<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________________ to _____________________
Commission File Number
33-99452
HINES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada 52-1720681
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
12621 Jeffrey Road
Irvine, California 92720
(Address of principal executive offices) (Zip Code)
(714) 559-4444
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
As of May 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>
HINES HOLDINGS, INC.
Index
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page No.
--------
<S> <C> <C>
Condensed Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1997 1
Condensed Consolidated Statements of Operations and
Deficit for the Three Months Ended March 31, 1996
and 1997 3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1997 4
Notes to the Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signature 16
</TABLE>
Note: Items 1, 2, 3, 4 and 5 of Part II are omitted because they are
not applicable.
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and March 31, 1997
<TABLE>
<CAPTION>
ASSETS December 31, 1996 March 31, 1997
------ (unaudited)
----------------- --------------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 631 $ -
Accounts receivable, net of allowance for
doubtful accounts of $1,019 and $1,082 15,644 46,485
Inventories 95,224 101,799
Prepaid expenses and other current assets 3,177 2,570
-------- --------
Total current assets 114,676 150,854
-------- --------
FIXED ASSETS, net of accumulated depreciation
and depletion of $14,169 and $15,647 81,870 82,706
DEFERRED FINANCING EXPENSES, net of
accumulated amortization of $1,235 and $1,486 6,352 6,481
OTHER ASSETS 613 613
GOODWILL 24,581 24,592
-------- --------
$228,092 $265,246
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and March 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
------------------------------------- December 31, 1996 March 31, 1997
(unaudited)
------------------- ----------------
(Dollars in thousands except share data)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 7,875 $ 14,381
Accrued liabilities 5,358 9,156
Accrued payroll and benefits 5,957 5,712
Long-term debt, current portion 4,897 4,880
Revolving line of credit 29,357 56,527
Deferred income taxes 31,402 31,304
Other liabilities 269 85
------------------- ----------------
Total current liabilities 85,115 122,045
------------------- ----------------
LONG-TERM DEBT 152,769 152,670
DEFERRED INCOME TAXES 6,006 6,049
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; 30,000 shares issued
at December 31, 1996 and March 31, 1997 30,921 31,866
CUMULATIVE REDEEMABLE JUNIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share;
liquidation preference of $1 per share; 22,000,000
shares authorized; 20,498,816 shares issued
at December 31, 1996 and March 31, 1997 23,989 24,709
SHAREHOLDERS' DEFICIT
Common Stock
Authorized - 30,000,000 shares $.01 par value;
Issued and outstanding - 10,226,184 at
December 31, 1996 and March 31, 1997 102 102
Additional paid-in capital 5,600 3,935
Deficit (76,410) (76,130)
-------------------- -----------------
Total shareholders' deficit (70,708) (72,093)
-------------------- -----------------
$ 228,092 $ 265,246
==================== =================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
Three Months Ended March 31, 1996 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------------------------
1996 1997
---------------- ------------------
(Dollars in thousands except per share data)
<S> <C> <C>
SALES, NET $40,357 $47,767
COST OF GOODS SOLD 20,307 24,931
---------------- ------------------
Gross Profit 20,050 22,836
---------------- ------------------
SELLING AND DISTRIBUTION EXPENSES 11,418 12,486
GENERAL AND ADMINISTRATIVE EXPENSES 4,488 4,701
---------------- ------------------
Total operating expenses 15,906 17,187
---------------- ------------------
Operating income 4,144 5,649
---------------- ------------------
OTHER EXPENSES:
Interest 5,092 5,238
Amortization of deferred financing expenses 222 250
---------------- ------------------
5,314 5,488
---------------- ------------------
(Loss) income before income tax benefit (1,170) 161
INCOME TAX BENEFIT (404) (119)
---------------- ------------------
NET INCOME (LOSS) (766) 280
Less: Preferred stock dividends (900) (1,647)
---------------- ------------------
NET LOSS applicable to common stock ($1,666) ($1,367)
================ ==================
Net loss per common share ($0.17) ($0.13)
================ ==================
Weighted average shares outstanding 10,000,000 10,226,184
================ ==================
DEFICIT, beginning of period ($76,338) ($76,410)
NET INCOME (LOSS) during the period (766) 280
Repurchase and retirement of stock (280) -
---------------- ------------------
DEFICIT, end of period ($77,384) ($76,130)
================ ==================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
3
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------
1996 1997
--------- --------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ($766) $ 280
Adjustments to reconcile net income to
net cash used in operating activities -
Depreciation, depletion and amortization 1,465 1,747
Deferred income taxes (527) (58)
Other 266 46
-------- --------
438 2,015
CHANGE IN WORKING CAPITAL ACCOUNTS:
Accounts receivable (23,246) (30,840)
Inventories (4,351) (6,576)
Prepaid expenses and other assets (208) 561
Accounts payable and accrued liabilities 6,481 10,070
Other liabilities (450) (184)
-------- --------
Net cash used in operating activities (21,336) (24,954)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (1,654) (2,352)
-------- --------
Net cash used in investing activities (1,654) (2,352)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 43,474 46,740
Repayments on revolving line of credit (19,787) (19,570)
Repayments of long-term debt (598) (116)
Deferred financing costs - (379)
Repurchase and retirement of stock (280) -
-------- --------
Net cash provided by financing activities 22,809 26,675
-------- --------
NET DECREASE IN CASH (181) (631)
CASH beginning of period 181 631
-------- --------
CASH end of period $ - $ -
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
HINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1997
(UNAUDITED)
1. 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., a wholly owned subsidiary
of Hines Horticulture, (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 leading national supplier of ornamental, container-grown plants
with nursery facilities located in California, Oregon, Texas and South
Carolina. Hines markets its products to retail merchandisers 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 markets.
Manufacturing is conducted in facilities located in Canada and the United
States.
2. Unaudited Financial Information:
--------------------------------
The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments which are necessary to state fairly
the consolidated financial position, results of operations, and cash flows
of the Company as of and for the periods indicated. The Company presumes
that users of the interim financial information herein have read or have
access to the Company's audited consolidated financial statements for the
preceding fiscal year and that the adequacy of additional disclosure needed
for a fair presentation, except in regard to material contingencies or
recent significant events, may be determined in that context. Accordingly,
footnote and other disclosures which would substantially duplicate the
disclosures contained in the Form 10-K filed on March 31, 1997 by Hines
Holdings, Inc. under the Securities Exchange Act of 1934, as amended, have
been omitted. The financial information herein is not necessarily
representative of a full year's operations.
