COLOR SPOT NURSERIES INC, S-1, 1997-10-07

COLOR SPOT NURSERIES INC
S-1, 1997-10-07

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
COLOR SPOT NURSERIES, INC.

(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 5193 68-0363266
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
</TABLE>

3478 BUSKIRK AVENUE
PLEASANT HILL, CA 94523
(510) 934-4443

(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

MICHAEL F. VUKELICH
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
3478 BUSKIRK AVENUE
PLEASANT HILL, CA 94523
(510) 934-4443

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------

COPIES TO:

<TABLE>
<S> <C> <C>
STEVEN S. SIEGEL THOMAS A. BEVILACQUA RANDALL C. BASSETT
BROWNSTEIN HYATT FARBER & STRICKLAND, P.C. BROBECK, PHLEGER & HARRISON LLP LATHAM & WATKINS
410 SEVENTEENTH STREET, 22ND FLOOR TWO EMBARCADERO PLACE 633 WEST FIFTH STREET, SUITE 4000
DENVER, COLORADO 80202 2200 GENG ROAD LOS ANGELES, CALIFORNIA 90071
TELEPHONE: (303) 534-6335 PALO ALTO, CALIFORNIA 94303 TELEPHONE: (213) 485-1234
FACSIMILE: (303) 623-1956 TELEPHONE: (415) 424-0160 FACSIMILE: (213) 891-8763
FACSIMILE: (415) 496-2755
</TABLE>

---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock................................... 4,427,500 $14.00 $61,985,000 $18,783
% Notes..................................... $85,000,000 $85,000,000 $85,000,000 $25,758
</TABLE>

(1) Includes 577,500 shares of Common Stock issuable upon exercise of
over-allotment options to be granted to the underwriters.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933, as amended.
---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE>
EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten public offering of Common Stock (the "Common
Stock Prospectus") and one to be used in a concurrent underwritten public
offering of % Senior Subordinated Notes due 2007 (the "Note Prospectus"). The
Note Prospectus and the Common Stock Prospectus are identical except for the
front and back cover pages, the stabilization legend on page 2, and the sections
entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Selected
Consolidated Financial and Operating Data," "Unaudited Pro Forma Consolidated
Statement of Operations," "Unaudited Pro Forma Consolidated Balance Sheet,"
"Business--Overview," "Description of Certain Indebtedness," "Underwriting",
"Legal Matters" and "Additional Information," the deletion of the sections
entitled "Dividend Policy," "Dilution" and "Shares Eligible for Future Sale" and
the addition of a section entitled "Description of Notes" in the Note
Prospectus. The form of the Common Stock Prospectus is included herein and is
followed by the alternate pages to be used in the Note Prospectus. The alternate
pages for the Note Prospectus included herein are labeled "Alternate Page for
Note Prospectus." Final forms of each prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b) under the Securities Act of
1933, as amended.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
OCTOBER 7, 1997

3,850,000 SHARES

[LOGO]

COMMON STOCK
---------

All of the shares of Common Stock offered hereby (the "Common Stock
Offering") are being sold by Color Spot Nurseries, Inc. (the "Company" or "Color
Spot"). Prior to this offering, there has been no public market for the Common
Stock. It is estimated that the initial public offering price of the Common
Stock will be between $12.00 and $14.00 per share. See "Underwriting" for the
factors to be considered in determining the initial public offering price.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CSNI."

Concurrently with the Common Stock Offering, the Company is offering
$85,000,000 aggregate principal amount of its % Senior Subordinated Notes
due 2007 (the "Notes") to the public (the "Notes Offering" and, together with
the Common Stock Offering, the "Offerings"). The Common Stock Offering is
contingent on the consummation of the Notes Offering and the Notes Offering is
contingent on the consummation of the Common Stock Offering. See "Prospectus
Summary--Concurrent Offering." The Common Stock and the Notes are referred to
collectively herein as the "Securities."

----------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
Per Share.............................................. $ $ $
Total(2)............................................... $ $ $
</TABLE>

(1) Before deducting expenses of the offering payable by the Company estimated
at $ .

(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 577,500 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

----------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares will be made at the offices of BT Alex.
Brown Incorporated, Baltimore, Maryland, on or about , 1997.

----------------

BT ALEX. BROWN DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[PHOTOS AND MAP SHOWING PRODUCTION FACILITIES TO BE INSERTED]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS. REFERENCES TO THE COMPANY OR COLOR SPOT REFER TO COLOR SPOT
NURSERIES, INC. AND ITS CONSOLIDATED SUBSIDIARIES AND ITS PREDECESSORS. SEE
"COMPANY HISTORY." UNLESS OTHERWISE INDICATED, ALL STATEMENTS MADE IN THIS
PROSPECTUS (I) ASSUME NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION,
(II) REFLECT THE MERGER OF CSN, INC. (THE PARENT COMPANY OF COLOR SPOT
NURSERIES, INC.) INTO COLOR SPOT NURSERIES, INC. WHICH WILL OCCUR SIMULTANEOUSLY
WITH THE CONSUMMATION OF THE OFFERINGS AND (III) REFLECT A 0.69-FOR-ONE REVERSE
STOCK SPLIT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET
FORTH UNDER THE CAPTION "RISK FACTORS." AS USED IN THIS PROSPECTUS, "FISCAL
1996" REFERS TO THE FISCAL YEAR COMMENCING SEPTEMBER 8, 1995 AND ENDING JUNE 30,
1996, "FISCAL 1997" REFERS TO THE FISCAL YEAR ENDED JUNE 30, 1997 AND "FISCAL
1998" REFERS TO THE FISCAL YEAR ENDING JUNE 30, 1998.

THE COMPANY

Color Spot is the largest wholesale nursery in the United States. The
Company provides a wide assortment of high quality plants as well as extensive
merchandising services primarily to leading home centers and mass merchants,
such as Home Depot, Home Base, Wal-Mart and Kmart. The Company distributes
products to over 850 retail and commercial customers, representing over 8,000
locations, primarily in the western and southwestern regions of the United
States. Since June 30, 1996, the Company has completed 13 acquisitions, making
it a leading consolidator in the wholesale nursery industry. On a pro forma
basis, the Company generated approximately $182.8 million in net sales and $15.3
million in operating income in fiscal 1997.

The Company believes it is one of the few wholesale nurseries that has the
scale and distribution capabilities necessary to provide large volumes of high
quality product to its retail customers on a multi-regional basis. The Company
produces over 2,000 varieties of live plants, including bedding plants, shrubs,
potted flowering plants, ground cover and fresh cut Christmas trees. Through its
200 person salesforce, Color Spot also provides its retail customers with a
broad array of value-added services, such as in-store merchandising, product
display and maintenance, promotional planning and product reordering. The
Company believes that providing these services differentiates it from its
competitors and helps to establish Color Spot as a preferred supplier in the
industry. Color Spot operates 19 production facilities located in California,
Arizona, Texas, Oregon and Washington.

Gardening is one of the most popular leisure activities in the United
States. According to the 1996-1997 National Gardening Survey, 64% of the
approximately 101 million households in the U.S. participated in some form of
gardening in 1996. Retail sales of live plants totaled approximately $18 billion
in the U.S. in 1996. The live plant retail distribution channel has undergone
significant consolidation over the past ten years, as sales have shifted from
local independent nurseries to major national retailers. Despite this retail
consolidation, the wholesale nursery industry is still highly fragmented with
over 10,000 participants in the U.S. In 1996, the ten largest wholesale
nurseries accounted for approximately 8% of total wholesale production.

The Company believes that it is well positioned to capitalize on
consolidation and growth opportunities in the highly fragmented wholesale
nursery industry. Color Spot's growth strategy is to continue to enter new
geographic markets through acquisitions, expand its presence in existing markets
and add new product lines. An important aspect of the Company's growth strategy
is to increase its penetration in targeted markets, which will enable the
Company to better serve its retail customers, enhance its brand name recognition
and increase operating efficiencies. Since June 30, 1996, both through
acquisitions and internal development, the Company has expanded its product line
into new areas of the wholesale nursery industry, including shrubs, potted
flowering plants and ground cover. In addition, the Company's recent entry into
the fresh cut Christmas tree business enables it to utilize available sales and
distribution capacity during the winter months.

3
<PAGE>
Color Spot America, Inc., a predecessor to the Company, was founded in 1983
by Michael F. Vukelich, the Company's current Chief Executive Officer. Following
a change of control in 1991, Mr. Vukelich left the Company and new management
was installed. Between 1992 and 1995, net sales and profitability of the
business declined. In September 1995, an investor group including Mr. Vukelich
formed the Company and acquired the business. Mr. Vukelich's management team
implemented a number of strategic and operational initiatives designed to
improve the Company's customer relationships and financial results. These
initiatives included revamping the Company's merchandising programs,
decentralizing its operations, revising its pricing strategies, renewing its
focus on operating efficiencies and restructuring its sales organization. As a
result of these strategies, the Company has experienced significant improvements
in net sales and operating results. With the improvement of its financial
results, Color Spot embarked on an aggressive acquisition strategy and has
completed 13 acquisitions since June 30, 1996. Color Spot believes it is now
well positioned to continue its growth and further consolidate the wholesale
nursery industry.

The Company's executive offices are located at 3478 Buskirk Avenue, Suite
260, Pleasant Hill, CA 94523, and its telephone number is (510) 934-4443. The
Company was incorporated in August 1995.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered hereby........................ 3,850,000 shares

Common Stock to be outstanding after the
offering(1)...................................... 10,766,858 shares

Use of Proceeds.................................... Repayment of debt and general corporate
purposes.

Proposed Nasdaq National Market symbol............. CSNI
</TABLE>

- - - ------------------------

(1) Excludes 1,583,878 shares of Common Stock issuable upon exercise of stock
options outstanding at June 30, 1997 under the Company's stock option plans
at an average exercise price of $4.49 per share. Under the treasury stock
method of computing earnings per share, the options represent 1,035,983
common stock equivalents. See "Management--Stock Option Plans" and Note 14
to the Consolidated Financial Statements of Color Spot Nurseries, Inc.
appearing elsewhere in this Prospectus. Also excludes 367,602 shares
presently issuable upon the conversion of an outstanding promissory note at
a conversion price of $20.09 per share. See "Description of Certain
Indebtedness--Heller Note."

CONCURRENT OFFERING

Concurrently with the Common Stock Offering, the Company is offering $85.0
million in aggregate principal amount of its % Senior Subordinated Notes due
2007 to the public. The Common Stock Offering is contingent upon the
consummation of the Notes Offering, and the Notes Offering is contingent upon
the consummation of the Common Stock Offering.

4
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Company commenced operations on September 8, 1995 through the purchase
of certain assets of Color Spot, Inc. in a transaction accounted for under the
purchase method of accounting. Color Spot, Inc. commenced operations on March 1,
1993 through the purchase of certain assets of Color Spot America, Inc., in a
transaction accounted for under the purchase method of accounting. On December
31, 1996, an affiliate of Kohlberg & Company, LLC acquired control of the
Company through a series of stock transactions accounted for as a
recapitalization. As a result of these transactions and the Company's ongoing
acquisition program, the financial information presented below is not comparable
in certain respects.

The financial information of the Company presented below as of June 30, 1997
and for the fiscal year ended June 30, 1997 and for the period from September 8,
1995 through June 30, 1996 is derived from the audited financial statements of
the Company appearing elsewhere in this Prospectus. The financial information of
Color Spot, Inc. for the period from January 1, 1995 through September 8, 1995
and the year ended December 31, 1994 is derived from the audited financial
statements of Color Spot, Inc.

The pro forma information presented below gives effect to the 13
acquisitions completed by the Company since June 30, 1996. See "Unaudited Pro
Forma Consolidated Statement of Operations" and "Unaudited Pro Forma
Consolidated Balance Sheet."

<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
------------------------ -------------------------------------
1/1/95 9/8/95 FISCAL YEAR
YEAR ENDED THROUGH THROUGH ENDED PRO FORMA
12/31/94 9/8/95 6/30/96(1) 6/30/97(2) FISCAL YEAR
----------- ----------- ----------- ----------- ENDED
6/30/97
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 39,411 $ 28,991 $ 51,995 $ 113,400 $182,774
Gross profit............................................ 14,995 11,491 24,310 49,374 75,087
Operating expenses...................................... 17,869 14,438 18,475 39,458 59,801
Income (loss) from operations........................... (2,874) (2,947) 5,835 9,916 15,286
Interest expense........................................ 3,170 2,576 687 4,179 10,378
Income tax provision.................................... 2,069 2,830 2,324
Income (loss) before extraordinary loss................. (5,947) (5,485) 2,988 3,055 2,841
Extraordinary loss...................................... (215)
Net income (loss)....................................... (5,947) (5,485) 2,988 2,840

Net income per share.................................... $0.32
Shares used in per share calculation.................... 8,750,968
Supplemental net income per share(3).................... $0.27
Shares used in per share calculation.................... 11,242,074

OPERATING DATA:
Cash paid for income taxes(4)........................... 0 0 2 0 0
Number of production facilities(5)...................... 6 6 6 13 19
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
AS
ACTUAL PRO FORMA ADJUSTED(6)
--------- ---------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................ $13,266 $16,197 $34,600
Total assets................................................................... 133,417 186,753 193,511
Long-term debt, excluding current portion...................................... 83,408 120,723 96,026
Stockholders' equity........................................................... 4,275 10,015 54,547
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

5
<PAGE>
(FOOTNOTES FOR PRECEDING PAGE)

- - - ------------------------------

(1) Includes the financial results of Barcelo's Plant Growers from March 1996.

(2) Includes the financial results of NAB Nursery and B&C Growers from October
1996, Sunrise Growers from November 1996, Sunnyside Plants from January
1997, Lone Star Growers Co. from February 1997, Signature Trees from March
1997 and Hi-C Nursery from April 1997.

(3) Supplemental net income per share has been calculated as if the
recapitalization of the Company and the consummation of the Offerings
described in this Prospectus occurred on July 1, 1996. If these transactions
occurred on July 1, 1996, interest expense would have decreased by $379,000
and net income would have increased to $3,049,000. See "Certain
Transactions-- Recapitalization."

(4) Color Spot's designation as an agricultural company provides it with
favorable tax treatment. While the Company's financial statements include
tax expense, the Company has historically not paid cash income taxes.
Agricultural companies are permitted to calculate taxable income on a cash
basis. As a result of the Company's growth, this treatment has enabled the
Company to generate significant net operating losses since its inception and
accumulate a net operating loss carryforward of approximately $29.7 million
for federal income tax purposes and $14.1 million for state income tax
purposes as of June 30, 1997. The Company expects that it will continue to
benefit from these regulations in the future.

(5) Facilities include owned and leased properties as of the end of each period,
excluding Christmas tree fields.

(6) Adjusted to give effect to (i) the sale of 3,850,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $13.00 per
share, (ii) the sale of $85 million aggregate principal amount of Senior
Subordinated Notes offered by the Company in the Notes Offering at an
assumed interest rate of 9% per annum and (iii) the application of the net
proceeds from the Offerings. See "Use of Proceeds."

------------------------

In addition, during the fiscal quarter in which the Offerings are completed,
the Company will incur (i) a $4.4 million non-cash pre-tax extraordinary charge
related to the write-off of deferred financing fees, (ii) a $2.0 million pre-tax
charge related to the termination of an annual management fee and (iii) a $0.7
million non-cash pre-tax compensation charge from the accelerated vesting of
stock options.

6
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS. THE STATEMENTS CONTAINED IN THIS
PROSPECTUS WHICH ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS THAT
ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE SET FORTH IN OR IMPLIED BY FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. WHEN
USED IN THIS PROSPECTUS, THE WORDS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"CONTINUE," "ESTIMATE," "PROJECT," "INTEND" AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT") REGARDING EVENTS, CONDITIONS AND
FINANCIAL TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS, BUSINESS STRATEGY,
RESULTS OF OPERATIONS AND FINANCIAL POSITION. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DESCRIBED BELOW, UNDER THE
HEADING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" AND ELSEWHERE IN THIS PROSPECTUS.

DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH. As part of its growth
strategy, the Company aggressively pursues the acquisition of other companies
that expand its existing business. See "Business--Growth Strategy." Acquisitions
involve a number of risks, including effects on the Company's reported operating
results, the diversion of management's attention, the dependence on hiring,
training and retaining key personnel and risks associated with unanticipated
problems or legal liabilities, some or all of which could have a material
adverse effect on the Company. Historically, the Company has financed
acquisitions through the incurrence of additional debt and the issuance of
Company stock. See "--Leverage." The Company completed one acquisition in fiscal
1996, seven acquisitions in fiscal 1997 and six acquisitions to date in fiscal
1998. There can be no assurance that the Company will be able to integrate its
acquisitions or successfully implement its business model in a timely manner
without substantial costs, delays or other problems. Once integrated and
operating according to the Company's business model, these acquisitions may not
achieve sales, profitability and productivity commensurate with the Company's
historical operating results. In addition, there can be no assurance that the
Company's management and financial controls, personnel, computer systems and
other corporate support systems will be adequate to manage the increase in the
size and scope of the Company's operations as a result of its acquisitions.
Additionally, there can be no assurances that the acquired businesses will
enhance the Company's business or financial performance.

The Company anticipates that one or more potential acquisition
opportunities, including those that would be material, may become available in
the near future. No assurances can be given that any acquisition by the Company
will occur, that if an acquisition does occur that it will not have a material
adverse effect on the Company, that any such acquisition will be successful in
enhancing the Company's business or that any such acquisition can be
successfully integrated into the Company's business. See
"--Future Capital Needs; Uncertainty of Additional Financing."

ABILITY TO MANAGE GROWTH. The Company has experienced significant growth,
particularly over its last fiscal year, and intends to continue to pursue an
aggressive growth strategy. The growth and expansion of the Company's business
have placed, and are expected to continue to place, a significant strain on the
Company's management, operational and financial resources. Continued growth will
require an increase in Company personnel who possess the training and experience
necessary to operate the Company's facilities. There can be no assurance that
the Company will be able to continue to attract, develop and retain the
personnel necessary to pursue its growth strategy. Moreover, as the Company
continues to grow, it will need to expand its production, warehouse and
distribution facilities and may require additional facilities to support such
growth. In addition, the Company's rapid growth may place significant pressure
on its

7
<PAGE>
financial controls and inventory management systems. Any failure by the Company
to manage its growth effectively could have a material adverse effect on the
Company.

SHORT OPERATING HISTORY UNDER CURRENT MANAGEMENT. Color Spot America, Inc.
(together with its subsidiaries, "Color Spot America"), a California corporation
and a predecessor to the Company, which was managed by certain of the Company's
current management, was incorporated and commenced operations in 1983. The
current management of the Company operated Color Spot America until January 1991
when a subsidiary of PacifiCorp, a public utility (together with its
subsidiaries, "PacifiCorp"), obtained control and installed a new management
team that operated Color Spot America and its successor, Color Spot, Inc., an
Oregon corporation ("Color Spot Oregon"), from 1991 through September 1995.
During the period of PacifiCorp's control, the Company's predecessors
experienced declining net sales and profitability. In September 1995, the
Company commenced operations by purchasing Color Spot Oregon's assets from
PacifiCorp. See "Company History." Accordingly, the Company, under its current
management team, has only a limited operating history upon which investors may
evaluate its performance. Although the Company has experienced revenue growth
and profitability since its inception in September 1995, there can be no
assurances that the Company will be able to achieve or sustain such revenue
growth or profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company must, among other things,
respond to competitive developments, continue to attract, retain and motivate
qualified employees, and successfully manage and execute its expansion
strategies. There can be no assurances that the Company will be successful in
these efforts.

CUSTOMER CONCENTRATION; DEPENDENCE ON HOME DEPOT. The Company is highly
dependent on the purchases of its top eight retail customers, which together
accounted for 75% and 82% of the Company's net sales in fiscal 1997 and fiscal
1996, respectively. The Company's largest customer, Home Depot, accounted for
approximately 39% and 41% of the Company's net sales in fiscal 1997 and fiscal
1996, respectively. The Company expects that a small number of customers will
continue to account for a substantial portion of its net sales for the
foreseeable future. The Company does not have long-term contracts with any of
its retail customers, and there can be no assurance that they will continue to
purchase the Company's products. The loss of, or a significant adverse change
in, the relationship between the Company and Home Depot or any other major
customer could have a material adverse effect on the Company. The loss of, or
reduction in orders from, any significant retail customers, losses arising from
retail customers' disputes regarding shipments, fees, merchandise condition or
related matters, or the Company's inability to collect accounts receivable from
any major retail customer could have a material adverse effect on the Company.
In addition, there can be no assurance that revenue from customers that have
accounted for significant revenue in past periods, individually or as a group,
will continue, or if continued, will reach or exceed historical levels in any
period. See "Business--Customers."

SEASONALITY; VARIABILITY OF QUARTERLY RESULTS AND CERTAIN CHARGES. The
Company's business is highly seasonal. In fiscal 1997, approximately 77% of net
sales and 125% of operating income occurred in the first half of the calendar
year. The Company has historically reported operating losses in its first and
second fiscal quarters, and the Company believes it will continue to report
operating losses during the first half of its fiscal year. The Company has
experienced and expects to continue to experience variability in net sales,
operating income and net income on a quarterly basis. Factors that may
contribute to this variability include: (i) weather conditions during peak
growing and gardening seasons; (ii) shifts in demand for live plant products;
(iii) changes in product mix, service levels and pricing by the Company and its
competitors; (iv) the effect of acquisitions; (v) the economic stability of the
Company's retail customers; and (vi) the Company's relationship with each of its
retail customers. See "--Weather; General Agricultural Risks" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Results."

8
<PAGE>
(ii) a $2.0 million pre-tax charge related to the termination of an annual
management fee and (iii) a $0.7 million non-cash pre-tax compensation charge
from the accelerated vesting of stock options.

Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results cannot be relied upon as indicators of
future performance. In the event that the Company's operating results in any
future period fall below the expectations of securities analysts and investors,
the trading price of the Common Stock would likely be materially and adversely
affected.

RESTRICTIONS IMPOSED BY NEW LOAN AGREEMENT AND NOTE
INDENTURE. Simultaneously with the completion of the Offerings, the Company
will enter into a new senior credit facility (the "New Loan Agreement") with a
number of banking institutions, led by Credit Agricole Indosuez, which will
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, pay or declare dividends, enter into any transaction
not in its usual course of business, guarantee or otherwise become in any way
liable with respect to the obligations of another party or entity, merge or
consolidate with another person or sell or transfer any collateral (except for
the sale of inventory in the ordinary course of the Company's business). A
breach of any of these covenants could result in a default under the New Loan
Agreement. Upon the occurrence of an Event of Default (as defined in the New
Loan Agreement), the lenders could elect to declare all amounts outstanding
under the New Loan Agreement, together with accrued interest, to be immediately
due and payable. If the Company were unable to pay those amounts, the lenders
could proceed against the collateral granted to them to secure that
indebtedness. If the New Loan Agreement indebtedness were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay the indebtedness in full and other indebtedness of the Company.
Substantially all of the assets of the Company have been pledged as security
under the New Loan Agreement. The restrictions described above, in combination
with the leveraged nature of the Company, may limit the Company's ability to
obtain financing in the future or may otherwise restrict corporate activities.
See "Description of Certain Indebtedness."

In connection with the Notes Offering, the Company will enter into an
indenture under which the Notes will be offered (the "Indenture"). The Indenture
will contain covenants that will, subject to certain exceptions, limit, among
other things, the ability of the Company and its subsidiaries to (i) pay
dividends or make certain other restricted payments or investments; (ii) incur
additional indebtedness and issue disqualified stock and preferred stock; (iii)
create liens on assets; (iv) merge, consolidate, or sell all or substantially
all of their assets; (v) enter into certain transactions with affiliates; (vi)
create restrictions on dividends or other payments by subsidiaries to the
Company; and (vii) create guarantees of indebtedness by subsidiaries. A breach
of any of these covenants could result in a default under the Indenture. Upon
the occurrence of an event of default under the Indenture, the trustee under the
Indenture or the holders of at least 25% in principal amount of outstanding
Notes may elect to declare the principal of and accrued interest on all the
Notes to be due and payable. The Company's ability to make scheduled payments of
the principal of, or to pay interest on, or to refinance its indebtedness
(including the Notes) depends on its future performance, which to a certain
extent is subject to economic, financial, competitive and other factors beyond
its control. Based upon the current level of operations and anticipated growth,
management believes that future cash flow from operations, together with
available borrowings under the New Loan Agreement, will be adequate to meet the
Company's anticipated requirements for working capital, capital expenditures,
interest payments and scheduled principal payments for the foreseeable future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." There can be no assurance,
however, that the Company's business will continue to generate sufficient cash
flow from operations in the future to service its debt and make necessary
capital expenditures. If it is unable to do so, the Company may be required to
refinance all or a portion of its existing debt, including the Notes, to sell
assets or to obtain additional financing. There can be no assurance that any
such refinancing or that any such sale of assets or additional financing would
be possible on terms reasonably favorable to the Company, or at all.

9
<PAGE>
LEVERAGE. The Company is substantially leveraged. The Company may finance
additional growth through the incurrence of additional indebtedness. As of
September 25, 1997, after giving effect to the Offerings, the aggregate amount
of the Company's outstanding indebtedness would have been approximately $
million (excluding unused commitments). Due to its leveraged nature, the Company
may be more vulnerable to extended economic downturns and its flexibility in
responding to changing economic and industry conditions may be limited. The
degree to which the Company is leveraged could have important consequences to
purchasers of the Common Stock, including the impairment of the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate purposes. The Company's ability
to make principal and interest payments on the Notes and to repay the Notes at
maturity will be dependent on a number of factors, many of which are beyond the
Company's control, and may be dependent on the Company's future operating
performance, which is itself dependent on the availability of borrowings under
the New Loan Agreement or other financings. A substantial portion of the
Company's current borrowing capacity under the New Loan Agreement could be
consumed by increased working capital needs, interest payments on the Notes or
future acquisitions and there can be no assurance that the Company's cash flow
from operations will be sufficient to meet its debt service obligations. If the
Company is unable to meet its debt service obligations, it could be required to
take certain actions such as reducing or delaying capital expenditures, selling
assets, refinancing or restructuring its indebtedness, seeking additional equity
capital or other actions. There can be no assurance that any of such actions
could be effected on satisfactory terms, if at all, or on terms permitted under
the New Loan Agreement. In addition, unforeseen problems, delays, expenses and
difficulties as well as changes in economic and regulatory or competitive
conditions may lead to cost increases that would make the Company's current cash
flow and borrowings under the New Loan Agreement insufficient to meet the
Company's capital needs. See "--Future Capital Needs; Uncertainty of Additional
Financing."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company
currently anticipates that its available cash combined with the net proceeds of
the Offerings, borrowings under the New Loan Agreement and funds from operations
will be sufficient to meet its anticipated working capital, capital expenditure
and acquisition financing requirements for the next 12 months. However, there
can be no assurance that such resources will be sufficient for such
requirements. The Company may need to raise additional funds through the
issuance of public or private debt or equity securities in order to take
advantage of unanticipated opportunities, including acquisitions of
complementary businesses, or otherwise respond to unanticipated competitive
pressures. If additional funds are raised through the issuance of equity
securities, the percentage ownership of then current stockholders of the Company
may be reduced and such equity securities may have rights, preferences or
privileges senior to those of the holders of the Common Stock. If additional
funds are raised through the issuance of debt securities, such securities would
have certain rights, preferences and privileges senior to holders of Common
Stock and the terms of such debt could impose restrictions on the operations of
the Company. There can be no assurance that additional financing will be
available on terms favorable to the Company, or at all. If adequate funds are
not available, or not available on acceptable terms, the Company may not be able
to take advantage of unanticipated opportunities or otherwise respond to
unanticipated competitive pressures. Such inability could have a material
adverse effect on the Company. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Certain Indebtedness."

10
<PAGE>
reduce the demand for the Company's products. The Company intends to expand into
new markets that typically have greater weather variability than the Company's
historic markets. Failure by the Company to adequately manage this variability
could have a material adverse effect on the Company. The Company's operations
also may be materially affected by disease, pests or other natural hazards.
Agricultural production is highly dependent upon the availability of water. The
Company has not installed, and is not required to install, water reclamation
systems at the majority of its production facilities. The loss of access to
water at any of the Company's facilities would have a material adverse effect on
the Company. See "-- Governmental Regulations; Minimum Wage." Given the
perishable nature of the Company's products, if sales do not materialize as
expected, the Company could experience a significant decline in profitability.

DEPENDENCE ON LEASED FACILITIES. The majority of the Company's production
facilities are leased. These leases expire at varying times in the next two to
15 years. Although the Company believes that it can extend most of its leases on
acceptable terms, failure to do so would require the Company to establish new
production facilities. No assurance can be given that any such leases can be
extended on acceptable terms or, if not so extended, that suitable replacement
production facilities can be established. Failure to extend the terms of any of
these leases could have a material adverse effect on the Company. See
"Business-- Properties and Facilities."

SENSITIVITY TO PRICE INCREASES OF CERTAIN RAW MATERIALS. The Company and
its competitors are vulnerable to price increases for raw materials. For fiscal
1997, raw material costs accounted for approximately 27.1% of the Company's net
sales. The Company does not have long-term contracts with the majority of its
raw material suppliers. Increases in the cost of raw materials essential to the
operations of the Company, including seed, plastic, chemicals and fertilizer,
would increase the Company's costs of production. Significant increases in the
price of petrochemicals or a scarcity of raw materials essential to plant
propagation could have a material adverse effect on the Company. There can be no
assurance that any such price increases can be passed on to the Company's
customers in the form of higher prices for the Company's products.

COMPETITION. The wholesale nursery industry is highly competitive.
Competition is based principally on product quality, breadth of product
offerings, customer service and price. The Company believes it has
differentiated itself from its competitors through the breadth of its product
offerings, its multi-regional capabilities and the value-added services it
provides to its retail customers. The wholesale nursery industry is highly
fragmented with over 10,000 small and regional nurseries nationwide. In 1996,
the ten largest and 100 largest wholesale nurseries in the United States
accounted for approximately 8% and 22%, respectively, of total wholesale
production. The Company currently competes directly with a large number of
western and southwestern wholesale nursery companies. On a multi-regional basis,
the Company competes with Hines Nurseries primarily in bedding plants and shrubs
and Monrovia Nursery Company primarily in shrubs. The fresh cut Christmas tree
market is also highly fragmented and, on a regional basis, the Company competes
in this market with Holiday Tree Farms and The Kirk Company.

GOVERNMENTAL REGULATIONS; MINIMUM WAGE. The Company is subject to certain
federal, state and local health, safety and environmental laws and regulations
regarding the production, storage and transportation of certain of its products
and the disposal of its waste. Certain of the Company's operations and
activities, such as water runoff from its production facilities and the use of
certain pesticides, are subject to regulation by the United States Environmental
Protection Agency (the "EPA") and similar state and local agencies. These
agencies may regulate or prohibit the use of such products, procedures or
operations, thereby affecting the Company's operations and profitability. In
addition, the Company must comply with a broad range of environmental laws and
regulations. Additional or more stringent environmental laws and regulations may
be enacted in the future and such changes could have a material adverse effect
on the Company. The Company uses reclamation water as one of the sources of
water supply for a few of its production facilities. The use and pricing of
reclamation water, including availability of

11
<PAGE>
subsidized water rates, is governed by federal reclamation laws and regulations.
Changes in the law could have a material adverse effect on the Company.

In addition, the Company is subject to the Fair Labor Standards Act as well
as various federal, state and local regulations that govern such matters as
minimum wage requirements, overtime and working conditions. A large number of
the Company's employees are paid at or just above the federal minimum wage level
and, accordingly, changes in laws, regulations or ordinances could have a
material adverse effect on the Company by increasing the Company's costs. See
"Business--Government Regulation."

CONTROL BY SIGNIFICANT STOCKHOLDERS AND MANAGEMENT. After completion of the
Common Stock Offering, KCSN Acquisition Company, L.P. ("KCSN"), an affiliate of
Kohlberg & Company, LLC, a New York merchant banking firm ("Kohlberg"), will own
approximately 44.6% of the outstanding Common Stock (approximately 42.3% if the
Underwriters' over-allotment option is exercised in full). In addition,
management stockholders will own approximately 9.9% of the outstanding Common
Stock (approximately 9.4% if the Underwriters' over-allotment option is
exercised in full) after the completion of the Common Stock Offering. Heller
Equity Capital Corporation ("Heller") is the holder of an 8.0% Subordinated
Convertible Note (the "Heller Note"), which is convertible into approximately
3.3% of the outstanding Common Stock (approximately 3.1% if the Underwriters'
over-allotment option is exercised in full) after giving effect to the Common
Stock Offering. Heller also owns 1.7% of the outstanding Common Stock
(approximately 1.6% if the Underwriters' over-allotment option is exercised in
full). KCSN, Heller and the management stockholders are parties to a
Stockholders Agreement, which provides that the parties to the Stockholders
Agreement shall (i) consent to any merger, consolidation or sale of all or
substantially all of the Company's assets involving an independent third party
and approved by a majority of KCSN's shares and (ii) vote their shares to elect
Michael F. Vukelich, Jerry L. Halamuda, five KCSN designees and two independent
designees reasonably acceptable to KCSN as directors of the Company. In
addition, KCSN and certain of the management stockholders are parties to a
put/call option agreement to effect the repurchase by the Company of shares of
Common Stock held by the management stockholders. Under the put/call option
agreement, KCSN retains an irrevocable proxy to vote the shares of Common Stock
not yet repurchased by the Company. As of July 31, 1997, KCSN had a proxy to
vote 20,211 shares of Common Stock held by the management stockholders.
Consequently, after completion of the Common Stock Offering, KCSN, the
management stockholders and Heller will continue to have significant influence
over the policies and affairs of the Company and may be in a position to
determine the outcome of corporate actions requiring stockholder approval,
including adopting amendments to the Company's certificate of incorporation,
electing directors and approving or disapproving mergers or sales of all or
substantially all of the Company's assets. See "Certain
Transactions--Relationship with Kohlberg--Control by KCSN,"
"--Recapitalization," "Principal Stockholders" and "Description of Capital
Stock."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Common Stock Offering, there has been no public market for the Common Stock.
There can be no assurance that an active trading market will develop or be
sustained or that the market price of the Common Stock will not decline below
the initial public offering price. The initial public offering price will be
determined through negotiations between the Company and the representatives of
the Underwriters and may not be indicative of the market price for the Common
Stock following the Offerings. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. Even
if an active trading market does develop, the market price of the Common Stock
following the Common Stock Offering may be highly volatile. Factors such as
variations in the Company's net sales, earnings, cash flow and announcements of
new products and services, price reductions or acquisitions by the Company,
announcements or other factors impacting certain of the Company's retail
customers or its competitors could cause the market price of the Common Stock to
fluctuate substantially. In addition, from time to time, the stock markets have
experienced significant price and volume fluctuations that have resulted in
changes to the market price of the stocks of many companies that have been
unrelated or disproportionate to the operating performance of those companies.
Such broad market fluctuations, as well as a shortfall in revenue or earnings
compared

12
<PAGE>
to securities analysts' expectations, changes in analysts' recommendations or
projections, and general economic and market conditions may adversely affect the
market price of the Common Stock following the Common Stock Offering.

SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock after the completion of the Offerings could have a material adverse effect
on the prevailing market price of the Common Stock. All of the 3,850,000 shares
offered hereby (4,427,500 shares if the Underwriters' over-allotment option is
exercised in full) will be eligible for immediate sale in the public market
without restriction. All of the remaining 6,937,068 shares are "restricted
shares" within the meaning of Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act") and are eligible for sale in accordance with Rule
144. Of these shares, after giving effect to the 180-day lock-up agreement,
approximately 975,247 shares will be eligible for immediate sale in the public
market without restriction pursuant to Rule 144(k). Ninety days after the date
of this Prospectus, after giving effect to the 180-day lock-up agreement, the
Company estimates that approximately 1,583,878 shares issuable upon exercise of
outstanding stock options will be eligible for sale under Rule 701. The Company,
its officers and directors and certain of the Company's existing stockholders
have agreed not to sell, grant any option to sell, transfer or otherwise dispose
of, directly or indirectly, any of their shares for a period of 180 days after
the date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated ("BT Alex. Brown"). Upon expiration of the 180 day lock-up
agreements, or earlier if BT Alex. Brown releases the shares from the lock-up
agreements, approximately 975,247 additional shares will be eligible for
immediate sale in the public market, subject in some cases to compliance with
Rule 144 under the Securities Act. The Company and certain existing
stockholders, including KCSN, are parties to a Stockholders Agreement setting
forth the terms upon which the Company will be required to register shares of
Common Stock under the Securities Act for sale by the stockholders. See
"Description of Capital Stock" and "Shares Eligible for Future Sale."

POSSIBLE ANTI-TAKEOVER EFFECT OF CHARTER, BYLAW AND DELAWARE LAW
PROVISIONS. The Company is authorized to issue a significant amount of unissued
shares of Common Stock and preferred stock, par value $.01 per share (the
"Preferred Stock"). The Board of Directors of the Company is authorized by the
Amended and Restated Certificate of Incorporation of the Company to determine
the rights and preferences of any Preferred Stock, including voting, dividend
and liquidation rights. Any series of Preferred Stock could have rights which
could have a material adverse effect on the rights of the holders of the Common
Stock. The issuance of additional shares of Common Stock or a new series of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions or other corporate purposes, could have the effect of
diluting current stockholders' ownership interests in the Company or of making
it more difficult for a third party to acquire, or discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. In
addition, the Company's Amended and Restated Certificate of Incorporation and
Bylaws and provisions of the Delaware General Corporation Law make it more
difficult to change control of the Company and replace incumbent management. See
"Description of Capital Stock." Given the number of shares of Common Stock held
by KCSN, third parties may not be able to obtain control of the Company through
purchases of Common Stock not owned by KCSN. See "Certain
Transactions--Relationship with Kohlberg."

DILUTION. Purchasers of Common Stock in the Common Stock Offering will
experience immediate and substantial dilution in pro forma net tangible book
value of $13.02 per share of Common Stock from the initial public offering
price. See "Dilution."

13
<PAGE>
COMPANY HISTORY

Color Spot America was founded in 1983 by Michael F. Vukelich, the Company's
current Chief Executive Officer, and it grew to become one of the largest
bedding plant producers in California. In February 1989, Color Spot America,
through a wholly owned subsidiary, acquired one of its largest competitors for
which PacifiCorp provided the acquisition financing. Immediately upon closing of
this financing, Color Spot America was in default of certain financial covenants
under the PacifiCorp financing. Other than the imposition of a default rate of
interest, PacifiCorp did not take any action with respect to these financial
covenant defaults until January 1991. At that time, Mr. Vukelich left Color Spot
America and PacifiCorp installed new management. In 1993, Color Spot America
sold substantially all of its assets and liabilities to Color Spot Oregon, a
corporation controlled by PacifiCorp. Net sales and profitability of Color Spot
America and Color Spot Oregon declined between 1992 and 1995.

In September 1995, the Company was formed to acquire the assets of Color
Spot Oregon from PacifiCorp by Heller, Mr. Vukelich and Jerry L. Halamuda, who
had previously worked with Mr. Vukelich at Color Spot America. With Mr. Vukelich
as Chief Executive Officer and Mr. Halamuda as President, management implemented
a number of strategic and operational programs designed to improve the Company's
customer relationships and financial results. These initiatives included
revamping the Company's merchandising programs, decentralizing its operations,
revising its pricing strategies, renewing its focus on operating efficiencies
and restructuring its sales organization. As a result of these strategies, the
Company has experienced significant improvements in net sales and operating
results. With the improvement of its financial results, Color Spot embarked on
an aggressive acquisition strategy and has completed 13 acquisitions since June
30, 1996. Color Spot believes it is now well positioned to continue its growth
and further consolidate the wholesale nursery industry.

In December 1996, the Company completed a recapitalization in which KCSN, an
affiliate of Kohlberg, acquired newly issued shares constituting a majority
interest in the Company and in which the Company repurchased the shares of
Common Stock held by Heller and a portion of the Common Stock held by management
(the "Recapitalization"). See "Certain Transactions."

RECENT ACQUISITIONS

Since June 30, 1996, the Company has completed 13 acquisitions. The
following table describes these acquisitions:

<TABLE>
<CAPTION>
COMPANY PRIMARY LOCATION DATE PRODUCT LINE
- - - -------------------------- ------------------ -------------- ------------------------------- REVENUES(1)
---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
NAB Nurseries Arizona October 1996 Bedding Plants and Foliage $ 4.8
Southern
B&C Growers California October 1996 Bedding Plants and Ground Cover 2.3
Southern
Sunrise Growers California November 1996 Bedding Plants 3.0
Northern
Sunnyside Plants California January 1997 Flowering Potted Plants 6.4
Lone Star Growers Co. Texas February 1997 Shrubs and Bedding Plants 22.2
Signature Trees Oregon March 1997 Christmas Trees 6.9
Northern
Hi-C Nursery California April 1997 Bedding Plants 4.5
Plants, Inc. Texas July 1997 Bedding Plants 7.9
Peters' Wholesale
Greenhouses, Inc. Texas July 1997 Bedding Plants 6.9
Wolfe Greenhouses, LLC Texas July 1997 Flowering Potted Plants 9.1
Cracon, Inc. Michigan August 1997 Christmas Trees 3.4
Summersun Greenhouse Co. Washington August 1997 Bedding Plants 8.3
Southern
Oda Nursery, Inc. California September 1997 Shrubs 11.7
</TABLE>

- - - ------------------------------

(1) Revenues for the 12 month period prior to acquisition by the Company.

14
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of shares of Common Stock
offered hereby, after deducting underwriting discounts and estimated offering
expenses, are estimated to be approximately $46.1 million assuming an initial
public offering price of $13.00 per share (approximately $53.1 million if the
Underwriters' over-allotment option is exercised in full). The net proceeds to
the Company from the Notes Offering are estimated to be $82.0 million. The
Company currently plans to repay in full the outstanding borrowings under the
Company's existing senior credit facility, which totaled approximately $115.3
million at September 25, 1997, from the net proceeds of the Offerings. The
remaining net proceeds are expected to be used for general corporate purposes.
Pending such uses, the net proceeds of the Offerings will be invested in
short-term, interest bearing, investment grade securities.

Loans under the Company's existing credit facility had interest rates
ranging from 8.5% to 9.0% per annum at June 30, 1997. Simultaneously with the
completion of the Offerings, the Company will enter into the New Loan Agreement
which will provide three facilities, including (i) a $75.0 million acquisition
term loan facility, (ii) a $40.0 million revolving credit facility and (iii) a
$35.0 million supplemental facility. At the option of the Company part of the
supplemental facility can be designated as an acquisition term loan facility or
a revolving credit facility. The New Loan Agreement will provide the Company
with a source of funds for working capital and future acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."

DIVIDEND POLICY

The Company plans to retain earnings to finance future growth and has no
current plans to pay cash dividends to stockholders following the Offerings. The
payment of any future cash dividends will be at the sole discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, capital requirements, the general financial condition of the Company
and general business conditions. The Company's New Loan Agreement and the
Indenture restrict the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Certain Indebtedness."

15
<PAGE>
DILUTION

The pro forma net tangible deficit of the Company's Common Stock as of June
30, 1997 was $(46,177,000), or approximately $(6.66) per share. Pro forma net
tangible deficit per share represents the amount of the Company's stockholders'
equity, less intangible assets, divided by 6,937,068 shares of Common Stock
outstanding as of June 30, 1997 after giving effect to the 752,400 shares issued
after June 30, 1997 and the repurchase of 36,194 shares of Common Stock by the
Company.

Pro forma dilution per share represents the difference between the amount
per share paid by purchasers of shares of Common Stock in the Common Stock
Offering and the pro forma tangible book value per share of Common Stock
immediately after completion of the Offerings. After giving effect to the sale
of the 3,850,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $13.00 per share, after deduction of
underwriting discounts and commissions and estimated offering expenses, the
Company's pro forma net tangible deficit as of June 30, 1997 would have been
$(220,000), or $(0.02) per share. This represents an immediate decrease in pro
forma net tangible deficit of $6.64 per share to existing stockholders and an
immediate dilution of $13.02 per share to purchasers of Common Stock, as
illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $ 13.00
---------
Pro forma net tangible deficit per share before the
offering.............................................. (6.66)
Increase per share attributable to new investors........ 6.64
---------
Pro forma net tangible deficit per share after the
offering................................................ (0.02)
---------
Pro forma dilution per share to new investors............. $ 13.02
---------
---------
</TABLE>

The following table summarizes on a pro forma basis as of June 30, 1997, for
existing stockholders and investors in the Common Stock Offering, the number of
shares of Common Stock purchased from the Company, the total consideration paid
or to be paid to the Company and the average price paid per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........................... 6,937,068 64.3% $ 43,248,396 46.4% $ 6.23
Investors in the Common Stock Offering.......... 3,850,000 35.7 50,050,000 53.6 13.00
------------ --------- ------------- --------- ------
Total....................................... 10,787,068 100.0% $ 93,298,396 100.0%
------------ --------- ------------- ---------
------------ --------- ------------- ---------
</TABLE>

The foregoing assumes no exercise of the Underwriters' over-allotment
option, stock options outstanding as of June 30, 1997 or the conversion of the
Heller Note. As of June 30, 1997 there were 1,583,878 shares of Common Stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $4.49 per share. See "Management--Stock Option Plans" and Note
14 of Notes to Consolidated Financial Statements of Color Spot Nurseries, Inc.

16
<PAGE>
CAPITALIZATION

The following table sets forth (i) the capitalization of the Company as of
June 30, 1997, (ii) the pro forma capitalization of the Company after the six
acquisitions completed by the Company after June 30, 1997 and (iii) the
capitalization of the Company as adjusted to reflect the sale of the shares of
Common Stock offered hereby and the sale of the Notes in the Notes Offering
(assuming an initial public offering price of $13.00 per share and after
deducting underwriting discounts and commissions and estimated expenses of the
Offerings), and the application of the estimated net proceeds therefrom. The
table should be read in conjunction with the Consolidated Financial Statements
of the Company and related Notes thereto included elsewhere in this Prospectus.
See "Selected Consolidated Financial and Operating Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt.......................................................... $10,220(1) $10,220 (1) $ 0
--------- ----------- -----------
--------- ----------- -----------

Long-term debt........................................................... $83,408 $120,723 $ 96,026

Redeemable common stock.................................................. 2,062 1,802 145 (2)

Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no
shares issued and outstanding........................................
Common stock, $0.01 par value, 15,000,000 shares authorized; 5,021,118
outstanding actual; 5,737,324 shares outstanding pro forma;
10,766,858 shares outstanding as adjusted(3)......................... 162 174 230 (2)
Additional paid-in capital............................................. 45,033 51,021 99,397 (2)
Treasury stock, 6,164,034 shares as of June 30, 1997................... (45,228) (45,488 ) (45,488 )
Retained earnings...................................................... 4,308 4,308 408 (4)
--------- ----------- -----------
Total stockholders' equity........................................... 4,275 10,015 54,547
--------- ----------- -----------
Total capitalization............................................... $89,745 $132,540 $ 150,718
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

- - - ------------------------

(1) Includes cash overdraft of $3.5 million.

(2) In connection with the Common Stock Offering, the redemption feature
attached to certain redeemable common stock will automatically be
eliminated; therefore, $1.7 million has been reclassified to Common stock
and Additional paid-in capital.

(3) Excludes 1,583,878 shares of Common Stock issuable upon exercise of stock
options outstanding at June 30, 1997 under the Company's stock option plans
and 367,602 shares issuable upon the conversion of the Heller Note. See
"Description of Certain Indebtedness--Heller Note."

(4) Reflects (i) a $4.4 million non-cash pre-tax extraordinary charge related to
the write-off of deferred financing fees, (ii) a $2.0 million pre-tax charge
related to the termination of an annual management fee and (iii) a $0.7
million non-cash pre-tax compensation charge from the accelerated vesting of
stock options, in all cases net of income taxes, which the Company will
incur in the fiscal quarter in which the Offerings are completed.

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Company commenced operations on September 8, 1995 through the purchase
of certain assets of its predecessor, Color Spot Oregon, in a transaction
accounted for under the purchase method of accounting. Color Spot Oregon
commenced operations on March 1, 1993 through the purchase of certain assets of
Color Spot America in a transaction accounted for under the purchase method of
accounting. On December 31, 1996, KCSN acquired control of the Company through a
series of stock transactions accounted for as a recapitalization. As a result of
these transactions and the Company's ongoing acquisition program, the financial
information presented below is not comparable in certain respects.

The financial information of the Company presented below as of June 30, 1997
and 1996 and for the fiscal year ended June 30, 1997 and for the period from
September 8, 1995 through June 30, 1996 is derived from the audited financial
statements of the Company appearing elsewhere in this Prospectus. The financial
information of Color Spot Oregon as of September 8, 1995 and December 31, 1994
and for the period from January 1, 1995 through September 8, 1995 and the year
ended December 31, 1994, is derived from the audited financial statements of
Color Spot Oregon. The financial information as of December 31, 1993, February
28, 1993 and December 31, 1992 and for the period from February 28, 1993 through
December 31, 1993, the period from January 1, 1993 through February 28, 1993 and
the year ended December 31, 1992 is derived from the underlying records of Color
Spot Oregon and Color Spot America, which in the opinion of management, contains
all adjustments (including those of a normal recurring nature) necessary to
present fairly the financial position and results of operations of Color Spot
Oregon and Color Spot America as of and for the periods presented.

<TABLE>
<CAPTION>
THE PREDECESSORS
-------------------------------------------------------------
COLOR SPOT OREGON THE COMPANY
----------------------------------- ------------------------
COLOR SPOT AMERICA YEAR 1/1/95 9/8/95 YEAR
------------------------ ENDED THROUGH THROUGH ENDED
1/1/93 02/28/93 12/31/94 9/8/95 6/30/96(1) 6/30/97(2)
THROUGH THROUGH --------- --------- ----------- -----------
02/28/93 12/31/93
----------- -------------
(UNAUDITED) (UNAUDITED)
YEAR
ENDED
12/31/92
-----------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $43,662 $3,015 $38,650 $39,411 $28,991 $51,995 $113,400
Gross profit......................... 14,461 690 12,863 14,995 11,491 24,310 49,374
Sales, marketing and delivery
expenses........................... 11,728 2,101 11,879 13,459 10,488 15,495 31,168
General and administrative
expenses........................... 4,164 88 3,370 3,986 3,659 2,886 7,300
Amortization of intangible assets.... 12 17 423 424 291 94 990
Income (loss) from operations........ (1,443 ) (1,516 ) (2,809 ) (2,874) (2,947) 5,835 9,916
Interest expense..................... 3,728 725 2,182 3,170 2,576 687 4,179
Other expense (income), net.......... 214 (55 ) (83 ) (97) (38) 91 (148 )
Income tax provision (benefit)....... (1,061 ) 2,069 2,830
Income before extraordinary gain
(loss)............................. (4,324 ) (2,186 ) (4,908 ) (5,947) (5,485) 2,988 3,055
Extraordinary gain (loss)............ 149 (483 ) (215 )
----------- ----------- ------------- --------- --------- ----------- -----------
Net income (loss).................... $(4,175 ) $(2,669 ) $(4,908 ) $(5,947) $(5,485) $2,988 $2,840
----------- ----------- ------------- --------- --------- ----------- -----------
----------- ----------- ------------- --------- --------- ----------- -----------
Per Share Amounts(3):
Income before extraordinary loss--
primary............................ $0.52 $0.43
----------- -----------
----------- -----------
Income before extraordinary
loss--fully diluted................ 0.52 0.42
----------- -----------
----------- -----------
Dividends per share.................. 0.22
OPERATING DATA:
Cash paid for income taxes(4)........ 0 0 2 0
Number of production facilities(5)... 7 7 6 6 6 6 13
BALANCE SHEET DATA (END OF PERIOD):
Working capital...................... $(13,807 ) $(11,230 ) $4,022 $(21,435) $(29,722) $6,336 $13,266
Total assets......................... 27,163 25,276 25,874 24,554 22,695 33,219 133,417
Long-term debt, excluding current
portion............................ 6,124 10,991 5,785 4,249 1,430 6,785 83,408
Stockholders' equity (deficit)....... (8,864 ) (11,533 ) (4,658 ) (10,605) (16,090) 12,735 4,275
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

18
<PAGE>
(FOOTNOTES FOR PRECEDING PAGE)

- - - ------------------------------

(1) Includes the financial results of Barcelo's Plant Growers from March 1996.

(3) Per share amounts exclude the extraordinary loss which would decrease the
primary and fully diluted share amounts by $0.03 in 1997.

(4) Color Spot's designation as an agricultural company provides it with
favorable tax treatment. While the Company's financial statements include
tax expense, the Company has historically not paid cash income taxes.
Agricultural companies are permitted to calculate taxable income on a cash
basis. As a result of the Company's growth, this treatment has enabled the
Company to generate significant net operating losses since its inception and
accumulate a large net operating loss carryforward. The Company expects that
it will continue to benefit from these regulations in the future.

(5) Facilities include owned and leased properties as of the end of each period,
excluding Christmas tree fields.

19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The pro forma consolidated statement of operations gives effect to the 13
acquisitions completed by the Company since June 30, 1996. See "Recent
Acquisitions." The information presented under "Company Historical" presents the
actual results of the Company, including the results of the seven entities
acquired in fiscal 1997 subsequent to their acquisition. The information
presented under "Acquisitions Before Year End" presents the pre-acquisition
results of these seven acquisitions from July 1, 1996 through the date of such
acquisition. The information presented under "Acquisitions After Year End"
presents the results of the six acquisitions completed by the Company after June
30, 1997 as if those acquisitions had been completed on July 1, 1996. The pro
forma consolidated statements of operations and the related pro forma
adjustments are presented to comply with the rules and regulations of the
Securities and Exchange Commission and are not necessarily indicative of the
historical results of the operations of the combined companies if they were
operated on a combined basis for the period from July 1, 1996 through June 30,
1997. The pro forma adjustments do not include certain additional cost savings
which have been achieved or the Company anticipates may be achieved in the
future.

<TABLE>
<CAPTION>
FISCAL YEAR 1997
PRO FORMA ADJUSTMENTS
-------------------------------------------
ACQUISITIONS ACQUISITIONS
COMPANY BEFORE AFTER OTHER
HISTORICAL YEAR END YEAR END ADJUSTMENTS PRO FORMA
----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $113,400 $22,097 $47,577 $(300 (a) $182,774
Cost of sales.................................... 64,026 14,102 28,446 1,113 (b) 107,687
----------- ------------- ------------- ------------- -----------
Gross profit................................... 49,374 7,995 19,131 (1,413 ) 75,087
Operating expenses............................... 39,458 7,783 12,387 173 (c) 59,801
----------- ------------- ------------- ------------- -----------
Income (loss) from operations.................. 9,916 212 6,744 (1,586 ) 15,286
Interest expense................................. 4,179 751 1,398 4,050 (d) 10,378
Other (income) expense, net...................... (148 ) (95 ) 44 (58 (e) (257 )
----------- ------------- ------------- ------------- -----------
Income (loss) before income tax provision...... 5,885 (444 ) 5,302 (5,578 ) 5,165
Income tax provision (benefit)................... 2,830 (200 ) 2,386 (2,692 (f) 2,324
----------- ------------- ------------- ------------- -----------
Net income..................................... $3,055 $(244 ) $2,916 $(2,886 ) $2,841
----------- ------------- ------------- ------------- -----------
----------- ------------- ------------- ------------- -----------
Net income per share(g)........................ $0.32
-----------
-----------
Shares used in pro forma share
calculation(g)............................... 8,750,968
-----------
-----------
</TABLE>

- - - ------------------------------

(a) Reflects the elimination of net sales generated at a facility that was
closed upon acquisition.

(b) Reflects a net increase in costs as a result of lease payments for certain
facilities that were owned by the acquired companies and not purchased by
the Company and an increase in depreciation costs relating to the write-up
of production equipment, partially offset by the elimination of costs
associated with the closed facility.

(c) Reflects additional amortization of intangible assets, increased management
fees, and staff and consulting costs, partially offset by reductions in
operating expenses and the elimination of a nonrecurring charge associated
with operations not purchased.

(d) Reflects additional interest on borrowings used to finance the acquisitions
at the current interest rate of 9%.

(e) Reflects the elimination of certain income and expenses that were associated
with operations not acquired by the Company.

(f) Reflects the reduction in the income tax provision associated with the
decrease in income before taxes. The income tax provision has been
calculated assuming a pro forma effective tax rate of 45%. The Company did
not pay cash income taxes in fiscal 1997.

(g) Calculated pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins. In accordance with the Bulletins, certain common and
common equivalent shares issued at prices below the public offering price
during the year ended June 30, 1997, have been included in the calculation
as if they were outstanding for the entire year (using the treasury stock
method and estimated initial public offering price).
------------------------

20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)

The pro forma consolidated balance sheet gives effect to the six
acquisitions completed by the Company after June 30, 1997, the Company's
issuance of 713,127 shares of common stock for $5.1 million on July 31, 1997
(the proceeds of which were used to fund the acquisitions), the repurchase of
36,194 shares of Common Stock by the Company for $0.3 million and the associated
tax effects as if these transactions occurred on June 30, 1997.

The Company paid $43.3 million for the acquired companies. To effect the
acquisitions, the Company borrowed $37.3 million, used $5.4 million of cash and
issued 39,204 shares of Common Stock for $0.6 million to the sellers. The
allocation of the purchase price to the underlying net assets acquired is based
upon preliminary estimates of the fair value of the net assets, as more fully
described in the Company's financial statements appearing elsewhere in the
Prospectus.

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS--
COMPANY ACQUISITIONS
HISTORICAL AFTER JUNE 30,
JUNE 30, 1997 1997 PRO FORMA
-------------- ---------------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $2,762 $714 $3,476
Accounts receivable, net........................................ 25,524 2,103 27,627
Inventories..................................................... 27,759 10,564 38,323
Prepaid expenses and other...................................... 893 91 984
-------------- ------- -----------
Total current assets........................................ 56,938 13,472 70,410
Tree inventories.................................................. 1,636 1,636
Property, plant and equipment..................................... 31,774 15,055 46,829
Intangible assets, net............................................ 31,383 24,809 56,192
Deferred income taxes............................................. 10,120 10,120
Notes receivable and other assets................................. 1,566 1,566
-------------- ------- -----------
Total assets................................................ $133,417 $53,336 $186,753
-------------- ------- -----------
-------------- ------- -----------

LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current maturities of long-term debt............................ $4,595 $ $4,595
Revolving line of credit........................................ 2,105 2,105
Accounts payable................................................ 9,815 2,863 12,678
Accrued liabilities............................................. 12,395 273 12,668
Dividends payable to stockholders............................... 906 906
Deferred income taxes........................................... 13,856 7,405 21,261
-------------- ------- -----------
Total current liabilities................................... 43,672 10,541 54,213
Long-term debt.................................................... 83,408 37,315 120,723
-------------- ------- -----------
Total liabilities........................................... 127,080 47,856 174,936
-------------- ------- -----------
Redeemable common stock........................................... 2,062 (260 ) 1,802
Stockholders' Equity:
Preferred stock.................................................
Common stock.................................................... 162 12 174
Additional paid-in capital...................................... 45,033 5,988 51,021
Treasury stock.................................................. (45,228 ) (260 ) (45,488 )
Retained earnings............................................... 4,308 4,308
-------------- ------- -----------
Total stockholders' equity.................................. 4,275 5,740 10,015
-------------- ------- -----------
Total liabilities, redeemable common stock and stockholders'
equity.................................................... $ 133,417 $ 53,336 $ 186,753
-------------- ------- -----------
-------------- ------- -----------
</TABLE>

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANY OF THE STATEMENTS IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ARE FORWARD-LOOKING IN NATURE AND,
ACCORDINGLY, WHETHER THEY PROVE TO BE ACCURATE IS SUBJECT TO MANY RISKS AND
UNCERTAINTIES. THE ACTUAL RESULTS THAT THE COMPANY ACHIEVES MAY DIFFER
MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS IN THIS MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SEE "RISK
FACTORS."

OVERVIEW

The Company is the largest wholesale nursery in the United States, based on
revenue and greenhouse square footage. As a result of both acquisitions and
internal expansion, the Company has grown rapidly, generating net sales of
$113.4 million in fiscal 1997, as compared to its predecessor's net sales of
$39.4 million in calendar 1994. Bedding plants accounted for approximately 67%
of the Company's pro forma fiscal 1997 net sales, and shrubs, potted flowering
plants, ground cover and Christmas trees accounted for the remaining 33%.

The Company was originally founded as Color Spot America in 1983 by Michael
F. Vukelich, the Company's current Chief Executive Officer. The current
management of the Company operated Color Spot America until January 1991 when
PacifiCorp obtained control and installed a new management team that operated
Color Spot America and its successor, Color Spot Oregon, from January 1991
through September 8, 1995. Sales and profitability of Color Spot America and
Color Spot Oregon declined and the Company became unprofitable between 1992 and
September 1995. In September 1995, the assets of Color Spot Oregon were sold to
the Company which had been formed by Heller, Mr. Vukelich and Jerry L. Halamuda,
who had previously worked with Mr. Vukelich at Color Spot America. With Mr.
Vukelich as Chief Executive Officer and Mr. Halamuda as President, management of
the Company implemented a number of strategic and operational programs designed
to improve the Company's customer relationships and financial results. These
initiatives included revamping the Company's merchandising programs,
decentralizing its operations, revising its pricing strategies, renewing its
focus on operating efficiencies and restructuring its sales organization.

After these strategic initiatives began to positively impact the Company's
operating results, Color Spot embarked on an aggressive acquisition strategy.
Since June 30, 1996, the Company has completed 13 acquisitions, seven of which
occurred in fiscal 1997. These acquisitions resulted in the Company's expansion
into several states, including Texas, Washington, Oregon and Michigan. The
Company seeks to increase the sales and profitability of acquired companies by
implementing Color Spot's sales and marketing programs and by improving the
operating efficiencies of the acquired business. The Company has historically
financed acquisitions through a combination of cash, promissory notes and
Company stock.

The Company is highly dependent on the purchases of its top eight retail
customers, which together accounted for 75% and 82% of the Company's net sales
in fiscal 1997 and fiscal 1996, respectively. The Company's largest customer,
Home Depot, accounted for approximately 39% and 41% of the Company's net sales
in fiscal 1997 and fiscal 1996, respectively. The Company expects that a small
number of customers will continue to account for a substantial portion of its
net sales for the foreseeable future. See "Risk Factors--Customer Concentration;
Dependence on Home Depot."

Color Spot's designation as an agricultural company provides it with
favorable tax treatment. While the Company's financial statements include tax
expense, the Company has historically not paid cash income taxes. Agricultural
companies are permitted to calculate taxable income on a cash basis. As a result
of the Company's growth, this treatment has enabled the Company to generate
significant net operating losses since its inception and accumulate a large net
operating loss carryforward. The Company expects that it will continue to
benefit from these regulations in the future. In addition, the Company's
effective tax rate has been significantly higher than the U.S. statutory rate of
34%. For instance, the Company's effective tax rate for fiscal 1997 was 48.0%.
The difference between the Company's effective tax rate and

22
<PAGE>
the U.S. statutory rate was due to state tax provisions and other California tax
limitations on the use of net operating loss carryforwards. As of June 30, 1997,
the Company had a net operating loss carryforward of approximately $29.7 million
for federal income tax purposes and $14.1 million for state income tax purposes.

The Company's business is highly seasonal and the Company has historically
reported operating losses in its first and second fiscal quarters, and the
Company believes it will continue to report operating losses during the first
half of its fiscal year. Inclement weather or production difficulties occurring
at a time of peak production or sales, particularly on weekends during the peak
gardening season, could cause declines in net sales and operating income that
could have a material adverse effect on the Company. The Company has recently
sought to reduce the effects of seasonality with sales that are counter-seasonal
to its historic products with the acquisition of Christmas tree operations.
There can be no assurance that the Company will be successful in its efforts to
reduce the effects of seasonality on its operating results. See "Risk
Factors--Seasonality; Variability of Quarterly Results and Certain Charges" and
"--Weather; General Agricultural Risks."

The Company commenced operations on September 8, 1995 through the purchase
of certain assets of Color Spot Oregon in a transaction accounted for under the
purchase method of accounting. Color Spot Oregon commenced operations on March
1, 1993 through the purchase of certain assets of Color Spot America in a
transaction accounted for under the purchase method of accounting. The Company's
predecessors had fiscal years which ended on December 31 of each year. On
December 31, 1996, KCSN acquired control of the Company through a series of
stock transactions accounted for as a recapitalization. As a result of these
changes in ownership, the differing fiscal periods, and the seasonality of the
business, the results of operations presented herein are not comparable in
certain respects.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain
consolidated income statement items as a percentage of net sales:

<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
------------------------ --------------------------
1/1/95 9/8/95
YEAR ENDED THROUGH THROUGH FISCAL YEAR
12/31/94 9/8/95 6/30/96 ENDED 6/30/97
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales........................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................................... 62.0 60.4 53.2 56.5
----- ----- ----- -----
Gross profit...................................................... 38.0 39.6 46.8 43.5
Sales, marketing and delivery expenses.............................. 34.2 36.2 29.8 27.5
General and administrative expenses................................. 10.1 12.6 5.6 6.4
Amortization of intangible assets................................... 1.1 1.0 0.2 0.9
----- ----- ----- -----
Income (loss) from operations..................................... (7.3) (10.2) 11.2 8.7
Interest expense.................................................... 8.0 8.9 1.3 3.7
Other expense (income), net......................................... (0.2) (0.1) 0.2 (0.1)
----- ----- ----- -----
Income (loss) before income tax provision and extraordinary
loss............................................................ (15.1) (18.9) 9.7 5.2
Income tax provision................................................ 0.0 0.0 4.0 2.5
----- ----- ----- -----
Income (loss) before extraordinary loss........................... (15.1) (18.9) 5.7 2.7
Extraordinary loss.................................................. 0.0 0.0 0.0 0.2
----- ----- ----- -----
Net income (loss)................................................. (15.1)% (18.9 )% 5.7% 2.5%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

23
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1997 ("FISCAL 1997") AS COMPARED TO THE PERIOD FROM
SEPTEMBER 8, 1995 THROUGH JUNE 30, 1996 ("FISCAL 1996")

NET SALES. Net sales increased $61.4 million, or 118.1%, to $113.4 million
in fiscal 1997 from $52.0 million in fiscal 1996. This increase was primarily
attributable to increased sales volume with existing customers, sales to new
retailers, new product introductions, the acquisition of seven companies in
fiscal 1997 and the fact that fiscal 1997 was 70 days longer than fiscal 1996.
Net sales increased $56.7 million, or 100.0%, in fiscal 1997 over net sales for
the 12 months ended June 30, 1996 for the Company and its predecessor.

GROSS PROFIT. Gross profit increased $25.1 million, or 103.1%, to $49.4
million in fiscal 1997 from $24.3 million in fiscal 1996. Gross profit as a
percentage of net sales decreased to 43.5% in fiscal 1997 from 46.8% in fiscal
1996. This decrease reflects the fact that fiscal 1997 was 70 days longer than
fiscal 1996. The 70 days not included in fiscal 1996 include the months of July
and August in which the Company has historically generated lower net sales and
gross margins. The Company believes that gross margins for fiscal 1997 were
comparable to the gross margins for the 12 month period ended June 30, 1996.

OPERATING EXPENSES. Operating expenses includes sales, marketing and
delivery expenses, general and administrative expenses and amortization of
intangible assets. Sales, marketing and delivery expenses increased $15.7
million, or 101.1%, to $31.2 million in fiscal 1997 from $15.5 million in fiscal
1996. As a percentage of net sales, sales, marketing and delivery expenses
decreased to 27.5% in fiscal 1997 from 29.8% in fiscal 1996. This decrease as a
percentage of net sales was primarily due to lower per unit distribution costs
associated with newly acquired product lines. General and administrative
expenses increased $4.4 million, or 152.9%, to $7.3 million in fiscal 1997 from
$2.9 million in fiscal 1996. As a percentage of net sales, general and
administrative expenses increased to 6.4% in fiscal 1997 from 5.6% in fiscal
1996. This increase is primarily attributable to the fact that fiscal 1997 was
70 days longer than fiscal 1996 and to increased costs relating to supporting
the Company's growth, including an increase in corporate personnel. Amortization
of intangible assets increased $0.9 million to $1.0 million in fiscal 1997 from
$0.1 million in fiscal 1996 primarily as a result of the Company's acquisitions
in fiscal 1997.

INTEREST EXPENSE. Interest expense increased $3.5 million to $4.2 million
in fiscal 1997 from $0.7 million in fiscal 1996. This increase resulted
primarily from increased borrowings made to fund acquisitions and to effect the
Recapitalization on December 31, 1996.

TAXES. The effective tax rate increased to 48.0% in fiscal 1997 from 44.8%
in fiscal 1996, primarily as a result of a greater impact of the state tax
limitations on the use of net operating loss carryforwards.

FISCAL 1996 AS COMPARED TO THE PERIOD FROM JANUARY 1, 1995 THROUGH SEPTEMBER 8,
1995 ("FISCAL 1995")

NET SALES. Net sales increased $23.0 million, or 79.3%, to $52.0 million in
fiscal 1996 from $29.0 million in fiscal 1995. This increase was primarily a
result of fiscal 1996 being 45 days longer than fiscal 1995, increased sales
from acquired operations and increased sales to the Company's existing
customers.

GROSS PROFIT. Gross profit increased $12.8 million, or 111.6%, to $24.3
million in fiscal 1996 from $11.5 million in fiscal 1995. As a percentage of net
sales, gross profit increased to 46.8% in fiscal 1996 from 39.6% in fiscal 1995.
This increase resulted primarily from the implementation of certain strategic
management initiatives by the Company's current management, including price
increases, production efficiencies, new product packaging and improved raw
material costs.

OPERATING EXPENSES. Sales, marketing and delivery expenses increased $5.0
million, or 47.7%, to $15.5 million in fiscal 1996 from $10.5 million in fiscal
1995. As a percentage of net sales, sales, marketing and delivery expenses
decreased to 29.8% in fiscal 1996 from 36.2% in fiscal 1995. This decrease
resulted primarily from a restructuring of the Company's sales organization,
including the elimination of certain management positions and a shift to an
incentive-based compensation structure. General and administrative expenses
decreased $0.8 million, or 21.1%, to $2.9 million in fiscal 1996 from $3.7
million in fiscal

24
<PAGE>
1995. As a percentage of net sales, general and administrative expenses declined
to 5.6% from 12.6% primarily due to leveraging these expenses over higher sales
and cost reduction initiatives, including reductions in corporate personnel.
Amortization of intangible assets decreased $0.2 million to $0.1 million in
fiscal 1996 from $0.3 million in fiscal 1995 as a result of the effect of the
elimination of certain intangible assets in connection with the purchase of the
assets of Color Spot Oregon.

INTEREST EXPENSE. Interest expense decreased $1.9 million to $0.7 million
in fiscal 1996 from $2.6 million in fiscal 1995. This decrease resulted from the
reduction in borrowings resulting from the issuance of Common Stock to finance
the purchase by the Company of the assets of its predecessor.

TAXES. The effective tax rate for fiscal 1996 was 44.8%. No tax benefit was
recognized in fiscal 1995 as a result of the uncertainty of the Company's
predecessor to achieve sufficient taxable income to realize deferred tax assets.

FISCAL 1995 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1994 ("FISCAL 1994")

NET SALES. Net sales decreased $10.4 million, or 26.4%, to $29.0 million in
fiscal 1995 from $39.4 million in fiscal 1994. This decrease is primarily due to
the fact that fiscal 1995 was 114 days shorter than fiscal 1994 and decreased
sales to the Company's existing customers.

GROSS PROFIT. Gross profit decreased $3.5 million, or 23.4%, to $11.5
million in fiscal 1995 from $15.0 million in fiscal 1994. As a percentage of net
sales, gross profit increased to 39.6% in fiscal 1995 from 38.0% in fiscal 1994.
This increase as a percentage of net sales is largely due to the seasonality of
the periods presented.

OPERATING EXPENSES. Sales, marketing and delivery expenses decreased 22.1%
to $10.5 million in fiscal 1995 from $13.5 million in fiscal 1994. As a
percentage of net sales, sales, marketing and delivery expenses increased to
36.2% in fiscal 1995 from 34.2% in fiscal 1994. This increase resulted primarily
from changes in packaging, decreased sales to the Company's existing customers
and less efficient use of the Company's distribution fleet. General and
administrative expenses decreased $0.3 million, or 8.2%, to $3.7 million in
fiscal 1995 from $4.0 million in fiscal 1994. As a percentage of net sales,
general and administrative expenses increased to 12.6% in fiscal 1995 from 10.1%
in fiscal 1994. This increase resulted primarily from severance payments made in
September 1995 in connection with the purchase by the Company of the assets of
its predecessor and an increase in the number of corporate personnel.
Amortization of intangible assets decreased $0.1 million, or 31.4%, to $0.3
million in fiscal 1995 from $0.4 million in fiscal 1994.

INTEREST EXPENSE. Interest expense decreased $0.6 million to $2.6 million
in fiscal 1995 from $3.2 million in fiscal 1994. This decrease resulted
primarily from the fewer number of days in fiscal 1995.

TAXES. No tax benefit was recognized in fiscal 1995 or fiscal 1994 as a
result of the uncertainty of the Company's predecessor's ability to achieve
sufficient taxable income to realize deferred tax benefits.

SEASONALITY AND QUARTERLY RESULTS

Color Spot's business is highly seasonal, and the Company has historically
reported operating losses in its first and second fiscal quarters. The Company
believes that it will continue to report operating losses in the first half of
its fiscal year for the foreseeable future. In addition, during the fiscal
quarter in which the Offerings are completed, the Company will incur (i) a $4.4
million non-cash pre-tax extraordinary charge related to the write-off of
deferred financing fees, (ii) a $2.0 million pre-tax charge related to the
termination of an annual management fee and (iii) a $0.7 million non-cash
pre-tax compensation charge from the accelerated vesting of stock options. See
"Risk Factors--Seasonality; Variability of Quarterly Results and Certain
Charges."

25
<PAGE>
The following tables set forth the unaudited results for each of the four
fiscal quarters in fiscal 1997, the three full fiscal quarters of fiscal 1996,
the period from the inception of the Company to September 28, 1995, and the
period from July 1, 1995 to September 8, 1995 for the Company's predecessor. The
data for the Company's predecessor and the twelve-month period totals are
presented for informational purposes only and are not comparable in certain
respects. In the opinion of the Company's management, this information has been
prepared on the same basis as the audited consolidated financial statements
appearing elsewhere in this Prospectus, and include all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary to
fairly present such information. In addition to the seasonal nature of the
Company's business, the Company's quarterly results have historically been
subject to significant fluctuations stemming from changes in ownership and
business strategy and the effects of acquisitions.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
SEPTEMBER 26, DECEMBER 26, MARCH 27, JUNE 30,
1996 1996 1997 1997 TOTAL
------------- ------------ ----------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................................... $ 13,437 $ 13,165 $ 31,049 $ 55,749 $ 113,400
Gross profit............................................ 4,579 4,920 13,716 26,159 49,374
Income (loss) from operations........................... (1,469) (1,059) 3,871 8,573 9,916
Net income (loss)....................................... (820) (740) 932 3,468 2,840
</TABLE>

<TABLE>
<CAPTION>
THE
PREDECESSOR THE COMPANY
-------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED
70 DAYS ENDED 21 DAYS ENDED ------------------------------------
SEPTEMBER 8, SEPTEMBER 28, DECEMBER 28, MARCH 28, JUNE 30,
1995 1995 1995 1996 1996 TOTAL
-------------- --------------- ------------ ----------- --------- ---------
(IN THOUSANDS)
Net sales................................. $4,716 $ 1,798 $6,852 $ 12,834 $ 30,511 $ 56,711
Gross profit.............................. 529 120 1,982 8,279 13,929 24,839
Income (loss) from operations............. (3,444) (767) (1,708) 3,272 5,038 2,391
Net income (loss)......................... (4,119) (485) (1,099) 1,789 2,783 (1,131)
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash needs are primarily to fund seasonal working capital,
capital expenditures and acquisitions. Since September 8, 1995, the Company's
primary sources of capital have been a revolving line of credit, various term
and acquisition loans and the issuance of Company stock.

During fiscal 1997 and fiscal 1996, net cash used in operations was $4.1
million and $3.5 million, respectively. Net cash used in investing activities
during fiscal 1997 and fiscal 1996 was $58.2 million and $9.7 million,
respectively. These amounts related primarily to one acquisition in fiscal 1996
and seven acquisitions completed by the Company in fiscal 1997. The Company
spent $6.2 million and $1.5 million on capital expenditures in fiscal 1997 and
fiscal 1996, respectively. The Company anticipates it will spend $11.4 million
in fiscal 1998, of which approximately $8.0 million will be expansion capital
expenditures and $3.4 million will be maintenance capital expenditures.
Expansion capital expenditures typically include grading of new land, purchasing
and building new greenhouses and related improvements, such as the installation
of ventilation and irrigation systems.

In connection with the Recapitalization, the Company entered into a loan
agreement (the "Loan Agreement") with Credit Agricole Indosuez and a syndicate
of banks. Borrowings under the Loan Agreement are secured by substantially all
of the Company's assets. On June 30, 1997, the Company had an aggregate of $67.0
million in term loans outstanding under the Loan Agreement and $12.1 million in
revolving credit loans. At June 30, 1997, borrowings under the Loan Agreement
bore interest at rates ranging from 8.5% to 9.0% per annum. In connection with
the six acquisitions completed by the Company after June 30, 1997, the Loan
Agreement was amended to increase the Company's term loans by an

26
<PAGE>
aggregate of $30.0 million and to increase the Company's revolving credit
availability by $10.0 million to $37.5 million. Borrowings under the Company's
revolving credit facility are subject to certain borrowing base limitations
generally based on a percentage of eligible inventory and eligible accounts
receivable. Additionally, revolving credit borrowings must be reduced annually
below $10.0 million for a 30-day period.

In connection with the Recapitalization, the Company borrowed $37.3 million
under the Loan Agreement and purchased approximately 6.1 million shares of
Common Stock for $37.1 million in cash and the Heller Note in the original
principal amount of $7.1 million. In addition, the Company sold approximately
3.6 million shares of newly issued Common Stock for an aggregate purchase price
of $22.3 million and repaid $14.1 million of indebtedness. The Company also
declared a dividend of approximately $1.5 million to its stockholders
immediately prior to the Recapitalization. Following the Recapitalization and
during fiscal 1997, the Company sold an additional 1.7 million shares of Common
Stock for an aggregate purchase price of $12.1 million. During fiscal 1996, the
Company sold 1.9 million shares of Common Stock for an aggregate purchase price
of $2.8 million.

Upon completion of the Offerings, the Company will enter into the New Loan
Agreement which will provide an acquisition term loan facility of $75.0 million,
a revolving credit facility of $40.0 million, and a supplemental line of $35.0
million which may be used either for acquisitions or working capital. See
"Description of Certain Indebtedness--New Loan Agreement."

The Company believes that the net proceeds from the Offerings, together with
available cash, cash generated from operations and available borrowings under
the New Loan Agreement, will be sufficient to finance working capital, capital
expenditures and acquisitions for at least the next 12 months. However, there
can be no assurance that such resources will be sufficient to meet the Company's
anticipated working capital, capital expenditure and acquisition financing
requirements or that the Company will not require additional financing within
this time frame. The Company's forecast of the period of time through which its
financial resources will be adequate to support its operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary. See "Risk Factors--Future Capital Needs; Uncertainty of
Additional Financing."

27
<PAGE>
BUSINESS

OVERVIEW

Color Spot is the largest wholesale nursery in the United States, based on
revenue and greenhouse square footage. The Company provides a wide assortment of
high quality plants as well as extensive merchandising services primarily to
leading home centers and mass merchants, such as Home Depot, Home Base, Wal-Mart
and Kmart. The Company distributes products to over 850 retail and commercial
customers, representing over 8,000 locations, primarily in the western and
southwestern regions of the United States. Since June 30, 1996, the Company has
completed 13 acquisitions, making it a leading consolidator in the wholesale
nursery industry. On a pro forma basis, the Company generated approximately
$182.8 million in net sales and $15.3 million in operating income in fiscal
1997.

The Company believes it is one of the few wholesale nurseries that has the
scale and distribution capabilities necessary to provide large volumes of high
quality product to its retail customers on a multi-regional basis. The Company
produces over 2,000 varieties of live plants, including bedding plants, shrubs,
potted flowering plants, ground cover and fresh cut Christmas trees. Through its
200 person sales force, Color Spot also provides its retail customers with a
broad array of value-added services, such as in-store merchandising, product
display and maintenance, promotional planning and product reordering. The
Company believes that providing these services differentiates it from its
competitors and helps to establish Color Spot as a preferred supplier in the
industry. Color Spot operates 19 production facilities located in California,
Arizona, Texas, Oregon and Washington.

HISTORY

Color Spot America was founded in 1983 by Michael F. Vukelich, the Company's
current Chief Executive Officer, and it grew to become one of the largest
bedding plant producers in California. In January 1991, Mr. Vukelich left Color
Spot America, ceding operational control to PacifiCorp, which installed new
management. In 1993, Color Spot America sold substantially all of its assets and
liabilities to Color Spot Oregon, a corporation controlled by PacifiCorp. Net
sales and profitability of Color Spot America and Color Spot Oregon declined
between 1992 and 1995.

In September 1995, the Company was formed by Mr. Vukelich, Jerry L.
Halamuda, who had previously worked with Mr. Vukelich at Color Spot America, and
Heller to acquire the assets of Color Spot Oregon from PacifiCorp. With Mr.
Vukelich as Chief Executive Officer and Mr. Halamuda as President, management
implemented a number of strategic and operational programs designed to improve
the Company's customer relationships and financial results. These initiatives
included revamping the Company's merchandising programs, decentralizing its
operations, revising its pricing strategies, renewing its focus on operating
efficiencies and restructuring its sales organization. As a result of these
strategies, the Company has experienced significant improvements in net sales
and operating results. With the improvement of its financial results, Color Spot
embarked on an aggressive acquisition strategy and has completed 13 acquisitions
since June 30, 1996. Color Spot believes it is well positioned to continue its
growth and further consolidate the wholesale nursery industry.

