each Plan, all contributions and premium
payments which are due have been paid, all contributions or other payments for
prior plan years which are not yet due and with respect to the current plan year
for the period ending on the Closing Date have been made or accrued, and all
liabilities for welfare plan benefits have been adequately funded. With respect
to the Profit Sharing Plan, all amounts payable have been paid and all amounts
which may be payable with respect to the current plan year have been adequately
accrued on the financial statements of FN and FRN.
(e) Neither FN nor FRN has any actual or potential liability to
the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the
Department of Labor, any multiemployer plan or otherwise with respect to any
Plan or with respect to any employee pension benefit plan currently or
previously maintained by members of the controlled group of companies (as
defined in Section 414 of the Code) that includes FN or FRN (the "Controlled
----------
Group") that has not been satisfied in full, and no condition exists that
- -----
presents a material risk to FN or FRN or any member of the Controlled Group of
incurring such a liability. Each Plan is terminable by FN or FRN at will with no
penalty or premium.
(f) With respect to each Plan, (i) there have been no prohibited
transactions as defined in Section 406 of ERISA or Section 4975 of the Code,
(ii) no fiduciary (as defined in Section 3(21) of ERISA) has any liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of such Assumed Plan, and
(iii) no actions, investigations, suits or claims with respect to the assets
thereof (other than routine claims for benefits) are pending or threatened, and
to the FN Shareholders' Knowledge there exist no facts which would give rise to
or could reasonably be expected to give rise to any such actions,
investigations, suits or claims.
(g) With respect to each of the Plans, the Company has furnished
to the Buyer true and complete copies of (i) the plan documents and summary plan
descriptions, (ii) the most recent determination letter received from the
Internal Revenue Service, (iii) the last actuarial valuation and Form 5500
Annual Report, and (iv) all related trust agreements, insurance contracts or
other funding agreements which implement such Plans.
(h) Schedule 3.13 contains a list of the active employees of FN
and FRN on the date of this Agreement together with their wage rates and/or
salary, which list identifies the Plans in which they participate. The Company
has not established any severance or similar policy or plan that would entitle
employees to severance or termination pay or similar payments.
3.14 Contracts and Commitments. Schedule 3.14 attached hereto
-------------------------
contains a complete and accurate list of each contract, agreement and commitment
(herein collectively referred to as the "Contracts") of FN and FRN that (i)
---------
provides for payments in excess of $10,000 per year or (ii) the term of which is
in excess of one year and is not cancelable upon thirty (30) or fewer days'
-8-
<PAGE>
notice without any liability, penalty or premium (other than a nominal
cancellation fee or charge).
Except as otherwise set forth in Schedule 3.14:
(a) The enforceability of the Contracts will not be affected in
any manner by the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby;
(b) Neither FN nor FRN have any collective bargaining agreement
in effect or being negotiated;
(c) Neither FN, FRN nor, to the FN Shareholders' Knowledge, any
other party to a Contract is in default, nor is there any basis for any valid
claim of default, under any Contract;
(d) Neither FN nor FRN is under any liability or obligation with
respect to the return of inventory or products in the possession of any person
that obtained such inventory or products directly or indirectly from either FN
or FRN other than in the ordinary course of business and which liability or
obligation in the aggregate does not exceed $10,000; and
(e) (i) The enforceability of the other contracts included in
the Properties will not be affected in any manner by the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
and (ii) neither FN nor FRN is in default, nor is there any basis for a valid
claim of default, under any of such other contracts.
3.15 Labor Disagreements. To the FN Shareholders' Knowledge, no key
-------------------
employee (other than any FN Shareholder that is an employee of the Company) and
no group of employees has any plans to terminate employment with the Company.
The Company has complied in all material respects and is in material compliance
with all applicable laws relating to the employment of labor, including laws
relating to wages, hours, equal opportunity, collective bargaining, immigration
and the payment of social security and other taxes. There are no administrative
charges or court complaints pending or, to the FN Shareholders' Knowledge,
threatened against the Company before any government agency. Within the last
three (3) years, the Company has not experienced any union organization
attempts, labor disputes or work stoppage or slowdowns due to labor
disagreements. There is no labor strike, dispute, work stoppage or slowdown
pending or, to the FN Shareholders' Knowledge, threatened. There is no request
for representation pending and no question concerning representation has been
raised. There is no grievance or arbitration proceeding pending which might have
an adverse effect on the Company. Neither FN, FRN nor any of its subsidiaries is
a party to any labor, collective bargaining or union agreement. The Company has
not implemented any plant closing or mass layoff of employees as those terms are
defined in the
-9-
<PAGE>
Worker Adjustment Retraining and Notification ("WARN") Act of 1988, as amended,
----
or any similar state or local law or regulation.
3.16 [INTENTIONALLY OMITTED]
3.17 Tax Matters.
-----------
(a) The Company has timely filed all Tax Returns (as hereinafter
defined) required to be filed by it, each such Tax Return has been prepared in
compliance with all applicable laws and regulations, and all such Tax Returns
are true and accurate in all respects. All Taxes (as hereinafter defined) due
and payable by the Company (whether or not shown on any Tax Return) have been
paid. All Taxes accrued but not payable as of September 30, 1996 are accrued on
the Most Recent Financial Statements. The Company has not incurred any liability
for taxes since September 30, 1996, other than in the ordinary course of
business.
(b) Other than as set forth on Schedule 3.17 attached hereto: (i) no
deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Tax has been proposed, asserted or assessed by any
taxing authority against the Company, (ii) there is no action, suit, taxing
authority proceeding or audit now in progress, pending or, to the FN
Shareholders' Knowledge, threatened against or with respect to the Company with
respect to any Tax, (iii) no claim has been made against the Company by a taxing
authority in a jurisdiction where the Company does not pay Tax or file Tax
Returns that the Company is or may be subject to Taxes assessed by this
jurisdiction within five years prior to the date hereof (iv) the Company has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor, independent
contractor or other third party (v) the Company has not requested or been
granted an extension of time for filing any Tax Return which has not yet been
filed, and (vi) the Company has not consented to extend to a date later than the
date hereof the time in which any Tax may be assessed or collected by any taxing
authority.
(c) The Company will not be required (A) as a result of a change in
method of accounting for a taxable period ending on or prior to the Closing
Date, to include any adjustment in taxable income for any taxable period (or
portion thereof) ending after the Closing Date, (B) as a result of any "closing
agreement" as described in Code (S)7121 (or any corresponding provision of
state, local or foreign law), to include any item of income in, or exclude any
item of deduction from, taxable income for any period (or portion thereof)
ending after the Closing Date, or (C) as a result of any deferred intercompany
gain described in Treasury Regulation (S)1.1502-13 (or any corresponding or
similar provision of state, local or foreign law), to include any item of income
in taxable income for any period (or portion thereof) ending after the Closing
Date.
(d) The Company has not made any election under Section 341(f) of the
Code (or any corresponding provision of state, local, or foreign Tax law).
-10-
<PAGE>
(e) The Company has not made any payments, and is not and will not
become obligated (under any contract entered into on or before the Closing Date)
to make any payments, that will be non-deductible under Section 280G of the Code
(or any corresponding provision of state, local, or foreign income Tax law).
(f) The Company has not been a member of an Affiliated Group other
than the Affiliated Group of which FII is the parent.
(g) The Company is not a party to or bound by any Tax allocation or
Tax sharing agreement and has no contractual obligation to indemnify any other
person with respect to Taxes.
(h) On or before the Closing Date, each of the FN Shareholders will
provide to the Buyer a certification in the applicable form provided in section
1.1445-2(b)(2)(iii) of the United States Treasury regulations that such FN
Shareholder is not a foreign person.
(i) For purposes of this Agreement, "Affiliated Group" means an
----------------
affiliated group as defined in Section 1504 of the Code (or any analogous
combined, consolidated or unitary group defined under state, local or foreign
income Tax law).
(j) For purposes of this Agreement "Tax" shall mean any federal,
---
state, local or foreign income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use, transfer, real property gains,
registration, value added, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing; the foregoing shall include any
transferee or secondary liability for a Tax and any liability assumed by
agreement or arising as a result of being (or ceasing to be) a member of any
Affiliated Group (or being included (or required to be included) in any Tax
Return relating thereto).
(k) For purposes of this Agreement "Tax Return" shall mean any
----------
return, declaration, report, claim for refund, information return or other
document (including any related or supporting schedule, statement or
information) filed or required to be filed in connection with the determination,
assessment or collection of any Tax of any party or the administration of any
laws, regulations or administrative requirements relating to any Tax.
3.18 Finders and Investment Bankers. All legal and accounting fees
------------------------------
and expenses and all brokerage fees, commissions, finders' fees or other fees
and expenses any broker, finder or investment bankers for which the FN
Shareholders or the Company or any of its officers, employees, trustees or
agents has incurred liability in connection with the transactions contemplated
hereby, will be paid by and be the obligation of the FN Shareholders.
-11-
<PAGE>
3.19 Inventories. The inventories of the Company (a) are properly
-----------
reflected on the Company's Most Recent Financial Statements in accordance with
generally accepted accounting principles consistently applied (using the
methodologies employed by the Company on a consistent basis with prior periods)
and (b) are not damaged, subject in the case of any plant inventories to normal
and ordinary overall rates of mortality. All of the inventories of the Company
(other than inventory in transit) are located on its premises (or those of Flynn
Rainbow Nurseries Oregon, Inc. ("FRNO")) in California and Oregon.
----
3.20 Notes and Accounts Receivable. All notes and accounts receivable
-----------------------------
of the Company (a) are valid receivables incurred in the ordinary course of
business, (b) with respect to notes and accounts receivable existing as of the
date of the Company's Most Recent Financial Statements, are properly reflected
on the Most Recent Financial Statements in accordance with generally accepted
accounting principles consistently applied, (c) except to the extent reserved
for on the Most Recent Financial Statements, are not and will not be subject to
any valid counterclaim, deduction, credit, set-off or other offset, and (d) are
aged as shown on Schedule 3.20, are not more than 30 days past due and as of the
Closing Date and are collectible within a commercially reasonable period of time
at full face amounts without offset, subject to a reserve for bad debts
established in a manner consistent with the reserve for bad debts reflected on
the Most Recent Financial Statements, and not varying therefrom in any material
respect. Schedule 3.20 attached hereto contains a true and complete list of all
notes and accounts receivable of the Company as of the effective date of such
schedule.
3.21 Absence of Undisclosed Liabilities. With respect to the
----------------------------------
Properties the Real Property and the operation of the Company's businesses, the
Company has no debts, liabilities or obligations of any nature (whether accrued,
absolute, contingent, direct, indirect, perfected, inchoate, unliquidated or
otherwise, whether due or to become due) arising out of transactions entered
into at or prior to the Closing, or any transaction, series of transactions,
action or inaction at or prior to the Closing, or any state of facts or
condition existing at or prior to the Closing (regardless of when any such
liability or obligation is asserted), including, without limitation, taxes with
respect to or based upon transactions or events occurring on or prior to the
Closing, except (a) material liabilities and obligations under agreements,
contracts, leases or commitments, (b) liabilities and obligations reflected in
the audited financial statements (including the notes thereto) or in the Most
Recent Financial Statements, (c) liabilities and obligations expressly described
on the Schedule 3.21 or on any other Schedule attached hereto (provided that
with respect to liabilities and obligations that are of the same type as
liabilities and obligations addressed elsewhere in these representations and
warranties, the liability of the FN Shareholders shall be determined in
accordance with such other provisions without reference to this Section) and (d)
liabilities and obligations of the Company incurred in the ordinary course of
business since the date of the Most Recent Financial Statements.
-12-
<PAGE>
3.22 No Material Adverse Changes. Except as set forth on Schedule
---------------------------
3.22 attached hereto, since the date of the Most Recent Financial Statements
there has been no material adverse change in the assets, liabilities, condition
(financial or otherwise), operating results, or employee or supplier relations
of the Company, and to the FN Shareholders' Knowledge the Company has not lost
any material customer (or any material portion of any material customer's
business).
3.23 Absence of Certain Developments. Except as set forth on Schedule
-------------------------------
3.23 attached hereto:
(a) Since the date of the Most Recent Financial Statements, except as
otherwise expressly provided herein, FN and FRN have:
(i) conducted the businesses of the Company only in the usual and
ordinary course of business in accordance with past custom and practice
(including placing purchase orders only for quantities and at prices and
accepting customer orders only for quantities on terms and at rates and in
amounts consistent with past custom and practice);
(ii) maintained all of the Properties in the same state as at the
date of the Most Recent Financial Statements, except for ordinary wear and
tear not caused by neglect, and maintained insurance reasonably comparable
to that in effect on the date of the Most Recent Financial Statements; and
(iii) conducted the cash management customs and practices of the
Company (including the collection of receivables and payment of payables
and maintenance of inventory control and pricing and credit practices) in
the usual and ordinary course of business in accordance with past custom
and practice.
(b) Since the date of the Most Recent Financial Statements, except
as otherwise provided herein, the Company has not:
(i) incurred any liability other than in the ordinary course of
business consistent with past custom and practice;
(ii) entered into any transaction, arrangement or contract (including,
without limitation, any transfer of the Properties or placing a lien
thereon) except on an arm's-length basis in the ordinary course of business
consistent with past custom and practice;
(iii) issued any notes, bonds or other debt securities or any capital
stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities;
-13-
<PAGE>
(iv) declared or made any payment or distribution of cash or other
property to its stockholders with respect to its capital stock or other
equity securities or purchased or redeemed any shares of its capital stock
or other equity securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other equity
securities);
(v) entered into any transaction, arrangement or contract with any
officer, director, partner, stockholder or other insider or affiliate of FN
or FRN including, without limitation, any sale, transfer, assignment or
conveyance of inventory;
(vi) instituted any material change in the conduct of business or in
its method of purchase, sale, lease, management, marketing, operation or
accounting;
(vii) made any purchases other than in the ordinary course of business
consistent with past custom and practice;
(viii) discharged or satisfied any material lien or encumbrance or paid
any material obligation or liability, other than current liabilities paid
in the ordinary course of business consistent with past custom and
practice, or canceled, compromised, waived or released any right or claim;
(ix) modified, sold, assigned, transferred, abandoned or permitted to
lapse any licenses or permits which, individually or in the aggregate, are
material to the Company and the operation of its businesses or any portion
thereof, or any intellectual property or other intangible assets, or
disclosed any material proprietary confidential information to any person,
except in the ordinary course of business consistent with past custom and
practice, or granted any license or sublicense of any rights under or with
respect to any intellectual property;
(x) made or granted any bonus or any wage or salary increase to any
employee, officer or director, or directly or indirectly made any other
material change in employment terms for any employee, officer or director,
other than bonuses and increases in the ordinary course of business or as
required by law to non-executive employees consistent with past custom and
practice;
(xi) made or granted any increase in, or amended or terminated, any
existing plan, program, policy or arrangement, including without
limitation, employee benefit plan or arrangement, or adopted any new
employee benefit plan or arrangement, or amended or renegotiated any
existing collective bargaining agreement or entered into any new collective
bargaining agreement or multiemployer plan;
-14-
<PAGE>
(xii) made any capital expenditures or commitments therefor in excess
of $25,000;
(xiii) made any loans or advances to, or pledges or guarantees for the
benefit of, or entered into any transaction with any employee, officer or
director, except for the transactions contemplated by this Agreement, and
for advances consistent with past custom and practice made to employees,
officers and directors for expenses incurred in the ordinary course of
business;
(xiv) suffered any extraordinary loss, damage, destruction or casualty
loss, or waived any rights of material value expect in the ordinary course
of business and in a manner consistent with past custom and practice,
whether or not covered by insurance;
(xv) received notification that any supplier or material customer will
stop or decrease in any material respect the rate of business done with the
Company;
(xvi) borrowed any amount or incurred or become subject to any material
liabilities, except liabilities under the Credit Agreement or liabilities
incurred in the ordinary course of business and liabilities under contracts
entered into in the ordinary course of business consistent with past custom
and practice;
(xvii) pledged to make any charitable contribution;
(xviii) made any capital investment in, any loan to, or any acquisition
of the securities or assets of any other person or taken any steps to
incorporate any subsidiary;
(xix) entered into any other material transaction, other than in the
ordinary course of business consistent with past custom and practice; or
(xx) committed to any of the foregoing.
3.24 Product Warranty. Except for liabilities reserved for on the
----------------
Most Recent Financial Statements or incurred since that date in the ordinary
course of business, no material liability exists for replacement or other
damages in connection with such sales or deliveries of products sold and
delivered by the Company at any time prior to the Closing Date. No products
heretofore delivered or sold by the Company or products with respect to which
any offer or agreement to sell has been made by the Company are now subject to
any guarantee or warranty, except to the extent described on Schedule 3.24
attached hereto.
3.25 Licenses and Permits. Schedule 3.25 attached hereto contains a
--------------------
complete listing of all material permits, licenses, certificates, approvals and
other authorizations of foreign (if applicable), federal, state and local
governments or other similar rights (collectively, the "Licenses")
--------
-15-
<PAGE>
used by Company in the conduct of its businesses or the ownership of its
Properties. Except as indicated on Schedule 3.25, the Company owns or possesses
all right, title and interest in and to all of the Licenses that are necessary
to own and operate the Properties and to conduct the businesses of the Company
as presently conducted, including, without limitation, all Licenses required
under any federal, state or local law relating to public health and safety,
employee health and safety, pollution or protection of the environment. The
Company is in compliance in all material respects with the terms and conditions
of such Licenses and has received no notices that it is in violation of any of
the terms or conditions of such Licenses. The Company has taken all necessary
action to maintain such Licenses. To the FN Shareholders' Knowledge no loss or
expiration of any such License is threatened, pending or reasonably foreseeable
other than expiration in accordance with the terms thereof. Except as indicated
on Schedule 3.25, all of the Licenses will remain in full force and effect for
the benefit of the Company immediately following the Closing.
3.26 Environmental and Safety Requirements. Except as set forth and
-------------------------------------
described with particularity on Schedule 3.26 attached hereto:
(a) the Company has complied and is in compliance in all material
respects with all applicable Environmental and Safety Requirements (as
hereinafter defined);
(b) without limiting the generality of the foregoing, the Company has
obtained and complied with, and is in compliance with, all material permits,
licenses and other authorizations that are required pursuant to Environmental
and Safety Requirements for the occupation of its facilities and the operation
of the businesses, which such permits, licenses and authorizations may be relied
upon by the Buyer for the lawful operation by the Company of its businesses and
the Properties on and after the Closing without transfer, reissuance or other
governmental action;
(c) the Company has not received any written notice, report or other
information regarding any actual or alleged violation of Environmental and
Safety Requirements, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to the operation by
the Company of its businesses or the Properties and arising under Environmental
and Safety Requirements;
(d) none of the following exists at any property or facility owned or
operated by the Company (i) underground storage tanks that contain any hazardous
materials or substances including, without limitation, petroleum and petroleum
based products, (ii) asbestos-containing material in any form or condition,
(iii) materials or equipment containing polychlorinated biphenyls or (iv)
landfills, surface impoundments or disposal areas for hazardous materials or
substances or municipal solid waste;
-16-
<PAGE>
(e) the Company has not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any hazardous
substance or petroleum or petroleum based products, or owned or operated any
property or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, or any
investigative, corrective or remedial obligations, pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), or the Solid Waste Disposal Act, as amended ("SWDA"), or any other
------ ----
Environmental and Safety Requirements;
(f) neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements; and
(g) the Company has not expressly assumed or undertaken any
liability, including without limitation any obligation for corrective or
remedial action, of any other person relating to Environmental and Safety
Requirements.