5
<PAGE>
3. Inventories:
------------
As of December 31, 1996 and March 31, 1997, inventories consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ ---------
<S> <C> <C>
Nursery stock $85,611 $ 92,254
Finished goods 2,975 3,092
Materials and supplies 6,638 6,453
------- --------
$95,224 $101,799
======= ========
</TABLE>
4. 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 since
inclusion of the outstanding warrants would be anti-dilutive.
5. Guarantor/Non-Guarantor Disclosures:
------------------------------------
The 11.75% Senior Subordinated Notes issued by Hines Horticulture, Inc.
(the issuer) have been guaranteed by Holdings (the parent guarantor) and by
Sun Gro-U.S. (the subsidiary guarantor). The issuer and the subsidiary
guarantor are direct and indirect wholly owned subsidiaries of the parent
guarantor and the parent and subsidiary guarantees are full, unconditional,
and joint and several. Separate financial statements of Hines and Sun Gro-
U.S. are not presented and Hines and Sun Gro-U.S. are not filing separate
reports under the 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 (the subsidiary
non-guarantor) 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 its 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
6
<PAGE>
non-guarantor under the equity method), (d) Sun Gro-Canada as subsidiary
non-guarantor, (e) eliminations necessary to arrive at the information
basis and (f) the parent guarantor on a consolidated basis as follows:
. Condensed consolidating balance sheets as of December 31, 1996 and March
31, 1997 (unaudited);
. Condensed unaudited consolidating statements of operations and retained
earnings (deficit) and condensed unaudited consolidating statements of cash
flows for the three month periods ended March 31, 1996 and 1997.
7
<PAGE>
Supplemental Condensed Consolidating Balance Sheets
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-
Guarantor) (Issuer) Guarantor) Guarantor)
------------------------------------------------------------
ASSETS
- ------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ - $ 631 $ 91 $ (91)
Accounts receivable, net - 5,316 8,679 1,649
Inventories - 88,361 1,455 5,408
Prepaid expenses and other current assets - 1,074 991 1,112
Deferred income taxes - 50 603 -
-----------------------------------------------------------
Total current assets - 95,432 11,819 8,078
-----------------------------------------------------------
FIXED ASSETS, net - 32,851 4,540 44,479
DEFERRED FINANCING EXPENSES, net - 5,020 43 1,289
OTHER ASSETS 577 - 36 -
GOODWILL, net - 23,738 - 843
DEFERRED INCOME TAXES - 10,163 - -
INVESTMENTS IN SUBSIDIARIES 40,296 15,606 7,729 -
-----------------------------------------------------------
$ 40,873 $ 182,810 $ 24,167 $ 54,689
===========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ - $ 4,048 $ 1,426 $ 2,401
Accrued liabilities - 2,718 2,127 513
Accrued payroll and benefits - 4,270 1,318 369
Long-term debt, current portion - 2,147 - 2,750
Revolving line of credit - 24,201 5,156 -
Deferred income taxes - 31,942 - 113
Other liabilities - - 63 206
Intercompany accounts 56,671 (65,199) (9,023) 17,551
-----------------------------------------------------------
Total current liabilities 56,671 4,127 1,067 23,903
-----------------------------------------------------------
LONG-TERM DEBT - 142,269 - 10,500
DEFERRED INCOME TAXES - 2,377 1,235 12,557
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 30,921 - - -
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 23,989 - - -
SHAREHOLDERS' EQUITY
Common stock 102 3,971 11,414 -
Additional paid-in capital 5,600 21,364 5,793 1,777
Retained earnings (deficit) (76,410) 8,702 4,658 5,952
-----------------------------------------------------------
Total shareholders' equity (deficit) (70,708) 34,037 21,865 7,729
-----------------------------------------------------------
$ 40,873 $ 182,810 $ 24,167 $ 54,689
===========================================================
ASSETS Consolidated
- ------ Eliminations Total
CURRENT ASSETS: ------------------------------------
Cash $ - $ 631
Accounts receivable, net - 15,644
Inventories - 95,224
Prepaid expenses and other current assets - 3,177
Deferred income taxes (653) -
------------------------------------
Total current assets (653) 114,676
------------------------------------
FIXED ASSETS, net - 81,870
DEFERRED FINANCING EXPENSES, net - 6,352
OTHER ASSETS - 613
GOODWILL, net - 24,581
DEFERRED INCOME TAXES (10,163) -
INVESTMENTS IN SUBSIDIARIES (63,631) -
------------------------------------
$ (74,447) $ 228,092
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ - $ 7,875
Accrued liabilities - 5,358
Accrued payroll and benefits - 5,957
Long-term debt, current portion - 4,897
Revolving line of credit - 29,357
Deferred income taxes (653) 31,402
Other liabilities - 269
Intercompany accounts - -
------------------------------------
Total current liabilities (653) 85,115
------------------------------------
LONG-TERM DEBT - 152,769
DEFERRED INCOME TAXES (10,163) 6,006
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK - 30,921
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK - 23,989
SHAREHOLDERS' EQUITY
Common stock (15,385) 102
Additional paid-in capital (28,934) 5,600
Retained earnings (deficit) (19,312) (76,410)
Total shareholders' equity (deficit) (63,631) (70,708)
------------------------------------
$ (74,447) $ 228,092
====================================
</TABLE>
8
<PAGE>
Supplemental Condensed Consolidating Balance Sheets
As of March 31, 1997
(Unaudited)
(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 $ - $ - $ - $ - $ - $ -
Accounts receivable, net - 26,661 16,675 3,149 - 46,485
Inventories - 95,697 1,116 4,986 - 101,799
Prepaid expenses and other current assets - 661 975 934 - 2,570
Deferred income taxes - 50 603 - (653) -
-------------------------------------------------------------------------------
Total current assets - 123,069 19,369 9,069 (653) 150,854
-------------------------------------------------------------------------------
FIXED ASSETS, net - 33,568 4,635 44,503 - 82,706
DEFERRED FINANCING EXPENSES, net - 5,228 40 1,213 - 6,481
OTHER ASSETS 577 - 36 - - 613
GOODWILL, net - 23,756 - 836 - 24,592
DEFERRED INCOME TAXES - 10,163 - - (10,163) -
INVESTMENTS IN SUBSIDIARIES 40,576 15,589 7,935 - (64,100) -
-------------------------------------------------------------------------------
$ 41,153 $ 211,373 $ 32,015 $ 55,621 $ (74,916) $ 265,246
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 8,138 $ 1,612 $ 4,636 $ (5) $ 14,381
Accrued liabilities - 6,628 1,867 661 - 9,156
Accrued payroll and benefits - 4,390 895 427 - 5,712
Long-term debt, current portion - 2,130 - 2,750 - 4,880
Revolving line of credit - 45,649 10,878 - - 56,527
Deferred income taxes - 31,845 - 112 (653) 31,304
Other liabilities - - (82) 167 - 85
Intercompany accounts 56,671 (66,571) (6,232) 16,132 - -
-------------------------------------------------------------------------------
Total current liabilities 56,671 32,209 8,938 24,885 (658) 122,045
-------------------------------------------------------------------------------
LONG-TERM DEBT - 142,170 - 10,500 - 152,670
DEFERRED INCOME TAXES - 2,677 1,234 12,301 (10,163) 6,049
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 31,866 - - - - 31,866