In December 1996, an affiliate of Kohlberg acquired a majority interest in
the Company in the Recapitalization pursuant to which the Company repurchased
the shares of Common Stock held by Heller and a portion of the Common Stock held
by management. See "Certain Transactions."

INDUSTRY

Gardening is one of the most popular leisure activities in the United
States. According to the 1996-1997 National Gardening Survey conducted by the
Gallup Organization, Inc., 64% of the approximately 101 million U.S. households
participated in some form of gardening in 1996. The Company believes that the
popularity of gardening is likely to increase in coming years. According to the
National Gardening

28
<PAGE>
Survey, the demographic group that spends the most money per capita on gardening
is individuals age 50 and older. This group will be the fastest growing
demographic group through the year 2010, according to the U.S. Census.

Nationwide, retail sales of live plants totaled approximately $18 billion in
1996. In recent years, the live plant market has demonstrated consistent growth,
increasing at a compound annual growth rate of approximately 6.3% since 1993.
The Company also competes in the fresh cut Christmas tree market which generated
wholesale revenues nationwide of approximately $330 million in 1996. The
Company's sales have historically been derived largely from the sale of bedding
plants. The following table provides a breakdown of live plant retail sales in
1996:

<TABLE>
<CAPTION>
RETAIL % OF
CATEGORY TYPICAL PRODUCTS SALES(1) RETAIL SALES
- - - --------------------------- ---------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
(IN BILLIONS)
Evergreens and Shrubs Pines and junipers $7.1 39.9%

Trees Outdoor fruit and nut trees and shade trees 4.5 25.3

Bedding Plants Outdoor flowers and vegetables 2.9 16.3

Flowering Potted Plants Indoor flowering plants, such as chrysanthemums, 2.0 11.2
poinsettias and African violets

Foliage Indoor house plants 0.8 4.5

Bulbs Flower bulbs 0.5 2.8
----- -----
$ 17.8 100.0%
----- -----
----- -----
</TABLE>

- - - ------------------------------

(1) Source: February/March 1997 Nursery Retailer Magazine.

The live plant retail distribution channel has consolidated significantly
over the last ten years, with sales shifting from local independent nurseries to
large home centers and mass merchants, such as Home Depot, Home Base, Target,
Wal-Mart and Kmart. Live plants are attractive product offerings for these
retailers, as each dollar of live plant sales typically generates four dollars
of gardening equipment and other complimentary product sales, according to the
National Gardening Survey. Moreover, the relatively low price point of most live
plants encourages impulse buying by consumers and makes these products
relatively resistant to economic downturns. Retail consolidation has altered the
nature of the wholesale demand for live plants. Given the sophistication, size
and geographic diversity of the national chains, retail customers prefer
suppliers that can meet demanding delivery schedules, fulfill large volume
requirements and provide a variety of value-added services.

Despite this retail consolidation, the wholesale nursery industry is still
highly fragmented, and is characterized by local, independent nurseries. In
1996, the ten largest and 100 largest of the over 10,000 wholesale nurseries in
the United States accounted for approximately 8% and 22%, respectively, of total
wholesale production. Due to the fragmented nature of the wholesale nursery
industry, the Company believes that there is a significant opportunity for a
branded, well capitalized and professionally managed company to lead the
consolidation of this industry.

BUSINESS STRATEGY

The Company's goals are to enhance its leadership position in the wholesale
nursery industry in its established markets and to become the market share
leader in targeted new regions nationwide. The

29
<PAGE>
Company's business strategy is designed to meet the increasing demands of retail
customers and consumers, both of which are critical to the Company's success.
The Company's business strategy includes the following key elements:

OFFER BROAD SELECTION OF HIGH QUALITY PRODUCTS

Color Spot provides retail customers and consumers with a broad selection of
high quality live plants. Through frequent deliveries, careful pre-delivery
screening and regular plant maintenance, Color Spot is able to provide
consistently fresh and attractive products. The Company offers over 2,000
varieties of live plants, including bedding plants, shrubs, potted flowering
plants, ground cover and fresh cut Christmas trees. In addition, the Company
continually seeks to develop new products through exclusive flower color mixes,
proprietary retail product lines and creative, easy-to-use packaging. Color Spot
believes it is one of the few wholesale nurseries that can consistently provide
the large volumes of high quality products desired by home centers and mass
merchants.

PROVIDE SUPERIOR CUSTOMER SERVICE

The Company believes that its value-added services differentiate it from its
competitors and allows Color Spot to establish itself as a preferred supplier to
its retail customers. The Company services its retail customers through a
salesforce of over 200 sales merchandisers, which the Company believes is the
largest salesforce in the wholesale nursery industry. The Company's service
philosophy encourages each of its sales merchandisers to effectively function as
a garden center employee, working closely with retail store personnel to
anticipate changing customer demands and to react to local growing conditions.
Color Spot services include in-store merchandising, product display, plant
maintenance, promotional planning and product reordering. The Company believes
that due to the perishable nature of its products, these services are critical
to maintaining attractive and fresh product displays which help to drive retail
sales.

CAPITALIZE ON LARGE-SCALE AND MULTI-REGIONAL CAPABILITIES

Color Spot believes that home centers and mass merchants prefer to buy from
large wholesale nurseries that can consistently deliver high quality products to
a broad geographic area. Color Spot is the largest wholesale nursery in the
United States and one of the few nurseries that has the scale and distribution
capabilities to support home centers and mass merchants on a multi-regional
basis. The Company's production facilities are located in diverse geographic
regions to increase distribution efficiency, to better serve customers and to
minimize the effects of adverse weather conditions.

CONTINUE TO STRENGTHEN RELATIONSHIPS WITH LARGE RETAIL CUSTOMERS

The Company has long-standing relationships with many leading home centers
and mass merchants in the United States. The Company believes it is the largest
supplier of live plants for Home Depot, Home Base, Target, Wal-Mart and Kmart in
the western United States. The Company is involved in its retail customers'
sales and inventory planning processes, allowing Color Spot to plan its
production capacity more effectively to meet its retail customers' demands. In
addition, the Company works with a number of its retail customers to develop
proprietary products, new packaging and sales and promotional programs.

ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL

The Company believes that attracting and retaining highly qualified
personnel is critical to the success of its operations due to the constant
interaction among Color Spot employees, retail customer personnel and consumers.
The Company has instituted a number of sales and other performance-based
incentives which are designed to foster loyalty to the Company and reduce
employee turnover. As a result, the Company believes that it has the most
experienced salesforce in the wholesale nursery industry. The Company also
provides extensive training and promotion opportunities for its sales
merchandisers and management personnel. The Company's decentralized management
approach encourages employees at each of its production facilities to actively
participate in strategic planning for that facility. The Company believes that
these programs and opportunities make it an attractive employment opportunity
for the

30
<PAGE>
employees of companies which it acquires, and enables the Company to retain the
most qualified employees of acquired companies.

GROWTH STRATEGY

The Company's goal is to enhance its leadership position in the wholesale
nursery industry. Color Spot's growth strategy is to continue to enter new
geographic markets through acquisitions and to expand its presence in its
existing markets. An important aspect of the Company's growth strategy is to
increase its penetration in targeted markets thereby enabling the Company to
better serve its retail customers, enhancing its brand name recognition and
increasing operating efficiencies. The key elements of the Company's growth
strategy include:

EXISTING AND NEW CUSTOMER GROWTH

The Company plans to increase sales by growing with its existing retail
customers and seeking new relationships with other high volume retailers. The
Company strives to increase the number of stores it serves for its existing
retail customers both through serving (i) a larger percentage of its retail
customers' stores and (ii) its retail customers' new stores as those retailers
expand. For instance, since June 30, 1996, the Company has added 490 new stores
operated by its existing retail customers without giving effect to stores added
through acquisitions. The Company also seeks to increase same store sales by
gaining shelf space and improving sales productivity through merchandising
programs and improved product offerings. In addition, Color Spot actively seeks
relationships with new retail customers, and since June 30, 1996 has added three
new retail customers representing over 100 new stores.

ACQUISITIONS

The Company intends to pursue acquisitions in the future which either allow
the Company to establish a platform in a new geographic area or "fill-in" the
Company's product line and production capacity in the Company's existing
markets. Since June 30, 1996, Color Spot has completed 13 acquisitions, adding
13 production facilities, over 1,800 growing acres of production capacity and
over 8.4 million square feet of greenhouse space. The Company's acquisition
strategy is designed to (i) increase its penetration of its existing markets,
(ii) expand into targeted new geographical areas and (iii) add new product
lines. The Company's strategy in entering new geographic areas is to make a
strategic acquisition that can be used as a platform for future expansion in
these new areas. Recently, the Company has made platform acquisitions in the
Texas and Washington markets, and believes that it has significant opportunities
to further "fill-in" these markets. The Company seeks to increase the sales and
profitability of acquired companies by implementing Color Spot's sales and
merchandising programs and by improving the operating efficiencies of the
acquired business.

PRODUCT LINE EXPANSION

The Company actively seeks new product opportunities, through both
acquisitions and internal development. By offering a greater variety of
products, the Company believes its retail customers are able to reduce their
number of live plant suppliers. While the Company's sales have been derived
largely from the sales of bedding plants, the Company believes that there is
significant opportunity to expand into other areas of the wholesale nursery
industry. Since June 30, 1996, the Company has expanded its product line into
new areas of the wholesale nursery industry, including shrubs, potted flowering
plants and ground cover. The Company has also expanded into the fresh cut
Christmas tree business which enables it to utilize available sales and
distribution capacity during the winter months.

PRODUCTS

The Company is committed to providing its retail customers and consumers
with a broad selection of high quality live plant products. The Company's
products include over 2,000 varieties of plants, including a wide selection of
bedding plants, shrubs, potted flowering plants, ground cover and fresh cut
Christmas

31
<PAGE>
trees. The Company's products have retail prices generally ranging from $0.62 to
$17.95. Most of the Company's products are sold under the Color Spot brand name,
and include easy-to-read labels containing growing instructions and a color
picture of a mature plant. The Company's products are sold in various containers
and sizes, ranging from flats and paks containing numerous small plants to
single containers containing one plant. The following is a summary of the
Company's product lines:

<TABLE>
<CAPTION>
% OF PRO FORMA TYPICAL
PRODUCT FISCAL 1997 NET SALES GROWING TIME
- - - -------------------------------------------------------------- ------------------------ ------------------
<S> <C> <C>
Bedding Plants................................................ 67% 8 to 14 weeks
Shrubs........................................................ 13 10 to 16 months
Flowering Potted Plants....................................... 12 6 to 9 weeks
Ground Cover.................................................. 2 10 to 14 weeks
Christmas Trees............................................... 6 8 to 9 years
</TABLE>

Color Spot constantly strives for product innovations, such as exclusive
flower color mixes, new packaging and "premium" potted flowers. In addition,
Color Spot works closely with its large retail customers to develop proprietary
branded products.

CUSTOMERS

The Company sells its products to over 850 retail customers representing
more than 8,000 locations in the United States as well as to over 400 commercial
customers. The majority of the Company's products are sold to large national
retailers, and the Company has long-standing relationships with many of these
retail customers. Color Spot's retail customer base includes home centers, mass
merchants, drug and grocery stores and independent nursery chains. Sales to
national retail chains have increased significantly as these retail customers
continue to gain market share. The following table sets forth a selected list of
customers for each major category of retail customers:

<TABLE>
<CAPTION>
HOME CENTERS MASS MERCHANTS DRUG AND GROCERY CHAINS INDEPENDENT NURSERIES
- - - ----------------------------- --------------- ------------------------ ----------------------------
<S> <C> <C> <C>
Home Depot Fred Meyer Albertson's Cornelius Nurseries
Home Base Kmart H.E.B. Jenco Wholesale Nursery
Builders Square Target Kroger Navlets Nursery
Orchard Supply Hardware Wal-Mart Rite-Aid Drug Stores Star Nursery
Safeway
</TABLE>

The Company believes that its ability to consistently provide high quality
products and value-added services on a multi-regional basis provides significant
competitive advantages in serving the retail channel. Color Spot products
typically account for over half of the live plant sales in stores supplied by
the Company. In each region, the Company's goal is to serve every store operated
by each of its retail customers. In fiscal 1997, the Company's top eight retail
customers accounted for approximately 75% of its total net sales. See "Risk
Factors--Customer Concentration; Dependence on Home Depot."

The Company also serves commercial customers, such as landscapers, golf
courses, office parks and hotels. Approximately 4.9% of the Company's fiscal
1997 net sales were derived from sales to commercial customers.

SALES AND SERVICES

The Company offers a broad range of value-added services to help its retail
customers maximize live plant sales and profitability. Color Spot believes that
a well maintained product display increases sales volume and encourages impulse
buying by consumers. The average shelf life for most of the Company's products
is two to three weeks following delivery. Live plant products, like fresh
produce in a supermarket, are unlikely to sell if they are not fresh and
merchandised correctly. Due to the perishable nature of its products, the
Company believes that the services it provides to its retail customers are
critical to maintaining attractive and fresh product displays.

32
<PAGE>
The Company services its retail customers through a salesforce of over 200
merchandisers. Each sales merchandiser covers an average of 10 to 12 stores,
although sales merchandisers covering large volume stores may be assigned as few
as one to three locations. Each sales merchandiser typically provides
merchandising services to each of his/her stores four to seven times per week,
which may include:

- design and layout of garden shop area

- design and construct display tables and end caps

- create and install point of purchase signage

- implement Color Spot promotional and marketing programs

- clean and maintain fresh product displays

- reorder, receive delivery of and restock merchandise

- secure and maintain prominent floor space

- assist consumers with product and planting information

The Company believes that its sales merchandisers can provide many of these
services more effectively than the retail customers themselves because these
sales merchandisers have extensive knowledge of, and focus exclusively on, live
plants. Furthermore, the Company's sales merchandisers receive ongoing training
and are compensated on a commission basis as a percentage of net sales.
Consumers often view Color Spot employees as employees of the retailer, and rely
on Color Spot sales merchandisers to answer questions and give advice about
selecting and planting live plants. Because Color Spot's sales merchandisers
spend most of their time in the retail stores, they can adjust inventory in
response to local weather conditions on a store-by-store basis, develop product
displays tailored to the local consumers' demands and cultivate a favorable
relationship with in-store personnel.

In addition to providing merchandising services at the store level, Color
Spot plays an important role in assisting retail customers with their sales and
inventory planning. Typically, a Color Spot senior sales executive will meet
periodically with its retail customer's senior representative to plan sales of
the Company's products based on that retail customer's anticipated store growth
and general product needs. In addition, Color Spot sales executives meet
frequently with retail customers' regional and corporate buyers to more
specifically plan seasonal product needs and sales forecasts and to incorporate
Color Spot's promotional events and pricing strategies into their plans. At the
store level, local Color Spot sales merchandisers work with in-store personnel
to execute sales plans and continually monitor sales and inventory.

OPERATIONS

The Company operates on a decentralized basis, with production, hiring and
purchasing decisions made on a facility-by-facility basis.

PRODUCTION. The first production step of the plant growing process is
propagation. Approximately 80% of Color Spot's plants are produced from seeds,
and the remaining 20% are produced from plant cuttings. Color Spot realizes a
yield from propagation greater than 70%, which the Company believes is
consistent with the industry average. The second production step is the transfer
of the resulting seedlings into plastic growing containers. The plants are then
moved from greenhouses to outdoor growing areas, as appropriate, to finish the
growing cycle.

The Company experiences a certain level of "shrink" in its production
process. Color Spot divides shrink into two main classifications: cultural
shrink, defined as plants that do not mature due to disease, insects, soil
problems or other factors; and sales shrink, defined as plants ready for sale to
retail customers but not sold because supply exceeds demand. A certain amount of
shrink is necessary to ensure adequate

33
<PAGE>
product supply. Color Spot experiences approximately 16% shrink, of which
one-third is cultural shrink and two-thirds is sales shrink. The Company
believes that this shrink rate is consistent with the industry average.

DISTRIBUTION. The Company distributes its products directly from its
production facilities to its retail customers. The Company operates a fleet of
472 tractor trailers, 372 of which are owned and the balance of which are
leased. During peak periods, Color Spot's fleet is supplemented with common
carriers. The Company believes that common carriers are readily available to
accommodate seasonal delivery peaks. Typically, each of the Company's facilities
delivers products to stores within a 175-mile radius, and deliveries are
generally made within 48 hours of the order being placed.

SUPPLIERS. The cost of raw materials accounts for approximately 27.1% of
net sales and is composed of three primary components: soil mix, seeds and plant
cuttings and plastic flats and growing containers. Color Spot's primary
suppliers include Rapid Industrial Plastic Company, Ball Seed Company, Premier
Peat Moss, Norcal Perlite Company, J.M. McConkey and Romeo Fertilizers. Due to
its large sales volume, the Company receives purchasing discounts from many of
its suppliers, and the Company believes that alternative sources of supply are
readily available.

ACQUISITION STRUCTURE AND INTEGRATION

The Company typically finances acquisitions through a combination of cash,
promissory notes and, in certain cases, Company stock. The Company normally
obtains noncompete and confidentiality agreements from selling owners and may
enter into employment or consulting agreements with key personnel of the seller.
The majority of the Company's recent acquisitions have been consummated in less
than 90 days from the date a letter of intent is executed. There can be no
assurance, however, that the Company will be able to identify and acquire
desirable nursery businesses on terms favorable to the Company or in a timely
manner in the future. See "Risk Factors--Dependence on Acquisitions for Future
Growth" and "--Ability to Manage Growth."

The Company seeks to increase the sales and profitability of acquired
companies by implementing Color Spot's sales and merchandising programs and by
improving operating efficiencies of the acquired business. Consistent with the
Company's decentralized management approach, integration of a platform
acquisition involves creating a new division to be managed by employees of the
acquired company. The Company centralizes many of the acquired Company's
functions, including purchasing, insurance and benefits, and sales and marketing
programs. Integration of a fill-in acquisition generally involves a fundamental
change in the operations of the acquired company. The Company may consolidate
distribution and production operations to maximize operating efficiencies. Where
market conditions dictate, an acquired company may use both its historical name
and the Company's name during a transition period in order to minimize customer
disruption.

Prior to consummating an acquisition, the Company conducts extensive due
diligence on the targeted company, including legal, environmental, business and
accounting reviews by senior management, the Company's independent auditors, and
outside legal counsel and consultants.

34
<PAGE>
COMPETITION

The wholesale nursery industry is highly competitive. Competition is based
principally on product quality, breadth of product offerings, customer service
and price. The Company believes it has differentiated itself from its
competitors through the breadth of its product offerings, multi-regional
capabilities and the value-added services it provides to retail customers. The
wholesale nursery industry is highly fragmented with over 10,000 small and
regional nurseries nationwide. In 1996, the ten largest and 100 largest
wholesale nurseries in the United States accounted for approximately 8% and 22%,
respectively, of total wholesale production. The Company currently competes
directly with a large number of western and southwestern producers. On a
multi-regional basis, the Company also competes with both Hines Nurseries
primarily in bedding plants and shrubs and Monrovia Nursery Company primarily in
shrubs. The fresh cut Christmas tree market is also highly fragmented and, on a
regional basis, the Company competes in this market with Holiday Tree Farms and
The Kirk Company.

PROPERTIES AND FACILITIES

Color Spot operates 19 production facilities in five states. Each production
facility consists primarily of growing fields, greenhouses, warehouse space and
distribution areas. Production facilities are operated on a decentralized basis,
with each facility responsible for producing, marketing and distributing the
Company's products to retail customers within a designated geographic region.
The Company leases the majority of its facilities and believes that most of its
leases can be extended on acceptable terms. The profile of the Company's
production facilities is as follows:

<TABLE>
<CAPTION>
TOTAL TOTAL GREENHOUSE
LOCATION ACREAGE SQUARE FOOTAGE OWNED/LEASED
- - - ----------------------------------------------------- ----------- ---------------- ---------------
<S> <C> <C> <C>
WESTERN:
Carson, CA........................................... 68 450,000 Leased
Chino, CA............................................ 41 395,000 Leased
El Cajon, CA(1)...................................... 43 410,000 Owned/Leased
Fallbrook, CA(2)..................................... 247 1,660,000 Owned/Leased
Lodi, CA(3).......................................... 102 1,073,000 Owned/Leased
Richmond, CA(4)...................................... 98 988,000 Leased
Salinas, CA.......................................... 160 1,600,000 Leased
San Juan Capistrano, CA.............................. 243 908,000 Leased
Sunol, CA............................................ 57 480,000 Leased
Watsonville, CA(5)................................... 53 392,000 Leased
Phoenix, AZ(6)....................................... 56 670,000 Owned/Leased
Mt. Vernon, WA....................................... 42 425,000 Leased
Aurora, OR........................................... 32 278,000 Leased
----- ----------------
Western Subtotal................................... 1,242 9,729,000
SOUTHWESTERN:
Harlingen, TX........................................ 172 210,000 Owned
Huntsville, TX....................................... 52 442,000 Leased
San Antonio, TX...................................... 587 1,771,000 Owned
Waco, TX............................................. 99 675,000 Owned
Waller, TX........................................... 60 160,000 Leased
Walnut Springs, TX................................... 195 693,000 Owned
----- ----------------
Southwestern Subtotal.............................. 1,165 3,951,000
----- ----------------
TOTAL................................................ 2,407 13,680,000
----- ----------------
----- ----------------
</TABLE>

- - - ------------------------------
(1) The El Cajon facility is comprised of four parcels, one of which is owned
and three of which are leased.
(2) The Fallbrook facility is comprised of five parcels, one of which is owned
and four of which are leased.
(3) The Lodi facility is comprised of three parcels, one of which is owned and
two of which are leased.
(4) The Richmond facility is comprised of five leased parcels.
(5) The Watsonville facility is comprised of three leased parcels.
(6) The Phoenix facility is comprised of two parcels, one of which is owned and
one of which is leased.

35
<PAGE>
In addition to its production facilities, the Company also leases 44 growing
fields for Christmas trees in Oregon (1,120 acres), Michigan (724 acres) and
North Carolina (47 acres).

The Company's executive offices are located in Pleasant Hill, California.

EMPLOYEES

As of June 30, 1997, the Company had approximately 2,540 full-time
employees. During the peak growing season, which runs from February through
June, Color Spot employs a substantial number of seasonal employees, and total
employment generally will grow to over 3,100 employees between February and
June. All of the Company's seasonal employees are paid on an hourly basis. None
of the Company's employees is covered by a collective bargaining agreement. The
Company believes its relationship with its employees is good.

GOVERNMENT REGULATION

Color Spot is subject to certain federal, state and local health, safety and
environmental laws and regulations regarding the production, storage and
transportation of certain of its products and the disposal of its waste. Certain
of the Company's operations and activities, such as water runoff from its
production facilities and the use of certain pesticides are subject to
regulation by the EPA and similar state and local agencies. These agencies may
regulate or prohibit the use of such products, procedures or operations, thereby
affecting the Company's operations and profitability. In addition, the Company
must comply with a broad range of environmental laws and regulations. Additional
or more stringent environmental laws and regulations may be enacted in the
future and such changes could have a material adverse effect on the Company. The
Company uses reclamation water as one of the sources of water supply for a few
of its production facilities. The use and pricing of reclamation water,
including availability of subsidized water rates, is governed by federal
reclamation laws and regulations. Changes in the law could have a material
adverse effect on the Company.

In addition, the Company is subject to the Fair Labor Standards Act as well
as various federal, state and local regulations which govern such matters as
minimum wage requirements, overtime and other working conditions. A large number
of the Company's personnel are paid at or just above the federal minimum wage
level and, accordingly, changes in such laws, regulations or ordinances may
adversely affect the Company. Federal legislation raising the minimum wage in
the future would increase the Company's employee costs and could also have a
material adverse effect on the Company.

TRADEMARKS AND TRADE NAMES

A majority of the Company's products are sold under the "Color Spot"
trademark. The Company does not have any other registered trademarks.

LITIGATION

The Company is from time to time involved in litigation arising in the
ordinary course of its business. None of the pending litigation, in the opinion
of the Company, is likely to have a material adverse effect on the Company.

36
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- - - ----------------------------------------- --- -----------------------------------------------------------------
<S> <C> <C>
Michael F. Vukelich...................... 47 Chairman of the Board and Chief Executive Officer
Jerry L. Halamuda........................ 47 President and Director
Robert F. Strange........................ 43 Executive Vice President and Chief Operating Officer
Paul D. Yeager........................... 59 Executive Vice President and Chief Financial Officer
Karla D. Vukelich........................ 35 Executive Vice President of Administration and Secretary
Ranjit S. Bhonsle(1)..................... 28 Director
George T. Brophy......................... 62 Director
Samuel P. Frieder(1)(2).................. 33 Director
Richard E. George(2)..................... 58 Director
James A. Kohlberg........................ 39 Director
Gary E. Mariani(1)....................... 53 Director
Geoffrey A. Thompson(2).................. 56 Director
</TABLE>

- - - ------------------------

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

MR. VUKELICH has been the Company's Chairman of the Board and Chief
Executive Officer since September 1995. From 1992 through August 1995, Mr.
Vukelich was President and Chief Executive Officer of M.F. Vukelich Co. He is
the founder of Color Spot America, a predecessor of the Company, and was
President and Chief Executive Officer of Color Spot America from its inception
in 1983 to 1991. Mr. Vukelich has 27 years of experience in the nursery
business.

MR. HALAMUDA has been the Company's President since September 1995. Prior to
that time, Mr. Halamuda was Vice President of Color King Nursery from 1992
through August 1995. Mr. Halamuda has 26 years experience in the nursery
industry, including six years as an executive of Color Spot America from 1984
through 1990.

MR. STRANGE was appointed Executive Vice President and Chief Operating
Officer in July 1997. From January 1997 through June 1997, Mr. Strange was
President of the Company's western division. From September 1995 through
December 1996, Mr. Strange was the Company's Vice President of Operations. Prior
to that time, Mr. Strange was Director of Operations of Color Spot Oregon. Mr.
Strange has 22 years experience in the nursery industry.

MR. YEAGER joined the Company in February 1997 as Executive Vice President
and Chief Financial Officer. Prior to joining the Company, Mr. Yeager was
Executive Vice President and Chief Financial Officer of the Scotts Company which
he joined in 1974. Mr. Yeager has 23 years experience in the lawn and garden
industry.

MS. VUKELICH was appointed Executive Vice President and Secretary of the
Company in May 1997. Prior to that time, Ms. Vukelich was Vice President of
Administration, a position which she held since September 1995. Prior to that
time, Ms. Vukelich was Secretary and Vice President of Administration of M.F.
Vukelich & Co.

MR. BHONSLE joined Kohlberg in 1993 as an Associate. From 1991 through 1993,
Mr. Bhonsle was a Financial Analyst at Kidder, Peabody & Company, Inc.

MR. BROPHY has been Chairman, President and Chief Executive Officer of ABT
Building Products Corporation ("ABTCo") since October 1992. From 1983 to 1988,
Mr. Brophy was President, Chief Executive Officer and a Director of Morgan
Products, Ltd., a building products company, and was a

37
<PAGE>
private business consultant from 1988 to 1992. Mr. Brophy is also a Director of
Banta Corporation, a printing company.

MR. FRIEDER joined Kohlberg in 1989 and was named a Principal in 1995. Mr.
Frieder is also a Director of ABTCo.

MR. GEORGE is the President of R.G. Trends, an independent consulting firm.
From 1995 through 1996. Mr. George was President and Chief Executive Officer of
Handy Andy Home Improvement Centers, Inc. From 1989 through 1995, Mr. George was
Chairman and Chief Executive Officer of Ulta(3) Cosmetics & Salon Inc., a
company which he founded.

MR. KOHLBERG has been a Principal of Kohlberg since 1987. Mr. Kohlberg is
also a Director of ABTCo and Northwestern Steel and Wire Company.

MR. MARIANI has been Chief Executive Officer of Winndevon Art Group, Inc.,
an art publisher, since 1994. From 1992 through 1993, Mr. Mariani was Chief
Executive Officer of The Garden Counsel, a national nursery association. Prior
to that time, Mr. Mariani was the President of the Nursery Product Division of
Weyerhaeuser Company.

MR. THOMPSON joined Kohlberg as a Principal in 1996. Prior to that time, Mr.
Thompson was Managing Partner of Norman Broadbent International, Inc. and
President of Nordeman Grimm, both executive recruiting firms. From 1981 to 1991,
Mr. Thompson served in various capacities at Marine Midland Bank, including
President and Chief Executive Officer.

Michael F. Vukelich and Karla D. Vukelich are married.

Upon completing the Offerings, the Company's Board of Directors will be
divided into three classes. Directors of each class will be elected at the
Annual Meeting of Stockholders of the Company (the "Annual Meeting of
Stockholders") held in the year in which the term of such class expires and will
serve thereafter for a term of three years. Messrs. George, Mariani and Brophy
will serve as Class I Directors with their terms expiring at the 1998 Annual
Meeting of Stockholders; Messrs. Vukelich, Halamuda and Bhonsle will serve as
Class II Directors with their terms expiring at the 1999 Annual Meeting of
Stockholders; and Messrs. Kohlberg, Frieder and Thompson will serve as Class III
Directors with their terms expiring at the 2000 Annual Meeting of Stockholders.
See "Description of Capital Stock--Classified Board; Board Vacancies" and
"--Stockholders Agreement."

BOARD OF DIRECTORS COMMITTEES AND COMPENSATION

The Board of Directors has established an Audit Committee and a Compensation
Committee. The function of the Audit Committee is to recommend annually to the
Board of Directors the appointment of independent public accountants of the
Company, discuss and review the scope and the fees of the prospective annual
audit and review the results thereof with the independent public accountants,
review and approve non-audit services of the independent public accountants,
review compliance with existing major accounting and financial policies of the
Company, review the adequacy of the financial organization of the Company and
review management's procedures and policies relative to the adequacy of the
Company's internal accounting controls. Messrs. Bhonsle, Frieder and Mariani are
the current members of the Audit Committee.

The function of the Compensation Committee is to, among other things, review
and approve annual salaries and bonuses for all executive officers and review,
approve and recommend to the Board of Directors the terms and conditions of all
employee benefit plans or changes thereto and administer the Company's options
plans. Messrs. George, Frieder and Thompson are the current members of the
Compensation Committee.

Directors are reimbursed for certain reasonable expenses incurred in
connection with attending Board or committee meetings.

38
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In fiscal 1997, there was no Compensation Committee of the Board of
Directors. Michael F. Vukelich, the Chairman of the Board and Chief Executive
Officer, and Jerry L. Halamuda, the President, are Directors and participated in
deliberations of the Board of Directors concerning executive officer
compensation. Following completion of the Offerings, the Board of Directors will
have a Compensation Committee consisting of Messrs. Frieder, George and
Thompson.

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides that each person who is or was a director or officer of
the Company shall be indemnified and held harmless by the Company against all
expense, liability and loss to the fullest extent allowable under the Delaware
General Corporation Law (the "DGCL"). In addition, the Certificate provides, to
the fullest extent allowable under the DGCL, that no director shall be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Under the DGCL, liability of a director
may not be limited (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases or (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision in the Certificate is to
eliminate the rights of the Company and its stockholders, either directly or
through a stockholders' derivative suit brought on behalf of the Company, to
recover monetary damages from a director for breach of the fiduciary duty of
care as a director except in those instances described under the DGCL.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION. The following table sets forth a summary of certain
information regarding compensation paid or accrued by the Company during fiscal
1997 to the Company's Chief Executive Officer and each of the three other most
highly compensated executive officers whose total annual salary and bonus
exceeded $100,000 during such fiscal year (collectively, the "Named
Executives"). See "--Employment Agreements."

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- - - ------------------------------ --------- --------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Vukelich .......... $ 162,500 $ 181,250 $ 5,400(1) 602,609 $ 573,346(2)
Chairman of the Board and
Chief Executive Officer
Jerry L. Halamuda ............ 153,846 160,000 5,400(1) 602,609 299,104(2)
President
Robert F. Strange ............ 87,692 54,638 53,361
Chief Operating Officer
Paul D. Yeager(3) ............ 46,154 69,000
Executive Vice President and
Chief Financial Officer
</TABLE>

- - - --------------------------
(1) Represents car allowance.

(2) Represents deferred compensation which will be paid January 31, 1998.

(3) Mr. Yeager joined the Company in February 1997. His annual base salary was
$150,000 at June 30, 1997.

39
<PAGE>
OPTION GRANTS DURING FISCAL 1997. The following table summarizes the
options granted during fiscal year 1997 to the Named Executives. Except as
otherwise indicated, all of these options were granted under the Company's 1997
Stock Option Plan described below. No stock appreciation rights were granted to
the Named Executives during such fiscal year.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED 1997 PRICE(1) DATE 5% 10%
- - - ------------------------------------ ----------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Vukelich................. 395,609(3) 18.4% $ 1.45 9/7/05 $ 894,525 $ 1,366,679
207,000 9.6 7.17 1/1/07 2,417,589 3,849,607
Jerry L. Halamuda................... 395,609(3) 18.4 1.45 9/7/05 894,525 1,366,679
207,000 9.6 7.17 1/1/07 2,417,589 3,849,607
Robert F. Strange................... 39,561(4) 1.8 1.45 9/7/05 89,453 136,668
13,800 0.6 7.19 1/1/07 161,622 257,356
Paul D. Yeager...................... 69,000 3.2 7.19 1/1/07 802,418 1,269,475
</TABLE>

- - - --------------------------
(1) The exercise price of each option was the estimated fair value of the Common
Stock on the date of grant.

(2) Based upon the estimated fair value of the Common Stock on the date of grant
and assumed appreciation over the term of the options at the respective
annual rates of stock appreciation shown. Potential gains are net of the
exercise price but before taxes and other expenses associated with the
exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future price of the Common Stock. Actual gains, if any, on stock option
exercises are dependent on the future financial performance of the Company,
the future performance of the Company's Common Stock and overall market
conditions. The actual value realized may be greater or less than the
potential realizable value set forth in the table.

(3) Represents options for Mr. Vukelich and Mr. Halamuda which have continued in
effect under their respective employment agreements. See "--Employment
Agreements."

(4) Issued under the Company's 1996 Stock Incentive Plan. See "--Stock Option
Plans."

AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND YEAR-END OPTION VALUES. The
following table sets forth certain information regarding options exercised and
the number and value of unexercised options held by the Named Executives at June
30, 1997.

YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT JUNE 30, 1997 JUNE 30, 1997(1)
SHARES ACQUIRED VALUE ------------------------------ --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
- - - ----------------------- --------------- ----------- ----------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Vukelich.... 395,609 207,000 $ 4,569,284 $ 1,206,810
Jerry L. Halamuda...... 189,227 $ 1,083,357 206,382 207,000 2,383,712 1,206,810
Robert F. Strange...... 39,561 226,494 13,800 80,178
Paul D. Yeager......... 69,000 400,890
</TABLE>

- - - --------------------------
(1) Represents the value of the shares of Common Stock subject to outstanding
options, based on an assumed initial public offering price of $13.00 per
share, less the aggregate option exercise price.

(2) All outstanding stock options will automatically vest upon completion of the
Common Stock Offering.

EMPLOYMENT AGREEMENTS

As part of the Recapitalization, the Company entered into an employment
agreement with Michael F. Vukelich, the Company's Chief Executive Officer and
Chairman of the Board. The agreement has a term of three years and will be
automatically renewed for successive one-year periods unless Mr. Vukelich or the
Company gives 90 days notice of non-renewal. As of July 1, 1997, Mr. Vukelich is
paid an annual base

40
<PAGE>
salary of $200,000, which is increased annually based on increases in the
consumer price index, and is eligible to receive an annual bonus of up to 150%
of his base salary based on the achievement of certain performance targets. The
employment agreement continues in effect an option to purchase 395,609 shares of
the Company's Common Stock for $1.45 per share and provides that the Company
grant Mr. Vukelich an option to purchase 207,000 shares of the Company's Common
Stock at $7.17 per share. The agreement also entitles Mr. Vukelich to deferred
compensation in the amount of $573,346 upon the completion of the Common Stock
Offering. The agreement terminates upon the earlier to occur of (i) non-renewal
by the Company or Mr. Vukelich, (ii) death or disability, (iii) termination for
Cause (as defined in the agreement) or (iv) termination without Cause. In the
event that the employment agreement is not renewed by the Company, the Company
is obligated to continue to pay Mr. Vukelich his base salary through June 30,
2000. In the event that the employment agreement is terminated without Cause,
the Company is obligated to pay Mr. Vukelich his base salary through the
remaining term of the employment agreement plus his pro rata portion of the
bonus paid to Mr. Vukelich in the year prior to termination. In the event of Mr.
Vukelich's death or disability, the Company is obligated to continue to pay to
Mr. Vukelich or his estate his base salary for one year following his
termination. The employment agreement entitles Mr. Vukelich to be nominated to a
seat on the Company's board of directors so long as he owns 10% of the Common
Stock.

As part of the employment agreement, Mr. Vukelich has agreed not to compete
with the Company in certain specified counties and states for the longer of one
year following termination or one year following the receipt of any severance
from the Company; provided that Mr. Vukelich may elect to waive the payment of
severance, in which event the noncompetition covenant expires one year following
termination.

As part of the Recapitalization, the Company entered into an employment
agreement with Jerry L. Halamuda, the Company's President. The agreement has a
term of three years and will be automatically renewed for successive one-year
periods unless Mr. Halamuda or the Company gives 90 days notice of non-renewal.
As of July 1, 1997, Mr. Halamuda is paid an annual base salary of $200,000,
which is increased annually based on increases in the consumer price index, and
is eligible to receive an annual bonus of up to 150% of his base salary based on
the achievement of certain performance targets. The employment agreement
continues in effect an option to purchase 206,382 shares of the Company's Common
Stock at $1.45 per share and provides that the Company grant Mr. Halamuda an
option to purchase 207,000 shares of the Company's Common Stock at $7.17 per
share. The Agreement also entitles Mr. Halamuda to deferred compensation in the
amount of $299,104 upon completion of the Common Stock Offering. The agreement
terminates upon the earlier to occur of (i) non-renewal by the Company or Mr.
Halamuda, (ii) death or disability, (iii) termination for Cause (as defined in
the agreement) or (iv) termination without Cause. In the event that the
employment agreement is not renewed by the Company, the Company is obligated to
continue to pay Mr. Halamuda his base salary through June 30, 2000. In the event
that the employment agreement is terminated without Cause, the Company is
obligated to pay Mr. Halamuda his base salary through the remaining term of the
employment agreement plus his pro rata portion of the bonus paid to Mr. Halamuda
in the year prior to termination. In the event of Mr. Halamuda's death or
disability, the Company is obligated to continue to pay to Mr. Halamuda or his
estate his base salary for one year following his termination.

As part of the employment agreement, Mr. Halamuda has agreed not to compete
with the Company in certain specified counties and states for the longer of one
year following termination or one year following the receipt of any severance
from the Company; provided that Mr. Halamuda may elect to waive the payment of
severance, in which event the noncompetition covenant expires one year following
termination.

STOCK OPTION PLANS

1996 STOCK INCENTIVE PLAN. In July 1996, the Board of Directors authorized,
and the stockholders of the Company approved, a stock option plan, effective
September 7, 1995, for directors, officers, employees and consultants of the
Company and its subsidiaries (the "1996 Option Plan"). Options to purchase a
total

41
<PAGE>
of 1,171,418 shares of Common Stock at $1.45 per share were granted under the
1996 Option Plan. As of June 30, 1997, 602,001 nonqualified stock options
("NQOs") were outstanding under the 1996 Option Plan. No further options will be
granted under the 1996 Stock Option Plan.

1997 STOCK OPTION PLAN. The Company's 1997 Stock Option Plan (the "1997
Stock Option Plan") was adopted by the Board of Directors and approved by the
stockholders on December 31, 1996 to attract, retain and provide incentive to
executives and key employees of the Company. Options granted under the 1997
Stock Option Plan may be either incentive stock options ("ISOs") as defined in
Section 422 of the Internal Revenue Code of 1986, as amended, or NQOs. A total
of 1,242,000 shares of Common Stock have been reserved for issuance under the
1997 Stock Option Plan.

The 1997 Stock Option Plan is administered by the Compensation Committee of
the Board of Directors which has the authority to determine the terms of the
options granted. Each option has a term specified in its option agreement;
provided, however, that no term can exceed ten years from the date of grant.
Each option is exercisable upon the fulfillment of certain conditions, including
agreement by the Optionee to be bound by the Stockholders Agreement. In the case
of an ISO granted to an optionee who, at the time the option is granted, owns
stock representing more than 10% of the voting power of all outstanding classes
of stock of the Company (a "10% Optionee"), the term of the option cannot exceed
five years from the date of grant. No option granted under the 1997 Stock Option
Plan may be transferred by the optionee other than by will or the laws of
descent and distribution and each option may be exercised, during the lifetime
of the optionee, only by such optionee. In the event that an optionee's
employment terminates for any reason other than for cause, any options held
which have not yet vested will expire and become unexercisable. All of the
optionee's options which have vested shall expire and become unexercisable on
the earlier of the expiration date stated in the option agreement or the date 90
days after the termination of the optionee's employment. If an optionee is
terminated for cause prior to the later of January 1, 2000 or the third
anniversary of the date the optionee commences employment with the Company, all
options held by the optionee (whether or not vested) shall expire on the date of
termination. The number of shares under each option and the price of any shares
under such option may be adjusted in a manner consistent with any capital
adjustment resulting from a stock dividend, stock split, recapitalization,
reorganization or a combination or other change in the shares of Common Stock.

The exercise price for all ISOs granted under the 1997 Stock Option Plan
must be no less than 100% of the fair value per share on the date of grant. With
respect to a 10% Optionee, the exercise price of any option granted must be no
less than 110% of the fair market value on the date of grant. Each option is
designated in the written option agreement as either an ISO or NQO. However, to
the extent that the aggregate fair market value of shares subject to an
optionee's ISO, which become exercisable for the first time during any year,
exceeds $100,000, the excess options shall be treated as NQOs.

As of June 30, 1997, under the 1997 Stock Option Plan, there were 414,000
stock options outstanding with an exercise price of $7.17 per share and 428,493
stock options outstanding with an exercise price of $7.19 per share. The 1997
Stock Option Plan will expire in 2007 unless terminated at an earlier date by
the Board of Directors.

SPECIAL STOCK OPTION PLAN. In February 1997, the Board of Directors
authorized, and the stockholders of the Company approved, a stock option plan
for employees of Lone Star Growers, L.P., a wholly owned subsidiary of the
Company (the "Special Option Plan"). A total of 139,383 shares of Common Stock
have been reserved for issuance under the Special Option Plan. The purpose of
the Special Option Plan was to provide incentives to employees of Lone Star
Growers, L.P. in connection with the acquisition of Lone Star Growers Co., the
predecessor to Lone Star Growers, L.P., by the Company. Options for all of the
available shares under the Special Option Plan were granted to employees of Lone
Star Growers, L.P. at the time of the acquisition at an exercise price of $1.43
per share. No further awards will be made under the Special Option Plan. The
Special Option Plan is otherwise identical to the 1997 Stock Option Plan. All

42
<PAGE>
outstanding stock options under the Special Option Plan will vest automatically
upon completion of the Common Stock Offering.

EMPLOYEE STOCK PURCHASE PLAN

Upon completion of the Common Stock Offering, the Company intends to adopt
an employee stock purchase plan (the "Purchase Plan") under which employees who
have been employed by the Company for at least one year will be permitted to
purchase Common Stock from the Company at a 15% discount to the market price on
the date of purchase. For each employee, such purchases may not exceed the
lesser of (i) 10% of such employee's annual salary and (ii) $10,000 in the
aggregate per year. In addition, any Common Stock purchased under the Purchase
Plan may not be sold for at least one year from the date of purchase. The
aggregate amount of Common Stock available for purchase under the Purchase Plan
shall be limited to 51,750 shares for the year following completion of the
Common Stock Offering and 69,000 shares per year thereafter.

CERTAIN TRANSACTIONS

RELATIONSHIP WITH KOHLBERG

CONTROL BY KCSN. KCSN, an affiliate of Kohlberg, owns 4,797,716 shares of
Common Stock or 69.2% of the outstanding Common Stock as of July 31, 1997, and
after completion of the Common Stock Offering, KCSN will own approximately 44.6%
of the outstanding Common Stock (42.3% if the Underwriters' over-allotment
option is exercised in full).

Due to KCSN's stock ownership in the Company, KCSN, together with Heller and
management, will continue to be able to control the Company, to elect its Board
of Directors and to approve any action requiring stockholder approval, including
adopting amendments to the Company's certificate of incorporation and approving
or disapproving mergers or sales of all or substantially all of the assets of
the Company. As a result of such control, KCSN will be able to effectively
control all of the Company's policy decisions. See "Risk Factors--Control by
Significant Stockholders and Management" and "Description of Capital
Stock--Stockholders Agreement." As long as the Stockholders Agreement is in
effect, third parties may not be able to obtain control of the Company through
purchases of Common Stock not owned by parties to the Stockholders Agreement.

KOHLBERG FEE AGREEMENT. The Company pays Kohlberg an annual management fee
plus expenses pursuant to a fee agreement (the "Fee Agreement") for certain
management and advisory services. Under the Fee Agreement, the annual management
fee equals the greater of $300,000 or 3% of the Company's earnings before
interest, taxes, depreciation and amortization subject to a maximum annual
payment of $750,000. The management fee is payable quarterly in advance in
installments of $75,000, with the balance payable at the end of each fiscal
year. The Fee Agreement terminates on the earlier of December 31, 2006 or the
end of the fiscal year in which Kohlberg and its affiliates hold less then 20%
of the outstanding Common Stock. In addition, Kohlberg was paid a fee of $1.5
million for services provided in connection with the Recapitalization under the
Fee Agreement. For fiscal 1997, Kohlberg was paid an aggregate of $1.65 million
under the Fee Agreement. In connection with the Offerings, the Company will pay
to Kohlberg a fee of $2.0 million to terminate its annual management fee
obligations under the Fee Agreement.

RECAPITALIZATION

As part of the Recapitalization on December 31, 1996, the Company
repurchased for cash 603,750 shares of the Company's Common Stock from M.F.
Vukelich Co., which is wholly owned by Michael F. Vukelich, at $7.17 per share
for an aggregate purchase price of approximately $4.3 million. In addition,
certain directors and employees of the Company, pursuant to a put/call option
agreement entered into at the time of the Recapitalization, have the right to
require the Company to purchase, and the Company has

43
<PAGE>
a corresponding right to require the sale of, an aggregate of 786,688 shares of
Common Stock at $7.17 at varying times during 1997. As of July 31, 1997, the
Company had repurchased for cash 766,478 shares of Common Stock for an aggregate
purchase price of approximately $5.5 million from certain directors and
employees as follows:

<TABLE>
<CAPTION>
SHARES
---------
<S> <C>
Steven Bookspan.................................................................... 19,413
Gary Crook......................................................................... 13,190
Richard E. George.................................................................. 36,194
Dave Grimshaw...................................................................... 13,190
Jerry L. Halamuda.................................................................. 292,727
Gene Malcolm....................................................................... 27,140
Gary E. Mariani.................................................................... 67,161
Michael T. Neenan.................................................................. 20,211
John Negrete....................................................................... 9,060
Jim Tsurudome...................................................................... 13,939
Michael F. Vukelich................................................................ 254,253
</TABLE>

MISCELLANEOUS

The Company leases a portion of its Richmond, California facility from M.F.
Vukelich Co., which is wholly owned by Michael F. Vukelich. The lease expires on
August 31, 2005. The aggregate annual rental payment under this lease for 1997
is $259,560. Under the term of the lease, rent is increased annually by 3%. The
Company believes that this rent is at fair market value for the property.

The Company also leases a building from the daughter of Michael F. Vukelich.
The aggregate annual rental payment on this lease is $14,400. The Company
believes that this rent is at fair market value for the building.

Jerry L. Halamuda is a 20% partner of Signature Trees, a California general
partnership. As part of the acquisition of the assets of Signature Trees by the
Company, Mr. Halamuda received $600,000.

All outstanding stock options will automatically vest upon completion of the
Common Stock Offering. In addition, on January 31, 1998 deferred compensation in
the amount of $573,346 and $299,104 will be payable to Michael F. Vukelich and
Jerry L. Halamuda, respectively.

All future transactions among the Company and its officers, directors and
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested directors.

44
<PAGE>
PRINCIPAL STOCKHOLDERS

The table below sets forth certain information regarding beneficial
ownership of Common Stock as of July 31, 1997 by (i) each person or entity who
owns of record or beneficially five percent or more of the Common Stock, (ii)
each executive officer and each director of the Company and (iii) all executive
officers and directors of the Company as a group. To the knowledge of the
Company, each of such stockholders has sole voting and investment power as to
the shares shown unless otherwise noted.

<TABLE>
<CAPTION>
SHARES PERCENT BENEFICIALLY OWNED
BENEFICIALLY ----------------------------------
NAME AND ADDRESS OWNED(1) BEFORE OFFERING AFTER OFFERING
- - - --------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
KCSN Acquisition Company, L.P.(2).............................. 4,817,926 69.2% 44.7%
Heller Equity Capital Corporation(3)........................... 545,983 7.5 4.9
Michael F. Vukelich(4)......................................... 1,390,100 18.4 12.2
Jerry L. Halamuda(5)........................................... 425,986 5.8 3.8
Robert F. Strange(6)........................................... 61,986 * *
Paul D. Yeager(7).............................................. 276,000 3.9 2.6
Karla D. Vukelich(8)........................................... 20,700 * *
Ranjit S. Bhonsle(9)........................................... * *
Samuel P. Frieder(9)........................................... * *
James A. Kohlberg(9)........................................... * *
Geoffrey A. Thompson(9)........................................ * *
George T. Brophy(10)........................................... 34,848 * *
Richard E. George(11).......................................... 82,717 1.2 *
Gary E. Mariani(11)............................................ 86,737 1.2 *
All directors and executive officers as a group (12 persons)... 2,379,074 29.4 19.9
</TABLE>

- - - --------------------------

* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares, subject to applicable community
property laws. Shares of Common Stock subject to options or warrants
currently exercisable within 60 days of the date hereof are deemed
outstanding for the purpose of computing the percentage ownership of the
person holding such options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person.

(2) Includes 20,211 shares which were subject to an irrevocable proxy as of July
31, 1997 granted to KCSN by certain members of management under a Put/Call
Option Agreement dated as of December 31, 1996. See "Certain
Transactions--Recapitalization."

(3) Includes 367,602 shares issuable upon conversion of the Heller Note. The
address of Heller Equity Capital Corporation is 500 West Monroe Street,
Chicago, IL 60661.

(4) Includes 602,609 options exercisable within 60 days of the completion of the
Common Stock Offering. Excludes shares held by Karla D. Vukelich and Mark
Vukelich. Mark Vukelich is Michael F. Vukelich's brother. The address of Mr.
Vukelich is 3478 Buskirk Avenue, Suite 260, Pleasant Hill, CA 94523.

(5) Includes 413,382 stock options exercisable within 60 days of the completion
of the Common Stock Offering. Mr. Halamuda's address is 3478 Buskirk Avenue,
Suite 260, Pleasant Hill, CA 94523.

(6) Includes 13,800 stock options exercisable within 60 days of the completion
of the Common Stock Offering.

(7) Includes 69,000 stock options exercisable within 60 days of the completion
of the Common Stock Offering.

(8) Includes 10,350 stock options exercisable within 60 days of the completion
of the Common Stock Offering. Excludes shares held by Michael F. Vukelich
and Mark Vukelich.

(9) Excludes 4,797,716 shares held by KCSN and 20,211 shares subject to an
irrevocable proxy in favor of KCSN. Such person disclaims beneficial
ownership of such shares. The address of KCSN is 111 Radio Circle, Mt.
Kisco, NY 10549. KCSN is an affiliate of Kohlberg. The ultimate general
partner of KCSN is a corporation owned 100% by James A. Kohlberg.

(10) Includes 34,848 stock options exercisable within 60 days of the completion
of the Common Stock Offering.

(11) Includes 10,350 stock options exercisable within 60 days of the completion
of the Common Stock Offering.

45
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The Company has authorized capital of 50,000,000 shares of Common Stock, par
value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01
per share. 6,937,068 shares of Common Stock will be outstanding immediately
prior to the Offering and 10,766,858 shares will be outstanding upon completion
of the Common Stock Offering (11,344,358 shares if the Underwriters'
over-allotment option is exercised in full). No shares of Preferred Stock have
been issued.

COMMON STOCK. All shares of Common Stock currently outstanding are, and all
shares of Common Stock offered hereby, when duly issued and paid for, will be
fully paid and nonassessable, not subject to redemption and without preemptive,
conversion or subscription rights. Holders of Common Stock are entitled to one
vote per share on all actions submitted to a vote of stockholders. Cumulative
voting is not permitted. Holders of Common Stock are entitled to receive cash
dividends equally on a per share basis as and when such dividends are declared
by the Board of Directors from funds legally available therefor, subject to
preferential rights with respect to any outstanding Preferred Stock. See
"Dividend Policy."

In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share with each other on a ratable basis
as a single class in the remaining assets of the Company available for
distribution after payment of liabilities and satisfaction of any preferential
rights of holders of Preferred Stock. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future.

PREFERRED STOCK. The authorized number of shares of Preferred Stock may be
increased or decreased by the affirmative vote of a majority of the capital
stock of the Company entitled to vote without the separate vote of holders of
Preferred Stock as a class. The Board of Directors has authority, without any
further vote or action by the stockholders, to provide for the issuance of the
shares of Preferred Stock in one or more series, to establish from time to time
the relative, participating, optional or other special rights, qualifications or
restrictions of the shares of each such series and to determine the voting
powers, if any, of such shares. The issuance of Preferred Stock could adversely
affect, among other things, the rights of current stockholders. The issuance of
Preferred Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock. In addition, any such issuance could
have the effect of delaying, deferring or preventing a change in control of the
Company and could make the removal of the present management of the Company more
difficult.

DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS. The Certificate and
Bylaws contain a number of provisions relating to corporate governance and to
the rights of stockholders. Certain of these provisions may be deemed to have a
potential "anti-takeover" effect in that such provisions may delay, defer or
prevent a change of control of the Company. These provisions include the
following:

CLASSIFIED BOARD; BOARD VACANCIES. The Certificate provides that the
Company's Board of Directors will be divided into three classes, with each
class, after a transitional period, serving for three years and one class being
elected each year at the annual meeting of stockholders. The Certificate and the
Bylaws provide that members of the Board of Directors may be removed only for
cause by the affirmative vote of the holders of at least a majority of the
voting power of all outstanding shares of capital stock entitled to vote
generally in the election of directors, voting together as a single class. A
majority of the remaining directors then in office, though less than a quorum,
or the sole remaining director, will be empowered to fill any vacancy on the
Board of Directors. A majority vote of the stockholders will be required to
alter, amend or repeal the foregoing provisions. The classification of the Board
of Directors may discourage a third party from making a tender offer or
otherwise attempting to gain control of the Company and may maintain the
incumbency of the Board of Directors. See "--Stockholders Agreement" and
"Management."

SPECIAL MEETINGS OF STOCKHOLDERS; NO STOCKHOLDER ACTION BY WRITTEN
CONSENT. The Certificate requires that any action required or permitted to be
taken by the Company's stockholders must be effected at a duly

46
<PAGE>
called annual or special meeting of stockholders and may not be taken by written
consent. Additionally, the Certificate requires that special meetings of the
stockholders of the Company be called only by a majority of the entire Board of
Directors, certain officers of the Company or by holders of the Company's
outstanding stock having not less than a majority of the votes that would be
necessary to authorize such action.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that stockholders seeking to bring business
before or to nominate directors at any meeting of stockholders must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than 50 days nor more than 75 days prior to such meeting, or,
if less than 60 days' notice was given for the meeting, within 10 days following
the date on which such notice was given. The Bylaws also specify certain
requirements for the proper written form of a stockholder's notice. These
provisions may preclude some stockholders from bringing matters before the
stockholders or from making nominations for directors.

CERTIFICATE AND BYLAW AMENDMENTS. The Certificate may be altered, amended
or repealed in whole or in part in accordance with Delaware law, except that
provisions in the Certificate regarding (i) election of directors, (ii) a
classified Board of Directors, (iii) removal of directors and director
vacancies, (iv) stockholder action by meeting only and (v) bylaw amendments may
only be altered, amended or repealed upon the affirmative vote of at least
66 2/3% of the shares of capital stock of the Company entitled to vote generally
in an election of directors. The Certificate provides that the Bylaws may be
altered, amended or repealed by the Board of Directors or by the stockholders,
except that the Bylaw provisions concerning advance notice requirements for
stockholder proposals and director nominations may not be altered, amended or
repealed and no inconsistent provision may be adopted without the affirmative
vote of 66 2/3% of the shares of capital stock of the Company entitled to vote
generally in the election of directors.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. Upon the closing of
the Offering, the Company will be subject to Section 203 of the DGCL which
imposes restrictions on business combinations (as defined therein) with
interested stockholders (being any person who acquired 15% or more of the
Company's outstanding voting stock). In general, the Company is prohibited from
engaging in business combinations with an interested stockholder, unless (i)
before such person became an interested stockholder, the Board of Directors of
the Company approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding for purposes of determining the number of shares outstanding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) on or subsequent to the date on which such person became an
interested stockholder, the business combination is approved by the Board of
Directors of the Company and authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting stock of
the Company not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the earlier of the announcement
or notification of one of certain extraordinary transactions involving the
Company and a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with the approval
of the Company's Directors, if such extraordinary transaction is approved or not
opposed by a majority of the directors who are directors prior to any person
becoming an interested stockholder during the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors. By restricting the ability of the Company to engage in business
combinations with an interested person, the application of Section 203 to the
Company may provide a barrier to hostile or unwanted takeovers.

47
<PAGE>
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the
Common Stock will be American Stock Transfer and Trust Company.

STOCKHOLDERS AGREEMENT

KCSN, Heller and all of the management stockholders (the "Stockholders") are
parties to the Stockholders Agreement which includes certain voting agreements
and registration rights which survive the completion of the Offerings until
December 31, 2006. Assuming conversion of the Heller Note and the exercise of
outstanding options by management stockholders, the number of shares of Common
Stock subject to the terms of the Stockholders Agreement as of July 31, 1997 was
8,175,791. See "Risk Factors-- Control by Significant Stockholders and
Management."

VOTING AGREEMENT. The Stockholders have agreed to (i) consent to any
merger, consolidation or sales of all or substantially all of the Company's
assets involving an independent third party and approved by a majority of the
shares of Common Stock held by KSCN and (ii) vote their shares of Common Stock
to elect two members of management (which shall be Michael F. Vukelich and Jerry
L. Halamuda so long as they are employed as executive officers of the Company),
five KCSN designees and two independent designees reasonably acceptable to KCSN
as directors of the Company. Consequently, the Stockholders (assuming the
conversion of the Heller Note) will continue to have significant influence over
the policies and affairs of the Company and may be in a position to determine
the outcome of corporate actions requiring stockholder approval, including
adopting amendments to the Certificate, electing directors and approving or
disapproving mergers or sales of all or substantially all of the Company's
assets.

In addition to the voting agreement under the Stockholders Agreement, KCSN
and certain members of management are parties to a put/call option agreement to
effect the repurchase by the Company of shares of Common Stock held by such
management stockholders. Under the put/call option agreement, KCSN retained an
irrevocable proxy to vote the shares of Common Stock not yet purchased by the
Company. As of July 31, 1997, KCSN had an irrevocable proxy to vote 20,211
shares of Common Stock held by the management stockholders. The Company believes
that no shares of Common Stock will be subject to the put/call option agreement
as of January 1, 1998.

REGISTRATION RIGHTS AGREEMENT. The Stockholders are entitled to certain
rights with respect to the registration of their shares under the Securities
Act. If the Company proposes to register any Common Stock in connection with a
public offering after completion of the Offerings (other than a demand
registration) (a "Company Registration"), the Stockholders are entitled to
notice of such registration and are entitled to include shares of Common Stock
in such registration. Any shares proposed to be sold by the Company in a Company
Registration have priority over the Stockholders' shares if the managing
underwriter advises the Company that the number of shares requested for
inclusion exceeds the number of shares that can be sold in an offering. In
addition to Company Registrations, KCSN and Heller (assuming conversion of the
Heller Note) are entitled to certain demand registration rights pursuant to
which they may require the Company to file a registration statement under the
Securities Act at the Company's expense with respect to their shares of Common
Stock (a "Demand Registration"). KCSN is entitled to up to four Demand
Registrations and Heller is entitled to one Demand Registration. Subject to
certain market limitations, the management stockholders are entitled to
participate in a Demand Registration, provided that shares being sold by KCSN
and Heller take priority over the shares requested for inclusion by the
management stockholders. Demand Registrations may be requested at any time
following 180 days after the completion of the Offerings.

48
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS

NEW LOAN AGREEMENT

Simultaneously with the completion of the Offerings, the Company will enter
into the New Loan Agreement. The New Loan Agreement will provide for three
separate facilities: (i) an acquisition term loan facility entitling the Company
to borrow up to $75.0 million from time to time for acquisitions until two years
following the completion of the Offerings, (ii) a revolving credit facility
entitling the Company to borrow up to $40.0 million from time to time until five
years following the completion of the Offerings, and (iii) a supplemental line
of credit entitling the Company to borrow up to $35.0 million.

The acquisition term loan facility will begin to amortize five years
following the completion of the Offerings with a final maturity seven years
following completion of the Offerings. The revolving credit facility may be used
from time to time for working capital in an amount equal to the lesser of (i)
$40.0 million and (ii) an amount equal to 85% of eligible accounts receivable
and % of eligible inventory. During the period from to
of each year, the Company may not have borrowings in excess of $ outstanding
under the revolving credit facility. The revolving credit facility will
terminate five years following completion of the Offerings.

The supplemental line of credit may be used by the Company for working
capital or for acquisitions; however, it may only be used for working capital if
the Company is fully drawn on the revolving credit facility and for acquisitions
after the Company has fully utilized the acquisition term loan facility.

Interest on the loans under the New Loan Agreement will bear interest, at
the Company's option, at floating rates of interest based on the prime rate or
the London interbank offer rate ("LIBOR"), plus a margin which will range from
0% to 1.25% for prime rate loans and 1% to 2.75% for LIBOR loans depending on
certain financial performance targets.

The New Loan Agreement will contain various covenants, including covenants
prohibiting or limiting the incurrence of additional indebtedness, the granting
of liens, sales of assets, capital expenditures, as well as financial covenants
and information reporting covenants and certain restrictions on the ability to
use the acquisition term loan facility.

The New Loan Agreement will contain various events of default, the
occurrence and continuance of which would entitle the lenders under the New Loan
Agreement to accelerate the maturity of all loans under the New Loan Agreement
and terminate their acquisition term loan, revolving credit and supplemental
line of credit commitments, including (i) failure to pay any principal,
interest, fees or other amounts under the New Loan Agreement, (ii) breaches of
representations and warranties, (iii) violations of covenants, (iv) bankruptcy
or insolvency, (v) unsatisfied judgments in excess of certain thresholds, (vi)
certain events giving rise to liability under the Employee Retirement Income
Security Act, and (vii) failure of Credit Agricole Indosuez, as collateral
agent, to have a first perfected priority security interest in the collateral
for the loans.

Events of default will also give the lenders the right to possess and sell
the collateral security under the New Loan Agreement to obtain funds to satisfy
outstanding obligations to the lenders.

HELLER NOTE

In connection with the Recapitalization, the Company issued to Heller an
8.0% Subordinated Convertible Note with a principal amount of $7.1 million. The
Heller Note accrues interest daily at the rate of 8.0% per annum and is payable
on December 31, 2004. Interest is payable semi-annually in cash or, at the
option of the Company, interest may be capitalized and added to the principal
amount of the note. To date, the Company has elected to capitalize interest
accruing under the Heller Note. The Heller Note is subject to mandatory
redemption prior to December 31, 2004 upon (i) a sale or issuance of capital
stock of the Company which results in any person or group of affiliated persons
(other than KCSN and its affiliates)

49
<PAGE>
possessing the voting power to elect a majority of the Board of Directors and
(ii) a sale or transfer of more than 50% of the Company's consolidated assets or
a merger or consolidation in which the holders of the capital stock of the
Company prior to such merger or consolidation do not have the power to elect a
majority of the board of directors of the surviving entity following such merger
or consolidation. Amounts owing under the Heller Note are also subject to
acceleration in the event of (a) failure to pay principal or interest, (b)
certain unremedied covenant breaches, (c) bankruptcy or insolvency of the
Company, (d) an individual final judgment in excess of $250,000 or in the
aggregate, judgments in excess of $1.0 million, (e) the acceleration of other
indebtedness of $1.0 million individually or $2.5 million in the aggregate prior
to its stated maturity, or (f) failure by the Company to make a mandatory
redemption of the Heller Note.

The Heller Note is redeemable in whole or in part by the Company upon 45
days notice to Heller. Prior to any such redemption, Heller may convert the
Heller Note into that number of shares of Common Stock computed by dividing the
principal amount to be converted, plus capitalized interest accrued on such
principal amount, by the conversion price then in effect. Upon the completion of
the Common Stock Offering, the conversion price will be $20.09. The Company does
not have the right to require Heller to convert the Heller Note to Common Stock
upon completion of the Common Stock Offering.

SENIOR SUBORDINATED NOTES

The Company will issue $85.0 million principal amount of % Senior
Subordinated Notes due 2007 simultaneously with the completion of the Common
Stock Offering. The Notes are general unsecured obligations of the Company and
are subordinated to prior payment when due of all Senior Indebtedness (as
defined in the Indenture). The Notes bear interest at a rate equal to % per
annum, payable semi-annually in arrears on each interest payment date.

On or after , 2002, the Notes may be redeemed at the option of the
Company, in whole at any time or in part from time to time, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on of the year
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
- - - --------------------------------------------------------------------------------- -----------
<S> <C>
2002............................................................................. %
2003............................................................................. %
2004............................................................................. %
2005 and thereafter.............................................................. 100.000%
</TABLE>

Notwithstanding the foregoing, prior to , 2000, the Company may use
the net proceeds of one or more Public Equity Offerings (as defined in the
Indenture) to redeem up to 35% of the Notes originally issued at a redemption
price equal to % of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided that at least 65%
of the principal amount of Notes originally issued remains outstanding
immediately after any such redemption.

In the event of a Change of Control (as defined in the Indenture), each
holder has the right to require the repurchase of such holder's Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase.

The Indenture contains certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to pay dividends or make certain
other Restricted Payments (as defined in the Indenture), to incur additional
indebtedness, to incur certain liens, to enter into certain mergers or
consolidations, to engage in certain transactions with affiliates, to create
restrictions on dividends or other payments by subsidiaries to the Company and
to create guarantees of indebtedness by subsidiaries. Under certain
circumstances, the Company will be required to make an offer to purchase the
Notes at a price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the repurchase

50
<PAGE>
date with the proceeds of certain Asset Sales (as defined in the Indenture). The
Indenture contains certain customary events of default, which will include the
failure to pay interest and principal, the failure to comply with certain
covenants in the Notes or the Indenture, a default under certain indebtedness,
the imposition of certain final judgments and certain events occurring under
bankruptcy laws.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Common Stock Offering, the Company will have
10,766,858 outstanding shares of Common Stock. Of these shares, the shares sold
in the Common Stock Offering will be freely tradeable by persons other than
"affiliates" of the Company (as that term is defined in the rules and
regulations under the Securities Act) without restrictions or further
registration under the Securities Act. The 6,937,068 remaining shares (the
"Restricted Shares") are restricted shares within the meaning of Rule 144 under
the Securities Act ("Rule 144"). Such shares may not be resold in a public
distribution except in compliance with the registration requirements of the
Securities Act or pursuant to Rule 144 under the Securities Act.

In general, under Rule 144 as currently in effect, after 90 days following
completion of the Common Stock Offering, an affiliate of the Company, subject to
any applicable holding period, would be entitled to sell within any three-month
period a number of Restricted Shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock (107,669 shares immediately after
completion of the Offering) or the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. In addition, sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current information about the Company. Under Rule 144, 975,247 Restricted Shares
will be eligible for resale 90 days following completion of the Common Stock
Offering.

The Company, KCSN, Heller and the Company's officers, employees and
directors have agreed with the Underwriters not to sell or otherwise dispose of
any shares of Common Stock, without the prior written consent of BT Alex. Brown,
for a period of 180 days after the date of this Prospectus.

The Company has granted options to purchase a total of 1,583,878 shares of
Common Stock to management employees pursuant to the Company's stock option
plans. Promptly following the effectiveness of the Registration Statement, the
Company intends to file a registration statement on Form S-8 under the
Securities Act to register such shares. See "Management--Employment Agreements"
and "--Stock Option Plans."

Prior to the Common Stock Offering, there has been no public market for the
Common Stock. The Company can make no prediction as to the effect, if any, that
sales of shares of Common Stock or the availability of shares for sale will have
on the market price prevailing from time to time. The Company is unable to
estimate the amount, timing or nature of future sales of its Common Stock and
such sales will depend on market conditions, personal circumstances of the
sellers and other factors. Nevertheless, any sale of substantial amounts of the
Common Stock in the public market could adversely affect the market price of the
Common Stock.

51
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives BT
Alex. Brown Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation
(the "Representatives"), have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
Common Stock Offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- - - ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
BT Alex. Brown Incorporated....................................................................
Donaldson, Lufkin & Jenrette Securities Corporation............................................

-----------------
Total...................................................................................... 3,850,000
-----------------
-----------------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of Common Stock offered hereby if any of such shares are
purchased.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the Common Stock
Offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the Common Stock Offering, the
Common Stock Offering price and other selling terms may be changed by the
Representatives.

The Representatives have further advised the Company that, pursuant to
Regulation M under the Securities Act, certain persons participating in the
Common Stock Offering may engage in transactions, including stabilizing bids,
syndicate covering transactions or the imposition of penalty bids, which may
have the effect of stabilizing or maintaining the market price of the Common
Stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Common Stock on behalf of
the Underwriters for the purpose of fixing or maintaining the price of the
Common Stock. A "syndicate covering transaction" is the bid for or the purchase
of the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the underwriters in connection with the Common Stock Offering. A
"penalty bid" is an arrangement permitting the Representatives to reclaim the
selling concession otherwise accruing to an Underwriter or syndicate member in
connection with the Common Stock Offering if the Common Stock originally sold by
such Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.

52
<PAGE>
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 577,500
additional shares of Common Stock at the Common Stock Offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 3,850,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the 3,850,000 shares are being offered.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.

The Company, KCSN and the Company's directors and officers have agreed not
to offer, sell or otherwise dispose of any shares of Common Stock for a period
of 180 days after the date of this Prospectus, without the prior written consent
of BT Alex. Brown Incorporated, except that the Company may grant options to
purchase Common Stock under the 1997 Stock Option Plan. See "Shares Eligible for
Future Sale."

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

Prior to the Common Stock Offering, there has been no public market for the
Common Stock. Consequently, the Common Stock Offering price for the Common Stock
will be determined by negotiations between the Company and the Representatives.
Among the factors considered in such negotiations will be prevailing market
conditions, the price-earnings ratio of comparable publicly-traded companies,
the results of operations of the Company in recent periods, estimates of the
business potential of the Company and the present state of the Company's
development.

The Underwriters have reserved for sale, at the Common Stock Offering price,
approximately % of the shares of Common Stock offered hereby for certain
employees of the Company, and certain other individuals and entities, who have
expressed an interest in purchasing such shares of Common Stock in the Common
Stock Offering. The number of shares available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered by the Underwriters to the
general public on the same basis as other shares offered hereby.

LEGAL MATTERS

The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Brownstein Hyatt Farber & Strickland, P.C.,
Denver, Colorado. Certain legal matters will be passed upon for the Underwriters
by Brobeck, Phleger & Harrison LLP, Palo Alto, California.

EXPERTS

The audited consolidated financial statements and schedule of Color Spot
Nurseries, Inc. and Subsidiaries and Color Spot, Inc., an Oregon corporation,
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.

The audited financial statements of Oda Nursery, Inc., Cracon, Inc.,
Signature Trees, Peters' Wholesale Greenhouses, Inc., Lone Star Growers Co. and
The Wholesale Division of Sunnyside Plants, Inc., included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.

53
<PAGE>
The audited financial statements of The Wholesale Bedding Plant Division of
Summersun Greenhouse Co., included in this Prospectus, have been audited by Moss
Adams LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

The audited financial statements of Wolfe Greenhouses, L.L.C., included in
this Prospectus have been audited by Jaynes, Reitmeier, Boyd & Therrell, P.C.,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the Securities. This Prospectus, which is part of the Registration Statement,
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any agreement or other
document filed as an exhibit or schedule to the Registration Statement and each
such statement shall be deemed qualified in its entirety by such reference. For
further information with respect to the Company and the Securities, reference is
hereby made to the Registration Statement and such exhibits and schedules filed
as a part thereof, which may be inspected without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, and at the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10007 and at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission upon payment of prescribed fees. The
Commission also maintains a web site that contains reports, proxy and
information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System. This web
site can be accessed at http://www.sec.gov.

The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by independent public accountants and
quarterly reports containing unaudited consolidated financial data for each of
the first three quarters of each fiscal year.

54
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................... F-4
Consolidated Balance Sheets as of June 30, 1997 and 1996............... F-5
Consolidated Statements of Operations for the Year Ended June 30, 1997,
for the Period September 8, 1995 through June 30, 1996, for the
Period January 1, 1995 through September 8, 1995, and for the Year
Ended December 31, 1994.............................................. F-6
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the Year Ended June 30, 1997, for the Period September 8, 1995
through June 30, 1996, for the Period January 1, 1995 through
September 8, 1995, and for the Year Ended December 31, 1994.......... F-7
Consolidated Statements of Cash Flows for the Year Ended June 30, 1997,
for the Period September 8, 1995 through June 30, 1996, for the
Period January 1, 1995 through September 8, 1995, and for the Year
Ended December 31, 1994.............................................. F-8
Notes to Consolidated Financial Statements............................. F-9
ODA NURSERY, INC.
Report of Independent Public Accountants............................... F-27
Balance Sheets as of December 31, 1996 and 1995........................ F-28
Statements of Operations for the Years Ended December 31, 1996 and
1995................................................................. F-29
Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1996 and 1995........................................... F-30
Statements of Cash Flows for the Years Ended December 31, 1996 and
1995................................................................. F-31
Notes to Financial Statements.......................................... F-32
THE WHOLESALE BEDDING PLANT DIVISION OF
SUMMERSUN GREENHOUSE CO.
Independent Auditors' Report........................................... F-37
Balance Sheets as of May 31, 1997 and 1996............................. F-38
Statements of Operations and Divisional Equity for the Years Ended May
31, 1997 and 1996.................................................... F-39
Statements of Cash Flows for the Years Ended May 31, 1997 and 1996..... F-40
Notes to Financial Statements.......................................... F-41
CRACON, INC.
Report of Independent Public Accountants............................... F-48
Balance Sheet as of December 31, 1996.................................. F-49
Statement of Operations and Retained Earnings for the Year Ended
December 31, 1996.................................................... F-50
Statement of Cash Flows for the Year Ended December 31, 1996........... F-51
Notes to Financial Statements.......................................... F-52
WOLFE GREENHOUSES, L.L.C.
Independent Auditors' Report........................................... F-56
Balance Sheet as of December 27, 1996.................................. F-57
Statement of Operations and Members' Equity for the Year Ended December
27, 1996............................................................. F-58
Statement of Cash Flows for the Year Ended December 27, 1996........... F-59
Notes to Financial Statements.......................................... F-60
SIGNATURE TREES
Report of Independent Public Accountants............................... F-64
Balance Sheet as of December 31, 1996.................................. F-65
Statement of Operations and Partners' Capital for the Year Ended
December 31, 1996.................................................... F-66
Statement of Cash Flows for the Year Ended December 31, 1996........... F-67
Notes to Financial Statements.......................................... F-68
</TABLE>

F-1
<PAGE>
<TABLE>
<S> <C>
PETERS' WHOLESALE GREENHOUSES, INC.
Report of Independent Public Accountants............................... F-72
Balance Sheet as of December 31, 1996.................................. F-73
Statement of Operations for the Year Ended December 31, 1996........... F-74
Statement of Changes in Stockholders' Equity for the Year Ended
December 31, 1996.................................................... F-75
Statement of Cash Flows................................................ F-76
Notes to Financial Statements.......................................... F-77
LONE STAR GROWERS CO.
Report of Independent Public Accountants............................... F-83
Balance Sheets as of June 30, 1996 and 1995............................ F-84
Statements of Operations for the Years Ended June 30, 1996 and 1995.... F-85
Statements of Partnership Capital for the Years Ended June 30, 1996 and
1995................................................................. F-86
Statements of Cash Flows for the Years Ended June 30, 1996 and 1995.... F-87
Notes to Financial Statements.......................................... F-88
THE WHOLESALE DIVISION OF SUNNYSIDE PLANTS, INC.
Report of Independent Public Accountants............................... F-94
Statement of Assets and Liabilities and Divisional Equity as of March
31, 1996............................................................. F-95
Statement of Revenues and Expenses and Divisional Equity for the Year
Ended March 31, 1996................................................. F-96
Statement of Cash Flows for the Year Ended March 31, 1996.............. F-97
Notes to Financial Statements.......................................... F-98
</TABLE>

F-2
<PAGE>
INDEX TO UNAUDITED INTERIM FINANCIAL STATEMENTS

<TABLE>
<S> <C>
ODA NURSERY, INC.
Balance Sheet as of June 30, 1997...................................... F-102
Statements of Operations for the Six Months Ended June 30, 1997 and
1996................................................................. F-103
Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996................................................................. F-104
Notes to Financial Statements.......................................... F-105
CRACON, INC.
Balance Sheet as of June 30, 1997...................................... F-109
Statements of Operations and Retained Earnings for the Six Months Ended
June 30, 1997 and 1996............................................... F-110
Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996................................................................. F-111
Notes to Financial Statements.......................................... F-112
WOLFE GREENHOUSES, L.L.C.
Balance Sheet as of July 11, 1997...................................... F-116
Statements of Operations and Members' Equity for the Seven Four-Week
Reporting Periods Ended July 11, 1997 and July 12, 1996.............. F-117
Statements of Cash Flows for the Seven Four-Week Reporting Periods
Ended July 11, 1997 and July 12, 1996................................ F-118
Selected Notes to Financial Statements................................. F-119
PETERS' WHOLESALE GREENHOUSES, INC.
Balance Sheet as of June 30, 1997...................................... F-122
Statements of Operations for the Six Months Ended June 30, 1997 and
1996................................................................. F-123
Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996................................................................. F-124
Notes to Financial Statements.......................................... F-125
LONE STAR GROWERS CO.
Balance Sheet as of December 31, 1996.................................. F-131
Statements of Operations for the Six Months Ended December 31, 1996 and
1995................................................................. F-132
Statements of Cash Flows for the Six Months Ended December 31, 1996 and
1995................................................................. F-133
Notes to Financial Statements.......................................... F-134
THE WHOLESALE DIVISION OF SUNNYSIDE PLANTS, INC.
Statement of Assets and Liabilities and Divisional Equity as of
December 31, 1996.................................................... F-139
Statements of Revenues and Expenses and Divisional Equity for the Nine
Months Ended December 31, 1996 and 1995.............................. F-140
Statements of Cash Flows for the Nine Months Ended December 31, 1996
and 1995............................................................. F-141
Notes to Unaudited Financial Statements................................ F-142
</TABLE>

F-3
<PAGE>
After the merger of CSN, Inc. (the parent company of Color Spot Nurseries,
Inc.) into Color Spot Nurseries, Inc. and a 0.69:1 reverse stock split which
will occur simultaneously with the consummation of the Company's initial public
offering, we expect to be in a position to render the following audit report.

ARTHUR ANDERSEN LLP

San Francisco, California

August 15, 1997

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Color Spot Nurseries, Inc.:

We have audited the accompanying consolidated balance sheets of Color Spot
Nurseries, Inc. (a Delaware corporation) and Subsidiaries (the Company) as of
June 30, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended June 30, 1997, and for
the period from inception, September 8, 1995, through June 30, 1996. We have
also audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of the Predecessor (businesses
identified in Note 1) from January 1, 1995, through September 8, 1995, and for
the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Color Spot Nurseries, Inc. and Subsidiaries as of June 30, 1997 and 1996, and
the results of their operations and their cash flows for the year ended June 30,
1997, and for the period from inception, September 8, 1995, through June 30,
1996, and the results of operations of the Predecessor and its cash flows from
January 1, 1995, through September 8, 1995, and for the year ended December 31,
1994, in conformity with generally accepted accounting principles.

San Francisco, California
August 15, 1997

F-4
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................................................ $ 2,762 $ 701
Accounts receivable, net of allowances of $1,661 and $417, respectively.................. 25,524 11,259
Inventories.............................................................................. 27,759 7,637
Prepaid expenses and other............................................................... 893 438
---------- ---------
Total current assets................................................................... 56,938 20,035

TREE INVENTORIES........................................................................... 1,636 --

PROPERTY, PLANT AND EQUIPMENT, net......................................................... 31,774 9,165

INTANGIBLE ASSETS, net..................................................................... 31,383 1,732

DEFERRED INCOME TAXES...................................................................... 10,120 2,287

NOTES RECEIVABLE AND OTHER ASSETS.......................................................... 1,566 --
---------- ---------
Total assets........................................................................... $ 133,417 $ 33,219
---------- ---------
---------- ---------

LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt..................................................... $ 4,595 $ 1,430
Revolving line of credit................................................................. 2,105 --
Accounts payable......................................................................... 9,815 3,934
Accrued liabilities...................................................................... 12,395 3,980
Dividends payable to stockholders........................................................ 906 --
Deferred income taxes.................................................................... 13,856 4,355
---------- ---------
Total current liabilities.............................................................. 43,672 13,699

LONG-TERM DEBT............................................................................. 83,408 6,785
---------- ---------
Total liabilities...................................................................... 127,080 20,484
---------- ---------
REDEEMABLE COMMON STOCK: 1,199,744 shares at June 30, 1997................................. 2,062 --

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and
outstanding............................................................................ -- --
Common stock, $0.01 par value, 15,000,000 shares authorized, 5,021,118 and 6,725,350
issued and outstanding, respectively................................................... 162 97
Additional paid-in capital............................................................... 45,033 9,650
Treasury stock, 6,164,034 shares at June 30, 1997........................................ (45,228) --
Retained earnings........................................................................ 4,308 2,988
---------- ---------
Total stockholders' equity............................................................. 4,275 12,735
---------- ---------
Total liabilities, redeemable common stock and stockholders' equity.................... $ 133,417 $ 33,219
---------- ---------
---------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)

The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.

