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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, 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
incorporation or organization) Identification No.)
12621 Jeffrey Road
Irvine, California 92620
(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 24, 1998, there were 10,492,014 shares of Common Stock of Hines
Holdings, Inc., par value $.01 per share, outstanding and 20,847,986 shares of
12% Cumulative Redeemable Junior Preferred Stock of Hines Holdings, Inc., par
value $.01 per share, outstanding. As of such date, persons other than
affiliates and employees of the registrant held none of such shares, and there
was no public market for such shares.
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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: (i)
its nursery division, Hines Nurseries ("Hines"), which conducts its operations
through the Company's wholly-owned subsidiaries, Hines Horticulture, Inc.
("Hines Horticulture") and Hines II, Inc. ("Hines II"), and (ii) its plant-
growing media division ("Sun Gro"), which conducts its operations through Sun
Gro Horticulture, Inc., a wholly-owned subsidiary of Hines Horticulture ("Sun
Gro-U.S."), and Sun Gro Horticulture Canada Ltd., a wholly-owned subsidiary of
Sun Gro-U.S. ("Sun Gro-Canada").
Hines is the largest North American producer of ornamental container and
field grown plants in the market. Hines has a leading share in the highly
fragmented North American nursery products market. Sun Gro is one of the largest
North American producers 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
James W. Hines, Sr. in San Gabriel, California, founded Hines in 1920.
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 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
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United States. Since its acquisition, Iverson has provided 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 has resulted in significant cost and market synergies as Flynn has
been integrated into the business of Hines.
On October 7, 1997, Hines II was incorporated in Delaware as a wholly owned
subsidiary of the Company. On October 20, 1997, Hines II acquired substantially
all of the assets of Pacific Color Nurseries, Inc., a color-bedding grower
located in Chowchilla and Madera, California ("Pacific Color"), for $1.7 million
in cash.
On December 16, 1997, Hines II purchased all of the outstanding shares of
Bryfogle's Wholesale, Inc., Bryfogle's Power Plants, and Power Plants II, Inc.
(collectively "Bryfogle's"), a color-bedding grower located in Danville,
Pennsylvania, for $13.0 million in cash, the issuance of a $1.0 million
convertible subordinated promissory note of Holdings, and the retirement of
approximately $3.8 million of debt.
On March 25, 1998, subsequent to the period covered by this Report, 763427
Alberta Ltd., a recently formed Alberta corporation which is an indirect,
wholly-owned subsidiary of Hines II, entered into a definitive stock purchase
agreement with the shareholders of Lakeland Peat Moss, Ltd. to purchase all of
the issued and outstanding shares of capital stock of Lakeland Peat Moss, Ltd.
for approximately Cdn. $28.4 million (approximately $20.0 million U.S.). The
closing of the transaction is subject to customary closing conditions and the
receipt of certain Canadian regulatory approvals. If these conditions are
satisfied, the closing is expected to occur no later than May 31, 1998.
Business Overview
Hines produces approximately 4,000 varieties of ornamental container-grown
plants at eight nursery facilities located in Southern California, Northern
California, Texas, Oregon, Pennsylvania 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 1997, Hines generated approximately 87%
of its revenue from sales of products to retail merchandisers. The remaining 13%
were generated from commercial customers such as rewholesalers and professional
landscapers. Most of Hines' products are sold under the Hines
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Nurseries(TM) trade name. Hines generated approximately 63% of the Company's
consolidated revenue in 1997 and approximately 56% of the Company's consolidated
revenue in 1996.
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, while expanding
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 plans 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 debt agreements, the Company intends to
pursue selective acquisitions, where such acquisitions provide the Company with
the opportunity to broaden or complement its product lines, broaden its
geographic base, or to economically expand production capacity.
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
1997, Sun Gro generated approximately 74% of its sales from the professional
market, which includes greenhouse growers, nursery growers and golf course
developers. The remaining 26% was generated from the retail market through sales
to customers similar to those of Hines. Sun Gro generated approximately 37% of
the Company's consolidated revenue in 1997 and approximately 44% of the
Company's consolidated revenue in 1996. Sun Gro's products are sold under the
Sunshine(TM), Parkland(TM) and Fairway(TM) trade names.
Key to Sun Gro's business strategy will be a focus towards providing value-
added products and services to its commercial customers and internal efficiency
improvements, such as reducing production costs and transportation and logistics
costs. Sun Gro plans to supplement its existing product lines through the
introduction of new peat-based mixes utilizing other high quality growing media
substances. Sun Gro also plans 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) trade name. 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 re-flower annually)
such as daylilies and carnations;
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. Conifers, including varieties such as pine, cypress and junipers; and
. Specialty plants, including varieties 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 successfully developed patio-ready type 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.
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 1997 1996 1995
------------- ---- ---- ----
<S> <C> <C> <C>
Home centers and mass merchandisers.. 59% 52% 48%
Independent garden centers........... 18 21 22
Garden center chains................. 11 11 12
Rewholesalers........................ 9 13 14
Landscapers and Other................ 3 3 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 58% of its net sales in 1997. Hines'
largest customer, Home Depot, accounted for approximately 18% and 15% of its net
sales in 1997 and 1996, respectively, and approximately 12% and 10% of the
Company's consolidated net sales in 1997 and 1996, respectively.
Research and Development. Hines' product sourcing and development yields
unique plant varieties, which are marketed under a trade name 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
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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. Most of Hines nursery facilities have a separate sales
force, which includes a sales manager, in-house customer service
representatives, direct sales consultants and various support personnel. Hines
employs 83 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.
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 1997. Management
believes Hines is one of only two growers able to serve every major regional
market in North America; the Company's only national competitor being Monrovia
Nursery Company. In each of its markets, Hines competes 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
Both professional growers and experienced retail consumers regard sphagnum
peat moss 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 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.
Sun Gro sells peat moss under its Sunshine(TM), Parkland(TM) and Fairway(TM)
trade names 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.
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
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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 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 1997 1996 1995
------------- ---- ---- ----
<S> <C> <C> <C>
Professional:
Greenhouse growers and vegetable farmers.. 57% 61% 59%
International/others...................... 11 10 8
Golf course developers.................... 6 5 6
--- --- ---
Total Professional..................... 74 76 73
--- --- ---
Retail:
Home centers and mass merchandisers....... 18% 16% 18%
Independent garden centers................ 5 5 6
Garden center chains...................... 3 3 3
--- --- ---
Total Retail........................... 26 24 27
--- --- ---
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 28% of its net sales in 1997. No single Sun Gro customer accounted
for more than 10% of the Company's consolidated revenues in 1997.
Research and Development. 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
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believes provides Sun Gro with a significant competitive advantage. Sun Gro 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.
Sales and Marketing. Sun Gro sells its products on a direct basis and
through a network of approximately 200 distributors located throughout North
America. There are 31 employees on Sun Gro's direct sales force. Sun Gro's sales
force is highly trained in the technical applications of its products.
Approximately 60% of Sun Gro's sales are conducted through the distributor
network. Sun Gro's distributor network provides broad market coverage, reduces
credit exposure and distributes products to smaller growers cost effectively.
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 is
one of the largest producer and marketer of plant-growing media 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 20 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, 1997:
<TABLE>
<CAPTION>
Percentage of Total
Quarter Year Net Sales
------- -------------------
<S> <C>
First Quarter 24%
Second Quarter 47
Third Quarter 15
Fourth Quarter 14
---
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 23 patents with 2
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 EPA and similar state and local agencies
regulate the Company's operations and activities, including but not limited to
water runoff and the use of certain pesticides in its nursery operations. 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, 1997, the Company employed approximately 2,521 persons,
including approximately 460 seasonal employees. Of this total, approximately
1,991 were employed by Hines, including approximately 260 seasonal employees
(seasonal employment peaked at 1,345 in April), and approximately 530 were
employed by Sun Gro, including approximately 200 seasonal employees (its peak
seasonal employment). Approximately 400 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 135
employees at its Manitoba facility, expires in May 1999. Its agreements with the
Brotherhood of Carpenters and Joiners of America, which cover 79 employees at
Sun Gro's Lameque, New Brunswick facility and 61 employees at its
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Maisonnette, New Brunswick facility, expire in December 2000 and August 1998,
respectively. The Company's management believes its labor relations are good.
Year 2000 Compliance
The Company has completed its review of the compliance issues related to the
Year 2000 and has implemented and successfully tested the changes to its
operational and financial reporting systems it believes are required. There can
be no assurance, however, until the year 2000 that all of the Company's systems
and the systems of its suppliers, shippers, customers and other external
business partners will function adequately. If the systems of the Company's
suppliers, customers and other external business partners are not compliant, it
could have a material adverse effect on the Company. The amount spent to
remediate the Company's Year 2000 issues was approximately $200,000 during the
year ended December 31, 1997.
ITEM 2. PROPERTIES.
The Company owns approximately 2,548 acres related to its nursery facilities
and approximately 1,100 acres of harvestable peat bogs in Canada. In addition,
the Company leases approximately 979 acres related to its nursery facilities and
approximately 26,231 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
Chowchilla, California...... 19 acre nursery Owned/leased (b)
Danville, Pennsylvania...... 141 acre nursery Leased
Fallbrook, California....... 253 acre nursery Leased
Forest Grove, Oregon........ 1,104 acre nursery Owned/leased (c)
Fulshear, Texas............. 450 acre nursery Owned
Irvine, California.......... 454 acre nursery and headquarters Leased
Lake Elsinore, California... 85 acres of undeveloped land Leased
Madera, California.......... 29 acre nursery Owned
Northern California (a)..... 501 acre nursery Owned
Trenton, South Carolina..... 572 acre nursery Owned/leased (d)
Sun Gro
Seba Beach, Alberta......... 53,000 square foot processing and mixing Owned/leased (e)
facility and 3,982 acres of peat bogs
Elma, Manitoba.............. 73,700 square foot processing and mixing Owned/leased (e)
facility and 16,977 acres of peat bogs
Julius, Manitoba............ 39,000 square foot processing facility and Owned/leased (e)
1,801 acres of peat bogs
</TABLE>
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<TABLE>
<S> <C> <C>
Lameque, New Brunswick...... 50,400 square foot processing and mixing Owned/leased (e)
facility and 3,571 acres of peat bogs
Maisonnette, New Brunswick.. 47,900 square foot processing facility bogs Owned/leased (e)
and 1,000 acres of peat bogs
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
Montreal, Quebec............ 33,000 square foot depot/storage yard Owned
Bellevue, Washington........ 10,000 square foot office (headquarters) Leased
</TABLE>
(a) The Northern California nursery consists of sites in Vacaville and
Allendale, California.
(b) The Company owns 9 acres and leases 10 acres.
(c) The Company owns 745 acres and leases 361 acres.
(d) The Company owns 512 acres and leases 60 acres.
(e) These peat processing facilities are owned by the Company but are situated
on land owned by and leased to the Company under long-term contracts by 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 disputes and litigation
matters, which arise in the ordinary course of business. The litigation process
is inherently uncertain and it is possible that the resolution of these disputes
and lawsuits may adversely affect the Company. Management believes, however,
that the ultimate resolution of such matters will not have a material adverse
impact on the Company's consolidated financial position or results of
operations.
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 1997.
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 24, 1998, there were 47 holders of Common Stock. Since
the Acquisition, 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 agreements and subordinated note indenture.
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Recent Sales Of Unregistered Securities
On October 20, 1997, in a transaction exempt from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), Holdings
issued to MDCP a 12% Demand Note in the aggregate principal amount of $2,500,000
(the "Demand Note") for $2,500,000 in cash.
On December 15, 1997, in a transaction exempt from registration under rule 505
of Regulation D of the Securities Act, Holdings issued and sold 77,280 shares of
Common Stock and 162,720 shares of its 12% Cumulative Redeemable Junior
Preferred Stock, par value $.01 per share (the "Junior Preferred"), to three
management employees of Sun Gro-U.S. The management employees paid the purchase
price for such shares through the issuance of full-recourse promissory notes in
favor of Holdings in an aggregate amount of $240,000, due in three equal
installments on March 31 of each of 1998, 1999 and 2000.
On December 16, 1997, in a transaction exempt from registration under Section
4(2) of the Securities Act, Holdings issued a Convertible Subordinated
Promissory Note with an initial aggregate principal amount of $1,000,000 (the
"Note") to Kenneth G. Bryfogle as partial consideration of the Company's
acquisition of Bryfogle's on such date. The Note bears interest at 6%, is due on
the eighth anniversary of its issue date, and may be optionally prepaid by
Holdings without premium or penalty upon the occurrence of an initial public
offering of Common Stock or sale of the Company. Upon and at any time after the
occurrence of an initial public offering of Common Stock, the holder may convert
all (but not less than all) of the principal amount outstanding under the Note
into shares of Common Stock at the offering price of the Common Stock in such
offering (net of any sales or underwriting commissions).
On December 16, 1997, in a transaction exempt from registration under Section
4(2) of the Securities Act, Holdings issued and sold to MDCP, for an aggregate
consideration of $1,000,000 in cash and $2,500,000 of outstanding indebtedness
under the Demand Note, (i) 3,500 shares of its 12% Cumulative Redeemable Senior
Preferred Stock, par value $.01 per share (the "Senior Preferred"), at a price
of $970.21 per share, and (ii) presently exercisable warrants to purchase
104,282 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.
On December 16, 1997, in a transaction exempt from registration under Section
4(2) of the Securities Act, Holdings issued and sold to Abbott Capital 1330
Investors I, LP, for an aggregate consideration of $6,000,000 in cash (i) 6,000
shares of Senior Preferred, at a price of $970.21 per share, and (ii) presently
exercisable warrants to purchase 178,769 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.
On February 5, 1998, Holdings issued to MDCP, on an arm's length basis, 2,000
shares of Senior Preferred, having an aggregate liquidation value of $2,000,000,
for $2,000,000 in cash.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical consolidated financial data for the years
ended December 31, 1993 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 years ended December 31, 1996 through December 31, 1997
have 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.
12
<PAGE>
<TABLE>
<CAPTION>
Hines Holdings, Inc.
Year Ended December 31,
------------------------------------------------------------
1997(a) 1996(b) 1995(c) 1994 1993(d)
----------- ----------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 201,256 $ 164,323 $ 156,909 $134,781 $ 85,006
Cost of goods sold 99,407 80,812 72,245 60,827 40,457
----------- ----------- ---------- -------- --------
Gross profit 101,849 83,511 84,664 73,954 44,549
Operating expenses:
Selling and distribution expenses 50,233 43,308 39,904 36,789 21,097
General and administrative expenses 20,403 18,239 17,467 13,102 9,465
Management fees to related parties(e) -- -- 789 919 617
Other operating expenses (income)(f) (228) (790) 232 (536) 273
Unusual expenses(g) 343 830 -- -- --
----------- ----------- ---------- -------- --------
Total operating expenses 70,751 61,587 58,392 50,274 31,452
----------- ----------- ---------- -------- --------
Operating income 31,098 21,924 26,272 23,680 13,097
----------- ----------- ---------- -------- --------
Other expenses (income):
Interest expense 20,708 20,140 13,274 7,555 6,014
Amortization of deferred financing costs 1,097 940 4,557 1,069 1,079
Other expenses (income)(h) -- -- -- 798 (225)
----------- ----------- ---------- -------- --------
Total other expenses (income) 21,805 21,080 17,831 9,422 6,868
----------- ----------- ---------- -------- --------
Income before provision for income taxes 9,293 844 8,441 14,258 6,229
Provision for income taxes 3,516 636 2,850 3,635 2,248
----------- ----------- ---------- -------- --------
Income before loss (income) from
discontinued operations 5,777 208 5,591 10,623 3,981
Loss (income) from discontinued operations (i) -- -- (3,307) (26) 8
----------- ----------- ---------- -------- --------
Income before extraordinary loss 5,777 208 8,898 10,649 3,973
Extraordinary loss, net of taxes(j) -- -- 2,513 2,487 --
----------- ----------- ---------- -------- --------
Income before minority interest 5,777 208 6,385 8,162 3,973
Minority interest in earnings of subsidiary -- -- 3,958 2,740 1,131
----------- ----------- ---------- -------- --------
Net income 5,777 208 2,427 5,422 2,842
Less: Preferred stock dividends (6,666) (3,775) (1,460) -- --
----------- ----------- ---------- -------- --------
Net (loss) income applicable to common stock $ (889) $ (3,567) $ 967 $ -- $ --
=========== =========== ========== ======== ========
Basic and Diluted Earnings Per Share:
(Loss) income before income from
discontinued operations and
extraordinary loss $ (0.09) $ (0.35) $ 0.04 $ $
-- --
Extraordinary loss -- -- (0.60) -- --
Income from discontinued operations -- -- 0.79 -- --
----------- ----------- ---------- -------- --------
(Loss) income from continuing operations
per common share $ (0.09) $ (0.35) $ 0.23 $ -- $ --
=========== =========== ========== ======== ========
Weighted average shares outstanding 10,276,542 10,125,481 4,166,667 -- --
=========== =========== ========== ======== ========
Balance Sheet Data (at end of period):
Working capital $ 27,548 $ 29,597 $ 42,825 $ 26,132 $ 35,845
Total assets 268,819 227,515 188,544 140,906 143,713
Long term debt 160,356 152,769 157,742 63,107 67,310
Redeemable preferred stock 70,682 54,525 31,460 -- --
Shareholders' equity (deficit) (71,751) (70,900) (67,798) 9,930 12,508
Other Data:
Capital expenditures $ 10,130 $ 8,752 $ 7,684 $ 7,389 $ 4,899
Cash dividends paid -- -- -- $ 8,000 --
</TABLE>
13
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands)
(a) The Company acquired Bryfogle's and Pacific Color on December 16, 1997 and
October 20, 1997, respectively. The financial results for the year ended
December 31, 1997 include the operations of Bryfogle's and Pacific Color
since the date of their acquisition.
(b) 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.
(c) 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 its acquisition.
(d) 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 its acquisition.
(e) 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 on August 4, 1995.
(f) 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.
(g) Unusual expenses consist of certain severance and other restructuring costs
of $1,537,000 and $830,000 in fiscal 1997 and 1996, respectively, and a
$1,194,000 gain on involuntary disposal of fixed assets incurred in fiscal
1997.
(h) 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.
(i) Loss (income) from discontinued operations relates to the sale of Sun Gro's
Green Cross business on January 4, 1995.
(j) Extraordinary loss, net of taxes, includes the write-off of unamortized
deferred financing costs and prepayment penalties relating to the early
extinguishment of debt.
14
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS.
The discussion in this section and elsewhere in this report contains trend
analysis and other forward-looking statements. Actual results could differ
materially from those projected in such forward-looking statements.
Results of Operations
Fiscal Year Ended December 31, 1997 compared to Fiscal Year Ended December 31,
1996.
Net Sales. The Company had consolidated net sales of $201.3 million for
the fiscal year ended December 31, 1997. This represents an increase of $37
million, or 22.5%, from net sales of $164.3 million for the comparable period in
1996. The Company's sales of its nursery products increased 38.2% from net sales
of $92.2 million for the comparable period in 1996. This increase reflects $26.3
million of sales in 1997 from two acquisitions completed in August and November
1996 and two acquisitions completed in October and December 1997, as well as
increased sales volumes and prices from its existing nursery operations.
Excluding these acquisitions, sales from the remaining core nursery operations
increased 9.6% from the comparable period in 1996. 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 peat
moss and peat-based products increased 2.3% from the comparable period in 1996
with continued volume growth from the professional business. For the retail
business, sales increased 6.6% from the comparable period in 1996, primarily due
to increased sales volume growth, which was partially offset by lower retail
peat prices. Peat prices in the first half of 1997 continued to be affected by
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.
Gross Profit. Gross profit of $101.8 million (50.6% of net sales) for the
fiscal year ended December 31, 1997 represents an increase of $18.3 million, or
21.9%, from gross profit of $83.5 million (50.8% of net sales) for the
comparable period in 1996. The increase was primarily attributable to the
Company's nursery acquisitions and the higher sales from the Company's core
nursery operations. The slight decrease in gross margin percentage is primarily
due to lower margins from these acquisitions, which are still in the process of
being integrated into the Company's core nursery operations.
Operating Expenses. Operating expenses of $70.8 million (35.2% of net
sales) for the fiscal year ended December 31, 1997 represent an increase of $9.2
million, or 14.9%, from $61.6 million (37.5% of net sales) for the comparable
period in 1996. The increase was primarily attributable to the Company's nursery
acquisitions.
Operating Income. Operating income of $31.1 million (15.4% of net sales)
for the fiscal year ended December 31, 1997 represents an increase of $9.2
million, or 42.0%, from $21.9 million (13.3% of net sales) for the comparable
period in 1996. The increase was primarily due to the Company's nursery
acquisitions and the higher sales from the Company's core nursery operations.
15
<PAGE>
Interest Expense. Interest expense of $20.7 million for the fiscal year
ended December 31, 1997 increased $0.6 million from $20.1 million for the
comparable period in 1996. The increase was attributable to higher borrowing
levels under the Company's revolving credit facilities as a result of increased
capital expenditures.
Income before income from discontinued operations, extraordinary loss and
minority interest. The income before income from discontinued operations,
extraordinary loss and minority interest of $5.8 million for the fiscal year
ended December 31, 1997 increased by $5.6 million from income of $0.2 million
for the comparable period in 1996. The increase was primarily due to the
Company's nursery acquisitions and the higher sales from the Company's core
nursery operations.
Provision for income taxes. The effective income tax rate was 38% and 75%
for the years ended December 31, 1997 and 1996, respectively. The decrease in
the Company's effective income tax rate was due primarily to the increase in the
valuation allowance in 1996 against certain net operating loss carry forwards
and investment tax credits related to Sun Gro-Canada.
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. These lower peat moss prices continued throughout
1996 and adversely affected 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 numerous product mix changes. 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
16
<PAGE>
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 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 and certain members of management 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.
Provision for income taxes. The effective income tax rate was 75% and 34%
for the years ended December 31, 1996 and 1995, respectively. The increase in
the Company's effective income tax rate was due primarily to the increase in the
valuation allowance in 1996 against certain net operating loss carry forwards
and investment tax credits related to Sun Gro-Canada.
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
listed therein and BT Commercial Corporation, as agent (the "Bank Credit
Agreement"). The Company also maintains a $10 million revolving credit facility
pursuant to a Credit Agreement dated as of December 16, 1997, as subsequently
amended, by and among Hines II, as borrower, the lenders listed therein and BT
Commercial Corporation, as agent (the "Hines II Bank Credit Agreement").
The revolving credit facility under the Bank Credit Agreement 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
17
<PAGE>
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 Hines Horticulture's
subsidiaries, including Sun Gro-Canada. The revolving credit facility under the
Hines II Bank Credit Agreement is subject to a borrowing base tied to accounts
receivable and inventory of Hines II and expires on December 31, 2002.
Substantially all of the assets and common stock of Hines II secure the
revolving credit facility and all other obligations under the Hines II Bank
Credit Agreement.
The Company typically draws under its revolving credit facilities in its
first and fourth fiscal quarters to fund its nursery products inventory buildup
and continuing operating expenses. Approximately 80% of Hines' sales occur in
the first half of the year, which allows the Company to reduce borrowings under
its revolving credit facilities 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. On
March 20, 1998 the Company had $8.2 million of unused borrowing capacity under
its revolving credit facility under the Bank Credit Agreement and $2.1 million
of unused borrowing capacity under its revolving credit facility under the Hines
II Bank Credit Agreement.
The debt service costs associated with the borrowings under the Bank Credit
Agreement, the Hines II Bank Credit Agreement and the Senior Subordinated Notes
have 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
remaining principal repayment schedule for the term loans under the Bank Credit
Agreement is $5.0 million, $5.5 million and $6.5 million for the years 1998
through 2000, respectively. All borrowings under the Hines II Bank Credit
Agreement will also mature prior to the Senior Subordinated Notes.
On October 19, 1995, Hines Horticulture issued $120,000,000 in aggregate
principal amount of 11 3/4% Senior Subordinated Notes due 2005, which were
subsequently exchanged in a registered offering for $120,000,000 of its 11 3/4%
Senior Subordinated Notes due 2005, Series B (the "Senior Subordinated Notes").
The Indenture pursuant to which the Senior Subordinated Notes were issued
imposes a number of restrictions on Hines Horticulture and Sun Gro-U.S. The
Indenture limits, among other things, their 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
and the Hines II Bank Credit Agreement, causing all amounts owing thereunder to
become immediately due and payable.
Hines II maintains an acquisition term loan facility under the Hines II
Bank Credit Agreement (the "Acquisition Facility"). The Acquisition Facility
provides for borrowings of up to $30.0 million to finance acquisitions permitted
under the Hines II Bank Credit Agreement and is secured by substantially all of
the assets and common stock of Hines II. Principal payments under the
Acquisition Facility are due quarterly beginning March 31, 2000 through 2002
ranging from 2.5 to 5.0 percent of the total principal amount borrowed under the
Acquisition Facility as specified in the Acquisition Facility, with all
remaining principal due on December 31, 2002.
18
<PAGE>
The Company has financed its acquisitions through a combination of
borrowings under the Bank Credit Agreement and the Hines II Bank Credit
Agreement and through the issuance of promissory notes, Senior Preferred and
warrants to investors.
On October 20, 1997, Hines II financed its $1.7 million acquisition of
Pacific Color through the issuance of the Demand Note to MDCP, which was
subsequently exchanged for shares of Senior Preferred and warrants to purchase
Common Stock.
On December 16, 1997, Hines II financed its $19.0 million acquisition of
Bryfogle's through the issuance of shares of Senior Preferred and warrants to
purchase Common Stock to MDCP and an unaffiliated equity investor, the issuance
of a $1,000,000 convertible subordinated promissory note of Holdings to the
seller, and borrowings of $12,000,000 under the Hines II Acquisition Facility.
On March 25, 1998, subsequent to the period covered by this Report, 763427
Alberta Ltd., an indirect, wholly owned subsidiary of Hines II, entered into a
definitive stock purchase agreement with the shareholders of Lakeland Peat Moss,
Ltd. to purchase all of the issued and outstanding shares of capital stock of
Lakeland Peat Moss, Ltd. for approximately Cdn. $28.4 million (approximately
$20.0 million U.S.). The transaction, if consummated, is expected to be financed
principally through borrowings under the Hines II Bank Credit Facility and
through the issuance of subordinated debt to the sellers.
The Company's capital expenditures totaled $10.1 million for the fiscal
year ended December 31, 1997. These capital expenditures consisted primarily of
vehicles, machinery and equipment purchases and the purchase of other nursery-
related structures required to execute the Company's expansion plans and capital
expenditures related to preparing peat bogs for harvest. The Company's capital
expenditures for 1998 are expected to be approximately $15 million, and will be
used for capacity expansion at several of the Company's nursery facilities and
for other maintenance expenditures.
On February 5, 1998, Holdings issued to MDCP 2,000 shares of Senior
Preferred, having an aggregate liquidation value of $2,000,000, for $2,000,000
in cash, to fund the Company's short-term working capital requirements. The
Company expects that cash flow from operating activities together with
borrowings available under the revolving credit facilities 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.
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.
19
<PAGE>
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 years ended December 31, 1995 and 1994 did not
contain an adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle. The Board of
Directors and Audit Committee of Holdings participated in and approved the
decision to change independent accountants. In connection with its audits for
the fiscal years ended December 31, 1995 and 1994 and its work through October
28, 1996, there were 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
fiscal years ended December 31, 1995 and 1994 and its work through October 28,
1996, there were no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)). Holdings requested that Arthur Andersen LLP furnish it with a
letter addressed to the SEC stating whether or not it agreed 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 was filed as
Exhibit 16.1 to Holdings' Annual Report on Form 10-K for the year ended December
31, 1996.
Holdings engaged Price Waterhouse LLP as its new independent accountants as
of October 28, 1996. During the fiscal years ended December 31, 1995 and 1994
and its work through October 28, 1996, Holdings did not consult 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 24, 1998, and a brief account
of the business experience of each person who is a director or 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 55 Chairman of the Board of Hines Horticulture, Vice
President and Director of Holdings and Director of
Sun Gro-U.S.
Stephen P. Thigpen 42 President and Chief Executive Officer and Director
of Hines Horticulture and Director of Holdings and
Sun Gro-U.S.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
Claudia M. Pieropan 42 Chief Financial Officer of Holdings, Hines
Horticulture and Sun Gro-U.S.
Paul R. Wood 44 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 43 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 47 Director of Holdings, Hines Horticulture and Sun
Gro-U.S.
David F. Mosher 42 Director of Holdings, Hines Horticulture and Sun
Gro-U.S.
</TABLE>
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
21
<PAGE>
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 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 (i) the chief executive
officers of Holdings and Hines Horticulture, (ii) the Company's three most
highly compensated executive officers as of December 31, 1997, and (iii) one
additional individual for whom disclosure would have been necessary but for the
fact such individual was not an executive officer at year end (the "Named
Executive Officers") during the three years ended December 31, 1997:
22
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
---------------------------- All Other
Name and Principal Position Year Salary Bonus (1) Compensation (2)
- ------------------------------------------------ ---- ------ --------- ----------------
<S> <C> <C> <C> <C>
Paul R. Wood 1997 -- -- --
Chief Executive Officer of Holdings 1996 -- -- --
1995 -- -- --
Douglas D. Allen 1997 $200,825 $146,905 $ 4,746
Vice President of Holdings 1996 $202,161 -- $ 5,631
Chairman of the Board of Hines Horticulture 1995 $295,842 $361,920 $ 3,507
Stephen R. Thigpen 1997 $217,851 $197,453 $ 6,194
President and Chief Executive Officer of Hines 1996 $210,135 $ 13,904 $ 5,861
Horticulture 1995 $181,221 $184,904 $ 2,108
Michael R. Crowe (3) 1997 $ 26,187 -- $ 420,916
President of Sun Gro-US 1996 $209,496 -- $ 19,953
1995 $212,815 $ 81,938 $ 17,935
Claudia M. Pieropan 1997 $159,628 $ 24,484 $ 7,831
Chief Financial Officer of Holdings, Hines 1996 $150,000 -- $ 13,563
Horticulture and Sun Gro-U.S. 1995 $116,024 $ 31,907 $ 13,366
</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, (iv) contributions made by
the Company on behalf of Mr. Crowe and Ms. Pieropan under Sun Gro-U.S.'s
401(k) Plan and, (v) a $418,992 payment to Mr. Crowe on March 20, 1997 in
connection with his departure from the Company.
(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 certain
of the 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:
23
<PAGE>
Pension Plan Table
<TABLE>
<CAPTION>
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 11.6 years of credited
service on February 17, 1997. Benefits under 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
24
<PAGE>
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 1997, 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.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors consists of Messrs.
Wood, Reusche and Allen, all of whom are officers of the Company. 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 Junior Preferred and of Common Stock as of March 24, 1998 by (i)
each person known to Holdings and the Company to own beneficially 5% or more of
the Common Stock or Junior Preferred, (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 have the right to vote
together with the Common Stock on a one-vote per share basis in the election of
directors.
<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 78.6% 7,967,530 68.7%
California State Teachers' Retirement System (3) -- -- 705,500 6.1%
Douglas D. Allen 278,942 1.3% 171,058 1.5%
Stephen P. Thigpen 433,910 2.1% 366,090 3.2%
Michael R. Crowe 650,865 3.1% 399,135 3.4%
Claudia M. Pieropan 111,577 * 68,423 *
Paul R. Wood(2) -- -- -- --
Thomas R. Reusche(2) -- -- -- --
David F. Mosher(2) -- -- -- --
Gary J. Little(2) -- -- -- --
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
All Executive Officers and Directors as a Group
(7 persons) 824,429 4.0% 605,571 5.2%
</TABLE>
* Denotes less than one percent.
(1) "Beneficial owner" generally means any person whom, 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 3800,
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.
(3) The address of the California State Teachers' Retirement System is c/o
Abbott Capital Management LLC, 1330 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.
26
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTIES.
Issuance of Debt and Equity Securities
On September 29, 1997, Holdings issued 100,000 shares of Common Stock to
Stephen P. Thigpen, the chief executive officer of Hines Horticulture, for
$100,000 (representing the fair market value of such shares on the issuance
date). The purchase price was payable by a full-recourse promissory note in
favor of Holdings bearing 6% interest and due in three equal installments on
April 30 of each of 1998, 1999 and 2000.
On October 20, 1997, Holdings issued to MDCP, the controlling stockholder
of Holdings, the Demand Note, in an aggregate principal amount of $2,500,000,
for $2,500,000 in cash. The Demand Note bore interest at a rate equal to the
dividend rate on the Senior Preferred. The Demand Note was used to finance the
acquisition of Pacific Color and to provide working capital to Hines II, and was
subsequently exchanged on December 16, 1997 for Senior Preferred and warrants of
Holdings.
On December 16, 1997, Holdings issued to MDCP, for an aggregate
consideration of $1,000,000 in cash and the surrender and cancellation of the
Demand Note (for which $2,500,000 of indebtedness was then outstanding), (i)
3,500 shares of Senior Preferred, at a price of $970.21 per share, and (ii)
presently exercisable warrants to purchase 104,282 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. Such issuance was on equivalent terms and
subject to the same conditions as a contemporaneous sale of Senior Preferred and
warrants to an unaffiliated third party investor. See Item 5, "Market for the
Registrant's Common Equity and Related Stockholder Matters."
On February 5, 1998, Holdings issued to MDCP, on an arm's length basis,
2,000 shares of Senior Preferred, having an aggregate liquidation value of
$2,000,000, for $2,000,000 in cash.
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 water law, however, Hines
Horticulture and its affiliates were eligible to receive federal reclamation
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 water 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
27
<PAGE>
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 water forms it had filed. As this additional land caused Hines
Horticulture to be over the 640 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.
In connection with Hines Horticulture's acquisition of certain real property in
Allendale, California in July, 1995, Hines Horticulture designated 128 acres of
such property to receive Federal reclamation water. To avoid exceeding the 640
net irrigable acre limit, Hines Horticulture and Blooming Farm entered into a
Section 1031 like-kind exchange on February 28, 1997, pursuant to which Hines
Horticulture transferred to Blooming Farm 128 acres of property then owned by
Hines Horticulture which was receiving Federal reclamation water, in exchange
for 128 acres of land then owned by Blooming Farm and leased to Hines
Horticulture, which was not receiving Federal reclamation water.
The Company's management believes that the terms of the sale-leaseback and
like-kind exchange 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.
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:
The Registrant filed no current reports on Form 8-K during the
fiscal year ended December 31, 1997.
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 30, 1998.
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 30, 1998.
<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>
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.
29
<PAGE>
HINES HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Accountants - Years Ended
December 31, 1997 and 1996 - Price Waterhouse LLP F-2
Report of Independent Public Accountants - Year Ended
December 31, 1995 - Arthur Andersen LLP F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1997, 1996 and 1995 F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-8
Notes to Consolidated Financial Statements as of
December 31, 1997, 1996 and 1995 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 sheets 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, 1997 and 1996, and the
results of their operations and their cash flows the years then ended 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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Costa Mesa, California
March 16, 1998, except as to Note 2, which
is as of March 25, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Hines Holdings, Inc.:
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Hines Holdings, Inc. for the year 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 audit. We did not audit the financial
statements of Sun Gro Horticulture Inc., which statements represent revenues of
44 percent of Hines Holdings, Inc. for the year ended 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated results of operations and cash flows of Hines Holdings, Inc.
for the year 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, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
------
1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,543 $ 631
Accounts receivable, net of allowance for
doubtful accounts of $1,193 and $1,019 20,569 15,644
Inventories 106,007 95,224
Prepaid expenses and other current assets 1,958 3,213
---------- ----------
Total current assets 131,077 114,712
---------- ----------
FIXED ASSETS, net of accumulated depreciation
and depletion of $20,459 and $14,169 92,406 81,870
---------- ----------
DEFERRED FINANCING EXPENSES, net of
accumulated amortization of $2,332 and $1,235 6,477 6,352
---------- ----------
GOODWILL, net of accumulated
amortization of $1,474 and $1,490 38,859 24,581
---------- ----------
$ 268,819 $ 227,515
========== ==========
</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, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT 1997 1996
------------------------------------- -------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 8,046 $ 7,875
Accrued liabilities 5,309 5,627
Accrued payroll and benefits 6,521 5,957
Long-term debt, current portion 5,400 4,897
Revolving line of credit 43,102 29,357
Deferred income taxes 35,151 31,402
-------- --------
Total current liabilities 103,529 85,115
-------- --------
LONG-TERM DEBT 160,356 152,769
-------- --------
DEFERRED INCOME TAXES 6,003 6,006
-------- --------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE REDEEMABLE SENIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share;
liquidation preference of $1,000 per share; 50,000
shares authorized; 39,500 and 30,000 shares issued
at December 31, 1997 and 1996 43,967 30,921
CUMULATIVE REDEEMABLE JUNIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share;
liquidation preference of $1 per share; 22,000,000
shares authorized; 20,847,986 and 20,498,816
shares issued at December 31, 1997 and 1996 26,715 23,604
SHAREHOLDERS' DEFICIT
Common Stock
Authorized - 30,000,000 shares $.01 par value;
Issued and outstanding - 10,492,014 and
10,226,184 at December 31, 1997 and 1996 105 102
Accumulated accretion of cumulative redeemable
preferred stock (in excess) less than additional
paid-in capital (857) 5,600
Notes receivable from stock sales (366) (192)
Deficit (70,633) (76,410)
-------- --------
Total shareholders' deficit (71,751) (70,900)
-------- --------
$268,819 $227,515
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated fiancial statements.
F-5
<PAGE>
HINES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
SALES, NET $ 201,256 $ 164,323 $ 156,909
COST OF GOODS SOLD 99,407 80,812 72,245
---------- ---------- ---------
Gross Profit 101,849 83,511 84,664
---------- ---------- ---------
SELLING AND DISTRIBUTION EXPENSES 50,233 43,308 39,904
GENERAL AND ADMINISTRATIVE EXPENSES 20,403 18,239 17,467
OTHER OPERATING (INCOME) EXPENSES (228) (790) 1,021
UNUSUAL EXPENSES 343 830 -
---------- ---------- ---------
Total operating expenses 70,751 61,587 58,392
---------- ---------- ---------
Operating income 31,098 21,924 26,272
---------- ---------- ---------
OTHER EXPENSES:
Interest 20,708 20,140 13,274
Amortization of deferred financing expenses 1,097 940 4,557
---------- ---------- ---------
21,805 21,080 17,831
---------- ---------- ---------
Income before provision for income taxes, minority
interest and income from discontinued operations 9,293 844 8,441
PROVISION FOR INCOME TAXES 3,516 636 2,850
---------- ---------- ---------
Income before minority interest and income
from discontinued operations 5,777 208 5,591
MINORITY INTEREST IN EARNINGS OF
SUBSIDIARIES - - 3,958
---------- ---------- ---------
Income before income from discontinued operations 5,777 208 1,633
INCOME FROM DISCONTINUED
OPERATIONS, net of tax - - (3,307)
---------- ---------- ---------
Income before extraordinary loss 5,777 208 4,940
EXTRAORDINARY LOSS, net of tax - - 2,513
---------- ---------- ---------
NET INCOME 5,777 208 2,427
Less: Preferred stock dividends (6,666) (3,775) (1,460)
---------- ---------- ---------
NET (LOSS) INCOME APPLICABLE TO COMMON STOCK ($889) ($3,567) $967
========== ========== =========
BASIC AND DILUTED EARNINGS PER SHARE:
(Loss) income before income from discontinued ($0.09) ($0.35) $0.04
operations and extraordinary loss
Extraordinary loss - - (0.60)
Income from discontinued operations - - 0.79
---------- ---------- ---------
Net (loss) income per common share ($0.09) ($0.35) $0.23
========== ========== =========
Weighted average shares outstanding 10,276,542 10,125,481 4,166,667
========== ========== =========
</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, 1997, 1996 and 1995
(Dollars in thousands except for share data)
<TABLE>
<CAPTION>
Common Stock
no par value Common Stock - A Common Stock - B Notes Share-
----------------- ----------------- -------------------- Rec. Retained holders'
Number of Number of Number of Stock Earnings Equity
Shares Amount Shares Amount Shares Amount (i) Sales (Deficit) (Deficit)
--------- ------ --------- ------ ----------- ------ ------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
---- ------- -------- ---- ----------- ----- -------- ----- -------- --------
Net proceeds from
issuance of stock,
net of expenses - - - - 283,360 3 168 - - 171
Redemption of stock - - - - (57,176) (1) (57) - - (58)
Repurchase and
retirement of stock - - - - - - - - (280) (280)
Cumulative undeclared
dividends - - - - - - (3,775) - - (3,775)
Issuance of warrants,
net of discount - - - - - - 824 - - 824
Notes receivable from
stock sales - - - - - - - (192) - (192)
Net income - - - - - - - - 208 208
---- ------- -------- ---- ----------- ----- -------- ----- -------- --------
BALANCE, December 31, 1996 - - - - 10,226,184 102 5,600 (192) (76,410) (70,900)
---- ------- -------- ---- ----------- ----- -------- ----- -------- --------
Net proceeds from
issuance of stock,
net of expenses - - - - 289,980 3 23 - - 26
Redemption of stock - - - - (24,150) - (24) - - (24)
Cumulative undeclared
dividends - - - - - - (6,666) - - (6,666)
Issuance of warrants,
net of discount - - - - - - 210 - - 210
Notes receivable from
stock sales - - - - - - - (174) - (174)
Net income - - - - - - - - 5,777 5,777
---- ------- -------- ---- ----------- ----- -------- ----- -------- --------
BALANCE, December 31, 1997 - $ - - $ - 10,492,014 $ 105 $ (857) $(366) $(70,633) $(71,751)
==== ======= ======== ==== =========== ===== ======== ===== ======== ========
</TABLE>
(i) Accumulated accretion of cumulative redeemable preferred stock (in excess)
less than additional paid-in capital
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
HINES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,777 $208 $2,427
Adjustments to reconcile net income to
net cash provided by operating activities -
Amortization of deferred financing costs 1,097 940 4,557
Depreciation, depletion and amortization 6,407 4,962 3,828
Write-off of deferred financing costs 3,993
Minority interest in earnings of subsidiaries - - 3,958
Gain on sale of discontinued operations - - (4,871)
Gain on involuntary disposal of assets (1,194) - -
Deferred income taxes 3,647 508 3,942
Other (81) 525 483
--------- --------- ---------
15,653 7,143 18,317
CHANGE IN WORKING CAPITAL ACCOUNTS:
Accounts receivable (4,373) 824 836
Inventories (9,495) (4,270) (8,605)
Prepaid expenses and other current assets 1,008 (815) 1,169
Other assets (322) (577) -
Accounts payable and accrued liabilities 297 (3,500) (951)
Other liabilities (581) (361) (1,000)
--------- --------- ---------
Net cash provided by (used in) operating activities 2,187 (1,556) 9,766
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (10,130) (8,752) (7,684)
Proceeds from sales of fixed assets 154 175 1,417
Proceeds from insurance claims 1,194 - -
Purchase of fixed assets from insurance claims (1,324) - -
Acquisitions, net of cash acquired (19,632) (21,915) (3,498)
--------- --------- ---------
Net cash used in investing activities (29,738) (30,492) (9,765)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 220,188 202,785 77,911
Repayments on revolving line of credit (206,443) (186,121) (83,596)
Proceeds from the issuance of long-term debt 12,000 - 255,000
Repayments of long-term debt (4,910) (4,209) (160,567)
Deferred financing costs (1,223) (253) (9,833)
Repurchase and retirement of preferred and
common stock (75) (280) (91,938)
Issuance of preferred and common stock 9,926 20,612 11,673
Other - (36) (1,120)
--------- --------- ---------
Net cash provided by (used in) financing activities 29,463 32,498 (2,470)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 1,912 450 (2,469)
CASH, beginning of year 631 181 2,650
--------- --------- ---------
CASH, end of year $2,543 $631 $181
========= ========= =========
CASH PAID - INTEREST $20,729 $23,702 $8,689
========= ========= =========
CASH PAID - INCOME TAXES $161 $4 $3
========= ========= =========
</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, 1997, 1996 AND 1995
(Dollars in Thousands)
1. Summary of Significant Accounting Policies
------------------------------------------
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 Hines II, Inc. (Hines II), 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, South Carolina and
Pennsylvania. 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.
Consolidation
-------------
The consolidated financial statements include the accounts of Holdings and its
wholly owned subsidiaries Hines, Hines II and Sun Gro, including Sun Gro's
wholly owned subsidiary, Sun Gro-Canada. All material intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition and Concentration of Credit Risk
----------------------------------------------------
The Company recognizes revenue, net of sales discounts and allowances, 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, 1997 and 1996, significant amounts of accounts
receivable are subject to dating terms. The Company's largest customer
F-9
<PAGE>
accounted for approximately 12% and 10% of the Company's consolidated net sales
in 1997 and 1996, respectively. In 1995, no individual customer accounted for
more than 10% of consolidated net sales.
Depreciation and Depletion
--------------------------
Fixed assets are stated at cost less accumulated depreciation. 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 3 to 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 in 1990, 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 has amortized 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.
In connection with the acquisition of the interests of minority shareholders for
stock in the Company, as further discussed in Note 21, approximately $14.7
million of goodwill was recorded and is being amortized over a 35-year period as
a component of other operating expenses.
Goodwill recorded in connection with the Company's recent acquisitions, as
discussed in Note 2, is being amortized over an estimated life of 35 years.
At each balance sheet date, the Company reviews the recoverability of goodwill
by comparing projected operating income on an undiscounted basis to the net book
value of the related assets. If the carrying value of goodwill exceeds projected
operating income, the carrying value of goodwill is written down to undiscounted
projected operating income.
F-10
<PAGE>
Impairment of Long-Lived Assets
-------------------------------
The Company annually evaluates its long-lived assets, including identifiable
intangible assets, for potential impairment. When circumstances indicate that
the carrying amount of the asset may not be recoverable, as demonstrated by the
projected undiscounted cash flows, an impairment loss would be recognized based
on fair value.
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. Gains or losses from changes
in exchange rates are recognized in the consolidated results of operations in
the year of occurrence.
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 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.
F-11
<PAGE>
Advertising
-----------
The Company expenses advertising costs at the time the advertising first takes
place. Advertising expense was $1,898, $1,658 and $1,544 for the years ended
December 31, 1997, 1996 and 1995, 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 ("EPS")
---------------------------------
Basic earnings per share is computed by dividing net income, after deduction of
preferred dividends, by the weighted average number of common shares outstanding
in each year. Diluted earnings per share is computed by dividing net income,
after deduction of preferred dividends, by the weighted average number of common
shares outstanding plus any potential dilution that could occur if warrants were
converted into common stock in each year.
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," (SFAS 128). In accordance with the implementation
provisions of SFAS 128, the Company has restated earnings per share in the
Consolidated Statements of Income for the years ended December 31, 1996 and
1995.
There is no difference between the numerators and denominators for basic and
diluted earnings per share since common stock equivalents have been excluded
from the earnings per share calculation for fiscal years 1997 and 1996 because
the effect would be anti-dilutive. There were no outstanding common stock
equivalents in fiscal year 1995.
Recent Accounting Pronouncements
--------------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information," in June 1997. SFAS 131 establishes
standards for the reporting of information about operating segments of a
business. Generally, financial information is required to be reported on the
basis that it is used internally by management for evaluating segment
performance.
SFAS 131 addresses disclosure matters and will have no effect on the Company's
consolidated financial position, results of operations or cash flows. The
Company will adopt SFAS 131 in 1998.
F-12
<PAGE>
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to current year
presentations.
2. Acquisitions
------------
Bryfogle's
----------
On December 16, 1997, Hines II acquired all of the issued and outstanding shares
of Bryfogle's Wholesale, Inc., Bryfogle's Power Plants, and Power Plants II,
Inc. (collectively "Bryfogle's") for approximately $19 million. The acquisition
was accounted for using the purchase method. The purchase price allocation is
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 54
Accounts receivable 452
Inventories 1,088
Fixed assets 4,163
Other assets 639
Goodwill 13,752
Accounts payable and accrued liabilities (756)
Deferred tax liability - non-current (411)
-------
Total purchase price $18,981
=======
</TABLE>
Pacific Color Nurseries
-----------------------
On October 20, 1997, Hines II acquired certain assets and assumed certain
liabilities of Pacific Color Nurseries, Inc. (PCN) for $1.7 million. The
acquisition was accounted for using the purchase method. The purchase price
allocation is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 100
Inventories 200
Prepaid expenses 5
Fixed assets 1,385
Goodwill 285
Accounts payable and accrued liabilities (270)
------
Total purchase price $1,705
======
</TABLE>
Flynn Nurseries
---------------
On November 27, 1996, Hines Horticulture 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-13
<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 Horticulture 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>
The consolidated financial statements reflect the operations of Bryfogle's, PCN,
Flynn, and Iverson 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, 1997 and 1996 as if the acquisitions had
occurred on January 1, 1997 and January 1, 1996, respectively (in thousands,
except per share data):
<TABLE>
<CAPTION>
December 31
------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales $215,721 $199,487
Net income (loss) applicable to
common stock (a) $ 271 $ (3,692)
Basic earnings per share $ 0.03 $ (0.39)
Diluted earnings per share $ 0.02 $ (0.39)
</TABLE>
F-14
<PAGE>
(a) After deduction of preferred stock dividends of $6,666 and $3,775 for the
years ended December 31, 1997 and 1996, respectively.
The pro forma results do not necessarily represent results, which, would have
occurred if the acquisitions had taken place as of the dates assumed, nor are
they indicative of the results of future combined operations.
Subsequent Event -- Pending Acquisition of Lakeland Peat Moss Ltd.
------------------------------------------------------------------
On March 25, 1998, 763427 Alberta Ltd., a recently-formed Alberta corporation
which is an indirect, wholly-owned subsidiary of Hines II, entered into a
definitive stock purchase agreement with the shareholders of Lakeland Peat Moss,
Ltd. to purchase all of the issued and outstanding shares of capital stock of
Lakeland Peat Moss, Ltd. for approximately Cdn. $28.4 million (approximately
U.S. $20.0 million). The closing of the transaction is subject to customary
closing conditions and the receipt of certain Canadian regulatory approvals. If
these conditions are satisfied, the closing is expected to occur no later than
May 31, 1998.
3. Unusual Expenses
----------------
During the year ended December 31, 1997, the Company received $1,194 of proceeds
from insurance claims to replace assets that had been damaged and, accordingly,
recorded a gain of $1,194 representing the difference between the proceeds
received and the carrying amount of the damaged assets. As of December 31, 1997,
the Company had acquired $1,324 of fixed assets utilizing the insurance
proceeds.
In May 1997, the Company approved a restructuring plan for Sun Gro which, for
the year ended December 31, 1997, resulted in an unusual charge of $1,537. The
charge represents $1,100 of severance-related payments and $437 of other related
restructuring charges. As of December 31, 1997, $1,137 has been paid and charged
against the liability.
4. Inventories
-----------
As of December 31, 1997 and 1996, inventories consisted of the following:
<TABLE>
<CAPTION>
December 31
-----------------
1997 1996
-------- -------
<S> <C> <C>
Nursery stock $ 95,195 $85,611
Finished goods 4,003 2,975
Materials and supplies 6,809 6,638
-------- -------
$106,007 $95,224
======== =======
</TABLE>
F-15
<PAGE>
5. Fixed Assets
------------
As of December 31, 1997 and 1996, fixed assets consisted of the following:
<TABLE>
<CAPTION>
December 31
------------------
1997 1996
-------- --------
<S> <C> <C>
Land $ 7,103 $ 6,845
Peat reserves and bog costs 49,146 48,887
Buildings and improvements 21,915 14,778
Machinery and equipment 27,691 22,785
Construction in progress 7,010 2,744
-------- --------
112,865 96,039
Less-Accumulated depreciation
and depletion 20,459 14,169
-------- --------
$ 92,406 $ 81,870
======== ========
</TABLE>
6. 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,
1997, Sun Gro has no forward exchange contracts and options outstanding. As of
December 31, 1996, Sun Gro held call options totaling Cdn. $29,700, each in the
amount of Cdn. $3,300 per month expiring at the end of each month with the last
one expiring on September 30, 1997. The premium paid was U.S. $264, which was
amortized over the life of the hedged transactions. As of December 31, 1995, Sun
Gro held a call option for Cdn. $25,000. On June 20, 1996, Sun Gro sold the
unexercised balance of this option of Cdn. $12,000 for proceeds of U.S. $364 and
recorded a gain of U.S. $158 representing the excess of the proceeds over the
unamortized premium. Amortization expense of the premiums paid in connection
with the call options was $255 and $363 for the years ended December 31, 1997
and 1996, respectively.
7. Revolving Lines of Credit
-------------------------
On August 4, 1995, the Company entered into a new revolving loan agreement, as
amended on December 16, 1997, providing for a line of credit equal to the lesser
of $75 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
F-16
<PAGE>
covenants that, 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.
On December 16, 1997 the Company entered into another revolving loan agreement
providing for a line of credit equal to the lesser of $10 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 0.75 percent or the Eurodollar rate plus 2.25 percent. The
line of credit is secured by substantially all of the assets of Hines II. 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, 2002.
The weighted average interest rate on borrowings outstanding under the Company's
revolving lines of credit as of December 31, 1997 and 1996 was approximately
8.4% and 9.0%, respectively.
8. Long-term Debt
--------------
<TABLE>
<CAPTION>
December 31
-------------------
1997 1996
-------- --------
<S> <C> <C>
Acquisition term loan, interest at the bank's
reference rate (8.5 percent per annum at
December 31, 1997) plus 1.25 percent or
the Eurodollar rate plus 2.75 percent per annum.
Principal payments due quarterly beginning
March 31, 2000 through 2002 ranging from
$300 to $600 as specified in the loan agreement,
with all remaining principal due on
December 31, 2002, secured by inventory
and fixed assets. $ 12,000 -
Convertible subordinated promissory note, interest
at 6 percent per annum. Principal due
December 16, 2005. 1,000 -
Senior term debt, interest at the bank's reference
rate (8.5 percent per annum at December 31, 1997)
plus 1.5 percent or the Eurodollar rate plus 2.5
percent per annum. Principal payments due on
</TABLE>
F-17
<PAGE>
<TABLE>
<S> <C> <C>
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. 17,000 21,500
Senior subordinated notes, Series B, interest at
11.75 percent per annum payable semi-annually
on each June 30 and December 31, maturing on
October 15, 2005. 120,000 120,000
Note payable; interest at 10 percent per annum,
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. 7,999 8,162
Note payable; interest at 10 percent per annum,
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. 7,693 7,833
Capital lease obligations and equipment financing
contracts due at various dates through 1999,
secured by leased equipment. 64 171
-------- --------
165,756 157,666
Less-Current portion 5,400 4,897
-------- --------
$160,356 $152,769
======== ========
</TABLE>
The convertible subordinated promissory note may be optionally prepaid by the
Company without premium or penalty upon occurrence of an initial public offering
of common stock or sale of the Company. Upon and at any time after the
occurrence of an initial public offering of common stock, the holder may convert
all (but not less than all) of the principal amount outstanding under the note
into shares of common stock at the offering price of the common stock in such
offering (net of any sales or underwriting commissions).
Estimated principal maturities of long-term debt outstanding at December 31,
1997 are as follows:
F-18
<PAGE>
1998 $ 5,400
1999 5,874
2000 6,919
2001 465
2002 387
Thereafter 146,711
--------
$165,756
========
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 at prices
specified by the indenture agreement (105.875% as a percentage of the principal
amount thereof in 2000 to 100.000% in 2004). In addition, prior to 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 at prices specified by the
indenture agreement (109.139% in 1998), 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.
The indenture governing the Senior Subordinated Notes imposes certain
limitations on the ability of Hines and Sun Gro-U.S. to, among other things,
incur additional indebtedness, pay dividends or make certain other restricted
payments and consummate certain asset sales. In addition, Hines must also meet
certain specified financial covenants related to its Senior Term Debt.
9. 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 to 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, 1997, 1996 and 1995 was $1,684, $1,302 and $1,068,
respectively.
F-19
<PAGE>
As of December 31, 1997, the Company's future minimum annual payments under its
non-cancelable operating leases are as follows:
1998 $ 3,200
1999 2,810
2000 2,605
2001 2,154
2002 1,325
Thereafter 6,354
-------
$18,448
=======
10. Contingencies
-------------
From time to time, the Company is involved in various disputes and litigation
matters, which arise in the ordinary course of business. The litigation process
is inherently uncertain and it is possible that the resolution of these disputes
and lawsuits may adversely affect the Company. Management believes, however,
that the ultimate resolution of such matters will not have a material adverse
impact on the Company's consolidated financial position or results of
operations.
11. Redeemable Preferred Stocks
---------------------------
On August 4, 1995, Holdings issued $10 million of 12 percent cumulative
redeemable senior preferred stock (the Senior Preferred Stock) and $20 million
of 12 percent cumulative redeemable junior preferred stock (the Junior Preferred
Stock). The Senior Preferred Stock is redeemable on December 31, 2006, and is
non-voting. Holdings 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, Holdings 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. Holdings has the
option to redeem all or any of the Junior Preferred Stock at any time prior to
the scheduled redemption date. Upon redemption, Holdings 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 Holding's
directors, but not in any other matters. Holdings 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.
F-20
<PAGE>
In June 1996, Holdings issued an additional 596,640 shares of Junior Preferred
Stock and 283,360 shares of common stock to certain employees for cash of $283
and promissory notes totaling $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 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 and $10 in cash was paid. The outstanding
promissory note balance of $385 at December 31, 1996 relating to the issuance of
Junior Preferred Stock is recorded as a deduction from Cumulative Redeemable
Junior Preferred Stock in the consolidated Balance Sheets.
On November 27, 1996, Holdings issued an additional $20 million of Senior
Preferred Stock with warrants to purchase 830,000 shares of Holdings 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.
During the year ended December 31, 1997, Holdings issued an additional 400,020
shares of Junior Preferred Stock and 289,980 shares of common stock to certain
employees for cash of $63 and promissory notes totaling $627. 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 equal installments over a period of one to five years from
March 31, 1998 through March 31, 2001, or earlier upon an event of default under
the promissory note or in certain other limited events. In May 1997, 50,850
shares of the Junior Preferred Stock and 24,150 shares of the common stock were
redeemed and the promissory note relating to this stock, in the amount of $25,
was cancelled and $50 was paid in cash. The outstanding promissory note balance
of $533 at December 31,1997 relating to the issuance of Junior Preferred Stock
is recorded as a deduction from Cumulative Redeemable Junior Preferred Stock in
the consolidated Balance Sheets.
On December 16, 1997, Holdings issued an additional $9.5 million of Senior
Preferred Stock with warrants to purchase 283,051 shares of Holdings common
stock at an exercise price of $.01 per share during a period which expires at
the earlier of (i) ten years from the 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 $283 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.
F-21
<PAGE>
12. Income Taxes
------------
The components of income (loss) from continuing operations before provision for
income taxes and the provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
December 31
-------------------------
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
Income (loss) before income taxes:
U.S. $8,321 $ 1,902 $8,787
Foreign 972 (1,058) (346)
------ ------- ------
$9,293 $ 844 $8,441
====== ======= ======
Current:
Federal -- 264 942
State 10 34 81
Foreign -- -- 92
------ ------- ------
10 298 1,115
------ ------- ------
Deferred:
Federal 3,345 456 1,276
State 698 74 197
Foreign (537) (192) 262
------ ------- ------
3,506 338 1,735
------ ------- ------
$3,516 $ 636 $2,850
====== ======= ======
</TABLE>
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, 1997, 1996 and 1995,
as follows:
<TABLE>
<CAPTION>
December 31
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Provision computed at statutory rate $3,161 $ 287 $2,870
Increase (decrease) resulting from:
State tax, net of federal benefit 433 71 278
Foreign taxes (63) (95) (38)
Goodwill (93) (127) (217)
Meals and entertainment 113 100 92
Change in valuation allowance -- 328 --
Other (35) 72 (135)
------ ------ ------
$3,516 $ 636 $2,850
====== ====== ======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at December 31,
1997 and 1996:
F-22
<PAGE>
<TABLE>
<CAPTION>
December 31
-------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred expenses $ 1,210 $ 1,116
Capital loss carryforwards 660 618
Deferred currency loss 304 --
Net operating loss carryforwards 14,417 14,732
Investment tax credit carryforwards 384 439
Other 650 156
Valuation allowance (3,166) (2,916)
-------- --------
Gross deferred tax assets 14,459 14,145
-------- --------
Deferred tax liabilities:
Accrual to cash adjustment (36,280) (31,567)
Deferred currency gain (235) (533)
Fixed asset basis differences (15,255) (15,318)
Investment in foreign subsidiary (1,749) (1,178)
Other (2,094) (2,957)
-------- --------
Gross deferred tax liabilities (55,613) (51,553)
-------- --------
Net deferred tax liability (41,154) (37,408)
-------- --------
Deferred income tax liability, current (35,151) (31,402)
Deferred income tax liability, non-current (6,003) (6,006)
-------- --------
$(41,154) $(37,408)
======== ========
</TABLE>
At December 31, 1997 the Company, had approximately $35,657 in net operating
loss carryforwards for federal income tax reporting purposes. The Company's
federal net operating losses begin to expire in 2005.
Included in the valuation allowance is $1.4 million that relates to the deferred
tax assets recorded from acquisitions. Any tax benefits subsequently recognized
for these deferred tax assets will be allocated to goodwill.
At December 31, 1997, Sun Gro-Canada had capital loss carryforwards, net
operating loss carryforwards and investment tax credits of approximately Cdn.
$2,096 (U.S. $1,466), Cdn. $7,247 (U.S. $5,070) and Cdn. $549 (U.S. $384),
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 carryforwards
and the investment tax credits. The capital loss may be carried forward
indefinitely and the net operating loss carryforwards and the investment tax
credits expire as follows (Canadian dollars):
F-23
<PAGE>
<TABLE>
<CAPTION>
Net Investment
Operating Tax
Year of Expiration Losses Credits
- ------------------ --------- ----------
<S> <C> <C>
1998 $6,013 $ 90
1999 -- 165
2000 713 150
2001 -- 123
2002 521 21
2003 -- --
------ ----
$7,247 $549
====== ====
</TABLE>
13. 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 $284, $395 and $368 for the years
ended December 31, 1997, 1996 and 1995, respectively.
14. Related Party Transactions
--------------------------
During the year ended December 31, 1995, Hines and Sun Gro paid management fees
of $789 to certain individuals who through affiliates were the former owners of
the Company. During 1995, Hines and Sun Gro paid a total of $140 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 the common stock of Agri Holdings, Inc., a former subsidiary of
Holdings, exceeded $2.5 million
F-24
<PAGE>
upon the occurrence of a change of control (as defined in the agreement). As a
result of the shareholder transaction described in Note 21, the Company paid
$3.3 million to this related party under the terms of this agreement.
15. 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), which resulted in the recognition of a gain in the
amount of $3,307, net of estimated taxes of $1,564.
16. Extraordinary Losses
--------------------
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.
In 1993, Sun Gro entered into a combined interest rate and currency swap related
to its former subordinated debt, which was denominated in Canadian dollars. As a
result of the change in ownership described in Note 21, this agreement was
terminated and a fee of $1,030 was paid, which is included as a component of
extraordinary loss in 1995.
17. Supplemental Cash Flow Information
----------------------------------
Supplemental disclosure of non-cash investing and financing activities were as
follows:
<TABLE>
<CAPTION>
December 31
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fair value of assets acquired $22,069 $31,822 $20,993
Liabilities assumed and incurred 2,437 9,907 17,495
------- ------- -------
Cash paid $19,632 $21,915 $ 3,498
======= ======= =======
</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.
F-25
<PAGE>
On October 20, 1997, the Company issued to Madison Dearborn Capital Partners,
L.P., the controlling stockholder of the Company, a demand note, in an aggregate
principal amount of $2,500,000. On December 16, 1997, this demand note was
subsequently exchanged for Senior Preferred stock and warrants of the Company,
as discussed in Note 11.
18. Fair Values of Financial Instruments
------------------------------------
The Company in estimating its fair value disclosures for financial instruments
used the following methods and assumptions:
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, 1997 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, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------------
1997 1996
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash $ 2,543 $ 2,543 $ 631 $ 631
Short-term debt 43,102 43,102 29,357 29,357
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Long-term debt (including
current portion) 165,756 177,756 157,666 167,266
Redeemable preferred
stock 70,682 70,682 54,525 54,525
Off-Balance Sheet Financial Instruments:
Forward currency
call options $ -- $ -- $ 255 $ 29
</TABLE>
19. Valuation and Qualifying Accounts
For the years ended December 31, 1997, 1996 and 1995, activity with respect to
the Company's allowance for doubtful accounts receivable is summarized as
follows:
<TABLE>
<CAPTION>
December 31
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Beginning balance $1,019 $1,165 $ 622
Charges to expense 474 225 678
Amounts written off (300) (371) (135)
------ ------ ------
Ending balance $1,193 $1,019 $1,165
====== ====== ======
</TABLE>
20. Geographic Information
Geographic information for the years ended December 31, 1997, 1996 and 1995, is
summarized as follows:
<TABLE>
<CAPTION>
December 31
-------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Net Sales:
United States
Sales to unaffiliated customers $ 191,150 $155,136 $148,355
Canada
Sales to unaffiliated customers 10,106 9,187 8,554
Transfers to other geographic
areas 13,852 14,531 16,530
Eliminations ( 13,852) (14,531) (16,530)
--------- -------- --------
$ 201,256 $164,323 $156,909
========= ======== ========
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
Operating income:
<S> <C> <C> <C>
United States $ 28,637 $ 21,379 $ 24,438
Canada 2,461 545 1,834
Eliminations -- -- --
-------- -------- --------
$ 31,098 $ 21,924 $ 26,272
======== ======== ========
Total assets:
United States $241,679 $196,579 $154,486
Canada 54,174 54,689 58,489
Eliminations (27,034) (23,753) (24,431)
-------- -------- --------
$268,819 $227,515 $188,544
======== ======== ========
</TABLE>
Export sales from the United States totaled $7,872, $6,780 and $6,244 for the
years ended December 31, 1997, 1996 and 1995, respectively.
21. 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 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 a 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. On October 19, 1995, Hines
refinanced the $110 million indebtedness under the senior subordinated credit
facility referred to above and reduced the balance outstanding on its revolving
lines of credit by issuing $120 million of Senior Subordinated Notes due in
2005.
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
F-28
<PAGE>
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.
22. 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. The Senior
Subordinated Notes are not guaranteed by Hines II, Sun Gro-Canada or their
respective present or future 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 Sun Gro-Canada under the equity
method), (d) Hines II and Sun Gro-Canada as subsidiary non-guarantors, (e)
eliminations 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, 1997 and 1996;
. Condensed consolidating statements of income and condensed consolidating
statements of cash flows for the years ended December 31, 1997, 1996 and
1995.
F-29
<PAGE>
21. Guarantor / Non-guarantor Disclosures - (Continued)
Consolidating Condensed Balance Sheet
As of December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Sun Gro Canada
Hines Sun Gro & Hines II
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Eliminations Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ - $ 941 $ 0 $ 1,602 $ - $ 2,543
Accounts receivable, net - 6,253 10,188 4,128 - 20,569
Inventories - 97,202 2,162 6,643 - 108,007
Prepaid expenses and other
current assets - 842 536 580 - 1,958
Deferred income taxes - 50 804 169 (1,023) -
--------------------------------------------------------------------------
Total current assets - 105,288 13,690 13,122 (1,023) 131,077
--------------------------------------------------------------------------
FIXED ASSETS, net - 38,851 4,242 49,313 - 92,406
DEFERRED FINANCING EXPENSES, net - 4,612 247 1,618 - 6,477
GOODWILL, net - 24,021 - 14,838 - 38,859
DEFERRED INCOME TAXES 16 10,163 - - (10,179) -
INVESTMENTS IN SUBSIDIARIES 55,596 8,925 7,832 - (72,353) -
--------------------------------------------------------------------------
$ 55,612 $191,860 $26,011 $78,891 $(83,555) $ 268,819
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 4,041 $ 1,117 $ 2,888 $ - $ 8,046
Accrued liabilities 3 1,971 1,930 1,405 - 5,309
Accrued payroll and benefits - 4,930 887 704 - 6,521
Long-term debt, current portion - 2,400 - 3,000 - 5,400
Revolving line of credit - 36,231 6,871 - - 43,102
Deferred income taxes - 36,096 0 78 (1,023) 35,151
Other liabilities - - (224) 224 - -
Intercompany accounts 55,678 (75,804) (1,308) 21,434 - -
-------------------------------------------------------------------------
Total current liabilities 55,681 9,865 9,273 29,733 (1,023) 103,529
-------------------------------------------------------------------------
LONG-TERM DEBT 1,000 139,856 - 19,500 - 160,356
DEFERRED INCOME TAXES - 2,418 1,555 12,209 (10,179) 6,003
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 43,967 - - - - 43,967
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 26,715 - - - - 26,715
SHAREHOLDERS' EQUITY
Common stock 105 3,971 11,413 9,500 (24,884) 105
Accumulated accretion of cumulative
redeemable preferred stock
(in excess) less than additional
paid-in capital (857) 21,364 5,889 1,777 (29,030) (857)
Notes receivable from stock sales (366) - - - - (366)
Retained earnings (deficit) (70,633) 14,386 (2,119) 6,172 (18,439) (70,633)
Total shareholders' equity -------------------------------------------------------------------------
(defict) (71,751) 39,721 15,183 17,449 (72,353) (71,751)
-------------------------------------------------------------------------
$ 55,612 $191,860 $ 26,011 $ 78,891 $(83,558) $268,819
=========================================================================
</TABLE>
F-30
<PAGE>
21. 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 1,027 1,112 - 3,213
Deferred income taxes - 50 603 - (653) -
-------- -------- ------- ------- -------- --------
Total current assets - 95,432 11,855 8,078 (653) 114,712
-------- -------- ------- ------- -------- --------
FIXED ASSETS, net - 32,851 4,540 44,479 - 81,870
DEFERRED FINANCING EXPENSES, net - 5,020 43 1,289 - 6,352
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) -
-------- -------- ------- ------- -------- --------
$ 40,296 $182,810 $24,167 $54,689 $(74,447) $227,515
======== ======== ======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 4,048 $ 1,426 $2,401 $ - $ 7,875
Accrued liabilities - 2,718 2,190 719 - 5,627
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
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 23,604 - - - - 23,604
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
Notes receivable from stock sale (192) - - - - (192)
Retained earnings (deficit) (76,410) 8,702 4,658 5,952 (19,312) (76,410)
-------- -------- ------- ------- -------- --------
Total shareholders' equity (deficit) (70,900) 34,037 21,865 7,729 (63,631) (70,900)
-------- -------- ------- ------- -------- --------
$ 40,295 $182,810 $24,167 $54,689 $(74,447) $227,515
======== ======== ======= ======= ======== ========
</TABLE>
F-31
<PAGE>
21. Guarantor / Non-guarantor Disclosures - (Continued)
Consolidating Condensed Statement of Income
For the year ended December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Sun Gro
Canada &
Hines Sun Gro Hines II
Holding Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Eliminations Total
--------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SALES, NET $ -- $126,193 $63,685 $25,320 $(13,852) $201,256
COST OF GOODS SOLD -- 63,524 33,980 15,755 (13,852) 99,407
----- -------- ------- ------- -------- --------
Gross Profit -- 62,669 29,705 9,475 -- 101,849
OPERATING EXPENSES -- 33,647 30,380 6,724 -- 70,751
----- -------- ------- ------- -------- --------
Operating income -- 29,022 (675) 2,751 -- 31,098
----- -------- ------- ------- -------- --------
OTHER EXPENSES:
Interest 39 18,831 708 1,130 -- 20,708
Interest--intercompany -- (1,036) 889 147 -- --
Other, net -- 739 48 310 -- 1,097
----- -------- ------- ------- -------- --------
39 18,534 1,645 1,587 -- 21,805
----- -------- ------- ------- -------- --------
Income (loss) before provision for income taxes (39) 10,488 (2,320) 1,164 -- 9,293
PROVISION FOR (RECOVERY OF) INCOME TAXES (16) 4,196 (239) (425) -- 3,516
----- -------- ------- ------- -------- --------
NET INCOME (LOSS) $ (23) $ 6,292 $(2,081) $ 1,589 $ -- $ 5,777
===== ======== ======= ======= ======== ========
</TABLE>
Consolidating Condensed Statement of Income
For the year ended December 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Sun Gro
Hines Sun Gro Canada
Holding Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Eliminations Total
--------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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>
21. Guarantor / Non-guarantor Disclosures - (Continued)
Consolidating Condensed Statement of Income
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>
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 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
=========================================================================
</TABLE>
F-33
<PAGE>
21. Guarantor / Non-guarantor Disclosures - (Continued)
Consolidating Condensed Statement of Cash Flows
For the year ended December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Sun Gro Canada
Hines Sun Gro & Hines II
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantors) Eliminations Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES: $(9,858) $ 2,483 $ (6,998) $ 6,965 $ 9,595 $ 2,187
-----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (7,300) (741) (2,089) - (10,130)
Sales proceeds - 154 - - - 154
Acquisitions, net of cash - - - (19,632) - (19,632)
Proceeds from insurance claims - 1,194 - - - 1,194
Purchase of fixed assets from insurance
claims proceeds - (1,324) - - - (1,324)
-----------------------------------------------------------------------------------------
Net cash used in investing activities - (7,276) (741) (21,721) - (29,738)
-----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit - 153,378 66,810 - - 220,188
Repayments on revolving line of credit - (141,348) (65,095) - - (206,443)
Intercompany advances (repayments) 7 (10,605) 10,893 (295) - -
Proceeds from the issuance of
long-term debt - - - 12,000 - 12,000
Repayments of long-term debt - (2,160) - (2,750) - (4,910)
Deferred financing costs - (331) (257) (635) - (1,223)
Dividends received (paid) - 6,169 (6,169) - - -
Repurchase and retirement of stock (75) - - - - (75)
Issuance of preferred and common stock 9,926 - 95 9,500 (9,595) 9,926
-----------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 9,858 5,103 6,277 17,820 (9,595) 29,463
-----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH - 310 (1,462) 3,064 - 1,912
CASH, beginning of year - 631 - - - 631
-----------------------------------------------------------------------------------------
CASH, end of year $ - $ 941 $ (1,462) $ 3,064 $ - $ 2,543
=========================================================================================
</TABLE>
F-34
<PAGE>
21. Guarantor / Non-guarantor Disclosures - (Continued)
Consolidating Condensed Statement of Cash Flows
For the year ended December 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Hines Sun Gro 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 AND CASH EQUIVALENTS, beginning
of year - 181 - - - 181
-----------------------------------------------------------------------------------------
CASH, end of year $ - $ 631 $ 91 $ (91) $ - $ 631
=========================================================================================
</TABLE>
F-35
<PAGE>
21. 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) Guarantors) 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 (91,833) - - - - (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 AND CASH EQUIVALENTS, end of year $ - $ 181 $ - $ - $ - $ 181
======== ========= ======= ======== ======= =========
</TABLE>
F-36
<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
of
HINES HOLDINGS, INC.
ONE: The name of the Corporation is Hines Holdings, Inc.