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 24,709 - - - - 24,709
SHAREHOLDERS' EQUITY
Common stock 102 3,971 11,414 - (15,385) 102
Additional paid-in capital 3,935 21,364 5,789 1,777 (28,930) 3,935
Retained earnings (deficit) (76,130) 8,982 4,640 6,158 (19,780) (76,130)
-------------------------------------------------------------------------------
Total shareholders' equity (deficit) (72,093) 34,317 21,843 7,935 (64,095) (72,093)
-------------------------------------------------------------------------------
$ 41,153 $ 211,373 $ 32,015 $ 55,621 $ (74,916) $ 265,246
===============================================================================
</TABLE>
9
<PAGE>
Supplemental Condensed Consolidating Statements of Operations and Retained
Earnings (Deficit)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Three Month Period Ended March 31, 1996
----------------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary Consoli-
(Parent Horticulture (Subsidiary Non- Elimi- dated
Guarantor) (Issuer) Guarantor) Guarantor) nations Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES, NET $ -- $20,500 $17,481 $6,250 ($3,874) $ 40,357
COST OF GOODS SOLD -- 10,616 9,285 4,280 (3,874) 20,307
----------------------------------------------------------------------------
Gross Profit -- 9,884 8,196 1,970 -- 20,050
OPERATING EXPENSES -- 6,763 7,230 1,913 -- 15,906
----------------------------------------------------------------------------
Operating income -- 3,121 966 57 -- 4,144
----------------------------------------------------------------------------
OTHER EXPENSES:
Interest -- 4,673 97 322 -- 5,092
Interest - intercompany -- (221) 184 37 -- --
Other, net 766 26 226 72 (868) 222
----------------------------------------------------------------------------
766 4,478 507 431 (868) 5,314
----------------------------------------------------------------------------
Income (loss) before income tax provision (benefit) (766) (1,357) 459 (374) 868 (1,170)
INCOME TAX PROVISION (BENEFIT) -- (591) 338 (151) -- (404)
----------------------------------------------------------------------------
NET INCOME (LOSS) (766) (766) 121 (223) 868 (766)
Retained earnings (deficit), beginning of period (76,338) 8,494 12,931 6,818 (28,243) (76,338)
Repurchase and retirement of stock (280) -- (1,258) -- 1,258 (280)
----------------------------------------------------------------------------
Retained earnings (deficit), end of period $(77,384) $ 7,728 $11,794 $6,595 $(26,117) $(77,384)
============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Month Period Ended March 31, 1997
----------------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary Consoli-
(Parent Horticulture (Subsidiary Non- Elimi- dated
Guarantor) (Issuer) Guarantor) Guarantor) nations Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES, NET $ -- $28,113 $17,223 $6,674 ($4,243) $ 47,767
COST OF GOODS SOLD -- 14,870 9,699 4,605 (4,243) 24,931
----------------------------------------------------------------------------
Gross Profit -- 13,243 7,524 2,069 -- 22,836
OPERATING EXPENSES -- 7,959 7,566 1,662 -- 17,187
----------------------------------------------------------------------------
Operating income -- 5,284 (42) 407 -- 5,649
----------------------------------------------------------------------------
OTHER EXPENSES:
Interest -- 4,796 172 270 -- 5,238
Interest - intercompany -- (181) 151 30 -- --
Other, net (280) 190 (200) 72 468 250
----------------------------------------------------------------------------
(280) 4,805 123 372 468 5,488
----------------------------------------------------------------------------
Income (loss) before income tax provision (benefit) 280 479 (165) 35 (468) 161
INCOME TAX PROVISION (BENEFIT) -- 199 (147) (171) -- (119)
----------------------------------------------------------------------------
NET INCOME (LOSS) 280 280 (18) 206 (468) 280
Retained earnings (deficit), beginning of period (76,410) 8,702 4,658 5,952 (19,312) (76,410)
Repurchase and retirement of stock -- -- -- -- -- --
----------------------------------------------------------------------------
Retained earnings (deficit), end of period $(76,130) $ 8,982 $ 4,640 $6,158 $(19,780) $(76,130)
============================================================================
</TABLE>
10
<PAGE>
Supplemental Condensed Consolidating Statements of Cash Flow
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Three Month Period Ended March 31, 1996
----------------------------------------------------------------------------------
Hines Sun Gro
Holdings Hines Sun Gro U.S. Canada
(Parent Horticulture (Subsidiary (Subsidiary Consolidated
Guarantor) (Issuer) Guarantor) Non-Guarantor) Eliminations Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ - $(16,555) $(5,613) $ 832 - $(21,336)
-------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (805) (231) (618) - (1,654)
-------------------------------------------------------------------------------
Net cash used in investing activities - (805) (231) (618) - (1,654)
-------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - 25,542 17,932 - - 43,474
Repayments on revolving line of credit - (8,773) (11,014) - - (19,787)
Intercompany advances (repayments) 280 (500) 184 36 - -
Repayments of long-term debt - (348) - (250) - (598)
Dividends received (paid) - 1,258 (1,258) - - -
Repurchase and retirement of stock (280) - - - - (280)
-------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities - 17,179 5,844 (214) - 22,809
-------------------------------------------------------------------------------
NET DECREASE IN CASH - (181) - - - (181)
CASH, beginning of period - 181 - - - 181
-------------------------------------------------------------------------------
CASH, end of period $ - $ - $ - $ - $ - $ -
===============================================================================
<CAPTION>
For the Three Month Period Ended March 31, 1997
----------------------------------------------------------------------------------
Hines Sun Gro
Holdings Hines Sun Gro U.S. Canada
(Parent Horticulture (Subsidiary (Subsidiary Consolidated
Guarantor) (Issuer) Guarantor) Non-Guarantor) Eliminations Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ - $(18,935) $(6,759) $ 744 (4) $(24,954)
-------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (1,277) (355) (720) - (2,352)
-------------------------------------------------------------------------------
Net cash used in investing activities - (1,277) (355) (720) - (2,352)
-------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - 30,846 15,894 - - 46,740
Repayments on revolving line of credit - (9,398) (10,172) - - (19,570)
Intercompany advances (repayments) - (1,372) 1,392 (20) - -
Repayments of long-term debt - (116) - - - (116)
Deferred financing costs - (379) - - - (379)
Issuance of preferred and common stock - - - (4) 4 -
-------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities - 19,581 7,114 (24) 4 26,675
-------------------------------------------------------------------------------
NET DECREASE IN CASH - (631) - - - (631)
CASH, beginning of period - 631 - - - 631
-------------------------------------------------------------------------------
CASH, end of period $ - $ - $ - $ - $ - $ -
===============================================================================
</TABLE>
11
<PAGE>
Item 2.