<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
---------------------------- ----------------------------
SEPTEMBER 8, JANUARY 1, 1995
YEAR ENDED 1995 THROUGH YEAR ENDED
JUNE 30, THROUGH SEPTEMBER 8, DECEMBER
1997 JUNE 30, 1996 1995 31, 1994
----------- --------------- --------------- -----------
NET SALES............................ $ 113,400 $ 51,995 $ 28,991 $ 39,411
<S> <C> <C> <C> <C>
COST OF SALES........................ 64,026 27,685 17,500 24,416
----------- ------- ------- -----------
Gross profit..................... 49,374 24,310 11,491 14,995
SALES, MARKETING AND DELIVERY
EXPENSES........................... 31,168 15,495 10,488 13,459
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 7,300 2,886 3,659 3,986
AMORTIZATION OF INTANGIBLE ASSETS.... 990 94 291 424
----------- ------- ------- -----------
Income (loss) from operations.... 9,916 5,835 (2,947) (2,874)
INTEREST EXPENSE..................... 4,179 687 2,576 3,170
OTHER (INCOME) EXPENSE, net.......... (148) 91 (38) (97)
----------- ------- ------- -----------
Income (loss) before income tax
provision and extraordinary
loss........................... 5,885 5,057 (5,485) (5,947)
INCOME TAX PROVISION................. 2,830 2,069 -- --
----------- ------- ------- -----------
Income (loss) before
extraordinary loss............. 3,055 2,988 (5,485) (5,947)
EXTRAORDINARY LOSS,
net of tax benefit................. 215 -- -- --
----------- ------- ------- -----------
Net income (loss)................ $ 2,840 $ 2,988 $ (5,485) $ (5,947)
----------- ------- ------- -----------
----------- ------- ------- -----------
INCOME PER SHARE:
Primary
Income before extraordinary
loss........................... $ 0.43 $ 0.52
Extraordinary loss............... 0.03 --
----------- -------
Net income....................... $ 0.40 $ 0.52
----------- -------
----------- -------
Fully diluted
Income before extraordinary
loss........................... $ 0.42 $ 0.52
Extraordinary loss............... 0.03 --
----------- -------
Net income....................... $ 0.39 $ 0.52
----------- -------
----------- -------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

(IN THOUSANDS, EXCEPT COMMON SHARES)

The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS STOCKHOLDERS'
COMMON COMMON PAID-IN TREASURY (ACCUMULATED EQUITY
SHARES STOCK CAPITAL STOCK DEFICIT) (DEFICIT)
----------- ----------- -------------- ---------- ------------ ------------
THE PREDECESSOR
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993................ 1,000 $ -- $ 250 $ -- $ (4,908) $ (4,658)
Net loss.................................. -- -- -- -- (5,947) (5,947)
----------- ----- ------- ---------- ------------ ------------
Balance, December 31, 1994................ 1,000 -- 250 -- (10,855) (10,605)
Net loss.................................. -- -- -- -- (5,485) (5,485)
----------- ----- ------- ---------- ------------ ------------
Balance, September 8, 1995................ 1,000 $ -- $ 250 $ -- $ (16,340) $ (16,090)
----------- ----- ------- ---------- ------------ ------------
----------- ----- ------- ---------- ------------ ------------

THE COMPANY
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Elimination of Predecessor................ (1,000) $ -- $ (250) $ -- $ 16,340 $ 16,090
Issuance of common stock.................. 6,725,350 97 9,650 -- -- 9,747
Net income................................ -- -- -- -- 2,988 2,988
----------- ----- ------- ---------- ------------ ------------
Balance, June 30, 1996.................... 6,725,350 $ 97 9,650 -- 2,988 12,735
----------- ----- ------- ---------- ------------ ------------
Recapitalization:
Issuance of common stock................ 3,566,173 52 22,273 -- -- 22,325
Repurchase of common stock.............. (6,164,034) -- -- (45,228) -- (45,228)
Dividends............................... -- -- -- -- (1,520) (1,520)
Transfer to redeemable common stock..... (1,199,744) (17) (2,045) -- -- (2,062)
Issuance of common stock:
Existing shareholders and management.... 1,741,602 25 12,075 -- -- 12,100
Acquisition of businesses............... 351,771 5 2,519 -- -- 2,524
Tax benefit from exercise of stock
options................................. -- -- 561 -- -- 561
Net income................................ -- -- -- -- 2,840 2,840
----------- ----- ------- ---------- ------------ ------------
Balance, June 30, 1997.................... 5,021,118 $ 162 $ 45,033 $ (45,228) $ 4,308 $ 4,275
----------- ----- ------- ---------- ------------ ------------
----------- ----- ------- ---------- ------------ ------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.

<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
---------------------------------- ----------------------------------
SEPTEMBER 8, 1995 JANUARY 1, 1995 YEAR ENDED
YEAR ENDED THROUGH JUNE 30, THROUGH SEPTEMBER DECEMBER 31,
JUNE 30, 1997 1996 8, 1995 1994
------------- ------------------- ------------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 2,840 $ 2,988 $ (5,485) $ (5,947)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization....................... 3,441 598 925 1,255
Deferred income taxes............................... 2,631 2,068 -- --
Changes in operating assets and liabilities, net of
effect of acquired businesses:
Decrease (increase) in accounts receivable........ (9,435) (8,568) 116 161
Decrease (increase) in inventories................ (3,178) 1,920 866 (82)
Decrease (increase) in prepaid expenses and other
current assets.................................. (260) (407) 350 981
(Increase) in tree inventories.................... (1,467) -- -- --
(Increase) in other long-term assets.............. (396) -- -- --
Increase (decrease) in accounts payable........... 596 (556) (1,660) 1,852
Increase (decrease) in accrued liabilities........ 1,954 (1,207) 502 (1,499)
Increase (decrease) in other liabilities.......... (819) (321) (834) 559
------------- ------- ------- -------------
Net cash used in operating activities........... (4,093) (3,485) (5,220) (2,720)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in business acquisitions, less cash
acquired............................................ (52,069) (8,966) -- --
Purchases of fixed assets............................. (6,181) (1,529) (260) (668)
Proceeds from sale of fixed assets.................... 16 835 -- 59
------------- ------- ------- -------------
Net cash used in investing activities........... (58,234) (9,660) (260) (609)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft........................................ 3,520 -- -- --
Issuance of common stock.............................. 34,439 9,746 -- --
Purchase of treasury stock............................ (37,124) -- -- --
Financing and organizational costs.................... (5,584) -- -- --
Dividend paid......................................... (614) -- -- --
Proceeds from borrowings.............................. 98,035 1,936 -- --
Net borrowings under revolving line of credit......... 3,598 3,791 -- --
Repayments of long-term debt.......................... (31,882) (1,627) (1,526) (13,095)
Proceeds from note payable to parent.................. -- -- 7,113 16,810
------------- ------- ------- -------------
Net cash provided by financing activities....... 64,388 13,846 5,587 3,715
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 2,061 701 107 386
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 701 -- 405 19
------------- ------- ------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 2,762 $ 701 $ 512 $ 405
------------- ------- ------- -------------
------------- ------- ------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................ $ 3,876 $ 936 $ 2,447 $ 2,455
------------- ------- ------- -------------
------------- ------- ------- -------------
Income taxes........................................ $ -- $ 2 $ -- $ --
------------- ------- ------- -------------
------------- ------- ------- -------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Stock issued for acquisitions......................... $ 2,524 $ -- $ -- $ --
------------- ------- ------- -------------
------------- ------- ------- -------------
Issuance of notes receivable in connection with asset
sale................................................ $ 1,170 $ -- $ -- $ --
------------- ------- ------- -------------
------------- ------- ------- -------------
Issuance of notes payable in connection with treasury
stock purchase...................................... $ 7,100 $ -- $ -- $ --
------------- ------- ------- -------------
------------- ------- ------- -------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-8
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The consolidated balance sheets as of June 30, 1997 and 1996, and the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended June 30, 1997, and the period from inception, September 8, 1995
("Inception Date"), through June 30, 1996, include the accounts of Color Spot
Nurseries, Inc. ("Color Spot") and its wholly owned subsidiaries (collectively
referred to as the "Company"), a Delaware corporation reflecting the merger of
CSN, Inc. ("CSN," the parent company of Color Spot Nurseries, Inc.) which will
occur simultaneously with the consummation of the Company's initial public
offering, into Color Spot Nurseries, Inc. On September 8, 1995, certain net
assets owned by Color Spot, Inc. (the "Predecessor") were acquired by CSN for
approximately $12 million. CSN was formed by Heller Equity Capital Corporation
and certain members of CSN senior management. This transaction was accounted for
using the purchase method of accounting. At June 30, 1996, the allocation of the
purchase price was based upon preliminary estimates of fair value and was
finalized during 1997. On December 31, 1996, KCSN Acquisition Corporation, L.P.
("KCSN"), a partnership controlled by Kohlberg & Company, LLC ("Kohlberg"),
acquired control of the Company through a series of stock transactions accounted
for as a recapitalization. In connection with the recapitalization, CSN borrowed
$37.3 million, purchased 6,164,034 shares of its common stock for $37.1 million
in cash and a $7.1 million, 8.0% subordinated convertible note, sold 3,566,173
shares of stock to KCSN and certain members of management for $22.3 million and
repaid $14.1 million of its prior indebtedness. In addition, transaction and
financing fees of $4.3 million were paid, a dividend of $1.5 million was
declared and a prepayment penalty of $415,000 was incurred in connection with
the early extinguishment of debt.

Prior to the Inception Date, the Company was known as Color Spot, Inc., an
Oregon corporation (the "Predecessor"). The consolidated statements of
operations from January 1, 1995, through September 8, 1995, and for the year
ended December 31, 1994, include the accounts of the Predecessor when the
Predecessor was owned by PacifiCorp, a utility company. The acquisition of the
Predecessor by PacifiCorp in 1993 was accounted for using the purchase method of
accounting. The purchase price is reflected in the accounts of the Predecessor.

The Company is a producer and distributor of packaged bedding plants and
flowers, groundcover, and commencing in 1997, Christmas trees. Color Spot's
Christmas tree business is conducted through its wholly owned subsidiary, Color
Spot Christmas Trees, Inc., and its ornamental plants and shrubs business is
conducted through its wholly owned subsidiary, Lone Star Growers L.P. ("Lone
Star"). As of June 30, 1997, the Company has 13 facilities located in
California, Texas, Arizona and Oregon. The Company sells primarily to general
merchandise stores, home improvement stores, retail garden stores and commercial
landscapers, located predominantly in California, Texas and other western
states.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Color Spot and
its wholly owned subsidiaries. All material intercompany amounts and
transactions have been eliminated in consolidation.

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

F-9
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash includes cash and cash equivalents that consist of highly liquid
investments having maturities of three months or less when acquired. Cash and
cash equivalents includes restricted cash of $323,000 which is being held to
satisfy an obligation to purchase common stock from certain stockholders through
December 1997. This repurchase obligation is included in redeemable common stock
on the accompanying consolidated balance sheet.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the average cost method. Tree inventories are stated at average cost and
are classified as long-term assets until they are harvested. Inventory costs
include material, labor and production overhead.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment purchased in acquisitions are recorded at fair
value as prescribed by the purchase method of accounting. Subsequent purchases
of property, plant and equipment are recorded at cost.

Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. The following useful lives are used for recognizing
depreciation expense:

<TABLE>
<S> <C>
Land improvements............................................ 40 years
15 to 20
Buildings.................................................... years
Machinery and equipment...................................... 5 to 10 years
Computer equipment........................................... 3 to 5 years
Furniture and fixtures....................................... 5 to 10 years
Leasehold improvements....................................... 5 years
</TABLE>

Major renewals and improvements that extend the useful life of an asset are
capitalized; routine maintenance and repairs are expensed as incurred. Upon sale
or retirement of assets, the asset cost and related depreciation are removed
from the accounts and any related gain or loss is reflected in the company's
operating results.

SOFTWARE

Purchases of software, including internal and external development costs,
are capitalized and amortized over three years using the straight-line method.

F-10
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS

Amortization is computed on a straight-line basis over the shorter of
estimated useful lives or contract periods. The following useful lives are used
for recognizing amortization expense:

<TABLE>
<S> <C>
Goodwill..................................................... 40 years
Trademarks and patents....................................... 15 years
Organization costs........................................... 7 years
Noncompete agreements........................................ 5 years
Loan fees.................................................... Term of debt
</TABLE>

Goodwill represents the excess of cost over the estimated fair value of the
net assets of acquired businesses. Should events or circumstances occur
subsequent to any business acquisition which bring into question the realizable
value or impairment of any component of goodwill, the Company will evaluate the
remaining useful life and balance of goodwill and make appropriate adjustments.
The Company's principal considerations in determining impairment include the
strategic benefit to the Company of the particular business related to the
questioned component of goodwill as measured by undiscounted current and
expected future operating income levels of that particular business and expected
undiscounted future cash flows.

FINANCIAL INSTRUMENTS

The carrying amounts for cash, receivables and accounts payable approximate
fair value due to the short-term nature of these instruments. Other fair value
disclosures are in the respective notes.

REVENUE RECOGNITION

Revenue is recognized when products are shipped to the customer. Sales
returns and allowances are recorded as a charge against revenue in the period in
which the related sales are recognized.

INCOME TAXES

Income taxes are recognized in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 utilizes the asset and liability method under which deferred income taxes
are recognized for the consequences of temporary differences by applying
currently enacted statutory rates to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.

ASSET IMPAIRMENT

On July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires that
long-lived assets, certain identifiable intangible assets and goodwill be
reviewed for impairment when expected future undiscounted cash flows are less
than the carrying value of the asset. No charges were recorded pursuant to this
statement in fiscal 1997.

F-11
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEVERAGE AND FINANCING

The Company is substantially leveraged. Due to its leveraged nature, the
Company may be more vulnerable to extended economic downturns and its
flexibility in responding to changing economic and industry conditions may be
limited. The degree to which the Company is leveraged could have important
consequences to the Company, including the impairment of the Company's ability
to obtain additional financing for working capital, capital expenditures,
acquisitions and general corporate purposes. The Company's ability to make
principal and interest payments on its obligations at maturity will be dependent
on a number of factors, many of which are beyond the Company's control, and may
be dependent on the Company's future operating performance, which is itself
dependent on the availability of new borrowings on terms acceptable to the
Company. While management believes that additional financing to meet its
anticipated working capital, capital expenditure and acquisition financing
requirements will be available on acceptable terms (including the filing of an
initial public stock offering which will deleverage the Company), if the Company
is unable to obtain such financing, the Company may not be able to take
advantage of unanticipated opportunities or otherwise respond to unanticipated
competitive pressures. Such inability could have a material adverse effect on
the Company.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This new standard defines a fair value based method
of accounting for employee stock options and gives companies a choice of
recognizing related compensation expense by adopting the new fair value method
or continuing to measure compensation under Accounting Principles Board Opinion
No. 25 ("APB 25"). If APB 25 is elected, SFAS 123 requires supplemental
disclosure to show the effects of using the SFAS 123 measurement criteria (see
Footnote 14). The Company elected to continue using the approach prescribed by
APB 25, and accordingly, SFAS 123 will not affect the Company's financial
position or results of operations.

COMPREHENSIVE INCOME AND SEGMENTS

In 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 establishes standards to measure all
changes in equity that result from transactions and other economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other nonowner changes in equity. SFAS 131 introduces a new model for
segment reporting, called the "management approach." The management approach is
based on the manner in which management organizes segments within a company for
making operating decisions and assessing performance. The management approach
replaces the notion of industry and geographic segments. The Company will adopt
SFAS 130 and SFAS 131 in fiscal year 1999. The Company believes adoption of SFAS
130 and SFAS 131 will not significantly affect the Company's financial position,
results of operations or financial statement presentation.

3. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable. The Company sells
primarily on 30-day terms, performs credit

F-12
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. CONCENTRATION OF CREDIT RISK (CONTINUED)
evaluation procedures on its customers and generally does not require collateral
on its accounts receivable because the majority of its customers are large,
established customers. The Company maintains an allowance for potential credit
losses. For the year ended June 30, 1997, the periods ended June 30, 1996, and
September 8, 1995, and the year ended December 31, 1994, sales to the eight
largest customers constituted 75%, 82%, 96% and 80% of net sales, respectively.
Sales to the Company's largest customer constituted 39%, 41%, 37% and 31% of net
sales in these respective periods.

4. INVENTORIES

Inventories at June 30, 1997 and 1996, consisted of the following (in
thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current:
Outdoor flowers and vegetable plants................................... $ 24,385 $ 6,291
Raw materials and supplies............................................. 3,374 1,346
--------- ---------
Total current inventories............................................ 27,759 7,637

Noncurrent:
Tree inventories....................................................... 1,636 --
--------- ---------
Total inventories.................................................... $ 29,395 $ 7,637
--------- ---------
--------- ---------
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of June 30, 1997 and 1996, consisted of the
following (in thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land and land improvements............................................... $ 8,621 $ 1,656
Greenhouses and buildings................................................ 9,029 3,534
Furniture and fixtures................................................... 2,108 225
Machinery and equipment.................................................. 10,929 3,135
Leasehold improvements................................................... 2,587 582
Assets under capital leases.............................................. 752 539
Construction in progress................................................. 550 --
--------- ---------
34,576 9,671
Less: Accumulated depreciation........................................... (2,802) (506)
--------- ---------
Total property, plant and equipment.................................. $ 31,774 $ 9,165
--------- ---------
--------- ---------
</TABLE>

Depreciation expense for the year ended June 30, 1997, the periods ended
June 30, 1996, and September 8, 1995, and the year ended December 31, 1994, was
$2,296,000, $504,000, $634,000 and $832,000 respectively. Greenhouses with an
original cost of $4,961,000 are in service on property leased by the Company
under operating lease agreements.

F-13
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. NOTES RECEIVABLE

Notes receivable represent amounts due from third parties relating to assets
acquired and later sold in connection with the acquisition of B&C Growers and
Sunrise Growers, Inc. The notes require monthly principal and interest payments
ranging from $1,000 to $13,000 with interest rates ranging from 7.5% to 9.0%.
Unpaid principal and interest are due between December 2001 and March 2007 and
are secured by the underlying assets sold. The carrying amount of the notes
receivable approximate fair value.

7. INTANGIBLE ASSETS

Intangible assets as of June 30, 1997 and 1996, consisted of the following
(in thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Goodwill................................................................. $ 23,971 $ 637
Organization costs....................................................... 1,670 295
Financing costs.......................................................... 4,352 --
Noncompete agreements.................................................... 1,731 894
Other.................................................................... 856 --
--------- ---------
32,580 1,826
Less: Accumulated amortization........................................... (1,197) (94)
--------- ---------
Total intangible assets................................................ $ 31,383 $ 1,732
--------- ---------
--------- ---------
</TABLE>

8. ACQUISITIONS

During the year ended June 30, 1997, and the period from the Inception Date
through June 30, 1996, the Company effected the following acquisitions:

<TABLE>
<CAPTION>
ENTITY DATE OF ACQUISITION
- - - ---------------------------------------------------------------------- ----------------------
<S> <C>
Barcelo's Plant Growers, Inc.......................................... March 1, 1996
NAB Nursery, Inc...................................................... October 1, 1996
B&C Growers........................................................... October 28, 1996
Sunrise Growers, Inc.................................................. November 18, 1996
Sunnyside Plants, Inc................................................. January 21, 1997
Lone Star Growers Co.................................................. February 20, 1997
Signature Trees....................................................... March 14, 1997
Hi-C Nursery.......................................................... April 4, 1997
</TABLE>

F-14
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. ACQUISITIONS (CONTINUED)
The purchase price, certain costs related to the acquisitions and the
allocation of the purchase price to the underlying net assets acquired in these
acquisitions as of June 30, 1997 and 1996 were as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 8, 1995
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
------------- -----------------
<S> <C> <C>
Purchase price.............................................. $ 52,419 $ 3,029
Organization and financing costs............................ 2,604 250
------------- -------
Total purchase price...................................... 55,023 3,279
------------- -------
Less: Value assigned to assets and liabilities
Current assets............................................ 22,205 4,048
Long-term assets.......................................... 23,075 4,937
Current liabilities....................................... (8,273) (5,286)
Debt...................................................... (5,318) (420)
------------- -------
31,689 3,279
------------- -------
Goodwill................................................ $ 23,334 $ --
------------- -------
------------- -------
</TABLE>

The Company accounted for all of these acquisitions under the purchase
method of accounting. The allocation of the purchase price to the underlying net
assets acquired is based upon preliminary estimates of the fair value of the net
assets, which may be revised at a later date. It is anticipated that any
purchase price allocation adjustments will be made within one year from the date
of acquisition. Management does not believe that the final allocations of the
purchase prices will have a material effect on the Company's financial position
or results of operations. In connection with certain acquisitions the Company
issued 351,770 shares of common stock which were valued at $7.17 per share. The
president of the Company was a shareholder of Signature Trees.

Results of operations of the acquired entities subsequent to the purchase
date are included in the consolidated financial statements. Pro forma operating
results of the Company, assuming the acquisitions, including those acquisitions
consummated after June 30, 1997 (see Footnote 19, Subsequent Events) occurred on
September 8, 1995, are presented below (in thousands, except share data).

<TABLE>
<CAPTION>
SEPTEMBER 8, 1995
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
------------- -----------------
<S> <C> <C>
Net sales................................................... $182,774 $143,770
Income before extraordinary loss............................ 2,841 2,561
Income per share before extraordinary loss
Primary................................................... 0.33 0.28
Fully diluted............................................. 0.32 0.28
Shares used in per share calculation
Primary................................................... 8,492,729 9,154,303
Fully diluted............................................. 8,750,968 9,154,303
</TABLE>

F-15
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. ACCRUED LIABILITIES

Accrued liabilities as of June 30, 1997 and 1996, consisted of the following
(in thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Compensation and benefits................................................ $ 4,750 $ 2,722
Cash overdraft........................................................... 3,520 --
Payable due to related party............................................. 164 --
Other.................................................................... 3,961 1,258
--------- ---------
Total accrued liabilities............................................ $ 12,395 $ 3,980
--------- ---------
--------- ---------
</TABLE>

10. DEBT

Debt as of June 30, 1997 and 1996, consisted of the following (in
thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revolving line of credit in the amount of $27,500. Advances under the line accrue interest,
at the Company's option, at the prime rate plus 1.25% (9.75% at June 30, 1997), or LIBOR
plus 2.75% (8.47% at June 30, 1997). The line is secured by substantially all of the
Company's assets and expires on June 30, 2002. As of June 30, the line had a provision
whereby the principal balance must be reduced below $5,000 for 30 consecutive days
annually. This requirement was subsequently increased to $10,000 in July 1997 and has been
reflected accordingly in the consolidated balance sheet as of June 30, 1997................ $ 12,105 $ --

Revolving line of credit in the amount of $15,000 at June 30, 1996. Advances under the line
accrue interest at the prime rate plus 2% (10.25% at June 30, 1996). The line was secured
by substantially all of the Company's assets and was terminated on December 31, 1996....... -- 3,791

Term loan in the amount of $25,000 obtained in conjunction with the recapitalization at
December 31, 1996 (as amended on February 20, 1997). The loan requires quarterly principal
payments ranging from $450 to $1,400 with all unpaid principal and interest due on June 30,
2002. The loan bears interest, at the Company's option, at the prime rate plus 1.25% (9.75%
at June 30, 1997), or LIBOR plus 2.75% (8.47% at June 30, 1997). The loan is secured by
substantially all of the Company's assets.................................................. 23,925 --

Term loan in the amount of $35,000 obtained in conjunction with the recapitalization at
December 31, 1996 (as amended on February 20, 1997). The loan requires quarterly principal
payments ranging from $88 to $5,512 with all unpaid principal and interest due on December
31, 2003. The loan bears interest at the Company's option, at the prime rate plus 1.75%
(10.25% at June 30, 1997), or LIBOR plus 3.25% (8.97% at June 30, 1997). The loan is
secured by substantially all of the Company's assets....................................... 34,825 --
</TABLE>

F-16
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. DEBT (CONTINUED)

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Acquisition loans under a revolving line of $15,000 obtained on February 20, 1997 in
conjunction with the financing of certain acquisitions. The loan requires quarterly
principal payments beginning January 1, 1998 in an amount equal to a percentage, ranging
from 0.25% to 15.91%, of the principal balance on the last day of the calendar quarter,
with all unpaid principal and interest due on December 31, 2003. Advances under the
acquisition loans accrue interest at the Company's option, at the prime rate plus 1.75%
(10.25% at June 30, 1997), or LIBOR plus 3.25% (8.97% at June 30, 1997). The loans are
secured by substantially all of the Company's assets....................................... $ 8,227 $ --

Convertible note payable to the former majority owner of the Company in conjunction with the
recapitalization at December 31, 1996. The holder of the note may convert all or any
portion of the principal and accrued interest into non-voting common stock, provided that
if converted in connection with a public offering, the shares will be converted to voting
common stock. The conversion price is $20.09 per share and is subject to adjustments. If
not converted, the note requires full payment of principal and all accrued and unpaid
interest on December 31, 2004. The note bears interest at 8%. At June 30, 1997, the unpaid
accrued interest amount of $284 was capitalized into the original principal balance of
$7,100..................................................................................... 7,384 --

Amounts due pursuant to noncompete agreements resulting from various acquisitions by the
Company. The individual agreements require monthly payments ranging from $0.1 to $10 with
all unpaid principal due on dates ranging from January 1, 2000 through April 4, 2002....... 1,395 829

Other debt consists of equipment notes, bank loans and real estate notes. These debts have
varying payment terms (monthly or at maturity). Monthly principal payments range from $0.5
to $8. Two notes are due in full in July 1997 and December 2001, in the amounts of $99 and
$500, respectively. Interest rates on these debts range from 7.9% to 10.75%, with maturity
dates ranging from July 1997 through February 2002......................................... 1,620 3,158

Various capital lease obligations were incurred in conjunction with the rental of equipment.
The leases require monthly principal payments ranging from $0.2 to $13. Interest rates on
the leases range from 6% to 17.9%. Maturity dates range from January 1998 through September
2001....................................................................................... 627 437
--------- ---------

Total debt................................................................................... 90,108 8,215

Less: Current maturities..................................................................... (6,700) (1,430)
--------- ---------

Long-term portion............................................................................ $ 83,408 $ 6,785
--------- ---------
--------- ---------
</TABLE>

F-17
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. DEBT (CONTINUED)
The Company has entered into interest rate protection agreements to cap the
interest rate on its term and acquisition loans. The principal protected at June
30, 1997 is $36,875,000, at interest rates ranging from 8.5% to 9.8%. The
revolving line of credit and term loan agreements require that the Company meet
certain covenants which, among other things, require maintenance of ratios
related to leverage and cash flow, and limit the level of capital expenditures
and payment of dividends.

Maturities of debt and capital leases are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL
DEBT LEASES TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
1998........................................................... $ 6,436 $ 264 $ 6,700
1999........................................................... 5,367 203 5,570
2000........................................................... 5,644 158 5,802
2001........................................................... 6,013 2 6,015
2002........................................................... 18,997 -- 18,997
Thereafter..................................................... 47,024 -- 47,024
--------- ----- ---------
$ 89,481 $ 627 $ 90,108
--------- ----- ---------
--------- ----- ---------
</TABLE>

The net book value of the assets held under capital lease obligations was
$649,000 and $500,000 at June 30, 1997 and 1996, respectively.

The fair value of long-term debt, including the current portion,
approximates fair value because all significant amounts outstanding at June 30,
1997, were issued in the current year and are representative of the terms and
interest rates that would be available to the Company at June 30, 1997.

11. INCOME TAXES

The provision for income taxes from continuing operations consists of the
following (in thousands):

<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------------ --------------------------------
SEPTEMBER 8, JANUARY 1, 1995
1995 THROUGH YEAR ENDED
YEAR ENDED THROUGH SEPTEMBER 8, DECEMBER 31,
JUNE 30, 1997 JUNE 30, 1996 1995 1994
------------- --------------- --------------- ---------------
Current:
<S> <C> <C> <C> <C>
Federal........................ $ -- $ -- $ -- $ --
State and local................ -- 2 -- --
------ ------ ------ ------
-- 2 -- --
Deferred:
Federal........................ 1,611 1,330 (931) (2,236)
State and local................ 1,219 737 (249) (215)
Valuation allowance............ -- -- 1,180 2,451
------ ------ ------ ------
2,830 2,067 -- --
------ ------ ------ ------
$ 2,830 $ 2,069 $ -- $ --
------ ------ ------ ------
------ ------ ------ ------
</TABLE>

F-18
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)

The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is as
follows:

<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
---------------------------------- ------------------------------------
SEPTEMBER 8, 1995 JANUARY 1, 1995
YEAR ENDED THROUGH THROUGH YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996 SEPTEMBER 8, 1995 DECEMBER 31, 1994
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Federal statutory income tax
rate........................... 34.0% 34.0% (34.0)% (34.0)%
State income tax rate, net of
federal taxes.................. 4.9% 6.1% (5.0)% (5.0)%
Permanent items:
Limitation on state net
operating losses............. 8.2% 4.5% 2.5% 1.4%
Other.......................... 0.9% 0.2% 0.5% 0.6%
Valuation allowance.............. -- -- 36.0% 37.0%
--- --- ----- -----
48.0% 44.8% 0.0% 0.0%
--- --- ----- -----
--- --- ----- -----
</TABLE>

In accordance with current tax regulations, the Company files its tax
returns on a cash basis in most jurisdictions. As a result, the Company has
accumulated significant net operating losses since inception. In the state of
California, utilization of net operating losses is limited to fifty percent of
the loss generated; hence the effective tax rate associated with the earnings
attributable to California are provided at a rate significantly above the
statutory rate.

Deferred tax assets and liabilities are composed of the following at June
30, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Accounts payable....................................................... $ 3,700 $ 1,579
Accrued liabilities.................................................... 3,797 1,585
--------- ---------
Total current deferred tax assets.................................... 7,497 3,164

Noncurrent deferred tax assets:
Net operating loss carryforward........................................ 10,779 2,317
Depreciation and amortization.......................................... 171 51
--------- ---------
Total noncurrent deferred tax assets................................. 10,950 2,368
--------- ---------
Total deferred tax assets............................................ $ 18,447 $ 5,532
--------- ---------
--------- ---------
Current deferred tax liabilities:
Receivables............................................................ $ 10,007 $ 4,519
Inventory.............................................................. 11,072 2,886
Prepaids............................................................... 274 114
--------- ---------
Total current deferred tax liability................................. 21,353 7,519
Total noncurrent deferred tax liability: depreciation................ 830 81
--------- ---------
Total deferred tax liabilities....................................... $ 22,183 $ 7,600
--------- ---------
--------- ---------
</TABLE>

F-19
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)
At June 30, 1997, the Company has available federal and state net operating
loss carryforwards of $29,684,000 and $14,084,000, respectively. The federal net
operating losses expire beginning on June 30, 2011.

12. STOCKHOLDERS' EQUITY

COMMON STOCK AND REDEEMABLE COMMON STOCK

The Company has three classes of $0.01 par value common stock with
20,000,000 authorized shares of which 15,000,000 shares are designated as Common
Stock (6,073,062 shares outstanding at June 30, 1997), 2,500,000 shares are
designated as Non-Voting Common Stock (147,772 shares outstanding at June 30,
1997) and 2,500,000 shares are designated as Class C Common Stock (no shares
outstanding at June 30, 1997). Each class of stock is identical but for voting
rights and ability to convert into voting stock. The Non-Voting Common Stock and
Class C Common Stock have no voting rights. Certain holders of the Company's
common stock are bound by the provisions of the Company's Stockholders Agreement
dated December 31, 1996. Among its provisions, the Stockholders Agreement
requires stockholders who executed the Stockholders Agreement to consent to
certain sales of the Company shares approved by the majority stockholder and
gives stockholders the right to cause the Company to register their shares for
sale under the Securities Act of 1933 following the expiration of 180 days after
the Company's initial public offering. Prior to the Company's initial public
offering, the Stockholders' Agreement also limits the stockholders' ability to
transfer shares, gives the Company a right of first refusal to purchase shares
subject to transfer, allows stockholders, in certain cases, to maintain their
ownership percentage if the Company issues additional shares, allows the Company
to repurchase shares upon a management stockholder's termination and requires
the Company to repurchase shares upon the death or permanent disability of a
management stockholder. All repurchases are at fair market value. Common shares
subject to this repurchase feature have been classified as redeemable common
stock in the accompanying consolidated balance sheets.

PREFERRED STOCK

The Company has an authorized class of $0.01 par value undesignated
preferred stock consisting of 1,000,000 shares. The board of directors has
authority, without any further vote or action by stockholders, to provide for
the issuance of preferred stock shares in series, to establish the relative,
participating, optional or other special rights, qualifications or restrictions
of the shares of each such series and to determine the voting powers, if any, of
such shares. No shares are outstanding at June 30, 1997 and June 30, 1996.

13. EARNINGS PER SHARE

Primary earnings per share is computed by dividing net income by the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of stock options
granted. Fully diluted earnings per share reflects the maximum dilution that
would have resulted from the exercise of stock options.

Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, certain common and common equivalent shares issued at prices below
the public offering price during the year ended June 30, 1997 have been included
in the calculation as if they were outstanding for all periods prior to the
offering

F-20
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. EARNINGS PER SHARE (CONTINUED)
date (using the treasury stock method and the estimated initial public offering
price) and disclosed on the consolidated statements of operations.

In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaces primary
earnings per share with basic earnings per share. Basic earnings per share
excludes the effect of any potentially dilutive common equivalent shares. Fully
diluted earnings per share, now called diluted earnings per share, is still
required. The Company will adopt SFAS 128 in its interim financial statements
ending December 31, 1997.

Historical and SFAS 128 pro forma earnings per share is as follows:

<TABLE>
<CAPTION>
THE COMPANY
--------------------------------
SEPTEMBER 8, 1995
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
------------- -----------------
<S> <C> <C>
Historical earnings per share:
Primary................................................... 0.40 0.52
Fully diluted............................................. 0.39 0.52
Shares used in per share calculation:
Primary................................................... 7,032,974 5,739,133
Fully diluted............................................. 7,291,212 5,739,133

SFAS 128 pro forma earnings per share:
Basic..................................................... 0.46 0.53
Diluted................................................... 0.40 0.52
Shares used in per share calculation:
Basic..................................................... 5,593,146 6,208,735
Diluted................................................... 5,739,133 7,032,974
</TABLE>

14. STOCK OPTIONS

In July 1996, the Company adopted the 1996 Stock Incentive Plan (the "1996
Plan") under which eligible employees, directors and consultants of the Company
received options to purchase shares of the Company's common stock at a price
generally not less than the fair value of the common stock on the date of the
grant. Under the 1996 Plan, 1,171,418 options were granted at $1.45 per share
(fair value of the stock on the date of grant was $1.45). All options under the
1996 Plan fully vested as a result of the recapitalization of the Company on
December 31, 1996, and 569,417 options were simultaneously exercised.
Approximately 601,991 options remain outstanding under the 1996 Plan.

On January 1, 1997, the Company adopted the 1997 Stock Option Plan (the
"1997 Plan"), under which eligible executives and key employees of the Company
received options to purchase shares of the Company's common stock at a price
generally not less than the fair value of the common stock on the date of grant.
Under the 1997 Plan, 842,493 options were granted at $7.17 or $7.19 per share
(the fair value of the stock on the date of grant). Options granted under the
1997 Plan are exercisable over a maximum term of ten years from the date of
grant and vest in equal annual installments over a four-year period. The options
immediately vest upon a change in control of the Company or an initial public
offering. No options have been exercised under the 1997 Plan.

F-21
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTIONS (CONTINUED)
In February 1997, the Company adopted the Special Stock Option Plan (the
"Special Plan"), under which eligible employees of the Company received options
to purchase shares of the Company's common stock at a price below the fair
market value of the common stock on the date of grant. Under the Special Plan,
139,383 options were granted at $1.43 per share. Options granted under the
Special Plan are exercisable over a maximum term of ten years from the date of
grant and vest in equal annual installments over a four-year period. The options
immediately vest upon a change in control of the Company or an initial public
offering. As these options are compensatory, compensation expense is being
recognized ratably over the vesting period of the options for the difference
between the fair market value at the date of grant and the exercise price.

Activity under the three plans is summarized below:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Outstanding at July 1, 1996....................................... --
Granted......................................................... 2,153,295 3.70
Exercised....................................................... (569,417) 1.45
---------- -----
Outstanding at June 30, 1997...................................... 1,583,878 $ 4.49
---------- -----
---------- -----
Options exercisable at year-end................................... 602,001 $ 1.45
---------- -----
---------- -----
</TABLE>

There were no forfeitures or expirations during the year ended June 30,
1997.

The following summarizes information about stock options outstanding at June
30, 1997:

<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE AT JUNE 30, REMAINING FAIR VALUE OF
PRICE 1997 CONTRACTUAL LIFE OPTIONS GRANTED
- - - --------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
$ 7.17 or 7.19 842,494 9.5 years $ 2.19
1.45 602,001 9.1 years 0.25
1.43 139,383 9.7 years 6.17
- - - --------------- -----
$ 4.49 $ 1.39
- - - --------------- -----
- - - --------------- -----
</TABLE>

The fair value of each option granted since June 30, 1996, was estimated on
the date of the grant using the Black-Scholes option-pricing model assuming an
expected life of six years, a risk-free interest rate of 6.08%, and no expected
dividends.

Had compensation cost for the Company's stock-based compensation plans been
determined based upon the fair value at grant dates for awards under those plans
consistent with the method prescribed by

F-22
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTIONS (CONTINUED)
SFAS 123, the Company's net income would have been reduced to the pro forma
amounts indicated below (in thousands, except share data):

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C> <C>
Net income.................................................. As reported $ 2,840
Pro forma 1,925

Earnings per share.......................................... As reported
Primary 0.40
Fully diluted 0.39
Pro forma
Primary 0.27
Fully diluted 0.26
</TABLE>

15. RELATED-PARTY TRANSACTIONS

During the year ended June 30, 1997, and the period from the Inception Date
through June 30, 1996, the Company paid management fees to Heller Investments,
Inc. of $279,000 and $135,000, respectively.

The Company pays Kohlberg a quarterly fee pursuant to a Fee Agreement for
certain management services. Under the Fee Agreement, Kohlberg is paid an annual
management fee equal to the greater of $300,000 or 3% of the Company's earnings
before interest, taxes, depreciation and amortization, subject to a maximum
annual payment of $750,000. The total fees expensed for the period from December
31, 1996 to June 30, 1997 was $440,000. In addition, Kohlberg was paid
$1,520,000 for services rendered in connection with the December 31, 1996
recapitalization.

The Company's revolving lines of credit, term loans and acquisition line of
credit were provided by Credit Agricole Indosuez (Indosuez), a partner in KCSN.
Indosuez was paid $3,200,000 in loan fees in fiscal 1997 and the Company
incurred interest of $3,882,000 in connection with the amounts outstanding with
Indosuez.

The Company leases certain property that is owned directly or indirectly by
certain members of management. Payments pursuant to these operating leases for
the year ended June 30, 1997, the periods ended June 30, 1996, and September 8,
1995, and the year ended December 31, 1994 were $276,000, $266,000, $266,000,
and $266,000, respectively.

16. EMPLOYEE BENEFIT PLAN

The Company adopted a 401(k) plan (the Plan) for employees in September
1995. All employees who meet certain service requirements are eligible to
participate. Matching contributions are at the discretion of the Company. The
Company made no contributions to the Plan during the year ended June 30, 1997,
and the period ended June 30, 1996. The Predecessor had a similar 401(k) plan.
All funds under the Predecessor's 401(k) plan were transferred into the Plan.

17. EXTRAORDINARY LOSS

In connection with the recapitalization of the Company on December 31, 1996,
prepayment penalties of $414,000 were paid in connection with the early
extinguishment of debt. The prepayment penalty, net of

F-23
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. EXTRAORDINARY LOSS (CONTINUED)
income taxes of $199,000, was recorded in the accompanying statements of
operations as an extraordinary loss.

18. COMMITMENTS AND CONTINGENT LIABILITIES

OPERATING LEASES

The Company leases certain nursery facilities consisting of land and
improvements under noncancellable operating leases expiring at various dates
through 2012. The Company also leases transportation equipment under operating
leases expiring in various years through 2002. Some of the leases have five-year
renewal options and some are subject to rental increases based on a change in
the Consumer Price Index.

Total rent expense for the year ended June 30, 1997, the periods ended June
30, 1996, and September 8, 1995, and the year ended December 31, 1994, was
approximately $3,493,000, $2,065,000, $1,161,000 and $1,397,000, respectively.

At June 30, 1997, future minimum rental payments on non-cancellable
operating leases are as follows (in thousands):

<TABLE>
<S> <C>
1998............................................................... $ 3,481
1999............................................................... 3,525
2000............................................................... 3,366
2001............................................................... 2,650
2002............................................................... 1,825
Thereafter......................................................... 5,617
---------
Total minimum lease payments................................... $ 20,464
---------
---------
</TABLE>

PURCHASE COMMITMENTS

The Company has contracts to purchase Christmas trees from third-party
growers. Certain of these contracts require the Company to maintain the trees
until they are harvested. At June 30, 1997, future minimum purchase commitments
under the contracts are as follows (in thousands):

<TABLE>
<S> <C>
1998................................................................ $ 3,142
1999................................................................ 232
2000................................................................ 193
2001................................................................ 162
2002................................................................ 52
Thereafter.......................................................... --
---------
Total minimum purchase commitments................................ $ 3,781
---------
---------
</TABLE>

The Company has additional contracts to purchase Christmas trees whereby the
amounts payable are dependent upon the number of trees harvested and the year in
which they are harvested.

F-24
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
CONTINGENCIES

The Company is a party to various legal proceedings, claims and assessments
arising in the normal course of its business activities. Based upon information
presently available and in light of legal and other defenses and insurance
coverage, management does not expect these legal proceedings, claims and
assessments, individually or in the aggregate, to have a material adverse impact
on the Company's consolidated financial position or operations.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with certain of its
executive officers, with remaining service periods ranging from 1.5 to three
years. The agreements provide for certain payments to each officer upon
termination of employment, other than as a result of death, disability in most
cases or justified cause, as defined. The aggregate estimated commitment under
these agreements was $1,549,000 at June 30, 1997.

19. SUBSEQUENT EVENTS

ACQUISITIONS

Subsequent to June 30, 1997, the Company effected the following
acquisitions:

<TABLE>
<CAPTION>
ENTITY DATE OF ACQUISITION
- - - ----------------------------------------------------------------------- ---------------------
<S> <C>
Plants, Inc............................................................ July 31, 1997
Peters' Wholesale Greenhouses, Inc..................................... July 31, 1997
Wolfe Greenhouses, LLC................................................. July 31, 1997
Cracon, Inc............................................................ August 5, 1997
Summersun Greenhouse Co................................................ August 11, 1997
Oda Nursery, Inc....................................................... September 3, 1997
</TABLE>

The purchase price, certain costs related to the acquisitions and the
allocation of the purchase price to the underlying net assets acquired in these
acquisitions were as follows (in thousands):

<TABLE>
<S> <C>
Purchase price..................................................... $ 41,499
Organization and financing costs................................... 1,802
---------
Total purchase price........................................... 43,301

Less: Value assigned to assets and liabilities.....................
Current assets................................................... 13,887
Long-term assets................................................. 16,948
Current liabilities.............................................. (3,136)
Debt............................................................. --
---------
27,699
---------
Goodwill....................................................... $ 15,602
---------
---------
</TABLE>

F-25
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SUBSEQUENT EVENTS (CONTINUED)
The Company accounted for all of these acquisitions under the purchase
method of accounting. The allocation of the purchase price to the underlying net
assets acquired is based upon preliminary estimates of the fair value of the net
assets, which may be revised at a later date. It is anticipated that any
purchase price allocation adjustments will be made within one year from the date
of acquisition.

The effect of these acquisitions on the Company's results of operations has
been reflected in the Company's pro forma operating results in Footnote 8.

FINANCING

To effect the acquisitions subsequent to June 30, 1997, the Company borrowed
$37,300,000. In connection with the borrowings, the Company increased its limit
under the revolving line of credit to $37,500,000, increased its $25,000,000
term loan to a $35,000,000 term loan and increased its $35,000,000 term loan to
a $55,000,000 term loan.

EQUITY

In July 1997, the Company issued 713,127 shares of its common stock for a
total cash consideration of $5,120,000. In addition, 39,204 shares were issued
in connection with certain acquisitions.

20. QUARTERLY FINANCIAL DATA--(UNAUDITED)

Summarized quarterly financial information for the year ended June 30, 1997
and the period from the Inception Date through June 30, 1996 are as follows (in
thousands):

<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 26, MARCH 27, JUNE 30,
1996 1996 1997 1997
------------- ------------ ----------- ---------
1997 Q1 Q2 Q3 Q4
- - - ----------------------------------------- ------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................ $ 13,437 $ 13,165 $ 31,049 $ 55,749
Gross profit............................. 4,579 4,920 13,716 26,159
Operating income......................... (1,469) (1,059) 3,871 8,573
Extraordinary loss, net of tax........... -- -- 215 --
Net income............................... (820) (740) 932 3,468
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 28, MARCH 28, JUNE 30,
1995 1995 1996 1996
------------- ------------ ----------- ---------
1996 Q1 (21 DAYS) Q2 Q3 Q4
- - - ----------------------------------------- ------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................ $ 1,798 $ 6,852 $ 12,834 $ 30,511
Gross profit............................. 120 1,982 8,279 13,929
Operating income......................... (767) (1,708) 3,272 5,038
Net income............................... (485) (1,099) 1,789 2,783
</TABLE>

F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of CSN, Inc.:

We have audited the accompanying balance sheets of Oda Nursery, Inc. (a
California corporation) as of December 31, 1996 and 1995, and the related
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Oda Nursery, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

San Francisco, California

August 14, 1997

F-27
<PAGE>
ODA NURSERY, INC.

BALANCE SHEETS--DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash............................................................................. $ 265,597 $ 933,061
Accounts receivable, less allowance for doubtful accounts of $150,000............ 164,279 288,506
Inventories...................................................................... 8,684,547 9,541,209
Prepaid expenses................................................................. 37,437 14,286
Investment in stock.............................................................. 90,140 150,190
Notes receivable from stockholders............................................... 450,000 676,650
------------- -------------
Total current assets........................................................... 9,692,000 11,603,902
PROPERTY, PLANT AND EQUIPMENT, net................................................. 665,928 3,571,833
NET ASSETS HELD FOR DISTRIBUTION................................................... 1,976,588 --
------------- -------------
Total assets................................................................... $ 12,334,516 $ 15,175,735
------------- -------------
------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued liabilities......................................... $ 113,624 $ 277,142
Long-term debt, net of current maturities........................................ 212,175 615,302
Loan from stockholder............................................................ 1,400,000 1,400,000
Advances under revolving line of credit.......................................... 750,100 405,350
------------- -------------
Total current liabilities...................................................... 2,475,899 2,697,794
LONG-TERM DEBT, net of current maturities.......................................... 777,567 1,771,835
------------- -------------
Total liabilities.............................................................. 3,253,466 4,469,629
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $100 par value, 5,000 shares authorized, 2,000 shares issued and
outstanding.................................................................... 200,000 200,000
Retained Earnings................................................................ 8,881,050 10,506,106
------------- -------------
Total stockholders' equity..................................................... 9,081,050 10,706,106
------------- -------------
Total liabilities and stockholders' equity..................................... $ 12,334,516 $ 15,175,735
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-28
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
SALES................................................................................ $ 10,613,252 $ 9,841,072
COST OF SALES........................................................................ 5,999,810 5,246,839
------------- ------------
Gross profit..................................................................... 4,613,442 4,594,233

OPERATING EXPENSES:
Delivery........................................................................... 2,023,041 1,460,423
Sales and marketing................................................................ 501,160 627,761
General and administrative......................................................... 478,737 398,592
Depreciation....................................................................... 102,410 160,380
Write down of property, plant and equipment........................................ 770,412 --
Other expenses..................................................................... 61,892 53,692
------------- ------------
Income from operations........................................................... 675,790 1,893,385

INTEREST EXPENSE..................................................................... 337,002 318,182

OTHER INCOME (EXPENSES), net......................................................... 236,156 (1,575)
------------- ------------
Net income....................................................................... $ 574,944 $ 1,573,628
------------- ------------
------------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-29
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
COMMON STOCK
----------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994.................................... 2,000 $ 200,000 $ 8,932,478 $ 9,132,478
Net income.................................................. -- -- 1,573,628 1,573,628
----- ---------- ------------- -------------
BALANCE, December 31, 1995.................................... 2,000 $ 200,000 $ 10,506,106 $ 10,706,106
Net income.................................................. -- -- 574,944 574,944
Distributions............................................... -- -- (2,200,000) (2,200,000)
----- ---------- ------------- -------------
BALANCE, December 31, 1996.................................... 2,000 $ 200,000 $ 8,881,050 $ 9,081,050
</TABLE>

The accompanying notes are an integral part of these statements.

F-30
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES AND OTHER NONRECURRING EXPENSES:
Net income........................................................................ $ 574,944 $ 1,573,628
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of property, plant and equipment................................... -- 69,051
Depreciation.................................................................... 179,000 170,000
Write down of land to net realizable value...................................... 770,412 --
Changes in certain assets and liabilities:
(Decrease) increase in receivables............................................ 124,227 (178,725)
(Decrease) increase in inventories............................................ 856,662 (745,650)
(Increase) decrease in prepaid expenses....................................... (23,151) 24,829
Decrease in notes receivable from stockholder................................. 226,650 1,531
Decrease in accounts payable and accrued expenses............................. (163,518) (607,585)
------------- -------------
Net cash provided by operating activities................................... 2,545,226 307,079
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment......................................... (98,095) (146,000)
------------- -------------
Net cash used in investing activities....................................... (98,095) (146,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit...................................................... 750,100 405,000
Payments on line of credit........................................................ (405,350) (2,000,000)
Proceeds from issuance of long-term obligations................................... -- 1,152,805
Principal payments on long-term obligations....................................... (1,259,345) (1,500,339)
Principal payments on loan from stockholder....................................... -- (100,000)
Distributions to stockholders..................................................... (2,200,000) --
------------- -------------
Net cash used in financing activities....................................... (3,114,595) (2,042,534)
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS............................................... (667,464) (1,881,455)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................................... 933,061 2,814,516
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................ $ 265,597 $ 933,061
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.......................................................................... $ 337,002 $ 355,640
Income taxes...................................................................... 55,000 8,918
</TABLE>

The accompanying notes are an integral part of these statements.

F-31
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1995

1. NATURE OF OPERATIONS:

ORGANIZATION

Oda Nursery, Inc., a California corporation (the "Company"), was formed on
December 10, 1973, by Harunori Oda, Mitsuka Oda and Richard Tanaka. The Company
was formed to acquire, own, operate and manage a nursery business, as well as to
acquire, own, sell, mortgage or lease real and personal property.

DESCRIPTION OF THE BUSINESS

The Company is an agricultural enterprise specializing in the growth and
wholesale of high-quality ornamental plants and shrubs to numerous retailers.
The majority of the plants are grown on the Company's 200 acre complex in San
Juan Capistrano, California.

2. SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Company in preparing its financial statements in accordance with generally
accepted accounting principles:

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INVENTORIES

Inventories are carried at the lower of cost or market. Plant inventory cost
includes direct production costs and overhead. Raw material inventory cost is
determined using the most recent purchase price, which approximates average
cost. A portion of the Company's inventory has an average growing period of
approximately 18 months. This inventory is classified as a current asset based
on the Company's normal operating cycle.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost and are depreciated over
their estimated useful lives using the straight-line method as follows:

<TABLE>
<S> <C>
10 - 24
Buildings and improvements.................................... years
Machinery and equipment....................................... 5 - 10 years
Software, furniture and fixtures.............................. 3 - 5 years
</TABLE>

F-32
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Total depreciation expense for the years ended December 31, 1996 and 1995
was $179,000 and $170,000, respectively. All repairs and maintenance costs are
expensed as incurred.

REVENUE RECOGNITION

The Company recognizes revenues when products are shipped. Where
appropriate, the Company establishes a reserve for returns and allowances.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Partnership's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

INCOME TAXES

The Company elected in 1973, under Federal and state tax laws, to be treated
under the provisions of Subchapter S of the Internal Revenue Code. Under these
provisions, income taxes are the obligation of the individual stockholder,
except that the Company is taxed on income for state tax purposes at reduced
rates. The Company has recorded a provision for income taxes of $33,063 and $822
for the years ended December 31, 1996 and December 31, 1995, respectively, which
is included in other expenses.

ASSET IMPAIRMENT

During the year ended December 31, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121").
SFAS 121 requires that long-lived assets be reviewed for impairment and written
down to fair value whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Adoption of SFAS 121 resulted in an
impairment charge included in operating costs of $770,412. The impaired assets
represent land held for sale in Beaumont and Lancaster, California. These sites
were appraised by an independent third-party. As discussed in Note 11, these
properties do not form part of the purchase agreement.

3. CONCENTRATION OF CREDIT RISK:

The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral, as the majority of its
customers well-established companies. Two customers accounted for approximately
70 percent and 50 percent of accounts receivable at December 31, 1996 and 1995,
respectively. These same two customers accounted for approximately 38 percent
and 41 percent of sales for the years ended December 31, 1996 and 1995,
respectively.

F-33
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

4. INVENTORIES:

Inventories consisted of the following at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Raw materials and supplies........................................ $ 655,000 $ 707,000
Plant inventory................................................... $ 8,029,547 $ 8,834,209
------------ ------------
Total inventory............................................... $ 8,684,547 $ 9,541,209
------------ ------------
------------ ------------
</TABLE>

5. INVESTMENT IN STOCK:

As further discussed in Note 7 the Company is required under the terms of
its credit agreement to maintain an investment in stock of the bank amounting to
6.83 percent of its outstanding indebtedness.

6. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at December 31, 1996 and 1995, consisted of
the following:

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Land............................................................ $ -- $ 2,825,000
Machinery and equipment......................................... 1,722,000 1,685,000
Buildings and improvements...................................... 466,000 453,000
Software, furniture and fixtures................................ 216,000 184,000
------------- -------------
2,404,000 5,147,000
Less: Accumulated depreciation.................................. (1,738,072) (1,575,167)
------------- -------------
Total property, plant and equipment......................... $ 665,928 $ 3,571,833
------------- -------------
------------- -------------
</TABLE>

As further discussed in Note 10, all of the land held by the Company will be
distributed to the Company's stockholders subsequent to the sale of the Company.
These assets are classified as net assets held for distribution.

7. LINE OF CREDIT

The Company has a $2,000,000 revolving line of credit with a financial
institution under which there was $750,100 and $405,350 outstanding at December
31, 1996 and December 31, 1995, respectively. Advances under the line accrue
interest at the bank's reference rate (9.75% and 8.75% at December 31, 1996 and
December 31, 1995, respectively). Substantially all of the Company's assets are
held as collateral. Borrowings are limited to 75 percent of eligible accounts
receivable and 55 percent of the Company's eligible inventory balance, less
certain borrowings. Availability at December 31, 1996, was approximately
$1,955,000. The line of credit expires on October 6, 1997.

F-34
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

8. LONG-TERM DEBT

Long-term debt at December 31, 1996 and 1995, consisted of the following:

<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Note payable to bank, with monthly interest payments, interest at
the bank's reference rate (9.25 and 9.75 percent at December 31,
1996 and December 31, 1995, respectively); secured by
substantially all of the Company's assets; unpaid principal and
interest due on October 6, 1998.................................. $ 100 $ 1,152,806

Note payable to bank, with monthly principal and interest payments
of $13,084, interest at the bank's reference rate (9.25 and 9.75
percent as of December 31, 1996 and December 31, 1995,
respectively); secured by substantially all of the Company's
assets; unpaid principal and interest due on May 1, 2002......... 648,819 733,686

Mortgage payable to an individual, with monthly principal and
interest payments of $2,400, interest at an annual rate of 6.5
percent as of December 31, 1996; secured by land; unpaid
principal and interest due July 13, 2006......................... 206,090 290,000

Stock obligation to bank, with monthly interest payments made at
9.0 percent at December 31, 1996 and December 31, 1995,
respectively; unpaid interest due May 1, 2002.................... 90,140 150,190

Note Payable under Small Business Loan, with monthly principle and
interest payments of $1,960, interest at 6.0 and 3.0 percent at
December 31, 1996 and December 31, 1995, respectively; unpaid
principle and interest due February 27, 1997..................... 44,593 60,455
----------- ------------
989,742 2,387,137

Less: Current maturities........................................... (212,175) (615,302)
----------- ------------
$ 777,567 $ 1,771,835
----------- ------------
----------- ------------
</TABLE>

The provisions of the debt agreements with the bank generally impose
restrictions relating to, among other matters, incurrence of additional
indebtedness and maintenance of specified amounts of tangible net worth and
working capital. In addition, the bank requires the Company to maintain 6.38
percent of outstanding borrowings as an investment in the bank's stock. The
investment in stock is reduced as the Company makes principal payments on its
other obligations to the bank.

F-35
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

8. LONG-TERM DEBT (CONTINUED)
The annual amount of principle maturities of long-term debt outstanding at
December 31, 1996, is as follows:

<TABLE>
<S> <C>
1997.............................................................. $ 212,175
1998.............................................................. 130,424
1999.............................................................. 143,244
2000.............................................................. 157,342
2001.............................................................. 172,870
Thereafter........................................................ 173,687
---------
$ 989,742
---------
---------
</TABLE>

9. STOCKHOLDERS' NOTES:

The following table summarizes the Company's notes with stockholders
presented in the balance sheet as of December 31, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Note receivable from stockholder.................................. $ 450,000 $ 676,650
Loan from stockholder............................................. 1,400,000 1,400,000
</TABLE>

The Company advanced cash to a stockholder and one of his related entities
under common ownership in 1992 and 1996 of $675,000 and $450,000, respectively.
The note issued in 1992 was repaid during 1996. The note issued in 1996 was
repaid during 1997 and accrued interest at 10 percent. Interest received on
these notes was $236,000 and $14,000 for the years ended December 31, 1996 and
1995, respectively.

The Company received cash from one of its stockholders in 1993. This loan is
due at the notice of the stockholder and is therefore considered short-term in
nature. Interest is payable monthly, at an annual rate of 8 percent. Interest
paid on this loan was $112,000 and $112,000 for the years ended December 31,
1996 and 1995, respectively.

10. SUBSEQUENT EVENT AND NET ASSETS HELD FOR DISTRIBUTION:

In September 1997, the Company's stockholders sold the Company to Color Spot
Nurseries, Inc. The land held by the Company was not part of the sale
transaction. It is the Company's intention to distribute this land to the
stockholders in connection with the sale. This land was written down during the
year ended December 31, 1996, by $770,412 based on independent appraisals.

F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Stockholders
Summersun Greenhouse Co.

We have audited the accompanying balance sheet of the Wholesale Bedding
Plant Division of Summersun Greenhouse Co. as of May 31, 1997 and 1996, and the
related statements of operations and division equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of the Wholesale Bedding Plant
Division of Summersun Greenhouse Co. as of May 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

As discussed in Note 1 to the financial statements, the accompanying
divisional financial statements include allocations of assets, liabilities,
revenues and expenses between the divisions comprising the Company. The assets
of the Wholesale Bedding Plant Division are subject to security agreements that
relate to the debt of Summersun Greenhouse Co. Because of the assumptions
underlying the numerous allocations, the financial statements may not be
indicative of future operations, and may not reflect the results that would have
occurred if the Division had been financed and operated as a separate entity.

MOSS ADAMS LLP

Seattle, Washington
June 20, 1997

F-37
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.
BALANCE SHEETS
MAY 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS

CURRENT ASSETS
Accounts receivable trade, less allowance for doubtful accounts of $5,000 in 1997
and 1996....................................................................... $ 2,934,100 $ 1,350,500
Inventories...................................................................... 3,091,200 2,093,700
Prepaid expenses................................................................. 20,000 --
------------- -------------
Total current assets........................................................... 6,045,300 3,444,200
PROPERTY AND EQUIPMENT, net........................................................ 4,813,800 3,983,300
------------- -------------
$ 10,859,100 $ 7,427,500
------------- -------------
------------- -------------

LIABILITIES AND DIVISIONAL EQUITY

CURRENT LIABILITIES
Notes payable.................................................................... $ 2,934,100 $ 1,350,500
Accounts payable................................................................. 1,493,500 1,187,300
Accrued payroll and payroll taxes................................................ 164,600 69,500
Current portion of long-term debt................................................ 482,100 276,500
------------- -------------
Total current liabilities...................................................... 5,074,300 2,883,800
LONG-TERM DEBT, net of current portion............................................. 3,290,100 2,987,300
DIVISIONAL EQUITY.................................................................. 2,494,700 1,556,400
------------- -------------
$ 10,859,100 $ 7,427,500
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-38
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

STATEMENTS OF OPERATIONS AND DIVISIONAL EQUITY

YEARS ENDED MAY 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES......................................................... $ 8,677,300 100.8 % $ 8,030,700 102.1 %
Less sales discounts and allowances......................... 77,300 0.8 163,900 2.1
------------ ----- ------------ -----

NET SALES..................................................... 8,600,000 100.0 7,866,800 100.0

COST OF GOODS SOLD............................................ 4,174,700 48.5 4,187,600 53.2
------------ ----- ------------ -----
Gross profit................................................ 4,425,300 51.5 3,679,200 46.8

OPERATING EXPENSES............................................ 3,827,100 44.5 3,820,700 48.6
------------ ----- ------------ -----
Income from operations...................................... 598,200 7.0 (141,500) (1.8)
------------ ----- ------------ -----
OTHER INCOME (EXPENSE)
Interdivisional rental income............................... 325,000 3.8 111,000 1.4
Interest expense............................................ (428,100) (5.0) (392,100) (5.0)
Other....................................................... 26,200 0.3 (3,400) (0.0)
------------ ----- ------------ -----
(76,900) (0.9) (284,500) (3.6)
------------ ----- ------------ -----
NET INCOME (LOSS)............................................. 521,300 6.1 % (426,000) (5.4)%
----- -----
----- -----
DIVISIONAL EQUITY
Beginning of year........................................... 1,556,400 2,154,700

Interdivisional transfers................................... 417,000 (172,300)
------------ ------------
End of year................................................. $ 2,494,700 $ 1,556,400
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-39
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

STATEMENTS OF CASH FLOWS

YEARS ENDED MAY 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................................. $ 521,300 $ (426,000)
Adjustments to reconcile net income (loss) to cash flows from operating
activities.......................................................................
Depreciation..................................................................... 372,200 348,400
Changes in assets and liabilities
Trade accounts receivable...................................................... (1,583,600) 1,293,100
Inventories.................................................................... (997,500) (26,800)
Prepaid expenses............................................................... (20,000) --
Accounts payable............................................................... 306,200 39,300
Accrued liabilities............................................................ 95,100 (45,400)
------------- ------------
(1,306,300) 1,182,600
------------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment.............................................. (1,202,700) (187,900)
------------- ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net change in notes payable........................................................ 1,583,600 (578,400)
Long-term borrowing................................................................ 798,900 --
Principal payments on long-term debt............................................... (290,500) (244,000)
Net transfer of cash from other divisions.......................................... 417,000 (172,300)
------------- ------------
2,509,000 (994,700)
------------- ------------

CHANGE IN CASH....................................................................... -- --

CASH BALANCE,
Beginning of year.................................................................. -- --
------------- ------------
End of year........................................................................ $ -- $ --
------------- ------------
------------- ------------

SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest............................................................. $ 415,600 $ 398,200
------------- ------------
------------- ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-40
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS

MAY 31, 1997 AND 1996

NOTE 1--OPERATIONS AND BASIS OF PRESENTATION

OPERATIONS--The Wholesale Bedding Plant Division (the "Division") is a
division of Summersun Greenhouse Co. (the "Company"). The Company was
incorporated in the State of Washington in 1978. It operates as a horticultural
producer and wholesaler in the Pacific Northwest. The Division's sales,
including interdivisional sales, accounted for approximately 80% of the
Company's overall sales in 1997 and 1996. Other operations of the Company
include the Terra Plug Division ("Terra Plug") which produces a proprietary
product using a patented growing process, a retail nursery operation and a day
care facility for Company employees.

BASIS OF PRESENTATION--The accompanying divisional financial statements are
intended to present the assets, liabilities, revenues, expenses and cash flows
attributable to the Division and do not represent a complete presentation of the
Company's financial position, results of operations and cash flows. Because the
statements reflect numerous allocations, they may not be indicative of future
operations, and may not reflect the results that would have occurred if the
Division had been financed and operated as a separate entity. The amounts
presented in the divisional statements were determined as described below.

- Accounts Receivable and Accounts Payable--Accounts receivable and accounts
payable consist of amounts specifically identifiable with the sales and
purchasing activity of the Division.

- Inventories--Inventories consist of those items specifically identifiable
with the operations of the Division.

- Prepaid Expenses--Prepaid expenses represent approximately 85% of the
Company's prepaid insurance.

- Property and Equipment--Property and equipment consist of those assets
specifically identifiable with the operations of the Division.

- Notes Payable--Short-term notes payable are recorded at an amount equal to
the balance of trade accounts receivable net of the allowance for doubtful
accounts.

- Long-Term Debt--Long-term debt is allocated based on the relationship of
the cost of the Division's property and equipment to the cost of
Company-wide property and equipment.

- Interdivisional Transfers--No cash is reflected in the accompanying
financial statements. The Company transfers cash as needed in order to
allow the Division to meet its operational cash flow needs. All transfers
of cash or other assets are recorded as changes to divisional equity.

- Sales--Sales include amounts for the sale of wholesale bedding plants.
Included in total sales in 1997 and 1996, respectively, is $217,800 and
$161,600 of sales to the Company's retail operation.

- Cost of Goods Sold--Cost of goods sold consists of the cost of wholesale
bedding plants sold. Included in the determination of cost of goods sold
in 1997 and 1996, respectively, is $48,300 and $286,900 of net purchases
from the Company's Terra Plug Division.

- Operating Expenses--Administrative salaries are allocated based on
personnel's estimated time devoted to the Division. All other operating
expenses were charged to the Division based on specific identification of
costs incurred.

F-41
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 1--OPERATIONS AND BASIS OF PRESENTATION (CONTINUED)
- Interdivisional Rent--The Division charges Terra Plug rent for the use of
its greenhouses to grow Terra Plug plants prior to their being
transplanted to the Company's fields. During 1997, the Division charged
Terra Plug rent of $325,000. This amount was based on management's
computation of estimated profits the Division would have realized had the
greenhouse space been used in the production of wholesale bedding plants.
During 1996, the Division charged Terra Plug rent of $111,000. This amount
was based on management's computation of estimated operating costs per
square foot for the space rented.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES--The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

At May 31, 1997, the Division had significantly greater quantities of living
plants than in prior years. Due to unusually cool and wet weather conditions in
the Pacific Northwest, sales in June 1997 were not significantly greater than in
June 1996. There is a possibility that some loss may occur on disposition of the
aggregate living plant inventory. However, no accurate estimate of the amount of
loss, if any, can be made and thus no provision for such loss has been included
in the accompanying financial statements.

INVENTORIES--Inventories are stated at the lower of cost or market. Cost of
living plant inventory is estimated based on the relationship of direct growing
costs to wholesale sales during the months of March, April and May. The cost of
raw materials and supplies is determined using the first-in, first-out (FIFO)
method.

PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets, ranging from 5 to 25 years.

ADVERTISING COSTS--The Division expenses advertising costs as they are
incurred. Advertising expense was $101,900 and $67,100 in 1997 and 1996,
respectively.

INCOME TAXES--The Company, with consent of its stockholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of corporate
income taxes, the stockholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Accordingly, the
accompanying financial statements include no provision for federal income taxes.

F-42
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 3--CONDENSED COMPANY FINANCIAL INFORMATION

The following is a condensed balance sheet of the Company as of May 31, 1997
and 1996 showing the Wholesale Bedding Plant Division as it relates to the
Company:

BALANCE SHEET
MAY 31, 1997

<TABLE>
<CAPTION>
WHOLESALE
BEDDING
PLANT OTHER
DIVISION DIVISIONS TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Current assets................................... $ 6,045,300 $ 1,082,200 $ 7,127,500
Property and equipment, net...................... 4,813,800 820,900 5,634,700
Other assets..................................... -- 919,000 919,000
------------- ------------ -------------
$ 10,859,100 $ 2,822,100 $ 13,681,200
------------- ------------ -------------
------------- ------------ -------------
Current liabilities.............................. $ 5,074,300 $ 1,265,500 $ 6,339,800
Long-term debt................................... 3,290,100 580,600 3,870,700
Stockholders' equity............................. 2,494,700 976,000 3,470,700
------------- ------------ -------------
$ 10,859,100 $ 2,822,100 $ 13,681,200
------------- ------------ -------------
------------- ------------ -------------
</TABLE>

MAY 31, 1996

<TABLE>
<S> <C> <C> <C>
Current assets......................... $3,444,200 $1,291,600 $4,735,800
Property and equipment, net............ 3,983,300 1,077,100 5,060,400
Other assets........................... -- 753,400 753,400
---------- --------- ----------
$7,427,500 $3,122,100 $10,549,600
---------- --------- ----------
---------- --------- ----------
Current liabilities.................... $2,883,800 $ 712,100 $3,595,900
Long-term debt......................... 2,987,300 527,200 3,514,500
Stockholders' equity................... 1,556,400 1,882,800 3,439,200
---------- --------- ----------
$7,427,500 $3,122,100 $10,549,600
---------- --------- ----------
---------- --------- ----------
</TABLE>

The Company has recorded certain payments to stockholders as notes
receivable, which are included in other assets in the balance sheets above.
Generally accepted accounting principles require that these payments be
classified as distributions to stockholders. If these payments were presented in
accordance with generally accepted accounting principles, at May 31, 1997 and
1996, Company-wide assets and stockholders' equity would decrease by $711,200
and $631,600, respectively.

F-43
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 3--CONDENSED COMPANY FINANCIAL INFORMATION (CONTINUED)
The following is a condensed statement of operations of the Company for the
years ended May 31, 1997 and 1996 showing the Wholesale Bedding Plant Division
as it relates to the Company:

STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997

<TABLE>
<CAPTION>
WHOLESALE INTERDIVISIONAL
BEDDING PLANT OTHER SALES AND
DIVISION DIVISIONS PURCHASES TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales, net....................... $ 8,600,000 $ 3,096,900 $ (714,300) $ 10,982,600
Cost of goods sold............... 4,174,700 1,852,800 (714,300) 5,313,200
------------- ------------- ------------- -------------
Gross profit................... 4,425,300 1,244,100 -- 5,669,400
Operating expenses............... 3,827,100 1,230,800 -- 5,057,900
------------- ------------- ------------- -------------
Operating income............... 598,200 13,300 -- 611,500
Other expense.................... (76,900) (503,100) -- (580,000)
------------- ------------- ------------- -------------
Net income (loss)................ $ 521,300 $ (489,800) $ -- $ 31,500
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

YEAR ENDED MAY 31, 1996

<TABLE>
<S> <C> <C> <C> <C>
Sales, net................ $7,866,800 $2,445,200 $(523,400) $9,788,600
Cost of goods sold........ 4,187,600 1,063,500 (523,400) 4,727,700
---------- ---------- ----------- ----------
Gross profit............ 3,679,200 1,381,700 -- 5,060,900
Operating expenses........ 3,820,700 1,110,600 -- 4,931,300
---------- ---------- ----------- ----------
Operating income
(loss)................ (141,500) 271,100 -- 129,600
Other expense............. (284,500) (247,500) -- (532,000)
---------- ---------- ----------- ----------
Net loss.................. $ (426,000) $ 23,600 $ -- $ (402,400)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>

NOTE 4--INVENTORIES

At May 31, inventories consisted of the following:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Living plants..................................................... $ 2,414,500 $ 1,388,300
Raw materials and supplies........................................ 676,700 705,400
------------ ------------
$ 3,091,200 $ 2,093,700
------------ ------------
------------ ------------
</TABLE>

F-44
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 5--PROPERTY AND EQUIPMENT

At May 31, property and equipment consisted of the following:
<TABLE>
<CAPTION>
1997
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------------ ------------ ------------
<S> <C> <C> <C>
Greenhouses......................................... $ 4,387,300 $ 1,197,900 $ 3,189,400
Operating equipment................................. 2,597,500 1,604,100 993,400
Land, buildings and improvements.................... 691,300 60,300 631,000
------------ ------------ ------------
$ 7,676,100 $ 2,862,300 $ 4,813,800
------------ ------------ ------------
------------ ------------ ------------

1996
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------------ ------------ ------------
<S> <C> <C> <C>
Greenhouses......................................... $ 3,562,400 $ 1,042,600 $ 2,519,800
Operating equipment................................. 2,407,400 1,422,100 985,300
Land, buildings and improvements.................... 519,100 40,900 478,200
------------ ------------ ------------
$ 6,488,900 $ 2,505,600 $ 3,983,300
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

During 1997 and 1996, depreciation expense totaled $372,200 and $348,400,
respectively.

NOTE 6--NOTES PAYABLE

The Company has a line of credit agreement with a bank providing for
borrowing up to $3,000,000, as limited by accounts receivable and inventories.
The line bears interest at prime plus .375% and is collateralized by accounts
receivable and inventories. The line of credit agreement matures August 31,
1997, and is subject to certain financial covenants.

The Company has a line of credit agreement with another bank providing for
borrowing up to $457,500. The line bears interest at prime plus 2% and is
secured by a mortgage on real property. The line of credit agreement matures
June 15, 1997.

F-45
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 7--LONG-TERM DEBT

At May 31, long-term debt consisted of the following:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Notes payable to a cooperative agricultural lender in monthly
installments attributable to the Division totaling $46,500
including interest at variable rates up to 260 basis points over
the lender's discount note rates with future rate change options
available, collateralized by substantially all assets and
guaranteed by stockholders, maturing at various times from
December 1997 to October 2009................................... $ 3,573,400 $ 3,016,500
Note payable to Small Business Administration in monthly
installments attributable to the Division of $4,300 including
interest at 4%, collateralized by deeds of trust on real estate
and guaranteed by stockholders, maturing May 2001............... 191,600 236,500
Note payable to bank in monthly installments attributable to the
Division of $300 including interest at 9%, collateralized by
vehicles, maturing July 15, 1999................................ 7,200 10,800
------------ ------------
3,772,200 3,263,800
Less current portion.............................................. 482,100 276,500
------------ ------------
$ 3,290,100 $ 2,987,300
------------ ------------
------------ ------------
</TABLE>

Future principal payments on long-term debt for years ending May 31 are
summarized as follows:

<TABLE>
<S> <C>
1998............................................................ $ 482,100
1999............................................................ 328,200
2000............................................................ 300,900
2001............................................................ 281,800
2002............................................................ 254,300
Thereafter...................................................... 2,124,900
---------
$3,772,200
---------
---------
</TABLE>

Under the terms of its loan agreements with the cooperative agricultural
lender and the bank, the Company is subject to various covenants, including
requirements to maintain certain financial ratios and minimum levels of tangible
net worth.

F-46
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 8--RETIREMENT PLAN

The Company sponsors a salary deferral and profit sharing plan meeting the
requirements of Internal Revenue Code 401(k) for qualified plans. The plan
covers substantially all employees with one year of service who have attained
the age of 21 years and work 1,000 hours or more per year. Employees may defer
up to 10% of their annual compensation, not to exceed certain limitations
established by the Internal Revenue Code.

Company contributions to the plan are discretionary and may not exceed 25%
of an employee's compensation or $30,000. During 1997, Company contributions
attributable to the Division totaled $12,000. No contributions were made to the
Plan in 1996.

NOTE 9--MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK

MAJOR CUSTOMERS--During 1997, approximately 41% of the Division's sales were
derived from four customers. At May 31, 1997, $1,618,300 was due from these
customers. During 1996, approximately 37% of the Division's sales were derived
from a single customer. At May 31, 1996, $63,000 was due from this customer.

CONCENTRATIONS OF CREDIT RISK--Financial instruments that potentially
subject the Division to concentrations of credit risk consist principally of
accounts receivable. The Division grants credit to customers and generally does
not require collateral or other security. Customers are concentrated in the
agricultural nursery and retail industry throughout the United States and are
concentrated in the States of Washington, Oregon, and Idaho. The Division has
not experienced a history of significant credit-related losses.

NOTE 10--PURCHASE COMMITMENT

During fiscal year 1997, the Company entered into an agreement to purchase
agricultural land for $1,000,000. The purchase is to take place in three phases
over the next three years. As of May 31, 1997, the Company has paid earnest
money of approximately $27,000 in connection with the purchase.

NOTE 11--SUBSEQUENT EVENT

Subsequent to May 31, 1997, management signed a letter of intent to sell
certain assets of the Wholesale Bedding Plant Division. Consummation of the
transaction is dependent upon final agreement of the terms of sale.

F-47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and

Stockholders of CSN, Inc.:

We have audited the accompanying balance sheet of Cracon, Inc. (a Florida
corporation) as of December 31, 1996, and the related statements of operations
and retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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 provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cracon, Inc. as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois

July 31, 1997

F-48
<PAGE>
CRACON, INC.

BALANCE SHEET

DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 13,993
Accounts receivable:
Trade, net of allowances of $50,000......................................... 2,386,873
Related party............................................................... 392,271
Prepaid expenses.............................................................. 2,145
---------
Total current assets...................................................... 2,795,282
TREE INVENTORIES................................................................ 1,371,226
PROPERTY AND EQUIPMENT, net..................................................... 262,181
---------
Total assets.............................................................. $4,428,689
---------
---------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Notes payable:
Other....................................................................... $1,335,076
Related parties............................................................. 475,000
Accounts payable.............................................................. 1,179,820
Accrued liabilities........................................................... 156,938
Current portion of long-term debt............................................. 9,811
---------
Total current liabilities................................................. 3,156,645

LONG-TERM DEBT, net of current portion.......................................... 40,192
---------
Total liabilities......................................................... 3,196,837
---------
STOCKHOLDERS' EQUITY:
Common stock, $10 par value; 50 shares authorized, issued and outstanding..... 500
Retained earnings............................................................. 1,231,352
---------
Total stockholders' equity................................................ 1,231,852
---------
Total liabilities and stockholders' equity................................ $4,428,689
---------
---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-49
<PAGE>
CRACON, INC.

STATEMENT OF OPERATIONS AND RETAINED EARNINGS

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
NET SALES....................................................................... $3,419,358

COST OF SALES................................................................... 2,094,801
---------
Gross profit................................................................ 1,324,557

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................... 873,066
---------
Income from operations...................................................... 451,491

INTEREST EXPENSE, net........................................................... 143,159
---------
Net income.................................................................. 308,332

RETAINED EARNINGS, DECEMBER 31, 1995............................................ 993,020

DIVIDENDS....................................................................... (70,000)
---------
RETAINED EARNINGS, DECEMBER 31, 1996............................................ $1,231,352
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-50
<PAGE>
CRACON, INC.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 308,332
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 17,249
Changes in certain assets and liabilities:
Increase in receivables................................................... (107,921)
Decrease in tree inventories.............................................. 73,107
Decrease in other assets.................................................. 20,000
Decrease in trade payables................................................ (533,513)
Increase in accrued liabilities........................................... 29,671
---------
Net cash used in operating activities................................... (193,075)
---------
CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets.................. (13,001)
---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable....................................... 775,409
Repayments of notes payable................................................... (435,000)
Dividends paid................................................................ (91,000)
Repayment of other long-term debt............................................. (38,635)
---------
Net cash provided by financing activities............................... 210,774
---------
Net increase in cash.................................................... 4,698

CASH AT BEGINNING OF YEAR....................................................... 9,295
---------
CASH AT END OF YEAR............................................................. $ 13,993
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest........................................ $ 141,192
---------
---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-51
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION

Cracon, Inc. (the "Company"), an S corporation, is a grower, broker and
distributor of Christmas trees. The Company sells primarily to general
merchandise chain stores, home improvement chain stores and retail garden
stores.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Company considers cash held in banks and deposits with maturities of
three months or less to be cash and cash equivalents. All overdraft balances
have been reclassified to current liabilities.

INVENTORIES

Inventories consist primarily of Christmas trees and are carried at the
lower of cost or market. Cost is determined using the average cost incurred to
purchase or plant and maintain the inventory. Tree inventories are classified as
long-term until the trees are cut and ready for sale. The Company is dependent
on several vendors for a large portion of its inventory.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost and are depreciated over their
estimated useful lives using accelerated methods as follows:

<TABLE>
<S> <C>
Machinery and equipment............. 7 years
Vehicles............................ 5 years
Leasehold improvements.............. lease term
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

Revenues are recognized when products are shipped and all significant
obligations of the Company have been completed.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Company's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

F-52
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES

The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code of 1986, as amended, by consent of its stockholders.
Therefore, the Company generally does not pay federal income taxes on its
income. Instead, the stockholders are liable for individual federal income taxes
on their respective share of the Company's taxable income.

ASSET IMPAIRMENT

On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). SFAS 121 requires that long-lived assets, certain identifiable
intangibles and goodwill be reviewed for impairment when expected future
undiscounted cash flows are less than the carrying value of the asset. No
charges were recorded pursuant to this statement in fiscal 1996.

2. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable. The Company sells
primarily on net 30-day terms, performs credit evaluation procedures, and
generally does not require collateral. The Company maintains allowances for
potential credit losses and does not currently foresee a credit risk associated
with these receivables. Four customers accounted for approximately 76 percent of
accounts receivable as of December 31, 1996. These same four customers accounted
for approximately 72 percent of sales for the year ended December 31, 1996.

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 1996:

<TABLE>
<S> <C>
Land.............................................................. $ 209,279
Machinery and equipment........................................... 93,634
Vehicles.......................................................... 49,766
Leasehold improvements............................................ 26,350
---------
Total property and equipment.................................. 379,029
Less: Accumulated depreciation.................................... (116,848)
---------
Property and equipment, net....................................... $ 262,181
---------
---------
</TABLE>

Depreciation expense for the year ended December 31, 1996, was $17,249.

4. NOTES PAYABLE:

Notes payable are due at various dates through December 31, 1997. Interest
is payable annually or quarterly at various rates. At December 31, 1996, the
weighted average interest rate was 10.9 percent.