TWO: The registered 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 52,050,000 shares,
consisting of:
(1) 50,000 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 of
-1-
<PAGE>
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
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 Corpora tion'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 tion's
outstanding capital stock possessing the voting power (under ordinary
circumstances) to elect a
-5-
<PAGE>
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:
(1) a certificate or certificates representing the number of
shares
-6-
<PAGE>
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 Class A Shares at such place, the
Corporation shall, at the request of the record holder of such
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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 any such proceeding is commenced, against the Corporation or any
Subsidiary and either (1) the
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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 Pur chase Agreement or in the Second 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 10% of the Class A Shares then outstanding, addressed to
the secretary of the Corporation, call a
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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.
"Management Stock Agreements" means the several Management Stock
Agreements
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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.
"Second Purchase Agreement" means the Preferred Stock and Warrant
Purchase Agreement, dated as of December 16, 1997, between the Corporation and
the Persons named therein.
"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 95% 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 95% 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
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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 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"),
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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 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
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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
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
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representing the redeemed Class B Shares.
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
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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 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.
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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 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.f
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
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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 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.
SIX: The stock of the Corporation shall be nonassessable.
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.
-18-
<PAGE>
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 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>
The foregoing Restated and Amended Articles of Incorporation of the
Corporation have been approved by the Board of Directors and by the vote of at
least a majority of the voting power of the outstanding shares of capital stock
entitled to vote. By a resolution adopted by the Board of Directors on December
15, 1997, the undersigned Vice President and Assistant Secretary of the
Corporation have been authorized to execute this certificate and hereby certify
that the foregoing Restated and Amended Articles of Incorporation set forth the
text of the articles of incorporation of the Corporation, as restated and
amended to this date.
IN WITNESS WHEREOF, the undersigned has executed this certificate as
of the 15th day of December, 1997.
/s/ Paul R. Wood
----------------------------------------
Paul R. Wood, Vice President
/s/ Paul R. Wood
----------------------------------------
Paul R. Wood, Assistant Secretary
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
This instrument was acknowledged before me on December 15th, 1997 by
Paul R. Wood as Vice President of Hines Holdings, Inc.
/s/ Thaddine Gomez
--------------------------
Notary Public
-20-
<PAGE>
EXHIBIT 4.13
HINES HORTICULTURE, INC.
NINTH AMENDMENT
TO CREDIT AGREEMENT AND
SECOND AMENDMENT TO HOLDINGS PLEDGE AGREEMENT
This NINTH AMENDMENT TO CREDIT AGREEMENT AND SECOND AMENDMENT TO
HOLDINGS PLEDGE AGREEMENT (this "Amendment") is dated as of December 16, 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 5 hereof, the Credit Support Parties (as
defined in Section 5 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, that certain
Sixth Amendment dated as of February 14, 1997, that certain Seventh Amendment
and Consent to Credit Agreement dated as of March 26, 1997, and that certain
Eighth Amendment and Limited Waiver to Credit Agreement dated as of November 7,
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, Company has requested Lenders to amend the Credit Agreement to
(i) amend the definitions of "Company Borrowing Base", "Sun Gro Borrowing Base"
and "Eligible Accounts Receivable" to allow for the impact of increased
seasonality and to add certain other definitions, (ii) provide for an equity
contribution by MDCP, (iii) amend the mandatory prepayment provisions to provide
for a sharing of certain payments in the event of an initial public offering,
(iv) adjust certain of the financial covenants set forth therein, (v) amend the
assignment provisions to provide for proportionate assignment of commitments
made under the Hines II Credit Agreement and (vi) make certain other amendments
as set forth below; and
WHEREAS Borrowers, Lenders and Holdings desire to amend the Holdings
Pledge Agreement to permit the Hines II Transactions:
1
<PAGE>
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 1: Certain 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:
" 'Hines I Exposure' means at any date of determination the sum of (i)
the aggregate principal amount of domestic Term Loans outstanding under this
Agreement, (ii) the aggregate principal amount of Canadian Term Loans
outstanding under this Agreement, and (iii) the aggregate Revolving Loan
Exposure of all Lenders."
" 'Hines II Exposure' means at any date of determination the sum of (i)
the Canadian Term Loan Exposure of all lenders under the Hines II Credit
Facility, (ii) the Acquisition Exposure of all lenders under the Hines II
Credit Facility, and (iii) the Working Capital Revolving Loan Exposure of
all lenders under the Hines II Credit Facility (all capitalized terms used
in this definition and not otherwise defined in this Agreement to be as
defined in the Hines II Credit Facility)."
" 'Total Hines Exposure' means at any date of determination, the sum of
the Hines I Exposure and the Hines II Exposure."
B. Company Borrowing Base. Subsection 1.1 of the Credit Agreement is
hereby amended by (1) deleting clause (ii)(a) of the definition of "Company
Borrowing Base" therefrom in its entirety and substituting the following
therefor: "(a) during the period beginning January 1 and ending May 31 in each
year, fifty-five percent (55%) of Eligible Inventory of Company, and during the
period beginning June 1 and ending December 31 in each year, fifty percent (50%)
of Eligible Inventory of Company and" and (2) deleting the two references to
"$40,000,000" appearing in the definition of "Company Borrowing Base" and
substituting "$50,000,000" for each such reference.
C. Eligible Accounts Receivable. Subsection 1.1 of the Credit
Agreement is hereby amended by deleting the reference in clause (b) of the
definition of "Eligible Accounts Receivable" to "April 30" and substituting "May
31" therefor and by deleting the reference in such clause (b) to "$15,000,000"
and substituting "$20,000,000" therefor.
D. Sun Gro Borrowing Base. Subsection 1.1 of the Credit Agreement is
hereby amended by (1) deleting clause (ii) (a) of the definition of "Sun Gro
Borrowing Base" therefrom in its entirety and substituting the following
therefor: "(a) during the period beginning January 1 and ending May 31 in each
year, fifty-five percent (55%) of Eligible Inventory of Sun Gro, and during the
period beginning June 1 and ending December 31 in each
2
<PAGE>
year, fifty percent (50%) of Eligible Inventory of Sun Gro and" and (2) deleting
the two references to "$40,000,000" appearing in the definition of "Sun Gro
Borrowing Base" and substituting "$50,000,000" for each such reference.
1.2 Amendments to Section 2: Amounts and Terms of Commitments and
Loans
A. Prepayments and Reductions Due to Issuance of Equity Securities.
Subsection 2.4B of the Credit Agreement is hereby amended by deleting clauses
(iii)(c) and (d) in their entirety and substituting therefor the following:
"(c) Prepayments and Reductions Due to IPO. On the date of receipt by
Holdings or any of its Subsidiaries other than the Company or any of
its Subsidiaries of the cash proceeds (net of underwriting discounts
and commissions and other reasonable costs associated therewith) from
an initial Public Offering, the Commitments shall terminate and the
Company shall (x) prepay in full the outstanding principal amount of
all outstanding Revolving Loans and Term Loans, together with all
accrued and unpaid interest thereon, (y) pay in full all fees and other
amounts payable under the Loan Documents and (z) fully cash
collateralize all outstanding Letters of Credit or make such other
arrangements as are satisfactory in form and substance to Agent for the
termination of such Letters of Credit.
(d) Prepayments and Reductions Due to Issuance of Other Securities.
(I) On the date of receipt by Company or any of its Subsidiaries of the
cash proceeds (net of underwriting discounts and commissions and other
reasonable costs associated therewith) from the issuance of any equity
or debt Securities of Company or any of its Subsidiaries (other than
any Indebtedness permitted pursuant to subsection 7.1 as in effect on
the Closing Date and other than the proceeds of up to $3,000,000 in
MDCP equity contributions made to Holdings and contributed by Holdings
to Company on or prior to February 1, 1998 (the "Parent Equity
Contribution")), (i) both Company and Sun Gro Canada shall prepay their
respective Term Loans in an aggregate amount equal to such net cash
proceeds and (2) to the extent the amount of such net cash proceeds
exceeds the aggregate outstanding principal amount of the Term Loans,
both Company and Sun Gro Canada shall prepay their respective Revolving
Loans, and the Revolving Loan Commitments shall be permanently reduced,
in an aggregate amount equal to such excess. Any such mandatory
prepayments shall be applied as specified in subsection 2.4B(iv).
(II) No later than the first Business Day following the date of receipt
by Holdings of the cash proceeds (net of underwriting discounts and
commissions and other reasonable costs associated therewith) from the
issuance of any of its
3
<PAGE>
debt or equity Securities (other than (W) the proceeds of the Parent
Equity Contribution, (X) any warrants to purchase Holdings Common Stock
or Holdings Preferred Stock issued to any holders of any Indebtedness
incurred pursuant to subsection 7.1(vi) at the time of incurrence
thereof, (Y) up to $1,500,000 in aggregate issuance price of Holdings
Common Stock or Holdings Preferred Stock issued to officers and
employees of Company and its Subsidiaries and (Z) the proceeds of an
initial Public Offering pursuant to subsection 2.4B(iii)(c) above),
such net cash proceeds shall be applied (1) to prepay Indebtedness
pursuant to the Hines II Credit Agreement based on the proportionate
percentage which the Hines II Exposure bears to the Total Hines
Exposure and (2) to prepay Indebtedness under this Agreement based on
the proportionate percentage which the Hines I Exposure bears to the
Total Hines Exposure, such prepayments being applied to prepay first
the respective Term Loans of the Company and of Sun Gro Canada in an
aggregate amount equal to such net cash proceeds and then, to the
extent the amount of such net cash proceeds exceeds the aggregate
outstanding principal amount of the Term Loans, to prepay the
respective Revolving Loans of the Company and of Sun Gro Canada, and
the Revolving Loan Commitments shall be permanently reduced, in an
aggregate amount equal to such excess. Any such mandatory prepayments
shall be applied as specified in subsection 2.4B(iv)."
1.3 Amendments to Section 7: Borrowers' Negative Covenants
A. Consolidated Capital Expenditures. Subsection 7.8 of the Credit
Agreement is hereby amended by deleting the table contained therein in its
entirety and substituting the following therefor:
Maximum Consolidated
"Period Capital Expenditures
------------------- --------------------
Closing Date to
December 31, 1995 $ 2,750,000
Fiscal Year 1996 $ 8,350,000
Fiscal Year 1997 $12,100,000
Fiscal Year 1998 $13,000,000
Fiscal Year 1999 $ 8,300,000
Fiscal Year 2000
and each Fiscal
Year thereafter $10,800,000"
B. Restriction on Leases. Subsection 7.9 of the Credit Agreement is
hereby amended by deleting the reference to "$3,500,000" contained therein and
substituting "$5,000,000" therefor.
4
<PAGE>
1.4 Amendment to Section 8: Events of Default
Section 8 of the Credit Agreement is hereby amended by adding after
subsection 8.18 a new subsection 8.19 as follows:
"8.19 Equity Contributions.
(i) Holdings shall not have received from MDCP on or prior to
February 1, 1998, not less than $2,000,000 of the Parent Equity
Contribution; or (ii) Company shall not have received from Holdings on
or prior to such date an equity contribution in an amount equal to the
Parent Equity Contribution;"
1.5 Amendments to Section 10: Miscellaneous
Section 10 of the Credit Agreement is hereby amended by deleting the
period at the end of the first sentence of subsection 10.1A and by substituting
the following therefor: "; and provided, further that no such sale, assignment,
transfer or participation may be made by a Lender to an Eligible Assignee
without a concurrent sale, assignment, transfer or participation to such
Eligible Assignee of the assigning Lender's proportionate share of the
commitments under the Hines II Credit Agreement."
Section 2. AMENDMENT TO THE HOLDINGS PLEDGE AGREEMENT
2.1 Amendment to Section 1: Pledge of Security
Subsection 1(e) of the Holdings Pledge Agreement is hereby amended to
add the parenthetical phrase "(other than Hines II)" after the phrase "a direct
Subsidiary of Pledgor".
Section 3. CONDITIONS TO EFFECTIVENESS
Sections 1 and 2 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 "Ninth Amendment
Effective Date"):
A. On or before the Ninth Amendment Effective Date, Holdings and each
Borrower shall deliver to Lenders (or to Agent for Lenders) executed copies of
this Amendment.
B. Agent shall have received copies of this Amendment executed by
Requisite Lenders.
5
<PAGE>
C. On or before the Ninth 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 4. 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 and Holdings
represent and warrant 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 and the Holdings Pledge Agreement as amended by this Amendment (the
"Amended Agreements").
B. Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreements have been duly
authorized by all necessary corporate action on the part of each Loan Party
party hereto.
C. Signature and Incumbency. The signature and incumbency
certificates of officers of Holdings and each Borrower delivered in connection
with the Fifth Amendment correctly reflect, as of the Ninth Amendment Effective
Date, the signature and incumbency of each officer of Holdings and each Borrower
executing this Amendment.
D. No Conflict. After giving effect to the amendments effected
hereby, the execution and delivery by each Loan Party of this Amendment and the
performance by each Loan Party hereto of the Amended Agreements 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 and other than
is contemplated to be created with respect to Hines II in connection with the
Hines II Credit Facility), 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 Ninth Amendment Effective Date and disclosed in
writing to Lenders.
6
<PAGE>
E. 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 Agreements 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.
F. Binding Obligation. This Amendment has been duly executed and
delivered by each Loan Party and this Amendment and the Amended Agreements 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.
G. Incorporation of Representations and Warranties From Credit
Agreement. After giving effect to the amendments effected hereby, the
representations and warranties contained in Section 5 of the Credit Agreement
are and will be true, correct and complete in all material respects on and as of
the Ninth 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.
H. Absence of Default. After giving effect to the amendments
effected hereby, 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 5. 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 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
7
<PAGE>
(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, the Holdings Pledge Agreement, and
this Amendment and consents to the amendment of the Credit Agreement and the
Holdings Pledge 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
Agreements 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 Agreements 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 Ninth 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.
8
<PAGE>
Section 6. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(i) On and after the Ninth 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.
9
<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: /s/ Claudia Pieropan
-------------------------------------
Title: C. F. O
---------------------------------
SUN GRO HORTICULTURE INC.,
as Borrower
By: /s/ Claudia Pieropan
-------------------------------------
Title:
----------------------------------
SUN GRO HORTICULTURE CANADA LTD.,
as Borrower
By: /s/ Claudia Pieropan
-------------------------------------
Title:
----------------------------------
HINES HOLDINGS, INC. (formerly known
as Hines Horticulture Inc.)
By: /s/ Claudia Pieropan
-------------------------------------
Title:
----------------------------------
S-1
<PAGE>
BT COMMERCIAL CORPORATION,
as a Domestic Lender and as Agent
By: /s/ Richard Faulkner
-------------------------------------
Title:
----------------------------------
BT BANK OF CANADA,
as a Canadian Lender
By: /s/ James E. Kellar
-------------------------------------
Title: Managing Director
---------------------------------
BANKERS TRUST COMPANY,
as an Issuing Lender
By:
------------------------------------
Title:
---------------------------------
S-2
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By: /s/ Karen Knudsen
------------------------------------
Title: Vice President
---------------------------------
FLEET BANK OF MASSACHUSETTS, N.A.,
as a Domestic Lender
By:
------------------------------------
Title:
---------------------------------
LASALLE NATIONAL BANK,
as a Domestic Lender
By: /s/ F. Ward Nixon
------------------------------------
Title: Senior Vice President
---------------------------------
NATIONSBANK OF TEXAS, N.A.,
as a Domestic Lender and Canadian Lender
By: /s/ James Beckemier
------------------------------------
Title: Vice President
---------------------------------
UNION BANK OF CALIFORNIA, N.A.
as a Domestic Lender and Canadian Lender
By: /s/ Martin Valencia
------------------------------------
Title: Vice President
---------------------------------
S-3
<PAGE>
WELLS FARGO BANK, N.A.
as a Domestic Lender and Canadian Lender
By: signature illegible
------------------------------------
Title: Vice President
---------------------------------
BANK OF MONTREAL,
as a Canadian Lender
By: /s/ Merv McCune
------------------------------------
Title: Senior Account Manager
---------------------------------
S-4
<PAGE>
FLEET NATIONAL BANK,
as a Domestic Lender
By:
-------------------------------------
Title:
---------------------------------
S-5
<PAGE>
EXHIBIT 4.14
HINES HORTICULTURE, INC.
TENTH AMENDMENT TO CREDIT AGREEMENT
AND SECOND AMENDMENT TO HOLDINGS GUARANTY
This TENTH AMENDMENT TO CREDIT AGREEMENT AND SECOND AMENDMENT TO
HOLDINGS GUARANTY (this "Amendment") is dated as of March 9, 1998 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 5 hereof, the Credit Support Parties (as defined in
Section 5 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, that certain
Sixth Amendment dated as of February 14, 1997, that certain Seventh Amendment
and Consent to Credit Agreement dated as of March 26, 1997, that certain Eighth
Amendment and Limited Waiver to Credit Agreement and First Amendment to Holdings
Guaranty and Holdings Pledge Agreement dated as of November 7, 1997, and that
certain Ninth Amendment to Credit Agreement and Second Amendment to Holdings
Pledge Agreement dated as of December 16, 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, Lenders and Holdings desire to amend the Credit
Agreement and certain other Loan Documents (i) to permit Holdings to issue
certain promissory notes as partial consideration for an acquisition to be made
by Hines II, Inc., and (ii) to decrease the amount of Holdings Preferred Stock
required to be owned by MDCP;
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
Amendment to Section 8: Events of Default
A. Section 8 of the Credit Agreement is hereby amended by deleting the
reference to "the Holdings Preferred Stock" appearing after the word
"Stock," in subsection 8.12(iii).
B. Section 8 of the Credit Agreement is hereby further amended by
replacing subsection 8.18 with the following:
"8.18 Certain Covenants Relating to Holdings.
A. Holdings shall not engage in any business other than (i) owning
the capital stock of Company, Hines II and their respective
Subsidiaries, (ii) entering into and performing its obligations under
and in accordance with the Loan Documents and the Related Agreements to
which it is a party and the loan documents and related agreements to be
entered into by Holdings with respect to the Hines II Credit Facility,
including without limitation a demand note in favor of MDCP of up to
$2,500,000 for the capitalization of Hines II, a guarantee of Hines
II's obligations thereunder and a pledge of all of the outstanding
stock of Hines II in support of such guarantee, (iii) issuing preferred
stock and/or stock warrants to Abbott Capital 1330 Investors 1, LP and
issuing promissory notes in favor of the sellers of Lakeland Canada in
connection with the acquisition of Lakeland Canada and its Subsidiaries
by Hines II, Inc. and (iv) owning as its only assets (a) the capital
stock of Company, Hines II and their Subsidiaries and (b) Cash and Cash
Equivalents in an amount not to exceed $100,000 at any one time for the
purpose of paying general operating expenses of Holdings; or"
Section 2. AMENDMENT TO THE HOLDINGS GUARANTY
Amendment to Section 4: Covenants.
Subsection 4.4 of the Holdings Guaranty is hereby amended by
replacing subsection 4.4 with the following:
"4.4 Conduct of Business.
Guarantor shall engage only in the business of (i) owning the
capital stock of Company, Hines II and their respective Subsidiaries,
(ii) entering into and performing its obligations under and in
accordance with the Loan Documents and the Related Agreements to which
it is a party and the loan
2
<PAGE>
documents and related agreements to be entered into by Holdings with
respect to the Hines II Credit Facility, including without limitation a
demand note in favor of MDCP of up to $2,500,000 for the capitalization
of Hines II, a guarantee of Hines II's obligations thereunder and a
pledge of all of the outstanding stock of Hines II in support of such
guarantee and (iii) issuing preferred stock and/or stock warrants to
Abbott Capital 1330 Investors 1, LP and issuing promissory notes in
favor of the sellers of Lakeland Canada in connection with the
acquisition of Lakeland Canada and its Subsidiaries by Hines II, Inc.
Guarantor shall own no assets other than (a) the capital stock of
Company, Hines II and their Subsidiaries and (b) Cash and Cash
Equivalents in an amount not to exceed $100,000 at any one time for the
purpose of paying general operating expenses of Holdings. Guarantor
shall not directly engage in any business and shall limit its
activities to those activities necessary to discharge its obligations
as a holding company for Company and Hines II."
Section 3. CONDITIONS TO EFFECTIVENESS
Sections 1 and 2 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 "Tenth Amendment
Effective Date"):
A. On or before the Tenth Amendment Effective Date, Holdings and each
Borrower shall deliver to Lenders (or to Agent for Lenders) executed copies of
this Amendment.
B. Agent shall have received copies of this Amendment executed by
Requisite Lenders.
C. On or before the Tenth 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 4. 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 and Holdings
represent and warrant to each Lender that the following statements are true,
correct and complete:
3
<PAGE>
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 and other Loan Documents as amended by this Amendment (the "Amended
Agreements").
B. Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreements have been duly
authorized by all necessary corporate action on the part of each Loan Party
party hereto.
C. Signature and Incumbency. The signature and incumbency
certificates of officers of Holdings and each Borrower delivered in connection
with the Fifth Amendment correctly reflects, as of the Tenth Amendment Effective
Date, the signature and incumbency of each officer of Holdings and each Borrower
executing this Amendment and each of the Loan Documents entered into on or about
the Tenth Amendment Effective Date.
D. No Conflict. After giving effect to the amendments and waivers
effected hereby, the execution and delivery by each Loan Party of this Amendment
and the performance by each Loan Party hereto of the Amended Agreements 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 and other than
is contemplated to be created with respect to Hines II in connection with the
Hines II Credit Facility), 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 Tenth Amendment Effective Date and disclosed in
writing to Lenders.
E. 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 Agreements 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.
F. Binding Obligation. This Amendment has been duly executed and
delivered by each Loan Party and this Amendment and the Amended Agreements 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.
4
<PAGE>
G. Incorporation of Representations and Warranties From Credit
Agreement. After giving effect to the amendments and waivers effected hereby,
the representations and warranties contained in Section 3 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 Tenth 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.
H. Absence of Default. After giving effect to the amendments and
waivers effected hereby, 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 5. 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 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, the other Loan Documents and this
Amendment and consents to the amendment of the Credit Agreement and the other
Loan Documents 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
5
<PAGE>
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
Agreements 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 Agreements 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 Tenth 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 6. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(i) On and after the Tenth 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.
6
<PAGE>
(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.
7
<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: /s/ Paul R. Wood
------------------------------------
Title:
---------------------------------
SUN GRO HORTICULTURE INC.,
as Borrower
By: /s/ Paul R. Wood
------------------------------------
Title:
---------------------------------
SUN GRO HORTICULTURE CANADA LTD.,
as Borrower
By: /s/ Paul R. Wood
------------------------------------
Title:
---------------------------------
HINES HOLDINGS, INC. (formerly known
as Hines Horticulture Inc.)
By: /s/ Paul R. Wood
------------------------------------
Title:
---------------------------------
S-1
<PAGE>
BT COMMERCIAL CORPORATION,
as a Domestic Lender and as Agent
By: /s/ Richard Faulkner
------------------------------------
Title: Associate
---------------------------------
BT BANK OF CANADA,
as a Canadian Lender
By: /s/ James E. Kellar, V.P.
------------------------------------
Title:
---------------------------------
BANKERS TRUST COMPANY,
as an Issuing Lender
By: signature illegible
------------------------------------
Title:
---------------------------------
S-2
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By: /s/ Karen Knudsen
-------------------------------------
Title: Vice President
---------------------------------
FLEET BANK OF MASSACHUSETTS, N.A.,
as a Domestic Lender
By:
-------------------------------------
Title:
---------------------------------
LASALLE NATIONAL BANK,
as a Domestic Lender
By: /s/ Joshua D. Eichenhorn
------------------------------------
Title: First Vice President
---------------------------------
NATIONSBANK OF TEXAS, N.A.,
as a Domestic Lender and Canadian Lender
By: signature illegible
------------------------------------
Title:
---------------------------------
UNION BANK OF CALIFORNIA, N.A.
as a Domestic Lender and Canadian Lender
By: /s/ Martin Valencia
------------------------------------
Title: Vice President
---------------------------------
S-3
<PAGE>
WELLS FARGO BANK, N.A.
as a Domestic Lender and Canadian Lender
By: signature illegible
------------------------------------
Title:
---------------------------------
BANK OF MONTREAL,
as a Canadian Lender
By: /s/ Merv McCune
------------------------------------
Title: Senior Account Manager
---------------------------------
S-4
<PAGE>
ABN AMRO BANK CANADA, as a
Canadian Lender
By: _______________________________
Title: ____________________________
S-5
<PAGE>
EXHIBIT 4.21
================================================================================
CREDIT AGREEMENT
DATED AS OF DECEMBER 16, 1997
AMONG
HINES II, INC.,
as Borrower,
THE LENDERS LISTED HEREIN,
as Lenders,
and
BT COMMERCIAL CORPORATION,
as Agent
================================================================================
<PAGE>
HINES II, INC.
CREDIT AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. DEFINITIONS................................................. 2
1.1 Certain Defined Terms....................................... 2
1.2 Accounting Terms: Utilization of GAAP for Purposes of
Calculations Under Agreement................................ 42
1.3 Other Definitional Provisions............................... 42
Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS.................. 42
2.1 Commitments; Making of Loans; the Register; Notes........... 43
2.2 Interest on the Loans....................................... 52
2.3 Fees........................................................ 57
2.4 Repayments, Prepayments and Reductions in Commitments;
General Provisions Regarding Payments....................... 61
2.5 Use of Proceeds............................................. 68
2.6 Special Provisions Governing Eurodollar Rate Loans and
Canadian Eurodollar Rate Loans.............................. 68
2.7 Increased Costs; Taxes; Capital Adequacy.................... 71
2.8 Obligation of Lenders and Issuing Lenders to Mitigate....... 76
2.9 Collection, Deposit and Transfer of Payments in
Respect of Accounts......................................... 77
Section 3. LETTERS OF CREDIT........................................... 79
3.1 Issuance of Letters of Credit and Domestic Lenders'
Purchase of Participations Therein.......................... 79
3.2 Letter of Credit Fees....................................... 82
3.3 Drawings and Reimbursement of Amounts Drawn Under
Letters of Credit........................................... 82
3.4 Obligations Absolute........................................ 85
3.5 Indemnification; Nature of Issuing Lenders' Duties.......... 87
3.6 Increased Costs and Taxes Relating to Letters of Credit..... 88
Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT................... 89
4.1 Conditions to Term Loans and Initial Revolving Loans........ 89
4.2 Conditions to All Loans..................................... 96
4.3 Conditions to Letters of Credit............................. 97
4.4 Conditions to Canadian Loans................................ 97
Section 5. BORROWER'S REPRESENTATIONS AND WARRANTIES................... 103
</TABLE>
(i)
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
5.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries....................................103
5.2 Authorization of Borrowing, etc..............................104
5.3 Financial Condition..........................................105
5.4 No Material Adverse Change; No Restricted Junior Payments....106
5.5 Title to Properties; Liens...................................106
5.6 Litigation; Adverse Facts....................................106
5.7 Payment of Taxes.............................................107
5.8 Performance of Agreements; Materially Adverse Agreements;
Material Contracts...........................................107
5.9 Governmental Regulation......................................107
5.10 Securities Activities........................................108
5.11 Employee Benefit Plans.......................................108
5.12 Certain Fees.................................................108
5.13 Environmental Protection.....................................109
5.14 Employee Matters.............................................110
5.15 Solvency.....................................................110
5.16 Disclosure...................................................111
5.17 Related Agreements...........................................111
Section 6. BORROWER'S AFFIRMATIVE COVENANTS.............................111
6.1 Financial Statements and Other Reports.......................112
6.2 Corporate Existence, etc.....................................118
6.3 Deposit of Excess Cash; BTCC Account.........................118
6.4 Payment of Taxes and Claims; Tax Consolidation...............118
6.5 Maintenance of Properties; Insurance.........................119
6.6 Inspection; Lender Meeting...................................120
6.7 Compliance with Laws, etc....................................121
6.8 Environmental Disclosure and Inspection......................121
6.9 Company's Remedial Action Regarding Hazardous Materials......122
6.10 Supplemental Actions Relating to Creation and Perfection of
Liens and Security Interests in Real, Personal and Mixed
Property Collateral and Related Matters......................123
6.11 Execution of Guaranties and Collateral Documents by Future
Subsidiaries.................................................126
6.12 Additional Mortgages.........................................127
6.13 Assignability and Recording of Lease Agreements..............128
Section 7. BORROWER'S NEGATIVE COVENANTS................................129
7.1 Indebtedness.................................................129
7.2 Liens and Related Matters....................................130
7.3 Investments; Joint Ventures..................................131
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.4 Contingent Obligations.....................................132
7.5 Restricted Junior Payments.................................133
7.6 Financial Covenants........................................134
7.7 Restriction on Fundamental Changes; Asset
Sales and Acquisitions.....................................136
7.8 Consolidated Capital Expenditures..........................138
7.9 Restriction on Leases......................................138
7.10 Sales and Lease-Backs......................................139
7.11 Sale or Discount of Receivables............................139
7.12 Transactions with Shareholders and Affiliates..............139
7.13 Disposal of Subsidiary Stock...............................140
7.14 Conduct of Business........................................140
7.15 Amendments of Certain Documents............................140
7.16 Fiscal Year................................................140
Section 8. EVENTS OF DEFAULT..........................................140
8.1 Failure to Make Payments When Due..........................141
8.2 Default in Other Agreements................................141
8.3 Breach of Certain Covenants................................141
8.4 Breach of Warranty.........................................141
8.5 Defaults Under Loan Documents..............................142
8.6 Involuntary Bankruptcy; Appointment of Receiver,
etc........................................................142
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.........142
8.8 Judgments and Attachments..................................143
8.9 Dissolution................................................143
8.10 Employee Benefit Plans.....................................143
8.11 Material Adverse Effect....................................143
8.12 Change in Control..........................................143
8.13 Invalidity of Any Guaranty.................................144
8.14 Failure of Security........................................144
8.15 Amendment of Certain Documents of Holdings.................145
8.16 Conduct of Business Relating to Holdings...................145
Section 9. AGENT......................................................146
9.1 Appointment................................................146
9.2 Powers and Duties; General Immunity........................146
9.3 Representations and warranties; No Responsibility
For Appraisal of Creditworthiness..........................148
9.4 Right to Indemnity.........................................148
9.5 Successor Agent............................................149
9.6 Collateral Documents and Guaranties........................149
Section 10. MISCELLANEOUS..............................................150
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.1 Assignments and Participations in Loans and Letters of Credit..150
10.2 Expenses.......................................................153
10.3 Indemnity......................................................153
10.4 Set-Off; Security Interest in Deposit Accounts.................155
10.5 Ratable Sharing................................................156
10.6 Amendments and Waivers.........................................157
10.7 Independence of Covenants......................................158
10.8 Notices........................................................158
10.9 Survival of Representations, Warranties and Agreements.........159
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative..........159
10.11 Marshalling; Payments Set Aside................................159
10.12 Severability...................................................160
10.13 Obligations Several; Independent Nature of Lenders' Rights.....160
10.14 Headings.......................................................160
10.15 Applicable Law.................................................160
10.16 Successors and Assigns.........................................160
10.17 Consent to Jurisdiction and Service of Process.................161
10.18 Waiver of Jury Trial...........................................161
10.19 Confidentiality................................................162
10.20 Judgment Currency..............................................162
10.21 Counterparts; Effectiveness....................................163
Signature pages.....................................................S-1
</TABLE>
(iv)
<PAGE>
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF REQUEST FOR ISSUANCE OF LETTER OF CREDIT
IV FORM OF ACQUISITION TERM NOTE
V-A FORM OF WORKING CAPITAL REVOLVING NOTE
V-B FORM OF ACQUISITION REVOLVING NOTE
VI FORM OF CANADIAN NOTE
VII FORM OF COMPLIANCE CERTIFICATE
VIII FORM OF FINANCIAL CONDITION CERTIFICATE
IX FORM OF BORROWING BASE CERTIFICATE
X FORM OF OPINION OF KIRKLAND & ELLIS
XI FORM OF OPINION OF O'MELVENY & MYERS
XII FORM OF ASSIGNMENT AGREEMENT
XIII FORM OF AUDITOR'S LETTER
XIV FORM OF CERTIFICATE RE NON-BANK STATUS
XV FORM OF COLLATERAL ACCOUNT AGREEMENT
XVI FORM OF BLOCKED ACCOUNT AGREEMENT
XVII FORM OF HOLDINGS GUARANTY
XVIII FORM OF HOLDINGS PLEDGE AGREEMENT
XIX FORM OF COMPANY GUARANTY
XX FORM OF COMPANY SECURITY AGREEMENT
XXI FORM OF COMPANY PLEDGE AGREEMENT
XXII FORM OF COMPANY TRADEMARK SECURITY AGREEMENT
XXIII FORM OF COMPANY PATENT SECURITY AGREEMENT
XXIV FORM OF DOMESTIC SUBSIDIARY GUARANTY
XXV FORM OF DOMESTIC SUBSIDIARY SECURITY AGREEMENT
XXVI FORM OF DOMESTIC SUBSIDIARY PLEDGE AGREEMENT
XXVII FORM OF DOMESTIC SUBSIDIARY TRADEMARK SECURITY AGREEMENT
XXVIII FORM OF DOMESTIC SUBSIDIARY PATENT SECURITY AGREEMENT
XXIX FORM OF CANADIAN SUBSIDIARY SECURITY AGREEMENT
XXX FORM OF CANADIAN SUBSIDIARY PLEDGE AGREEMENT
XXXI FORM OF CANADIAN SUBSIDIARY TRADEMARK SECURITY AGREEMENT
XXXII FORM OF CANADIAN SUBSIDIARY PATENT SECURITY AGREEMENT
XXXIII FORM OF COLLATERAL ACCESS AGREEMENT
XXXIV FORM OF CANADIAN SUBSIDIARY GUARANTY
XXXV FORM OF LOCKBOX AGREEMENT
(v)
<PAGE>
SCHEDULES
1.1 EXISTING LETTERS OF CREDIT
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
4.1F ORGANIZATIONAL AND OWNERSHIP STRUCTURE
5.1 SUBSIDIARIES OF COMPANY
5.3 NON-CONFORMITY WITH GAAP
5.5 REAL PROPERTY ASSETS
5.7 CERTAIN TAX RELATED MATTERS
5.12 CERTAIN FEES
7.1 CERTAIN EXISTING INDEBTEDNESS
7.3 CERTAIN EXISTING INVESTMENTS
(vi)
<PAGE>
HINES II, INC.
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of December 16, 1997 and entered
into by and among HINES II, INC. ("Company" or "Borrower"), THE FINANCIAL
INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to
herein as a "Lender" and collectively as "Lenders"), and BT COMMERCIAL
CORPORATION ("BTCC"), as agent for Lenders (in such capacity, "Agent").
R E C I T A L S
---------------
WHEREAS, Borrower desires that Lenders extend certain credit
facilities to Borrower to provide funds necessary to finance the acquisition of
companies, and/or the assets or operations of companies, engaged in the nursery
business or businesses related thereto, and to provide financing for working
capital and other general corporate purposes of Company and its Subsidiaries,
including the issuance of letters of credit, for the company and business
operations so acquired;
WHEREAS, Holdings has agreed to guaranty the Obligations (this and
other capitalized terms used in these recitals without definition being used as
defined in subsection 1.1) of Borrower and to secure such guaranty by pledging
to Agent for the benefit of Lenders all of the capital stock of Company;
WHEREAS, Borrower has agreed to secure its obligations as Borrower,
and each of Company's Domestic Subsidiaries has agreed to guaranty the
Obligations of Borrower and secure its Obligations as a Guarantor, by pledging
to Agent for the benefit of Lenders all of the capital stock of its Domestic
Subsidiaries and 66% of the capital stock of its Canadian Subsidiaries, if any,
and by granting to Agent for the benefit of Lenders a security interest in
substantially all of its other personal property and certain of its real
property;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Lenders and Agent agree as
follows:
1
<PAGE>
Section 1. DEFINITIONS
1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the following
meanings:
"Account" means, with respect to any Person, all present and future
rights of such Person to payment for goods sold or leased or for services
rendered (except those evidenced by instruments or chattel paper), whether now
existing or hereafter arising and wherever arising, and whether or not they have
been earned by performance.
"Acquisition Conversion Date" means December 31, 1999, the date on
which the Acquisition Revolving Loans are converted to Acquisition Term Loans
pursuant to subsection 2.1A(iv).
"Acquisition Exposure" means, with respect to any Lender as of any
date of determination (i) prior to the Acquisition Conversion Date, that
Lender's Acquisition Revolving Loan Commitment and (ii) after the Acquisition
Conversion Date, the outstanding principal amount of the Acquisition Term Loans
of that Lender.
"Acquisition Revolving Loans" means the Acquisition Revolving Loans
made by Lenders to Company pursuant to subsection 2.1A(iii).
"Acquisition Revolving Notes" means (i) the promissory notes of
Company issued pursuant to subsection 2.1F on the Closing Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of subsection
10.1B(i) in connection with assignments of the Acquisition Revolving Loan
Commitments and Acquisition Revolving Loans of any Lenders, in each case
substantially in the form of Exhibit V-B annexed hereto, as they may be amended,
supplemented or otherwise modified from time to time.
"Acquisition Term Loan Commitment" means the commitment of a Lender to
convert Acquisition Revolving Loans to Acquisition Term Loans pursuant to
subsection 2.1A(iv).
"Acquisition Term Loan Notes" means (i) the promissory notes of
Company issued pursuant to subsection 2.1A(iv) on the Acquisition Conversion
Date and (ii) any promissory notes issued by Company pursuant to the last
sentence of subsection 10.1B(i) in connection with assignments of the
Acquisition Term Loans of any Lenders, in each case substantially in the form of
Exhibit IV annexed hereto, as they may be amended, supplemented or otherwise
modified from time to time.
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"Acquisition Term Loans" means the Acquisition Term Loans made by
Lenders to Company pursuant to subsection 2.1A(iv).
"Acquisition Revolving Loan Commitment" means the commitment of a
Lender to make Acquisition Revolving Loans to Company pursuant to Section
2.1A(iii).
"Adjusted Eurodollar Rate" means, for any Interest Rate Determination
Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per
annum obtained by dividing (i) the offered quotation (rounded upward to the
nearest 1/16 of one percent) to first class banks in the interbank Eurodollar
market by BTCo for U.S. dollar deposits of amounts in same day funds comparable
to the principal amount of the Eurodollar Rate Loan of BTCC for which the
Adjusted Eurodollar Rate is then being determined with maturities comparable to
such Interest Period as of approximately 10:00 a.m. (New York time) on such
Interest Rate Determination Date by (ii) a percentage equal to 100% minus the
stated maximum rate of all reserve requirements (including, without limitation,
any marginal, emergency, supplemental, special or other reserves) applicable on
such Interest Rate Determination Date to any member bank of the Federal Reserve
System in respect of "Eurocurrency liabilities" as defined in Regulation D (or
any successor category of liabilities under Regulation D).
"Adjusted Pro Rata Share" means, with respect to any Domestic Lender,
the percentage obtained by dividing (i) the Revolving Loan Exposure of that
Domestic Lender by (ii) the aggregate Revolving Loan Exposure of all Domestic
Lenders other than Daily Funding Lender.
"Affected Lender" has the meaning assigned to that term in subsection
2.6C.
"Affiliate", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"Agent" has the meaning assigned to that term in the introduction to
this Agreement and also means and includes any successor Agent appointed
pursuant to subsection 9.5.
"Agreement" means this Credit Agreement dated as of December 16, 1997,
as it may be amended, supplemented or otherwise modified from time to time.
"Applicable Acquisition Base Rate Margin" means as of any date of
determination, a percentage per annum as set forth below opposite the applicable
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Consolidated Interest Coverage Ratio; provided that such Consolidated Interest
Coverage Ratio (or better) shall have been achieved for each of the two four-
Fiscal Quarter periods ending as of the last day of the two Fiscal Quarters
immediately preceding the Fiscal Quarter in which such date of determination
occurs; and provided further that for the period beginning on and including the
Closing Date to and including the anniversary of the Closing Date, the
Applicable Acquisition Base Rate Margin shall be 1.25% per annum:
Applicable Acquisition
Consolidated Interest Coverage Ratio Base Rate Margin
less than 2.25 1.25%
greater than or equal to 2.25 1.00%
but less than 2.75
greater than or equal to 2.75 0.75%
but less than 3.25
greater than or equal to 3.25 0.50%
"Applicable Acquisition Eurodollar Rate Margin" means as of any date
of determination, a percentage per annum set forth below opposite the applicable
Consolidated Interest Coverage Ratio; provided that such Consolidated Interest
Coverage Ratio (or better) shall have been achieved for each of the two four-
Fiscal Quarter periods ending as of the last day of the two Fiscal Quarters
immediately preceding the Fiscal Quarter in which such date of determination
occurs; and provided further that for the period beginning on and including the
Closing Date to and including the anniversary of the Closing Date, the
Applicable Acquisition Eurodollar Rate Margin shall be 2.75% per annum:
Applicable Acquisition
Consolidated Interest Coverage Ratio Eurodollar Rate Margin
less than 2.25 2.75%
greater than or equal to 2.25 2.50%
but less than 2.75
greater than or equal to 2.75 2.25%
but less than 3.25
greater than or equal to 3.25 2.00%
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"Applicable Canadian Base Rate Margin" means as of any date of
determination, a percentage per annum as set forth below opposite the applicable
Consolidated Interest Coverage Ratio; provided that such Consolidated Interest
Coverage Ratio (or better) shall have been achieved for each of the two four-
Fiscal Quarter periods ending as of the last day of the two Fiscal Quarters
immediately preceding the Fiscal Quarter in which such date of determination
occurs; and provided further that for the period beginning on and including the
Closing Date to and including the anniversary of the Closing Date, the
Applicable Canadian Base Rate Margin shall be 1.25% per annum:
Applicable Canadian
Consolidated Interest Coverage Ratio Base Rate Margin
less than 2.25 1.25%
greater than or equal to 2.25 1.00%
but less than 2.75
greater than or equal to 2.75 .75%
but less than 3.25
greater than or equal to 3.25 .50%
"Applicable Canadian Eurodollar Rate Margin" means as of any date of
determination, a percentage per annum as set forth below opposite the applicable
Consolidated Interest Coverage Ratio; provided that such Consolidated Interest
Coverage Ratio (or better) shall have been achieved for each of the two four-
Fiscal Quarter periods ending as of the last day of the two Fiscal Quarters
immediately preceding the Fiscal Quarter in which such date of determination
occurs; and provided further that for the period beginning on and including the
Closing Date to and including the anniversary of the Closing Date, the
Applicable Canadian Eurodollar Rate Margin shall be 2.75% per annum:
Applicable Canadian
Consolidated Interest Coverage Ratio Eurodollar Rate Margin
less than 2.25 2.75%
greater than or equal to 2.25 2.50%
but less than 2.75
greater than or equal to 2.75 2.25%
but less than 3.25
greater than or equal to 3.25 2.00%
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"Applicable Working Capital Base Rate Margin" means as of any date of
determination, a percentage per annum as set forth below opposite the applicable
Consolidated Interest Coverage Ratio; provided that such Consolidated Interest
Coverage Ratio (or better) shall have been achieved for each of the two four-
Fiscal Quarter periods ending as of the last day of the two Fiscal Quarters
immediately preceding the Fiscal Quarter in which such date of determination
occurs; and provided further that for the period beginning on and including the
Closing Date to and including the anniversary of the Closing Date, the
Applicable Working Capital Base Rate Margin shall be 0.75% per annum:
Applicable Working
Consolidated Interest Coverage Ratio Capital Base Rate Margin
less than 2.25 0.75%
greater than or equal to 2.25 0.50%
but less than 2.75
greater than or equal to 2.75 0.25%
but less than 3.25
greater than or equal to 3.25 0%
"Applicable Working Capital Eurodollar Rate Margin" means as of any
date of determination, a percentage per annum set forth below opposite the
applicable Consolidated Interest Coverage Ratio; provided that such Consolidated
Interest Coverage Ratio (or better) shall have been achieved for each of the two
four-Fiscal Quarter periods ending as of the last day of the two Fiscal Quarters
immediately preceding the Fiscal Quarter in which such date of determination
occurs; and provided further that for the period beginning on and including the
Closing Date to and including the anniversary of the Closing Date, the
Applicable Working Capital Eurodollar Rate Margin shall be 2.25% per annum:
Applicable Working Capital
Consolidated Interest Coverage Ratio Eurodollar Rate Margin
less than 2.25 2.25%
greater than or equal to 2.25 2.00%
but less than 2.75
greater than or equal to 2.75 1.75%
but less than 3.25
greater than or equal to 3.25 1.50%
"Asset Sale" means the sale by Company or any of its Subsidiaries to
any Person other than Company or any of its wholly-owned Subsidiaries of (i) any
of the stock of
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any of Company's Subsidiaries, (ii) substantially all of the assets of any
division or line of business of Company or any of its Subsidiaries, or (iii) any
other assets (whether tangible or intangible) of Company or any of its
Subsidiaries (other than (a) inventory sold in the ordinary course of business
and (b) any such other assets to the extent that the aggregate value of such
assets sold in any single transaction or related series of transactions is equal
to $250,000 or less).
"Assignment Agreement" means an Assignment Agreement in substantially
the form of Exhibit XII annexed hereto.
"Auditor's Letter" means a letter, substantially in the form of
Exhibit XIII annexed hereto, executed by Price Waterhouse and delivered to Agent
pursuant to subsection 4.1Q or 6.1(iii).
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"Base Rate" means, at any time, the higher of (x) the Prime Rate and
(y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate.
"Base Rate Loans" means Domestic Loans bearing interest at rates
determined by reference to the Base Rate as provided in subsection 2.2A.
"Blocked Account Agreement" means the Blocked Account Agreement
executed and delivered by a Concentration Bank, Agent and the applicable Loan
Party, substantially in the form of Exhibit XVI annexed hereto, as such Blocked
Account Agreement may be amended, supplemented or otherwise modified from time
to time, and "Blocked Account Agreements" means all such Blocked Account
Agreements, collectively.
"Borrower" has the meaning assigned to that term in the introduction
to this Agreement and, upon compliance with the terms and conditions set forth
in subsection 4.4, shall mean and include Lakeland Canada.
"Borrowing Base" means, as at any date of determination, an aggregate
amount equal to:
(i) eighty-five percent (85%) of Eligible Accounts Receivable
plus
(ii) the lesser of (a) fifty percent (50%) of Eligible Inventory
and (b) $5,000,000, minus
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(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;
provided that Agent, in the exercise of its Permitted Discretion, may (a)
increase or decrease reserves against Eligible Accounts Receivable and Eligible
Inventory 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.
"Borrowing Base Certificate" means a certificate substantially in the
form of Exhibit IX annexed hereto delivered to Lenders by Company pursuant to
subsection 4.1N or subsection 6.1(xx).
"Bryfogle" means Bryfogle's Co., Inc., Bryfogle's Wholesale, Inc., and
Power Plants II, Inc., each a Pennsylvania corporation.
"BT Canada" means BT Bank of Canada.
"BT Canada Account" means an account maintained by BT Canada into
which the applicable Concentration Banks are instructed to transfer funds on
deposit in the applicable Concentration Accounts pursuant to the terms of the
applicable Blocked Account Agreements, if any.
"BTCC" has the meaning assigned to that term in the introduction to
this Agreement.
"BTCC Account" means an account maintained by Agent at BTCo into which
the applicable Concentration Banks are instructed to transfer funds on deposit
in the applicable Concentration Accounts pursuant to the terms of the applicable
Blocked Account Agreements, if any.
"BTCC Investment Account" means the blocked investment account
maintained by Agent at BTCo pursuant to BTCo's customary terms and conditions
for such accounts.
"BTCo" means Bankers Trust Company.
"BT Concentration Account" means an account under the exclusive
dominion and control of Agent that is maintained by any Loan Party with BTCo
into which the applicable Lock Box Banks are instructed to transfer funds on
deposit in the Lock Box Accounts pursuant to the terms of the Lock Box
Agreements.
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"Business Day" means (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of New York or California or is a day
on which banking institutions located in either such state are authorized or
required by law or other governmental action to close, and (ii) with respect to
all notices, determinations, fundings and payments in connection with any
Canadian Loans, any day that is a Business Day described in clause (i) above but
excluding any day which, under the laws of the Province of Ontario, Canada, is a
day on which banking institutions located in such province are authorized or
required by law or other governmental action to close.
"Canadian Agent" means initially BT Canada and any successor Canadian
Agent appointed by Company and Agent.
"Canadian Base Rate" means, as at any date with respect to any
Canadian Loan, the rate of interest per annum equal to the greater of (a) the
rate which BTCo announces in Canada from time to time as the reference rate of
interest for loans in Dollars to its Canadian borrowers, adjusted automatically
with each change in such rates all without the necessity of any notice to any
Borrower or any other Person, and (b) the aggregate of (i) the Federal Funds
Effective Rate per annum for such day and (ii) 1/2 of 1% per annum. As to any
loan, the Canadian Base Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any Canadian customer for
loans denominated in Dollars. BTCo may make commercial or other loans to
Canadian customers denominated in Dollars at rates of interest at, above or
below the Canadian Base Rate.
"Canadian Base Rate Loans" means Canadian Loans denominated in Dollars
and bearing interest at rates determined by reference to the Canadian Base Rate
as provided in subsection 2.2A.
"Canadian Commitment" means the commitment of a Canadian Lender to
make Term Loans to Lakeland Canada pursuant to subsection 2.1A(ii), and
"Canadian Commitments" means such commitments of all Canadian Lenders in the
aggregate.
"Canadian Dollars" means the lawful money of Canada.
"Canadian Eurodollar Rate" means, with respect to each Interest Period
to be applicable to a Canadian Eurodollar Rate Loan comprising part of the same
borrowing, the interest rate per annum equal to the arithmetic average (rounded
upward to the nearest whole multiple of 1/16 of 1% per annum) of the rates per
annum which leading banks in the interbank Eurodollar markets shall quote and
offer to Canadian Reference Bank for placing deposits with Canadian Reference
Bank in Dollars, at approximately 10:00 A.M. (New York time), two Business Days
before the first day of such Interest Period, for a period comparable to such
Interest Period and in an amount approximately equal to the amount of such
Canadian Eurodollar Rate Loan.
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<PAGE>
"Canadian Eurodollar Rate Loans" means Canadian Loans denominated in
Dollars and bearing interest at rates determined by reference to the Canadian
Eurodollar Rate as provided in subsection 2.2A.
"Canadian Funding and Payment Office" means (i) the office of BT
Canada located at 200 Bay Street, Suite 1700, Toronto, Canada or (ii) such other
office of Canadian Agent as may from time to time hereafter be designated as
such in a written notice delivered by Canadian Agent to Borrower and each
Lender.
"Canadian Lender" means any Lender having a Canadian Commitment or, on
and after the termination of the Canadian Commitment, having a Canadian Loan
outstanding.
"Canadian Loan Exposure" means, with respect to any Canadian Lender as
of any date of determination (i) prior to the funding of the Canadian Loans,
that Lender's Canadian Loan Commitment and (ii) after the funding of the
Canadian Loans, the outstanding principal amount of the Canadian Loan of that
Lender.
"Canadian Loan Funding Date" means the date on or prior to January 31,
1998, on which the Canadian Loans are funded.
"Canadian Loans" means the Term Loans made by Canadian Lenders to
Lakeland Canada pursuant to subsection 2.1A(ii).
"Canadian Lock Box Account" means a Deposit Account under the
exclusive dominion and control of Agent that is maintained by Lakeland Canada or
any of its Subsidiaries with a Lock Box Bank pursuant to a Lock Box Agreement.
"Canadian Note" means (i) the promissory notes of Lakeland Canada
issued pursuant to subsection 2.1A(ii) any promissory notes issued by Lakeland
Canada pursuant to the last sentence of subsection 10.1B(i) in connection with
assignments of the Canadian Loans of any Lenders, in each case substantially in
the form of Exhibit VI annexed hereto, as they may be amended, supplemented or
otherwise modified from time to time.
"Canadian Reference Bank" means BT Canada.
"Canadian Subsidiary" means a Subsidiary of Company that is
incorporated or organized under the laws of Canada or any of its provinces.
"Canadian Subsidiary Guaranty" means the Canadian Subsidiary Guaranty
to be executed and delivered by Canadian Subsidiaries from time to time after
the Closing Date in accordance with subsection 6.11, substantially in the form
of Exhibit XXXIV annexed hereto, as such Canadian Subsidiary Guaranty may be
amended, supplemented or otherwise modified from time to time.
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<PAGE>
"Canadian Subsidiary Patent Security Agreement" means each Canadian
Subsidiary Patent Collateral Security Agreement and Conditional Assignment
executed and delivered by Canadian Subsidiaries on the Closing Date or to be
executed and delivered by Canadian Subsidiaries from time to time thereafter in
accordance with subsection 6.11, in each case substantially in the form of
Exhibit XXXII annexed hereto, as such Canadian Subsidiary Patent Collateral
Security Agreement and Conditional Assignment may be amended, supplemented or
otherwise modified from time to time, and "Canadian Subsidiary Patent Security
Agreements" means all such Canadian Subsidiary Patent Collateral Security
Agreement and Conditional Assignments, collectively.
"Canadian Subsidiary Pledge Agreement" means each Canadian Subsidiary
Pledge Agreement executed and delivered by Canadian Subsidiaries on the Closing
Date or to be executed and delivered by Canadian Subsidiaries from time to time
thereafter in accordance with subsection 6.11, in each case substantially in the
form of Exhibit XXX annexed hereto, as such Canadian Subsidiary Pledge Agreement
may be amended, supplemented or otherwise modified from time to time, and
"Canadian Subsidiary Pledge Agreements" means all such Canadian Subsidiary
Pledge Agreements, collectively.
"Canadian Subsidiary Security Agreement" means each Canadian
Subsidiary Security Agreement executed and delivered by Canadian Subsidiaries on
the Closing Date or to be executed and delivered by Canadian Subsidiaries from
time to time thereafter in accordance with subsection 6.11, in each case
substantially in the form of Exhibit XXIX annexed hereto, as such Canadian
Subsidiary Security Agreement may be amended, supplemented or otherwise modified
from time to time, and "Canadian Subsidiary Security Agreements" means all such
Canadian Subsidiary Security Agreements, collectively.
"Canadian Subsidiary Trademark Security Agreement" means each Canadian
Subsidiary Trademark Collateral Security Agreement executed and delivered by
Canadian Subsidiaries on the Closing Date or to be executed and delivered by
Canadian Subsidiaries from time to time thereafter in accordance with subsection
6.11, in each case substantially in the form of Exhibit XXXI annexed hereto, as
such Canadian Subsidiary Trademark Collateral Security Agreement may be amended,
supplemented or otherwise modified from time to time, and "Canadian Subsidiary
Trademark Security Agreements" means all such Canadian Subsidiary Trademark
Collateral Security Agreements, collectively.
"Capital Lease", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"Cash" means money, currency or a credit balance in a Deposit Account.
"Cash Equivalents" means, as at any date of determination, (i) (a)
marketable securities (1) issued or directly and unconditionally guaranteed as
to interest and principal by
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the United States Government or (2) issued by any agency of the United States
the obligations of which are backed by the full faith and credit of the United
States, in each case maturing within one year after such date; (b) marketable
direct obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof,
in each case maturing within one year after such date and having, at the time of
the acquisition thereof, the highest rating obtainable from either Standard &
Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (c)
commercial paper maturing no more than one year from the date of creation
thereof and having, at the time of the acquisition thereof, a rating of at least
A-1 from S&P or at least P-1 from Moody's; (d) certificates of deposit or
bankers' acceptances maturing within one year after such date and issued or
accepted by any Lender or by any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia that
(1) is at least "adequately capitalized" (as defined in the regulations of its
primary Federal banking regulator) and (2) has Tier 1 capital (as defined in
such regulations) of not less than $100,000,000; and (e) shares of any money
market mutual fund that (1) has at least 95% of its assets invested continuously
in the types of investments referred to in clauses (a) and (b) above, (2) has
net assets of not less than $500,000,000, and (3) has the highest rating
obtainable from either S&P or Moody's, and (ii) comparable Canadian short term
investments.
"Cash Proceeds" means, with respect to any Asset Sale, Cash payments
(including any Cash received by way of deferred payment pursuant to, or
monetization of, a note receivable or otherwise, but only as and when so
received) received from such Asset Sale.
"Certificate re Non-Bank Status" means a certificate substantially in
the form of Exhibit XIV annexed hereto delivered by a Lender to Agent pursuant
to subsection 2.7B(iii).
"Class" means, as applied to Lenders, each of the two classes of
Lenders consisting of (i) Domestic Lenders and (ii) Canadian Lenders.
"Closing Date" means the date on or before December 16, 1997, on which
the initial Loans are made.
"Collateral" means, collectively, all of the real, personal and mixed
property (including capital stock) in which Liens are purported to be granted by
the Collateral Documents.
"Collateral Access Agreement" means any landlord waiver, mortgagee
waiver, bailee letter or any similar acknowledgement agreement of any landlord
or mortgagee in respect of any Real Property Asset where any Inventory is
located or any warehouseman or processor in possession of Inventory,
substantially in the form of
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Exhibit XXXIII annexed hereto, with such changes thereto as may be agreed to by
Agent in the reasonable exercise of its discretion.
"Collateral Account" has the meaning assigned to that term in the
Collateral Account Agreement.
"Collateral Account Agreement" means the Collateral Account Agreements
executed and delivered by Company and Agent on the Closing Date, substantially
in the form of Exhibit XV annexed hereto, pursuant to which Company may pledge
cash to Agent to secure the obligations of Company to reimburse Issuing Lenders
for payments made under one or more Letters of Credit as provided in Section 8,
as such Collateral Account Agreements may hereafter be amended, supplemented or
otherwise modified from time to time.
"Collateral Documents" means the Collateral Account Agreement, the
Holdings Pledge Agreement, the Company Security Agreement, the Company Pledge
Agreement, the Company Trademark Security Agreement, the Company Patent Security
Agreement, the Domestic Subsidiary Security Agreements, the Domestic Subsidiary
Pledge Agreements, the Domestic Subsidiary Trademark Security Agreements, the
Domestic Subsidiary Patent Security Agreements, the Canadian Subsidiary Security
Agreements, the Canadian Subsidiary Pledge Agreements, the Canadian Subsidiary
Trademark Security Agreements, the Canadian Subsidiary Patent Security
Agreements, the Blocked Account Agreements, the Lockbox Agreements and the
Mortgages.
"Commitments" means the Working Capital Loan Commitment, the
Acquisition Revolving Loan Commitment, the Acquisition Term Loan Commitment or
the Canadian Commitment or any combination thereof.
"Commitment Fee Percentage" means, as of any date of determination, a
percentage per annum equal to .50% per annum.
"Commitment Termination Date" means December 31, 2002.
"Company" has the meaning assigned to that term in the introduction to
this Agreement.
"Company Common Stock" means the common stock of Company, par value
$.01 per share.
"Company Guaranty" means the Company Guaranty executed and delivered
by Company on the Closing Date, substantially in the form of Exhibit XIX annexed
hereto, as such Company Guaranty may be amended, supplemented or otherwise
modified from time to time.
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"Company Patent Security Agreement" means the Company Patent
Collateral Assignment and Security Agreement executed and delivered by Company
on the Closing Date, substantially in the form of Exhibit XXIII annexed hereto,
as such Company Patent Collateral Assignment and Security Agreement may be
amended, supplemented or otherwise modified from time to time.
"Company Pledge Agreement" means the Company Pledge Agreement executed
and delivered by Company on the Closing Date, substantially in the form of
Exhibit XXI annexed hereto, as such Company Pledge Agreement may be amended,
supplemented or otherwise modified from time to time.
"Company Preferred Stock" means the ___% Cumulative Redeemable Senior
Preferred Stock of Company, par value $.01 per share, with a liquidation
preference of $_____ per share and the provisions of Company's Articles of
Incorporation relating to the terms and conditions of such preferred stock, in
each case in the form delivered to Agent prior to the Closing Date and as
amended from time to time to the extent permitted under subsection 7.15.
"Company Security Agreement" means the Company Security Agreement
executed and delivered by Company on the Closing Date, substantially in the form
of Exhibit XX annexed hereto, as such Company Security Agreement may be amended
or supplemented or otherwise modified from time to time.
"Company Trademark Security Agreement" means the Company Trademark
Collateral Security Agreement executed and delivered by Company on the Closing
Date, substantially in the form of Exhibit XXII annexed hereto, as such Company
Trademark Collateral Security Agreement may be amended, supplemented or
otherwise modified from time to time.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit VII annexed hereto delivered to Agent and Lenders by Company pursuant
to subsection 6.1(iv).
"Concentration Accounts" means, collectively, the BT Concentration
Accounts and the Other Bank Concentration Accounts.
"Concentration Bank" means BTCo or any commercial bank satisfactory to
Agent at which any Loan Party maintains a Concentration Account.
"Consolidated Capital Expenditures" means, for any period, the
aggregate of all expenditures (whether paid in cash or other consideration or
accrued as a liability and including that portion of Capital Leases which is
capitalized on the consolidated balance sheet of Company and its Subsidiaries)
by Company and its Subsidiaries during that period that, in
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<PAGE>
conformity with GAAP, are included in "additions to property, plant or
equipment" or comparable items reflected in the consolidated statement of cash
flows of Company and its Subsidiaries; provided that, (a) in connection with the
purchase or other acquisition of any asset (the "Replacement Asset") by Company
or any of its Subsidiaries substantially concurrently with the sale of, or
pursuant to an exchange for or trade-in of, any existing asset of Company or
such Subsidiary of like kind and character (which, in the case of a Real
Property Asset, shall be located within a 30-mile radius of the Replacement
Asset) (the "Replaced Asset"), there shall be included in Consolidated Capital
Expenditures only the excess, if any, of the gross purchase price of the
Replacement Asset over the credit given by the seller of the Replacement Asset
for the trade-in or exchange of the Replaced Asset or the amount of proceeds
received from the sale of the Replaced Asset, as the case may be, and (b) in
connection with the purchase, repair or other acquisition of any asset by
Company or any of its Subsidiaries with insurance proceeds received by Company
or any of its Subsidiaries in respect of the actual or constructive loss of any
similar asset, there shall be included in Consolidated Capital Expenditures only
the excess of the gross amount of the purchase price over the amount of such
insurance proceeds.
"Consolidated Cash Interest Expense" means, for any period,
Consolidated Interest Expense for such period excluding, however, any interest
expense not payable in Cash (including amortization of discount and amortization
of debt issuance costs).
"Consolidated Current Assets" means, as at any date of determination,
the total assets of Company and its Subsidiaries on a consolidated basis which
may properly be classified as current assets in conformity with GAAP, excluding
Cash and Cash Equivalents.
"Consolidated Current Liabilities" means, as at any date of
determination, the total liabilities of Company and its Subsidiaries on a
consolidated basis which may properly be classified as current liabilities in
conformity with GAAP, excluding the current portion of any Indebtedness.
"Consolidated EBITDA" means, for any period, the sum, without
duplication, of the amounts for such period of (i) Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) provisions for taxes based on income, (iv)
total depreciation expense, (v) total amortization expense, and (vi) other non-
cash items reducing Consolidated Net Income less other non-cash items increasing
Consolidated Net Income, all of the foregoing as determined on a consolidated
basis for Company and its Subsidiaries in conformity with GAAP.
"Consolidated Excess Cash Flow" means, for any period, an amount equal
to (i) the sum, without duplication, of the amounts for such period of (a)
Consolidated EBITDA and (b) the Consolidated Working Capital Adjustment minus
(ii) the sum, without duplication, of the amounts for such period of (a)
voluntary and scheduled repayments of Consolidated Total Debt (excluding
repayments of Revolving Loans except to the extent the
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Revolving Loan Commitments are permanently reduced in connection with such
repayments), (b) Consolidated Capital Expenditures (net of any proceeds of any
related financings with respect to such expenditures), (c) Consolidated Cash
Interest Expense, and (d) the provision for current taxes based on income of
Company and its Subsidiaries and payable in cash with respect to such period.
"Consolidated Interest Coverage Ratio" means as at any date of
determination, the ratio of Consolidated EBITDA to Consolidated Cash Interest
Expense for the four-Fiscal Quarter period ending as of the last day of the
Fiscal Quarter immediately preceding the Fiscal Quarter in which such date of
determination occurs.
"Consolidated Interest Expense" means, for any period, total interest
expense (including that portion attributable to Capital Leases in accordance
with GAAP and capitalized interest) of Company and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of Company and
its Subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Rate Agreements, but
excluding, however, any amounts referred to in subsection 2.3 payable to Agent
and Lenders on or before the Closing Date.
"Consolidated Leverage Ratio" means as at any date of determination,
the ratio of Consolidated Total Debt as of the last day of the Fiscal Quarter
immediately preceding the Fiscal Quarter in which such date of determination
occurs to Consolidated EBITDA for the four Fiscal Quarters ending as of such
last day of such immediately preceding Fiscal Quarter.
"Consolidated Net Income" means, for any period, the net income (or
loss) of Company and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with GAAP; provided
that there shall be excluded (i) the income (or loss) of any Person (other than
a Subsidiary of Company) in which any other Person (other than Company or any of
its Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Company or any of its
Subsidiaries by such Person during such period, (ii) for purposes of calculating
Consolidated Net Income for the first Fiscal Quarter, 1998, the income (or loss)
of any Person accrued prior to the date that Person's assets are acquired by
Company or any of its Subsidiaries, (iii) the income of any Subsidiary of
Company to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales or
returned surplus assets of any Pension Plan, and (v) (to the extent not included
in clauses (i) through (iv) above) any net extraordinary gains or net non-cash
extraordinary losses.
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"Consolidated Rental Payments" means, for any period, the aggregate
amount of all rents paid or payable by Company and its Subsidiaries on a
consolidated basis during that period under all Capital Leases and Operating
Leases to which Company or any of its Subsidiaries is a party as lessee.
"Consolidated Total Debt" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness of Company and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital" means, as at any date of determination,
the excess of Consolidated Current Assets over Consolidated Current Liabilities.
"Consolidated Working Capital Adjustment" means, for any period on a
consolidated basis, the amount (which may be a negative number) by which the
Consolidated Working Capital of Company and its Subsidiaries as of the beginning
of such period exceeds (or is less than) the Consolidated Working Capital of
Company and its Subsidiaries as of the end of such period.
"Contingent Obligation", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof, (ii)
with respect to any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings, or (iii)
under Interest Rate Agreements and Currency Agreements. Contingent Obligations
shall include, without limitation, (a) the direct or indirect guaranty,
endorsement (otherwise than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (b) the obligation to make take-or-pay or
similar payments if required regardless of non-performance by any other party or
parties to an agreement, and (c) any liability of such Person for the obligation
of another through any agreement (contingent or otherwise) (X) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise) or
(Y) to maintain the solvency or any balance sheet item, level of income or
financial condition of another if, in the case of any agreement described under
subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is
as described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.
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"Contractual Obligation", as applied to any Person, means any
provision of any Security issued by that Person or of any material indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement.
"Daily Funding Lender" means Agent, in its individual capacity as a
Lender hereunder.
"Deposit Account" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"Dollar Equivalents" means Dollars or, with respect to any amount of
Canadian Dollars, an equivalent amount of Dollars determined at the rate of
exchange quoted by Agent in New York City, at 9:00 A.M. (New York time) on the
date of determination, to prime banks in New York City for the spot purchase in
the New York foreign exchange market of Dollars with Canadian Dollars.
"Dollars" and the sign "$" mean the lawful money of the United States
of America.
"Domestic Commitments" means the Revolving Loan Commitments or the
Acquisition Term Loan Commitments or both.
"Domestic Funding and Payment Office" means (i) the office of Agent
located at 14 Wall Street, New York, New York 10005 or (ii) such other office of
Agent as may from time to time hereafter be designated as such in a written
notice delivered by Agent to Borrower and each Lender.
"Domestic Lenders" means any Lenders having Domestic Commitments or,
on and after the termination of the Domestic Commitments, having Domestic Loans
outstanding.
"Domestic Loans" means the Revolving Loans or the Acquisition Term
Loans or both.
"Domestic Lock Box Account" means a Deposit Account under the
exclusive dominion and control of Agent that is maintained by Company or any
Loan Party which is a Domestic Subsidiary with a Lock Box Bank pursuant to a
Lock Box Agreement.
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"Domestic Subsidiary" means a Subsidiary of Company that is
incorporated or organized under the laws of a state of the United States of
America.
"Domestic Subsidiary Guaranty" means the Domestic Subsidiary Guaranty
executed and delivered by Domestic Subsidiaries on the Closing Date and to be
executed and delivered by Domestic Subsidiaries from time to time thereafter in
accordance with subsection 6.11, substantially in the form of Exhibit XXIV
annexed hereto, as such Domestic Subsidiary Guaranty may be amended,
supplemented or otherwise modified from time to time.
"Domestic Subsidiary Patent Security Agreement" means each Domestic
Subsidiary Patent Collateral Security Agreement and Conditional Assignment
executed and delivered by Domestic Subsidiaries on the Closing Date or to be
executed and delivered by Domestic Subsidiaries from time to time thereafter in
accordance with subsection 6.11, in each case substantially in the form of
Exhibit XXVIII annexed hereto, as such Domestic Subsidiary Patent Collateral
Security Agreement and Conditional Assignment may be amended, supplemented or
otherwise modified from time to time, and "Domestic Subsidiary Patent Security
Agreements" means all such Domestic Subsidiary Patent Collateral Security
Agreement and Conditional Assignments, collectively.
"Domestic Subsidiary Pledge Agreement" means each Domestic Subsidiary
Pledge Agreement executed and delivered by Domestic Subsidiaries on the Closing
Date or to be executed and delivered by Domestic Subsidiaries from time to time
thereafter in accordance with subsection 6.11, in each case substantially in the
form of Exhibit XXVI annexed hereto, as such Domestic Subsidiary Pledge
Agreement may be amended, supplemented or otherwise modified from time to time,
and "Domestic Subsidiary Pledge Agreements" means all such Domestic Subsidiary
Pledge Agreements, collectively.
"Domestic Subsidiary Security Agreement" means each Domestic Subsidiary
Security Agreement executed and delivered by Domestic Subsidiaries on the
Closing Date or to be executed and delivered by Domestic Subsidiaries from time
to time thereafter in accordance with subsection 6.11, in each case
substantially in the form of Exhibit XXV annexed hereto, as such Domestic
Subsidiary Security Agreement may be amended, supplemented or otherwise modified
from time to time, and "Domestic Subsidiary Security Agreements" means all such
Domestic Subsidiary Security Agreements, collectively.
"Domestic Subsidiary Trademark Security Agreement" means each Domestic
Subsidiary Trademark Collateral Security Agreement executed and delivered by
Domestic Subsidiaries on the Closing Date or to be executed and delivered by
Domestic Subsidiaries from time to time thereafter in accordance with subsection
6.11, in each case substantially in the form of Exhibit XXVII annexed hereto, as
such Domestic Subsidiary Trademark Collateral Security Agreement may be amended,
supplemented or otherwise
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modified from time to time, and "Domestic Subsidiary Trademark Security
Agreements" means all such Domestic Subsidiary Trademark Collateral Security
Agreements, collectively.
"Eligible Accounts Receivable" means, with respect to Company and each
Domestic Subsidiary which is a Loan Party, Accounts 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. In determining the amount to be so
included, the face amount of such Accounts shall be reduced by the amount of all
returns, discounts, deductions, claims, credits, charges, or other allowances.
Unless otherwise approved in writing by Agent, an Account shall not be an
Eligible Account Receivable if:
(a) it arises out of a sale made by such Loan Party to an Affiliate; or
(b) its payment terms are longer than 60 days from date of invoice,
except that up to $5,000,000 (or during the period commencing on January 1
of any year and ending May 31 of such year, up to $7,500,000) of Accounts
with payment terms in excess of 60 days but not more than 210 days may be
included in Eligible Accounts Receivable to the extent otherwise
constituting an Eligible Account Receivable; or
(c) it is unpaid (i) more than 60 days after the original payment due
date on payment terms of 150 days or less from date of invoice, or (ii) more
than 30 days after the original payment due date on payment terms of more
than 150 days from date of invoice; or
(d) it is from the same account debtor or its Affiliate and fifty
percent (50%) or more of all Accounts from that account debtor (and its
Affiliates) are ineligible under (c) above; or
(e) when aggregated with all other Accounts of an account debtor, such
Account exceeds 15% in face value of all Accounts of such Loan Party then
outstanding, but only to the extent of such excess, unless such excess is
supported by an irrevocable letter of credit satisfactory to Agent (as to
form, substance and issuer) and assigned to and directly drawable by Agent;
or
(f) the account debtor for such Account is a creditor of such Loan
Party, has or has asserted a right of setoff against such Loan Party, or has
disputed its liability or otherwise has made any claim with respect to such
Account or any other Account which has not been resolved, in each case to
the extent of the amount owed by such Loan Party to such account debtor, the
amount of such actual or asserted right of setoff, or the amount of such
dispute or claim, as the case may be; or
(g) the account debtor is (or its assets are) the subject of an
Insolvency Event; or
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(h) such Account is not payable in Dollars or the account debtor for
such Account is located outside the continental United States, unless such
Account is supported by an irrevocable letter of credit satisfactory to
Agent (as to form, substance and issuer) and assigned to and directly
drawable by Agent; or
(i) the sale to the account debtor is on a bill-and-hold, guarantied
sale, sale-and-return, sale on approval or consignment basis or made
pursuant to any other written agreement providing for repurchase or return;
or
(j) Agent determines by its own credit analysis that collection of such
Account is uncertain or that such Account may not be paid; or
(k) the account debtor is the United States of America or any
department, agency or instrumentality thereof, unless such Loan Party duly
assigns its rights to payment of such Account to Agent pursuant to the
Assignment of Claims Act of 1940, as amended (31 U.S.C. (S)(S) 3727 et
seq.); or
(l) the goods giving rise to such Account have not been shipped and
delivered to and accepted by the account debtor, the services giving rise to
such Account have not been performed and accepted, or such Account otherwise
does not represent a final sale; or
(m) such Account does not comply with all Requirements of Law,
including without limitation the Federal Consumer Credit Protection Act, the
Federal Truth in Lending Act and Regulation Z of the Board of Governors of
the Federal Reserve System; or
(n) such Account is subject to any adverse security deposit, progress
payment or other similar advance made by or for the benefit of the
applicable account debtor; or
(o) it is not subject to a valid and perfected first priority Lien in
favor of Agent or does not otherwise conform to the representations and
warranties contained in the Loan Documents;
provided that Agent, in the exercise of its Permitted Discretion, may impose
additional restrictions (or eliminate the same) to the standards of eligibility
set forth in this definition; provided further that Agent, after reviewing the
initial collateral audit to be delivered pursuant to subsection 4.1L or 6.10C,
may impose additional restrictions (or eliminate the same) to the standards of
eligibility set forth in this definition.
"Eligible Assignee" means (A) (i) a commercial bank organized under the
laws of the United States or any state thereof; (ii) a savings and loan
association or savings bank
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organized under the laws of the United States or any state thereof; (iii) a
commercial bank organized under the laws of any other country or a political
subdivision thereof; provided that (x) such bank is acting through a branch or
agency located in the United States or (y) such bank is organized under the laws
of a country that is a member of the Organization for Economic Cooperation and
Development or a political subdivision of such country; and (iv) any other
entity which is an "accredited investor" (as defined in Regulation D under the
Securities Act) which extends credit or buys loans as one of its businesses
including, but not limited to, insurance companies, mutual funds and lease
financing companies, in each case (under clauses (i) through (iv) above) that is
reasonably acceptable to Agent; and (B) any Lender and any Affiliate of any
Lender; provided that no Affiliate of Company shall be an Eligible Assignee.