HINES HOLDINGS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's nursery business is highly seasonal in nature, with the
strong retail demand for lawn and garden products typically occurring in the
second quarter of the fiscal year. Accordingly, the Company expects to realize a
higher portion of its annual net sales and operating earnings during the second
quarter. 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. As a result of the seasonality of the
nursery business, management believes the first quarter results may not properly
reflect the current positive trends it believes are occurring in the nursery
business.
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.
Three Months Ended March 31, 1997 compared to Three Months Ended March 31, 1996.
Net Sales. Net sales of $47.8 million for the three months ended March 31,
1997 increased $7.4 million, or 18.3%, from net sales of $40.4 million for the
comparable period in 1996. The Company's sales of its nursery products increased
37.1%, reflecting $5.9 million of sales from the Iverson and Flynn nursery
acquisitions and increased sales volumes and prices from the other nursery
operations. The Iverson and Flynn nursery operations were acquired on August 30,
1996 and November 27, 1996, respectively. Excluding the acquisitions, sales from
the remaining core nursery operations increased 8.2% from the comparable period
in 1996. Net sales of peat moss and peat-based products remained virtually
unchanged from the comparable three month period. Sales from the professional
peat and mix business increased 1% from the comparable period in 1996 with
continued strong volume growth, particularly from the value added professional
mix business. On the retail peat and mix business, sales were slightly below the
prior period with continued pricing pressures.
Gross Profit. Gross profit of $22.8 million (47.8% of net sales) for the
three months ended March 31, 1997 increased $2.7 million, or 13.4%, from gross
profit of $20.1 million (49.7% of net sales) for the comparable period in 1996.
The increase was primarily attributable to the Iverson and Flynn nursery
acquisitions. The decrease in gross margin percentage is primarily due to lower
margins from these acquisitions as they are still in the process of being
integrated into the main nursery operations and, lower margins from the peat and
peat-based business due to continued pricing pressures and higher production
costs resulting from higher sales of products with lower margins.
12
<PAGE>
Operating Expenses. Operating expenses of $17.2 million (36.0% of net
sales) for the three months ended March 31, 1997 increased $1.3 million, or
8.2%, from $15.9 million (39.4% of net sales) for the comparable period in 1996.
The increase was primarily attributable to the Iverson and Flynn acquisitions.
Operating Income. Operating income of $5.6 million for the three months
ended March 31, 1997 increased $1.5 million, or 36.6%, from $4.1 million for the
comparable period in 1996, due to the higher sales from the Company's nursery
operations.
Interest Expense. Interest expense of $5.2 million for the three months
ended March 31, 1997 increased $0.1 million from $5.1 million for the comparable
period in 1996. The increase was attributable to higher borrowing levels under
the Company's revolving credit facility but was somewhat offset by lower
interest rates.
Net Income (loss). The net income of $0.3 million for the three months
ended March 31, 1997 increased by $1.1 million from a loss of $0.8 million for
the comparable period in 1996. The increase was primarily due to the higher
sales from the Company's nursery operations.
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 $75.0 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
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 downstream 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
$60 million to $75 million and to amend certain financial covenants on March 26,
1997. The Company had $18.8 million of unused borrowing capacity under its
revolving credit facility on April 30, 1997.
13
<PAGE>
The Company's capital expenditures totaled $2.4 million for the three month
period ended March 31, 1997. These capital expenditures consisted primarily of
vehicles, machinery equipment and the purchase of other nursery related
structures required to execute the 1997 expansion plans and capital expenditures
related to preparing peat bogs for harvest. The Company's capital expenditures
for fiscal 1997 are expected to be approximately $16.3 million, and will be used
for the acquisition of the land currently being leased at the Fallbrook nursery
location, capacity expansion at several of the nursery operations and other
maintenance expenditures. These capital expenditures will be funded from
operating cash flow and borrowings under the revolving credit facility.
The debt service costs associated with the borrowings under the Bank Credit
Agreement and the 11 3/4% Senior Subordinated Notes due 2005 of Hines
Horticulture (the "Notes") significantly increased the Company's liquidity
requirements. All borrowings under the Bank Credit Agreement, including term
loans made to Hines Horticulture and Sun Gro-Canada in an initial aggregate
principal amount of $25.0 million, will mature prior to the Notes. The Company's
remaining principal repayment schedule for the term loans under the Bank Credit
Agreement is $4.5 million, $5.0 million, $5.5 million and $6.5 million for the
years 1997 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 Agreement causing all amounts owing under the Bank Credit Agreement
to become immediately due and payable.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 Seventh Amendment to Credit Agreement dated March 26, 1997
27.1 Financial Data Schedule
14
<PAGE>
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Registrant during the
period covered by this Report.
Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HINES HOLDINGS, INC.
(Registrant)
By: /s/ Claudia M. Pieropan
--------------------------
Claudia M. Pieropan
Chief Financial Officer
Date: May 14, 1997
Claudia M. Pieropan is signing in the dual capacities as (i) principal
financial officer, and (ii) a duly authorized officer of the Company.
16
<PAGE>
EXHIBIT 4.1
HINES HORTICULTURE, INC.
SEVENTH AMENDMENT AND CONSENT
TO CREDIT AGREEMENT
This SEVENTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this
"AMENDMENT") is dated as of March 26, 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"), 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, that certain
Fourth Amendment dated as of August 28, 1996, that certain Fifth Amendment and
Consent dated as of November 14, 1996, and that certain Sixth Amendment dated as
of February 14, 1997 (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 $15,000,000 (from
$60,000,000 to $75,000,000), (ii) adjust certain of the financial covenants set
forth therein, and (iii) make certain other amendments as set forth below;
WHEREAS, Borrowers desire that Lenders consent to certain transactions
relating to certain real property assets of Borrowers; and
WHEREAS, subject to the terms and conditions of this Amendment, Lenders
are willing to agree to such amendments.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
<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
deleting the definitions of "Blooming Farm", "Blooming Farm Lease" and "Blooming
Farm Note" therefrom in their entirety and substituting the following therefor:
"'BLOOMING FARM' means, collectively, (a) approximately 295 acres
of real property located in Washington County, Oregon that is the subject of
Blooming Farm Lease No. 1 and (b) approximately 53 acres of real property
located in Washington County, Oregon that is the subject of Blooming Farm
Lease No. 2.
'BLOOMING FARM LEASE' means, collectively, Blooming Farm Lease No.
1 and Blooming Farm Lease No. 2.
'BLOOMING FARM LEASE NO. 1' means that certain Agricultural Lease
dated August 4, 1995, between BFI, as lessor, and Company, as lessee, as
amended by that certain First Amendment to Agricultural Lease dated as of
February 28, 1997, between BFI and Company.
'BLOOMING FARM LEASE NO. 2' means that certain Agricultural Lease
dated as of June 21, 1996, between BFI, as lessor and Company, as lessee.
'BLOOMING FARM NOTE' means, collectively, (a) that Promissory Note
dated as of August 4, 1995 in the original principal amount of $826,865.00,
issued by BFI to OGP and (b) that Promissory Note dated as of June 21, 1996
in the original principal amount of $151,050.00, issued by BFI to Company."
B. Subsection 1.1 of the Credit Agreement is hereby 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 plus
----
(ii) the lesser of (a) fifty percent (50%) of Eligible Inventory
of Company 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 delivered to Agent) at such date of determination, equals
$40,000,000 (it being understood that the amount calculated pursuant to
this clause (ii) and the amount calculated
2
<PAGE>
pursuant to clause (ii) of the definition of Sun Gro Borrowing Base
shall not at any time exceed $40,000,000), 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;
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 (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 (i) deleting the reference to ", FRN" appearing after the word "Company"
appearing in the first line of the definition of "Eligible Accounts Receivable",
and (ii) by adding after the reference to "$10,000,000" appearing in the second
line of clause (b) of the definition of "Eligible Accounts Receivable" the
phrase "(or, during the period commencing on January 1 of any year and ending on
April 30 of such year, up to $15,000,000)."
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, 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, the Inventory Scrap Reserve."
E. Subsection 1.1 of the Credit Agreement is hereby further amended
by adding the following immediately after the definition of "Term Notes":
"'TITLE POLICY' means an ALTA mortgagee title insurance policy
issued by a title insurer reasonably satisfactory to Agent, in an amount
reasonably satisfactory to Agent, assuring Agent that the applicable
Mortgage creates a valid and enforceable first priority mortgage lien (or
such other priority lien as may be specified in such Mortgage) on the
applicable Real Property Asset, free and clear of all defects and
encumbrances except Permitted Encumbrances and subject to a standard survey
exception, which title insurance policy shall be in form and substance
reasonably satisfactory to Agent and shall include an endorsement for
mechanics' liens, for future advances under this Agreement, the Notes and
the other Loan Documents, and for any other matters that Agent may
reasonably request, and shall provide for affirmative insurance and such
reinsurance as Agent may reasonably request, all of the foregoing in form
and substance reasonably satisfactory to Agent."
3
<PAGE>
F. Subsection 1.1 of the Credit Agreement is hereby further amended by
deleting the phrase "or FRN" appearing after each reference to "Company"
appearing in the definition of "Inventory Scrap Reserve" and deleting the phrase
"or FRN's" appearing after the reference to "Company's" appearing in such
definition.
G. Subsection 1.1 of the Credit Agreement is hereby further amended
by deleting the two references to "$38,000,000" appearing in the term "Sun Gro
Borrowing Base" and substituting therefor "$40,000,000" for each such reference.
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 "$60,000,000" contained therein and substituting
"$75,000,000" therefor.
1.3 AMENDMENTS TO SECTION 5: REPRESENTATIONS AND WARRANTIES
--------------------------------------------------------
Section 5 of the Credit Agreement is hereby amended by adding thereto
at the end thereof the following:
"5.19 CERTAIN MERGERS.
The merger of FRN, Inc. into FRN, with FRN being the surviving
corporation, has become effective prior to March 26, 1997, and as a
result of such merger, FRN, as the surviving corporation of such
merger, by operation of law (with no further action required),
succeeded to all of the rights, assets, properties, obligations and
liabilities of FRN, Inc. as of the effective date of such merger. The
merger of FRN into FN, with FN being the surviving corporation, has
become effective prior to March 26, 1997 (and after the effectiveness
of the merger described in the preceding sentence) and as a result of
such merger, FN, as the surviving corporation of such merger, by
operation of law (with no further action required), succeeded to all of
the rights, assets, properties, obligations and liabilities of FRN as
of the effective date of such merger. The merger of FN into Company,
with Company being the surviving corporation, has become effective
prior to March 26, 1997 (and after the effectiveness of the two mergers
described in the two preceding sentences) and as a result of such
merger, Company, as the surviving corporation of such merger, by
operation of law (with no further action required), succeeded to all of
the rights, assets, properties, obligations and liabilities of FN as of
the effective date of such merger. The consummation of the three
mergers described above does not adversely affect the water rights of
the Loan Parties."