(h) For purposes of this Agreement "Environmental and Safety
------------------------
Requirements" means all federal, state, local and foreign statutes, regulations,
- ------------
ordinances and similar provisions having the force or effect of law, all
judicial and administrative orders and determinations, all contractual
obligations and all common law concerning public health and safety, worker
health and safety, and pollution or protection of the environment, including
without limitation all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, agricultural chemicals, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation.
3.27 Insurance. Schedule 3.27 attached hereto lists each insurance
---------
policy to which the Company has been a party or a named insured or otherwise the
beneficiary of coverage at any time during the past five years. The Company
maintains insurance policies with respect to the Properties and the operation of
its businesses with coverage customary for entities engaged in similar lines of
business. All of such insurance policies are legal, valid, binding and
enforceable and in full force and effect and the Company is not in breach or
default with respect to its obligations under such insurance policies.
3.28 Customers. Schedule 3.28 attached hereto lists all material
---------
customers of the Company. Neither the Company nor the FN Shareholders have
received any notice and, to the FN
-17-
<PAGE>
Shareholders' Knowledge no material customer of the Company intends to terminate
or materially reduce its business with the Company and no material customer has
terminated or materially reduced its business with the Company in the last
twelve (12) months.
3.29 Suppliers. Schedule 3.29 attached hereto lists the Company's ten
---------
(10) largest vendors. Neither the Company nor the FN Shareholders have received
any notice and, to the FN Shareholders' Knowledge no such vendor intends to
terminate or materially reduce its business with the Company and no such vendor
has terminated or materially reduced its business with the Company in the last
twelve (12) months.
3.30 Affiliate Transactions. Except as set forth on Schedule 3.30
----------------------
attached hereto, no officer, director or employee of the Company or any person
related by blood or marriage to any such person, or entity in which any such
person owns any beneficial interest, or any affiliate thereof, is a party to any
agreement, contract, commitment or transaction with the Company or which
pertains to the Company, the Real Property or the Properties, or has any
interest in any property, real or personal or mixed, intangible or tangible,
relating to the Company, the Real Property or the Properties. Schedule 3.30
describes all material intercompany or affiliated services provided to or on
behalf of the Company by its affiliates and to or on behalf of such affiliates
by the Company.
3.31 Real Property.
-------------
(a) Owned Properties. Schedule 3.31(a) sets forth the address and
----------------
a true, correct and complete legal description of all land included in the Owned
Real Property. For the purposes hereof, the term "Owned Real Property" shall
-------------------
mean all real property (including, without limitation, all land and all
buildings, fixtures and other improvements, and irrigation and other water
distribution systems located thereon, and all easements, rights of way,
tenements, hereditaments, appurtenances, privileges and other rights with
respect thereto) owned in fee by the Company and used or occupied in the
operation of the Company's business. With respect to each parcel of Owned Real
Property: (i) the Company has good and marketable fee simple title to such
parcel, free and clear of all liens and encumbrances as of the Closing Date,
except Permitted Encumbrances (as defined in Section 8.10 below); (ii) there are
no leases, subleases, licenses, concessions or other agreements (written or
oral) granting to any person the right to use or occupy such parcel or any
portion thereof; and (iii) there are no outstanding options, rights of first
offer or rights of first refusal to purchase such parcel or any portion thereof
or interest therein.
(b) Leased Properties. Schedule 3.31(b) sets forth a list of all
-----------------
leases, subleases, licenses, concessions and other agreements (collectively, the
"Real Property Leases") pursuant to which the Company has a leasehold,
--------------------
subleasehold, license, concession or other rights to use or occupy real property
(collectively, the "Leased Real Property"), and a true, correct and complete
--------------------
legal description of each parcel of such Leased Real Property. The Company has
delivered to the Buyer true, correct, complete and accurate copies of each of
the Real Property Leases. With respect
-18-
<PAGE>
to each Real Property Lease: (i) the Real Property Lease is legal, valid,
binding, enforceable and in full force and effect; (ii) neither the Company nor
any other party to the Real Property Lease is in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute such a breach
or default or permit termination, modification or acceleration under the Real
Property Lease; (iii) neither the Company nor, to the FN Shareholders'
Knowledge, any other party to the Real Property Lease has repudiated any
provision thereof; (iv) there are no disputes, oral agreements, or forbearance
programs in effect as to the Real Property Lease; (v) the Real Property Lease
has not been modified in any respect, except to the extent that such
modifications are disclosed by the documents delivered to the Buyer; (vi) the
Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the Real Property Lease; and (vii) the purchase and
transfer of the Shares and change in control of the Company will not require the
consent of the landlords or any other party under the Real Property Lease.
(c) Real Property Purchase Options. With respect to each purchase
------------------------------
option under each of the Real Property Leases, (i) the Company has not received
any notice from the landlord under such Real Property Lease stating that the
purchase option has lapsed, been terminated or otherwise is no longer
exercisable by the Company, and to the FN Shareholders' Knowledge, no such
action has been threatened by such landlord; and (ii) to the FN Shareholders'
Knowledge, the purchase option is valid, binding and enforceable by the Company,
and no event has occurred or circumstance exists which could cause such purchase
option to lapse, terminate or otherwise not be exercisable by the Company.
(d) Real Property Disclosure. Other than the Owned Real Property and
------------------------
the Leased Real Property (collectively, the "Real Property"), except as
-------------
disclosed on Schedule 3.31, there is no real property leased or owned by the
Company used in the Company's business.
(e) No Proceedings. There are no proceedings in eminent domain or
--------------
other similar proceedings pending or, to the FN Shareholders' Knowledge,
threatened, affecting any portion of the Real Property. There exists no writ,
injunction, decree, order or judgment outstanding, nor any litigation, pending
or threatened, relating to the ownership, lease, use, occupancy or operation by
the Company of the Real Property.
(f) Current Use. The current use of the Real Property does not
-----------
violate in any material respect any instrument of record or agreement affecting
such Real Property. There is no violation of any covenant, condition,
restriction, easement, agreement or order of any governmental authority having
jurisdiction over any of the Real Property that adversely affects such real
property or the use or occupancy thereof. Since the date of the Most Recent
Financial Statements, no damage or destruction has occurred with respect to any
of the Real Property that, individually or in the aggregate, has had or resulted
in, or will have or result in, a significant adverse effect on the operation of
the Company's business.
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<PAGE>
(g) Condition of Improvements. All buildings, structures, fixtures
-------------------------
and other improvements and all components thereof included within the Owned Real
Property and Leased Real Property (including, without limitation, irrigation and
other water distribution systems) (collectively, the "Improvements") are in
------------
reasonably good condition and repair and sufficient for the continued operation
of the Company's business.
(h) Permits. All certificates of occupancy, permits, licenses,
-------
franchises, approvals and authorizations (collectively, the "Real Property
-------------
Permits") of all governmental authorities having jurisdiction over the Real
- -------
Property, required to have been issued to the Company to enable the Real
Property to be lawfully occupied and used for all of the purposes for which it
is currently occupied and used have been lawfully issued and are, as of the date
hereof, in full force and effect. The Company has delivered complete and
correct copies of the Real Property Permits to the Buyer. The Company has not
received or been informed in writing by a third party of the receipt by it of
any notice from any governmental authority having jurisdiction over the Real
Property threatening a suspension, revocation, modification or cancellation of
any Real Property Permit and, to the FN Shareholders' Knowledge there is no
basis for the issuance of any such notice or the taking of any such action.
(i) Compliance with Laws. The Real Property is not in violation of
---------------------
any applicable building, zoning, subdivision, health and safety and other land
use and similar laws affecting the Real Property (collectively, the "Real
----
Property Laws"), and the Company has not received any notice of violation or
- -------------
claimed violation of any Real Property Law. There is no pending or, to the FN
Shareholders' Knowledge, any anticipated change in any Real Property Law that
will have or result in a significant adverse effect upon the ownership,
alteration, use, occupancy or operation of the Real Properties or any portion
thereof. No current use by the Company of the Real Properties is dependent on a
nonconforming use or other approval from a governmental authority, the absence
of which would significantly limit the use of any of the properties or assets in
the operation of the Business.
(j) Water Rights. To the FN Shareholders' Knowledge, each parcel of
------------
Real Property has access to (although not necessarily the legal, enforceable
right to) water resources for irrigation purposes as reasonably required for the
cultivation of nursery stock in the ordinary course of the Company's business,
and such access to and use of such water resources is not dependent on the
ownership or lease of any real property or interest therein, contractual rights,
governmental permits or other rights or privileges of any kind which are not
included in this transaction.
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the FN Shareholders as follows:
4.1 Organization. The Buyer is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of California and has
the corporate power and authority to carry on its business as presently
conducted, to enter into, execute and deliver this Agreement and to consummate
the transactions contemplated hereby.
4.2 Authority. The execution and delivery of this Agreement and the
---------
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of the Buyer. The Buyer will deliver to the FN
Shareholders at the Closing complete and correct copies, certified by its
Secretary or Assistant Secretary, of the resolutions duly and validly adopted by
its Board of Directors evidencing such authorization (which resolutions will not
have been modified, revoked or rescinded prior to and will be in full force and
effect at the Closing). No other corporate act or proceeding on the part of the
Buyer or its shareholders is necessary for the due and valid authorization of
this Agreement or the transactions contemplated hereby.
4.3 Binding Obligation. This Agreement constitutes the valid and
------------------
binding obligation of the Buyer enforceable against it in accordance with its
terms, except as they may be affected by bankruptcy, insolvency, moratorium or
similar laws related to or limiting creditors' rights generally or by general
equitable principles.
4.4 No Violation. Neither the execution and delivery of this
------------
Agreement nor the consummation by the Buyer of the transactions contemplated
hereby will (a) violate any statute or law, or any rule, regulation, order,
writ, injunction or decree of any court or governmental authority, or (b)
violate or conflict with or constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, or will result in
the termination of, or accelerate the performance required by, any term or
provision of the Certificate or Articles of Incorporation or By-Laws of the
Buyer.
4.5 Finders and Investment Bankers. All legal and accounting fees
------------------------------
and expenses and all brokerage fees, commissions, finders' fees or any other
fees and expenses of any broker, finder or investment banker, for which the
Buyer or any of its respective officers, trustees or agents has incurred
liability in connection with the transactions contemplated hereby, will be paid
by the Buyer.
4.6 Representations and Warranties Regarding Investment. Solely for
---------------------------------------------------
purposes of compliance with applicable securities laws, the Buyer hereby
represents and warrants to the FN Shareholders as follows:
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<PAGE>
(a) The Buyer understands and acknowledges that the offering and
sale of Shares pursuant to this Agreement will not be registered under the
Securities Act of 1933 on the basis that the offering and sale of the Shares
contemplated by this Agreement is exempt from registration under the Securities
Act and that the FN Shareholders' reliance upon such exemption is predicated
upon the Buyer's representations set forth in this Agreement.
(b) The Buyer has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of the
purchase of the Shares contemplated by this Agreement and the Buyer has the
ability to bear the economic risk of such an investment.
(c) The Buyer is acquiring the Shares for its own account, not
as nominee or agent and not with a view to the sale or distribution of any part
thereof and the Buyer has no agreement, understanding or arrangement to
subdivide, sell, assign, transfer, pledge or otherwise dispose of all or any
part of his interest in the shares to any other person.
(d) The Buyer acknowledges that it has examined and investigated
FN and FRN and has had access to such information as it deemed necessary to make
an investment in the Shares, and has had the opportunity to ask questions of and
receive answers from the FN Shareholders, the Company and its officers,
directors, employees and agents.
ARTICLE V
COVENANTS
5.1 Use of "Flynn" Name. From and after the Closing Date, FN and FRN
-------------------
will have the exclusive right to use the names "Flynn Nurseries," "Flynn Rainbow
Nurseries" and all derivations thereof and all related trademarks in connection
with the sale of nursery and other garden products within North America.
Notwithstanding the foregoing or anything contained in this Agreement, FII shall
retain full right to the logo and emblem used by FRN and identified in Schedule
3.11 other than in connection with, directly or indirectly, the sale of nursery
and other garden products within North America.
5.2 Information, Confidentiality and Record Retention.
-------------------------------------------------
(a) The FN Shareholders and the Company will permit the Buyer
and its counsel, accountants and other representatives and agents full access
during normal business hours to all of the plants, properties, books, contracts,
commitments and records of the Company (including, without limitation, the right
to conduct any physical inventory or otherwise be present at or participate in
any such activity at any time prior to the Closing) and will furnish the Buyer
and
-22-
<PAGE>
its representatives during such period with all such information concerning the
affairs of the Company as the Buyer or its representatives may request
including, without limitation, all trade secrets, customer lists, and all
research documents which the FN Shareholders, FN or FRN have in their possession
regarding nursery markets, products and growing and production methods.
(b) Until the Closing, the Buyer and its affiliates and
associates will, and will cause their respective officers, employees and
authorized representatives and agents to, hold in strict confidence all
internal, non-public financial and business information obtained by them from
the FN Shareholders or the Company in connection with the transactions
contemplated by this Agreement and will reveal such confidential information
only to those persons, including counsel, accountants and investment bankers,
who have a need for such information in the performance of their duties for
their respective principals, unless after notice to the FN Shareholders,
disclosure of such material is compelled by judicial or administrative process,
or, in the opinion of the Buyer's counsel, by other requirements of law. In the
event of termination of this Agreement prior to the Closing, the Buyer and its
affiliates and associates will, and will cause their officers, employees and
authorized representatives to, return to the FN Shareholders and FN all
confidential documents and other material (including original copies and all
duplicates thereof) obtained from the FN Shareholders, FN and FRN in connection
with the transactions contemplated by this Agreement.
(c) For a period of three years following the Closing, upon
reasonable notice, each party to this Agreement shall have reasonable access to
books and records relating to the business of FN and FRN or which relate to the
Properties or the Real Property; provided that such party requesting access has
a valid business purpose unrelated to any matter that is the subject of
litigation between the parties. For such period, the Buyer and the FN
Shareholders also agree that prior to the destruction or disposition of any such
books or records pertaining to the business of FN or FRN or which relate to the
Properties, each party shall provide not less than 45 nor more than 90 days'
prior written notice to the other of any such proposed destruction or disposal.
If the recipient of such notice desires to obtain any of such documents, it may
do so by notifying the other party in writing at any time prior to the scheduled
date for such destruction or disposal. Such notice must specify the documents
which the requesting party wishes to obtain. The parties shall then promptly
arrange for the delivery of such documents. All out-of-pocket costs associated
with the delivery of the requested documents shall be paid by the requesting
party.
5.3 Employees. The FN Shareholders agree to cooperate with the Buyer
---------
by permitting the Buyer throughout the period prior to the Closing Date (i) to
meet with the employees of the Company at such times as shall be approved by a
representative of FII (which approval will not be unreasonably withheld) with
respect to the possibility that such employees will remain employees of the
Company after Closing or become employees of the Buyer and (ii) to distribute to
employees of the Company such forms and other documents relating to employment
after the Closing as the Buyer shall reasonably request.
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<PAGE>
5.4 Real Property Closing Deliveries. The Company and the FN
--------------------------------
Shareholders shall deliver to the Title Company, any affidavits, memorandums,
indemnities and agreements and provide such other assurances required by the
Company to issue the Title Policies.
5.5 Farm Credit "C" Stock. FN and FRN irrevocably assign their
---------------------
entire interest in the redemption proceeds in the C Stock (or any other proceeds
received at any time by FN or FRN derived in any way from the C Stock, including
any proceeds of any sale or disposition thereof) to FII as agent for the FN
Shareholders. FN and FRN agree that such proceeds and the C Stock shall be kept
free and clear of all liens and encumbrances of any kind. FN and FRN agree that
they shall not sell, transfer or otherwise dispose of the C Stock to any party
(other than Farm Credit) without the prior written consent of FII, and that they
shall not waive, compromise or release any right pertaining to such stock. The
Parties agree to use reasonable efforts to cause a letter agreement
substantially in the form of Exhibit G hereto to be executed by Farm Credit and
---------
the other parties thereto as promptly as practicable on or following the Closing
Date, and agree that, pending execution by Farm Credit, that such letter be
given effect to the maximum extent possible. Upon the written request of FII,
and if permitted by Farm Credit, FN and FRN agree to assign the C Stock to FII
as agent for the FN Shareholders. In the event Farm Credit fails to redeem such
C Stock for any reason, FN and FRN authorize FII, for itself and as agent for
the FN Shareholders, to bring an action in its own name or in the name of FRN or
FN, at the sole expense of the FN Shareholders, to enforce any right of FN or
FRN with regard to the C Stock
ARTICLE VI
INTENTIONALLY OMITTED
ARTICLE VII
OTHER OBLIGATIONS OF THE PARTIES
7.1 Disclosure Supplements. From time to time prior to the Closing,
----------------------
the FN Shareholders and FN will promptly supplement or amend the Schedules and
other written disclosures delivered pursuant to this Agreement with respect to
any material matter hereafter arising which, if existing or occurring at the
date of this Agreement, would have been required to be set forth or described in
the Schedules or such written disclosures or which is necessary to correct any
information in the Schedules or such written disclosures or in any
representation and warranty of the FN Shareholders which has been rendered
inaccurate thereby. Notwithstanding any supplemental disclosure made by the FN
Shareholders after the date of this Agreement, such disclosure will not affect
the liability of the FN Shareholders for the breach of any representation,
warranty or covenant made by the FN Shareholders and contained herein.
-24-
<PAGE>
7.2 Public Announcements. Unless required by law, neither party
--------------------
hereto shall make any press release or public announcement related to this
Agreement or the transactions contem plated hereby without the written consent
of the other party.
7.3 Certain Tax Matters.
-------------------
(a) Except as otherwise provided herein, the Buyer shall cause to be
filed any Tax Returns required to be filed with respect to the Company after the
Closing Date. The Buyer shall be entitled to recover from the FN Shareholders
if and to the extent that any Taxes of the Company were not paid or adequately
accrued for periods (or partial periods) ending on the date of the Most Recent
Financial Statements, to the extent required by GAAP to be so accrued on such
statements.
(b) The Buyer shall cause to the Company to consent to join, for all
taxable periods of the Company ending on or before the Closing Date for which
the Company is eligible to do so, in any consolidated federal, state and local
income and franchise Tax Returns which FII shall request it to join. FII shall
cause to be prepared and filed all such consolidated or combined Tax Returns.