"Eligible Inventory" means, with respect to Company or a Domestic
Subsidiary which is a Loan Party, 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 the Inventory Scrap
Reserve. In determining the amount to be so included, Inventory shall be valued
at the lower of cost or market on a basis consistent with such Loan Party's
current and historical accounting practice. Unless otherwise approved in
writing by Agent, an item of Inventory shall not be included in Eligible
Inventory if:
(a) it is not owned solely by such Loan Party or such Loan Party does
not have good, valid and marketable title thereto; or
(b) it is not located in the United States; or
(c) it is not located on property owned or leased by such Loan Party or
in a contract warehouse, in each case subject to a Collateral Access
Agreement executed by any applicable mortgagee, lessor or contract
warehouseman, as the case may be, and segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises; or
(d) it is not subject to a valid and perfected first priority Lien in
favor of Agent except, with respect to Inventory stored at sites described
in clause (c) above, for Liens for unpaid rent or normal and customary
warehousing charges; or
(e) it consists of goods returned or rejected by such Loan Party's
customers or goods in transit to third parties (other than to warehouse
sites covered by a Collateral Access Agreement); or
(f) it is not first-quality goods, is obsolete or slow moving, or does
not otherwise conform to the representations and warranties contained in the
Loan Documents;
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provided that Agent, in the exercise of its Permitted Discretion, may impose
additional restrictions (or eliminate the same) to the standards of eligibility
set forth in this definition; provided further that Agent, after reviewing the
initial collateral audit to be delivered pursuant to subsection 4.1L or 6.10C,
may impose additional restrictions (or eliminate the same) to the standards of
eligibility set forth in this definition.
"Employee Benefit Plan" means any "employee benefit plan" as defined in
Section 3(3) of ERISA which is, or was at any time, maintained or contributed to
by Company or any of its ERISA Affiliates.
"Environmental Claim" means any accusation, allegation, notice of
violation, claim, demand, abatement order or other order or direction
(conditional or otherwise) by any governmental authority or any Person for any
damage, including, without limitation, personal injury (including sickness,
disease or death), tangible or intangible property damage, contribution,
indemnity, indirect or consequential damages, damage to the environment,
nuisance, pollution, contamination or other adverse effects on the environment,
or for fines, penalties or restrictions, in each case relating to, resulting
from or in connection with Hazardous Materials and relating to Company, any of
its Subsidiaries, any of their respective Affiliates or any Facility.
"Environmental Laws" means all statutes, ordinances, orders, rules,
regulations, plans, policies or decrees and requirements having the force of law
relating to (i) environmental matters, including, without limitation, those
relating to fines, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the Release or threatened
Release of Hazardous Materials, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or (iii) occupational safety
and health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare from environmental hazards, in any manner applicable to
Company or any of its Subsidiaries or any of their respective properties,
including, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. (S) 9601 et seq.) ("CERCLA"), the
Hazardous Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal
Water Pollution Control Act ( 33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42
U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601
et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S)
136 et seq.), the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.)
and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. (S) 11001
et seq.), each as amended or supplemented, and any analogous future or present
local, state and federal statutes and regulations promulgated pursuant thereto,
each as in effect as of the date of determination.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
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"ERISA Affiliate", as applied to any Person, means (i) any corporation
which is, or was at any time, a member of a controlled group of corporations
within the meaning of Section 414(b) of the Internal Revenue Code of which that
Person is a member; (ii) any trade or business (whether or not incorporated)
which is a member of a group of trades or businesses under common control within
the meaning of Section 414(c) of the Internal Revenue Code of which that Person
is a member; and (iii) any member of an affiliated service group within the
meaning of Section 414(m) or (o) of the Internal Revenue Code of which that
Person, any corporation described in clause (i) above or any trade or business
described in clause (ii) above is a member. Any former ERISA Affiliate of a
Person shall continue to be considered an ERISA Affiliate within the meaning of
this definition with respect to the period such entity was an ERISA Affiliate of
the Person and with respect to liabilities arising after such period for which
the Person could be liable under the Internal Revenue Code or ERISA.
"ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding those for which the provision for 30-day notice to the
PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by Company or any of its ERISA Affiliates from any Pension Plan with
two or more contributing sponsors or the termination of any such Pension Plan
resulting in liability pursuant to Sections 4063 or 4064 of ERISA; (v) the
institution by the PBGC of proceedings to terminate any Pension Plan, or the
occurrence of any event or condition which might constitute grounds under ERISA
for the termination of, or the appointment of a trustee to administer, any
Pension Plan; (vi) the imposition of liability on Company or any of its ERISA
Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the
application of Section 4212(c) of ERISA; (vii) the withdrawal by Company or any
of its ERISA Affiliates in a complete or partial withdrawal (within the meaning
of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any
potential liability therefor, or the receipt by Company or any of its ERISA
Affiliates of notice from any Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to
terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the
occurrence of an act or omission which could give rise to the imposition on
Company or any of its ERISA Affiliates of fines, penalties, taxes or related
charges under Chapter 43 of the Internal Revenue Code or under Section 409 or
502(c), (i) or (l) or 4071 of ERISA in respect of any Employee Benefit Plan;
(ix) the assertion of a material claim (other than routine claims for benefits)
against any Employee Benefit Plan other than a Multiemployer Plan or the assets
thereof, or against
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Company or any of its ERISA Affiliates in connection with any such Employee
Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the
failure of any Pension Plan (or any other Employee Benefit Plan intended to be
qualified under Section 401(a) of the Internal Revenue Code) to qualify under
Section 401(a) of the Internal Revenue Code, or the failure of any trust forming
part of any Pension Plan to qualify for exemption from taxation under Section
501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant
to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to
ERISA with respect to any Pension Plan.
"Eurodollar Rate Loans" means Domestic Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.
"Event of Default" means each of the events set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Existing Letters of Credit" means the letters of credit described on
Schedule 1.1 annexed hereto.
"Facilities" means the nurseries, peat bogs, offices, warehouses and
all other real property (including, without limitation, all buildings, fixtures
or other improvements located thereon) and related facilities now, hereafter or
heretofore owned, leased, operated or used by Company or any of its Subsidiaries
or any of their respective predecessors or Affiliates.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal funds brokers of recognized
standing selected by Agent.
"Fee Property" means a Real Property Asset consisting of a fee interest
in real property.
"Financial Plan" has the meaning assigned to that term in subsection
6.1(xiv).
"Fiscal Quarter" means a fiscal quarter of any Fiscal Year.
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"Fiscal Year" means the fiscal year of Company and its Subsidiaries
ending on December 31 of each calendar year.
"Funding Date" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application thereof set
forth in subsection 1.2, generally accepted accounting principles set forth in
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, in each case as the same are applicable to the circumstances as of
the date of determination.
"Governmental Authorization" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any federal, state
or local governmental authority, agency or court.
"Guaranties" means the Holdings Guaranty, the Company Guaranty, the
Domestic Subsidiary Guaranty and the Canadian Subsidiary Guaranty.
"Guarantor" means, at any time, Holdings, Company or any of their
respective Subsidiaries that is then a party to any of the Guaranties.
"Hazardous Materials" means (i) any chemical, material or substance at
any time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste",
"restricted hazardous waste", "infectious waste", "toxic substances" or any
other formulations intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP
toxicity" or words of similar meaning and regulatory effect import under any
applicable Environmental Laws; (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (iv) any flammable substances or
explosives; (v) any radioactive materials; (vi) asbestos in any form; (vii) urea
formaldehyde foam insulation; (viii) electrical equipment which contains any oil
or dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million; (ix) pesticides; and (x) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by any
governmental authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any Persons in the vicinity of the
Facilities.
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"Hines I Credit Agreement" means that certain Credit Agreement dated as
of August 4, 1995, among Hines Horticulture, Inc., Sun Gro Horticulture Inc.,
Sun Gro Horticulture Canada Ltd., Hines I Lenders and BTCC, as Agent.
"Hines I Exposure" means at any date of determination the sum of (i)
the aggregate principal amount of domestic term loans outstanding under the
Hines I Credit Agreement, (ii) the aggregate principal amount of Canadian term
loans outstanding under the Hines I Credit Agreement and (iii) the aggregate
revolving loan exposure of all Hines I Lenders.
"Hines I Lender" means each of the lenders signatory to the Hines I
Credit Agreement.
"Hines II Exposure" means at any date of determination the sum of (i)
the Canadian Loan Exposure of all Lenders under this Agreement, (ii) the
Acquisition Exposure of all Lenders under this Agreement, and (iii) the Working
Capital Revolving Loan Exposure of all Lenders under this Agreement.
"Holdings" means Hines Holdings, Inc., a Nevada corporation.
"Holdings Certificate of Designations" means the provisions of
Holdings' Restated Articles of Incorporation relating to the Holdings Preferred
Stock, in the form delivered to Agent and Lenders prior to their execution of
this Agreement and as such provisions may be amended from time to time to the
extent permitted under subsection 7.15.
"Holdings Common Stock" means the common stock of Holdings, par value
$.01 per share.
"Holdings Guaranty" means the Holdings Guaranty executed and delivered
by Holdings on the Closing Date, substantially in the form of Exhibit XVII
annexed hereto, as such Holdings Guaranty may be amended, supplemented or
otherwise modified from time to time.
"Holdings Pledge Agreement" means the Holdings Pledge Agreement
executed and delivered by Holdings on the Closing Date, substantially in the
form of Exhibit XVIII annexed hereto, as such Holdings Pledge Agreement may be
amended, supplemented or otherwise modified from time to time.
"Holdings Preferred Stock" means the 12% Cumulative Redeemable Junior
Preferred Stock of Holdings, par value $.01 per share, with a liquidation
preference of $1.00 per share, and the 12% Cumulative Redeemable Senior
Preferred Stock of Holdings, par value $.01 per share, with a liquidation
preference of $1,000 per share.
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"Indebtedness", as applied to any Person, means (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to Capital
Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services (excluding any such obligations incurred under ERISA),
which purchase price is (a) due more than six months from the date of incurrence
of the obligation in respect thereof or (b) evidenced by a note or similar
written instrument, and (v) all indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person. Obligations under Interest Rate Agreements and Currency
Agreements constitute Contingent Obligations and not Indebtedness.
"Indemnitee" has the meaning assigned to that term in subsection 10.3.
"Insolvency Event" means, with respect to any Person, the occurrence of
any of the events described in subsection 8.6 or 8.7; provided that, solely for
purposes of this definition, any references to any Borrower or any of its
Subsidiaries in subsection 8.6 or 8.7 shall be deemed to be a reference to such
Person.
"Insolvency Laws" means the Bankruptcy Code, the Bankruptcy and
Insolvency Act (Canada), the Company Creditors' Arrangement Act (Canada), the
Winding-Up Act (Canada) or any comparable law of Canada or any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect in the United
States of America or any state thereof or Canada or any province thereof.
"Intellectual Property" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of Company and its Subsidiaries as currently conducted
that are material to the condition (financial or otherwise), business or
operations of Company and its Subsidiaries, taken as a whole.
"Interest Payment Date" means (i) with respect to any Base Rate Loan or
any Canadian Base Rate Loan, the first Business Day of each calendar month,
commencing on the first such date to occur after the Closing Date, and (ii) with
respect to any Eurodollar Rate Loan or any Canadian Eurodollar Rate Loan, the
last day of each Interest Period applicable to such Loan; provided that in the
case of each Interest Period of six months "Interest Payment Date" shall also
include the date that is three months after the commencement of such Interest
Period.
"Interest Period" has the meaning assigned to that term in subsection
2.2B.
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"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement.
"Interest Rate Determination Date" means, with respect to any Interest
Period, the second Business Day prior to the first day of such Interest Period.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Inventory" means, with respect to any Person, all goods, merchandise
and other personal property which are held by such Person for sale or lease,
including those held for display or demonstration.
"Inventory Scrap Reserve" means, with respect to Company and each of
its Domestic Subsidiaries which is a Loan Party as of any date of determination,
fifteen percent (15%) of the aggregate amount of Inventory of such Loan Party as
of such date of determination, as such percentage may be adjusted from time to
time by Agent in its Permitted Discretion based on information available to
Agent, which Inventory shall be valued at the lower of cost or market on a basis
consistent with such Loan Party's current and historical accounting practice.
"Investment" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, any Securities of any other Person (other than a Person that prior
to such purchase or acquisition was a wholly-owned Domestic Subsidiary of
Company), (ii) any direct or indirect redemption, retirement, purchase or other
acquisition for value, by any Subsidiary of Company from any Person other than
Company or any of its Subsidiaries, of any equity Securities of such Subsidiary,
or (iii) any direct or indirect loan, advance (other than advances to employees
for moving, entertainment and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution by
Company or any of its Subsidiaries to any other Person other than a wholly-owned
Domestic Subsidiary of Company, including all indebtedness and accounts
receivable from that other Person that are not current assets or did not arise
from sales to that other Person in the ordinary course of business. The amount
of any Investment shall be the original cost of such Investment plus the cost of
all additions thereto, without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such Investment.
"IP Collateral" means, collectively, the Collateral under the IP
Collateral Documents.
"IP Collateral Documents" means, collectively, the Company Trademark
Security Agreement, the Company Patent Security Agreement, the Domestic
Subsidiary Trademark Security Agreements, the Domestic Subsidiary Patent
Security Agreements, the
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Canadian Subsidiary Trademark Security Agreements and the Canadian Subsidiary
Patent Security Agreements.
"Issuing Lender" means, with respect to any Letter of Credit, BTCo or
any other Lender which agrees or is otherwise obligated to issue such Letter of
Credit, determined as provided in subsection 3.1B(ii).
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
"Lakeland" means Lakeland USA, Inc., a Delaware corporation.
"Lakeland Canada" means Lakeland Peat Moss Canada Ltd., a Canadian
corporation.
"Lender" and "Lenders" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their successors
and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall
include BTCo as an Issuing Lender unless the context otherwise requires;
provided that the term "Lenders", when used in the context of a particular
Commitment, shall mean Lenders having that Commitment.
"Letter of Credit" or "Letters of Credit" means Standby Letters of
Credit issued or to be issued by Issuing Lenders for the account of Company
pursuant to subsection 3.1.
"Letter of Credit Usage" means, as at any date of determination, the
sum of (i) the maximum aggregate amount which is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding plus
(ii) the aggregate amount of all drawings under Letters of Credit honored by
Issuing Lenders and not theretofore reimbursed by Company. For purposes of this
definition, any amount described in clause (i) or (ii) of the preceding sentence
which is denominated in Canadian Dollars shall be valued in Dollar Equivalents
as of the applicable date of determination.
"Lien" means any lien, mortgage, pledge, assignment, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to
give any security interest) and any option, trust or other preferential
arrangement having the practical effect of any of the foregoing.
"Loan" or "Loans" means one or more of the Acquisition Term Loans,
Canadian Loans or Revolving Loans or any combination thereof.
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"Loan Documents" means this Agreement, the Notes, the Letters of Credit
(and any applications for, or reimbursement agreements or other documents or
certificates executed by Company in favor of an Issuing Lender relating to the
Letters of Credit), the Guaranties, any Interest Rate Agreements and the
Collateral Documents and, solely for purposes of the use of the term "Loan
Documents" in the definition of "Obligations", the Currency Agreements to which
any Lender or any of its Affiliates is a party.
"Loan Parties" means each of the Borrowers and Guarantors.
"Lock Box" means a lockbox maintained by any Loan Party pursuant to
arrangements satisfactory to Agent.
"Lock Box Accounts" means, collectively, the Canadian Lock Box Accounts
and the Domestic Lock Box Accounts.
"Lock Box Agreement" means a Lock Box Agreement executed and delivered
by a Lock Box Bank, Agent and the applicable Loan Party, substantially in the
form of Exhibit XXXV annexed hereto, as such Lock Box Agreement may be amended,
supplemented or otherwise modified from time to time, and "Lock Box Agreements"
means all such Lock Box Agreements, collectively.
"Lock Box Bank" means any commercial bank satisfactory to Agent at
which any Loan Party maintains a Lock Box Account.
"Margin Determination Certificate" means an Officers' Certificate of
Company delivered with the financial statements required pursuant to subsections
6.1(ii) or 6.1(iii) setting forth the Consolidated Interest Coverage Ratio which
is applicable as of the last day of the fiscal period for which such financial
statements and Officers' Certificate are being delivered.
"Margin Stock" has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal Reserve System as in effect from time to
time.
"Material Adverse Effect" means (i) a material adverse effect upon the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Company and its Subsidiaries, taken as a whole, (ii) the impairment
of the ability of any Loan Party to perform, or of Agent or Lenders to enforce,
the Obligations, or (iii) a material adverse effect on the value of the
Collateral or the amount which Agent or Lenders would be likely to receive
(after giving consideration to delays in payment and costs of enforcement) in
the liquidation of the Collateral.
"Material Contract" means any contract or other arrangement to which
any Borrower or any of its Subsidiaries is a party (other than the Loan
Documents) for which
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breach, nonperformance, cancellation or failure to renew could have a Material
Adverse Effect.
"Material Leasehold" means a Real Property Asset consisting of a
leasehold interest in an Operating Lease or a Capital Lease which is reasonably
determined by Agent to be of material value as collateral for the Obligations.
"MDCP" means Madison Dearborn Capital Partners, L.P., a Delaware
limited partnership.
"Mortgage" means an instrument (whether designated as a deed of trust,
a trust deed or a mortgage or by any similar title) executed and delivered by
any Borrower or any of its Subsidiaries encumbering a Fee Property or a Material
Leasehold, as such instrument may be amended, supplemented or otherwise modified
from time to time, and "Mortgages" means all such instruments, including the
Initial Mortgages (as defined in subsection 6.10) and any Additional Mortgages
(as defined in subsection 6.12), collectively.
"Multiemployer Plan" means a "multiemployer plan", as defined in
Section 3(37) of ERISA, to which Company or any of its ERISA Affiliates is
contributing, or ever has contributed, or to which Company or any of its ERISA
Affiliates has, or ever has had, an obligation to contribute.
"Net Cash Proceeds" means, with respect to any Asset Sale, Cash
Proceeds of such Asset Sale net of bona fide direct costs incurred in connection
with such Asset Sale, including without limitation (i) income taxes reasonably
estimated to be actually payable as a result of such Asset Sale within two years
of the date of such Asset Sale and (ii) payment of the outstanding principal
amount of, premium or penalty, if any, and interest on any Indebtedness (other
than the Loans) that is secured by a Lien on the stock or assets in question and
that is required to be repaid under the terms thereof as a result of such Asset
Sale; provided that, in connection with the sale of any existing asset (the
"Replaced Asset") by Company or any of its Subsidiaries substantially
concurrently with the purchase of a replacement asset by Company or such
Subsidiary of like kind and character (which, in the case of a Real Property
Asset, shall be located within a 30-mile radius of the Replacement Asset) (the
"Replacement Asset"), there shall be included in Net Cash Proceeds only the
excess, if any, of the Net Cash Proceeds received for the Replaced Asset
(calculated without giving effect to this proviso) over the purchase price of
the Replacement Asset.
"Notes" means one or more of the Working Capital Revolving Notes,
Acquisition Revolving Notes, Acquisition Term Loan Notes and the Canadian Notes
or any combination thereof.
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"Notice of Borrowing" means a notice substantially in the form of
Exhibit I annexed hereto delivered by a Borrower to Agent pursuant to subsection
2.1B with respect to a proposed borrowing.
"Notice of Conversion/Continuation" means a notice substantially in the
form of Exhibit II annexed hereto delivered by a Borrower to Agent pursuant to
subsection 2.2D with respect to a proposed conversion or continuation of the
applicable basis for determining the interest rate with respect to the Loans
specified therein.
"Obligations" means all obligations of every nature of each Loan Party
from time to time owed to Agent, Lenders or any of them under the Loan
Documents, whether for principal, interest (including interest accruing on or
after the occurrence of an Insolvency Event), reimbursement of amounts drawn
under Letters of Credit, fees, expenses, indemnification or otherwise.
"Officers' Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chairman of the board
(if an officer) or its president or one of its vice presidents and by its chief
financial officer or its treasurer; provided that every Officers' Certificate
with respect to the compliance with a condition precedent to the making of any
Loans hereunder shall include (i) a statement that the officer or officers
making or giving such Officers' Certificate have read such condition and any
definitions or other provisions contained in this Agreement relating thereto,
(ii) a statement that, in the opinion of the signers, they have made or have
caused to be made such examination or investigation as is necessary to enable
them to express an informed opinion as to whether or not such condition has been
complied with, and (iii) a statement as to whether, in the opinion of the
signers, such condition has been complied with.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.
"Other Bank Concentration Account" means an account under the exclusive
dominion and control of Agent that is maintained by any Loan Party with a Bank
(other than BTCo) that is satisfactory to Agent pursuant to a Blocked Account
Agreement into which the applicable Lock Box Banks are instructed to transfer
funds on deposit in the Lock Box Accounts pursuant to the terms of the Lock Box
Agreements.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor
thereto).
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.
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"Permitted Discretion" means Agent's good faith judgment based upon any
factor which it believes in good faith: (i) will or could adversely affect the
value of any Collateral, the enforceability or priority of Agent's Liens thereon
or the amount which Agent and Lenders would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral; (ii) suggests that any collateral report or financial
information delivered to Agent by any Person on behalf of any Loan Party is
incomplete, inaccurate or misleading in any material respect; (iii) materially
increases the likelihood of a bankruptcy, reorganization or other insolvency
proceeding involving any Borrower or any of its Subsidiaries or any of the
Collateral, or (iv) creates or reasonably could be expected to create a
Potential Event of Default or Event of Default. In exercising such judgment,
Agent may consider such factors already included in or tested by the definition
of Eligible Accounts Receivable or Eligible Inventory, as well as any of the
following: (i) the financial and business climate of any Loan Party's industry
and general macroeconomic conditions, (ii) changes in collection history and
dilution with respect to Loan Parties' Accounts, (iii) changes in demand for,
and pricing of, Loan Parties' Inventory, (iv) changes in any concentration of
risk with respect to such Accounts or Inventory, and (v) any other factors that
change the credit risk of lending to any Borrower on the security of such
Accounts or Inventory. The burden of establishing lack of good faith shall be
on the Borrower.
"Permitted Encumbrances" means the following types of Liens (other than
any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or by ERISA):
(i) Liens for taxes, assessments or governmental charges or claims the
payment of which is not, at the time, required by subsection 6.3;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics and materialmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or being contested
in good faith, if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made therefor;
(iii) 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, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(iv) any attachment or judgment Lien not constituting an Event of
Default under subsection 8.8;
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(v) leases or subleases granted to others not interfering in any
material respect with the ordinary conduct of the business of Company or any
of its Subsidiaries;
(vi) easements, rights-of-way, restrictions, encroachments, minor
defects or irregularities in title, and other similar charges or
encumbrances not interfering in any material respect with the ordinary
conduct of the business of Company or any of its Subsidiaries;
(vii) any (a) interest or title of a lessor or sublessor under any
lease permitted by subsection 7.9, (b) restriction or encumbrance that the
interest or title of such lessor or sublessor may be subject to, or (c)
subordination of the interest of the lessee or sublessee under such lease to
any restriction or encumbrance referred to in the preceding clause (b);
(viii) Liens arising from filing UCC financing statements relating
solely to leases permitted by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; and
(x) licenses of patents, trademarks and other intellectual property
rights granted by Company or any of its Subsidiaries in the ordinary course
of business and not interfering in any material respect with the ordinary
conduct of the business of Company or such Subsidiary.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"PPSA" means the Personal Property Security Act or any other statute
pertaining to the creation, perfection or priority of security interests in any
collateral, in each case as in effect in any Canadian province.
"Potential Event of Default" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"Prime Rate" means the rate that BTCo announces from time to time as
its prime lending rate in the United States for Dollar denominated loans, as in
effect from time to time. The Prime Rate is a reference rate and does not
necessarily represent the lowest or
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best rate actually charged to any customer. BTCC or any other Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.
"Pro Rata Share" means (i) with respect to all payments, computations
and other matters relating to the Working Capital Revolving Loan Commitments or
the Working Capital Revolving Loans of any Domestic Lender or any Letters of
Credit issued or participations therein purchased by any Domestic Lender, the
percentage obtained by dividing (x) the Working Capital Revolving Loan Exposure
of that Domestic Lender by (y) the aggregate Working Capital Revolving Loan
Exposure of all Domestic Lenders, (ii) with respect to all payments,
computations and other matters relating to the Acquisition Revolving Loan
Commitments, the Acquisition Term Loan Commitments, the Acquisition Revolving
Loans or the Acquisition Term Loans of any Domestic Lender, the percentage
obtained by dividing (x) the Acquisition Exposure of that Domestic Lender by (y)
the aggregate Acquisition Exposure of all Domestic Lenders, (iii) with respect
to all payments, computations and other matters relating to the Canadian
Commitment or the Canadian Loan of any Canadian Lender, the percentage obtained
by dividing (x) the Canadian Loan Exposure of that Lender by (y) the aggregate
Canadian Loan Exposure of all Canadian Lenders, and (iv) for all other purposes
with respect to each Lender, the percentage obtained by dividing (x) the sum of
the Working Capital Revolving Loan Exposure of that Lender plus the Acquisition
Exposure of that Lender plus the Canadian Loan Exposure of that Lender by (y)
the sum of the aggregate Acquisition Term Loan Exposure of all Lenders plus the
aggregate Revolving Loan Exposure of all Lenders plus the aggregate Canadian
Loan Exposure of all Lenders, in any such case as the applicable percentage may
be adjusted by assignments permitted pursuant to subsection 10.1. The initial
Pro Rata Share of each Lender for purposes of each of clauses (i), (ii), (iii)
and (iv) of the preceding sentence is set forth opposite the name of that Lender
in Schedule 2.1 annexed hereto.
"Public Offering" means any bona fide primary underwritten public
offering of any Person's Common Stock pursuant to an effective registration
statement under the Securities Act (other than pursuant to a registration
statement on Form S-8 or otherwise relating to equity securities issuable
exclusively under any employee benefit plan of Holdings, or Holdings'
Subsidiaries).
"Real Property Assets" means all real property from time to time owned
in fee by any Loan Party and all rights, title and interest in and to any and
all leases of real property as to which any Loan Party has a leasehold interest,
including without limitation any such fee or leasehold interests acquired by any
Loan Party after the date hereof.
"Register" has the meaning assigned to that term in subsection 2.1E.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
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"Reimbursement Date" has the meaning assigned to that term in
subsection 3.3B.
"Related Agreements" means, collectively, the Bryfogle's Stock Purchase
Agreement dated of even date herewith among Company and Kenneth G. Bryfogle and
Barbara M. Bryfogle, the Pacific Color Nursery Asset Purchase Agreement, the
Holdings Certificate of Designations, Company Preferred Stock, the Promissory
Note issued by Holdings in favor of Kenneth G. Bryfogle and Barbara M. Bryfogle,
and all other agreements or instruments delivered pursuant to or in connection
with any of the foregoing including any purchase agreement or registration
rights agreement.
"Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), or into or out of any Facility, including the movement of any
Hazardous Material through the air, soil, surface water, groundwater or
property.
"Request for Issuance of Letter of Credit" means a notice substantially
in the form of Exhibit III annexed hereto delivered by a Borrower to Agent
pursuant to subsection 3.1B(i) with respect to the proposed issuance of a Letter
of Credit.
"Requisite Class Lenders" means, at any time of determination (i) for
the Class of Lenders consisting of Domestic Lenders, Domestic Lenders having or
holding more than 66 2/3% of the sum of the aggregate Acquisition Term Loan
Exposure of all Domestic Lenders plus the aggregate Revolving Loan Exposure of
all Domestic Lenders and (ii) for the Class of Lenders consisting of Canadian
Lenders, Canadian Lenders having or holding more than 66 2/3% of the aggregate
Canadian Loan Exposure of all Canadian Lenders.
"Requirement of Law" means (a) the certificates or articles of
incorporation, by-laws and other organizational or governing documents of a
Person, (b) any law, treaty, rule, regulation or determination of an arbitrator,
court or other governmental authority, or (c) any franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way, right
or approval binding on a Person or any of its property.
"Requisite Lenders" means Lenders having or holding 51% or more of the
sum of the aggregate Acquisition Term Loan Exposure of all Lenders plus the
aggregate Revolving Loan Exposure of all Lenders plus the aggregate Canadian
Loan Exposure of all Lenders.
"Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Company now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the
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holders of that class, (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of any
shares of any class of stock of Company now or hereafter outstanding, (iii) any
payment made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of stock of Company now
or hereafter outstanding, and (iv) any payment or prepayment of principal of,
premium, if any, or interest on, or redemption, purchase, retirement, defeasance
(including in-substance or legal defeasance), sinking fund or similar payment
with respect to, any Subordinated Indebtedness.
"Revolving Loan Commitment" means the commitment of a Domestic Lender
to make Revolving Loans to Company pursuant to subsections 2.1A(i) and (iii),
and "Revolving Loan Commitments" means such commitments of all Domestic Lenders
in the aggregate.
"Revolving Loan Commitment Termination Date" means December 31, 2000.
"Revolving Loan Exposure" means, with respect to any Domestic Lender as
of any date of determination (i) prior to the termination of the Revolving Loan
Commitments, that Lender's Revolving Loan Commitment and (ii) after the
termination of the Revolving Loan Commitments, the sum of (a) the aggregate
outstanding principal amount of the Revolving Loans of that Lender plus (b) in
the event that Lender is an Issuing Lender, the aggregate Letter of Credit Usage
in respect of all Letters of Credit issued by that Lender (in each case net of
any participations purchased by other Domestic Lenders in such Letters of Credit
or any unreimbursed drawings thereunder) plus (c) the aggregate amount of all
participations purchased by that Lender in any outstanding Letters of Credit or
any unreimbursed drawings under any Letters of Credit.
"Revolving Loans" means the Working Capital Revolving Loans and the
Acquisition Revolving Loans.
"Securities" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any profit-
sharing agreement or arrangement, options, warrants, bonds, debentures, notes,
or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and any successor statute.
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"Solvent" means, with respect to any Person, that as of the date of
determination both (A) (i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
"Standby Letter of Credit" means any standby letter of credit or
similar instrument issued for the purpose of supporting (i) Indebtedness of
Company or any of its Subsidiaries in respect of industrial revenue or
development bonds or financings, (ii) workers' compensation liabilities of
Company or any of its Subsidiaries, (iii) the obligations of third party
insurers of Company or any of its Subsidiaries arising by virtue of the laws of
any jurisdiction requiring third party insurers, (iv) obligations with respect
to Capital Leases or Operating Leases of Company or any of its Subsidiaries, and
(v) performance, payment, deposit or surety obligations of Company or any of its
Subsidiaries, in any case if required by law or governmental rule or regulation
or in accordance with custom and practice in the industry; provided that Standby
Letters of Credit may not be issued for the purpose of supporting (a) trade
payables or (b) any Indebtedness constituting "antecedent debt" (as that term is
used in Section 547 of the Bankruptcy Code).
"Stockholders Agreement" means that certain Stockholders Agreement
dated as of the Closing Date, entered into by and among Holdings, MDCP, and the
individuals listed on the signature pages thereto.
"Subordinated Indebtedness" means any Indebtedness of Company (other
than Indebtedness to any of its Subsidiaries) that is subordinated in right of
payment to the Obligations pursuant to documentation containing maturities,
amortization schedules, covenants, defaults, remedies, subordination provisions
and other material terms in form and substance satisfactory to Agent and
Requisite Lenders.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar
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functions) having the power to direct or cause the direction of the management
and policies 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.
"Tax" or "Taxes" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided that "Tax on the overall net income" of a Person shall be
construed as a reference to a tax imposed by the jurisdiction in which that
Person's principal office (and/or, in the case of a Lender, its lending office)
is located or in which that Person is deemed to be doing business on all or part
of the net income, profits or gains of that Person (whether worldwide, or only
insofar as such income, profits or gains are considered to arise in or to relate
to a particular jurisdiction, or otherwise).
"Term Loan Commitments" means the Acquisition Term Loan Commitments or
the Canadian Commitments or both.
"Term Loans" means the Acquisition Term Loans or the Canadian Loans or
both.
"Term Notes" means (i) the promissory notes of any Borrower issued
pursuant to subsection 2.1F on the Canadian Loan Funding Date or the Acquisition
Conversion Date and (ii) any promissory notes issued by any Borrower pursuant to
the last sentence of subsection 10.1B(i) in connection with assignments of the
Term Loan Commitments or Term Loans of any Lenders, in each case substantially
in the forms of Exhibit VI or Exhibit IV annexed hereto, respectively, as they
may be amended, supplemented or otherwise modified from time to time.
"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 Fee Property or Material
Leasehold, in each case which is located in the United States, 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 (to
the extent available in the relevant jurisdiction) 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.
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"Total Hines Exposure" means at any date of determination the sum of
the Hines I Exposure and the Hines II Exposure.
"Total Utilization of Working Capital Revolving Loan Commitments"
means, as at any date of determination, the sum of (i) the aggregate principal
amount of all outstanding Working Capital Revolving Loans made to Company (other
than Working Capital Revolving Loans made to Company for the purpose of
reimbursing the applicable Issuing Lender for any amount drawn under any Letter
of Credit issued for the account of Company but not yet so applied) plus (ii)
the Letter of Credit Usage with respect to all Letters of Credit issued for the
account of Company.
"Transaction Costs" means the fees, costs and expenses payable by any
Loan Party on or before the Closing Date in connection with the transactions
contemplated hereby.
"Working Capital Revolving Loan Commitment" means the commitment of a
Lender to make Working Capital Revolving Loans to Company pursuant to subsection
2.1A(i).
"Working Capital Revolving Loan Exposure" means, with respect to any
Lender as of any date of determination (i) prior to the termination of the
Working Capital Revolving Loan Commitments, that Lender's Working Capital
Revolving Loan Commitment and (ii) after the termination of the Working Capital
Revolving Loan Commitments, the outstanding principal amount of the Working
Capital Revolving Loans of that Lender.
"Working Capital Revolving Loans" means the Working Capital Revolving
Loans made by Lenders to Company pursuant to subsection 2.1A(i).
"Working Capital Revolving Notes" means (i) the promissory notes of
Company issued pursuant to subsection 2.1F on the Closing Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of subsection
10.1B(i) in connection with assignments of the Working Capital Revolving Loan
Commitments and Working Capital Revolving Loans of any Lenders, in each case
substantially in the form of Exhibit V-A annexed hereto, as they may be amended,
supplemented or otherwise modified from time to time.
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations
Under Agreement.
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Company to Lenders pursuant to clauses (i), (ii),
(iii) and (xiv) of subsection 6.1 shall be prepared in accordance with GAAP as
in effect at the time of such preparation (and delivered
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together with the reconciliation statements provided for in subsection 6.1(vi)).
Calculations in connection with the definitions, covenants and other provisions
of this Agreement shall utilize accounting principles and policies in conformity
with those used to prepare the financial statements referred to in subsection
5.3.
1.3 Other Definitional Provisions.
References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference. An Event of Default shall "continue" or be "continuing" until such
Event of Default has been waived in accordance with subsection 10.6 hereof.
Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Making of Loans; the Register; Notes.
A. Commitments. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Borrower herein set
forth, each Lender hereby severally agrees to make the Loans described in this
subsection 2.1A.
(i) Working Capital Revolving Loans. Each Domestic Lender severally
agrees, subject to the limitations set forth below with respect to the
maximum amount of Working Capital Revolving Loans permitted to be
outstanding from time to time, to lend to Company from time to time during
the period from the Closing Date to but excluding the Commitment Termination
Date an aggregate amount not exceeding its Pro Rata Share of the aggregate
amount of the Working Capital Revolving Loan Commitment to be used for the
purposes identified in subsection 2.5A. The original amount of each
Domestic Lender's Working Capital Revolving Loan Commitment is set forth
opposite its name on Schedule 2.1 annexed hereto and the aggregate original
amount of the Working Capital Revolving Loan Commitment is $10,000,000;
provided that the Working Capital Revolving Loan Commitments of Domestic
Lenders shall be adjusted to give effect to any assignments of the Working
Capital Revolving Loan Commitments pursuant to subsection 10.1B; and
provided, further that the amount of the Working Capital Revolving Loan
Commitments shall be reduced from time to time by the amount of any
reductions thereto made pursuant to subsections 2.4C(ii) and 2.4C(iii).
Each Domestic Lender's Working Capital Revolving Loan Commitment shall
expire on the Commitment Termination Date and all Working Capital Revolving
Loans and all other amounts owed hereunder with respect to the Working
Capital Revolving Loans and the Working Capital Revolving Loan Commitments
shall be paid in full no later than that date; provided that each
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Lender's Working Capital Revolving Loan Commitment shall expire immediately
and without further action on January 31, 1998 if the initial Working
Capital Revolving Loans are not made on or before that date. Amounts
borrowed under this subsection 2.1A(i) may be repaid and reborrowed to but
excluding the Commitment Termination Date.
Anything contained in this Agreement to the contrary notwithstanding,
Working Capital Revolving Loans and the Working Capital Revolving Loan
Commitments shall be subject to the following limitations:
(a) in no event shall the Total Utilization of Working Capital
Revolving Loan Commitments at any time exceed the Working Capital Revolving
Loan Commitments then in effect;
(b) in no event shall the Total Utilization of Working Capital
Revolving Loan Commitments at any time exceed the Borrowing Base then in
effect; and
(c) for thirty consecutive days, at any time, during each twelve
consecutive month period after the Closing Date there shall be no
outstanding Working Capital Revolving Loans.
(ii) Canadian Loans. Each Canadian Lender severally agrees, subject to
Lakeland Canada's compliance with subsection 4.4, to lend to Lakeland Canada
on or prior to the Canadian Loan Funding Date an amount in Dollars not
exceeding its Pro Rata Share of the aggregate amount of the Canadian
Commitments to be used for the purposes identified in subsection 2.5C. The
amount of each Canadian Lender's Canadian Commitment is set forth opposite
its name on Schedule 2.1 annexed hereto and the aggregate amount of the
Canadian Commitments is $5,000,000; provided that the Canadian Commitments
of Canadian Lenders shall be adjusted to give effect to any assignments of
the Canadian Commitments pursuant to subsection 10.1B. Each Canadian
Lender's Canadian Commitment shall expire immediately and without further
action on February 15, 1998, if the Canadian Loans are not made on or before
that date. Company may make only one borrowing under the Canadian
Commitments. Amounts borrowed under this subsection 2.1A(ii) and
subsequently repaid or prepaid may not be reborrowed.
(iii) Acquisition Revolving Loans. Each Domestic Lender severally
agrees to lend to Company from time to time during the period from the
Closing Date to but excluding the Acquisition Conversion Date an aggregate
amount not exceeding its Pro Rata Share of the aggregate amount of the
Acquisition Revolving Loan Commitments to be used for the purposes
identified in subsection 2.5B. The original amount of each Domestic
Lender's Acquisition Revolving Loan Commitment is set forth
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opposite its name on Schedule 2.1 annexed hereto and the aggregate original
amount of the Acquisition Revolving Loan Commitments is $25,000,000;
provided that the Acquisition Revolving Loan Commitments of Domestic Lenders
shall be adjusted to give effect to any assignments of the Acquisition
Revolving Loan Commitments pursuant to subsection 10.1B; and provided,
further that the amount of the Acquisition Revolving Loan Commitments shall
be reduced from time to time by the amount of any reductions thereto made
pursuant to subsections 2.4C(ii) and 2.4C(iii). Each Domestic Lender's
Acquisition Revolving Loan Commitment shall expire on the Acquisition
Conversion Date and all Acquisition Revolving Loans shall be converted to
Acquisition Term Loans pursuant to subsection 2.1A(iv) on the Acquisition
Conversion Date; provided that each Domestic Lender's Acquisition Revolving
Loan Commitment shall expire immediately and without further action on
January 31, 1998 if the initial Acquisition Revolving Loans are not made on
or before that date. Amounts borrowed under this subsection 2.1A(iii) may be
repaid and reborrowed to but excluding the Acquisition Conversion Date.
(iv) Acquisition Term Loans. Each Domestic Lender severally agrees to
convert all of its Acquisition Revolving Loans outstanding on the
Acquisition Conversion Date into Acquisition Term Loans upon the terms and
conditions set forth in this Agreement. As a condition precedent to the
conversion of the Acquisition Revolving Loans to Acquisition Term Loans on
the Acquisition Conversion Date, Company shall deliver to Agent an Officers'
Certificate stating that no Potential Event of Default or Event of Default
has occurred and is continuing. On the Acquisition Conversion Date,
Company shall deliver to each Domestic Lender a Term Loan Note in
substantially the form of Exhibit IV annexed hereto and such further
documents as Agent may reasonably request. Acquisition Term Loans which are
repaid or prepaid may not be reborrowed.
B. Borrowing Mechanics. Revolving Loans made on any Funding Date as Base
Rate Loans shall not be subject to any minimum amounts. Term Loans made on any
Funding Date as Base Rate Loans shall be in an aggregate minimum amount of
$1,000,000 and integral multiples of $500,000 in excess of that amount and Term
Loans or Revolving Loans made on any Funding Date as Eurodollar Rate Loans or
Canadian Eurodollar Rate Loans with a particular Interest Period shall be in an
aggregate minimum amount of $2,000,000 and integral multiples of $250,000 in
excess of that amount. Whenever any Borrower desires that Lenders make Term
Loans or Revolving Loans it shall deliver to Agent a Notice of Borrowing no
later than 12:00 Noon (New York time) at least three Business Days in advance of
the proposed Funding Date (in the case of a Eurodollar Rate Loan) or no later
than 12:00 Noon (New York time) on the proposed Funding Date (in the case of a
Base Rate Loan) or no later than 12:00 Noon (Toronto time) at least one Business
Day in advance of the proposed Funding Date (in the case of a Canadian Base Rate
Loan). The Notice of Borrowing shall specify (i) the proposed Borrower, (ii)
the proposed Funding Date (which shall be a Business Day), (iii) the amount and
type of Loans requested, (iv) in
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the case of Loans made on the Closing Date, that such Loans shall be Base Rate
Loans or Canadian Base Rate Loans, as applicable, (v) in the case of Revolving
Loans not made on the Closing Date, whether such Loans shall be Base Rate Loans
or Eurodollar Rate Loans, (vi) in the case of any Loans requested to be made as
Eurodollar Rate Loans, the initial Interest Period requested therefor and (vii)
in the case of Working Capital Revolving Loans, that, after giving effect to the
requested Loans, the Total Utilization of Working Capital Revolving Loan
Commitments will not exceed the Working Capital Revolving Loan Commitments or
the Borrowing Base then in effect. Acquisition Term Loans and Revolving Loans
may be continued as or converted into Base Rate Loans and Eurodollar Rate Loans
in the manner provided in subsection 2.2D. Canadian Loans may be continued as or
converted into Canadian Base Rate Loans and Canadian Eurodollar Rate Loans in
the manner provided in subsection 2.2D. In lieu of delivering the above-
described Notice of Borrowing, a Borrower may give Agent telephonic notice by
the required time of any proposed borrowing under this subsection 2.1B; provided
that such notice shall be promptly confirmed in writing by delivery of a Notice
of Borrowing to Agent on or before the applicable Funding Date.
Neither Agent nor any Lender shall incur any liability to any Borrower
in acting upon any telephonic notice referred to above that Agent believes in
good faith to have been given by a duly authorized officer or other person
authorized to borrow on behalf of such Borrower or for otherwise acting in good
faith under this subsection 2.1B, and upon funding of Loans by Daily Funding
Lender and/or Lenders in accordance with this Agreement pursuant to any such
telephonic notice such Borrower shall have effected Loans hereunder.
The applicable Borrower shall notify Agent prior to the funding of any
Loans in the event that any of the matters to which such Borrower is required to
certify in the applicable Notice of Borrowing is no longer true and correct as
of the applicable Funding Date, and the acceptance by such Borrower of the
proceeds of any Loans shall constitute a re-certification by such Borrower, as
of the applicable Funding Date, as to the matters to which such Borrower is
required to certify in the applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and the applicable Borrower shall be bound to make a
borrowing in accordance therewith.
C. Disbursement of Funds.
(i) Subject to this subsection 2.1C and subsection 2.1D, all Loans
under this Agreement shall be made by Lenders simultaneously and
proportionately to their respective Pro Rata Shares, it being understood
that no Lender shall be responsible for any default by any other Lender in
that other Lender's obligation to make a Loan requested hereunder nor shall
the Commitment of any Lender to make the particular
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type of Loan requested be increased or decreased as a result of a default by
any other Lender in that other Lender's obligation to make a Loan requested
hereunder.
(ii) Upon receipt by Agent of a Notice of Borrowing pursuant to
subsection 2.1B (or telephonic notice in lieu thereof) for Working Capital
Revolving Loans that consist of Base Rate Loans and upon satisfaction or
waiver of the conditions precedent specified in subsection 4.1 (in the case
of Loans made on the Closing Date) and, subject to the provisions set forth
in the immediately succeeding paragraph, subsection 4.2 (in the case of all
Loans), Daily Funding Lender shall, without prior notice to the other
Domestic Lenders, make such Working Capital Revolving Loans for its own
account on the applicable Funding Date (subject to settlement with the other
Domestic Lenders in accordance with subsection 2.1D) by making the proceeds
of such Working Capital Revolving Loans available to the Company on such
Funding Date by causing an amount of same day funds equal to the proceeds of
such Working Capital Revolving Loans to be credited to the account of
Company at the Domestic Funding and Payment Office. Such Working Capital
Revolving Loans shall constitute Working Capital Revolving Loans by Daily
Funding Lender for all purposes under the Loan Documents, subject to
settlement with the other Domestic Lenders pursuant to subsection 2.1D. All
interest accrued on any such Working Capital Revolving Loans from the date
made by Daily Funding Lender to the Settlement Date with respect thereto
shall be for Daily Funding Lender's own account. Daily Funding Lender shall
make Working Capital Revolving Loans for its own account pursuant to this
subsection 2.1C(ii) notwithstanding the fact that the principal amount of
such Working Capital Revolving Loans, when added to the aggregate principal
amount of Daily Funding Lender's Working Capital Revolving Loans then
outstanding, may exceed Daily Funding Lender's Working Capital Revolving
Loan Commitment then in effect; provided that such Working Capital Revolving
Loans shall at all times be Obligations owed to Daily Funding Lender under
this Agreement; and provided, further that in no event shall the aggregate
principal amount of all Working Capital Revolving Loans, including such
Working Capital Revolving Loans, outstanding at any time exceed the
aggregate Working Capital Revolving Loan Commitments then in effect minus
the Letter of Credit Usage as of such time.
Notwithstanding anything in this Agreement to the contrary, if the
conditions precedent specified in subsection 4.2 cannot be fulfilled with
respect to any proposed Working Capital Revolving Loans that consist of Base
Rate Loans, Company shall, in its Notice of Borrowing or otherwise, give
immediate written notice thereof (specifying the circumstances which prevent
the conditions precedent from being fulfilled) to Agent, with a copy to each
Domestic Lender, and Daily Funding Lender may (and each Domestic Lender
hereby authorizes Daily Funding Lender to), but is not obligated to,
continue to make Working Capital Revolving Loans that are Base Rate Loans
for 20 Business Days from the date Agent first receives such notice, or
until sooner instructed by Requisite Lenders to cease making
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such Working Capital Revolving Loans (the "Daily Funding Lender
Discretionary Period"). Once notice is given by Company that circumstances
exist which prevent the conditions precedent to borrowing from being
fulfilled, no additional notice with respect to the same circumstances will
be effective to commence a new Daily Funding Lender Discretionary Period.
(iii) Promptly after receipt by Agent of a Notice of Borrowing
pursuant to subsection 2.1B (or telephonic notice in lieu thereof) for any
Loans (other than for Working Capital Revolving Loans that consist of Base
Rate Loans), Agent shall notify each Domestic Lender (in the case of a
Domestic Loan) or each Canadian Lender (in the case of a Canadian Loan) of
the proposed borrowing. Each Lender shall make the amount of its Loan
available to Agent (in the case of a Domestic Loan) or Canadian Agent (in
the case of a Canadian Loan), in same day funds in Dollars, at the Domestic
Funding and Payment Office, not later than 12:00 Noon (New York time) (in
the case of a Domestic Loan) or at the Canadian Funding and Payment Office,
not later than 12:00 Noon (Toronto time) (in the case of a Canadian Loan) on
the applicable Funding Date. Except as provided in subsection 3.3B with
respect to Working Capital Revolving Loans used to reimburse any Issuing
Lender for the amount of a drawing under a Letter of Credit issued by it,
upon satisfaction or waiver of the conditions precedent specified in
subsections 4.1 (in the case of Loans made on the Closing Date) and, subject
to the provisions set forth in the immediately preceding paragraph, 4.2 (in
the case of all Loans), Agent or Canadian Agent, as the case may be, shall
make the proceeds of such Loans available to the applicable Borrower on the
applicable Funding Date by causing an amount of same day funds in Dollars
equal to the proceeds of all such Loans received by Agent or Canadian Agent,
as the case may be, from Lenders to be credited to the account of the
applicable Borrower at the Domestic Funding and Payment Office or at the
Canadian Funding and Payment Office, as applicable.
Unless Agent shall have been notified by any Lender prior to the
Funding Date for any Loans pursuant to this subsection 2.1C(ii) that such
Lender does not intend to make available to Agent the amount of such
Lender's Loan requested on such Funding Date, Agent may assume that such
Lender has made such amount available to Agent on such Funding Date and
Agent may, in its sole discretion, but shall not be obligated to, make
available to the applicable Borrower a corresponding amount on such Funding
Date. If such corresponding amount is not in fact made available to Agent
by such Lender, Agent shall be entitled to recover such corresponding amount
on demand from such Lender together with interest thereon, for each day from
such Funding Date until the date such amount is paid to Agent, at the
customary rate set by Agent for the correction of errors among banks for
three Business Days and thereafter at the Base Rate. If such Lender does
not pay such corresponding amount forthwith upon Agent's demand therefor,
Agent shall promptly notify the applicable Borrower and such Borrower shall
immediately pay such corresponding amount to Agent
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together with interest thereon, for each day from such Funding Date until
the date such amount is paid to Agent, at the rate payable under this
Agreement for Base Rate Loans. Nothing in this subsection 2.1C shall be
deemed to relieve any Lender from its obligation to fulfill its Commitments
hereunder or to prejudice any rights that such Borrower may have against any
Lender as a result of any default by such Lender hereunder.
D. Settlement Procedures.
(i) Daily Funding Lender will from time to time notify the other
Domestic Lenders, not later than 12:00 Noon (New York time) (a) on at least
one Business Day during each seven calendar-day period, (b) on each date on
which payment of interest on any Working Capital Revolving Loans is required
to be made pursuant to subsection 2.2C, (c) on the Revolving Loan Commitment
Termination Date, and (d) at such other times as Daily Funding Lender in its
discretion may determine (each such notice by Daily Funding Lender being a
"Settlement Notice" and the date of each Settlement Notice being a
"Settlement Date") of the aggregate principal amount of outstanding Working
Capital Revolving Loans made by Daily Funding Lender and each other Domestic
Lender as of the close of business on the Business Day immediately preceding
the applicable Settlement Date.
(ii) If a Settlement Notice indicates that the aggregate principal
amount of outstanding Working Capital Revolving Loans made by Daily Funding
Lender (including Working Capital Revolving Loans made for its own account
pursuant to subsection 2.1C(ii)) is in excess of Daily Funding Lender's Pro
Rata Share of the aggregate principal amount of outstanding Working Capital
Revolving Loans made by all Domestic Lenders (the amount of such excess
being the "Excess Funded Amount"), each other Domestic Lender will, not
later than 4:00 P.M. (New York time) on the applicable Settlement Date, pay
to Daily Funding Lender, by depositing same day funds in the account
specified by Daily Funding Lender at the Domestic Funding and Payment
Office, an amount equal to such Domestic Lender's Adjusted Pro Rata Share of
the Excess Funded Amount, upon which payment Daily Funding Lender shall be
deemed to have sold, and such Domestic Lender shall be deemed to have
purchased, as of the applicable Settlement Date, a portion of the
outstanding Working Capital Revolving Loans made by Daily Funding Lender for
its own account pursuant to subsection 2.1C(ii) on or after the immediately
preceding Settlement Date equal to such Lender's Adjusted Pro Rata Share of
the Excess Funded Amount. The obligation of each Domestic Lender to
purchase a portion of any Working Capital Revolving Loan made by Daily
Funding Lender as provided in this subsection 2.1D(ii) is subject to the
condition that at the time such Working Capital Revolving Loan was made by
Daily Funding Lender (a) the duly authorized officer of Daily Funding Lender
responsible for the administration of Daily Funding Lender's credit
relationship with Borrower believed in good faith that either (X) no Event
of
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Default had occurred and was continuing or (Y) any Event of Default that
had occurred and was continuing had been waived by Requisite Lenders at the
time such Working Capital Revolving Loan was made or (b) a Daily Funding
Lender Discretionary Period was in effect.
(iii) If a Settlement Notice indicates that the aggregate principal
amount of outstanding Working Capital Revolving Loans made by Daily Funding
Lender is less than Daily Funding Lender's Pro Rata Share of the aggregate
principal amount of outstanding Working Capital Revolving Loans made by all
Domestic Lenders (the amount of such difference being the "Excess Paydown
Amount"), Daily Funding Lender will, no later than 4:00 P.M. (New York time)
on the applicable Settlement Date, unconditionally pay to each other
Domestic Lender, by depositing same day funds in the account specified by
such Domestic Lender to Daily Funding Lender, an amount equal to such
Domestic Lender's Adjusted Pro Rata Share of the Excess Paydown Amount, upon
which payment such Domestic Lender shall be deemed to have sold, and Daily
Funding Lender shall be deemed to have purchased, as of the applicable
Settlement Date, a portion of the outstanding Working Capital Revolving
Loans of such Domestic Lender equal to such Domestic Lender's Adjusted Pro
Rata Share of the Excess Paydown Amount.
(iv) Except as provided in subsection 2.1D(ii), the obligations of
Daily Funding Lender and each other Domestic Lender pursuant to subsections
2.1D(ii) and 2.1D(iii) shall be absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, (a) any set-
off, counterclaim, recoupment, defense or other right which Agent or any
Lender may have against Agent, any other Lender, any Loan Party or any other
Person for any reason whatsoever; (b) the occurrence or continuance of an
Event of Default or a Potential Event of Default; (c) any adverse change in
the condition (financial or otherwise) of any Loan Party; (d) any breach of
this Agreement by any Borrower, Agent or any Lender; or (e) any other
circumstance, happening, or event whatsoever, whether or not similar to any
of the foregoing. In the event that any Person (the "Payor") obligated to
make a payment to any other Person (the "Payee") pursuant to this subsection
2.1D fails to make available to the Payee the amount of such payment
required to be made by the Payor, the Payee shall be entitled to recover
such amount on demand from the Payor together with interest at the customary
rate set by BTCo for the correction of errors among Lenders for three
Business Days and thereafter at the sum of the Base Rate plus 1.50% per
annum.
(v) In the event that all or any portion of any repayment of principal
of the Working Capital Revolving Loans is thereafter recovered by or on
behalf of any Borrower from Daily Funding Lender (including any such
recovery in a proceeding under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect) in an amount that is
proportionately greater (based on the respective Pro Rata
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Shares of Domestic Lenders) than any such recovery from the other Domestic
Lenders, the loss of the amount so recovered shall be ratably shared among
all Domestic Lenders in the manner contemplated by subsection 10.5.
E. The Register.
(i) Agent shall maintain, at its address referred to in subsection
10.8, a register for the recordation of the names and addresses of Lenders
and the Commitments and Loans of each Lender from time to time (the
"Register"). The Register shall be available for inspection by either
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(ii) Agent shall record in the Register the Working Capital Revolving
Loan Commitment, the Acquisition Revolving Loan Commitment, the Acquisition
Term Loan Commitment, the Canadian Commitment, the Working Capital Revolving
Loans, the Acquisition Revolving Loans, the Acquisition Term Loans and the
Canadian Loans from time to time of each Lender and each repayment or
prepayment in respect of the principal amount of the Term Loan(s) or
Revolving Loans of each Lender. Any such recordation shall be conclusive
and binding on each Borrower and each Lender, absent manifest error;
provided that failure to make any such recordation, or any error in such
recordation, shall not affect Borrower's Obligations in respect of the
applicable Loans.
(iii) Each Lender shall record on its internal records (including,
without limitation, the Notes held by such Lender) the amount of each Loan
made by it and each payment in respect thereof. Any such recordation shall
be conclusive and binding on each Borrower, absent manifest error; provided
that failure to make any such recordation, or any error in such recordation,
shall not affect such Borrower's Obligations in respect of the applicable
Loans; and provided, further that in the event of any inconsistency between
the Register and any Lender's records, the recordations in the Register
shall govern.
(iv) Borrower, Agent and Lenders shall deem and treat the Persons
listed as Lenders in the Register as the holders and owners of the
corresponding Commitments and Loans listed therein for all purposes hereof,
and no assignment or transfer of any such Commitment or Loan shall be
effective, in each case unless and until an Assignment Agreement effecting
the assignment or transfer thereof shall have been accepted by Agent and
recorded in the Register as provided in subsection 10.1B(ii). Prior to such
recordation, all amounts owed with respect to the applicable Commitment or
Loan shall be owed to the Lender listed in the Register as the owner
thereof, and any request, authority or consent of any Person who, at the
time of making such request or giving such authority or consent, is listed
in the Register as a
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Lender shall be conclusive and binding on any subsequent holder, assignee or
transferee of the corresponding Commitments or Loans.
(v) Each Borrower hereby designates BTCC to serve as such Borrower's
agent solely for purposes of maintaining the Register as provided in this
subsection 2.1E, and each Borrower hereby agrees that, to the extent BTCC
serves in such capacity, BTCC and its officers, directors, employees, agents
and affiliates shall constitute Indemnitees for all purposes under
subsection 10.3.
F. Notes. Company shall execute and deliver to each Domestic Lender (or
to Agent for that Lender) (i) on the Closing Date (a) a Working Capital
Revolving Note substantially in the form of Exhibit V-A annexed hereto to
evidence that Domestic Lender's Working Capital Revolving Loan, in the principal
amount of that Domestic Lender's Working Capital Revolving Loan Commitment and
with other appropriate insertions, and (b) an Acquisition Revolving Note
substantially in the form of Exhibit V-B annexed hereto to evidence that
Domestic Lender's Acquisition Revolving Loans, in the principal amount of that
Domestic Lender's Acquisition Revolving Loan Commitment and with other
appropriate insertions, and (ii) on the Acquisition Conversion Date, an
Acquisition Term Loan Note substantially in the form of Exhibit IV annexed
hereto to evidence that Domestic Lender's Acquisition Term Loans, in the
principal amount of that Domestic Lender's Acquisition Term Loan Commitment and
with other appropriate insertions. Lakeland Canada shall execute and deliver to
each Canadian Lender (or to Canadian Agent for that Lender) on the Canadian Loan
Funding Date a Canadian Note substantially in the form of Exhibit VI annexed
hereto to evidence that Canadian Lender's Canadian Loan, in the principal amount
of that Canadian Lender's Canadian Commitment and with other appropriate
insertions.
2.2 Interest on the Loans.
A. Rate of Interest. Subject to the provisions of subsections 2.6 and
2.7, each Loan shall bear interest on the unpaid principal amount thereof from
the date made through maturity (whether by acceleration or otherwise) at a rate
determined by reference to, in the case of Domestic Loans, the Base Rate or
the Adjusted Eurodollar Rate and, in the case of Canadian Loans, the Canadian
Base Rate or the Canadian Eurodollar Rate. The applicable basis for determining
the rate of interest with respect to any Loan shall be selected by the
applicable Borrower initially at the time a Notice of Borrowing is given with
respect to such Loan pursuant to subsection 2.1B, and the basis for determining
the interest rate with respect to any Loan may be changed from time to time
pursuant to subsection 2.2D. If on any day a Loan is outstanding with respect to
which notice has not been delivered to Agent in accordance with the terms of
this Agreement specifying the applicable basis for determining the rate of
interest, then for that day that Loan shall bear interest determined by
reference to the Base Rate (in the case of a Domestic Loan) and to the Canadian
Base Rate (in the case of a Canadian Loan).
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<PAGE>
(i) Subject to the provisions of subsections 2.2E and 2.7, the Working
Capital Revolving Loans shall bear interest through maturity as follows:
(a) if a Base Rate Loan, then at the sum of the Base Rate plus the
Applicable Working Capital Base Rate Margin; or
(b) if a Eurodollar Rate Loan, then at the sum of the Adjusted
Eurodollar Rate plus the Applicable Working Capital Eurodollar Rate Margin.
(ii) Subject to the provisions of subsections 2.2E and 2.7, the
Acquisition Revolving Loans and the Acquisition Term Loans shall bear
interest through maturity as follows:
(a) if a Base Rate Loan, then at the sum of the Base Rate plus the
Applicable Acquisition Base Rate Margin; or
(b) if a Eurodollar Rate Loan, then at the sum of the Adjusted
Eurodollar Rate plus the Applicable Acquisition Eurodollar Rate Margin.
(iii) Subject to the provisions of subsections 2.2E and 2.7, the
Canadian Loans shall bear interest through maturity as follows:
(a) if a Base Rate Loan, then at the sum of the Base Rate plus the
Applicable Canadian Base Rate Margin; or
(b) if a Eurodollar Rate Loan, then at the sum of the Adjusted
Eurodollar Rate plus the Applicable Canadian Eurodollar Rate Margin.
Upon delivery of the Margin Determination Certificate by Company to
Agent pursuant to subsection 6.1(v), the Applicable Working Capital Base Rate
Margin, the Applicable Acquisition Base Rate Margin, the Applicable Canadian
Base Rate, the Applicable Working Capital Eurodollar Rate Margin, the Applicable
Acquisition Eurodollar Rate Margin and the Applicable Canadian Eurodollar Rate
Margin shall automatically be adjusted in accordance with such Margin
Determination Certificate, such adjustment to become effective on the first day
of the next succeeding month following the receipt by Agent of such Margin
Determination Certificate; provided that if a Margin Determination Certificate
erroneously indicates an applicable margin more favorable to Company than should
be afforded by the actual calculation of the Consolidated Interest Coverage
Ratio, Company shall promptly pay additional interest and letter of credit fees
to correct for such error. If Company fails to deliver a Margin Determination
Certificate by the time required by subsection 6.1(v), from such time the Margin
Determination Certificate was required to be delivered until delivery of such
Margin Determination Certificate, the Applicable Working Capital Base Rate
Margin, the Applicable Acquisition Base Rate Margin, the
52
<PAGE>
Applicable Canadian Base Rate Margin, the Applicable Working Capital Eurodollar
Rate Margin, the Applicable Acquisition Eurodollar Rate Margin and the
Applicable Canadian Eurodollar Rate Margin shall automatically be adjusted to
reflect the highest percentage per annum as set forth in their definitions,
respectively.
B. Interest Periods. In connection with each Eurodollar Rate Loan or
Canadian Eurodollar Rate Loan, Company may, pursuant to the applicable Notice of
Borrowing or Notice of Conversion/Continuation, as the case may be, select an
interest period (each an "Interest Period") to be applicable to such Loan, which
Interest Period shall be, at Company's option, either a one, two, three or six
month period; provided that:
(i) the initial Interest Period for any such Loan shall commence
on the Funding Date in respect of such Loan, in the case of a Loan initially
made as a Eurodollar Rate Loan or a Canadian Eurodollar Rate Loan, as
applicable, or on the date specified in the applicable Notice of
Conversion/Continuation, in the case of a Loan converted to a Eurodollar
Rate Loan or a Canadian Eurodollar Rate Loan, as applicable;
(ii) in the case of immediately successive Interest Periods applicable
to a Eurodollar Rate Loan or a Canadian Eurodollar Rate Loan, as applicable,
continued as such pursuant to a Notice of Conversion/Continuation, each
successive Interest Period shall commence on the day on which the next
preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next succeeding
Business Day; provided that, if any Interest Period would otherwise expire
on a day that is not a Business Day but is a day of the month after which no
further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall, subject
to clause (v) of this subsection 2.2B, end on the last Business Day of a
calendar month;
(v) no Interest Period with respect to any portion of the Acquisition
Revolving Loans shall extend beyond the Acquisition Conversion Date and no
Interest Period with respect to any portion of the Loans shall extend beyond
the Commitment Termination Date;
(vi) no Interest Period with respect to any portion of the Term Loans
of any Borrower shall extend beyond a date on which such Borrower is
required to make a scheduled payment of principal of the Term Loans of such
Borrower unless the sum
53
<PAGE>
of (a) the aggregate principal amount of Term Loans of such Borrower that
are Base Rate Loans or Canadian Base Rate Loans, as applicable, plus (b) the
aggregate principal amount of Term Loans of such Borrower that are
Eurodollar Rate Loans or Canadian Eurodollar Rate Loans, as applicable, with
Interest Periods expiring on or before such date equals or exceeds the
principal amount required to be paid on the Term Loans of such Borrower on
such date;
(vii) there shall be no more than five Interest Periods outstanding at
any time; and
(viii) in the event a Borrower fails to specify an Interest Period for
any Eurodollar Rate Loan or any Canadian Eurodollar Rate Loan, as
applicable, in the applicable Notice of Borrowing or Notice of
Conversion/Continuation, such Borrower shall be deemed to have selected an
Interest Period of one month.
C. Interest Payments. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity); provided that in the event any Revolving Loans that are Base Rate
Loans are prepaid pursuant to subsection 2.4C(i), interest accrued on such
Revolving Loans through the date of such prepayment shall be payable on the next
succeeding Interest Payment Date applicable to Base Rate Loans (or, if earlier,
at final maturity).
D. Conversion or Continuation. Subject to the provisions of subsection
2.6, Borrower shall have the option (i) from and after the earlier to occur of
(a) the date which is 90 days after the Closing Date and (b) the date on which
Agent notifies Borrower that the primary syndication of the Commitments and the
Loans has been completed, to convert at any time all or any part of its
outstanding Term Loans or Revolving Loans equal to $2,000,000 and integral
multiples of $250,000 in excess of that amount from Loans bearing interest at a
rate determined by reference to one basis to Loans bearing interest at a rate
determined by reference to an alternative basis or (ii) upon the expiration of
any Interest Period applicable to a Eurodollar Rate Loan or a Canadian
Eurodollar Rate Loan, as applicable, to continue all or any portion of such Loan
equal to $2,000,000 and integral multiples of $250,000 in excess of that amount
as a Eurodollar Rate Loan or a Canadian Eurodollar Rate Loan, as applicable;
provided, however, that a Eurodollar Rate Loan or a Canadian Eurodollar Rate
Loan may only be converted into a Base Rate Loan or a Canadian Base Rate Loan,
as applicable, on the expiration date of an Interest Period applicable thereto.
The applicable Borrower shall deliver a Notice of Conversion/
Continuation to Agent no later than 12:00 Noon (New York time) of the proposed
conversion date (in the case of a conversion to a Base Rate Loan), at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion into a Canadian Base Rate Loan) and at
54
<PAGE>
least three Business Days in advance of the proposed conversion/continuation
date (in the case of a conversion to, or a continuation of, a Eurodollar Rate
Loan or a Canadian Eurodollar Rate Loan, as applicable). A Notice of
Conversion/Continuation shall specify (i) the proposed conversion/continuation
date (which shall be a Business Day), (ii) the amount and type of the Loan to be
converted/continued, (iii) the nature of the proposed conversion/ continuation,
(iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate
Loan or a Canadian Eurodollar Rate Loan, the requested Interest Period, and (v)
in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan or
a Canadian Eurodollar Rate Loan, that no Potential Event of Default or Event of
Default has occurred and is continuing. In lieu of delivering the above-
described Notice of Conversion/Continuation, the applicable Borrower may give
Agent telephonic notice by the required time of any proposed
conversion/continuation under this subsection 2.2D; provided that such notice
shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Agent on or before the proposed
conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to any Borrower
in acting upon any telephonic notice referred to above that Agent believes in
good faith to have been given by a duly authorized officer or other person
authorized to act on behalf of such Borrower or for otherwise acting in good
faith under this subsection 2.2D, and upon conversion or continuation of the
applicable basis for determining the interest rate with respect to any Loans in
accordance with this Agreement pursuant to any such telephonic notice Company
shall have effected a conversion or continuation, as the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Conversion/Continuation for conversion to, or continuation of, a
Eurodollar Rate Loan or a Canadian Eurodollar Rate Loan (or telephonic notice in
lieu thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and the applicable Borrower shall be bound to effect a
conversion or continuation in accordance therewith.
E. Default Rate. Upon the occurrence and during the continuation of any
Event of Default, the outstanding principal amount of all Loans and, to the
extent permitted by applicable law, any interest payments thereon not paid when
due and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable Insolvency Laws) payable upon
demand at a rate that is 2% per annum in excess of the interest rate otherwise
payable under this Agreement with respect to Base Rate Loans or Canadian Base
Rate Loans, as applicable. Payment or acceptance of the increased rates of
interest provided for in this subsection 2.2E is not a permitted alternative to
timely payment and shall not constitute a waiver of any Event of Default or
otherwise prejudice or limit any rights or remedies of Agent or any Lender.
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<PAGE>
F. Computation of Interest. Interest on the Loans shall be computed on
the basis of a 360-day year, in each case for the actual number of days elapsed
in the period during which it accrues. In computing interest on any Loan, (i)
the date of the making of such Loan or the first day of an Interest Period
applicable to such Loan or, with respect to a Base Rate Loan being converted
from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan
to such Base Rate Loan or, with respect to a Canadian Base Rate Loan being
converted from a Canadian Eurodollar Rate Loan, the date of conversion of such
Canadian Eurodollar Rate Loan to such Canadian Base Rate Loan, as the case may
be, shall be included, and (ii) the date of payment of such Loan or the
expiration date of an Interest Period applicable to such Loan or, with respect
to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of
conversion of such Base Rate Loan to such Eurodollar Rate Loan or, with respect
to a Canadian Base Rate Loan being converted to a Canadian Eurodollar Rate Loan,
the date of conversion of such Canadian Base Rate Loan to such Canadian
Eurodollar Rate Loan, as the case may be, shall be excluded; provided that if a
Loan is repaid on the same day on which it is made, one day's interest shall be
paid on that Loan.
G. Canadian Interest Provisions. For purposes of the Interest Act
(Canada) and disclosure thereunder, whenever interest to be paid under this
Agreement is to be calculated on the basis of a year of 360 days, the yearly
rate of interest to which the rate determined pursuant to such calculation is
equivalent to is the rate so determined multiplied by the actual number of days
in the calendar year in which the same is to be ascertained divided by 360.
2.3 Fees.
A. Commitment Fees.
(i) Working Capital Revolving Loan Commitment Fee. Company agrees to
pay to Agent, for distribution to each Domestic Lender in
proportion to that Lender's Pro Rata Share, commitment fees for
the period from and including the Closing Date to and excluding
the Commitment Termination Date equal to the average of the daily
excess of the Working Capital Revolving Loan Commitments over the
Total Utilization of Working Capital Revolving Loan Commitments
multiplied by the Commitment Fee Percentage, such commitment fees
to be calculated on the basis of a 360-day year and the actual
number of days elapsed and to be payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year,
commencing on the first such date to occur after the Closing Date,
and on the Commitment Termination Date.
(ii) Acquisition Revolving Loan Commitment Fee. Company agrees to pay
to Agent, for distribution to each Lender in proportion to that
Lender's
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<PAGE>
Pro Rata Share, commitment fees for the period from and
including the Closing Date to and excluding the Acquisition
Conversion Date equal to the average of the daily excess of the
Acquisition Revolving Loan Commitments over the aggregate
principal amount of all outstanding Acquisition Revolving Loans
multiplied by the Commitment Fee Percentage, such commitment
fees to be calculated on the basis of a 360-day year and the
actual number of days elapsed and to be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of
each year, commencing on the first such date to occur after the
Closing Date, and on the Acquisition Conversion Date.
(iii) Canadian Loan Commitment Fee. Lakeland Canada agrees to pay to
Agent, for distribution to each Canadian Lender in proportion to
that Lender's Pro Rata Share, commitment fees for the period
from and including the Closing Date to and excluding the
Canadian Loan Funding Date equal to the Canadian Commitments
multiplied by the Commitment Fee Percentage, such commitment
fees to be calculated on the basis of a 360-day year and the
actual number of days elapsed and to be payable on the later of
the Canadian Loan Funding Date and January 31, 1998.
B. Other Fees. Borrowers jointly and severally agree to pay to Agent such
other fees in the amounts and at the times separately agreed upon between
Holdings or Company and Agent.
C. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments by any Borrower of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in Dollars in same day funds, without defense, setoff or
counterclaim, free of any restriction or condition, and delivered to Agent
not later than 12:00 Noon (New York time) on the date due at the Domestic
Funding and Payment Office for the account of Domestic Lenders or not later
than 12:00 Noon (Toronto time) on the date due at the Canadian Funding and
Payment Office for the account of Canadian Lenders, as applicable. Funds
received by Agent or Canadian Agent after that time on such due date shall
be deemed to have been paid by the applicable Borrower on the next
succeeding Business Day. In order to effect timely payment of any interest,
fees, commissions or other amounts due hereunder, Company hereby authorizes
Agent to request Daily Funding Lender to make Working Capital Revolving
Loans for its own account (subject to settlement pursuant to subsection
2.1D) in a principal amount equal to such interest, fees, commissions or
other amounts; provided that Agent shall not have the right to request
Working Capital Revolving Loans if, after giving effect to such Working
Capital Revolving Loans, (y) the aggregate outstanding principal
57
<PAGE>
amount of Working Capital Revolving Loans would exceed the Working Capital
Revolving Loan Commitments then in effect minus the Letter of Credit Usage,
or (z) the Total Utilization of Working Capital Revolving Loan Commitments
would exceed the Borrowing Base then in effect. Daily Funding Lender shall
make the amount of such Working Capital Revolving Loans (which shall be made
as Base Rate Loans) available to Agent, in same day funds, at the Domestic
Funding and Payment Office, not later than 1:00 P.M. (New York time) on the
date requested by Agent, and Company and Domestic Lenders hereby authorize
Agent, whether or not the conditions specified in subsection 4.2 have been
satisfied or waived, to apply the proceeds of such Working Capital Revolving
Loans directly to the payment of such unpaid interest, fees, commissions or
other amounts. Company hereby agrees that, upon the funding of any such
Working Capital Revolving Loans by Daily Funding Lender in accordance with
the provisions of this subsection 2.3C(i), Company shall have effected
Working Capital Revolving Loans hereunder, which Working Capital Revolving
Loans shall for all purposes of this Agreement be deemed to have been made
by Daily Funding Lender pursuant to and in accordance with the provisions of
subsection 2.1C(ii). Agent shall deliver prompt notice to Company of the
amount of Working Capital Revolving Loans made pursuant to this subsection
2.3C together with copies of all invoices or other statements evidencing the
fees, commissions or other amounts due hereunder (other than interest) paid
with the proceeds of such Working Capital Revolving Loans; provided that
Agent shall give notice to Company five days in advance of the making of any
such Working Capital Revolving Loans for the payment of any amounts owed
under subsection 10.2 together with copies of all invoices or other
statements evidencing such amounts. In addition, each Borrower hereby
authorizes Agent to charge its accounts with Agent in order to cause timely
payment to be made to Agent of all principal, interest, fees and expenses
due hereunder (subject to sufficient funds being available in its accounts
for that purpose).