4
<PAGE>
1.4 AMENDMENT TO SUBSECTION 7.1: INDEBTEDNESS.
------------------------------------------
Subsection 7.1 of the Credit Agreement is hereby amended by adding at
the end thereof the following:
"Notwithstanding any of the foregoing, Borrower shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume or guaranty, or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness (other
than Indebtedness under the Loan Documents) if Company or such
Subsidiary could not incur such Indebtedness under the Takeout
Securities Indenture but for clause (xi) of the term "Permitted
Indebtedness" as defined in such indenture."
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>
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 1.35:1.00
1st Fiscal Quarter, 1997 1.25:1.00
2nd Fiscal Quarter, 1997 1.35:1.00
3rd Fiscal Quarter, 1997 1.35:1.00
4th Fiscal Quarter, 1997 1.45:1.00
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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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:
<TABLE>
<CAPTION>
"PERIOD MAXIMUM LEVERAGE RATIO
----------------------------- ---------------------------
<S> <C>
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 6.75:1.00
1st Fiscal Quarter, 1997 8.35:1.00
2nd Fiscal Quarter, 1997 6.50:1.00
3rd Fiscal Quarter, 1997 6.30:1.00
4th Fiscal Quarter, 1997 6.20:1.00
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>
6
<PAGE>
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:
<TABLE>
<CAPTION>
MINIMUM CONSOLIDATED
"PERIOD ADJUSTED EBITDA
-------------------------- -------------------------
<S> <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 $27,750,000
1st Fiscal Quarter, 1997 $26,000,000
2nd Fiscal Quarter, 1997 $29,000,000
3rd Fiscal Quarter, 1997 $29,750,000
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 by deleting
the reference to "FN" appearing in clause (v) thereof and substituting therefor
the word "Company."
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 Blooming Farm Exchange Documents or the Allendale Contract (each as
defined in the
7
<PAGE>
Seventh Amendment to this Agreement) in each case as in effect on the
effectiveness date of the Seventh Amendment to this Agreement."
1.8 SUBSTITUTION AND AMENDMENT OF SCHEDULES
---------------------------------------
A. SCHEDULES TO CREDIT AGREEMENT. Schedule 2.1 to the Credit
------------
Agreement is hereby amended by deleting said Schedule 2.1 in its entirety and
------------
substituting in place thereof new Schedule 2.1 in the form of Annex A to this
------------ -------
Amendment. Schedule 4.1C to the Credit Agreement is hereby amended by (i)
deleting therefrom the name and share information relating to Robert Grayman,
(ii) deleting "Robert Systems" therefrom and substituting therefor "Robert
Systma," and (iii) deleting therefrom the following:
"Company Name: Flynn Nurseries, Inc.
Jurisdiction of
Incorporation: California
Authorized Shares: 5,000,000
Issued Shares: 483,400
Owner: Hines Horticulture, Inc.
Company Name: Flynn Rainbow Nurseries, Inc.
Jurisdiction of
Incorporation: Hawaii
Authorized Shares: 1,000
Issued Shares: 1,000
Owner: Flynn Nurseries, Inc.
Company Name: FRN, Inc.
Jurisdiction of
Incorporation: California
Authorized Shares: 1,000
Issued Shares: 1,000
Owner: Flynn Rainbow Nurseries, Inc."
Schedule 5.5 to the Credit Agreement is hereby amended by adding thereto
additional information in the form of Annex A to this Agreement and by deleting
therefrom information in the form of Annex A to this Agreement:
B. SCHEDULES TO COMPANY SECURITY AGREEMENT. Schedules I, II and III
to the Company Security Agreement are hereby amended by adding thereto
additional information in the form of Annex B to this Amendment.
-------
C. SCHEDULE TO COMPANY TRADEMARK SECURITY AGREEMENT. Schedule A to
the Company Trademark Security Agreement is hereby amended by adding thereto
additional information in the form of Annex C to this Amendment.
-------
8
<PAGE>
1.9 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 "$60,000,000" and
substituting "$75,000,000" therefor. Exhibit VIII to the Credit Agreement is
------------
hereby amended by 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
------- ------------ -----
D to this Amendment.
- -
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, if any, 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).
SECTION 3. CONSENT
A. Subject to the terms and conditions set forth herein and in
reliance on the representations and warranties of Loan Parties contained herein,
Lenders hereby:
1. consent to the like-kind exchange of real property located in
Washington County, Oregon between BFI and Company as contemplated by the
following documents (collectively, the "BLOOMING FARM EXCHANGE DOCUMENTS"): (i)
Like-Kind Exchange Agreement dated as of February 28, 1997, between Company and
BFI; (ii) Warranty Deed dated as of February 28, 1997, from Company, as grantor,
to BFI, as grantee; (iii) Bill of Sale dated as of February 28, 1997, from
Company, as grantor, to BFI, as grantee; (iv) Warranty Deed dated as of February
28, 1997, from BFI, as grantor to Company, as grantee; (v) Bill of Sale dated as
of February 28, 1997, from BFI, as grantor to Company, as grantee; (vi) First
Amendment to Agricultural Lease dated as of February 28, 1997, between BFI, as
lessor and Company, as lessee; (vii) Request for Partial Reconveyance dated as
of February 28, 1997 by Company, as beneficiary; (viii) Second Amendment to Line
of Credit Trust Deed, Assignment of Rents, Security Agreement and Fixture Filing
(Oregon) dated as of February 28, 1997 between Agent, as beneficiary and
Company, as grantor; (ix) Request for Partial Reconveyance dated as of February
28, 1997
9
<PAGE>
by Agent, as beneficiary; (x) Amendment to Deed of Trust dated as of February
28, 1997 between Company, as beneficiary, and BFI, as grantor; (xi) Second
Amendment to Pledge and Collateral Assignment dated as of February 28, between
Agent, as secured party, and Company, as grantor; and (xii) First Amendment to
Line of Credit Trust Deed, Assignment of Rents, Security Agreement and Fixture
Filing (Oregon) dated as of February 28, 1997 between Agent, as beneficiary, and
Company, as grantor.