F-53
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

4. NOTES PAYABLE: (CONTINUED)
Certain of the note holders are employees or relatives of the current
shareholders of the Company. Amounts due to these note holders have been
classified as notes payable--related parties in the accompanying balance sheet.
During 1996, the Company incurred $51,200 in interest on these related party
notes payable.

5. LONG-TERM DEBT:

Long-term debt as of December 31, 1996 consists of the following:

<TABLE>
<S> <C>
Mortgage note payable to individuals; annual principal payments of
$4,633 through February 2003; interest payable annually at 9.5
percent; secured by the underlying property...................... $ 32,434

Mortgage note payable to a bank; monthly principal and interest
payments of $591 through November 1999; interest at 9.5 percent;
secured by the underlying property............................... 17,569
---------
50,003
Less: Current portion.............................................. (9,811)
---------
$ 40,192
---------
---------
</TABLE>

Future maturities of long-term debt as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997............................................................... $ 14,811
1998............................................................... 14,361
1999............................................................... 12,749
2000............................................................... 6,393
2001............................................................... 5,953
Thereafter......................................................... 10,588
---------
64,855
Less: Amount representing interest................................. 14,582
---------
$ 50,003
---------
---------
</TABLE>

6. COMMITMENTS AND CONTINGENT LIABILITIES:

LEASES

The Company leases certain growing facilities under noncancellable operating
leases expiring at various dates through 2005. Total rent expense for the year
ended December 31, 1996, was $12,115.

F-54
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

6. COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)
As of December 31, 1996, future minimum rental payments required under
noncancellable operating leases are as follows:

<TABLE>
<S> <C>
1997............................................................... $ 7,945
1998............................................................... 7,045
1999............................................................... 6,045
2000............................................................... 6,045
2001............................................................... 2,790
Thereafter......................................................... 1,750
---------
$ 31,520
---------
---------
</TABLE>

PURCHASE COMMITMENTS

The Company has contracts to purchase Christmas trees from third-party
growers. Certain of these contracts require the Company to maintain the trees
until they are harvested. The Company will pay for any trees it harvests at a
price per tree. As of December 31, 1996, the Company has $207,550 in purchase
contracts.

7. RELATED PARTY TRANSACTIONS:

In the normal course of business, the Company sells Christmas trees to an
entity under common ownership. In 1996, sales to this related party were
approximately $713,000. Accounts receivable related to these sales totaled
$363,000 at December 31, 1996.

In 1996, the Company repaid a loan on behalf of an entity under common
control. The advance of $29,271 has been included in accounts
receivable--related parties.

8. SUBSEQUENT EVENTS:

In August 1997, substantially all of the Company's assets were purchased by
Color Spot Christmas Trees, Inc., a wholly owned subsidiary of Color Spot
Nurseries, Inc., for cash and stock.

F-55
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Members
Wolfe Greenhouses, L.L.C.:

We have audited the accompanying balance sheet of Wolfe Greenhouses, L.L.C.
as of December 27, 1996, and the related statements of operations and members'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based upon our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
a 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 provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wolfe Greenhouses, L.L.C. at
December 27, 1996 and the results of its operations and its cash flows for the
year ended December 27, 1996 in conformity with generally accepted accounting
principles.

JAYNES, REITMEIER, BOYD & THERRELL,
P.C.

Waco, Texas
June 11, 1997

F-56
<PAGE>
WOLFE GREENHOUSES, L.L.C.

BALANCE SHEET

DECEMBER 27, 1996

<TABLE>
<CAPTION>
ASSETS

<S> <C>
Current assets:
Cash.......................................................................... $ 790,964
Accounts receivable:
Trade, less allowance for doubtful accounts of $30,592 (Note 5)............. 981,703
Other....................................................................... 130,246
Inventories (Notes 2 and 5)................................................... 1,204,758
Prepaid expenses.............................................................. 18,736
---------
Total current assets...................................................... 3,126,407
---------
Investment in joint venture (Note 3)............................................ 25,826
---------
Property, plant and equipment (Notes 4 and 5)................................... 1,647,384
Less accumulated depreciation................................................. (113,773)
---------
1,533,611
---------
$4,685,844
---------
---------

LIABILITIES AND MEMBERS' EQUITY

Current liabilities:
Current installments of long-term debt (Note 5)............................... $ 103,665
Trade accounts payable........................................................ 1,283,408
Accrued expenses.............................................................. 238,857
Deferred income taxes (Note 8)................................................ 59,159
---------
Total current liabilities................................................. 1,685,089
---------
Long-term debt, excluding current installments (Note 5)......................... 1,552,977
---------
Commitments (Note 11)........................................................... --
Members' equity................................................................. 1,447,778
---------
$4,685,844
---------
---------
</TABLE>

See accompanying notes to financial statements.

F-57
<PAGE>
WOLFE GREENHOUSES, L.L.C.

STATEMENT OF OPERATIONS AND MEMBERS' EQUITY

FOR THE YEAR ENDED DECEMBER 27, 1996

<TABLE>
<S> <C>
Net sales....................................................................... $8,634,378
Cost of sales................................................................... 5,918,568
---------
Gross profit................................................................ 2,715,810
Selling, general and administrative expenses.................................... 1,415,939
---------
Income from operations...................................................... 1,299,871
---------
Other income (deductions):
Interest expense (Note 5)..................................................... (198,506)
Equity in loss of joint venture (Note 3)...................................... (10,153)
Gain on warranty settlement (Note 7).......................................... 184,694
Other, net.................................................................... 27,186
---------
3,221
---------
Income before income taxes.................................................. 1,303,092
Income taxes (Note 8)........................................................... 51,625
---------
Net income.................................................................. 1,251,467

Members' equity, beginning of period............................................ 418,638
Members' contributions.......................................................... 7,600
Members' withdrawals............................................................ (229,927)
---------
Members' equity, end of period.................................................. $1,447,778
---------
---------
</TABLE>

See accompanying notes to financial statements.

F-58
<PAGE>
WOLFE GREENHOUSES, L.L.C.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 27, 1996

<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................................... $1,251,467
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation................................................................ 118,379
Deferred income taxes....................................................... 47,680
Equity in loss of joint venture............................................. 10,153
Gain on warranty settlement................................................. (184,694)
Decrease (increase) in assets:
Accounts receivable....................................................... (97,197)
Inventories............................................................... (42,387)
Prepaid expenses.......................................................... 12,296
Other assets.............................................................. 12,488
Increase (decrease) in liabilities:
Trade accounts payable.................................................... (251,840)
Accrued expenses.......................................................... 111,448
---------
Net cash provided by operating activities............................... 987,793
---------
Cash flows from investing activities (Note 10):
Contributions to joint venture................................................ (18,702)
Proceeds from warranty settlement............................................. 391,184
Capital expenditures.......................................................... (203,408)
---------
Net cash provided by investing activities............................... 169,074
---------
Cash flows from financing activities (Note 10):
Proceeds from repayment of other receivables.................................. 7,077
Principal payments on long-term debt.......................................... (106,987)
Members' contributions........................................................ 7,600
Members' withdrawals.......................................................... (229,927)
---------
Net cash used in financing activities................................... (322,237)
---------
Net increase in cash and cash overdraft......................................... 834,630
Cash overdraft at beginning of period........................................... (43,666)
---------
Cash at end of period........................................................... $ 790,964
---------
---------
</TABLE>

See accompanying notes to financial statements.

F-59
<PAGE>
WOLFE GREENHOUSES, L.L.C.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 27, 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) NATURE OF BUSINESS

Wolfe Greenhouses, L.L.C. (the "Company"), organized as a limited liability
company, is an association formed in accordance with the laws of the State of
Texas. Under the terms of its current articles of incorporation, the Company
will cease to exist on July 1, 2025. The Company operates a wholesale greenhouse
facility located in Waco, Texas whose principal customers are grocery chain
stores located in Texas.

(b) INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by
first-in, first-out method.

Investment in joint venture is accounted for by the equity method.

(d) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the assets.

(e) USE OF ESTIMATES

(2) INVENTORIES

Inventories at December 27, 1996 consisted of the following:

<TABLE>
<S> <C>
Growing crops................................................... $ 986,354
Supplies........................................................ 199,927
Landscape plants and supplies................................... 18,477
---------
$1,204,758
---------
---------
</TABLE>

(3) INVESTMENT IN JOINT VENTURE

Investment in joint venture consists of a fifty percent interest in a joint
venture. Summary financial information of the Company's fifty percent interest
as of December 27, 1996 follows:

<TABLE>
<S> <C>
Real estate....................................................... $ 100,112
Other assets...................................................... 6,839
Long-term debt.................................................... (74,029)
Other liabilities................................................. (7,096)
---------
Venturers' equity............................................... $ 25,826
---------
---------
</TABLE>

F-60
<PAGE>
WOLFE GREENHOUSES, L.L.C.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 27, 1996

(4) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 27, 1996 consisted of the
following:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
AMOUNT LIVES
------------ -----------
<S> <C> <C>
Land.............................................................. $ 77,066 --
Buildings and improvements........................................ 1,238,774 3-25 years
Equipment......................................................... 265,411 5-20 years
Construction in progress.......................................... 66,133 --
------------
$ 1,647,384
------------
------------
</TABLE>

(5) DEBT

Long-term debt at December 27, 1996 consists of the following:

<TABLE>
<S> <C>
Mortgage note payable to a financial institution with interest
at 2.5% above the base rate (10.75% at December 27, 1996),
secured by property and buildings, payable in monthly
principal and interest payments of $22,878 through December,
2006.......................................................... $1,632,365
Installment note payable, interest rate at 12.59%, secured by
equipment, due November, 1999................................. 24,277
---------
1,656,642
Less current installments....................................... 103,665
---------
$1,552,977
---------
---------
</TABLE>

The Company also has a line of credit agreement with a bank. Under the
agreement, the line of credit agreement allows the Company to borrow up to a
maximum of $800,000. The agreement is secured by trade accounts receivable and
inventory. There were no outstanding borrowings under this agreement at December
27, 1996.

The Company's debt agreements relating to the above notes contain
restrictive financial covenants. The Company was in compliance with such
covenants under the terms of the agreements.

The aggregate maturities of long-term debt for each of the five years
subsequent to December 27, 1996 are as follows:

<TABLE>
<S> <C>
1997............................................................ $ 103,665
1998............................................................ 116,057
1999............................................................ 129,102
2000............................................................ 134,774
2001............................................................ 147,497
Thereafter...................................................... 1,025,547
---------
Total........................................................... 1,656,642
</TABLE>

F-61
<PAGE>
WOLFE GREENHOUSES, L.L.C.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 27, 1996

(6) LEASES

The Company has several noncancellable operating leases for transportation
equipment that expire over the next six years. These leases require the Company
to pay certain executory costs, such as insurance, and purchase fuel from the
lessor. Rental payments include minimum rentals plus contingent rentals based on
mileage and inflation rates. Lease expense for operating leases during 1996
consisted of the following:

<TABLE>
<S> <C>
Minimum rentals.................................................... $ 53,568
Contingent rentals................................................. 31,632
---------
Total............................................................ $ 85,200
---------
---------
</TABLE>

Future minimum lease payments under noncancellable operating leases as of
December 27, 1996 are $53,568 annually for 1997 through 2001.

(7) GAIN FROM WARRANTY SETTLEMENT

During 1996, fiberglass roofs on certain greenhouses were determined to be
defective. After settlement with the manufacturer, the Company retired roofs on
the greenhouses which had a carrying value of $206,490 and recognized a gain
from the warranty settlement of $184,694.

(8) INCOME TAXES

The Company is classified as a partnership for federal income tax purposes.
For federal purposes, partnership income is taxed directly to its members;
consequently, no provision is made in the accompanying financial statements for
federal income taxes. L.L.C.'s, however, are subject to the State of Texas
franchise tax--essentially a tax based on income.

Income taxes for year ended December 27, 1996 consisted of $3,945 of current
state income tax and $47,680 of deferred state income tax.

Amounts for deferred tax assets and liabilities at December 27, 1996 are as
follows:

<TABLE>
<S> <C>
Deferred tax liabilities........................................... $ 61,211
Deferred tax assets................................................ (2,052)
---------
$ 59,159
---------
---------
</TABLE>

Management has determined, based on the reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies, that
the Company will more likely than not be able to fully recognize the deferred
tax assets at December 27, 1996.

Temporary differences giving rise to deferred tax liabilities consist
primarily of differences between fixed asset basis and depreciation for income
tax purposes and financial statement reporting purposes, accrued vacation not
deductible for income tax purposes, growing crop inventory which is expensed as
incurred for income tax, and allowances for doubtful accounts which are not
deductible for income tax purposes.

F-62
<PAGE>
WOLFE GREENHOUSES, L.L.C.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 27, 1996

(9) BUSINESS CONCENTRATIONS

Approximately $5,000,000 of revenue representing 60% of net sales were
derived from four customers during the year ended December 27, 1996.

(10) SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid $184,434 for interest and $3,945 for state income tax
during 1996.

(11) COMMITMENTS

The Company has entered into an agreement to construct a new greenhouse at
an estimated cost of $363,364. At December 27, 1996, the Company was committed
for $297,231 of estimated unpaid construction costs.

(12) EMPLOYEE BENEFIT PLAN

The Company sponsors a defined contribution 401(k) plan that covers
employees who have completed one year of service and are 21 years old. Company
contributions to the plan are discretionary by the members as determined each
year. For 1996, no company contributions were made.

(13) SUBSEQUENT EVENTS

Subsequent to year-end, the joint venture discussed in Note 3 settled
certain contingent assets and liabilities, and sold certain real estate. The
Company realized approximately $288,000 of income in 1997 related to these
subsequent transactions of the joint venture.

On May 28, 1997, the Members of the Company signed a letter of intent for a
proposed sale of all their existing interest in the Company.

F-63
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of CSN, Inc.:

We have audited the accompanying balance sheet of Signature Trees (a
California general partnership) as of December 31, 1996, and the related
statements of operations and partners' capital, and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signature Trees as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California
July 7, 1997

F-64
<PAGE>
SIGNATURE TREES
BALANCE SHEET
DECEMBER 31, 1996

ASSETS

<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash.............................................................................................. $ 154,281
Accounts receivable, net of allowance for doubtful accounts of $100,000........................... 4,826,696
Notes receivable.................................................................................. 6,000
------------
Total current assets.......................................................................... 4,986,977

TREE INVENTORY AND DEPOSITS......................................................................... 831,072

PROPERTY AND EQUIPMENT, net......................................................................... 421,158
------------
Total assets.................................................................................. $ 6,239,207
------------
------------

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
Accounts payable.................................................................................. $ 3,245,566
Current portion of long-term debt................................................................. 823,319
------------
Total current liabilities..................................................................... 4,068,885
LONG-TERM DEBT...................................................................................... 551,331
PARTNERS' CAPITAL................................................................................... 1,618,991
------------
Total liabilities and partners' capital....................................................... $ 6,239,207
------------
------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-65
<PAGE>
SIGNATURE TREES

STATEMENT OF OPERATIONS AND PARTNERS' CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
NET SALES....................................................................... $6,855,117

COST OF SALES................................................................... 4,564,925
---------
Gross profit................................................................ 2,290,192

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................... 1,352,046
---------
Income from operations...................................................... 938,146

INTEREST EXPENSE, net........................................................... 37,452
---------
Net income.................................................................. 900,694

PARTNERS' CAPITAL, beginning of year............................................ 718,297
---------
PARTNERS' CAPITAL, end of year.................................................. $1,618,991
---------
---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-66
<PAGE>
SIGNATURE TREES

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 900,694
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 2,504
Changes in certain assets and liabilities:
Increase in receivables.................................................... (611,312)
Increase in tree inventories and deposits.................................. (740,974)
Increase in other assets................................................... 0
Increase in accounts payable............................................... 808,637
---------
Net cash provided by operating activities................................ 359,549
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................. (221,730)
---------
Net cash used in investing activities.................................... (221,730)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings....................................................... 700,000
Repayments of long-term debt................................................... (928,000)
Net borrowings under revolving line of credit.................................. 219,000
---------
Net cash used in financing activities.................................... (9,000)
---------
Net increase in cash..................................................... 128,819

CASH AT BEGINNING OF YEAR........................................................ 25,462
---------
CASH AT END OF YEAR.............................................................. $ 154,281
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest..................................................................... $ 42,884
---------
---------
Income taxes................................................................. $ 0
---------
---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-67
<PAGE>
SIGNATURE TREES

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES:

PARTNERSHIP BACKGROUND AND ORGANIZATION

Signature Trees (the "Partnership"), a California general partnership, is a
grower, broker and distributor of Christmas trees. The Partnership sells
primarily to general merchandise chain stores, home improvement chain stores and
retail garden stores.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Partnership considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. All overdraft balances
have been reclassified to current liabilities.

INVENTORIES

Inventories consist primarily of Christmas trees and are carried at the
lower of cost or market. Cost is determined using the average cost incurred to
purchase or plant and maintain the inventory. Tree inventories are classified as
long-term until the trees are cut and ready for sale. The Partnership is
dependent on several vendors for a large portion of its inventory.

PROPERTY AND EQUIPMENT

Property and equipment are carried at historical cost and are depreciated
over their estimated useful lives using the straight-line method as follows:

<TABLE>
<S> <C>
Machines and equipment.......................................... 7 years
Leasehold improvements.......................................... lease term
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

Revenues are recognized when products are shipped and all significant
obligations of the Partnership have been met.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Partnership's financial instruments, including
accounts receivable, debt and accounts payable, approximates fair value.

F-68
<PAGE>
SIGNATURE TREES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES

The Partnership is not subject to federal income taxes; rather, income from
operations is passed directly through to the partners.

ASSET IMPAIRMENT

On January 1, 1996, the Partnership adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). SFAS 121 requires that long-lived assets, certain identifiable
intangibles and goodwill be reviewed for impairment when expected future
undiscounted cash flows are less than the carrying value of the asset. No
charges were recorded pursuant to this statement in fiscal 1996.

2. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Partnership to
concentration of credit risk consist primarily of trade accounts receivable. The
Partnership sells primarily on net 30-day terms, performs credit evaluation
procedures, and generally does not require collateral. The Partnership maintains
allowances for potential credit losses and does not currently foresee a credit
risk associated with these receivables. Sales to the Partnership's ten largest
customers represented approximately 82 percent of sales.

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 1996:

<TABLE>
<CAPTION>
<S> <C>
Land.......................................................... $ 317,786
Machines and equipment........................................ 49,416
Leasehold improvements........................................ 56,864
----------
Total property and equipment................................ 424,066
Less: Accumulated depreciation................................ 2,908
----------
Property and equipment, net................................... $ 421,158
----------
----------
</TABLE>

Depreciation expense for the year ended December 31, 1996, was $2,504.

F-69
<PAGE>
SIGNATURE TREES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

4. DEBT:

Debt consists of the following at December 31, 1996:

<TABLE>
<CAPTION>
<S> <C>
Revolving line of credit(1)................................. $ 719,000
Note payable(2)............................................. 240,000
Note payable(3)............................................. 190,000
Note payable(4)............................................. 137,000
Note payable(5)............................................. 88,650
------------
1,374,650
Less: Current portion....................................... (823,319)
------------
$ 551,331
------------
------------
</TABLE>

(1) $750,000 revolving line of credit with Key Bank. Advances under the line
accrue interest at the bank's base rate plus 1.5 percent (9.75 percent at
December 31, 1996). The line is secured by the Partnership's accounts
receivable, inventory and certain real property. The line expires on May 10,
1997.

(2) Note payable incurred in conjunction with the purchase of certain real
property. The noninterest-bearing note requires $60,000 annual payments and
matures on May 30, 2001.

(3) Note payable bearing interest at 9 percent. The note requires annual
payments of $20,646 with unpaid principal and interest due on March 10,
2006.

(4) Note payable incurred in conjunction with the purchase of certain real
property bearing interest at 3 percent. The note requires payments of
$73,333 in 1997 and a final payment of $63,667 on November 1, 1998. The note
is secured by certain real property.

(5) Note payable bearing interest at 9.75 percent. The note requires $10,340
annual payments with unpaid principal and interest due on May 10, 2005.

Maturities of debt are as follows:

<TABLE>
<CAPTION>
<S> <C>
1997........................................................ $ 823,319
1998........................................................ 154,653
1999........................................................ 90,986
2000........................................................ 90,986
2001........................................................ 90,986
Thereafter.................................................. 123,720
------------
$ 1,374,650
------------
------------
</TABLE>

5. COMMITMENTS AND CONTINGENT LIABILITIES:

LEASES

The Partnership leases certain growing facilities under noncancellable
operating leases expiring at various dates through 2012. Total rent expense for
the year ended December 31, 1996, was $10,758. As of

F-70
<PAGE>
SIGNATURE TREES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

5. COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)
December 31, 1996, aggregate annual future minimum rental payments required by
all noncancellable operating leases are as follows:

<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1997.......................................................... $ 16,460
1998.......................................................... 14,960
1999.......................................................... 14,960
2000.......................................................... 14,960
2001.......................................................... 14,960
Thereafter.................................................... 75,120
----------
$ 151,420
----------
----------
</TABLE>

PURCHASE COMMITMENTS

The Partnership has contracts to purchase Christmas trees from third-party
growers. Certain of these contracts require the Partnership to maintain the
trees until they are harvested. Future minimum purchase commitments under the
contracts are as follows:

6. SUBSEQUENT EVENTS:

In March 1997, certain assets (inventory, prepaid assets and equipment with
a net book value of approximately $997,000) of the Partnership were sold to
Color Spot Christmas Trees, Inc., a wholly owned subsidiary of Color Spot
Nurseries, Inc. ("Color Spot") for cash and stock. In addition, Color Spot
Christmas Trees, Inc. ("Trees") assumed the Partnership's $137,000 note payable.
The president of Color Spot has a 20 percent partnership interest in the
Partnership. Certain partners of the Partnership will lease certain of its real
property to Trees to grow trees.

F-71
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of CSN, Inc.:

We have audited the accompanying balance sheet of Peters' Wholesale
Greenhouses, Inc. (a Texas corporation), as of December 31, 1996, and the
related statements of operations, changes in stockholders' equity and cash flows
for the year then ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Peters' Wholesale
Greenhouses, Inc., as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois
August 12, 1997

F-72
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

BALANCE SHEET AS OF DECEMBER 31, 1996

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 291
Accounts receivable, less allowance for doubtful accounts of $25.................. 574
Inventories....................................................................... 1,042
Income taxes receivable........................................................... 77
---------
Total current assets............................................................ 1,984

PROPERTY AND EQUIPMENT, net......................................................... 1,642
---------
Total assets.................................................................... $ 3,626
---------
---------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of debt........................................................ $ 354
Current maturities of stockholder loan............................................ 101
Accounts payable.................................................................. 809
Accrued expenses.................................................................. 121
Deferred income taxes............................................................. 312
---------
Total current liabilities....................................................... 1,697

LONG-TERM DEBT...................................................................... 102

DEFERRED INCOME TAXES............................................................... 38

STOCKHOLDER LOAN.................................................................... 527
---------
Total liabilities............................................................... 2,364

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, 250,000 shares authorized and 10,000 shares issued
and outstanding................................................................. 1
Retained earnings................................................................. 1,261
---------
Total stockholders' equity...................................................... 1,262
---------
Total liabilities and stockholders' equity...................................... $ 3,626
---------
---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-73
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<S> <C>
NET SALES........................................................................... $ 5,059
COST OF SALES....................................................................... 3,693
---------
Gross profit.................................................................... 1,366
OPERATING EXPENSES:
Selling, general and administrative............................................. 1,264
---------
Income from operations.......................................................... 102
INTEREST EXPENSE, net............................................................... (62)
OTHER INCOME........................................................................ 116
---------
Income before income taxes...................................................... 156
PROVISION FOR INCOME TAXES.......................................................... 53
---------
Net income...................................................................... $ 103
---------
---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-74
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK
------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................................................ 10,000 $ 1 $ 1,158 $ 1,159
Net income.............................................................. -- -- 103 103
--
--------- ----------- ---------
BALANCE, December 31, 1996................................................ 10,000 $ 1 $ 1,261 $ 1,262
--
--
--------- ----------- ---------
--------- ----------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements

F-75
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 103
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation..................................................................... 150
Changes in certain assets and liabilities:
Decrease in accounts receivable................................................ 331
Increase in inventories........................................................ (161)
Increase in income taxes receivable............................................ (64)
Increase in accounts payable................................................... 102
Decrease in accrued expenses................................................... (14)
Increase in deferred income taxes.............................................. 53
---------
Net cash provided by operating activities.................................... 500
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................................ (909)
Proceeds from sale of fixed assets................................................. 10
---------
Net cash used in investing activities........................................ (899)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings........................................................... 641
Repayments of long-term debt....................................................... (223)
Net borrowing under revolving lines of credit...................................... 155
---------
Net cash provided by financing activities.................................... 573
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................................ 174
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................................... 117
---------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................. $ 291
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest......................................................................... $ 30
---------
---------
Income taxes..................................................................... $ 77
---------
---------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1996, the Company exchanged property and equipment and a related note
payable with book values of $207 and $157, respectively, to the Stockholders. In
return, the Company received property and equipment and a related note payable of
$144 and $94, respectively.
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-76
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

(IN THOUSANDS)

1. NATURE OF OPERATIONS AND DESCRIPTION OF BUSINESS:

The financial statements presented herein include the accounts of Peters'
Wholesale Greenhouses, Inc. (the "Company"). The Company is located in Walnut
Springs, Texas, and is a producer of bedding plants. The Company sells primarily
to general merchandise stores and retail garden stores in Central and East
Texas. The Company's sole stockholders are Tom and Ramona Peters (the
"Stockholders").

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Company in preparing its financial statements in accordance with generally
accepted accounting principles.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.

INVENTORIES

Inventories consist primarily of plant inventory and are stated at the lower
of cost or market. Cost is determined using the average cost method and includes
direct production costs and overhead.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over their
estimated useful lives on an accelerated basis as follows:

<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements................................................... 5 to 30 years
Fixtures and equipment....................................................... 3 to 7 years
</TABLE>

Repair and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

The Company recognizes revenues when products are received by the customer
and all significant obligations of the Company have been completed. Where
appropriate, the Company also establishes a concurrent reserve for returns and
allowances.

F-77
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including accounts receivable, accounts
payable and notes payable, the Company's carrying amount approximates fair
value.

INCOME TAXES

Income taxes are recognized in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
utilizes the asset and liability method under which deferred income taxes are
recognized for the consequences of temporary differences by applying currently
enacted statutory rates to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities.

ASSET IMPAIRMENT

3. CONCENTRATIONS OF RISK:

The Company does not perform credit evaluations of its customers' financial
condition and generally does not require collateral, as the majority of its
customers are large, well established companies. The Company maintains an
allowance for potential credit losses.

For the year ended December 31, 1996, five customers accounted for
approximately 81 percent of the Company's accounts receivable balance and 88
percent of net sales. The Company's two largest customers accounted for
approximately 56 percent and 14 percent of net sales, respectively.

During 1996, one of Peters' top five customers of 1995, H. S. Floral
Distributors, no longer conducted business with the Company due to pricing
conflicts. This business was replaced with Lowe's Corporation, a new customer
obtained in 1996.

The Company purchases inventories and greenhouse building materials from
primarily two vendors. Purchases from these two vendors represent 85 percent of
the accounts payable balance at year-end;
56 percent from B.W.I.-Schulenburg and 29 percent from Ball Seed. Management
believes alternative suppliers could be obtained, if needed.

4. INVENTORIES:

Inventories at December 31, 1996, consist of raw materials, supplies and
plants of approximately $1,042.

F-78
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

5. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, 1996, consist of the following:

<TABLE>
<CAPTION>
<S> <C>
Land................................................................................ $ 196
Buildings and improvements.......................................................... 2,211
Fixtures and equipment.............................................................. 694
---------
3,101
Less: Accumulated depreciation...................................................... (1,459)
---------
Net property and equipment.......................................................... $ 1,642
---------
---------
</TABLE>

Depreciation expense for the year ended December 31, 1996, was $150.

6. ACCRUED EXPENSES:

Accrued expenses as of December 31, 1996, consist of the following:

<TABLE>
<CAPTION>
<S> <C>
Royalties............................................................................. $ 32
Interest and finance charges.......................................................... 47
Utilities............................................................................. 27
Payroll and payroll taxes............................................................. 11
Other................................................................................. 4
---------
Total accrued expenses................................................................ $ 121
---------
---------
</TABLE>

7. DEBT:

Lines of credit and long-term debt at December 31, 1996, consisted of the
following:

<TABLE>
<CAPTION>
<S> <C>
Revolving line of credit (1).......................................................... $ 150
Revolving line of credit (2).......................................................... 200
Note payable (3)...................................................................... 94
Note payable (4)...................................................................... 12
---------
$ 456
---------
---------
</TABLE>

- - - ------------------------

(1) $350 revolving line of credit with a financial institution under which $150
was outstanding at December 31, 1996. Advances under the line of credit
accrue interest at 9.25 percent per annum. The line is secured by all
accounts the Company holds with the bank, inventory and accounts receivable.
The line expires on May 31, 1997. Subsequent to year-end, this line of
credit was renewed and the new expiration date is May 31, 1998.

(2) $300 revolving line of credit with a financial institution under which $200
was outstanding at December 31, 1996. Advances under the line of credit
accrue interest at the prime rate plus 1 percent

F-79
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

7. DEBT: (CONTINUED)
per annum (9.25 percent at December 31, 1996). The line is secured by all
accounts the Company holds with the bank and equipment. The line expires on
November 20, 1997.

(3) Note payable was incurred in conjunction with the purchase of land. The note
accrues interest at a variable interest rate per annum (9.75 percent at
December 31, 1996) with interest and an installment of principal due
annually and any unpaid principal due in entirety on April 1, 2016. The note
is collateralized by the acquired land.

(4) Note payable was incurred in conjunction with the purchase of equipment. The
note accrues interest at 7.75 percent per annum with monthly principal and
interest payments of $.4. Unpaid principal and interest is due November 1,
1999. The note is collateralized by the acquired equipment.

The annual amount of principal maturities of lines of credit and long-term
debt outstanding at December 31, 1996, is as follows:

<TABLE>
<CAPTION>
<S> <C>
1997.................................................................................. $ 354
1998.................................................................................. 4
1999.................................................................................. 4
2000.................................................................................. --
2001.................................................................................. --
Thereafter............................................................................ 94
---------
$ 456
---------
---------
</TABLE>

As a result of borrowing rates presently available to the Company, the
carrying value of the Company's line of credit and debt approximate fair value.

8. INCOME TAXES:

The provision for income taxes consists of:

<TABLE>
<CAPTION>
<S> <C>
Current--
Federal............................................................................. $ --
State and local..................................................................... --
Deferred--
Federal............................................................................. 53
State and local..................................................................... --
---------
Provision for income taxes............................................................ $ 53
---------
---------
</TABLE>

F-80
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

8. INCOME TAXES: (CONTINUED)
A reconciliation between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate of 34 percent to
income before income taxes is as follows:

<TABLE>
<CAPTION>
<S> <C>
Income before income taxes............................................................ $ 156
---------
---------
Amount of federal income tax based upon the statutory rate............................ $ 53
---------
Provision for income taxes............................................................ $ 53
---------
---------
</TABLE>

The effective tax rate for the Company is equal to the applicable federal
statutory rate.

Deferred tax assets (liabilities) are composed of the following at December
31, 1996:

<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets--
Allowance for doubtful accounts..................................................... $ 8
Net operating loss carryforward..................................................... 34
---------
Total deferred tax assets........................................................... 42
---------
Deferred tax liabilities--
Inventories......................................................................... (354)
Property and equipment.............................................................. (38)
---------
Total deferred tax liabilities.................................................... (392)
---------
Net deferred tax liability............................................................ $ (350)
---------
---------
</TABLE>

Income taxes receivable relates to tax payments made in 1996 which are
refundable due to the net operating losses experienced by the Company. The
Company has available federal net operating loss carryforwards of $101 which
were generated during the year ended December 31, 1996. The federal net
operating loss will expire in 15 years if not used.

9. RELATED-PARTY TRANSACTIONS:

On May 7, 1996, the Company received a stockholder loan from the
Stockholders. The loan accrues interest at a rate of 8.0 percent per annum and
provides the Company with available credit of $1,500. The note requires payments
of $75 on January 7 and July 7 each year until all outstanding principal and
interest has been repaid. At December 31, 1996, the outstanding balance on the
loan was $628.

From time to time, the Stockholders will finance certain inventory purchases
on their personal credit card. The Company will reimburse them within 30 days or
when the credit card invoice is due, whichever is sooner.

The Company's corporate offices are owned by the Stockholders. On January 1,
1997, the Stockholders began charging the Company rent of $2.5 per month. Prior
to this date, no rent was being charged for these facilities.

F-81
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

9. RELATED-PARTY TRANSACTIONS: (CONTINUED)
During the year ended December 31, 1996, the Company paid management fees to
the Stockholders of approximately $135.

10. OTHER INCOME AND EXPENSE:

Other income primarily relates to rental income earned by the Company,
whereby the Company provides trailer houses for employees to rent on a per week
basis. Total rental income earned in 1996 was $113.

11. COMMITMENTS AND CONTINGENCIES:

In the ordinary course of business, the Company has various cases pending
involving contractual, employee-related and other matters. In light of the
Company's legal position, insurance coverage and reserves, management does not
believe that these cases will have a material adverse impact on the financial
position or results of operations of the Company.

The Company has no operating leases with original maturities greater than
one year. From time to time, the Company will enter into weekly leases for
transportation equipment. Total rent expense under these leases for the year
ended December 31, 1996, was approximately $77.

The Company is the primary guarantor of debt owed by a related-party
investment company owned by the Shareholders. At December 31, 1996, the
outstanding balance of the guaranteed debt is approximately $125.

The Company pays royalties related to the cutting of certain plants
(primarily poinsettias) to the original licensor. These amounts totaled
approximately $32 for the year ended December 31, 1996.

12. SUBSEQUENT EVENTS:

On July 31, 1997, 100 percent of the outstanding stock of the Company was
purchased by Color Spot Nurseries, Inc., for cash.

F-82
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and

Stockholders of CSN, Inc.:

We have audited the accompanying balance sheets of Lone Star Growers Co. (a
Texas general partnership) as of June 30, 1996 and 1995, and the related
statements of operations, partnership capital and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lone Star Growers Co. as of
June 30, 1996 and 1995, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois

July 31, 1997

F-83
<PAGE>
LONE STAR GROWERS CO.

BALANCE SHEETS--JUNE 30, 1996 AND 1995

ASSETS

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................................. $ 369,514 $ 332,977
Receivables:
Trade, less allowance for doubtful accounts of $114,865 and $117,374,
respectively................................................................. 3,213,753 2,696,649
Related-party receivables...................................................... 161,903 240,162
Other receivables.............................................................. 3,212,010 0
------------- -------------
Total receivables............................................................ 6,587,666 2,936,811
Inventories...................................................................... 6,980,393 6,579,021
Prepaid expenses................................................................. 42,751 58,987
Notes receivable................................................................. 27,213 18,033
------------- -------------
Total current assets......................................................... 14,007,537 9,925,829
Property and equipment, net...................................................... 5,861,589 5,352,776
------------- -------------
Total assets................................................................. $ 19,869,126 $ 15,278,605
------------- -------------
------------- -------------

LIABILITIES AND PARTNERSHIP CAPITAL

CURRENT LIABILITIES:
Cash overdraft................................................................... $ 334,478 $ 255,554
Payables
Trade.......................................................................... 1,016,567 1,091,813
Related parties................................................................ 438,683 281,917
------------- -------------
Total payables............................................................... 1,455,250 1,373,730
Accrued expenses................................................................. 1,023,018 698,048
Current portion of revolving line of credit...................................... 200,000 2,400,000
Current portion of long-term debt................................................ 916,794 1,000,000
Advances from partner under revolving line of credit............................. 3,000,000 4,800,000
------------- -------------
Total current liabilities.................................................... 6,929,540 10,527,332
LONG-TERM DEBT, net of current portion............................................. 5,278,928 2,900,000
------------- -------------
Total liabilities............................................................ 12,208,468 13,427,332
------------- -------------
PARTNERSHIP CAPITAL:
Partnership capital.............................................................. 2,805,989 2,805,989
Undistributed profits............................................................ 4,854,669 (954,716)
------------- -------------
Total partnership capital.................................................... 7,660,658 1,851,273
------------- -------------
Total liabilities and partnership capital.................................... $ 19,869,126 $ 15,278,605
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-84
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED JUNE 30, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
SALES.............................................................................. $ 23,509,596 $ 18,429,903

COST OF SALES...................................................................... 11,687,536 9,484,727
------------- -------------
Gross profit................................................................... 11,822,060 8,945,176

OPERATING EXPENSES:
Delivery......................................................................... 3,258,402 2,703,379
Sales and marketing.............................................................. 2,167,244 1,832,400
General and administrative....................................................... 1,586,383 1,235,824
Other expenses................................................................... 556,345 318,131
Depreciation..................................................................... 126,992 109,992
------------- -------------
Income from operations......................................................... 4,126,694 2,745,450

INTEREST EXPENSE................................................................... 1,122,984 1,036,059

OTHER INCOME, net.................................................................. 3,230,675 13,172
------------- -------------
Net income..................................................................... $ 6,234,385 $ 1,722,563
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-85
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF PARTNERSHIP CAPITAL

FOR THE YEARS ENDED JUNE 30, 1996 AND 1995

<TABLE>
<S> <C>
BALANCE, June 30, 1994.......................................................... $ 128,710

Net income.................................................................... 1,722,563
Distributions................................................................. 0
---------

BALANCE, June 30, 1995.......................................................... 1,851,273

Net income.................................................................... 6,234,385
Distributions................................................................. (425,000)
---------

BALANCE, June 30, 1996.......................................................... $7,660,658
---------
---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-86
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $ 6,234,385 $ 1,722,563
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on sale of fixed assets............................................. 2,661 (38,865)
Depreciation and amortization................................................... 827,924 697,202
Changes in certain assets and liabilities:
Increase in receivables....................................................... (3,650,855) (661,018)
Increase in inventories....................................................... (401,372) (1,164,834)
Decrease (increase) in prepaids and other assets.............................. 16,236 (58,987)
Increase in notes receivable.................................................. (9,180) (18,033)
Increase (decrease) in cash overdrafts........................................ 78,924 (278,724)
Increase in payables.......................................................... 81,520 196,047
Increase in accrued expenses.................................................. 324,970 200,214
------------- -------------
Net cash provided by operating activities................................... 3,505,213 595,565
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets......................................................... (1,345,399) (2,465,281)
Proceeds from sale of fixed assets................................................ 6,001 48,863
------------- -------------
Net cash used in investing activities....................................... (1,339,398) (2,416,418)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt........................................ 3,320,000 2,050,000
Repayments of long-term debt...................................................... (1,024,278) (1,000,000)
Net borrowings (repayments) under revolving line of credit........................ (2,200,000) 1,500,000
Net repayments to partners........................................................ (1,800,000) (1,000,000)
Distributions to partners......................................................... (425,000) 0
------------- -------------
Net cash provided by (used in) financing activities......................... (2,129,278) 1,550,000
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 36,537 (270,853)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................................... 332,977 603,830
------------- -------------

CASH AND CASH EQUIVALENTS AT END OF YEAR............................................ $ 369,514 $ 332,977
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest............................................ $ 1,044,861 $ 1,003,439
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-87
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1996 AND 1995

1. NATURE OF OPERATIONS:

ORGANIZATION

Lone Star Growers Co., a Texas partnership (the "Partnership"), was formed
on January 1, 1985, by Lone Star Growers, Inc. and Joseph Bradberry. The
Partnership was formed to acquire, own, operate and manage a nursery business
located near San Antonio, Texas.

On formation, Lone Star Growers, Inc. (100% owned by TETCO, Inc.) received a
90 percent partnership interest for assets contributed to the Partnership and
Joseph Bradberry received a 10 percent partnership interest. Over the ensuing
three-year period, Mr. Bradberry obtained an additional 30 percent interest of
the Partnership.

DESCRIPTION OF THE BUSINESS

The Partnership is an agricultural enterprise specializing in the growth and
wholesale of ornamental plants and shrubs to numerous retailers. The majority of
the plants are grown on the Partnership's 400-acre complex in southwest Bexar
County, Texas, a 150-acre facility near Atascosa, Texas, and a 170-acre facility
near Harlingen, Texas.

2. SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Partnership in preparing its financial statements in accordance with
generally accepted accounting principles:

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

INVENTORIES

Inventories are carried at the lower of cost or market. Cost is determined
using the average cost method and includes direct production costs and overhead.
A portion of the Partnership's nursery stock has an average growing period of
approximately 18 months. The nursery stock is classified as a current asset
based on the Partnership's normal operating cycle.

F-88
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated over their
estimated useful lives using the straight-line method as follows:

<TABLE>
<S> <C>
10 - 40
Buildings and improvements............................ years
Machinery and equipment............................... 5 - 10 years
Furniture and fixtures................................ 5 - 10 years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

The Partnership recognizes revenues when products are shipped and all
significant obligations of the Partnership have been completed. Where
appropriate, the Partnership also establishes a concurrent reserve for returns
and allowances.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Partnership's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

INCOME TAXES

The Partnership is not subject to federal income taxes; rather, its income
from operations is passed directly through to its partners.

ASSET IMPAIRMENT

On July 1, 1995, the Partnership adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). SFAS 121 requires that long-lived assets, certain identifiable
intangibles and goodwill be reviewed for impairment when expected future
undiscounted cash flows are less than the carrying value of the asset. No
charges were recorded pursuant to this statement in fiscal 1996.

3. CONCENTRATION OF CREDIT RISK:

The Partnership performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral, as the majority
of its customers are large, well-established companies. Five customers accounted
for approximately 64 percent and 48 percent of accounts receivable at June 30,
1996 and 1995, respectively. These same five customers accounted for
approximately 47 percent and 50 percent of sales for the years ended June 30,
1996 and 1995, respectively.

F-89
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

4. INVENTORIES:

Inventories consisted of the following at June 30, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Raw materials and supplies........................................ $ 373,365 $ 503,545
Plant inventory................................................... 6,607,028 6,075,476
------------ ------------
Total inventory............................................... $ 6,980,393 $ 6,579,021
------------ ------------
------------ ------------
</TABLE>

5. PROPERTY AND EQUIPMENT:

Property and equipment at June 30, 1996 and 1995, consisted of the
following:

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Land........................................................... $ 892,567 $ 561,002
Machinery and equipment........................................ 7,155,633 6,266,030
Buildings and improvements..................................... 4,645,182 4,593,289
Furniture and fixtures......................................... 721,901 631,443
Construction in progress....................................... 64,549 128,507
------------- -------------
13,479,832 12,180,271
Less: Accumulated depreciation................................. (7,618,243) (6,827,495)
------------- -------------
Total property, plant and equipment........................ $ 5,861,589 $ 5,352,776
------------- -------------
------------- -------------
</TABLE>

6. NOTES PAYABLE:

LINE OF CREDIT

As of June 30, 1996 and 1995, the Partnership had a $5,000,000 revolving
line of credit with a financial institution under which there was $200,000 and
$2,400,000 outstanding, respectively. Advances under the line accrue interest at
Frost National Bank's prime rate of interest and are collateralized by
substantially all of the Partnership's assets. Borrowings are limited to 80
percent of adjusted accounts receivable balances and 50 percent of the
Partnership's total inventory balance as defined in the agreement, less certain
borrowings. The borrowing limit at June 30, 1996, was approximately $2,875,000.
The line of credit expires on October 29, 1997.

F-90
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

6. NOTES PAYABLE: (CONTINUED)
LONG-TERM DEBT

Long-term debt at June 30, 1996 and 1995, consisted of the following:

<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Note payable to bank, with quarterly principal and interest payments of $173,814,
interest at prime plus 0.5 percent (8.75 percent at June 30, 1996); secured by
substantially all of the Partnership's assets and guaranteed by the partners
individually; unpaid principal and interest due on April 29, 2002.................. $ 3,000,000 $ 0

Note payable to bank, with quarterly principal and interest payments of $78,217,
interest at prime plus 0.5 percent (8.75 percent at June 30, 1996); secured by
substantially all of the Partnership's assets and guaranteed by the partners
individually; unpaid principal and interest due on April 29, 2002.................. 1,630,000 2,050,000

Note payable to bank, with quarterly principal and interest payments of $60,835,
interest at prime plus 0.5 percent (8.75 percent at June 30, 1996); secured by
substantially all of the Partnership's assets and guaranteed by the partners
individually; unpaid principal and interest due on April 29, 2002.................. 1,270,000 1,850,000

Note payable to seller, with annual principal and interest payments of $43,478,
interest at 6.0 percent; secured by land; unpaid principal and interest due June
15, 2005........................................................................... 295,722 0
------------ -------------

6,195,722 3,900,000

Less: Current portion................................................................ (916,794) (1,000,000)
------------ -------------

$ 5,278,928 $ 2,900,000
------------ -------------
------------ -------------
</TABLE>

As a result of borrowing rates presently available to the Partnership, the
carrying value of debt approximates the fair value. Subsequent to June 30, 1996,
the Partnership renegotiated its bank obligations to restructure and extend the
maturities of its long-term debt. The descriptions above reflect the effects of
the renegotiation.

The provisions of the debt agreements with the bank generally impose
restrictions relating to, among other matters, cash flows, investments, capital
expenditures, incurrence of additional indebtedness, payment of dividends and
maintenance of specified amounts of tangible net worth and working capital.

F-91
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

6. NOTES PAYABLE: (CONTINUED)
The annual amount of principal maturities of long-term debt outstanding at
June 30, 1996, is as follows:

<TABLE>
<S> <C>
1997.................................................... $ 916,794
1998.................................................... 861,509
1999.................................................... 939,654
2000.................................................... 1,024,298
2001.................................................... 1,117,879
Thereafter.............................................. 1,335,588
---------
$6,195,722
---------
---------
</TABLE>

7. RELATED-PARTY TRANSACTIONS:

In the normal course of business, the Partnership has transactions with its
partners and other entities under common ownership. These transactions include
purchasing insurance on a group basis, participating in a group profit-sharing
plan and renting equipment. The following table summarizes the Partnership's
related-party transactions presented in the balance sheet as of June 30, 1996
and 1995:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Related-party receivables......................................... $ 161,903 $ 240,162
Related-party payables............................................ 438,683 281,917
Advances from partners under revolving line of credit............. 3,000,000 4,800,000
</TABLE>

Advances from partners of $438,683 and $281,917 at June 30, 1996 and 1995,
respectively, represent amounts payable for participation in TETCO, Inc.'s group
insurance plan and the Partnership's contribution payable to the TETCO, Inc.
Employees' Profit-Sharing Plan and Trust, a defined contribution plan. Advances
from partners under the revolving line of credit represent amounts advanced to
the Partnership. Interest accrues under the line of credit at 8.75 percent.
Interest paid to the partners was $398,522 and $548,615 during 1996 and 1995,
respectively.

The Partnership made advances to entities under common ownership of $556,345
and $318,131 during the years ended June 30, 1996 and 1995, respectively,
relating to investments in a mushroom project, a furniture shop and a Mexican
turf grass project. The Partnership determined that these advances were not
recoverable and therefore expensed the advances (as other expenses) in the
related statements of income and expense in the year in which they were made. In
addition, the Partnership had sales to an affiliated company of approximately
$400,000 in 1996 and 1995 and outstanding receivables on those sales of $161,903
and $240,162 at June 30, 1996 and 1995, respectively.

8. SETTLEMENT OF A CLAIM:

In June 1996, the Partnership settled a claim with a vendor relating to the
purchase of defective supplies that caused damage to plant inventory and
negatively impacted the growing process in 1992 and 1993. The settlement
agreement states that the Partnership receive an aggregate payment of
$3,212,010,

F-92
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

8. SETTLEMENT OF A CLAIM: (CONTINUED)
net of related legal fees and other expenses. The Partnership recorded the
settlement as other income in 1996. The Partnership received payment under the
settlement agreement on August 27, 1996.

9. CONTINGENCIES:

In the ordinary course of business, the Partnership has various cases
pending involving contractual, employee-related and other matters. In light of
the Partnership's legal position, insurance coverage and reserves, management
does not believe that these cases will have a material adverse impact on the
Partnership.

10. SUBSEQUENT EVENT:

On February 20, 1997, 100 percent of the outstanding partnership interests
of the Partnership were purchased through a merger by Lone Star Growers, L.P. (a
Delaware limited partnership and indirect subsidiary of Color Spot Nurseries,
Inc.) for cash and stock.

F-93
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of CSN, Inc.:

We have audited the accompanying statement of assets and liabilities and
divisional equity of The Wholesale Division of Sunnyside Plants, as of March 31,
1996 and the related statements of revenues and expenses and cash flows for the
year then ended. These financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities and divisional equity of
the Wholesale Division of Sunnyside Plants, Inc. as of March 31, 1996 and the
related revenues, expenses and cash flows for the year then ended in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California
July 15, 1997

F-94
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.
STATEMENT OF ASSETS AND LIABILITIES
AND DIVISIONAL EQUITY
MARCH 31, 1996

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful accounts of $75,000........ $ 856,993
Inventories................................................................... 1,854,342
Deferred income taxes......................................................... 104,000
Due from Parent............................................................... 355,000
---------
Total current assets........................................................ 3,170,335
PROPERTY AND EQUIPMENT, net..................................................... 428,671
---------
Total Assets................................................................ $3,599,006
---------
---------

LIABILITIES AND DIVISIONAL EQUITY

CURRENT LIABILITIES:
Accounts payable.............................................................. $ 707,596
Accrued liabilities........................................................... 70,475
Current portion of capital lease obligation................................... 9,150
---------
Total current liabilities................................................... 787,221
---------
CAPITAL LEASE OBLIGATION, net of current portion................................ 34,676
Total liabilities........................................................... 821,897
---------
Divisional Equity............................................................... 2,777,109
---------
Total Liabilities and Divisional Equity..................................... $3,599,006
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-95
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.
STATEMENT OF REVENUES AND EXPENSES
AND DIVISIONAL EQUITY
FOR THE YEAR ENDED MARCH 31, 1996

<TABLE>
<S> <C>
NET SALES....................................................................... $6,555,212
COSTS OF SALES.................................................................. 5,579,664
---------
Gross profit.................................................................. 975,548
---------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................... 1,662,675
---------
Loss from operations.......................................................... (687,127)
INCOME TAX BENEFIT.............................................................. (275,000)
---------
Net loss...................................................................... $(412,127)
DIVISIONAL EQUITY, MARCH 31 1995................................................ 3,189,236
---------
DIVISIONAL EQUITY, MARCH 31, 1996............................................... $2,777,109
---------
---------
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-96
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1996

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $(412,127)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................. 80,375
Changes in assets and liabilities--
Increase in accounts receivable............................................ (408,570)
Decrease in inventories.................................................... 499,383
Decrease in deferred income tax asset...................................... 80,000
Increase in receivable from Parent......................................... 355,000
Increase in accounts payable............................................... 66,173
Increase in accrued liabilities............................................ 36,098
---------
Net cash provided by operating activities................................ 296,332
---------
CASH FLOWS FROM INVESTING ACTIVITIES, purchases of property and equipment........ (3,019)
CASH FLOWS FROM FINANCING ACTIVITIES, transfer to Parent......................... (293,313)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................... --
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................................... $ --
---------
---------
</TABLE>

The accompanying notes are an integral part of this financial statement

F-97
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1996

1. OPERATIONS AND BASIS OF PRESENTATION:

Sunnyside Plants, Inc. (the Company, a California corporation) was
incorporated in 1995 as a wholly owned subsidiary of Sakata Seed America, Inc.
(the Parent, a California corporation). The Company produces and distributes
potted flowering plants.

Since the Company did not maintain separate accounting records for the
Division, certain estimates, which management believed to be reasonable, were
required to segregate the Division's account balances as of March 31, 1996.

- Identification basis--Account balances relating to assets, liabilities,
revenues and expenses ("account balances") specifically pertaining to the
Division were identified and segregated. Account balances related to
general and administrative expenses incurred by the Company for general
purposes have been included in total as the Division was the significant
portion of the Company's operations for the year.

- Transfer basis--Account balances pertaining to the Company's retail
division or account balances which were not able to be specifically
allocated to either division were identified and excluded from the
Division.

- Allocation basis--The account balance related to cost of sales for the
Division has been estimated based on the estimated purchases of the
Division.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Division in preparing its financial statements in accordance with generally
accepted accounting principles.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Division considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. All overdraft balances
have been reclassified to current liabilities.

INVENTORIES

Inventories are stated at the lower of cost or market. At March 31, 1996,
inventories consisted only of finished goods. Cost is determined using the
average cost method and includes production costs and overhead.

F-98
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1996

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over their
estimated useful lives on a straight line basis as follows:

<TABLE>
<S> <C>
Office equipment................................................ 5 years
Machinery and equipment......................................... 5 - 7
years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

Revenue is recognized upon transfer of title and risk of ownership to the
customer, which generally occurs upon product shipment. In 1996, no single
customer accounted for 10% or more of net sales.

FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including accounts receivable and payable
and capital lease obligations, the Division's carrying amount approximates fair
value.

INCOME TAXES

Income taxes are recognized in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS
109 utilizes the asset and liability method under which deferred income taxes
are recognized for the consequences of temporary differences by applying
currently enacted statutory rates to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.

ASSET IMPAIRMENT

On April 1, 1996, the Division adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to
Be Disposed Of." SFAS No. 121 requires that long-lived assets, certain
identifiable intangible assets and goodwill be reviewed for impairment when
expected future undiscounted cash flows are less than the carrying value of the
asset. No charges were recorded pursuant to this statement in 1996.

3. CONCENTRATIONS OF CREDIT RISK:

Financial instruments that potentially subject the Division to concentration
of credit risk consist of trade accounts receivable. The division sells
primarily on 30-day terms, performs credit evaluation procedures on its
customers and generally does not require collateral. The division maintains an
allowance for potential credit losses ($75,000 as of March 31, 1996).

F-99
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1996

4. PROPERTY AND EQUIPMENT:

Property and equipment of the Division at March 31, 1996 consisted of the
following:

<TABLE>
<S> <C>
Office equipment................................................. $ 202,183
Machinery and equipment.......................................... 373,448
---------
Total property and equipment................................. 575,631

Less: Accumulated depreciation................................... (146,960)
---------
Net property and equipment................................... $ 428,671
---------
---------
</TABLE>

Depreciation expense for the year ended March 31, 1996, was $80,375.

5. CAPITAL LEASE:

The Division leases certain equipment under a capital lease agreement.
Future minimum lease payments to be made are as follows for the years ending
March 31:

<TABLE>
<S> <C>
1997............................................................... $ 12,029
1998............................................................... 12,029
1999............................................................... 12,029
2000............................................................... 12,029
2001............................................................... 3,007
---------
Total minimum lease payments....................................... 51,123

Less: interest.................................................... (7,297)
---------
$ 43,826
---------
---------
</TABLE>

6. INCOME TAXES:

The Company files consolidated Federal and state income tax returns with the
Parent. The Company calculates the provision for income taxes on a separate
company basis.

Receivable from Parent in the accompanying statement of assets and
liabilities represents a tax benefit for the Parent resulting from the
Division's taxable loss in the year ended March 31, 1996.

Deferred income tax assets result from differences in the timing of
recognition of certain expense items for financial statement purposes and income
tax purposes. The principal temporary differences giving rise to deferred income
tax assets are certain inventory reserves, bad debt reserves and accrued
expenses.

F-100
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1996

6. INCOME TAXES: (CONTINUED)
The tax effects of the significant components of the Division's deferred
income tax asset at March 31, 1996 are as follows:

<TABLE>
<S> <C>
Reserves not deductible for tax purposes.......................... $ 93,760
Accrued expenses.................................................. 10,240
---------
$ 104,000
---------
---------
</TABLE>

The effective income tax rate for the year ended March 31, 1996 differs from
the Federal statutory rate of 34% as follows:

<TABLE>
<S> <C>
Federal statutory tax rate........................................... (34.0)%
State taxes, net..................................................... (6.0)%
---------
(40.0)%
---------
---------
</TABLE>

The Company has been reviewed by the tax authority for the tax year ended
March 31, 1995. The outcome of this review is not certain at this time, but in
the opinion of management the Division does not believe that this review will
materially affect the Division's financial position.

7. EMPLOYEE BENEFIT PLAN:

The Company has an employee profit-sharing and savings plan in which
employees may defer up to 10.5 percent of their salary for retirement purposes.
The Company matches 100 percent of employee contributions up to the first 5
percent of such employees' annual compensation and 50 percent of the next 3
percent of such employee's annual compensation. The Division's contribution
under the plan totaled approximately $65,000 in the year.

8. SUBSEQUENT EVENT:

In January 1997, the Company sold a significant portion of the net assets of
the Wholesale Division to CSN, Inc., the parent company of Color Spot Nurseries,
Inc.

F-101
<PAGE>
ODA NURSERY, INC.

BALANCE SHEET--JUNE 30, 1997

(UNAUDITED)

<TABLE>
<CAPTION>
1997
-------------
<S> <C>
ASSETS

CURRENT ASSETS:
Cash............................................................................................. $ 3,207,719
Receivables (less allowance for doubtful accounts of $150,000)................................... 1,720,443
Inventories...................................................................................... 5,457,455
Prepaid expenses................................................................................. 2,448
Investment in stock.............................................................................. 41,397
Notes receivable from stockholders............................................................... 1,200,273
-------------
Total current assets........................................................................... 11,629,735
PROPERTY, PLANT AND EQUIPMENT, net................................................................. 582,918
NET ASSETS HELD FOR DISTRIBUTION................................................................... 1,976,588
-------------
Total assets................................................................................... $ 14,189,241
-------------
-------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued liabilities......................................................... $ 44,440
Long-term debt, net of current maturities........................................................ 160,397
Loan from stockholder............................................................................ 1,200,000
-------------
Total current liabilities...................................................................... 1,404,837
LONG-TERM DEBT, net of current maturities.......................................................... 723,459
-------------
Total liabilities.............................................................................. 2,128,296
-------------
STOCKHOLDERS' EQUITY:
Common stock, $100 par value, 5,000 shares authorized, 2,000 shares issued and outstanding....... 200,000
Retained Earnings................................................................................ 11,860,945
-------------
Total stockholders' equity..................................................................... 12,060,945
-------------
Total liabilities and stockholders' equity..................................................... $ 14,189,241
-------------
-------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-102
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
SALES................................................................................ $ 10,581,692 $ 9,485,889
COST OF SALES........................................................................ 4,953,039 5,287,126
------------- ------------
Gross profit..................................................................... 5,628,653 4,198,763

OPERATING EXPENSES:
Delivery........................................................................... 1,565,332 1,102,622
Sales and marketing................................................................ 668,430 886,466
General and administrative......................................................... 149,665 92,699
Depreciation....................................................................... 49,875 48,450
Other expenses..................................................................... 77,048 109,014
------------- ------------
Income from operations........................................................... 3,118,303 1,959,512

INTEREST EXPENSE..................................................................... 129,200 170,178

OTHER INCOME (EXPENSES), net......................................................... (9,208) 206,104
------------- ------------
Net income....................................................................... $ 2,979,895 $ 1,995,438
------------- ------------
------------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-103
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES AND OTHER NONRECURRING EXPENSES:
Net income........................................................................ $ 2,979,895 $ 1,995,438
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of property, plant and equipment................................... (4,490) --
Depreciation.................................................................... 87,500 85,000
Changes in certain assets and liabilities:
Increase in receivables....................................................... (1,556,164) (1,479,520)
Decrease in inventories....................................................... 3,227,092 3,151,273
Decrease in prepaid expenses.................................................. 34,989 10,415
(Increase) decrease in notes receivable from stockholder...................... (750,273) 223,172
Decrease in accounts payable and accrued expenses............................. (69,184) (249,900)
------------- -------------
Net cash provided by operating activities................................... 3,949,365 3,735,878
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment......................................... -- (13,205)
------------- -------------
Net cash used in investing activities....................................... -- (13,205)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit...................................................... -- --
Payments on line of credit........................................................ (750,100) (405,350)
Proceeds from issuance of long-term obligations................................... -- --
Principal payments on long-term obligations....................................... (57,143) (1,249,476)
Principal payments on loan from stockholder....................................... (200,000) --
Distributions to stockholders..................................................... -- (2,200,000)
------------- -------------
Net cash used in financing activities....................................... (1,007,243) (3,854,826)
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 2,942,122 (132,153)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................................... 265,597 933,061
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................ $ 3,207,719 $ 800,908
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-104
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1997

(UNAUDITED)

The financial statements presented herein include the accounts of Oda
Nursery, Inc. (the Company) and have been prepared by the Company, without
audit. The Company believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of management, the
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
results of operations, financial position and cash flows. The financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's annual financial statements for the year
ended December 31, 1996.

1. NATURE OF OPERATIONS:

ORGANIZATION

Oda Nursery, Inc., a California corporation (the Company), was formed on
December 10, 1973, by Harunori Oda, Mitsuka Oda and Richard Tanaka. The Company
was formed to acquire, own, operate and manage a nursery business, as well as to
acquire, own, sell, mortgage or lease real and personal property.

DESCRIPTION OF THE BUSINESS

2. SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Company in preparing its financial statements in accordance with generally
accepted accounting principals:

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.

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INVENTORIES

F-105
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost and are depreciated over
their estimated useful lives using the straight-line method as follows:

Total depreciation expense for the six months ended June 30, 1997 and 1996
was approximately $175,000 and $170,000, respectively. All repairs and
maintenance costs are expensed as incurred.

INCOME TAXES

The Company elected in 1973, under Federal and state tax laws, to be treated
under the provisions of Subchapter S of the Internal Revenue Code. Under these
provisions, income taxes are the obligation of the individual stockholder,
except that the Company is taxed on income for state tax purposes at reduced
rates. The provision for income taxes was $60,000 and $33,000 for the six month
periods ending June 30, 1996 and 1995, respectively, and was recorded in other
expenses.

REVENUE RECOGNITION

The Company recognizes revenues when products are shipped. Where
appropriate, the Company establishes a reserve for returns and allowances.

3. INVESTMENT IN STOCK:

As further discussed in Note 6 the Company is required under the terms of
its credit agreement to maintain an investment in stock of the bank amounting to
6.83 percent of its outstanding indebtedness.

F-106
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

4. LONG-TERM DEBT

Long-term debt at June 30, 1997 and 1996, consisted of the following:

<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Note payable to bank, with monthly principal and interest payments of $13,084,
interest at the bank's reference rate (9.25 percent as of June 30, 1997);
secured by substantially all of the Company's assets; unpaid principal and
interest due on May 1, 2002.................................................... 611,977

Mortgage payable to seller, with monthly principal and interest payments of
$2,400, interest at 6.5 percent as of June 30, 1997; secured by land; unpaid
principal and interest due July 13, 2006....................................... 197,842

Stock obligation to bank, with monthly interest payments made at stated rate of
9.75 percent at June 30, 1997; unpaid interest due May 1, 2002................. 90,140

Note Payable under Small Business Loan, with monthly principle and interest
payments of $1,960; principal and interest paid February 27, 1997.............. 32,833
-----------

Less: Current maturities......................................................... (209,333)
-----------

$ 723,459
-----------
-----------
</TABLE>

The provisions of the debt agreements with the bank generally impose
restrictions relating to, among other matters, incurrence of additional
indebtedness and maintenance of specified amounts of tangible net worth and
working capital. In addition, the bank requires the Company maintain 6.38
percent of outstanding borrowings as an investment in the bank's stock. The
Company incurs monthly interest on the outstanding stock balance, but will not
repay the stock obligation, nor recover the stock investment balance. Both the
stock obligation and the investment in stock are reduced as the Company makes
principle payments on its other obligations to the bank.

5. STOCKHOLDERS' NOTES:

The following table summarizes the Company's notes with stockholders
presented in the balance sheet as of June 30, 1997:

<TABLE>
<CAPTION>
1997
------------
<S> <C>
Note receivable from stockholder................................................ $ 450,000
Loan from stockholder........................................................... 1,200,000
</TABLE>

The Company received cash from one of its stockholders in 1993. This loan is
due at the notice of the stockholder and is therefore considered short-term in
nature. $200,000 was repaid during the six month period from December 31, 1996
to June 30, 1997. Interest is payable monthly, at an annual rate of 8 percent.
Interest paid related to this loan was $54,500 for the six month period ended
June 30, 1997.

F-107
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

5. STOCKHOLDERS' NOTES: (CONTINUED)
The Company issued notes receivable to a stockholder and one of his related
entities under common ownership in 1997 and 1996 of $675,000 and $450,000,
respectively. The note issued in 1992 was repaid during 1996. The note for
$450,000 was repaid in 1997. The note accrues interest at 10 percent.

6. SUBSEQUENT EVENT AND NET ASSETS HELD FOR DISTRIBUTION:

F-108
<PAGE>
CRACON, INC.

BALANCE SHEET

JUNE 30, 1997

(UNAUDITED)

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 212,862
Accounts receivable:
Trade, net of allowances of $50,000......................................... 55,182
Related party............................................................... 126,319
Prepaid expenses.............................................................. 2,145
---------
Total current assets...................................................... 396,508
NOTES RECEIVABLE:
Related....................................................................... 200,000
Other......................................................................... 40,000
TREE INVENTORIES................................................................ 1,521,065
PROPERTY AND EQUIPMENT, net..................................................... 262,426
---------
Total assets.............................................................. $2,420,499
---------
---------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Notes payable:
Other....................................................................... $ 915,265
Related parties............................................................. 390,000
Accounts payable.............................................................. 76,988
Accrued interest payable...................................................... 30,570
Other accrued liabilities..................................................... 2,980
Current portion of long-term debt............................................. 9,811
---------
Total current liabilities................................................. 1,425,614
LONG-TERM DEBT, net of current portion.......................................... 33,262
---------
Total liabilities......................................................... 1,458,876
---------
STOCKHOLDERS' EQUITY:
Common stock, $10 par value; 50 shares authorized, issued and outstanding..... 500
Retained earnings............................................................. 961,123
---------
Total stockholders' equity................................................ 961,623
---------
Total liabilities and stockholders' equity................................ $2,420,499
---------
---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-109
<PAGE>
CRACON, INC.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
NET SALES.............................................................................. $ -- $ --
COST OF SALES.......................................................................... -- --
------------ -----------
Gross profit......................................................................... -- --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................................... 165,992 156,962
------------ -----------
Loss from operations................................................................. (165,992) (156,962)
INTEREST EXPENSE, net.................................................................. 62,237 85,600
------------ -----------
Net loss............................................................................. (228,229) (242,562)
RETAINED EARNINGS, BEGINNING........................................................... 1,231,352 993,020
Distributions.......................................................................... (42,000) (49,000)
------------ -----------
Retained Earnings, Ending............................................................ $ 961,123 $ 701,458
------------ -----------
------------ -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-110
<PAGE>
CRACON, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................... $ (228,229) $ (242,562)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 9,810 8,239
Changes in certain assets and liabilities:
Decrease in receivables........................................................ 2,597,643 2,548,217
Increase in tree inventories................................................... (149,839) (129,392)
Decrease in other assets....................................................... -- 20,000
Decrease in trade payables..................................................... (1,102,832) (1,681,493)
Decrease in other accrued liabilities.......................................... (63,226) (18,637)
Decrease in accrued interest................................................... (60,342) (38,990)
------------ -------------
Net cash provided by operating activities.................................... 1,231,214 707,944
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets........................................................... (10,375) (954)
Increase in notes receivable....................................................... (240,000) (187,099)
------------ -------------
Net cash used in investing activities........................................ (250,375) (188,053)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable........................................................ (504,811) (435,000)
Proceeds from issuance of notes payable............................................ -- 283,980
Dividends paid..................................................................... (42,000) (49,000)
Repayment of other long-term debt.................................................. (6,930) (38,152)
------------ -------------
Net cash used in financing activities........................................ (553,741) (238,172)
------------ -------------
Net increase in cash......................................................... 198,869 39,157
CASH AT BEGINNING OF YEAR............................................................ 13,993 9,295
------------ -------------
CASH AT END OF YEAR.................................................................. $ 212,862 $ 48,452
------------ -------------
------------ -------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest............................................. $ 128,855 $ 127,422
------------ -------------
------------ -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-111
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1997

(UNAUDITED)

The financial statements presented herein include the accounts of Cracon,
Inc. (the "Company") and have been prepared by the Company, without audit. The
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, the financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the Company's results of operations,
financial statements and the notes thereto included in the Company's annual
financial statements for the year ended December 31, 1996.

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Company considers cash held in banks and deposits with maturities of
three months or less to be cash and cash equivalents. All overdraft balances
have been reclassified to current liabilities.

INVENTORIES

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost and are depreciated over their
estimated useful lives using accelerated methods as follows:

<TABLE>
<S> <C>
Machinery and equipment......................................... 7 years
Vehicles........................................................ 5 years
Leasehold improvements.......................................... lease term
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

F-112
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION

Revenues are recognized when products are shipped and all significant
obligations of the Company have been completed.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Company's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

INCOME TAXES

ASSET IMPAIRMENT

2. NOTES RECEIVABLE

RELATED PARTIES

In 1997, the Company extended a note receivable of $200,000 to an entity
under common ownership. The note bears an interest rate of 9 percent.

THIRD PARTY

In 1997, the Company extended a note receivable of $40,000 to a third party.
The note bears an interest rate of 9 percent.

The Company has earned $6,674 of interest income in 1997.

F-113
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at June 30, 1997:

<TABLE>
<S> <C>
Land.............................................................. $ 209,279
Machinery and equipment........................................... 74,757
Vehicles.......................................................... 30,028
Leasehold improvements............................................ 26,350
---------
Total property and equipment.................................. 340,414
Less: Accumulated depreciation.................................... (77,488)
---------
Property and equipment, net....................................... $ 262,926
---------
---------
</TABLE>

4. NOTES PAYABLE:

Notes payable are due at various dates through December 31, 1997. Interest
is payable annually and quarterly at various rates. At June 30, 1997, the
weighted average interest rate was 10.7 percent.

Certain of the note holders are employees or relatives of the current
shareholders of the Company. Amounts due to these note holders have been
classified as notes payable--related parties in the accompanying balance sheet.
During 1997, the Company incurred $31,969 in interest on these related party
notes payable.

5. LONG-TERM DEBT:

Long-term debt as of June 30, 1997 consists of the following:

<TABLE>
<S> <C>
Mortgage notes payable to individuals; annual principal payments
of $4,633 through February 2003; interest payable annually at
9.5 percent; secured by the underlying property................. $ 27,801
Mortgage note payable to a bank; monthly principal and interest
payments of $591 through November 1999; interest at 9.5 percent;
secured by the underlying property.............................. 15,272
---------
43,073
Less: Current portion............................................. (9,811)
---------
$ 33,262
---------
---------
</TABLE>

6. COMMITMENTS AND CONTINGENT LIABILITIES:

F-114
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

7. RELATED PARTY TRANSACTIONS:

In the normal course of business, the Company sells Christmas trees to an
entity under common ownership. Accounts receivable related to these sales
totaled $97,048 at June 30, 1997.

In 1996, the Company repaid a loan on behalf of an entity under common
control. The advance of $29,271 has been included in accounts
receivable--related parties.

8. SUBSEQUENT EVENTS:

In August 1997, substantially all of the Company's assets were purchased by
Color Spot Christmas Trees, Inc., a wholly owned subsidiary of Color Spot
Nurseries, Inc. for cash and stock.

F-115
<PAGE>
WOLFE GREENHOUSES, L.L.C.

BALANCE SHEET
JULY 11, 1997

(UNAUDITED)

<TABLE>
<S> <C>
ASSETS

Current assets:
Cash.......................................................................... $ 970,672
Accounts receivable:
Trade, less allowance for doubtful accounts of $26,581...................... 424,148
Other....................................................................... 3,445
Inventories................................................................... 1,004,696
Prepaid expenses.............................................................. 36,640
---------
Total current assets.................................................... 2,439,601
---------
Investment in joint venture..................................................... 1,501
---------
Property, plant and equipment................................................... 2,029,114
Less accumulated depreciation................................................. 187,851
---------
Net property and equipment.............................................. 1,841,263
---------
$4,282,365
---------
---------

LIABILITIES AND MEMBERS' EQUITY

Current liabilities:
Current installments of long-term debt........................................ $ 106,564
Trade accounts payable........................................................ 546,389
Accrued expenses.............................................................. 134,253
Deferred income taxes......................................................... 62,669
---------
Total current liabilities............................................... 849,875
---------
Long-term debt, excluding current installments.................................. 1,468,385
---------
Members' equity................................................................. 1,964,105
---------
$4,282,365
---------
---------
</TABLE>

See accompanying selected notes to financial statements.

F-116
<PAGE>
WOLFE GREENHOUSES, L.L.C.

STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY

SEVEN FOUR-WEEK REPORTING PERIODS ENDED

JULY 11, 1997 AND JULY 12, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales......................................... $ 5,199,437 $ 4,907,175
Cost of sales..................................... 3,390,857 3,320,075
------------ ------------
Gross profit.................................. 1,808,580 1,587,100
Selling, general and administrative expenses...... 771,037 754,090
------------ ------------
1,037,543 833,010
------------ ------------
Other income (expense):
Interest expense................................ (96,683) (109,019)
Equity in income (loss) of joint venture........ 323,454 (4,903)
Gain on warranty settlement..................... -- 143,624
Other, net...................................... 35,863 4,611
------------ ------------
262,634 34,313
------------ ------------
Income before income taxes.................... 1,300,177 867,323
Income taxes...................................... 5,600 27,100
------------ ------------
Net income.................................... 1,294,577 840,223
Members' equity, beginning of period.............. 1,447,778 418,638
Members' contributions............................ -- 7,600
Members' withdrawals.............................. (778,250) (100,017)
------------ ------------
Members' equity, end of period.................... $ 1,964,105 $ 1,166,444
------------ ------------
------------ ------------
</TABLE>

See accompanying selected notes to financial statements.

F-117
<PAGE>
WOLFE GREENHOUSES, L.L.C.

STATEMENTS OF CASH FLOWS

SEVEN FOUR-WEEK REPORTING PERIODS LTD.

JULY 11, 1997 AND JULY 12, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 1,294,577 $ 840,223
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation....................................................................... 74,078 63,602
Deferred income taxes.............................................................. 5,600 27,100
Equity in loss (income) of joint venture........................................... (323,454) 4,903
Gain on warranty settlement........................................................ -- (143,624)
Decrease (increase) in assets:
Accounts receivable.............................................................. 557,555 448,841
Inventories...................................................................... 200,062 378,127
Prepaid expenses................................................................. (17,904) (10,523)
Other assets..................................................................... -- 12,488
Increase (decrease) in liabilities:
Trade accounts payable........................................................... (737,109) (914,870)
Accrued expenses................................................................. (106,694) 72,430
------------ -----------
Net cash provided by operating activities...................................... 946,801 778,697
------------ -----------
Cash flows from investing activities:
Distributions from (contributions to) joint venture.................................. 347,779 (17,875)
Proceeds from warranty settlement.................................................... -- 309,897
Capital expenditures................................................................. (381,730) --
------------ -----------
Net cash provided by (used for) investing activities........................... (33,951) 292,022
------------ -----------
Cash flows from financing activities:
Proceeds from repayment of other receivables......................................... 126,801 7,522
Principal payments on long-term debt................................................. (81,693) (57,803)
Repayment of cash overdraft.......................................................... -- (43,666)
Members' contributions............................................................... -- 7,600
Members' withdrawals................................................................. (778,250) (100,017)
------------ -----------
Net cash used for financing activities......................................... (733,142) (186,364)
------------ -----------
Net increase in cash................................................................... 179,708 884,355
Cash at beginning of period............................................................ 790,964 --
------------ -----------
Cash at end of period.................................................................. $ 970,672 $ 884,355
------------ -----------
------------ -----------
</TABLE>

See accompanying selected notes to financial statements.

F-118
<PAGE>
WOLFE GREENHOUSES, L.L.C.

SELECTED NOTES TO FINANCIAL STATEMENTS

JULY 11, 1997

(UNAUDITED)

The financial statements presented herein include the accounts of Wolfe
Greenhouses, L.L.C. (the Company) and have been prepared by the Company, without
audit. The Company believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of management, the
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
financial position, results of operations and cash flows. The financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's annual financial statements for the year
ended December 27, 1996.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) ORGANIZATION AND NATURE OF BUSINESS

Wolfe Greenhouses, L.L.C., organized as a limited liability company, is an
association formed in accordance with the laws of the State of Texas. Under the
terms of its current articles of incorporation, the Company will cease to exist
on July 1, 2025. The Company operates a wholesale greenhouse facility located in
Waco, Texas whose principal customers are grocery chain stores located in Texas.

(b) INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by
first-in, first-out method.

Investment in joint venture is accounted for by the equity method.

(d) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the assets.

(e) USE OF ESTIMATES

(2) INVENTORIES

Inventories at July 11, 1997, consisted of the following:

<TABLE>
<S> <C>
Growing crops................................................ $ 689,800
Supplies..................................................... 288,469
Landscape plants and supplies................................ 26,427
---------
$1,004,696
---------
---------
</TABLE>

F-119
<PAGE>
WOLFE GREENHOUSES, L.L.C.

SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 11, 1997

(UNAUDITED)

(3) INVESTMENT IN JOINT VENTURE

Investment in joint venture consists of a fifty percent interest in a joint
venture. During 1997, the joint venture settled certain contingent assets and
liabilities, and sold certain real estate. The Company realized approximately
$323,000 of income in 1997 related to these transactions of the joint venture.

(4) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at July 11, 1997 consisted of the following:

<TABLE>
<CAPTION>
ESTIMATED
AMOUNT USEFUL LIVES
------------ -------------
<S> <C> <C>
Land......................................................... $ 77,066 --
Buildings and improvements................................... 1,259,863 3 - 25 years
Equipment.................................................... 300,815 5 - 20 years
Construction in progress..................................... 391,370 --
------------
$ 2,029,114
------------
------------
</TABLE>

(5) DEBT

Long-term debt at July 11, 1997 consists of the following:

<TABLE>
<S> <C>
Mortgage note payable to a financial institution with
interest at 2% above the base rate, secured by property and
buildings, payable in monthly principal and interest
payments of $22,878 through December 2006.................. $1,574,949
Less current installments.................................... 106,564
---------
$1,468,385
---------
---------
</TABLE>

The Company's debt agreements relating to the above notes contain
restrictive financial covenants.

(6) LEASES

The Company has several noncancelable operating leases for transportation
equipment that expire over the next six years. These leases require the Company
to pay certain executory costs, such as insurance, and purchase fuel from the
lessor.

F-120
<PAGE>
WOLFE GREENHOUSES, L.L.C.

SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 11, 1997

(UNAUDITED)

(7) INCOME TAXES

The Company is classified as a partnership for federal income tax purposes.
For federal tax purposes, partnership income is taxed directly to its members;
consequently, no provision is made in the accompanying financial statements for
federal income taxes. The income tax provision consist solely of state income
taxes.

(8) BUSINESS CONCENTRATIONS

Approximately $2,954,000 and $3,021,000 of revenue representing 57% and 62%
of net sales were derived from four customers during the periods ended July 11,
1997 and July 12, 1996, respectively.

(9) SUBSEQUENT EVENT

On July 31, 1997, 100% of the Members' interest in the Company was purchased
by Lone Star Growers, L.P. (a subsidiary of Color Spot Nurseries, Inc.).

F-121
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

BALANCE SHEET AS OF JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................................. $ 252
Accounts receivable (less allowance for doubtful accounts of $25 as of June 30, 1997 and 1996)........ 901
Inventories........................................................................................... 966
Income taxes receivable and other assets.............................................................. --
-----------
Total current assets................................................................................ 2,119
PROPERTY AND EQUIPMENT, net........................................................................... 1,795
-----------
Total assets........................................................................................ $ 3,914
-----------
-----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Lines of credit....................................................................................... $ 265
Current maturities of long-term debt.................................................................. 9
Current maturities of stockholder loan................................................................ 106
Accounts payable...................................................................................... 406
Accrued expenses...................................................................................... 391
Deferred income taxes................................................................................. 319
-----------
Total current liabilities........................................................................... 1,496
LONG-TERM DEBT.......................................................................................... 125
DEFERRED INCOME TAXES................................................................................... 35
STOCKHOLDER LOAN........................................................................................ 470
-----------
Total liabilities................................................................................... 2,126
-----------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, 250,000 shares authorized and 10,000 shares issued and outstanding...... 1
Retained earnings..................................................................................... 1,787
-----------
Total stockholders' equity.......................................................................... 1,788
-----------
Total liabilities and stockholders' equity.......................................................... $ 3,914
-----------
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-122
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30
--------------------
1997 1996
--------- ---------
<S> <C> <C>
NET SALES...................................................................................... $ 4,816 $ 3,075
COST OF SALES.................................................................................. 3,168 2,017
--------- ---------
Gross profit................................................................................. 1,648 1,058
OPERATING EXPENSES:
Selling, general and administrative.......................................................... 783 591
--------- ---------
Income from operations....................................................................... 865 467
INTEREST EXPENSE, net.......................................................................... (73) (33)
OTHER INCOME................................................................................... 71 60
--------- ---------
Income before income taxes................................................................... 863 494
PROVISION FOR INCOME TAXES..................................................................... (337) (190)
--------- ---------
Net income................................................................................... $ 526 $ 304
--------- ---------
--------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-123
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30
--------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................................... $ 526 $ 304
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation................................................................................. 157 53
Gain on sale of fixed assets................................................................. (10) --
(Increase) decrease in accounts receivable................................................... (327) 437
Decrease in inventories...................................................................... 76 10
Decrease in income taxes receivable and other assets......................................... 77 10
Decrease in accounts payable................................................................. (403) (633)
Increase in accrued expenses................................................................. 270 7
Increase in deferred income taxes............................................................ 4 26
--------- ---------
Net cash provided by operating activities.................................................. 370 214
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................................ (310) (273)
Proceeds from sale of fixed assets............................................................. 10 1
--------- ---------
Net cash used in investing activities (300) (272)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings....................................................................... 154 724
Repayments of long-term debt................................................................... (178) (316)
Net borrowing under revolving lines of credit.................................................. (85) (95)
--------- ---------
Net cash used in (provided by) financing activities........................................ (109) 313
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................................................ (39) 255
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................................... 291 117
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF SIX MONTHS................................................... $ 252 $ 372
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest..................................................................................... $ 102 $ 25
--------- ---------
--------- ---------
Income taxes................................................................................. $ 3 $ 115
--------- ---------
--------- ---------
During the six months ended June 30, 1996, the Company exchanged property and equipment and a
related note payable with book values of $207 and $157, respectively, to the Stockholders.
In return, the Company received property and equipment and a related note payable of $144
and $94, respectively.
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-124
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

1. NATURE OF OPERATIONS AND DESCRIPTION OF BUSINESS:

The financial statements presented herein include the accounts of Peters'
Wholesale Greenhouses, Inc. (the Company). The Company is located in Walnut
Springs, Texas, and is a producer of bedding plants. The Company sells primarily
to general merchandise stores and retail garden stores in Central and East
Texas. The Company's sole stockholders are Tom and Ramona Peters (the
Stockholders).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Company in preparing its financial statements in accordance with generally
accepted accounting principles.