(ii) Application of Payments to Principal and Interest. Except as
provided in subsection 2.2C, all payments in respect of the principal amount
of any Loan shall include payment of accrued interest on the principal
amount being repaid or prepaid, and all such payments (and, in any event,
any payments in respect of any Loan on a date when interest is due and
payable with respect to such Loan) shall be applied to the payment of
interest before application to principal.
(iii) Apportionment of Payments. Aggregate principal and interest
payments shall be apportioned among all outstanding Loans to which such
payments relate, in each case proportionately to Domestic Lenders'
respective Pro Rata Shares or Canadian Lenders' respective Pro Rata Shares,
as applicable, of such Loans; provided that (i) payments of principal in
respect of the Working Capital Revolving Loans pursuant to subsection
2.4C(iii)(g) shall be applied to reduce the outstanding Working Capital
Revolving Loans of Daily Funding Lender (subject to settlement pursuant to
subsection 2.1D) prior to application to the outstanding Working Capital
Revolving
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Loans of any other Domestic Lender and (ii) payments of interest in respect
of Working Capital Revolving Loans which are Base Rate Loans shall be
apportioned ratably among Domestic Lenders in proportion to the average
daily amount of such Base Rate Loans of each Domestic Lender outstanding
during the period in which such interest shall have accrued. Agent shall
promptly distribute to each Domestic Lender, at its primary address set
forth below its name on the appropriate signature page hereof or at such
other address as such Lender may request, its Pro Rata Share of all such
payments received by Agent in respect of Domestic Loans and the commitment
fees of such Lender when received by Agent pursuant to subsection 2.3.
Agent or Canadian Agent, as applicable, shall promptly distribute to each
Canadian Lender, at its primary address set forth below its name on the
appropriate signature page hereof or at such other address as such Lender
may request, its Pro Rata Share of all such payments received by Agent or
Canadian Agent, as applicable, in respect of Canadian Loans.
Notwithstanding the foregoing provisions of this subsection 2.3C(iii), if,
pursuant to the provisions of subsection 2.6C, any Notice of Conversion/
Continuation is withdrawn as to any Affected Lender or if any Affected
Lender makes Base Rate Loans or Canadian Base Rate Loans in lieu of its Pro
Rata Share of any Eurodollar Rate Loans or Canadian Eurodollar Rate Loans,
as applicable, Agent shall give effect thereto in apportioning payments
received thereafter.
(iv) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or of the commitment fees hereunder, as the case may be.
(v) Notation of Payment. Each Lender agrees that before disposing of
any Note held by it, or any part thereof (other than by granting
participations therein), that Lender will make a notation thereon of all
Loans evidenced by that Note and all principal payments previously made
thereon and of the date to which interest thereon has been paid; provided
that the failure to make (or any error in the making of) a notation of any
Loan made under such Note shall not limit or otherwise affect the
obligations of any Borrower hereunder or under such Note with respect to
any Loan or any payments of principal or interest on such Note.
2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions
Regarding Payments.
A. Scheduled Payments of Acquisition Term Loans. Company shall make
principal payments on the Acquisition Term Loans in installments on the dates
and in the amounts, expressed as a percentage of the principal amount of
Acquisition Term Loans outstanding on the Acquisition Conversion Date, set forth
below:
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<TABLE>
<CAPTION>
Percentage Repayment
of Acquisition Term Loans
Outstanding on the
Date Acquisition Conversion Date
------ -----------------------------
<S> <C>
March 31, 2000 2.5%
June 30, 2000 2.5
September 30, 2000 2.5
December 31, 2000 2.5
March 31, 2001 3.75
June 30, 2001 3.75
September 30, 2001 3.75
December 31, 2001 3.75
March 31, 2002 5.00
June 30, 2002 5.00
September 30, 2002 5.00
December 31, 2002 60.00
-------
TOTAL 100.00%
=======
</TABLE>
; provided that the scheduled installments of principal of the Acquisition
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Acquisition Term Loans in
accordance with subsection 2.4C(iv); and provided, further that the
Acquisition Term Loans and all other amounts owed hereunder with respect to
the Acquisition Term Loans shall be paid in full no later than December 31,
2002, and the final installment payable by Company in respect of the
Acquisition Term Loans on such date shall be in an amount, if such amount
is different from the amount equal to the percentage specified above,
sufficient to repay all amounts owing by Company under this Agreement with
respect to the Acquisition Term Loans.
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B. Scheduled Payments of Canadian Loans. Lakeland Canada shall make
principal payments on the Loans in installments on the dates and in the amounts,
expressed as a percentage of the principal amount of Canadian Loans outstanding
on the Canadian Loan Funding Date, set forth below:
<TABLE>
<CAPTION>
of Canadian Loans
Outstanding on the
Date Canadian Loan Funding Date
------ --------------------------
<S> <C>
March 31, 2000 2.50%
June 30, 2000 2.50%
September 30, 2000 2.50%
December 31, 2000 2.50%
March 31, 2001 3.75%
June 30, 2001 3.75%
September 30, 2001 3.75%
December 31, 2001 3.75%
March 31, 2002 5.00%
June 30, 2002 5.00%
September 30, 2002 5.00%
December 31, 2002 60.00%
------
TOTAL 100.00%
======
</TABLE>
; provided that the scheduled installments of principal of the Canadian
Loans set forth above shall be reduced in connection with any voluntary or
mandatory prepayments of the Canadian Loans in accordance with subsection
2.4C(iv); and provided, further that the Canadian Loans and all other
amounts owed hereunder with respect to the Canadian Loans shall be paid in
full no later than December 31, 2002, and the final installment payable by
Lakeland Canada in respect of the Canadian Loans on such date shall be in
an amount, if such amount is different from the amount equal to the
percentage specified above, sufficient to repay all amounts owing by
Lakeland Canada under this Agreement with respect to the Canadian Loans.
C. Prepayments and Reductions in Revolving Loan Commitments; Voluntary and
Mandatory Prepayments.
(i) Voluntary Prepayments. The applicable Borrower may, upon not less
than one Business Day's prior written or telephonic notice, in the case of
Base Rate Loans and Canadian Base Rate Loans, and three Business Days'
prior written or telephonic notice, in the case of Eurodollar Rate Loans
and Canadian Eurodollar Rate
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Loans, in each case given to Agent by 12:00 Noon (New York time) on the date
required and, if given by telephone, promptly confirmed in writing to Agent
(which original written or telephonic notice Agent will promptly transmit by
telefacsimile or telephone to each Domestic Lender or each Canadian Lender,
as applicable), at any time and from time to time prepay any Loans on any
Business Day in whole or in part in an aggregate minimum amount of $500,000
and integral multiples of $250,000 in excess of that amount; provided,
however, that a Eurodollar Rate Loan or a Canadian Eurodollar Rate Loan may
only be prepaid on the expiration of the Interest Period applicable thereto.
Notice of prepayment having been given as aforesaid, the principal amount of
the Loans specified in such notice shall become due and payable on the
prepayment date specified therein. Any such voluntary prepayment shall be
applied as specified in subsection 2.4C(iv).
(ii) Voluntary Reductions of Commitments. Company may, upon not less
than three Business Days' prior written or telephonic notice confirmed in
writing to Agent (which original written or telephonic notice Agent will
promptly transmit by telefacsimile or telephone to each Lender), at any time
and from time to time terminate in whole or permanently reduce in part,
without premium or penalty, (a) the Working Capital Revolving Loan
Commitments in an amount up to the amount by which the Working Capital
Revolving Loan Commitments exceed the Total Utilization of Working Capital
Revolving Loan Commitments at the time of such proposed termination or
reduction and (b) the Acquisition Revolving Loan Commitments in an amount up
to the amount by which the Acquisition Revolving Loan Commitments exceed the
aggregate principal amount of outstanding Acquisition Revolving Loans;
provided that any such partial reduction of such Commitments shall be in an
aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in
excess of that amount. Company's notice to Agent shall designate the date
(which shall be a Business Day) of such termination or reduction and the
amount of any partial reduction, and such termination or reduction of such
Commitments shall be effective on the date specified in Company's notice and
shall reduce such Commitment of each Lender proportionately to its Pro Rata
Share.
(iii) Mandatory Prepayments and Mandatory Reductions of Commitments.
(a) Prepayments and Reductions Due to Initial Public Offering. On
the date of receipt by Holdings or any of its Subsidiaries other than
the Company and its Subsidiaries of the cash proceeds (net of under
writing discounts and commissions and other reasonable costs associated
therewith) from an initial Public Offering, the Commitments shall
terminate and the Borrowers shall (x) prepay in full the outstanding
principal amount of all outstanding Working Capital Revolving Loans,
Canadian Loans, Acquisition Revolving Loans and/or Acquisition Term
Loans, together with all accrued and unpaid interest thereon, (y) pay
in full all fees and other amounts payable
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<PAGE>
under the Loan Documents and (z) fully cash collateralize all
outstanding Letters of Credit or make such other arrangements as are
satisfactory in form and substance to Agent for the termination of such
Letters of Credit.
(b) Prepayments and Reductions Due to Issuance of Company's or its
Subsidiaries' Securities. No later than the first Business Day
following the date of receipt by Company or any of its Subsidiaries
(other than Lakeland Canada and its Subsidiaries) of the Cash proceeds
(net of underwriting discounts and commissions and other reasonable
costs and expenses associated therewith) from the issuance of any
equity or debt Securities of Company or any such Subsidiary (other than
any Indebtedness permitted pursuant to subsection 7.1 as in effect on
the Closing Date), (1) Company shall prepay its Acquisition Term Loans
in an aggregate amount equal to such Net Cash proceeds and (2) to the
extent the amount of such Net Cash proceeds exceeds the aggregate
outstanding principal amount of the Acquisition Term Loans, Company
shall prepay the Canadian Loans to the full extent thereof and
thereafter its Working Capital Revolving Loans. Any such mandatory
prepayments shall be applied as specified in subsection 2.4C(iv).
(c) Prepayments and Reductions Due to Issuance of Lakeland
Canada's Securities. No later than the first Business Day following the
date of receipt by Lakeland Canada or any of its Subsidiaries of Cash
proceeds (net of underwriting discounts and commissions and other
reasonable costs and expenses associated therewith) from the issuance
of any equity or debt Securities of Lakeland Canada or any such
Subsidiary, Lakeland Canada shall prepay its outstanding Canadian Loans
to the full extent thereof in an aggregate amount equal to such Net
Cash proceeds. Any such mandatory prepayments shall be applied as
specified in subsection 2.4C(iv).
(d) Prepayments and Reductions Due to Issuance of Certain
Holdings' Securities. No later than the first Business Day following
the date of receipt by Holdings of the Cash Proceeds (net of
underwriting discounts and commissions and other reasonable costs and
expenses associated therewith) from the issuance of any of its equity
or debt Securities other than the proceeds of an initial Public
Offering pursuant to subsection 2.4C(iii)(a) above, such Net Cash
Proceeds shall be applied to prepay Indebtedness pursuant to the Hines
I Credit Agreement based on the proportionate percentage which the
Hines I Exposure bears to the Total Hines Exposure and to prepay
Indebtedness under this Agreement based on the proportionate percentage
which the Hines II Exposure bears to the Total Hines Exposure, such
prepayments under this Agreement being applied to prepay first
Acquisition Term Loans to the full extent thereof, and then to prepay
Canadian Loans to the full extent thereof,
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and then to prepay Working Capital Revolving Loans. Any such mandatory
prepayment shall be applied as specified in subsection 2.4C(iv).
(e) Prepayments and Reductions from Consolidated Excess Cash Flow.
In the event that there shall be Consolidated Excess Cash Flow for any
Fiscal Year, (i) for the Fiscal Year ending December 31, 1998, 25% of
such Consolidated Excess Cash Flow, and (ii) for the Fiscal Year ending
December 31, 1999 and for each Fiscal Year thereafter, 50% of such
Consolidated Excess Cash Flow, shall be applied by Company, within 90
days after the last day of such Fiscal Year to prepay its Acquisition
Term Loans to the full extent thereof and then to prepay the Canadian
Loans to the full extent thereof. Any such mandatory prepayment shall
be applied as specified in subsection 2.4C(iv).
(f) Prepayments and Reductions from Asset Sales. No later than the
second Business Day following the date of receipt by Company or any of
its Subsidiaries (other than Lakeland Canada and its Subsidiaries) of
the Cash Proceeds of any Asset Sale resulting in Cash Proceeds in
excess of $1,000,000 for all Asset Sales consummated subsequent to the
Closing Date (the "Available Net Cash Proceeds"), (1) Company shall
prepay its Acquisition Term Loans in an aggregate amount equal to such
Net Cash Proceeds, (2) to the extent the amount of such Net Cash
Proceeds exceeds the aggregate outstanding principal amount of the
Acquisition Term Loans, Company shall prepay the Canadian Loans to the
full extent thereof and (3) to the extent the amount of such Net Cash
Proceeds exceeds the aggregate outstanding amount of Canadian Loans,
Company shall prepay its Working Capital Revolving Loans, and the
Revolving Loan Commitments shall be permanently reduced, in an
aggregate amount equal to such excess. No later than the second
Business Day following the date of receipt by Lakeland Canada or any of
its Subsidiaries of Available Net Cash Proceeds, Lakeland Canada shall
prepay its outstanding Canadian Loans in an aggregate amount equal to
such Net Cash Proceeds. Concurrently with any prepayment of the Loans
and/or reduction of the Working Capital Revolving Loan Commitments
pursuant to this subsection 2.4C(iii)(f), Company shall deliver to
Agent an Officers' Certificate demonstrating the derivation of the Net
Cash Proceeds of the correlative Asset Sale from the gross sales price
thereof. In the event that Borrower shall, at any time after receipt of
Cash Proceeds of any Asset Sale requiring a prepayment or a reduction
of the Working Capital Revolving Loan Commitments pursuant to this
subsection 2.4C(iii)(f), determine that the prepayments and/or
reductions of the Working Capital Revolving Loan Commitments previously
made in respect of such Asset Sale were in an aggregate amount less
than that required by the terms of this subsection 2.4C(iii)(f),
Borrower shall promptly make an additional prepayment of its
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Loans (and, if applicable, the Working Capital Revolving Loan
Commitments shall be permanently reduced), in the manner described
above in an aggregate amount equal to the amount of any such deficit,
and Company shall concurrently therewith deliver to Agent an Officers'
Certificate demonstrating the derivation of the additional Net Cash
Proceeds resulting in such deficit. Any such mandatory prepayments
shall be applied as specified in subsection 2.4C(iv).
(g) Prepayments of Working Capital Revolving Loans from Amounts
Transferred to BTCC Account. If any amounts are transferred to the BTCC
Account on any Business Day pursuant to the terms of any Blocked
Account Agreement, if any, then on such Business Day, if such amounts
are transferred to the BTCC Account prior to 12:00 Noon (New York time)
on such Business Day, or on the next succeeding Business Day, if such
amounts are transferred to the BTCC Account on or after 12:00 Noon (New
York time) on such Business Day, (1) Company shall prepay Company's
Working Capital Revolving Loans in an amount equal to the amount
transferred to the BTCC Account pursuant to the terms of the applicable
Blocked Account Agreement, if any, on such Business Day until all of
Company's Working Capital Revolving Loans shall have been paid in full,
(2) to the extent any such amount transferred to the BTCC Account
exceeds the amount required to be prepaid pursuant to clause (1), such
amount shall be transferred to the BTCC Investment Account and Company
hereby irrevocably authorizes Agent to apply funds transferred to the
BTCC Account in accordance with the provisions of this subsection
2.4C(iii)(g). Any such mandatory prepayments shall be applied as
specified in subsection 2.4C(iv). The BTCC Investment Account shall be
an interest-bearing account with such interest to be payable to Company
for its own account.
(h) Prepayments Due to Reductions or Restrictions of Working
Capital Revolving Loan Commitments or Due to Insufficient Borrowing
Base. Company shall from time to time prepay the Working Capital
Revolving Loans to the extent necessary so that (1) the Total
Utilization of Working Capital Revolving Loan Commitments shall not at
any time exceed the Working Capital Revolving Loan Commitments then in
effect and (2) the Total Utilization of Working Capital Revolving Loan
Commitments shall not exceed at any time the Borrowing Base then in
effect. Any such mandatory prepayments shall be applied as specified in
subsection 2.4C(iv).
(iv) Application of Prepayments.
(a) Application of Voluntary Prepayments by Type of Loans and
Order of Maturity. Any voluntary prepayments pursuant to subsection
2.4C(i)
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shall be applied as specified by Borrower in the applicable notice of
prepayment; provided that in the event Borrower fails to specify the
Loans to which any such prepayment shall be applied, such prepayment
shall be applied (I) in the case of Company first to repay outstanding
Working Capital Revolving Loans of Company to the full extent thereof,
and second to repay outstanding Acquisition Revolving Loans, or after
the Acquisition Conversion Date, Acquisition Term Loans of Company to
the full extent thereof and thereafter to repay outstanding Canadian
Loans of Lakeland Canada to the full extent thereof; and (II) in the
case of Lakeland Canada, to repay outstanding Canadian Loans to the
full extent thereof. Any voluntary prepayments of the Acquisition Term
Loans or the Canadian Loans pursuant to subsection 2.4C(i) shall be
applied to reduce the scheduled installments of principal of the
Acquisition Term Loans or the Canadian Loans set forth in subsection
2.4A in inverse order of maturity.
(b) Application of Mandatory Prepayments of Term Loans by Type and
by Order of Maturity and Mandatory Prepayments of Revolving Loans. Any
mandatory prepayments of the Term Loans pursuant to subsection
2.4C(iii) shall be applied to reduce the scheduled installments of
principal of the Term Loans set forth in subsection 2.4A in inverse
order of maturity. Any mandatory prepayments of the Revolving Loans
pursuant to subsections 2.4C(iii)(a)-(e) and (g)-(h) shall be applied
to prepay Company's Revolving Loans but without any corresponding
reduction of the applicable Revolving Loan Commitment.
(c) Application of Prepayments to Base Rate Loans and Eurodollar
Rate Loans. Any prepayment of Domestic Loans shall be applied first to
Base Rate Loans to the full extent thereof before application to
Eurodollar Rate Loans, in each case in a manner which minimizes the
amount of any payments required to be made by the Company pursuant to
subsection 2.6D. Any prepayment of Canadian Loans shall be applied
first to Canadian Base Rate Loans to the full extent thereof before
application to Canadian Eurodollar Rate Loans, in each case in a manner
which minimizes the amount of any payments required to be made by
Lakeland Canada pursuant to subsection 2.6D.
2.5 Use of Proceeds.
A. Working Capital Revolving Loans. The proceeds of the Working Capital
Revolving Loans shall be applied by Company for 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.
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B. Acquisition Revolving Loans and Acquisition Term Loans. The proceeds of
the Acquisition Revolving Loans, shall be utilized to finance the acquisition of
companies and/or the assets or operations of companies, engaged in the nursery
business, the peat or potting soil or mix business or businesses related thereto
and the proceeds of the Acquisition Term Loans shall be utilized to repay the
Acquisition Revolving Loans outstanding on the Acquisition Conversion Date.
C. Canadian Loans. The proceeds of the Canadian Loans shall be utilized by
Lakeland Canada to finance the acquisition of Canadian companies and/or the
assets or operations of Canadian companies, engaged in the nursery business, the
peat or potting soil or mix business or businesses related thereto.
D. Margin Regulations. No portion of the proceeds of any borrowing under
this Agreement shall be used by Company or any of its Subsidiaries in any manner
that might cause the borrowing or the application of such proceeds to violate
Regulation G, Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board or
to violate the Exchange Act, in each case as in effect on the date or dates of
such borrowing and such use of proceeds.
2.6 Special Provisions Governing Eurodollar Rate Loans and Canadian
Eurodollar Rate Loans.
Notwithstanding any other provision of this Agreement to the contrary,
the following provisions shall govern with respect to Eurodollar Rate Loans and
Canadian Eurodollar Rate Loans as to the matters covered:
A. Determination of Applicable Interest Rate. As soon as practicable after
10:00 A.M. (New York time or Toronto time, as the case may be) on each Interest
Rate Determination Date, Agent shall determine (which determination shall,
absent manifest error, be final, conclusive and binding upon all parties) the
interest rate that shall apply to the Eurodollar Rate Loans or Canadian
Eurodollar Rate Loans for which an interest rate is then being determined for
the applicable Interest Period and shall promptly give notice thereof (in
writing or by telephone confirmed in writing) to the applicable Borrower and
each Domestic Lender or each Canadian Lender, as applicable.
B. Inability to Determine Applicable Interest Rate. In the event that
Agent shall have determined (which determination shall be final and conclusive
and binding upon all parties hereto), on any Interest Rate Determination Date
with respect to any Eurodollar Rate Loans or any Canadian Eurodollar Rate Loans,
that by reason of circumstances affecting the interbank Eurodollar market
adequate and fair means do not exist for ascertaining the interest rate
applicable to such Loans on the basis provided for in the definition of Adjusted
Eurodollar Rate or Canadian Eurodollar Rate, as applicable, Agent shall on such
date give notice (by telefacsimile or by telephone confirmed in writing) to the
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applicable Borrower and each Domestic Lender or each Canadian Lender, as
applicable, of such determination, whereupon (i) no Loans may be made as, or
converted to, Eurodollar Rate Loans or Canadian Eurodollar Rate Loans, as
applicable, until such time as Agent notifies such Borrower and such Lenders
that the circumstances giving rise to such notice no longer exist and (ii) any
Notice of Borrowing or Notice of Conversion/Continuation given by a Borrower
with respect to the Loans in respect of which such determination was made shall
be deemed to be rescinded by such Borrower.
C. Illegality or Impracticability of Eurodollar Rate Loans and Canadian
Eurodollar Rate Loans. In the event that on any date any Lender shall have
determined (which determination shall be final and conclusive and binding upon
all parties hereto but shall be made only after consultation with Company and
Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans
or Canadian Eurodollar Rate Loans (i) has become unlawful as a result of
compliance by such Lender in good faith with any law, treaty, governmental rule,
regulation, guideline or order (or would conflict with any such treaty,
governmental rule, regulation, guideline or order not having the force of law
even though the failure to comply therewith would not be unlawful) or (ii) has
become impracticable, or would cause such Lender material hardship, as a result
of contingencies occurring after the date of this Agreement which materially and
adversely affect the interbank Eurodollar market or the position of such Lender
in that market, then, and in any such event, such Lender shall be an "Affected
Lender" and it shall on that day give notice (by telefacsimile or by telephone
confirmed in writing) to Company and Agent of such determination (which notice
Agent shall promptly transmit to each other Lender). Thereafter (a) the
obligation of the Affected Lender to make Loans as, or to convert Loans to,
Eurodollar Rate Loans or Canadian Eurodollar Rate Loans, as applicable, shall be
suspended until such notice shall be withdrawn by the Affected Lender, (b) to
the extent such determination by the Affected Lender relates to a Eurodollar
Rate Loan or a Canadian Eurodollar Rate Loan then being requested by a Borrower
pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the
Affected Lender shall make such Loan as (or convert such Loan to, as the case
may be) a Base Rate Loan or a Canadian Base Rate Loan, as applicable, (c) the
Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans
or Canadian Eurodollar Rate Loans, as applicable (the "Affected Loans"), shall
be terminated at the earlier to occur of the expiration of the Interest Period
then in effect with respect to the Affected Loans or when required by law, and
(d) the Affected Loans shall automatically convert into Base Rate Loans or
Canadian Base Rate Loans, as applicable, on the date of such termination.
Notwithstanding the foregoing, to the extent a determination by an Affected
Lender as described above relates to a Eurodollar Rate Loan or a Canadian
Eurodollar Rate Loan then being requested by a Borrower pursuant to a Notice of
Borrowing or a Notice of Conversion/Continuation, such Borrower shall have the
option, subject to the provisions of subsection 2.6D, to rescind such Notice of
Borrowing or Notice of Conversion/Continuation as to all Lenders by giving
notice (by telefacsimile or by telephone confirmed in writing) to Agent of such
rescission on the date on which the Affected Lender gives notice of its
determination as described above (which notice of rescission Agent shall
promptly
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transmit to each other Lender). Except as provided in the immediately preceding
sentence, nothing in this subsection 2.6C shall affect the obligation of any
Lender other than an Affected Lender to make or maintain Loans as, or to convert
Loans to, Eurodollar Rate Loans or Canadian Eurodollar Rate Loans, as
applicable, in accordance with the terms of this Agreement.
D. Compensation For Breakage or Non-Commencement of Interest Periods. The
applicable Borrower shall compensate each Lender, upon written request by that
Lender (which request shall set forth the basis for requesting such amounts),
for all reasonable losses, expenses and liabilities (including, without
limitation, any interest paid by that Lender to lenders of funds borrowed by it
to make or carry its Eurodollar Rate Loans or Canadian Eurodollar Rate Loans, as
applicable, and any loss, expense or liability sustained by that Lender in
connection with the liquidation or re-employment of such funds) which that
Lender may sustain: (i) if for any reason (other than a default by that Lender)
a borrowing of any Eurodollar Rate Loan or any Canadian Eurodollar Rate Loan
does not occur on a date specified therefor in a Notice of Borrowing or a
telephonic request for borrowing, or a conversion to or continuation of any
Eurodollar Rate Loan or any Canadian Eurodollar Rate Loan does not occur on a
date specified therefor in a Notice of Conversion/Continuation or a telephonic
request for conversion or continuation, (ii) if any prepayment or other
principal payment or any conversion of any of its Eurodollar Rate Loans or
Canadian Eurodollar Rate Loans occurs on a date prior to the last day of an
Interest Period applicable to that Loan, (iii) if any prepayment of any of its
Eurodollar Rate Loans or Canadian Eurodollar Rate Loans is not made on any date
specified in a notice of prepayment given by the applicable Borrower, or (iv) as
a consequence of any other default by Company in the repayment of its Eurodollar
Rate Loans or Canadian Eurodollar Rate Loans when required by the terms of this
Agreement.
E. Booking of Eurodollar Rate Loans and Canadian Eurodollar Rate Loans.
Any Lender may make, carry or transfer Eurodollar Rate Loans and Canadian
Eurodollar Rate Loans at, to, or for the account of any of its branch offices or
the office of an Affiliate of that Lender.
F. Assumptions Concerning Funding of Eurodollar Rate Loans and Canadian
Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this
subsection 2.6 and under subsection 2.7A shall be made as though that Lender had
actually funded each of its relevant Eurodollar Rate Loans and Canadian
Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing
interest at the rate obtained pursuant to clause (i) of the definition of
Adjusted Eurodollar Rate or pursuant to the definition of Canadian Eurodollar
Rate in an amount equal to the amount of such Eurodollar Rate Loan or Canadian
Eurodollar Rate Loan, as applicable, and having a maturity comparable to the
relevant Interest Period and through the transfer of such Eurodollar deposit
from an offshore office of that Lender to a domestic office of that Lender in
the United States of America or in Canada, as applicable ; provided, however,
that each Lender may fund each of its Eurodollar
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Rate Loans and Canadian Eurodollar Rate Loans in any manner it sees fit and the
foregoing assumptions shall be utilized only for the purposes of calculating
amounts payable under this subsection 2.6 and under subsection 2.7A.
G. Eurodollar Rate Loans and Canadian Eurodollar Rate Loans After Default.
After the occurrence of and during the continuation of a Potential Event of
Default or an Event of Default, (i) Borrower may not elect to have a Loan be
made or maintained as, or converted to, a Eurodollar Rate Loan or Canadian
Eurodollar Rate Loan, as applicable, after the expiration of any Interest Period
then in effect for that Loan and (ii) subject to the provisions of subsection
2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by any
Borrower with respect to a requested borrowing or conversion/continuation that
has not yet occurred shall be deemed to be rescinded by such Borrower.
2.7 Increased Costs; Taxes; Capital Adequacy.
A. Compensation for Increased Costs and Taxes. Subject to the provisions
of subsection 2.7B, in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to any
additional Tax (other than any Tax on the overall net income of such Lender)
with respect to this Agreement or any of its obligations hereunder or any
payments to such Lender (or its applicable lending office) of principal,
interest, fees or any other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or
for the account of, or advances or loans by, or other credit extended by, or
any other acquisition of funds by, any office of such Lender (other than any
such reserve or other requirements with respect to Eurodollar Rate Loans
that are reflected in the definition of Adjusted Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its applicable lending office) or
its obligations hereunder or the interbank Eurodollar market;
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and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, each Borrower shall promptly pay to
such Lender, upon receipt of the statement referred to in the next sentence,
such additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to the applicable Borrower (with a copy to
Agent) a written statement, setting forth in reasonable detail the basis for
calculating the additional amounts owed to such Lender under this subsection
2.7A, which statement shall be conclusive and binding upon all parties hereto
absent manifest error.
B. Withholding of Taxes.
(i) Payments to Be Free and Clear. All sums payable by any Borrower
under this Agreement and the other Loan Documents shall (except to the
extent required by law) be paid free and clear of, and without any deduction
or withholding on account of, any Tax (other than a Tax on the overall net
income of any Lender) imposed, levied, collected, withheld or assessed by or
within the United States of America or Canada or any political subdivision
in or of the United States of America or Canada or any other jurisdiction
from or to which a payment is made by or on behalf of any Borrower or by any
federation or organization of which the United States of America or Canada
or any such jurisdiction is a member at the time of payment.
(ii) Grossing-up of Payments. If any Borrower or any other Person is
required by law to make any deduction or withholding on account of any such
Tax from any sum paid or payable by any Borrower to Agent or any Lender
under any of the Loan Documents:
(a) such Borrower shall notify Agent of any such requirement or
any change in any such requirement as soon as such Borrower becomes
aware of it;
(b) such Borrower shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to
pay is imposed on such Borrower) for its own account or (if that
liability is imposed on Agent or such Lender, as the case may be) on
behalf of and in the name of Agent or such Lender;
(c) the sum payable by such Borrower in respect of which the
relevant deduction, withholding or payment is required shall be
increased to
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the extent necessary to ensure that, after the making of that
deduction, withholding or payment, Agent or such Lender, as the case
may be, receives on the due date a net sum equal to what it would have
received had no such deduction, withholding or payment been required or
made; and
(d) within 30 days after paying any sum from which it is required
by law to make any deduction or withholding, and within 30 days after
the due date of payment of any Tax which it is required by clause (b)
above to pay, such Borrower shall deliver to Agent evidence
satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority;
provided that no such additional amount shall be required to be paid to any
Lender under clause (c) above except to the extent that any change after the
date hereof (in the case of each Lender listed on the signature pages
hereof) or after the date of the Assignment Agreement pursuant to which such
Lender became a Lender (in the case of each other Lender) in any such
requirement for a deduction, withholding or payment as is mentioned therein
shall result in an increase in the rate of such deduction, withholding or
payment from that in effect at the date of this Agreement or at the date of
such Assignment Agreement, as the case may be, in respect of payments to
such Lender.
(iii) Evidence of Exemption from Withholding Taxes.
(a) (1) Each Domestic Lender that is organized under the laws of
any jurisdiction other than the United States or any state or other
political subdivision thereof (for purposes of this subsection
2.7B(iii), a "Non-US Lender") shall deliver to Agent for transmission
to Company, on or prior to the Closing Date (in the case of each
Domestic Lender listed on the signature pages hereof) or on or prior to
the date of the Assignment Agreement pursuant to which it becomes a
Domestic Lender (in the case of each other Domestic Lender), and at
such other times as may be necessary in the determination of Company or
Agent (each in the reasonable exercise of its discretion), (X) two
original copies of Internal Revenue Service Form 1001 or 4224 (or any
successor forms), properly completed and duly executed by such Lender,
together with any other certificate or statement of exemption required
under the Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or withholding
of United States federal income tax with respect to any payments to
such Lender of principal, interest, fees or other amounts payable under
any of the Loan Documents or (Y) if such Lender is not a "bank" or
other Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot deliver either Internal Revenue Service Form 1001 or
4224 pursuant to clause (X) above, a Certificate re Non-Bank
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Status together with two original copies of Internal Revenue Service
Form W-8 (or any successor form), properly completed and duly executed
by such Lender, together with any other certificate or statement of
exemption required under the Internal Revenue Code or the regulations
issued thereunder to establish that such Lender is not subject to
deduction or withholding of United States federal income tax with
respect to any payments to such Lender of interest payable under any of
the Loan Documents.
(2) Each Canadian Lender that is organized under the laws of any
jurisdiction other than Canada or any province thereof or is not
resident in Canada agrees to deliver to Lakeland Canada and Agent upon
request such certificates, documents or other evidence as may be
required from time to time, properly completed and duly executed by
such Canadian Lender, to establish the basis for any applicable
exemption from or reduction of Taxes with respect to any payments to
such Canadian Lender of principal, interest, fees, commissions or any
other amount payable under this Agreement or the Canadian Loans.
(b) Each Lender required to deliver any forms, certificates or
other evidence with respect to United States federal income tax
withholding matters or Canadian income tax withholding matters pursuant
to subsection 2.7B(iii)(a) hereby agrees, from time to time after the
initial delivery by such Lender of such forms, certificates or other
evidence, whenever a lapse in time or change in circumstances renders
such forms, certificates or other evidence obsolete or inaccurate in
any material respect, that such Lender shall (1) promptly deliver to
Agent for transmission to Company (X) in the case of any Domestic
Lender, two new original copies of Internal Revenue Service Form 1001
or 4224, or a Certificate re Non-Bank Status and two original copies of
Internal Revenue Service Form W-8, as the case may be, or (Y) in the
case of any Canadian Lender, such certificates, documents or other
evidence as may be required from time to time under the second
paragraph of subsection 2.7B(iii)(a), in each case properly completed
and duly executed by such Lender, together with any other certificate
or statement of exemption required in order to confirm or establish
that such Lender is not subject to deduction or withholding of United
States or Canadian (as applicable) federal income tax with respect to
payments to such Lender under the Loan Documents or (2) notify Agent
and Company of its inability to deliver any such forms, certificates or
other evidence.
(c) The applicable Borrower shall not be required to pay any
additional amount to any Non-US Lender under clause (c) of subsection
2.7B(ii) if such Lender shall have failed to satisfy the requirements
of clause (a) or (b) of this subsection 2.7B(iii); provided that if
such Lender shall have satisfied the requirements of subsection
2.7B(iii)(a) on the Closing Date (in the
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case of each Lender listed on the signature pages hereof) or on the
date of the Assignment Agreement pursuant to which it became a Lender
(in the case of each other Lender), nothing in this subsection
2.7B(iii)(c) shall relieve the applicable Borrower of its obligation to
pay any additional amounts pursuant to clause (c) of subsection
2.7B(ii) in the event that, as a result of any change in any applicable
law, treaty or governmental rule, regulation or order, or any change in
the interpretation, administration or application thereof, such Lender
is no longer properly entitled to deliver forms, certificates or other
evidence at a subsequent date establishing the fact that such Lender is
not subject to withholding as described in subsection 2.7B(iii)(a).
C. Capital Adequacy Adjustment. If any Lender shall have determined that
the adoption, effectiveness, phase-in or applicability after the date hereof of
any law, rule or regulation (or any provision thereof) regarding capital
adequacy, or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its applicable lending office) with any guideline, request or directive
regarding capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of, or with reference to,
such Lender's Domestic Loans, Domestic Commitments or Letters of Credit or
participations therein or other obligations hereunder with respect to the
Domestic Loans or the Letters of Credit, in the case of any Domestic Lender, or
such Lender's Canadian Loans, Canadian Commitments or other obligations
hereunder with respect to the Canadian Loans, in the case of a Canadian Lender,
to a level below that which such Lender or such controlling corporation could
have achieved but for such adoption, effectiveness, phase-in, applicability,
change or compliance (taking into consideration the policies of such Lender or
such controlling corporation with regard to capital adequacy), then from time to
time, within five Business Days after receipt by Company from such Lender of the
statement referred to in the next sentence, Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender or such
controlling corporation on an after-tax basis for such reduction. Such Lender
shall deliver to Company (with a copy to Agent) a written statement, setting
forth in reasonable detail the basis of the calculation of such additional
amounts, which statement shall be conclusive and binding upon all parties hereto
absent manifest error.
2.8 Obligation of Lenders and Issuing Lenders to Mitigate.
Each Lender and Issuing Lender agrees that, as promptly as practicable
after the officer of such Lender or Issuing Lender responsible for administering
the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may
be, becomes aware of the occurrence of an event or the existence of a condition
that would cause such Lender to become an Affected Lender or that would entitle
such Lender or Issuing Lender to receive
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payments under subsection 2.7 or subsection 3.6, it will, to the extent not
inconsistent with the internal policies of such Lender or Issuing Lender and any
applicable legal or regulatory restrictions, use reasonable efforts (i) to make,
issue, fund or maintain the Commitments of such Lender or the affected Loans or
Letters of Credit of such Lender or Issuing Lender through another lending or
letter of credit office of such Lender or Issuing Lender, or (ii) take such
other measures as such Lender or Issuing Lender may deem reasonable, if as a
result thereof the circumstances which would cause such Lender to be an Affected
Lender would cease to exist or the additional amounts which would otherwise be
required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7
or subsection 3.6 would be materially reduced and if, as determined by such
Lender or Issuing Lender in its sole discretion, the making, issuing, funding or
maintaining of such Commitments or Loans or Letters of Credit through such other
lending or letter of credit office or in accordance with such other measures, as
the case may be, would not otherwise materially adversely affect such
Commitments or Loans or Letters of Credit or the interests of such Lender or
Issuing Lender; provided that such Lender or Issuing Lender will not be
obligated to utilize such other lending or letter of credit office pursuant to
this subsection 2.8 unless Borrower agrees to pay all incremental expenses
incurred by such Lender or Issuing Lender as a result of utilizing such other
lending or letter of credit office as described in clause (i) above. A
certificate as to the amount of any such expenses payable by Borrower pursuant
to this subsection 2.8 (setting forth in reasonable detail the basis for
requesting such amount) submitted by such Lender or Issuing Lender to Company
(with a copy to Agent) shall be conclusive absent manifest error.
2.9 Collection, Deposit and Transfer of Payments in Respect of Accounts.
Each Borrower shall, and shall cause each of its Subsidiaries to,
maintain in effect at all times a system of accounts and procedures reasonably
satisfactory to Agent for the collection and deposit of payments in respect of
such Person's Accounts and the transfer of amounts so deposited to the
applicable Concentration Account, BTCC Account and BT Canada Account. Without
limiting the generality of the foregoing:
A. Maintenance of Lock Boxes, Lock Box Accounts and Concentration
Accounts.
(i) Except as permitted under subsection 2.9A(ii), each Borrower shall,
and shall cause each of its Subsidiaries to, at all times maintain any Lock
Boxes, Lock Box Accounts and Concentration Accounts established pursuant to
the terms of this Agreement, the Lock Box Agreements and the Blocked Account
Agreements, if any.
(ii) Each Borrower shall not, and shall not permit any of its
Subsidiaries to, close any Lock Box Account or Concentration Account or open
a new Lock Box Account or Concentration Account unless it shall have (a)
notified Agent in writing at least 30 days (or such lesser number of days as
may be agreed to by Agent) prior to
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the proposed closing or opening, (b) in the case of a new Lock Box Account,
entered into a Lock Box Agreement with the applicable Lock Box Bank and (c)
in the case of a new Other Bank Concentration Account, entered into a
Blocked Account Agreement with the applicable Concentration Bank.
B. Collection and Deposit of Payments in Respect of Accounts.
(i) Each Borrower shall, and shall cause each of its Subsidiaries to,
deliver such notices to account debtors and take all such other actions as
may reasonably be necessary to cause all payments in respect of such
Person's Accounts to be made directly to a Lock Box.
(ii) Each Borrower shall, or shall cause its applicable Subsidiary to,
direct its authorized representative, at least once on each Business Day, to
retrieve all checks and other instruments delivered to a Lock Box and, as
promptly as possible on the same Business Day so retrieved, to endorse for
payment and deposit each such check or other instrument in the Lock Box
Account related to such Lock Box. Notwithstanding the foregoing, from and
after such time as Agent shall have notified Borrowers of its election to
exercise its rights under this subsection 2.9B(ii), Borrowers shall not, and
shall not permit their Subsidiaries to, retrieve any items from any Lock Box
unless accompanied by a representative of Agent, and Borrowers hereby
appoint Agent or any of its designees as Borrowers' attorneys-in-fact with
powers, upon notification by Agent as aforesaid, to (a) access all Lock
Boxes and (b) endorse for payment any checks or other instruments
representing payment in respect of any Accounts of such Persons that are
delivered to any Lock Box. All acts of said attorneys or designees are
hereby ratified and approved, and said attorneys or designees shall not be
liable for any acts of omission or commission (other than acts or omissions
constituting gross negligence or wilful misconduct as determined in a final
order by a court of competent jurisdiction), nor for any error of judgment
or mistake of fact or law. The power of attorney set forth in this
subsection 2.9B(ii) is irrevocable until all Obligations shall have been
paid in full and the Commitments shall have terminated.
(iii) In the event that any Borrower or any of its Subsidiaries
receives any check, cash, note or other instrument representing payment of
an Account (other than any item delivered to a Lock Box), such Borrower
shall, or shall cause such Subsidiary to, hold such item in trust for Agent
and shall, as soon as practicable (and in any event within one Business Day)
after receipt thereof, cause such item to be deposited into a Lock Box
Account with any necessary endorsements.
(iv) Each Borrower hereby agrees, from and after such time, if any, as
Agent shall have notified Borrowers in writing that the provisions of this
subsection 2.9B(iv) are to become effective until such later time, if any,
as Agent shall have
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notified Borrowers in writing that such provisions are no longer to be
effective, not to deposit any monies into the Lock Box Accounts or to
Concentration Accounts or to otherwise permit any monies to be deposited
into any of such accounts, except payments received in respect of such
Borrower's Accounts.
C. Transfer of Amounts Deposited in the Lock Box Accounts to the
Concentration Accounts. Borrowers shall cause all amounts deposited in each Lock
Box Account to be transferred on each Business Day to the applicable
Concentration Account in accordance with the terms of the applicable Lock Box
Agreement.
D. Transfer of Amounts Deposited in the Concentration Accounts to the
BTCC Account and BT Canada Account. Borrowers shall cause all amounts deposited
in each Concentration Account to be transferred on each Business Day to the BTCC
Account or BT Canada Account, as applicable. Any amounts so transferred to the
BTCC Account shall be applied as provided in subsection 2.4C(iii)(g).
E. Treatment of Accounts. Borrowers shall not, without Agent's prior
written consent, grant any extension of the time of payment of any Account,
compromise or settle any Account for less than the full amount thereof, release,
in whole or in part, any person or property liable for the payment thereof, or
allow any credit or discount whatsoever thereon, except, prior to the occurrence
of an Event of Default, in accordance with their usual and customary business
practices.
F. Borrowers to Provide Information. Borrowers shall, at such
intervals as Agent may reasonably request, furnish such statements, schedules
and/or information as Agent may request relating to Borrowers' and their
Subsidiaries' Accounts and the collection, deposit and transfer of payments in
respect thereof, including, without limitation, all invoices evidencing such
Accounts.
Section 3. LETTERS OF CREDIT
3.1 Issuance of Letters of Credit and Domestic Lenders' Purchase of
Participations Therein.
A. Letters of Credit. In addition to Company requesting that Domestic
Lenders make Working Capital Revolving Loans pursuant to subsection 2.1A(i),
Company may request, in accordance with the provisions of this subsection 3.1,
from time to time during the period from the Closing Date to but excluding the
Revolving Loan Commitment Termination Date, that one or more Domestic Lenders
issue Standby Letters of Credit for the account of Company for the purposes
specified in the definitions of Standby Letters of Credit. Subject to the terms
and conditions of this Agreement and in reliance upon the representations and
warranties of Borrower herein set forth, any one or more Domestic
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Lenders may, but (except as provided in subsection 3.1B(ii)) shall not be
obligated to, issue such Letters of Credit in accordance with the provisions of
this subsection 3.1; provided that Company shall not request that any Domestic
Lender issue (and no Domestic Lender shall issue):
(i) any Letter of Credit if, after giving effect to such issuance, the
Total Utilization of Working Capital Revolving Loan Commitments would exceed
the Working Capital Revolving Loan Commitments then in effect;
(ii) any Letter of Credit if, after giving effect to such issuance, the
Letter of Credit Usage would exceed $1,000,000;
(iii) any Letter of Credit having an expiration date later than the
earlier of (a) five Business Days prior to the Commitment Termination Date
and (b) the date which is one year from the date of issuance of such Letter
of Credit; provided that the immediately preceding clause (b) shall not
prevent any Issuing Lender from agreeing that a Letter of Credit will
automatically be extended for one or more successive periods not to exceed
one year each unless such Issuing Lender elects not to extend for any such
additional period; and provided, further that such Issuing Lender shall
elect not to extend such Letter of Credit if it has knowledge that an Event
of Default has occurred and is continuing (and has not been waived in
accordance with subsection 10.6) at the time such Issuing Lender must elect
whether or not to allow such extension;
(vi) any Letter of Credit if, after giving effect to such issuance, the
Total Utilization of Working Capital Revolving Loan Commitments would exceed
the Borrowing Base then in effect; or
(v) any Letter of Credit denominated in a currency other than Dollars
or Canadian Dollars.
B. Mechanics of Issuance.
(i) Request for Issuance. Whenever Company desires the issuance of a
Letter of Credit, it shall deliver to Agent a Request for Issuance of Letter
of Credit substantially in the form of Exhibit III annexed hereto no later
than 12:00 Noon (New York time) at least three Business Days, or such
shorter period as may be agreed to by the Issuing Lender in any particular
instance, in advance of the proposed date of issuance. The Request for
Issuance of Letter of Credit shall specify (a) the proposed date of issuance
(which shall be a Business Day), (b) the face amount of the Letter of
Credit, (c) whether the Letter of Credit is requested to be denominated in
Dollars or in Canadian Dollars, (d) the expiration date of the Letter of
Credit, (e) the name and address of the beneficiary, (f) that, after giving
effect to the requested Letter of
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Credit, the Total Utilization of Working Capital Revolving Loan Commitments
will not exceed the Working Capital Revolving Loan Commitments then in
effect or the Borrowing Base then in effect, and (g) either the verbatim
text of the proposed Letter of Credit or the proposed terms and conditions
thereof, including a precise description of any documents to be presented by
the beneficiary which, if presented by the beneficiary prior to the
expiration date of the Letter of Credit, would require the Issuing Lender to
make payment under the Letter of Credit; provided that the Issuing Lender,
in its reasonable discretion, may require changes in the text of the
proposed Letter of Credit or any such documents; and provided, further that
no Letter of Credit shall require payment against a conforming draft to be
made thereunder on the same business day (under the laws of the jurisdiction
in which the office of the Issuing Lender to which such draft is required to
be presented is located) that such draft is presented if such presentation
is made after 10:00 a.m. (in the time zone of such office of the Issuing
Lender) on such business day.
Company shall notify the applicable Issuing Lender (and Agent, if Agent
is not such Issuing Lender) prior to the issuance of any Letter of Credit in the
event that any of the matters to which it is required to certify in the
applicable Request for Issuance of Letter of Credit is no longer true and
correct as of the proposed date of issuance of such Letter of Credit, and upon
the issuance of any Letter of Credit it shall be deemed to have re-certified, as
of the date of such issuance, as to the matters to which it is required to
certify in the applicable Request for Issuance of Letter of Credit.
(ii) Determination of Issuing Lender. Upon receipt by Agent of a
Request for Issuance of Letter of Credit pursuant to subsection 3.1B(i)
requesting the issuance of a Letter of Credit, in the event Agent elects to
issue such Letter of Credit, Agent shall promptly so notify Company, and
Agent shall be the Issuing Lender with respect thereto. In the event that
Agent, in its sole discretion, elects not to issue such Letter of Credit,
Agent shall promptly so notify Company, whereupon Company may request any
other Domestic Lender to issue such Letter of Credit by delivering to such
Domestic Lender a copy of the applicable Request for Issuance of Letter of
Credit. Any Domestic Lender so requested to issue such Letter of Credit
shall promptly notify Company and Agent whether or not, in its sole
discretion, it has elected to issue such Letter of Credit, and any such
Domestic Lender which so elects to issue such Letter of Credit shall be the
Issuing Lender with respect thereto. In the event that all other Domestic
Lenders shall have declined to issue such Letter of Credit, notwithstanding
the prior election of Agent not to issue such Letter of Credit, Agent shall
be obligated to issue such Letter of Credit and shall be the Issuing Lender
with respect thereto, notwithstanding the fact that the Letter of Credit
Usage with respect to such Letter of Credit and with respect to all other
Letters of Credit issued by Agent, when aggregated with Agent's outstanding
Working Capital Revolving Loans, may exceed Agent's Working Capital
Revolving Loan Commitment then in
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effect; provided that Agent shall not be obligated to issue any Letter of
Credit denominated in a foreign currency other than Canadian Dollars.
(iii) Issuance of Letter of Credit. Upon satisfaction or waiver (in
accordance with subsection 10.6) of the conditions set forth in subsection
4.3, the Issuing Lender shall issue the requested Letter of Credit in
accordance with the Issuing Lender's standard operating procedures.
(iv) Notification to Domestic Lenders. Upon the issuance of any Letter
of Credit, the applicable Issuing Lender shall promptly notify Agent and
each other Domestic Lender of such issuance, which notice shall be
accompanied by a copy of such Letter of Credit. Promptly after receipt of
such notice (or, if Agent is the Issuing Lender, together with such notice),
Agent shall notify each Domestic Lender of the amount of such Domestic
Lender's respective participation in such Letter of Credit, determined in
accordance with subsection 3.1C.
(v) Reports to Domestic Lenders. Within 15 days after the end of each
calendar quarter ending after the Closing Date, so long as any Letter of
Credit shall have been outstanding during such calendar quarter, each
Issuing Lender shall deliver to each other Domestic Lender a report setting
forth for such calendar quarter the daily maximum amount available to be
drawn under the Letters of Credit issued by such Issuing Lender that were
outstanding during such calendar quarter.
C. Domestic Lenders' Purchase of Participations in Letters of Credit.
Immediately upon the issuance of each Letter of Credit, each Domestic Lender
shall be deemed to, and hereby agrees to, have irrevocably purchased from the
Issuing Lender a participation in such Letter of Credit and drawings thereunder
in an amount equal to such Domestic Lender's Pro Rata Share of the maximum
amount which is or at any time may become available to be drawn thereunder.
3.2 Letter of Credit Fees.
Company agrees to pay the following amounts to each Issuing Lender with
respect to Letters of Credit issued by such Issuing Lender at its request:
(i) with respect to each Letter of Credit, (a) a fronting fee equal to
the greater of (X) $500 and (Y) 0.25% per annum of the daily maximum amount
available to be drawn under such Letter of Credit and (b) a letter of credit
fee equal to the Applicable Working Capital Eurodollar Rate Margin
multiplied by the daily maximum amount available to be drawn under such
Letter of Credit, in each case payable in arrears on and to (but excluding)
each March 31, June 30, September 30 and December 31 of each year and
computed on the basis of a 360-day year for the actual number of days
elapsed; and
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(ii) with respect to the issuance, amendment or transfer of each Letter
of Credit and each payment of a drawing made thereunder (without duplication
of the fees payable under clause (i) above), documentary and processing
charges in accordance with such Issuing Lender's standard schedule for such
charges in effect at the time of such issuance, amendment, transfer or
payment, as the case may be.
Promptly upon receipt by such Issuing Lender of any amount described in clause
(i)(b) of this subsection 3.2, such Issuing Lender shall distribute to each
other Domestic Lender its Pro Rata Share of such amount.
3.3 Drawings and Reimbursement of Amounts Drawn Under Letters of Credit.
A. Responsibility of Issuing Lender With Respect to Drawings. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, the Issuing Lender shall be responsible only to exercise
reasonable care to determine that the documents required to be delivered under
such Letter of Credit have been delivered and that they comply on their face
with the requirements of such Letter of Credit.
B. Reimbursement by Company of Amounts Drawn Under Letters of Credit. In
the event an Issuing Lender has determined to honor a drawing under a Letter of
Credit issued by it, such Issuing Lender shall immediately notify Company and
Agent, and Company shall reimburse such Issuing Lender on or before the Business
Day immediately following the date on which such drawing is honored (the
"Reimbursement Date") in an amount in Dollars (which amount, in the case of a
drawing under a Letter of Credit which is denominated in Canadian Dollars, shall
be calculated in Dollar Equivalents) and in same day funds equal to the amount
of such drawing; provided that, anything contained in this Agreement to the
contrary notwithstanding, (i) unless Company shall have notified Agent and such
Issuing Lender prior to 12:00 Noon (New York time) on the date such drawing is
honored that Company intends to reimburse such Issuing Lender for the amount of
such drawing with funds other than the proceeds of Working Capital Revolving
Loans, Company shall be deemed to have given a timely Notice of Borrowing to
Agent requesting Domestic Lenders to make Working Capital Revolving Loans that
are Base Rate Loans on the Reimbursement Date in an amount in Dollars (which
amount, in the case of a drawing under a Letter of Credit which is denominated
in Canadian Dollars, shall be calculated in Dollar Equivalents) equal to the
amount of such drawing and (ii) subject to satisfaction or waiver of the
conditions specified in subsection 4.2B, Domestic Lenders shall, on the
Reimbursement Date, make Working Capital Revolving Loans that are Base Rate
Loans in the amount of such drawing, the proceeds of which shall be applied
directly by Agent to reimburse such Issuing Lender for the amount of such
drawing; and provided, further that if for any reason proceeds of Working
Capital Revolving Loans are not received by such Issuing Lender on the
Reimbursement Date in an amount equal to the amount of such drawing, Company
shall reimburse such Issuing Lender, on demand, in an amount in same day funds
equal to the excess of the amount of such drawing over the aggregate amount of
such Working Capital
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Revolving Loans, if any, which are so received. Nothing in this subsection 3.3B
shall be deemed to relieve any Domestic Lender from its obligation to make
Working Capital Revolving Loans on the terms and conditions set forth in this
Agreement, and Company shall retain any and all rights it may have against any
Domestic Lender resulting from the failure of such Domestic Lender to make such
Working Capital Revolving Loans under this subsection 3.3B.
C. Payment by Domestic Lenders of Unreimbursed Drawings Under Letters of
Credit.
(i) Payment by Domestic Lenders. In the event that Company shall fail
for any reason to reimburse any Issuing Lender as provided in subsection
3.3B in an amount (calculated in Dollar Equivalents in the case of a drawing
equal to the amount of any drawing honored by such Issuing Lender under a
Letter of Credit denominated in Canadian Dollars) equal to the amount of any
drawing honored by such issuing Lender under a Letter of Credit issued by
it, such Issuing Lender shall promptly notify each other Domestic Lender of
the unreimbursed amount of such drawing and of such other Domestic Lender's
respective participation therein based on such Domestic Lender's Pro Rata
Share. Each Domestic Lender shall make available to such Issuing Lender an
amount equal to its respective participation, in Dollars and in same day
funds, at the office of such Issuing Lender specified in such notice, not
later than 12:00 Noon (New York time) on the first business day (under the
laws of the jurisdiction in which such office of such Issuing Lender is
located) after the date notified by such Issuing Lender. In the event that
any Domestic Lender fails to make available to such Issuing Lender on such
business day the amount of such Domestic Lender's participation in such
Letter of Credit as provided in this subsection 3.3C, such Issuing Lender
shall be entitled to recover such amount on demand from such Domestic Lender
together with interest thereon at the rate customarily used by such Issuing
Lender for the correction of errors among banks for three Business Days and
thereafter at the Base Rate. Nothing in this subsection 3.3C shall be deemed
to prejudice the right of any Domestic Lender to recover from any Issuing
Lender any amounts made available by such Domestic Lender to such Issuing
Lender pursuant to this subsection 3.3C in the event that it is determined
by the final judgment of a court of competent jurisdiction that the payment
with respect to a Letter of Credit by such Issuing Lender in respect of
which payment was made by such Domestic Lender constituted gross negligence
or willful misconduct on the part of such Issuing Lender.
(ii) Distribution to Domestic Lenders of Reimbursements Received From
Company. In the event any Issuing Lender shall have been reimbursed by other
Domestic Lenders pursuant to subsection 3.3C(i) for all or any portion of
any drawing honored by such Issuing Lender under a Letter of Credit issued
by it, such Issuing Lender shall distribute to each other Domestic Lender
which has paid all amounts payable by it under subsection 3.3C(i) with
respect to such drawing such other
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Domestic Lender's Pro Rata Share of all payments subsequently received by
such Issuing Lender from Company in reimbursement of such drawing when such
payments are received. Any such distribution shall be made to a Domestic
Lender at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Domestic Lender may
request.
D. Interest on Amounts Drawn Under Letters of Credit.
(i) Payment of Interest by Company. Company agrees to pay to each
Issuing Lender, with respect to drawings made under any Letters of Credit
issued by such Issuing Lender at its request, interest on the amount paid by
such Issuing Lender in respect of each such drawing from the date of such
drawing to but excluding the date such amount is reimbursed by Company
(including any such reimbursement out of the proceeds of Working Capital
Revolving Loans pursuant to subsection 3.3B) at a rate equal to (a) for the
period from the date of such drawing to but excluding the Reimbursement
Date, the rate then in effect under this Agreement with respect to Working
Capital Revolving Loans that are Base Rate Loans and (b) thereafter, a rate
which is 2% per annum in excess of the rate of interest otherwise payable
under this Agreement with respect to Working Capital Revolving Loans that
are Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i)
shall be computed on the basis of a 360-day year for the actual number of
days elapsed in the period during which it accrues and shall be payable on
demand or, if no demand is made, on the date on which the related drawing
under a Letter of Credit is reimbursed in full.
(ii) Distribution of Interest Payments by Issuing Lender. Promptly upon
receipt by any Issuing Lender of any payment of interest pursuant to
subsection 3.3D(i) with respect to a drawing under a Letter of Credit issued
by it, (a) such Issuing Lender shall distribute to each other Domestic
Lender, out of the interest received by such Issuing Lender in respect of
the period from the date of such drawing to but excluding the date on which
such Issuing Lender is reimbursed for the amount of such drawing (including
any such reimbursement out of the proceeds of Working Capital Revolving
Loans pursuant to subsection 3.3B), the amount that such other Domestic
Lender would have been entitled to receive in respect of the letter of
credit fee that would have been payable in respect of such Letter of Credit
for such period pursuant to subsection 3.2 if no drawing had been made under
such Letter of Credit, and (b) in the event such Issuing Lender shall have
been reimbursed by other Domestic Lenders pursuant to subsection 3.3C(i) for
all or any portion of such drawing, such Issuing Lender shall distribute to
each other Domestic Lender which has paid all amounts payable by it under
subsection 3.3C(i) with respect to such drawing such other Domestic Lender's
Pro Rata Share of any interest received by such Issuing Lender in respect of
that portion of such drawing so reimbursed by other Domestic Lenders for the
period from the date on which such Issuing Lender was so reimbursed by other
Domestic Lenders to but excluding the date on which such
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portion of such drawing is reimbursed by Company. Any such distribution
shall be made to a Domestic Lender at its primary address set forth below
its name on the appropriate signature page hereof or at such other address
as such Domestic Lender may request.
3.4 Obligations Absolute.
The obligation of Company to reimburse each Issuing Lender for
drawings made under the Letters of Credit issued by it and to repay any Working
Capital Revolving Loans made by Domestic Lenders pursuant to subsection 3.3B and
the obligations of Domestic Lenders under subsection 3.3C(i) shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including, without limitation,
the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit;
(ii) the existence of any claim, set-off, defense or other right which
Company or any Domestic Lender may have at any time against a beneficiary
or any transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), any Issuing Lender or other Lender or any other
Person or, in the case of a Domestic Lender, against Company, whether in
connection with this Agreement, the transactions contemplated herein or any
unrelated transaction (including any underlying transaction between Company
or one of its Subsidiaries and the beneficiary for which any Letter of
Credit was procured);
(iii) any draft or document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(iv) payment by the applicable Issuing Lender under any Letter of
Credit against presentation of a draft or document which does not comply
with the terms of such Letter of Credit;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Company or any
of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by any
party thereto;
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing; or
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(viii) the fact that an Event of Default or a Potential Event of
Default shall have occurred and be continuing;
provided, in each case, that payment by the applicable Issuing Lender under the
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Lender under the circumstances in question
(as determined by a final judgment of a court of competent jurisdiction).
3.5 Indemnification; Nature of Issuing Lenders' Duties.
A. Indemnification. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which such Issuing Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing
Lender, other than as a result of (a) the gross negligence or willful misconduct
of such Issuing Lender as determined by a final judgment of a court of competent
jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor
by such Issuing Lender of a proper demand for payment made under any Letter of
Credit issued by it or (ii) the failure of such Issuing Lender to honor a
drawing under any such Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions herein called
"Governmental Acts").
B. Nature of Issuing Lenders' Duties. As between Company on the one hand
and any Issuing Lender on the other hand, Company assumes all risks of the acts
and omissions of, or misuse of the Letters of Credit issued by such Issuing
Lender by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, such Issuing Lender shall
not be responsible for: (i) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of any such Letter of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason; (iii) failure of the beneficiary of any such Letter of Credit to comply
fully with any conditions required in order to draw upon such Letter of Credit;
(iv) errors, omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, telegraph, telex or otherwise, whether or not they
be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the
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proceeds of any drawing under such Letter of Credit; or (viii) any consequences
arising from causes beyond the control of such Issuing Lender, including without
limitation any Governmental Acts, and none of the above shall affect or impair,
or prevent the vesting of, any of such Issuing Lender's rights or powers
hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by any Issuing Lender under or in connection with the Letters
of Credit issued by it or any documents and certificates delivered thereunder,
if taken or omitted in good faith, shall not put such Issuing Lender under any
resulting liability to Company.
Notwithstanding anything to the contrary contained in this subsection
3.5, Company shall retain any and all rights it may have against any Issuing
Lender for any liability arising solely out of the gross negligence or willful
misconduct of such Issuing Lender, as determined by a final judgment of a court
of competent jurisdiction.
3.6 Increased Costs and Taxes Relating to Letters of Credit.
In the event that any Issuing Lender or Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by any Issuing Lender or Lender with any guideline,
request or directive issued or made after the date hereof by any central bank or
other governmental or quasi-governmental authority (whether or not having the
force of law):
(i) subjects such Issuing Lender or Lender (or its applicable lending
or letter of credit office) to any additional Tax (other than any Tax on
the overall net income of such Issuing Lender or Lender) with respect to
the issuing or maintaining of any Letters of Credit or the purchasing or
maintaining of any participations therein or any other obligations under
this Section 3, whether directly or by such being imposed on or suffered by
any particular Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement in respect of any Letters of Credit issued by any Issuing
Lender or participations therein purchased by any Lender; or
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(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Issuing Lender or Lender (or its applicable
lending or letter of credit office) regarding this Section 3 or any Letter
of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to such Issuing
Lender or Lender of agreeing to issue, issuing or maintaining any Letter of
Credit or agreeing to purchase, purchasing or maintaining any participation
therein or to reduce any amount received or receivable by such Issuing Lender or
Lender (or its applicable lending or letter of credit office) with respect
thereto; then, in any case, Company shall promptly pay to such Issuing Lender or
Lender, upon receipt of the statement referred to in the next sentence, such
additional amount or amounts as may be necessary to compensate such Issuing
Lender or Lender for any such increased cost or reduction in amounts received or
receivable hereunder. Such Issuing Lender or Lender shall deliver to Company a
written statement, setting forth in reasonable detail the basis for calculating
the additional amounts owed to such Issuing Lender or Lender under this
subsection 3.6, which statement shall be conclusive and binding upon all parties
hereto absent manifest error.
Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Loans and the issuance of Letters
of Credit hereunder are subject to the satisfaction of the following conditions.
4.1 Conditions to Term Loans and Initial Revolving Loans.
The obligations of Lenders to make the initial Loans are, in addition
to the conditions precedent specified in subsection 4.2, subject to prior or
concurrent satisfaction of the following conditions:
A. Borrower Documents. On or before the Closing Date, each Borrower
shall deliver or cause to be delivered 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 as of the
Closing Date:
(i) Certified copies of its Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State (or
comparable official) of its jurisdiction of incorporation and each other
state or province in which it is qualified as a foreign corporation to do
business and, to the extent generally available, a certificate or other
evidence of good standing as to payment of any applicable franchise or
similar taxes from the appropriate taxing authority of each of such
jurisdictions, each dated a recent date prior to the Closing Date;
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(ii) Copies of its Bylaws, certified as of the Closing Date by its
corporate secretary or an assistant secretary;
(iii) Resolutions of its Board of Directors approving and authorizing
the execution, delivery and performance of this Agreement and the other
Loan Documents and Related Agreements to which it is a party, certified as
of the Closing Date by its corporate secretary or an assistant secretary as
being in full force and effect without modification or amendment;
(iv) Signature and incumbency certificates of its officers executing
this Agreement and the other Loan Documents to which it is a party;
(v) Executed originals of this Agreement, the Notes (duly executed in
accordance with subsection 2.1F, drawn to the order of each applicable
Lender and with appropriate insertions) and the other Loan Documents to
which it is a party; and
(vi) Such other documents as Agent may reasonably request.
B. Guarantor Subsidiary Documents. On or before the Closing Date, Company
shall cause each Subsidiary of Company to 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
Closing Date:
(i) Certified copies of the Certificate or Articles of Incorporation
of such Person, together with a good standing certificate from the
Secretary of State of the State (or comparable official) of its
jurisdiction of incorporation and each other state or province in which
such Person is qualified as a foreign corporation to do business and, to
the extent generally available, a certificate or other evidence of good
standing as to payment of any applicable franchise or similar taxes from
the appropriate taxing authority of each of such jurisdictions, each dated
a recent date prior to the Closing Date;
(ii) Copies of the Bylaws of such Person, certified as of the Closing
Date by such Person's corporate secretary or an assistant secretary;
(iii) Resolutions of the Board of Directors of such Person approving
and authorizing the execution, delivery and performance of the Loan
Documents and Related Agreements to which it is a party, certified as of
the Closing Date by the corporate secretary or an assistant secretary of
such Person as being in full force and effect without modification or
amendment;
(iv) Signature and incumbency certificates of the officers of such
Subsidiary executing the Loan Documents to which it is a party;
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(v) Executed originals of the Loan Documents to which such Subsidiary
is a party; and
(vi) Such other documents as Agent may reasonably request.
C. Termination of Existing Credit Agreements; Existing Letters of Credit.
On the Closing Date, Company and its Subsidiaries shall have repaid in full all
amounts outstanding under any existing credit agreements and shall 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 any such existing
credit agreements. The terms and conditions of all such remaining Indebtedness
shall be in form and substance satisfactory to Agent. Company and its
Subsidiaries shall have furnished to Agent copies of all Existing Letters of
Credit and all amendments to such Existing Letters of Credit.
D. Necessary Consents. Company shall have obtained all consents
necessary or advisable in connection with the acquisition of Bryfogle, the
transactions contemplated by the Loan Documents (except to the extent provided
herein with respect to consents for Mortgages on Material Leaseholds) and the
continued operation of the business conducted by Company and its Subsidiaries in
substantially the same manner as conducted prior to the consummation of such
acquisition, and each of the foregoing shall be in full force and effect, other
than those the failure to obtain, which either individually or in the aggregate,
would not be reasonably likely to have a Material Adverse Effect. All applicable
waiting periods shall have expired without any action being taken or threatened
by any competent authority which would restrain, prevent or otherwise impose
adverse conditions on such acquisition or the financing thereof, and no action,
request for stay, petition for review or rehearing, reconsideration or appeal
shall be pending and any time for agency action to set aside its consent on its
own motion has expired.
E. Acquisition.
(i) The aggregate cash consideration paid to the holders of equity
interests in Bryfogle in respect of such holders' equity interests shall
not exceed $15,000,000;
(ii) The Stock Purchase Agreement for the acquisition of Bryfogle
shall be in full force and effect and shall not have been amended,
supplemented, waived or otherwise modified without the consent of Agent and
Requisite Lenders, and executed or conformed copies thereof (including all
exhibits and schedules thereto) and any
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amendments thereto and all documents executed in connection therewith shall
have been delivered to Agent;
(iii) All conditions to the Bryfogle acquisition shall have been
satisfied or the fulfillment of any such conditions shall have been waived
with the consent of Agent and Requisite Lenders;
(iv) the Bryfogle acquisition shall have become effective in
accordance with the terms of the related Stock Purchase Agreement; and
(v) Agent shall have received an Officers' Certificate of Company to
the effect set forth in clauses (i) - (iv).
F. Capitalization, Etc.
(i) The organizational and ownership structure of Company and of
Holdings and their respective Subsidiaries (other than Hines Horticulture,
Inc. and its Subsidiaries) shall be as set forth on Schedule 4.1F annexed
hereto and satisfactory to the Agent and the Lenders for all respects.
Agent shall have received copies of and shall be satisfied with the form
and substance of any and all employment contracts with senior management of
Holdings and of Company; and
(ii) On or before the Closing Date, Holdings shall have provided
evidence satisfactory to Agent regarding its ability to raise a minimum of
$20,000,000 in equity contributions to Company in connection with
acquisitions made and to be made by Company.
G. Financial Statements; Pro Forma Balance Sheet. On or before the
Closing Date, Lenders shall have received from Company (i) financial statements
of Company and its Subsidiaries for the last two Fiscal Years in which the
Company or any such Subsidiary has been in existence, consisting of balance
sheets and the related consolidated and consolidating statements of income,
stockholders' equity and cash flows for such Fiscal Years, and (ii) unaudited
financial statements of Company and its Subsidiaries as at September 30, 1997,
consisting of a balance sheet and the related consolidated and consolidating
statements of income, stockholders' equity and cash flows for the nine-month
period ending on such date, all in reasonable detail and certified by the chief
financial officer of Company that they fairly present the financial condition of
Company and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to changes
resulting from audit and normal year-end adjustments.
H. No Material Adverse Effect. Since September 30, 1997, no Material
Adverse Effect (in the sole opinion of Agent) shall have occurred.
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I. Solvency Assurances. On the Closing Date, Agent and Lenders shall
have received a Financial Condition Certificate dated the Closing Date,
substantially in the form annexed hereto as Exhibit VIII and with appropriate
attachments, in each case demonstrating that, after giving effect to the
consummation of the Bryfogle's acquisition and the financing transactions
contemplated hereby, Company and its Subsidiaries, taken as a whole, will be
Solvent.
J. Security Interests in Personal and Mixed Property. Unless otherwise
approved in writing by Agent as an item which may be delivered pursuant to
subsection 6.10, Holdings, Company and Company's Subsidiaries shall have taken
or caused to be taken (and Agent shall have received satisfactory evidence
thereof) 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 such date in the entire
personal and mixed property Collateral. 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 Holdings Pledge Agreement, the Company Pledge
Agreement and the Domestic Subsidiary Pledge Agreements and delivery to
Agent of all other instruments (duly endorsed where appropriate) evidencing
the Collateral;
(ii) delivery to Agent of Uniform Commercial Code financing statements
as to the Collateral for all jurisdictions as may be necessary or desirable
to perfect the security interests in the Collateral;
(iii) delivery to Agent of mortgages, charges and hypothecs and other
documents and instruments to be filed in the appropriate jurisdiction;
(iv) delivery to Agent of the IP Collateral Documents, together with
accurate and complete schedules thereto and any cover sheets required for
filing with the United States Patent and Trademark Office (the "PTO");
(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; and
(vi) evidence reasonably satisfactory to Agent that all other filings
(including, without limitation, Uniform Commercial Code termination
statements), recordings and other actions Agent deems necessary or
advisable to establish,
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preserve and perfect the first priority Liens granted to Agent in personal
and mixed property shall have been made.
K. Real Property Collateral. On or before the Closing Date, Company
shall deliver to Agent a listing of all of Company's and its Subsidiaries' Real
Property Assets, identifying the location of each such Real Property Asset,
whether it is owned or leased and, if leased, setting forth the name and address
of the lessor of such Real Property Asset.
L. Completion of Collateral Audits, Appraisals and Environmental Due
Diligence. Unless otherwise approved in writing by Agent as an item which may be
delivered pursuant to subsection 6.10, on or before the Closing Date, Company
shall, and shall cause its Subsidiaries to, deliver to Agent the following:
(i) audits of the Inventory and Accounts of Company and its
Subsidiaries;
(ii) appraisals, in form, scope and substance satisfactory to Agent
and satisfying the requirements of any applicable laws and regulations,
concerning any Real Property Assets constituting Initial Mortgaged
Properties; and
(iii) the preparation or review of reports and other information, in
form, scope and substance satisfactory to Agent, concerning environmental
liabilities of Company and its Subsidiaries with respect to the Initial
Mortgaged Properties.
M. Evidence of Insurance. Unless otherwise approved in writing by Agent
as an item which may be delivered pursuant to subsection 6.10, on or prior to
the Closing Date, Company shall deliver to Agent, certificates of insurance
naming Agent on behalf of Lenders as loss payee under all casualty insurance
policies maintained by Company and its Subsidiaries, and as an additional
insured under all liability and business interruption insurance policies
maintained by Company and its Subsidiaries, all as required pursuant to
subsection 6.5 or pursuant to the Collateral Documents. All such certificates of
insurance shall contain such endorsements as are reasonably required by Agent.
N. Borrowing Base Certificate. On or before the Closing Date, Company
shall have delivered to Agent and Lenders a Borrowing Base Certificate
substantially in the form of Exhibit IX annexed hereto, prepared as of a recent
date prior to the Closing Date.
O. Opinions of Borrower's Counsel. Lenders shall have received
originally executed copies of one or more favorable written opinions of Kirkland
& Ellis, counsel for Borrower, in form and substance reasonably satisfactory to
Agent and its counsel, dated as of the Closing Date and setting forth
substantially the matters in the opinions designated in Exhibit X annexed hereto
and as to such other matters as Agent acting on behalf of Lenders may reasonably
request.
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P. Opinions of O'Melveny & Myers. Lenders shall have received originally
executed copies of one or more favorable written opinions of O'Melveny & Myers,
dated as of the Closing Date, substantially in the form of Exhibit XI annexed
hereto and as to such other matters as Agent acting on behalf of Lenders may
reasonably request.
Q. Auditor's Letter. Agent shall have received an executed Auditor's
Letter if any audited financial statements are available for Company and its
Subsidiaries.
R. Fees. Company shall have paid to Agent, for distribution (as
appropriate) to Agent and Lenders, the fees payable on the Closing Date referred
to in subsection 2.3.
S. Execution by Hines I Lenders. Each Hines I Lender shall have executed
this Agreement and shall have committed to the same Pro Rata Share of the
Commitments hereunder as such Lender shall have committed to under the Hines I
Credit Agreement.
T. Amendment of Hines I Credit Agreement. On or prior to the Closing
Date, each party to the Hines I Credit Agreement shall execute and deliver an
amendment to the Hines I Credit Agreement amending subsection 2.4B(iii)(c) and
2.4B(iii)(d) thereof to allow for the ratable sharing by the Hines I Lenders and
the Lenders of the proceeds of a Public Offering and making any other amendments
deemed necessary by the Agent to permit the transactions contemplated hereby.
U. Representations and Warranties; Performance of Agreements. Borrower
shall have delivered to Agent an Officers' Certificate, in form and substance
satisfactory to Agent, to the effect that the representations and warranties in
Section 5 hereof are true, correct and complete in all material respects on and
as of the Closing Date 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
Borrower shall have performed in all material respects all agreements and
satisfied all conditions which this Agreement provides shall be performed or
satisfied by it on or before the Closing Date except as otherwise disclosed to
and agreed to in writing by Agent and Requisite Lenders.