2. acknowledge that, pursuant to that certain Agreement for Purchase
and Sale of Real Property and Escrow Instructions dated July 5, 1995, between M.
Kirsch, as seller ("KIRSCH") and Hines Nurseries Inc. (predecessor in interest
to Company), as buyer, as amended by that certain First Amendment to Agreement
for Purchase and Sale of Real Property and Escrow Instructions dated May, 1996
(as amended, the "ALLENDALE CONTRACT"), Company is required to grant back to
Kirsch a 55-acre parcel (the "RECONVEYANCE PARCEL") when the Reconveyance Parcel
has been legally subdivided pursuant to applicable law. Lenders hereby consent
to the transfer of the Reconveyance Parcel and agree to execute a request for
partial reconveyance authorizing and requesting the trustee to release the
Reconveyance Parcel from the lien of that certain Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing (California) dated as of December
9, 1996, from Company, as trustor, to Agent, as beneficiary, and recorded in the
Official Records of Solano County, California on March 17, 1997.
B. 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 Blooming Farm Exchange Documents
and the Reconveyance Parcel 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
Blooming Farm Exchange Documents, the Reconveyance Parcel 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.
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.
10
<PAGE>
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 "SEVENTH
AMENDMENT EFFECTIVE DATE"):
A. On or before the Seventh 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 Seventh 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
Seventh 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;
b. The Bylaws of Holdings or such Borrower have not been
amended, modified or otherwise changed since the Closing Date; and
c. The signature and incumbency certificates of officers of
Holdings and each Borrower delivered in connection with the Fifth
Amendment and attached to such Certificate being delivered pursuant to
this Section 4.A.1. correctly reflects, as of the Seventh Amendment
Effective Date, the signature and incumbency of each officer of
Holdings and each Borrower listed therein and of each officer of
Holdings and each Borrower executing this Amendment and each of the
Loan Documents (including without limitation the Mortgage Modifications
and the Allonges) entered into on or about the Seventh Amendment
Effective Date.
2. A good standing certificate of Holdings and each Borrower
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 Seventh Amendment Effective Date;
3. Resolutions of Board of Directors of each of Holdings and
each Borrower approving and authorizing the execution, delivery, and
performance of this Amendment, each of the other Loan Documents entered into
on or about the Seventh Amendment Effective Date (including without
limitation the Mortgage Modifications) and, in the case of Company and Sun
Gro, approving and authorizing the execution, delivery and payment of each
Allonge to Revolving Note, substantially in the form of Annex E to this
-------
Amendment (collectively, the "ALLONGES"), certified as of the Seventh
Amendment Effective Date by the applicable Loan Party's corporate
11
<PAGE>
secretary or an assistant secretary as being in full force and effect
without modification or amendment;
4. To the extent that the Certificate being delivered pursuant
to Section 4.A.1.c. hereto does not certify as to the signature and
incumbency of officers of Holdings or any Borrower, signature and incumbency
certificates of officers of Holdings and/or such Borrower executing this
Amendment and each of the other Loan Documents (including without limitation
the Mortgage Modifications and the Allonges) entered into on or about the
Seventh Amendment Effective Date;
5. Copies of this Amendment executed by Holdings and each
Borrower and each Lender, and the Allonges, each executed by Company and Sun
Gro, drawn to the order of each Domestic Lender;
6. Delivery to Agent of Uniform Commercial Code financing
statement amendments with respect to Uniform Commercial Code financing
statements that were filed as to the Collateral of FN, FRN or FRN, Inc.;
7. If required by Agent, delivery to Agent of any cover sheets,
if required, for filing with the United States Patent and Trademark Office
in connection with any IP Collateral Documents of FN, FRN or FRN, Inc.;
8. A Borrowing Base Certificate substantially in the form of
Annex D annexed hereto, prepared as of a recent date prior to the Seventh
-------
Amendment Effective Date;
9. 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 Seventh
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 (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 (including without limitation each of the agreements in
subsections 6.10, 6.12 and 6.14 of the Credit Agreement) 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
Seventh Amendment Effective Date except as otherwise disclosed to and agreed
to in writing by Agent.
10. Fully-executed and notarized (where applicable) copies of all
of the Blooming Farm Exchange Documents, recorded in the official records of
Washington County, Oregon (where applicable) in the order listed in Section
3.A. above.
12
<PAGE>
11. In connection with the Blooming Farm Exchange Documents,
Title Policies insuring Agent's interest in the trust deeds securing the
Real Property Assets that are the subject of the Blooming Farm Exchange
Documents.
12. In connection with the increase in the Revolving Loan
Commitments, a fully executed and notarized modification, in form and
substance satisfactory to Agent (collectively, the "MORTGAGE
MODIFICATIONS"), to (a) each of the Initial Mortgages, (b) each of the
Additional Mortgages that have been executed by any of the Borrowers or
their Subsidiaries on or before the date hereof, (c) the Pledge and
Collateral Consent Assignment dated as of October 2, 1995, executed by
Company in favor of Agent (the "FIRST PLEDGE") and (d) the Pledge and
Collateral Consent Assignment dated as of November 14, 1996, executed by
Company in favor of Agent (the "SECOND PLEDGE").
13. In connection with the increase in the Revolving Loan
Commitments, CLTA Endorsements 110.5 (or the applicable equivalent in use in
states where Real Property Assets are located), to each of the Initial
Mortgage Policies, the Additional Mortgage Policies and any other Title
Policy showing Agent as the insured party (collectively, the "TITLE
ENDORSEMENTS"), dated as of the date of recording the date of the applicable
Mortgage Modification and assuring Agent that the Initial Mortgages, the
Additional Mortgages and the trust deeds that are the subject of the First
Pledge and the Second Pledge remain valid and enforceable first priority
mortgage liens on the respective Real Property Assets, 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 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 Initial Mortgages, the Additional Mortgages and
the trust deeds that are the subject of the First Pledge and the Second
Pledge, as modified by the applicable Mortgage Modifications, are valid and
enforceable first priority mortgage liens on the respective Real Property
Assets, free and clear of all defects and encumbrances except Permitted
Encumbrances. In addition, the Initial Mortgage Policies, the Additional
Mortgage Policies and any other Title 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.