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.

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.

INVENTORIES

Inventories consist primarily of plant inventory and are stated at the lower
of cost or market. Cost is determined using the average cost method and include
direct production costs and overhead.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over the estimated
useful lives on an accelerated basis as follows:

<TABLE>
<S> <C>
5 to 30
Buildings and improvements.................................... years
Fixtures and equipment........................................ 3 to 7 years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

F-125
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including accounts receivable, accounts
payable and notes payable, the Company's carrying amount approximates fair
value.

ASSET IMPAIRMENT

3. CONCENTRATIONS OF RISK:

The Company does not perform credit evaluations of its customers' financial
condition and generally does not require collateral, as the majority of its
customers are large, well-established customers. The Company maintains an
allowance for potential credit losses.

For the six months ended June 30, 1997 and 1996, five customers accounted
for approximately 99 percent and 96 percent of net sales, respectively. The
Company's two largest customers accounted for approximately 53 percent and 17
percent and 68 percent and 12 percent of net sales, respectively.

The Company purchases inventory and greenhouse building materials from
primarily two vendors. Purchases from these two vendors represent 82 percent and
90 percent of the accounts payable balance at June 30, 1997 and 1996,
respectively; 54 percent and 8 percent from B.W.I.--Schulenburg and 28 percent
and 82 percent from Ball Seed, respectively. Management believes alternative
suppliers could be obtained, if needed.

4. PROPERTY AND EQUIPMENT:

Property and equipment at June 30, 1997 and 1996, consist of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land..................................................................... $ 196 $ 196
Buildings and improvements............................................... 2,318 1,762
Fixtures and equipment................................................... 874 522
--------- ---------
3,388 2,480
Less: Accumulated depreciation........................................... (1,593) (1,368)
--------- ---------
Net property and equipment............................................. $ 1,795 $ 1,112
--------- ---------
--------- ---------
</TABLE>

Depreciation expense for the six months ended June 30, 1997 and 1996, was
$157 and $53, respectively.

F-126
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

5. ACCRUED EXPENSES:

Accrued expenses as of June 30, 1997 and 1996, consist of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Interest and finance charges.................................................. $ 10 $ 8
Payroll and payroll taxes..................................................... 55 5
Federal income taxes.......................................................... 277 103
State franchise taxes......................................................... 44 22
Other......................................................................... 5 4
--------- ---------
Total accrued expenses...................................................... $ 391 $ 142
--------- ---------
--------- ---------
</TABLE>

6. DEBT:

Lines of credit and long-term debt at June 30, 1997 and 1996, consist of the
following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revolving line of credit (1).................................................. $ 165 $ 100
Revolving line of credit (2).................................................. 100 --
Note payable (3).............................................................. 89 94
Note payable (4).............................................................. 10 --
Note payable (5).............................................................. 35 --
--------- ---------
$ 399 $ 194
--------- ---------
--------- ---------
</TABLE>

- - - ------------------------

(1) $350 revolving line of credit with a financial institution under which $165
and $100 was outstanding at June 30, 1997 and 1996, respectively. Advances
under the line of credit accrue interest at 8.5 percent and 9.25 percent per
annum, respectively. The line is secured by all accounts the Company holds
with the bank, inventory and accounts receivable. The line was refinanced on
June 1, 1997, and expires on May 31, 1998.

(2) $300 revolving line of credit with a financial institution under which $100
was outstanding at June 30, 1997. Advances under the line of credit accrue
interest at the prime rate plus 1 percent per annum (9.5 percent at June 30,
1997). The line is secured by all accounts the Company holds with the bank
and equipment. The line expires on November 20, 1997.

(3) Note payable was incurred in conjunction with the purchase of land. The note
accrues interest at a variable interest rate per annum (7.9 percent and 9.75
percent at June 30, 1997 and 1996, respectively) with interest and an
installment of principal due annually and any unpaid principal due in
entirety on April 1, 2016. The note is collateralized by the acquired land.

F-127
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

6. DEBT: (CONTINUED)
(5) Note payable was incurred in conjunction with fixed asset improvements. The
note requires semiannual principal payments of $5 plus accrued interest
beginning July 15, 1997. Unpaid principal and interest are due July 15,
2000. Interest accrues at 8.25 percent per annum. This note is
collateralized by all accounts the Company holds with the bank, inventory
and accounts receivable.

The annual amounts of principal maturities of long-term debt outstanding at
June 30, 1997 and 1996, are as follows:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Less than one year............................................................ $ 274 $ 100
Greater than one year, less than two years.................................... 14 --
Greater than two years, less than three years................................. 12 --
Greater than three years, less than four years................................ 10 --
Greater than four years, less than five years................................. -- --
Thereafter.................................................................... 89 94
--------- ---------
$ 399 $ 194
--------- ---------
--------- ---------
</TABLE>

7. INCOME TAXES:

The provision for income taxes consists of:

<TABLE>
<CAPTION>
JUNE 30
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Current--
Federal..................................................................... $ 289 $ 142
State and local............................................................. 44 22
Deferred--
Federal..................................................................... 4 26
State and local............................................................. -- --
--------- ---------
Provision for income taxes.................................................... $ 337 $ 190
--------- ---------
--------- ---------
</TABLE>

A reconciliation between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate of 34 percent to
income before income taxes is as follows:

<TABLE>
<CAPTION>
JUNE 30
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Income before income taxes.................................................... $ 863 $ 494
--------- ---------
--------- ---------
Amount of federal income tax based upon the statutory rate.................... $ 293 $ 168
State and local income taxes.................................................. 44 22
--------- ---------
Provision for income taxes.................................................... $ 337 $ 190
--------- ---------
--------- ---------
</TABLE>

F-128
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

7. INCOME TAXES: (CONTINUED)
Deferred tax assets (liabilities) are composed of the following at June 30,
1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets--
Allowance for doubtful accounts............................................ $ 9 $ 9
--------- ---------
Total deferred tax assets................................................ 9 9
--------- ---------
Deferred tax liabilities--
Inventories................................................................ (328) (297)
Property and equipment..................................................... (35) (35)
--------- ---------
Total deferred tax liabilities........................................... (363) (332)
--------- ---------
Net deferred tax liability................................................... $ (354) $ (323)
--------- ---------
--------- ---------
</TABLE>

8. RELATED-PARTY TRANSACTIONS:

On May 7, 1996, the Company received a stockholder loan from the
Stockholders. The loan accrues interest at a rate of 8.0 percent per annum and
provides the Company with available credit of $1,500. The note requires payments
of $75 on January 7 and July 7 each year until all outstanding principal and
interest has been repaid. At June 30, 1997 and 1996, the outstanding balance on
the loan was $576 and $630, respectively.

The Company's corporate offices are owned by the Stockholders. Beginning
January 1997, the Stockholders charged the corporate headquarters rent of $2.5
per month. Total rent expense for the six months ended June 30, 1997, was $15.
Prior to this date, no rent was charged for the facilities.

During the six months ended June 30, 1997 and 1996, the Company paid
management fees to the Stockholders of approximately $73 and $68, respectively.

9. OTHER INCOME AND EXPENSE:

10. COMMITMENTS AND CONTINGENCIES:

F-129
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

10. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Company has no operating leases with original maturities greater than
one year. From time to time, the Company will enter into weekly leases for
transportation equipment. Total rent expense under these leases for the six
months ended June 30, 1997 and 1996, was approximately $108 and $38,
respectively.

At June 30, 1997, the Company is the primary guarantor of debt owed by a
related-party investment company owned by the Shareholders. The outstanding
balance of the guaranteed debt is approximately $115.

11. SUBSEQUENT EVENTS:

On July 31, 1997, 100 percent of the outstanding stock of the Company was
purchased by Color Spot Nurseries, Inc., for cash.

F-130
<PAGE>
LONE STAR GROWERS CO.

BALANCE SHEET--DECEMBER 31, 1996

(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash............................................................................................. $ 151,133
Trade receivables, less allowance for doubtful accounts of $104,649 and $131,955, respectively... 1,056,107
Inventories...................................................................................... 11,002,411
Prepaid Expenses................................................................................. --
Notes receivable................................................................................. 19,943
-------------
Total current assets......................................................................... 12,229,594
PROPERTY AND EQUIPMENT, net........................................................................ 6,498,482
-------------
Total assets................................................................................. $ 18,728,076
-------------
-------------

LIABILITIES AND PARTNERSHIP CAPITAL

CURRENT LIABILITIES:...............................................................................
Cash Overdraft................................................................................... $ --
Payables.........................................................................................
Trade.......................................................................................... 2,112,898
Related parties................................................................................ 9,974
-------------
Total payables............................................................................... 2,122,872
Accrued expenses................................................................................. 793,294
Current portion of revolving line of credit...................................................... --
Current portion of long-term debt................................................................ 3,524,251
Advances from partner under revolving line of credit............................................. 3,000,000
-------------
Total current liabilities.................................................................... 9,440,417
LONG-TERM DEBT, net of current portion............................................................. 4,871,471
-------------
Total liabilities............................................................................ 14,311,888
-------------
PARTNERSHIP CAPITAL:
Partnership capital.............................................................................. 2,805,989
Undistributed profits............................................................................ 1,610,199
-------------
Total partnership capital.................................................................... 4,416,188
-------------
Total liabilities and partnership capital.................................................... $ 18,728,076
-------------
-------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-131
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995

(UNAUDITED)

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
SALES................................................................................. $ 6,358,510 $ 5,546,121
COST OF SALES......................................................................... 3,075,270 2,877,772
------------ ------------
Gross profit...................................................................... 3,283,240 2,688,349
OPERATING EXPENSES:
Delivery............................................................................ 958,469 849,807
Sales and marketing................................................................. 904,469 748,842
General and administrative.......................................................... 781,016 708,526
Other expenses...................................................................... 204,523 313,888
Depreciation........................................................................ 74,596 56,496
------------ ------------
Income (loss) from operations..................................................... 359,670 (9,210)
INTEREST EXPENSE...................................................................... 403,378 521,234
OTHER EXPENSE, NET.................................................................... 762 8,907
------------ ------------
Net loss.......................................................................... $ (44,470) $ (539,351)
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-132
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995

(UNAUDITED)

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................................... $ (44,470) $ (539,351)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Loss on sale of fixed assets.................................................... 0 2,660
Depreciation and amortization................................................... 465,588 405,547
Changes in certain assets and liabilities:
Decrease in receivables....................................................... 5,531,559 1,180,858
Increase in inventories....................................................... (4,022,018) (3,262,125)
Decrease in prepaids and other assets......................................... 42,751 58,987
Decrease in notes receivable.................................................. 7,270 0
Increase in payables.......................................................... 333,144 1,136,264
Decrease in accrued expenses.................................................. (229,724) (42,237)
------------- -------------
Net cash provided by (used in) operating activities......................... 2,084,100 (1,059,397)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of fixed assets............................................ (1,102,481) (522,050)
Proceeds from sale of fixed assets................................................ 0 6,001
------------- -------------
Net cash used in investing activities....................................... (1,102,481) (516,049)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing of long-term debt......................................... 0 3,000,000
Repayments of long-term debt...................................................... (500,000) (500,000)
Net borrowings under revolving line of credit with bank........................... 2,500,000 300,000
Net repayments to partners........................................................ 0 (1,300,000)
Distributions to partners......................................................... (3,200,000) 0
------------- -------------
Net cash provided by (used in) financing activities......................... (1,200,000) 1,500,000
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................................... (218,381) (75,446)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 369,514 332,977
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $ 151,133 $ 257,531
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.......................................... $ 401,799 $ 470,556
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-133
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

(UNAUDITED)

The financial statements presented herein include the accounts of Lone Star
Growers Co. (the Partnership) and have been prepared by the Partnership, without
audit. The Partnership believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of management, the
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Partnership's
results of operations, financial position and cash flows. The financial
statements should by read in conjunction with the financial statements and the
notes thereto included in the Partnership's annual financial statements for the
year ended June 30, 1996.

1. NATURE OF OPERATIONS:

ORGANIZATION

The Partnership was formed on January 1, 1985, by Lone Star Growers, Inc.
and Joseph Bradberry. The Partnership was formed to acquire, own, operate and
manage a nursery business located near San Antonio, Texas.

2. SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Partnership in preparing its financial statements in accordance with
generally accepted accounting principles:

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.

CASH AND CASH EQUIVALENTS

INVENTORIES

F-134
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost and are depreciated over
their estimated useful lives using the straight-line method as follows:

<TABLE>
<S> <C>
10 - 40
Buildings and improvements.................................... years
Machinery and equipment....................................... 5 - 10 years
Furniture and fixtures........................................ 5 - 10 years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Partnership's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

INCOME TAXES

The Partnership is not subject to federal income taxes; rather, its income
from operations is passed directly through to its partners.

ASSET IMPAIRMENT

3. CONCENTRATION OF CREDIT RISK:

The Partnership performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral, as the majority
of the Partnership's customers are large, well-established companies. Five
customers accounted for approximately 41 percent of accounts receivable at
December 31, 1996. These same five customers accounted for approximately 42
percent of plant sales for the six months ended December 31, 1996.

F-135
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

4. INVENTORIES:

Inventories consisted of the following at December 31, 1996.

<TABLE>
<CAPTION>
1996
-------------
<S> <C>
Raw materials and supplies..................................................... $ 722,633
Plant inventory................................................................ 10,279,778
-------------
Total inventory................................................................ $ 11,002,411
-------------
-------------
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at December 31, 1996, consisted of the
following:

<TABLE>
<CAPTION>
1996
-------------
<S> <C>
Land........................................................................... $ 892,568
Machinery and equipment........................................................ 7,252,105
Buildings and improvements..................................................... 4,649,882
Furniture and fixtures......................................................... 765,238
-------------
13,559,793
Less: Accumulated depreciation................................................. (8,083,831)
-------------
5,475,962
Construction in progress....................................................... 1,022,520
-------------
Total property, plant and equipment.......................................... $ 6,498,482
-------------
-------------
</TABLE>

6. NOTES PAYABLE:

LINE OF CREDIT

As of December 31, 1996, the Partnership had a $5,000,000 revolving line of
credit with a financial institution under which there was $2,700,000 outstanding
at December 31, 1996. Advances under the line accrue interest at Frost National
Bank's prime rate of interest and are collateralized by substantially all of the
Partnership's assets. Borrowings are limited to 80 percent of adjusted accounts
receivable balances and 50 percent of the Partnership's total inventory balance
as defined in the agreement, less certain borrowings. The borrowing limit at
December 31, 1996, was approximately $2,985,000. The line of credit expires on
October 29, 1997.

F-136
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

6. NOTES PAYABLE: (CONTINUED)
LONG-TERM DEBT

Long-term debt at December 31, 1996, consisted of the following:

<TABLE>
<CAPTION>
1996
------------
<S> <C>
Note payable to bank, with quarterly principal and interest payments of
$173,814, interest at prime plus 0.5 percent (8.50 percent at December 31,
1996), secured by substantially all of the Partnerships assets, due on April
29, 2002...................................................................... $ 3,000,000
Note payable to bank, with quarterly principal and interest payments of $78,217,
interest at prime plus 0.5 percent (8.50 percent at December 31, 1996),
secured by substantially all of the Partnerships assets, due on April 29,
2002.......................................................................... 1,210,000
Note payable to bank, with quarterly principal and interest payments of $60,835,
interest at prime plus 0.5 percent (8.50 percent at December 31, 1996),
secured by substantially all of the Partnerships assets, due on April 29,
2002.......................................................................... 1,190,000
Note payable to seller, with annual principal and interest payments of $43,478,
interest at 6.0 percent, secured by land, due June 15, 2005................... 295,722
------------
5,695,722
Less: Current portion........................................................... (824,251)
------------
$ 4,871,471
------------
------------
</TABLE>

As a result of borrowing rates presently available to the Partnership, the
carrying value of debt approximates the fair value.

The provisions of the debt agreements with the bank generally impose
restrictions relating to, among other matters, cash flows, investments, capital
expenditures, incurrence of additional indebtedness, payment of dividends, and
maintenance of specified amounts of tangible net worth and working capital.

7. RELATED-PARTY TRANSACTIONS:

In the normal course of business, the Partnership has transactions with its
partners and other related parties. These include purchasing insurance on a
group basis, participating in a group profit-sharing plan and renting equipment.
The following table summarizes the Partnership's related-party transactions
presented in the balance sheet as of December 31, 1996:

<TABLE>
<CAPTION>
1996
------------
<S> <C>
Advances to related parties..................................................... $ 0
Advances from related parties................................................... 3,009,974
</TABLE>

Advances from related parties include amounts advanced by TETCO, Inc. (the
sole owner of Lone Star Growers, Inc.) pursuant to a revolving line of credit
agreement under which there was $3,000,000

F-137
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

7. RELATED-PARTY TRANSACTIONS: (CONTINUED)
outstanding at December 31, 1996. Interest paid on the revolving line of credit
was $126,048 and $251,750 during the six months ended December 31, 1996 and
1995, respectively.

The Partnership made advances to entities under common ownership of $204,523
and $313,888 during the six months ended December 31, 1996 and 1995,
respectively, relating to investments in a mushroom project, a furniture
business and a Mexican turf grass project. The Partnership determined that these
advances were not recoverable and therefore expensed the advances (as other
expenses) in the related statements of income and expense in the year in which
they were made. In addition, the Partnership made sales to an affiliated company
of approximately $165,000 during the six months ended December 31, 1996 and
1995.

8. CONTINGENCIES:

9. SUBSEQUENT EVENT:

F-138
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

STATEMENT OF ASSETS AND LIABILITIES
AND DIVISIONAL EQUITY

DECEMBER 31, 1996

(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
CURRENT ASSETS:
Accounts receivable............................................................................... $ 445,569
Inventories....................................................................................... 2,165,493
Deferred income taxes............................................................................. --
Due from Parent................................................................................... --
------------
Total current assets............................................................................ 2,611,062

PROPERTY AND EQUIPMENT, net......................................................................... 365,207
------------
Total Assets.................................................................................... $2,976,269
------------
------------

LIABILITIES AND DIVISIONAL EQUITY

CURRENT LIABILITIES:
Accounts payable.................................................................................. $ 520,312
Accrued liabilities............................................................................... --
Current portion of capital lease obligation....................................................... 28,498
------------
Total current liabilities....................................................................... 548,810
------------

CAPITAL LEASE OBLIGATION, net of current portion.................................................... 43,482
Total liabilities............................................................................... 592,292
------------
Divisional Equity................................................................................... 2,383,977
------------
Total Liabilities and Divisional Equity......................................................... $2,976,269
------------
------------
</TABLE>

The accompanying notes are an integral part of this statement.

F-139
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

STATEMENTS OF REVENUES AND EXPENSES
AND DIVISIONAL EQUITY

FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995

(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER
31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
NET SALES............................................................................. $ 4,273,692 $ 4,522,731
COSTS OF SALES........................................................................ 3,079,790 4,002,510
------------ ------------
Gross profit........................................................................ 1,193,902 520,221
------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......................................... 1,181,652 1,301,330
------------ ------------
Income (Loss) from operations....................................................... 12,250 (781,109)
INCOME TAX BENEFIT.................................................................... -- (312,000)
------------ ------------
Net Income (Loss)................................................................... 12,250 (469,109)
------------ ------------
DIVISIONAL EQUITY, December 31, 1996 and 1995......................................... $ 2,383,977 $ 2,891,479
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-140
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995

(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................................... $ 12,250 $ (469,109)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation........................................................................ 60,281 58,898
Changes in assets and liabilities--
Decrease (Increase) in accounts receivable........................................ 411,424 (468,484)
Decrease (Increase) in inventories................................................ (311,151) 277,476
Decrease in deferred income tax asset............................................. 104,000 101,000
Decrease (Increase) in receivable from Parent..................................... 355,000 (392,000)
Increase (Decrease) in accounts payable........................................... (187,284) 289,915
Increase (Decrease) in accrued liabilities........................................ (70,475) 36,098
----------- -----------
Net cash provided by (used in) operating activities............................. 374,045 (566,206)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES, purchases of property and equipment............... (107,957) (7,918)
CASH FLOWS FROM FINANCING ACTIVITIES, transfer from (to) Parent......................... (266,088) 574,124
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................................... -- --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $ -- $ --
----------- -----------
----------- -----------
</TABLE>

The accompanying notes are an integral part of this financial statement

F-141
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

(UNAUDITED)

The financial statements presented herein include the accounts of the
Wholesale Division of Sunnyside Plants, Inc. (the Division) and have been
prepared by the Division, without audit. The Division believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Division's results of operations and
financial position. The financial statements should by read in conjunction with
the financial statements and the notes thereto included in the Division's annual
financial statements for the year ended March 31, 1996.

1. OPERATIONS AND BASIS OF PRESENTATION:

Since the Company did not maintain separate accounting records for the
Division, certain estimates, which management believed to be reasonable, were
required in order to segregate the Division's account balances as of December
31, 1996 and 1995.

- Identification basis--Account balances relating to assets, liabilities,
revenues and expenses ("account balances") specifically pertaining to the
Division were identified and segregated. Account balances related to
general and administrative expenses incurred by the Company for general
purposes have been included in total as the Division was significant
portion of the Company's operations for the periods presented herein.

- Transfer basis--Account balances pertaining to the Company's retail
division or account balances which were not able to be specifically
allocated to either divisions were identified and excluded from the
Division.

- Allocation basis--The account balance related to cost of sales for the
Division has been estimated based on the estimated purchases of the
Division.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Division in preparing its financial statements in accordance with generally
accepted accounting principles.

USE OF ESTIMATES

The preparation of the 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 statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Division considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. All overdraft balances
have been reclassified to current liabilities.

F-142
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVENTORIES

Inventories are stated at the lower of cost or market and consist
substantially of finished goods. Cost is determined using the average cost
method and includes production costs and overhead.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over their
estimated useful lives on a straight line basis as follows:

<TABLE>
<S> <C>
Office equipment................................................ 5 years
5 - 7
Machinery and equipment......................................... years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

Revenue is recognized upon transfer of title and risk of ownership to the
customer, which generally occurs upon product shipment. No single customer
accounted for 10% or more of net sales during the nine months ended December 31,
1996 or 1995.

FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including accounts receivable and payable
and capital lease obligations, the Division's carrying amount approximates fair
value.

INCOME TAXES

ASSET IMPAIRMENT

3. SUBSEQUENT EVENT:

In January 1997, the Company sold a significant portion of the net assets of
the Wholesale Division to CSN, Inc., the parent company of Color Spot Nurseries,
Inc.

F-143
<PAGE>
- - - -------------------------------------------
-------------------------------------------
- - - -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

--------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Company History................................ 14
Recent Acquisitions............................ 14
Use of Proceeds................................ 15
Dividend Policy................................ 15
Dilution....................................... 16
Capitalization................................. 17
Selected Consolidated Financial and Operating
Data......................................... 18
Unaudited Pro Forma Consolidated Statement of
Operations................................... 20
Unaudited Pro Forma Consolidated Balance
Sheet........................................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business....................................... 28
Management..................................... 37
Certain Transactions........................... 43
Principal Stockholders......................... 45
Description of Capital Stock................... 46
Description of Certain Indebtedness............ 49
Shares Eligible for Future Sale................ 51
Underwriting................................... 52
Legal Matters.................................. 53
Experts........................................ 53
Additional Information......................... 54
Index to Consolidated Financial Statements..... F-1
</TABLE>

--------------

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

3,850,000

[LOGO]

COMMON STOCK

------------

PROSPECTUS
------------

BT ALEX. BROWN

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

, 1997

- - - -------------------------------------------
-------------------------------------------
- - - -------------------------------------------
-------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Alternate Page For Note Prospectus

PROSPECTUS SUBJECT TO COMPLETION
OCTOBER 7, 1997

$85,000,000

[LOGO]

% SENIOR SUBORDINATED NOTES DUE 2007
---------

Color Spot Nurseries, Inc. ("Color Spot" or the "Company") is offering
$85,000,000 aggregate principal amount of its % Senior Subordinated Notes due
2007 (the "Notes") to the public (the "Notes Offering"). Concurrently with the
Notes Offering, the Company is offering 3,850,000 shares of common stock, par
value $.01 per share (the "Common Stock"), to the public (the "Common Stock
Offering" and, together with the Notes Offering, the "Offerings"). The Notes
Offering is contingent upon the consummation of the Common Stock Offering and
the Common Stock Offering is contingent upon the consummation of the Notes
Offering. See "Prospectus Summary--Concurrent Offering."

Interest on the Notes will be payable semiannually on and of each
year, commencing on , 1998. The Notes will be redeemable, in whole
or in part, at the option of the Company, at any time on and after ,
2002, at the respective redemption prices set forth herein plus accrued and
unpaid interest, if any, to the date of redemption. In addition, on or prior to
, 2000, the Company may, at its option, use the net cash proceeds of
one or more Public Equity Offerings (as defined) to redeem up to an aggregate of
35% of the Notes originally issued, at the redemption price set forth herein.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
Upon a Change of Control (as defined), each holder of Notes will have the right
to require the Company to repurchase such holder's Notes at a price equal to
101% of their principal amount plus accrued and unpaid interest to the date of
repurchase. See "Description of Notes."

The Notes will be senior subordinated unsecured obligations of the Company
and will be subordinated in right of payment to all Senior Debt (as defined) of
the Company, including indebtedness under the New Loan Agreement (as defined).
At September 25, 1997, after giving effect to the Offerings, the aggregate
outstanding amount of Senior Debt of the Company would have been approximately
$2.2 million, which amount excludes any amounts available to be borrowed under
the New Loan Agreement. The Notes will be effectively subordinated to all
obligations of the Company's subsidiaries. See "Risk Factors," "Capitalization"
and "Description of Notes--Subordination."

The Company does not intend to apply for listing of the Notes on any
national securities exchange. See "Underwriting."
----------------

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE NOTES.
-------------

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
<S> <C> <C> <C>
Per Note............................................... % % %
Total.................................................. $ $ $
</TABLE>

(1) Plus accrued interest, if any, from date of original issuance.

(2) The Company has agreed to indemnify the Underwriters (as defined) against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."

(3) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
----------------

The Notes are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by counsel. It is expected that delivery of the Notes will
be made at the office of BT Alex. Brown Incorporated, 130 Liberty Street, New
York, New York, on or about , 1997.
----------------
BT ALEX. BROWN DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
Alternate Page For Note Prospectus

[PHOTOS AND MAP SHOWING PRODUCTION FACILITIES TO BE INSERTED]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
Alternate Page For Note Prospectus

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS. REFERENCES TO THE COMPANY OR COLOR SPOT REFER TO COLOR SPOT
NURSERIES, INC. AND ITS CONSOLIDATED SUBSIDIARIES AND ITS PREDECESSORS. SEE
"COMPANY HISTORY." UNLESS OTHERWISE INDICATED, ALL STATEMENTS MADE IN THIS
PROSPECTUS (I) ASSUME NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION IN
THE COMMON STOCK OFFERING, (II) REFLECT THE MERGER OF CSN, INC. (THE PARENT
COMPANY OF COLOR SPOT NURSERIES, INC.) INTO COLOR SPOT NURSERIES, INC. WHICH
WILL OCCUR SIMULTANEOUSLY WITH THE CONSUMMATION OF THE OFFERINGS AND (III)
REFLECT A 0.69-FOR-ONE REVERSE STOCK SPLIT. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS." AS
USED IN THIS PROSPECTUS, "FISCAL 1996" REFERS TO THE FISCAL YEAR COMMENCING
SEPTEMBER 8, 1995 AND ENDING JUNE 30, 1996, "FISCAL 1997" REFERS TO THE FISCAL
YEAR ENDED JUNE 30, 1997 AND "FISCAL 1998" REFERS TO THE FISCAL YEAR ENDING JUNE
30, 1998.

THE COMPANY

3
<PAGE>
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Color Spot America, Inc., a predecessor to the Company, was founded in 1983
by Michael F. Vukelich, the Company's current Chief Executive Officer. Following
a change of control in 1991, Mr. Vukelich left the Company and new management
was installed. Between 1992 and 1995, net sales and profitability of the
business declined. In September 1995, an investor group including Mr. Vukelich
formed the Company and acquired the business. Mr. Vukelich's management team
implemented a number of strategic and operational initiatives designed to
improve the Company's customer relationships and financial results. These
initiatives included revamping the Company's merchandising programs,
decentralizing its operations, revising its pricing strategies, renewing its
focus on operating efficiencies and restructuring its sales organization. As a
result of these strategies, the Company has experienced significant improvements
in net sales and operating results. With the improvement of its financial
results, Color Spot embarked on an aggressive acquisition strategy and has
completed 13 acquisitions since June 30, 1996. Color Spot believes it is now
well positioned to continue its growth and further consolidate the wholesale
nursery industry.

The Company's executive offices are located at 3478 Buskirk Avenue, Suite
260, Pleasant Hill, CA 94523, and its telephone number is (510) 934-4443. The
Company was incorporated in August 1995.

THE OFFERING

<TABLE>
<S> <C>
Securities Offered................ $85,000,000 principal amount of % Senior Subordinated
Notes due 2007.

Maturity Date..................... , 2007.

Interest Payment Dates............ and of each year commencing , 1998.

Optional Redemption............... On or after , 2002, the Notes will be
redeemable, in whole or in part, at the redemption
prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In
addition, at any time on or prior to , 2000,
the Company may use the net cash proceeds of one or more
Public Equity Offerings (as defined) to redeem the Notes
at a redemption price equal to % of the aggregate
principal amount to be redeemed, together with accrued
and unpaid interest, if any, to the date of redemption;
provided that at least 65% of the original aggregate
principal amount of the Notes remains outstanding
immediately after any such redemption. See "Description
of Notes--Redemption."

Change of Control................. Upon the occurrence of a Change of Control (as defined),
each holder of Notes will have the right to require the
Company to repurchase such holder's Notes at a purchase
price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to
the date of repurchase.

Ranking........................... The Notes will be unsecured, subordinated in right of
payment to all existing and future Senior Debt of the
Company and effectively subordinated to all obligations
of the Company's subsidiaries. The Notes will rank PARI
PASSU with any future senior subordinated indebtedness
of the Company and will rank senior to all other
subordinated debt of the Company. The Indenture permits
the Company to incur additional indebtedness, including
up to $150.0 million of Senior Debt available
</TABLE>

4
<PAGE>
Alternate Page For Note Prospectus
<TABLE>
<S> <C>
under the Company's credit facilities, subject to
certain limitations. As of September 25, 1997, after
giving effect to the Offerings, the aggregate amount of
the Company's outstanding Senior Debt would have been
approximately $2.2 million (excluding unused
commitments), the Company would have had $7.4 million of
PARI PASSU indebtedness outstanding, and the Company's
subsidiaries would have had total liabilities of $
million. See "Risk Factors--Subordination" and "Capi-
talization."

Certain Covenants................. The indenture under which the Notes will be offered (the
"Indenture") will contain covenants that will, subject
to certain exceptions, limit, among other things, the
ability of the Company and its subsidiaries to (i) pay
dividends or make certain other restricted payments or
investments; (ii) incur additional Indebtedness and
issue disqualified stock and preferred stock; (iii)
create liens on assets; (iv) merge, consolidate, or sell
all or substantially all of their assets; (v) enter into
certain transactions with affiliates; (vi) create
restrictions on dividends or other payments by
subsidiaries to the Company; and (vii) create guar-
antees of indebtedness by subsidiaries. See "Description
of Notes."

Use of Proceeds................... The Company will use the proceeds from the Notes
Offering, together with approximately $46.1 million of
aggregate proceeds from the Common Stock Offering, to
repay outstanding borrowings under the Company's
existing credit facility and for general corporate
purposes. See "Use of Proceeds."

Conditions........................ The closing of the Notes Offering is conditioned upon
consummation of the Common Stock Offering.
</TABLE>

The Company does not intend to apply for a listing of the Notes on any
national securities exchange. See "Underwriting."

CONCURRENT OFFERING

Concurrently with the Notes Offering, Color Spot is offering 3,850,000
shares of Common Stock to the public. The Notes Offering is contingent upon the
consummation of the Common Stock Offering, and the Common Stock Offering is
contingent upon the consummation of the Notes Offering.

5
<PAGE>
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SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
------------------------ -------------------------------------
1/1/95 9/8/95 FISCAL YEAR
YEAR ENDED THROUGH THROUGH ENDED PRO FORMA
12/31/94 9/8/95 6/30/96(1) 6/30/97(2) FISCAL YEAR
----------- ----------- ----------- ----------- ENDED
6/30/97
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 39,411 $ 28,991 $ 51,995 $ 113,400 $182,774
Gross profit............................................ 14,995 11,491 24,310 49,374 75,087
Operating expenses...................................... 17,869 14,438 18,475 39,458 59,801
Income (loss) from operations........................... (2,874) (2,947) 5,835 9,916 15,286
Interest expense........................................ 3,170 2,576 687 4,179 10,378
Income tax provision.................................... 2,069 2,830 2,324
Income (loss) before extraordinary loss................. (5,947) (5,485) 2,988 3,055 2,841
Extraordinary gain (loss)............................... (215)
Net income (loss)....................................... (5,947) (5,485) 2,988 2,840

OPERATING DATA:
EBITDA(3)(4)............................................ $(1,619) $(2,022 ) $6,433 $13,357 $22,774
Depreciation and amortization........................... 1,255 925 598 3,441 7,488
Capital expenditures.................................... 668 260 1,529 6,181 10,450
Ratio of earnings to fixed charges(4)(5)................ (0.64 ) (0.85 ) 4.68 2.10 1.43
Number of production facilities(6)...................... 6 6 6 13 19
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
AS
ACTUAL PRO FORMA ADJUSTED(7)
--------- ---------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................ $13,266 $16,197 $34,600
Total assets................................................................... 133,417 186,753 193,511
Long-term debt, excluding current portion...................................... 83,408 120,723 96,026
Stockholders' equity........................................................... 4,275 10,015 54,547
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

6
<PAGE>
Alternate Page For Note Prospectus

(FOOTNOTES FOR PRECEDING PAGE)

- - - ------------------------------

(1) Includes the financial results of Barcelo's Plant Growers from March 1996.

(3) EBITDA represents income before interest expense, depreciation and
amortization expense, the provision for income taxes, other (income) expense
and extraordinary items. While EBITDA is not intended to represent cash flow
from operations as defined by GAAP and should not be considered as an
indicator of operating performances or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, it is included herein to
provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements. Other companies may define EBITDA differently, and as a
result, those measures may not be comparable to the Company's EBITDA. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(4) If the recapitalization of the Company, all of the acquisitions which
occurred during fiscal 1997 and fiscal 1998 to date and the Offerings
described in this Prospectus occurred on July 1, 1996, interest expense
would have decreased by $379,000 and net income would have increased to
$3,049,000. On such basis, the ratio of earnings to fixed charges would have
been 1.48. See "Certain Transactions--Recapitalization."

(5) For purposes of computing a ratio of earnings to fixed charges, "earnings"
consist of income (loss) before provision for income taxes plus fixed
charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs, and one-third of rental
expense (the portion deemed representative of the interest factor).

(6) Facilities include owned and leased properties as of the end of each period,
excluding Christmas tree fields.

(7) Adjusted to give effect to (i) the sale of 3,850,000 shares of Common Stock
offered in the Common Stock Offering at an assumed initial public offering
price of $13.00 per share, (ii) the sale of $85 million aggregate principal
amount of Senior Subordinated Notes offered hereby at an assumed interest
rate of 9% per annum and (iii) the application of the net proceeds from the
Offerings. See "Use of Proceeds."

------------------------------

7
<PAGE>
Alternate Page For Note Prospectus

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE NOTES
OFFERED BY THIS PROSPECTUS. THE STATEMENTS CONTAINED IN THIS PROSPECTUS WHICH
ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE SET FORTH IN OR IMPLIED BY FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. WHEN USED IN THIS
PROSPECTUS, THE WORDS "MAY," "WILL," "EXPECT," "ANTICIPATE," "CONTINUE,"
"ESTIMATE," "PROJECT," "INTEND" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934 (THE "EXCHANGE ACT") REGARDING EVENTS, CONDITIONS AND FINANCIAL
TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS, BUSINESS STRATEGY, RESULTS OF
OPERATIONS AND FINANCIAL POSITION. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DESCRIBED BELOW, UNDER THE HEADING "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
ELSEWHERE IN THIS PROSPECTUS.

SUBSTANTIAL LEVERAGE AND DEBT SERVICE. The Company will continue to be
significantly leveraged after the Offerings. See "Capitalization." As of
September 25, 1997, after giving effect to the Offerings, the Company would have
had approximately $ million of consolidated long-term indebtedness and
approximately $ million of common stockholders' equity. Upon consummation of
the Offerings, the Company expects to have $150.0 million available to be
borrowed under the New Loan Agreement. The Company and its subsidiaries may
incur additional indebtedness in the future, subject to certain limitations
contained in the instruments governing its indebtedness. Accordingly, the
Company will have significant debt service obligations.

The Company's debt service obligations will have important consequences to
Holders (as defined), including the following: (i) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to the Company for operations, acquisitions, future business opportunities and
other purposes and increasing the Company's vulnerability to adverse general
economic and industry conditions; (ii) the Company's leveraged position may
increase its vulnerability to competitive pressures; (iii) the financial
covenants and other restrictions contained in the New Loan Agreement and in the
Indenture will require the Company to meet certain financial tests and will
restrict its ability to borrow additional funds, to dispose of assets or to pay
cash dividends on, or repurchase, preferred or common stock; and (iv) funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes may be limited.

The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Notes) depends
on its future performance, which to a certain extent is subject to economic,
financial, competitive and other factors beyond its control. Based upon the
current level of operations and anticipated growth, the Company believes that
future cash flow from operations, together with available borrowings under the
New Loan Agreement, will be adequate to meet the Company's anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments for the next 12 months. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." There can be no assurance,
however, that the Company's business will continue to generate sufficient cash
flow from operations in the future to service its debt and make necessary
capital expenditures. If unable to do so, the Company may be required to
refinance all or a portion of its existing debt, including the Notes, to sell
assets or to obtain additional financing. There can be no assurance that any
such refinancing or that any such sale of assets or additional financing would
be possible on terms reasonably favorable to the

8
<PAGE>
Alternate Page For Note Prospectus
Company, or at all. In addition, unforeseen problems, delays, expenses and
difficulties as well as changes in economic and regulatory or competitive
conditions may lead to cost increases that would make the Company's current cash
flow and borrowings under the New Loan Agreement insufficient to meet the
Company's capital needs. See "--Future Capital Needs; Uncertainty of Additional
Financing."

SUBORDINATION. The Company's obligations under the Notes will be
subordinate and junior in right of payment to all existing and future Senior
Debt of the Company and to all obligations of the Company's subsidiaries. As of
September 25, 1997, after giving effect to the Offerings, the aggregate amount
of the Company's outstanding Senior Debt would have been approximately $2.2
million (excluding unused commitments) and the aggregate obligations of the
Company's subsidiaries would have been approximately $ million. Additional
Senior Debt may be incurred by the Company from time to time, subject to certain
restrictions. By reason of such subordination, in the event of an insolvency,
liquidation, or other reorganization of the Company, the lenders under the New
Loan Agreement and other creditors who are holders of Senior Debt or are
creditors of the Company's subsidiaries must be paid in full before the Holders
may be paid; accordingly, there may be insufficient assets remaining after
payment of prior claims to pay amounts due on the Notes. In addition, under
certain circumstances, no payments may be made with respect to the Notes if a
Default exists with respect to Senior Debt. See "Description of Notes--
Subordination."

DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH. As part of its growth
strategy, the Company aggressively pursues the acquisition of other companies
that expand its existing business. See "Business--Growth Strategy." Acquisitions
involve a number of risks, including effects on the Company's reported operating
results, the diversion of management's attention, the dependence on hiring,
training and retaining key personnel and risks associated with unanticipated
problems or legal liabilities, some or all of which could have a material
adverse effect on the Company. Historically, the Company has financed
acquisitions through the incurrence of additional debt and the issuance of
Company stock. See "--Substantial Leverage and Debt Service." The Company
completed one acquisition in fiscal 1996, seven acquisitions in fiscal 1997 and
six acquisitions to date in fiscal 1998. There can be no assurance that the
Company will be able to integrate its acquisitions or successfully implement its
business model in a timely manner without substantial costs, delays or other
problems. Once integrated and operating according to the Company's business
model, these acquisitions may not achieve sales, profitability and productivity
commensurate with the Company's historical operating results. In addition, there
can be no assurance that the Company's management and financial controls,
personnel, computer systems and other corporate support systems will be adequate
to manage the increase in the size and scope of the Company's operations as a
result of its acquisitions. Additionally, there can be no assurances that the
acquired businesses will enhance the Company's business or financial
performance.

9
<PAGE>
Alternate Page For Note Prospectus
support such growth. In addition, the Company's rapid growth may place
significant pressure on its financial controls and inventory management systems.
Any failure by the Company to manage its growth effectively could have a
material adverse effect on the Company.

10
<PAGE>
Alternate Page For Note Prospectus

RESTRICTIONS IMPOSED BY NEW LOAN AGREEMENT. Simultaneously with the
completion of the Offerings, the Company will enter into a new senior credit
facility (the "New Loan Agreement") with a number of banking institutions, led
by Credit Agricole Indosuez, which will restrict, among other things, the
Company's ability to incur additional indebtedness, incur liens, pay or declare
dividends, enter into any transaction not in its usual course of business,
guarantee or otherwise become in any way liable with respect to the obligations
of another party or entity, merge or consolidate with another person or sell or
transfer any collateral (except for the sale of inventory in the ordinary course
of the Company's business). A breach of any of these covenants could result in a
default under the New Loan Agreement. Upon the occurrence of an Event of Default
(as defined in the New Loan Agreement), the lenders could elect to declare all
amounts outstanding under the New Loan Agreement, together with accrued
interest, to be immediately due and payable. If the Company were unable to pay
those amounts, the lenders could proceed against the collateral granted to them
to secure that indebtedness. If the New Loan Agreement indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay the indebtedness in full and other indebtedness of the
Company. Substantially all of the assets of the Company have been pledged as
security under the New Loan Agreement. The restrictions described above, in
combination with the leveraged nature of the Company, may limit the Company's
ability to obtain financing in the future or may otherwise restrict corporate
activities. See "Description of Certain Indebtedness."

ENCUMBRANCES ON ASSETS TO SECURE THE NEW LOAN AGREEMENT. In addition to
being subordinated to all existing and future Senior Debt of the Company, the
Notes will not be secured by any of the Company's assets. The Company's
obligations under the New Loan Agreement will be secured by substantially all of
the assets of the Company. If the Company becomes insolvent or is liquidated, or
if payment under the New Loan Agreement is accelerated, the lenders under the
New Loan Agreement will be entitled to exercise the remedies available to a
secured lender under applicable law. See "Description of Certain
Indebtedness--New Loan Agreement."

CHANGE OF CONTROL. The Indenture will provide that, upon the occurrence of
a Change of Control, the Company must make an offer to purchase all or any part
of the Notes at a price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase. The
New Loan Agreement prohibits the Company from repurchasing any Notes, except
with certain proceeds of one or more Public Equity Offerings. The New Loan
Agreement also provides that certain change of control events with respect to
the Company would constitute a default thereunder. Any future credit agreements
or other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing the
Notes, or if the Company is required to make an Asset Sale Offer (as defined)
pursuant to the terms of the Notes, the Company could seek the consent of its
lenders to purchase the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or
refinance such borrowings, the Company would remain prohibited from purchasing
the Notes. In such case, the Company's failure to purchase tendered Notes would
constitute an Event of Default (as defined) under the Indenture. If, as a result
thereof, a default occurs with respect to any Senior Debt, the subordination
provisions in the Indenture would likely restrict

11
<PAGE>
Alternate Page For Note Prospectus
payments to the Holders. The provisions relating to a Change of Control included
in the Indenture may increase the difficulty of a potential acquiror obtaining
control of the Company. See "Description of Notes--Change of Control."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company
currently anticipates that its available cash combined with the net proceeds of
the Offerings, borrowings under the New Loan Agreement and funds from operations
will be sufficient to meet its anticipated working capital, capital expenditure
and acquisition financing requirements for the next 12 months. However, there
can be no assurance that such resources will be sufficient for such
requirements. The Company may need to raise additional funds through the
issuance of public or private debt or equity securities in order to take
advantage of unanticipated opportunities, including acquisitions of
complementary businesses, or otherwise respond to unanticipated competitive
pressures. There can be no assurance that additional financing will be available
on terms favorable to the Company, or at all. If adequate funds are not
available, or not available on acceptable terms, the Company may not be able to
take advantage of unanticipated opportunities or otherwise respond to
unanticipated competitive pressures. Such inability could have a material
adverse effect on the Company. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Certain Indebtedness."

WEATHER; GENERAL AGRICULTURAL RISKS. Inclement weather or production
difficulties occurring at a time of peak production or sales (in the second half
of the Company's fiscal year), particularly on weekends during the peak
gardening season, could cause declines in net sales and operating income that
could have a material adverse effect on the Company. In the event of severe
weather conditions, the Company does not have sufficient facilities to preserve
and protect all of its products. Meteorologists are currently predicting that a
severe weather phenomenon known as "El Nino" will impact the United States in
late 1997 and early 1998, which may result in unusually cool and wet weather
conditions in many of the Company's markets. Such weather conditions could delay
the upcoming peak growing and gardening season and reduce the demand for the
Company's products. The Company intends to expand into new markets that
typically have greater weather variability than the Company's historic markets.
Failure by the Company to adequately manage this variability could have a
material adverse effect on the Company. The Company's operations also may be
materially affected by disease, pests or other natural hazards. Agricultural
production is highly dependent upon the availability of water. The Company has
not installed, and is not required to install, water reclamation systems at the
majority of its production facilities. The loss of access to water at any of the
Company's facilities would have a material adverse effect on the Company. See
"-- Governmental Regulations; Minimum Wage." Given the perishable nature of the
Company's products, if sales do not materialize as expected, the Company could
experience a significant decline in profitability.

12
<PAGE>
Alternate Page For Note Prospectus
such price increases can be passed on to the Company's customers in the form of
higher prices for the Company's products.

13
<PAGE>
Alternate Page For Note Prospectus
repurchase by the Company of shares of Common Stock held by the management
stockholders. Under the put/call option agreement, KCSN retains an irrevocable
proxy to vote the shares of Common Stock not yet repurchased by the Company. As
of July 31, 1997, KCSN had a proxy to vote 20,211 shares of Common Stock held by
the management stockholders. Consequently, after completion of the Common Stock
Offering, KCSN, the management stockholders and Heller will continue to have
significant influence over the policies and affairs of the Company and may be in
a position to determine the outcome of corporate actions requiring stockholder
approval, including adopting amendments to the Company's certificate of
incorporation, electing directors and approving or disapproving mergers or sales
of all or substantially all of the Company's assets. See "Certain
Transactions--Relationship with Kohlberg--Control by KCSN," "--
Recapitalization," "Principal Stockholders" and "Description of Capital Stock."

LACK OF PRIOR MARKET FOR THE NOTES. There is currently no public market for
the Notes and the Company has no present plan to list the Notes on a national
securities exchange or to include the Notes for quotation through an interdealer
quotation system. There can be no assurance that such a market will develop or,
if such a market develops, as to the liquidity of such market. The Company has
been advised by the Underwriters that the Underwriters intend to make a market
in the Notes after consummation of the Notes Offering, as permitted by
applicable laws and regulations; however, the Underwriters are not obligated to
do so and any such market making activities may be discontinued at any time
without notice. See "Underwriting."

14
<PAGE>
Alternate Page For Note Prospectus

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Notes offered hereby,
after deducting underwriting discounts and estimated offering expenses, are
estimated to be approximately $82.0 million. The net proceeds to the Company
from the Common Stock Offering are estimated to be $46.1 million assuming an
initial public offering price of $13.00 per share (approximately $53.1 million
if the Underwriters' over-allotment option is exercised in full). The Company
currently plans to repay in full the outstanding borrowings under the Company's
existing senior credit facility, which totaled approximately $115.3 million at
September 25, 1997 from the net proceeds of the Offerings. The remaining net
proceeds are expected to be used for general corporate purposes. Pending such
uses, the net proceeds of the Offerings will be invested in short-term, interest
bearing, investment grade securities.

The following table illustrates the sources and uses of funds from the
Offerings as if they occurred on September 25, 1997. The actual amounts of
sources and uses of funds may differ from amounts set forth below.

<TABLE>
<CAPTION>
AMOUNTS
-------------
<S> <C>
(IN MILLIONS)
SOURCES OF FUNDS
Common Stock Offering................................................ $50.1
Notes offered hereby................................................. 85.0
------
Total Sources of Funds............................................. $ 135.1
------
------
USES OF FUNDS
Repay debt under existing senior credit facility..................... $ 115.3
General corporate purposes........................................... 12.9
Estimated fees and expenses.......................................... 6.9
------
Total Uses of Funds................................................ $ 135.1
------
------
</TABLE>

16
<PAGE>
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THE PREDECESSORS
-------------------------------------------------------------
COLOR SPOT OREGON THE COMPANY
----------------------------------- ------------------------
COLOR SPOT AMERICA YEAR 1/1/95 9/8/95 YEAR
------------------------ ENDED THROUGH THROUGH ENDED
1/1/93 02/28/93 12/31/94 9/8/95 6/30/96(1) 6/30/97(2)
THROUGH THROUGH --------- --------- ----------- -----------
02/28/93 12/31/93
----------- -------------
(UNAUDITED) (UNAUDITED)
YEAR
ENDED
12/31/92
-----------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $43,662 $3,015 $38,650 $39,411 $28,991 $51,995 $113,400
Gross profit......................... 14,461 690 12,863 14,995 11,491 24,310 49,374
Sales, marketing and delivery
expenses........................... 11,728 2,101 11,879 13,459 10,488 15,495 31,168
General and administrative
expenses........................... 4,164 88 3,370 3,986 3,659 2,886 7,300
Amortization of intangible assets.... 12 17 423 424 291 94 990
Income (loss) from operations........ (1,443 ) (1,516 ) (2,809 ) (2,874) (2,947) 5,835 9,916
Interest expense..................... 3,728 725 2,182 3,170 2,576 687 4,179
Other expense (income), net.......... 214 (55 ) (83 ) (97) (38) 91 (148 )
Income tax provision (benefit)....... (1,061 ) -- -- -- -- 2,069 2,830
Income before extraordinary gain
(loss)............................. (4,324 ) (2,186 ) (4,908 ) (5,947) (5,485) 2,988 3,055
Extraordinary gain (loss)............ 149 (483 ) -- -- -- -- (215 )
----------- ----------- ------------- --------- --------- ----------- -----------
Net income (loss).................... $(4,175 ) $(2,669 ) $(4,908 ) $(5,947) $(5,485) $2,988 $2,840
----------- ----------- ------------- --------- --------- ----------- -----------
----------- ----------- ------------- --------- --------- ----------- -----------
Per Share Amounts(3):
Income before extraordinary loss--
primary............................ $0.52 $0.43
----------- -----------
----------- -----------
Income before extraordinary
loss--fully diluted................ 0.52 0.42
----------- -----------
----------- -----------
Dividends per share.................. 0.22
OPERATING DATA:
EBITDA(4)............................ $(242 ) $(1,317 ) $(1,853 ) $(1,619) $(2,022) $6,433 $13,357
Depreciation and amortization........ 1,201 199 956 1,255 925 598 3,441
Capital expenditures................. 683 93 1,148 668 260 1,529 6,181
Ratio of earnings to fixed
charges(5)......................... (0.21 ) (1.56 ) (0.72 ) (0.64) (0.85) 4.68 2.10
Number of production facilities(6)... 7 7 6 6 6 6 13
BALANCE SHEET DATA (END OF PERIOD):
Working capital...................... $(13,807 ) $(11,230 ) $4,022 $(21,435) $(29,722) $6,336 $13,266
Total assets......................... 27,163 25,276 25,874 24,554 22,695 33,219 133,417
Long-term debt, excluding current
portion............................ 6,124 10,991 5,785 4,249 1,430 6,785 83,408
Stockholders' equity (deficit)....... (8,864 ) (11,533 ) (4,658 ) (10,605) (16,090) 12,735 4,275
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

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(FOOTNOTES FOR PRECEDING PAGE)

- - - ------------------------------

(1) Includes the financial results of Barcelo's Plant Growers from March 1996.

(3) Per share amounts exclude the extraordinary loss which would decrease the
primary and fully diluted share amounts by $0.03 in 1997.

(4) EBITDA represents income before interest expense, depreciation and
amortization expense, the provision for income taxes, other expense (income)
and extraordinary items. While EBITDA is not intended to represent cash flow
from operations as defined by GAAP and should not be considered as an
indicator of operating performances or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, it is included herein to
provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements. Other companies may define EBITDA differently, and as a
result, those measures may not be comparable to the Company's EBITDA. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(6) Facilities include owned and leased properties as of the end of each period,
excluding Christmas tree fields.

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR 1997
PRO FORMA ADJUSTMENTS
-------------------------------------------
ACQUISITIONS ACQUISITIONS
COMPANY BEFORE AFTER OTHER
HISTORICAL YEAR END YEAR END ADJUSTMENTS PRO FORMA
----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $113,400 $22,097 $47,577 $(300 (a) $182,774
Cost of sales.................................... 64,026 14,102 28,446 1,113 (b) 107,687
----------- ------------- ------------- ------------- -----------
Gross profit................................... 49,374 7,995 19,131 (1,413 ) 75,087
Operating expenses............................... 39,458 7,783 12,387 173 (c) 59,801
----------- ------------- ------------- ------------- -----------
Income (loss) from operations.................. 9,916 212 6,744 (1,586 ) 15,286
Interest expense................................. 4,179 751 1,398 4,050 (d) 10,378
Other (income) expense, net...................... (148 ) (95 ) 44 (58 (e) (257 )
----------- ------------- ------------- ------------- -----------
Income (loss) before income tax provision...... 5,885 (444 ) 5,302 (5,578 ) 5,165
Income tax provision (benefit)................... 2,830 (200 ) 2,386 (2,692 (f) 2,324
----------- ------------- ------------- ------------- -----------
Net income..................................... $3,055 $(244 ) $2,916 $(2,886 ) $2,841
----------- ------------- ------------- ------------- -----------
----------- ------------- ------------- ------------- -----------
OPERATING DATA:
EBITDA........................................... $13,357 $961 $8,036 $420 $22,774
Depreciation and amortization.................... 3,441 749 1,292 2,006 7,488
</TABLE>

- - - ------------------------------

(a) Reflects the elimination of net sales generated at a facility that was
closed upon acquisition.

(d) Reflects additional interest on borrowings used to finance the acquisitions
at the current interest rate of 9%.

(e) Reflects the elimination of certain income and expenses that were associated
with operations not acquired by the Company.

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)

LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current maturities of long-term debt............................ $4,595 $ $4,595
Revolving line of credit........................................ 2,105 2,105
Accounts payable................................................ 9,815 2,863 12,678
Accrued liabilities............................................. 12,395 273 12,668
Dividends payable to stockholders............................... 906 906
Deferred income taxes........................................... 13,856 7,405 21,261
-------------- ------- -----------
Total current liabilities................................... 43,672 10,541 54,213
Long-term debt.................................................... 83,408 37,315 120,723
-------------- ------- -----------
Total liabilities........................................... 127,080 47,856 174,936
-------------- ------- -----------
Redeemable common stock........................................... 2,062 (260 ) 1,802
Stockholders' Equity:
Preferred stock.................................................
Common stock.................................................... 162 12 174
Additional paid-in capital...................................... 45,033 5,998 51,021
Treasury stock.................................................. (45,228 ) (260 ) (45,488 )
Retained earnings............................................... 4,308 4,308
-------------- ------- -----------
Total stockholders' equity.................................. 4,275 5,740 10,015
-------------- ------- -----------
Total liabilities, redeemable common stock and stockholders'
equity.................................................... $ 133,417 $ 53,336 $ 186,753
-------------- ------- -----------
-------------- ------- -----------
</TABLE>

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BUSINESS

OVERVIEW

The Company believes it is one of the few wholesale nurseries that has the
scale and distribution capabilities necessary to provide large volumes of high
quality product to its retail customers on a multi-regional basis. The Company
produces over 2,000 varieties of live plants, including bedding plants, shrubs,
potted flowering plants, ground cover and fresh cut Christmas trees. Through its
200 person sales force, Color Spot also provides its retail customers with a
broad array of value-added services, such as in-store merchandising, product
display and maintenance, promotional planning and product reordering. The
Company believes that providing these services differentiates it from its
competitors and helps to establish Color Spot as a preferred supplier in the
industry. Color Spot operates 19 production facilities located in California,
Arizona, Texas, Oregon and Washington.

HISTORY

Color Spot America was founded in 1983 by Michael F. Vukelich, the Company's
current Chief Executive Officer, and it grew to become one of the largest
bedding plant producers in California. In January 1991, Mr. Vukelich left Color
Spot America, ceding operational control to PacifiCorp, which installed new
management. In 1993, Color Spot America sold substantially all of its assets and
liabilities to Color Spot Oregon, a corporation controlled by PacifiCorp. Net
sales and profitability of Color Spot America and Color Spot Oregon declined
between 1992 and 1995.

INDUSTRY

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possessing the voting power to elect a majority of the Board of Directors and
(ii) a sale or transfer of more than 50% of the Company's consolidated assets or
a merger or consolidation in which the holders of the capital stock of the
Company prior to such merger or consolidation do not have the power to elect a
majority of the board of directors of the surviving entity following such merger
or consolidation. Amounts owing under the Heller Note are also subject to
acceleration in the event of (a) failure to pay principal or interest, (b)
certain unremedied covenant breaches, (c) bankruptcy or insolvency of the
Company, (d) an individual final judgment in excess of $250,000 or in the
aggregate, judgments in excess of $1.0 million, (e) the acceleration of other
indebtedness of $1.0 million individually or $2.5 million in the aggregate prior
to its stated maturity, or (f) failure by the Company to make a mandatory
redemption of the Heller Note.

DESCRIPTION OF NOTES

The Notes will be issued under an indenture (the "Indenture"), to be dated
as of , 1997 by and between the Company and U.S. Trust Company, as
Trustee (the "Trustee"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TIA"), and to all of the provisions of the Indenture (a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part), including the definitions of certain terms therein and those terms made a
part of the Indenture by reference to the TIA as in effect on the date of the
Indenture. The definitions of certain capitalized terms used in the following
summary are set forth below under "--Certain Definitions." For purposes of this
section, references to the "Company" include only the Company and not its
Subsidiaries.

The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior Debt of the Company.

The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for transfer at the offices of the Registrar, which initially will be the
Trustee's corporate trust office. The Company may change any Paying Agent and
Registrar without notice to holders of the Notes (the "Holders"). The Company
will pay principal (and premium, if any) on the Notes at the Trustee's corporate
office in New York, New York. At the Company's option, interest may be paid at
the Trustee's corporate trust office or by check mailed to the registered
address of Holders.

PRINCIPAL, MATURITY AND INTEREST

The Notes are limited in aggregate principal amount to $85,000,000 and will
mature on , 2007. Interest on the Notes will accrue at the rate of
% per annum and will be payable semiannually in cash on each and
commencing on , 1998, to the persons who are registered
Holders at the close of business on the and immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from and including the date of issuance.

REDEMPTION

MANDATORY REDEMPTION. The Notes will not be entitled to the benefit of any
mandatory sinking fund.

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OPTIONAL REDEMPTION. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after ,
2002, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
- - - ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. %
2003.............................................................................. %
2004.............................................................................. %
2005 and thereafter............................................................... 100.000%
</TABLE>

OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time
to time, on or prior to , 2000, the Company may, at its option, use
the net cash proceeds of one or more Public Equity Offerings (as defined below)
to redeem the Notes at a redemption price equal to % of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption; PROVIDED that at least 65% of the principal amount originally issued
of Notes remains outstanding immediately after any such redemption. In order to
effect the foregoing redemption with the proceeds of any Public Equity Offering,
the Company shall make such redemption not more than 120 days after the
consummation of any such Public Equity Offering.

As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company after the
Issue Date pursuant to a registration statement filed with the Commission in
accordance with the Securities Act.

SELECTION AND NOTICE OF REDEMPTION

In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which such Notes are listed or, if such Notes are not then listed on a national
securities exchange, on a PRO RATA basis, by lot or by such method as the
Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no Notes of a
principal amount of $1,000 or less shall be redeemed in part; PROVIDED, FURTHER,
that if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis as
is practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company had deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.

SUBORDINATION

The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt shall
first be paid in full in cash or Cash Equivalents, or

51
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such payment duly provided for to the satisfaction of the holders of Senior
Debt, before any payment or distribution of any kind or character is made on
account of any Obligations on the Notes, or for the acquisition of any of the
Notes for cash or property or otherwise. If any default occurs and is continuing
in the payment when due, whether at maturity, upon any redemption, by
declaration or otherwise, of any principal of, interest on, unpaid drawings for
letters of credit issued in respect of, or regularly accruing fees with respect
to, any Senior Debt, no payment of any kind or character shall be made by or on
behalf of the Company or any other Person on its or their behalf with respect to
any Obligations on the Notes or to acquire any of the Notes for cash or property
or otherwise.

In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Company
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Notes or (y) acquire any of the
Notes for cash or property or otherwise. Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 180 days from the
date the payment on the Notes was due and only one such Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Blockage Period with
respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of commencement of such Blockage Period that, in either case, would give rise to
an event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).

By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Notes, may recover less, ratably, than holders of Senior
Debt.

After giving effect to the Offerings and the application of the proceeds
therefrom, at September 25, 1997, the aggregate amount of Senior Debt would have
been approximately $2.2 million, the aggregate amount of PARI PASSU debt would
have been approximately $7.4 million and the Company's Subsidiaries would have
had total liabilities of $ million.

CHANGE OF CONTROL

The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase.

The Indenture will provide that, prior to the mailing of the notice referred
to below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement and
all other such Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer or (ii) obtain the requisite consents under

52
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the Credit Agreement and all other Senior Debt to permit the repurchase of the
Notes as provided below. The Company shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase Notes
pursuant to the provisions described below.

Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 45 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a Note purchased pursuant to a Change of
Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.

If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.

Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
its property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not afford
the Holders of Notes protection in all circumstances from the adverse aspects of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.

CERTAIN COVENANTS

The Indenture will contain, among others, the following covenants:

LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company may incur Indebtedness
(including, without

53
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limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company
may incur Acquired Indebtedness, in each case if on the date of the Incurrence
of such Indebtedness, after giving effect to the incurrence thereof, the
Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to
1.0.

LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes or (d) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in clauses (a),
(b) (c) and (d) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default of an Event of Default shall have occurred and be continuing or (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted
Payments (including such proposed Restricted Payment) made subsequent to the
Issue Date (the amount expended for such purposes, if other than in cash, being
the fair market value of such property as determined reasonably and in good
faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50%
of the cumulative Consolidated Net Income (or if cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss) of the Company earned
subsequent to the Issue Date and on or prior to the date the Restricted Payment
occurs (the "Reference Date") (treating such period as a single accounting
period); plus (x) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company (excluding net cash proceeds
received from the sale of Capital Stock to employees of the Company and any of
its Subsidiaries after the Issue Date to the extent such amounts have been
applied in accordance with clause (4) of the following paragraph); plus (y)
without duplication of any amounts included in clause (iii) (x) above, 100% of
the aggregate net cash proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock (excluding, in the case of
clauses (iii) (x) and (y), any net cash proceeds from a Public Equity Offering
to the extent used to redeem the Notes); plus (z) aggregate net cash proceeds
received by the Company or any of its Subsidiaries as a distribution or
repayment with respect to, or from the sale of, Investments (other than
Permitted Investments) made after the Issue Date up to the original amount of
such Investments.

Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of Capital
Stock of the Company, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes either (i) solely in exchange for shares of Qualified
Capital Stock of the Company, or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; and (4) so long as no Default or Event of Default
shall have occurred and be continuing, repurchases by the Company of Capital
Stock of the Company from employees of the Company or any of its Subsidiaries or
their authorized representatives upon the death, disability or

54
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termination of employment of such employees or pursuant to a written contract or
plan, in an aggregate amount not to exceed $1,000,000 in any calendar year plus
an aggregate amount of net cash proceeds received by the Company subsequent to
the Issue Date from the sale of Capital Stock to employees of the Company and
any of its Subsidiaries to the extent such proceeds have not been included in
making the calculation in clause (iii) of the immediately preceding paragraph.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2) and (4) shall be
included in such calculation.

Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.

LIMITATION ON ASSET SALES. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof
either (A) to prepay any Senior Debt and, in the case of any Senior Debt under
any revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to make an investment in a similar
business or properties or assets that replace the business, properties or assets
that were the subject of such Asset Sale or in properties and assets that will
be used in the business of the Company and its Restricted Subsidiaries as
existing on the Issue Date or in businesses reasonably related thereto
("Replacement Assets"), or (C) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after
an Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Restricted Subsidiary determines not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B)
and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
PRO RATA basis, that amount of Notes equal to the Net Proceeds Offer Amount at a
price equal to 100% of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the date of purchase; PROVIDED,
HOWEVER, that if at any time any non-cash consideration received by the Company
or any Restricted Subsidiary of the Company, as the case may be, in connection
with any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of
$5,000,000 resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of
$5,000,000, shall be applied as required pursuant to this paragraph).

In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties

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and assets of the Company and its Restricted Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.

Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; PROVIDED, that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.

Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a PRO RATA basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.

LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date; (6) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) above; PROVIDED, HOWEVER, that the provisions relating to
such encumbrance or restriction contained in any such Indebtedness are no less
favorable to the Company in any material respect as determined by the Board of
Directors of the Company in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (4) or (5); (7) Indebtedness or other
contractual requirements of a Receivables Subsidiary in connection with a
Qualified Receivables Transaction, provided that such restrictions apply only to
such Receivables Subsidiary; or (8) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (c) above on the property so acquired.

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LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.

LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of its Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
Lien on such property, assets or proceeds that is senior in priority to such
Liens and (ii) in all other cases, the Notes are equally and ratably secured,
except for (A) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date; (B) Liens securing Senior
Debt; (C) Liens securing the Notes; (D) Liens of the Company or a Wholly Owned
Restricted Subsidiary of the Company on assets of any Subsidiary of the Company;
(E) Liens securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
PROVIDED, HOWEVER, that such Liens (A) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (B) do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted
Liens.

PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Company will not
incur or suffer to exist Indebtedness that is senior in right of payment to the
Notes and subordinate in right of payment to any other Indebtedness of the
Company.

MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless: (i) either (1) the Company shall be the surviving
or continuing corporation or (2) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes and the Indenture on the part of the
Company to be performed or observed; (ii) immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "--Limitation on Incurrence of Additional
Indebtedness" covenant; (iii) immediately before and immediately after giving
effect to such transaction and the assumption contemplated by clause (i)(2)(y)
above (including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or

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in respect of the transaction), no Default or Event of Default shall have
occurred or be continuing; and (iv) the Company or the Surviving Entity shall
have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have been
satisfied.

For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.

The Indenture will provide that upon any consolidation or merger or any
transfer of all or substantially all of the assets of the Company in accordance
with the foregoing, in which the Company is not the continuing corporation, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under the Indenture and the Notes with the same effect as if such surviving
entity had been named as such.

LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $1,000,000 shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $5,000,000, the Company or such Restricted Subsidiary, as the
case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related transactions
to the Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.

(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company (including customary provisions contained in
employment agreements with executive officers of the Company) as determined in
good faith by the Company's Board of Directors or senior management; (ii)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned
Restricted Subsidiaries, provided such transactions are not otherwise prohibited
by the Indenture; (iii) any agreement as in effect as of the Issue Date or any
amendment thereto or any transaction contemplated thereby (including pursuant to
any amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the Holders in
any material respect than the original agreement as in effect on the Issue Date;
(iv) Restricted Payments permitted by the Indenture; (v) the payments by the
Company under that certain lease of its Richmond, California facility between
the Company and M. F. Vukelich Co. dated as of December 1, 1995, as

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amended on December 13, 1995; and (vi) the payments by the Company under that
certain residential lease rental agreement and deposit receipt between the
Company and Michael F. Vukelich, as guardian of Trisha Vukelich, dated as of
December 13, 1995.

LIMITATION OF GUARANTEES BY RESTRICTED SUBSIDIARIES. The Company will not
permit any of its Restricted Subsidiaries, directly or indirectly, by way of the
pledge of any intercompany note or otherwise, to assume, guarantee or in any
other manner become liable with respect to any Indebtedness of the Company or
any other Restricted Subsidiary of the Company (other than (A) Indebtedness and
other obligations under the Credit Agreement, (B) Permitted Indebtedness of a
Restricted Subsidiary of the Company, (c) Indebtedness under Currency Agreements
in reliance on clause (v) of the definition of Permitted Indebtedness, or (D)
Interest Swap Obligations incurred in reliance on clause (iv) of the definition
of Permitted Indebtedness), unless, in any such case (a) such Restricted
Subsidiary executes and delivers a supplemental indenture to the Indenture,
providing a guarantee of payment of the Notes by such Restricted Subsidiary (the
"Guarantee") and (b) (x) if any such assumption, guarantee or other liability of
such Restricted Subsidiary is provided in respect of Senior Debt, the guarantee
or other instrument provided by such Restricted Subsidiary in respect of such
Senior Debt may be superior to the Guarantee pursuant to subordination
provisions no less favorable to the Holders of the Notes than those contained in
the Indenture and (y) if such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of indebtedness that is expressly
subordinated to the Notes, the guarantee or other instrument provided by such
Restricted Subsidiary in respect of such subordinated Indebtedness shall be
subordinated to the Guarantee pursuant to subordination provisions no less
favorable to the Holders of the Notes than those contained in the Indenture.

Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required on
the part of the Trustee or any Holder, upon: (i) the unconditional release of
such Restricted Subsidiary from its liability in respect of the Indebtedness in
connection with which such Guarantee was executed and delivered pursuant to the
preceding paragraph; or (ii) any sale or other disposition (by merger or
otherwise) to any Person which is not a Restricted Subsidiary of the Company of
all of the Company's Capital Stock in, or all or substantially all of the assets
of, such Restricted Subsidiary; PROVIDED that (a) such sale or disposition of
such Capital stock or assets is otherwise in compliance with the terms of the
Indenture and (b) such assumption, guarantee or other liability of such
Restricted Subsidiary has been released by the holders of the other Indebtedness
so guaranteed.

CONDUCT OF BUSINESS. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or related to the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the Issue Date.

REPORTS TO HOLDERS. The Indenture will provide that the Company will
deliver to the Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
Indenture further provides that, notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA Section
314(a).

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EVENTS OF DEFAULT

The following events are defined in the Indenture as "Events of Default":

(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);

(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer) (whether or not such
payment shall be prohibited by the subordination provisions of the
Indenture);

(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default with
such notice requirement but without such passage of time requirement);

(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any Indebtedness of the Company or any Restricted Subsidiary of the Company,
or the acceleration of the final stated maturity of any such Indebtedness if
the Aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated, aggregates
$5,000,000 or more at any time;

(v) one or more judgments in an aggregate amount in excess of $5,000,000
(excluding any amounts covered by insurance as to which the insurer has
acknowledged coverage) shall have been rendered against the Company or any
of its Restricted Subsidiaries and such judgments remain undischarged,
unpaid or unstayed for a period of 60 days after such judgment or judgments
become final and non-appealable; or

(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.

If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit Agreement,
shall become immediately due and payable upon the first to occur of an
acceleration under the Credit Agreement or 5 business days after receipt by the
Company and the Representative under the Credit Agreement of such Acceleration
Notice. If an Event of Default specified in clause (vi) above with respect to
the Company occurs and is continuing, then all unpaid principal of, and premium,
if any, and accrued and unpaid interest on all of the outstanding Notes shall
IPSO FACTO become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.

The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has

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paid the Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advances and (v) in the event of the cure or waiver
of an Event of Default of the type described in clause (vi) of the description
above of Events of Default, the Trustee shall have received an officers'
certificate and an opinion of counsel that such Event of Default has been cured
or waived. No such rescission shall affect any subsequent Default or impair any
right consequent thereto.

The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.

Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.

Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

No director, officer, employee, incorporator or stockholder of the Company
or its Subsidiaries, as such, shall have any liability for any obligations of
the Company under the Notes, the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (i) the rights of Holders to receive payments in respect of
the principal of, premium, if any, and interest on the Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the Note.

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In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that, after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.

SATISFACTION AND DISCHARGE

The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.

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MODIFICATION OF THE INDENTURE

From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including to
cure ambiguities, defects or inconsistencies or to comply with requirements of
the Commission in order to maintain the qualification of the Indenture under the
TIA, so long as such change does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect. In formulating
its opinion on such matters, the Trustee will be entitled to rely on such
evidence as it deems appropriate, including, without limitation, solely on an
opinion of counsel. Other modifications and amendments of the Indenture may be
made with the consent of the Holders of a majority in principal amount of the
then outstanding Notes issued under the Indenture, except that, without the
consent of each Holder affected thereby, no amendment may (with respect to any
Notes held by a non-consenting Holder): (i) reduce the amount of Notes whose
Holders must consent to an amendment; (ii) reduce the rate of or change or have
the effect of changing the time for payment of interest, including defaulted
interest, on any Notes; (iii) reduce the principal of or change or have the
effect of changing the fixed maturity of any Notes, or change the date on which
any Notes may be subject to redemption or repurchase, or reduce the redemption
or repurchase price therefor; (iv) make any Notes payable in money other than
that stated in the Notes; (v) make any change in provisions of the Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting Holders of a majority in principal amount of
Notes to waive Defaults or Events of Default; or (vi) modify or change any
provision of the Indenture or the related definitions affecting the
subordination or ranking of the Notes in a manner which adversely affects the
Holders.

GOVERNING LAW

The Indenture will provide that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be regulated thereby.

THE TRUSTEE

The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.

The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; PROVIDED that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.

BOOK-ENTRY; DELIVERY AND FORM

The Notes will be issued in the form of one or more fully registered global
certificates (the "Global Certificates"). The Global Certificates will be
deposited with, or with the Trustee on behalf of, The Depository Trust Company,
New York, New York (the "Depositary") and registered in the name of the
Depositary's nominee. The Depositary will maintain the Notes in denominations of
$1,000 and integral multiples thereof through its book-entry facilities.

Except as set forth below, the Global Certificates may be transferred, in
whole and not in part, only to the Depositary, another nominee of the Depositary
or to a successor of the Depositary or its nominee.

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The Depositary has advised the Company and the Underwriters as follows: It
is a limited-purpose trust company organized under the Banking Law of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary was created to hold securities for its participating
organizations (the "Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own the Depositary. Access to the
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("indirect
participants"). Persons who are not Participants may beneficially own securities
held by the Depositary only through Participants or indirect participants.

The Depositary has also advised that, pursuant to procedures established by
it, (i) upon the issuance by the Company of the Notes, the Depositary will
credit the accounts of Participants designated by the Underwriters with the
principal amount of the Notes purchased by the Underwriters and (ii) ownership
of beneficial interests in the Global Certificates will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the indirect participants. A beneficial owner is the person who has the right to
sell, transfer or otherwise dispose of an interest in the Notes and the right to
receive the proceeds therefrom, as well as principal, premium (if any) and
interest payable in respect to the Notes. The beneficial owner must rely on the
foregoing arrangements to evidence its interest in the Notes. Beneficial
ownership of the Notes may be transferred only by complying with the procedures
of a beneficial owner's Participant (e.g., a brokerage firms) and the
Depositary. The laws of some states require that certain persons take physical
delivery in definitive form of securities which they own. Consequently, the
ability to transfer beneficial interests in the Global Certificates is limited
to such extent.

So long as a nominee of the Depositary or its nominee is the registered
owner of the Global Certificates, the Depositary or such nominee will be
considered the absolute owner or holder of the Notes for all purposes under the
Indenture and any applicable laws. Except as provided below, owners of
beneficial interests in the Global Certificates will not be entitled to have
Notes registered in their names, will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
owners or holders thereof under the Indenture.

All rights of ownership must be exercised through the Depositary and the
book-entry system, and notices that are to be given to registered owners by the
Company or the Trustee will be given only to the Depositary. It is expected that
the Depositary will forward notices to the Participants who will in turn forward
notices to the beneficial owners. Neither the Company, the Trustee, the paying
agents nor the Notes registrars will have any responsibility or obligation to
assure that any notices are forwarded by the Depositary to any Participant or by
any Participant to the beneficial owners. Nether the Company, the Trustee, the
paying agents nor the Notes registrars will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Certificates, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.

Principal and interest payments on the Global Certificates registered in the
name of the Depositary's nominee will be made by the Company, either directly or
through a paying agent, to the Depositary's nominee as the registered owner of
the Global Certificates. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes are registered as the
owners of such Notes for the purpose of receiving payments of principal and
interest on such Notes and for all other purposes whatsoever. Therefore, neither
the Company, the Trustee or any paying agent has any direct responsibility or
liability for the payment of principal or interest on the Notes to owners of
beneficial

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interests in the Global Certificates. The Depositary has advised the Company and
the Trustee that its present practice upon receipt of any payment of principal
or interest is to credit immediately the accounts of the Participants with
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the Global Certificates as shown on the
records of the Depositary. Payments by Participants and indirect participants to
owners of beneficial interests in the Global Certificates will be governed by
standing instructions and customary practices as is now the case with securities
held for the accounts of customers in bearer form or registered in "street name"
and will be the responsibility of such Participants or indirect participants.

As long as the Notes are represented by the Global Certificates, the
Depositary's nominee will be the holder of the Notes and therefore will be the
only entity that can exercise a right to repayment or repurchase of the Notes.
See "--Change of Control" and "--Certain Covenants--Limitation on Asset Sales."

Notice by Participants or indirect participants or by owners of beneficial
interests in the Global Certificates held through such Participants or indirect
participants of the exercise of the option to elect repayment of beneficial
interest in the Notes represented by the Global Certificates must be transmitted
to the Depositary in accordance with its procedures on a form required by the
Depositary and provided to Participants. In order to ensure that the
Depositary's nominee will timely exercise a right to repayment with respect to a
particular Note, the beneficial owner of such Notes must instruct the broker or
other Participant or indirect participant through which it holds an interest in
such Note to notify the Depositary of its desire to exercise a right to
repayment. Different firms have different deadlines for accepting instructions
from their customers and, accordingly, each beneficial owner should consult the
broker or other Participant or indirect participant through which it holds an
interest in a Note in order to ascertain the deadline by which such an
instruction must be given in order for timely notice to be delivered to the
Depositary. The Company will not be liable for any delay in delivery of notices
of the exercise of the option to elect repayment.

The Company will issue Notes in definitive form in exchange for the Global
Certificates if, and only if, either (i) the Depositary is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, (ii) the Company executes or delivers to the
Trustee and the Notes registrar an Officers' Certificate stating that such
Global Certificate shall be so exchangeable or (iii) an Event of Default has
occurred and is continuing and the applicable Notes registrar has received a
request from the Depositary to issue Notes in definitive form in lieu of all or
a portion of the Global Certificates. In either instance, an owner of a
beneficial interest in the Global Certificate will be entitled to have the
applicable Notes equal in principal amount or principal amount at maturity, as
the case may be, to such beneficial interest registered in its name and will be
entitled to physical delivery of such Notes in definitive form. Notes so issued
in definitive form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.

"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.

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"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.

"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary
of the Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company, or (b) the acquisition by the Company or any
Restricted Subsidiary of the Company of the assets of any Person (other than a
Restricted Subsidiary of the Company) which constitute all or substantially all
of the assets of such Person or comprises any division or line of business of
such Person or any other properties or assets of such Person other than in the
ordinary course of business.

"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business; PROVIDED, HOWEVER,
that Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $500,000; (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under "Merger, Consolidation and Sale of Assets;" (iii)
sales of accounts receivable and related assets of the type specified in the
definition of "Qualified Receivables Transaction" to a Receivables Subsidiary in
connection with a Qualified Receivables Transaction; and (iv) sales of Permitted
Investments.

"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.

"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.

"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.

"CAPITAL STOCK" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.

"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
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 maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time

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of acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia of any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250,000,000; (v)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above; and (vi) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.

"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than the Permitted Holder(s)) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (iv) the replacement of a majority of the Board
of Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.

"COMMISSION" means the Securities and Exchange Commission.

"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.

"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent
Consolidated Net Income has been reduced thereby, (A) all income taxes of such
Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period (other than income taxes attributable to extraordinary, unusual
or nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense, (C)
Consolidated Non-cash Charges LESS any non-cash items increasing Consolidated
Net Income for such period, all as determined on a consolidated basis for such
Person and its Restricted Subsidiaries in accordance with GAAP, (D) any expenses
or charges related to the termination of the Fee Agreement and (E) any write-off
of deferred financing costs in connection with the refinancing of the Company's
credit agreement in existence prior to the Credit Agreement and any refinancings
of the Credit Agreement.

"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the

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application of the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities, occurring during the Four Quarter Period
or at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the case
may be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being liable
for Acquired Indebtedness and also including any Consolidated EBITDA (provided
that such Consolidated EBITDA shall be included only to the extent includable
pursuant to the definition of "Consolidated Net Income") attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If such Person or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such
Person had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of the operation of such agreements.

"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.