V. Completion of Proceedings. 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.
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4.2 Conditions to All Loans.
The obligations of Lenders to make Loans on each Funding Date are
subject to the following further conditions precedent:
A. Agent shall have received before that Funding Date, in accordance with
the provisions of subsection 2.1B, an originally executed Notice of Borrowing,
in each case signed by the chief executive officer, the chief financial officer
or the treasurer of the applicable Borrower or by any executive officer of such
Borrower designated by any of the above-described officers on behalf of the
applicable Borrower in a writing delivered to Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in the
other Loan Documents shall be true, correct and complete in all material
respects on and as of that Funding 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 such
representations and warranties shall have been true, correct and complete in
all material respects on and as of such earlier date;
(ii) No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by such Notice of
Borrowing that would constitute an Event of Default or a Potential Event of
Default;
(iii) Each Borrower shall have performed in all material respects all
agreements and satisfied all conditions which this Agreement provides shall
be performed or satisfied by it on or before that Funding Date;
(iv) No order, judgment or decree of any court, arbitrator or govern
mental authority shall purport to enjoin or restrain any Lender from making
the Loans to be made by it on that Funding Date;
(v) The making of the Loans requested on such Funding Date shall not
violate any law including, without limitation, Regulation G, Regulation T,
Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System; and
(vi) There shall not be pending or, to the knowledge of any Borrower,
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting Company or any of its Subsidiaries or any
property of Company or any of its Subsidiaries that has not been disclosed
by any Borrower in writing pursuant to subsection 5.6 or 6.1(xi) prior to
the making of the last preceding Loans
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(or, in the case of the initial Loans, prior to the execution of this
Agreement), and there shall have occurred no development not so disclosed in
any such action, suit, proceeding, governmental investigation or arbitration
so disclosed, that, in either event, in the opinion of Agent or of Requisite
Lenders, would be expected to have a Material Adverse Effect; and no
injunction or other restraining order shall have been issued and no hearing
to cause an injunction or other restraining order to be issued shall be
pending or noticed with respect to any action, suit or proceeding seeking to
enjoin or other wise prevent the consummation of, or to recover any damages
or obtain relief as a result of, the transactions contemplated by this
Agreement or the making of Loans hereunder.
4.3 Conditions to Letters of Credit.
The issuance of any Letter of Credit hereunder (whether or not the
applicable Issuing Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the initial Loans shall have been made.
B. On or before the date of issuance of such Letter of Credit, Agent shall
have received, in accordance with the provisions of subsection 3.1B(i), an
originally executed Request for Issuance of Letter of Credit, in each case
signed by the chief executive officer, the chief financial officer or the
treasurer of Company or by any executive officer of Company designated by any of
the above-described officers on behalf of Company, in a writing delivered to
Agent, together with all other information specified in subsection 3.1B(i) and
such other documents or information as the applicable Issuing Lender may
reasonably require in connection with the issuance of such Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.
4.4 Conditions to Canadian Loans.
The obligations of Lenders to make Canadian Loans on the Canadian Loan
Funding Date are, in addition to satisfaction of the conditions precedent
specified in subsections 4.2 and 7.7(v), subject to satisfaction of the
following further conditions precedent:
A. Lakeland Canada Documents. On or before the Canadian Loan Funding Date,
Lakeland Canada shall deliver or cause to be delivered to Lenders (or to Agent
for
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Lenders with sufficient originally executed copies, where appropriate, for each
Lender and its counsel) the following, each, unless otherwise noted, dated as of
the Canadian Loan Funding Date:
(i) Certified copies of its Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State (or
comparable official) of its jurisdiction of incorporation and each other
state or province in which it is qualified as a foreign corporation to do
business and, to the extent generally available, a certificate or other
evidence of good standing as to payment of any applicable franchise or
similar taxes from the appropriate taxing authority of each of such
jurisdictions, each dated a recent date prior to the Canadian Loan Funding
Date;
(ii) Copies of its Bylaws, certified as of the Canadian Loan Funding
Date by its corporate secretary or an assistant secretary;
(iii) Resolutions of its Board of Directors approving and authorizing
the execution, delivery and performance of this Agreement and the other Loan
Documents and Related Agreements to which it is a party, certified as of the
Canadian Loan Funding Date by its corporate secretary or an assistant
secretary as being in full force and effect without modification or
amendment;
(iv) Signature and incumbency certificates of its officers executing
this Agreement and the other Loan Documents to which it is a party;
(v) Executed originals of this Agreement, the Canadian Note (duly
executed in accordance with subsection 2.1F, drawn to the order of each
applicable Lender and with appropriate insertions) and the other Loan
Documents to which it is a party; and
(vi) Such other documents as Agent may reasonably request.
B. Guarantor Subsidiary Documents. On or before the Canadian Loan Funding
Date, Lakeland Canada shall cause each of its Subsidiaries to 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 Canadian Loan Funding Date:
(i) Certified copies of the Certificate or Articles of Incorporation
of such Person, together with a good standing certificate from the Secretary
of State of the State (or comparable official) of its jurisdiction of
incorporation and each other state or province in which such Person is
qualified as a foreign corporation to do business and, to the extent
generally available, a certificate or other evidence of good standing as to
payment of any applicable franchise or similar taxes from the appropriate
taxing
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authority of each of such jurisdictions, each dated a recent date prior to
the Canadian Loan Funding Date;
(ii) Copies of the Bylaws of such Person, certified as of the Canadian
Loan Funding Date by such Person's corporate secretary or an assistant
secretary;
(iii) Resolutions of the Board of Directors of such Person approving
and authorizing the execution, delivery and performance of the Loan
Documents and Related Agreements to which it is a party, certified as of the
Canadian Loan Funding Date by the corporate secretary or an assistant
secretary of such Person as being in full force and effect without
modification or amendment;
(iv) Signature and incumbency certificates of the officers of such
Subsidiary executing the Loan Documents to which it is a party;
(v) Executed originals of the Loan Documents to which such Subsidiary
is a party; and
(vi) Such other documents as Agent may reasonably request.
C. Necessary Consents. Lakeland Canada shall have obtained all consents
necessary or advisable in connection with the acquisition of any new businesses
or assets, the transactions contemplated by the Loan Documents (except to the
extent provided herein with respect to consents for Mortgages on Material
Leaseholds) and the continued operation of the business conducted by Lakeland
Canada and its Subsidiaries in substantially the same manner as conducted prior
to the consummation of the acquisition of any new business or assets, and each
of the foregoing shall be in full force and effect, other than those the failure
to obtain, which either individually or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect. All applicable waiting
periods shall have expired without any action being taken or threatened by any
competent authority which would restrain, prevent or otherwise impose adverse
conditions on the acquisition or the financing thereof, and no action, request
for stay, petition for review or rehearing, reconsideration or appeal shall be
pending and any time for agency action to set aside its consent on its own
motion has expired.
D. Security Interests in Personal and Mixed Property. Lakeland Canada and
its Subsidiaries shall have taken or caused to be taken (and Agent shall have
received satisfactory evidence thereof) 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 such date in the entire personal and mixed property Collateral. Such
actions shall include, without limitation, the following:
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(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 two thirds of
the capital stock of Lakeland Canada pledged pursuant to the Company Pledge
Agreement and all of the capital stock of Lakeland Canada's subsidiaries
pledged pursuant to the Canadian Subsidiary Pledge Agreements and delivery
to Agent of all other instruments (duly endorsed where appropriate)
evidencing the Collateral;
(ii) delivery to Agent of Uniform Commercial Code financing statements
and comparable filings under the PPSA as to the Collateral for all
jurisdictions as may be necessary or desirable to perfect the security
interests in the Collateral;
(iii) delivery to Agent of mortgages, charges and hypothecs and other
documents and instruments to be filed in the appropriate jurisdiction;
(iv) delivery to Agent of the IP Collateral Documents, together with
accurate and complete schedules thereto and any cover sheets required for
filing with the PTO and or any comparable Canadian registry; (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;
and
(vi) evidence reasonably satisfactory to Agent that all other filings
(including, without limitation, Uniform Commercial Code termination
statements and comparable instruments under the PPSA), recordings and other
actions Agent deems necessary or advisable to establish, preserve and
perfect the first priority Liens granted to Agent in personal and mixed
property shall have been made.
E. Real Property Collateral. On or before the Canadian Loan Funding Date,
Lakeland Canada shall, and shall cause its Subsidiaries to, deliver to Agent:
(i) fully executed and notarized Mortgages (each a "Lakeland
Mortgage" and collectively the "Lakeland Mortgages") encumbering the fee or
leasehold interest of the applicable Loan Party in each Fee Property or
Material Leasehold (a "Lakeland Mortgaged Property"), including any landlord
or other third party consents necessary to encumber such Material Leasehold
(together with a fully executed and notarized Mortgage);
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(ii) with respect to the Lakeland Mortgaged Properties located in the
United States only, an opinion of counsel (which counsel shall be reasonably
satisfactory to Agent) in each state in which a Lakeland Mortgaged Property
is located with respect to the enforceability of the form of Lakeland
Mortgage to be recorded in such state and such other matters as Agent may
reasonably request, in form and substance reasonably satisfactory to Agent;
(iii) with respect to the Lakeland Mortgaged Properties located in the
United States only, a Title Policy with respect to such Lakeland Mortgaged
Properties (the "Lakeland Mortgage Policies");
(iv) with respect to the Lakeland Mortgaged Properties located in the
United States only, evidence, which may be in the form of a letter from an
insurance broker or a municipal engineer, as to whether (a) such Lakeland
Mortgaged Property (a "Lakeland Flood Hazard Property") is in an area
designated by the Federal Emergency Management Agency as having special
flood or mud slide hazards and (b) the community in which such Lakeland
Flood Hazard Property is located is participating in the National Flood
Insurance Program;
(v) with respect to the Lakeland Mortgaged Properties located in the
United States only, if there are any Lakeland Flood Hazard Properties,
Lakeland Canada's written acknowledgement of receipt of written notification
from Agent (a) as to the existence of each such Lakeland Flood Hazard
Property and (b) as to whether the community in which each such Lakeland
Flood Hazard Property is located is participating in the National Flood
Insurance Program;
(vi) if requested by Agent, a current survey of each (or any) Lakeland
Mortgaged Property, certified to the applicable Loan Party, Agent and the
applicable title insurer, prepared by a surveyor and in form and substance
reasonably satisfactory to Agent; and
(vii) any instrument, document, consent or agreement pursuant to which
Company and its Subsidiaries agree to the appointment by Agent of a Canadian
agent, if any, in connection with any Mortgages relating to Real Property
Assets located in Canada.
F. Appraisals and Environmental Due Diligence. On or before the Canadian
Loan Funding Date, Lakeland Canada shall, and shall cause its Subsidiaries to,
deliver to Agent the following:
(i) appraisals, in form, scope and substance satisfactory to Agent
and satisfying the requirements of any applicable laws and regulations,
concerning any Lakeland Mortgaged Properties; and
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(ii) the preparation or review of reports and other information, in
form, scope and substance satisfactory to Agent, concerning environmental
liabilities of Lakeland Canada and its Subsidiaries with respect to the
Lakeland Mortgaged Properties.
G. Opinions of Lakeland Canada's Counsel. Lenders shall have received (i)
originally executed copies of one or more favorable written opinions of counsel
for Lakeland Canada, in form and substance reasonably satisfactory to Agent and
its counsel, dated as of the Canadian Loan Funding Date as to such matters as
Agent acting on behalf of Lenders may reasonably request, together with evidence
satisfactory to Agent that Lakeland Canada has requested such counsel to deliver
such opinions to Lenders.
H. Representations and Warranties; Performance of Agreements. Lakeland
Canada shall have delivered to Agent an Officers' Certificate, in form and
substance satisfactory to Agent, to the effect that the representations and
warranties in Section 5 hereof are true, correct and complete in all material
respects on and as of the Canadian Loan Funding Date 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 Lakeland Canada shall have performed in all material
respects all agreements and satisfied all conditions which this Agreement
provides shall be performed or satisfied by it on or before the Canadian Loan
Funding Date except as otherwise disclosed to and agreed to in writing by Agent
and Requisite Lenders.
I. Completion of Proceedings. 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.
J. Company Guaranty. Company shall have executed and delivered to Agent
the Company Guaranty substantially in the form attached hereto as Exhibit XIX.
K. Initial Loans Made. On or before the Canadian Loan Funding Date, the
initial Loans shall have been made.
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Section 5. BORROWER'S REPRESENTATIONS AND WARRANTIES
5.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries.
A. Organization and Powers. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Loan Party has all requisite corporate power
and authority to own and operate its properties, to carry on its business as now
conducted and as proposed to be conducted, to enter into the Loan Documents and
the Related Agreements to which it is a party and to carry out the transactions
contemplated thereby.
B. Qualification and Good Standing. Each Loan Party is qualified to do
business and in good standing in every jurisdiction where its assets are located
and wherever necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had and will not have a Material Adverse Effect.
C. Conduct of Business. Company and its Subsidiaries are engaged only in
the businesses permitted to be engaged in pursuant to subsection 7.14.
D. Subsidiaries. All of the Subsidiaries of Company are identified in
Schedule 5.1 annexed hereto, as said Schedule 5.1 may be supplemented from time
to time pursuant to the provisions of subsection 6.1(xviii). The capital stock
of each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto
(as so supplemented) is duly authorized, validly issued, fully paid and
nonassessable and none of such capital stock constitutes Margin Stock. Each of
the Subsidiaries of Company identified in Schedule 5.1 annexed hereto (as so
supplemented) is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation set
forth therein, has all requisite corporate power and authority to own and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted, and is qualified to do business and in good standing
in every jurisdiction where its assets are located and wherever necessary to
carry out its business and operations, in each case except where failure to be
so qualified or in good standing or a lack of such corporate power and authority
has not had and will not have a Material Adverse Effect. Schedule 5.1 annexed
hereto (as so supplemented) correctly sets forth, the ownership interest of
Holdings in Company and of Company in each of its Subsidiaries. The capital,
organizational, ownership and management structure of Company and its
Subsidiaries, both before and after giving effect to the Bryfogle's acquisition
and the related transactions contemplated in connection therewith, are as set
forth on Schedule 4.1F annexed hereto.
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5.2 Authorization of Borrowing, etc.
A. Authorization of Borrowing. The execution, delivery and performance of
the Loan Documents and the Related Agreements have been duly authorized by all
necessary corporate action on the part of each Loan Party that is a party
thereto.
B. No Conflict. The execution, delivery and performance by any Loan Party
of the Loan Documents and the Related Agreements to which it is a party and the
consummation of the transactions contemplated by the Loan Documents and such
Related Agreements do not and will not (i) violate any provision of any law or
any governmental rule or regulation applicable to any Loan Party, the
Certificate or Articles of Incorporation or Bylaws of any Loan Party or any
order, judgment or decree of any court or other agency of government binding on
any Loan Party, (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 any Loan Party, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of any Loan Party (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 any Loan Party, except
for such approvals or consents which will be obtained on or before the Closing
Date.
C. Governmental Consents. The execution, delivery and performance by any
Loan Party of the Loan Documents and the Related Agreements to which it is a
party and the consummation of the transactions contemplated by the Loan
Documents and such Related Agreements 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 and
(ii) such other registrations, consents, approvals, notices or other actions
which have been made, obtained, given or taken on or before the Closing Date or
such later date as may be required by the applicable governmental authority or
regulatory body.
D. Binding Obligation. Each of the Loan Documents and the Related
Agreements has been duly executed and delivered by each Loan Party that is a
party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its 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.
E. Valid Issuance of Company Common Stock, Holdings Common Stock and
Holdings Preferred Stock.
(i) (A) Company Common Stock. The Company Common Stock is duly and
validly issued, fully paid and nonassessable. No stockholder of Company
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has or will have any preemptive rights to subscribe for any additional
equity Securities of Company. The issuance and sale of Company Common Stock
has been registered or qualified under applicable federal and state
securities laws or is exempt therefrom.
(B) Company Preferred Stock. All issued and outstanding shares
of Company Preferred Stock have been duly and validly issued, fully paid
and nonassessable. No stockholder of Company has or will have any
preemptive rights to subscribe for any additional Company Preferred Stock.
Any issuance and sale of Company Preferred Stock, upon such issuance and
sale, will either (a) have been registered and qualified under applicable
federal and state securities laws or (b) be exempt therefrom.
(ii) (A) Holdings Common Stock. All issued and outstanding shares of
Holdings Common Stock have been duly and validly issued, fully paid and
nonassessable. Except as provided in the Stockholders Agreement, no
stockholder of Holdings has or will have any preemptive rights to subscribe
for any additional equity Securities of Holdings. Any issuance and sale of
Holdings Common Stock, upon such issuance and sale, will either (a) have
been registered or qualified under applicable federal and state securities
laws or (b) be exempt therefrom.
(B) Holdings Preferred Stock. All issued and outstanding shares
of Holdings Preferred Stock 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 Holdings Preferred Stock.
Any issuance and sale of Holdings Preferred Stock, upon such issuance and
sale, will either (a) have been registered and qualified under applicable
federal and state securities laws or (b) be exempt therefrom.
5.3 Financial Condition.
Company has heretofore delivered to Lenders, at Lenders' request, the
financial statements and information described in subsection 4.1G. All such
statements were prepared in conformity with GAAP except as set forth in Schedule
5.3 annexed hereto, and fairly present, in all material respects, the financial
position (on a consolidated and, where applicable, consolidating basis) of the
entities described in such financial statements as at the respective dates
thereof and the results of operations and cash flows (on a consolidated and,
where applicable, consolidating basis) of the entities described therein for
each of the periods then ended, subject, in the case of any such unaudited
financial statements, to changes resulting from audit and normal year-end
adjustments. None of the Loan Parties has (and none of the Loan Parties will
have following the funding of the initial Loans) any Contingent Obligation,
contingent liability or liability for taxes, long-term lease or unusual forward
or long-term commitment that is not reflected in the foregoing financial
statements or the most
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recent financial statements delivered pursuant to subsection 6.1 or the notes
thereto and which in any such case is material in relation to the business,
operations, properties, assets, condition (financial or otherwise) or prospects
of Company and its Subsidiaries, taken as a whole.
5.4 No Material Adverse Change; No Restricted Junior Payments.
Since September 30, 1997, no event or change has occurred that has
caused or evidences, either in any case or in the aggregate, a Material Adverse
Effect. Neither Company nor any of its Subsidiaries has directly or indirectly
declared, ordered, paid or made, or set apart any sum or property for, any
Restricted Junior Payment or agreed to do so except as permitted by subsection
7.5.
5.5 Title to Properties; Liens.
Holdings, Company and Company's Subsidiaries have (i) good, sufficient
and legal title to (in the case of fee interests in real property), (ii) valid
leasehold interests in (in the case of leasehold interests in real or personal
property), or (iii) good title to (in the case of all other personal property),
all of their respective properties and assets reflected in the financial
statements referred to in subsection 5.3 or in the most recent financial
statements delivered pursuant to subsection 6.1 in each case, except for assets
disposed of since the date of such financial statements in the ordinary course
of business or as otherwise permitted under subsection 7.7. Except as permitted
by this Agreement, all such properties and assets are free and clear of Liens.
Schedule 5.5 annexed hereto sets forth all of the Real Property Assets of
Company and its Subsidiaries as of the Closing Date.
5.6 Litigation; Adverse Facts.
There are no actions, suits, proceedings, arbitrations or governmental
investigations (whether or not purportedly on behalf of Holdings, Company or any
of Company's Subsidiaries) 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, pending or, to the knowledge of
any Borrower, threatened against or affecting Holdings, Company or any of
Company's Subsidiaries or any property of Holdings, Company or any of Company's
Subsidiaries that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. Neither Holdings nor Company
nor any of Company's Subsidiaries is (i) in violation of any applicable laws
that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect or (ii) subject to or in default with respect to
any final judgments, writs, injunctions, decrees, rules or regulations of any
court or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.
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5.7 Payment of Taxes.
Except to the extent permitted by subsection 6.4 and except as set
forth in Schedule 5.7 annexed hereto, all tax returns and reports of Holdings,
Company and Company's Subsidiaries required to be filed by any of them have been
timely filed, and all taxes, assessments, fees and other governmental charges
upon Holdings, Company and Company's Subsidiaries and upon their respective
properties, assets, income, businesses and franchises which are due and payable
have been paid when due and payable. None of the Borrowers knows of any proposed
tax assessment against Holdings, Company or any of Company's Subsidiaries which
is not being actively contested by Company or such Subsidiary in good faith and
by appropriate proceedings; provided that such reserves or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have been
made or provided therefor.
5.8 Performance of Agreements; Materially Adverse Agreements; Material
Contracts.
A. Neither Holdings nor Company nor any of Company's Subsidiaries is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any of its Contractual Obligations, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default, except where the consequences, direct or
indirect, of such default or defaults, if any, would not have a Material Adverse
Effect.
B. Neither Holdings nor Company nor any of Company's Subsidiaries is a
party to or is otherwise subject to any agreements or instruments or any charter
or other internal restrictions which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
C. All Material Contracts are in full force and effect and no material
defaults currently exist thereunder.
5.9 Governmental Regulation.
Neither Holdings nor Company nor any of Company's Subsidiaries is
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act or the Investment Company Act of
1940 or under any other federal or state statute or regulation which may limit
its ability to incur Indebtedness or which may otherwise render all or any
portion of the Obligations unenforceable.
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5.10 Securities Activities.
A. Neither Holdings nor Company nor any of Company's Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.
B. Following application of the proceeds of each Loan, not more than 25%
of the value of the assets (either of any Borrower only or of Company and its
Subsidiaries on a consolidated basis) subject to the provisions of subsection
7.2 or 7.7 or subject to any restriction contained in any agreement or
instrument, between any Borrower and any Lender or any Affiliate of any Lender,
relating to Indebtedness and within the scope of subsection 8.2, will be Margin
Stock.
5.11 Employee Benefit Plans.
A. Company and each of its ERISA Affiliates are in compliance in all
material respects with all applicable provisions and requirements of ERISA and
the regulations and published interpretations thereunder and the terms of each
Employee Benefit Plan, and have performed all their material obligations under
each Employee Benefit Plan.
B. No ERISA Event has occurred or is reasonably expected to occur which
could result in any material liability to Company or any of its ERISA
Affiliates.
C. Except to the extent required under Section 4980B of the Internal
Revenue Code, no Employee Benefit Plan provides health or welfare benefits
(through the purchase of insurance or otherwise) for any retired or former
employees of Company or any of its ERISA Affiliates.
D. In accordance with the most recent actuarial valuation for any Pension
Plan, the amount of unfunded benefit liabilities (as defined in Section
4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans
(excluding for purposes of such computation any Pension Plans with respect to
which assets exceed benefit liabilities), does not exceed $250,000.
5.12 Certain Fees.
Except as set forth in Schedule 5.12 annexed hereto, no broker's or
finder's fee or commission will be payable with respect to this Agreement or any
of the transactions contemplated hereby, and each Borrower hereby indemnifies
Lenders against, and agrees that it will hold Lenders harmless from, any claim,
demand or liability for any such broker's or finder's fees alleged to have been
incurred in connection herewith or therewith and any expenses (including
reasonable fees, expenses and disbursements of counsel) arising in connection
with any such claim, demand or liability.
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5.13 Environmental Protection.
(i) The operations of Company and each of its Subsidiaries
(including, without limitation, all operations and conditions at or in the
Facilities) comply with all Environmental Laws except for any such
noncompliance which would not reasonably be expected to have a Material
Adverse Effect;
(ii) Company and each of its Subsidiaries have obtained all
Governmental Authorizations under Environmental Laws necessary to their
respective operations, and all such Governmental Authorizations are being
maintained in good standing, and Company and each of its Subsidiaries are in
compliance with such Governmental Authorizations except for any such failure
to obtain, maintain or comply which would not reasonably be expected to have
a Material Adverse Effect;
(iii) neither Company nor any of its Subsidiaries has received (a) any
notice or claim to the effect that it is or may be liable to any Person as a
result of or in connection with any Hazardous Materials or (b) any letter or
request for information under Section 104 of the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. (S) 9604) or comparable
state laws, and, to the best of the Borrower's knowledge, none of the
operations of Company or any of its Subsidiaries is the subject of any
federal or state investigation relating to or in connection with any
Hazardous Materials at any Facility or at any other location except for such
of the foregoing which would not reasonably be expected to have a Material
Adverse Effect;
(iv) none of the operations of Company or any of its Subsidiaries is
subject to any judicial or administrative proceeding alleging the violation
of or liability under any Environmental Laws which if adversely determined
could reasonably be expected to have a Material Adverse Effect;
(v) neither Company nor any of its Subsidiaries nor any of their
respective Facilities or operations are subject to any outstanding written
order or agreement with any governmental authority or private party relating
to (a) any actual or potential violation of or liability under Environmental
Laws or (b) any Environmental Claims except for such of the foregoing which
would not reasonably be expected to have a Material Adverse Effect;
(vi) neither Company nor any of its Subsidiaries has any contingent
liability in connection with any Release of any Hazardous Materials by
Company or any of its Subsidiaries except for such of the foregoing which
would not reasonably be expected to have a Material Adverse Effect;
(vii) neither Company nor any of its Subsidiaries nor, to the best
knowledge of the Borrower, any predecessor of Company or any of its
Subsidiaries has filed any
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notice under any Environmental Law indicating past or present treatment,
storage or disposal of hazardous waste, as defined under 40 C.F.R. Parts
260-270 or any state equivalent except for such of the foregoing which
would not reasonably be expected to have a Material Adverse Effect;
(viii) no Hazardous Materials exist on, under or about any Facility in
a manner that would reasonably be expected to give rise to an Environmental
Claim having a Material Adverse Effect, and neither Company nor any of its
Subsidiaries has filed any notice or report of a Release of any Hazardous
Materials that would reasonably be expected to give rise to an
Environmental Claim having a Material Adverse Effect;
(ix) neither Company nor any of its Subsidiaries nor, to the best
knowledge of Company, any of their respective predecessors has disposed of
any Hazardous Materials in a manner that would reasonably be expected to
give rise to an Environmental Claim having a Material Adverse Effect;
(x) to the best knowledge of Company, no underground storage tanks
or surface impoundments are on or at any Facility that would reasonably be
expected to give rise to an Environmental Claim having a Material Adverse
Effect; and
(xi) no Lien in favor of any Person relating to or in connection with
any Environmental Claim has been filed or has been attached to any Facility
except for any such Lien which would not reasonably be expected to have a
Material Adverse Effect.
5.14 Employee Matters.
There is no strike or work stoppage in existence or threatened
involving Company or any of its Subsidiaries that could reasonably be expected
to have a Material Adverse Effect.
5.15 Solvency.
Company and each of its Subsidiaries is and, upon the incurrence of any
Obligations by any Borrower on any date on which this representation is made,
will be, Solvent.
5.16 Disclosure.
No representation or warranty of Company or any of its Subsidiaries
contained in any Loan Document or Related Agreement or in any other document,
certificate or written statement furnished to Lenders by or on behalf of Company
or any of its Subsidiaries for use
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in connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact (known to
any Borrower, in the case of any document not furnished by it) necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances in which the same were made. Any projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by the Borrower to be reasonable at the time
made, it being recognized by Lenders that such projections as to future events
are not to be viewed as facts and that actual results during the period or
periods covered by any such projections may differ from the projected results.
There are no facts known (or which should upon the reasonable exercise of
diligence be known) to the Borrower (other than matters of a general economic
nature) that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect and that have not been disclosed herein or
in such other documents, certificates and statements furnished to Lenders for
use in connection with the transactions contemplated hereby.
5.17 Related Agreements.
A. Company has delivered to Lenders complete and correct copies of the
Related Agreements and of all exhibits and schedules thereto.
B. Except to the extent otherwise set forth herein or in the schedules
hereto, each of the representations and warranties in the Bryfogle's Stock
Purchase Agreement is true and correct in all material respects as of the
Closing Date, subject to the qualifications set forth in the schedules to the
Bryfogle's Stock Purchase Agreement.
C. Notwithstanding anything in the Bryfogle's Stock Purchase Agreement to
the contrary, the representations and warranties of Borrower set forth in
subsection 5.17B shall, solely for purposes of this Agreement, survive the
Closing Date for the benefit of Lenders.
Section 6. BORROWER'S AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all of
the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior written
consent, such Borrower shall perform, and shall cause each of its Subsidiaries
to perform, all covenants in this Section 6.
6.1 Financial Statements and Other Reports.
Each Borrower will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business
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practices to permit preparation of financial statements in conformity with GAAP.
Company will deliver to Agent and Lenders:
(i) Monthly Financials: as soon as available and in any event
within 30 days after the end of each month ending after the Closing Date,
(a) the consolidated and consolidating balance sheets of Company and its
Subsidiaries as at the end of such month and the related consolidated and
consolidating statements of income, stockholders' equity and cash flows of
Company and its Subsidiaries for such month and for the period from the
beginning of the then current Fiscal Year to the end of such month, setting
forth in each case in comparative form the corresponding figures for the
corresponding periods of the previous Fiscal Year and the corresponding
figures from the Financial Plan for the current Fiscal Year, to the extent
prepared on a monthly basis, all in reasonable detail and certified by the
chief financial officer of Company that they fairly present, in all
material respects, the financial condition of Company and its Subsidiaries
as at the dates indicated and the results of their operations and their
cash flows for the periods indicated, subject to changes resulting from
audit and normal year-end adjustments, and (b) a narrative report
describing the operations of Company and its Subsidiaries in the form
prepared for presentation to senior management for such month and for the
period from the beginning of the then current Fiscal Year to the end of
such month;
(ii) Quarterly Financials: as soon as available and in any event
within 45 days after the end of each Fiscal Quarter, (a) the consolidated
and consolidating balance sheets of Company and its Subsidiaries as at the
end of such Fiscal Quarter and the related consolidated and consolidating
statements of income, stockholders' equity and cash flows of Company and
its Subsidiaries for such Fiscal Quarter and for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal
Quarter, setting forth in each case in comparative form the corresponding
figures for the corresponding periods of the previous Fiscal Year and the
corresponding figures from the Financial Plan for the current Fiscal Year,
all in reasonable detail and certified by the chief financial officer of
Company that they fairly present, in all material respects, the financial
condition of Company and its Subsidiaries as at the dates indicated and the
results of their operations and their cash flows for the periods indicated,
subject to changes resulting from audit and normal year-end adjustments,
and (b) a narrative report describing the operations of Company and its
Subsidiaries in the form prepared for presentation to senior management for
such Fiscal Quarter and for the period from the beginning of the then
current Fiscal Year to the end of such Fiscal Quarter;
(iii) Year-End Financials: as soon as available and in any event
within 90 days after the end of each Fiscal Year, (a) the consolidated and
consolidating balance sheets of Company and its Subsidiaries as at the end
of such Fiscal Year and the related consolidated and consolidating
statements of income, stockholders' equity and
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cash flows of Company and its Subsidiaries for such Fiscal Year, setting
forth in each case in comparative form the corresponding figures for the
previous Fiscal Year and the corresponding figures from the Financial Plan
for the Fiscal Year covered by such financial statements, all in reasonable
detail and certified by the chief financial officer of Company that they
fairly present, in all material respects, the financial condition of
Company and its Subsidiaries as at the dates indicated and the results of
their operations and their cash flows for the periods indicated, (b) a
narrative report describing the operations of Company and its Subsidiaries
in the form prepared for presentation to senior management for such Fiscal
Year, and (c) in the case of such consolidated financial statements, (1) a
report thereon of a nationally recognized independent accounting firm,
which report shall be unqualified as to the scope of the audit, shall
express no doubts about the ability of Company and its Subsidiaries to
continue as a going concern, and shall state that such consolidated
financial statements fairly present, in all material respects, the
consolidated financial position of Company and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise disclosed in such
financial statements) and that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards and (2) a letter from
such accounting firm, substantially in the form of Exhibit XIII annexed
hereto with such changes as are approved by Agent, acknowledging that
Lenders will receive such consolidated financial statements in such report
and will use such financial statements and report in their credit analyses
of Company and its Subsidiaries;
(iv) Officers' and Compliance Certificates: together with each
delivery of financial statements of Company and its Subsidiaries pursuant
to subdivisions (i), (ii) and (iii) above, (a) an Officers' Certificate of
Company stating that the signers have reviewed the terms of this Agreement
and have made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of Company and its
Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence during or
at the end of such accounting period, and that the signers do not have
knowledge of the existence as at the date of such Officers' Certificate, of
any condition or event that constitutes an Event of Default or Potential
Event of Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
Borrower has taken, is taking and proposes to take with respect thereto;
and (b) a Compliance Certificate demonstrating in reasonable detail
compliance during and at the end of the applicable accounting periods with
the restrictions contained in Section 7;
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(v) Margin Determination Certificate: concurrently with the
delivery of the financial statements delivered pursuant to subdivisions
(ii) or (iii) a Margin Determination Certificate;
(vi) Reconciliation Statements: if, as a result of any change in
accounting principles and policies from those in effect on the Closing
date, the consolidated financial statements of Company and its Subsidiaries
delivered pursuant to subdivisions (i), (ii), (iii) or (xiv) of this
subsection 6.1 will differ in any material respect from the consolidated
financial statements that would have been delivered pursuant to such
subdivisions had no such change in accounting principles and policies been
made, then (a) together with the first delivery of financial statements
pursuant to subdivision (i), (ii), (iii) or (xiv) of this subsection 6.1
following such change, consolidated financial statements of Company and its
Subsidiaries for (y) the current Fiscal Year to the effective date of such
change and (z) the two full Fiscal Years immediately preceding the Fiscal
Year in which such change is made, in each case prepared on a pro forma
basis as if such change had been in effect during such periods, and (b)
together with each delivery of financial statements pursuant to subdivision
(i), (ii), (iii) or (xiv) of this subsection 6.1 following such change, a
written statement of the chief accounting officer or chief financial
officer of Company setting forth the differences (including without
limitation any differences that would affect any calculations relating to
the financial covenants set forth in subsection 7.6) which would have
resulted if such financial statements had been prepared without giving
effect to such change;
(vii) Accountants' Certification: together with each delivery of
consolidated financial statements of Company and its Subsidiaries pursuant
to subdivision (iii) above, a written statement by the independent
certified public accountants giving the report thereon (a) stating that
their audit examination has included a review of the terms of this
Agreement and the other Loan Documents as they relate to accounting
matters, (b) stating whether, in connection with their audit examination,
any condition or event that constitutes an Event of Default or Potential
Event of Default has come to their attention and, if such a condition or
event has come to their attention, specifying the nature and period of
existence thereof; provided that such accountants shall not be liable by
reason of any failure to obtain knowledge of any such Event of Default or
Potential Event of Default that would not be disclosed in the course of
their audit examination, and (c) stating that based on their audit
examination nothing has come to their attention that causes them to believe
either or both that the information contained in the certificates delivered
therewith pursuant to subdivision (iv) above is not correct or that the
matters set forth in the Compliance Certificates delivered therewith
pursuant to clause (b) of subdivision (iv) above for the applicable Fiscal
Year are not stated in accordance with the terms of this Agreement;
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(viii) Accountants' Reports: promptly upon receipt thereof (unless
restricted by applicable professional standards), copies of all reports
submitted to Company by independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of Company and its Subsidiaries made by such accountants,
including, without limitation, any comment letter submitted by such
accountants to management in connection with their annual audit;
(ix) SEC Filings and Press Releases: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by Company to its
security holders or by any Subsidiary of Company to its security holders
other than Company or another Subsidiary of Company, (b) all regular and
periodic reports and all registration statements (other than on Form S-8 or
a similar form) and prospectuses, if any, filed by Company or any of its
Subsidiaries with any securities exchange or with the Securities and
Exchange Commission or any governmental or private regulatory authority,
and (c) all press releases and other statements made available generally by
Company or any of its Subsidiaries to the public concerning material
developments in the business of Company or any of its Subsidiaries;
(x) Events of Default, etc.: promptly upon any officer of any
Borrower obtaining knowledge (a) of any condition or event that constitutes
an Event of Default or Potential Event of Default, or becoming aware that
any Lender has given any notice (other than to Agent) or taken any other
action with respect to a claimed Event of Default or Potential Event of
Default, (b) that any Person has given any notice to Company or any of its
Subsidiaries or taken any other action with respect to a claimed default or
event or condition of the type referred to in subsection 8.2, (c) of any
condition or event that would be required to be disclosed in a current
report filed by Company with the Securities and Exchange Commission on Form
8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date hereof)
if Company were required to file such reports under the Exchange Act, or
(d) of the occurrence of any event or change that has caused or evidences,
either in any case or in the aggregate, a Material Adverse Effect, an
Officers' Certificate specifying the nature and period of existence of such
condition, event or change, or specifying the notice given or action taken
by any such Person and the nature of such claimed Event of Default,
Potential Event of Default, default, event or condition, and what action
Borrower has taken, is taking and proposes to take with respect thereto;
(xi) Litigation or Other Proceedings: (a) promptly upon any officer
of any Borrower obtaining knowledge of (X) the institution of, or non-
frivolous threat of, any action, suit, proceeding (whether administrative,
judicial or otherwise), governmental investigation or arbitration against
or affecting Company or any of its Subsidiaries or any property of Company
or any of its Subsidiaries (collectively,
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"Proceedings") not previously disclosed in writing by Company to Lenders or
(Y) any material development in any Proceeding that, in any case:
(1) if adversely determined, has a reasonable possibility of
giving rise to a Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to any Borrower to enable Lenders and their counsel to
evaluate such matters; and (b) within twenty days after the end of each
Fiscal Quarter, a schedule of all Proceedings involving an alleged
liability of, or claims against or affecting, Company or any of its
Subsidiaries equal to or greater than $500,000, and promptly after request
by Agent such other information as may be reasonably requested by Agent to
enable Agent and its counsel to evaluate any of such Proceedings;
(xii) ERISA Events: promptly upon becoming aware of the occurrence of
or forthcoming occurrence of any ERISA Event, a written notice specifying
the nature thereof, what action Company or any of its ERISA Affiliates has
taken, is taking or proposes to take with respect thereto and, when known,
any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto;
(xiii) ERISA Notices: with reasonable promptness, copies of (a) each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
filed by Company or any of its ERISA Affiliates with the Internal Revenue
Service with respect to each Pension Plan; (b) all notices received by
Company or any of its ERISA Affiliates from a Multiemployer Plan sponsor
concerning an ERISA Event; and (c) such other documents or governmental
reports or filings relating to any Employee Benefit Plan as Agent shall
reasonably request;
(xiv) Financial Plans: as soon as practicable and in any event no
later than 30 days after the beginning of each Fiscal Year, a consolidated
and consolidating plan and financial forecast for such Fiscal Year (the
"Financial Plan" for such Fiscal Year), including without limitation (a) a
forecasted consolidated and consolidating balance sheet and forecasted
consolidated and consolidating statements of income and cash flows of
Company and its Subsidiaries for such Fiscal Year, together with a pro forma
Compliance Certificate for such Fiscal Year and an explanation of the
assumptions on which such forecasts are based, and (b) forecasted
consolidated and consolidating statements of income and cash flows of
Company and its Subsidiaries
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for each month of such Fiscal Year, together with an explanation of the
assumptions on which such forecasts are based;
(xv) Insurance: as soon as practicable and in any event by the last
day of each Fiscal Year, a report in form and substance satisfactory to
Agent outlining all material insurance coverage maintained as of the date
of such report by Company and its Subsidiaries and all material insurance
coverage planned to be maintained by Company and its Subsidiaries in the
immediately succeeding Fiscal Year and confirming the status of Agent as
loss payee under all such insurance to the extent required by subsection
6.5;
(xvi) Environmental Audits and Reports: as soon as practicable
following receipt thereof, copies of all environmental audits and reports,
whether prepared by personnel of Company or any of its Subsidiaries or by
independent consultants, with respect to significant environmental matters
at any Facility or which relate to an Environmental Claim in either case
which could reasonably be expected to result in a Material Adverse Effect;
(xvii) Board of Directors: with reasonable promptness, written notice
of any change in the Board of Directors of Company;
(xviii) New Subsidiaries: promptly upon any Person becoming a
Subsidiary of Company, a written notice setting forth with respect to such
Person (a) the date on which such Person became a Subsidiary of Company and
(b) all of the data required to be set forth in Schedule 5.1 annexed hereto
with respect to all Subsidiaries of Company (it being understood that such
written notice shall be deemed to supplement Schedule 5.1 annexed hereto
for all purposes of this Agreement);
(xix) Material Contracts: promptly, and in any event within 10
Business Days after any Material Contract of any Borrower or any of its
Subsidiaries is terminated or amended in a manner that is materially
adverse to Borrower or such Subsidiary, as the case may be, or any new
Material Contract is entered into, a written statement describing such
event with copies of such material amendments or new contracts, and an
explanation of any actions being taken with respect thereto; and
(xx) Borrowing Base Certificates: as soon as available and in any
event within ten Business Days after the last Business Day of each month
ending after the Closing Date, a Borrowing Base Certificate dated as of the
last Business Day of such month, together with any additional schedules and
other information as Agent may reasonably request (it being understood that
(a) Company, in addition to such monthly Borrowing Base Certificates, may
deliver to Agent and Lenders on any Business Day after the last Business
Day of each month an updated Borrowing Base Certificate dated as of such
Business Day, together with any additional schedules and other
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information as Agent may reasonably request), and (b) the most recent
Borrowing Base Certificate described in this clause (xx) that is delivered
to Agent shall be used in calculating the Borrowing Base as of any date of
determination; and
(xxi) Other Information: with reasonable promptness, such other
information and data with respect to Company or any of its Subsidiaries as
from time to time may be reasonably requested by any Lender.
6.2 Corporate Existence, etc.
Except as permitted under subsection 7.7, each Borrower will, and will
cause each of its Subsidiaries to, at all times preserve and keep in full force
and effect its corporate existence and all rights and franchises material to its
business.
6.3 Deposit of Excess Cash; BTCC Account.
At the end of each Business Day, Company will transfer all Cash in excess
of $50,000 into the BTCC Account, which BTCC Account shall be an interest
bearing account with such interest to be payable to Company for its own account.
6.4 Payment of Taxes and Claims; Tax Consolidation.
A. Each Borrower will, and will cause each of its Subsidiaries to, pay all
taxes, assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its income, businesses or
franchises before any penalty accrues thereon, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for sums
that have become due and payable and that by law have or may become a Lien upon
any of its properties or assets, prior to the time when any material penalty or
fine shall be incurred with respect thereto; provided that no such charge or
claim need be paid if being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor.
B. None of the Borrowers will and will not permit any of its Subsidiaries
to, file or consent to the filing of any consolidated income tax return with any
Person (other than Company or any of its Subsidiaries).
6.5 Maintenance of Properties; Insurance.
Each Borrower will, and will cause each of its Subsidiaries to,
maintain or cause to be maintained in good repair, working order and condition,
ordinary wear and tear excepted, all of their respective material properties
used or useful in the business of Company and its Subsidiaries (including,
without limitation, Intellectual Property) and from
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time to time will make or cause to be made all appropriate repairs, renewals and
replacements thereof. Each Borrower will maintain or cause to be maintained,
with financially sound and reputable insurers, insurance with respect to its
properties and business and the properties and businesses of its Subsidiaries
against loss or damage of the kinds customarily carried or maintained under
similar circumstances by corporations of established reputation engaged in
similar businesses. Without limiting the generality of the foregoing, each
Borrower will maintain or cause to be maintained (i) flood insurance with
respect to each Initial Flood Hazard Property (as defined in subsection 6.10B)
and each Additional Flood Hazard Property (as defined in subsection 6.12A), in
each case to the extent such Initial Flood Hazard Property or Additional Flood
Hazard Property is located in a community that participates in the National
Flood Insurance Program and (ii) public liability insurance, third party
property damage insurance and replacement value insurance on the Collateral
(other than growing crops) under such policies of insurance, with such insurance
companies, in such amounts and covering such risks as are at all times
satisfactory to Agent in its commercially reasonable judgment. Each such policy
of insurance that insures against loss or damage with respect to any Collateral
or against losses due to business interruption shall name Agent for the benefit
of Lenders as the loss payee thereunder for any covered loss in excess of
$500,000 and shall provide for at least 30 days (15 days in the event of non-
payment of premium) prior written notice to Agent of any modification or
cancellation of such policy. Upon receipt by Agent of any insurance proceeds as
loss payee (i) in respect of any such business interruption insurance, (a) Agent
shall, so long as no Event of Default or Potential Event of Default shall have
occurred and be continuing, deliver such insurance proceeds to Company, and (b)
if an Event of Default or Potential Event of Default shall have occurred and be
continuing, Agent shall, and each Borrower hereby authorizes Agent to, apply
such insurance proceeds to prepay the Loans in the same manner as if such
insurance proceeds were Net Cash Proceeds of an Asset Sale to be applied as
provided in subsection 2.4C(iii)(f), and (ii) in respect of any such insurance
against loss or damage with respect to any Collateral, (a) to the extent that
any Borrower or any of its Subsidiaries intends to use any such insurance
proceeds to repair, restore or replace the assets of such Borrower or Subsidiary
in respect of which such insurance proceeds were received, Agent shall, so long
as no Event of Default or Potential Event of Default shall have occurred and be
continuing, (A) in the event the aggregate amount of such insurance proceeds in
respect of any covered loss does not exceed $1,000,000, deliver such insurance
proceeds to such Borrower, and such Borrower shall, or shall cause such
Subsidiary to, use such insurance proceeds to effect such repair, restoration or
replacement, and (B) in the event the aggregate amount of such insurance
proceeds exceeds $1,000,000, hold such proceeds in a cash collateral account and
so long as Company or any of its Subsidiaries proceeds to repair, restore or
replace the assets of Company or such Subsidiary in respect of which such
insurance proceeds were received, Agent shall from time to time disburse to
Company or such Subsidiary amounts necessary to pay the cost of such repair,
restoration or replacement after the receipt by Agent of invoices or other
documentation reasonably satisfactory to Agent describing the amount of costs so
incurred; provided however that if in the reasonable good faith belief of Agent,
Company or such Subsidiary is not proceeding diligently with the repair,
restoration or replacement,
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Agent shall, and each Borrower hereby authorizes Agent to, apply such insurance
proceeds to prepay the Loans in the same manner as if such insurance proceeds
were Net Cash Proceeds of an Asset Sale to be applied as provided in subsection
2.4C(iii)(f) and (b) if an Event of Default or Potential Event of Default shall
have occurred and be continuing or to the extent that neither Company nor any of
its Subsidiaries intends to use any such insurance proceeds to repair, restore
or replace assets of Company or any of its Subsidiaries as described above,
Agent shall, and each Borrower hereby authorizes Agent to, apply such insurance
proceeds to prepay the Loans in the same manner as if such insurance proceeds
were Net Cash Proceeds of an Asset Sale to be applied as provided in subsection
2.4C(iii)(f).
6.6 Inspection; Lender Meeting.
Each Borrower shall, and shall cause each of its Subsidiaries to,
permit (i) any authorized representatives designated by any Lender to visit and
inspect any of the properties of Company or any of its Subsidiaries, including
its and their financial and accounting records, and to make copies and take
extracts therefrom, and to discuss its and their affairs, finances and accounts
with its and their officers and independent public accountants (provided that
Company may, if it so chooses, be present at or participate in any such
discussion), and (ii) any authorized representatives designated by Agent to
conduct two audits of all Inventory and Accounts of Loan Parties during each
twelve-month period after the Closing Date (exclusive of the audit of Inventory
and Accounts referred to in subsection 6.10C (the "Base Audit")), each such
audit to be substantially similar in scope and substance to the Base Audit, all
upon reasonable notice and at such reasonable times during normal business hours
and as often as may be reasonably requested. Without in any way limiting the
foregoing, Company will, upon the request of Agent or Requisite Lenders,
participate in a meeting of Agent and Lenders once during each Fiscal Year to be
held at Company's corporate offices (or such other location as may be agreed to
by Company and Agent) at such time as may be agreed to by Company and Agent.
6.7 Compliance with Laws, etc.
Each Borrower shall, and shall cause each of its Subsidiaries to,
comply with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority, noncompliance with which could reasonably
be expected to cause, individually or in the aggregate at any time, a Material
Adverse Effect.
6.8 Environmental Disclosure and Inspection.
A. Each Borrower shall, and shall cause each of its Subsidiaries to,
exercise all due diligence in order to comply in all material respects and cause
(i) all tenants under any leases or occupancy agreements affecting any portion
of the Facilities and (ii) all other Persons on or occupying such property, to
comply in all material respects with all Environmental Laws.
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B. Each Borrower agrees that Agent may, from time to time and in its
reasonable discretion, retain, at Company's expense, an independent professional
consultant to review any report relating to Hazardous Materials prepared by or
for Company and, upon a reasonable belief that any Borrower has breached any
covenant or representation with respect to environmental matters or that there
has been a material violation of Environmental Laws at any Facility or by any
Borrower, to conduct its own reasonable investigation of such matter at any
Facility currently owned, leased, operated or used by Company or any of its
Subsidiaries, and Company agrees to use its best efforts to obtain permission
for Agent's professional consultant to conduct its own investigation of any such
matter at any Facility previously owned, leased, operated or used by Company or
any of its Subsidiaries. Company hereby grants to Agent and its agents,
employees, consultants and contractors the right to enter into or on to the
Facilities currently owned, leased, operated or used by Company or any of its
Subsidiaries upon reasonable notice to Borrower to perform such assessments on
such property as are reasonably necessary to conduct such a review and/or
investigation. Any such investigation of any Facility shall be conducted, unless
otherwise agreed to by Company and Agent, during normal business hours and, to
the extent reasonably practicable, shall be conducted so as not to interfere
with the ongoing operations at any such Facility or to cause any damage or loss
to any property at such Facility. Borrower and Agent hereby acknowledge and
agree that any report of any investigation conducted at the request of Agent
pursuant to this subsection 6.8B will be obtained and shall be used by Agent and
Lenders for the purposes of Lenders' internal credit decisions, to monitor and
police the Loans and to protect Lenders' security interests, if any, created by
the Loan Documents. Agent agrees to deliver a copy of any such report to Company
with the understanding that each Borrower acknowledges and agrees that (i) it
will indemnify and hold harmless Agent and each Lender from any costs, losses or
liabilities relating to such Borrower's use of or reliance on such report, (ii)
neither Agent nor any Lender makes any representation or warranty with respect
to such report, and (iii) by delivering such report to Company, neither Agent
nor any Lender is requiring or recommending the implementation of any
suggestions or recommendations contained in such report.
C. Each Borrower shall promptly advise Lenders in writing and in
reasonable detail of (i) any material Release of any Hazardous Materials
required to be reported to any federal, state or local governmental or
regulatory agency under any applicable Environmental Laws, (ii) any and all
written communications with respect to any Environmental Claims that have a
reasonable possibility of giving rise to a Material Adverse Effect or with
respect to any material Release of Hazardous Materials required to be reported
to any federal, state or local governmental or regulatory agency, (iii) any
remedial action taken by such Borrower or any other Person in response to (x)
any Hazardous Materials on, under or about any Facility, the existence of which
has a reasonable possibility of resulting in an Environmental Claim having a
Material Adverse Effect, or (y) any Environmental Claim that could have a
Material Adverse Effect, (iv) such Borrower's discovery of any occurrence or
condition on any real property adjoining or in the vicinity of any Facility that
could cause such Facility or any part thereof to be subject to any material
restrictions on the ownership, occupancy, transferability
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or use thereof under any Environmental Laws, and (v) any request for information
from any governmental agency that suggests such agency is investigating whether
such Borrower or any of its Subsidiaries may be potentially responsible for a
Release of Hazardous Materials.
D. Each Borrower shall promptly notify Lenders of (i) any proposed
acquisition of stock, assets, or property by Company or any of its Subsidiaries
that could reasonably be expected to expose Company or any of its Subsidiaries
to, or result in, Environmental Claims that could reasonably be expected to have
a Material Adverse Effect or that could reasonably be expected to have a
material adverse effect on any Governmental Authorization then held by Company
or any of its Subsidiaries and (ii) any proposed action to be taken by Company
or any of its Subsidiaries to commence manufacturing, industrial or other
operations that could reasonably be expected to subject Company or any of its
Subsidiaries to material additional obligations or requirements under
Environmental Laws.
E. Each Borrower shall, at its own expense, provide copies of such
documents or information as Agent may reasonably request in relation to any
matters disclosed pursuant to this subsection 6.8.
6.9 Company's Remedial Action Regarding Hazardous Materials.
Company shall promptly take, and shall cause each of its Subsidiaries
promptly to take, any and all remedial action in connection with the presence,
storage, use, disposal, transportation or Release of any Hazardous Materials on,
under or about any Facility in order to comply in all material respects with all
applicable Environmental Laws and Governmental Authorizations. In the event
Company or any of its Subsidiaries undertakes any remedial action with respect
to any Hazardous Materials on, under or about any Facility, Company or such
Subsidiary shall conduct and complete such remedial action in compliance in all
material respects with all applicable Environmental Laws, and in accordance with
the policies, orders and directives of all federal, state and local governmental
authorities except when, and only to the extent that, Company's or such
Subsidiary's liability for such presence, storage, use, disposal, transportation
or discharge of any Hazardous Materials is being contested in good faith by
Company or such Subsidiary.
6.10 Supplemental Actions Relating to Creation and Perfection of Liens and
Security Interests in Real, Personal and Mixed Property Collateral and
Related Matters.
To the extent not otherwise satisfied pursuant to subsections 4.1J-M as
of the Closing Date and to the extent approved in writing by Agent for delivery
under this subsection 6.10:
A. Personal and Mixed Property Collateral. Within 30 days after the
Closing Date, Borrower shall, and shall cause its Subsidiaries to, take or cause
to be taken (and Agent shall have received satisfactory evidence thereof) such
actions in such a manner
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so that Agent has a valid and perfected first priority security interest in the
entire Collateral. Such actions shall include, without limitation, the
following:
(i) delivery to Agent of Uniform Commercial Code financing
statements and comparable filings under the PPSA as to the Collateral for
all jurisdictions as may be necessary or desirable to perfect the security
interests in the Collateral;
(ii) delivery to Agent of mortgages, charges and hypothecs and other
documents and instruments to be filed in the appropriate jurisdiction;
(iii) delivery to Agent of accurate and complete schedules to the IP
Collateral Documents, together with any cover sheets required for filing
with the PTO (as defined in subsection 4.1J) or any comparable Canadian
registry, and the filing of the IP Collateral Documents and all such other
documents or instruments in the PTO and/or such registry as may be
necessary or desirable to perfect the security interests in favor of Agent
in the IP Collateral;
(iv) delivery to Agent of certificates of title with respect to all
rolling stock of Loan Parties 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;
(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;
(vi) delivery to Agent of evidence reasonably satisfactory to Agent
that all other filings (including, without limitation, Uniform Commercial
Code termination statements and comparable instruments under the PPSA),
recordings and other actions Agent deems necessary or advisable to
establish, preserve and perfect the first priority Liens granted to Agent
in personal and mixed property have been made; and
(vii) delivery to Agent of opinions of counsel under the law of each
jurisdiction in which any Loan Party or any Collateral is located with
respect to the creation and perfection of the security interests in favor
of Agent in any personal or mixed property Collateral.
B. Real Property Collateral. Within 60 days after the Closing
Date, Borrower shall, and shall cause its Subsidiaries to, deliver to Agent:
(i) fully executed and notarized Mortgages (each an "Initial
Mortgage" and collectively the "Initial Mortgages") encumbering the fee or
leasehold interest of the applicable Loan Party in each Fee Property or
Material Leasehold designated in
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Schedule 5.5 annexed hereto, provided that, with respect to each Material
Leasehold, the applicable Loan Party shall use its reasonable best efforts
to deliver any landlord or other third party consents, memoranda of lease
or other documents necessary to encumber such Material Leasehold (together
with a fully executed and notarized Mortgage) within the 60-day period
described above and if, after using reasonable best efforts, the Loan Party
is unable to deliver all of the necessary consents, at the request of
Agent, the Loan Party shall use its reasonable best efforts to deliver the
necessary consents, memoranda of lease or other documents (together with
fully executed and notarized Mortgages), for such Material Leases as Agent
shall designate, within 90 days (or such longer period as Agent may
determine from time to time) after the expiration of the 60-day period
described above (each an "Initially Mortgaged Property" and collectively
the "Initially Mortgaged Properties");
(ii) with respect to Initially Mortgaged Properties located in the
United States only, an opinion of counsel (which counsel shall be
reasonably satisfactory to Agent) in each state in which an Initial
Mortgaged Property is located with respect to the enforceability of the
form of Initial Mortgage to be recorded in such state and such other
matters as Agent may reasonably request, in form and substance reasonably
satisfactory to Agent;
(iii) with respect to Initially Mortgaged Properties located in the
United States only, a Title Policy with respect to each such Initially
Mortgaged Properties;
(iv) with respect to Initially Mortgaged Properties located in the
United States only, evidence, which may be in the form of a letter from an
insurance broker or a municipal engineer, as to whether (a) any Initial
Mortgaged Property (a "Initial Flood Hazard Property") is in an area
designated by the Federal Emergency Management Agency as having special
flood or mud slide hazards and (b) the community in which such Initial
Flood Hazard Property is located is participating in the National Flood
Insurance Program;
(v) with respect to Initially Mortgaged Properties located in the
United States only, if there are any Initial Flood Hazard Properties,
Company's written acknowledgement of receipt of written notification from
Agent (a) as to the existence of each such Initial Flood Hazard Property
and (b) as to whether the community in which each such Initial Flood Hazard
Property is located is participating in the National Flood Insurance
Program; and
(vi) if requested by Agent, a current survey of each (or any)
Initial Mortgaged Property, certified to the applicable Loan Party, Agent
and the applicable title insurer, prepared by a surveyor and in form and
substance reasonably satisfactory to Agent.
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C. Completion of Collateral Audits, Appraisals and Environmental Due
Diligence. Borrower shall, and shall cause its Subsidiaries to, provide such
cooperation and assistance as Agent may request in order to permit Agent (or an
independent auditor, appraiser or environmental consultant, as the case may be,
satisfactory to Agent) to complete, within 30 days after the Closing Date, (i)
audits of the Inventory and Accounts of Borrower and its Subsidiaries, (ii)
appraisals, in form, scope and substance satisfactory to Agent and satisfying
the requirements of any applicable laws and regulations, concerning any Real
Property Assets constituting Initial Mortgaged Properties (in each case to the
extent required under such laws and regulations as determined by Agent in its
sole discretion, and (iii) the preparation or review of reports and other
information, in form, scope and substance satisfactory to Agent, concerning
environmental liabilities of Borrower and its Subsidiaries with respect to the
Initial Mortgaged Properties.
D. Evidence of Insurance. Borrower shall deliver to Agent, within 30
days after the Closing Date, certificates of insurance naming Agent on behalf of
Lenders as loss payee under all casualty insurance policies maintained by
Borrower and its Subsidiaries, and as an additional insured under all liability
and business interruption insurance policies maintained by Borrower and its
Subsidiaries, all as required pursuant to subsection 6.5 or pursuant to the
Collateral Documents. All such certificates of insurance shall contain such
endorsements as are reasonably required by Agent.
E. Balance Sheets of Company. Borrower shall deliver to Agent within
30 days after the Closing Date, pro forma consolidated and consolidating balance
sheets of Company and its Subsidiaries as at the Closing Date, prepared in
accordance with GAAP and reflecting the consummation of the Bryfogle's
acquisition and the financings and other transactions contemplated hereby, which
pro forma financial statements shall be in form and substance satisfactory to
Lenders.
F. Cash Management. Borrower shall deliver to Agent within 30 days
after the Closing Date, Lock Box Agreements and Blocked Account Agreements with
respect to Loan Parties' deposit accounts.
6.11 Execution of Guaranties and Collateral Documents by Future Subsidiaries.
A. Execution of Domestic Subsidiary Guaranty and Collateral
Documents. In the event that any Person becomes a Domestic Subsidiary of Company
after the date hereof, Company will promptly notify Agent of that fact and cause
such Subsidiary to execute and deliver to Agent a counterpart of the Domestic
Subsidiary Guaranty and a Domestic Subsidiary Pledge Agreement, a Domestic
Subsidiary Security Agreement, a Domestic Subsidiary Trademark Security
Agreement (if required by Agent), a Domestic Subsidiary Patent Security
Agreement (if required by Agent) and (if applicable) Additional Mortgages and to
take all such further action and execute all such further documents and
instruments as may be reasonably required to grant and perfect in favor of
Agent, for the
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benefit of Lenders, a first-priority security interest in all of the shares of
capital stock of such Subsidiary and all of the Real Property Assets and all of
the personal property assets of such Subsidiary described in the applicable
Collateral Documents.
B. Execution of Canadian Subsidiary Guaranty and Collateral
Documents. In the event that any Person becomes a Canadian Subsidiary of Company
after the date hereof, Company will promptly notify Agent of that fact and cause
such Subsidiary to execute and deliver to Agent a counterpart of the Canadian
Subsidiary Guaranty and a Canadian Subsidiary Pledge Agreement, a Canadian
Subsidiary Security Agreement, a Canadian Subsidiary Trademark Security
Agreement, a Canadian Subsidiary Patent Security Agreement and (if applicable)
Additional Mortgages and to take all such further action and execute all such
further documents and instruments as may be reasonably required to grant and
perfect in favor of Agent, for the benefit of Lenders, a first-priority security
interest in not less than two-thirds of the shares of capital stock of such
Subsidiary and all of the Real Property Assets and all of the personal property
assets of such Subsidiary described in the applicable Collateral Documents.
C. Subsidiary Charter Documents, Legal Opinions, Etc. Company shall
deliver to Agent, together with the applicable Guaranty and such Collateral
Documents, (i) certified copies of such Subsidiary's Articles or Certificate of
Incorporation, together with a good standing certificate from the Secretary of
State of the jurisdiction of its incorporation, each to be dated a recent date
prior to their delivery to Agent, (ii) a copy of such Subsidiary's Bylaws,
certified by its corporate secretary or an assistant corporate secretary as of a
recent date prior to their delivery to Agent, (iii) a certificate executed by
the secretary or an assistant secretary of such Subsidiary as to (a) the
incumbency and signatures of the officers of such Subsidiary executing such
Guaranty and the Collateral Documents to which such Subsidiary is a party and
(b) the fact that the attached resolutions of the Board of Directors of such
Subsidiary authorizing the execution, delivery and performance of such Guaranty
and such Collateral Documents are in full force and effect and have not been
modified or rescinded, and (iv) a favorable opinion of counsel to such
Subsidiary, in form and substance satisfactory to Agent and its counsel, as to
(a) the due organization and good standing of such Subsidiary, (b) the due
authorization, execution and delivery by such Subsidiary of such Guaranty and
such Collateral Documents, (c) the enforceability of such Guaranty and such
Collateral Documents against such Subsidiary, and (d) such other matters as
Agent may reasonably request, all of the foregoing to be satisfactory in form
and substance to Agent and its counsel.
6.12 Additional Mortgages.
A. From and after the Closing Date, in the event that (i) any
Borrower or any of its Subsidiaries acquires any Fee Property or any Material
Leasehold (each a "Covered Real Property Asset") or (ii) at the time any Person
becomes a Subsidiary of any Borrower, such Person owns or holds any Covered Real
Property Asset, such Borrower or
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such Subsidiary shall, as soon as practicable after the acquisition of such
Covered Real Property Asset or such Person's becoming a Subsidiary of any
Borrower, as the case may be, deliver (a) fully executed counterparts of
Mortgages (each an "Additional Mortgage" and collectively, the "Additional
Mortgages") encumbering such Covered Real Property Asset, together with evidence
that counterparts of such Additional Mortgages have been recorded in all places
to the extent necessary or desirable, in the reasonable judgment of Agent, so as
to effectively create a valid and enforceable first priority lien (or such other
priority lien as may be specified in the applicable Additional Mortgage),
subject to Permitted Encumbrances, on such Covered Real Property Asset in favor
of Agent (or such other trustee as may be required or desired under local law)
for the benefit of Lenders; (b) a title report obtained by Company in respect of
any such Covered Real Property Asset located in the United States (a "U.S.
Covered Real Property Asset"); (c) with respect to U.S. Covered Real Property
Assets only, if required by Agent, an opinion of counsel (which counsel shall be
reasonably satisfactory to Agent) in the state in which such U.S. Covered Real
Property Asset is located with respect to the enforceability of the form of
Additional Mortgage recorded in such state and such other matters as Agent may
reasonably request, in form and substance reasonably satisfactory to Agent; (d)
in the case of each such Covered Real Property Asset consisting of a Material
Leasehold, Borrower or its Subsidiary shall use reasonable best efforts to
obtain such estoppel letters from the landlord on such Material Leasehold as may
be reasonably requested by Agent, in form and substance reasonably satisfactory
to Agent; (e) if required by Agent, in the case of each such Covered Real
Property Asset consisting of a Fee Property, environmental audits prepared by
professional consultants mutually acceptable to Company and Agent, in form,
scope and substance satisfactory to Agent in its reasonable discretion; (f) with
respect to U.S. Covered Real Property Assets only, if required by Agent, in the
case of each such U.S. Covered Real Property Asset consisting of a Fee Property,
a Title Policy; (g) with respect to U.S. Covered Real Property Assets only,
evidence, which may be in the form of a letter from an insurance broker, a
municipal engineer, title company or national flood certification form, as to
whether (1) such U.S. Covered Real Property Asset (an "Additional Flood Hazard
Property") is in an area designated by the Federal Emergency Management Agency
as having special flood or mud slide hazards and (2) the community in which such
U.S. Covered Real Property Asset (if it is an Additional Flood Hazard Property)
is located is participating in the National Flood Insurance Program; and (h) if
such U.S. Covered Real Property Asset is an Additional Flood Hazard Property,
Company's written acknowledgement of receipt of written notification from Agent
(1) as to the existence of such Additional Flood Hazard Property and (2) as to
whether the community in which such Flood Hazard Property is located is
participating in the National Flood Insurance Program.
B. Each Borrower shall, and shall cause each of its Subsidiaries to,
permit any authorized representatives designated by Agent, upon reasonable
notice, to visit and inspect any Covered Real Property Asset for the purpose of
obtaining an appraisal of value, conducted by consultants retained by Agent in
compliance with all applicable banking regulations, with respect to such Covered
Real Property Asset.
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6.13 Assignability and Recording of Lease Agreements.
From and after the Closing Date, in the event that any Borrower or any
of its Subsidiaries enters into any lease that is a Material Leasehold, such
Borrower shall, or shall cause such Subsidiary to, (i) obtain lease terms
permitting (or not expressly prohibiting) the encumbrancing of such Material
Leasehold pursuant to an Additional Mortgage and the assignment of such Material
Leasehold interest to the successful bidder at a foreclosure or similar sale
(and to a subsequent third party assignee by Agent or any Lender to the extent
Agent or such Lender is the successful bidder at such sale) in the event of a
foreclosure or similar action pursuant to such Additional Mortgage and (ii)
cause a memorandum of lease with respect thereto, or other evidence of such
lease in form and substance reasonably satisfactory to Agent, to be recorded in
all places to the extent necessary or desirable, in the reasonable judgment of
Agent, so as to enable an Additional Mortgage encumbering such Material
Leasehold to effectively create a valid and enforceable first priority lien
(subject to Permitted Encumbrances) on such Material Leasehold in favor of Agent
(or such other Person as may be required or desired under local law) for the
benefit of Lenders.
Section 7. BORROWER'S NEGATIVE COVENANTS
Each Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all of
the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior written
consent, such Borrower shall perform, and shall cause each of its Subsidiaries
to perform, all covenants in this Section 7.
7.1 Indebtedness.
Each 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, except:
(i) Borrower may become and remain liable with respect to the
Obligations;
(ii) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations permitted by subsection 7.4 and, upon any
matured obligations actually arising pursuant thereto, the Indebtedness
corresponding to the Contingent Obligations so extinguished;
(iii) Company and its Subsidiaries may become and remain liable with
respect to Indebtedness in respect of Capital Leases; provided that such
Capital Leases are permitted under the terms of subsection 7.9;
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(iv) Company may become and remain liable with respect to
Indebtedness to any of its wholly-owned Subsidiaries, and any wholly-owned
Subsidiary of Company may become and remain liable with respect to
Indebtedness to Company or any other wholly-owned Subsidiary of Company;
provided that (a) all such intercompany Indebtedness shall be evidenced by
promissory notes that are pledged to Agent pursuant to the terms of the
applicable Collateral Document, (b) all such intercompany Indebtedness owed
by any Borrower to any of its Subsidiaries shall be subordinated in right
of payment to the payment in full of the Obligations pursuant to the terms
of the applicable promissory notes or an intercompany subordination
agreement, and (c) any payment by any Subsidiary of any Borrower under any
guaranty of the Obligations shall result in a pro tanto reduction of the
amount of any intercompany Indebtedness owed by such Subsidiary to such
Borrower or to any of its Subsidiaries for whose benefit such payment is
made; provided, further, that the aggregate amount of all such intercompany
Indebtedness owing at any time from all Canadian Subsidiaries to Company or
any Domestic Subsidiary shall not exceed $5,000,000;
(v) Company and its Subsidiaries, as applicable, may remain liable
with respect to Indebtedness described in Schedule 7.1 annexed hereto; and
(vi) Company and its Subsidiaries may become and remain liable with
respect to other Indebtedness in an aggregate principal amount not to
exceed $500,000 at any time outstanding.
7.2 Liens and Related Matters.
A. Prohibition on Liens. Each Borrower shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
permit to exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of such Borrower or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any State or under any similar
recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens granted pursuant to the Collateral Documents; and
(iii) Other Liens securing Indebtedness in an aggregate amount not to
exceed $500,000 at any time outstanding.
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B. Equitable Lien in Favor of Lenders. If any Borrower or any of its Sub-
sidiaries shall create or assume any Lien upon any of its properties or assets,
whether now owned or hereafter acquired, other than Liens excepted by the
provisions of subsection 7.2A, it shall make or cause to be made effective
provision whereby the Obligations will be secured by such Lien equally and
ratably with any and all other Indebtedness secured thereby as long as any such
Indebtedness shall be so secured; provided that, notwithstanding the foregoing,
this covenant shall not be construed as a consent by Requisite Lenders to the
creation or assumption of any such Lien not permitted by the provisions of
subsection 7.2A.
C. No Further Negative Pledges. Except with respect to specific property
encumbered to secure payment of particular Indebtedness or to be sold pursuant
to an executed agreement with respect to an Asset Sale, none of the Borrowers or
any of their respective Subsidiaries shall enter into any agreement prohibiting
the creation or assumption of any Lien upon any of its properties or assets,
whether now owned or hereafter acquired.
D. No Restrictions on Subsidiary Distributions to Borrowers or Other
Subsidiaries. Except as provided herein, each Borrower will not, and will not
permit any of its Subsidiaries to, create or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction of any kind on the
ability of any such Subsidiary to (i) pay dividends or make any other
distributions on any of such Subsidiary's capital stock owned by such Borrower
or any other Subsidiary of such Borrower, (ii) repay or prepay any Indebtedness
owed by such Subsidiary to such Borrower or any other Subsidiary of such
Borrower, (iii) make loans or advances to such Borrower or any other Subsidiary
of such Borrower, or (iv) transfer any of its property or assets to such
Borrower or any other Subsidiary of such Borrower.
7.3 Investments; Joint Ventures.
Each Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, make or own any Investment in any Person, including
any Joint Venture, except:
(i) Company and its Subsidiaries may make and own Investments in
Cash Equivalents;
(ii) Company and its Subsidiaries may continue to own the
Investments owned by them as of the Closing Date in any Subsidiaries of
Company;
(iii) Company and its Subsidiaries may make intercompany loans to the
extent permitted under subsection 7.1(iv);
(iv) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted by subsection 7.8;
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(v) Company and its Subsidiaries may make acquisitions to the
extent permitted under 7.7(v);
(vi) Company and its Subsidiaries may continue to own the
Investments owned by them and described in Schedule 7.3 annexed hereto; and
(vii) Company and its Subsidiaries may make and own other Investments
in an aggregate amount not to exceed at any time $500,000.
7.4 Contingent Obligations.
Each Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or become or remain liable with respect to
any Contingent Obligation, except:
(i) Company may become and remain liable with respect to Contingent
Obligations in respect of Existing Letters of Credit (but not any
extensions or renewals thereof) and in respect of Letters of Credit;
(ii) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations arising under their respective
Guaranties;
(iii) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of customary indemnification
and purchase price adjustment obligations incurred in connection with Asset
Sales or other sales of assets;
(iv) Company may become and remain liable with respect to Contingent
Obligations arising under Interest Rate Agreements;
(v) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of any Indebtedness of Company
or any of its Subsidiaries permitted by subsection 7.1;
(vi) Company may become and remain liable with respect to Contingent
Obligations under Currency Agreements pursuant to which Company obtains
foreign currency from another Person (the "Counterparty") in exchange for
Dollars; provided that (a) the aggregate notional amount for all such
Currency Agreements outstanding at any one time shall not exceed the
equivalent of $20,000,000, (b) the aggregate amount of foreign currency
required to be delivered on any one day by one or more Counterparties under
all such Currency Agreements outstanding at any one time shall not exceed
the equivalent of $5,000,000; (c) the tenor of any such Currency Agreement
shall not exceed twenty-four (24) months, and (d) the expiration date of
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any such Currency Agreement under which any Lender or any Lender or any of
its Affiliates is the counterparty shall not be later than the date of
termination of the Working Capital Revolving Loan Commitments; and
(vii) Company and its Subsidiaries may become and remain liable with
respect to other Contingent Obligations; provided that the maximum
aggregate liability, contingent or otherwise, of Company and its
Subsidiaries in respect of all such Contingent Obligations shall at no time
exceed $500,000.
7.5 Restricted Junior Payments
Each Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, declare, order, pay, make or set apart any sum for
any Restricted Junior Payment; provided that so long as no Event of Default or
Potential Event of Default shall have occurred and be continuing or shall be
caused thereby (including without limitation a failure to comply with the
provisions of subsection 6.10), (i) Company may make dividend payments to
Holdings in accordance with the terms of the Company Preferred Stock in an
aggregate principal amount not to exceed $200,000 and (ii) Company may make
Restricted Junior Payments to Holdings (X) in an aggregate principal amount not
to exceed $200,000 in any Fiscal Year in order to permit Holdings to pay general
administrative costs and expenses, (Y) in an aggregate principal amount not to
exceed in the aggregate $500,000 in any Fiscal Year or $1,500,000 during the
term of this Agreement in order to permit Holdings to purchase Holdings Common
Stock or Holdings Preferred Stock from management officers and employees of
Company and its Subsidiaries, and (Z) in an amount necessary to permit Holdings
to discharge the consolidated tax liabilities of Holdings and its Subsidiaries.
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7.6 Financial Covenants.