The Buyer agrees to take no position inconsistent with the Company's being a
member of the consolidated or combined groups of which FII is the common parent
for all such periods. FII and the other FN Shareholders shall cause to be
timely paid all Taxes to which such Tax Returns relate for all such periods
covered by such Tax Returns. The Buyer shall not permit the Company to make any
distributions on the Closing Date that could reasonably be expected to cause FII
or any member of its consolidated group to realize any gain on the FII
consolidated return for periods ending on or before the Closing Date.
(c) With respect to any Tax periods ending before or including the
Closing Date with respect to which the Buyer is responsible for filing Tax
Returns pursuant to Section 7.3(a) hereof, the Buyer may, or may cause the
Company to, make or change any election, file any amended Tax Return, enter into
any closing agreement, settle any Tax claim or assessment relating to the
Company, surrender any right to claim a refund of Taxes, or take any other
similar action, or omit to take any action relating to the filing of any Tax
Return or the payment of any Tax; provided, that the Buyer shall not take any
such action without the prior written consent of FII (which consent shall not be
unreasonably withheld) if any such action could reasonably be expected to
materially increase the Tax liability of FII or the Company with respect to any
Tax period (or partial period) ending on or before the Closing Date.
(d) The Buyer shall promptly pay or shall cause prompt payment to be
made to FII of all refunds of Taxes and interest thereon received by the Buyer,
any Affiliate of the Buyer or the Company which are attributable to any Tax
period (or partial period) ending on or before the Closing Date.
-25-
<PAGE>
(e) FII agrees to, and hereby does, indemnify and hold harmless the
Buyer from and against any liability of the Company for Taxes of any Person
other than the Company with respect to any period (or any partial period) ending
on or before the Closing Date (i) under Treasury Regulation Section 1.1502-6,
(ii) as a transferee or successor, (iii) by contract, or (iv) otherwise.
(f) All tax sharing agreements or similar agreements with respect to
or involving any of the FN Shareholders and the Company shall be terminated as
of the Closing Date and, after the Closing Date, neither the Company nor any
subsidiary shall be bound thereby or have any liability thereunder.
(g) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any gains, transfer or other Tax
imposed in any state or subdivision), shall be paid by the FN Shareholders when
due and the FN Shareholders will, at their own expense, file all necessary Tax
Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if required by
applicable law, the Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
(h) FII shall accurately and completely prepare and file all required
federal, state, local and foreign Tax Returns and amendments thereto required to
be filed by it on or before the Closing Date which relate to the Company, the
operations thereof and the Properties. FII will ensure that the Buyer shall
have a reasonable opportunity to review each such return and amendment prior to
the filing thereof to the extent that such return or amendment relates to FN or
FRN, the operations thereof or the Properties.
7.4 Third Party Payments. If, after the Closing, the Buyer, FN or
--------------------
FRN receives any payment from a third party which is, in whole or in part,
designated by the payor as payment of an obligation owed to an FN Shareholder
and is not a payment received in connection with the operation by the Company of
its businesses, the Buyer, FN or FRN shall remit such payment to the appropriate
FN Shareholder.
7.5 Further Consents. At all times after the Closing Date, the FN
----------------
Shareholders shall take all actions requested reasonably by the Buyer to obtain
the consent of any third party necessary to cause any contract or agreement of
the Company in effect as of the date of this Agreement to be enforceable by the
Company without any material modification; provided, however, that nothing in
this Section 7.5 shall require the expenditure of any sum by any FN Shareholder
in excess of $5,000 in the aggregate among all FN Shareholders or the waiver or
compromise of any material right by any FN Shareholder.
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<PAGE>
ARTICLE VIII
CONDITIONS TO THE BUYER'S OBLIGATIONS
Except as may be waived by the Buyer, the obligations of the Buyer are
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions:
8.1 Representations and Warranties. The representations and
------------------------------
warranties made by the FN Shareholders in this Agreement, and the statements
contained in the Schedules annexed hereto or in any instrument, list,
certificate or writing delivered by the FN Shareholders pursuant to this
Agreement shall have been true in all material respects when made and as of the
Closing Date as though such representations and warranties were made at and as
of such date, except for any changes permitted by the terms of this Agreement or
consented to by the Buyer in writing.
8.2 Performance. The FN Shareholders shall have performed and
-----------
complied with all covenants, agreements, obligations and conditions required by
this Agreement to be so performed or complied with by them, prior to or at the
Closing including delivering to the Buyer such stock certificates, the title
insurance policies and personal property lien record searches, and other
documents reasonably satisfactory in form and substance to the Buyer and its
counsel, as shall be necessary to consummate the transactions contemplated
hereby as shall have been reasonably requested by the Buyer.
8.3 Officers' Certificate. The FN Shareholders shall have delivered
---------------------
to the Buyer a certificate, dated the Closing Date, and executed by each FN
Shareholder and any principal executive officer of FII, certifying to the
fulfillment of the conditions specified in Sections 8.1, 8.2, 8.6 and 8.7
hereof.
8.4 Opinions of Counsel. The Buyer shall have received a legal
-------------------
opinion of Heller, Ehrman, White & McAuliffe, California counsel to the FN
Shareholders, and Woodburn and Wedge, Nevada counsel to the FN Shareholders,
each dated the Closing Date and substantially in the form attached as Exhibit C
---------
to this Agreement.
8.5 Consents. All approvals of applicable governmental or regulatory
--------
authorities (federal, state or local, domestic or foreign), all corporate and
shareholder actions, and all consents of third parties under contract,
instrument or agreement, the approval, performance or grant of which are
necessary, in the reasonable opinion of the Buyer, for the consummation of the
transactions contemplated hereby shall have been obtained, and no such approval,
consent or action shall contain any condition which materially adversely affects
or will materially adversely affect the Properties, the Real Property or the
operations of the Company.
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<PAGE>
8.6 Litigation.
----------
(a) There shall be no order, decree or injunction of a court of
competent jurisdiction, including without limitation the entry of a preliminary
or permanent injunction, which (i) prevents or delays the performance by the
Buyer or the FN Shareholders of their obligations hereunder or (ii) would impose
any limitation on the ability of the Buyer effectively to exercise full rights
of ownership of the stock of FN or of FN and FRN to exercise the full rights of
ownership of the Properties and the goodwill associated therewith.
(b) No action, suit or proceeding before any court or
governmental or regulatory authority shall be pending against the Buyer, the FN
Shareholders or the Company challenging the validity or legality of the
transactions contemplated by this Agreement.
8.7 Material Adverse Change. Neither FN nor FRN shall have suffered
-----------------------
any material adverse change in the Properties or their operations, business or
prospects since the date of Most Recent Financial Statements.
8.8 Certificates. The FN Shareholders shall furnish such
------------
certificates to evidence compliance with the conditions set forth in this
Article VIII, as may be reasonably requested by the Buyer.
8.9 Non-Competition Agreement. FII and Donald Flynn shall have
-------------------------
entered into a Non-Competition, Non-Solicitation and Non-Disclosure Agreement
with the Buyer, substantially in the form of Exhibit D to this Agreement.
---------
8.10 Title Insurance. The Company shall have obtained, at its sole
---------------
cost and expense, a commitment for an ALTA Owner's or Leasehold Policy of Title
Insurance Form B-1970 (as the case may be), for each parcel of Real Property
(the "Title Commitments"), issued by a title insurer satisfactory to the Buyer
-----------------
and the Buyer's lender (the "Title Insurer"), in such amount as the Buyer
-------------
determines to be the fair market value (including all Improvements thereon),
insuring the Company's interest in such parcel as of the Closing Date, subject
only to the Permitted Encumbrances. The Company shall deliver at the time of
delivery of the Title Commitments, copies of all documents of record referred to
therein. The Company will provide the Buyer with title insurance policies
("Title Policies") on or before the Closing, from the Title Insurer based upon
--------------
the Title Commitments. Each such Title Policy will be dated as of the Closing
Date and (a) insure title to the applicable parcels of Real Property and all
recorded easements benefitting such parcels, subject only to Permitted
Encumbrances, (b) contain an "extended coverage endorsement" insuring over the
general exceptions contained customarily in such policies, (c) contain a CLTA
123.2 Endorsement, with parking (or equivalent), (d) contain an endorsement
insuring that the parcel described in such Title Policy is the parcel shown on
the Survey delivered with respect to such parcel and that the Survey is an
accurate survey thereof, (e) contain an endorsement insuring that there is
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<PAGE>
direct and unencumbered pedestrian and vehicular access to a street from such
parcel, (f) if the real estate covered by such policy consists of more than one
record parcel, contain a "contiguity" endorsement insuring that all of the
record parcels are contiguous to one another, (g) contain a non-imputation
endorsement insuring that coverage under the Title Policies will not be denied
on the basis of knowledge imputed to the Company based on the knowledge of any
shareholders, directors, officers or employees prior to the Closing Date, (h)
contain a tax number endorsement, (i) contain an endorsement insuring any option
to purchase such Real Property under the Lease and (j) contain such other
endorsements as the Buyer and the Buyer's lender may reasonably request.
For purposes hereof, "Permitted Encumbrances" shall mean: (a)
----------------------
statutory liens for current taxes or other governmental charges with respect to
the Real Property not yet due and payable or the amount or validity of which is
being contested in good faith by appropriate proceedings by the Company and for
which appropriate reserves have been established in accordance with GAAP; (b)
mechanics, carriers workers, repairers and similar statutory liens arising or
incurred in the ordinary course of business for amounts which are not delinquent
and which are not, individually or in the aggregate, material to the Company's
business; (c) zoning, entitlement, building and other land use regulations
imposed by governmental agencies having jurisdiction over the Real Property
which are not violated by the current use and operation of the Real Property;
(d) covenants, conditions, restrictions, easements and other similar matters of
record affecting title to the Real Property which do not materially impair the
occupancy or use of the Real Property for the purposes for which it is currently
used in connection with the Company's business; and (e) with respect to the
Leased Real Property, the Real Property Leases.
8.11 Surveys. The Company shall have procured, at its sole cost and
-------
expense, in preparation for the Closing, current surveys of each parcel of the
Real Property, prepared by a licensed surveyor, satisfactory to the Buyer, and
conforming to 1992 ALTA/ACSM Minimum Detail Requirements for Land Title Surveys
("Surveys"), and such standards as the Title Insurer may require as a condition
-------
to the removal of any survey exceptions from the Title Policy, and certified to
the Company, the Buyer, the Buyer's lender and the Title Insurer, within 30 days
of the Closing Date, in a form satisfactory to such parties. The Survey shall
disclose the location of all Improvements, easements, party walls, sidewalks,
roadways, utility lines and such matters shown customarily on such surveys, show
access affirmatively to public streets and roads, and include Table A Item Nos.
1-4 and 6-14. No Survey shall disclose any survey defect or encroachment from
or onto any of the Real Property which has not been cured or insured over prior
to the Closing.
8.12 Non-Disturbance Agreement. The Company shall have obtained and
-------------------------
delivered to the Buyer a non-disturbance agreement (the "Non-Disturbance
---------------
Agreements") in form and substance satisfactory to the Buyer and the Buyer's
- ----------
lender from each lender encumbering each parcel of Real Property. The Company
shall obtain a written consent for the stock purchase contemplated in this
Agreement, and if requested by the Buyer's lender, consent to a leasehold
mortgage, collateral assignment of lease or waiver of landlord liens from any
party whose consent
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<PAGE>
is required for the same under any of the Real Property Leases (the "Real
----
Property Lease Consents") in form and substance satisfactory to the Buyer and
- -----------------------
the Buyer's lender. The Real Property Lease Consents shall not contain any terms
or conditions which are less favorable to the Company under such Lease after the
Closing Date.
8.13 Estoppel Letter. The Company shall have obtained and delivered
---------------
to the Buyer an estoppel letter (the "Estoppel Letter") with respect to each
---------------
parcel of Real Property from each of the landlords, lessors, sublessors or
licensors for such property in form and content reasonably satisfactory to the
Buyer (and the Buyer's lender), stating that: a copy of the Lease, attached to
the Estoppel Letter is a true, correct and complete copy of the lease, sublease,
license or tenancy agreement and represents the entire agreement between the
landlord and the Company; to the landlord's knowledge the Company is not in
breach or default under the Lease, and no event has occurred which would with
notice or passage of time, or both, constitute a breach or default or permit
termination, modification, or acceleration under any such lease, tenancy
agreement, license or sublease and the landlord has not repudiated any provision
of the lease, tenancy agreements, license or sublease; all rent and other
payments owed by the tenant to the landlord have been paid to date, to the
landlord's knowledge there are no disputes, oral agreements or forbearance
agreements in effect as to the Lease, that the landlord consents to the
assignment of the Lease, that identifies all mortgages, deeds of trust,
licenses, easements and other encumbrances affecting the real property leased to
the Company, and containing such other statements or agreements as the Buyer or
the Buyer's lender may reasonably request.
8.14 Oregon Equipment and Inventory Purchase Agreement. FRNO and FRN
-------------------------------------------------
shall have entered into an Equipment and Inventory Purchase Agreement
substantially in the form of Exhibit E to this Agreement.
---------
8.15 Oregon Custom Farming Agreement. FRNO and FRN shall have entered
-------------------------------
into a Custom Farming Agreement substantially in the form of Exhibit F to this
---------
Agreement, and such agreement shall be in full force and effect.
8.16 Von Kempf Shares. The Von Kempf Shares shall have been canceled
----------------
and the balance of the purchase price for the Von Kempf Shares shall have been
paid by the Company at or prior to the Closing.
8.17 Resignation of Officers and Directors. The officers and
-------------------------------------
directors of FN, FRN and FRN, Inc. immediately prior to the Closing shall have
resigned effective as of the Closing.
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<PAGE>
ARTICLE IX
CONDITIONS TO THE FN SHAREHOLDERS' OBLIGATIONS
Except as may be waived by the FN Shareholders, the obligations of the
FN Shareholders under this Agreement are subject to the fulfillment, prior to or
at the Closing, of each of the following conditions:
9.1 Representations and Warranties. The representations and
------------------------------
warranties made by the Buyer in this Agreement and the statements contained in
any instrument, list, certificate or writing delivered by the Buyer pursuant to
this Agreement shall be true in all material respects when made and at and as of
the Closing Date as though such representations and warranties were made at and
as of such date, except for any changes permitted by the terms of this Agreement
or consented to by the FN Shareholders in writing.
9.2 Performance. The Buyer shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions required by this
Agreement to so be performed or complied with by it prior to or at the Closing.
9.3 Officers' Certificate. The Buyer shall have delivered to the FN
---------------------
Shareholders a certificate, dated the Closing Date, and executed by an officer
of the Buyer certifying to the fulfillment of the conditions specified in
Sections 9.1, 9.2 and 9.4 hereof.
9.4 Litigation.
----------
(a) There shall be no order, decree or injunction of a court of
competent jurisdiction, including without limitation the entry of a preliminary
or permanent injunction which prevents or delays the performance by the Buyer or
the FN Shareholders of their obligations hereunder.
(b) No action, suit or proceeding before any court or any
governmental or regulatory authority shall be pending against the Buyer or the
FN Shareholders, challenging the validity or legality of the transactions
contemplated by this Agreement, provided that the FN Shareholders shall use
their best efforts to consummate the transaction if it is reasonably prudent to
do so notwithstanding such action, suit or proceeding.
9.5 Oregon Equipment and Inventory Purchase Agreement. FRN shall
-------------------------------------------------
have entered into an Equipment and Inventory Purchase Agreement with FRNO
substantially in the form of Exhibit E to this Agreement.
9.6 Oregon Custom Farming Agreement. FRN shall have entered into a
-------------------------------
Custom Farming Agreement with FRNO substantially in the form of Exhibit F to
this Agreement.
-31-
<PAGE>
9.7 Credit Agreement. (a) All of FII'S, FN's and FRN's indebtedness
----------------
under the Credit Agreement shall have been satisfied in a manner satisfactory to
the FN Shareholders in their sole discretion, and (b) all guarantees and grants
of security interest by any party in connection with the indebtedness under the
Credit Agreement shall have been extinguished and released by Farm Credit
Services.
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATIONS
10.1 Survival of Representations. All representations and warranties
---------------------------
made by any party to this Agreement pursuant hereto shall survive the Closing
and any investigation made by or on behalf of any party hereto but shall
terminate one year from the Closing Date; provided that the representations of
the FN Shareholders contained in Sections 3.2, 3.4, 3.13 and 3.17 hereof, and in
Sections 3.1 and 3.5 hereof to the extent such representations relate to the
corporate existence of FN and FRN, title of the FN Shareholders to the Shares,
the authority of the FN Shareholders to convey the Shares to the Buyer or the
binding nature of their obligation to do so, shall survive until expiration of
the applicable statute of limitations, and the representations and warranties of
the FN Shareholders contained in Section 3.26 shall survive for a period of
three years following the date of this Agreement. The parties agree that so long
as written notice of a particular alleged breach of a representation is given on
or prior to the applicable date on which such representation terminates, which
notice shall describe such alleged breach in reasonable detail, the claim so
described shall be deemed to have been timely made.
10.2 Agreement to Indemnify.
----------------------
(a) Subject to the terms and conditions of this Article X, the
FN Shareholders agree to indemnify, defend and hold harmless the Buyer, FN and
any parent, subsidiary or affiliate of any thereof and any officer, director,
agent or executive employee thereof (the "Buyer Group"), from and against all
-----------
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including, without limitation, interest,
penalties investigative costs, corrective or remedial action costs, fines and
attorneys' fees and expenses (collectively "Damages"), asserted against,
-------
relating to, imposed upon or incurred by the Buyer Group or any member thereof,
directly or indirectly, but reduced by the amount of any insurance proceeds
received on account of such Damage, less the reasonably anticipated present
value of any increase in insurance premiums to be incurred by the Buyer, by
reason of or resulting from any breach of any representation, warranty, covenant
or agreement of the FN Shareholders contained in or made pursuant to this
Agreement (determined without giving effect to any amendment to any Schedule
made pursuant to Section 7.1 hereof) or the instruments or agreements
contemplated hereby or any facts or circumstances constituting such a breach.
The indemnification obligations of the FN Shareholders are subject to the
following limitations:
-32-
<PAGE>
(i) the FN Shareholders shall only be obligated to indemnify the
Buyer Group and any members thereof to the extent the aggregate amount of
all Damages suffered by the Buyer Group exceeds $100,000 (the "Basket"),
------
and the indemnification obligations of all of the FN Shareholders
collectively shall not exceed an aggregate (for all claims for breach of
representation) of $500,000 (the "Cap"); provided, however, that the Basket
---
and Cap shall apply only to Damages resulting from the breach of any
representation or warranty contained Article III hereof, and shall not
apply to (A) any Damages resulting from the breach of any representation or
warranty contained in Sections 3.2, 3.3, 3.4 or 3.18 of this Agreement and
the breach of any representation or warranty contained in Sections 3.1 and
3.5 hereof to the extent such representations relate to the corporate
existence of FN and FRN, title of the FN Shareholders to the Shares, the
authority of the FN Shareholders to convey the Shares to the Buyer or the
binding nature of their obligation to do so, (B) any Damages resulting from
the willful or fraudulent breach by the FN Shareholders of any
representation or warranty contained herein or (C) any Damages resulting
from the breach of any covenant or other agreement of the FN Shareholders
contained herein; and
(ii) each FN Shareholder shall be liable to the Buyer Group for
Damages under this Article X only in proportion to the share of
consideration paid by the Buyer to such FN Shareholder under this
Agreement.