"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries of such period determined
on a consolidated basis in accordance with GAAP, including without limitation,
(a) any amortization of debt discount and amortization or write-off of deferred
financing costs (excluding any write-off of deferred financing costs in
connection with the refinancing of the Company's credit agreement in existence
prior to the Credit Agreement or any refinancing of the Credit Agreement), (b)
the net costs under Interest Swap Obligations, (c) all capitalized interest and
(d) the interest portion of any deferred payment obligation; and (ii) the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with
GAAP.

"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP: PROVIDED that there shall be excluded therefrom (a) after-tax gains

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from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the referent Person, except to the extent
of cash dividends or distributions paid to the referent Person or to a Wholly
Owned Restricted Subsidiary of the referent Person by such Person, (f) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.

"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.

"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).

"CREDIT AGREEMENT" means the Credit Agreement dated as of , 1997,
between the Company, the lenders party thereto in their capacities as lenders
thereunder and Credit Agricole Indosuez, as agent, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (PROVIDED that such increase in borrowings is
Permitted Indebtedness or is permitted by the "Limitation on Incurrence of
Additional Indebtedness" covenant above) or adding Restricted Subsidiaries of
the Company as additional guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.

"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.

"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.

"DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal amount of at least
$25,000,000 and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.

"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.

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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.

"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.

"FEE AGREEMENT" means that certain fee agreement between the Company and
Kohlberg & Company, LLC dated as of December 31, 1996, as amended.

"GAAP" means generally accepted accounting principles set forth in the
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 of the United States, which are in effect as of the Issue Date.

"INDEBTEDNESS" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and excluding long-term, deferred purchase
price obligations for trees, PROVIDED that such obligations are not recorded as
liabilities on such Person's balance sheet in accordance with GAAP), (v) all
Obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) guarantees and other
contingent obligations in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below, (vii) all Obligations of any other
Person of the type referred to in clauses (i) through (vi) which are secured by
any lien on any property or asset of such Person, the amount of such Obligation
being deemed to be the lesser of the fair market value of such property or asset
or the amount of the Obligation so secured, (viii) all Obligations under
Currency Agreements and Interest Swap Obligations of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock.

"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.

"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate

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of interest on the same notional amount and shall include, without limitation,
interest rate swaps, caps, floors, collars and similar agreements.

"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated as an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated as a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; PROVIDED that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.

"ISSUE DATE" means the date of original issuance of the Notes.

"LIEN" means any lien, mortgage, deed of trust, pledge, 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).

"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any of its Restricted Subsidiaries, as
the case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.

"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.

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"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Company
by two officers of the Company, one of whom must be the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company that meets the requirements set forth in the Indenture.

"PERMITTED HOLDER(S)" means KCSN Acquisition Company, L.P. and its
Affiliates and Kohlberg & Company, LLC and its Affiliates.

"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:

(i) Indebtedness under the Notes and the Indenture;

(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $150.0
million, less the amount of all mandatory principal payments actually made
by the Company in respect of the Term Loan Facility (excluding any such
payments to the extent refinanced at the time of payment under a replaced
Credit Agreement), provided that (1) not more than $110.0 million of
borrowings under the Credit Agreement are used to make Asset Acquisitions
and (2) not more than $90.0 million of borrowings under the Credit Agreement
are used for any other purpose;

(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;

(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER, that such
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;

(v) Indebtedness under Currency Agreements; PROVIDED that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnitees and compensation
payable thereunder;

(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company
to the Company or to a Wholly Owned Restricted Subsidiary of the Company for
so long as such Indebtedness is held by the Company or a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company; PROVIDED that if as of any date any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds
any such indebtedness or holds a Lien in respect of such Indebtedness, such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;

(vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
of the Company for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien;
PROVIDED that (a) any Indebtedness of the Company to any Wholly Owned
Restricted Subsidiary of the Company is unsecured and subordinated, pursuant
to a written agreement, to the Company's obligations under the Indenture and
the Notes and (b) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary of the Company owns or holds any such Indebtedness or
any Person holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;

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(viii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; PROVIDED, HOWEVER, that such indebtedness is
extinguished within two business days of incurrence;

(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;

(x) Refinancing Indebtedness;

(xi) Indebtedness incurred in a Qualified Receivables Transaction that
is without recourse to the Company or to any Restricted Subsidiary of the
Company or their assets (other than a Receivables Subsidiary and its
assets); and

(xii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $25,000,000 at
any one time outstanding.

"PERMITTED INVESTMENTS" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company; (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Notes and the Indenture; (iii)
investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $2,000,000
at any one time outstanding; (v) Currency Agreements and Interest Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (vii) Investments
made by the Company or its Restricted Subsidiaries as a result of consideration
received in connection with an Asset Sale made in compliance with the
"Limitation on Asset Sales" covenant; (viii) Investment by the Company or a
Wholly Owned Restricted Subsidiary of the Company in a Receivables Subsidiary or
any Investment by a Receivables Subsidiary in any other Person in connection
with a Qualified Receivables Transaction; (ix) notes received from management as
payment for purchases of Capital Stock; and (x) additional Investments by the
Company or any Restricted Subsidiary of the Company in an aggregate amount,
based on original cost, not to exceed $1,000,000 at any one time outstanding.

"PERMITTED LIENS" means the following types of Liens:

(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;

(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen 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 in
respect thereof;

(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, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and

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appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);

(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;

(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or
any of its Restricted Subsidiaries;

(vi) any interest (including UCC filings) or title of a lessor under any
Capitalized Lease Obligation; PROVIDED that such Liens do not extend to any
property or assets which is not leased property subject to such Capitalized
Lease Obligation;

(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; PROVIDED, HOWEVER, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired and
(B) the Lien securing such Indebtedness shall be created within 90 days of
such acquisition.

(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptance issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;

(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;

(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements or the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;

(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;

(xii) Liens securing Indebtedness under Currency Agreements;

(xiii) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant; PROVIDED
that (A) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary of the Company and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired Indebtedness by
the Company or a Restricted Subsidiary of the Company and (B) such Liens do
not extend to or cover any property or assets of the Company or of any of
its Restricted Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary of the
Company and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness
by the Company or a Restricted Subsidiary of the Company;

(xiv) Liens on accounts receivable and related assets of the type
described in the definition of "Qualified Receivables Transaction" or on
assets of a Receivables Subsidiary, in either case, incurred in connection
with a Qualified Receivables Transaction; and

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(xv) Liens securing Indebtedness in an aggregate amount not to exceed
$5,000,000 at any one time outstanding.

"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.

"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.

"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.

"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions that may be entered into by the Company or any of its Restricted
Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to (i) a Receivables Subsidiary (in the
case of a transfer by the Company or any of its Restricted Subsidiaries) and
(ii) any other Person (in the case of a transfer by a Receivables Subsidiary),
or may grant a security interest in, any accounts receivable (whether now
existing or arising in the future) of the Company or any of its Restricted
Subsidiaries, and any assets related thereto including, without limitation, all
collateral securing such accounts receivable, all contracts and all guarantees
or other obligations in respect of such accounts receivable, proceeds of such
accounts receivable and other assets which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable.

"RECEIVABLES SUBSIDIARY" means a Wholly Owned Restricted Subsidiary of the
Company that engages in no activities other than in connection with the
financing of accounts receivable and that is designated by the Board of
Directors of the Company (as provided below) as a Receivables Subsidiary (a)
which has no Indebtedness or any other Obligations (contingent or otherwise)
which (i) is guaranteed by the Company or any other Restricted Subsidiary of the
Company (excluding guarantees of Obligations (other than the principal of, and
interest on, Indebtedness) pursuant to representations, warranties, covenants
and indemnities entered into in the ordinary course of business in connection
with a Qualified Receivables Transaction), (ii) is recourse to or obligates the
Company or any other Restricted Subsidiary of the Company in any way other than
pursuant to representations, warranties, covenants and indemnities entered into
in the ordinary course of business in connection with a Qualified Receivables
Transaction or (iii) subjects any property or asset of the Company or any other
Restricted Subsidiary of the Company, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction, (b) with which
neither the Company nor any other Restricted Subsidiary of the Company has any
material contract, agreement, arrangement or understanding other than on terms
no less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
Company, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable and (c) with which neither the
Company nor any other Restricted Subsidiary of the Company has any obligation to
maintain or preserve such Restricted Subsidiary's financial condition or cause
such Restricted Subsidiary to achieve certain levels of operating results. Any
such designation by the Board of Directors of the Company shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.

"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, pre-pay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.

"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional

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Indebtedness" covenant (other than pursuant to clause (ii), (iv), (v), (vi),
(vii), (viii), (ix), (xi) or (xii) of the definition of Permitted Indebtedness),
in each case that does not (1) result in an increase in the aggregate principal
amount of Indebtedness of such Person as of the date of such proposed
Refinancing (plus the amount of any premium required to be paid under the terms
of the instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing) or (2)
create Indebtedness with (A) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being Refinanced
or (B) a final maturity earlier than the final maturity of the Indebtedness
being Refinanced; PROVIDED that (x) if such Indebtedness being Refinanced is
Indebtedness of the Company, then such Refinancing Indebtedness shall be
indebtedness solely of the Company and (y) if such Indebtedness being Refinanced
is subordinate or junior to the Notes, then such Refinancing Indebtedness shall
be subordinate to the Notes at least to the same extent and in the same manner
as the Indebtedness being Refinanced.

"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; PROVIDED that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.

"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which is not an Unrestricted Subsidiary.

"REVOLVING CREDIT FACILITY" means one or more revolving credit facilities
under the Credit Agreement.

"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.

"SENIOR DEBT" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of (x) all monetary
obligations of every nature of the Company under the Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not
include (i) any Indebtedness of the Company to a Restricted Subsidiary of the
Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries,
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director,
officer or employee of the Company or any Restricted Subsidiary of the Company
(including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by the Company, (vi) Indebtedness (other than Permitted
Indebtedness) incurred in violation of the Indenture provisions set forth under
"Limitation on Incurrence of Additional Indebtedness," (vii) Indebtedness which,
when

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incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other indebtedness of the Company.

"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02(v) of
Regulation S-X under the Securities Act.

"SUBSIDIARY," with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.

"TERM LOAN FACILITY" means one or more term loan facilities under the Credit
Agreement.

"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; PROVIDED that (x) the Company certifies to the
Trustee that the Company's investment in such Unrestricted Subsidiary is a
Permitted Investment or that such designation complies with the "Limitation on
Restricted Payments" covenant and (y) each Subsidiary to be so designated and
each of its Subsidiaries has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable with respect to any Indebtedness pursuant to which the
lender has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.

"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.

"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.

77
<PAGE>
Alternate Page For Note Prospectus

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among BT Alex. Brown Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation (together, the "Underwriters") and the Company,
the Underwriters have severally agreed to purchase from the Company the entire
principal amount of the Notes offered hereby.

The Underwriting Agreement provides that the obligation of the Underwriters
to pay for and accept delivery of the Notes is subject to the approval of
certain legal matters by counsel and to various other conditions. The nature of
each Underwriter's obligation is such that each is severally committed to
purchase the aggregate principal amount of Notes set forth opposite its name, if
any are purchased.

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- - - ---------------------------------------------------------------------------- ----------------
<S> <C>
BT Alex. Brown Incorporated................................................. $
Donaldson, Lufkin & Jenrette Securities Corporation.........................
----------------
Total..................................................................... $ 85,000,000
----------------
----------------
</TABLE>

The Underwriters propose to offer the Notes directly to the public at the
public offering price set forth on the cover page hereof, and to certain dealers
at such price, less a concession not in excess of % of the principal amount of
the Notes. The Underwriters may allow, and such dealers may reallow, a
concession to certain other dealers not in excess of % of the principal amount
of the Notes. After the initial public offering of the Notes, the public
offering price, concession and reallowance and other selling terms may be
changed by the Underwriters.

The Underwriters have informed the Company that they will not confirm sales
to any accounts over which they exercise discretionary authority without prior
written approval of such transactions by the customer.

The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by each of the Underwriters that it
presently intends to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes, and any such market making may be discontinued at any time by one
or all of the Underwriters at the sole discretion of such Underwriters. There
can be no assurance that an active public market for the Notes will develop. See
"Risk Factors--Lack of Prior Market for the Notes."

In connection with the Notes Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot the Notes, creating a short
position. The Underwriters may bid for and purchase Notes in the open market to
cover short positions. In addition, the Underwriters may bid for and purchase
Notes in the open market to stabilize the price of the Notes. These activities
may stabilize or maintain the market price of the Notes above independent market
levels. The Underwriters are not required to engage in these activities, and may
end these activities at any time.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

78
<PAGE>
Alternate Page For Note Prospectus

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Brownstein
Hyatt Farber & Strickland, P.C., Denver, Colorado. Certain legal matters will be
passed upon for the Underwriters by Latham & Watkins, Los Angeles, California.

EXPERTS

The audited financial statements of The Wholesale Bedding Plant Division of
Summersun Greenhouse Co., included in this Prospectus, have been audited by Moss
Adams LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

ADDITIONAL INFORMATION

79
<PAGE>
- - - -------------------------------------------
-------------------------------------------

- - - -------------------------------------------
ALTERNATE PAGE FOR NOTE PROSPECTUS -------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
--------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Company History................................ 15
Recent Acquisitions............................ 15
Use of Proceeds................................ 16
Capitalization................................. 17
Selected Consolidated Financial and Operating
Data......................................... 18
Unaudited Pro Forma Consolidated Statement of
Operations................................... 20
Unaudited Pro Forma Consolidated Balance
Sheet........................................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business....................................... 28
Management..................................... 37
Certain Transactions........................... 43
Principal Stockholders......................... 45
Description of Capital Stock................... 46
Description of Certain Indebtedness............ 49
Description of Notes........................... 50
Underwriting................................... 78
Legal Matters.................................. 79
Experts........................................ 79
Additional Information......................... 79
Index to Consolidated Financial Statements..... F-1
</TABLE>

--------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

$85,000,000

[LOGO]

% SENIOR SUBORDINATED
NOTES DUE 2007

------------
PROSPECTUS
------------

BT ALEX. BROWN

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

, 1997

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses of the Registrant in connection
with the issuance and distribution of the securities being registered, other
than underwriting discounts. Expenses other than registration, filing and
listing fees are estimated.

<TABLE>
<CAPTION>
<S> <C>
SEC Registration fee.............................................................. $ 44,541
NASD filing fee................................................................... 15,699
Nasdaq National Market listing fee................................................ 50,000
Blue sky fees and expenses........................................................ 5,000
Printing and engraving............................................................ *
Legal fees and expenses........................................................... 225,000
Accounting fees and expenses...................................................... 160,000
Transfer Agent fees............................................................... *
Miscellaneous..................................................................... *
----------
Total............................................................................. $ *
----------
----------
</TABLE>

- - - ------------------------

* To be supplied by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 102(b)(7) of the General Corporation Law of the State of Delaware
permits a Delaware corporation to limit the personal liability of its directors
in accordance with the provisions set forth therein. The Amended and Restated
Certificate of Incorporation of the Registrant provides that the personal
liability of its directors shall be limited to the fullest extent permitted by
applicable law.

Section 145 of the General Corporation Law of the State of Delaware contains
provisions permitting corporations organized thereunder to indemnify directors,
officers, employees or agents against expenses, judgments and fines reasonably
incurred and against certain other liabilities in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person was or is a director, officer, employee or agent of the corporation. The
Amended and Restated Certificate of Incorporation of the Registrant provides for
indemnification of its directors and officers to the fullest extent permitted by
applicable law.

The form of Underwriting Agreement attached hereto as Exhibit 1.1, which
provides for, among other things, the Registrant's sale to the Underwriters of
the securities being registered herein, will obligate the Underwriters under
certain circumstances to indemnify the Registrant and the Registrant's officers
and directors against certain liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). In addition, the Registrant maintains an
officers and directors liability insurance policy.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following table reflects the merger of CSN, Inc. (the parent company of
Color Spot Nurseries, Inc.) into Color Spot Nurseries, Inc. which will occur
simultaneously with the consummation of the Offerings:

<TABLE>
<CAPTION>
NUMBER OF
RECIPIENT SHARES DATE AMOUNT PAID EXEMPTION
- - - ---------------------------------------------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C>
CSN, Inc...................................... 100 9/8/95 $ 1,000 4(2)
</TABLE>

II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS:

The following exhibits are filed pursuant to Item 601 of Regulation S-K.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- - - --------- ---------------------------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Common Stock Underwriting Agreement between the Registrant and the Underwriters.*

1.2 -- Form of Note Underwriting Agreement between the Registrant and the Underwriters.*

3.1 -- Form of Amended and Restated Certificate of Incorporation of the Registrant.

3.2 -- Amended and Restated Bylaws of the Registrant.

4.1 -- Form of Common Stock certificate.*

4.2 -- Form of Note.*

4.3 -- Form of Indenture.*

5.1 -- Opinion of Brownstein Hyatt Farber & Strickland, P.C. regarding legality of securities being
registered.*

10.1 -- Amended and Restated Credit Agreement dated as of February 20, 1997.

10.2 -- Recapitalization and Stock Purchase Agreement among the Registrant, Heller Equity Capital
Corporation ("Heller"), M.F. Vukelich Co., Michael F. Vukelich, Jerry Halamuda, Gary E. Mariani,
Steven J. Bookspan, Richard E. George and KCSN Acquisition Company, L.P. dated as of December 31,
1996.*

10.3 -- 8% Subordinated Convertible Note issued to Heller.

10.4 -- Put/Call Option Agreement dated as of December 31, 1996.

10.5 -- Stockholders Agreement dated as of December 31, 1996.

10.6 -- Employee Stockholders Agreement dated as of June 1, 1997.

10.7 -- Employment Agreement with Michael F. Vukelich dated as of December 31, 1996.

10.8 -- Employment Agreement with Jerry L. Halamuda dated as of December 31, 1996.

10.9 -- 1996 Stock Incentive Plan.

10.10 -- 1997 Stock Option Plan.

10.11 -- Special Stock Option Plan.

10.12 -- Form of Stock Purchase Option.

10.13 -- Fee Agreement dated as of December 31, 1996 between Registrant and Kohlberg & Company, LLC.

10.14 -- Merger Agreement dated as of February 20, 1997 for the acquisition of Lone Star Growers Co.

10.15 -- Real Property Lease between M.F. Vukelich Co. and the Registrant dated December 1, 1995.

10.16 -- Real Property Lease between Michael F. Vukelich as Guardian for Trisha Vukelich and the Registrant
dated December 31, 1995.

10.17 -- Asset Purchase Agreement dated as of March 14, 1997 between Color Spot Christmas Trees, Inc. and
Signature Trees.
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- - - --------- ---------------------------------------------------------------------------------------------------
<C> <C> <S>
11.1 -- Computation of net income per common share and computation of weighted average number of common
shares outstanding.

12.1 -- Computation of ratio of earnings to fixed charges.

21.1 -- Subsidiaries of the Registrant.

23.1 -- Consent of Arthur Andersen LLP.

23.2 -- Consent of Moss Adams LLP.

23.3 -- Consent of Jaynes, Reitmeier, Boyd & Therrell, P.C.

23.4 -- Consent of Brownstein Hyatt Farber & Strickland, P.C.. (included in Exhibit 5.1).*

24.1 -- Power of Attorney (included in Part II of Registration Statement).

25.1 -- Statement of Eligibility of Trustee.*

27.1 -- Financial Data Schedule.
</TABLE>

- - - ------------------------

* To be filed by Amendment.

(B) FINANCIAL STATEMENT SCHEDULES.

Schedule II--Valuation and Qualifying Accounts

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the common stock offering of such
securities at that time shall be deemed to be the initial bona fide common
stock offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding), is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pleasant Hill, State of
California, on , 1997.

<TABLE>
<S> <C> <C>
COLOR SPOT NURSERIES, INC

By: /s/ MICHAEL F. VUKELICH
-----------------------------------------
Michael F. Vukelich
CHIEF EXECUTIVE OFFICER
</TABLE>

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints each of MICHAEL F. VUKELICH AND SAMUEL P.
FRIEDER his/her true and lawful attorney-in-fact and agent, each with full power
of substitution and revocation, for him/her and in his/her name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, or any Registration
Statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Act, and to file the same with all exhibits thereto, and
other documents in connection therewith, the Securities and Exchange Commission,
granting unto each such attorney-in-fact and agent, full power and authority to
do and perform such each and every act and thing requisite and necessary to be
done, as fully to all intents and purposes as such person might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- - - ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ MICHAEL F. VUKELICH
- - - ------------------------------ Chief Executive Officer , 1997
Michael F. Vukelich and Director

/s/ JERRY L. HALAMUDA
- - - ------------------------------ President and Director , 1997
Jerry L. Halamuda

/s/ PAUL D. YEAGER Principal Financial
- - - ------------------------------ Officer and Principal , 1997
Paul D. Yeager Accounting Officer

/s/ JAMES A. KOHLBERG
- - - ------------------------------ Director , 1997
James A. Kohlberg

/s/ SAMUEL P. FRIEDER
- - - ------------------------------ Director , 1997
Samuel P. Frieder
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- - - ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ RANJIT S. BHONSLE
- - - ------------------------------ Director , 1997
Ranjit S. Bhonsle

/s/ GEOFFREY A. THOMPSON
- - - ------------------------------ Director , 1997
Geoffrey A. Thompson

/s/ RICHARD E. GEORGE
- - - ------------------------------ Director , 1997
Richard E. George

/s/ GARY E. MARIANI
- - - ------------------------------ Director , 1997
Gary E. Mariani

/s/ GEORGE T. BROPHY
- - - ------------------------------ Director , 1997
George T. Brophy
</TABLE>

II-5

<PAGE>

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COLOR SPOT NURSERIES, INC.

Color Spot Nurseries, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
as follows:

1. The name of the Corporation is Color Spot Nurseries, Inc. The
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of Delaware on August 17, 1995. A Restated Certificate of
Incorporation was filed with the Secretary of State of Delaware on
December 31, 1996.

2. This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the Certificate of this Corporation as more
particularly set forth on EXHIBIT A.

3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is restated as more particularly set forth on EXHIBIT A.

4. This Amended and Restated Certificate of Incorporation was duly
adopted by written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.

5. This Amended and Restated Certificate of Incorporation shall be
effective on the ___ day of , 1997.

IN WITNESS WHEREOF, Color Spot Nurseries, Inc. has caused this Certificate
to be signed by MICHAEL F. VUKELICH, its Chief Executive Officer, this ___ day
of , 1997.

COLOR SPOT NURSERIES, INC.

By
-------------------------------------
MICHAEL F. VUKELICH
Chief Executive Officer

<PAGE>

EXHIBIT A

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

COLOR SPOT NURSERIES, INC.

ARTICLE I

The name of the corporation is COLOR SPOT NURSERIES, INC. (hereinafter
referred to as the "Corporation").

ARTICLE II

The address of the Corporation's registered office in the state of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is THE CORPORATION TRUST
COMPANY.

ARTICLE III

The nature of the business of the Corporation and the purposes for
which it is organized are to engage in any business and lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware and to possess and employ all powers and privileges now or
hereafter granted or available under the laws of the State of Delaware to such
corporations.
ARTICLE IV

Section 1. AUTHORIZED SHARES. The number of shares of capital
stock of all classes which the Corporation shall have authority to issue is
55,000,000 shares, consisting of 50,000,000 shares of Common Stock, par value
$.01 per share (the "Common Stock"), and 5,000,000 shares of Preferred Stock,
par value $.01 per share (the "Preferred Stock").

Section 2. DESIGNATIONS, POWERS, AND PREFERENCES. The
designations and the powers, preferences and rights, and the qualifications,
limitations or restrictions of the shares of each class of stock are as follows:

A. PREFERRED STOCK. Shares of Preferred Stock may be issued in
one or more series at such time or times as the Board of Directors may
determine. All shares of any one series of Preferred Stock shall be of equal
rank and identical in all respects except as to the dates from and after which
dividends thereon shall cumulate, if cumulative. The number of authorized
shares of Preferred Stock may be increased or decreased by the affirmative vote
of a majority of the capital

<PAGE>

stock of the Corporation entitled to vote without the separate vote of holders
of Preferred Stock as a class. Subject to the limitations hereof and the
limitations prescribed by law, the Board of Directors of the Corporation (the
"Board of Directors") is expressly authorized to fix from time to time, by
resolution or resolutions adopted prior to the issuance of and providing for the
establishment or issuance of any series of Preferred Stock, the designation of
such series and the powers, preferences and rights of such series, and the
qualifications, limitations or restrictions thereof. The authority of the Board
of Directors with respect to each such series shall include, but shall not be
limited to, determination of the following:

(i) The distinctive serial designation and number of
shares comprising each such series (provided that the aggregate number of
shares constituting all series of Preferred Stock shall not exceed the total
number of authorized shares of Preferred Stock pursuant to Section 1 of this
Article IV), which number may (except where otherwise provided by the Board
of Directors in creating such series) be increased or decreased (but not
below the number of shares of such series then outstanding) from time to time
by action of the Board of Directors;

(ii) The rate of dividends, if any, on the shares of
that series, whether dividends shall be noncumulative, cumulative to the
extent earned or cumulative (and, if cumulative, from which date or dates),
whether dividends shall be payable in cash, property, or rights, or in shares
of the Corporation's capital stock, and the relative priority, if any, of
payment of dividends on shares of that series over shares of any other series;

(iii) Whether the shares of that series shall be
redeemable and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, the event or
events upon or after which they shall be redeemable or at whose option they
shall be redeemable, and the amount per share payable upon redemption (which
amount may vary under different conditions and at different redemption dates)
or the property or rights, including securities of any other corporation,
payable upon redemption;

(iv) Whether that series shall have a sinking fund for
the redemption or purchase of shares of that series and, if so, the terms and
amounts payable into such sinking fund;

(v) The rights to which the holders of the shares of
that series shall be entitled in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, and the relative
rights of priority, if any, of payment of shares of that series in any such
event;

(vi) Whether the shares of that series shall be
convertible into or exchangeable for any other securities and, if so, the
terms and conditions of such conversion or exchange, including the rate or
rates of conversion or exchange, the date or dates upon or after which they
shall be convertible or exchangeable or at whose option they shall be
convertible or exchangeable, and the method, if any, of adjusting the rates
of conversion or exchange in the event of a stock split, stock dividend,
combination or reclassification of shares or similar event;

<PAGE>

(vii) Whether the issuance of any additional shares of
such series shall be subject to restrictions, or whether any shares of any other
series shall be subject to restrictions as to issuance, or as to the powers,
preferences or rights of any such other series;

(viii) Whether the shares of that series shall have
voting rights in addition to the voting rights provided by law, and, if so,
the terms of such voting rights, including, without limitation, the authority
to confer multiple votes per share, voting rights as to specified matters or
issues or, subject to the provisions of this Second Amended and Restated
Certificate of Incorporation, voting rights to be exercised either together
with holders of Common Stock as a single class, or independently as a
separate class;

(ix) The rights of the holders of the shares of that
series to elect additional directors of the Corporation under specified
circumstances and the provisions under which such additional directors so
elected shall serve; and

(x) Any other preferences, privileges and powers and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions of such series, as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of this
Second Amended and Restated Certificate of Incorporation and to the full
extent now or hereafter permitted by the laws of the State of Delaware.

B. COMMON STOCK.

Subject to all of the rights of the Preferred Stock, and except as may
be provided with respect to the Preferred Stock herein, by law or by the Board
of Directors pursuant to this Article IV:

(i) Dividends may be declared and paid or set apart
for payment upon the Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends;

(ii) The holders of Common Stock shall have the right
to vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote; and

(iii) Upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock in accordance
with their respective rights and interests.

C. PREEMPTIVE RIGHTS. No holder of any stock of the
Corporation of any class shall have the preemptive right to subscribe for or
purchase any part of any new or additional issue of stock of any class
whatsoever of the Corporation, or of securities convertible into or exchangeable

<PAGE>

for stock of any class whatsoever, whether now or hereafter authorized, or
whether issued for cash or other consideration or by way of dividend.

ARTICLE V

The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. For the management of the
business and for the conduct of the affairs of the Corporation, and in further
creation, definition, limitation and regulation of the powers of the Corporation
and of its directors and of its stockholders, it is further provided:

Section 1. ELECTIONS OF DIRECTORS. Elections of directors need
not be by written ballot unless the Bylaws of the Corporation shall so provide.

Section 2. NUMBER, ELECTION, AND TERMS OF DIRECTORS. Except as
otherwise fixed pursuant to the provisions of Article IV hereof relating to the
rights of the holders of any class or series of Preferred Stock to elect
additional directors under specified circumstances, the number of directors of
the Corporation shall be fixed from time to time exclusively by resolutions
adopted by the Board of Directors; provided, however, that no decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.

The directors, other than those who may be elected by the holders of
any class or series of Preferred Stock, shall be classified, with respect to the
time for which they severally hold office, into three (3) classes, as nearly
equal in number as possible, as shall be provided in the manner specified in the
Bylaws of the corporation, Class I to hold office initially for a term expiring
at the annual meeting of stockholders to be held during the fiscal year ending
in 1998, Class II to hold office initially for a term expiring at the annual
meeting of stockholders to be held during the fiscal year ending in 1999, and
Class III to hold office initially for a term expiring at the annual meeting of
stockholders to be held during the fiscal year ending in 2000, with the members
of each class to hold office until their successors are elected and qualified.
At each annual meeting of the stockholders of the Corporation, the successors to
the class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election.

Section 3. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES. Advance
notice of nominations for the election of directors, other than by the Board of
Directors or a committee thereof, shall be given in the manner provided in the
Bylaws.

Section 4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as
otherwise fixed pursuant to the provisions of Article IV hereof relating to the
rights of the holders of any class or series of Preferred Stock to elect
directors under specified circumstances, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors, or by a sole remaining director. Any director elected in

<PAGE>

accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such directors successor shall have
been elected and qualified, or until such director's earlier resignation or
removal.

Section 5. STOCKHOLDER ACTION. Any action required or permitted
to be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of such stockholders.

Except as otherwise prescribed by law and subject to the rights of
holders or any class or series of Preferred Stock, special meetings of
stockholders of the Corporation, for any purpose or purposes, may be called only
by the Chairman of the Board, if there be one, the President, or the Board of
Directors pursuant to a resolution approved by a majority of the entire Board of
Directors and shall be called by the Secretary or any Assistant Secretary, if
there be one, at the request in writing of a majority of the entire Board of
Directors or by holders of outstanding stock of the Corporation having not less
than the minimum number of votes that would be necessary to authorize such
action.

Section 6. BYLAW AMENDMENTS. The Board of Directors shall have
power to make, alter, amend and repeal the Bylaws (except so far as the Bylaws
adopted by the stockholders shall otherwise provide). Any Bylaws made by the
Board of Directors under the powers conferred hereby may be altered, amended or
repealed by the Board of Directors or by the stockholders of the Corporation.
Notwithstanding the foregoing and anything contained in this Second Amended and
Restated Certificate of Incorporation to the contrary, Section 7 of Article II
and Section 3 of Article III of the Bylaws shall not be altered, amended or
repealed and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
the shares of capital stock of the Corporation entitled to vote generally in the
election of directors (the "Voting Stock"), voting together as a single class.

Section 7. REMOVAL OF DIRECTORS. Any director, other than those
who may be elected by the holders of any class or series of Preferred Stock, or
the entire Board of Directors, may be removed from office only for cause by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of Voting Stock, voting together as a single
class.

Section 8. AMENDMENT, REPEAL, ETC. Notwithstanding any other
provision of this Second Amended and Restated Certificate of Incorporation or
the Bylaws (and notwithstanding the fact that a lesser percentage may be
specified by law), the affirmative vote of the holders of at least 66 2/3% of
the voting power of all the then outstanding shares of Voting Stock, voting
together as a single class, shall be required to alter, amend, adopt any
provision inconsistent with, or repeal, this Article V or any provision hereof.

ARTICLE VI

<PAGE>

The Corporation expressly elects to be governed by Section 203 of the
General Corporation Law of the State of Delaware.

ARTICLE VII

SECTION 1. NATURE OF INDEMNITY. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he (or a person of whom
he is the legal representative), is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent which it is empowered to do so by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) against all expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except as provided
in Section 2 of this Article VII, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Article VII shall
be a contract right and, subject to Sections 2 and 5 of this Article VII, shall
include the right to payment by the Corporation of the expenses incurred in
defending any such proceeding in advance of its final disposition. The
Corporation may, by action of the Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.

SECTION 2. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Any indemnification of a director or officer of the Corporation under Section 1
of this Article VII or advance of expenses under Section 5 of this Article VII
shall be made promptly, and in any event within 30 days, upon the written
request of the director or officer. If a determination by the Corporation that
the director or officer is entitled to indemnification pursuant to this Article
VII is required, and the Corporation fails to respond within sixty days to a
written request for indemnity, the Corporation shall be deemed to have approved
the request. If the Corporation denies a written request for indemnification or
advancing of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within 30 days, the right to indemnification or
advances as granted by this Article VII shall be enforceable by the director or
officer in any court of competent jurisdiction. Such person's costs and
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to

<PAGE>

any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of such defense
shall be on the Corporation. Neither the failure of the Corporation (including
the Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.

SECTION 3. NONEXCLUSIVITY OF ARTICLE VII. The rights to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this Article VII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of this Second Amended and Restated Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.

SECTION 4. INSURANCE. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Corporation or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the Corporation would have the power
to indemnify such person against such liability under this Article VII.

SECTION 5. EXPENSES. Expenses incurred by any person described in
Section 1 of this Article VII in defending a proceeding shall be paid by the
Corporation in advance of such proceeding's final disposition unless otherwise
determined by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.

SECTION 6. EMPLOYEES AND AGENTS. Persons who are not covered by the
foregoing provisions of this Article VII and who are or were employees or agents
of the Corporation, or who are or were serving at the request of the Corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the Board of Directors.

SECTION 7. CONTRACT RIGHTS. The provisions of this Article VII shall
be deemed to be a contract right between the Corporation and each director or
officer who serves in any such capacity

<PAGE>

at any time while this Article VII and the relevant provisions of the General
Corporation Law of the State of Delaware or other applicable law are in effect,
and any repeal or modification of this Article VII or any such law shall not
affect any rights or obligations then existing with respect to any state of
facts or proceeding then existing.

SECTION 8. MERGER OR CONSOLIDATION. For purposes of this Article
VII, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
VII with respect to the resulting or surviving corporation as he or she would
have with respect to such constituent corporation if its separate existence had
continued.

SECTION 9. LIMITATION OF LIABILITY. To the fullest permitted by the
General Corporation Law of the State of Delaware, no director shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.

In accordance with the provisions of Section 103(d) of the General
Corporation Law of the State of Delaware, this Second Amended and Restated
Certificate of Incorporation shall become effective upon its filing date.

<PAGE>

IN WITNESS WHEREOF, Color Spot Nurseries, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed and acknowledged by its
President and attested by its Secretary and its corporate seal to be affixed
hereto this ___ day of September, 1997.

COLOR SPOT NURSERIES, INC.

By:
-----------------------------------------
Michael Vukelich, Chief Executive Officer

ATTEST:

----------------------------------
Karla Vukelich, Secretary

<PAGE>

AMENDED AND RESTATED BYLAWS

COLOR SPOT NURSERIES, INC.

(hereinafter called the "Corporation")

ARTICLE I

OFFICES AND AGENT

1. PRINCIPAL OFFICE. The principal office of the Corporation may be
located within or without the State of Delaware, as designated by the Board of
Directors. The Corporation may have other offices and places of business at
such places within or without the State of Delaware as shall be determined by
the directors.

2. REGISTERED OFFICE AND AGENT. The registered office of the corporation
in the State of Delaware shall be located at 1209 Orange Street, Wilmington,
County of New Castle, Delaware 19801. The name of the corporation's registered
agent at such address shall be The Corporation Trust Company. The registered
office and/or registered agent of the corporation may be changed from time to
time by action of the board of directors.

ARTICLE II

MEETINGS OF STOCKHOLDERS

1. PLACE OF MEETINGS. All meetings of stockholders of the Corporation
shall be held within or without the State of Delaware as may be designated by
the Board of Directors, the Chairman of the Board, if there be one, or the
President, or, if not designated, at the registered office of the Corporation.

2. ANNUAL MEETINGS. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on such date and at such time as
determined by resolution of the Board of Directors. If, at the place of the
meeting, this date shall fall upon a legal holiday, then such meeting shall be
held on the next succeeding business day at the same hour. If no annual meeting
is held in accordance with the foregoing provisions, the Board of Directors
shall cause the meeting to be held as soon thereafter as convenient. If no
annual meeting is held in accordance with the foregoing provisions, a special
meeting may be held in lieu of the annual meeting, and any action taken at that
special meeting shall have the same effect as if it had been taken at the annual
meeting, and in such case all references in these Bylaws to the annual meeting
of stockholders shall be deemed to refer to such special meeting.

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<PAGE>

3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the
Certificate of Incorporation, special meetings of stockholders, for any purpose
or purposes, may be called only by the Chairman of the Board, if there be one,
the President, or the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors, and shall be called by the Secretary
or any Assistant Secretary, if there be one, at the request in writing of a
majority of the entire Board of Directors or by holders of outstanding stock of
the Corporation having not less than a majority of the votes that would be
necessary to authorize such action. Such request shall state the purpose or
purposes of the proposed meeting. Upon receipt of such written request, the
President shall fix a date and time for such meeting which such date shall be
within ten (10) business days of the proposed date specified in the written
request.

4. NOTICE OF MEETING. Except as otherwise provided in these Bylaws or
the General Corporation Law of the State of Delaware, written notice of any
meeting of stockholders stating the place, date and hour of the meeting, and in
the case of a special meeting, the purpose for which the meeting is called,
shall be delivered either personally or by mail to each stockholder of record
entitled either personally or by mail to each stockholder of record entitled to
vote at such meeting not less than ten (10) nor more than sixty (60) days before
the date of the meeting. If mailed, such notice shall be deemed to be delivered
as to any stockholder of record when deposited in the United States mail
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation, with postage prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.

5. WAIVER OF NOTICE. Any stockholder, either before or after any
stockholders' meeting, may waive in writing notice of the meeting, and his
waiver shall be deemed the equivalent or giving notice. Attendance at a meeting
by a stockholder shall constitute a waiver of notice, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.

6. FIXING OF RECORD DATE. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors of the Corporation may fix, in
advance, a record date which shall be not more than sixty (60) days nor less
than ten (10) days prior to the date of such meeting, nor more than sixty (60)
days prior to any other action. If no record date is fixed, the record date for
determining the stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business

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<PAGE>

on the day next preceding the day on which the meeting is held. The record date
for determining the stockholders entitled to express consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed.
The record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or both at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.

7. NOTICE OF BUSINESS. At any meeting of the stockholders of the
Corporation, only such proper business shall be conducted as shall have been
brought before the meeting (i) by or at the direction of the Board of Directors
of (ii) by any stockholder of the Corporation who is a stockholder of record at
the time of giving of the notice provided for in this Section 7, who shall be
entitled to vote at such meeting and who complies with the notice procedures set
forth in this Section 7. For business to be brought before a meeting of
stockholders by a stockholder, the stockholder shall be given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive office of the corporation not less than fifty (50) days nor
more than seventy-five (75) days prior to the meeting; provided, however, that
in the event that less than sixty (60) days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs. Such stockholder's notice to the Secretary of the Corporation shall set
forth as to each matter the stockholder proposes to bring before the meeting (i)
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting, and in the event that
such business includes a proposal to amend any document, including these Bylaws,
the language of the proposed amendment, (ii) the name and address, as they
appear on the Corporation's books, of the stockholder proposing such business,
(iii) the class and number of shares of capital stock of the Corporation which
are beneficially owned by such stockholder and (iv) any material interest of
such stockholder in such business. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at a meeting of the stockholders
except in accordance with the procedures set forth in this Section 7. The
chairman of the meeting of the stockholders shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of these Bylaws, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 7, a stockholder shall
also comply with all applicable requirements of the Securities and Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder with
respect to matters set forth in this Section 7.

8. QUORUM. Except as otherwise provided by law or by the Certificate of
Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the

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<PAGE>

stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.

9. VOTING. Unless otherwise required by law, the Certificate of
Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such meeting
shall be cast by written ballot.

Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held. Persons whose stock is pledged shall be entitled to vote,
unless in the transfer by the pledgor on the books of the Corporation he has
expressly empowered the pledgee to vote thereon, in which case only the pledges,
or his proxy, may represent such stock and vote thereon.

If shares having voting power stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the Secretary
of the Corporation is given written notice to the contrary and is furnished with
a copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect: (i) if only one votes, his act binds all; (ii) if more than
one vote, the act of a majority so voting binds all; and (iii) if more than one
vote, but the vote is evenly split on any particular matter, each fraction may
vote the securities in questions proportionately, or any person voting the
shares or a beneficiary, if any, may apply to the Court of Chancery or any court
of competent jurisdiction in the State of Delaware to appoint any additional
person to act with the persons so voting the shares. The shares shall then be
voted as determined by a majority of such persons and the person appointed by
the Court. If a tenancy is held in unequal interests, a majority or even-split
for the purpose of this subsection shall be a majority or even-split in
interest.

10. PROXIES. A stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for him by proxy. No proxy shall
be voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period.

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<PAGE>

11. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation
who has charge of the stock ledger of the Corporation shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.

12. STOCK LEDGER. The stock ledger of the Corporation shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by Section 11 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.

ARTICLE III

DIRECTORS

1. DUTIES AND POWERS. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.

2. NUMBER OF DIRECTORS. Except as otherwise fixed pursuant to the
provisions of Article IV of the Certificate of Incorporation of the Corporation
relating to the rights of the holders of any class or series of Preferred Stock
to elect additional directors under specified circumstances, the number of
directors of the Corporation shall be fixed from time to time exclusively by
resolutions adopted by the Board of Directors; PROVIDED, HOWEVER, that no
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.

3. ELECTIONS OF DIRECTORS. Except as provided in Section 4 of this
Article and subject to the rights of the holders of any class or series of
Preferred Stock to elect additional directors under specified circumstances
pursuant to the provisions of Article IV of the Certificate of Incorporation of
the Corporation, directors shall be elected by a plurality of the votes cast at
annual meetings of stockholders, and each director so elected shall hold office
until his successor is duly elected and qualified, or until his earlier
resignation or removal. Directors need not be stockholders. Only persons who
are nominated in accordance with the following procedures shall be eligible for
election by the stockholders as directors of the Corporation. Nominations of
persons for election as directors of the Corporation may be made at a meeting of
stockholders (a) by or at the direction of the Board of Directors, (b) by any
nominating committee or persons appointed by the Board of Directors or

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(c) by any stockholders of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 3. Such nominations, other than those made by or at the direction
of the Board of Directors or a committee thereof, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive office of the
Corporation not less than fifty (50) days nor more than seventy-five (75) days
prior to the meeting; PROVIDED, HOWEVER, that in the event that less than sixty
(60) days' notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's notice to the
Secretary of the Corporation shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director,
(i) the name, age, business address and residence address of the person,
(ii) the principal occupation or employment of the person, (iii) the class and
number of shares of capital stock of the Corporation which are beneficially
owned by the person and (iv) any other information relating to the person that
is required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as now
or hereafter amended; and (b) as to the stockbroker giving the notice (i) the
name and record address of such stockholder and (ii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by such
stockholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as a director of the
Corporation. No person shall be eligible for election by the stockholders as a
director of the Corporation unless nominated in accordance with the procedures
set forth herein. The chairman of the meeting of the stockholders shall, if the
facts warrant, determine and declare to the meeting that nomination was not made
in accordance with the foregoing procedure, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.

4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise fixed
pursuant to the provisions of Article IV of the Certificate of Incorporation or
the Corporation relating to the rights of the holders of any class or series of
Preferred Stock to elect directors under specified circumstances, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors, or by a sole remaining
director. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified, or until such
director's earlier resignation or removal.

5. RESIGNATION. Any director may resign by delivering his written
resignation to the Corporation at its principal office addressed to the
President or Secretary. Such resignation shall be

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effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.

6. REMOVAL. Any director, other than those who may be elected by the
holders of any class or series of Preferred Stock, or the entire Board of
Directors, may be removed from office only for cause by the affirmative vote of
the holders of at least a majority of the voting power of all of the then
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), voting together as
a single class.

7. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors of officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.

8. COMMITTEES. The Board of Directors may, by a resolution passed by a
majority of the whole Board of Directors, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualifies member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members of the committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of the absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of General Corporation Law of the State of Delaware, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all such papers which may require it.
Each such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but, unless otherwise provided by the

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directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the Board of
Directors.

9. COMPENSATION. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.

ARTICLE IV

MEETINGS OF THE BOARD

1. PLACE OF MEETINGS. The regular or special meetings of the Board of
Directors or any committee designated by the Board shall be held at the
principal office of the Corporation or at any other place within or without the
State of Delaware that a majority of the Board of Directors or any such
committee, as the case may be, may designate from time to time by resolution.

2. REGULAR MEETINGS. The Board of Directors shall meet each year
immediately after and at the same place as the annual meeting of the
stockholders for the purpose of electing officers and transacting such other
business as may come before the meeting. The Board of Directors or any
committee designated by the Board may provide, by resolution, for the holding of
additional regular meetings within or without the State of Delaware without
notice of the time and place of such meeting other than such resolution;
provided that director who is absent when such resolution is made shall be given
notice of said resolution.

3. SPECIAL MEETINGS. Special meetings of the Board of Directors or any
committee designated by the Board may be held at any time and pace, within or
without the State of Delaware, designated in a call by the Chairman of the
Board, if there be one, by the President or by a majority of the members of the
Board of Directors or any such committee, as the case may be.

4. NOTICE OF SPECIAL MEETINGS. Except as otherwise provided by these
Bylaws or the laws of the State of Delaware, written notice of each special
meeting of the Board of Directors or any committee thereof setting forth the
time and place of the meeting shall be given to each director by the Secretary
or by the officer or director calling the meeting not less than twenty-four
hours prior to the time fixed for the meeting or, in the case of notice by mail,
not less than forty-eight hours before the date of the meeting. Notice of
special meetings may be either given personally, personally by telephone, or by
sending a copy of the notice through the United States mail or by telegram,
telex or telecopy, charges prepaid, to the address of each director appearing on
the books of the Corporation. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
prepaid thereon. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram, telex or telecopy, is delivered to the

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telegraph, telex or telecopy operator. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.

5. WAIVER OF NOTICE. A director may waive, in writing, notice of any
special meeting of the Board of Directors or any committee thereof, either
before, at, or after the meeting; and his waiver shall be deemed the equivalent
of giving notice. By attending or participating in a regular or special
meeting, a director waives any required notice of such meeting unless the
director, at the beginning of the meeting, objects to the holding of the meeting
or the transacting of business at the meeting.

6. QUORUM AND ACTION AT MEETING. At meetings of the Board of Directors
or any committee designated by the Board, a majority of the total number of
directors, or a majority of the members of any such committee, as the case may
be, shall constitute a quorum for the transaction of business. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
PROVIDED, HOWEVER, that in not case shall less than one-third (1/3) of the
number so fixed constitute a quorum. If a quorum is present, the act of the
majority of directors in attendance shall be the act of the Board of Directors
or any committee thereof, as the case may be, unless the act of a greater number
is required by these Bylaws, the Certificate of Incorporation or the General
Corporation Law of the State of Delaware. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
that meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.

7. PRESUMPTION OF ASSENT. A director who is present at a meeting of the
Board of a committee thereof when action is taken is deemed to have assented to
the action unless: (i) he objects at the beginning of such meeting to the
holding of the meeting or the transacting of business at the meeting; (ii) he
contemporaneously requests that his dissent from the action taken be entered in
the minutes of such meeting; or (iii) he gives written notice of his dissent to
the presiding officer of such meeting before its adjournment or to the Secretary
of the Corporation immediately after of such meeting. The right of dissent as
to a specific action taken at a meeting of a Board or a committee thereof is not
available to a director who votes in favor of such action.

8. ACTIONS OF BOARD. Unless otherwise provided by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all the members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.

9. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise provided
by the Certificate of Incorporation or these Bylaws, members of the Board of
Directors of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications

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equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 9 shall
constitute presence in person at such meeting.

ARTICLE V

OFFICERS AND AGENTS

1. ENUMERATION, ELECTION AND TERM. The officers of the Corporation shall
consist of a President, a Secretary, a Treasurer and such other officers with
such other titles as may be deemed necessary or desirable by the Board of
Directors, including one or more Vice Presidents, Assistant Treasurers and
Assistant Secretaries and a Chairman of the board (who must be a director). Any
number of offices may be held by the same person, unless otherwise prohibited by
law, and no officer need be a stockholder, director, except in the case of the
Chairman of the Board of Directors, or a resident of the State of Delaware.
Except as otherwise provided by law, the Certificate of Incorporation or these
Bylaws, each officer shall hold office until his successor is elected and
qualified or until his earlier death, resignation or removal. The officers of
the Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board held after each annual meeting of the stockholders.

2. GENERAL DUTIES. All officers and agents of the Corporation, as
between themselves and the Corporation, shall have such authority and shall
perform such duties in the management of the Corporation as may be provided in
these Bylaws or as may be determined by resolution of the Board of Directors not
inconsistent with these Bylaws. In all cases where the duties of any officer,
agent or employee are not prescribed by the Bylaws or by the Board of Directors,
such officer, agent or employee shall follow the orders and instructions of the
President.

3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation may be executed in the name of and on behalf of the
Corporation by the President or any Vice President and any such officer may, in
the name of and on behalf of the Corporation, take all such action as any such
officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
power incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers upon
any other person or persons.

4. VACANCIES. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave any vacancy unfilled
for such period as it may determine other than a vacancy in the office of
President or Secretary. The officer so selected shall hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal.

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5. COMPENSATION. The Board of Directors from time to time shall fix the
compensation of the officers of the Corporation. The compensation of other
agents and employees of the Corporation may be fixed by the Board of Directors,
or by any committee designated by the Board or by an officer to whom that
function has been delegated by the Board.

6. RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the Corporation at its principal office addressed to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event. Any officer or agent of the Corporation may be removed, with or
without cause, by a vote of the majority of the members of the Board of
Directors whenever in its judgment the best interests of the Corporation may be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or an agent shall not of itself create contract rights.

7. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there be one,
shall preside as chairman at meetings of the stockholders and the Board of
Directors. He shall, in addition, have sch other duties as the Board may
prescribe that he perform. At the request of the Chief Executive Officer, the
Chairman of the Board may, in the case of the Chief Executive Officer's absence
or inability to act, temporarily in his place, the Chairman of the Board shall
perform the duties of the Chief Executive Officer, unless the Board of
Directors, by resolution, provides otherwise. If the Chairman of the Board
shall be unable to act in place of the Chief Executive Officer, the President
may exercise such powers and perform such duties as provided in Section 8 below.

8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the
Corporation's Chief Executive Officer and have general supervision of the
business of the Corporation. At each annual meeting of the stockholders, the
Chief Executive Officer shall give a report of the business of the Corporation
for the preceding fiscal year and shall perform whatever other duties the Board
of Directors may from time to time prescribe.

9. PRESIDENT. In the event the position of Chief Executive Officer shall
not be occupied or the Chief Executive officer shall be absent or otherwise
unable to act, the President shall preside at meetings of the stockholders and
directors and shall discharge the duties of the presiding officer. The
President shall perform whatever other duties the Board of Directors may from
time to time prescribe.

10. VICE PRESIDENTS. Each Vice President shall have such powers and
perform such duties as the Board of Directors may from time to time prescribe or
as the President may from time to time delegate to him. At the request of the
President, in the case of the President's absence or inability to act, any Vice
President may temporarily act in his place. In the case of the death of the
President, or in the case of his absence or inability to act without having
designated a Vice President or Vice Presidents to act temporarily in his place,
the Board of Directors, by resolution, may designate a Vice President or Vice
Presidents to perform the duties of the President. If no such designation shall
be made, all of the Vice Presidents may exercise such powers and perform such
duties.

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11. SECRETARY. The Secretary shall keep or cause to be kept in books
provided for that purpose, the minutes of the meetings of the stockholders,
executive committee, if any, and any other committees, and of the Board of
Directors; shall see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law; shall be custodian of the
records and of the seal of the Corporation and see that the seal is affixed to
all documents, the execution of which on behalf of the Corporation under its
seal is duly authorized and in accordance with the provisions of these Bylaws;
and, in general, shall perform all duties incident to the office of Secretary
and such other duties as may, from time to time, be assigned to him by the Board
of Directors or by the President. In the absence of the Secretary or his
inability to act, the Assistant Secretaries, if any, shall act with the same
powers and shall be subject to the same restrictions as are applicable to the
Secretary.

12. TREASURER. The Treasurer shall have custody of corporate funds and
securities. He shall keep full and accurate accounts of receipts and
disbursements and shall deposit all corporate monies and other valuable effects
in the name and to the credit of the Corporation in the depository or
depositories of the Corporation, and shall render an account of his transactions
as Treasurer and of the financial condition of the Corporation to the President
or the Board of Directors upon request. Such power given to the Treasurer to
deposit and disburse funds shall not, however, preclude any other officer or
employee of the Corporation from also depositing and disbursing funds when
authorized to do so by the Board of Directors. The Treasurer shall, if required
by the Board of Directors, give the Corporation a bond in such amount and with
such surety or sureties as may be ordered b the Board of Directors for the
faithful performance of the duties of his office. The Treasurer shall have such
other powers and perform such other duties as may be from time to time
prescribed by the Board of Directors or the President. In the absence of the
Treasurer or his inability to act, the Assistant Treasurers, if any, shall act
with the same authority and shall be subject to the same restrictions as are
applicable to the Treasurer.

13. DELEGATION OF DUTIES. Whenever an officer is absent, or whenever, for
any reason, the Board of Directors may deem it desirable, the Board may delegate
the powers and duties of an officer to any other officer or officers or to any
director or directors.

ARTICLE VI

CAPITAL STOCK

1. CERTIFICATES OF STOCK. The shares of the Corporation shall be
represented by certificates, provided that the Board of Directors of the
Corporation may, by resolution, provide that some or all of any or all classes
or series of its stock shall be uncertificated shares. Any such resolution
shall not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation by
the

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Chairman or Vice Chairman of the Board of Directors, or the President or Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the Corporation representing the number of shares
registered in certificate form. Any or all the signatures on the certificate
may be a facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.

2. ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the Corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by resolution of the Board of Directors in such manner,
for such consideration and on such terms as the Board of Directors may
determine. Consideration for such shares of capital stock shall be expressed in
dollars, and shall not be less than the par value or stated value therefor, as
the case may be. The par value for shares, if any, shall be stated in the
Certificate of Incorporation, and the stated value for shares, if any, shall be
fixed from time to time by the Board of Directors.

3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any previously issued certificate alleged
to have been destroyed or lost if the owner makes an affidavit or affirmation of
that fact and produces such evidence of loss or destruction as the Board may
require. The Board, in its discretion, may as a condition precedent to the
issuance of a new certificate require the owner to give the Corporation a bond
as indemnity against any claim that may be made against the Corporation relating
to the allegedly destroyed or lost certificate.

4. TRANSFER OF SHARES. Subject to applicable law, shares of stock of the
Corporation may be transferred on its books upon the surrender to the
Corporation or its transfer agent of the certificates representing such shares,
if any, duly endorsed or accompanied by a written assignment or power of
attorney duly executed and with such proof of authority or authenticity of
signature as the Corporation or its transfer agent may reasonably require. In
that event, the surrendered certificates shall be canceled, new certificates
issued to the persons entitled to them. if any, and the transaction recorded on
the books of the Corporation.

5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of the other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of the State of Delaware.

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6. STOCK LENDER. An appropriate stock journal and ledger shall be kept
by the Secretary or such registrars or transfer agents as the directors by
resolution may appoint in which all transactions in the shares of stock of the
Corporation shall be recorded.

7. RESTRICTION ON TRANSFER OF SHARES. Notice of any restriction on the
transfer of the stock of the Corporation shall be placed on each certificate of
stock issued or in the case of uncertificated shares contained in the notice
sent to the registered owner of such shares in accordance with the provisions of
the General Corporation Law of the State of Delaware.

ARTICLE VII

DISBURSEMENTS

All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.

ARTICLE VIII

FISCAL YEAR

The fiscal year of the Corporation shall be determined by the Board of
Directors and set forth in the minutes of the directors. Said fiscal year may
be changed from time to time by the Board of Directors in its discretion.

ARTICLE IX

DIVIDENDS

Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation. Before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think in the best interests of the Corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.

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ARTICLE X

AMENDMENTS

Subject to repeal or change by action of the stockholders, the Board of
Directors may amend, supplement or repeal these Bylaws or adopt new Bylaws, and
all such changes shall affect and be binding upon the holders of all shares
heretofore as well as hereafter authorized, subscribed for or offered.
Notwithstanding the foregoing and anything contained in the Certificate of
Incorporation to the contrary, Section 7 of Article II and Section 3 of Article
III of the Bylaws shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the shares of Voting Stock, voting together as a single class.

ARTICLE XI

MISCELLANEOUS

1. GENDER. Whenever required by the context, the singular shall include
the plural, the plural the singular, and one gender shall include all genders.

2. INVALID PROVISION. The invalidity or unenforceability of any
particular provision of these Bylaws shall not affect the other provisions
herein, and these Bylaws shall be construed in all respects as if such invalid
or unenforceable provision was omitted.

3. GOVERNING LAW. These Bylaws shall be governed by and construed in
accordance with the laws of the State of Delaware.

I, Karla Vukelich, as Secretary of Color Spot Nurseries, Inc., hereby
certify that the foregoing Bylaws were adopted by the Board of Directors of
the Corporation effective as of _______________, 1997.

--------------------------------------------
Karla Vukelich, Secretary

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EXECUTION COPY

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CSN, INC.

COLOR SPOT NURSERIES, INC.

AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of February 20, 1997

BANQUE INDOSUEZ, NEW YORK BRANCH, as Administrative Agent

and

IBJ SCHRODER BANK & TRUST COMPANY, as Co-Agent

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<PAGE>

TABLE OF CONTENTS

Page

SECTION 1. AMOUNT AND TERMS OF CREDIT....................................3
1.01. COMMITMENTS...................................................3
1.02. MINIMUM AMOUNT OF EACH BORROWING; MAXIMUM NUMBER
OF BORROWINGS.................................................5
1.03. NOTICE OF BORROWINGS..........................................6
1.04. DISBURSEMENT OF FUNDS.........................................6
1.05. NOTES.........................................................8
1.06. CONVERSIONS...................................................9
1.07. PRO RATA BORROWINGS..........................................10
1.08. INTEREST.....................................................11
1.09. INTEREST PERIODS.............................................12
1.10. SPECIAL PROVISIONS GOVERNING RESERVE ADJUSTED
EURODOLLAR LOANS.............................................13
1.11. CAPITAL REQUIREMENTS.........................................16
1.12. TOTAL LOAN COMMITMENTS; LIMITATIONS ON OUTSTANDING
LOAN AMOUNTS.................................................17
1.13. LETTERS OF CREDIT............................................17

SECTION 2. COMMITMENTS..................................................27
2.01. VOLUNTARY REDUCTION OF COMMITMENTS...........................27
2.02. ADJUSTMENTS; TERMINATION OF COMMITMENTS, ETC.................28
2.03. COMMITMENT FEE...............................................29

SECTION 3. PAYMENTS.....................................................29
3.01. SCHEDULED PAYMENTS...........................................29
3.02. VOLUNTARY PREPAYMENTS........................................30
3.03. MANDATORY PREPAYMENTS; REDUCTION OF COMMITMENTS..............31
3.04. APPLICATION OF MANDATORY PREPAYMENTS.........................35
3.05. REDUCTION OF TOTAL REVOLVING LOAN COMMITMENT, ETC............36
3.06. METHOD AND PLACE OF PAYMENT..................................36
3.07. NET PAYMENTS.................................................37
3.08. RESERVE ACCOUNT; PREPAYMENT COLLATERAL ACCOUNT...............39

SECTION 4. CONDITIONS PRECEDENT.........................................40
4.01. CONDITIONS PRECEDENT TO INITIAL LOANS........................40
4.02. CONDITIONS PRECEDENT TO ALL LOANS............................48
4.03. ADDITIONAL CONDITIONS PRECEDENT TO ACQUISITION TERM LOANS....49

SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS...................52
5.01. STATUS.......................................................53
5.02. POWER AND AUTHORITY; BUSINESS................................53

<PAGE>

5.03. NO VIOLATION.................................................53
5.04. LITIGATION...................................................54
5.05. USE OF PROCEEDS..............................................54
5.06. GOVERNMENTAL APPROVALS, ETC..................................55
5.07. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING
COMPANY ACT..................................................56
5.08. TRUE AND COMPLETE DISCLOSURE.................................56
5.09. FINANCIAL CONDITION; FINANCIAL STATEMENTS; PROJECTIONS.......56
5.10. SECURITY INTERESTS...........................................58
5.11. TAX RETURNS AND PAYMENTS.....................................58
5.12. ERISA........................................................59
5.13. CAPITAL STOCK; SUBSIDIARIES, ETC.............................59
5.14. PROPRIETARY RIGHTS...........................................59
5.15. COMPLIANCE WITH LAWS, ETC....................................60
5.16. PROPERTIES...................................................60
5.17. SECURITIES...................................................61
5.18. COLLECTIVE BARGAINING AGREEMENTS; LABOR MATTERS..............62
5.19. RECAPITALIZATION DOCUMENTS, ETC..............................62
5.20. INDEBTEDNESS OUTSTANDING.....................................62
5.21. ENVIRONMENTAL PROTECTION.....................................62
5.22. ENVIRONMENTAL INVESTIGATIONS.................................65
5.23. INSURANCE....................................................65
5.24. GOVERNMENTAL REGULATION......................................65
5.25. ABSENCE OF EVENTS OF DEFAULT.................................65
5.26. PERFORMANCE OF AGREEMENTS....................................65
5.27. SECURITIES ACTIVITIES........................................65
5.28. WATER RIGHTS.................................................65

SECTION 6. AFFIRMATIVE COVENANTS........................................66
6.01. INFORMATION COVENANTS........................................66
6.02. BOOKS, RECORDS AND INSPECTIONS...............................70
6.03. MAINTENANCE OF PROPERTY; INSURANCE...........................71
6.04. PAYMENT OF TAXES.............................................71
6.05. CORPORATE FRANCHISES.........................................72
6.06. COMPLIANCE WITH STATUTES, ETC................................72
6.07. ERISA........................................................72
6.08. PERFORMANCE OF OBLIGATIONS...................................73
6.09. FISCAL YEAR; FISCAL QUARTERS.................................73
6.10. USE OF PROCEEDS..............................................73
6.11. INTEREST RATE PROTECTION.....................................73
6.12. NO FURTHER NEGATIVE PLEDGES, ETC.............................73
6.13. BANK MEETING.................................................74
6.14. ADDITIONAL COLLATERAL; FURTHER ASSURANCES....................74

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6.15. SECURITY INTERESTS...........................................75
6.16. ENVIRONMENTAL EVENTS.........................................76
6.17. ASSIGNMENT OF HOLDINGS' REMAINING ASSETS TO
THE BORROWER. ..............................................77

SECTION 7. NEGATIVE COVENANTS...........................................77
7.01. CAPITAL EXPENDITURES.........................................78
7.02. TOTAL INTEREST COVERAGE RATIO................................78
7.03. FIXED CHARGE COVERAGE RATIO..................................80
7.04. LEVERAGE RATIO...............................................81
7.05. MINIMUM CONSOLIDATED EBITDA. ................................82
7.07. INDEBTEDNESS.................................................85
7.08. INVESTMENTS..................................................86
7.09. PREPAYMENTS OF INDEBTEDNESS..................................87
7.10. DIVIDENDS, ETC...............................................87
7.11. DISPOSITION OF ASSETS........................................88
7.12. CONTINGENT OBLIGATIONS.......................................89
7.13. MERGER AND CONSOLIDATIONS....................................89
7.14. AMENDMENTS TO ORGANIZATIONAL DOCUMENTS.......................90
7.15. ERISA........................................................90
7.16. NO NON-WHOLLY OWNED SUBSIDIARIES.............................90
7.17. CHANGES IN BUSINESS..........................................90
7.18. AMENDMENTS OR WAIVERS OF CERTAIN DOCUMENTS...................90
7.19. TRANSACTIONS WITH AFFILIATES.................................90
7.20. CAPITAL STRUCTURE............................................91
7.21. SALE AND LEASE-BACKS.........................................91
7.22. CLEAN-DOWN PERIOD. .........................................92
7.23. CERTAIN PAYMENTS.............................................92

SECTION 8. EVENTS OF DEFAULT............................................92
8.01. PAYMENTS.....................................................92
8.02. REPRESENTATIONS, ETC.........................................93
8.03. COVENANTS....................................................93
8.04. DEFAULT UNDER OTHER AGREEMENTS...............................93
8.05. BANKRUPTCY, ETC..............................................94
8.06. SECURITY DOCUMENTS; GUARANTEES...............................94
8.07. SUBORDINATION................................................94
8.08. JUDGMENTS....................................................95
8.09. OWNERSHIP....................................................95
8.10. CERTAIN ACTIONS FOLLOWING AN EVENT OF DEFAULT................95

SECTION 9. HOLDINGS GUARANTEE...........................................96

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<PAGE>

9.01. GUARANTEE OF OBLIGATIONS.....................................96
9.02. CONTINUING OBLIGATION........................................96
9.03. WAIVERS WITH RESPECT TO OBLIGATIONS..........................97
9.04. BANKS' POWER TO WAIVE, ETC...................................99
9.05. INFORMATION REGARDING THE BORROWER, ETC......................99
9.06. CERTAIN GUARANTOR REPRESENTATIONS...........................100
9.07. SUBROGATION.................................................100
9.08. SUBORDINATION...............................................100
9.09. FURTHER ASSURANCES..........................................100

SECTION 10. DEFINITIONS................................................101

SECTION 11. THE AGENT..................................................131
11.01. APPOINTMENT................................................131
11.02. DELEGATION OF DUTIES.......................................131
11.03. EXCULPATORY PROVISIONS.....................................132
11.04. RELIANCE BY THE AGENT......................................132
11.05. NOTICE OF DEFAULT..........................................133
11.06. NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER BANKS.......133
11.07. INDEMNIFICATION............................................133
11.08. THE AGENTS IN THEIR INDIVIDUAL CAPACITIES..................134
11.09. SUCCESSOR AGENT............................................134
11.10. RESIGNATION, TRANSFER BY AGENT.............................134
11.11. CO-AGENT...................................................135

SECTION 12. MISCELLANEOUS..............................................135
12.01. PAYMENT OF EXPENSES, ETC...................................135
12.02. RIGHT OF SETOFF............................................136
12.03. NOTICES....................................................137
12.04. BENEFIT OF AGREEMENT.......................................138
12.05. NO WAIVER; REMEDIES CUMULATIVE.............................140
12.06. PAYMENTS PRO RATA..........................................141
12.07. CALCULATIONS; COMPUTATIONS.................................141
12.08. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE;
SERVICE OF PROCESS.........................................142
12.09. COUNTERPARTS...............................................142
12.10. HEADINGS DESCRIPTIVE.......................................142
12.11. AMENDMENT OR WAIVER........................................143
12.12. SURVIVAL...................................................143
12.13. DOMICILE OF LOANS..........................................143
12.14. WAIVER OF JURY TRIAL.......................................143
12.15. INDEPENDENCE OF COVENANTS..................................143
12.16. REINSTATEMENT..............................................143

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<PAGE>

SCHEDULES

Schedule A - List of Banks
Schedule 4.01(j) - Financial Statements
Schedule 4.01(l) - Litigation
Schedule 4.01(m) - Restrictions on Borrower's Ability to
Grant Liens
Schedule 4.01(p) - Required Consents
Schedule 4.03 - Designated Acquisitions
Schedule 5.10A - Prior Liens
Schedule 5.10B - Required Filings and Recordings
Schedule 5.13 - Subsidiaries
Schedule 5.16 - Real Property Owned and Leased
Schedule 5.17 - Capital Stock
Schedule 5.20 - Indebtedness
Schedule 5.21 - Environmental Exceptions
Schedule 5.23 - Insurance
Schedule 12.03 - Bank Addresses

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<PAGE>

EXHIBITS

Exhibit 1.03-1 - Form of Notice of Revolving Loan
Borrowing
Exhibit 1.03-2 - Form of Notice of Acquisition Loan
Borrowing
Exhibit 1.05(a)(i) - Form of Term A Note
Exhibit 1.05(a)(ii) - Form of Term B Note
Exhibit 1.05(a)(iii) - Form of Revolving Note
Exhibit 1.05(a)(iv) - Form of Acquisition Term Note
Exhibit 4.01(b) - Form of Officer's Certificate
Exhibit 4.03(b)(iii)-1 - Form of Officer's Certificate --
Designated Acquisitions
Exhibit 4.03(b)(iii)-2 - Form of Officer's Certificate -
Unspecified Permitted Acquisitions
Exhibit 6.01(m) - Form of Borrowing Base Certificate
Exhibit 10A - Form of Security Agreement
Exhibit 10B - Form of Subsidiary Guarantee
Exhibit 10C - Form of Trademark Security Agreement
Exhibit 12.04(c) - Form of Assignment Agreement

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<PAGE>

CSN, INC.

COLOR SPOT NURSERIES, INC.

AMENDED AND RESTATED CREDIT AGREEMENT

This Amended and Restated Credit Agreement is dated as of February 20,
1997, and amends and restates, in its entirety, the Credit Agreement dated as of
December 31, 1996 (the "ORIGINAL CREDIT AGREEMENT"), among Color Spot Nurseries,
Inc., a Delaware corporation, f/k/a Color Spot Watsonville, Inc. (the
"BORROWER"), CSN, Inc., a Delaware corporation, f/k/a Color Spot Nurseries, Inc.
("HOLDINGS" and, together with the Borrower, the "INITIAL BORROWERS"), the New
York branch of Banque Indosuez ("INDOSUEZ"), IBJ Schroder Bank & Trust Company
("IBJS") and the other lending institutions listed in Schedule A (each a
"BANK"), Indosuez, as the administrative agent (the "ADMINISTRATIVE AGENT") for
itself and the other Banks and IBJS as co- agent (the "CO-AGENT" and, together
with the Administrative Agent, the "AGENTS"). Unless otherwise defined herein,
all capitalized terms used herein are as defined in Section 10.

R E C I T A L S:

WHEREAS, the Original Credit Agreement was entered into on December 31,
1996 (the "EFFECTIVE DATE") in order (a) to finance a recapitalization of
Holdings pursuant to a Recapitalization and Stock Purchase Agreement dated as of
December 31,1996 (the "RECAPITALIZATION AGREEMENT") among Holdings, KCSN
Acquisition Company, L.P., a Delaware limited partnership ("KCSN"), Heller
Equity Capital Corporation, a Delaware corporation ("HELLER") and certain other
shareholders of Holdings, (b) to provide working capital for the Borrower and
its Subsidiaries and (c) with respect to the Acquisition Term Loans, to provide
financing for certain business acquisitions by the Borrower; and

WHEREAS, in connection with, and immediately following the consummation of,
the Recapitalization (i) substantially all of the assets of Holdings were
assigned to the Borrower, (ii) the Borrower's name was changed from Color Spot
Watsonville, Inc. to its current name of Color Spot Nurseries, Inc. and (iii)
Holdings' name was changed from Color Spot Nurseries, Inc. to its current name
of CSN, Inc.; and

WHEREAS, pursuant to the Original Credit Agreement (i) on the Effective
Date, the Initial Borrowers incurred Term A Loans in the aggregate principal
amount of $18,000,000 (collectively, the "EXISTING TERM A LOANS"), Term B Loans
in an aggregate principal amount of $16,250,000 (collectively, the "EXISTING
TERM B LOANS") and Revolving Loans in the aggregate principal amount of
$3,000,000; and (ii) thereafter, the Borrower has incurred Acquisition Term
Loans in the aggregate principal amount of $3,200,000 (collectively, the
"EXISTING ACQUISITION TERM LOANS"), all of which amounts remain outstanding as
of the date hereof; and

<PAGE>

WHEREAS, Lone Star Growers Co., a Texas general partnership, ("TARGET"),
both of the partners of Target (collectively, "SELLERS"), Lone Star Growers,
L.P., a Delaware limited partnership, ("ACQUISITION"), all of the partnership
interests in which are held by the Borrower (which holds 99% of such partnership
interests as its limited partner) and by Lone Star, Inc., a Delaware corporation
and a Wholly Owned Subsidiary of the Borrower, ("Newco.") (which holds 1% of
such partnership interests as its general partner) and Holdings have entered
into a Merger Agreement dated as of February 20, 1997 (the "LS PURCHASE
AGREEMENT") pursuant to which Acquisition shall acquire 100% of the partnership
interests in Target and the Sellers shall acquire Capital Stock of Holdings
(such transaction, the "LS PURCHASE"); and

WHEREAS, upon the acquisition by Acquisition of all of the partnership
interests in Target, pursuant to applicable partnership law, Target shall cease
to have separate existence and all of the assets of Target shall become assets
of Acquisition by operation of law; and

WHEREAS, in connection with the foregoing, the Borrower desires to increase
the Banks' commitments under the Original Credit Agreement and to incur
additional Loans from the Banks (which Loans shall be guaranteed by Holdings,
Newco and Acquisition), and specifically (i) to replace the Existing Term A
Loans with Term A Loans in the aggregate principal amount of $25,000,000
(collectively, the "TERM A LOANS"); (ii) to replace the Existing Term B Loans
with Term B Loans in the aggregate principal amount of $35,000,000
(collectively, the "TERM B LOANS"); (iii) to replace the Existing Total
Revolving Loan Commitment with an increased Total Revolving Loan Commitment in
the amount of $27,500,000 (the "TOTAL REVOLVING LOAN COMMITMENT") and to replace
any Revolving Loans outstanding as of the Closing Date (collectively, the
"EXISTING REVOLVING LOANS") with Loans under such restated Total Revolving Loan
Commitment; [and (iv) to replace the Existing Acquisition Term Loans with
Acquisition Term Loans and to restate the Acquisition Term Loan Commitment as of
the date hereof; and

WHEREAS, the Borrower desires (a) to use the proceeds of the Term A Loans
and the Term B Loans (i) to replace and retire the Existing Term A Loans and the
Existing Term B Loans and (ii) to provide a portion of the consideration to be
paid by Acquisition for the LS Purchase; and (b) to use the proceeds of the
Revolving Loans (i) to provide a portion of the consideration for the LS
Purchase, (ii) to pay fees and expenses relating to the LS Purchase and related
transactions and (ii) to provide working capital for the Borrower and its
Subsidiaries; and

WHEREAS, the Banks are willing to make available the additional credit
facilities provided for herein on the terms and conditions set forth herein;

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

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<PAGE>

SECTION 1. AMOUNT AND TERMS OF CREDIT.

1.01. COMMITMENTS. Subject to and upon the terms and conditions set forth
herein, each Bank severally agrees, (i) in the case of any Borrowing under the
Term A Portion or the Term B Portion on the Closing Date, (ii) in the case of
any Borrowing under the Revolving Portion at any time and from time to time on
and after the Closing Date and prior to the Revolving Loan Commitment
Termination Date and (iii) in the case of any Borrowings under the Acquisition
Portion from time to time on and after the Closing Date and prior to the
Acquisition Term Loan Commitment Termination Date in connection with the
refinancing of the Existing Acquisition Term Loans and with Permitted Business
Acquisitions, to make Loans to the Borrower, as specified below, which Loans
shall be drawn under the Loan Facility (including the Term A Portion, the Term B
Portion, the Revolving Portion and the Acquisition Portion thereof), as set
forth below:

(a) Loans under the Term A Portion of the Loan Facility (each a "TERM
A LOAN") shall be made to the Borrower on the Closing Date. The Term A
Loans (i) except as hereinafter provided, shall initially be Base Rate
Loans and, 30 days after the Closing Date or such earlier time as (x)
Indosuez shall have completed any intended syndication of its interest in
the Loans (as to which the Administrative Agent shall promptly notify the
Borrower) or (y) is otherwise assented to by the Administrative Agent,
shall, at the option of the Borrower, be Base Rate Loans or Reserve
Adjusted Eurodollar Loans; PROVIDED, HOWEVER, that, notwithstanding
anything to the contrary set forth above, in the event that the
Administrative Agent shall not have notified the Borrower that it has
completed any intended syndication as of the date on which the Borrower
becomes entitled to elect Reserve Adjusted Eurodollar Loans, then, for a
further period of one month (or such longer period as the Administrative
Agent and the Borrower agree), the Borrower shall only be entitled to elect
Reserve Adjusted Eurodollar Loans which have an Interest Period which
terminates on or before the end of such one-month period; and PROVIDED,
FURTHER, that all Term A Loans made by all Banks pursuant to the same
Borrowing shall, unless otherwise specifically provided herein, consist
entirely of Loans of the same Type; and (ii) shall not exceed for any Bank
at any time outstanding the aggregate principal amount which equals the
Term A Loan Commitment of such Bank.

(b) Loans under the Term B Portion of the Loan Facility (each a "TERM
B LOAN") shall be made to the Borrower on the Closing Date. The Term B
Loans (i) except as hereinafter provided, shall initially be Base Rate
Loans and, 30 days after the Initial Closing Date or such earlier time as
(x) Indosuez shall have completed any intended syndication of its interest
in the Loans (as to which the Administrative Agent shall promptly notify
the Borrower) or (y) is otherwise assented to by the Administrative Agent,
shall, at the option of the Borrower, be Base Rate Loans or Reserve
Adjusted Eurodollar Loans; PROVIDED, HOWEVER, that, notwithstanding
anything to the contrary set forth above, in the event that the
Administrative Agent shall not have notified the Borrower that it has
completed any intended syndication as of the date on which the

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<PAGE>

Borrower becomes entitled to elect Reserve Adjusted Eurodollar Loans, then,
for a further period of one month (or such longer period as the Borrower
and the Administrative Agent agree), the Borrower shall only be entitled to
elect Reserve Adjusted Eurodollar Loans which have an Interest Period which
terminates on or before the end of such one-month period; and PROVIDED,
FURTHER, that all Term B Loans made by all Banks pursuant to the same
Borrowing shall, unless otherwise specifically provided herein, consist
entirely of Loans of the same Type; and (ii) shall not exceed for any Bank
at any time outstanding the aggregate principal amount which equals the
Term B Loan Commitment of such Bank.

(c) Loans under the Revolving Portion of the Loan Facility (each a
"REVOLVING LOAN") (i) shall be made to the Borrower at any time and from
time to time on and after the Closing Date; PROVIDED that the Revolving
Loans made on the Closing Date shall not exceed $5,000,000 (not including
Revolving Loans advanced to repay Existing Revolving Loans) and shall be
made for purposes of financing the LS Purchase, retiring existing
Indebtedness of the Target and paying related fees and expenses (PROVIDED,
HOWEVER, that the full amount of each of the Term A Loan Commitment and the
Term B Loan Commitment shall, after being utilized to repay the principal
amount of each of the Existing Term A Loans and the Existing Term B Loans,
be utilized for financing the LS Purchase, retiring existing Indebtedness
of the Target and paying related fees and expenses) and prior to the
Revolving Loan Commitment Termination Date; (ii) except as hereinafter
provided, shall initially be made as Base Rate Loans until 30 days after
the Closing Date or such earlier time as (x) Indosuez shall have completed
any intended syndication of its interest in the Loans (as to which the
Administrative Agent shall promptly notify the Borrower) or (y) is
otherwise assented to by the Administrative Agent, and thereafter, at the
Borrower's option and subject to the terms hereof, may be Base Rate Loans
or Reserve Adjusted Eurodollar Loans; PROVIDED, HOWEVER, that,
notwithstanding anything to the contrary set forth above, in the event that
the Administrative Agent shall not have notified the Borrower that it has
completed any intended syndication as of the date on which the Borrower
becomes entitled to elect Reserve Adjusted Eurodollar Loans, then for a
further period of one month (or such longer period as the Administrative
Agent and the Borrower agree), the Borrower shall only be entitled to elect
Reserve Adjusted Eurodollar Loans which have an Interest Period which
terminates on or before the end of such one-month period; and PROVIDED,
FURTHER, that all Revolving Loans made by all Banks pursuant to the same
Borrowing shall, unless otherwise specifically provided herein, consist
entirely of Loans of the same Type; (iii) may be repaid and reborrowed in
accordance with the provisions hereof; (iv) shall not exceed for any Bank
at any time outstanding the Revolving Loan Commitment of such Bank at such
time; and (v) shall not be made pursuant to a particular Notice of
Borrowing if the sum of (a) the aggregate principal amount of Revolving
Loans then outstanding and (b) the then outstanding Letters of Credit
Usage, after giving effect to the Revolving Loan requested by the relevant
Notice of Borrowing, would exceed the lesser of the Borrowing Base as then
calculated pursuant to Section 6.01(m) or the Total Revolving Loan
Commitment.

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<PAGE>

(d) Loans under the Acquisition Portion of the Loan Facility
(together with the Outstanding Acquisition Term Loans, each an "ACQUISITION
TERM LOAN") shall be made to the Borrower from time to time on or after the
Closing Date and prior to the Acquisition Term Loan Commitment Termination
Date (the date of each Borrowing of an Acquisition Term Loan other than the
Acquisition Term Loans made to replace the Existing Acquisition Term Loans,
an "ACQUISITION TERM LOAN CLOSING DATE") to refinance the Existing
Acquisition Term Loans and to effect Permitted Business Acquisitions.
Acquisition Term Loans (i) except as hereinafter provided, shall initially
be made as Base Rate Loans until 30 days after the Closing Date, with
respect to the Acquisition Term Loans made as of the Closing Date, and
until 30 days after the applicable Acquisition Term Loan Closing Date in
all other case, or, in each case, such earlier time as (x) Indosuez shall
have completed any intended syndication of its interest in the Acquisition
Term Loan made on such date (as to which the Administrative Agent shall
promptly notify the Borrower) or (y) is otherwise assented to by the
Administrative Agent, and thereafter, at the Borrower's option and subject
to the terms hereof, may be Base Rate Loans or Reserve Adjusted Eurodollar
Loans; PROVIDED, HOWEVER, that, notwithstanding anything to the contrary
set forth above, in the event that the Administrative Agent shall not have
notified the Borrower that it has completed any intended syndication as of
the date on which the Borrower becomes entitled to elect Reserve Adjusted
Eurodollar Loans, then for a further period of one month (or such longer
period as the Administrative Agent and the Borrower agree), the Borrower
shall only be entitled to elect Reserve Adjusted Eurodollar Loans which
have an Interest Period which terminates on or before the end of such
one-month period; and PROVIDED, FURTHER, that all Acquisition Term Loans
made by all Banks pursuant to the same Borrowing shall, unless otherwise
specifically provided herein, consist entirely of Loans of the same Type;
(ii) shall not exceed for any Bank at any time outstanding the Acquisition
Term Loan Commitment of such Bank at such time; and (iii) shall not be made
pursuant to a particular Notice of Borrowing if the aggregate principal
amount of Acquisition Term Loans then outstanding, after giving effect to
the Acquisition Term Loan requested by the relevant Notice of Borrowing,
would exceed the Total Acquisition Term Loan Commitment.