A. Minimum Interest Coverage Ratio. Company shall not permit the ratio of
(i) Consolidated EBITDA to (ii) Consolidated Cash Interest Expense for any four-
Fiscal Quarter period ending during any of the periods set forth below to be
less than the correlative ratio indicated:
<TABLE>
<CAPTION>
Minimum
Period Interest Coverage Ratio
------------------------ -----------------------
<S> <C>
1st Fiscal Quarter, 1998 1.55:1:00
2nd Fiscal Quarter, 1998 1:90:1:00
3rd Fiscal Quarter, 1998 1:90:1:00
4th Fiscal Quarter, 1998 2:10:1:00
1st Fiscal Quarter, 1999 2:20:1:00
2nd Fiscal Quarter, 1999 2:60:1:00
3rd Fiscal Quarter, 1999 2:70:1:00
4th Fiscal Quarter, 1999 2:90:1:00
1st Fiscal Quarter, 2000 3:00:1:00
2nd Fiscal Quarter, 2000 3:30:1:00
3rd Fiscal Quarter, 2000 3:40:1:00
4th Fiscal Quarter, 2000 3:50:1:00
1st Fiscal Quarter, 2001 3:80:1:00
2nd Fiscal Quarter, 2001 4:50:1:00
3rd Fiscal Quarter, 2001 4:80:1:00
4th Fiscal Quarter, 2001 5:30:1:00
1st Fiscal Quarter, 2002 6:00:1:00
2nd Fiscal Quarter, 2002 7:00:1:00
3rd Fiscal Quarter, 2002 7:00:1:00
4th Fiscal Quarter, 2002 7:00:1:00
</TABLE>
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B. Maximum Leverage Ratio. Company shall not permit the ratio of (i)
Consolidated Total Debt as of the last day of any Fiscal Quarter occurring
during any of the periods set forth below to (ii) Consolidated EBITDA for the
four-Fiscal Quarter period ending on such last day to exceed the correlative
ratio indicated:
<TABLE>
<CAPTION>
Period Maximum Leverage Ratio
---------------------- ---------------------------
<S> <C>
1st Fiscal Quarter, 1998 4.75:1:00
2nd Fiscal Quarter, 1998 4:00:1:00
3rd Fiscal Quarter, 1998 4:00:1:00
4th Fiscal Quarter, 1998 4:00:1:00
1st Fiscal Quarter, 1999 4.20:1:00
2nd Fiscal Quarter, 1999 3:50:1:00
3rd Fiscal Quarter, 1999 3:00:1:00
4th Fiscal Quarter, 1999 3:00:1:00
1st Fiscal Quarter, 2000 3.25:1:00
2nd Fiscal Quarter, 2000 2:25:1:00
3rd Fiscal Quarter, 2000 2:25:1:00
4th Fiscal Quarter, 2000 2:25:1:00
1st Fiscal Quarter, 2001 2.25:1:00
2nd Fiscal Quarter, 2001 1:50:1:00
3rd Fiscal Quarter, 2001 1:25:1:00
4th Fiscal Quarter, 2001 1:25:1:00
1st Fiscal Quarter, 2002 1.50:1:00
2nd Fiscal Quarter, 2002 1:00:1:00
3rd Fiscal Quarter, 2002 1:00:1:00
4th Fiscal Quarter, 2002 1:00:1:00
</TABLE>
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C. Minimum Consolidated EBITDA. Company shall not permit Consolidated
EBITDA for any four-Fiscal Quarter period ending as of the last day of any
Fiscal Quarter occurring during any of the periods set forth below to be less
than the correlative amount indicated:
<TABLE>
<CAPTION>
Minimum Consolidated
Period EBITDA
------------------------ --------------------
<S> <C>
1st Fiscal Quarter, 1998 $ 5,500,000
2nd Fiscal Quarter, 1998 $ 6,575,000
3rd Fiscal Quarter, 1998 $ 6,300,000
4th Fiscal Quarter, 1998 $ 6,600,000
1st Fiscal Quarter, 1999 $ 6,900,000
2nd Fiscal Quarter, 1999 $ 7,600,000
3rd Fiscal Quarter, 1999 $ 7,800,000
4th Fiscal Quarter, 1999 $ 7,900,000
1st Fiscal Quarter, 2000 $ 8,200,000
2nd Fiscal Quarter, 2000 $ 8,700,000
3rd Fiscal Quarter, 2000 $ 8,800,000
4th Fiscal Quarter, 2000 $ 8,900,000
1st Fiscal Quarter, 2001 $ 9,100,000
2nd Fiscal Quarter, 2001 $ 9,800,000
3rd Fiscal Quarter, 2001 $10,000,000
4th Fiscal Quarter, 2001 $10,100,000
1st Fiscal Quarter, 2002 $10,200,000
2nd Fiscal Quarter, 2002 $11,000,000
3rd Fiscal Quarter, 2002 $11,000,000
4th Fiscal Quarter, 2002 $11,000,000
</TABLE>
7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions.
Each Borrower shall not, and shall not permit any of its Subsidiaries
to, alter the corporate, capital or legal structure of Company or any of its
Subsidiaries, or enter into any transaction of merger or consolidation, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease or sub-lease (as lessor or sub-lessor),
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business, property or fixed assets, whether
now owned or hereafter acquired, or
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acquire by purchase or otherwise all or substantially all the business, property
or fixed assets of, or stock or other evidence of beneficial ownership of, any
Person or any division or line of business of any Person, except:
(i) any Subsidiary of Company may be merged with or into Company or
any wholly-owned Subsidiary of Company, or may be liquidated, wound up or
dissolved, or all or any part of its business, property or assets may be
conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to Company or any wholly-owned
Subsidiary of Company;
(ii) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted under subsection 7.8;
(iii) Company and its Subsidiaries may sell or otherwise dispose of
assets in transactions that do not constitute Asset Sales; provided that
the consideration received for such assets shall be in an amount at least
equal to the fair market value thereof (as reasonably determined by the
Board of Directors of Company);
(iv) subject to subsection 7.13, Company and its Subsidiaries may
make Asset Sales of assets having a fair market value not in excess of
$1,000,000; provided that (x) the consideration received for such assets
shall be in an amount at least equal to the fair market value thereof (as
reasonably determined by the Board of Directors of Company); (y) the sole
consideration received shall be cash; and (z) the proceeds of such Asset
Sales shall be applied as required by subsection 2.4C(iii)(f); and
(v) Company and its Subsidiaries may acquire the business, property
or fixed assets of, or all of the stock or other evidence of beneficial
ownership of any Person engaged in the nursery business, the peat or
potting soil or mix business or businesses reasonably related thereto;
provided that (i) no Event of Default or Potential Event of Default has
occurred and is then continuing; (ii) the aggregate amount of Loans made to
effect such acquisition will not exceed an amount equal to the Consolidated
EBITDA for the most recent 12 consecutive month period of the businesses
acquired multiplied by four; (iii) Holdings will contribute cash equity to
Company in an amount equal to at least 20% of the aggregate purchase price
to be paid for such acquisition; (iv) after giving effect (including,
without limitation, any limitation on any assumed or acquired Indebtedness)
to such acquisition and Indebtedness incurred in connection therewith,
Company is in pro forma compliance with its financial covenants; (v) on or
prior to the consummation of the acquisition, Company shall cause to be
executed and delivered all such Loan Documents, and to have been taken all
such other actions (including without limitation the delivery of any
appraisals or environmental reports), in each case as may be required
pursuant to subsections 6.11, 6.12 or 6.13 with respect to the Persons or
assets so acquired and/or to update the schedules to this Agreement and to
provide a collateral audit of
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the Inventory and Accounts Receivables of the Person or assets so acquired;
and (vi) Company obtains Agent's and Requisite Lenders' consents to any
acquisition or series of related acquisitions in excess of $10,000,000 and,
to the extent such consent is required, shall have delivered to Agent and
Lenders on a timely basis such historical and pro forma financial
statements, sources and uses analysis, pro forma covenant calculations and
such other due diligence information as may be reasonably requested by
Agent or Lenders. Agent and Requisite Lenders hereby agree to approve or
disapprove acquisitions as soon as reasonably practicable but in any event
within 10 Business Days of receipt of such information.
7.8 Consolidated Capital Expenditures.
Each Borrower shall not, and shall not permit its Subsidiaries to,
make or incur Consolidated Capital Expenditures, in any period indicated below,
in an aggregate amount in excess of the corresponding amount (the "Maximum
Consolidated Capital Expenditures Amount") set forth below opposite such period;
provided that the Maximum Consolidated Capital Expenditures Amount for any
period shall be increased by an amount equal to the excess, if any, (but in no
event more than $1,000,000) of the Maximum Consolidated Capital Expenditures
Amount for the previous period (as adjusted in accordance with this proviso)
over the actual amount of Consolidated Capital Expenditures for such previous
period:
<TABLE>
<CAPTION>
Maximum Consolidated
Period Capital Expenditures
----------------- --------------------
<S> <C>
Fiscal Year, 1998 $3,500,000
Fiscal Year, 1999 $2,500,000
Fiscal Year, 2000 $2,500,000
Fiscal Year, 2001 $2,500,000
Fiscal Year, 2002 $2,500,000
</TABLE>
7.9 Restriction on Leases.
Each Borrower shall not, and shall not permit any of its Subsidiaries
to, (i) become liable in any way, whether directly or by assignment or as a
guarantor or other surety, for the obligations of the lessee under any lease,
whether an Operating Lease or a Capital Lease (other than intercompany leases
between or among Company and its wholly-owned Subsidiaries), or (ii) cause or
permit the liability of such Borrower or Subsidiary under or in respect of such
lease to increase by any material amount, in each case unless, immediately after
giving effect to such incurrence of or increase in liability with respect to
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such lease, the Consolidated Rental Payments at the time in effect during the
then current or any future period of 12 consecutive calendar months shall not
exceed $1,500,000.
7.10 Sales and Lease-Backs.
Each Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, become or remain liable as lessee or as a guarantor
or other surety with respect to any lease, whether an Operating Lease or a
Capital Lease, of any property (whether real, personal or mixed), whether now
owned or hereafter acquired, (i) which Company or any of its Subsidiaries has
sold or transferred or is to sell or transfer to any other Person (other than
Company or any of its Subsidiaries) or (ii) which Company or any of its
Subsidiaries intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by Company or any of its
Subsidiaries to any Person (other than Company or any of its Subsidiaries) in
connection with such lease; provided that Company and its Subsidiaries may
become and remain liable as lessee, guarantor or other surety with respect to
any such lease if and to the extent that Company or any of its Subsidiaries
would be permitted to enter into, and remain liable under, such lease under
subsection 7.9.
7.11 Sale or Discount of Receivables.
Each Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, sell with recourse, or discount or otherwise sell
for less than the face value thereof, any of its notes or accounts receivable.
7.12 Transactions with Shareholders and Affiliates.
Each Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder of 5% or more of any
class of equity Securities of Company or with any Affiliate of Company or of any
such holder, on terms that are less favorable to Company or that Subsidiary, as
the case may be, than those that might be obtained at the time from Persons who
are not such a holder or Affiliate; provided that the foregoing restriction
shall not apply to (i) any transaction between Company and any of its wholly-
owned Subsidiaries or between any of its wholly-owned Subsidiaries, or (ii)
reasonable and customary fees paid to members of the Boards of Directors of
Company and its Subsidiaries.
7.13 Disposal of Subsidiary Stock.
Except pursuant to the Collateral Documents and except for any sale of
100% of the capital stock or other equity Securities of any of its Subsidiaries
in compliance with the provisions of subsection 7.7(iv), each Borrower shall
not:
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(i) directly or indirectly sell, assign, pledge or otherwise encumber
or dispose of any shares of capital stock or other equity Securities of any
of its Subsidiaries, except to qualify directors if required by applicable
law; or
(ii) permit any of its Subsidiaries directly or indirectly to sell,
assign, pledge or otherwise encumber or dispose of any shares of capital
stock or other equity Securities of any of its Subsidiaries (including such
Subsidiary), except to Company, another Subsidiary of Company, or to qualify
directors if required by applicable law.
7.14 Conduct of Business.
From and after the Closing Date, each Borrower shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than (i) the
businesses engaged in by such Borrower and its Subsidiaries on the Closing Date
and similar or related businesses and (ii) such other lines of business as may
be consented to by Requisite Lenders.
7.15 Amendments of Certain Documents.
Each Borrower shall not, and shall not permit any of its Subsidiaries
to agree to any material amendment to, or waive any of its material rights
under, or otherwise change any material terms of any of the Related Agreements
in each case as in effect on the Closing Date without the prior written consent
of Requisite Lenders.
7.16 Fiscal Year.
Each Borrower shall not change its Fiscal Year-end from December 31.
Section 8. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur:
8.1 Failure to Make Payments When Due.
Failure by any Borrower to pay any installment of principal of or
interest on any Loan when due, whether at stated maturity, by acceleration, by
notice of voluntary prepayment, by mandatory prepayment or otherwise; failure by
any Borrower to pay when due any amount payable to an Issuing Lender in
reimbursement of any drawing under a Letter of Credit; or failure by any
Borrower to pay any fee or any other amount due under this Agreement within five
days after the date due; or
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8.2 Default in Other Agreements.
(i) Failure of any Borrower or any of its Subsidiaries to pay when due
any principal of or interest on one or more items of Indebtedness (other
than Indebtedness referred to in subsection 8.1) or Contingent Obligations
in an individual principal amount of $250,000 or more or with an aggregate
principal amount of $500,000 or more, in each case beyond the end of any
grace period provided therefor; or (ii) breach or default by any Borrower or
any of its Subsidiaries with respect to any other material term of (a) one
or more items of Indebtedness or Contingent Obligations in the individual or
aggregate principal amounts referred to in clause (i) above or (b) any loan
agreement, mortgage, indenture or other agreement relating to such item(s)
of Indebtedness or Contingent Obligation(s), if the effect of such breach or
default is to cause, or to permit the holder or holders of that Indebtedness
or Contingent Obligation(s) (or a trustee on behalf of such holder or
holders) to cause, that Indebtedness or Contingent Obligation(s) to become
or be declared due and payable prior to its stated maturity or the stated
maturity of any underlying obligation, as the case may be (upon the giving
or receiving of notice, lapse of time, both, or otherwise); or
8.3 Breach of Certain Covenants.
Failure of any Borrower to perform or comply with any term or condition
contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or
8.4 Breach of Warranty.
Any representation, warranty, certification or other statement made by
any Borrower or any of its Subsidiaries in any Loan Document or in any statement
or certificate at any time given by any Borrower or any of its Subsidiaries in
writing pursuant hereto or thereto or in connection herewith or therewith shall
be false in any material respect on the date as of which made; or
8.5 Other Defaults Under Loan Documents.
Any Borrower or any of its Subsidiaries shall default in the
performance of or compliance with any term contained in this Agreement or any of
the other Loan Documents, other than any such term referred to in any other
subsection of this Section 8, and such default shall not have been remedied or
waived within 15 days after the earlier of (i) an officer of any Borrower
becoming aware of such default or (ii) receipt by any Borrower of notice from
Agent or any Lender of such default; or
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8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.
(i) A court having jurisdiction in the premises shall enter a decree or
order for relief in respect of any Borrower or any of its Subsidiaries in an
involuntary case under the Bankruptcy Code or under any other Insolvency
Laws which decree or order is not stayed; or any other similar relief shall
be granted under any applicable Insolvency Laws; or (ii) an involuntary case
shall be commenced against any Borrower or any of its Subsidiaries under the
Bankruptcy Code or under any other Insolvency Laws; or a decree or order of
a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over any Borrower or any of its Subsidiaries, or over
all or a substantial part of its property, shall have been entered; or there
shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of any Borrower or any of its Subsidiaries for
all or a substantial part of its property; or a warrant of attachment,
execution or similar process shall have been issued against any substantial
part of the property of any Borrower or any of its Subsidiaries, and any
such event described in this clause (ii) shall continue for 60 days unless
dismissed, bonded or discharged; or
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.
(i) Any Borrower or any of its Subsidiaries shall have an order for
relief entered with respect to it or commence a voluntary case under the
Bankruptcy Code or under any other Insolvency Laws, or shall consent to the
entry of an order for relief in an involuntary case, or to the conversion of
an involuntary case to a voluntary case, under any such law, or shall
consent to the appointment of or taking possession by a receiver, trustee or
other custodian for all or a substantial part of its property; or Company or
any of its Subsidiaries shall make any assignment for the benefit of
creditors; or (ii) any Borrower or any of its Subsidiaries shall be unable,
or shall fail generally, or shall admit in writing its inability, to pay its
debts as such debts become due; or the Board of Directors of any Borrower or
any of its Subsidiaries (or any committee thereof) shall adopt any
resolution or otherwise authorize any action to approve any of the actions
referred to in clause (i) above or this clause (ii); or
8.8 Judgments and Attachments.
Any money judgment, writ or warrant of attachment or similar process
involving (i) in any individual case an amount in excess of $250,000 or (ii) in
the aggregate at any time an amount in excess of $500,000 (in either case not
adequately covered by insurance as to which a solvent and unaffiliated insurance
company has acknowledged coverage) shall be entered or filed against any
Borrower or any of its Subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a
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period of 60 days (or in any event later than five days prior to the date of any
proposed sale thereunder); or
8.9 Dissolution.
Any order, judgment or decree shall be entered against any Borrower or
any of its Subsidiaries decreeing the dissolution or split up of any Borrower or
that Subsidiary and such order shall remain undischarged or unstayed for a
period in excess of 30 days; or
8.10 Employee Benefit Plans.
There shall occur one or more ERISA Events which individually or in the
aggregate results in or might reasonably be expected to result in liability of
any Borrower or any of its ERISA Affiliates in excess of $100,000 during the
term of this Agreement; or there shall exist an amount of unfunded benefit
liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the
aggregate for all Pension Plans (excluding for purposes of such computation any
Pension Plans with respect to which assets exceed benefit liabilities), which
exceeds $250,000; or
8.11 Material Adverse Effect.
Any event or change shall occur that has caused or evidences, either in
any case or in the aggregate, a Material Adverse Effect; or
8.12 Change in Control.
(i) A change shall occur in the Board of Directors of Holdings so that
a majority of the Board of Directors of Holdings ceases to consist of the
individuals who constituted the Board of Directors of Holdings on the
Closing Date (or individuals whose election or nomination for election was
approved by a vote of at least 75% of the directors then in office who
either were directors of Holdings on the Closing Date or whose election or
nomination for election previously was so approved); or
(ii) any Person or Group (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission), other than MDCP and its Affiliates,
shall become or be the owner, directly or indirectly, beneficially or of
record, of shares representing more than 30% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of
Holdings on a fully diluted basis, unless MDCP and its Affiliates shall own
and continue to so own capital stock representing not less than a majority
of such aggregate ordinary voting power; or
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(iii) at any time prior to a Public Offering of Holdings, MDCP shall
cease to own, directly or indirectly, beneficially or of record, at least
51% of each of the Holdings Common Stock and any other class of voting
capital stock of Holdings; or
(iv) Holdings shall cease to beneficially own and control 100% of the
issued and outstanding shares of capital stock of Company or shall cease to
have the ability to elect all of the Board of Directors of Company;
(v) Company shall cease to beneficially own and control, directly or
indirectly, 100% of the issued and outstanding shares of capital stock of
any other Borrower or Company shall cease to have the ability to elect all
of the Board of Directors of any other Borrower; or
(vi) any "Change of Control" (as defined in that certain Indenture
dated as of October 19, 1995 by and among Hines Horticulture, Inc.,
Holdings, Sun Gro Horticulture Inc. and IBJ Schroder Bank & Trust Company)
shall occur; or
8.13 Invalidity of Any Guaranty.
Any Guaranty for any reason, other than the satisfaction in full of all
Obligations, ceases to be in full force and effect (other than in accordance
with its terms) or is declared to be null and void, or any Loan Party denies
that it has any further liability, including without limitation with respect to
future advances by Lenders, under any Loan Document to which it is a party, or
gives notice to such effect; or
8.14 Failure of Security.
Any Collateral Document shall, at any time, cease to be in full force
and effect (other than by reason of a release of Collateral in accordance with
the terms thereof) or shall be declared null and void, or the validity or
enforceability thereof shall be contested by any Loan Party, or Agent shall not
have or cease to have a valid and perfected first priority security interest in
the Collateral; or
8.15 Amendment of Certain Documents of Holdings.
Holdings shall agree to any material amendment to, or waive any of its
material rights under, or otherwise change any material terms of, any of the
Related Agreements, in each case as in effect on the Closing Date, in a manner
adverse to Holdings or any of its Subsidiaries or to Lenders without the prior
written consent of Agent and Requisite Lenders; or
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8.16 Conduct of Business Relating to Holdings.
Holdings shall engage in any business other than owning the capital
stock of Company, Hines Horticulture, Inc. and their respective Subsidiaries and
entering into and performing its obligations under and in accordance with the
Loan Documents and the Related Agreements to which it is a party; Holdings shall
own any assets other than (a) the capital stock of Company, Hines Horticulture,
Inc. and their respective Subsidiaries and (b) Cash and Cash Equivalents in an
amount not to exceed $100,000 at any one time for the purpose of paying its
general operating expenses. Holdings shall directly engage in any business or
activities other than those activities necessary to discharge its obligations as
a holding company for Company and Hines Horticulture, Inc.;
THEN (i) upon the occurrence of any Event of Default described in
subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued
interest on the Loans, (b) an amount equal to the maximum amount that may at any
time be drawn under all Letters of Credit then outstanding (whether or not any
beneficiary under any such Letter of Credit shall have presented, or shall be
entitled at such time to present, the drafts or other documents or certificates
required to draw under such Letter of Credit), and (c) all other Obligations
shall automatically become immediately due and payable, without presentment,
demand, protest or other requirements of any kind, all of which are hereby
expressly waived by each Borrower, and the obligation of each Lender to make any
Loan, the obligation of Agent to issue any Letter of Credit and the right of any
Lender to issue any Letter of Credit hereunder shall thereupon terminate, and
(ii) upon the occurrence and during the continuation of any other Event of
Default, Agent shall, upon the written request or with the written consent of
Requisite Lenders, by written notice to each Borrower, declare all or any
portion of the amounts described in clauses (a) through (c) above to be, and the
same shall forthwith become, immediately due and payable, and the obligation of
each Lender to make any Loan, the obligation of Agent to issue any Letter of
Credit and the right of any Lender to issue any Letter of Credit hereunder shall
thereupon terminate; provided that the foregoing shall not affect in any way the
obligations of Lenders under subsection 3.3C(i).
Any amounts described in clause (b) above, when received by Agent,
shall be held by Agent pursuant to the terms of the Collateral Account Agreement
and shall be applied as therein provided.
Notwithstanding anything contained in the second preceding paragraph,
if at any time within 60 days after an acceleration of the Loans pursuant to
such paragraph each Borrower shall pay all arrears of interest and all payments
on account of principal which shall have become due otherwise than as a result
of such acceleration (with interest on principal and, to the extent permitted by
law, on overdue interest, at the rates specified in this Agreement) and all
Events of Default and Potential Events of Default (other than non-payment of the
principal of and accrued interest on the Loans, in each case which is due and
payable solely by virtue of acceleration) shall be remedied or waived pursuant
to subsection
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10.6, then Requisite Lenders, by written notice to each Borrower, may at their
option rescind and annul such acceleration and its consequences; but such action
shall not affect any subsequent Event of Default or Potential Event of Default
or impair any right consequent thereon. The provisions of this paragraph are
intended merely to bind Lenders to a decision which may be made at the election
of Requisite Lenders and are not intended to benefit any Borrower and do not
grant any Borrower the right to require Lenders to rescind or annul any
acceleration hereunder, even if the conditions set forth herein are met.
Section 9. AGENT
9.1 Appointment.
BTCC is hereby appointed Agent hereunder and under the other Loan
Documents and each Lender hereby authorizes Agent to act as its agent in
accordance with the terms of this Agreement and the other Loan Documents. Agent
agrees to act upon the express conditions contained in this Agreement and the
other Loan Documents, as applicable. The provisions of this Section 9 are solely
for the benefit of Agent and Lenders and Borrowers shall have no rights as a
third party beneficiary of any of the provisions thereof. In performing its
functions and duties under this Agreement, Agent shall act solely as an agent of
Lenders and does not assume and shall not be deemed to have assumed any
obligation towards or relationship of agency or trust with or for any Borrower
or any of its Subsidiaries.
9.2 Powers and Duties; General Immunity.
A. Powers; Duties Specified. Each Lender irrevocably authorizes Agent to
take such action on such Lender's behalf and to exercise such powers, rights and
remedies hereunder and under the other Loan Documents as are specifically
delegated or granted to Agent by the terms hereof and thereof, together with
such powers, rights and remedies as are reasonably incidental thereto. Agent
shall have only those duties and responsibilities that are expressly specified
in this Agreement and the other Loan Documents. Agent may exercise such powers,
rights and remedies and perform such duties by or through its agents or
employees. Agent shall not have, by reason of this Agreement or any of the other
Loan Documents, a fiduciary relationship in respect of any Lender; and nothing
in this Agreement or any of the other Loan Documents, expressed or implied, is
intended to or shall be so construed as to impose upon Agent any obligations in
respect of this Agreement or any of the other Loan Documents except as expressly
set forth herein or therein.
B. No Responsibility for Certain Matters. Agent shall not be responsible to
any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral
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statements or in any financial or other statements, instruments, reports or
certificates or any other documents furnished or made by Agent to Lenders or by
or on behalf of any Borrower to Agent or any Lender in connection with the Loan
Documents and the transactions contemplated thereby or for the financial
condition or business affairs of any Borrower or any other Person liable for the
payment of any Obligations, nor shall Agent be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained in any of the Loan Documents or as to the use
of the proceeds of the Loans or the use of the Letters of Credit or as to the
existence or possible existence of any Event of Default or Potential Event of
Default. Anything contained in this Agreement to the contrary notwithstanding,
Agent shall not have any liability arising from confirmations of the amount of
outstanding Loans or the Letter of Credit Usage or the component amounts
thereof.
C. Exculpatory Provisions. Neither Agent nor any of its officers,
directors, employees or agents shall be liable to Lenders for any action taken
or omitted by Agent under or in connection with any of the Loan Documents except
to the extent caused by Agent's gross negligence or willful misconduct. If Agent
shall request instructions from Lenders with respect to any act or action
(including the failure to take an action) in connection with this Agreement or
any of the other Loan Documents, Agent shall be entitled to refrain from such
act or taking such action unless and until Agent shall have received
instructions from Requisite Lenders. Without prejudice to the generality of the
foregoing, (i) Agent shall be entitled to rely, and shall be fully protected in
relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for Company and its
Subsidiaries), accountants, experts and other professional advisors selected by
it; and (ii) no Lender shall have any right of action whatsoever against Agent
as a result of Agent acting or (where so instructed) refraining from acting
under this Agreement or any of the other Loan Documents in accordance with the
instructions of Requisite Lenders. Agent shall be entitled to refrain from
exercising any power, discretion or authority vested in it under this Agreement
or any of the other Loan Documents unless and until it has obtained the
instructions of Requisite Lenders.
D. Agent Entitled to Act as Lender. The agency hereby created shall in no
way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, Agent in its individual capacity as a Lender hereunder. With
respect to its participation in the Loans and the Letters of Credit, Agent shall
have the same rights and powers hereunder as any other Lender and may exercise
the same as though it were not performing the duties and functions delegated to
it hereunder, and the term "Lender" or "Lenders" or any similar term shall,
unless the context clearly otherwise indicates, include Agent in its individual
capacity. Agent and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of banking, trust, financial advisory or other
business with any Borrower or any of its Affiliates as if it were not performing
the duties specified herein, and may
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accept fees and other consideration from any Borrower for services in connection
with this Agreement and otherwise without having to account for the same to
Lenders.
9.3 Representations and Warranties; No Responsibility For Appraisal of Credit
worthiness.
Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of each
Borrower and its Subsidiaries in connection with the making of the Loans and the
issuance of Letters of Credit hereunder and that it has made and shall continue
to make its own appraisal of the creditworthiness of each Borrower and its
Subsidiaries. Agent shall not have any duty or responsibility, either initially
or on a continuing basis, to make any such investigation or any such appraisal
on behalf of Lenders or to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter, and Agent shall not have
any responsibility with respect to the accuracy of or the completeness of any
information provided to Lenders.
9.4 Right to Indemnity.
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify Agent, to the extent that Agent shall not have been reimbursed by
Borrowers, for and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including,
without limitation, counsel fees and disbursements) or disbursements of any kind
or nature whatsoever which may be imposed on, incurred by or asserted against
Agent in exercising its powers, rights and remedies or performing its duties
hereunder or under the other Loan Documents or otherwise in its capacity as
Agent in any way relating to or arising out of this Agreement or the other Loan
Documents; provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from Agent's gross negligence or
willful misconduct. If any indemnity furnished to Agent for any purpose shall,
in the opinion of Agent, be insufficient or become impaired, Agent may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished.
9.5 Successor Agent.
Agent may resign at any time by giving 30 days' prior written notice
thereof to Lenders and each Borrower, and Agent may be removed at any time with
or without cause by an instrument or concurrent instruments in writing delivered
to each Borrower and Agent and signed by Requisite Lenders. Upon any such notice
of resignation or any such removal, Requisite Lenders shall have the right, upon
five Business Days' notice to each Borrower, to appoint a successor Agent. Upon
the acceptance of any appointment as Agent hereunder by a successor Agent, that
successor Agent shall thereupon succeed to and become vested with
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all the rights, powers, privileges and duties of the retiring or removed Agent
and the retiring or removed Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Agent's
resignation or removal hereunder as Agent, the provisions of this Section 9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
9.6 Collateral Documents and Guaranties.
Each Lender hereby further authorizes Agent to enter into each
Collateral Document as secured party on behalf of and for the benefit of Lenders
and agrees to be bound by the terms of each Collateral Document; provided that,
subject to any provision of subsection 10.6 requiring the consent of any
additional Lenders, Agent shall not enter into or consent to any amendment,
modification, termination or waiver of any provision contained in any Collateral
Document or any Guaranty without the prior consent of Requisite Lenders, but
Agent may (i) release any Lien covering any items of Collateral that are the
subject of a sale or other disposition of assets permitted by this Agreement or
to which Requisite Lenders have consented and (ii) release any Guarantor (other
than any Borrower or Holdings) from its Guaranty if all of the capital stock of
such Guarantor is sold to a Person that is not any Affiliate of Company pursuant
to a sale or other disposition permitted hereunder or to which Requisite Lenders
have consented. Anything contained in any of the Loan Documents to the contrary
notwithstanding, each Lender agrees that no Lender shall have any right
individually to realize upon any of the Collateral under any Collateral Document
or to enforce any of the Guaranties, it being understood and agreed that all
rights and remedies under the Collateral Documents and the Guaranties may be
exercised solely by Agent for the benefit of Lenders in accordance with the
terms thereof.
Section 10. MISCELLANEOUS
10.1 Assignments and Participations in Loans and Letters of Credit.
A. General. Subject to subsection 10.1B, each Lender shall have the right
at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii)
sell participations to any Person in, all or any part of its Commitments or any
Loan or Loans made by it or its Letters of Credit or participations therein or
any other interest herein or in any other Obligations owed to it; provided that
no such sale, assignment, transfer or participation shall, without the consent
of Company, require Company to file a registration statement with the Securities
and Exchange Commission or apply to qualify such sale, assignment, transfer or
participation under the securities laws of any state; provided, further that no
such sale, assignment or transfer described in clause (i) above shall be
effective unless and until an Assignment Agreement effecting such sale,
assignment or transfer shall have been accepted by Agent and recorded in the
Register as provided in subsection 10.1B(ii); provided, further that no such
sale, assignment, transfer or participation of any Letter of Credit or any
participation therein
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may be made separately from a sale, assignment, transfer or participation of a
corresponding interest in the Working Capital Revolving Loan Commitment and the
Working Capital Revolving Loans of the Lender effecting such sale, assignment,
transfer or participation; and provided, further that no such sale, assignment,
transfer or participation may be made by a Lender to an Eligible Assignee
without a concurrent sale, assignment, transfer or participation to such
Eligible Assignee of the assigning Lender's proportionate share of the
commitments under the Hines I Credit Agreement. Except as otherwise provided in
this subsection 10.1, no Lender shall, as between Company and such Lender, be
relieved of any of its obligations hereunder as a result of any sale, assignment
or transfer of, or any granting of participations in, all or any part of its
Commitments or the Loans, the Letters of Credit or participations therein, or
the other Obligations owed to such Lender.
B. Assignments.
(i) Amounts and Terms of Assignments. Each Commitment, Loan, Letter of
Credit or participation therein, or other Obligation may (a) be assigned in
any amount to another Lender, or to an Affiliate of the assigning Lender or
another Lender, with the giving of notice to Company and Agent or (b) be
assigned in an aggregate amount of not less than $5,000,000 (or such lesser
amount as shall constitute the aggregate amount of the Commitments, Loans,
Letters of Credit and participations therein, and other Obligations of the
assigning Lender) to any other Eligible Assignee with the consent of Company
and Agent (which consent of Company and Agent shall not be unreasonably
withheld); provided that any such assignment by a Domestic Lender in
accordance with either clause (a) or (b) above shall effect a pro rata
assignment (based on the respective principal amounts thereof then
outstanding or in effect) of both the Acquisition Term Loan Commitment or
the Acquisition Term Loan of the assigning Domestic Lender, on the one hand,
and the Revolving Loan Commitment and the Revolving Loans of the assigning
Domestic Lender, on the other hand. To the extent of any such assignment in
accordance with either clause (a) or (b) above, the assigning Lender shall
be relieved of its obligations with respect to its Commitments, Loans,
Letters of Credit or participations therein, or other Obligations or the
portion thereof so assigned. The parties to each such assignment shall
execute and deliver to Agent, for its acceptance and recording in the
Register, an Assignment Agreement, together with a processing and
recordation fee of $3,500 and such forms, certificates or other evidence, if
any, with respect to United States federal income tax withholding matters as
the assignee under such Assignment Agreement may be required to deliver to
Agent pursuant to subsection 2.7B(iii)(a). Upon such execution, delivery,
acceptance and recordation, from and after the effective date specified in
such Assignment Agreement, (y) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment Agreement, shall have the rights
and obligations of a Lender hereunder and (z) the assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to
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such Assignment Agreement, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment
Agreement covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto; provided that, anything contained in any of the Loan Documents
to the contrary notwithstanding, if such Lender is the Issuing Lender with
respect to any outstanding Letters of Credit such Lender shall continue to
have all rights and obligations of an Issuing Lender with respect to such
Letters of Credit until the cancellation or expiration of such Letters of
Credit and the reimbursement of any amounts drawn thereunder). The
Commitments hereunder shall be modified to reflect the Commitment of such
assignee and any remaining Commitment of such assigning Lender and, if any
such assignment occurs after the issuance of the Notes hereunder, the
assigning Lender shall, upon the effectiveness of such assignment or as
promptly thereafter as practicable, surrender its applicable Notes to Agent
for cancellation, and thereupon new Notes shall be issued to the assignee
and/or to the assigning Lender, substantially in the form of Exhibit IV,
Exhibit V-A, Exhibit V-B or Exhibit VI annexed hereto, as the case may be,
with appropriate insertions, to reflect the new Commitments and/or
outstanding Term Loans, as the case may be, of the assignee and/or the
assigning Lender.
(ii) Acceptance by Agent; Recordation in Register. Upon its receipt of
an Assignment Agreement executed by an assigning Lender and an assignee
representing that it is an Eligible Assignee, together with the processing
and recordation fee referred to in subsection 10.1B(i) and any forms,
certificates or other evidence with respect to United States federal income
tax withholding matters that such assignee may be required to deliver to
Agent pursuant to subsection 2.7B(iii)(a), Agent shall, if Agent and Company
have consented to the assignment evidenced thereby (in each case to the
extent such consent is required pursuant to subsection 10.1B(i)), (a) accept
such Assignment Agreement by executing a counterpart thereof as provided
therein (which acceptance shall evidence any required consent of Agent to
such assignment), (b) record the information contained therein in the
Register, and (c) give prompt notice thereof to Company. Agent shall
maintain a copy of each Assignment Agreement delivered to and accepted by it
as provided in this subsection 10.1B(ii).
C. Participations. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (i) the extension of the scheduled final maturity date of any
Loan allocated to such participation, (ii) a reduction of the principal amount
of or the rate of interest payable on any Loan allocated to such participation,
(iii) the release of all or substantially all Collateral or (iv) the assignment
of the Credit Agreement by Holdings, and all amounts payable by Borrowers
hereunder (including without limitation amounts payable to such Lender pursuant
to subsections 2.6D, 2.7 and 3.6) shall be determined as if such Lender had not
sold such participation. Each Borrower and each Lender hereby acknowledges and
agrees that, solely for purposes of subsections
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10.4 and 10.5, (a) any participation will give rise to a direct obligation of
such Borrower to the participant and (b) the participant shall be considered to
be a "Lender".
D. Assignments to Federal Reserve Banks. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
10.1, any Lender may assign and pledge all or any portion of its Loans, the
other Obligations owed to such Lender, and its Notes to any Federal Reserve Bank
as collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank; provided that (i) no Lender shall, as between any Borrower and such
Lender, be relieved of any of its obligations hereunder as a result of any such
assignment and pledge and (ii) in no event shall such Federal Reserve Bank be
considered to be a "Lender" or be entitled to require the assigning Lender to
take or omit to take any action hereunder.
E. Information. Each Lender may furnish any information concerning
Company and its Subsidiaries in the possession of that Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject to subsection 10.19.
10.2 Expenses.
Whether or not the transactions contemplated hereby shall be
consummated, each Borrower agrees to jointly and severally pay promptly (i) all
the actual and reasonable costs and expenses of preparation of the Loan
Documents and any consents, amendments, waivers or other modifications thereto;
(ii) all the costs of furnishing all opinions by counsel for any Borrower
(including without limitation any opinions requested by Lenders as to any legal
matters arising hereunder) and of any Borrower's performance of and compliance
with all agreements and conditions on its part to be performed or complied with
under this Agreement and the other Loan Documents including, without limitation,
with respect to confirming compliance with environmental and insurance
requirements; (iii) the reasonable fees, expenses and disbursements of counsel
to Agent (including allocated costs of internal counsel) in connection with the
negotiation, preparation, execution and administration of the Loan Documents and
any consents, amendments, waivers or other modifications thereto and any other
documents or matters requested by any Borrower; (iv) all the actual costs and
reasonable expenses of creating and perfecting Liens in favor of Agent on behalf
of Lenders pursuant to the Loan Documents, including without limitation costs of
conducting record searches, examining Collateral, opening bank accounts,
depositing checks, receiving and transferring funds (including charges for
checks for which there are insufficient funds), costs of title insurance
premiums, real estate survey costs, and fees and taxes in connection with the
filing of financing statements, costs of preparing and recording Loan Documents,
fees and expenses of counsel for providing such opinions as Agent or Requisite
Lenders may reasonably request, and fees and expenses of legal counsel to Agent;
(v) all the actual costs and reasonable expenses of obtaining and reviewing any
appraisals provided for under this Agreement and any environmental audits or
reports provided for under this Agreement; (vi)
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all other actual and reasonable costs and expenses incurred by Agent in
connection with the syndication of the Commitments and the negotiation,
preparation and execution of the Loan Documents and any consents, amendments,
waivers or other modifications thereto and the transactions contemplated
thereby; and (vii) after the occurrence of an Event of Default, all costs and
expenses, including reasonable attorneys' fees (including allocated costs of
internal counsel) and costs of settlement, incurred by Agent and Lenders in
enforcing any Obligations of or in collecting any payments due from any Loan
Party hereunder or under the other Loan Documents by reason of such Event of
Default or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or
pursuant to any insolvency or bankruptcy proceedings.
10.3 Indemnity.
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated, each
Borrower agrees to defend, indemnify, pay and hold harmless Agent and Lenders,
and the officers, directors, employees, agents and affiliates of Agent and
Lenders (collectively called the "Indemnitees") from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including without limitation the reasonable fees and disbursements
of counsel for such Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened by any Person,
whether or not any such Indemnitee shall be designated as a party or a potential
party thereto), whether direct, indirect or consequential and whether based on
any federal, state or foreign laws, statutes, rules or regulations (including
without limitation securities and commercial laws, statutes, rules or
regulations and Environmental Laws), on common law or equitable cause or on
contract or otherwise, that may be imposed on, incurred by, or asserted against
any such Indemnitee, in any manner relating to or arising out of this Agreement
or the other Loan Documents or the Related Agreements or the transactions
contemplated hereby or thereby (including without limitation Lenders' agreement
to make the Loans hereunder or the use or intended use of the proceeds of any of
the Loans or the issuance of Letters of Credit hereunder or the use or intended
use of any of the Letters of Credit) or the statements contained in the
commitment letter delivered by any Lender to any Borrower with respect thereto
(collectively called the "Indemnified Liabilities"); provided that Borrower
shall not have any obligation to any Indemnitee hereunder with respect to any
Indemnified Liabilities to the extent such Indemnified Liabilities arise solely
from the gross negligence or willful misconduct of that Indemnitee as determined
by a final judgment of a court of competent jurisdiction. To the extent that the
undertaking to defend, indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, each Borrower shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them.
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Without limiting the generality of the foregoing, each Borrower further
agrees to fully and promptly pay, perform, discharge, defend (subject to
Indemnitee's selection of counsel), indemnify and hold harmless each Indemnitee
from and against any Indemnified Environmental Liabilities; provided that
Borrowers shall not have any obligation to any Indemnitee hereunder with respect
to any Indemnified Environmental Liabilities to the extent such Indemnified
Environmental Liabilities arise solely from the gross negligence or willful
misconduct of that Indemnitee as determined by a final judgment of a court of
competent jurisdiction. To the extent that the undertaking to defend, indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, each Borrower shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Environmental
Liabilities incurred by the Indemnitees or any of them. As used herein,
"Indemnified Environmental Liabilities" means any liabilities, obligations,
losses, damages (including, without limitation, natural resource damages),
penalties, actions, judgments, suits, claims (including Environmental Claims),
costs (including, without limitation, the costs of any investigation, study,
sampling, testing, abatement, cleanup, removal, remediation, or other response
action necessary to remove, remediate, clean up, or abate any Hazardous
Materials or any activity relating to Hazardous Materials that is in violation
of any Environmental Laws or that presents a material risk of giving rise to an
Environmental Claim), expenses and disbursements of any kind or nature
whatsoever, whether direct, indirect or consequential and whether based on any
federal, state or foreign laws, statutes, rules or regulations (including
without limitation securities and commercial laws, statutes, rules or
regulations and Environmental Laws), on common law or equitable cause or on
contract or otherwise, that may be imposed on, incurred by, or asserted against
any such Indemnitee, in any manner relating to or arising out of: (i) any
Release, threatened Release or disposal of any Hazardous Materials at any of the
Facilities; (ii) the Release, threatened Release, or disposal at any location of
any Hazardous Materials generated at or originating from any of the Facilities
by or at the direction of Company or any of its Subsidiaries; (iii) any
Environmental Claim in connection with any of the Facilities; or (iv) the
operation of or violation of any Environmental Law at any of the Facilities.
10.4 Set-Off; Security Interest in Deposit Accounts.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence of any
Event of Default and consultation with Agent each Lender is hereby authorized by
each Borrower at any time or from time to time, without notice to any Borrower
or to any other Person, any such notice being hereby expressly waived, to set
off and to appropriate and to apply any and all deposits (general or special,
including, but not limited to, Indebtedness evidenced by certificates of
deposit, whether matured or unmatured, but not including trust accounts) and any
other Indebtedness at any time held or owing by that Lender to or for the credit
or the account of such Borrower against and on account of the obligations and
liabilities of such Borrower to that Lender under this Agreement, the Letters of
Credit and participations therein and the
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other Loan Documents, including, but not limited to, all claims of any nature or
description arising out of or connected with this Agreement, the Letters of
Credit and participations therein or any other Loan Document, irrespective of
whether or not (i) that Lender shall have made any demand hereunder or (ii) the
principal of or the interest on the Loans or any amounts in respect of the
Letters of Credit or any other amounts due hereunder shall have become due and
payable pursuant to Section 8 and although said obligations and liabilities, or
any of them, may be contingent or unmatured. Each Borrower hereby further grants
to Agent and each Lender a security interest in all deposits and accounts
maintained with Agent or such Lender as security for the Obligations.
10.5 Ratable Sharing.
A. Amounts Owed by Company. Domestic Lenders hereby agree among
themselves that if any of them shall, whether by voluntary payment, by
realization upon security, through the exercise of any right of set-off or
banker's lien, by counterclaim or cross action or by the enforcement of any
right under the Loan Documents or otherwise, or as adequate protection of a
deposit treated as cash collateral under the Bankruptcy Code or under any other
Insolvency Laws, receive payment or reduction of a proportion of the aggregate
amount of principal, interest, amounts payable in respect of Letters of Credit,
fees and other amounts then due and owing to that Domestic Lender from Company
(and not from Lakeland Canada) hereunder or under the other Loan Documents
(collectively, the "Aggregate Amounts Due From Company" to such Lender) which is
greater than the proportion received by any other Domestic Lender in respect of
the Aggregate Amounts Due From Company to such other Domestic Lender, then the
Domestic Lender receiving such proportionately greater payment shall (i) notify
Agent and each other Domestic Lender of the receipt of such payment and (ii)
apply a portion of such payment to purchase participations (which it shall be
deemed to have purchased from each seller of a participation simultaneously upon
the receipt by such seller of its portion of such payment) in the Aggregate
Amounts Due From Company to the other Domestic Lenders so that all such
recoveries of Aggregate Amounts Due From Company shall be shared by all Domestic
Lenders in proportion to the Aggregate Amounts Due From Company to them;
provided that if all or part of such proportionately greater payment received by
such purchasing Domestic Lender is thereafter recovered from such Domestic
Lender upon the bankruptcy or reorganization of Company or otherwise, those
purchases shall be rescinded and the purchase prices paid for such
participations shall be returned to such purchasing Domestic Lender ratably to
the extent of such recovery, but without interest. Company expressly consents to
the foregoing arrangement and agrees that any holder of a participation so
purchased may exercise any and all rights of banker's lien, set-off or
counterclaim with respect to any and all monies owing by Company to that holder
with respect thereto as fully as if that holder were owed the amount of the
participation held by that holder.
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B. Amounts Owed By Lakeland Canada. Canadian Lenders hereby agree
among themselves that if any of them shall, whether by voluntary payment, by
realization upon security, through the exercise of any right of set-off or
banker's lien, by counterclaim or cross action or by the enforcement of any
right under the Loan Documents or otherwise, or as adequate protection of a
deposit treated as cash collateral under any applicable Insolvency Laws, receive
payment or reduction of a proportion of the aggregate amount of principal,
interest, fees and other amounts then due and owing to that Lender hereunder or
under the other Loan Documents from Lakeland Canada (collectively, the
"Aggregate Amounts Due From Lakeland Canada" to such Lender) which is greater
than the proportion received by any other Canadian Lender in respect of the
Aggregate Amounts Due From Lakeland Canada to such other Canadian Lender, then
the Canadian Lender receiving such proportionately greater payment shall (i)
notify Agent and each other Canadian Lender of the receipt of such payment and
(ii) apply a portion of such payment to purchase participations (which it shall
be deemed to have purchased from each seller of a participation simultaneously
upon the receipt by such seller of its portion of such payment) in the Aggregate
Amounts Due From Lakeland Canada to the other Lenders so that all such
recoveries of Aggregate Amounts Due From Lakeland Canada shall be shared by all
Canadian Lenders in proportion to the Aggregate Amounts Due From Lakeland Canada
to them (as calculated prior to such recovery); provided that if all or part of
such proportionately greater payment received by such purchasing Lender is
thereafter recovered from such Canadian Lender upon the bankruptcy or
reorganization of Lakeland Canada or otherwise, those purchases shall be
rescinded and the purchase prices paid for such participations shall be returned
to such purchasing Lender ratably to the extent of such recovery, but without
interest. Lakeland Canada expressly consents to the foregoing arrangement and
agrees that any holder of a participation so purchased may exercise any and all
rights of banker's lien, set-off or counterclaim with respect to any and all
monies owing by Lakeland Canada to that holder with respect thereto as fully as
if that holder were owed the amount of the participation held by that holder.
10.6 Amendments and Waivers.
No amendment, modification, termination or waiver of any provision of
this Agreement or of the Notes, and no consent to any departure by any Borrower
therefrom, shall in any event be effective without the written concurrence of
Requisite Lenders; provided that any such amendment, modification, termination,
waiver or consent which: increases the amount of any of the Commitments or
reduces the principal amount of any of the Loans; changes in any manner the
definition of "Pro Rata Share" or the definition of "Requisite Lenders"; changes
in any manner the provisions contained in the second paragraph of subsection
2.1C(ii); changes in any manner any provision of this Agreement which, by its
terms, expressly requires the approval or concurrence of all Lenders; postpones
the scheduled final maturity date (but not the date of any scheduled installment
of principal) of any of the Loans; postpones the date on which any interest or
any fees are payable; decreases the interest rate borne by any of the Loans
(other than any waiver of any increase
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in the interest rate applicable to any of the Loans pursuant to subsection 2.2E)
or the amount of any fees payable hereunder; increases the maximum duration of
Interest Periods permitted hereunder; releases all or substantially all of the
Collateral other than in accordance with the terms of the Loan Documents;
reduces the amount or postpones the due date of any amount payable in respect
of, or extends the required expiration date of, any Letter of Credit; changes in
any manner the obligations of Lenders relating to the purchase of participations
in Letters of Credit; increases the advance rates provided for in the definition
of "Borrowing Base" to any level above the advance rates in effect as of the
Closing Date; or changes in any manner the provisions contained in subsection
8.1 or this subsection 10.6 shall be effective only if evidenced by a writing
signed by or on behalf of all Lenders. In addition, (i) any amendment,
modification, termination or waiver of any of the provisions contained in
Section 4 shall be effective only if evidenced by a writing signed by or on
behalf of Agent and Requisite Lenders, (ii) no amendment, modification,
termination or waiver of any provision of any Note shall be effective without
the written concurrence of the Lender which is the holder of that Note, (iii) no
amendment, modification, termination or waiver of any provision of Section 9 or
of any other provision of this Agreement which, by its terms, expressly requires
the approval or concurrence of Agent shall be effective without the written
concurrence of Agent, and (iv) no amendment, modification, termination or waiver
of any provision of subsection 2.4 which has the effect of changing any interim
scheduled payments, voluntary or mandatory prepayments, or Commitment reductions
applicable to either Class (the "Affected Class") in a manner that
disproportionately disadvantages such Class relative to the other Class shall be
effective without the written concurrence of Requisite Class Lenders of the
Affected Class (it being understood and agreed that any amendment, modification,
termination or waiver of any such provision which only postpones or reduces any
interim scheduled payment, voluntary or mandatory prepayment, or Commitment
reduction from those set forth in subsection 2.4 with respect to one Class but
not the other Class shall be deemed to disproportionately disadvantage such one
Class but not to disproportionately disadvantage such other Class for purposes
of this clause (iv)). Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on any Borrower in any case shall entitle such Borrower to
any other or further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this subsection 10.6 shall be binding upon each Lender at the time
outstanding, each future Lender and, if signed by any Borrower, on such
Borrower.
10.7 Independence of Covenants.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another
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covenant shall not avoid the occurrence of an Event of Default or Potential
Event of Default if such action is taken or condition exists.
10.8 Notices.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States or
Canadian mail or courier service and shall be deemed to have been given when
delivered in person or by courier service, upon receipt of telefacsimile or
telex, or three Business Days after depositing it in the United States or
Canadian mail with postage prepaid and properly addressed; provided that notices
to Agent shall not be effective until received. For the purposes hereof, the
address of each party hereto shall be as set forth under such party's name on
the signature pages hereof or (i) as to Borrowers and Agent, such other address
as shall be designated by such Person in a written notice delivered to the other
parties hereto and (ii) as to each other party, such other address as shall be
designated by such party in a written notice delivered to Agent.
10.9 Survival of Representations, Warranties and Agreements.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Borrowers set forth in subsections 2.6D, 2.7, 3.5A,
3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections
9.2C, 9.4 and 10.5 shall survive the payment of the Loans, the cancellation or
expiration of the Letters of Credit and the reimbursement of any amounts drawn
thereunder, and the termination of this Agreement.
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of Agent or any Lender in the exercise
of any power, right or privilege hereunder or under any other Loan Document
shall impair such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other power, right or privilege. All rights and remedies existing under
this Agreement and the other Loan Documents are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
10.11 Marshalling; Payments Set Aside.
Neither Agent nor any Lender shall be under any obligation to marshal
any assets in favor of any Borrower or any other party or against or in payment
of any or all of
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the Obligations. To the extent that any Borrower makes a payment or payments to
Agent or Lenders (or to Agent for the benefit of Lenders), or Agent or Lenders
enforce any security interests or exercise their rights of setoff, and such
payment or payments or the proceeds of such enforcement or setoff or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, any other state or federal law, common law or any
equitable cause, then, to the extent of such recovery, the obligation or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor or related thereto, shall be revived and continued in full force and
effect as if such payment or payments had not been made or such enforcement or
setoff had not occurred.
10.12 Severability.
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby.
10.13 Obligations Several; Independent Nature of Lenders' Rights.
The obligations of Lenders hereunder are several and no Lender shall be
responsible for the obligations or Commitments of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
10.14 Headings.
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.15 Applicable Law.
THIS AGREEMENT 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.
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10.16 Successors and Assigns.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 10.1). None of any
Borrower's rights or obligations hereunder nor any interest therein may be
assigned or delegated by any Borrower without the prior written consent of all
Lenders.
10.17 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY BORROWER ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OBLIGATION MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH BORROWER ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT, SUCH OTHER LOAN DOCUMENT OR SUCH
OBLIGATION. Each Borrower hereby agrees that service of all process in any such
proceeding in any such court may be made by registered or certified mail, return
receipt requested, to such Borrower at its address provided in subsection 10.8,
such service being hereby acknowledged by such Borrower to be sufficient for
personal jurisdiction in any action against such Borrower in any such court and
to be otherwise effective and binding service in every respect. Nothing herein
shall affect the right to serve process in any other manner permitted by law or
shall limit the right of any Lender to bring proceedings against any Borrower
in the courts of any other jurisdiction.
10.18 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver
is intended to be all-encompassing of any and all disputes that may be filed in
any court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims and all
other common law and statutory claims. Each party hereto acknowledges that this
waiver is a material inducement
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to enter into a business relationship, that each has already relied on this
waiver in entering into this Agreement, and that each will continue to rely on
this waiver in their related future dealings. Each party hereto further warrants
and represents that it has reviewed this waiver with its legal counsel and that
it knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
SPECIFICALLY REFERRING TO THIS SUBSECTION 10.18 AND EXECUTED BY EACH OF THE
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS
MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
10.19 Confidentiality.
Each Lender shall hold all non-public information obtained pursuant to
the requirements of this Agreement which has been identified as confidential by
any Borrower in accordance with such Lender's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, it being understood and agreed by each Borrower that in any
event a Lender may make disclosures to Affiliates of such Lender or disclosures
reasonably required by any bona fide assignee, transferee or participant in
connection with the contemplated assignment or transfer by such Lender of any
Loans or any participations therein or disclosures required or requested by any
governmental agency or representative thereof or pursuant to legal process;
provided that, unless specifically prohibited by applicable law or court order,
each Lender shall notify Company of any request by any governmental agency or
representative thereof (other than any such request in connection with any
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information; and provided, further that in no event shall any Lender be
obligated or required to return any materials furnished by Company or any of its
Subsidiaries.
10.20 Judgment Currency.
(a) If, for the purposes of obtaining judgment in any court, it is
necessary to convert a sum due hereunder in any currency (the "Original
Currency") into another currency (the "Other Currency"), the parties hereto
agree, to the fullest extent permitted by law, that the rate of exchange used
shall be that at which in accordance with normal banking procedures the Agent
could purchase the Original Currency with the Other Currency on the Business Day
immediately preceding the day on which any such judgment, or any relevant part
thereof, is paid or otherwise satisfied.
158
<PAGE>
(b) The obligations of each Borrower in respect of any sum due from it
to the Lenders hereunder shall, notwithstanding any judgment in such Other
Currency, be discharged only to the extent that on the Business Day following
receipt by the Agent of any sum adjudged to be so due in the Other Currency the
Agent may in accordance with normal banking procedures purchase the Original
Currency with the Other Currency; if the Original Currency so purchased is less
than the sum originally due to the Lenders in the Original Currency, such
Borrower agrees, as a separate obligation and notwithstanding any such judgment,
to indemnify the Lenders against such loss, and if the amount of the Original
Currency so purchased exceeds the sum originally due to the Lenders in the
Original Currency, the Lenders shall remit such excess to such Borrower.
10.21 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents or supplements
hereto or in connection herewith 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 Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by each Borrower
and Agent of written or telephonic notification of such execution and
authorization of delivery thereof.
[Remainder of page intentionally left blank]
159
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.
BORROWER:
HINES II, INC.
By: /s/ Claudia Pieropan
------------------------------------------
Title: C.F.O.
---------------------------------------
Notice Address:
S-1
<PAGE>
LENDERS:
BT COMMERCIAL CORPORATION,
as a Domestic Lender and as Agent
By: /s/ Richard Faulkner
------------------------------------------
Title: Associate
---------------------------------------
Notice:
BT Commercial Corporation
300 South Grand Avenue
Suite 4100
Los Angeles, CA 90045
Attention: Richard Faulkner
Telecopy No.: 213-620-8394
Domestic Lending Office:
14 Wall Street, 3rd Floor
New York, New York 10005
Attention: Bharathi Baliga
Telecopy No.: 212-618-2428
Eurodollar Lending Office:
14 Wall Street, 3rd Floor
New York, New York 10005
Attention: Bharathi Baliga
Telecopy No.: 212-618-2428
S-2
<PAGE>
BT BANK OF CANADA,
as a Canadian Lender
By: /s/ James E. Kellar
----------------------------------------
Title: Vice President
-------------------------------------
By: /s/ D. R. Gates
----------------------------------------
Title: Managing Director
-------------------------------------
Notice Address:
200 Bay Street
Suite 1700
Royal Bank Plaza, North Tower
Toronto, Ontario M5J 2J2
Attention: Marcellus Leung
Telecopy No.:
S-3
<PAGE>
BANKERS TRUST COMPANY,
as an Issuing Lender
By: signature illegible
----------------------------------------
Title: Principal
-------------------------------------
Notice Address:
14 Wall Street, 3rd Floor
New York, New York 10005
Attention: Bharathi Baliga
Telecopy No.: 212-618-2428
S-4
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By: /s/ Karen Knudsen
----------------------------------------
Title: Vice President
-------------------------------------
S-5
<PAGE>
FLEET NATIONAL BANK,
as a Domestic Lender
By: /s/ Adan B. Tweedy
----------------------------------------
Title: Assistant Vice President
-------------------------------------
S-6
<PAGE>
LASALLE NATIONAL BANK,
as a Domestic Lender
By: /s/ Ward Nixon
----------------------------------------
Title: Senior Vice President
-------------------------------------
S-7
<PAGE>
NATIONSBANK OF TEXAS, N.A.,
as a Domestic Lender and Canadian Lender
By: signature illegible
----------------------------------------
Title: Vice President
-------------------------------------
S-8
<PAGE>
UNION BANK OF CALIFORNIA, N.A.,
as a Domestic Lender and Canadian Lender
By: /s/ Martin Valencia
----------------------------------------
Title: Vice President
-------------------------------------
S-9
<PAGE>
BANK OF MONTREAL,
as a Canadian Lender
By: /s/ Merv McCune
----------------------------------------
Title: Senior Account Manager
-------------------------------------
<PAGE>
WELLS FARGO BANK, NATIONAL
ASSOCIATION,
as a Domestic Lender and Canadian Lender
By: signature illegible
----------------------------------------
Title: Vice President
-------------------------------------
<PAGE>
EXHIBIT 4.22
HINES II, INC.
FIRST AMENDMENT
TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as
of February 10, 1998 and entered into by and among HINES II, INC. ("Company"),
the financial institutions listed on the signature pages hereof ("Lenders") and
BT COMMERCIAL CORPORATION, as Agent for Lenders ("Agent"), and is made with
reference to that certain Credit Agreement dated as of December 16, 1997 (the
"Credit Agreement") among Company, Lenders and Agent. 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 amend the Credit Agreement to
extent the expiration date of the Canadian Lenders' Canadian Commitments; and
WHEREAS, Company, Lenders and Agent desire to amend the Credit
Agreement to extend the expiration date of the Canadian Lenders' Canadian
Commitments;
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 1: Definitions
Subsection 1.1 of the Credit Agreement is hereby amended by
deleting the date "January 31, 1998" from the definition of Canadian Loan
funding date contained therein and substituting the date "March 31, 1998"
therefor.
1
<PAGE>
1.2 Amendments to Section 2: Amounts and Terms of Commitments and
Loans
Subsection 2.1A(ii) of the Credit Agreement is hereby amended by
deleting the date "February 15, 1998" contained therein and substitution
"March 31, 1998" therefor.
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 "First Amendment
Effective Date"):
A. On or before the First Amendment Effective Date, Company shall
deliver to Lenders (or to Agent for Lenders) executed copies of this Amendment.
B. Agent shall have received copies of this Amendment executed by
Requisite Lenders.
C. Company shall pay or cause to be paid to Agent for distribution to
each Canadian Lender the commitment fees required by subsection 2.3A(iii) of the
Credit Agreement.
D. On or before the First 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 3. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. Corporate Power and Authority. Company 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").
2
<PAGE>
B. Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreement has been duly authorized
by all necessary corporate action on the part of Company.
C. Signature and Incumbency. The signature and incumbency
certificates of officers of Company delivered in connection with the Amendment
correctly reflect, as of the First Amendment Effective Date, the signature and
incumbency of each officer of Company executing this Amendment.
D. No Conflict. After giving effect to the amendment effected
hereby, the execution and delivery by Company of this Amendment and the
performance by Company do not and will not (i) violate any provision of any law
or any governmental rule or regulation applicable to Company or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company
or any of its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on Company 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 Company 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 Company 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 Company or any of
its Subsidiaries, except for such approvals or consents which have been obtained
on or before the First Amendment Effective Date and disclosed in writing to
Lenders.
E. Governmental Consents. The execution and delivery by Company of
this Amendment and the performance by Company 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.
F. Binding Obligation. This Amendment has been duly executed and
delivered by Company and this Amendment and the Amended Agreement are the
legally valid and binding obligations of Company, enforceable against Company 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.
G. Incorporation of Representations and Warranties From Credit
Agreement. After giving effect to the amendments effected hereby, the
representations and warranties contained in Section 5 of the Credit Agreement
are and will be true, correct and complete in all material respects on and as of
the First 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.
3
<PAGE>
H. Absence of Default. After giving effect to the amendments
effected hereby, 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. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(i) On and after the First 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.
4
<PAGE>
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.
5
<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 II, INC.
By: /s/ Claudia Pieropan
------------------------------
Title: CFO
---------------------------
LENDERS:
BT COMMERCIAL CORPORATION, as a Domestic
Lender and as Agent
By: signature illegible
------------------------------
Title: Associate
---------------------------
BT BANK OF CANADA,
as a Canadian Lender
By: /s/ James E. Kellar
------------------------------
Title: Vice President
---------------------------
By: /s/ Robert S. Vogtle
------------------------------
Title: Vice President and Chief
---------------------------
Financial Officer
----------------------------------
S-1
<PAGE>
BANKERS TRUST COMPANY,
as an Issuing Lender
By: signature illegible
------------------------------
Title: Principal
---------------------------
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By: /s/ Karen Knuds
------------------------------
Title: Vice President
---------------------------
FLEET NATIONAL BANK,
as a Domestic Lender
By: signature illegible
------------------------------
Title: Assistant Vice President
---------------------------
LASALLE NATIONAL BANK,
as a Domestic Lender
By: signature illegible
------------------------------
Title: First Vice President
---------------------------
NATIONSBANK OF TEXAS, N.A.,
as a Domestic Lender and Canadian Lender
By: signature illegible
------------------------------
Title: Vice President
---------------------------
S-2
<PAGE>
UNION BANK OF CALIFORNIA, N.A.,
as a Domestic Lender and Canadian Lender
By: /s/ Martin P. Valencia
------------------------------
Title: Vice President
---------------------------
BANK OF MONTREAL,
as a Canadian Lender
By: signature illegible
------------------------------
Title:
----------------------------
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as a Domestic Lender and Canadian Lender
By: signature illegible
------------------------------
Title: Vice President
---------------------------
S-3
<PAGE>
EXHIBIT 4.23
HINES II, INC.
SECOND AMENDMENT AND CONSENT
TO CREDIT AGREEMENT AND FIRST AMENDMENT
TO HOLDINGS GUARANTY
This SECOND AMENDMENT AND CONSENT TO CREDIT AGREEMENT AND FIRST AMENDMENT TO
HOLDINGS GUARANTY (this "Amendment") is dated as of March 9, 1998 and entered
into by and among HINES II, INC. ("Company"), the financial institutions listed
on the signature pages hereof ("Lenders") and BT COMMERCIAL CORPORATION, as
Agent for Lenders ("Agent"), and is made with reference to that certain Credit
Agreement dated as of December 16, 1997, as amended by that certain First
Amendment to Credit Agreement dated as of February 10, 1998 (as so amended, the
"Credit Agreement") among Company, 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, Lenders and Holdings desire to amend the Credit
Agreement and certain other Loan Documents to permit (i) Holdings to issue
certain promissory notes as partial consideration for an acquisition to be made
by Company, (ii) to modify the time at which each Lender shall be required to
maintain the same Pro Rata Share as under the Hines I Credit Agreement and (iii)
certain other amendments as provided for herein;
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 1: Definitions
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:
"'Alberta Ltd.' means 763427 Alberta Ltd., an Alberta
corporation."
"'Lakeland Stock Purchase Agreement' means that certain Stock
Purchase Agreement dated as of March __, 1998 by and among Company and
the sellers named on the signature pages thereto."
<PAGE>
"'Lakeland U.S.' means Lakeland U.S., Inc., a Delaware
corporation."
B. Subsection 1.1 of the Credit Agreement is hereby amended by
deleting the definition of Lakeland Canada in its entirety and substituting
the following therefor:
"means Lakeland Peat Moss Ltd., an Alberta corporation and for
purposes of borrowings to be made on the Canadian Funding Date,
Lakeland Canada shall also mean Alberta Ltd., a wholly owned Subsidiary
of Company."
1.2 Amendments to Section 2: Amounts and Terms of Commitments and
Loans
A. Commitments. Subsection 2.1A(ii) of the Credit Agreement is hereby
amended by deleting the reference to "Company" contained in the second to
last sentence and substituting "Lakeland Canada" therefor.
B. Borrowing Mechanics. Subsection 2.1B of the Credit Agreement is
hereby amended (1) by adding the phrase "or Canadian Base Rate Loans" after
(i) "Base Rate Loans" in the second sentence, (2) by replacing "(vi)" and
"(vii)" with "(vii)" and "(viii)", respectively, (3) by inserting the
following clause "(vi) in the case of Canadian Loans not made on the Closing
Date, whether such Loans shall be Canadian Base Rate Loans or Canadian
Eurodollar Rate Loans," in its appropriate numerical position and (4) by
adding the phrase "or Canadian Eurodollar Rate Loans" after the phrase "(in
the case of a Eurodollar Rate Loan)" in the third sentence and after the
phrase "made as Eurodollar Rate Loans" in the fourth sentence.
C. Disbursement of Funds. Subsection 2.1C of the Credit Agreement is
hereby amended by adding the phrase "or Canadian Base Rate Loans, as the
case may be" at the end of the second to last sentence of the last paragraph
of this subsection.
D. Rate of Interest. Subsection 2.2A is hereby amended (1) by
inserting the word "Canadian" before the words "Base Rate" at its first two
occurrences in subsection 2.2A(iii)(a), (2) by inserting the "Canadian"
before the word "Eurodollar Rate" at its first occurrence in subsection
2.2A(iii)(b) and, as applied to the last paragraph of subsection 2.2A, (3)
by inserting the word "Margin" after the words "Applicable Canadian Base
Rate", (4) by replacing the phrase "more favorable to Company" with "more
favorable to a Borrower", (5) by replacing the phrase "Company shall
promptly pay" with "such Borrower shall promptly pay" and (6) by replacing
the phrase "If Company fails" with "If a Borrower fails" at the start of the
second sentence.
<PAGE>
E. Interest Periods. Subsection 2.2B is hereby amended by replacing
in the first sentence of subsection 2.2B, (1) the word "Company" with "a
Borrower" and (2) the words "Company's option" with "such Borrower's
option."
F. Commitment Fees. Subsection 2.3A is hereby amended by inserting
the word "Canadian" immediately before the word "Agent" in the first
sentence of subsection 2.3A(iii).
G. General Provisions Regarding Payment. Subsection 2.3C is hereby
amended by inserting the word "Canadian" immediately before the word "such"
in the second sentence of subsection 2.3C(iii).
H. Compensation for Breakage or Non-Commencement of Interest Periods.
Subsection 2.6D is hereby amended by replacing the word "Company" with "the
applicable Borrower" in subsection 2.6D(iv).
1.3 Amendments to Section 4: Conditions to Issuance of Canadian Loans
A. Lakeland Canada Documents. Subsection 4.4A is hereby amended (1)
by inserting the word "Canadian" before every occurrence of the word
"Lender" or "Agent" and, as applied to subsection 4.4A(i) only, (2) by
deleting the first occurrence of the words "good standing" and adding
immediately after the first occurrence of the word "certificate" the
following phrase "of status, compliance or good standing, as applicable."
B. Guarantor Subsidiary Documents. Subsection 4.4B is hereby amended
(1) by inserting the word "Canadian" before every occurrence of the word
"Lender" or "Agent" and, as applied to subsection 4.4A(i) only, (2) by
deleting the first occurrence of the words "good standing" and adding
immediately after the first occurrence of the word "certificate" the
following phrase "of status, compliance or good standing, as applicable."
C. Security Interests in Personal and Mixed Property. Subsection 4.4D
is hereby amended (1) by inserting the phrase "other than any peat related
licenses granted to Lakeland Canada or its Subsidiaries by any governmental
authority, in respect of which Lakeland Canada shall have used its best
efforts to obtain an assignment of such licenses or an acknowledgement of
Agent's security interest in the same" immediately after the word Collateral
in the first sentence of subsection 4.4D, (2) by replacing the word "and"
with "and/or" in subsection 4.4D(ii) and (3) by inserting the word
"Canadian" before "Lenders" in subsection 4.4D(v).
<PAGE>
D. Completion of Proceedings. Subsection 4.4I is hereby amended by
adding the following sentence at the end thereof: "To the extent not
satisfied on the Canadian Loan Funding Date and to the extent approved in
writing by Agent, Lakeland Canada may deliver documents and take actions
otherwise required to be delivered or taken on the Canadian Loan Funding
Date within 30 days thereafter or such longer period of time as may be
approved by Agent."
1.4 Amendments to Section 6: Borrower's Affirmative Covenants
Subsection 6.10 is hereby amended by deleting the words "Closing Date"
and substituting "Canadian Loan Funding Date" therefor.
1.5 Amendments to Section 7: Borrower's Negative Covenants
Subsection 7.9 is hereby amended by inserting the clause "or leases
from governmental authorities required for the peat business" immediately
after the word "Subsidiaries" in subsection 7.9(i).
1.6 Amendments to Section 8: Events of Default
Subsection 8.16 is hereby amended by replacing subsection 8.16 with the
following:
"8.16 Conduct of Business Relating to Holdings.
Holdings shall not engage in any business other than (i) owning
the capital stock of Company, Hines Horticulture Inc. and their
respective Subsidiaries, (ii) entering into and performing its
obligations under and in accordance with the Loan Documents and the
Related Agreements to which it is a party, (iii) issuing preferred
stock and/or stock warrants to Abbot Capital 1330 Investors 1, LP and
issuing promissory notes in favor of the sellers of Lakeland Canada in
connection with the acquisition of Lakeland Canada and its Subsidiaries
by Company or (iv) owning as its only assets (a) the capital stock of
Company, Hines Horticulture Inc. and their Subsidiaries and (b) Cash
and Cash Equivalents in an amount not to exceed $100,000 at any one
time for the purpose of paying general operating expenses. Holdings
shall directly engage in any business or activities other than those
activities necessary to discharge its obligations as a holding company
for Company and Hines Horticulture Inc.;"
<PAGE>
Section 2. AMENDMENT TO THE HOLDINGS GUARANTY
Amendment to Section 4: Covenants.
Subsection 4.4 of the Holdings Guaranty is hereby amended by replacing
subsection 4.4 with the following:
"4.4 Conduct of Business.
Guarantor shall engage only in the business of (i) owning the
capital stock of Company, Hines Horticulture Inc. and their respective
Subsidiaries, (ii) entering into and performing its obligations under
and in accordance with the Loan Documents and Related Agreements to
which it is a party and (iii) issuing preferred stock and/or stock
warrants to Abbot Capital 1330 Investors 1, LP and issuing promissory
notes in favor of the sellers of Lakeland Canada in connection with the
acquisition of Lakeland Canada and its Subsidiaries by Company.
Guarantor shall own no assets other than (a) the capital stock of
Company, Hines Horticulture Inc. and their Subsidiaries and (b) Cash
and Cash Equivalents in an amount not to exceed $100,000 at any one
time for the purpose of paying its general operating expenses.
Guarantor shall not directly engage in any business and shall limit its
activities to those activities necessary to discharge its obligations
as a holding company for Company and Hines Horticulture Inc."
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 acknowledge and consent that a Master Assignment Agreement by and
among Company, Agent and Lenders reallocating each Lender's Pro Rata Share of
the Commitments to equal such Lender's Pro Rata Share under the Hines I Credit
Agreement will be executed as of the Canadian Loan Funding Date and not by the
Closing Date as originally required under the Credit Agreement (it being
understood that the date for determining the Pro Rata Share of the Commitments
under the Hines I Credit Agreement of LaSalle National Bank and ABN AMRO Bank
N.V., its Canadian lending Affiliate, shall be April 31, 1998 and not the
Canadian Funding Date);
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 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; or
<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
Section 1, 2 and 3 of this Amendment and Consent 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 "Second
Amendment Effective Date"):
A. On or before the Second Amendment Effective Date, Company shall
deliver to Lenders (or to Agent for Lenders) executed copies of this Amendment.
B. Agent shall have received copies of this Amendment executed by
Requisite Lenders.
C. On or before the Second 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. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. Corporate Power and Authority. Company 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 has been duly authorized
by all necessary corporate action on the part of Company.
<PAGE>
C. Signature and Incumbency. The signature and incumbency
certificates of officers of Company delivered in connection with the Amendment
correctly reflect, as of the Second Amendment Effective Date, the signature and
incumbency of each officer of Company executing this Amendment.
D. No Conflict. After giving effect to the amendment effected
hereby, the execution and delivery by Company of this Amendment and the
performance by Company do not and will not (i) violate any provision of any law
or any governmental rule or regulation applicable to Company or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company
or any of its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on Company 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 Company 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 Company 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 Company or any of
its Subsidiaries, except for such approvals or consents which have been obtained
on or before the Second Amendment Effective Date and disclosed in writing to
Lenders.
E. Governmental Consents. The execution and delivery by Company of
this Amendment and the performance by Company 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.
F. Binding Obligation. This Amendment has been duly executed and
delivered by Company and this Amendment and the Amended Agreement are the
legally valid and binding obligations of Company, enforceable against Company 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.
G. Incorporation of Representations and Warranties From Credit
Agreement. After giving effect to the amendments effected hereby, the
representations and warranties contained in Section 5 of the Credit Agreement
are and will be true, correct and complete in all material respects on and as of
the Second 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.
H. Absence of Default. After giving effect to the amendments
effected hereby, 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.