(b) Subject to the terms and conditions of this Article X, the
Buyer, FN and FRN hereby agree to indemnify, defend and hold harmless the FN
Shareholders and any parent, subsidiary or affiliate thereof and any of officer,
director, agent or executive employee thereof (the "Selling Group"), from and
-------------
against all Damages asserted against, relating to, imposed upon or incurred by
the Selling Group or any member thereof, directly or indirectly, (i) by reason
of or resulting from any breach of any representation, warranty, covenant or
agreement of the Buyer contained in or made pursuant to this Agreement or the
instruments or agreements contemplated hereby or any facts or circumstances
constituting such a breach, and (ii) for claims against the Selling Group
arising out of the operations of FN and FRN as conducted by the Buyer after the
Closing Date. The Buyer shall only be obligated to indemnify the Selling Group
and any members thereof for Damages resulting from any the breach of any
representation or warranty contained in Article IV hereof (A) to the extent that
the amount of such Damages exceeds the Basket and (B) to the extent that the
amount of such Damages does not exceed the Cap.
10.3 Conditions of Indemnification. The obligations and liabilities
-----------------------------
of the FN Shareholders under Section 10.02(a) and those of the Buyer, FN and FRN
under Section 10.02(b) hereof with respect to claims for indemnification
("Claims") relating to third parties shall be subject to the following terms and
------
conditions:
(a) The party against which such claim has been asserted and
seeking to be indemnified (the "Indemnitee") will give the party from which
----------
indemnity is sought
-33-
<PAGE>
("Indemnitor") prompt notice of any such Claim (provided, however, the failure
----------
to give such notice shall not relieve Indemnitor from its indemnity obligations
hereunder unless and only to the extent that the Indemnitor is prejudiced
thereby), and Indemnitor will undertake the defense thereof by representatives
chosen by it and approved by Indemnitee, which approval shall not be
unreasonably withheld. Indemnitee shall cooperate in the defense of and shall
have the right to participate in the defense of any such claim (including the
response to any tax audit), and shall provide Indemnitor and its representatives
with such access to Indemnitee's records and employees as may reasonably be
required.
(b) If Indemnitor, within a reasonable time after notice of any
such Claim, fails to defend, Indemnitee (upon further notice to Indemnitor)
shall have the right to undertake the defense, compromise or settlement of such
Claim on behalf of and for the account and risk of Indemnitor, subject to the
right of Indemnitor to assume the defense of such Claim, by representatives
chosen by it and approved by Indemnitee, in its sole discretion, at any time
prior to settlement, compromise or final determination thereof.
(c) Anything in this Section 10.3 to the contrary
notwithstanding, (i) if there is a reasonable probability that a Claim may
materially and adversely affect Indemnitee other than as a result of money
damages or other money payments, Indemnitee shall have the right, if it so
elects and at its own cost and expense, to defend or participate in the defense
of, and with the consent of Indemnitor to compromise or settle such Claim, (ii)
Indemnitor shall not, without the written consent of Indemnitee, settle or
compromise any Claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to Indemnitee, a release from all liability in respect of or related
to such Claim, and (iii) with respect to claims relating to any product, the
growth of which occurs both prior and subsequent to the Closing, the Selling
Group shall have no obligation of indemnity hereunder unless the Indemnitee
proves that any such claim is the result of conduct or activities of the Selling
Group in growing such product prior to the Closing.
10.4 Remedies Cumulative. Except as herein expressly provided, the
-------------------
remedies provided herein shall be cumulative and shall not preclude assertion by
any party hereto of any other rights or the seeking of any other remedies
against any other party.
ARTICLE XI
TERMINATION OF AGREEMENT
11.1 Termination of Agreement. This Agreement may be terminated at
------------------------
any time prior to the Closing:
(a) by mutual agreement of the FN Shareholders and the Buyer;
-34-
<PAGE>
(b) by the Buyer, if there has been a material violation or
breach by the FN Shareholders of any of their agreements, representations or
warranties contained in this Agreement which has not been waived in writing;
(c) by the FN Shareholders, if there has been a material
violation or breach by the Buyer of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing;
(d) by the Buyer in the event any supplemental disclosures made
by the FN Shareholders or FN in accordance with Section 7.1 hereof shall be
unacceptable to the Buyer in its sole discretion; or
(e) by the Buyer or by the FN Shareholders if a condition to
such parties obligation to consummate the Closing has not been satisfied.
ARTICLE XII
MISCELLANEOUS
12.1 Parties in Interest. This Agreement will be binding upon, inure
-------------------
to the benefit of, and be enforceable by the respective successors and assigns
of the parties hereto.
12.2 Entire Agreement; Amendments. This Agreement and the Exhibits,
----------------------------
Schedules, certificates, lists and other writings delivered pursuant hereto
which form a part hereof, together with the Confidentiality Agreement, dated
March 6, 1996, by and between Madison Dearborn Partners and FII, contain the
entire understanding of the parties with respect to the subject matter hereof.
This Agreement supersedes all prior agreements and understandings hereof,
between the parties with respect to the subject matter hereof. This Agreement
may be amended only by a written instrument duly executed by the parties to this
Agreement. Any condition to a party's obligations hereunder may be waived in
writing by such party.
12.3 Headings. The Article and Section headings contained in this
--------
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
12.4 Notices. All notices, claims, certificates, requests, demands
-------
and other communications hereunder will be in writing and will be deemed to have
been duly given if delivered personally, or by acknowledged facsimile, or mailed
(registered or certified mail, postage prepaid, return receipt requested) as
follows:
-35-
<PAGE>
If to the Buyer, to:
Stephen P. Thigpen
President
Hines Horticulture, Inc.
12621 Jeffrey Road Tel: 800-444-4499
Irvine, California 92720 Fax: 714-786-0968
with copies to:
Mr. Paul R. Wood
Madison Dearborn Partners
3 First National Plaza, Suite 1330 Tel: 312-732-5400
Chicago, Illinois 60602 Fax: 312-732-4098
and
Michael H. Kerr, P.C.
Kirkland & Ellis
200 East Randolph Drive Tel: 312-861-2000
Chicago, Illinois 60601 Fax: 312-861-2200
If to the FN Shareholders, to:
Gregory G. Flynn
Vice President
Flynn Industries, Inc.
825 Van Ness Avenue Tel: 415-673-5900
San Francisco, California 94109 Fax: 415-673-6093
with copies to:
Donald Flynn
2795 Beach Drive
Victoria, British Columbia Tel: 604-592-5994
Canada V8R 6K6 Fax: 604-592-5094
-36-
<PAGE>
and
William C. Rowe
President
Flynn Rainbow Nurseries, Inc.
2500 Rainbow Valley Blvd. Tel: 800-258-6472
Fallbrook, California 92028 Fax: 619-723-9251
and
Timothy G. Hoxie, Esq.
Heller, Ehrman, White & McAuliffe
333 Bush Street, 34th Floor Tel: 415-772-6052
San Francisco, California 94104 Fax: 415-772-6268
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above.
12.5 Governing Law. This Agreement will be governed by, and construed
-------------
and enforced in accordance with, the laws of, and shall be subject to the
exclusive jurisdiction of the courts of, the State of California applicable to
contracts to be performed in such state without giving effect to the provisions
thereof relating to conflicts of laws.
12.6 Counterparts. This Agreement may be executed simultaneously in
------------
several counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
* * * * *
-37-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the Buyer and the FN Shareholders
as of the date first above written.
FN SHAREHOLDERS:
FLYNN INDUSTRIES, INC.
By: /s/ Gregory G. Flynn
-------------------------------------
Name: Gregory G. Flynn
Title: Vice President
/s/ Andrew M. Clarkson
----------------------------------------
ANDREW M. CLARKSON
/s/ William C. Rowe
----------------------------------------
WILLIAM C. ROWE
/s/ Kent V. Berchiolli
----------------------------------------
KENT V. BERCHIOLLI
/s/ Merle E. Welti
----------------------------------------
MERLE E. WELTI
BUYER:
HINES HORTICULTURE, INC.
By: /s/ Paul R. Wood
-------------------------------------
Name: Paul R. Wood
Title: Vice President
<PAGE>
EXHIBIT 10.16
PURCHASE AGREEMENT
By and Among
HINES HOLDINGS, INC.,
CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM,
CHILMARK FUND II L.P.,
and
MADISON DEARBORN CAPITAL PARTNERS, L.P.
November 27, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Authorization and Closing..........................................................1
1A. Authorization of the Class A Preferred and the Warrants.......................1
1B. Purchase and Sale of Class A Preferred and the Warrants.......................1
1C. The Closing...................................................................1
2. Conditions of Each Purchaser's Obligation at the Closing...........................1
2A. Representations and Warranties; Covenants.....................................1
2B. Articles of Incorporation.....................................................2
2C. Sale of Class A Preferred and Warrants to Each Purchaser......................2
2D. Securities Law Compliance.....................................................2
2E. Amendment of Stockholders Agreements..........................................2
2F. Opinion of the Company's Counsel..............................................2
2G. Closing Documents.............................................................2
2H. Proceedings...................................................................3
2I. Waiver........................................................................3
3. Covenants..........................................................................3
3A. Financial Statements and Other Information....................................3
3B. Inspection of Property; Consultation Rights...................................4
3C. Covenants.....................................................................4
3D. Current Public Information....................................................6
3E. Reservation of Common Stock...................................................6
4. Transfer of Restricted Securities..................................................6
4A. General Provisions............................................................6
4B. Opinion Delivery..............................................................7
4C. Rule 144A.....................................................................7
4D. Legend Removal................................................................7
5. Representations and Warranties of the Company......................................7
5A. Organization, Corporate Power and Licenses....................................7
5B. Capital Stock and Related Matters.............................................8
5C. Subsidiaries; Investments.....................................................9
5D. Authorization; No Breach......................................................9
5E. Financial Statements..........................................................9
5F. Absence of Undisclosed Liabilities...........................................10
5G. No Material Adverse Change...................................................10
5H. Absence of Certain Developments..............................................10
5I. Litigation, etc..............................................................11
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
5J. Brokerage....................................................................11
5K. Governmental Consent, etc....................................................11
5L. Compliance with Laws.........................................................11
5M. Affiliated Transactions......................................................12
5N. Environmental Protection.....................................................12
5O. ERISA13
5P. Title to Properties..........................................................13
5Q. Leasehold Interests..........................................................14
6. Definitions.......................................................................14
6A. Definitions..................................................................14
7. Miscellaneous.....................................................................18
7A. Expenses.....................................................................18
7B. Remedies.....................................................................18
7C. Legend.......................................................................18
7D. Registration Rights..........................................................18
7E. Restrictions on Transfer of Stockholder Shares...............................20
7F. Sale of the Company..........................................................22
7G. Purchaser's Investment Representations.......................................23
7H. Consent to Amendments........................................................24
7I. Survival of Representations and Warranties...................................24
7J. Successors and Assigns.......................................................24
7K. Severability.................................................................24
7L. Counterparts.................................................................25
7M. Descriptive Headings; Interpretation.........................................25
7N. Governing Law................................................................25
7O. Notices......................................................................25
7P. Consideration for Warrants...................................................25
7Q. Understanding Among the Purchasers...........................................25
</TABLE>
List of Exhibits
- ----------------
Exhibit A - Articles of Incorporation
Exhibit B - Opinion of Counsel
List of Schedules
- -----------------
Schedule of Purchasers
Capitalization Schedule
Subsidiary Schedule
Restrictions Schedule
-ii-
<PAGE>
Financial Statements Schedule
Liabilities Schedule
Adverse Change Schedule
Developments Schedule
Litigation Schedule
Consents Schedule
Compliance Schedule
Affiliated Transactions Schedule
Environmental Protection Schedule
Employee Benefit Schedule
Title to Properties Schedule
Leasehold Interests Schedule
-iii-
<PAGE>
HINES HOLDINGS, INC.
PURCHASE AGREEMENT
THIS AGREEMENT is made as of November 27, 1996, between Hines
Holdings, Inc., a Nevada corporation (the "Company"), and the Persons listed on
-------
the Schedule of Purchasers attached hereto (collectively referred to herein as
the "Purchasers" and individually as a "Purchaser"). Except as otherwise
---------- ---------
indicated herein, capitalized terms used herein are defined in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1A. Authorization of the Class A Preferred and the Warrants. The
-------------------------------------------------------
Company shall authorize the issuance and sale to the Purchasers of 20,000 shares
of its 12% Cumulative Redeemable Senior Preferred Stock, par value $.01 per
share (the "Class A Preferred"), having the rights and preferences set forth in
-----------------
Exhibit A attached hereto, and warrants to purchase 830,000 shares of the
- ---------
Company's common stock, par value $.01 per share (the "Common Stock"), at an
------------
exercise price of $.01 per share (the "Warrants").
--------
1B. Purchase and Sale of Class A Preferred and the Warrants. At the
-------------------------------------------------------
Closing, the Company shall sell to each Purchaser and, subject to the terms and
conditions set forth herein, each Purchaser shall purchase from the Company the
number of shares of Class A Preferred at the price set forth opposite such
Purchaser's name on the Schedule of Purchasers attached hereto. In addition, at
the Closing, each Purchaser shall pay the Company the amount set forth opposite
such Purchaser's name on the Schedule of Purchasers in consideration for the
issuance of the Warrants. The sale of the Class A Preferred and the Warrants to
each Purchaser shall constitute a separate sale hereunder.
1C. The Closing. The closing of the separate purchases and sales of
-----------
the Class A Preferred and the Warrants (the "Closing") shall take place at the
-------
offices of Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois at 10:00
a.m. on November 27, 1996, or at such other place or on such other date as may
be mutually agreeable to the Company and each Purchaser. At the Closing, the
Company shall deliver to each Purchaser stock certificates evidencing the Class
A Preferred to be purchased by such Purchaser and the Warrants to be purchased
by such Purchaser, registered in such Purchaser's or its nominee's name, upon
payment of the purchase price thereof by a cashier's or certified check, or by
wire transfer of immediately available funds to an account designated by the
Company, in the aggregate amount set forth opposite such Purchaser's name on the
Schedule of Purchasers.
Section 2. Conditions of Each Purchaser's Obligation at the
------------------------------------------------
Closing. The obligation of each Purchaser to purchase and pay for the Class A
- -------
Preferred and the Warrants at the Closing is subject to the satisfaction as of
the Closing of the following conditions:
<PAGE>
2A. Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties contained in Section 5 hereof shall be true and correct in all
material respects at and as of the Closing, and the Company shall have performed
in all material respects all of the covenants required to be performed by it
hereunder prior to the Closing.
2B. Articles of Incorporation. The Company shall have duly adopted,
-------------------------
executed and filed with the Secretary of State of Nevada a Restated Articles of
Incorporation in the form set forth in Exhibit A hereto (the "Articles of
--------- -----------
Incorporation"). The Articles of Incorporation shall be in full force and
- -------------
effect as of the Closing under the laws of Nevada and shall not have been
further amended or modified.
2C. Sale of Class A Preferred and Warrants to Each Purchaser. The
--------------------------------------------------------
Company shall have simultaneously sold to each Purchaser the Class A Preferred
and the Warrants to be purchased by such Purchaser hereunder at the Closing and
shall have received payment therefor in full.
2D. Securities Law Compliance. The Company shall have made all
-------------------------
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Class A Preferred and the Warrants pursuant to
this Agreement in compliance with such laws.
2E. Amendment of Stockholders Agreements. The Company and the
------------------------------------
requisite parties to the Stockholders Agreement, dated as of August 4, 1995 (the
"Stockholders Agreement"), by and between the Company, MDCP and the executives
----------------------
listed on Schedule I thereto (the "Executives"), shall have amended the
----------
Stockholders Agreement so as to allow the Purchasers to participate with the
Executives on a pari passu basis in any piggyback registration as provided in
paragraph 7D below.
2F. Opinion of the Company's Counsel. Each Purchaser shall have
--------------------------------
received from Schreck, Jones, Bernhard, Woloson & Godfrey, Nevada counsel for
the Company, an opinion with respect to the matters set forth in Exhibit B
---------
attached hereto, which shall be addressed to each Purchaser, dated the date of
the Closing and in form and substance reasonably satisfactory to each Purchaser.
2G. Closing Documents. The Company shall have delivered to each
-----------------
Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in paragraphs 2A through 2E,
inclusive, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement and each of the other agreements contemplated
hereby, the filing of the Articles of Incorporation, the issuance and sale
of the Class A Preferred, the issuance and sale of the Warrants, the
-2-
<PAGE>
reservation for issuance upon exercise of the Warrants of an aggregate of
830,000 shares of Common Stock and the consummation of all other
transactions contemplated by this Agreement, and (b) the resolutions duly
adopted by the Company's stockholders adopting the Articles of
Incorporation;
(iii) certified copies of the Articles of Incorporation and the
Company's bylaws, each as in effect at the Closing; and
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder (including, without limitation, all blue sky law
filings and waivers of all preemptive rights and rights of first refusal).
2H. Proceedings. All corporate and other proceedings taken or
-----------
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Purchaser and its special counsel.
2I. Waiver. Any condition specified in this Section 2 may be waived
------
if consented to by each Purchaser; provided that no such waiver shall be
effective against any Purchaser unless it is set forth in a writing executed by
such Purchaser.
Section 3. Covenants.
---------
3A. Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to each Purchaser (so long as such Purchaser holds any Class A
Preferred):
(i) as soon as available but in any event within 45 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period
from the beginning of the fiscal year to the end of such month, and
unaudited consolidating and consolidated balance sheets of the Company and
its Subsidiaries as of the end of such monthly period, setting forth in
each case comparisons to the corresponding period in the preceding fiscal
year and to the budget described in clause (iii) below, and all such
statements shall be prepared in accordance with generally accepted
accounting principles, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments;
(ii) within 120 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the
preceding fiscal year, all prepared in accordance with United States
generally accepted
-3-
<PAGE>
accounting principles, consistently applied, and accompanied by, with
respect to the consolidated portions of such statements, an opinion of an
independent accounting firm of recognized national standing;
(iii) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis
for the Company and its Subsidiaries for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets); and
(iv) within 10 days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or any of its officers or directors file with
respect to the Company, with the Securities and Exchange Commission or with
any securities exchange on which any of its securities are then listed.
Each of the financial statements referred to in subparagraph (i) and (ii) shall
present fairly in all material respects the financial condition and results of
operations as of the dates and for the periods stated therein, subject in the
case of the unaudited financial statements to changes resulting from normal
year-end adjustments. Notwithstanding the foregoing, the provisions of this
paragraph 3A shall cease to be effective so long as the Company is subject to
the periodic reporting requirements of the Securities Exchange Act and continues
to comply with such requirements. Except as otherwise required by law or
judicial order or decree or by any governmental agency or authority, each Person
entitled to receive information regarding the Company and its Subsidiaries under
paragraph 3A or 3B shall use its best efforts to maintain the confidentiality of
all nonpublic information obtained by it hereunder.