1.02. MINIMUM AMOUNT OF EACH BORROWING; MAXIMUM NUMBER OF BORROWINGS. The
minimum aggregate principal amount of any Loan shall be the Minimum Borrowing
Amount (other than a Borrowing of Revolving Loans consisting entirely of Base
Rate Loans such that the total amount of Revolving Loans to be outstanding after
giving effect to such Borrowing shall be equal to the Total Revolving Loan
Commitment) and Borrowings in excess thereof shall be in integral multiples of
$100,000; PROVIDED, HOWEVER, that (i) the Banks' Term A Loan Commitments and
Term B Loan Commitments shall terminate, on a pro rata basis, with respect to
any portion of the Total Term A Loan Commitments or the Total Term B Loan
Commitments, as the case may be, not utilized by the Borrower on the Closing
Date and (ii) the Banks' Acquisition Term Loan Commitments shall terminate, on a
pro rata basis, with respect to any portion of the Total Acquisition Term Loan
Commitments not utilized by the Borrower on or before the Acquisition

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<PAGE>

Term Loan Commitment Termination Date. More than one Borrowing may be incurred
on any date; PROVIDED, HOWEVER, that at no time shall there be more than six
Borrowings of Reserve Adjusted Eurodollar Loans outstanding.

1.03. NOTICE OF BORROWINGS. Subject to Sections 1.01(c) and (d), after
the Closing Date, whenever the Borrower desires that the Banks make Reserve
Adjusted Eurodollar Loans under either the Revolving Portion or the Acquisition
Portion of the Loan Facility it shall give the Administrative Agent at the
Agent's Office at least three Business Days' prior written notice (or telephonic
notice promptly confirmed in writing) of each such Borrowing of Reserve Adjusted
Eurodollar Loans; PROVIDED that notice given later than 1:00 P.M. (New York
time) shall be deemed to have been given on the following Business Day.
Whenever the Borrower desires that the Banks make Base Rate Loans under either
the Revolving Portion or the Acquisition Portion of the Loan Facility (except
for Loans under the Acquisition Portion made as of the Closing Date to replace
Existing Acquisition Term Loans) it shall give the Administrative Agent at the
Agent's office not later than 1:00 P.M. (New York time) on the date of such
Borrowing written notice (or telephonic notice promptly confirmed in writing) of
each such Borrowing of Base Rate Loans. Each such notice, which, in the case of
a Loan under the Revolving Portion of the Loan Facility, shall be substantially
in the form of Exhibit 1.03-1 (each a "NOTICE OF REVOLVING LOAN BORROWING") and,
in the case of a Loan under the Acquisition Portion of the Loan Facility (except
for Loans under the Acquisition Portion made as of the Closing Date to replace
Existing Acquisition Term Loans) shall be substantially in the form of Exhibit
1.03-2 (each a "NOTICE OF ACQUISITION LOAN BORROWING" and, together with a
Notice of Revolving Loan Borrowing, each a "NOTICE OF BORROWING"), shall be
irrevocable, shall be deemed a representation by the Borrower that all
conditions precedent to such Borrowing set forth in Section 4.02 and, in the
case of a Loan under the Acquisition Portion (except for Loans under the
Acquisition Portion made as of the Closing Date to replace Existing Acquisition
Term Loans) that all conditions set forth in Section 4.03, have been satisfied
and shall specify (i) the aggregate principal amount in Dollars of the Loans to
be made pursuant to such Borrowing, (ii) the date of Borrowing (which shall be a
Business Day), (iii) whether the respective Borrowing shall consist of Base Rate
Loans or Reserve Adjusted Eurodollar Loans and, if Reserve Adjusted Eurodollar
Loans, the Interest Period to be initially applicable thereto and (iv) the
account to which funds advanced under such Borrowing shall be deposited. The
Administrative Agent shall as promptly as practicable give each Bank written
notice (or telephonic notice promptly confirmed in writing) of each proposed
Borrowing, of such Bank's proportionate share thereof and of the other matters
covered by the Notice of Borrowing.

1.04. DISBURSEMENT OF FUNDS.

(a) No later than 2:00 P.M. (New York time) on the date specified in
each Notice of Borrowing, each Bank will make available to the
Administrative Agent in New York its pro rata portion of each Borrowing
requested to be made on such date in the manner provided below.

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<PAGE>

(b) Each Bank shall make available all amounts it is to fund under
any Borrowing on or after the Closing Date in immediately available funds
to the Administrative Agent to the account specified therefor by the
Administrative Agent (or, if no account is so specified at the Agent's
Office), and the Administrative Agent will make such funds available to the
Borrower no later than 4:00 P.M. (New York time) on the date specified in
the Notice of Borrowing by depositing to the account specified therefor by
the Borrower (or, if no account is so specified to its account at the
Agent's Office) the aggregate of the amounts so made available in the type
of funds received. Unless the Administrative Agent shall have been
notified by any Bank prior to the date of any such Borrowing that such Bank
does not intend to make available to the Administrative Agent its portion
of the Borrowing or Borrowings to be made on such date, the Administrative
Agent may assume that such Bank has made such amount available to the
Administrative Agent on such date of Borrowing, and the Administrative
Agent, in reliance upon such assumption, may (in its sole discretion and
without any obligation to do so) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made
available to the Administrative Agent by such Bank and the Administrative
Agent has made available such corresponding amount to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount
from such Bank. If such Bank does not pay such corresponding amount
forthwith upon the Administrative Agent's demand therefor, the
Administrative Agent shall promptly notify the Borrower, and the Borrower
shall on such Business Day pay such corresponding amount to the
Administrative Agent. The Administrative Agent shall also be entitled to
recover from such Bank or the Borrower, as the case may be, interest on
such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to the
Borrower to the date such corresponding amount is recovered by the
Administrative Agent, (i) if paid by such Bank, at a rate per annum equal
to the overnight Federal Funds Rate or (ii) if paid by the Borrower (and/or
any other Credit Party), at a rate per annum equal to the then applicable
rate of interest, calculated in accordance with Section 1.08, for the
respective Loans. The Administrative Agent shall also be entitled to
recover from any Bank an amount equal to any other losses incurred by the
Administrative Agent as a result of the failure of such Bank to provide any
amount as provided in this Agreement.

(c) Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its Commitments hereunder or to prejudice any rights
which the Borrower or any other Credit Party may have against any Bank as a
result of any default by such Bank hereunder.

1.05. NOTES.

(a) The Borrower's obligation to pay the principal of and interest on
all the Loans made to it by each Bank are or shall be evidenced, as the
case may be, (i) in the case of Term A Loans, by a promissory note (each, a
"TERM A NOTE"), substantially in the form of Exhibit 1.05(a)(i), duly
executed and delivered by the Borrower, with blanks appropriately

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<PAGE>

completed in conformity herewith, (ii) in the case of Term B Loans, by a
promissory note (each, a "TERM B NOTE"), substantially in the form of
Exhibit 1.05(a)(ii), duly executed and delivered by the Borrower, with
blanks appropriately completed in conformity herewith, (iii) in the case of
Revolving Loans, by a promissory note (each, a "REVOLVING NOTE"),
substantially in the form of Exhibit 1.05(a)(iii), duly executed and
delivered by the Borrower, with blanks appropriately completed in
conformity herewith; and (iv) in the case of Acquisition Term Loans, by a
promissory note (each, an "ACQUISITION TERM NOTE"), substantially in the
form of Exhibit 1.05(a)(iv), duly executed and delivered by the Borrower
with blanks appropriately completed in conformity herewith.

(b) The Term A Notes issued to each Bank shall (i) be executed by the
Borrower, (ii) be payable to the order of such Bank, (iii) be dated the
Closing Date, (iv) be in a stated principal amount equal to the Term A Loan
Commitment of such Banks, and be payable in the aggregate principal amount
of the Term A Loans evidenced thereby, (v) mature, with respect to each
Term A Loan evidenced thereby, on the Term A Loan Maturity Date, (vi) be
subject to mandatory prepayment as provided in Section 3.03, (vii) bear
interest as provided in the appropriate clause of Section 1.08 in respect
of the Base Rate Loans and the Reserve Adjusted Eurodollar Loans, as the
case may be, evidenced thereby, and (viii) be entitled to the benefits of
this Agreement and other applicable Credit Documents. On the Closing Date,
upon delivery of the Term A Notes the Old Term A Notes shall be returned to
the Borrower marked "Canceled".

(c) The Term B Notes issued to each Bank shall (i) be executed by the
Borrower, (ii) be payable to the order of such Bank, (iii) be dated the
Closing Date, (iv) be in a stated principal amount equal to the Term B Loan
Commitment of such Bank, and be payable in the aggregate principal amount
of the Term B Loans evidenced thereby, (v) mature, with respect to each
Term B Loan evidenced thereby, on the Term B Loan Maturity Date, (vi) be
subject to mandatory prepayment as provided in Section 3.03, (vii) bear
interest as provided in the appropriate clause of Section 1.08 in respect
of the Base Rate Loans and the Reserve Adjusted Eurodollar Loans, as the
case may be, evidenced thereby, and (viii) be entitled to the benefits of
this Agreement and other applicable Credit Documents. On the Closing Date,
upon delivery of the Term B Notes the Old Term B Notes shall be returned to
the Borrower marked "Canceled".

(d) The Revolving Notes issued to each Bank shall (i) be executed by
the Borrower, (ii) be payable to the order of such Bank, (iii) be dated the
Closing Date, (iv) be in a stated principal amount equal to the Revolving
Loan Commitment of such Bank, and be payable in the aggregate principal
amount of the outstanding Revolving Loans evidenced thereby, (v) mature,
with respect to each Revolving Loan evidenced thereby, on the Revolving
Loan Maturity Date, (vi) be subject to mandatory prepayment as provided in
Section 3.03, (vii) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and the Reserve Adjusted
Eurodollar Loans, as the case

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<PAGE>

may be, evidenced thereby, and (viii) be entitled to the benefits of this
Agreement and the other applicable Credit Documents. On the Closing Date,
upon delivery of the Revolving Notes the Old Revolving Notes shall be
returned to the Borrower marked "Canceled".

(e) The Acquisition Term Note of the Borrower issued to each Bank
shall (i) be executed by the Borrower, (ii) be payable to the order of such
Bank, (iii) be dated the Closing Date, (iv) be in a stated principal amount
equal to the Acquisition Term Loan Commitment of such Bank and be payable
in the aggregate principal amount of the outstanding Acquisition Term Loans
evidenced thereby, (v) mature, with respect to each Acquisition Term Loan
evidenced thereby, on the Acquisition Term Loan Maturity Date, (vi) be
subject to mandatory prepayment as provided in Section 3.03, (vii) bear
interest as provided in the appropriate clause of Section 1.08 in respect
of the Base Rate Loans and the Reserve Adjusted Eurodollar Loans, as the
case may be, evidenced thereby, and (viii) be entitled to the benefits of
this Agreement and the other applicable Credit Documents. On the Closing
Date, upon delivery of the Acquisition Term Notes the Old Acquisition Term
Notes shall be returned to the Borrower marked "Canceled". At any time
after the Acquisition Term Loan Commitment Termination Date, at the
Borrower's option or at the request of the Administrative Agent, each
Acquisition Term Note shall be exchanged for a note in the form of Exhibit
1.05(a)(iv) and meeting the above requirements, except that such
replacement note should be in a stated principal amount equal to the
aggregate principal amount of the Acquisition Term Loans made by such Bank
(or its assignor).

(f) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of any of its Notes, endorse on the reverse side thereof the
outstanding principal amount of the Loans evidenced thereby. Failure to
make any such notation shall not affect the obligations of the Borrower or
any other Credit Party hereunder or under any other applicable Credit
Document in respect of such Loans.

1.06. CONVERSIONS; CONTINUATIONS. The Borrower shall have the option to
convert on any Business Day commencing 30 days after the Initial Closing Date or
such earlier date as Indosuez shall have completed any intended syndication of
its interest in the Loans (as to which the Administrative Agent shall promptly
notify the Borrower), all or a portion (which portion shall not be less than the
Minimum Borrowing Amount) of the outstanding Loans owing by the Borrower
pursuant to a single Portion of the Loan Facility into a Borrowing or Borrowings
pursuant to such Portion of another Type of Loan, or to continue all or a
portion of such Borrowings as the same Type of Loan; PROVIDED, HOWEVER, that,
notwithstanding anything to the contrary set forth above, in the event that the
Administrative Agent shall not have notified the Borrower that it has completed
any intended syndication as of the date on which the Borrower becomes entitled
to elect Reserve Adjusted Eurodollar Loans, then for a further period of one
month, the Borrower shall only be entitled to elect Reserve Adjusted Eurodollar
Loans which have an Interest Period which terminates on or before the end of
such one-month period; and PROVIDED, FURTHER, that (a) except as otherwise
provided in Section 1.10(b), Reserve Adjusted

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<PAGE>

Eurodollar Loans may be converted into Base Rate Loans or continued as Reserve
Adjusted Eurodollar Loans only on the last day of an Interest Period applicable
to such Reserve Adjusted Eurodollar Loans, (b) no such partial conversion of
Reserve Adjusted Eurodollar Loans shall reduce the outstanding principal amount
of Reserve Adjusted Eurodollar Loans under the Loan Facility (or portion
thereof) made pursuant to a single Borrowing to less than the Minimum Borrowing
Amount, (c) a Loan may only be converted into or continued as Reserve Adjusted
Eurodollar Loans if no Default or Event of Default is in existence on the date
of the conversion or continuation, (d) Borrowings resulting from conversions or
continuations pursuant to this Section 1.06 shall be limited in amount and
number as provided in Section 1.02 and (e) all or a portion of the outstanding
principal amount of Base Rate Loans may not be converted into Reserve Adjusted
Eurodollar Loans if such Base Rate Loans or portion thereof will mature within
one month of such proposed conversion. Each such conversion/continuation shall
be effected by the Borrower by giving the Administrative Agent at the Agent's
Office prior to 11:00 A.M. (New York time) at least three Business Days' (or on
the same Business Day in the case of a conversion into Base Rate Loans) prior
written notice (or telephonic notice promptly confirmed in writing) (each a
"NOTICE OF CONVERSION/CONTINUATION"), specifying the Loans to be so converted or
continued, the Type of Loans into which such Loans will be converted or
continued, the proposed conversion/continuation date, and, if to be converted
into or continued as Reserve Adjusted Eurodollar Loans, the Interest Period to
be initially applicable thereto. The Administrative Agent shall give each Bank
notice as promptly as practicable of any such proposed conversion or
continuation affecting any of its Loans. Notwithstanding the foregoing or the
provisions of Section 1.09, if a Default or Event of Default is in existence at
the time any Interest Period in respect of any Borrowing of Reserve Adjusted
Eurodollar Loans is to expire, such Loans may not be continued as Reserve
Adjusted Eurodollar Loans but instead shall be automatically converted on the
last day of such Interest Period into Base Rate Loans, unless the Administrative
Agent shall otherwise elect. If no Notice of Conversion/Continuation has been
duly delivered with respect to a Reserve Adjusted Eurodollar Loan on or before
the third Business Day prior to the last day of the Interest Period applicable
thereto, such Reserve Adjusted Eurodollar Loan shall be automatically converted
into a Base Rate Loan.

1.07. PRO RATA BORROWINGS. All Borrowings under this Agreement shall be
loaned by the Banks pro rata on the basis of their Term A Loan Commitments,
their Term B Loan Commitments, their Revolving Loan Commitments or their
Acquisition Term Loan Commitments, as the case may be. No Bank shall be
responsible for any default by any other Bank in its obligation to make Loans
hereunder, and each Bank shall be obligated to make the Loans provided to be
made by it hereunder, regardless of the failure of any other Bank to fulfill its
commitments hereunder.

1.08. INTEREST.

(a) The unpaid principal amount of each Base Rate Loan shall bear
interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise), or unless sooner converted into a Reserve
Adjusted Eurodollar Loan, at a rate per annum

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<PAGE>

equal to the sum of (i) the Base Rate in effect from time to time PLUS
(ii) the Base Rate Margin.

(b) The unpaid principal amount of each Reserve Adjusted Eurodollar
Loan shall bear interest from the date of the Borrowing thereof until
maturity (whether by acceleration or otherwise), or unless sooner converted
into a Base Rate Loan, at a rate per annum equal to the sum of (i) the
relevant Eurodollar Rate PLUS (ii) the Eurodollar Rate Margin.

(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan shall bear interest (A) in the case of
Base Rate Loans, at a rate per annum equal to the sum of (1) the Base Rate
in effect from time to time PLUS (2) the Base Rate Margin PLUS (3) 2% per
annum, and (B) in the case of Reserve Adjusted Eurodollar Loans, at a rate
per annum equal to the sum of (1) the relevant Eurodollar Rate PLUS (2) the
Eurodollar Rate Margin PLUS (3) 2% per annum.

(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the
last Business Day of each March, June, September and December commencing
March 31, 1997; (ii) in respect of each Reserve Adjusted Eurodollar Loan,
in arrears on the last day of each Interest Period applicable thereto and,
in the case of an Interest Period in excess of three months, on each date
occurring at three-month intervals after the first day of such Interest
Period; and (iii) in respect of each Loan, on any prepayment (on the
amounts prepaid), at maturity (whether by acceleration or otherwise) and,
after such maturity, on demand.

(e) All computations of interest hereunder shall be made in
accordance with Section 12.07.

(f) The Administrative Agent, upon determining the interest rate for
any Borrowing of Reserve Adjusted Eurodollar Loans for any Interest Period,
shall promptly notify the Borrower and the Banks thereof. Such
determination shall, absent manifest error, be final, conclusive and
binding upon all parties hereto.

1.09. INTEREST PERIODS. At the time the Borrower gives a Notice of
Borrowing or Notice of Conversion/Continuation in respect of the making of,
conversion into, or continuation of, a Borrowing of Reserve Adjusted Eurodollar
Loans, it shall have the right to elect, by giving the Administrative Agent
written notice (or telephonic notice promptly confirmed in writing), the
Interest Period applicable to such Borrowing, which Interest Period shall, at
the option of the Borrower, be a period of one, two, three or six months.
Notwithstanding anything to the contrary contained above:

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<PAGE>

(a) the initial Interest Period for any Borrowing of Reserve Adjusted
Eurodollar Loans shall commence on the date of such Borrowing (including
the date of any conversion from a Borrowing of Base Rate Loans) and each
Interest Period occurring thereafter (including continuations thereof) in
respect of such Borrowing shall commence on the date on which the next
preceding Interest Period expires;

(b) if any Interest Period relating to a Borrowing of Reserve
Adjusted Eurodollar Loans begins on a date for which there is no
numerically corresponding date in the calendar month in which such Interest
Period ends, such Interest Period shall end on the last Business Day of
such calendar month;

(c) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; PROVIDED, HOWEVER, that if any Interest Period in
respect of a Reserve Adjusted Eurodollar Loan would otherwise expire on a
day which 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;

(d) no Interest Period shall extend beyond, as applicable, the Term A
Loan Maturity Date (in the case of Term A Loans), the Term B Loan Maturity
Date (in the case of Term B Loans), the Revolving Loan Maturity Date (in
the case of Revolving Loans) or the Acquisition Term Loan Maturity Date (in
the case of Acquisition Term Loans); and

(e) no Interest Period with respect to any Borrowing of Reserve
Adjusted Eurodollar Loans shall extend beyond any date upon which the
Borrower is required to make a scheduled payment of principal with respect
to the Term A Loans, the Term B Loans or the Acquisition Term Loans, as the
case may be, if, after giving effect to the selection of such Interest
Period, the aggregate principal amount of Term A Loans, Term B Loans or
Acquisition Term Loans, as the case may be, maintained as Reserve Adjusted
Eurodollar Loans with Interest Periods ending after such date of scheduled
payment of principal would exceed the amount of Term A Loans, Term B Loans
or Acquisition Term Loans, as the case may be, permitted to be outstanding
after such scheduled payment of principal.

1.10. SPECIAL PROVISIONS GOVERNING RESERVE ADJUSTED EURODOLLAR LOANS.
Notwithstanding other provisions of this Agreement, the following provisions
shall govern with respect to Reserve Adjusted Eurodollar Loans as to the matters
covered:

(a) On an Interest Rate Determination Date, the Administrative Agent
shall determine (which determination shall, absent demonstrable error, be
final, conclusive and binding upon all parties hereto) the interest rate
which shall apply to the Reserve Adjusted Eurodollar Loans for which an
interest rate is then being determined for the applicable

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<PAGE>

Interest Period and shall promptly give notice thereof (in writing or by
telephone promptly confirmed in writing) to the Borrower and to each Bank.

(b) In the event that (i) in the case of clause (A) below, the
Administrative Agent or (ii) in the case of clause (B) or (C) below, any
Bank shall have determined (which determination shall, absent demonstrable
error, be final, conclusive and binding upon all parties hereto):

(A) on any date for determining the Eurodollar Rate for any
Interest Period that, by reason of any changes arising on or after the
Closing Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate;

(B) at any time that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with
respect to any Reserve Adjusted Eurodollar Loans or its obligation to
make Reserve Adjusted Eurodollar Loans because of any change since the
Closing Date (including any changes proposed or published prior to the
Closing Date, except that any such proposed or published changes as to
which the Administrative Agent had actual knowledge prior to the
Closing Date shall only be included if the Administrative Agent has
notified the Borrower of such proposed or published changes in writing
on or before the Closing Date) in any applicable law, governmental
rule, regulation, guideline, request or order (or in the
interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation,
guideline, request or order) (such as, for example, but not limited to
a change in official reserve requirements, but, in all events,
excluding reserves required under Regulation D to the extent included
in the computation of the Eurodollar Rate) and excluding any change in
the basis of taxation of payments to any Bank of the principal or
interest on the Notes or any other amounts payable hereunder, such
changes being provided for exclusively by Section 3.07; or

(C) at any time that the making or continuance of any Reserve
Adjusted Eurodollar Loan has become unlawful by compliance by such
Bank in good faith with any applicable law, governmental rule,
regulation, guideline, request or order (or would conflict with any
such applicable law, governmental rule, regulation, guideline, request
or order, whether or not having the force of law and even though the
failure to comply therewith would not be unlawful);

then, and in any such event, the Administrative Agent in the case of clause
(A) above or such Bank in the case of clause (B) or (C) above shall on such
date give notice (by tele phone confirmed in writing) in accordance with
Section 1.10(h) to the Borrower of the Loan affected and, in the case of
clause (B) or (C) to the Administrative Agent, of such

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<PAGE>

determination (which notice the Administrative Agent shall promptly
transmit to each of the other Banks). Thereafter (1) in the case of clause
(A) above, Reserve Adjusted Eurodollar Loans shall no longer be available
until such time as the Administrative Agent notifies the Borrower and the
Banks that the circumstances giving rise to such notice by the
Administrative Agent no longer exist, and any Notice of Borrowing or Notice
of Conversion/Continuation given by the Borrower with respect to the
borrowing of or conversion into (including continuance of) Reserve Adjusted
Eurodollar Loans which have not yet been incurred shall be deemed rescinded
by the Borrower, (2) in the case of clause (B) above, the Borrower shall
pay to such Bank, within 10 Business Days of written demand therefor, such
additional amounts as shall be required to compensate such Bank for such
increased costs or reductions in amounts receivable hereunder (a written
notice pursuant to Section 1.10(h) as to the additional amounts owed to
such Bank, showing the basis for the calculation thereof, submitted to the
Borrower by such Bank shall, absent demonstrable error, be final,
conclusive and binding upon all parties hereto) and (3) in the case of
clause (C) above, the Borrower shall take one of the actions specified in
Section 1.10(d) as promptly as possible and, in any event, within the time
period required by law.

(c) At any time that any Reserve Adjusted Eurodollar Loan is affected
by the circumstances described in Section 1.10(b)(B), the Borrower may
either (i) if a Notice of Borrowing or Notice of Conversion/Continuation
has been given with respect to the affected Reserve Adjusted Eurodollar
Loan, cancel such Notice of Borrowing or Notice of Conversion/Continuation
by giving the Administrative Agent telephonic notice (promptly confirmed in
writing) thereof on the same date (if the Borrower has been notified by not
later than 3:00 P.M. (New York time) or the next Business Day if otherwise)
that the Borrower was notified by a Bank pursuant to Section 1.10(b)(B) or
(C), or (ii) if the affected Reserve Adjusted Eurodollar Loan is then
outstanding, upon at least one Business Day's notice to the Administrative
Agent, either require the affected Bank to convert each such Reserve
Adjusted Eurodollar Loan into a Base Rate Loan, or prepay such Reserve
Adjusted Eurodollar Loan; PROVIDED, HOWEVER, that if more than one Bank is
affected at any time, then all affected Banks must be treated the same
pursuant to this Section 1.10(c); and PROVIDED, FURTHER, that the Borrower
shall compensate any such affected Banks as set forth in Section 1.10(f).

(d) At any time that any Reserve Adjusted Eurodollar Loan is affected
by the circumstances described in Section 1.10(b)(C), the Borrower shall
either (i) if a Notice of Borrowing or Notice of Conversion/Continuation
has been given with respect to the affected Reserve Adjusted Eurodollar
Loan, be deemed to have canceled said Notice of Borrowing or Notice of
Conversion/Continuation or (ii) if the affected Reserve Adjusted Eurodollar
Loan is then outstanding, either permit the affected Bank to convert each
such Reserve Adjusted Eurodollar Loan into a Base Rate Loan, or prepay such
Reserve Adjusted Eurodollar Loan; PROVIDED, HOWEVER, that if more than one
Bank is affected at any time, then all affected Banks must be treated the
same pursuant to this Section

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<PAGE>

1.10(d); and PROVIDED, FURTHER, that the Borrower shall compensate any such
affected Banks as set forth in Section 1.10(f).

(e) Each Bank agrees that, as promptly as practicable after it has
actual knowledge of the occurrence of any event or the existence of a
condition that would cause it to be an affected Bank under Section
1.10(b)(B) or (C), it will, to the extent not inconsistent with such Bank's
internal policies or any legal or regulatory restrictions, use reasonable
efforts to make, fund or maintain the affected Reserve Adjusted Eurodollar
Loans of such Bank through another lending office of such Bank if as a
result thereof the additional moneys which would otherwise be required to
be paid in respect of such Loans pursuant to Section 1.10(b)(B) would be
materially reduced or the illegality or other adverse circumstances which
would otherwise require conversion or prepayment of such Loans pursuant to
Section 1.10(b)(C) would cease to exist, and if, as determined by such
Bank, in its reasonable discretion, the making, funding or maintaining of
such Loans through such other lending office would not otherwise adversely
affect such Loans or such Bank. The Borrower hereby agrees to pay all
reasonable out-of-pocket expenses incurred by any Bank in utilizing another
lending office of such Bank pursuant to this Section 1.10(e).

(f) The Borrower shall compensate each Bank, within 10 Business Days
after a written request by such Bank (which request shall be accompanied by
a written notice pursuant to Section 1.10(h) setting forth in reasonable
detail the calculation of such amounts), for all reasonable out-of-pocket
losses, expenses and liabilities (including, without limitation, such
factors as any interest paid by such Bank to lenders of funds borrowed by
it to make or carry its Reserve Adjusted Eurodollar Loans and any loss
sustained by such Bank in connection with re-employment of such funds
(based upon the difference between the amount earned in connection with the
re-employment of such funds and the amount payable by the Borrower if such
funds had been borrowed or remained outstanding)) ("BREAKAGE COSTS") which
such Bank may sustain with respect to the Borrower's Reserve Adjusted
Eurodollar Loans: (i) if for any reason (other than a default or error by
such Bank) a Borrowing of any Reserve Adjusted Eurodollar Loan does not
occur on a date specified therefor in a Notice of Borrowing or a Notice of
Conversion/Continuation or in a telephonic request for borrowing or
conversion or continuation, or a successive Interest Period in respect of
any such Reserve Adjusted Eurodollar Loan does not commence after notice
therefor is given pursuant to Section 1.06; or (ii) subject to Section
3.08, if any payment, prepayment or conversion (as required by Section
3.01, 3.02 or 3.03(a) through (e), inclusive, or 3.03(h) or (j), by
acceleration or otherwise) of any of such Bank's Reserve Adjusted
Eurodollar Loans occurs on a date which is not the last day of the Interest
Period applicable to that Loan; or (iii) if any prepayment of any such
Bank's Reserve Adjusted Eurodollar Loans is not made on any date specified
in a notice of prepayment given by the Borrower; or (iv) as a consequence
of any other failure by the Borrower to repay such Bank's Reserve Adjusted
Eurodollar Loans when required by the terms of this Agreement.

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<PAGE>

(g) Any Bank claiming any additional amounts payable pursuant to this
Section 1.10 agrees to use reasonable efforts (consistent with such Bank's
internal policies and with legal and regulatory restrictions) to designate
a different lending office if the making of such a designation would avoid
the need for, or reduce the amount of, any such additional amounts and
would not, in the reasonable judgment of such Bank, be in any way otherwise
disadvantageous to such Bank.

(h) Each Bank shall notify the Borrower of any event occurring after
the date hereof entitling such Bank to compensation under this Sections
1.10(a) through (g) as promptly as practicable, but in any event within 90
days after such Bank obtains actual knowledge thereof; PROVIDED, HOWEVER,
that if any Bank fails to give such notice within 90 days after it obtains
actual knowledge of such an event, such Bank shall, with respect to
compensation payable pursuant to this Section 1.10 in respect of any costs
or other amounts resulting from or relating to such event, only be entitled
to payment under this Section 1.10 for such costs or other amounts from and
after the date 90 days prior to the date that such Bank does give such
notice. Each Bank will furnish to the Borrower a certificate setting forth
in reasonable detail the basis and amount of each request by such Bank for
compensation under this Section 1.10. Determinations by any Bank for
purposes of this Section 1.10, including of the effect of any regulatory
change pursuant to Section 1.10(b)(B) on its costs of maintaining Loans or
its obligation to make Loans, or on amounts receivable by it in respect of
Loans, and of the amounts required to compensate such Bank under this
Section 1.10, shall be made on a reasonable basis.

1.11. CAPITAL REQUIREMENTS.

(a) If any Bank shall have determined in good faith that the adoption
or effectiveness after the Closing Date of any applicable law, governmental
rule, regulation, guideline, request or order regarding capital adequacy,
or any change therein, or any change 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 such Bank or such Bank's parent with any request
or directive regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency has or would
have the effect of reducing the rate of return on the capital or assets of
such Bank or such Bank's parent as a consequence of such Bank's obligations
hereunder to a level below that which such Bank or such Bank's parent could
have achieved but for such adoption, effectiveness or change or as a
consequence of an increase in the amount of capital required to be
maintained by such Bank as a consequence of such Bank's obligations
hereunder (including in each case, without limitation, with respect to any
of such Bank's Commitments or any Loan), then from time to time, within 15
Business Days after demand by such Bank (with a copy to the Administrative
Agent), the Borrower shall pay to such Bank such additional amount or

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<PAGE>

amounts as will compensate such Bank or such Bank's parent, as the case may
be, for such reduction.

(b) Each Bank, upon determining in good faith that any additional
amounts will be payable pursuant to Section 1.11(a), will give prompt
written notice thereof to the Borrower, but in any event within 90 days
after such Bank obtains actual knowledge of an event described in Section
1.11(a) pursuant to which additional amounts will be payable thereunder;
PROVIDED, HOWEVER, that if any Bank fails to give such notice within 90
days after it obtains actual knowledge of such an event, such Bank shall,
with respect to compensation payable pursuant to this Section 1.11 in
respect of any costs or other amounts resulting from or relating to such
event, be entitled to payment under this Section 1.11 only for such costs
or other amounts from and after the date 90 days prior to the date that
such Bank does give such notice. Each Bank will furnish to the Borrower a
certificate setting forth in reasonable detail the basis and amount of each
request by such Bank for compensation under this Section 1.11.
Determinations by any Bank for purposes of this Section 1.11, including of
the effect of any regulatory change pursuant to Section 1.11(a) on its rate
of return or in the amount of capital required to be maintained by it, and
of the amounts required to compensate such Bank under this Section 1.11,
shall be made on a reasonable basis.

1.12. TOTAL LOAN COMMITMENTS; LIMITATIONS ON OUTSTANDING LOAN AMOUNTS. As
of the Closing Date, the amount of (a) the Total Commitment is $102,500,000, (b)
the Total Term A Loan Commitment is $25,000,000, (c) the Total Term B Loan
Commitment is $35,000,0000, (d) the Total Revolving Loan Commitment is
$27,500,000 and (e) the Total Acquisition Term Loan Commitment is $15,000,000.
Anything contained in this Agreement to the contrary notwithstanding, (i) in no
event shall the sum of the aggregate principal amount of all outstanding Term A
Loans, Term B Loans, Revolving Loans and Acquisition Term Loans of any Bank at
any time exceed such Bank's portion of the Total Commitment, (ii) in no event
shall the sum of the aggregate principal amount of all Term A Loans, Term B
Loans, Revolving Loans and Acquisition Term Loans from all Banks at any time
exceed the Total Commitment, (iii) in no event shall the Total Utilization of
the Revolving Loan Commitment exceed the Total Revolving Loan Commitment and
(iv) in no event shall the Total Utilization of the Acquisition Term Loan
Commitment exceed the Total Acquisition Term Loan Commitment.

1.13. LETTERS OF CREDIT

(a) LETTERS OF CREDIT; PARTICIPATION; ADDITIONAL COLLATERAL UPON
DEFAULT.

(i) Subject to the terms and conditions of this Agreement, so
long as no Default or Event of Default exists hereunder, and in
reliance upon the representations and warranties of the Borrower set
forth herein and in the other Credit Documents, in addition to
requesting that the Banks make Revolving Loans pursuant to Section
1.03, the Borrower may request, from time to time,

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<PAGE>

in accordance with the provisions of this Section 1.13, that one or
more Issuing Banks issue Letters of Credit for the account of the
Borrower; PROVIDED, THAT:

(x) the Borrower shall not request that any Bank issue any
Letter of Credit and a Bank shall not be required to issue
any Letter of Credit, if after giving effect to such
issuance the sum of (a) the Letters of Credit Usage on the
date of such issuance, after giving effect to the issuance
of all Letters of Credit subject to outstanding requests for
issuance of a Letter of Credit, plus (b) the aggregate
principal amount of Revolving Loans then outstanding, after
giving effect to the making of all Revolving Loans then
requested by all outstanding but unfunded Notices of
Borrowing, would exceed the lesser of (x) the Borrowing Base
as shown in the Borrowing Base Certificate that was last
required to be delivered pursuant to Section 6.01 or (y) the
Total Revolving Loan Commitment; and

(y) In no event shall any Issuing Bank issue any Letter of
Credit having an expiration date which is (x) later than
thirty (30) Business Days prior to the Revolving Loan
Maturity Date, after giving effect to any possible renewal
of such Letter of Credit, or (y) more than one year after
its date of issuance; PROVIDED that, subject to the
foregoing clause (ii)(x), this clause (ii)(y) shall not
prevent any Issuing Bank from issuing a Letter of Credit
which is subject to renewal for periods not exceeding one
year per renewal; and

(z) In no event shall any Issuing Bank issue any Letter of
Credit if, after giving effect to such issuance and the
issuance of all other requested Letters of Credit, the then
outstanding Letters of Credit Usage in respect of all
Letters of Credit would exceed $2,000,000.

(ii) Upon the issuance of any Letter of Credit, a participation
therein, in an amount equal to each Bank's PRO RATA share (determined
on the basis of such Bank's Revolving Loan Commitment ) (such
participation of each Bank in each Letter of Credit being hereinafter
referred to as its "Letter of Credit Participation"), shall
automatically be deemed granted by the Issuing Bank to each Bank on
the date of such issuance and the Banks shall automatically be
obligated, as set forth in Section 1.13(e), to reimburse the Issuing
Bank to the extent of such pro rata share for all obligations incurred
by the Issuing Bank to third parties in respect of such Letter of
Credit not reimbursed by the Borrower. The Issuing Bank will send to
each Bank (and the Administrative Agent if the Issuing Bank is

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<PAGE>

not the Administrative Agent) a confirmation regarding the
participations in Letters of Credit outstanding during such month.

(iii) Notwithstanding the foregoing, upon the occurrence and
during the continuation of any Event of Default hereunder, the
Administrative Agent or the Required Banks may, by notice to the
Borrower, require that any outstanding Letters of Credit be cash
collateralized, and upon receipt of such notice, the Borrower shall,
within five Business Days of such notice, deliver to the
Administrative Agent an amount equal to the sum of (x) the maximum
aggregate amount that is or at any time thereafter may become
available to be drawn under any such outstanding Letters of Credit and
(y) the aggregate amount of all drawings under such Letters of Credit
which have been honored by Issuing Banks with respect thereto and not
theretofore reimbursed by the Borrower; PROVIDED, that any such cash
collateralized Letters of Credit shall be excluded from the
calculation of Letters of Credit Usage for purposes of determining the
availability of Revolving Loans under Section 1.13(a)(x) and for
purposes of Section 3.03(a) or (b).

(iv) The Administrative Agent is hereby authorized and directed
in the event of such Event of Default and requirement of cash
collateral to create a segregated cash collateral account bearing
interest payable to the Borrower at a rate per annum equal to the
Federal Funds Rate (a "LETTER OF CREDIT CASH COLLATERAL ACCOUNT"), and
to deposit in such account any amounts received from the Borrower
pursuant to the foregoing. Funds on deposit from time to time in any
Letter of Credit Cash Collateral Account (the "LETTER OF CREDIT CASH
COLLATERAL") shall be held by the Administrative Agent for the benefit
of the Banks hereunder, including Issuing Banks, in respect of their
participation in Letters of Credit and as Banks hereunder and as
security for the payment and performance of the Obligations in
accordance with the Security Documents, including the Borrower's
obligations under Section 1.13(d), shall be subject to the sole
dominion and control of the Administrative Agent and the Borrower
shall have no right of withdrawal from the Letter of Credit Cash
Collateral Account. Notwithstanding any provision in this Agreement or
in any Security Document, after payment of any costs of collection and
reasonable expenses of the Administrative Agent in connection with the
establishment of the Letter of Credit Cash Collateral Account, Letter
of Credit Cash Collateral shall be applied by the Administrative Agent
as follows: FIRST, to reimburse any Banks (including any Issuing
Banks) for any drawings (or participation in such) on such Letters of
Credit which have not been repaid by the Borrower, such reimbursement
to be made from time to time until no Letters of Credit are
outstanding; SECOND, only after no Letters of Credit remain
outstanding and any unreimbursed drawings (or participations in such)
of any Bank (including any Issuing Bank) have been fully repaid and
all fees payable under this Section 1.13 have been paid, to the
payment, in accordance with the Security

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<PAGE>

Documents, of any of the remaining Obligations then due and payable;
and FINALLY, after its application in accordance with the foregoing,
returned to the Borrower.

(b) REQUEST FOR ISSUANCE Whenever the Borrower desires the issuance
of a Letter of Credit it shall deliver to the Administrative Agent, at the
Agent's Office, an application requesting issuance of a Letter of Credit no
later than 1:00 P.M. (New York time) at least three Business Days, or such
shorter period as may be agreed to by any Issuing Bank in any particular
instance, in advance of the proposed date of issuance. The request for
issuance with respect to any Letter of Credit shall specify (i) the
proposed date of issuance (which shall be a business day under the laws of
the jurisdiction of the Issuing Bank) of such Letter of Credit, (ii) the
face amount of such Letter of Credit, (iii) the expiration date of such
Letter of Credit and (iv) the name and address of the beneficiary of such
Letter of Credit. As soon as practicable after delivery of such request
for issuance of a Letter of Credit, the Issuing Bank for such Letter of
Credit shall be determined as provided in Section 1.13(c). Prior to the
date of issuance, the Borrower shall specify a precise description of the
documents and the verbatim text of any certificate to be presented by the
beneficiary of such Letter of Credit which, if presented by such
beneficiary prior to the expiration date of the Letter of Credit, would
require the Issuing Bank to make payment under the Letter of Credit;
PROVIDED that the Issuing Bank, in its sole judgment, may require such
changes in any such documents and certificates as it reasonably believes to
be necessary to comply with laws, customs or practices or to achieve
clarity; and PROVIDED, FURTHER, that no Letter of Credit shall require
payment against a conforming draft to be made thereunder earlier than 1:00
P.M. in the time zone of the Issuing Bank on the Business Day (which shall
be a business day under the laws of the jurisdiction of the Issuing Bank)
next succeeding the Business Day (which shall be a business day under the
laws of the jurisdiction of the Issuing Bank) that such draft is presented.
In determining whether to pay under the Letter of Credit, the Issuing Bank
shall be responsible only to determine that the documents and certificates
required to be delivered under the Letter of Credit have been delivered and
that they comply on their face with the requirements of that Letter of
Credit. Without limiting the foregoing, the determination of whether a
demand has been made prior to the expiration of a Letter of Credit and
whether a demand is in proper and sufficient form for compliance with the
Letter of Credit shall be made by the Issuing Bank in accordance with
Section 1.13(k). The Issuing Bank is authorized without reference to or
approval by the Borrower to set forth the terms appearing on the relevant
application for the Letter of Credit in the Letter of Credit and to modify
or alter such terms in such language as the Issuing Bank may deem
appropriate, with such variations from such terms as such Bank may, in
accordance with Section 1.13(k), determine are necessary to comply with
laws, customs or practices or to achieve clarity and are not materially
inconsistent with such terms. Promptly after receipt of a request for
issuance of a Letter of Credit and the determination of the Issuing Bank
thereof, the Administrative Agent shall notify each Bank of the proposed
issuance, the identity of the Issuing Bank and the amount of each other
Bank's respective participation therein, determined in accordance with
Section 1.13(a)(ii).

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<PAGE>

(c) DETERMINATION OF ISSUING BANK. Upon receipt by the
Administrative Agent of a request for issuance pursuant to Section 1.13(b)
with respect to a Letter of Credit, in the event that Indosuez elects to
issue such Letter of Credit, the Administrative Agent shall so notify the
Borrower, and Indosuez shall be the Issuing Bank with respect thereto. In
the event that Indosuez, in its sole discretion, elects not to issue such
Letter of Credit, the Administrative Agent shall promptly so notify the
Borrower, and the Borrower may request any other Bank to issue such Letter
of Credit. Each such Bank so requested to issue such Letter of Credit
shall promptly notify the Borrower and the Administrative Agent whether or
not, in its sole discretion, it has elected to issue such Letter of Credit
and any such Bank that so elects to issue such Letter of Credit shall be
the Issuing Bank with respect thereto. In the event that all other Banks
shall have declined to issue such Letter of Credit, notwithstanding the
prior election of Indosuez not to issue such Letter of Credit, Indosuez
shall be obligated to issue the Letter of Credit requested by the Borrower
and shall be the Issuing Bank with respect to such Letter of Credit;
PROVIDED that Indosuez shall not be obligated to issue any Letter of Credit
for which the initial stated amount is less than $5,000. No Issuing Bank
shall issue any Letter of Credit denominated in a currency other than
Dollars.

(d) PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. In the event
of any request for drawing under any Letter of Credit by the beneficiary
thereof, the Issuing Bank shall notify the Borrower and the Administrative
Agent on or before the date on which such Issuing Bank intends to honor
such drawing, and the Borrower shall reimburse such Issuing Bank on the day
on which such drawing is honored in an amount in same day funds equal to
the amount of such drawing: PROVIDED that, anything contained in this
Agreement to the contrary notwithstanding, (i) unless the Borrower shall
have notified the Administrative Agent and such Issuing Bank prior to 1:00
p.m. (New York time) on the Business Day of the date of such drawing that
the Borrower intends to reimburse such Issuing Bank for the amount of such
drawing with funds other than the proceeds of Revolving Loans, the Borrower
shall be deemed to have timely given a Notice of Borrowing to the
Administrative Agent requesting the Banks to make Revolving Loans that are
Base Rate Loans on the date on which such drawing is honored in an amount
equal to the amount of such drawing, and (ii) subject to availability under
the Borrowing Base, the Banks shall, on the date of such drawing, make
Revolving Loans that are Base Rate Loans in the amount of such drawing, the
proceeds of which shall be applied directly by the Administrative Agent to
reimburse such Issuing Bank for the amount of such drawing; and PROVIDED
FURTHER that if for any reason, Revolving Loans are not made to so
reimburse such Issuing Bank in an amount equal to the amount of such
drawing, the Borrower shall reimburse such Issuing Bank, within one
Business Day (which shall be a business day under the laws of jurisdiction
of such Issuing Bank) following the receipt of notice from the
Administrative Agent that such Revolving Loans have not been made, in an
amount in same day funds equal to the excess of the amount of such drawing
over the

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<PAGE>

amount of such Revolving Loans, if any, that are so received, plus accrued
interest on such amount at the rate set forth in Section 1.13(f)(i)(A).

(e) PAYMENT BY BANKS. In the event that (i) the Borrower shall fail
to reimburse an Issuing Bank as provided in Section 1.13(d) in an amount
equal to the amount of any drawing honored by such Issuing Bank under a
Letter of Credit issued by it, and (ii) the Revolving Loans are not made in
payment of such reimbursement obligation as provided in Section 1.13(d),
such Issuing Bank shall promptly notify each Bank of the unreimbursed
amount of such drawing and of such Bank's respective participation therein.
Each Bank shall make available to such Issuing Bank an amount equal to its
respective participation in same day funds, at the office of such Issuing
Bank specified in such notice, not later than 1:00 P.M. (New York time) on
the Business Day (which shall be a business day under the laws of the
jurisdiction of such Issuing Bank) after the date notified by such Issuing
Bank. In the event that any Bank fails to make available to such Issuing
Bank the amount of such Bank's participation in such Letter of Credit as
provided in this Section 1.13(e), such Issuing Bank shall be entitled to
recover such amount on demand from such Bank together with interest at the
customary rate set by the Administrative Agent for the correction of errors
among banks for three Business Days and thereafter at the Base Rate. Each
Issuing Bank shall distribute to each other Bank which has paid all amounts
payable by it under this Section 1.13(e) with respect to any Letter of
Credit issued by such Issuing Bank such other Bank's PRO RATA share of all
payments received by such Issuing Bank from the Borrower in reimbursement
of drawings honored by such Issuing Bank under such Letter of Credit when
such payments are received. Nothing in this Section 1.13(e) shall be
deemed to relieve any Bank of its obligation to pay all amounts payable by
it under this Section 1.13(e) with respect to any Letter of Credit issued
by an Issuing Bank or to prejudice any rights that the Borrower or any
other Bank may have against a Bank as a result of any default by such Bank
hereunder and no Bank shall be responsible for the failure of any other
Bank to pay its PRO RATA share payable under this Section 1.13(e).

(f) COMPENSATION.

(i) the Borrower agrees to pay the following amounts with
respect to all Letters of Credit:

(A) with respect to drawings made under any Letter of
Credit, interest, payable on demand, on the amount paid by such
Issuing Bank in respect of each such drawing from and including
the date of the drawing through the date such amount is
reimbursed by the Borrower (including any such reimbursement out
of the proceeds of Revolving Loans pursuant to Section 1.13(d))
at a rate which is equal to the interest rate then applicable to
Revolving Loans that are Base Rate Loans for the period from the
date of such drawing to and including the first Business Day
after the date of such drawing and thereafter at a rate equal to
2% PER ANNUM in

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<PAGE>

excess of the rate of interest otherwise payable under this
Agreement for Revolving Loans that are Base Rate Loans during
such period; and

(B) with respect to the amendment or transfer of each
Letter of Credit and each drawing made thereunder, documentary
and processing charges in accordance with such Issuing Bank's
standard schedule for such charges in effect at the time of such
amendment, transfer or drawing, as the case may be.

(ii) the Borrower agrees to pay to the Administrative Agent for
distribution to each Bank in respect of all Letters of Credit
outstanding such Bank's PRO RATA share of a commission equal to 2% PER
ANNUM of the maximum amount available from time to time to be drawn
under such outstanding Letters of Credit, payable in arrears on and
through the last Business Day of each March, June, September and
December commencing March 31, 1997 and calculated on the basis of a
365-day year and the actual number of days elapsed. Upon the
happening and during the continuance of an Event of Default described
in Section 8.01, the commission referred to in the preceding sentence
shall be 4% PER ANNUM.

(iii) the Borrower agrees to pay to each Issuing Bank in respect
of each Letter of Credit issued by each such Issuing Bank on the date
of issuance an amount equal to the greater of (A) 1/2 of 1% of the
maximum amount available at any time to be drawn under such Letter of
Credit or (B) $1,500.

Amounts payable under clauses (i) (A) and (ii) of this Section
1.13(f) shall be paid to the Administrative Agent for the benefit of
the Banks. The Administrative Agent shall promptly distribute to each
Bank its PRO RATA share of such amount. Amounts payable under clauses
(i) (B) and (iii) of this Section 1.13(f) shall be paid to the
Administrative Agent, and thereupon paid over to the Issuing Bank.

(g) OBLIGATIONS ABSOLUTE. The obligation of the Borrower to
reimburse each Issuing Bank for drawings made under the Letters of Credit
issued by it and the obligations of the Banks under Section 1.13(e) 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
that the Borrower or any other Person may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any persons
or entities for whom any such beneficiary or transferee may be
acting), such Issuing Bank, any Bank or any other

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<PAGE>

Person, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction;

(iii) any draft, demand, certificate or any other 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, if not apparent from the
documents presented;

(iv) payment by such Issuing Bank under any Letter of Credit
against presentation of a demand, draft or certificate or other
document that does not comply with the terms of such Letter of Credit
unless such Issuing Bank shall have acted in bad faith or with willful
misconduct or gross negligence in issuing such payment;

(v) any other circumstance or happening whatsoever that is
similar to any of the foregoing; or

(vi) the fact that a Default or Event of Default shall have
occurred and be continuing.

(h) ADDITIONAL PAYMENTS. If by reason of (a) any change after the
Effective Date in applicable law, regulation, rule, decree or regulatory
requirement or any change in the interpretation or application by an
judicial or regulatory authority of any law, regulation, rule, decree or
regulatory requirement or (b) compliance by an Issuing Bank or any Bank
with any direction, request or requirement (whether or not having the force
of law) of any Governmental Authority or monetary authority including,
without limitation, Regulation D, any reserve, deposit or similar
requirement is or shall be applicable, imposed or modified in respect of
any Letter of Credit issued by such Issuing Bank or participation therein
purchased by any Bank and the result of the foregoing is to increase the
cost to such Issuing Bank or any Bank of issuing, making or maintaining any
Letter of Credit or of purchasing or maintaining any participation therein,
or to reduce the amount receivable in respect thereof by such Issuing Bank
or any Bank, then and in any such case such Issuing Bank or such Bank
shall, after the additional cost is incurred or the amount received is
reduced, notify the Borrower and the Borrower shall pay within 10 Business
Days after demand such amounts as such Issuing Bank or such Bank may
specify to be necessary to compensate such Issuing Bank or such Bank for
such additional cost or reduced receipt, together with interest on such
amount from the date demanded until payment in full thereof at a rate PER
ANNUM equal at all times to the rate applicable to Revolving Loans that are
Base Rate Loans then in effect; PROVIDED that if any Bank fails to give
such notice within 90 days after it obtains actual knowledge of such an
event, such Bank shall, with respect to compensation payable pursuant to
this Section 1.13(h) in respect of any costs or other amounts resulting
from or relating to such event, only be entitled to payment under this
Section 1.13(h) for such costs or other amounts incurred

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<PAGE>

from and after the date 90 days prior to the date that such Bank does give
such notice; and PROVIDED, FURTHER, that each Bank agrees that, as promptly
as practicable after it becomes aware of the existence of the foregoing
conditions, it will, to the extent not inconsistent with such Bank's
internal policies or any legal or regulatory restrictions, use reasonable
efforts to issue, make or maintain the affected Letter of Credit or
purchase or maintain any participation therein through another lending
office of such Bank if as a result thereof the additional moneys which
would otherwise be required to be paid to compensate for such additional
cost or reduced receipt with respect to such Letter of Credit pursuant to
this Section 1.13(h) would be reduced and if, as determined by such Bank,
in its reasonable discretion, the issuance, making or maintaining of such
Letter of Credit or the purchasing or maintaining of any participation
therein through such other lending office would not otherwise materially
adversely affect such Letter of Credit or such Bank. Each Bank will
furnish to the Borrower a certificate setting forth in reasonable detail
the basis and amount of each request by such Bank for compensation under
this Section 1.13(h). Determinations by any Bank for purposes of this
Section 1.13(h), including of the effect of any regulatory change pursuant
to Section 1.13(h) on its costs of making or maintaining Letters of Credit
(or purchasing or maintaining participation therein), or on amounts
receivable by it in respect of Letters of Credit, and of the amounts
required to compensate such Bank under this Section 1.13(h), shall be made
on a reasonable basis. A certificate in reasonable detail as to the amount
of such increased cost or reduced receipt, submitted to the Borrower and
the Administrative Agent by the Issuing Bank or any Bank, as the case may
be, shall, except for demonstrable error, be final, conclusive and binding
for all purposes.

(i) INDEMNIFICATION; NATURE OF ISSUING BANK'S DUTIES. In addition to
amounts payable as elsewhere provided in this Section 1.13, without
duplication, the Borrower hereby agrees to protect, indemnify, pay and save
each Issuing Bank harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees and allocated costs of internal counsel) which
such Issuing Bank may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of the Letters of Credit or (ii) the failure
of such Issuing Bank to honor a drawing under any Letter of Credit, in each
case as a result of any act or omission, whether rightful or wrongful, of
any present or future de jure or de facto Governmental Authority.

As between the Borrower and each Issuing Bank, the Borrower assumes
all risks of the acts and omissions of, or misuse of the Letters of Credit
issued by such Issuing Bank by, the respective beneficiaries of such
Letters of Credit. In furtherance and not in limitation of the foregoing,
such Issuing Bank shall not be responsible: (i) for the form, validity,
sufficiency, accuracy, genuineness or legal effects 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) for the validity or sufficiency of any instrument transferring or

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<PAGE>

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,
that may prove to be invalid or ineffective for any reason; (iii) for
failure of the beneficiary of any such Letter of Credit to comply fully
with conditions required in order to draw upon such Letter of Credit; (iv)
for errors, omissions, interruptions or delays in transmission or delivery
of any messages, by mail, cable, telegraph, telex or otherwise, whether or
not they are in cipher; (v) for errors in the translation or interpretation
of technical terms; (vi) for 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) for the
misapplication by the beneficiary of any such Letter of Credit of the
proceeds of any drawing under such Letter of Credit; (viii) for any
consequences arising from causes beyond the control of such Issuing Bank or
its correspondents, including, without limitation, any act or omission of
any Governmental Authority; and (ix) for any error, neglect, default,
suspension or insolvency of any Issuing Bank's correspondents or any
consequence thereof, PROVIDED, in each case, that the Issuing Bank acts in
good faith. None of the above shall affect, impair, or prevent the vesting
of any of such Issuing Bank's rights or powers hereunder. Any Issuing Bank
shall have the right to transmit the terms of the Letter of Credit without
translating them. If the Letter of Credit provides that payment is to be
made by the Issuing Bank's correspondent, neither the Issuing Bank nor such
correspondent shall be responsible for the failure of any document
specified in the Letter of Credit to come into the Issuing Bank's hands or
for any delay in connection therewith, and the Borrower's obligation to
reimburse the Issuing Bank for payments made or obligations incurred shall
not be affected by such failure or delay in the receipt by the Issuing Bank
of any or all of such documents whether sent to such Bank in one or
multiple mailings. No Issuing Bank shall be liable for any failure by such
Bank or anyone else to pay or accept any draft or other demands for payment
or acceptance under the Letter of Credit resulting from any censorship,
law, control or restriction rightfully or wrongfully exercised by any de
facto or de jure Governmental Authority or from any other cause beyond such
Bank's control or the control of such Bank's correspondents, agents or
sub-agents or for any loss or damage to the Borrower or anyone else
resulting from any such failure to pay or accept, all such risks being
expressly assumed by the Borrower.

In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any
Issuing Bank in connection with the Letters of Credit issued by it or the
related certificates, if taken or omitted in good faith, shall not result
in such Issuing Bank incurring any liability to the Borrower. Without
limiting the generality of the foregoing, the Issuing Bank and its
correspondents may, without incurring any responsibility or liability, (i)
act in reliance upon any oral, telephonic, telegraphic, telex, telecopier,
electronic or written request, application (including an application for
issuance of a Letter of Credit) or notice believed in good faith to have
been authorized by the Borrower, whether or not given or signed by an
authorized person, and (ii) receive, accept and pay any drafts or other
documents and instruments (otherwise in order) signed by, or issued to, the
receiver, executor, administrator,

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<PAGE>

liquidator, guardian or conservator of anyone named in the Letter of Credit
as the person by whom drafts and other documents and instruments are to be
made or issued.

Notwithstanding anything to the contrary contained in this Section
1.13(i), the Borrower shall have no obligation to indemnify any Issuing
Bank or any Bank in respect of any liability incurred by such Issuing Bank
or such Bank arising out of the gross negligence, bad faith or willful
misconduct of such Issuing Bank or such Bank or out of the wrongful
dishonor by such Issuing Bank or such Bank of a proper demand for payment
under the Letters of Credit issued by it.

(j) COMPUTATION OF INTEREST. Interest payable pursuant to this
Section 1.13 shall be computed on the basis of a 360 day year and the
actual number of days elapsed.

(k) UNIFORM CUSTOMS AND PRACTICE. This Section 1.13 shall be subject
to the Uniform Customs and Practice for Documentary Credits of the
International Chamber of Commerce as in force on the date of issuance of
each Letter of Credit ("UCP") and the UCP shall in all respects be deemed a
part hereof as fully as if incorporated herein. The provisions of this
Section 1.13 shall, where possible, be construed so as to be consistent
with the UCP; PROVIDED that to the extent the provisions of the UCP are not
consistent with the provisions of this Section 1.13 the provisions of the
UCP shall control. Notwithstanding the provisions of Section 12.08 hereof,
in the event of any conflict between the UCP and Article 5 of the UCC, the
UCP shall govern as to the provisions of this Section 1.13.

SECTION 2. COMMITMENTS.

2.01. VOLUNTARY REDUCTION OF COMMITMENTS. Upon at least one Business
Day's prior written notice (or telephonic notice promptly confirmed in writing)
to the Administrative Agent at the Agent's Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks), the Borrower
shall have the right, without premium or penalty, to terminate irrevocably the
unutilized portion of either or both of (x) the Total Revolving Loan Commitments
and (y) the Total Acquisition Term Loan Commitments, in each case, in part or in
whole; PROVIDED, HOWEVER, that (a) any such termination shall proportionately
and permanently reduce the Revolving Loan Commitment or Acquisition Term Loan
Commitment, as applicable, of each of the Banks and (b) any partial reduction of
the Total Revolving Loan Commitments or the Total Acquisition Term Loan
Commitments pursuant to this Section 2.01 shall, in each case, be in the amount
of at least $500,000 and integral multiples of $100,000 in excess of that
amount; PROVIDED, FURTHER, that (x) the Total Revolving Loan Commitment shall
not be reduced to an amount less than the sum of (a) the aggregate Revolving
Loans then outstanding and (b) the aggregate Letters of Credit Usage and (y) the
Total Acquisition Term Loan Commitment shall not be reduced to an amount less
than the aggregate Acquisition Term Loans then outstanding.

2.02. ADJUSTMENTS; TERMINATION OF COMMITMENTS, ETC.

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<PAGE>

(a) The Total Revolving Loan Commitment shall terminate on the
earlier of (i) the Revolving Loan Commitment Termination Date and (ii) the
voluntary reduction by the Borrower pursuant to Section 2.01 of the
Revolving Loan Commitment to zero.

(b) The Total Acquisition Term Loan Commitment shall terminate on the
earlier of (i) on the Acquisition Term Loan Commitment Termination Date and
(ii) the voluntary reduction by the Borrower pursuant to Section 2.01 of
the Acquisition Term Loan Commitment to zero and any amounts not borrowed
with respect to the Acquisition Term Loan on or before such date shall
cease to be available.

(c) Each of the Term A Loan Commitments and the Term B Loan
Commitments shall terminate as of the close of business on the Closing
Date, and any amounts not borrowed with respect to each of the Term A Loan
and the Term B Loan on the Closing Date shall cease to be available.

(d) The Total Commitment shall be reduced by the amount of any
reduction in the cash purchase price to be paid by Acquisition to
consummate the LS Purchase; PROVIDED, HOWEVER, that such reduction of the
Total Commitment shall be applied (i) first to reduce the Total Term A Loan
Commitment and the Total Term B Loan Commitment in each case on a pro rata
basis and in inverse order of maturity, and (ii) then, only after the Total
Term A Loan Commitment has been reduced to $18,000,000 and the Total Term B
Loan Commitment has been reduced to $16,250,000, to reduce the Total
Revolving Loan Commitment and the Total Acquisition Term Loan Commitment in
such proportions as the Agents and the Borrower may agree.

(e) Each reduction to or termination of the Total Term A Loan
Commitment, the Total Term B Loan Commitment, the Total Revolving Loan
Commitment or the Total Acquisition Term Loan Commitment pursuant to this
Section 2.02 shall apply proportionately to the Term A Loan Commitment, the
Total Term B Loan Commitment, the Revolving Loan Commitment or the
Acquisition Term Loan Commitment, as the case may be, of each Bank.

2.03. COMMITMENT FEE. The Borrower agrees to pay the Administrative Agent
a commitment fee (the "COMMITMENT FEE") for the account of each Bank for the
period from and including the Closing Date (the accrued commitment fees provided
for under the Original Credit Agreement having been paid in full as of the
Closing Date) to but not including the date on which both the Total Revolving
Loan Commitment and the Total Acquisition Term Loan Commitment have been
terminated, computed at a rate equal to 1/2% per annum on the daily average
Unutilized Commitment of such Bank. The Commitment Fee shall be due and payable
in arrears on the last Business Day of each March, June, September and December
commencing March 31, 1997 (for the period from the Closing Date through March
31, 1997), on the earlier of (x) the Revolving Loan Commitment Termination Date
or (y) the date on which both the Total

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Revolving Loan Commitments and the Total Acquisition Term Loan Commitments have
been terminated pursuant to the terms of this Agreement (for the period from the
date through which the Commitment Fee has been paid in full in accordance with
this Section 2.03 to and including the Revolving Loan Commitment Termination
Date or the date of such earlier termination, as the case may be). The
calculation of Commitment Fees shall be based on the actual number of days
elapsed over a year of 360 days.

SECTION 3. PAYMENTS.

3.01. SCHEDULED PAYMENTS.

(a) The Borrower shall cause to be paid Scheduled Term A Loan
Principal Payments on the Term A Loan in the amounts and at the times
specified in the definition of Scheduled Term A Loan Principal Payments set
forth in Section 10 until the Term A Loan is paid in full. Principal
amounts repaid in respect of the Term A Loan shall not be available for
reborrowing.

(b) The Borrower shall cause to be paid Scheduled Term B Loan
Principal Payments on the Term B Loan in the amounts and at the times
specified in the definition of Scheduled Term B Loan Principal Payments set
forth in Section 10 until the Term B Loan is paid in full. Principal
amounts repaid in respect of the Term B Loan shall not be available for
reborrowing.

(c) The Borrower shall cause to be paid Scheduled Acquisition Term
Loan Principal Payments on the Acquisition Term Loans in the amounts and at
the times specified in the definition of Scheduled Acquisition Term Loan
Principal Payments set forth in Section 10 until the Acquisition Term Loan
are paid in full. Principal amounts repaid in respect of the Acquisition
Term Loans shall reduce any outstanding Acquisition Term Loan Commitments
and shall not be available for reborrowing.

(d) Except for earlier maturity of any Loan due to acceleration
pursuant to the terms of this Agreement, the entire remaining principal
balance, and accrued interest thereon, together with any other amounts then
due and payable hereunder, shall be paid in full (i) with respect to the
Term A Loans, on the Term A Loan Maturity Date, (ii) with respect to the
Term B Loans, on the Term B Loan Maturity Date, (iii) with respect to the
Revolving Loans, on the Revolving Loan Maturity Date and (iv) with respect
to the Acquisition Term Loans, on the Acquisition Term Loan Maturity Date.

(e) If, in order to comply with Section 3.01(a), (b), (c) or (d), the
Borrower is required to repay Reserve Adjusted Eurodollar Loans prior to
the end of any applicable Interest Period, the Borrower shall compensate
each Bank for all losses, expenses and liabilities incurred by such Bank in
connection with each such repayment in accordance with Section 1.10(f).

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3.02. VOLUNTARY PREPAYMENTS. The Borrower shall have the right to prepay
the Term A Loans, the Term B Loans, the Revolving Loans or the Acquisition Term
Loans, in whole or in part from time to time, without premium or penalty, on the
following terms and conditions: (a) the Borrower shall give the Administrative
Agent at the Agent's Office written notice (or telephonic notice promptly
confirmed in writing) of its intent to prepay the Loans, the amount of such
prepayment and whether such prepayment is in respect of the Revolving Loans, in
the case of Reserve Adjusted Eurodollar Loans, the specific Borrowing or
Borrowings pursuant to which such Reserve Adjusted Eurodollar Loans were made,
which notice shall be given by the Borrower at least one Business Day prior to
the date of such prepayment and which notice shall promptly be transmitted by
the Administrative Agent to each of the Banks; (b) each partial prepayment of a
Borrowing shall be in an aggregate principal amount of at least $100,000 and in
integral multiples of $100,000 in excess of that amount (or, if less, in an
amount equal to the entire remaining principal balance of the Loan or the
Borrowing so repaid); PROVIDED, HOWEVER, that no partial prepayment of Reserve
Adjusted Eurodollar Loans made pursuant to a single Borrowing under the Loan
Facility (or portion thereof) shall reduce the outstanding Loans made pursuant
to such Borrowing to an amount less than the Minimum Borrowing Amount (other
than $0); and (c) Reserve Adjusted Eurodollar Loans may only be prepaid pursuant
to this Section 3.02 on the last day of an Interest Period applicable thereto.
Voluntary prepayments of Loans other than specified prepayments of the Revolving
Loans shall first be applied pro rata (i) first, if made (x) prior to the
Acquisition Term Loan Commitment Termination Date to the outstanding principal
amount of each of the Term A Loans and the Term B Loans to reduce all remaining
Scheduled Term A Loan Principal Payments and all remaining Scheduled Term B Loan
Principal Payments, in each case on a pro rata basis and in order of maturity,
or (y) on or after the Acquisition Term Loan Commitment Termination Date, to the
outstanding principal amount of each of the Term A Loans, the Term B Loans and
the Acquisition Term Loan to reduce all remaining Scheduled Term A Loan
Principal Payments, all remaining Scheduled Term B Loan Principal Payments and
all remaining Scheduled Acquisition Term Loan Principal Payments, in each case
on a pro rata basis and in order of maturity, (ii) second, if made (x) prior to
the Acquisition Term Loan Commitment Termination Date, to the then outstanding
principal amount of the Acquisition Term Loans if any; PROVIDED that any amount
so prepaid pursuant to this subclause (x) shall permanently reduce the
Acquisition Term Loan Commitments and any amounts so prepaid shall not be
available for reborrowing, and (y) if made on or after the Acquisition Term Loan
Commitment Termination Date, to reduce the outstanding principal amount of the
Revolving Loans and (iii) third, to reduce the outstanding principal amount of
the Revolving Loans.

3.03. MANDATORY PREPAYMENTS; REDUCTION OF COMMITMENTS.

(a) The Borrower shall prepay the outstanding principal amount of (x)
the Revolving Loans on any date on which the sum of the aggregate
outstanding principal amount of such Loans (after giving effect to any
other repayments or prepayments on such date) and the then outstanding
Letters of Credit Usage exceeds the Total Revolving Loan Commitment, in an
amount equal to the amount of such excess, or (y) the Acquisition

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Term Loans on any date on which the aggregate outstanding principal amount
of such Loans (after giving effect to any other repayments or prepayments
on such date) exceeds the Total Acquisition Term Loan Commitment, in an
amount equal to the amount of such excess.

(b) If the sum of (x) the aggregate principal amount of outstanding
Revolving Loans plus (y) the then outstanding Letters of Credit Usage
exceeds the Borrowing Base as set forth in the Borrower's most recent
Borrowing Base Certificate required to be delivered pursuant to Section
6.01(m) (such amount is referred to as the "EXCESS"), then the Borrower
shall prepay such Loans in a principal amount equal to the Excess no later
than two Business Days after the Borrower has delivered, or was required to
deliver, such Borrowing Base Certificate to the Administrative Agent and
the Banks.

(i) As promptly as practicable, but in any event within five
Business Days of the date of receipt by Holdings and/or any of its
Subsidiaries, of Net Cash Proceeds (PROVIDED, HOWEVER, that with
respect to any Net Cash Proceeds of the sale of equity securities of
Holdings or any of its Subsidiaries, Section 3.03(e) will govern and
that with respect to any Net Cash Proceeds from any damage to, or
loss, destruction or condemnation of Assets, Section 3.03(f) will
govern), the Borrower shall remit to the Administrative Agent an
amount equal to 100% of such Net Cash Proceeds, specifying any portion
of such proceeds (such portion, the "REPLACEMENT ASSET AMOUNT")
intended by the Borrower to be used within 120 days of receipt (or
such longer period as may be consented to by the Agent) for replacing
productive assets of a kind then used or usable in the business of
Holdings and its Subsidiaries (in each case, to the extent permitted
by the Security Documents); PROVIDED, HOWEVER, that if the property
sold constituted Collateral, any such replacement property shall be
made subject to the Lien of the Security Documents.

(ii) The Replacement Asset Amount of such Net Cash Proceeds
shall be deposited in the Reserve Account and the remaining portion,
if any, of such Net Cash Proceeds shall be applied by the
Administrative Agent as provided in Section 3.04(a). During a period
of 120 days from the date such Replacement Asset Amount is deposited
in the Reserve Account, the Administrative Agent shall release amounts
in such Reserve Account from time to time as the Borrower provides
evidence to the Administrative Agent of the purchase of such
replacement assets (whether or not purchased with proceeds of
Revolving Loans), and after the end of such 120-day period or upon the
occurrence of an Event of Default of the type specified in Section
8.01 or 8.05 or the taking by the Administrative Agent of any of the
actions set forth in Section 8.10, the Administrative Agent shall
apply all amounts remaining in such Reserve Account relating to such
Replacement Asset

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<PAGE>

Amount, to the prepayment of the Loans in the manner provided in
Section 3.04(a).

(d) Subject to the provisions of Section 3.04, as promptly as
practicable, but in any event within five Business Days of the date of
receipt by Holdings and/or any of its Subsidiaries of Net Financing
Proceeds after the Effective Date (excluding the proceeds of the Initial
Loans), the Borrower shall prepay the Loans in an amount equal to 100% of
such Net Financing Proceeds, to be applied as provided in Section 3.04(a).

(e) Subject to the provisions of Section 3.04, as promptly as
practicable, but in any event within five Business Days of the date of
receipt by Holdings and/or any of its Subsidiaries of Net Cash Proceeds
from the sale after the Closing Date of equity securities of Holdings or
any of its Subsidiaries (other than proceeds from the issuance of capital
stock (i) of Holdings pursuant to any pension, stock option, profit sharing
or other employee benefit plan or agreement of Holdings and/or any of its
Subsidiaries in the ordinary course of business or (ii) by a Subsidiary of
the Borrower to another Subsidiary of the Borrower or to the Borrower), the
Borrower shall prepay the Loans in an amount equal to 100% of such proceeds
(net of underwriting discounts and commissions and other costs and expenses
directly associated therewith), to be applied as provided in
Section 3.04(a).

(f) Subject to the provisions of Section 3.04:

(i) As promptly as practicable, but in any event within five
Business Days of the date of receipt by Holdings and/or any of its
Subsidiaries of any proceeds due to damage to, or loss, destruction or
condemnation of Assets (collectively, "LOSS PROCEEDS"), the Borrower
shall remit to the Administrative Agent an amount equal to 100% of
such Loss Proceeds, specifying any portion of such proceeds (such
portion, the "ASSET RESTORATION AMOUNT") intended by the Borrower to
be used within 180 days of receipt of such Loss Proceeds (or such
longer period as may be consented to by the Agent) for rebuilding,
repairing or replacing productive assets of a kind then used or usable
in the business of Holdings and its Subsidiaries (in the case of
Holdings, to the extent permitted under Section 6.17 and, in each
case, to the extent permitted by the Security Documents); PROVIDED,
HOWEVER, that if the property sold constituted Collateral, any such
replacement property shall be made subject to the Lien of the Security
Documents.

(ii) The Asset Restoration Amount of such Loss Proceeds shall be
deposited in the Reserve Account and the remaining portion, if any, of
such Loss Proceeds shall be applied by the Administrative Agent as
provided in Section 3.04(a). During a period of 180 days (or such
longer period as has been consented to by the Administrative Agent)
from the date such Asset Restoration Amount is deposited in the
Reserve Account, the Administrative Agent shall

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release amounts in such Reserve Account from time to time as the
Borrower provides evidence to the Administrative Agent of the repair,
restoration or purchase of such replacement assets, which evidence may
consist of a purchase order or other irrevocable commitment to
purchase such replacement assets, (whether or not purchased with
proceeds of Revolving Loans), and after the end of such 180-day period
or upon the occurrence of an Event of Default of the type specified in
Section 8.01 or 8.05 or the taking by the Administrative Agent of any
of the actions set forth in Section 8.10, the Administrative Agent
shall apply all amounts remaining in the Reserve Account relating to
such Asset Restoration Amount, if any, in the manner provided in
Section 3.04(a).

(g) Subject to the provisions of Section 3.04, as promptly as
practicable, but in any event within five Business Days of the date of
receipt by Holdings and/or any of its Subsidiaries of any surplus assets of
any Pension Plan returned to Holdings and/or any of its Subsidiaries, the
Borrower shall prepay the Loans in an amount equal to 100% of such surplus
assets, to be applied as provided in Section 3.04(a).

(h) Subject to the provisions of Section 3.04, as promptly as
practicable, but in any event within five Business Days of the date of
receipt by Holdings and/or any of its Subsidiaries of any tax refund which
is not promptly applied by Holdings and/or any of its Subsidiaries to the
payment of future tax liabilities, the Borrower shall prepay the Loans in
an amount equal to 100% of such tax refund, to be applied as provided in
Section 3.04(a).

(i) Subject to the provisions of Section 3.04, as promptly as
practicable, but in any event within five Business Days of the date of
receipt by Holdings and/or any of its Subsidiaries of the proceeds of any
cash indemnification payment pursuant to the Recapitalization Documents or
pursuant to the LS Purchase Documents, the Borrower shall prepay the Loans
in an amount equal to the total of (i) 100% of such cash indemnification
payment MINUS (ii) any out-of-pocket losses actually incurred and paid by
Holdings and/or any of its Subsidiaries as a result of the situation, event
or occurrence that gave rise to such indemnification payments MINUS (iii)
any costs and expenses reasonably incurred or reasonably expected to be
incurred by Holdings and/or any of its Subsidiaries in remedying the
situation, event or occurrence that gave rise to such indemnification
payments or in recovering such indemnity (PROVIDED, HOWEVER, that such
costs and expenses are incurred or reasonably expected to be incurred by
Holdings and/or any of its Subsidiaries within 180 days of Holdings and/or
any of its Subsidiaries having notice of the situation, event or occurrence
that gave rise to such indemnification payment), to be applied as provided
in Section 3.04(a). The Borrower hereby agrees to notify the
Administrative Agent immediately of its receipt of any such indemnification
payment received pursuant to any Recapitalization Document or LS Purchase
Document, which notice will be accompanied or followed by an Officers'
Certificate setting forth in reasonable detail the out-of-pocket losses and
costs and expenses incurred or reasonably expected to be incurred in
connection therewith.

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<PAGE>

(j) Subject to the provisions of Section 3.04, as promptly as
practicable, but in any event within 100 days after the last day of each
fiscal year of the Borrower, commencing with the fiscal year ending on or
about June 30, 1998, the Borrower shall prepay the Loans in an amount equal
to 75% of Excess Cash Flow for such fiscal year, to be applied as provided
in Section 3.04(a).

(k) Notwithstanding anything to the contrary contained in paragraphs
(c) through (j) above, in the event that any prepayment otherwise required
under such paragraphs would aggregate less than $100,000 at any time, such
prepayment shall not be required hereunder but shall be deferred until a
date not later than the fifth Business Day following the date when all such
prepayments required under such paragraphs aggregate $100,000 or more.

(l) If, in order to comply with any of Sections 3.03(a) through (f),
(h) or (j) (including as deferred pursuant to 3.03(k) except where the
amount which causes all prepayments to aggregate $100,000 or more are not
prepayments required under any of such Sections 3.03(a) through (e), (h) or
(j)), the Borrower is required to repay Reserve Adjusted Eurodollar Loans
prior to the end of any applicable Interest Period, (x) if there is no
Default or Event of Default then in existence, the Administrative Agent
shall, immediately upon receipt of funds required to be remitted to the
Administrative Agent pursuant to any such sections, deposit such funds into
the Prepayment Collateral Account (as defined in Section 3.08 hereof), and
shall immediately notify the Borrower that repayments would be made prior
to the end of an Interest Period and that Breakage Costs would be payable
by the Borrower pursuant to this Agreement in connection therewith and the
Borrower, upon the receipt of any such notice from the Agent, shall
immediately deliver written instructions to the Administrative Agent which
shall direct the Administrative Agent either (i) to, at the end of the
earliest to expire Interest Period, apply the entire balance of the
Prepayment Collateral Account to the repayment of the Loans in accordance
with Section 3.04(a) or (ii) to proceed with such repayment, in which event
the Borrower shall compensate each Bank for all Breakage Costs incurred by
such Bank in connection with each such repayment in accordance with Section
1.10(f) or (y) if there is then pending a Default or Event of Default, any
such prepayment shall be immediately applied to the repayment of the Loans
and the Borrower shall compensate each Bank for all Breakage Costs incurred
by such Bank in connection with each such repayment in accordance with
Section 1.10(f).

3.04. APPLICATION OF MANDATORY PREPAYMENTS.

(a) Prepayments under Section 3.03 (other than Section 3.03(a) or
(b)) shall be applied without penalty or premium (other than Breakage
Costs, if any, and if so provided in Section 3.03), in the following
manner: (i) first, if made (x) prior to the Acquisition Term Commitment
Termination Date, pro rata to the outstanding principal amount of each

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<PAGE>

of the Term A Loans and the Term B Loans to reduce the remaining Scheduled
Term A Loan Principal Payments and the remaining Scheduled Term B Loan
Principal Payments, in each case in inverse order of maturity, or (y) on or
after the Acquisition Term Loan Commitment Termination Date, pro rata to
the outstanding principal amount of each of the Term A Loans, the Term B
Loans and the Acquisition Term Loans to reduce the remaining Scheduled Term
A Loan Principal Payments, the remaining Scheduled Term B Loan Principal
Payments and the remaining Scheduled Acquisition Term Loan Principal
Payments, in each case in inverse order of maturity, (ii) second, if made
(x) prior to the Acquisition Term Loan Commitment Termination Date, to the
outstanding principal amount of the Acquisition Term Loans, (provided that
any amount so prepaid shall permanently reduce the Acquisition Term Loan
Commitments) or (y) on or after the Acquisition Term Loan Commitment
Termination Date, to repay Revolving Loans, and (iii) third, to repay
Revolving Loans; PROVIDED, HOWEVER, that prepayments required by
Sections 3.03(a) shall be applied solely to repay Revolving Loans or
Acquisition Term Loans, as applicable, and prepayments required by Section
3.03(b) shall be applied solely to repay Revolving Loans.

(b) With respect to each prepayment of Loans required by Section 3.03
(other than Sections 3.03(a) and (b)), the Borrower shall give the
Administrative Agent one Business Day's notice and may designate the Types
of Loans and the specific Borrowing or Borrowings which are to be prepaid;
PROVIDED, HOWEVER, that (i) if any prepayment of Reserve Adjusted
Eurodollar Loans made pursuant to a single Borrowing shall reduce the
outstanding Loans made pursuant to such Borrowing to an amount less than
the Minimum Borrowing Amount, such Borrowing shall immediately be converted
into Base Rate Loans; and (ii) each prepayment of any Loans made pursuant
to a single Borrowing shall be applied to the prepayment of such Loans on a
pro rata basis. In the absence of a designation by the Borrower, the
Administrative Agent shall, subject to the above, make such designation in
its sole discretion. All prepayments shall include payment of accrued
interest on the principal amount so prepaid, shall be applied to the
payment of interest before application to principal and shall include
amounts payable, if any, and if provided for in Section 3.03(m), under
Section 1.10(f).

(c) Notwithstanding Sections 3.04(a) and (b), (i) in the absence of a
specific designation from the Borrower, all prepayments to be applied
pursuant to Section 3.04(a) shall be applied first to the prepayment in
full of that portion of any Loan constituting Base Rate Loans before
application of any of such prepayments to the prepayment of Reserve
Adjusted Eurodollar Loans; (ii) if (A) Breakage Costs would otherwise be
imposed by applying such prepayments to any portion of the Term A Loan, the
Term B Loan or the Acquisition Term Loan constituting Reserve Adjusted
Eurodollar Rate Loans, and (B) Revolving Loans constituting Base Rate Loans
in an amount not less than the required prepayment are then outstanding,
such prepayments shall be applied instead to the prepayment of Revolving
Loans constituting Base Rate Loans, and the prepayment of Reserve Adjusted
Eurodollar Rate Loans otherwise required under Section 3.04(a) shall

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<PAGE>

be deferred until the last day of the applicable Interest Period with
respect to each of such Reserve Adjusted Eurodollar Loans; and (iii) the
Administrative Agent may, in its discretion, establish reserves against the
amount of Revolving Loans which the Borrower is otherwise entitled to
borrow hereunder in an amount equal to the amount of any such deferred
prepayment and in the event that the Borrower does not otherwise make such
prepayment on the last day of such Interest Period as provided herein, may
cause Revolving Loans to be made on the Borrower's behalf and apply the
proceeds thereof to such prepayment.