<PAGE>
Section 6. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(i) On and after the Second 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.
<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 II, INC.
By: /s/ Paul R. Wood
----------------
Title:
LENDERS:
BT COMMERCIAL CORPORATION, as a Domestic
Lender and as Agent
By: signature illegible
-------------------
Title: associate
---------
BT BANK OF CANADA,
as a Canadian Lender
By: /s/ James E. Kellar V.P.
------------------------
Title: Vice President
By: /s/ Robert S. Vogtle
--------------------
Title: Vice President/ CFO
-------------------
BANKERS TRUST COMPANY,
as an Issuing Lender
By: signature illegible
Title: principal
---------
S-1
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By: /s/ Karen Knudsen
-----------------
Title: Vice President
--------------
FLEET NATIONAL BANK,
as a Domestic Lender
By:
Title:
LASALLE NATIONAL BANK,
as a Domestic Lender
By: /s/ Joshua Eichenhorn
---------------------
Title: First Vice President
--------------------
NATIONSBANK OF TEXAS, N.A.,
as a Domestic Lender and Canadian Lender
By: signature illegible
-------------------
Title: vice president
--------------
UNION BANK OF CALIFORNIA, N.A.,
as a Domestic Lender and Canadian Lender
By: /s/ Martin Valencia
-------------------
Title: Vice President
--------------
S-2
<PAGE>
BANK OF MONTREAL,
as a Canadian Lender
By: /s/ Merv McCune
---------------
Title: Senior Account Manager
----------------------
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as a Domestic Lender and Canadian Lender
By: signature illegible
Title: vice president
--------------
S-3
<PAGE>
ABN AMRO BANK CANADA, as a Canadian
Lender
By:
Title:
S-4
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 2 TO
STOCKHOLDERS AGREEMENT
This Amendment No. 2 to Stockholders Agreement (the "Amendment") is
made as of December 15, 1997.
Reference is made to the Stockholders Agreement, as amended, 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 two 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: /s/ Paul R. Wood
------------------------------------
Its: President
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: /s/ Paul R. Wood
-------------------------
Paul R. Wood
Vice President
EXECUTIVES:
/s/ Stephen P. Thigpen
----------------------
Stephen P. Thigpen
/s/ Claudia M. Pieropan
-----------------------
Claudia M. Pieropan
/s/ Kenneth A. Corman
---------------------
Kenneth A. Corman
- 3 -
<PAGE>
/s/ Bud Summers
---------------
Bud Summers
/s/ Robert A. Ferguson
----------------------
Robert A. Ferguson
/s/ Douglas D. Allen
--------------------
Douglas D. Allen
/s/ David Fujino
----------------
David Fujino
/s/ Michael R. Crowe
--------------------
Michael R. Crowe
/s/ Timothy P. Ryan
-------------------
Timothy P. Ryan
/s/ Albert Dorish
-----------------
Albert Dorish
/s/ Alan A. Hollman
-------------------
Alan A. Hollman
/s/ O. Gerald Taylor
--------------------
O. Gerald Taylor
- 4 -
<PAGE>
EXHIBIT 10.11
MANAGEMENT STOCK AGREEMENT
THIS MANAGEMENT STOCK AGREEMENT is made as of September 29, 1997 by
and between Hines Holdings, Inc., a Nevada corporation (the "Company"), and
Stephen P. Thigpen (the "Manager").
Manager is a management employee of Hines Horticulture, Inc., a direct
subsidiary of the Company. The Company and Manager desire to enter into an
agreement by which Manager will purchase, and the Company will sell, the number
of shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock"), set forth on Schedule A hereto. All of such shares of Common Stock and
all shares of Common Stock hereafter acquired by Manager in respect of such
shares are referred to herein as "Management Stock." Certain definitions are
set forth in paragraph 7 of this Agreement.
The parties hereto agree as follows:
1. Purchase and Sale of Management Stock.
(a) Upon execution of this Agreement, Manager will purchase, and the
Company will sell, the number of shares of Common Stock set forth on Schedule A
hereto at a price equal to the consideration set forth on Schedule A. The
Company will deliver to Manager copies of, and receipts for, the certificates
representing such Common Stock, and Manager will deliver to the Company the
consideration set forth on Schedule A in the manner set forth on Schedule A.
(b) All certificates evidencing shares of Management Stock shall be
held by the Company for the benefit of Manager and the other holder(s) of
Management Stock until immediately prior to the Transfer (as defined in
paragraph 4 below) of such Management Stock in accordance with the provisions of
paragraph 4(a)(ii), 4(a)(v) or 4(a)(vi) below.
(c) Within 30 days after Manager purchases any Management Stock from
the Company, Manager shall make, if Manager is a citizen or resident of the
United States, an effective election with the Internal Revenue Service under
Section 83(b) of the Internal Revenue Code and the regulations promulgated
thereunder.
(d) In connection with the purchase and sale of the Management Stock
hereunder, Manager represents and warrants to the Company that:
(i) The Management Stock to be acquired by Manager pursuant to this
Agreement will be acquired for Manager's own account and not with a view
to, or intention of, distribution thereof in violation of the 1933 Act, or
any applicable state securities laws, and the Management Stock will not be
disposed of in contravention of the 1933 Act or any applicable state
securities laws;
(ii) Manager, either individually or through Manager's purchaser
representative, is sophisticated in financial matters and is able to
evaluate the risks and benefits of the investment in the Management Stock;
<PAGE>
(iii) Manager is able to bear the economic risk of Manager's
investment in the Management Stock for an indefinite period of time because
the Management Stock has not been registered under the 1933 Act and,
therefore, cannot be sold unless subsequently registered under the 1933 Act
or an exemption from such registration is available;
(iv) Manager has received and has read a copy of the Company's filings
with the SEC pursuant to the 1934 Act;
(v) Manager has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Management
Stock; and
(vi) This Agreement constitutes the legal, valid and binding
obligation of Manager, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Manager does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Manager is a party or any judgment, order
or decree to which Manager is subject.
(e) As an inducement to the Company to issue the Management Stock to
Manager, as a condition thereto, Manager acknowledges and agrees that:
(i) neither the issuance of the Management Stock to Manager nor any
provision contained herein shall entitle Manager to remain in the
employment of the Company and its Subsidiaries or affect the right of the
Company to terminate Manager's employment at any time for any reason; and
(ii) the Company shall have no duty or obligation to disclose to
Manager, and Manager shall have no right to be advised of, any material
information regarding the Company and its Subsidiaries at any time prior
to, upon or in connection with the repurchase of Management Stock upon the
termination of Manager's employment with the Company and its Subsidiaries
or as otherwise provided hereunder; provided that so long as the Company is
filing reports under Section 13(a) of the 1934 Act, the Company shall make
available to Manager a copy of its year end audited financial statements
promptly after they are filed with the SEC.
- 2 -
<PAGE>
2. Vesting of Management Stock.
(a) Except as otherwise provided in paragraph 2(b) below, the
Management Stock shall become vested in accordance with the following schedule
if, as of each such date, Manager is employed by the Company or any of its
Subsidiaries:
Cumulative
Percentage of Management
Date Stock Vested
- ---- ------------------------
Upon payment of the first installment of
principal and interest on the Promissory
Note due on April 30, 1998 33 1/3%
Upon payment of the second installment of
principal and interest on the Promissory
Note due on April 30, 1999 66 2/3%
Upon payment of the third installment of
principal and interest on the Promissory
Note due on April 30, 2000 100%
(b) In the event of the death or permanent disability of Manager, all
shares of Management Stock which have not yet become vested shall become vested
at the time of such event. For purposes of this paragraph 2(b), the
determination of permanent disability shall be made in good faith by the
Company's board of directors (the "Board"). In the event of an Approved Sale,
all shares transferred pursuant to the provisions of paragraph 6 below which
have not yet become vested shall become vested at the time of such transfer.
Shares of Management Stock which have become vested are referred to herein as
"Vested Shares," and all other shares of Management Stock are referred to herein
as "Unvested Shares."
(c) In the event of any "Transfer" of Management Stock to "Permitted
Transferees" pursuant to paragraph 4(b) below (as such terms are defined in such
paragraph), the following allocation rules shall apply: (1) to the extent
Manager at the time of such Transfer holds any Vested Shares of the Management
Stock to be transferred to any Permitted Transferee, such Vested Shares shall
first be allocated to such Permitted Transferee, with the balance of such
Transfer, to the extent necessary, being composed of Unvested Shares, and (2) if
additional Management Stock becomes vested after the time of Transfer to any
Permitted Transferee and such Permitted Transferee then holds Unvested Shares,
such newly-vested Management Stock shall first be allocated to such Permitted
Transferee (or if there is more than one Permitted Transferee then holding
Unvested Shares, such allocation shall be made among them on a pro rata basis).
- 3 -
<PAGE>
3. Repurchase Option.
(a) In the event Manager ceases to be employed by the Company and its
Subsidiaries for any reason (the "Termination"), the Management Stock (whether
held by Manager or one or more of Manager's Permitted Transferees (as
hereinafter defined)) will be subject to repurchase by the Company, at the
Company's option, pursuant to the terms and conditions set forth in this
paragraph 3 (the "Repurchase Option").
(b) The purchase price for each Unvested Share shall be Manager's
Original Cost Plus Interest Less Dividends on the date of the closing of the
repurchase, and the purchase price for each Vested Share shall be the Fair
Market Value for such share on the date of the closing of the repurchase;
provided, however, that if the Termination is for Cause, the purchase price for
each share of Management Stock (regardless of whether such share is a Vested
Share or an Unvested Share) shall be the lower of (i) Manager's Original Cost
Plus Interest Less Dividends or (ii) the Fair Market Value for each such share
on the date of repurchase.
(c) The Board may elect to purchase all or any portion of the Unvested
Shares and the Vested Shares by delivering written notice (the "Repurchase
Notice") to the holder or holders of the Management Stock within 60 days after
the Termination. The Repurchase Notice shall set forth the number of shares of
Management Stock to be acquired from each holder (specifying whether Vested
Shares or Unvested Shares), the aggregate consideration to be paid for such
shares (by category) and the time and place for the closing of the transaction.
The number of shares in any category (i.e., Vested Shares or Unvested Shares) to
be repurchased by the Company shall first be satisfied to the extent possible
from shares of Management Stock in that category held by Manager at the time of
delivery of the Repurchase Notice. If Manager has transferred shares of
Management Stock pursuant to this Agreement as a result of which the number of
shares of Management Stock in any category then held by Manager is less than the
total number of shares of Management Stock in that category that the Company has
elected to purchase, the Company shall purchase the remaining shares elected to
be purchased in that category from the other holder(s) of Management Stock under
this Agreement, pro rata according to the number of shares of Management Stock
in that category held by such other holder(s) at the time of delivery of such
Repurchase Notice (determined as nearly as practicable to the nearest share).
(d) The closing of the purchase of the Management Stock pursuant to
the Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice, which date shall not be more than 60 days nor less than
five days after the delivery of the such notice; provided, however, that in no
event shall such date be more than 90 days after the date of Termination. The
Company shall pay for the Management Stock to be purchased hereunder as follows:
(i) first, by cancellation of any outstanding indebtedness owed by
Manager to the Company pursuant to the Promissory Note, for an amount equal
to the outstanding principal thereof plus accrued but unpaid interest
thereon; and
- 4 -
<PAGE>
(ii) second, by delivery of a check or wire transfer of funds, at the
Company's option.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Management Stock by the Company shall be subject
to applicable restrictions contained in any general corporation law to which the
Company (or its successor) is subject and in the Company's and its Subsidiaries'
debt and equity financing agreements. If any such restrictions prohibit the
repurchase of Management Stock hereunder which the Company would otherwise be
entitled to make, the Company may (i) notwithstanding the limitations set forth
in paragraph 3(d), make such repurchases as soon as it is permitted to do so
under such restrictions or (ii) assign its repurchase right to MDCP, provided,
however, that the Company may only assign its repurchase right to MDCP if MDCP
shall agree to pay the Company upon such assignment cash equal to the difference
between the Original Cost of such shares and their then Fair Market Value if the
Original Cost is less than such Fair Market Value.
4. Restrictions on Transfer.
(a) Retention of Management Stock. Manager shall not sell, transfer,
assign, pledge or otherwise dispose of ("Transfer") any interest in any shares
of Management Stock, except for the following Transfers:
(i) Transfers pursuant to the Repurchase Option provided in
paragraph 3;
(ii) Transfers in an Approved Sale pursuant to paragraph 6 below;
(iii) Transfers to Permitted Transferees pursuant to paragraph 4(b)
below;
(iv) Transfers pursuant to the right of first refusal provided in
paragraph 4(c) below;
(v) Transfers of Vested Shares in a Qualified Public Offering; and
(vi) After the occurrence of a Qualified Public Offering, Transfers
of Vested Shares pursuant to Rule 144 under the 1933 Act ("Rule 144");
provided, however, that except in the case of Transfers pursuant to clauses (i)
and (iii) above, Manager may not Transfer any Management Stock which continues
to be subject to the Management Stock Pledge Agreement. Transfers described in
clauses (i), (ii), (iii), (v) and (vi) are referred to as "Exempt Transfers" and
all other Transfers are referred to as "Non-Exempt Transfers."
(b) Certain Permitted Transfers. The restrictions contained in this
paragraph 4 will not apply with respect to Transfers of shares of Management
Stock (i) pursuant to applicable laws of descent and distribution or (ii) among
Manager's family group (transferees pursuant to clauses (i) and (ii) are herein
collectively "Permitted Transferees"); provided that such restrictions
- 5 -
<PAGE>
will continue to be applicable to the Management Stock after any such Transfer
and the Permitted Transferees of such Management Stock shall have agreed in
writing to be bound by the provisions of this Agreement. Manager's "family
group" means Manager's spouse and descendants (whether natural or adopted) and
any trust solely for the benefit of Manager and/or Manager's spouse and/or
descendants.
(c) Right of First Refusal. At least 30 days prior to making any Non-
Exempt Transfer of any shares of Management Stock (the "Election Period"), the
holder of such Management Stock shall deliver a written notice to the Company
(the "Offer Notice"). The Offer Notice shall specify the proposed number and
character of the shares of Management Stock to be Transferred (the "Offered
Shares") and disclose in reasonable detail the proposed terms and conditions of
such Transfer. Unless otherwise agreed by the Company, the purchase price for
any such Transfer must be payable solely in cash at the closing of the
transaction. The Company may purchase all (but not, without the consent of the
holder, less than all) of the Offered Shares at the price and on the same terms
specified in the Offer Notice at the price and on the terms specified therein by
delivering written notice of such election (the "Election Notice") to the holder
within 30 days after delivery of the Offer Notice. If the Company elects to
purchase the Offered Shares, the Transfer of such shares will be consummated as
soon as practical, and, in any event, prior to the later of (i) 30 days after
the delivery of the Election Notice and (ii) the date on which the bona fide
third party offeror desires to consummate the Transfer specified in the Offer
Notice. If the Company has not elected to purchase all of the Offered Shares,
the holder may, within 90 days after the expiration of the Election Period,
Transfer all (but not less than all) of the Offered Shares not purchased by the
Company to one or more third parties at a price and on terms no more favorable
to the transferee(s) than offered to the Company in the Offer Notice; provided
that prior to such Transfer, such transferee(s) shall have agreed in writing to
be bound by the provisions of this Agreement. Any Offered Shares not
Transferred within such 90-day period will be subject to the provisions of this
paragraph 4(c) upon subsequent Transfer.
(d) Termination of Restrictions. The restrictions on the Transfer of
shares of Management Stock set forth in this paragraph 4 will terminate upon the
Transfer of such shares pursuant to the Repurchase Option, pursuant to a
Qualified Public Offering or pursuant to Rule 144.
5. Additional Restrictions on Transfer.
(a) The certificates representing the Management Stock will bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
AS OF SEPTEMBER 29, 1997, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
- 6 -
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN MANAGEMENT STOCK AGREEMENT
BETWEEN THE COMPANY AND INITIAL HOLDER HEREOF DATED AS OF SEPTEMBER
29, 1997 AND A MANAGEMENT STOCK PLEDGE AGREEMENT DATED AS OF SUCH
DATE. A COPY OF SUCH AGREEMENTS MAY BE OBTAINED BY THE HOLDER HEREOF
AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) No holder of Management Stock may sell, transfer or dispose of any
Management Stock (except pursuant to an effective registration statement under
the 1933 Act) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither
registration nor qualification under the 1933 Act and applicable state
securities laws is required in connection with such transfer.
(c) Each holder of Management Stock agrees not to effect any public
sale or distribution of any Management Stock or other equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
any of the Company's equity securities, during the seven days prior to and the
180 days after the effectiveness of any underwritten public offering, except as
part of such underwritten public offering or if otherwise permitted by the
Company.
6. Drag-Along Rights.
(a) In the event of an Approved Sale, each holder of Management Stock
will consent to and raise no objections against the Approved Sale of the Company
or the process pursuant to which the Approved Sale was arranged and waive any
dissenter's rights and other similar rights. Such holder will take all necessary
and desirable actions as directed by the Board and Madison Dearborn Capital
Partners, L.P. ("MDCP") in connection with the consummation of any Approved Sale
of the Company, including the execution and delivery of all documents and
instruments by such holder as the Company may reasonably request to effect the
Approved Sale, including, without limitation, representations, warranties and
indemnities; provided, however, that no holder shall be required to incur
indemnification obligations in excess of the net proceeds received by such
holder.
(b) In connection with an Approved Sale, MDCP may require each holder
of Management Stock to sell, or cause to be sold, the same proportionate number
of Management Stock owned by each such holder as are proposed to be sold or
transferred by MDCP for the same consideration per share and otherwise on the
same terms and conditions obtained by MDCP in the Approved Sale. On the closing
date of the sale of such Management Stock under this paragraph 6, the
consideration then due such holder of Management Stock shall be paid in full to
such holder against delivery of a certificate or certificates, as the case may
be, representing the Management Stock sold by such holder duly endorsed for
transfer.
- 7 -
<PAGE>
(c) Each holder of Management Stock will bear such holder's pro rata
share (based upon the number of shares sold) of the reasonable costs of any sale
of Management Stock pursuant to an Approved Sale to the extent such costs are
incurred for the benefit of all selling stockholders of the Company and are not
otherwise paid by the Company or the acquiring party. Costs incurred by any
holder of Management Stock on such holder's own behalf will not be considered
costs of the transaction hereunder.
(d) The provisions of this paragraph 6 shall terminate immediately
prior to the closing of any Qualified Public Offering.
7. Definitions.
"Approved Sale" means the sale of the Company, in a single transaction
or a series of related transactions, to a third party that is not an affiliate
of MDCP (or any of its general partners), Madison Dearborn Partners, L.P. (or
any of its general partners), Madison Dearborn Partners, Inc. or the Company (a)
pursuant to which such third party proposes to acquire a majority of the
outstanding voting securities of the Company (whether by merger, consolidation,
recapitalization, reorganization, purchase of the outstanding voting securities
of the Company or otherwise) or all or substantially all of the consolidated
assets of the Company, (b) which has been approved by holders of at least a
majority of the outstanding shares of the Company's voting securities and (c)
pursuant to which all holders of the Company's voting securities receive
(whether in such transaction or, with respect to an asset sale, upon a
subsequent liquidation) the same form and amount of consideration per share or,
if any holders are given an option as to the form and amount of consideration to
be received, all holders are given the same option.
"Cause" shall mean (i) the commission of a felony or a crime involving
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company or any of its
Subsidiaries or any of their customers or suppliers, (ii) conduct tending to
bring the Company or any of its Subsidiaries into substantial public disgrace or
disrepute, (iii) substantial and repeated failure to perform duties as
reasonably directed by the Company's executive officers or (iv) gross negligence
or willful misconduct with respect to the Company or any of its Subsidiaries.
"Fair Market Value" of each share of Common Stock included in the
Management Stock means the average of the closing prices of the sales of the
Company's Common Stock on all securities exchanges on which the Common Stock may
at the time be listed, or, if there have been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day the Common Stock is not so
listed, the average of the representative bid and asked prices quoted on the
Nasdaq Stock Market as of 4:00 P.M., New York time, or, if on any day the Common
Stock is not quoted on the Nasdaq Stock Market, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau Incorporated, or any similar successor
organization, in each such case averaged over a period of 21 days consisting of
the day as of which the Fair Market Value is being determined and the 20
consecutive business days prior to
- 8 -
<PAGE>
such day. If at any time the Common Stock is not listed on any securities
exchange or quoted on the Nasdaq Stock Market or in the over-the-counter market,
the Fair Market Value shall be the fair value of the Common Stock determined in
good faith by the Board (taking into account any discount which may be
appropriate to reflect the non-public, restricted nature and minority status of
any Vested Shares, but without taking into account the effect of any
contemporaneous repurchase of Unvested Shares under paragraph 3 hereof).
"Management Stock" will continue to be Management Stock in the hands
of any holder other than Manager (except for the Company and except for
transferees in a registered public offering under the 1933 Act or in a transfer
pursuant to Rule 144), and except as otherwise provided herein, each such other
holder of Management Stock will succeed to all rights and obligations
attributable to Manager as a holder of Management Stock hereunder. Management
Stock will also include shares of the Company's capital stock issued with
respect to Management Stock by way of a stock split, stock dividend or other
recapitalization.
"Management Stock Pledge Agreement" means the Management Stock Pledge
Agreement dated as of the date hereof by and between Manager and the Company
with respect to the Management Stock purchased hereunder.
"1933 Act" means the Securities Act of 1933, as amended from time to
time.
"1934 Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Original Cost" of each share of Common Stock purchased hereunder
shall be equal to $1.00 (as proportionately adjusted, in each case, for all
subsequent stock splits, stock dividends and other recapitalizations).
"Original Cost Plus Interest Less Dividends" with respect to any share
of Common Stock to be repurchased pursuant to paragraph 3 shall mean such
share's Original Cost plus the interest, if any, which shall have accrued and
remains unpaid with respect to such share under the Promissory Note, less the
value of any dividends or distributions declared or paid with respect to such
share.
"Promissory Note" means the Promissory Note made by Manager in favor
of the Company dated as of the date hereof, issued for the purpose of acquiring
all or a portion of the Management Stock purchased hereunder.
"Qualified Public Offering" means the sale, in an underwritten public
offering registered under the 1933 Act of shares of the Company's Common Stock
having an aggregate offering value of at least $30 million and a per share price
of at least three times the Original Cost of the Common Stock sold to Manager on
the date hereof.
"SEC" means the U.S. Securities and Exchange Commission or any
successor entity.
- 9 -
<PAGE>
"Subsidiary" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
8. Confidentiality. Manager acknowledges that the information,
observations and data obtained by Manager while employed by the Company and its
Subsidiaries concerning the business or affairs of the Company or any Subsidiary
(the "Confidential Information") are the property of the Company or such
Subsidiary. Therefore, Manager agrees that Manager shall not disclose to any
unauthorized person or use for Manager's own purposes any Confidential
Information without the prior written consent of the Board or any executive
officer of the Company or any Subsidiary, unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of Manager's acts or omissions. Manager shall
deliver to the Company at the termination of Manager's employment, or at any
other time the Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documents and data
(and copies thereof) relating to the Confidential Information, Work Product (as
defined below) or the business of the Company or any Subsidiary which he may
then possess or have under his control.
9. Inventions and Patents. Manager acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Manager while employed by
the Company and its Subsidiaries ("Work Product") belong to the Company or such
Subsidiary. Manager shall promptly disclose such Work Product to the Board or
the appropriate executive officer of the Company or any such Subsidiary and
perform all actions reasonably requested by the Board or such person(s) (whether
during or after Manager's period of employment) to establish and confirm such
ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).
10. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested), sent by reputable overnight
courier service (charges prepaid) or telecopied (with a confirmatory copy sent
by reputable overnight courier services) to the recipient at the address below
indicated:
- 10 -
<PAGE>
To the Company:
Hines Holdings, Inc.
c/o Hines Horticulture, Inc.
12621 Jeffery Road
Irvine, California 92720-2199
Attention: Chief Financial Officer
Facsimile: (714) 786-0968
With a copy to:
Michael H. Kerr, P.C.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Facsimile: (312) 861-2200
and to Manager at the address set forth on the signature page hereto or, in the
case of any recipient, to such other address or to the attention of such other
person as the recipient party shall have specified by prior written notice to
the sending party. Any notice under this Agreement will be deemed to have been
given when so delivered or sent or, if mailed, five days after deposit in the
U.S. mail.
11. General Provisions.
(a) Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Management Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Management Stock as the owner of such
stock for any purpose.
(b) 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 invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
- 11 -
<PAGE>
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by Manager
and the Company and their respective successors and assigns; provided that the
rights and obligations of Manager under this Agreement shall not be assignable
except in connection with a permitted transfer of Management Stock hereunder.
(f) Choice of Law. The corporate law of the state of incorporation of
the Company will govern all questions concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity and interpretation of this Agreement and the exhibits hereto will be
governed by the internal law, and not the law of conflicts, of the State of
Illinois.
(g) Choice of Forum. No suit, action or proceeding with respect to
this Agreement may be brought in any court or before any similar authority other
than a court of competent jurisdiction in the states of California or Illinois,
and Manager hereby submits to the non-exclusive jurisdiction of such courts for
the purpose of such suit, proceeding or judgment. Manager hereby irrevocably
waives any right to bring such an action in any other court, domestic or
foreign, or before any similar domestic or foreign authority.
(h) Remedies. Each of the parties to this Agreement will be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorney's fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company and
Manager.
* * * * *
- 12 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
HINES HOLDINGS, INC.
By: /s/ Claudia Pieropan
------------------------------------------
Its: Chief Financial Officer
---------------------------------------
MANAGER:
/s/ Stephen P. Thigpen
----------------------------------------------
Stephen P. Thigpen
Address: 544 Emerald Bay,
Laguna Beach, CA 92651
CONSENT
-------
The undersigned spouse of Manager hereby acknowledges that I have read
the foregoing Management Stock Agreement and that I understand its contents. I
am aware that the Agreement provides for the repurchase of my spouse's shares of
Common Stock under certain circumstances and imposes other restrictions on the
transfer of such Common Stock. I agree that my spouse's interest in the Common
Stock is subject to this Agreement and any interest I may have in such Common
Stock shall be irrevocably bound by this Agreement and further that my community
property interest, if any, shall be similarly bound by this Agreement.
I am aware that the legal, financial and other matters contained in
this Agreement are complex and I am free to seek advice with respect thereto
from independent counsel. I have either sought such advice or determined after
carefully reviewing this Agreement that I will waive such right.
/s/ Melinda A. Thigpen
--------------------------------------------
Spouse
/s/ Linda Walter
--------------------------------------------
Witness
<PAGE>
SCHEDULE A
Number of
Shares of Total Method of
Common Stock Consideration Payment
- ------------ ------------- ---------
100,000 $100,000.00 Promissory Note
<PAGE>
EXHIBIT 10.12
MANAGEMENT STOCK PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of September 29, 1997 between the
undersigned management employee ("Pledgor"), and Hines Holdings, Inc., a Nevada
corporation (the "Company").
The Company and Pledgor are parties to a Management Stock Agreement
dated as of the date hereof, pursuant to which Pledgor purchased shares of the
Company's Common Stock, par value $.01 per share (the "Pledged Shares"). The
Company has allowed Pledgor to purchase the Pledged Shares by delivery to the
Company of a promissory note (the "Note") in an aggregate principal amount equal
to the purchase price of the Pledged Shares. This Pledge Agreement provides the
terms and conditions upon which the Note is secured by a pledge to the Company
of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
payment for the Pledged Shares, Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. In the event that the certificates
representing the Pledged Shares are at any time delivered to Pledgor under the
terms of the Management Stock Agreement, Pledgor shall immediately deliver to
the Company the certificates representing the Pledged Shares, together with duly
executed forms of assignment sufficient to transfer title thereto to the
Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on the
Note or any other default under the Note or hereunder, Pledgor shall be entitled
to all voting rights with respect to the Pledged Shares and shall, subject to
the terms of the Note, be entitled to receive all cash dividends paid in respect
of the Pledged Shares. Upon the occurrence of and during the continuance of any
such default, Pledgor shall no longer be able to vote the Pledged Shares and the
Company shall retain all such cash dividends payable on the Pledged Shares as
additional security hereunder.
4. Stock Dividends; Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
<PAGE>
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
interest under the Note when it becomes due (whether upon demand, acceleration
or otherwise) or any other event of default under the Note or this Pledge
Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Shares (including the right to vote the shares and receive dividends
and distributions with respect to such shares) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of Illinois or otherwise
available to the Company under applicable law. Without limiting the foregoing,
the Company is authorized to sell, assign and deliver at its discretion, from
time to time, all or any part of the Pledged Shares at any private sale or
public auction, on not less than ten days written notice to Pledgor, at such
price or prices and upon such terms as the Company may deem advisable. Pledgor
shall have no right to redeem the Pledged Shares after any such sale or
assignment. At any such sale or auction, the Company may bid for, and become
the purchaser of, the whole or any part of the Pledged Shares offered for sale.
In case of any such sale, after deducting the costs, attorneys' fees and other
expenses of sale and delivery, the remaining proceeds of such sale shall be
applied to the principal of and accrued interest on the Note; provided that
after payment in full of the indebtedness evidenced by the Note, the balance of
the proceeds of sale then remaining shall be paid to Pledgor and Pledgor shall
be entitled to the return of any of the Pledged Shares remaining in the hands of
the Company. Pledgor shall be liable for any deficiency if the remaining
proceeds are insufficient to pay the indebtedness under the Note in full,
including the fees of any attorneys employed by the Company to collect such
deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Shares hereunder.
7. Release of Pledged Shares. Pledged Shares which become Vested
Shares (as defined in the Management Stock Agreement) will no longer constitute
"Pledged Shares" for purposes of this Agreement, and will no longer be subject
to the restrictions hereunder.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
and warrants that he has good and valid title to all of the Pledge Shares, free
and clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on the Note has been repaid, Pledgor shall not (i) create, incur,
assume or suffer to exist any pledge, security interest, encumbrance, lien or
charge of any kind against the Pledged Shares or Pledgor's rights or a holder
thereof, other than pursuant to this Agreement, or (ii) sell or otherwise
transfer any Pledged Shares or any interest therein, except in accordance with
the provisions of the Management Stock Agreement.
- 2 -
<PAGE>
9. Further Assurances. Pledgor agrees that at any time and from
time to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and do such
further acts and things as the Company may reasonably request in order to effect
the purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall together with the
rights and remedies of the Company hereunder, inure to the benefit of the
Company and its successors and assigns. This Pledge Agreement shall be governed
by, and be construed and interpreted in accordance with, the laws of the State
of Illinois.
* * * * *
- 3 -
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the date
first above written.
HINES HOLDINGS, INC.
By: /s/ Claudia Pieropan
-------------------------------------
Its: Chief Financial Officer
PLEDGOR:
/s/ Stephen Thigpen
----------------------------------------
Stephen P. Thigpen
<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
September 29, 1997 $100,000.00
The undersigned employee of Hines Horticulture, Inc. ("Employee")
hereby promises to pay to the order of Hines Holdings, Inc., a Nevada
corporation (the "Company"), the principal amount of $100,000.00, together with
interest thereon calculated from the date hereof, in accordance with the
provisions of this Note.
This Note is issued pursuant to a Management Stock Agreement dated as
of the date hereof (the "Management Stock Agreement"), between the Company and
Employee in payment for shares of the Company's Common Stock, par value $.01 per
share (the "Restricted Stock").
1. Payment of Principal and Interest. Interest will accrue on the
unpaid principal amount of this Note from time to time outstanding at a rate per
annum equal to 6.00% from and including the date hereof until and including the
date such principal amount is repaid in full. Employee will pay to the holder of
this Note all principal owing hereunder in three equal payments on April 30,
1998, April 30, 1999 and April 30, 2000 (each, a "Repayment Date"). On each
Repayment Date, Employee shall pay to the holder of this Note all accrued and
unpaid interest, compounded annually on April 30 of each year, on the
outstanding principal amount of this Note. All payments of principal and
interest under this Note shall be made by delivery of cash or checks to the
holder of this Note at the address specified in Paragraph 8 below.
2. Prepayments.
(a) Employee may not at any time voluntarily prepay the outstanding
principal amount of this Note.
(b) If Employee or any of his Permitted Transferees (as defined in the
Management Stock Agreement) shall sell any shares of Restricted Stock to the
Company, whether pursuant to paragraph 3 of the Management Stock Agreement or
otherwise, the Company may apply this Note in satisfaction of its obligation to
pay Employee or any such Permitted Transferee for such Restricted Stock
purchased by the Company, up to an amount equal to the principal amount
outstanding of this Note, plus accrued and unpaid interest.
(c) Employee agrees that if Employee or any of his Permitted
Transferees shall become entitled to cash dividends or other cash distributions
on the Restricted Stock, the Company may apply this Note in satisfaction of that
part of its obligation to pay Employee or any such Permitted Transferee for such
cash dividends or other cash distributions up to an amount equal to the
principal amount outstanding of this Note, plus accrued and unpaid interest.
3. Acceleration. Notwithstanding any other provision of this Note
to the contrary, this Note shall become immediately due and payable upon the
transfer of the Restricted Stock in an Approved Sale (as defined in the
Management Stock Agreement). In the event of such
<PAGE>
a transfer, Employee may satisfy all or a portion of its obligations to repay
the amounts owed hereunder by surrendering shares of Restricted Stock to the
Company. Such shares shall be valued at the sum such shares would otherwise
receive if transferred by Employee in the Approved Sale.
4. Security. All obligations of Employee to the holder hereunder
are secured by a pledge of the Restricted Stock by Employee in favor of such
holder. Notwithstanding the security provisions of this paragraph, Employee
understands that this Note is a full-recourse note and expressly agrees to and
accepts personal liability for the payment of all principal and interest due the
holder of this Note by the terms of this Note.
5. Events of Default.
(a) Definition. For purposes of this Note, an Event of Default shall
be deemed to have occurred if (i) Employee fails to pay the outstanding
principal amount plus accrued and unpaid interest on the Note on any Repayment
Date or (ii) Employee breaches any provision of Employee's Management Stock
Agreement.
(b) Consequences of an Event of Default. If an Event of Default
shall occur, the holder of this Note may demand, by written notice delivered to
Employee, immediate payment of all or any portion of the outstanding principal
amount of this Note, plus accrued interest thereon. Employee shall pay to the
holder hereof, in addition to all such amounts due, all costs of collection,
including reasonable attorneys' fees. The holder of this Note shall also have
all of the rights afforded under the Management Stock Pledge Agreement.
6. Amendment and Waiver. Except as otherwise expressly provided
herein, the provisions of this Note may be amended only by the written mutual
consent of Employee and the holder of this Note.
7. Cancellation. After all principal and accrued interest at any
time owed on this Note has been paid in full, this Note shall be surrendered to
Employee for cancellation and shall not be reissued.
8. Place of Payment. Payments of principal and interest are to be
delivered to the holder of this Note at the following address:
Hines Holdings, Inc.
c/o Hines Horticulture, Inc.
12621 Jeffery Road
Irvine, California 92720-2199
Attention: Chief Financial Officer
or to such other address or to the attention of such other person as specified
by prior written notice to Employee.
2
<PAGE>
* * * * *
3
<PAGE>
IN WITNESS WHEREOF, Employee has executed and delivered this Promissory Note
as of the date first written above.
/s/ Stephen Thigpen
---------------------------------------
Stephen P. Thigpen
4
<PAGE>
EXHIBIT 10.20
================================================================================
STOCK PURCHASE AGREEMENT
by and among
HINES II, INC., HINES HOLDINGS, INC.
and
KENNETH G. BRYFOGLE AND BARBARA M. BRYFOGLE
Dated as of December 16, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Purchase and Sale of Shares................................... 1
(a) Purchase and Sale of Shares................................... 1
(b) The Closing................................................... 1
(c) Purchase Price................................................ 1
(d) Adjustment of Purchase Price.................................. 2
(e) Purchase Price Allocation..................................... 3
Section 2. Conditions to Obligation of the Purchasers.................... 3
(a) Representations and Warranties................................ 3
(b) Performance of Covenants...................................... 3
(c) Compliance with Applicable Laws............................... 3
(d) Consents...................................................... 3
(e) Supply Agreement.............................................. 4
(f) Employment Agreement.......................................... 4
(g) Resignations.................................................. 4
(h) Proceedings................................................... 4
(i) Title Insurance............................................... 4
(j) Surveys....................................................... 5
(k) Estoppel Certificates; Non-disturbance Agreements;
Landlord Lien Agreements; Releases of Liens................... 5
(l) Memoranda of Leases........................................... 5
(m) Sellers' Certificate.......................................... 5
(n) Opinion of Counsel to the Sellers and the Companies........... 5
(o) Approval of the Boards of Directors of the Purchasers......... 6
(p) Due Diligence................................................. 6
Section 3. Conditions to Obligation of the Sellers....................... 6
(a) Representations and Warranties................................ 6
(b) Performance of Covenants...................................... 6
(c) Officer's Certificate......................................... 6
(d) Supply Agreement.............................................. 6
(e) Employment Agreement.......................................... 6
(f) Opinion of Counsel to Parent.................................. 6
(g) Compliance With Applicable Laws............................... 7
Section 4. Representations and Warranties of the Sellers................. 7
(a) Organization, Corporate Power and Licenses of the Companies... 7
(b) Power and Authority of the Sellers............................ 7
(c) Capital Stock and Related Matters............................. 7
- i -
<PAGE>
(d) Subsidiaries; Investments..................................... 8
(e) Authorization; No Breach...................................... 8
(f) Financial Statements.......................................... 9
(g) Absence of Undisclosed Liabilities............................ 9
(h) No Material Adverse Change.................................... 9
(i) Absence of Certain Developments............................... 10
(j) Assets........................................................ 11
(k) Tax Matters................................................... 11
(l) Contracts and Commitments..................................... 13
(m) Proprietary Rights............................................ 15
(n) Litigation, etc............................................... 15
(o) Brokerage..................................................... 16
(p) Insurance..................................................... 16
(q) Employees..................................................... 16
(r) Employee Benefits............................................. 16
(s) Compliance with Laws.......................................... 17
(t) Affiliated Transactions....................................... 17
(u) Inventory..................................................... 17
(v) Customers and Suppliers....................................... 17
(w) Accounts and Notes Receivable................................. 18
(x) Real Property................................................. 18
(y) Environment, Health and Safety................................ 20
(z) Disclosure.................................................... 21
(aa) Consents and Approvals........................................ 21
(bb) Powers of Attorney............................................ 21
(cc) Investment.................................................... 21
(dd) Entire Business............................................... 22
(ee) Information................................................... 22
Section 5. Representations and Warranties of the Purchasers.............. 22
(a) Organization of the Purchasers................................ 22
(b) Authorization of Transaction.................................. 22
(c) Noncontravention.............................................. 22
(d) Brokers' Fees................................................. 22
(e) Investment.................................................... 23
Section 6. Remedies for Breaches of this Agreement....................... 23
(a) Survival of Representations and Warranties.................... 23
(b) Indemnification Provisions for Benefit of the Purchaser Group. 23
(c) Indemnification Provisions for Benefit of the Sellers......... 25
(d) Matters Involving Third Parties............................... 26
(e) Payment; Purchaser's Right of Set-Off......................... 27
- ii -
<PAGE>
(f) Tax Treatment................................................. 27
(g) Other Indemnification Provisions.............................. 27
(h) Arbitration................................................... 28
Section 7. Tax Matters................................................... 28
(a) Cooperation on Tax Matters.................................... 28
(b) Tax Sharing Agreements........................................ 29
(c) Certain Taxes................................................. 29
Section 8. Additional Agreements......................................... 29
(a) Press Releases................................................ 29
(b) Expenses...................................................... 29
(c) Further Assurances............................................ 29
(d) Confidentiality............................................... 29
(e) Bryfogles, Inc. Employees..................................... 30
(f) Noncompetition; Nonsolicitation............................... 31
(g) Right of First Refusal........................................ 32
(h) Amendments to Leases.......................................... 32
(i) Corporate Name................................................ 33
Section 9. Definitions................................................... 33
Section 10. Miscellaneous................................................. 36
(a) No Third Party Beneficiaries; Succession and Assignment....... 36
(b) Entire Agreement.............................................. 37
(c) Counterparts.................................................. 37
(d) Headings...................................................... 37
(e) Notices....................................................... 37
(f) Governing Law; Jurisdiction................................... 38
(g) Amendments and Waivers........................................ 38
(h) Incorporation of Exhibits and Schedules....................... 39
(i) Construction.................................................. 39
(j) The Company................................................... 39
(k) Remedies...................................................... 39
(l) Severability of Provisions.................................... 39
- iii -
<PAGE>
LIST OF EXHIBITS
- ----------------
Exhibit A - Form of Seller Note
Exhibit B - Form of Supply Agreement
Exhibit C - Form of Employment Agreement
Exhibit D - Opinion of Counsel to the Companies and the Sellers
Exhibit E - Charter and Bylaws of the Companies
Exhibit F - Opinion of Counsel to Hines Holdings, Inc.
LIST OF SCHEDULES
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Schedule 1(a) - Allocation of Shares and Purchase Price
Schedule 1(c) - Certain Indebtedness
Schedule 4(a) - Organization, Corporate Power and Licenses of the
Companies
Schedule 4(c) - Capital Stock and Related Matters
Schedule 4(d) - Subsidiaries; Investments
Schedule 4(f) - Financial Statements
Schedule 4(g) - Absence of Undisclosed Liabilities
Schedule 4(i) - Absence of Certain Developments
Schedule 4(j) - Assets
Schedule 4(k) - Taxes
Schedule 4(l) - Contracts and Commitments
Schedule 4(m) - Proprietary Rights
Schedule 4(n) - Litigation
Schedule 4(p) - Insurance
Schedule 4(q) - Employees
Schedule 4(r) - ERISA
Schedule 4(s) - Compliance with Laws
Schedule 4(t) - Affiliated Transactions
Schedule 4(v)(i) - Customers
Schedule 4(v)(ii) - Suppliers
Schedule 4(w) - Accounts and Notes Receivable
Schedule 4(x) - Real Property
Schedule 4(y) - Environment, Health and Safety
Schedule 4(a)(a) - Consents
Schedule 8(e) - List of Transferred Employees
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STOCK PURCHASE AGREEMENT
------------------------
THIS AGREEMENT is made and entered into as of December 16, 1997, by
and among Hines Holdings, Inc., a Nevada corporation ("Parent"), Hines II, Inc.,
a Delaware corporation ("Hines," together with Parent, the "Purchasers"),
Kenneth G. Bryfogle and Barbara M. Bryfogle (collectively, the "Sellers").
The Purchasers and the Sellers are referred to collectively herein as the
"Parties." Capitalized terms used herein and not otherwise defined are defined
in Section 9.
WHEREAS, the Sellers own all of the issued and outstanding shares of
capital stock of Bryfogle's Co., Inc., Bryfogle's Wholesale, Inc. and Power
Plants II, Inc., each a Pennsylvania corporation (collectively, the
"Companies"); and
WHEREAS, the Parties desire to enter into this Agreement to provide
for the purchase by the Purchasers of all of the issued and outstanding shares
of capital stock of the Companies from the Sellers.
NOW, THEREFORE, in consideration of the mutual promises herein made,
and in consideration of the representations, warranties, and covenants herein
contained, the Parties, intending to be legally bound, hereby agree as follows:
Section 1. Purchase and Sale of Shares.
(a) Purchase and Sale of Shares. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as hereinafter defined),
the Purchasers shall purchase from the Sellers and the Sellers will sell,
transfer, deliver and convey to the Purchasers, all of the issued and
outstanding shares of capital stock of the Companies as set forth on Schedule
1(a) (the "Shares"), and the Sellers shall deliver to the Purchasers, free and
clear of any Liens, Taxes or other restrictions of any kind, certificates
representing all of the Shares, duly endorsed in blank.
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kirkland & Ellis,
200 East Randolph Drive, Chicago, Illinois, at 10:00 a.m. local time on the
business day immediately following the satisfaction of all of the conditions set
forth in Section 2 and Section 3 below, or such other time and place as the
Parties may mutually determine (the "Closing Date"). At the Closing, the
Purchasers and the Sellers shall each deliver to each other all funds,
certificates, instruments and documents contemplated herein to be delivered at
the Closing.
(c) Purchase Price The purchase price (the "Purchase Price") to be
paid by the Purchasers for all of the Shares shall be paid as follows: (i) by
wire transfer of immediately available funds by Hines of an aggregate of
$13,000,000 (the "Cash Amount") to an account designated by the Sellers, (ii) by
the repayment by Hines of certain Indebtedness as listed on Schedule 1(c), and
(iii) by
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delivery by Parent to Kenneth G. Bryfogle of a convertible subordinated
promissory note of Parent in the aggregate principal amount of $1,000,000, in
the form of Exhibit A hereto (the "Seller Note").
(d) Adjustment of Purchase Price.
(i) EBITDA Payment. If EBITDA (as defined below) exceeds
$3,400,000, Hines shall pay to the Sellers, as an adjustment to the Purchase
Price, an aggregate amount equal to $250,000 (the "EBITDA Payment").
(ii) Calculation of EBITDA. For purposes hereof, "EBITDA" shall
mean, with respect to the period beginning January 1, 1998 to and through
December 31, 1998, the consolidated net income of the Companies (exclusive of
any extraordinary gains or losses) for such period determined in accordance with
generally accepted accounting principles, plus (1) the amount of the net
provision for federal, state, local and foreign Taxes reflected in the
consolidated net income for the Companies for such period, plus (2) the amount
of interest expense for indebtedness for borrowed money (including capitalized
leases) reflected in the consolidated net income for the Companies for such
period, plus (3) the amount of depreciation reflected in the consolidated net
income for the Companies for such period, plus (4) the amount of amortization
reflected in the consolidated net income for the Companies for such period
relating to goodwill, financing fees and other intangibles; provided, however,
that (i) any acquisition (whether by merger, purchase of all or substantially
all of the stock or assets or otherwise) by the Purchasers or any of their
Affiliates of any other Person, (ii) the establishment by the Purchasers or any
of their Affiliates of any new business or product line or (iii) a fundamental
change in the nature of the businesses of the Companies (as such businesses were
conducted immediately prior to the Closing), shall not be included in the
definition of EBITDA.
(iii) Disputes. In connection with the audit of the financial
statements of the Companies (or their successor) for the fiscal year ending
December 31, 1998, Hines shall cause its independent public accountants to
deliver a certificate to the Sellers setting forth such accountants'
determination of EBITDA, and the calculations and assumptions used in reaching
their determination (the "EBITDA Certificate"). In the event the Sellers
disagree with the determination of EBITDA as set forth in the EBITDA
Certificate, the Sellers shall notify Hines of such disagreement within 20
business days of receipt of the EBITDA Certificate and, during such 20 business
day period, Hines shall permit the Sellers and their advisors with full access
to the books of account and records with respect to the Companies. Within 20
business days following the end of such period, the Sellers shall further notify
Hines of the Sellers' determination of EBITDA (the "Notice of Disagreement"). If
the Notice of Disagreement is not given, the determination of EBITDA set forth
in the EBITDA Certificate will be final and binding upon all Parties. If the
Sellers deliver the Notice of Disagreement and Hines and the Sellers are unable
to resolve the disagreement within 10 business days thereafter, they shall
promptly cause an independent accounting firm mutually selected by the Parties
(the "Accounting Firm") to review the EBITDA Certificate and the Notice of
Disagreement and to make its own calculation of EBITDA. In making such review
and calculation, the Accounting Firm shall consider only those items or amounts
as to which the Parties
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disagree. The Accounting Firm shall deliver to Hines and the Sellers, as soon as
practicable following the selection of the Accounting Firm, a report setting
forth its calculation of EBITDA and such report shall be final and binding upon
all Parties; provided that in no event shall the amount of EBITDA be less than
the amount set forth in the EBITDA Certificate nor greater than the amount set
forth in the Notice of Disagreement. The fees and expenses of the Accounting
Firm shall be paid one-half by Hines, on the one hand, and one-half by the
Sellers, on the other hand.
(iv) Payment Procedures. Any EBITDA Payment to be made pursuant
to this Section 1(d) shall be made within seven business days of the final
determination of such payment, by wire transfer to an account previously
designated by the Sellers, allocated among the Sellers in proportion to their
respective holdings of Shares, as set forth in Schedule 1(a).
(e) Purchase Price Allocation. The Purchase Price shall be allocated
to the Shares, as set forth in the attached Schedule 1(a). The Parties shall
report the financial accounting of this acquisition for all federal, state,
local and foreign tax purposes in a manner consistent with such purchase price
allocation.
Section 2. Conditions to Obligation of the Purchasers. The obligation
of the Purchasers to consummate the transactions to be performed by them in
connection with the Closing is subject to the satisfaction (in the Purchasers'
sole judgment) of the following conditions as of the Closing:
(a) Representations and Warranties. The representations and
warranties set forth in Section 4 shall be true and correct as of the date of
this Agreement and at and as of the Closing.
(b) Performance of Covenants. The Sellers and the Companies shall
have performed in all material respects all of their covenants and agreements
required to be performed by them pursuant to the Transaction Documents prior to
the Closing.
(c) Compliance with Applicable Laws. The consummation of the
transactions contemplated by the Transaction Documents will not be prohibited by
any Legal Requirement or subject the Purchasers or the Companies to any penalty,
liability or any substantial regulatory or legal requirements arising under any
Legal Requirement or imposed by any Governmental Entity.
(d) Consents. All filings, notices, licenses, consents,
authorizations, accreditation, waivers, approvals and the like of, to or with,
any Governmental Entity or any other Person that are required (i) for the
consummation of the transactions contemplated by the Transaction Documents, (ii)
to obtain the Title Policies (as defined in Section 2(i)) and remove of record
or have the Title Company (as defined in Section 2(i)) insure over all Liens or
other title exceptions, (iii) for the assignment of any contract, license, Lease
or any other agreement, or (iv) for the conduct of the business of the
Companies, will have been duly made or obtained on terms and conditions
satisfactory to the Purchasers.
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(e) Supply Agreement. Hines and Bryfogle's, Inc., d/b/a Spring Run
Flowers, a Pennsylvania corporation ("Bryfogle's, Inc." or "SRF"), shall have
entered into a Supply Agreement in the form of Exhibit B hereto (the "Supply
Agreement"), and the Supply Agreement shall not have been amended or modified
and shall be in full force and effect as of the Closing.
(f) Employment Agreement. Hines and Kenneth G. Bryfogle shall have
entered into an Employment Agreement in the form of Exhibit C hereto (the
"Employment Agreement"), and the Employment Agreement shall not have been
amended or modified and shall be in full force and effect as of the Closing.
(g) Resignations. The Purchasers shall have received the
resignations, effective as of the Closing, of each officer and director of the
Companies and their Subsidiaries.
(h) Proceedings. All corporate and other proceedings taken or
required to be taken by the Companies or the Sellers in connection with the
transactions contemplated hereby to be consummated at or prior to the Closing
and all documents incident thereto shall be satisfactory in form and substance
to the Purchasers.
(i) Title Insurance. The Sellers shall have obtained and delivered to
the Purchasers, with respect to all of the Real Property identified by the
Purchasers, commitments (the "Title Commitments") for ALTA Owner's and Lender's
Policies of Title Insurance Form B-1970 (along with copies of all documents
referred to therein) issued by Chicago Title Insurance Company, or another
insurer reasonably satisfactory to the Purchasers (the "Title Company"), in such
amount as the Purchasers may reasonably determine to be the fair market value of
such Real Property. The Title Company shall have issued an Owner's and Lender's
Policy for each such Real Property, or a prepaid commitment thereof marked up at
the Closing, based on the Title Commitments (the "Title Policies"), insuring the
Purchasers' interest as of the Closing Date, with gap coverage from the Sellers
through the date of recording (subject only to the Permitted Liens and each in
form and substance reasonably satisfactory to the Purchasers). All Title
Policies shall contain: (i) an "extended coverage endorsement" insuring over
the general exceptions customarily contained in such policies, (ii) an ALTA
Zoning Endorsement 3.1, with parking (or equivalent), (iii) a survey "same as"
endorsement, (iv) a survey accuracy endorsement, (v) an endorsement insuring
that each street adjacent to each such parcel is a public street and insuring
that each such parcel has direct and unencumbered pedestrian and vehicular
access to such street, (vi) if the real estate covered by such policy consists
of more than one record parcel, a "contiguity" endorsement insuring that all of
the record parcels are contiguous to one another, (vii) a non-imputation
endorsement, (viii) a tax number endorsement, and (ix) such other endorsements
as the Purchasers or the Purchasers' lender shall reasonably request. The
Sellers shall have delivered to the Title Company all affidavits, undertakings
and other title clearance documents necessary to issue all Title Policies. The
costs and expenses of the Title Commitments and the Title Policies shall be paid
one-half by the Sellers, on the one hand, and one-half by the Purchasers, on the
other hand.
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<PAGE>
(j) Surveys. With respect to the Real Property for which a Title
Policy is to be delivered to the Purchasers, the Purchasers, at their sole cost
and expense, shall have received a current survey of such Real Property
certified to the Purchasers, the Title Company and the Purchasers' lender,
prepared by a surveyor licensed in the state of Pennsylvania and conforming to
1992 ALTA/ASCM Minimum Detail Requirements for Urban Land Title Surveys,
including Table A Items 1, 2, 3, 4, 6, 7a-c, 8, 9, 10, 11a-d, and 12, and such
other standards as the Title Company requires as a condition to the removal of
any survey exceptions from the Title Policies; provided that no such survey
shall disclose any defect not corrected or insured over by the Title Company
prior to the Closing.
(k) Estoppel Certificates; Non-disturbance Agreements; Landlord Lien
Waiver Agreements; Releases of Liens. The Sellers shall have obtained and
delivered to the Purchasers estoppel certificates (providing, among other
things, (i) that the Companies have good and marketable title in fee simple
absolute (free and clear of any Lien, except the Permitted Liens) to all
Improvements located at each Leased Real Property and (ii) that the Companies
have the unrestricted right to remove, dispose of or otherwise deal with all
such Improvements upon any expiration or termination of the Leases), dated no
more than five (5) business days prior to the Closing Date, from each lessor
(each a "Landlord") under each Lease in form and substance satisfactory to the
Purchasers and the Purchasers' lender. If requested by the Purchasers' lender,
the Sellers shall obtain and deliver, each in form and substance reasonably
acceptable to the Purchasers and the Purchasers' lender, (i) non-disturbance
agreements from each lender of each Landlord with Liens encumbering any parcel
of Leased Real Property (including from each lender of each Landlord with Liens
encumbering any of the Improvements located on any of the Leased Real Property,
releases of all of such Liens) and (ii) landlord lien waiver agreements from
each Landlord with any Lien upon any Improvements, machinery, equipment or other
personal property of the Companies located at or on the Real Property.
(l) Memoranda of Leases. The Sellers shall have obtained from all
Landlords and delivered to the Purchasers a memorandum of each of the Leases
(each a "Memorandum of Lease") in form and substance reasonably acceptable to
the Purchasers. Each Memorandum of Lease shall reflect, among other things, (i)
the Companies' good and marketable title in fee simple absolute (free and clear
of any Lien, except the Permitted Liens) to all Improvements located on each
Leased Real Property, and (ii) the Companies' unrestricted right to remove,
dispose of or otherwise deal with all such Improvements upon any expiration or
termination of the Leases.
(m) Sellers' Certificate. Each Seller shall have delivered to the
Purchasers a certificate to the effect that each of the conditions specified in
Sections 2(a) - 2(l) have been fully satisfied.
(n) Opinion of Counsel to the Sellers and the Companies. The
Purchasers shall have received from Buchanan Ingersoll Professional Corporation,
special counsel for the Companies and the Sellers, an opinion with respect to
the matters set forth in Exhibit D attached hereto, which
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<PAGE>
shall be addressed to the Purchasers, dated the Closing Date and in form and
substance satisfactory to the Purchasers.
(o) Approval of the Boards of Directors of the Purchasers. The board
of directors of Parent shall have approved the issuance of the Seller Note and
the consummation of the transactions contemplated by this Agreement and the
board of directors of Hines shall have approved the consummation of the
transactions contemplated by this Agreement.
(p) Due Diligence. The Purchasers shall be satisfied in their sole
discretion with the results of their business, financial, legal, environmental
and accounting due diligence investigation and review of the Companies and the
Sellers.
The Purchasers may waive any condition specified in this Section 2 if they
execute a writing so stating at or prior to the Closing.
Section 3. Conditions to Obligation of the Sellers. The obligation of
the Sellers to consummate the transactions to be performed by them in connection
with the Closing is subject to the satisfaction of the following conditions as
of the Closing:
(a) Representations and Warranties. The representations and
warranties set forth in Section 5 shall be true and correct as of the date of
this Agreement and at and as of the Closing.
(b) Performance of Covenants. The Purchasers shall have performed in
all material respects all of the covenants and agreements required to be
performed by them under this Agreement prior to the Closing.
(c) Officer's Certificate. The Purchasers shall have delivered to the
Sellers a certificate to the effect that each of the conditions specified in
Sections 3(a) and 3(b) have been satisfied.
(d) Supply Agreement. Hines and SRF shall have entered into the
Supply Agreement, and the Supply Agreement shall not have been amended or
modified and shall be in full force and effect as of the Closing.
(e) Employment Agreement. Hines and Kenneth G. Bryfogle shall have
entered into the Employment Agreement, and the Employment Agreement shall not
have been amended or modified and shall be in full force and effect as of the
Closing.
(f) Opinion of Counsel to Parent. The Sellers shall have received
from Schreck Morris, special Nevada counsel to Parent, an opinion with respect
to matters set forth on Exhibit F attached hereto, which shall be addressed to
the Sellers, dated the Closing Date and in form and substance satisfactory to
the Sellers.
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<PAGE>
(g) Compliance With Applicable Laws. The consummation of the
transactions contemplated by the Transaction Documents will not be prohibited by
any Legal Requirement or subject the Sellers to any penalty, liability or any
substantial legal or regulatory requirement arising under any Legal Requirement
or imposed by any Governmental Entity.
The Sellers may waive any condition specified in this Section 3 if they execute
a writing so stating at or prior to the Closing.
Section 4. Representations and Warranties of the Sellers. As a
material inducement to the Purchasers to enter into and perform its obligations
under this Agreement, the Sellers jointly and severally represent and warrant to
the Purchasers that the statements contained in this Section 4 are true and
correct as of the date of this Agreement and as of the Closing Date.
(a) Organization, Corporate Power and Licenses of the Companies. Each
Company is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania and is qualified to do
business in every jurisdiction in which its ownership of property or conduct of
business requires it to be so qualified. Such jurisdictions are listed on
Schedule 4(a) attached hereto. Each Company possesses all requisite corporate
power and authority and all licenses, permits and authorizations necessary to
own and operate its properties, to carry on its businesses as presently
conducted and to carry out the transactions contemplated by this Agreement and
all of such licenses, permits and authorizations are listed on Schedule 4(a)
attached hereto. The copies of each Company's charter documents and bylaws
attached hereto as Exhibit E reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete in all material
respects. The minute books (containing the records of meetings of the
stockholders, the board of directors and any committees thereof) and the stock
record books of each of the Companies are correct and complete. None of the
Companies are in default under or in violation of any provision of its charter
or bylaws.
(b) Power and Authority of the Sellers. Each Seller possesses all
requisite power and authority necessary to carry out the transactions
contemplated by this Agreement. No act or proceeding on the part of any of the
Sellers is necessary for the due and valid authorization or performance of this
Agreement or the transactions contemplated hereby.
(c) Capital Stock and Related Matters. As of the date hereof and as
of the Closing, (i) the authorized capital stock of BCI shall consist of 20,000
shares of common stock, par value $10.00 per share, of which 420 shall be issued
and outstanding and held beneficially and of record by the Sellers in the
amounts set forth opposite their respective names on Schedule 4(c) attached
hereto, (ii) the authorized capital stock of BWI shall consist of 1,000 shares
of common stock, par value $1.00 per share, of which 500 shall be issued and
outstanding and held beneficially and of record by the Sellers in the amounts
set forth opposite their respective names on Schedule 4(c) attached hereto, and
(iii) the authorized capital stock of PPI shall consist of 1,000 shares of
common stock, par value $1.00 per share, of which 1,000 shall be issued and
outstanding and held beneficially and of record by the Sellers in the amounts
set forth opposite their respective names on Schedule 4(c)
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attached hereto. As of the date hereof and as of the Closing: (i) the Companies
shall not 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; (ii) all of the outstanding shares of the Companies' capital stock
shall be validly issued, fully paid and nonassessable; (iii) there are no
statutory or contractual stockholders preemptive rights or rights of refusal
with respect to the Shares; and (iv) none of the Companies are subject to any
option or 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. The Companies have not violated any
applicable federal or state securities laws in connection with the offer, sale
or issuance of any of its capital stock. There are no agreements with respect to
the voting or transfer of the Companies' capital stock or among the Sellers with
respect to any other aspect of the Companies' affairs. The sale and delivery of
the Shares by the Sellers to the Purchasers pursuant to Section 1 hereof, will
vest in the Purchasers legal and valid title to the Shares, free and clear of
all Liens, Taxes or other restrictions of any kind.
(d) Subsidiaries; Investments. The attached Schedule 4(d) correctly
sets forth the name of each of the Company's Subsidiaries, the jurisdiction of
its organization and the Persons owning the outstanding capital stock or other
ownership interests of such Subsidiary. Each Subsidiary is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, possesses all requisite power and authority and all 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 its ownership of property or the conduct of business
requires it to qualify. All of the outstanding shares of capital stock or other
ownership interests of each Subsidiary (i) are validly issued, fully paid and
nonassessable, (ii) are owned by the Companies or another one of its
Subsidiaries free and clear of any Lien, Taxes or restriction of any kind, and
(iii) are not subject to any option or right to purchase any such shares or
interests. Except as set forth on the attached Schedule 4(d), neither the
Companies nor any of their Subsidiaries owns or holds the right to acquire any
shares of stock or any other security or interest in any other Person.
(e) Authorization; No Breach. The execution, delivery and performance
of each of the Transaction Documents to which the Sellers are a party have been
duly authorized by each of the Sellers. Each of the Transaction Documents to
which the Sellers are a party constitutes a valid and binding obligation of each
of the Sellers, enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization and other similar laws affecting the rights of creditors
generally. The execution and delivery by the Sellers of each of the Transaction
Documents to which the Sellers are a party and the fulfillment of and compliance
with the respective terms hereof and thereof, 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, or any
other restriction upon the Shares or any asset or property of the Companies
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,
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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 charter
or bylaws of the Companies, or any agreement, instrument, order, judgment or
decree to which any of the Companies and/or any of the Sellers is subject, or to
the knowledge of the Sellers, any law, statute, rule or regulation to which any
of the Companies and/or any of the Sellers is subject.
(f) Financial Statements. Attached hereto as Schedule 4(f) are (i)
the reviewed combined balance sheet of the Companies as of December 31, 1996
(the "1996 Balance Sheet"), and the reviewed combined statements of income and
retained earnings and cash flows of the Companies for the twelve-month period
then ended, (ii) the audited combined balance sheet of the Companies as of
December 31, 1995, and the audited statements of income and retained earnings
and cash flows of the Companies for the twelve-month period then ended, and
(iii) the reviewed combined balance sheet of the Companies as of September 30,
1997 (the "Latest Balance Sheet") and the reviewed combined statements of income
and retained earnings and cash flows for the Companies for the nine-month period
ended September 30, 1997. Except as set forth on the attached Schedule 4(f),
each of the foregoing financial statements (including in all cases the notes
thereto, if any) is consistent in all material respects with the books and
records of the Companies (which, in turn, are accurate and complete in all
material respects) and presents fairly in all material respects the financial
condition, results of operations and cash flows of the Companies in accordance
with generally accepted accounting principles applied on a consistent basis as
of the dates and for the periods set forth therein, and in the case of the
Latest Balance Sheet, subject to changes resulting from normal year-end
adjustments for recurring accruals (none of which would, alone or in the
aggregate, have a material adverse effect on the financial condition, operating
results, assets, operations, business prospects, employee relations or customer
or supplier relations of any of the Companies).
(g) Absence of Undisclosed Liabilities. Except as set forth on the
attached Schedule 4(g), the Companies do not have any material obligation or
liability (whether accrued, absolute, contingent, unliquidated or otherwise)
(and, to the knowledge of the Sellers, there is no basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against any of them giving rise to any such liability) arising
out of any transaction 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 the notes thereto, if any), (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from violation of
law, breach of contract, breach of warranty, tort, infringement, claim or
lawsuit) and (iii) other liabilities and obligations expressly disclosed in the
other Schedules referred to in this Section 4.
(h) No Material Adverse Change. Since the date of the 1996 Balance
Sheet, there has been no material adverse change in the financial condition,
operating results, assets, operations, business prospects, employee relations or
customer or supplier relations of any of the Companies.
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(i) Absence of Certain Developments. Except as expressly contemplated
by this Agreement or as set forth on the attached Schedule 4(i), since the date
of the Latest Balance Sheet, the Companies have not:
(i) 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;
(ii) borrowed any amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the ordinary course
of business and liabilities under contracts entered into in the ordinary course
of business;
(iii) mortgaged or pledged any of their properties or assets or
subjected them to any Lien, except Liens for current property taxes not yet due
and payable;
(iv) satisfied or paid any material obligation or liability,
other than current liabilities paid in the ordinary course of business and
liabilities owed to the Sellers and disclosed on the Latest Balance Sheet;
(v) declared, set aside or made any payment or distribution of
cash or other property with respect to their capital stock or other equity
securities or purchased or redeemed any shares of their capital stock or other
equity securities (including, without limitation, any warrants, options or other
rights to acquire their capital stock or other equity securities);
(vi) sold, assigned or transferred any of their tangible or
intangible assets, except for fair consideration in the ordinary course of
business, or canceled any material debts or claims;
(vii) sold, assigned, licensed or transferred any Proprietary
Rights or disclosed any proprietary confidential information to any Person
(other than in the ordinary course of business in circumstances in which the
Companies have imposed confidentiality restrictions);
(viii) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or consistent
with past practice;
(ix) other than the capital expenditures for the greenhouse
disclosed on Schedule 4(i), made capital expenditures or commitments therefor in
excess of $5,000 in the aggregate;
(x) made any loans or advances to, guarantees for the benefit
of, or any investments in, any Persons in excess of $10,000 in the aggregate;
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(xi) suffered any damage, destruction or casualty loss exceeding
in the aggregate $25,000, whether or not covered by insurance;
(xii) entered into or granted any increase in, or amended or
terminated, any employee benefit plan, program, policy or arrangement, including
without limitation, those described in Section 4(r);
(xiii) paid any bonuses or other compensation to their
stockholders in an aggregate amount in excess of $15,000 per month (or such
amount pro-rated for any partial month) or made any other change in employment
terms for any of their directors, officers and employees outside the ordinary
course of business;
(xiv) entered into any other material transaction, whether or not
in the ordinary course of business; or
(xv) entered into any oral or written agreement, commitment or
understanding to do any of the foregoing.
None of the Companies have at any time made any payments for political
contributions or any bribes, kickbacks or other illegal payments.
(j) Assets. Except as set forth on the attached Schedule 4(j), each
Company has good and marketable title to, or a valid leasehold interest in, the
properties and assets used by it, located on its premises or shown on the Latest
Balance Sheet or acquired thereafter, free and clear of all Liens, except (i)
for properties and assets disposed of in the ordinary course of business since
the date of the Latest Balance Sheet, (ii) for Liens disclosed on the Latest
Balance Sheet (including any notes thereto) and (iii) Liens for current property
taxes not yet due and payable. The Companies' buildings, equipment and other
tangible assets are being sold on an "as is" basis. Except as described on the
attached Schedule 4(j), each Company owns, or has a valid leasehold interest in,
all assets necessary for the conduct of its businesses as presently conducted.
(k) Tax Matters. The estimated Taxes for BWI for the period from
January 1, 1997 to the Closing Date are set forth on the attached Schedule 4(k).
Except as set forth on the attached Schedule 4(k):
(i) the Companies have filed all Tax Returns which they are
required to file under applicable laws and regulations, and all such Tax Returns
are complete and correct in all material respects and have been prepared in
compliance with all applicable laws and regulations;
(ii) the Companies have paid all Taxes due and owing by them
(whether or not such Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authority all Taxes which they
are required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third party;
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(iii) none of the Companies have waived any statute of
limitations with respect to any Taxes or agreed to any extension of time with
respect to any Tax assessment or deficiency;
(iv) since the date of the Latest Balance Sheet, none of the
Companies have incurred any liability for Taxes other than in the ordinary
course of business;
(v) no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to any of the Companies and none of the Companies have received from any
foreign, federal, state or local taxing authority any (A) written notice
indicating an intent to open an audit or other review or (B) request for
information related to Tax matters;
(vi) no deficiency or proposed adjustment which has not been
reflected on the Latest Balance Sheet, settled or otherwise resolved for any
amount of Tax has been proposed, asserted, assessed by any taxing authority
against any of the Companies and there are no material unresolved questions or
claims concerning any of the Companies' Tax liability;
(vii) none of the Companies (A) are liable for the Taxes of
another Person (1) under Treas. Reg. (S) 1.1502-6 (or comparable provisions of
state, local or foreign law), (2) as a transferee or successor, (3) by contract
or indemnity or (4) otherwise, (B) are a party to any tax sharing agreement or
(C) have made any payments, are obligated to make any payments or are parties to
an agreement that could obligate them to make any payments that would not be
deductible under Code (S)280G;
(viii) none of the Companies have been a member of an Affiliated
Group;
(ix) each of BCI and PPI made a valid election under Code Section
1362 and any corresponding state or local tax provisions to be an S corporation
for its taxable year ended December 31, 1981, and December 31, 1990,
respectively, and each such election has not been terminated on or prior to the
Closing except as a result of the transactions contemplated hereunder; Schedule
4(k) lists any Subsidiaries of BCI or PPI for which a qualified subchapter S
subsidiary election has been made under Code (S)1361(b)(3) and the effective
date of such election; and
(x) none of the Companies will be required to include any amounts
in income after the Closing Date as a result of (A) any closing agreement
entered into prior to the Closing Date, (B) any installment sale made prior to
the Closing Date, (C) any change of accounting method made prior to the Closing
Date, or (D) the receipt of any prepaid income prior to the Closing Date.
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(l) Contracts and Commitments.
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached Schedule 4(l), Schedule 4(r) or Schedule 4(x), none of the
Companies is a party to or bound by any written or oral:
(A) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees, former employees or consultants, or any other
employee benefit plan or arrangement, or any collective bargaining agreement or
any other contract with any labor union, or severance agreements, programs,
policies or arrangements;
(B) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other basis
providing annual compensation in excess of $75,000 (or providing for the payment
of any cash or other compensation upon a change in control of any of the
Companies), contract relating to loans to or any other contract with any of the
officers, directors or Affiliates of any of the Companies;
(C) contract under which any of the Companies has advanced
or loaned any other Person amounts in the aggregate exceeding $75,000;
(D) agreement or indenture relating to borrowed money or
other indebtedness or the mortgaging, pledging or otherwise placing a Lien on
any material asset or group of material assets of the Companies or any letter of
credit arrangements;
(E) guarantee of any obligation in excess of $75,000;
(F) lease or agreement under which any of the Companies is
lessee of or holds or operates any property, real or personal, owned by any
other party, except for any lease of real or personal property under which the
aggregate annual rental payments do not exceed $75,000;
(G) lease or agreement under which any of the Companies is
lessor of or permits any third party to hold or operate any property, real or
personal, owned or controlled by any of the Companies which involves
consideration in excess of $75,000;
(H) contract or group of related contracts with the same
party or group of affiliated parties the performance of which involves
consideration in excess of $75,000;
(I) assignment, license, indemnification or other agreement
with respect to any intangible property (including, without limitation, any
Proprietary Rights);
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(J) warranty agreement with respect to its services rendered
or its products sold, leased or licensed which contains terms and conditions
that differ in any material respect from the Companies' standard warranty terms
and conditions (a copy of which standard terms and conditions is attached to
Schedule 4(l));
(K) agreement under which it has granted any Person any
registration rights (including, without limitation, demand or piggyback
registration rights);
(L) sales, distribution or franchise agreement or merchant
or dealer agreement which involves annual consideration in excess of $75,000;
(M) agreement with a term of more than six months which is
not terminable by the Companies upon less than 30 days notice without penalty
and which involves consideration in excess of $75,000;
(N) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world; or
(O) any other agreement which is material to its operations
and business prospects or involves a consideration in excess of $75,000
annually.
(ii) With respect to the Companies' respective obligations
thereunder and, to the knowledge of the Companies and each of the Sellers, with
respect to the obligations of the other parties thereto, all of the contracts,
agreements and instruments set forth or required to be set forth on the attached
Schedule 4(l) are valid, binding and enforceable in accordance with their
respective terms. Each Company has performed all material obligations required
to be performed by it under the contracts, agreements and instruments listed or
required to be listed on the attached Schedule 4(l) and is not in default under
or in breach of nor in receipt of any claim of default or breach under any such
contract, agreement or instrument; no event has occurred which with the passage
of time or the giving of notice or both would result in a material default or
breach by any of the Companies under any contract, agreement or instrument
listed or required to be listed on the attached Schedule 4(l); none of the
Companies have any present expectation or intention of not fully performing all
such obligations; to the knowledge of the Companies and each of the Sellers,
there is no breach or anticipated breach by the other parties to any contract,
agreement, instrument or commitment listed or required to be listed on the
attached Schedule 4(l); and, to the knowledge of the Companies and each of the
Sellers, none of the Companies are a party to any contract or commitment
requiring any of them to purchase or sell goods or services or lease property
above or below (as the case may be) prevailing market prices and rates.
(iii) A true and correct copy of each of the written instruments,
plans, contracts and agreements (together with all amendments or waivers
thereto) and an accurate description of each of the oral contracts and
agreements which are referred to on the attached Schedule 4(l), have been
delivered to the Purchasers and their counsel.
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(m) Proprietary Rights
(i) Schedule 4(m) attached hereto contains a complete and
accurate list of all of the following that are owned, used by or licensed to the
Companies: (A) patented or registered Proprietary Rights and pending
applications for the foregoing; (B) unregistered trademarks, unregistered
service marks, trade dress, trade names, corporate names, logos, and slogans;
(C) material unregistered copyrights; (D) computer software (other than software
purchased or licensed for less than a total cost of $1,000); and (E) all
licenses or similar agreements or arrangements covering Proprietary Rights to
which the Companies are a party, either as licensee or licensor, or a third-
party beneficiary.
(ii) Except as set forth in Schedule 4(m): (A) the Companies own
and possess free and clear of all Liens and without restriction as to use, all
right, title and interest in and to the Proprietary Rights necessary for the
operation of the businesses of the Companies as currently conducted; (B) no
claim by any third party contesting the validity, enforceability, use or
ownership of any of the Proprietary Rights has been made, is currently
outstanding or is threatened, and to the knowledge of the Companies or the
Sellers, there are no grounds for the same; (C) to the knowledge of the
Companies or the Sellers, the Companies have not interfered with, infringed
upon, misappropriated or otherwise conflicted with, and the operation of the
businesses of the Companies as currently conducted will not infringe,
misappropriate or otherwise conflict with, the Proprietary Rights of third
parties; (D) to the knowledge of the Companies or the Sellers, no third party
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Proprietary Rights of the Companies; (E) immediately
subsequent to the Closing, the Companies' Proprietary Rights will be owned by or
available for use by the Purchasers on terms and conditions identical to those
under which the Companies owned and used such Proprietary Rights immediately
prior to the Closing; and (F) the Companies have taken and will continue to take
reasonable measures to maintain the confidentiality of the trade secrets,
processes and formulae, research and development results and other know-how of
the Companies, the value of which to the Companies is contingent upon
maintenance of the confidentiality thereof.