3B. Inspection of Property; Consultation Rights. The Company shall
-------------------------------------------
permit any representatives designated by any Purchaser (so long as such
Purchaser holds any equity securities of the Company) upon reasonable notice and
during normal business hours to (i) visit and inspect any of the properties of
the Company and its Subsidiaries, (ii) examine the corporate and financial
records of the Company and its Subsidiaries and make copies thereof or extracts
therefrom and (iii) discuss the affairs, finances and accounts of any such
corporations with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries. The presentation of an
executed copy of this Agreement by any Purchaser or any such holder of Class A
Preferred to the Company's independent accountants shall constitute the
Company's permission to its independent accountants to participate in
discussions with such Persons. Each Purchaser shall have the right to consult
with and advise the officers of the Company with respect to the management of
the Company and its Subsidiaries including, without limitation, with regard to
the slate of nominees submitted to the shareholders of the Company for election
to the Company's board of directors, the appointment of senior officers, the
consummation of any material transaction or change in the business of the
Company, and any holder shall be entitled, from time to time, to make proposals,
recommendations and suggestions to the Company regarding the business and
affairs of the Company and its
-4-
<PAGE>
Subsidiaries, and the Company shall consider in good faith any such legitimate
proposal; provided that nothing contained herein shall obligate the Company or
its Subsidiaries to adopt or implement any such proposal, recommendation or
suggestion.
3C. Covenants. So long as any of the Class A Preferred remains
---------
outstanding, the Company shall, and shall cause each Subsidiary to:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits required for the conduct of its
businesses, except where the failure to so maintain, preserve or renew
would not reasonably be expected to have a material adverse effect on the
financial condition, operating results, assets, properties and prospects of
the Company and its Subsidiaries taken as a whole;
(ii) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be
properly conducted in all material respects at all times;
(iii) pay and discharge when payable all material taxes,
assessments and governmental charges imposed upon its properties or upon
the income or profits therefrom (in each case before the same becomes
delinquent and before penalties accrue thereon) and all material claims for
labor, materials or supplies to the extent to which the failure to pay or
discharge such obligations would reasonably be expected to have a material
adverse effect upon the financial condition, operating results, assets or
operations of the Company and its Subsidiaries taken as a whole, unless and
to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance
with generally accepted accounting principles, consistently applied) have
been established on its books with respect thereto;
(iv) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due to the extent to which the failure
to so comply would reasonably be expected to have a material adverse effect
upon the financial condition, operating results, assets or operations of
the Company and its Subsidiaries taken as a whole, unless and to the extent
that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with
generally accepted accounting principles, consistently applied) have been
established on its books with respect thereto;
(v) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets or operations of the Company and its Subsidiaries
taken as a whole;
-5-
<PAGE>
(vi) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with generally
accepted accounting principles, consistently applied;
(vii) refrain from entering into any transaction with any
Purchaser or any Affiliate thereof, except on an arms-length basis or as
approved by a majority of the disinterested members of the Company's board
of directors; and
(viii) without the consent of the holders of a majority of the
Class A Preferred then outstanding, the Company shall not authorize, issue
or enter into any agreement providing for the issuance of (whether directly
or upon conversion or exercise of any other securities) (1) any shares of
Class A Preferred except as contemplated by this Agreement or (2) any
shares of capital stock which are senior to or on a parity with the Class A
Preferred with respect to the payment of dividends, redemptions or
distributions upon liquidation or otherwise.
3D. Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission or (ii) a registration statement on Form S-2
or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
3E. Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock issuable upon the exercise of all
outstanding Warrants, and prior to consummation of the Company's initial
Qualified Public Offering shall reserve for issuance all shares of Common Stock
issuable upon conversion of the Class A Preferred pursuant to the terms of the
Articles of Incorporation. All shares of Common Stock which are so issuable
shall, when issued, be duly and validly issued, fully paid and nonassessable and
free from all Liens. The Company shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Company upon issuance).
-6-
<PAGE>
Section 4. Transfer of Restricted Securities.
---------------------------------
4A. General Provisions. Except as provided in paragraph 7E below,
------------------
the Class A Preferred and Warrants purchased by each Purchaser hereunder are
only transferrable by any Purchaser to its Affiliates or if a Purchaser is a
limited partnership as a distribution to its limited partners upon the
dissolution thereof; provided that such Affiliate or limited partner agrees to
be bound in all respects by the provisions hereof, including, without
limitation, restrictions on transfer. Notwithstanding the foregoing, in
connection with the dissolution of any Purchaser, such Purchaser shall be
entitled, not more than nine months prior to the anticipated date of dissolution
and upon 30 days prior written notice to the Company to sell all, but not part
only, of the Class A Preferred and Warrants purchased by it hereunder to one or
more third parties reasonably acceptable to the Company. Subject to the
preceding sentences, the shares of Underlying Common Stock are transferable
only pursuant to (i) public offerings registered under the Securities Act, (ii)
Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar
rule or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the permitted transfer of
----------------
any Restricted Securities (other than a transfer described in paragraph 4A(i) or
(ii) above or paragraph 7E below), the holder thereof shall deliver written
notice to the Company describing in reasonable detail the transfer or proposed
transfer, together with an opinion of counsel which (to the Company's reason
able satisfaction) is knowledgeable in securities law matters to the effect that
such transfer of Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities delivers to the Company an opinion of counsel that
no subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, the Company shall promptly upon such contemplated
transfer deliver new certificates for such Restricted Securities which do not
bear the Securities Act legend set forth in paragraph 7C. If the Company is not
required to deliver new certificates for such Restricted Securities not bearing
such legend, the holder thereof shall not transfer the same until the
prospective transferee has confirmed to the Company in writing its agreement to
be bound by the conditions contained in this paragraph and paragraph 7C.
4C. Rule 144A. Upon the request of any Purchaser, the Company shall
---------
promptly supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
4D. Legend Removal. If any Restricted Securities become eligible for
--------------
sale pursuant to Rule 144(k) and such transfer is otherwise permitted hereunder,
the Company shall, upon the request of the holder of such Restricted Securities,
promptly remove the legend set forth in paragraph 7C from the certificates for
such Restricted Securities.
-7-
<PAGE>
Section 5. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Class A Preferred and the Warrants hereunder, the Company hereby represents
and warrants that:
5A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Nevada and is qualified to do business in every jurisdiction in which the
failure to so qualify has had or would reasonably be expected to have a material
adverse effect on the financial condition, operating results, assets or
operations of the Company and its Subsidiaries taken as a whole. The Company
possesses all requisite corporate power and authority and all material licenses,
permits and authorizations necessary to own and operate its properties, to carry
on its businesses as now conducted and presently proposed to be conducted and to
carry out the transactions contemplated by this Agreement. The copies of the
Company's and each Subsidiary's charter documents and bylaws which have been
furnished to the Purchasers' special counsel reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
The designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized capital stock of
the Company are as set forth in the Articles of Incorporation, a copy of which
is attached hereto as Exhibit A, and all such designations, powers, preferences,
---------
rights, qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws.
5B. Capital Stock and Related Matters.
---------------------------------
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 22,030,000 shares of preferred
stock, of which 30,000 shares shall be designated as 12% Cumulative Redeemable
Senior Preferred Stock (all of which shall be issued and outstanding) and
22,000,000 shares shall be designated as 12% Cumulative Redeemable Junior
Preferred Stock (20,471,759 of which shall be issued and outstanding) and (b)
30,000,000 shares of Common Stock, of which 10,235,844 shares shall be issued
and outstanding and 830,000 shares shall be reserved for issuance upon exercise
of the Warrants. As of the Closing, neither the Company nor any Subsidiary
shall have outstanding any stock or securities convertible or exchangeable for
any shares of its capital stock or containing any profit participation features,
nor shall it have outstanding any rights or options to subscribe for or to
purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or phantom
stock plans, except for the Class A Preferred and Warrants and except as set
forth on the attached "Capitalization Schedule." As of the Closing, neither the
-----------------------
Company nor any Subsidiary shall be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any warrants, options or other rights to acquire its capital
stock, except as set forth on the Capitalization Schedule and except pursuant to
the Articles of Incorporation. As of the Closing, all of the outstanding shares
of the Company's capital stock shall be validly issued, fully paid and
nonassessable.
-8-
<PAGE>
(ii) There are no contractual stockholders preemptive rights or
rights of refusal with respect to the issuance of the Class A Preferred or the
Warrants hereunder or the issuance of the Common Stock upon exercise of the
Warrants. Assuming the accuracy of each Purchaser's representations and
warranties made hereunder, the Company has not violated any applicable federal
or state securities laws in connection with the offer, sale or issuance of any
of its capital stock, and the offer, sale and issuance of the Class A Preferred
or the Warrants hereunder do not require registration under the Securities Act
or any applicable state securities laws. To the best of the Company's
knowledge, except as set forth on the Capitalization Schedule, there are no
voting trusts or agreements, stockholders' agreements, pledge agreements, buy-
sell agreements, rights of first refusal, contractual preemptive rights or
proxies relating to any securities of the Company or any of its Subsidiaries
(whether or not the Company or any of its Subsidiaries is a party thereto).
Immediately upon Closing each Purchaser shall receive title to the Class A
Preferred and the Warrants purchased by it hereunder free and clear of all taxes
and Liens other than Liens created by such Purchaser.
5C. Subsidiaries; Investments. The attached "Subsidiary Schedule"
------------------------- -------------------
lists each of the Company's Subsidiaries. Each of the Company's Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, possesses all requisite corporate power and
authority and all material licenses, permits and authorizations necessary to own
its properties and to carry on its businesses as now being conducted and is
qualified to do business in every jurisdiction in which the failure to so
qualify has had or would reasonably be expected to have a material adverse
effect on the financial condition, operating results, assets or operations of
the Company and its Subsidiaries taken as a whole. All of the outstanding
shares of capital stock of each Subsidiary are validly issued, fully paid and
nonassessable, and all such shares are owned by the Company or another
Subsidiary free and clear of any Liens other than Liens arising under agreements
pertaining to the Company's existing indebtedness, and are not subject to any
option or right to purchase any such shares. Except for the Subsidiaries listed
on the Subsidiary Schedule, the Company does not (i) own of record or
beneficially, directly or indirectly, (A) any shares of capital stock or
securities convertible into capital stock of any other corporation or (B) any
participating interest in any partnership, limited liability company, joint
venture or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity.
5D. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement and the Warrants, and the filing of the Articles
of Incorporation have been duly authorized by the Company. This Agreement, the
Warrants and the Articles of Incorporation each constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms. Except as
set forth on the attached "Restrictions Schedule," and except where such fact or
---------------------
circumstance is not reasonably likely to have a material adverse effect on the
financial condition, operating results, assets, operations, employee relations
or customer or supplier relations of the Company and its Subsidiaries taken as a
whole or the ability of the Company to fulfill its obligations to the Purchasers
under this Agreement, the Warrant or the Articles of Incorporation, the
execution and delivery by the Company of this Agreement, the offering, sale and
issuance of the Class A Preferred and the Warrants hereunder, the issuance of
the Common Stock upon exercise of Warrants
-9-
<PAGE>
or conversion of the Class A Preferred, the filing of the Articles of
Incorporation, and the fulfillment of and compliance with the respective terms
hereof and thereof by the Company, do not and shall not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any Lien upon the Company's or
any Subsidiary's capital stock or assets pursuant to, (iv) give any third party
the right to modify, terminate or accelerate any obligation under, (v) result in
a violation of or (vi) require any authorization, consent, approval, exemption
or other action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the Articles of
Incorporation or the charter or bylaws of the Company or any Subsidiary, or any
law, statute, rule or regulation to which the Company or any Subsidiary is
subject, or any agreement, instrument, order, judgment or decree to which the
Company or any Subsidiary is subject.
5E. Financial Statements. Attached hereto as the "Financial
-------------------- ---------
Statements Schedule" are the following financial statements:
- -------------------
(i) the audited consolidated balance sheets of the Company and
its Subsidiaries as of December 31, 1993, December 31, 1994 and December
31, 1995, and the related statements of income and cash flows (or the
equivalent) for the respective twelve-month periods then ended; and
(ii) the unaudited consolidated balance sheet of the Company and
its Subsidiaries as of August 31, 1996 (the "Latest Balance Sheet"), and
--------------------
the related statements of income and cash flows (or the equivalent) for the
eight-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) presents fairly in all material respects the consolidated
financial condition, results of operations and cash flows of the Company and its
Subsidiaries in accordance with generally accepted accounting principles applied
on a consistent basis as of the dates and for the periods set forth therein,
except in the case of unaudited financial statements, for the absence of
footnote disclosures and subject to normal year-end adjustments.
5F. Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
attached "Liabilities Schedule," the Company and its Subsidiaries do not have
--------------------
any material obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company or any
Subsidiary, whether due or to become due and regardless of when asserted)
arising out of transactions entered into at or prior to the Closing, or any
action or inaction at or prior to the Closing, or any state of facts existing at
or prior to the Closing other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), (ii) liabilities arising under
agreements, contracts, leases, licences and other arrangements, (iii)
liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business and are not reasonably likely
to have a material adverse effect on the financial condition, operating results,
assets, operations, employee relations or customer or supplier relations of the
Company and its
-10-
<PAGE>
Subsidiaries taken as a whole and (iv) other liabilities and obligations
expressly disclosed in the other Schedules to this Agreement.
5G. No Material Adverse Change. Except as set forth on the attached
--------------------------
"Adverse Change Schedule," since the date of the Latest Balance Sheet, there has
-----------------------
been no material adverse change in the financial condition, operating results,
assets, operations, employee relations or customer or supplier relations of the
Company and its Subsidiaries taken as a whole.
5H. Absence of Certain Developments. Except as expressly
-------------------------------
contemplated by this Agreement or as set forth on the attached "Developments
------------
Schedule," since the date of the Latest Balance Sheet, neither the Company nor
- --------
any Subsidiary have:
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities;
(b) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its capital stock or
other equity securities or purchased or redeemed any shares of its capital
stock or other equity securities (including, without limitation, any
warrants, options or other rights to acquire its capital stock or other
equity securities);
(c) mortgaged or pledged any of its material properties or
assets or subjected them to any material Lien, except Liens for current
property taxes not yet due and payable and Liens arising in the ordinary
course of business;
(d) sold, assigned or transferred any of its material
assets, except in the ordinary course of business, or canceled any material
debts or claims;
(e) suffered any material extraordinary losses;
(f) made any Investment in or taken steps to incorporate
any Subsidiary; or
(g) entered into any other material transaction other than
in the ordinary course of business.
5I. Litigation, etc. Except as set forth on the attached "Litigation
--------------- ----------
Schedule," there are no actions, suits, proceedings, orders, investigations or
- --------
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality
(including, without limitation, any actions, suit, proceedings or investigations
with respect to the transactions contemplated by this Agreement), which would
reasonably be expected to have
-11-
<PAGE>
a material adverse effect upon the financial condition, operating results,
assets or operations of the Company and its Subsidiaries taken as a whole.
5J. Brokerage. There are no claims for brokerage commissions,
---------
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Company or any Subsidiary. The Company shall pay, and hold each
Purchaser harmless against, any liability, loss or expense (including, without
limitation, reasonable attorneys' fees and out-of-pocket expenses) arising in
connection with any such claim.
5K. Governmental Consent, etc. No permit, consent, approval or
-------------------------
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as set forth on the attached "Consents Schedule" and except as
-----------------
expressly contemplated herein or in the exhibits hereto.
5L. Compliance with Laws. Except as set forth on the attached
--------------------
"Compliance Schedule," neither the Company nor any Subsidiary has violated any
- --------------------
law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets or operations of the Company and
its Subsidiaries taken as a whole, and neither the Company nor any Subsidiary
has received notice of any such violation.
5M. Affiliated Transactions. Except as set forth on the attached
-----------------------
"Affiliated Transactions Schedule," no Affiliate of the Company or any
- ---------------------------------
Subsidiary or any individual related by blood, marriage or adoption to any such
individual or any entity in which any such Person or individual owns any
beneficial interest, is a party to any material agreement, contract, commitment
or transaction with the Company or any Subsidiary or has any material interest
in any material property used by the Company or any Subsidiary.
5N. Environmental Protection. Except as set forth on the attached
------------------------
"Environmental Protection Schedule" or as would not reasonably be expected to
- ----------------------------------
have a material adverse effect on the financial condition, operating results,
assets, properties or prospects of the Company and its Subsidiaries taken as a
whole: (a) the Company has not caused or allowed, or contracted with any party
for, the generation, use, transportation, treatment, storage or disposal of any
Hazardous Substances (as defined below) in connection with the operation of its
business or otherwise in violation of applicable Environmental Laws (as defined
below); (b) the Company, the operation of its business, and any real property
that the Company owns, leases or otherwise occupies or uses (the "Premises") are
--------
in compliance with all applicable Environmental Laws and lawful orders or
directives of any governmental authorities having jurisdiction under such
Environmental Laws; (c) the Company has not received any citation, directive,
letter or other written communication, or any notice of any proceeding, claim or
lawsuit, from any Person arising under applicable Environmental
-12-
<PAGE>
Laws out of the ownership or occupation of the Premises, or the conduct of its
operations; (d) the Company has obtained and is maintaining in full force and
effect all necessary permits, licenses and approvals required by all
Environmental Laws applicable to the Premises and the business operations
conducted thereon (including operations conducted by tenants on the Premises),
and is in compliance with all such permits, licenses and approvals; (e) the
Company has not caused or allowed a release, or a threat of release, of any
Hazardous Substance on, under, within, at or near the Premises, and, to the
Company's knowledge, neither the Premises nor any property at or near the
Premises has ever been subject to a release, or a threat of release, of any
Hazardous Substance; (f) there are not now nor have there ever been any
underground storage tank systems or related piping for Hazardous Substances,
active or abandoned, at the Premises. For the purposes of this Agreement, the
term "Environmental Laws" shall mean any Federal, state or local law or
------------------
ordinance or regulation pertaining to the protection of human health or the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq., the
-- ---
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et
--
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
- ---
et seq. as enacted and in effect on or prior to the Closing Date. For purposes
- -- ---
of this Agreement, the term "Hazardous Substances" shall mean all hazardous or
--------------------
toxic materials, wastes and pollutants, including, without limitation, oil and
petroleum products, asbestos, polychlorinated biphenyls, urea formaldehyde,
pesticides, fertilizers and any other materials classified as hazardous,
biohazardous, radioactive or toxic under any Environmental Laws. This Section 5N
constitutes the sole and exclusive representation and warranty of the Company
with respect to environmental, health and safety matters including, without
limitation, any arising under or relating to Environmental Laws.
5O. ERISA.
-----
(a) The "Employee Benefits Schedule" lists each material Employee
--------------------------
Plan that covers any employee of the Company and lists each material Benefit
Arrangement of the Company.
(b) To the knowledge of the Company, no Employee Plan is a
Multiemployer Plan and no Employee Plan is subject to Title IV of ERISA and
neither the Company nor its Affiliates have incurred any material liability
under Title IV of ERISA arising in connection with the termination of any plan
covered or previously covered by Title IV of ERISA that has not been satisfied
in full.