14. Delivery to Agent of the following: (i) an executed
Agreement and Plan of Merger dated as of December 27, 1996 between FRN and
FRN, Inc., certified by the Secretary of State of the State of California a
certified copy of the Articles of Merger, with Certificate of Merger
attached thereto, dated as of
13
<PAGE>
December 27, 1996 between FRN and FRN, Inc. certified by the Secretary of
State of the State of Hawaii, (ii) an executed Agreement and Plan of Merger
dated as of December 27, 1996 between FN and FRN, certified by the Secretary
of State of the State of California a certified copy of the Articles of
Merger, with Certificate of Merger attached thereto, dated as of December
27, 1996 between FRN and FRN, Inc. certified by the Secretary of State of
the State of Hawaii, and (iii) an executed Agreement and Plan of Merger
dated as of December 27, 1996 between FN and Company, certified by the
Secretary of State of the State of California.
B. On or before the Seventh 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 Morris,
Rutan & Tucker and Baker, Manock & Jensen in each case counsel to Loan Parties,
in form and substance reasonably satisfactory to Agent and its counsel, dated as
of the Seventh Amendment Effective Date, substantially in the form set forth in
Annex F, Annex G, Annex H and Annex I hereto, respectively, and as to such other
- ------- ------- ------- -------
matters as Agent acting on behalf of Lenders may reasonably request, (ii) if
requested by Lenders, originally executed copies of favorable written opinions
of Rutan & Tucker, Davis Wright Tremaine, Thompson & Knight, Clark Klein &
Beaumont and Nelson Mullins Riley & Scarborough, L.L.P., in each case local
counsel to Loan Parties, in form and substance reasonably satisfactory to Agent
and its counsel, dated as of the Seventh Amendment Effective Date, substantially
in the form set forth in Annex J, and (iii) originally executed copies of a
-------
written opinion of Canadian counsel to Loan Parties in form and substance
reasonably satisfactory to Agent and its counsel.
C. Agent and each Lender shall have received the fees payable by
Company on the Seventh Amendment Effective Date in such amounts as have been
separately agreed upon.
D. On or before the Seventh Amendment Effective Date, all corporate
and other proceedings taken or to be taken in connection with this Amendment 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. 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 and BFI
has all requisite corporate power and authority to enter into this Amendment and
each of the
14
<PAGE>
other Loan Documents entered into as of the date hereof (including without
limitation the Allonges and the Mortgage Modifications) and each of the Blooming
Farm Exchange Documents, and to carry out the transactions contemplated by, and
perform its obligations under, the Credit Agreement as amended by this Amendment
(the "AMENDED AGREEMENT") and such other Loan Documents and each of the Blooming
Farm Exchange Documents.
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and each of the other Loan Documents entered into as of the date
hereof (including without limitation the Allonges and the Mortgage
Modifications) and each of the Blooming Farm Exchange Documents, the performance
of the Amended Agreement and such other Loan Documents and each of the Blooming
Farm Exchange Documents, 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 and BFI.
C. NO CONFLICT. The execution and delivery by each Loan Party
hereto and BFI of this Amendment and each of the other Loan Documents entered
into as of the date hereof (including without limitation the Allonges and the
Mortgage Modifications) and each of the Blooming Farm Exchange Documents, the
performance by each Loan Party hereto and BFI of the Amended Agreement and such
other Loan Documents and each of the Blooming Farm Exchange Documents, 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 or BFI, the Certificate or
Articles of Incorporation or Bylaws of Holdings or any of its Subsidiaries or
BFI or any order, judgment or decree of any court or other agency of government
binding on Holdings or any of its Subsidiaries or BFI, (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
or BFI, (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 or BFI
(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 or BFI, except for such approvals or consents which
have been obtained on or before the Seventh Amendment Effective Date and
disclosed in writing to Lenders.
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Loan
Parties hereto and BFI of this Amendment and each of the other Loan Documents
entered into as of the date hereof (including without limitation the Allonges
and the Mortgage Modifications) and each of the Blooming Farm Exchange
Documents, the performance by the Loan Parties party hereto and BFI of the
Amended Agreement and such other Loan Documents and each of the Blooming Farm
Exchange Documents 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
15
<PAGE>
actions which have been made, obtained, given or taken on or before the Seventh
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 (including without limitation the
Allonges and the Mortgage Modifications) and each of the Blooming Farm Exchange
Documents, have been duly executed and delivered by each Loan Party hereto and
BFI, and each of this Amendment and such other Loan Documents, the Amended
Agreement and the Amended Notes and each of the Blooming Farm Exchange Documents
are the legally valid and binding obligations of each Loan Party thereto and BFI
to the extent it is a party thereto, enforceable against such Loan Party or BFI,
as applicable, 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, whether incurred before, on or
after the Seventh Amendment Effective Date, within the definitions of "Senior
Debt" and "Designated Senior Debt" included in such provisions.
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 Seventh 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. After giving effect to this Amendment, 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 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
16
<PAGE>
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 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 to which it is a party or
otherwise bound are true, correct and complete in all material respects on and
as of the Seventh 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
17
<PAGE>
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 Seventh 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
18
<PAGE>
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 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]
19
<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: ____________________________
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 6 only) as a Credit
Support Party
By: _______________________________
Title: ____________________________
S-1
<PAGE>
LENDERS:
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: ____________________________
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: ____________________________
S-2
<PAGE>
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: ____________________________
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 47,567
<ALLOWANCES> 1,082
<INVENTORY> 101,799
<CURRENT-ASSETS> 150,854
<PP&E> 98,353
<DEPRECIATION> 15,647
<TOTAL-ASSETS> 265,246
<CURRENT-LIABILITIES> 122,045
<BONDS> 152,670
56,575
0
<COMMON> 102
<OTHER-SE> (72,093)
<TOTAL-LIABILITY-AND-EQUITY> 265,246
<SALES> 47,767
<TOTAL-REVENUES> 47,767
<CGS> 24,931
<TOTAL-COSTS> 17,187
<OTHER-EXPENSES> 5,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,238
<INCOME-PRETAX> 161
<INCOME-TAX> (119)
<INCOME-CONTINUING> 280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