(n) Litigation, etc. Except as set forth on the attached Schedule
4(n), (i) there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the knowledge of the Companies or any of the Sellers,
threatened against or affecting any of the Companies or the assets of the
Companies, including, without limitation, all real property (or to the knowledge
of the Companies or any of the Sellers, pending or threatened against or
affecting any of the officers, directors or employees of the Companies with
respect to the Companies' business activities), or pending or threatened by any
of the Companies or any of the Sellers against any third party, at law or in
equity, or before or by any governmental department, commission, board, bureau,
agency or instrumentality (including, without limitation, any actions, suits,
proceedings or investigations with respect to the transactions contemplated by
this Agreement); (ii) none of the Companies are subject to any arbitration
proceedings under collective bargaining agreements or otherwise or, to the
knowledge of the Companies or any of the Sellers, any governmental
investigations or inquiries; and (iii) to the knowledge of the Companies or any
of the Sellers, there is no valid basis for any of the
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foregoing. None of the Companies or the assets of the Companies, including,
without limitation, all real property, are subject to any judgment, order or
decree of any court or other governmental agency, and none of the Companies or
any of the Sellers have received any opinion or memorandum or legal advice from
legal counsel to the effect that any of the Companies may be exposed, from a
legal standpoint, to any liability or disadvantage which may be material to
their businesses.
(o) Brokerage. Neither the Companies nor any of the Sellers has
retained any investment bank, broker, finder or any other intermediary in
connection with the transactions contemplated hereby who is entitled to a fee or
commission in connection with the transactions contemplated hereby. The Sellers
shall pay, and hold the Purchasers and the Companies harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out-of-pocket expenses) arising in connection with any claim 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 any of the Companies or the Sellers.
(p) Insurance. The attached Schedule 4(p) lists and briefly describes
each insurance policy maintained for or on behalf of the Companies with respect
to their properties, assets and business. All of such insurance policies are in
full force and effect, and no default exists with respect to the obligations of
the Companies or the Sellers under any of such insurance policies and neither
the Sellers nor any of the Companies have received any notification of
cancellation of any of such insurance policies. None of the Companies have any
self-insurance or co-insurance programs.
(q) Employees. Except as set forth on the attached Schedule 4(q),
none of the Companies or any of the Sellers is aware that any executive or key
employee of any of the Companies or any group of employees of any of the
Companies has any plans to terminate employment with any of the Companies. The
Companies have complied in all respects with all laws relating to the employment
of labor (including, without limitation, provisions thereof relating to wages,
hours, equal opportunity, and sex, age, disability or other employment
discrimination, collective bargaining, immigration and the payment of Taxes),
and the Companies are not aware that they have any material labor relations
problems (including, without limitation, any union organization activities,
threatened or actual strikes or work stoppages or material grievances). None of
the Companies or, to the knowledge of the Companies or any of the Sellers, any
of the Companies' employees, is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities of any
of the Companies, except for agreements between the Companies and their present
and former employees. None of the Companies is subject to or a party to any
collective bargaining agreement with respect to any employee or any of the
Transferred Employees (as defined in Section 8(e)).
(r) Employee Benefits. The Companies do not maintain, contribute to
or have any actual or potential liability with respect to any (i) "employee
pension benefit plan" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")),
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(ii) "employee welfare benefit plan" (as defined in Section 3(1) of ERISA), or
(iii) nonqualified deferred compensation, incentive, severance, bonus, fringe
benefit, stock bonus, vacation, employment contract or any other employee
benefit plan, policy, contract, agreement or arrangement. Each of the Welfare
Plans (as defined in Section 8(e)) has been maintained in accordance with its
terms and applicable law and all contributions, premiums or other payments which
are due have been paid.
(s) Compliance with Laws. Except as set forth on the attached
Schedule 4(s), the Companies and their respective predecessors and Affiliates
have complied with and are currently in compliance in all material respects with
all applicable laws, ordinances, codes, rules, requirements and regulations of
all federal, state and local governments and all agencies and instrumentalities
thereof relating to the operation and conduct of their businesses or any of
their properties or facilities (including, without limitation, the Immigration
Reform and Control Act of 1986, as amended, and all applicable building, zoning,
subdivision and other land use or similar laws affecting all real property), and
none of the Companies have received notice of any violation of any of the
foregoing (whether material or not).
(t) Affiliated Transactions. Except as set forth on the attached
Schedule 4(t), after the Closing, no employee, officer, director, stockholder or
Affiliate of any of the Companies 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, will be a party to any agreement,
contract, commitment or transaction with any of the Companies or will have any
interest in any property used by any of the Companies.
(u) Inventory. The inventory of the Companies consists of living
plants and other material typically associated with greenhouses and
horticulture. None of such inventory is damaged or obsolete, but is subject to
normal rates of mortality. All of the inventories of the Companies (other than
inventory in transit) are located on the Companies' premises in Washingtonville,
Pennsylvania.
(v) Customers and Suppliers.
(i) The attached Schedule 4(v)(i) lists the ten largest customers
of the Companies (on a consolidated basis based on net sales to such customers)
for each of the two most recent fiscal years and sets forth opposite the name of
each such customer the percentage of consolidated net sales attributable to such
customer during such fiscal year. The attached Schedule 4(v)(i) also lists any
additional customers which the Companies anticipate will be among their ten
largest customers for the current fiscal year.
(ii) The attached Schedule 4(v)(ii) lists the ten largest
suppliers to the Companies (on a consolidated basis based on net purchases from
such suppliers) for each of the two most recent fiscal years and sets forth
opposite the name of each such supplier the amount of purchases from such
supplier during such fiscal year. The attached Schedule 4(v)(ii) also lists any
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additional suppliers which the Companies anticipate will be among their ten
largest suppliers for the current fiscal year.
(iii) Since January 1, 1997, no material customer has indicated
that it shall stop, or materially decrease the rate of, buying materials,
products or services from any of the Companies, or materially alter its business
relationship with any of the Companies and no material supplier of any of the
Companies has indicated that it shall stop, or materially decrease the rate of,
supplying materials, products or services to any of the Companies, or materially
alter its business relationships with any of the Companies; provided, however,
that the Parties understand that Frank's Nursery, a major customer of the
Companies, has recently been acquired by the Cyprus Group and that no estimate
can be made as to the effect of such acquisition on the Companies' relationship
with Frank's Nursery.
(w) Accounts and Notes Receivable. All notes and accounts receivable
of the Companies are properly reflected in the Companies' books and records, are
current and collectible, and will, assuming the collection practices of Hines
will be similar to the past custom and practice of the Companies, be collected
at their recorded amounts, subject only to the reserve for bad debts set forth
on the face of the Latest Balance Sheet and, except as set forth on the attached
Schedule 4(w), in accordance with generally accepted accounting principles
consistently applied.
(x) Real Property.
(i) Schedule 4(x) lists and describes briefly (A) all real
property leased to any of the Companies (the "Leased Real Property"), (B) the
leases (each a "Lease") pursuant to which all Leased Real Property is leased,
and (C) all real property owned by the Companies (including, without limitation,
all Improvements (as defined in Section 4(x)(vi) below) to the Leased Real
Property) (the "Owned Real Property," together with the Leased Real Property,
the "Real Property").
(ii) The Sellers have delivered to the Purchasers and their
counsel correct and complete copies of each Lease. With respect to each Lease
listed in Schedule 4(x) and except as set forth in Schedule 4(x):
(A) the Lease is legal, valid, binding, enforceable, and in
full force and effect;
(B) the Lease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(C) none of the Companies and, to the knowledge of the
Sellers, no other party to the Lease, is in breach or default, and no event has
occurred which, with notice or
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lapse of time, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) none of the Companies and, to the knowledge of the
Sellers, no other party to the Lease, has repudiated any provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the Lease and, to the knowledge of the Companies, no
third party has any dispute as to the Lease;
(F) the Lease has not been modified in any respect and is
not subject to any other lease, except to the extent that such modifications or
leases are disclosed by the documents delivered to the Purchasers;
(G) none of the Companies has assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the Lease;
and
(H) the Lease continues in full force and effect following
the consummation of the transactions contemplated herein without the necessity
of any consent.
(iii) The Companies have a legal, valid and existing leasehold
interest in each Leased Real Property and good and marketable title in fee
simple absolute to the Owned Real Property, free and clear of any Lien, except
(A) Permitted Liens and (B) Liens of the landlord's lender listed on Schedule
4(x).
(iv) The Companies are in sole and exclusive possession of the
Real Property and none of the Companies is a sublessor, licensor, grantor or
otherwise a party to any sublease, consent, license, option, right of first
refusal, or other instrument or agreement granting to another Person any right
to the possession, use, occupancy or enjoyment of the Real Property.
(v) The Real Property provides to the Purchasers all of the real
property necessary for and currently used in the conduct and operation of the
business of the Companies. The current use of the Real Property does not
violate any Legal Requirement or any covenant, condition, restriction, easement,
agreement or any other instrument of record. The Real Property has access to
public roads and has, immediately prior to the Closing, been supplied with all
utilities and services necessary to operate each such property (including,
without limitation, access to water for irrigation purposes as required for the
cultivation of crops); and neither the Companies nor the Sellers are aware of
anything which would affect such access to public roads or such utilities and
services.
(vi) All buildings, improvements, structures and fixtures
included within the Real Property (the "Improvements") are, except for ordinary
wear and tear, in good condition and repair in all material respects.
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(y) Environment, Health and Safety.
(i) Each of the Companies has complied and is in compliance with
all applicable Environmental and Safety Requirements.
(ii) Without limiting the generality of the foregoing, each of
the Companies has obtained and complied with, and is in material compliance
with, all permits, licenses and other authorizations that are required pursuant
to Environmental and Safety Requirements for the occupation of their facilities
and the operation of their businesses and all such permits, licenses and
authorizations may be relied upon by the Purchasers for the lawful operation of
the businesses of the Companies on and after the Closing without transfer,
reissuance or other governmental action. A list of all such permits, licenses
and other authorizations is set forth in Schedule 4(y) attached hereto.
(iii) Neither the Sellers nor any of the Companies have 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 facilities of any of the Companies and arising under
Environmental and Safety Requirements.
(iv) Except as set forth in Schedule 4(y) attached hereto, none
of the following exists at any property or facility owned or operated by any of
the Companies: (A) underground storage tanks; (B) asbestos-containing material
in any form or condition; (C) materials or equipment containing polychlorinated
biphenyls; or (D) landfills, surface impoundments or other disposal areas.
(v) Except as set forth in Schedule 4(y) attached hereto, neither
the Companies, their respective Affiliates nor, to the knowledge of the Sellers,
their respective predecessors, have 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 liabilities of
any of the Companies, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or the Solid Waste Disposal
Act, as amended, or any other Environmental and Safety Requirements.
(vi) Except as set forth in Schedule 4(y) attached hereto, no
facts, events or conditions relating to the past or present facilities,
properties or operations of any of the Companies will prevent, hinder or limit
continued compliance with Environmental and Safety Requirements, give rise to
any investigatory, remedial or corrective obligations pursuant to Environmental
and Safety Requirements, or give rise to any other liabilities (whether accrued,
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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.
(vii) Neither this Agreement nor the consummation of the
transactions contemplated by the Transaction Documents 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.
(viii) None of the Companies have, either expressly or by
operation of law, 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.
(z) Disclosure. Neither this Agreement nor any of the exhibits,
Schedules, attachments, written statements, documents, certificates or other
items prepared and supplied to the Purchasers by or on behalf of any of the
Companies with respect to the transactions contemplated hereby contain any
untrue statement of a material fact. There is no fact which has not been
disclosed to the Purchasers and of which any of the Sellers or the Companies'
officers or directors is aware and which has had or would reasonably be expected
to have a material adverse effect on the financial condition, operating results,
assets, operations, employee relations, business prospects or customer or
supplier relations of any of the Companies.
(aa) Consents and Approvals. The items described on Schedule 4(aa)
constitute all of the certificates of occupancy, permits, filings, notices,
licenses, franchises, consents, authorizations, accreditation, waivers,
approvals and the like of, to or with any Governmental Entity or any other
Person (collectively the "Consents") which are required for the consummation of
the transactions contemplated by the Transaction Documents, the continued
ownership of the assets, the continued occupation and use of the real property,
or the conduct of the businesses of the Companies. All consents have been or
will be validly issued and, as of the Closing, are in full force and effect.
Neither the Companies nor the Sellers have received any notice threatening a
suspension, revocation, modification or cancellation of any of the Consents,
and, to the best knowledge of the Companies and the Sellers, there is no basis
for the issuance of any such notice or the taking of any such action.
(bb) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of any of the Companies.
(cc) Investment. Kenneth G. Bryfogle (i) understands that the Seller
Note has not been, and will not be, registered under the Securities Act of 1933,
as amended (the "Securities Act"), or under any state securities laws, and is
being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (ii) is acquiring the Seller
Note solely for his own account for investment purposes, and not with a view to
the distribution thereof, (iii) is
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a sophisticated investor with knowledge and experience in business and financial
matters, (iv) has received certain information concerning the Parent and has had
the opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Seller Note, (v) is able to
bear the economic risk and lack of liquidity inherent in holding the Seller
Note, and (vi) is an "accredited investor" as such term is defined in Regulation
D of the Securities Act.
(dd) Entire Business. The businesses of the Companies being purchased
hereunder consist of all companies and/or entities owned or controlled by the
Sellers and assets which are necessary and sufficient to carry out the
production, marketing, promotion, distribution and sale of the products of such
businesses, in substantially the same manner as conducted prior to the Closing
Date, except the Sellers' operation of SRF in Muncy, Pennsylvania.
(ee) Information. The Sellers have provided the Purchasers or their
representatives with all information requested to be provided to the Purchasers
or their representatives, has responded in good faith to all "due diligence"
information requests of the Purchasers or their representatives, and all such
information has been complete and accurate in all material respects.
Section 5. Representations and Warranties of the Purchasers. As a
material inducement to the Sellers to enter into and perform their obligations
under this Agreement, each Purchaser represents and warrants that the statements
made with respect to such Purchaser contained in this Section 5 are true and
correct as of the date of this Agreement and as of the Closing Date.
(a) Organization of the Purchasers. Hines is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada.
(b) Authorization of Transaction. Each Purchaser has full corporate
power and corporate authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of each Purchaser, enforceable in accordance with its
terms and conditions.
(c) Noncontravention. The execution, delivery and performance of the
Transaction Documents to which each such Purchaser is a party do not and will
not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in a violation of,
or (iv) require any authorization, consent, approval, exemption or other action
by or declaration or notice to any Governmental Entity pursuant to, the charter
or bylaws of such Purchaser or any agreement, instrument or other document, or
any Legal Requirement, to which such Purchaser or its assets is subject.
(d) Brokers' Fees. Other than JN Capital Partners, the Purchasers
have not retained any broker in connection with the transactions contemplated
hereby who is entitled to a fee or commission in connection with the
transactions contemplated hereby. The Purchasers shall pay, and hold the
Sellers harmless against, any liability, loss or expense (including, without
limitation,
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reasonable attorneys' fees and out-of-pocket expenses) arising in connection
with any claim for brokerage commissions, finders' fees or similar compensation
by JN Capital Partners or any other firm in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Purchasers.
(e) Investment. Solely for purposes of compliance with applicable
securities laws, each Purchaser hereby represents and warrants to the Sellers as
follows:
(i) Such Purchaser understands and acknowledges that the offering
and sale of Shares pursuant to this Agreement will not, as of the date hereof,
be registered under the Securities Act on the basis that the offering and sale
of the Shares contemplated by this Agreement is exempt from registration under
the Securities Act.
(ii) Such Purchaser 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 such
Purchaser has the ability to bear the economic risk of such an investment.
(iii) Such Purchaser 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 in violation of the Securities Act and such Purchaser has no
agreement, understanding or arrangement to subdivide, sell, assign, transfer,
pledge or otherwise dispose of all or any part of its interest in the Shares to
any other Person in violation of the Securities Act.
(iv) Such Purchaser acknowledges that it has examined and
investigated the Companies 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 Sellers, the Companies and its
officers, directors, employees and agents.
Section 6. Remedies for Breaches of this Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Purchasers and the Sellers contained in
this Agreement shall survive the Closing and continue in full force and effect
for the periods specified in Section 6(b)(i) below, and shall in no event be
affected by any investigation, inquiry or examination made for or on behalf of
the Purchasers.
(b) Indemnification Provisions for Benefit of the Purchaser Group.
The Sellers shall (jointly and severally) indemnify the Purchasers and their
officers, directors, shareholders, employees, agents, representatives,
successors, assigns and Affiliates (collectively, the "Purchaser Group") against
and hold them harmless from, and pay on behalf of or reimburse them as and when
incurred for, any Adverse Consequences they may suffer, sustain or become
subject to as the result of, arising out of, relating to, in the nature of, or
caused by (i) the breach or non-fulfillment by the
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Sellers of (or, in the event any third party alleges facts that, if true, would
mean the Sellers have breached or non-fulfilled) any representation, warranty,
covenant or agreement contained in this Agreement, any other Transaction
Document or any other instrument or document furnished to the Purchaser by the
Sellers pursuant to any Transaction Document or (ii) any liability or obligation
for Taxes with respect to taxable periods or portions thereof ending on or prior
to the date of this Agreement.
(i) Time Limitations.
(A) Notwithstanding anything herein to the contrary, the
representations and warranties made in Sections 4(a) [Organization, Corporate
Power and Licenses of the Companies], (b) [Power and Authority of the Sellers],
(c) [Capital Stock and Related Matters], (d) [Subsidiaries; Investments], (e)
[Authorization; No Breach] and (o) [Brokerage] hereof shall continue in full
force and effect indefinitely;
(B) The representations and warranties made in Section 4(k)
[Tax Matters] hereof shall continue in full force and effect until the
expiration of the applicable statute of limitations and any extension thereof;
and
(C) All other representations and warranties contained in
Section 4 hereof shall continue in full force and effect until the second
anniversary of the Closing Date;
provided, however, that all representations and warranties of the Sellers
contained in Section 4 shall terminate upon a Change of Control; and provided,
further, that any representation or warranty in respect of which indemnity may
be sought under this Section 6(b), and the indemnity with respect thereto, shall
survive the time at which it would otherwise terminate pursuant to this Section
6(b), if written notice of the inaccuracy or breach thereof giving rise to such
right of indemnity shall have been given to the Sellers prior to such time and
such notice shall have stated with particularity, the facts giving rise to such
claim. Notwithstanding anything to the contrary herein, any willful or
fraudulent breach of any representation, warranty, covenant or agreement
contained in this Agreement, any other Transaction Document or any other
instrument or document furnished to the Purchasers by the Sellers pursuant to
any Transaction Document, will not be subject to any time limitations.
(ii Baskets.
(A) The Sellers shall not be required to indemnify the
Purchaser Group with respect to any Adverse Consequence related to any breach of
the representations or warranties contained in Section 4 (other than Sections
4(k) [Tax Matters], 4(u) [Inventory] and 4(w) [Accounts and Notes Receivable])
hereof, unless and until the aggregate amount of all Adverse Consequences for
which the Sellers are liable under this Section 6(b) with respect to such
breaches exceeds $100,000 and then only to the extent such aggregate amount
exceeds $100,000 (disregarding any "materiality" qualifiers stated in any such
representations or warranties).
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(B) The Sellers shall not be required to indemnify the
Purchaser Group with respect to any Adverse Consequence related to any breach of
the representations or warranties contained in Sections 4(u) [Inventory] and
4(w) [Accounts and Notes Receivable] hereof, unless and until the aggregate
amount of all Adverse Consequences for which the Sellers are liable under this
Section 6(b) with respect to such breaches exceeds $100,000 and then only to the
extent such aggregate amount exceeds $100,000 (disregarding any "materiality"
qualifiers stated in any such representations or warranties).
(C) Notwithstanding anything herein to the contrary, the
limitations on indemnification set forth in this Section 6(b)(ii) shall not be
applicable to: (a) any willful breach by the Sellers of any representation or
warranty contained in Section 4, (b) any breach of any covenant or agreement
contained in this Agreement (whether willful or otherwise) (it being expressly
understood that any breach of the representations and warranties contained in
Section 4 hereof shall not be deemed a breach of any covenant or agreement
contained herein for purposes of this paragraph), (c) any claim based on fraud
or (d) any breach of the representations and warranties made in Section 4(k)
[Tax Matters].
(iii) Caps. The maximum amount of indemnification for any and
all Adverse Consequence for which the Sellers are required to indemnify the
Purchaser Group for breaches of representations and warranties contained in
Section 4 hereof (other than breaches of representations and warranties
contained in Sections 4(a) [Organization, Corporate Power and Licenses of the
Companies], (b) [Power and Authority of the Sellers], (c) [Capital Stock and
Related Matters], (d) [Subsidiaries; Investments], (e) [Authorization; No
Breach], (k) [Tax Matters] and (o) [Brokerage] hereof, which shall not be
subject to any cap) shall not exceed $2,000,000. Notwithstanding anything herein
to the contrary, the limitations on indemnification set forth in this Section
6(b)(iii) shall not be applicable to: (a) any willful breach by the Sellers of
any representation or warranty contained in Section 4, (b) any breach of any
covenant or agreement contained in this Agreement (whether willful or otherwise)
(it being expressly understood that any breach of the representations and
warranties contained in Section 4 hereof shall not be deemed a breach of any
covenant or agreement contained herein for purposes of this paragraph), or (c)
any claim based on fraud.
(c) Indemnification Provisions for Benefit of the Sellers. The
Purchasers shall indemnify the Sellers and hold them harmless against, and pay
on behalf of or reimburse them as and when incurred for, any Adverse
Consequences they may suffer, sustain or become subject to as the result of,
arising out of, relating to, in the nature of, or caused by a breach or non-
fulfillment by the Purchasers (or, in the event any third party alleges facts
that, if true, would mean that the Purchasers have breached or non-fulfilled) of
any representation, warranty or covenant contained in this Agreement, any
Transaction Document or any certificate delivered to the Sellers by the
Purchasers pursuant to any Transaction Document to which any Purchaser is a
party.
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(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 6, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not likely to establish a precedential custom or practice
materially adverse to the continuing business interests of the Indemnified
Party, and (E) the Indemnifying Party conducts the defense of the Third Party
Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 6(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnifying Party (which
consent shall not be withheld unreasonably) and (C) the Indemnifying Party will
not consent to the entry or any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnified Party (which consent shall not be withheld unreasonably).
(iv) In the event any of the conditions in Section 6(d)(ii) above
is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it may deem appropriate
(and the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying Parties
will reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer
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<PAGE>
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 6.
(v) The Sellers shall not settle any Third Party Claim with
respect to Taxes without the consent of the Purchasers (which consent shall not
unreasonably be withheld) if such settlement would have an adverse effect on the
Purchasers', or any of the Companies', or any of their Subsidiaries' liability
for Taxes in any tax period or partial tax period beginning on or after the
Closing Date.
(e) Payment; Purchaser's Right of Set-Off. Any indemnification of the
Purchaser Group or the Sellers pursuant to this Section 6 shall be effected by
wire transfer from the Sellers or the Purchasers, as the case may be, to the
account(s) designated by the Purchaser Group or the Sellers, as the case may be,
within ten business days after final determination thereof. Subject to the
limitations contained in Section 6(b), the Purchasers may, at their option and
in lieu of seeking any indemnification under Section 6(b), set-off from payment
to Kenneth G. Bryfogle under the Seller Note an amount equal to the Adverse
Consequences which the Purchasers have suffered. The Purchasers may make a set-
off by delivering a written notice to Kenneth G. Bryfogle setting forth their
determination of the amount of such set-off. Any amount set-off by the
Purchasers under this Section 6(e) shall be treated for all other purposes under
this Agreement as if such amount had been paid to Kenneth G. Bryfogle under the
Seller Note and paid by the Sellers to the Purchasers in satisfaction of the
Sellers' indemnification obligation.
(f) Tax Treatment. For income tax purposes, all indemnification
payments under this Section 6 shall be deemed adjustments to the Purchase Price.
(g) Other Indemnification Provisions. With respect to any Adverse
Consequences giving rise to a claim for indemnification by the Purchaser Group
under Section 6(b), 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. The Sellers and their Affiliates hereby agree that they
will not make any claim for indemnification against any of the Companies by
reason of the fact that he or it was a director, officer, employee, or agent of
any such entity or was serving at the request of any such entity as a partner,
trustee, director, officer, employee, or agent of another entity (whether such
claim is for judgments, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses, or otherwise and whether such claim is pursuant to
any statute, charter document, bylaw, agreement, or otherwise) with respect to
any action, suit, proceeding, complaint, claim, or demand brought by the
Purchasers against the Sellers (whether such action, suit, proceeding,
complaint, claim, or demand is pursuant to this Agreement, applicable law, or
otherwise). The Sellers and their Affiliates hereby agree that they will have
no right of contribution or indemnity from any of Companies with respect to
amounts paid by the Sellers pursuant to this Section 6.
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(h) Arbitration. In the event of a claim for indemnification arising
under Section 6 of this Agreement cannot be resolved by the Parties, the Parties
shall submit the dispute to arbitration, and such issue shall be settled by
arbitration in accordance with the Expedited Procedures of the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA Rules"), by
a single arbitrator who is mutually agreeable to the Parties. If the Parties
are unable to agree upon an arbitrator, one arbitrator shall be selected in
accordance with the AAA Rules and any judgment upon the award rendered by such
arbitrator may be entered in any court of competent jurisdiction. All
proceedings in any such arbitration shall be conducted in Harrisburg,
Pennsylvania. Each Party shall bear its respective costs, fees and expenses in
connection with such arbitration. Upon a final determination by the arbitrator
with respect to a claim for indemnification hereunder, the arbitrator shall
notify the Parties (such notice being the "Arbitration Order"). Jurisdiction of
such arbitrator shall be exclusive as to such claims and the Parties agree that
this agreement to arbitrate shall be specifically enforceable under the law of
the respective domiciliary jurisdiction of each of the Parties. No Party shall
have the right to appeal the Arbitration Order or otherwise to submit a dispute
of such Arbitration Order to a court of law.
Section 7. Tax Matters. The following provisions shall govern the
allocation of responsibility as between the Purchasers and the Sellers for
certain tax matters following the Closing Date:
(a) Cooperation on Tax Matters.
(i) The Purchasers, the Companies and each of their Subsidiaries
and the Sellers shall cooperate fully, as and to the extent reasonably requested
by the other party, in connection with the filing of Tax Returns pursuant to
this Section 7 and any audit, litigation or other proceeding with respect to
Taxes. Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Companies, their Subsidiaries and the
Sellers agree (A) to retain all books and records with respect to Tax matters
pertinent to the Companies and their Subsidiaries relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by the Purchasers or the Sellers, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
the Companies and their Subsidiaries or the Sellers, as the case may be, shall
allow the other party to take possession of such books and records.
(ii) The Purchasers, the Companies and the Sellers further agree,
upon request, to use their best efforts to obtain any certificate or other
document from any governmental authority or any other Person as may be necessary
to mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
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(ii) The Purchasers, the Companies and the Sellers further agree,
upon request, to provide any requesting Party with all information that such
Party may be required to report pursuant to Section 6043 of the Code and all
Treasury Department Regulations promulgated thereunder.
(b) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Companies and each of their
Subsidiaries shall be terminated as of the Closing Date and, after the Closing
Date, the Companies and each of their Subsidiaries shall not be bound thereby or
have any liability thereunder.
(c) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties, interest
and filing fees) incurred in connection with this Agreement, shall be paid one-
half by the Sellers and one-half by the Purchasers when due, and the Sellers
shall 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 Purchasers shall join in the
execution of any such Tax Returns and other documentation.
Section 8. Additional Agreements.
(a) Press Releases. Except as may otherwise be required by law, the
timing and content of all press releases and other public announcements and all
announcements to any of the Companies' customers, licensors or employees
relating to the transactions contemplated by this Agreement and the Transaction
Documents shall be determined jointly by the Purchasers and the Sellers.
(b) Expenses. The Purchasers shall pay all of their expenses incurred
in connection with the transactions contemplated hereby and by the other
Transaction Documents. The Sellers shall pay all of the respective expenses of
the Sellers and the Companies incurred in connection with the transactions
contemplated hereby and by the other Transaction Documents.
(c) Further Assurances. The Sellers shall execute and deliver such
further instruments of conveyance and transfer and take such additional action
as the Purchasers may reasonably request to effect, consummate, confirm or
evidence the assignment to the Purchasers of any contract, license or permits
held by any of the Companies, and execute such documents as may be necessary to
assist the Purchasers in preserving or perfecting their rights in and to such
contracts, licenses and permits.
(d) Confidentiality. Each Party and each of its shareholders,
partners, officers, directors, employees, agents and Affiliates shall keep
confidential all information and materials regarding the other Party. The
Sellers and its shareholders, partners, officers, directors and Affiliates shall
maintain confidential and shall not use or disclose, directly or indirectly
(except as required by law or as authorized in writing by the Purchasers prior
to such disclosure), any confidential or
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proprietary information or materials regarding any of the Companies and its
business or prospects. 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 8(d), the disclosing Party
will (i) provide the other Party with prompt written 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 (ii) cooperate with the other Party in attempting to obtain
such order or assurance. The provisions of this Section 8(d) 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 breach by
the applicable Party bound hereunder or its Affiliates. Notwithstanding anything
herein to the contrary, (a) any teaching (including any related academic
pursuit) conducted at any academic institution by Kenneth G. Bryfogle relating
to the greenhouses or the horticulture business with respect to the agriculture
production of horticulture crops and (b) any use of confidential information by
Kenneth G. Bryfogle for the purpose of producing and delivering green goods to
Hines or any of its Affiliates pursuant to the Supply Agreement shall not be
deemed disclosure of any confidential information prohibited by this Section
8(d).
(e) Bryfogles, Inc. Employees.
(i) Effective on the Closing Date, the Companies shall retain or
Hines shall offer to employ each active employee of the Companies who regularly
works in the business of one or more of the Companies at the same base rate of
compensation as each such employee had been receiving from the respective
Company immediately prior to the Closing Date. The Sellers shall encourage all
such employees to accept such offer of employment, and each such employee who is
retained by the Companies or who accepts such offer of employment shall be
referred to as a "Transferred Employee". Schedule 8(e) shall contain a list of
each Transferred Employee, his or her base compensation for 1997 and 1998 and
any additional compensation payable with respect to such Transferred Employee on
or after the Closing Date. Hines shall assume or cause the appropriate Company
to assume the accrued vacation liability with respect to each Transferred
Employee, but only to the extent such vacation liability has been scheduled on
Schedule 8(e). In addition, Schedule 8(e) shall include all accrued vacation as
of the Closing Date for all employees of the Companies.
(ii) Subject to receiving the consent of the appropriate
insurance company, effective as of the Closing Date, Hines shall assume or shall
cause one of the Companies to assume the life insurance, accidental death and
disability, and short term disability insurance plans provided by MetLife to
Bryfogle's, Inc. and the Geisinger Health Plan provided by Geisinger to
Bryfogle's, Inc. (the "Welfare Plans"). The Sellers shall reimburse and
indemnify Hines for all costs, expenses or any other liability incurred by Hines
or the Companies following the Closing Date with respect to those persons
covered under the Welfare Plans described above who are not Transferred
Employees. As soon as reasonably possible following the Closing Date, Hines
shall terminate the Welfare Plans and provide other welfare benefit plans to and
with respect the Transferred Employees.
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(iii) The Sellers shall retain all liability with respect to the
Bryfogle's, Inc. 401(k) Plan (the "401(k) Plan"); provided, that, following the
Closing Date, Hines shall at its expense, take such action as is considered
necessary or desirable, on behalf of Bryfogle's, Inc., to terminate the 401(k)
Plan, obtain a determination letter from the IRS and to assist the Transferred
Employees with their options for any 401(k) Plan distributions, including
rolling over their distributions to individual retirement accounts, and the
Sellers shall cooperate in such activities, including signing all necessary
documents on behalf of the 401(k) Plan sponsor to permit the 401(k) Plan to be
terminated and filed with the Internal Revenue Service. Following the Closing
Date, Hines will contribute $16,936 to the 401(k) Plan as a discretionary
contribution for the period beginning July 1, 1997 and ending on the Closing
Date. Any other employer contributions for prior periods which have not been
made shall also be made by the Sellers at that time. Hines shall also pay an
aggregate bonus of $18,225, allocated among the Transferred Employees as
provided on Schedule 8(e).
(iv) Except as provided in this Agreement, the Sellers shall
(jointly and severally) indemnify the Purchaser Group against and hold them
harmless from, and pay on behalf of or reimburse them as and when occurred for,
any Adverse Consequences they may suffer, sustain or become subject to as the
result of, arising out of or relating to any liability or obligation with
respect to any of the Transferred Employees which arose or relate to an event,
incident, plan, program, policy, contract or agreement on or prior to the
Closing Date.
(f) Noncompetition; Nonsolicitation. In consideration for the
significant benefits to be derived by each of the Sellers in connection with the
sale of the Shares to the Purchasers, and as a material inducement to the
Purchasers to enter into this Agreement and consummate the transactions
contemplated hereby, each Seller covenants and agrees as follows:
(i) During the period commencing on the date of this Agreement
and ending on the later of (A) the termination of Kenneth G. Bryfogle's
employment with Hines or any of its Affiliates (whether as an employee or
consultant) and (B) the first to occur of (1) the fifth anniversary of the
Closing Date or (2) the termination of the Supply Agreement by the Company
pursuant to the terms of the Supply Agreement (the "Non-Competition Period"),
Seller shall not, directly or indirectly, either for himself or for any other
Person, participate in (whether as owner, creditor, consultant, employee or
otherwise) any business (including, without limitation, any division, group or
franchise of a larger organization) anywhere in the United States which engages
or which proposes to engage in any business conducted by the Companies as of the
date of this Agreement. Nothing contained herein shall limit the ability of such
Seller to own less than 2% of any class of publicly traded securities of any
corporation. Notwithstanding anything contained herein to the contrary, this
noncompetition provision shall be subject to and qualified by Section 7 of the
Supply Agreement.
(ii) Following the Closing, Seller shall not (A) induce or
attempt to induce any employee of any of the Companies to leave the employ of
such Company, or in any way interfere with the relationship between any of the
Companies and any employee thereof, (B) hire directly or
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through another entity any person who is employed by any of the Companies, or
(C) induce or attempt to induce any customer, supplier, licensee or other
business relation of any of the Companies to cease doing business with such
Company, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and any of the Companies
(including, without limitation, making any negative statements or communications
concerning any of the Companies). Each of the Sellers will refer all customer
inquiries relating to the businesses of the Companies to Hines from and after
the Closing.
(iii) Seller acknowledges that the restrictions contained in this
Section 8(f) are reasonable in terms of geographic scope and duration and are
intended to protect the legitimate business interests of the Companies and the
Purchasers. Seller agrees that the Purchasers shall be entitled to specific
performance from any court of competent jurisdiction (without posting any bond)
to enforce the agreements of Seller under this Section 8(f). Seller agrees that
in the event a court of competent jurisdiction makes a determination that any
term or provision in this Section 8(f) is invalid or unenforceable, such court
shall have the power to reduce the scope, duration or area of any such term or
provision, to delete specific words or phrases or to replace any invalid or
unenforceable term or provision in this Section 8(f) with a term or provision
that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified.
(g) Right of First Refusal. Prior to the sale or other disposition by
the Companies or Hines of all of the assets of BCI, BWI and PPI purchased
hereunder (collectively, the "Acquired Assets") (whether in a single transaction
or a series of transactions) to any Person (other than an Affiliate of Hines or
as a result of the liquidation of the Companies), Hines shall give written
notice (the "Sale Notice") to Kenneth G. Bryfogle. The Sale Notice will
disclose in reasonable detail the identity of the prospective transferee(s) and
the terms and conditions of the proposed transfer of the Acquired Assets.
Kenneth G. Bryfogle may elect to purchase the Acquired Assets to be transferred
upon the same terms and conditions as those set forth in the Sale Notice by
delivering a written notice of such election to Hines within 45 days after
delivery of the Sale Notice as provided hereunder. In the event Kenneth G.
Bryfogle elects not to purchase the Acquired Assets pursuant to this Section
8(g), Hines may thereafter sell or otherwise dispose of the Acquired Assets or
any portion thereof, at a price and on terms no more favorable to the
transferee(s) thereof than specified in the Sale Notice, without again offering
to sell the Acquired Assets to Kenneth G. Bryfogle. Notwithstanding anything
herein to the contrary, the rights of Kenneth G. Bryfogle under this Section
8(g) shall (i) continue only as long as the Non-Competition Period as described
in Section 8(f) above and (ii) terminate upon the filing of a registration
statement filed by Parent or any of its Affiliates with the Securities and
Exchange Commission under the Securities Act with respect to an offering of
Common Stock of Parent or any of its Affiliates; provided that if the
registration statement is withdrawn or abandoned before any shares of Hines's
Common Stock are sold thereunder, the provisions of this Section 8(g) shall
remain in effect pursuant to the terms hereof.
(h) Amendments to Leases. Kenneth G. Bryfogle shall, so long as he is
an employee of or consultant to Hines or any of its Affiliates, use his best
efforts to obtain from any
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<PAGE>
Landlord any amendment to any Lease (the "Amendments") reasonably requested by
the Purchasers or the Purchasers' lender (including, without limitation,
Amendments to reflect (i) the Companies' good and marketable title in fee simple
absolute to the Improvements located at each Leased Real Property (free and
clear of any Lien, except Permitted Liens), and (ii) the Companies' unrestricted
right to remove, dispose of or otherwise deal with all such Improvements upon
any expiration or termination of the Leases).
(i) Corporate Name.
(i) The Sellers shall prepare and deliver at Closing a fictitious
name registration for Bryfogle's, Inc., to change its business and trade name to
Bryfogle's Inc., d/b/a Spring Run Flowers. The Sellers shall, at their own
expense, immediately following Closing, file such fictitious name registration
with the Secretary of the Commonwealth of Pennsylvania.
(ii) From and after the Closing Date, the Companies and their
Affiliates may use their current corporate names or any other corporate names
containing the word "Bryfogle" in connection with the Companies' businesses.
Except as specifically provided by Section 8(i)(i) above, during the Non-
Competition Period and for two (2) years thereafter (the "Exclusive Use
Period"), neither Sellers nor any of their Affiliates shall use or authorize the
use of the word "Bryfogle" or any confusingly similar word as all or part of any
corporate name anywhere in the United States. After the foregoing time period,
the Sellers may use the word "Bryfogle" as all or part of a corporate name.
Notwithstanding the foregoing, the Sellers may use the name "Bryfogle" in
businesses unrelated to that conducted at any time by the Purchasers and the
Companies.
(iii) If, prior to the end of the Exclusive Use Period, any
of the Purchasers determine in their reasonable discretion that the use of the
name "Bryfogle" causes confusion, the Purchasers may require the Sellers to
immediately prepare and file, at the Sellers' sole cost and expense, an
amendment to the articles of incorporation of Bryfogle's Inc. to change its
corporate name to a name not including the word "Bryfogle" or any confusingly
similar words. The Sellers hereby further agree that the Purchasers shall have
the right, in addition to all other rights and remedies they may have, to enjoin
(without the need to post any bond or provide any other security) the Sellers'
use of the name "Bryfogle" upon the Purchasers' good faith determination that
the Sellers' use of the name "Bryfogle" or any similar words is confusing. In
addition, the Sellers shall (jointly and severally) indemnify the Purchaser
Group against and hold them harmless from, and pay on behalf of or reimburse
them as and when occurred for, any Adverse Consequences they may suffer, sustain
or become subject to as the result of, arising out of or relating to any
liability or obligation with respect to the Sellers' use of the name "Bryfogle."
Section 9. Definitions.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, interest, fines,
costs, amounts paid in settlement, liabilities,
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<PAGE>
obligations, Taxes, Liens, losses, expenses and fees, including court costs and
attorneys' fees and expenses.
"Affiliate" of any particular Person shall mean any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities or
otherwise; and such "control" will be presumed if the first Person owns 5% or
more of the voting capital stock or other ownership interests, directly or
indirectly, of such other Person.
"BCI" means Bryfogle's Co., Inc., a Pennsylvania S corporation.
"BWI" means Bryfogle's Wholesale, Inc., a Pennsylvania corporation.
"Change in Control" means the sale of Parent to an Independent Third
Party pursuant to which such party acquires (whether by merger,
recapitalization, consolidation, reorganization, combination or otherwise) (i) a
percentage of capital stock of the Company greater than that held by Madison
Dearborn Capital Partners, L.P. and its Affiliates or (ii) all or substantially
all of the Companies' assets determined on a consolidated basis.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Environmental and Safety Requirements" means all federal, state and
local statutes, regulations, ordinances and similar provisions having the force
or effect of law, all judicial and administrative orders and determinations, 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, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, or radiation, each as amended.
"Governmental Entity" means the United States or any state, local or
other political subdivision thereof, or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of government.
"Indebtedness" means at a particular time, without duplication, (i)
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more than 30 days past
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<PAGE>
due), (iv) any commitment by which a Person assures a creditor against loss
(including, without limitation, contingent reimbursement obligations with
respect to letters of credit), (v) any indebtedness guaranteed in any manner by
a Person (including, without limitation, guarantees in the form of an agreement
to repurchase or reimburse), (vi) any obligations under capitalized leases with
respect to which a Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or with respect to which obligations a Person assures a
creditor against loss, (vii) any indebtedness secured by a Lien on a Person's
assets and (viii) any unsatisfied obligation for "withdrawal liability" to a
"multiemployer plan" as such terms are defined under ERISA.
"Independent Third Party" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 10% of Parent's common
stock on a fully-diluted basis (a "10% Owner"), who is not controlling,
controlled by or under common control with any such 10% Owner and who is not the
spouse or descendent (by birth or adoption) of any such 10% Owner or a trust for
the benefit of such 10% Owner and/or such other Persons.
"Legal Requirement" means any requirement arising under any law, rule
or regulation or any determination, direction or order of any arbitrator or any
Governmental Entity, including any Environmental and Safety Requirements.
"Lien" means any security interest, pledge, bailment (in the nature of
a pledge or for purposes of security), mortgage, deed of trust, the grant of a
power to confess judgment, conditional sales and title retention agreement
(including any lease in the nature thereof), charge, encumbrance, easement,
option or other similar arrangement or interest in real or personal property.
"Permitted Liens" means (i) statutory liens for current taxes or other
governmental charges with respect to the Real Property not yet due and payable;
(ii) mechanics', carriers', workers', repairers' and similar statutory liens
arising in the ordinary course of business for amounts which are not delinquent
and which are not, individually or in the aggregate, material to the business of
the Companies; (iii) zoning, entitlement, building and other land use
regulations imposed by a Governmental Entity having jurisdiction over the Real
Property which are not violated by the current occupancy, use or operation of
the Real Property; and (iv) covenants, conditions, restrictions, easements and
other similar matters of record affecting title to the Real Property which do
not materially impair the occupancy, use or operation of the Real Property for
the business of the Companies.
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PPI" means Power Plants II, Inc., a Pennsylvania S corporation.
"Proprietary Rights" means the following: (i) patents, patent
applications, patent disclosures and inventions; (ii) trademarks, service marks,
trade dress, trade names, logos and
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<PAGE>
corporate names and registrations and applications for registration thereof
together with all goodwill associated with each of the foregoing; (iii)
copyrights and copyrightable works; (iv) trade secrets, confidential information
and know-how (including but not limited to ideas, formulae, compositions,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, financial and accounting data, business and marketing plans, and customer
and supplier lists and related information); and (v) computer software including
but not limited to data, data bases and documentation.
"Subsidiary" means, with respect to any Person, any corporation a
majority of the total voting power of shares of stock of which is 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 any partnership, association or
other business entity a majority of the partnership or other similar ownership
interest of which is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes of this definition, a Person is deemed to have a majority ownership
interest in a partnership, association or other business entity if such Person
is allocated a majority of the gains or losses of such partnership, association
or other business entity or is or controls the managing director or general
partner of such partnership, association or other business entity.
"Tax" means any federal, provincial, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security, unem ployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not, and including any obligation to indemnify or
otherwise assume or succeed to the Tax liability of any other Person.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any Schedule or
attachment thereto, and including any amendment thereof.
"Transaction Documents" means this Agreement and the other documents,
instruments and agreements contemplated hereby and thereby.
Section 10. Miscellaneous.
(a) No Third Party Beneficiaries; Succession and Assignment. This
Agreement shall not confer any rights or remedies upon any Person other than the
Parties and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the other Parties;
provided, however, that the Purchasers may (i) assign any or all of its rights
and interests hereunder to one or more of its Affiliates and (ii) designate one
or more of its Affiliates to perform its
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<PAGE>
obligations hereunder (in any or all of which cases the Purchasers nonetheless
shall remain responsible for the performance of all of its obligations
hereunder).
(b) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements or representations by or between
the Parties, written or oral, that may have related in any way to the subject
matter hereof.
(c) Counterparts. This Agreement may be executed in two or more
counterparts (including by telecopied signature pages) each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.
(d) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(e) Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing ("Notices"). Any Notice shall be
deemed duly given as follows: (a) if sent by registered or certified mail,
return receipt requested, postage and fees prepaid, upon receipt; (b) if sent by
reputable private air courier (such as DHL, Federal Express or Airborne
Express), two business days after mailing; (c) if sent by facsimile
transmission, when transmitted and receipt is confirmed; or (d) if otherwise
actually personally delivered, when delivered. All Notices shall be addressed
to the intended recipient as set forth below:
If to the Sellers:
-----------------
Kenneth G. Bryfogle
Barbara M. Bryfogle
Box 250
Muncy, Pennsylvania 17756
Facsimile: (717) 525-3822
with a copy (which shall not constitute notice) to:
--------------------------------------------------
Buchanan Ingersoll
30 North Third Street
Harrisburg, Pennsylvania 17101
Attn: Gerald K. Morrison, Esq.
Facsimile: (717) 233-0852
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<PAGE>
If to the Purchasers:
--------------------
12621 Jeffrey Road
Irvine, California 92720
Attn: President
Facsimile: (714) 786-0968
with copies (which shall not constitute notice) to:
--------------------------------------------------
Madison Dearborn Partners, Inc.
Three First National Plaza, Suite 3800
Chicago, Illinois 60602
Attn: Paul R. Wood
Facsimile: (312) 895-1156
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Michael H. Kerr, P.C.
Facsimile: (312) 861-2200
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means, but no such notice, request, demand, claim or other communication
shall be deemed to have been duly given unless and until it actually is received
by the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(f) Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the domestic laws of the Commonwealth of
Pennsylvania without giving effect to any choice or conflict of law provision or
rule that would cause the application of the laws of any jurisdiction other than
the Commonwealth of Pennsylvania. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Harrisburg, Pennsylvania
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety, or other security that might be required of any other
Party with respect thereto.
(g) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Purchasers and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default,
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<PAGE>
misrepresentation, or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
(h) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(i) Construction. Where specific language is used to clarify by
example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates. The language used in this Agreement
shall be deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any Party.
Whenever required by the context, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa. The
Parties intend that each representation, warranty, and covenant contained herein
shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the fact
that there exists another representation, warranty, or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant. The
terms "knowledge," "best of knowledge," "best knowledge," "aware" and similar
expressions of cognition shall mean the knowledge, after reasonably diligent
inquiry, of the officers, directors and managers of each applicable Person.
(j) The Company. Unless the context otherwise requires, any reference
to a "Company" contained in paragraphs 4(c) through 4(ee) or Sections 6 through
10 hereof shall be deemed to be references to such Company together with each of
its Subsidiaries, if any.
(k) Remedies. The Parties shall each have and retain all other rights
and remedies existing in their favor at law or equity, including, without
limitation, any actions for specific performance and/or injunctive or other
equitable relief (including, without limitation, the remedy of rescission) to
enforce or prevent any violations of the provisions of this Agreement. Without
limiting the generality of the foregoing, the Sellers hereby agree that in the
event any Seller fails to convey any Shares to the Purchasers in accordance with
the provisions of this Agreement, the Purchasers' remedy at law may be
inadequate. In such event, the Purchasers shall have the right, in addition to
all other rights and remedies it may have, to specific performance (without the
need to post any bond or provide any other security) of the obligations of the
Sellers to convey the Shares.
(l) Severability of Provisions. If any covenant, agreement, provision
or term of this Agreement is held to be invalid for any reason whatsoever, then
such covenant, agreement, provision or term will be deemed severable from the
remaining covenants, agreements, provisions and terms of this Agreement and will
in no way affect the validity or enforceability of any other provision of this
Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed this Stock Purchase
Agreement as of the date first above written.
THE PURCHASERS:
HINES HOLDINGS, INC.
By: /s/ Paul R. Wood
-------------------------------------
Name: Paul R. Wood
Its: Vice President and Assistant
Secretary
HINES II, INC.
By: /s/ Paul R. Wood
------------------------------------
Name: Paul R. Wood
Its: Vice President and Assistant
Secretary
THE SELLERS:
/s/ Kenneth G. Bryfogle
----------------------------------------
Kenneth G. Bryfogle
/s/ Barbara M. Bryfogle
----------------------------------------
Barbara M. Bryfogle
<PAGE>
EXHIBIT 10.24
HINES HOLDINGS, INC.
DEMAND NOTE
-----------
$2,500,000 October 17, 1997
FOR VALUE RECEIVED, Hines Holdings, Inc., a Nevada corporation (the
"Corporation"), hereby promises to pay to Madison Dearborn Capital Partners,
L.P. (the "Payee") on demand, the principal sum of Two Million Five Hundred
Thousand and 00/100 Dollars ($2,500,000), together with all accrued and unpaid
interest thereon.
Interest shall accrue on the unpaid principal balance of this Demand
Note at the rate of 12% per annum, and shall be calculated based on the actual
number of days elapsed and a 365 day year. The Corporation may repay the
indebtedness represented by this Demand Note at any time, in whole or in part,
without the consent of the Payee and without penalty or premium. The
Corporation hereby waives notice of presentment. This Demand Note shall be
governed by the laws of the State of Illinois.
IN WITNESS WHEREOF, the undersigned has executed this Demand Note as
of the date first written above.
HINES HOLDINGS, INC.
By: /s/ Paul R. Wood
-------------------------------------
Its: President
-------------------------------------
<PAGE>
EXHIBIT 10.25
PURCHASE AGREEMENT
By and Among
HINES HOLDINGS, INC.,
and
THE PURCHASERS NAMED HEREIN
December 16, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
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....................................................... 2
2. Conditions of Each Purchaser's Obligation.............................. 2
2A. Conditions of Each Purchaser's Obligations at the
First Closing................................................... 2
2B. Conditions of Each Purchaser's Obligations at a
Subsequent Closing.............................................. 4
3. Covenants.............................................................. 6
3A. Financial Statements and Other Information........................ 6
3B. Inspection of Property; Consultation Rights....................... 7
3C. Covenants......................................................... 7
3D. Current Public Information........................................ 9
3E. Reservation of Common Stock....................................... 9
4. Transfer of Restricted Securities...................................... 9
4A. General Provisions................................................ 9
4B. Opinion Delivery.................................................. 10
4C. Rule 144A......................................................... 10
4D. Legend Removal.................................................... 10
5. Representations and Warranties of the Company.......................... 10
5A. Organization, Corporate Power and Licenses........................ 10
5B. Capital Stock and Related Matters................................. 11
5C. Subsidiaries; Investments......................................... 12
5D. Authorization; No Breach.......................................... 12
5E. Financial Statements.............................................. 12
5F. Absence of Undisclosed Liabilities................................ 13
5G. No Material Adverse Change........................................ 13
5H. Absence of Certain Developments................................... 13
5I. Litigation, etc................................................... 14
5J. Brokerage......................................................... 14
5K. Governmental Consent, etc......................................... 14
5L. Compliance with Laws.............................................. 15
5M. Affiliated Transactions........................................... 15
5N. Environmental Protection.......................................... 15
5O. ERISA............................................................. 16
5P. Title to Properties............................................... 17
5Q. Leasehold Interests............................................... 17
-i-
<PAGE>
6. Definitions............................................................ 17
6A. Definitions....................................................... 17
7. Miscellaneous.......................................................... 21
7A. Expenses.......................................................... 21
7B. Remedies.......................................................... 21
7C. Legend............................................................ 22
7D. Registration Rights............................................... 22
7E. Restrictions on Transfer of Stockholder Shares.................... 24
7F. Sale of the Company............................................... 26
7G. Purchaser's Investment Representations............................ 27
7H. Consent to Amendments............................................. 27
7I. Survival of Representations and Warranties........................ 28
7J. Successors and Assigns............................................ 28
7K. Severability...................................................... 28
7L. Counterparts...................................................... 28
7M. Descriptive Headings; Interpretation.............................. 28
7N. Governing Law..................................................... 28
7O. Notices........................................................... 29
7P. Consideration for Warrants........................................ 29
7Q. Understanding Among the Purchasers................................ 29
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
Financial Statements Schedule
Liabilities Schedule
Adverse Change Schedule
Developments Schedule
Litigation Schedule
Consents Schedule
Compliance Schedule
Affiliated Transactions Schedule
-ii-
<PAGE>
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 December 16, 1997, 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 up to 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 up to 595,895 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.
(i) At the First Closing (as hereinafter defined), 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 and the number of Warrants at
the price set forth opposite such Purchaser's name on the Schedule of
Purchasers attached hereto. The sale of Class A Preferred and Warrants
to each Purchaser at the First Closing shall constitute a separate
sale hereunder.
(ii) At any time and from time to time during the first two years
following the First Closing, and upon delivery of 15 days prior
written notice to each Purchaser (a "Subsequent Closing Notice"), the
Company may sell to each Purchaser and, subject to the terms and
conditions set forth herein, each Purchaser may at its sole option
purchase from the Company, all or any portion of the number of shares
of Class A Preferred and the number of Warrants at the price set forth
opposite such Purchaser's name on the Subsequent Closing Schedule
attached hereto. Each Subsequent Closing Notice shall set forth (i)
the number of shares of Class A Preferred and Warrants to be purchased
by each Purchaser, (ii) the purchase price therefor, (iii) the date
scheduled for the closing of such purchases and sales (a "Subsequent
Closing"), and (iv) the number of shares of Class A Preferred and
Warrants available for subsequent purchase and sale hereunder. The
number of shares of Class A Preferred and Warrants to be purchased by
the Purchasers at a Subsequent Closing (x) shall be allocated among
the Purchasers as mutually determined by the Purchasers and the
Company, and (y) shall be determined so that
<PAGE>
the ratio of shares of Class the ratio of shares of Class A Preferred
to Warrants purchased at such Subsequent Closing shall be equal to the
ratio of shares of Class A Preferred to Warrants purchased by the
Purchasers at the First Closing. The sale of Class A Preferred and
Warrants to each Purchaser at a Subsequent Closing shall constitute a
separate sale hereunder.
1C. The Closing. The first closing of the separate purchases and
sales of the Class A Preferred and the Warrants (the "First Closing") shall take
place at the offices of Kirkland & Ellis, 200 East Randolph Drive, Chicago,
Illinois at 10:00 a.m. on December 16, 1997, or at such other place or on such
other date as may be mutually agreeable to the Company and each Purchaser. Each
Subsequent Closing shall take place at the offices of Kirkland & Ellis, 200 East
Randolph Drive, Chicago, Illinois, at 10:00 a.m. on the date specified in the
Subsequent Closing Notice, or at such other place or on such other date as may
be mutually agreeable to the Company and each Purchaser. At the First Closing
or any Subsequent 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 aggregate 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.
Section 2. Conditions of Each Purchaser's Obligation.
2A. Conditions of Each Purchaser's Obligations at the First Closing
The obligation of each Purchaser to purchase and pay for Class A Preferred and
the Warrants at the First Closing is subject to the satisfaction as of the First
Closing of the following conditions:
(i) 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 First
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 First Closing.
(ii) Articles of Incorporation. The Company shall have duly
adopted, executed and filed with the Secretary of State of Nevada a
Second Amended and 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
First Closing under the laws of Nevada and shall not have been further
amended or modified.
(iii) 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 First Closing and shall have received payment
therefor in full.
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(iv) Securities Law Compliance. The Company shall have made all
filings under all applicable federal and state securities laws
necessary to consummate the issuance of Class A Preferred and Warrants
at the First Closing pursuant to this Agreement in compliance with
such laws.
(v) Amendment of Stockholders Agreements. The Company and the
requisite parties to the Stockholders Agreement, dated as of August 4,
1995, as amended, (the "Stockholders Agreement"), among 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.
(vi) Senior Credit Facility. Simultaneously with the First
Closing, Hines II, Inc. shall make borrowings under that certain
Credit Agreement dated as of December 16, 1997 among Hines II, Inc.,
and the Lenders listed therein, in such amounts as shall be
satisfactory to each Purchaser.
(vii) Payment of Closing Fee. Simultaneously with the First
Closing, the Company shall pay to Abbott Capital 1330 Investors I, LP,
a closing fee in an amount equal to 2% of the aggregate purchase price
to be paid by Abbott Capital 1330 Investors I, LP at the First Closing
for the securities purchased hereunder.
(viii) Opinion of the Company's Counsel. Each Purchaser shall
have received from Schreck Morris, 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 First Closing and in form and substance reasonably satisfactory to
each Purchaser.
(ix) Closing Documents. The Company shall have delivered to each
Purchaser all of the following documents:
(a) an Officer's Certificate, dated the date of the First
Closing, stating that the conditions specified in paragraphs
2A(i) through 2A(vi), inclusive, have been fully satisfied;
(b) certified copies of (x) 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 contem plated 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 reservation for
issuance upon exercise of the Warrants of an aggregate of 595,895
shares of Common Stock and the consummation of all other
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transactions contemplated by this Agreement, and (y) the
resolutions duly adopted by the Company's stockholders adopting
the Articles of Incorporation;
(c) certified copies of the Articles of Incorporation and
the Company's bylaws, each as in effect at the First Closing; and
(d) copies of all third party and governmental consents,
approvals and filings required in connection with the
transactions to be consummated at the First Closing (including,
without limitation, all blue sky law filings and waivers of all
preemptive rights and rights of first refusal).
(x) 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
First Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to each Purchaser and its special
counsel.
(xi) Waiver. Any condition specified in this Section 2A 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.
2B. Conditions of Each Purchaser's Obligations at a Subsequent
Closing. The obligation of each Purchaser to purchase and pay for Class A
Preferred and Warrants at a Subsequent Closing is subject to the satisfaction as
of such Subsequent Closing of the following conditions:
(i) Representations and Warranties; Covenants. The
representations and warranties contained in Section 5 hereof (as
modified by the Subsequent Closing Disclosure Schedules) shall be true
and correct in all material respects at and as of such Subsequent
Closing, and the Company shall have performed in all material respects
all of the covenants required to be performed by it hereunder prior to
such Subsequent Closing.
(ii) Articles of Incorporation. The Articles of Incorporation
shall be in full force and effect as of the Subsequent Closing under
the laws of Nevada and shall not have been further amended or
modified.
(iii) Securities Law Compliance. The Company shall have made all
filings under all applicable federal and state securities laws
necessary to consummate the issuance of Class A Preferred and Warrants
at such Subsequent Closing pursuant to this Agreement in compliance
with such laws.
(iv) No Material Adverse Effect. There shall have occurred no
event which could reasonably be expected to have a material adverse
effect upon the
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financial condition, operating results, assets or operations of the
Company and its Subsidiaries taken as a whole.
(v) Senior Credit Facility. Simultaneously with such Subsequent
Closing, Hines II, Inc. shall make borrowings under that certain
Credit Agreement dated as of December 16, 1997 among Hines II, Inc.,
and the Lenders listed therein in such amounts as shall be
satisfactory to each Purchaser.
(vi) Payment of Closing Fee. Simultaneously with such Subsequent
Closing, the Company shall pay to Abbott Capital 1330 Investors I, LP,
a closing fee in an amount equal to 2% of the aggregate purchase price
to be paid by Abbott Capital 1330 Investors I, LP at such Subsequent
Closing for the securities purchased hereunder.
(vii) Closing Documents. The Company shall have delivered to each
Purchaser all of the following documents:
(a) a "Subsequent Closing Disclosure Schedule," dated the
date of such Subsequent Closing, setting forth any event, fact,
circumstance or occurrence which came into existence after the
date of the most recent closing hereunder and would have been
required to be disclosed on the schedules hereto had such event,
fact, circumstance or occurrence been in existence on the date of
such closing; the parties hereto acknowledge and agree that any
matter described in any Subsequent Closing Disclosure Schedule
shall not be deemed to constitute a breach of any representation
or warranty contained herein;
(b) an Officer's Certificate, dated the date of such
Subsequent Closing, stating that the conditions specified in
paragraphs 2B(i) through 2B(v), inclusive, have been fully
satisfied;
(c) copies of all third party and governmental consents,
approvals and filings required in connection with the
transactions to be consummated at such Subsequent Closing
(including, without limitation, all blue sky law filings and
waivers of all preemptive rights and rights of first refusal).
(viii) 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
Subsequent Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to each Purchaser and
its special counsel.
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<PAGE>
(ix) Waiver. Any condition specified in this Section 2B 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 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
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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 Purchaser 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 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;
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<PAGE>
(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;
(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
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<PAGE>
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).
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 trans ferable
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),
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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.
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.
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5B. Capital Stock and Related Matters.
(i) As of the First Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of (a) 22,050,000 shares
of preferred stock, of which 50,000 shares shall be designated as 12% Cumulative
Redeemable Senior Preferred Stock (39,500 of which shall be issued and
outstanding) and 22,000,000 shares shall be designated as 12% Cumulative
Redeemable Junior Preferred Stock, 20,847,986 of which shall be issued and
outstanding) and (b) 30,000,000 shares of Common Stock, of which 10,492,014
shares shall be issued and outstanding and 1,113,051 shares shall be reserved
for issuance upon exercise of warrants. As of the First 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 First 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 First Closing,
all of the outstanding shares of the Company's capital stock shall be validly
issued, fully paid and nonassessable. The 595,895 shares of Common Stock
issuable upon exercise of all of the Warrants which may be purchased hereunder
(if issued on the date hereof) represent 5% of the fully dilluted shares of
Common Stock after giving effect to the issuance of any shares of Common Stock
required under any agreement set forth on the Capitalization Schedule other than
shares issuable upon conversion of any promissory note.
(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). 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
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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 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, 1995 and December 31, 1996, and the related
statements of income and cash flows (or the equivalent) for the respective
twelve-month periods then ended; and
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(ii) the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of October 31, 1997 (the "Latest Balance Sheet"), and the
related statements of income and cash flows (or the equivalent) for the
ten-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 First Closing, or
any action or inaction at or prior to the First Closing, or any state of facts
existing at or prior to the First 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 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);
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(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 instru mentality
(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 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.
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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 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. Except as set forth on the "Employee Benefits Schedule"
attached hereto:
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(a) 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;
(b) 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;
(c) 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;
(d) 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;
(e) 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;
(f) 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;
(g) 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;
(h) 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; and
(i) 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
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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 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.
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"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.
"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.
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<PAGE>
"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 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.
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<PAGE>
"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 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).
"Subsequent Closing Disclosure Schedule" has the meaning set forth in
Section 2B.
"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
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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 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 First 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
_________, 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 December 16, 1997 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
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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 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
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(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. 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 dis tribution (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.
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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 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 Stock holders 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%
/ 50% x 100 shares) and the Other Stockholder would be entitled to sell 40
such shares (20% / 50% x 100 shares).
- 24 -
<PAGE>
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 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, each
Purchaser acknowledges and agrees that such participation rights shall reduce
(pro-rata based upon the number of Stockholders Shares held) the number of
shares of capital stock of the Company otherwise to be Transferred by such
Purchaser 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.
(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.
- 25 -
<PAGE>
(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.
(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
- 26 -
<PAGE>
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 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 purchased
hereunder; provided that if no Class A Preferred purchased hereunder is
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
- 27 -
<PAGE>
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto whether so expressed or not.
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 as of the date hereof the fair market value of the
maximum number of shares of Class A Preferred which may be issued hereunder is
$19,170,000 and the fair market value of the
- 28 -
<PAGE>
maximum number of shares of Common Stock issuable upon exercise of the Warrants
which may be 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 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.
* * * * *
- 29 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
HINES HOLDINGS, INC.
By: /s/ Paul R. Wood
Its: President
PURCHASERS
ABBOTT CAPITAL 1330
INVESTORS I, LP
By: ABBOTT CAPITAL 1330
GENPAR I, LLC
Its: General Partner
By: signature illegible
Its: Manager
MADISON DEARBORN CAPITAL PARTNERS, L.P.
By: MADISON DEARBORN PARTNERS, L.P.
Its: General Partner
By: MADISON DEARBORN PARTNERS, INC.
Its: General Partner
By: /s/ Paul R. Wood
Its: Managing Director
<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>
Madison Dearborn Capital Partners, L.P. 3,500 $3,354,750 104,282 $145,250
Three First National Plaza
Suite 3800
Chicago, IL 60602
Attention: Paul R. Wood
Abbott Capital 1330 Investors I, LP 6,000 $5,751,000 178,769 $249,000
c/o Abbott Capital Management, LLC
1330 Avenue of the Americas, Suite 2800
Attn: Thomas W. Hallagan
----- ---------- ------- --------
TOTAL 9,500 $9,105,750 283,051 $394,250
</TABLE>
<PAGE>
SUBSEQUENT CLOSING SCHEDULE
---------------------------
<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>
Madison Dearborn Capital Partners, L.P. 1,500 $ 1,437,750 44,692 $ 62,250
Three First National Plaza
Suite 3800
Chicago, IL 60602
Attention: Paul R. Wood
Abbott Capital 1330 Investors I, LP 9,000 $ 8,626,500 268,152 $373,500
c/o Abbott Capital Management, LLC
1330 Avenue of the Americas, Suite 2800
Attn: Thomas W. Hallagan
------ ----------- -------- --------
TOTAL 10,500 $10,064,250 312,845 $435,750
</TABLE>
<PAGE>
EXHIBIT 10.26
The security represented by this certificate was originally issued
on December 16, 1997, 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 December 16, 1997 (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: December 16, 1997 Certificate No. W-6
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 104,282 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.
1B. Exercise Procedure.
<PAGE>
(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.
(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
2
<PAGE>
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.
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.
3
<PAGE>
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 ately
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.
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.
4
<PAGE>
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.
"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
5
<PAGE>
(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 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
6
<PAGE>
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: /s/ Paul R. Wood
Its: President
Attest:
By: /s/ Paul R. Wood
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 10.27
HINES HOLDINGS, INC.
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS AGREEMENT is made and entered into as of February 5, 1998,
between Madison Dearborn Capital Partners, L.P. ("MDCP"), and, Hines Holdings,
Inc., a Nevada corporation (the "Company").
WHEREAS, the Company desires to sell to MDCP and MDCP desires to
purchase from the Company 2,000 shares of the Company's 12% Cumulative
Redeemable Senior Preferred Stock, par value $.01 per share ("Class A
Preferred"), on the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Purchase and Sale of Securities. The Company shall authorize the
issuance and sale to MDCP of 2,000 shares of Class A Preferred (the
"Securities") for an aggregate purchase price of $2,000,000 payable in cash at
the Closing.
2. Closing. Subject to the terms and conditions contained in this
Agreement, the purchase and sale of the Securities hereunder (the "Closing")
shall take place at the offices of MDCP on the date hereof, or at such other
place or on such other date as is mutually agreeable to Buyer and Seller. At
the Closing, the Company shall deliver to MDCP a stock certificate representing
the Securities, registered in MDCP's name, and MDCP shall pay the purchase price
therefor by cashiers or certified check or by wire transfer of immediately
available funds to a bank account designated by the Company.
3. Closing Conditions.
(a) The obligation of the Company to issue and sell the Securities
hereunder is subject to the satisfaction of the condition that as of the Closing
the representations and warranties contained in paragraph 5 hereof shall be true
and correct at and as of the Closing as though then made, except to the extent
of changes caused by the transactions expressly contemplated herein.
(b) The obligation of MDCP to purchase the Securities hereunder is
subject to the satisfaction of the condition that as of the Closing the
representations and warranties contained in paragraph 4 hereof shall be true
and correct at and as of the Closing as though then made, except to the extent
of changes caused by the transactions expressly contemplated herein.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to MDCP as follows:
(a) Authorization. This Agreement and the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company. This
<PAGE>
Agreement constitutes a valid and legally binding obligation of the Company,
enforceable in accordance with its terms.
(b) Conflicts. The execution, delivery and performance of this
Agreement by the Company does not conflict with, violate or result in the breach
of, or create any lien or encumbrance on the Class A Preferred pursuant to, any
agreement, instrument, order, judgment, decree, law or governmental regulation
to which Seller is a party or is subject or by which the Securities are bound,
except for federal and state securities laws.
5. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
(a) Authorization. The execution and performance of this Agreement
have been duly authorized by all necessary action on the part of Buyer, and this
Agreement when executed and delivered shall constitute a valid and legally
binding obligation of Buyer, enforceable in accordance with its terms.
(b) Investment Representations. Buyer is purchasing the Securities
for investment purposes and is not purchasing the Securities with a view to the
public sale or distribution of any part thereof, and Buyer has no present
intention of selling, granting participation in, or otherwise distributing the
Securities in violation of any federal or state securities laws. Buyer has been
given access to all information regarding the Company that it has requested from
Seller. Buyer is capable of evaluating and has evaluated the merits and risks
of its purchase of the Securities and is able to bear the economic risk of its
investment in the Securities. Buyer recognizes that it must bear the economic
risk of the investment represented by its purchase of the Securities for an
indefinite period. Buyer understands that the Securities have not been
registered under the Securities Act of 1933 on the basis that the sale provided
for in this Agreement is exempt pursuant to Sections 4(1) and 4(2) of the Act
and that the reliance of Seller on such exemptions is predicated upon Buyer's
representations set forth herein.
6. Assumption of Purchase Agreement. Buyer hereby agrees to be
subject to all of the obligations, terms and conditions of, and entitled to all
of the rights and benefits under, Section 3, Section 4 and paragraphs 7A, 7B,
7C, 7D, 7E, 7F and 7P of the Purchase Agreement dated November 27, 1996 between
the Company and the Purchasers named therein (the "Purchase Agreement"), as if
Buyer were originally a party to such agreement with respect to the Securities
purchased hereunder to the same extent as if Buyer was a Purchaser thereunder.
The signature page to this Agreement shall constitute a counterpart executed by
Buyer for purposes of Section 3, Section 4, and paragraphs 7A, 7B, 7C, 7D, 7E,
7F and 7P of the Purchase Agreement.
7. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
Closing hereunder.
8. Indemnification.
-2-
<PAGE>
(a) Buyer shall indemnify Seller and its officers, directors,
employees, representatives and agents and hold Seller and such persons harmless
against and in respect of any and all losses, liabilities, damages, obligations,
claims, encumbrances, costs and expenses (including, without limitation, costs
of suit and attorneys' fees and expenses) incurred by Seller or such persons
resulting from any breach of any representation, warranty, covenant or agreement
made by Buyer herein.
(b) Seller shall indemnify Buyer and its officers, directors,
employees, representatives and agents and hold Buyer and such persons harmless
against and in respect of any and all losses, liabilities, damages, obligations,
claims, encumbrances, costs and expenses (including, without limitation, costs
of suit and attorneys' fees and expenses) incurred by Buyer or such persons
resulting from any breach of any representation, warranty, covenant or agreement
made by Seller herein.
9. Complete Agreement. This Agreement constitutes the entire
agreement between the parties hereto regarding the subject matter of this
Agreement and supersedes and preempts any prior understandings, agreements or
representations, written or oral, which may have related to the subject matter
hereof.
10. Expenses. Each party hereto shall pay its own expenses arising
in connection with the negotiation, execution and consummation of the
transactions contemplated by this Agreement.
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
12. Further Assurances. After the Closing, as and when requested by
Buyer, Seller shall, without further consideration, execute and deliver all such
instruments of conveyance and transfer and shall take such further actions as
may be necessary or desirable in order to transfer the Securities to Buyer and
to carry out fully the provisions and purposes of this Agreement.
13. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Buyer and Seller and their
respective successors and assigns.
14. Choice of Law. The construction, validity, interpretation and
enforcement of this Agreement shall be governed by the internal law, and not the
law of conflicts, of the State of Nevada.
* * * *
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
SELLER: MADISON DEARBORN CAPITAL
PARTNERS, L.P.
By: Madison Dearborn Partners, L.P.
Its: General Partner
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: /s/ Paul R. Wood
------------------------------------
Its: Vice President
With respect to paragraph 6 of this Agreement:
HINES HOLDINGS, INC.
By: /s/ Paul R. Wood
------------------------------------
Its: President
-4-
<PAGE>
HINES HOLDINGS, INC. EXHIBIT 12.1
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense $ 6,014 $ 7,555 $13,274 $20,140 $20,708
Amortization of deferred financing costs 1,079 1,069 4,557 940 1,097
Rental expense deemed representative
of the interest expense component of
rental expense
**Assume 33 percent 324 311 356 434 561
------- ------- ------- ------- -------
Total fixed charges 7,417 8,935 18,187 21,514 22,366
------- ------- ------- ------- -------
Earnings:
Income before provision for income taxes,
minority interest, income from
discontinued operations and
extraordinary loss 6,229 14,258 8,441 844 9,293
------- ------- ------- ------- -------
Earnings plus fixed charges 13,646 23,193 26,628 22,358 31,659
------- ------- ------- ------- -------
Ratio of earnings to fixed charges $ 1.84 $ 2.60 $ 1.46 $ 1.04 $ 1.42
------- ------- ------- ------- -------
</TABLE>
<PAGE>
Exhibit 21.1
------------
List of Subsidiaries of Hines Holdings, Inc.
The following is a list of subsidiaries of Hines Holdings, Inc. (the
"Company"). The common stock of all the corporations listed below are wholly
owned, directly or indirectly, by the Company. If indented, the corporation is a
wholly-owned subsidiary of the corporation under which it is listed.
Name of Corporation Jurisdiction of Incorporation
- ------------------- -----------------------------
Hines Holdings, Inc. Nevada
Hines II, Inc. Delaware
Lakeland U.S., Inc. Delaware
763427 Alberta Ltd. Canada
Hines Horticulture, Inc. California
Sun Gro Horticulture Inc. Nevada
Sun Gro Horticulture Canada Ltd. Canada
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,543
<SECURITIES> 0
<RECEIVABLES> 21,762
<ALLOWANCES> 1,193
<INVENTORY> 106,007
<CURRENT-ASSETS> 131,077
<PP&E> 112,865
<DEPRECIATION> 20,459
<TOTAL-ASSETS> 268,819
<CURRENT-LIABILITIES> 103,529
<BONDS> 160,356
70,682
0
<COMMON> 105
<OTHER-SE> (71,751)
<TOTAL-LIABILITY-AND-EQUITY> 268,819
<SALES> 201,256
<TOTAL-REVENUES> 201,256
<CGS> 99,407
<TOTAL-COSTS> 70,751
<OTHER-EXPENSES> 21,805
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,708
<INCOME-PRETAX> 9,293
<INCOME-TAX> 3,516
<INCOME-CONTINUING> 5,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,777
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