(c) To the knowledge of the Company, no "prohibited transaction," as
defined in Section 406 of ERISA or Section 4975 of the Code, has occurred with
respect to any Employee Plan which could subject the Company to any material
liability.
(d) The United States Internal Revenue Service has determined that
each Employee Plan that is intended to be qualified under Section 401(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), is so
----
qualified and the Company is not aware of any event or circumstance that would
adversely effect such determination.
-13-
<PAGE>
(e) All contributions and payments under each Employee Plan and
Benefit Arrangement which are due have been paid and if not yet due have been
properly accrued.
(f) To the knowledge of the Company, there is no contract, agreement,
plan or arrangement covering any employee or former employee of the Company
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to the terms of Section 280G of the Code.
(g) To the knowledge of the Company, no tax under Section 4980B of
the Code has been incurred in respect of any Employee Plan that is a group
health plan, as defined in Section 5000(b)(1) of the Code.
(h) To the knowledge of the Company, with respect to the employees
and former employees of the Company, there are no employee post-retirement
medical or health plans in effect, except as required by Section 4980B of the
Code.
(i) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.
(j) To the knowledge of the Company, the Company does not have, nor
is it reasonably expected to have, any liability under Title IV of ERISA.
5P. Title to Properties. The Company and its subsidiaries have good,
-------------------
clear and marketable title to their respective material properties and assets
reflected on the Latest Balance Sheet or acquired by them since the date of the
Latest Balance Sheet (other than properties and assets disposed of in the
ordinary course of business since the date of the Latest Balance Sheet), and all
such properties and assets are free and clear of all Liens except for Permitted
Encumbrances. Except as set forth on the "Title to Properties Schedule," the
----------------------------
Company and its Subsidiaries have not received written notice of any
condemnation, environmental, zoning or other land use regulation proceedings or
any special assessment proceedings, which if determined adversely to the Company
or its Subsidiaries would reasonably be expected to materially and adversely
affect the financial condition, results of operations, properties, assets and
prospects of the Company and its Subsidiaries taken as a whole.
5Q. Leasehold Interests. Except as set forth on the "Leasehold
------------------- ---------
Interests Schedule," (i) each lease or agreement to which the Company is a party
- ------------------
under which it is a lessee of any material property, real or personal, is a
valid and subsisting agreement, duly authorized and entered into, without any
default of the Company thereunder and, to the Company's knowledge, without any
default thereunder of any other party thereto, (ii) to the Company's knowledge,
no event has occurred and is continuing which, with due notice or lapse of time
or both, would constitute a default or event of default by the Company under any
such lease or agreement or, to the best of the Company's knowledge, by any other
party thereto and (iii) to the Company's knowledge, the
-14-
<PAGE>
Company's possession of such property has not been disturbed and the Company has
not received written notice of any claim asserted against the Company adverse to
its rights in such leasehold interests.
Section 6. Definitions.
-----------
6A. Definitions. For the purposes of this Agreement, the following
-----------
terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Benefit Arrangement" means each employment, severance or other
-------------------
similar contract, arrangement of policy (written or oral) and each plan or
arrangement (written or oral) providing for severance benefits, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not an Employee
Plan and (ii) covers any employee or former employee of the Company or any of
its Subsidiaries.
"Employee Plan" means each "employee benefit plan," as such term is
-------------
defined in Section 3(3) of ERISA, that (A)(i) is subject to any provision of
ERISA and (ii) is maintained or contributed to by the Company, or (B)(i) is
subject to any provision of Title IV or ERISA and (ii) is maintained or
contributed to by any of the Company's ERISA Affiliates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" of any entity means any other entity that, together
---------------
with such entity, would be treated as a single employer under Section 414 of the
Code.
"Independent Third Party" means any Person who, immediately prior to
-----------------------
the contemplated transaction, does not own in excess of 5%, on a fully-diluted
basis, of the Company's voting capital stock (a "5% Owner"), who is not
--------
controlling, controlled by or under common control with any such 5% Owner and
who is not the spouse or descendent (by birth or adoption) of any such 5% Owner
or a trust for the benefit of such 5% Owner and/or such other Persons.
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
-15-
<PAGE>
"Liens" means any mortgage, pledge, security interest, encumbrance,
-----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof).
"MDCP" means Madison Dearborn Capital Partners, L.P., a Delaware
----
limited partnership.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
------------------
plan, as defined in Section 3(37) of ERISA.
"Permitted Encumbrances" shall mean (i) minor imperfections of title,
----------------------
if any, none of which materially detracts from the value or impairs the use of
any such asset subject thereto, (ii) lessor's, materialmen's, mechanics',
warehousemen's, carriers', repairmen's or other like liens arising in the
ordinary course of business for amounts not yet due and which are not in the
aggregate material to the Company and its Subsidiaries, (iii) liens for current
taxes, assessments or other governmental charges not yet due, (iv) statutory
liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, performance and return-of-
money bonds, and similar obligations which are not yet delinquent and (v) liens
or encumbrances arising or existing under the Company's and its Subsidiaries
existing credit facilities.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Sale" means any sale of Stockholder Shares to the public
-----------
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Qualified Public Offering" means the sale in an underwritten public
-------------------------
offering registered under the Securities Act of shares of the Company's Common
Stock having an aggregate offering value of at least $10 million.
"Registrable Securities" means (i) any Common Stock issued upon the
----------------------
conversion of any Class A Preferred issued pursuant to this Agreement or
otherwise acquired by any Purchaser, (ii) any Common Stock issued upon the
exercise of the Warrants and (iii) any Common Stock issued or issuable with
respect to the securities referred to in clause (i) and (ii) by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when they have been distributed to the public pursuant to a offering
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force). For purposes of this
-16-
<PAGE>
Agreement, a Person shall be deemed to be a holder of Registrable Securities
whenever such Person has the right to acquire such Registrable Securities (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected.
"Restricted Securities" means (i) the Class A Preferred issued
---------------------
hereunder, (ii) the Class A Preferred Stock of the Company outstanding prior to
the purchase and sale of Class A Preferred contemplated by this Agreement, (iii)
the Warrants issued hereunder, (iv) the Common Stock issued upon conversion of
Class A Preferred or upon exercise of the Warrants and (v) any securities issued
with respect to the securities referred to in clauses (i), (ii), (iii) or (iv)
above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) been distributed to the public through
a broker, dealer or market maker pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act or become eligible for sale pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act or
(c) been otherwise transferred and new certificates for them not bearing the
Securities Act legend set forth in paragraph 7C have been delivered by the
Company in accordance with paragraph 4(ii). Whenever any particular securities
cease to be Restricted Securities, the holder thereof shall be entitled to
receive from the Company, without expense, new securities of like tenor not
bearing a Securities Act legend of the character set forth in paragraph 7C.
"Sale of the Company" means the sale of the Company to an Independent
-------------------
Third Party or group of Independent Third Parties pursuant to which such party
or parties acquire (i) capital stock of the Company possessing the voting power
under normal circumstances to elect a majority of the Company's board of
directors (whether by merger, consolidation or sale or transfer of the Company's
capital stock) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" means the United States
----------------------------------
Securities and Exchange Commission and any governmental body or agency
succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Stockholder Shares" means (i) any Class A Preferred purchased
------------------
hereunder or otherwise acquired by any Purchaser, (ii) any Common Stock issued
or issuable directly or indirectly upon conversion of any Class A Preferred,
(iii) any Common Stock issued or issuable directly or indirectly upon exercise
of the Warrants and (iv) any Common Stock or Class A Preferred issued
-17-
<PAGE>
or issuable with respect to the securities referred to in clauses (i), (ii) and
(iii) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Stockholder Shares, such shares shall cease
to be Stockholder Shares when they have been (a) effectively registered under
the Securities Act and disposed of in accordance with the registration statement
covering them or (b) distributed to the public through a broker, dealer or
market maker pursuant to Rule 144 under the Securities Act (or any similar
provision then in force).
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Underlying Common Stock" means (i) the Common Stock issued or
-----------------------
issuable upon conversion of the Class A Preferred or upon exercise of the
Warrants and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, any
Person who holds Class A Preferred or Warrants shall be deemed to be the holder
of the Underlying Common Stock obtainable upon conversion of the Class A
Preferred or exercise of the Warrants in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the conversion of the
Class A Preferred or exercise of the Warrants. As to any particular shares of
Underlying Common Stock, such shares shall cease to be Underlying Common Stock
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering them, (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar provision then in force) or
(c) repurchased by the Company or any Subsidiary.
Section 7. Miscellaneous.
-------------
7A. Expenses. The Company shall pay, and hold each Purchaser
--------
harmless against liability for the payment of, (i) the reasonable expenses of
such Purchaser and its agents incurred in connection with the negotiation and
execution of this Agreement and the consummation of the
-18-
<PAGE>
transactions contemplated by this hereby including, without limitation, the
reasonable fees and expenses of each Purchaser's special counsel, and
reimbursement or payment therefor shall be made at the Closing, (ii) the fees
and expenses incurred with respect to any amendments or waivers (whether or not
the same become effective) under or in respect of this Agreement, the agreements
contemplated hereby or the Articles of Incorporation (including, without
limitation, in connection with any proposed merger, sale or recapitalization of
the Company); (iii) stamp and other taxes which may be payable in respect of the
execution and delivery of this Agreement or the issuance, delivery or
acquisition of any shares of Class A Preferred or any shares of Common Stock
issuable upon conversion of Class A Preferred; and (iv) the fees and expenses
incurred with respect to the enforcement of the rights granted under this
Agreement, the agreements contemplated hereby and the Articles of Incorporation.
7B. Remedies. Each holder of Class A Preferred and Underlying Common
--------
Stock shall have all rights and remedies set forth in this Agreement, the
Articles of Incorporation and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
7C. Legend. Each certificate or instrument representing Restricted
------
Securities shall be imprinted with a legend in substantially the following form:
"The securities represented by this certificate were originally
issued on November 27, and have not been registered under the
Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Purchase Agreement, dated as of
November 27, 1996 and as amended and modified from time to time,
between the issuer (the "Company") and certain investors, and the
Company reserves the right to refuse the transfer of such
securities until such conditions have been fulfilled with respect
to such transfer. A copy of such conditions shall be furnished by
the Company to the holder hereof upon written request and without
charge."
7D. Registration Rights.
-------------------
(i) At any time more than 180 days following a Qualified Public
Offering, the holders of Registrable Securities may request up to two
registrations under the Securities Act of all or any portion of their
Registrable Securities on Form S-2 or S-3 or any similar short-form registration
("Short-Form Demand Registrations") if available; provided that the aggregate
-------------------------------
offering value of the securities so registered (net of all underwriting
discounts and sales commissions) is at least $3,000,000. Each request for a
Short-Form Demand Registration shall specify the approximate number of
Registrable Securities requested to be registered and the anticipated per share
price range for such offering. Within 10 days after receipt of any such
request, the Company shall give written
-19-
<PAGE>
notice of such requested registration to all other holders of Registrable
Securities and shall include in such registration on a pro-rata basis all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the Company's
notice.
(ii) Whenever the Company proposes to register any of its Common Stock
or securities convertible into or exchangeable for Common Stock under the
Securities Act (other than a registration statement on Form S-8 or Form S-4 or
successor forms thereto) and the registration form to be used may be used for
the registration of shares of Registrable Securities, the Company will give
prompt written notice to all holders of Registrable Securities of its intention
to effect such a registration and, subject to the provisions of this paragraph
7D, shall include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion within 30 days
after the receipt of the Company's notice (a "Piggyback Registration").
----------------------
(iii) If a Piggyback Registration is an underwritten primary
registration on behalf of the Company and the managing underwriter advises the
Company that in its opinion the number of shares requested to be included in
such registration exceeds the number of shares which can be sold in such
offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell and (ii) second, the Registrable
Securities requested to be included in such registration together with the other
securities requested to be included in such registration by stockholders
exercising contractual piggyback registration rights, pro rata among the holders
of Registrable Securities and such other holders on the basis of the number of
shares requested to be included therein by each holder.
(iv) If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities and the managing
underwriter advises the Company that in its opinion the number of shares
requested to be included in such registration exceeds the number which can be
sold in such offering, the Company will include in such registration (i) first,
the securities requested to be included therein by the holders initiating the
registration together with the other securities requested to be included in such
registration by stockholders exercising contractual rights to participate on a
pro rata basis with the initiating holder in any piggyback registration and (ii)
second, the Registrable Securities requested to be included in such registration
together with the other securities requested to be included in such registration
by stockholders exercising other contractual piggyback registration rights, pro
rata among the holders of Registrable Securities and such other holders on the
basis of the number of shares requested to be included therein by each holder.
(v) The Company shall bear the costs of (i) Short-Form Demand
Registrations and Piggyback Registrations pursuant to this paragraph 7D, and
(ii) each proposed registration which is initiated as a Short-Form Demand
Registration or Piggyback Registration, in each case including the reasonable
fees and expenses of one counsel for the selling holders of Registrable
Securities but excluding any underwriting discounts or commissions on the sale
of Registrable Securities or the fees and expenses of any additional counsel
retained by the selling holders of Registrable Securities.
-20-
<PAGE>
The Company shall, and as a condition to the inclusion of Registrable Securities
of any holder in any registration, such holder shall, execute an underwriting
agreement or similar agreement in a form reasonably acceptable to the Company
and the underwriter(s), if any, for such offering containing customary
indemnification and holdback provisions and provisions obligating the selling
holders of Registrable Securities to supply customary information for inclusion
in the registration statement. Notwithstanding the foregoing, (i) no holder of
Registrable Securities shall be required to incur indemnification obligations in
excess of the net proceeds received by such holder pursuant to such registration
or that relate to information not supplied by such holder for inclusion in the
registration statement, and (ii) the Company shall indemnify each holder of
Registrable Securities with respect to liabilities arising from such
registration statement other than as a result of information supplied by such
holder of Registrable Securities for inclusion therein.
(vi) Each holder of Registrable Securities agrees not to effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 90-day
period beginning on the effective date of any underwritten Short-Form Demand
Registration or any underwritten Piggyback Registration in which Registrable
Securities are included (except as part of such underwritten registration) if so
requested by the underwriters managing the registered public offering.
(vii) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
Short-Form Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to cause each holder of its
Common Stock, or any securities convertible into or exchangeable or exercisable
for Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
7E. Restrictions on Transfer of Stockholder Shares.
----------------------------------------------
(i) Transfer of Stockholder Shares. No holder of Stockholder Shares,
------------------------------
or in the case of MDCP any Stockholder Shares or other shares of Common Stock,
shall sell, transfer, assign, pledge or otherwise dispose of (whether with or
without consideration and whether voluntarily or involuntarily or by operation
of law) any interest in Stockholder Shares (a "Transfer"), except pursuant to
--------
the provisions of this paragraph 7E or pursuant to a Sale of the Company or a
Public Sale. No holder of Stockholder Shares shall consummate any Transfer
(other than pursuant to a Public Sale or a Sale of the Company) until 30 days
after the later of the delivery to the Company and the other holders of
Stockholder Shares of such Person's Sale Notice (if any), unless the parties
-21-
<PAGE>
to the Transfer have been finally determined pursuant to this paragraph 7E prior
to the expiration of such 30-day period (the "Election Period"). So long as any
---------------
Class A Preferred is outstanding, MDCP shall not Transfer any shares of capital
stock of the Company which are neither Stockholder Shares nor shares of Common
Stock without the prior written consent of the holders of a majority of
Stockholder Shares other than Stockholder Shares held by MDCP.
(ii) Participation Rights. At least 30 days prior to any Transfer of
--------------------
Stockholder Shares (other than pursuant to a Public Sale or Sale of the
Company), the holder of Stockholder Shares, or in the case of MDCP any
Stockholder Shares or other shares of Common Stock, making such Transfer (the
"Transferring Stockholder") shall deliver a written notice (the "Sale Notice")
- ------------------------- -----------
to the Company and the other holders of Stockholder Shares of the same class or
series as the shares of capital stock of the Company which the Transferring
Stockholder proposes to transfer (the "Other Stockholders"), specifying in
------------------
reasonable detail the identity of the prospective transferee(s), the class or
series of Stockholder Shares to be transferred, the number of shares to be
transferred and the terms and conditions of the Transfer. The Other
Stockholders may elect to participate in the contemplated Transfer at the same
price per share and on the same terms by delivering written notice to the
Transferring Stockholder within 30 days after delivery of the Sale Notice. If
any Other Stockholders have elected to participate in such Transfer, the
Transferring Stockholder and such Other Stockholders shall be entitled to sell
in the contemplated Transfer, at the same price and on the same terms, a number
of Stockholder Shares of such class or series equal to the product of (i) the
quotient determined by dividing the percentage of Stockholder Shares of such
class or series owned by such Person by the aggregate percentage of Stockholder
Shares of such class or series owned by the Transferring Stockholder and the
Other Stockholders participating in such sale and (ii) the number of Stockholder
Shares to be sold in the contemplated Transfer.
For example, if the Sale Notice contemplated a sale of 100 Stockholder
-----------
Shares of a certain class or series by the Transferring Stockholder, and if
the Transferring Stockholder at such time owns 30% of all Stockholder
Shares of such class or series and if one Other Stockholder elects to
participate and owns 20% of all Stockholder Shares of such class or series,
the Transferring Stockholder would be entitled to sell 60 such shares (30%
divided by 50% x 100 shares) and the Other Stockholder would be entitled to
sell 40 such shares (20% divided by 50% x 100 shares).
Each Transferring Stockholder shall use its best efforts to obtain the agreement
of the prospective transferee(s) to the participation of the Other Stockholders
in any contemplated Transfer, and no Transferring Stockholder shall transfer any
of its Stockholder Shares to any prospective transferee if such prospective
transferee(s) declines to allow the participation of the Other Stockholders.
Each Stockholder transferring Stockholder Shares pursuant to this paragraph
7E(ii) shall pay its pro rata share (based on the number of Stockholder Shares
to be sold) of the expenses incurred by the holders of Stockholder Shares in
connection with such transfer and shall be obligated to join on a pro rata basis
(based on the number of shares of capital stock to be sold) in any
indemnification or other obligations that the Transferring Stockholder agrees to
provide in connection with such transfer (other than any such obligations that
relate specifically to a particular holder of Stockholder Shares
-22-
<PAGE>
such as indemnification with respect to representations and warranties given by
a holder of Stockholder Shares regarding such holder's title to and ownership of
Stockholder Shares; provided that no holder shall be obligated in connection
with such Transfer to agree to indemnify or hold harmless the transferees with
respect to an amount in excess of the net cash proceeds paid to such holder in
connection with such Transfer). In the event any Transfer by MDCP of shares of
capital stock of the Company gives any Person participation rights similar to
those set forth in this paragraph 7E under any agreement entered into prior to
the date hereof by and between the Company, MDCP and such other Person, MDCP
agrees that such participation rights shall reduce only the number of shares of
capital stock of the Company to be Transferred by MDCP in accordance with the
provisions of this paragraph 7E.
(iii) Permitted Transfers. The restrictions set forth in this
-------------------
paragraph 7E shall not apply with respect to any Transfer of Stockholder Shares
by any holder of Stockholder Shares among its Affiliates (collectively referred
to herein as "Permitted Transferees"); provided that the restrictions contained
---------------------
in this paragraph 7E shall continue to be applicable to the Stockholder Shares
after any such Transfer and provided further that the transferees of such
Stockholder Shares shall have agreed in writing to be bound by the provisions of
this Agreement affecting the Stockholder Shares so transferred.
Notwithstanding anything contained herein to the contrary, the parties hereto
presently contemplate, acknowledge and agree that within 90 days from the date
hereof MDCP may sell, assign, transfer and convey 72 shares of Class A Preferred
and Warrants to purchase 2,988 shares of Common Stock purchased hereunder for an
aggregate purchase price of $72,000 to an entity to be formed by Abbott Capital
Management, and upon the consummation of such transaction it is intended that
such newly-formed entity shall have all of the rights and obligations of each
Purchaser and holder of Class A Preferred, Warrants or Underlying Common Stock
hereunder.
(iv) Termination of Restrictions. The provisions of this paragraph 7E
---------------------------
shall terminate upon completion of a Qualified Public Offering.
7F. Sale of the Company.
-------------------
(i) If the board of directors of the Company, and holders of at least
a majority of all Common Stock outstanding approve a Sale of the Company (the
"Approved Sale"), the holders of Underlying Common Stock shall consent to and
- --------------
raise no objections against the Approved Sale of the Company, and if the
Approved Sale of the Company is structured as a sale of stock, the holders of
Underlying Common Stock (determined as of the date of the consummation of the
Approved Sale) shall agree to sell all shares of Underlying Common Stock on the
terms and conditions so approved. The holders of Underlying Common Stock shall
take all necessary and desirable actions in connection with the consummation of
the Approved Sale.
(ii) Upon the consummation of the Approved Sale, each holder of
Underlying Common Stock shall receive the form and amount of consideration as
set forth in subparagraph (v) below.
-23-
<PAGE>
(iii) The holders of Underlying Common Stock shall bear their pro-rata
share (based upon the number of shares sold) of the costs of any sale of
Underlying Common Stock pursuant to an Approved Sale to the extent such costs
are incurred for the benefit of all holders of Underlying Common Stock and are
not otherwise paid by the Company or the acquiring party. Costs incurred by
holders of Underlying Common Stock on their own behalf shall not be considered
costs of the transaction hereunder. In addition, each Person transferring
Underlying Common Stock pursuant to this paragraph 7F shall be obligated to join
on a pro rata basis (based on the number of shares of Underlying Common Stock
to be transferred) in any indemnification or other obligations that the Board
agrees to provide in connection with such transfer (other than any such
obligations that relate specifically to a particular Person such as
indemnification with respect to representations and warranties given by a Person
regarding such Person's title to and ownership of Underlying Common Stock);
provided that no holder shall be obligated in connection with such transaction
to agree to indemnify or hold harmless the transferees with respect to an amount
in excess of the net cash proceeds paid to such holder in connection with such
transaction.
(iv) The provisions of this paragraph 7F shall terminate upon the
completion of a Qualified Public Offering.
(v) In the event of a Sale of the Company, each holder of Underlying
Common Stock shall receive in exchange for all of its Underlying Common Stock,
the same portion of the aggregate consideration from such transaction that such
holder of Underlying Common Stock would have received if such aggregate
consideration had been distributed by the Company in complete liquidation
pursuant to the rights and preferences set forth in the Company's Articles of
Incorporation as in effect immediately prior to such transaction. Each holder
of Underlying Common Stock shall take all necessary or desirable actions in
connection with the allocation and distribution of the aggregate consideration
from such transaction as reasonably requested by the Company in order to
effectuate the provisions of this paragraph 7F.
7G. Purchaser's Investment Representations. Each Purchaser hereby
--------------------------------------
represents and warrants to the Company as follows: (i) this Agreement has been
duly authorized, executed and delivered by Purchaser and constitutes a valid and
legally binding obligation of such Purchaser enforceable in accordance with its
terms, (ii) the execution, delivery and performance of this Agreement by
Purchaser does not conflict with, violate or result in the breach of any
agreement, instrument, order, judgement, decree, law or governmental regulation
to which such Purchaser is a party or by which it is bound, (iii) Purchaser is
an "Accredited Investor" as defined in Regulation D promulgated under the
Securities Act and has substantial experience in evaluating and investing in
similar private placement transactions, is capable of evaluating the merits and
risks of this investment in the Company and has the capacity to protect its own
interests, (iv) Purchaser understands and acknowledges that the purchase of
Class A Preferred and Warrants hereunder represents a speculative investment,
and that Purchaser is able, without impairing its financial condition, to hold
such investment for an indefinite period of time and/or to suffer a complete
loss of such investment, (v) Purchaser is acquiring the Restricted Securities
purchased hereunder for its own account with the present intention of holding
such securities for purposes of investment, and
-24-
<PAGE>
that it has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws, and (vi) Purchaser is aware of and has investigated the Company's
business, management and financial condition, has had a satisfactory opportunity
to ask questions of, and receive answers from, agents and employees of the
Company concerning the business of the Company and the terms and conditions of
this transaction and has had access to such other information about the Company
as Purchaser deemed necessary or desirable to reach an informed and
knowledgeable decision to purchase Class A Preferred and Warrants.
7H. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of at least a majority of the outstanding Class A Preferred; provided
that if there is no Class A Preferred outstanding, the provisions of this
Agreement may be amended and the Company may take any action herein prohibited,
only if the Company has obtained the written consent of the holders of at least
a majority of the Underlying Common Stock; provided further, that no amendment
shall be enforceable against one holder of Stockholder Shares without also being
enforceable against all other holders of Stockholder Shares. In exercising its
rights hereunder, the Company shall exercise such rights in the same manner with
respect to each holder of Class A Preferred, Warrants or Underlying Common
Stock, as applicable. The Company shall not enter into any other agreement or
conduct any course of dealing which alters the rights or obligations of any
holder of Class A Preferred, Warrants or Underlying Common Stock, without first
offering to each other holder of Class A Preferred, Warrants or Underlying
Common Stock, as applicable, the opportunity to enter into such agreement or
course of dealing. No other course of dealing between the Company and the
holder of any Class A Preferred, Warrant or Underlying Common Stock or any
delay in exercising any rights hereunder or under the Articles of Incorporation
shall operate as a waiver of any rights of any such holders. For purposes of
this Agreement, shares of Class A Preferred or Underlying Common Stock held by
the Company or any Subsidiaries shall not be deemed to be outstanding. The
failure of any party at any time to insist upon strict performance of any
condition, promise, agreement or understanding set forth herein shall not be
construed as a waiver or relinquishment of the right to insist upon strict
performance of the same or any other condition, promise, agreement or
understanding at a future time.
7I. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby for a
period of one year, regardless of any investigation made by any Purchaser or on
its behalf.
7J. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not.
-25-
<PAGE>
7K. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
7L. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
7M. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
7N. Governing Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Nevada, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Nevada or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Nevada.
7O. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Purchaser at the address indicated on the
Schedule of Purchasers and to the Company at the address indicated below:
Hines Holdings, Inc.
12621 Jeffrey Road
Irvine, California 92720
Attention: President
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7P. Consideration for Warrants. The Purchasers and the Company
--------------------------
acknowledge and agree that the fair market value of the Class A Preferred issued
hereunder is $19,170,000 and the fair market value of the Warrants issued
hereunder is $830,000 and that, for all purposes (including tax and accounting),
the consideration for the issuance of the Warrants shall be allocated by each
Purchaser and the Company as set forth on the Schedule of Purchasers attached
hereto. Each
-26-
<PAGE>
Purchaser and the Company shall file their respective federal, state and local
tax returns in a manner which is consistent with such valuation and allocation
and shall not take any contrary position with any taxing authority.
7Q. Understanding Among the Purchasers. The determination of each
----------------------------------
Purchaser to purchase the Class A Preferred pursuant to this Agreement has been
made by such Purchaser independent of any other Purchaser and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries which may have been made or given by any other
Purchaser or by any agent or employee of any other Purchaser.
* * * * *
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
HINES HOLDINGS, INC.
By: ________________________________
Its: _______________________________
PURCHASERS
CALIFORNIA STATE TEACHERS'
RETIREMENT SYSTEM
By: ________________________________
Its: _______________________________
CHILMARK FUND II, L.P.
By: CHILMARK II, L.L.C.
Its: General Partner
By: CHILMARK HOLDINGS, L.L.C.
Its: sole member
By: ________________________________
Its: _______________________________
<PAGE>
MADISON DEARBORN CAPITAL
PARTNERS, L.P.
By: MADISON DEARBORN PARTNERS,
L.P.
Its: General Partner
By: MADISON DEARBORN PARTNERS,
INC.
Its: General Partner
By: ______________________________
Its: ______________________________
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
Total No. of
No. of Purchase Shares
Shares Price issuable
of for upon Purchase
Names and Class A Class A Exercise of Price for
Addresses Preferred Preferred Warrant Warrant
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
California State Teachers' 17,000 $16,294,500 705,500 $705,500
Retirement System
c/o Abbott Capital Management
1330 Avenue of the Americas
Suite 2800
New York, NY 10019
Attention: Thomas Hallagan
Chilmark Fund II, L.P. 1,000 $ 958,500 41,500 $ 41,500
875 North Michigan Avenue
Suite 2100
Chicago, IL 60611
Attention: Matthew Rosenberg
Madison Dearborn Capital 2,000 $ 1,917,000 83,000 $ 83,000
Partners, L.P.
Three First National Plaza
Suite 1330
Chicago, IL 60602
Attention: Paul R. Wood
------- ----------- -------- ---------
TOTAL 20,000 $19,170,000 830,000 $830,000
</TABLE>
<PAGE>
EXHIBIT 10.17
The security represented by this certificate was originally
issued on November 27, 1996, and has not been registered
under the Securities Act of 1933, as amended. The transfer
of such security is subject to the restrictions on transfer
specified in the Purchase Agreement, dated November 27, 1996
(as amended and modified from time to time), between the
issuer hereof (the "Company") and the initial holder hereof,
and the Company reserves the right to refuse the transfer of
such security until such conditions have been fulfilled.
Upon written request, a copy of such conditions shall be
furnished by the Company to the holder hereof without
charge.
HINES HOLDINGS, INC.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: November 27, 1996 Certificate No. W-3
FOR VALUE RECEIVED, Hines Holdings, Inc., a Nevada corporation (the
"Company"), hereby grants to Madison Dearborn Capital Partners, L.P. (the
-------
"Registered Holder") the right to purchase from the Company 80,012 shares of the
-----------------
Company's Common Stock, par value $.01 per share, at a price per share of $.01
(as adjusted from time to time in accordance herewith, the "Exercise Price").
--------------
This Warrant is subject to the terms and provisions regarding the transfer of
restricted securities contained in the Purchase Agreement, dated as of the date
hereof (the "Purchase Agreement"), between the Company and certain persons named
------------------
therein. Certain capitalized terms used herein are defined in Section 4 hereof.
The amount and kind of securities obtainable pursuant to the rights granted
hereunder and the purchase price for such securities are subject to adjustment
pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
---------------
in part, the purchase rights represented by this Warrant at any time and from
time to time prior to the earlier of (i) the tenth anniversary of the date
hereof, (ii) a Qualified Public Offering or (iii) a Sale of the Company (the
"Exercise Period"). The Company shall give the Registered Holder written notice
---------------
of the expiration of the Exercise Period at least 10 days but not more than 90
days prior to the end of the Exercise Period.
<PAGE>
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
-------------
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
---------
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 5 hereof; and
(d) either (1) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of
Common Stock being purchased upon such exercise (the "Aggregate Exercise
------------------
Price"), (2) the surrender to the Company of debt or equity securities of
-----
the Company having a Market Value equal to the Aggregate Exercise Price of
the Common Stock being purchased upon such exercise (provided that for
purposes of this subparagraph, the Market Value of any note or other debt
security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus
all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (3) a written notice to the Company that the
Purchaser is exercising the Warrant (or a portion thereof) by authorizing
the Company to withhold from issuance a number of shares of Common Stock
issuable upon such exercise of the Warrant which when multiplied by the
Market Value of the Common Stock is equal to the Aggregate Exercise Price
(and such withheld shares shall no longer be issuable under this Warrant).
(ii) Certificates for shares of Common Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within 5
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such 5 business day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
2
<PAGE>
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or sale of the Company in which case such exercise shall
not be deemed to be effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately delivered by the Company upon each
such issuance). The Company shall not take any action which would cause the
number of authorized but unissued shares of Common Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
exercise of the Warrant.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
3
<PAGE>
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 2, and the number of shares of Common Stock obtainable upon exercise of
this Warrant shall be subject to adjustment from time to time as provided in
this Section 2.
2A. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of any Organic
--------------
Change, the Company shall make appropriate provision (in form and substance
reasonably satisfactory to the Registered Holders of the Warrants representing a
majority of the Common Stock obtainable upon exercise of all Warrants then
outstanding) to insure that each of the Registered Holders of the Warrants shall
thereafter have the right to acquire and receive, in lieu of or in addition to
(as the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the exercise of such holder's Warrant, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of such holder's Warrant had
such Organic Change not taken place. In any such case, the Company shall make
appropriate provision (in form and substance reasonably satisfactory to the
Registered Holders of the Warrants representing a majority of the Common Stock
obtainable upon exercise of all Warrants then outstanding) with respect to such
holders' rights and interests to insure that the provisions of this Section 2
shall thereafter be applicable to the Warrants (including, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, an immediate adjustment of the Exercise Price,
and a corresponding immediate adjustment in the number of shares of Common Stock
acquirable and receivable upon exercise of the Warrants). The Company shall not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes by written
instrument (in form and substance satisfactory to the Registered Holders of
Warrants representing a majority of the Common Stock obtainable upon exercise of
all of the Warrants then outstanding) the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
4
<PAGE>
2C. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions then the Company's board of directors shall make an appropriate
adjustment in the Exercise Price and the number of shares of Common Stock
obtainable upon exercise of this Warrant so as to protect the rights of the
holders of the Warrants.
2D. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered Holder at
least 20 days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock,
(B) with respect to any pro rata subscription offer to holders of Common Stock
or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
Section 3. Definitions. The following terms have the meanings set
-----------
forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
-------
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Common Stock" means shares of the Company's Common Stock, par
------------
value $.01 per share.
"Independent Third Party" means any Person who, immediately
-----------------------
prior to the contemplated transaction, does not own in excess of 5%, on a fully-
diluted basis, of the Company's voting capital stock (a "5% Owner"), who is not
--------
controlling, controlled by or under common control with any such 5% Owner and
who is not the spouse or descendent (by birth or adoption) of any such 5% Owner
or a trust for the benefit of such 5% Owner and/or such other Persons.
"Market Value" as to any security means the fair market value
------------
of such security as determined by the board of directors of the Company in its
reasonable good faith judgment.
"Person" means an individual, a partnership, a corporation, a
------
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Purchase Agreement" has the meaning set forth in the preamble.
------------------
5
<PAGE>
"Qualified Public Offering" means the sale in an underwritten
-------------------------
public offering registered under the Securities Act of 1933, as amended, of
shares of the Company's Common Stock having an aggregate offering value of at
least $10 million.
"Sale of the Company" means the sale of the Company to an
-------------------
Independent Third Party or group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power under normal circumstances to elect a majority of the Company's
board of directors (whether by merger, consolidation or sale or transfer of the
Company's capital stock) or (ii) all or substantially all of the Company's
assets determined on a consolidated basis.
Section 4. No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 5. Warrant Not Transferable. Except as expressly provided
------------------------
herein or in the Purchase Agreement, this Warrant, the Common Stock issued upon
exercise hereof and all rights hereunder are transferable, in whole or in part,
by the holder hereof only to its Affiliates; provided that any Affiliate to whom
this Warrant is transferred agrees to be bound in all respects to the provisions
hereof and of the Purchase Agreement, including, without limitation,
restrictions on the transfer of this Warrant. Subject to the transfer
conditions contained herein and in the Purchase Agreement, this Warrant and all
rights hereunder may be transferred upon surrender of this Warrant with a
properly executed Assignment (in the form of Exhibit II hereto) at the principal
----------
office of the Company.
Section 6. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issued
this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of
----------------
the number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
- ---------
Section 7. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the
6
<PAGE>
same rights represented by such lost, stolen, destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate.
Section 8. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid and shall be deemed to have been given when so
delivered or deposited in the U.S. Mail (i) to the Company, at its principal
executive offices and (ii) to the Registered Holder of this Warrant, at such
holder's address as it appears in the records of the Company (unless otherwise
indicated by such holder).
Section 9. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares issuable upon
exercise of the Warrants without the prior written consent of registered holders
representing at least 95% of the shares of Common Stock obtainable upon exercise
of all of the warrants issued under the Purchase Agreement; and provided
further, no amendment shall be enforceable against one holder of Warrants
without also being enforceable against all other holders of Warrants. In
exercising its rights hereunder, the Company shall exercise such rights in the
same manner with respect to each holder of Warrants. The Company shall not enter
into any other agreement or conduct any course of dealing which alters the
rights or obligations of any holder of Warrants with respect thereto without
first offering to each other holder of Warrants the opportunity to enter into
such agreement or course of dealing.
Section 10. Descriptive Headings. The descriptive headings of the
--------------------
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant.
Section 11. Governing Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Nevada, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Nevada or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Nevada.
* * * *
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
HINES HOLDINGS, INC.
By:_______________________________
Its: _____________________________
Attest:
By: _________________________
Hines Holdings, Inc. Secretary
8
<PAGE>
EXHIBIT I
HINES HOLDINGS, INC.
WARRANT EXERCISE AGREEMENT
--------------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-1) hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-_____) with respect to the number of shares of the
Common Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
9
<PAGE>
The security represented by this certificate was
originally issued on November 27, 1996, and has not
been registered under the Securities Act of 1933, as
amended. The transfer of such security is subject to
the restrictions on transfer specified in the Purchase
Agreement, dated November 27, 1996 (as amended and
modified from time to time), between the issuer hereof
(the "Company") and the initial holder hereof, and the
Company reserves the right to refuse the transfer of
such security until such conditions have been
fulfilled. Upon written request, a copy of such
conditions shall be furnished by the Company to the
holder hereof without charge.
HINES HOLDINGS, INC.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: November 27, 1996 Certificate No. W-4
FOR VALUE RECEIVED, Hines Holdings, Inc., a Nevada corporation (the
"Company"), hereby grants to Madison Dearborn Capital Partners, L.P. (the
"Registered Holder") the right to purchase from the Company 2,988 shares of the
-----------------
Company's Common Stock, par value $.01 per share, at a price per share of $.01
(as adjusted from time to time in accordance herewith, the "Exercise Price").
--------------
This Warrant is subject to the terms and provisions regarding the transfer of
restricted securities contained in the Purchase Agreement, dated as of the date
hereof (the "Purchase Agreement"), between the Company and certain persons named
------------------
therein. Certain capitalized terms used herein are defined in Section 4 hereof.
The amount and kind of securities obtainable pursuant to the rights granted
hereunder and the purchase price for such securities are subject to adjustment
pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in
---------------
whole or in part, the purchase rights represented by this Warrant at any time
and from time to time prior to the earlier of (i) the tenth anniversary of the
date hereof, (ii) a Qualified Public Offering or (iii) a Sale of the Company
(the "Exercise Period"). The Company shall give the Registered Holder written
---------------
notice of the expiration of the Exercise Period at least 10 days but not more
than 90 days prior to the end of the Exercise Period.
<PAGE>
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
-------------
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
---------
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 5 hereof; and
(d) either (1) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of
Common Stock being purchased upon such exercise (the "Aggregate Exercise
------------------
Price"), (2) the surrender to the Company of debt or equity securities of
-----
the Company having a Market Value equal to the Aggregate Exercise Price of
the Common Stock being purchased upon such exercise (provided that for
purposes of this subparagraph, the Market Value of any note or other debt
security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus
all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (3) a written notice to the Company that the
Purchaser is exercising the Warrant (or a portion thereof) by authorizing
the Company to withhold from issuance a number of shares of Common Stock
issuable upon such exercise of the Warrant which when multiplied by the
Market Value of the Common Stock is equal to the Aggregate Exercise Price
(and such withheld shares shall no longer be issuable under this Warrant).
(ii) Certificates for shares of Common Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within 5
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such 5 business day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
2
<PAGE>
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of any
portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or sale of the Company in which case such exercise shall
not be deemed to be effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately delivered by the Company upon each
such issuance). The Company shall not take any action which would cause the
number of authorized but unissued shares of Common Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
exercise of the Warrant.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
3
<PAGE>
Section 2. Adjustment of Exercise Price and Number of Shares.
-------------------------------------------------
In order to prevent dilution of the rights granted under this Warrant, the
Exercise Price shall be subject to adjustment from time to time as provided in
this Section 2, and the number of shares of Common Stock obtainable upon
exercise of this Warrant shall be subject to adjustment from time to time as
provided in this Section 2.
2A. Subdivision or Combination of Common Stock. If the
------------------------------------------
Company at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of shares of Common Stock obtainable upon exercise of this Warrant shall
be proportion proportionately increased. If the Company at any time combines
(by reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination shall be proportionately increased
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be proportionately decreased.
2B. Reorganization, Reclassification, Consolidation, Merger or
----------------------------------------------------------
Sale. Any recapitalization, reorganization, reclassification, consolidation,
- ----
merger, sale of all or substantially all of the Company's assets or other
transaction, in each case which is effected in such a way that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as an "Organic Change." Prior to the
consummation of any Organic Change, the Company shall make appropriate provision
--------------
(in form and substance reasonably satisfactory to the Registered Holders of the
Warrants representing a majority of the Common Stock obtainable upon exercise of
all Warrants then outstanding) to insure that each of the Registered Holders of
the Warrants shall thereafter have the right to acquire and receive, in lieu of
or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the exercise of such holder's
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of such holder's
Warrant had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision (in form and substance reasonably satisfactory
to the Registered Holders of the Warrants representing a majority of the Common
Stock obtainable upon exercise of all Warrants then outstanding) with respect to
such holders' rights and interests to insure that the provisions of this Section
2 shall thereafter be applicable to the Warrants (including, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, an immediate adjustment of the Exercise Price,
and a corresponding immediate adjustment in the number of shares of Common Stock
acquirable and receivable upon exercise of the Warrants). The Company shall not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes by written
instrument (in form and substance satisfactory to the Registered Holders of
Warrants representing a majority of the Common Stock obtainable upon exercise of
all of the Warrants then outstanding) the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
4
<PAGE>
2C. Certain Events. If any event occurs of the type
--------------
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions then the Company's board of directors shall make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock obtainable upon exercise of this Warrant so as to protect the rights of
the holders of the Warrants.
2D. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
Section 3. Definitions. The following terms have the meanings
-----------
set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
-------
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Common Stock" means shares of the Company's Common Stock,
------------
par value $.01 per share.
"Independent Third Party" means any Person who, immediately
-----------------------
prior to the contemplated transaction, does not own in excess of 5%, on a
fully-diluted basis, of the Company's voting capital stock (a "5% Owner"), who
--------
is not controlling, controlled by or under common control with any such 5% Owner
and who is not the spouse or descendent (by birth or adoption) of any such 5%
Owner or a trust for the benefit of such 5% Owner and/or such other Persons.
"Market Value" as to any security means the fair market
------------
value of such security as determined by the board of directors of the Company in
its reasonable good faith judgment.
"Person" means an individual, a partnership, a corporation,
------
a limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Purchase Agreement" has the meaning set forth in the
------------------
preamble.
5
<PAGE>
"Qualified Public Offering" means the sale in an underwritten
-------------------------
public offering registered under the Securities Act of 1933, as amended, of
shares of the Company's Common Stock having an aggregate offering value of at
least $10 million.
"Sale of the Company" means the sale of the Company to an
-------------------
Independent Third Party or group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power under normal circumstances to elect a majority of the Company's
board of directors (whether by merger, consolidation or sale or transfer of the
Company's capital stock) or (ii) all or substantially all of the Company's
assets determined on a consolidated basis.
Section 4. No Voting Rights; Limitations of Liability. This
------------------------------------------
Warrant shall not entitle the holder hereof to any voting rights or other rights
as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Common Stock, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such holder for the Exercise Price of Common Stock
acquirable by exercise hereof or as a stockholder of the Company.
Section 5. Warrant Not Transferable. Except as expressly
------------------------
provided herein or in the Purchase Agreement, this Warrant, the Common Stock
issued upon exercise hereof and all rights hereunder are transferable, in whole
or in part, by the holder hereof only to its Affiliates; provided that any
Affiliate to whom this Warrant is transferred agrees to be bound in all respects
to the provisions hereof and of the Purchase Agreement, including, without
limitation, restrictions on the transfer of this Warrant. Subject to the
transfer conditions contained herein and in the Purchase Agreement, this Warrant
and all rights hereunder may be transferred upon surrender of this Warrant with
a properly executed Assignment (in the form of Exhibit II hereto) at the
----------
principal office of the Company.
Section 6. Warrant Exchangeable for Different Denominations.
------------------------------------------------
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. The date the Company initially
issued this Warrant shall be deemed to be the "Date of Issuance" hereof
----------------
regardless of the number of times new certificates representing the unexpired
and unexercised rights formerly represented by this Warrant shall be issued. All
Warrants representing portions of the rights hereunder are referred to herein as
the "Warrants."
---------
Section 7. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the
6
<PAGE>
same rights represented by such lost, stolen, destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate.
Section 8. Notices. Except as otherwise expressly provided
-------
herein, all notices referred to in this Warrant shall be in writing and shall be
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid and shall be deemed to have been given when so
delivered or deposited in the U.S. Mail (i) to the Company, at its principal
executive offices and (ii) to the Registered Holder of this Warrant, at such
holder's address as it appears in the records of the Company (unless otherwise
indicated by such holder).
Section 9. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares issuable upon
exercise of the Warrants without the prior written consent of registered holders
representing at least 95% of the shares of Common Stock obtainable upon exercise
of all of the warrants issued under the Purchase Agreement; and provided
further, no amendment shall be enforceable against one holder of Warrants
without also being enforceable against all other holders of Warrants. In
exercising its rights hereunder, the Company shall exercise such rights in the
same manner with respect to each holder of Warrants. The Company shall not
enter into any other agreement or conduct any course of dealing which alters the
rights or obligations of any holder of Warrants with respect thereto without
first offering to each other holder of Warrants the opportunity to enter into
such agreement or course of dealing.
Section 10. Descriptive Headings. The descriptive headings of the
--------------------
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant.
Section 11. Governing Law. All issues and questions concerning
-------------
the construction, validity, enforcement and interpretation of this Agreement and
the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of Nevada, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
Nevada or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Nevada.
* * * *
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed and attested by its duly authorized officers under its corporate seal and
to be dated the Date of Issuance hereof.
HINES HOLDINGS, INC.
By:_____________________________
Its: _____________________________
Attest:
By: _________________________
Hines Holdings, Inc. Secretary
8
<PAGE>
EXHIBIT I
HINES HOLDINGS, INC.
WARRANT EXERCISE AGREEMENT
--------------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-1) hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-_____) with respect to the number of shares of the
Common Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
9
<PAGE>
EXHIBIT 10.18
The security represented by this certificate was originally
issued on November 27, 1996, and has not been registered
under the Securities Act of 1933, as amended. The transfer
of such security is subject to the restrictions on transfer
specified in the Purchase Agreement, dated November 27, 1996
(as amended and modified from time to time), between the
issuer hereof (the "Company") and the initial holder hereof,
and the Company reserves the right to refuse the transfer of
such security until such conditions have been fulfilled.
Upon written request, a copy of such conditions shall be
furnished by the Company to the holder hereof without
charge.
HINES HOLDINGS, INC.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: November 27, 1996 Certificate No. W-1
FOR VALUE RECEIVED, Hines Holdings, Inc., a Nevada corporation (the
"Company"), hereby grants to California State Teachers' Retirement System (the
- --------
"Registered Holder") the right to purchase from the Company 705,500 shares of
- ------------------
the Company's Common Stock, par value $.01 per share, at a price per share of
$.01 (as adjusted from time to time in accordance herewith, the "Exercise
--------
Price"). This Warrant is subject to the terms and provisions regarding the
transfer of restricted securities contained in the Purchase Agreement, dated as
of the date hereof (the "Purchase Agreement"), between the Company and certain
------------------
persons named therein. Certain capitalized terms used herein are defined in
Section 4 hereof. The amount and kind of securities obtainable pursuant to the
rights granted hereunder and the purchase price for such securities are subject
to adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
---------------
in part, the purchase rights represented by this Warrant at any time and from
time to time prior to the earlier of (i) the tenth anniversary of the date
hereof, (ii) a Qualified Public Offering or (iii) a Sale of the Company (the
"Exercise Period"). The Company shall give the Registered Holder written notice
- ----------------
of the expiration of the Exercise Period at least 10 days but not more than 90
days prior to the end of the Exercise Period.
<PAGE>
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
-------------
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
---------
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 5 hereof; and
(d) either (1) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of
Common Stock being purchased upon such exercise (the "Aggregate Exercise
------------------
Price"), (2) the surrender to the Company of debt or equity securities of
-----
the Company having a Market Value equal to the Aggregate Exercise Price of
the Common Stock being purchased upon such exercise (provided that for
purposes of this subparagraph, the Market Value of any note or other debt
security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus
all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (3) a written notice to the Company that the
Purchaser is exercising the Warrant (or a portion thereof) by authorizing
the Company to withhold from issuance a number of shares of Common Stock
issuable upon such exercise of the Warrant which when multiplied by the
Market Value of the Common Stock is equal to the Aggregate Exercise Price
(and such withheld shares shall no longer be issuable under this Warrant).
(ii) Certificates for shares of Common Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within 5
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such 5 business day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
2
<PAGE>
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
(vi) The Company shall assist and cooperate with any Registered Holder
or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of any
portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or sale of the Company in which case such exercise shall
not be deemed to be effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately delivered by the Company upon each
such issuance). The Company shall not take any action which would cause the
number of authorized but unissued shares of Common Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
exercise of the Warrant.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
3
<PAGE>
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 2, and the number of shares of Common Stock obtainable upon exercise of
this Warrant shall be subject to adjustment from time to time as provided in
this Section 2.
2A. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of any Organic
--------------
Change, the Company shall make appropriate provision (in form and substance
reasonably satisfactory to the Registered Holders of the Warrants representing a
majority of the Common Stock obtainable upon exercise of all Warrants then
outstanding) to insure that each of the Registered Holders of the Warrants shall
thereafter have the right to acquire and receive, in lieu of or in addition to
(as the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the exercise of such holder's Warrant, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of such holder's Warrant had
such Organic Change not taken place. In any such case, the Company shall make
appropriate provision (in form and substance reasonably satisfactory to the
Registered Holders of the Warrants representing a majority of the Common Stock
obtainable upon exercise of all Warrants then outstanding) with respect to such
holders' rights and interests to insure that the provisions of this Section 2
shall thereafter be applicable to the Warrants (including, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, an immediate adjustment of the Exercise Price,
and a corresponding immediate adjustment in the number of shares of Common Stock
acquirable and receivable upon exercise of the Warrants). The Company shall not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes by written
instrument (in form and substance satisfactory to the Registered Holders of
Warrants representing a majority of the Common Stock obtainable upon exercise of
all of the Warrants then outstanding) the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
4
<PAGE>
2C. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions then the Company's board of directors shall make an appropriate
adjustment in the Exercise Price and the number of shares of Common Stock
obtainable upon exercise of this Warrant so as to protect the rights of the
holders of the Warrants.
2D. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered Holder at
least 20 days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock,
(B) with respect to any pro rata subscription offer to holders of Common Stock
or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
Section 3. Definitions. The following terms have the meanings set
-----------
forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
-------
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Common Stock" means shares of the Company's Common Stock, par
------------
value $.01 per share.
"Independent Third Party" means any Person who, immediately prior
-----------------------
to the contemplated transaction, does not own in excess of 5%, on a fully-
diluted basis, of the Company's voting capital stock (a "5% Owner"), who is not
--------
controlling, controlled by or under common control with any such 5% Owner and
who is not the spouse or descendent (by birth or adoption) of any such 5% Owner
or a trust for the benefit of such 5% Owner and/or such other Persons.
"Market Value" as to any security means the fair market value of
------------
such security as determined by the board of directors of the Company in its
reasonable good faith judgment.
"Person" means an individual, a partnership, a corporation, a
------
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Purchase Agreement" has the meaning set forth in the preamble.
------------------
5
<PAGE>
"Qualified Public Offering" means the sale in an underwritten
-------------------------
public offering registered under the Securities Act of 1933, as amended, of
shares of the Company's Common Stock having an aggregate offering value of at
least $10 million.
"Sale of the Company" means the sale of the Company to an
-------------------
Independent Third Party or group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power under normal circumstances to elect a majority of the Company's
board of directors (whether by merger, consolidation or sale or transfer of the
Company's capital stock) or (ii) all or substantially all of the Company's
assets determined on a consolidated basis.
Section 4. No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 5. Warrant Not Transferable. Except as expressly provided
------------------------
herein or in the Purchase Agreement, this Warrant, the Common Stock issued upon
exercise hereof and all rights hereunder are transferable, in whole or in part,
by the holder hereof only to its Affiliates; provided that any Affiliate to whom
this Warrant is transferred agrees to be bound in all respects to the provisions
hereof and of the Purchase Agreement, including, without limitation,
restrictions on the transfer of this Warrant. Subject to the transfer
conditions contained herein and in the Purchase Agreement, this Warrant and all
rights hereunder may be transferred upon surrender of this Warrant with a
properly executed Assignment (in the form of Exhibit II hereto) at the principal
----------
office of the Company.
Section 6. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issued
this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of
----------------
the number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
- ---------
Section 7. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the
6
<PAGE>
same rights represented by such lost, stolen, destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate.
Section 8. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid and shall be deemed to have been given when so
delivered or deposited in the U.S. Mail (i) to the Company, at its principal
executive offices and (ii) to the Registered Holder of this Warrant, at such
holder's address as it appears in the records of the Company (unless otherwise
indicated by such holder).
Section 9. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares issuable upon
exercise of the Warrants without the prior written consent of registered holders
representing at least 95% of the shares of Common Stock obtainable upon exercise
of all of the warrants issued under the Purchase Agreement; and provided
further, no amendment shall be enforceable against one holder of Warrants
without also being enforceable against all other holders of Warrants. In
exercising its rights hereunder, the Company shall exercise such rights in the
same manner with respect to each holder of Warrants. The Company shall not
enter into any other agreement or conduct any course of dealing which alters the
rights or obligations of any holder of Warrants with respect thereto without
first offering to each other holder of Warrants the opportunity to enter into
such agreement or course of dealing.
Section 10. Descriptive Headings. The descriptive headings of the
--------------------
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant.
Section 11. Governing Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Nevada, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Nevada or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Nevada.
* * * *
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
HINES HOLDINGS, INC.
By:_____________________________
Its: ___________________________
Attest:
By: _________________________
Hines Holdings, Inc. Secretary
8
<PAGE>
EXHIBIT I
HINES HOLDINGS, INC.
WARRANT EXERCISE AGREEMENT
--------------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-1) hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-_____) with respect to the number of shares of the
Common Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
9
<PAGE>
EXHIBIT 12.1
HINES HOLDINGS, INC.
Computation of Ratio of Earnings to Fixed Charges
(Dollars In thousands)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
Fixed charges: 1992 1993 1994 1995 1996
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Interest expense $3,677 $6,014 $7,555 $13,274 $20,140
Amortization of deferred financing
costs 403 1,079 1,069 4,557 940
Rental expense deemed representative
of the interest expense component of
rental expense
**Assume 33 percent 179 324 311 356 434
------ ------ ------ ------- -------
Total fixed charges 4,259 7,417 8,935 18,187 21,514
------ ------ ------ ------- -------
Earnings:
Income before provision for income taxes,
minority interest, income from
discontinued operations and
extraordinary loss 6,260 6,229 14,258 8,441 844
------ ------ ------ ------- -------
Earnings plus fixed charges 10,519 13,646 23,193 26,628 22,358
------ ------ ------ ------ ------
Ratio of earnings to fixed charges 2.47 1.84 2.60 1.46 1.04
------ ------ ------ ------ ------
</TABLE>
<PAGE>
ARTHUR
ANDERSEN
December 6, 1996 --------------------------------
Arthur Andersen LLP
--------------------------------
Securities and Exchange Commission Suite 1100
450 Fifth Street, NW 18500 Von Karman Avenue
Washington, D.C. 20549 Irvine CA 92612-0504
714 757 3100
Dear Sirs:
We have read Item 4 included in the attached Form 8-K/A dated December 9, 1996,
of Hines Holdings, Inc. to be filed with the Securities and Exchange Commission
and are in agreement with the statements contained therein.
Very truly yours,
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
BAR/612001EE
Copy to:
Ms. Claudia Pieropan, Chief Financial Officer
Hines Holdings, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 631
<SECURITIES> 0
<RECEIVABLES> 16,663
<ALLOWANCES> 1,019
<INVENTORY> 95,224
<CURRENT-ASSETS> 114,676
<PP&E> 96,039
<DEPRECIATION> 14,169
<TOTAL-ASSETS> 228,092
<CURRENT-LIABILITIES> 85,115
<BONDS> 152,769
54,910
0
<COMMON> 102
<OTHER-SE> (70,708)
<TOTAL-LIABILITY-AND-EQUITY> 228,092
<SALES> 164,323
<TOTAL-REVENUES> 164,323
<CGS> 80,812
<TOTAL-COSTS> 61,587
<OTHER-EXPENSES> 21,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,140
<INCOME-PRETAX> 844
<INCOME-TAX> 636
<INCOME-CONTINUING> 844
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> 0
</TABLE>