3.05. REDUCTION OF TOTAL REVOLVING LOAN COMMITMENT, ETC. Each prepayment
made pursuant to Section 3.03 with respect to the Revolving Loans or, if prior
to the Acquisition Term Loan Commitment Termination Date, the Acquisition Term
Loans (in each case, other than any prepayment made pursuant to Section 3.03(a)
or (b)) shall permanently reduce the Total Revolving Loan Commitment or Total
Acquisition Term Loan Commitment, as applicable, and shall, on a pro rata basis,
reduce the applicable Revolving Loan Commitment or Acquisition Term Loan
Commitment of each Bank. Principal amounts repaid in respect of the Term A
Loans, the Term B Loans or the Acquisition Term Loans shall not be available for
reborrowing.

3.06. METHOD AND PLACE OF PAYMENT.

(a) Except as otherwise specifically provided herein, all payments
under this Agreement shall be made to the Agent, for the ratable account of
the Banks entitled thereto, not later than 2:00 P.M. (New York time) on the
date when due and shall be made in immediately available funds in lawful
money of the United States of America to the account specified therefor by
the Administrative Agent or if no account has been so specified at the
Agent's Office, it being understood that written notice by the Borrower to
the Administrative Agent to make a payment from the funds in the Borrower's
account at the Agent's Office shall constitute the making of such payment
to the extent of such funds held in such account. The Administrative Agent
will thereafter cause to be distributed on the same day (if payment is
actually received by the Administrative Agent in New York City prior to
2:00 P.M. (New York time) on such day) funds relating to the payment of
principal or interest or fees ratably to the Banks entitled to receive any
such payment in accordance with the terms of this Agreement. If and to the
extent that any such distribution shall not be so made by the
Administrative Agent in full on the same day (if payment is actually
received by the Administrative Agent prior to 2:00 P.M. (New York time) on
such day), the Administrative Agent shall pay to each Bank its ratable
amount thereof and each such Bank shall be entitled to receive from the
Agent, upon demand, interest on such amount at the Federal Funds Rate for
each day from the date such amount is paid to the Administrative Agent
until the date the Administrative Agent pays such amount to such Bank.

(b) Any payments under this Agreement which are made by the Borrower
later than 2:00 P.M. (New York time) shall be deemed to have been made on
the next

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<PAGE>

succeeding Business Day. Whenever any payment to be made hereunder shall
be stated to be due on a day which is not a Business Day, the due date
thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest shall be payable during such
extension at the applicable rate in effect immediately prior to such
extension, except that with respect to Reserve Adjusted Eurodollar Loans,
if such next succeeding applicable Business Day is not in the same month as
the date on which such payment would otherwise be due hereunder or under
any Note, the due date with respect thereto shall be the next preceding
applicable Business Day.

3.07. NET PAYMENTS.

(a) Except as provided in Section 3.07(d), all payments by the
Borrower under this Agreement or under any Credit Documents shall be made
without setoff or counterclaim and in such amounts as may be necessary in
order that all such payments (after deduction or withholding for or on
account of any present or future Taxes), shall not be less than the amounts
otherwise specified to be paid under this Agreement and/or any other Credit
Documents. A certificate as to the calculation of any additional amounts
payable to a Bank under this Section 3.07 submitted to the Borrower by such
Bank shall, absent demonstrable error, be final, conclusive and binding for
all purposes upon all parties hereto. With respect to each deduction or
withholding for or on account of any Taxes, the Borrower shall, within 30
days after it is required by law to remit such deduction or withholding to
any relevant taxing authority, furnish to each Bank such cer tificates,
receipts and other documents as may be required (in the reasonable judgment
of such Bank) to establish any tax credit to which such Bank may be
entitled.

(b) Without prejudice to (but without duplication of the benefits of)
the provisions of Section 3.07(a), and except as provided in Section
3.07(d), if any Bank, or the Administrative Agent on its behalf, is
required by law to make any payment on account of Taxes on or in relation
to any sum received or receivable under this Agreement and/or any other
Credit Documents by such Bank, or the Administrative Agent on its behalf,
or any liability for Taxes in respect of any such payment is imposed,
levied or assessed against any Bank, or the Administrative Agent on its
behalf, the Borrower will promptly indemnify such person against such Tax
payment or liability, together with any interest, penalties and reasonable
expenses (including counsel fees and expenses) payable or incurred in
connection therewith, including any Taxes of any Bank arising by virtue of
payments under this Section 3.07(b), computed in a manner consistent with
Section 3.07(a). A certificate by such Bank, or the Administrative Agent
on its behalf, as to the calculation and amount of such payments shall,
absent demonstrable error, be final, conclusive and binding upon all
parties hereto for all purposes, provided that such certificate is
delivered to the Borrower no later than 90 days after the earlier of the
date on which such Bank or the Administrative Agent makes payment of such
Taxes or the date on which the applicable Governmental Authority makes
written demand for payment of such Taxes.

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<PAGE>

(c)(i) Each Bank that is organized under the laws of any jurisdiction
other than the United States or any State thereof (including the District
of Columbia) (a "FOREIGN BANK") agrees to furnish to the Borrower and the
Administrative Agent, prior to the date it receives any payment under this
Agreement or other Credit Documents, two signed copies of either U.S.
Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form
1001 or any successor form thereto (wherein such Foreign Bank validly
claims entitlement to a complete exemption from U.S. federal withholding
tax on interest paid by Borrower hereunder). Each Foreign Bank that is not
a bank described in Section 881(c)(3)(A) of the Code and cannot deliver
U.S. Internal Revenue Service Form 1001 entitling it to a complete
exemption from withholding tax or U.S. Internal Revenue Service Form 4224
pursuant to this Section 3.07(c)(i) agrees to furnish to the Borrower and
the Administrative Agent two copies of U.S. Internal Revenue Service Form
W-8, or successor form (wherein such Foreign Bank makes the certifications
necessary to entitle it to a complete exemption from United States
withholding tax on interest paid by the Borrower hereunder).

(ii) In addition, each Foreign Bank that delivers forms pursuant to
Section 3.07(c) agrees to provide subsequently to the Borrower and the
Administrative Agent additional signed copies of such forms, or any
successor forms thereto (wherein such Bank claims entitlement to a complete
exemption from or reduced rate of U.S. federal withholding tax on interest
paid by the Borrower hereunder), as may be reasonably requested in writing
by the Borrower or the Agent. A Foreign Bank shall be required to furnish
a form under this Section 3.07(c)(ii) only if it is entitled to claim an
exemption from or a reduced rate of withholding tax under applicable law.
A Bank that is not entitled to claim an exemption from or a reduced rate of
withholding under applicable law at the time that a request to provide
forms is received from the Borrower or the Agent, shall so inform the
Borrower and the Administrative Agent in writing.

(d) The Borrower shall not be required to pay any increased amount on
account of Taxes pursuant to Section 3.07(a) or (b) to any Bank or
Administrative Agent (i) to the extent that such Taxes would not have been
payable if the Bank had furnished a form (properly and accurately completed
in all material respects) which it was otherwise required to furnish in
accordance with Section 3.07(c), (ii) if the Bank was not able to furnish a
form (properly and accurately completed in all material respects) which it
was required to furnish in accordance with Section 3.07(c)(i), or (iii) if
the Bank failed to comply with applicable certification, information,
documentation or other reporting requirements concerning the nationality,
residence, identity or connections with the United States of such Bank if
such compliance is required by statute or regulation of the United States
as a precondition to relief or exemption from such Taxes.

(e) With respect to any Taxes imposed on a Bank which are paid or
reimbursed by Borrower in accordance with the provisions of this Section
3.07, each Bank receiving the benefit of such payments of Taxes hereby
agrees to pay to the Borrower any amounts

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<PAGE>

refunded to such Bank (including any interest thereon) which such Bank
reasonably determines to be a refund in respect of such Taxes.

(f) If any Bank shall be entitled to payments under this Section
3.07, such Bank shall, within a reasonable time after becoming entitled to
such payments, (unless otherwise required by a Governmental Authority or as
a result of any law, rule, regulation, order or similar directive
applicable to such Bank), designate a different lending office from that
initially selected by such Bank to which payments are to be made under this
Agreement or under any other Credit Document, if such designation would
avoid the need for (or materially reduce the amount of) such payments and
would not, in the reasonable opinion of such Bank, be otherwise
disadvantageous to such Bank.

3.08. RESERVE ACCOUNT; PREPAYMENT COLLATERAL ACCOUNT.

(a) The Administrative Agent shall establish and maintain a special
reserve account (the "RESERVE ACCOUNT") for the deposit of amounts
constituting the Replacement Asset Amount of Net Cash Proceeds pursuant to
Section 3.03(c)(ii) and the Asset Restoration Amount of Loss Proceeds
pursuant to Section 3.03(f)(ii), and such Reserve Account shall be subject
to the sole dominion and control of the Administrative Agent and the
Borrower shall have no right of withdrawal from the Reserve Account. Funds
in the Reserve Account shall be invested in Cash Equivalents and interest
earned on such investments shall be remitted to the Borrower not less
frequently than once a month; PROVIDED, HOWEVER, that upon the occurrence
of an Event of Default and the declaration by the Administrative Agent in
accordance with Section 8 that the Loans are immediately due and payable,
the Administrative Agent shall apply all amounts then on deposit in the
Reserve Account towards the payment of the Obligations in such order and in
such manner as it shall in its discretion determine, and any excess amount
remaining after such payment shall be remitted to the Borrower.

(b) The Administrative Agent shall establish in its own name as
Administrative Agent and maintain for the benefit of the Banks a special
purpose collateral account (the "PREPAYMENT COLLATERAL ACCOUNT"). The
Administrative Agent shall deposit in the Prepayment Collateral Account
funds which the Borrower shall have requested to be so deposited pursuant
to Section 3.03(l). All funds from time to time on deposit in the
Prepayment Collateral Account shall be under the exclusive control of the
Administrative Agent and shall be invested in Cash Equivalents, and such
Prepayment Collateral Account shall be subject to the sole dominion and
control of the Administrative Agent and the Borrower shall have no right of
withdrawal from the Prepayment Collateral Account. The funds (including
all interest earned from the investment thereof) in the Prepayment
Collateral Account shall be subject to withdrawal solely by the
Administrative Agent (i) for the purpose of effecting payments required
pursuant to Section 3.03 and (ii) upon the occurrence of an Event of
Default and the declaration by the Administrative Agent in accordance with
Section 8 that the Loans are immediately due and payable, for application

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to the payment of the Obligations in such order and in such manner as the
Administrative Agent in its discretion shall determine. The Borrower shall
have no legal, equitable or beneficial interest in the Prepayment
Collateral Account, except for its right to ensure that the funds in such
account shall be applied to the prepayment of the Loans as required by this
Agreement.

SECTION 4. CONDITIONS PRECEDENT.

4.01. CONDITIONS PRECEDENT TO INITIAL LOANS. The obligations of the Banks
to make the Initial Loans are subject, at the time of the making of such Loans
(except as otherwise hereinafter indicated), to the satisfaction of the
following conditions:

(a) CREDIT DOCUMENTS.

(i) This Agreement and each other Credit Document (to the extent
not previously executed and delivered) shall (A) have been, on or
before the Closing Date, duly authorized, executed and delivered by
each of the parties signatory thereto and (B) constitute the legal,
valid and binding obligation of each Credit Party, enforceable in
accordance with its terms (subject to bankruptcy and principles of
equity).

(ii) There shall have been delivered to the Administrative Agent
for the account of each of the Banks the Term A Notes, the Term B
Notes, the Revolving Notes and the Acquisition Term Notes, each duly
executed by the Borrower in the amount and maturity and as otherwise
provided herein.

(b) OFFICERS' CERTIFICATE. The Agents shall have received a
certificate dated the Closing Date signed by the appropriate officer(s) of
the Borrower on behalf of the Borrower in substantially the form of Exhibit
4.01(b) stating that (i) all of the applicable conditions set forth in this
Section 4.01 (in each case disregarding any reference therein that such
condition be deemed satisfactory by the Agents, the Administrative Agent
and/or the Required Banks) have been either satisfied or waived in writing
by the Agents, and the Required Banks as of such date, (ii) immediately
before and after giving effect to the Initial Loans, all representations
and warranties contained herein or in any other Credit Document (except as
expressly amended hereunder or under another Credit Document) shall be true
and correct in all material respects, (iii) no Default or Event of Default
has occurred or will have occurred after giving effect to the Initial Loans
and (iv) since June 30, 1996 no material adverse change in the business,
assets, prospects, properties or condition (financial or otherwise) of
Holdings and its Subsidiaries shall have occurred; PROVIDED, HOWEVER, that,
solely for the purpose of determining the rights of the Credit Parties
against any party to the Recapitalization Documents or the LS Purchase
Documents, the giving of any such certificate shall not be deemed a waiver
of the rights of, nor an admission of the truth thereof by, any Credit
Party or any other party

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indemnified by the Redeeming Shareholders or the Sellers or against any
other party to any Recapitalization Document or any LS Purchase Document.

(c) OPINIONS OF COUNSEL. The Administrative Agent shall have
received an opinion dated the Closing Date addressed to each of the Banks
from each of (i) Brownstein Hyatt Farber & Strickland, P.C., counsel to the
Credit Parties, (ii) Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., and
(iii) Cox & Smith, Incorporated, counsel to the Sellers, in each case, in
form and substance reasonably acceptable to the Administrative Agent.

(d) CORPORATE PROCEEDINGS. All corporate and legal proceedings and
all instruments and agreements in connection with the LS Purchase, the
execution of this Agreement and the other Credit Documents and all related
transactions shall be reasonably satisfactory in form and substance to the
Agents, and the Administrative Agent shall have received all information
and copies of all certificates, documents and papers, including records of
corporate proceedings and governmental approvals, if any, which the Agents
may have reasonably requested from the Credit Parties or in connection
therewith, such documents and papers where appropriate to be certified by
proper corporate or governmental authorities. Without limiting the
foregoing, the Administrative Agent shall have received from each Credit
Party:

(i) resolutions of the board of directors (or of the board of
directors of the general partner) of each such Person which shall
include, without limitation, (1) resolutions approving such documents
and actions as are contemplated by this Agreement, the LS Purchase
Documents and any related transactions to the extent such Person is a
party thereto and (2) resolutions as to the due authorization,
execution and delivery of this Agreement and the LS Purchase
Documents, to the extent such Person is a party thereto, all such
resolutions to be in form and substance reasonably satisfactory to the
Agents; and

(ii) signature and incumbency certificates of each officer of
each such Credit Party executing instruments, documents or agreements
required to be executed in connection with the transactions
contemplated by this Agreement and the LS Purchase Documents.

(e) LS ACQUISITION DOCUMENTS.

(i) The LS Purchase Documents and any amendments thereto, shall
be in form and substance satisfactory to the Agents; and on the
Closing Date each of the conditions to purchase contained in the LS
Purchase Agreement shall have been satisfied in all material respects
(or waived in writing, such waiver to be reasonably satisfactory to
the Agents) to the reasonable satisfaction of the Agents. Holdings,
Acquisition, Target and the Sellers shall have in all material
respects done and performed such acts and observed such covenants
which each is required to do or

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perform under the LS Purchase Documents on or prior to the Closing
Date (or such acts and covenants shall have been waived in writing,
such waiver to be reasonably satisfactory to the Agents). Full,
complete and accurate copies of each of the LS Purchase Documents
(including all schedules and exhibits thereto) shall have been
provided to the Administrative Agent.

(ii) Holdings and the Borrower shall have provided evidence
satisfactory in form and substance to the Agents that the LS Purchase
has been consummated or will be consummated simultaneously with the
closing of the transactions contemplated by this Agreement.

(f) CAPITAL CONTRIBUTION; CAPITALIZATION. As of the Closing Date,
Holdings (i) shall have received (including in connection with the
Recapitalization and the LS Purchase) cash proceeds in an aggregate amount
of at least $33,500,000 from the issuance of its common stock to KCSN
(which shall be an entity controlled by Kohlberg & Company, LLC), (ii)
shall have a retained investment by the Management Stockholders (after
giving effect to the redemptions contemplated under the Put/Call Option
Agreement) of not less than $12,000,000, (iii) shall have a retained
investment in the form of the Heller Subordinated Note in the amount of not
less than $7,100,000, (iv) shall have issued 404,010 shares of its common
stock to Joseph F. Bradberry, one of the Sellers, as part of the
consideration for the LS Purchase, (v) shall have issued options (as
reflected on Schedule 5.17) in connection with the LS Purchase to certain
former employees of Target who are to be retained by Holdings and/or its
Subsidiaries, and (vi) in connection with the LS Purchase, shall have
contributed a portion of such proceeds to the Borrower (which shall loan
such proceeds to Acquisition) to pay (A) a portion of the consideration in
respect of the LS Purchase and (B) the reasonable fees and expenses of the
Credit Parties and the Agents in connection with the transactions
contemplated by this Agreement and the LS Purchase Documents.

(g) CAPITAL STRUCTURE. On the Closing Date, after giving effect to
the LS Purchase, (i) there shall be no outstanding Capital Stock of
Holdings other than as set forth in Schedule 5.17, (ii) the Borrower shall
be a Wholly Owned Subsidiary of Holdings, (iii) Newco shall be a Wholly
Owned Subsidiary of the Borrower, (iv) all of the partnership interests in
Acquisition shall be owned by the Borrower and Newco, (v) Holdings shall
have no direct Subsidiaries other than the Borrower, and no indirect
Subsidiaries other than the Borrower, Newco and Acquisition (Target having
ceased to exist as a separate entity), and (vi) all of the Capital Stock of
each of the Borrower, Newco and Acquisition shall have been assigned and
pledged to the Administrative Agent, for the benefit of the Banks and
certificates evidencing such Capital Stock shall have been delivered to the
Administrative Agent, together with executed stock powers.

(h) ORGANIZATIONAL DOCUMENTATION, ETC. On or prior to the Closing
Date, the Administrative Agent shall have received a true and complete
certified copy of the

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following documents of each of Holdings, the Borrower, Newco, and
Acquisition, the provisions of which shall be reasonably satisfactory to
the Agents:

(i) Copies of its certificate of incorporation, or certificate
of limited partnership, as the case may be, which (A) shall be
certified by, and accompanied by a good standing certificate from, the
Secretary of State or similar official of the jurisdiction of its
organization and (B) in the case of Holdings, the Borrower, Newco and
Acquisition shall be accompanied by good standing certificates from
each jurisdiction in which it is required to be qualified to do
business as a foreign corporation, each to be dated a recent date
prior to the Closing Date;

(ii) Copies of its by-laws or limited partnership agreement as
the case may be, certified as of a recent date prior to the Closing
Date by its corporate secretary or other person serving in a similar
capacity.

(i) CERTAIN FEES; INTEREST ON OUTSTANDING LOANS. All fees and
reasonable costs and expenses (including, without limitation, reasonable
legal fees and expenses) and other compensation payable to the Agents or
the Banks by Holdings or the Borrower shall have been paid in full, and
there shall have been paid in full all accrued interest and all accrued
commitment fees on the Outstanding Loans and all other fees and expenses
(including, without limitation, reasonable legal fees and expenses) of the
Agents or the Banks, in each case to the extent due and payable and, with
respect to costs and expenses, invoiced or presented on or before the
Closing Date. In addition, on or prior to the Closing Date, there shall
have been delivered to the Agents evidence satisfactory to the Agents that
the fees and expenses payable by Holdings and its Subsidiaries in
connection with the LS Purchase, including, without limitation, fees and
expenses payable to any of its Affiliates related to the issuance and sale
of equity securities, shall not exceed $1,800,000 in the aggregate.

(j) FINANCIAL STATEMENTS, ETC. On or before the Closing Date, the
Agents shall have received: (i) unaudited summary financial data of
Holdings and its Subsidiaries for the twelve-month periods ended on or
about December 31, 1992 through December 31, 1995, inclusive, (which
financial statements shall not have been modified since their receipt by
the Administrative Agent); (ii) audited consolidated financial statements
of Holdings and its Subsidiaries for Holdings' fiscal year ended on or
about June 30, 1996; (iii) a financial and accounting report prepared by
Arthur Andersen relating to Holdings financial reporting and systems; (iv)
unaudited income statements, cash flows and balance sheets for Holdings and
its Subsidiaries for the period July 1, 1996 through October 31, 1996; (v)
unaudited financial statements, cash flows and balance sheets of Target for
the fiscal years ended June 30, 1994 and June 30, 1995; (vi) audited
financial statements of Target for its fiscal year ended June 30, 1996;
(vii) a pro forma balance sheet for Holdings and its Subsidiaries, as of
the Closing Date after giving effect to the LS Purchase and the Initial
Loans; and (vii) a revised annual plan, giving

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effect to the LS Purchase, (by month for the calendar year commencing on or
about January 1, 1997) for each of Holdings' and its Subsidiaries' five
calendar years commencing on or about January 1, 1997, in each case,
accompanied by a statement by Holdings that such projections are based on
estimates and assumptions believed by Holdings in good faith to be
reasonable in light of the conditions which existed at the time of their
preparation as to the future financial performance of Holdings, each in
form, scope and substance satisfactory to the Administrative Agent,
prepared in accordance with Holdings' normal accounting procedures applied
on a consistent basis, including (A) forecasted balance sheets and
statements of operations, stockholders' equity and cash flows of Holdings
and its Subsidiaries for such periods, (B) the amount of forecasted capital
expenditures (including the amount of such costs to be capitalized, if any)
for such periods, and (C) Holdings and its Subsidiaries' forecasted
compliance with Sections 7.01 through 7.05. Each of the items delivered
pursuant to this Section 4.01(j), which are attached as Schedule 4.01(j),
shall be satisfactory to the Agents in their reasonable discretion. Since
the time of the preparation of such financial projections, no fact or facts
have come to the attention of any Credit Party to cause such Person to
believe that any of the estimates and assumptions on which such projections
are based are not reasonable.

(k) INSURANCE. The insurance coverage set forth on Schedule 5.23
shall be in full force and effect with respect to Holdings and its
Subsidiaries and their respective properties.

(l) LITIGATION. Except as set forth on Schedule 4.01(l), there shall
be no litigation pending or threatened by any entity (private or
governmental) involving any Credit Party or any other party to any LS
Purchase Document or any of the properties or assets of any such Person
that could reasonably be expected to restrain, enjoin or result in the
obtaining of a judgment for substantial damages with respect to the LS
Purchase or the con summation of the transactions contemplated by the LS
Purchase Documents, and there shall be no pending or threatened litigation
involving any Credit Party or involving any other party to any LS Purchase
Document or any of the properties or assets of any such Person that could
reasonably be expected to have a material adverse effect on the operations
or properties being acquired in the LS Purchase or the ability of the
Credit Parties to operate the same or that could reasonably be expected to
have a Material Adverse Effect.

(m) INDEBTEDNESS, ETC. (i) Except as set forth on Schedule 4.01(m),
on or before the Closing Date, each Credit Party shall have received all
necessary consents or waivers or shall have amended, supplemented or
otherwise modified, repaid or defeased its outstanding Indebtedness in a
manner and on terms satisfactory to the Agents such that there exists no
default or potential default (as a result of the consummation of the LS
Purchase) with respect to such Indebtedness or under any note, evidence of
indebtedness, capital lease, mortgage, deed of trust, security document or
other agreement relating to such Indebtedness and such indentures, notes,
evidences of indebtedness, capital lease

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mortgages, deeds of trust or other agreements relating to such Indebtedness
shall not contain (i) any restriction on the ability of Holdings or any of
its Subsidiaries to grant any Lien in favor of the Banks (other than in the
case of Capital Leases, or purchase money debt (excluding Real Property
leases), a Lien on the property financed thereby) or any financial
covenants or tests applicable to Holdings or any of its Subsidiaries.

(ii) The terms and conditions of any Indebtedness of Holdings
and its Subsidiaries as of the Closing Date which remains outstanding
after giving effect to the LS Purchase and the making of the Initial
Loans, and the extent to which any Indebtedness of Target remains
outstanding as Indebtedness of Acquisition after giving effect to the
LS Purchase and the making of the Initial Loans shall, in each case,
be reasonably acceptable to the Agents. The Administrative Agent
shall have received evidence satisfactory to it that the Indebtedness
reflected on Schedule 5.20 as being paid as of the Closing Date is
being paid with the proceeds of the Initial Loans.

(n) SECURITY DOCUMENTS. In each case, to the extent the same shall
not have been previously delivered to the Administrative Agent, the
Security Documents shall have been duly executed and delivered by each of
the Credit Parties party thereto and there shall have been delivered to the
Administrative Agent: (i) a certificate or certificates representing all
Capital Stock of Newco and Acquisition, together with executed and undated
stock powers and/or assignments in blank, which Capital Stock shall (taken
together with the Capital Stock of the Borrower which was delivered as of
the Effective Date), represent and constitute all of the Capital Stock of
the Borrower and its Subsidiaries; (ii) executed financing statements for
filing under the provisions of the UCC in each of the offices where such
filing is necessary or appropriate to grant the Administrative Agent a
perfected first priority Lien in the Collateral acquired in the LS Purchase
as to which a security interest may be perfected by the filing of a
financing statement, which Lien shall be superior to and prior to the
rights of all third persons and subject to no other Liens except the Prior
Liens set forth in Schedule 5.10A; (iii) certified copies of Requests for
Information (Form UCC-11 or the equivalent), or equivalent reports or lien
search reports listing all effective financing statements which name
Target, Newco and Acquisition and which are filed in any jurisdiction in
which any of such Collateral is located and the jurisdiction in which such
Person's principal place of business is located (none of which shall cover
the Collateral covered, or purported to be covered, by the Security
Documents other than Prior Liens and Permitted Encumbrances); and (iv)
evidence of the completion of all recordings and filings (or of the making
of arrangements to file contemporaneously with the making of the Initial
Loans) of each such Security Document and delivery of such other security
and other documents as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Liens created, or purported
or intended to be created, by the Security Documents; and (v) payoff
letters executed by the holders of any Indebtedness reflected as being paid
as of the Closing Date on Schedule 5.20 setting forth the amount required
to discharge such Indebtedness, and

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<PAGE>

evidence that the proceeds of the Initial Loans will be used to so
discharge such Indebtedness.

(o) LEASES. All Capital Leases and Operating Leases of Holdings and
its Subsidiaries and all Capital Leases and Operating Leases of Target
outstanding immediately prior to the Closing Date shall remain outstanding
after giving effect to the LS Purchase and the making of the Initial Loans
hereunder.

(p) CONSENTS, ETC. All necessary or required governmental and third
party approvals and consents (including, without limitation, all approvals
and consents required in connection with any Environmental Laws), in
connection with the LS Purchase or the transactions contemplated by this
Agreement and the LS Purchase Documents and otherwise referred to herein or
therein to be completed on or before the Closing Date are set forth on
Schedule 4.01(p) and shall have been obtained and remain in effect, and all
applicable waiting periods shall have expired without any action being
taken by any competent authority which restrains, prevents or imposes, in
the reasonable judgment of the Agents, material adverse conditions upon the
consummation of the LS Purchase. There shall not exist any judgment or
order enjoining or otherwise restraining the making of the Loans hereunder
or the consummation of the LS Purchase.

(q) BORROWING BASE; BORROWING BASE CERTIFICATE. The Administrative
Agent and the Banks shall have received and the Required Banks shall be
satisfied in all reasonable respects with a Borrowing Base Certificate
which shall be substantially in the form of Exhibit 6.01(m) and shall be
prepared as of a date prior to the Closing Date that is reasonably
satisfactory to the Agents. Such Borrowing Base Certificate shall indicate
that the Borrowing Base on the Closing Date (before and after giving effect
to the LS Purchase) exceeds the amount of the Revolving Loans to be
outstanding as of such date by not less than $4 million.

(r) NO MATERIAL ADVERSE CHANGE. Since June 30, 1996 nothing shall
have occurred or become known to any Credit Party which the Agents shall
have determined has or could reasonably be expected to have a Material
Adverse Effect or a material adverse effect on the business or operations
of Holdings and its Susidiaries or on the business or operations of Target
or has resulted or could result in a material adverse change in the
business, assets, prospects, properties or condition (financial or
otherwise) of any Credit Party or of Target or in the ability of the
Borrower or any of its Subsidiaries (after giving effect to the LS
Purchase) as of the Closing Date to conduct its operations in accordance
with the revised projections furnished to the Agents pursuant to Section
4.01(j). As of the Closing Date, there shall not have occurred and be
continuing a material disruption of, or material adverse change in, United
States financial, banking or capital markets, as reasonably determined by
the Agents in their sole discretion.

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<PAGE>

(s) EMPLOYMENT AGREEMENTS. The Administrative Agent shall have
received a copy of the employment agreement between Acquisition and Joseph
F. Bradberry, and such agreement shall be in full force and effect and in
form and substance satisfactory to the Agents.

(t) WATER RIGHTS. The Water Rights shall be assigned to Acquisition
in connection with the LS Purchase and, after giving effect to the LS
Purchase, the Water Rights shall be in full force and effect for the
benefit of Acquisition (or, as applicable, permit applications shall be
pending with respect to such Water Rights in the name of Acquisition, or
rights to such pending applications shall have been assigned to
Acquisition), and Acquisition shall have good and valid title to any such
Water Rights.

(u) SPECIFIED COLLATERAL PERFECTION ACTIONS. The "Specified
Collateral Perfection Actions" (as defined in the Original Credit
Agreement) shall have been performed to the satisfaction of the
Administrative Agent.

The acceptance of the proceeds of each Borrowing of Initial Loans shall
constitute a representation and warranty by the Borrower to each of the Banks
that all of the applicable conditions specified above have been satisfied or
waived as of that time. All of the certificates, legal opinions and other
documents and papers referred to in this Section 4.01, unless otherwise
specified, shall be delivered to the Administrative Agent at the Agent's Office
(or such other location as may be specified by the Agents) for the account of
each of the Banks and in sufficient counterparts for each of the Banks and shall
be reasonably satisfactory in form and substance to the Agents.

4.02. CONDITIONS PRECEDENT TO ALL LOANS. The obligations of the Banks to
make all Loans (which term shall not include a conversion or continuation of a
Loan), including the Initial Loans, are subject, at the time of the making of
each such Loan, to the satisfaction of the following conditions:

(a) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of the
making of each Loan and also after giving effect thereto (and in the case
of the Initial Loans, after giving effect to the LS Purchase; and in the
case of any Acquisition Term Loans, after giving effect to the transactions
contemplated to be effected with the proceeds of such Loan) (i) there shall
exist no Default or Event of Default and (ii) all representations and
warranties contained herein and in each of the other Credit Documents in
effect at such time shall be true and correct with the same effect as
though such representations and warranties had been made on and as of the
date of the making of such Loan, unless such representation and warranty
expressly indicates that it is being made as of any other specific date in
which case it shall be true and correct on and as of such other date.

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(b) NO MATERIAL ADVERSE CHANGE, ETC.

(i) Since June 30, 1996, nothing shall have occurred or become
known to any Credit Party which the Required Banks or the Administrative
Agent shall have determined has or could reasonably be expected to have a
Material Adverse Effect.

(ii) There shall not have been issued or filed any judgment or
order which remains outstanding enjoining or otherwise restraining the
making of any Loans hereunder.

(c) MARGIN RULES. On the date of each Borrowing of Loans, neither
the making of any Loan nor the use of the proceeds thereof will violate the
provisions of Regulation G, U or X of the Board of Governors of the Federal
Reserve System.

(d) BORROWING BASE CERTIFICATE. The Administrative Agent and the
Required Banks shall have received, and the Required Banks shall be
reasonably satisfied (both as to form and substance) with, the Borrowing
Base Certificate last delivered to the Banks.

The acceptance of the proceeds of each Borrowing of Loans, including the
Initial Loans, shall constitute a representation and warranty by each Credit
Party to each of the Banks that all of the applicable conditions specified in
this Section 4.02 have been satisfied or waived (in each case disregarding any
reference therein that such condition be deemed satisfactory by the
Administrative Agent and/or the Required Banks); PROVIDED, HOWEVER, that, solely
for the purpose of determining the rights of the Credit Parties against any
party to the Recapitalization Documents or the LS Purchase Documents, no
representation or warranty hereunder shall be deemed a waiver of any rights or
an admission of the truth thereof by any Credit Party or any other party
indemnified by the Redeeming Shareholders or the Sellers or against any other
party to the Recapitalization Agreement or the LS Purchase Agreement. All of
the certificates, documents and papers referred to in this Section 4.02, unless
otherwise specified, shall be delivered to the Administrative Agent at the
Agent's Office (or such other location as may be specified by the Administrative
Agent) for the account of each of the Banks and in sufficient counterparts for
each of the Banks and shall be reasonably satisfactory in form and substance to
the Administrative Agent.

4.03. ADDITIONAL CONDITIONS PRECEDENT TO ACQUISITION TERM LOANS. The
obligations of the Banks to make Acquisition Term Loans (which shall not include
a conversion or continuation of any such Loan or the refinancing as of the
Closing Date of the Outstanding Acquisition Term Loans) are subject to the
satisfaction of the following additional conditions:

(a) Any such Acquisition Term Loan shall be made solely to effect one
or more Permitted Business Acquisitions;

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(b) No later than ten Business Days prior to the applicable
Acquisition Term Loan Closing Date (except to the extent the Administrative
Agent agrees to a shorter period), the Administrative Agent shall have
received (with sufficient copies for each Bank) each of the following with
respect to the consummation of the Permitted Business Acquisition to be
financed with the proceeds of any such Acquisition Term Loan:

(i) a pro forma balance sheet and pro forma consolidated
statements of income and cash flows of Holdings and its Subsidiaries,
after giving effect to the consummation of the proposed Permitted
Business Acquisition, as at the end of the calendar quarter in which
such Permitted Business Acquisition is to be consummated;

(ii) a revised consolidated plan, substantially in the form of
the consolidated plan provided pursuant to Section 4.01(j)(vi) or
otherwise in a form acceptable to the Administrative Agent, for the
then current calendar year and the next four succeeding calendar
years, in each case, giving effect to such Permitted Business
Acquisition, prepared in accordance with Holdings' normal accounting
procedures (and which will represent management's reasonable estimate
of the projected performance of Holdings and its Subsidiaries during
such periods) applied on a consistent basis, including, without
limitation (i) forecasted consolidated balance sheets, consolidated
statements of operations, of stockholders' equity and of cash flows of
Holdings and its Subsidiaries on a consolidated basis for such
periods, (ii) the amount of forecasted capital expenditures for such
periods, and (iii) forecasted compliance with Sections 7.01 through
7.05; PROVIDED, HOWEVER, that if any such forecast projects a
potential failure to comply with any provision of this Agreement at
some future date, such forecast shall not constitute a Default or
Event of Default or anticipatory or other breach hereof.

(iii) a certificate of the president or chief financial officer
of the Borrower (A) with respect to a proposed Permitted Business
Acquisition which is a Designated Acquisition which is substantially
in the form of Exhibit 4.03(b)(iii)-1, and (B) with respect to a
Permitted Business Acquisition which is an Unspecified Permitted
Acquisition which is substantially in the form of Exhibit
4.03(b)(iii)-2,

(x) certifying to the preparation of the pro forma financial
statements and budgets referenced in subclauses (i) and (ii)
and certifying that, after giving effect to such Permitted
Business Acquisition, no Default or Event of Default shall
exist, and that, on a pro forma basis, Holdings and its
Subsidiaries (including any Subsidiary of the Borrower to be
acquired in the contemplated Permitted Business
Acquisition), will be in compliance with the covenants set
forth in Sections 7.01 through 7.05, inclusive, as of the
end of the calendar quarter in which such

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Acquisition is to be consummated and setting forth the
calculations required to establish such pro forma compliance
and appending a spreadsheet showing any adjustments to the
actual EBITDA of the Permitted Business Acquisition made in
the preparation of such pro forma financial statements and
calculations;

(y) (I) with respect to a Permitted Business Acquisition which
is a Designated Acquisition, certifying either (A) that the
terms and conditions of such Acquisition do not vary in any
material respect from those set forth on or referenced in
Schedule 4.03, or (B) if and to the extent that any such
terms and conditions do so vary in any material respect,
specifying any such variance and certifying that, except as
so specified, the terms and conditions of such Acquisition
do not vary in any material respect from those so set forth
on or referenced in Schedule 4.03, or

(II) with respect to any Permitted Business Acquisition
which is an Unspecified Permitted Acquisition, setting
forth, to the reasonable satisfaction of the Administrative
Agent, the material terms and conditions of such
Acquisition; and

(z) certifying that the conditions set forth in each of Sections
4.02 and 4.03 (other than the completion of filings and
recordings to be performed upon the applicable Acquisition
Term Loan Closing Date) have been satisfied with respect to
such proposed Acquisition Term Loan Borrowing.

(c) With respect to any Permitted Business Acquisition which is a
Designated Acquisition, any terms and conditions of such acquisition which
vary in any material respect from those set forth on or referenced in
Schedule 4.03 shall be reasonably acceptable to the Administrative Agent,
and with respect to any Permitted Business Acquisition which is an
Unspecified Permitted Acquisition, the terms and conditions of such
Acquisition shall be reasonably acceptable to the Administrative Agent;

(d) On or before the applicable Acquisition Term Loan Closing Date,
the Borrower shall have complied, in all material respects, with the
provisions of Sections 6.14 and 6.15 as to any property acquired or to be
acquired in connection with any such Permitted Business Acquisition, except
for any such provisions with which compliance is waived by the
Administrative Agent, including, without limitation, that the Borrower and
its Subsidiaries (including any Subsidiary so acquired) shall execute and
deliver to the Administrative Agent any Additional Security Documents (or
Subsidiary Guarantees) required to provide the Administrative Agent for the
benefit of the Banks with a valid,

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perfected security interest in any Collateral to be acquired in such
Permitted Business Acquisition; and

(e) Without limiting the foregoing clause (d), with respect to any
Real Property (whether fee title or leasehold) in which an interest is
acquired in connection with any such Permitted Business Acquisition
(including any such interest held by any Subsidiary of the Borrower
acquired in such acquisition), the following conditions shall be satisfied
on or before the Acquisition Term Loan Closing Date:

(i) The Administrative Agent, for the benefit of the Banks,
shall be granted a first mortgage or deed of trust (or
leasehold mortgage or deed of trust) on all of the interests
in such Real Property by the Person holding such acquired
interest, subject to no prior Liens except for Permitted
Encumbrances.

(ii) Any leasehold mortgages or deeds of trust granted pursuant
to the foregoing subclause (i) must be consented to by any
owners of such Real Property (if other than the mortgagor or
grantor) pursuant to an estoppel and consent agreement in
form and substance satisfactory to the Administrative Agent.

(iii) There shall be issued a lender's title insurance policy as
to each mortgage or deed of trust granted pursuant to the
foregoing subclause (i), with no exceptions which are not
reasonably acceptable to the Administrative Agent, and,
unless the Administrative Agent shall otherwise elect,
as-built surveys sufficient to remove the survey
exception from all title insurance policies shall be
delivered to the Administrative Agent.

(iv) A Phase I environmental report with respect to each parcel
of such Real Property satisfactory to the Administrative
Agent (and upon which the Banks shall be entitled to
rely) shall be delivered to the Administrative Agent.

(v) Evidence reasonably acceptable to the Administrative Agent
shall be presented that the intended use by the Borrower and
its Subsidiaries of each of such Real Properties complies
with all zoning and land use laws, and that all necessary
permits and approvals for the operation of such properties
in such manner have been obtained and are in full force and
effect.

(f) There shall be delivered to the Administrative Agent (in each
case, with sufficient copies for each Bank) copies of the following
documents related to any

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Permitted Business Acquisition to be consummated with the proceeds of an
Acquisition Term Loan, (i) the term sheet for such Acquisition, upon
execution thereof by the parties thereto, and (ii) upon consummation of
such Acquisition, a complete set of the documents effecting such
Acquisition, together with all schedules and exhibits (including, without
limitation the acquisition agreement and any Seller Notes issued in
connection therewith).

(g) Any fees or expenses of the Agents or the Banks which are then
due and payable, whether due in connection with such Acquisition Term Loan
Borrowing or otherwise, shall have been paid in full prior to, or
simultaneously with, the applicable Acquisition Term Loan Closing.

SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order to induce
the Agents and the Banks to enter into this Agreement and to make the Loans
provided for herein, Holdings and the Borrower each makes the following
representations and warranties to, and agreements with, the Agents and the
Banks, all of which shall survive the execution and delivery of this Agreement
and the making of the Loans (with the execution and delivery of this Agreement
and the making of each Loan thereafter being deemed to constitute a
representation and warranty that the matters specified in this Section 5 are
true and correct in all material respects both before and after giving effect to
the LS Purchase and the related transactions and as of the date of each such
Loan unless such representation and warranty expressly indicates that it is
being made as of any specific date).

5.01. STATUS. Each Credit Party is a duly organized and validly existing
corporation or limited partnership, as the case may be, in good standing under
the laws of the jurisdiction of its organization. After giving effect to the LS
Purchase, Target shall have merged with and into Acquisition, and all of its
right, title and interest in any assets as of such date shall thereupon be held
directly by Acquisition. Each Credit Party has all corporate power and
authority, and has obtained all requisite governmental licenses, authorizations,
consents and approvals (including, without limitation, those required by
Environmental Laws), to own and operate its property and assets and to transact
the business in which it is engaged and presently proposes to engage, except for
those governmental licenses, authorizations, consents or approvals the failure
of which to be so obtained would not have a Material Adverse Effect; and is duly
qualified and authorized to do business and is in good standing in all
jurisdictions where it is required to be so qualified, except where the failure
to be so qualified could not reasonably be expected to have a Material Adverse
Effect.

5.02. POWER AND AUTHORITY; BUSINESS. Each Credit Party had or has, as
applicable, the requisite corporate power and authority to execute, deliver and
carry out the terms and provisions of the Transaction Documents and LS
Acquisition Documents to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Transaction Documents and LS Purchase Documents to which it is a party. Each
Credit Party has duly executed and delivered each Transaction Document and each
LS Acquisition Documents to which it is a party and each such Document
constitutes the legal, valid and binding obligation of

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such Credit Party and is enforceable against such Credit Party in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws now or hereafter in effect relating to the rights of creditors generally or
by general principles of equity or the discretion of the court before which any
proceeding therefor may be brought.

5.03. NO VIOLATION. Neither the execution, delivery or performance by any
Credit Party of the Documents to which it is a party nor compliance with the
terms and provisions thereof nor the consummation of the transactions
contemplated therein (a) will contravene any applicable provision (or any
provision to be applicable following the LS Purchase) of any law, statute, rule,
regulation, order, writ, injunction or decree of any court or Governmental
Authority; (b) conflicts or will conflict or be inconsistent with, or results or
will result in any breach or violation of any of the terms, covenants,
conditions or provisions of, or constitutes or will constitute a default under,
or (other than pursuant to the Security Documents) results or will result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of any Credit Party pursuant to the terms of, any
indenture, mortgage, deed of trust or other material instrument or agreement to
which any Credit Party is a party or by which it or any of its property or
assets is bound (or will be bound after giving effect to the LS Purchase) or to
which it may be subject or any law, statute, rule, regulation, order, writ,
injunction or decree of any court or Governmental Authority referred to in
clause (a) above; or (c) will violate any provision of the certificate of
incorporation, certificate of formation, certificate of limited partnership,
by-laws, limited liability company agreement of any Credit Party, except in the
case of any of the foregoing clauses (a) through (c) where such contravention,
conflict, inconsistency, breach, default, creation, imposition, obligation or
violation does not have a Material Adverse Effect. Neither the execution,
delivery or performance of any Document, nor the consummation of the
Recapitalization or LS Purchase nor the terms of the financing in connection
therewith conflicted, conflicts or will conflict or be inconsistent with, or
results or will result in any breach or violation of any of the terms,
covenants, conditions or provisions of, or constitutes or will constitute a
default under, or results or will result in the creation or imposition of (or
the obligation to create or impose) any Lien (except pursuant to the Security
Documents) upon any of the property or assets of any Credit Party pursuant to
the terms of, any indenture, mortgage, deed of trust, instrument or agreement
relating to Indebtedness for borrowed money or the equivalent thereof or other
material agreement to which any Credit Party is a party or by which it or any of
its property or assets is bound or to which it may be subject or any law,
statute, rule, regulation, order, writ, injunction or decree of any court or
Governmental Authority referred to in clause (a) above, except, in each case,
where such conflict, inconsistency, breach, default, creation, imposition or
obligation could not reasonably be expected to have a Material Adverse Effect.

5.04. LITIGATION. There are no actions, judgments, suits, investigations
or proceedings by any administrative or other public authority or Governmental
Authority or other Person pending or, to the best knowledge of Holdings and the
Borrower, threatened with respect to any Credit Party or any of its assets (both
before and after giving effect to the LS Acquisition) that (a) challenges the
consummation of the Recapitalization or of the LS Acquisition or the validity of

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any of the Documents or the transactions contemplated thereby, including the
making of any Loans, or (b) taken individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect or a materially adverse
effect on the assets or business operations acquired in the LS Purchase.

5.05. USE OF PROCEEDS.

(a) All proceeds of the Existing Term A Loans and the Existing Term B
Loans were used by the Initial Borrowers to provide a portion of the cash
consideration to be paid by Holdings pursuant to the Recapitalization
Agreement, to repay existing Indebtedness and to pay fees and expenses
related to the consummation of the Recapitalization, the assignment of
assets to the Borrower by Holdings and the financing of the
Recapitalization.

(b) All proceeds of the Term A Loans and the Term B Loans were used
by the Borrower (i) to refinance the Existing Term A Loans and the Existing
Term B Loans and (ii) to loan to Acquisition to be used to provide a
portion of the cash consideration to be paid by Acquisition pursuant to the
LS Purchase Agreement, to repay the existing Indebtedness reflected on
Schedule 5.20 as being paid in connection with the LS Purchase and to pay
fees and expenses related to the consummation of the LS Purchase and the
financing of the LS Purchase.

(c) Not more than $5,000,000 of the proceeds of the Revolving Loans
were used by the Borrower on the Closing Date to provide, directly or
indirectly via loans to Acquisition, a portion of the cash consideration
pursuant to the LS Purchase Agreement, to repay existing Indebtedness of
Target, to consummate the transfer of Holdings' assets to the Borrower and
to pay related fees and expenses and the remaining proceeds of the
Revolving Loans shall be used to finance the ongoing capital requirements
of the Borrower and its Subsidiaries and for general corporate purposes.

(d) All of the proceeds of the Acquisition Term Loans (other than the
proceeds of the Acquisition Term Loans used to refinance the Existing
Acquisition Term Loans on the Closing Date) shall be used by the Borrower
to provide all or a portion of the consideration for Permitted Business
Acquisitions, to pay existing Indebtedness encumbering property acquired in
such transactions (including existing Indebtedness of any Subsidiary of the
Borrower so acquired), and to pay related fees and expenses.

(e) Neither the making of any Loan hereunder nor the use of the
proceeds thereof shall violate or be inconsistent with the provisions of
Regulation G, U or X of the Board of Governors of the Federal Reserve
System.

5.06. GOVERNMENTAL APPROVALS, ETC. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption or other action by or notice

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to, any third party or any foreign or domestic, administrative or public body or
Governmental Authority, or by any subdivision thereof (except for (a) such
orders, consents, approvals, licenses, authorizations or validations which, if
not obtained or made, would not have a Material Adverse Effect or which have
previously been obtained or made and (b) filings to perfect security interests
granted pursuant to the Security Documents) is necessary or required to
authorize or is required in connection with (i) the execution, delivery and
performance of any Document or the transactions contemplated thereby or (ii) the
legality, validity, binding effect or enforceability of any Document. As of the
Effective Date, there did not exist any judgment, order, injunction or other
restraint issued or filed with respect to the transactions contemplated by the
Transaction Documents, including the consummation of the Recapitalization, the
making of Loans or the performance by any Credit Party of its obligations under
any Transaction Document. At the time of the making of the Initial Loans, there
does not exist any judgment, order, injunction or other restraint issued or
filed with respect to the transactions contemplated by the LS Purchase
Documents, including the consummation of the LS Purchase, the making of Loans or
the performance by any Credit Party of its obligations under any LS Purchase
Document.

5.07. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. Neither
Holdings nor any of its Subsidiaries was, prior to the Closing Date, is, or will
be after giving effect to the transactions contemplated by the LS Purchase
Documents, (a) an "investment company" or a company "controlled" by an
"investment company," in each case within the meaning of the Investment Company
Act of 1940, as amended; or (b) a "holding company," a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," in each case within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

5.08. TRUE AND COMPLETE DISCLOSURE. All factual information (taken as a
whole) heretofore or contemporaneously furnished in writing by or on behalf of
any Credit Party to any Bank and either (a) contained in any Credit Document or
(b) required to be furnished pursuant to Section 4.01, is, and as of the Closing
Date will be, and all other such factual information (taken as a whole) which
has been or hereafter will be furnished in writing by or on behalf of any Credit
Party to the Administrative Agent or any Bank pursuant to Section 6.01 or 4.03
is or will be, true and accurate in all material respects on the date as of
which such information is dated or certified and is not and will not be
incomplete by omitting to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that it is understood that the
projections and pro forma financial information contained in such materials are
based on good faith estimates and assumptions believed by such Credit Party to
be reasonable at the time made, but that actual results may vary from the
projections.

5.09. FINANCIAL CONDITION; FINANCIAL STATEMENTS; PROJECTIONS.

(a) No Credit Party entered into the arrangements contemplated by the
Original Credit Agreement or by the other Transaction Documents or by this
Agreement or by the

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LS Purchase Documents, or did intend or intends to make any transfer or
incur any obligations hereunder or thereunder, with actual intent to
hinder, delay or defraud either then existing, present or future creditors.
On and as of the Effective Date, the Closing Date (and as of each
Acquisition Term Loan Closing Date), on a pro forma basis after giving
effect to (i) as applicable, the Recapitalization or the LS Purchase (and
the transactions to be consummated with the proceeds of any such
Acquisition Term Loan), (ii) the incurrence of all Indebtedness in
connection therewith, (iii) the creation of all Liens created or to be
created in connection therewith and (iv) the granting of all guarantees
granted by any Credit Party in connection therewith, (A) no Credit Party
expected or expects that final judgments against it in actions for money
damages with respect to pending or threatened litigation will be rendered
at a time when, or in an amount such that, it will be unable to satisfy any
such judgments promptly in accordance with their terms (taking into account
the maximum reasonable amount of such judgments in any such actions, the
earliest reasonable time at which such judgments might be ren dered and the
cash available to such Credit Party, after taking into account all other
anticipated uses of the cash of such Credit Party (including the payments
on or in respect of debts (including its Contingent Obligations)); (B) no
Credit Party incurred, will have incurred or intends to, or believes that
it will, incur debts beyond its ability to pay such debts as such debts
mature (taking into account the timing and amounts of cash to be received
by such Credit Party from any source, and of amounts to be payable on or in
respect of debts of such Credit Party and the amounts referred to in the
preceding clause (A)); (C) each Credit Party, after taking into account all
other anticipated uses of the cash of such Person, anticipates being able
to pay all amounts on or in respect of debts of such Person when such
amounts are required to be paid; and (D) each Credit Party will have
sufficient capital with which to conduct its present and proposed business
and the property of such Credit Party will not constitute unreasonably
small capital with which to conduct its present or proposed business. For
purposes of this Section 5.09, "debt" means any liability on a claim, and
"claim" means a (1) right to payment whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or
(2) right to an equitable remedy for breach of performance if such breach
gives rise to a payment, whether or not such right to an equitable remedy
is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.

(b) Holdings has heretofore delivered to the Banks the financial
statements attached hereto as Schedule 4.01(j). All such financial
statements were prepared in accordance with GAAP consistently applied.
Such financial statements (other than the pro forma balance sheets) present
fairly, in all material respects, the financial position of Holdings and
its Subsidiaries on a consolidated basis as of the date and for the periods
covered thereby, and such pro forma balance sheet presents fairly, in all
material respects, the pro forma financial position of Holdings and its
Subsidiaries as of the Closing Date, based on the assumptions stated
therein, and before and after giving effect to the transactions described
therein.

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(c) There have heretofore been delivered to the Banks the pro forma
income projections for Holdings and its Subsidiaries, pro forma balance
sheet projections for Holdings and its Subsidiaries and pro forma cash flow
projections for Holdings and its Subsidiaries for the five calendar years
commencing January 1, 1997, inclusive, referred to in Section 4.01(j)
including the financial statements delivered as of the Closing Date, and,
in connection with any Acquisition Term Loan, the proforma financial
statements referred to in Section 4.03 (the "PROJECTED FINANCIAL
STATEMENTS"), which give effect to the LS Purchase or, as applicable, the
applicable Permitted Business Acquisitions and all Indebtedness and Liens
incurred or created in connection therewith. The Projected Financial
Statements are based on estimates and projections which are believed by
Holdings and its Subsidiaries to be reasonable in light of the conditions
which existed at the time of their preparation as to the future financial
performance of Holdings and its Subsidiaries.

(d) As of the Closing Date, except as fully reflected or reserved
against in the financial statements (including the pro forma balance sheet
as of the Closing Date) described in Section 5.09(b), there were not and
will not be any liabilities or obligations with respect to Holdings and its
Subsidiaries of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether or not due, other than for such as have
been incurred by Holdings and its Subsidiaries in connection with the
Recapitalization or the LS Purchase and other than trade payables incurred
in the ordinary course of business since the respective dates of such
financial statements) which, either individually or in aggregate, were or
will be material to such Persons. No Credit Party knows of any basis for
the assertion against Holdings or any of its Subsidiaries of any liability
or obligation of any nature whatsoever that is not fully reflected in the
financial statements described in Section 5.09(b) or the Recapitalization
Agreement and the LS Purchase Agreement or the schedules thereto (other
than trade payables incurred in the ordinary course of business) since the
respective dates of such financial statements which, either individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.

5.10. SECURITY INTERESTS. Upon the execution, delivery and filing or
recording in all appropriate registries or offices of the Security Documents,
the Security Documents create or will create, in favor of the Administrative
Agent for the benefit of the Banks, as security for the obligations purported
to be secured thereby, a valid and enforceable perfected security interest in
and Lien upon all of the Collateral, which security interest and Lien shall
be superior to and prior to the rights of all third persons and subject to no
Liens except the Prior Liens and Permitted Encumbrances applicable to such
Collateral. Set forth on Schedule 5.10A is a true list of all Liens (other
than Liens included in clause (a) of the definitions of Permitted
Encumbrances) (i) on the property of Holdings and its Subsidiaries after
giving effect to the LS Purchase (collectively, the "PRIOR LIENS"). The
respective pledgor or assignor, as the case may be, has (or, on and after the
time it executes the respective Security Document, will have) good and
marketable title to the Collateral covered by such Security Document, free
and clear of all Liens other than Liens

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permitted under the applicable Security Document. No filings or recordings
are required in order to perfect the security interests created under any
Security Document except for filings or recordings in the registries and
offices set forth in Schedule 5.10B.

5.11. TAX RETURNS AND PAYMENTS. Except for the extension, to March 31,
1997, of the filing deadline for the tax returns due September 15, 1996 for
Holdings' fiscal year ended June 30, 1996, each of Holdings and its Subsidiaries
has filed all tax returns required to be filed by it (which are true and correct
in all material respects) and has paid all taxes and assessments due and
payable, other than (a) those not yet delinquent and (b) those contested in good
faith and for which adequate reserves have been established, except, solely with
respect to tax returns and taxes and assessments required to be filed or paid by
or on behalf of any such Person relating to periods prior to the Closing Date,
for any failure which, individually or in the aggregate, would not have a
Material Adverse Effect. Each of Holdings and its Subsidiaries has paid, or has
provided adequate reserves (in accordance with GAAP) for the payment of, all
federal, state, local and foreign income taxes (including, without limitation,
franchise taxes based upon income) applicable for all prior fiscal years and for
the current fiscal year to the date hereof except, solely with respect to tax
returns and taxes and assessments required to be filed or paid by or on behalf
of any such Person relating to the period prior to the Closing Date, for any
failures which, individually or in the aggregate, would not have a Material
Adverse Effect. Neither Holdings nor any of its Subsidiaries know of any
proposed tax assessment against any such Person that could reasonably be
expected to have a Material Adverse Effect which is not being actively contested
in good faith by such Person to the extent affected thereby in good faith and by
appropriate proceedings; PROVIDED, HOWEVER, that such reserves or other
appropriate provisions, if any, as shall be required in conformity with GAAP
shall have been made or provided therefor.

5.12. ERISA. Neither Holdings nor its Subsidiaries nor any ERISA
Affiliate of any such Person (including any ERISA Affiliate of Holdings prior to
the Recapitalization or of Target prior to the LS Purchase) has, for a period
commencing six years prior to the Closing Date, established, maintained,
participated in or been obligated to contribute to any Plan.

5.13. CAPITAL STOCK; SUBSIDIARIES, ETC.

(a) From and after the consummation of the LS Purchase, all of the
outstanding Capital Stock of Holdings and its Subsidiaries shall be validly
issued, fully paid and nonassessable. Except as set forth in the
Stockholders Agreement, there are no preemptive rights on the part of any
holder of any class of securities or equity interests of Holdings and its
Subsidiaries.

(b) The Borrower is a direct, Wholly Owned Subsidiary of Holdings.
Newco is a direct, Wholly Owned Subsidiary of the Borrower. The Borrower
holds 99% of the partnership interests in Acquisition, as the sole limited
partner, and Newco holds the remaining 1% of the partnership interests in
Acquisition, as the sole general partner.

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Holdings owns no Capital Stock of any Person other than the Borrower, and
Holdings has no Subsidiaries other than the Borrower (excluding
Subsidiaries of the Borrower, which Holdings owns indirectly).

(c) Schedule 5.13 (including as supplemented from time to time
pursuant to Section 6.01(n)) lists each Subsidiary of the Borrower and sets
forth the jurisdiction of incorporation (or of formation) of each such
Subsidiary. There are no Subsidiaries of the Borrower which are not
directly or indirectly Wholly Owned Subsidiaries. Each Subsidiary of the
Borrower has guaranteed the Borrower's obligations hereunder and the
Borrower and each such Subsidiary has pledged all of its property to secure
the same, pursuant to a Subsidiary Guarantee and related Security
Documents.

5.14. PROPRIETARY RIGHTS. Holdings and each of its Subsidiaries owns or
possesses adequate patents, patent applications, copyrights, licenses, permits,
trademarks, trademark applications, service marks, service mark applications,
trade names, trade secrets and know how or rights thereto (collectively,
"INTELLECTUAL PROPERTY"), necessary to conduct its business as presently
conducted and as proposed to be conducted. No claim is pending or, to the best
knowledge of Holdings and each such Subsidiary, threatened to the effect that
Holdings or any of its Subsidiaries infringes upon the asserted rights of any
other Person under any Intellectual Property, and to the best knowledge of
Holdings or any of its Subsidiaries, there is no basis for any such claim
(whether or not pending or threatened), in each case where such claim could
reasonably be expected to have a Material Adverse Effect. No claim is pending
or, to the best knowledge of Holdings or any of its Subsidiaries threatened to
the effect that the rights of Holdings or any of its Subsidiaries with respect
to any such Intellectual Property owned by Holdings or any of its Subsidiaries
are invalid or unenforceable by such Person, and, to the best knowledge of
Holdings or any of its Subsidiaries, there is no basis for any such claim
(whether or not pending or threatened), in each case where such claim could
reasonably be expected to have a Material Adverse Effect.

5.15. COMPLIANCE WITH LAWS, ETC. Holdings and its Subsidiaries are each
in compliance in all material respects with all applicable laws and regulations,
including, without limitation, all laws relating to equal employment opportunity
and employee safety (but excluding, for purposes of this Section 5.15,
Environmental Laws), in all jurisdictions in which it is presently doing
business, and Holdings will, and will cause its Subsidiaries to, comply in all
material respects with all such laws and regulations which may be imposed in the
future in jurisdictions in which it or any of its Subsidiaries may then be doing
business, other than such laws and regulations the noncompliance with which
could not reasonably be expected to have a Material Adverse Effect.

5.16. PROPERTIES.

(a) Holdings and its Subsidiaries each has good and marketable title
to, and beneficial ownership of, all the properties owned by it, including,
after the Closing Date, all property reflected in the most recent balance
sheet referred to in Section 5.09(b)

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(except such property assigned to the Borrower by Holdings on or after the
Closing Date or as sold or otherwise disposed of since the date of such
balance sheet in the ordinary course of business or, if prior to the
Effective Date, as permitted by the Recapitalization Agreement or if prior
to the Closing Date, as permitted by the LS Purchase Agreement), free and
clear of all Liens, other than Prior Liens and Permitted Encumbrances.
Schedule 5.16 lists the addresses and locations of all Real Property owned
and leased by Holdings and each such Subsidiary as of the Closing Date,
after giving effect to the LS Purchase. Except as set forth on Schedule
5.16 (including as supplemented from time to time pursuant to Section
6.01(n)) Holdings and its Subsidiaries own or lease no other Real Property.
Each of Holdings and its Subsidiaries holds all material licenses,
certificates of occupancy or operation, water rights and similar
certificates and clearances of municipal and other authorities necessary to
own and operate its Real Property in the manner and for the purposes
currently operated by such party which if not obtained or maintained would
have a material adverse effect upon the value of such Real Property. With
respect to the leases of Real Property reflected on Schedule 5.16, Holdings
or the applicable Subsidiary of Holdings is in compliance with all material
provisions of such lease. With respect to all leases of Real Property by
each of Holdings and its Subsidiaries, no event has occurred which (with
the giving of notice or the passage of time or both), would impair any
right of such Person to exercise and obtain the benefit of any options
contained in any lease; there is no default or basis for acceleration,
repossession or termination under any lease, nor has any event occurred
which (with the giving of notice or the passage of time or both) would
constitute a default or result in or permit the repossession, acceleration
of any obligation under, or termination of, any lease.

(b) As of the Effective Date, Holdings assigned to the Borrower all
of its tangible and intangible assets, pursuant to an assignment agreement
and other documentation (i.e., deeds transferring any owned Real Property
so assigned), in form and substance satisfactory to the Administrative
Agent, and copies of which have been delivered to the Administrative Agent,
including all of its Real Property (whether owned or leased), except for
(i) the Capital Stock of the Borrower and (ii) any such assets, rights,
including rights under leases (whether Operating Leases or Capital Leases)
or contracts, as to which the consent of a third party is required to
effect an assignment of said rights, or as to which the assignment of such
rights without the consent of a third party is grounds for the termination
of the underlying lease or contract by the other party thereto. All of
Holdings' Real Property which has not been assigned to the Borrower is
reflected as continuing to be held by Holdings on Schedule 5.16 (including
as supplemented pursuant to Section 6.01(n)).

(c) Holdings has acquired no assets since the Effective Date (other
than additional Capital Stock of the Borrower, which shall be delivered to
the Administrative Agent), except that it may renew any leases reflected on
Schedule 5.16 which it has not previously assigned to the Borrower. The
extent to which Holdings has so retained assets (including Real Property
reflected on Schedule 5.16), both as of the Closing Date, and as of any

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subsequent date on which Loans are made hereunder, shall be satisfactory to
the Administrative Agent, in its sole discretion; it being expressly
acknowledged and agreed that the intent of the parties is that, after a
reasonable period of time after the Effective Date to permit Holdings to
obtain any necessary consents to the completion of the assignment of its
assets to the Borrower, Holdings shall have no material assets (including
Real Property) other than the Capital Stock of the Borrower.

5.17. SECURITIES.

(a) In connection with the issuance of equity securities of Holdings
or KCSN on the Effective Date or the Closing Date, it is not necessary to
register such equity securities under the Securities Act and the rules and
regulations thereunder and no action has been taken in connection with any
such registration.

(b) Except as set forth in Schedule 5.17 (including as supplemented
from time to time pursuant to Section 6.01(n)), there is not, after giving
effect to the LS Purchase, any existing Capital Stock of Holdings or any
Subsidiary of Holdings that will continue after the Closing Date.

(c) All Capital Stock of the Borrower and its Subsidiaries is pledged
to the Administrative Agent for the benefit of the Banks, and all
certificates evidencing such Capital Stock has been delivered to the
Administrative Agent. All such Capital Stock is and shall be at all times
duly authorized, validly issued, fully paid and nonassessable.

5.18. COLLECTIVE BARGAINING AGREEMENTS; LABOR MATTERS. None of Holdings
nor any of its Subsidiaries is a party to any collective bargaining or similar
agreement. No such Person has experienced any strike, labor dispute, slowdown
or work stoppage due to labor disagreements which could reasonably be expected
to have a Material Adverse Effect, and to the best knowledge of each such
Person, there is no such strike, dispute, slowdown or work stoppage threatened
against any such Person.

5.19. RECAPITALIZATION DOCUMENTS, ETC. As of the Closing Date, the
representations and warranties of each Credit Party and, to the best knowledge
of each Credit Party, each other Person set forth in each of the
Recapitalization Documents and each of the LS Purchase Documents are true and
correct in all material respects as of the date when made, and, for purposes of
making such representation as of the Closing Date, all such representations and
warranties made by each such Person are incorporated herein by reference,
MUTATIS MUTANDIS, as if set forth in their entirety herein; PROVIDED, HOWEVER,
that, solely for the purpose of determining the rights of the Credit Parties
against any party to the Recapitalization Documents or the LS Purchase
Documents, the giving of any such certificate shall not be deemed a waiver of
the rights of, nor an admission of the truth thereof by, any Credit Party or any
other party indemnified by the Redeeming Shareholders or the Sellers or against
any other party to any Recapitalization Document or any LS Purchase Document.

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5.20. INDEBTEDNESS OUTSTANDING. Schedule 5.20 lists and describes all
Indebtedness of Holdings and its Subsidiaries that will be outstanding
immediately after the Closing Date, and all Indebtedness of each such Person
that will be repaid, defeased, transferred or otherwise terminated on the
Closing Date.

5.21. ENVIRONMENTAL PROTECTION. Except as set forth on Schedule 5.21
(including in any of the environmental reports listed on said Schedule), except
to the extent that any items set forth (or in said reports) individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect:

(a) Each of Holdings and its Subsidiaries has obtained all material
permits, licenses and other authorizations which are required with respect
to the operation of its business, and the use, operation and ownership of
its properties (including the Real Property) and assets under any
Environmental Law (collectively, the "ENVIRONMENTAL AUTHORIZATIONS") and
each such Environmental Authorization is in full force and effect.

(b) Each of Holdings and its Subsidiaries, and each of the properties
(including the Real Property) and assets used in its business, is in
compliance in all material respects with all terms and conditions of the
Environmental Authorizations and is also in compliance in all respects
(including, without limitation, compliance in all respects with standards,
schedules and timetables therein) with, and not subject to liability under,
any Environmental Law applicable to it or its business, assets, operations
and Real Property, if any, including without limitation those arising under
the Resource Conservation and Recovery Act of 1976, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of
1986 ("CERCLA"), the Federal Water Pollution Control Act, as amended, the
Federal Clean Air Act, as amended, and the Toxic Substances Control Act, as
amended, and all corresponding equivalent state laws, and there are no
circumstances of a nature which may prevent or interfere with such material
compliance in the future. None of Holdings nor its Subsidiaries has been
notified by any Governmental Authority or has any basis to believe that any
such Environmental Authorizations will be modified, suspended or revoked or
cannot be renewed or otherwise maintained in the ordinary course of
business. In the last five years, to the best knowledge of each such
Person, none of Holdings nor any of its Subsidiaries has received any
communication, whether from a Governmental Authority, citizen group,
employee or otherwise, that alleges that Holdings or any of its
Subsidiaries or any of the properties or assets used in their respective
businesses (including the Real Properties) is not in compliance in all
material respects with Environmental Laws.

(c) There is no Environmental Notice that (i) is pending or, to the
best knowledge of Holdings and its Subsidiaries, threatened against any
such Person or (ii) is pending or,

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to the best knowledge of each such Person, threatened against any Person
whose liability for such Environmental Notice may have been retained or
assumed by, or could reasonably be imputed or attributed by law or contract
to, any such Person.

(d) To the best knowledge of each of Holdings and its Subsidiaries,
there are no past or present actions, activities, circumstances,
conditions, events or incidents arising out of, based upon, resulting from
or relating to the operation, ownership or use of any properties or assets
(including the Real Properties) currently or formerly owned, operated,
leased or used by any of Holdings and its Subsidiaries (or any predecessor
in interest of any of them), including, without limitation, the emission,
discharge, disposal or other release of any Hazardous Materials in or into
the Environment that could reasonably be expected to form the basis of any
Environmental Notice against or with respect to any such Person, or against
any person or entity whose liability for any Environmental Notice may have
been retained or assumed by, or could be imputed by law or contract to, any
such Person.

(e) None of Holdings nor any of its Subsidiaries (i) has received
written notice that it has been identified as a potentially responsible
party under CERCLA or any comparable state, local or foreign law or (ii)
has received any notification that any Hazardous Materials that it or any
of its predecessors in interest has used, generated, stored, treated,
handled, transported or disposed of, or arranged for transport for disposal
or treatment of, or arranged for disposal or treatment of, has been found
at any site at which any governmental agency or private party is conducting
or plans to conduct a remedial investigation or other action pursuant to
any Environmental Law.

(f) Without in any way limiting the generality of the foregoing, to
the best knowledge of each of Holdings and its Subsidiaries, (i) there are,
and have been, no underground storage tanks or related piping located on,
at or under property (including the Real Properties) owned, operated,
leased or used by any such Person (or any predecessor in interest of any of
them), (ii) there are, and have been, no polychlorinated biphenyls used or
stored by any such Person located on, at or under property (including the
Real Properties) owned, operated, leased or used by any such Person (iii)
there are, and have been, no properties (including the Real Properties)
owned, operated, managed, leased or used by any such Person (or any
predecessor in interest of any of them) at which Hazardous Materials
generated, used, owned, managed, stored or controlled by any such Person
(or any predecessor in interest of any of them) may have been disposed or
otherwise released into the Environment except such disposals or other
releases which were in compliance with Environmental Laws and Environmental
Authorizations and (iv) there is no friable asbestos contained in or
forming part of any building, building component, structure or office space
owned, operated, leased or used by any such Person.

(g) To the best knowledge of each of Holdings and its Subsidiaries,
no Lien has been recorded under any Environmental Law with respect to any
properties, assets or

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facilities (including the Real Property) owned, operated, managed, leased,
used or controlled by any such Person.

(h) Prior to the Closing Date, each of Holdings and its Subsidiaries
shall have made all notifications, registrations and filings in all
material respects in accordance with all applicable State and Local Real
Property Disclosure Requirements, including, without limitation, the use of
forms provided by state or local agencies, where such forms exist, whether
to the Administrative Agent or to, or with, the state or local agency,
provided that where such notification, registration or filing was made to,
or with a state or local agency, a copy of such notification, registration
or filing shall be provided to the Administrative Agent prior to the
Closing Date.

5.22. ENVIRONMENTAL INVESTIGATIONS. All material environmental
investigations, assessments, studies, audits or reviews conducted of which any
of Holdings and its Subsidiaries has knowledge in relation to the current or
prior business of any such Person or any Real Property or facility now or
previously owned, operated, used, controlled or leased by any such Person,
including, without limitation, those relating to compliance with or liability
under any Environmental Law, have been delivered to the Administrative Agent.

5.23. INSURANCE. Schedule 5.23 lists all insurance policies maintained by
each of Holdings and its Subsidiaries. All of such insurance is in full force
and effect as of the Closing Date and, at all times after the Closing Date, such
insurance (and, commencing 90 days after the Effective Date, the insurance
referred to in Section 6.03(d)), or renewal or replacement policies
substantially equivalent in coverage and amount, shall be in full force and
effect.

5.24. GOVERNMENTAL REGULATION. None of Holdings nor any of its
Subsidiaries is subject to any federal or state statute or regulation limiting
its ability to incur indebtedness for money borrowed or guarantee such
indebtedness as contemplated by the Transaction Documents, other than Regulation
X.

5.25. ABSENCE OF EVENTS OF DEFAULT. No Default or Event of Default has
occurred and is continuing.

5.26. PERFORMANCE OF AGREEMENTS. None of Holdings nor any of its
Subsidiaries is in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any contractual
obligation of such Person which, singly or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, and no condition exists which, with
the giving of notice or the lapse of time or both, would constitute such a
default.

5.27. SECURITIES ACTIVITIES. Neither Holdings nor any of its 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.

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5.28. WATER RIGHTS. Except for Water Rights as to which permit
applications are pending, the Water Rights are in full force and effect, being
represented by validly entered permits, based on timely applications, and any
filings required to be made to preserve, restore or continue the validity of the
Water Rights have been made. The Water Rights are sufficient to produce a legal
and physical supply of water which will be adequate for the conduct of
Acquisition's business operations, as conducted as of the Closing Date or
thereafter and as anticipated to be conducted in accordance with the projections
delivered pursuant to Section 4.01(j). Acquisition owns and possesses good and
valid title to the Water Rights (to the extent such exist), and no other party
has asserted any claim of title to them or asserted or obtained any rights to
their use or diversion and there exist no liens, encumbrances, agreements,
easements, leases, or other contractual obligations with respect to or affecting
the Water Rights. There are no actions, suits, claims, investigations or
proceedings pending before any judicial body or governmental body with respect
to the Water Rights.

SECTION 6. AFFIRMATIVE COVENANTS. The Borrower and Holdings each
covenants and agrees that on the Closing Date and thereafter until (a) this
Agreement has ceased to be in effect, (b) the Commitments have terminated and
(c) the Loans, together with interest, fees and all other Obligations incurred
hereunder then due and payable, have been paid in full (except as otherwise
agreed or consented to, or waived, in writing by the Required Banks):

6.01. INFORMATION COVENANTS. The Borrower will furnish or cause to be
furnished to each Bank:

(a) As soon as available, and in any event within 90 days after the
close of each fiscal year of Holdings (commencing with the year ended June
30, 1997), the audited consolidated balance sheet of Holdings and its
Subsidiaries as at the end of such fiscal year and the related audited
consolidated statements of income, of cash flows and of stockholders'
equity for such fiscal year, setting forth comparative consolidated figures
for the preceding fiscal year and a report on such consolidated balance
sheets and financial statements by Arthur Andersen or another "Big Six"
accounting firm that is reasonably satisfactory to the Administrative
Agent, which report shall not be qualified as to the scope of audit or as
to the status of Holdings and its Subsidiaries as a going concern and shall
state that such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Holdings 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, and
that the examination by such accountants was conducted in accordance with
generally accepted auditing standards.

(b) As soon as practicable, and in any event within 30 days after the
end of each month, commencing with January 1997, (i) the unaudited
consolidated balance sheet of Holdings and its Subsidiaries as at the end
of such month and (ii) the related unaudited consolidated statements of
income and cash flows of Holdings and its Subsidiaries, each in

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the form customarily prepared by management for such month and for the
period from the beginning of the then current calendar year to the end of
such month, setting forth in comparative form the corresponding periods of
the prior calendar year (including a comparison of such monthly financial
results against the budgets required to be submitted pursuant to Section
6.01(d) (such comparisons of actual results to budget to commence with the
financial results of the month of January 1997), together with a brief
narrative discussion and analysis prepared by management describing the
results of operations of Holdings and its Subsidiaries for such month.

(c) Together with each delivery of consolidated financial statements
of Holdings and its Subsidiaries pursuant to Section 6.01(a), a written
statement by the independent public accountants giving the report thereon
(i) stating that their audit examination has included a review of the terms
of Sections 7.01 through 7.05, inclusive, and the definitions related
thereto as they relate to accounting matters but without having conducted
any special auditing procedures in connection therewith; (ii) stating
whether, in connection with their audit examination, any condition or event
which constitutes a Default or 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, HOWEVER,
that such accountants shall not be liable by reason of any failure to
obtain knowledge of any such Default or Event of Default that would not be
disclosed in the course of their audit examination; and (iii) stating that
based on their audit examination nothing has come to their attention which
causes them to believe that as of the end of such fiscal year of Holdings
there existed a Default or an Event of Default related to the breach of any
covenant set forth in Sections 7.01 through 7.05, inclusive, as they relate
to accounting matters and if such a condition or event has come to their
attention, specifying the nature and period of existence thereof and what
action the applicable Credit Party has taken, is taking and proposes to
take with respect thereto.

(d) Prior to the commencement of each calendar year, annual budgets
of Holdings and its Subsidiaries in reasonable detail for each month of
such calendar year, as customarily prepared by management for its internal
use, setting forth, with appropriate discussion, the principal assumptions
upon which such budgets are based.

(e) At the time of the delivery of the financial statements provided
for in Sections 6.01(a), (b) and (c), a certificate of the chief financial
officer, controller, chief accounting officer or other Authorized Officer
of the Borrower to the effect that no Default or Event of Default exists,
or, if any Default or Event of Default does exist, specifying the nature
and extent thereof, which certificate shall, with respect to the financial
statements provided for in Section 6.01(c), at the time of delivery of such
statements for the fiscal months ended nearest to March 31, June 30,
September 30 and December 31, beginning with the fiscal month ended nearest
to March 31, 1997, be accompanied by a Compliance Certificate, in a form
reasonably acceptable to the Agent, setting forth the calculations required
to establish whether Holdings and its Subsidiaries were in compliance with
the

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covenants in this Agreement (including without limitation the covenants set
forth in Sections 7.01 through 7.05, inclusive) as at the end of such
fiscal period.

(f) Promptly upon receipt thereof, a copy of each annual "management
letter" submitted to Holdings or the Borrower by its independent
accountants in connection with any annual audit made by them of the books
of Holdings or any of its Subsidiaries.

(g) Promptly upon becoming available, copies of all consolidated
financial statements, reports, notices and proxy statements sent or made
available generally by Holdings or any of its Subsidiaries to the security
holders (other than to Holdings or another of its Subsidiaries) of such
Person, of all regular and periodic reports and all registration statements
and prospectuses, if any, filed by Holdings or any of its Subsidiaries with
any securities exchange or with the SEC and of all press releases and other
statements made available generally by Holdings or any of its Subsidiaries
to the public concerning material developments in the business of Holdings
and its Subsidiaries.

(h) Promptly upon any Senior Officer obtaining actual knowledge (i)
of any condition or event which constitutes a Default or Event of Default,
or that any Bank has given any written notice or taken any other action
with respect to a claimed Default or Event of Default under this Agreement,
(ii) that any Person has given any written notice to Holdings 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 Section 8.04, or (iii) of a
material adverse change in the business, operations, properties, assets,
nature of assets, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole, an Officers' Certificate
specifying the nature and period of existence of any such condition or
event, or specifying the notice given or action taken by such holder or
Person and the nature of such claimed Default, Event of Default, event or
condition, or material adverse change, and what action the applicable
Credit Party has taken, is taking and proposes to take with respect
thereto.

(i)(i) Promptly upon any Senior Officer obtaining actual knowledge of
the institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting Holdings or
any of its Subsidiaries or any property of Holdings or any of its
Subsidiaries not previously disclosed to the Banks, which action, suit,
proceeding, governmental investigation or arbitration seeks (or in the case
of multiple actions, suits, proceedings, governmental investigations or
arbitrations arising out of the same general allegations or circumstances
which seek) recovery from Holdings or any of its Subsidiaries aggregating
$500,000 or more (exclusive of claims covered by insurance policies of
Holdings or any of its Subsidiaries unless the insurers of such claims have
disclaimed coverage or reserved the right to disclaim coverage on such
claims), the Borrower shall give notice thereof to the Banks and provide
such other information as may be reasonably available to enable the Banks
and their counsel to evaluate such matters; (ii) as soon as practicable and
in any event within 45 days after the end of each

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fiscal quarter, the Borrower shall provide a report to the Banks covering
the institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration (not previously reported) against
or affecting Holdings or any of its Subsidiaries or any property of
Holdings or any of its Subsidiaries not previously disclosed to the Banks,
which action, suit, proceedings, governmental investigation or arbitration
seeks (or in the case of multiple actions, suits, proceedings, governmental
investigations or arbitrations arising out of the same general allegations
or circumstances which seek) recovery from Holdings or any of its
Subsidiaries aggregating $500,000 or more (exclusive of claims covered by
insurance policies of Holdings or any of its Subsidiaries unless the
insurers of such claims have disclaimed coverage or reserved the right to
disclaim coverage on such claims), and shall provide such other information
at such time as may be reasonably available to enable the Banks and their
counsel to evaluate such matters; (iii) in addition to the requirements set
forth in clauses (i) and (ii) of this Section 6.01(i), the Borrower upon
request shall promptly give notice of the status of any action, suit,
proceeding, governmental investigation or arbitration covered by a report
delivered to the Banks pursuant to clause (i) or (ii) above to the Banks
and provide such other information as may be reasonably available to it to
enable the Banks and their counsel to evaluate such matters; (iv) promptly
upon any officer of Holdings or any Subsidiary obtaining actual knowledge
of any dispute in respect of or the institution of, or written threat of,
any action, suit, proceeding, governmental investigation or arbitration in
respect of any lease of Real Property or other material contract of
Holdings or any of its Subsidiaries (in the case of such other material
contract, to the extent that the dispute, action, suit, proceeding,
investigation or arbitration could, if resolved in a manner unfavorable to
the Credit Party thereto, reasonably be anticipated to have a Material
Adverse Effect), such Person shall give notice thereof to the Banks and
shall provide to the Banks such other information as may be reasonably
available to enable the Banks and their counsel to evaluate such matters;
and (v) promptly upon any Senior Officer obtaining knowledge of, or written
threat of, any action, suit, proceeding, governmental investigation or
arbitration in respect of any lease of Real Property or other material
contract of Holdings or any of its Subsidiaries (in the case of such other
material contract, to the extent that the action, suit, proceeding,
investigation or arbitration could, if resolved in a manner unfavorable to
the Credit Party thereto, reasonably be anticipated to have a Material
Adverse Effect), the Borrower shall give notice thereof to the Banks and
shall provide such other information as may be reasonably available to
enable the Banks and their counsel to evaluate such matters.

(j) Within 90 days of the last day of each calendar year of Holdings,
a summary report outlining all changes to the material insurance coverage
maintained from the date of the previous such report by Holdings or any of
its Subsidiaries.

(k) To the extent reasonably requested by the Administrative Agent,
as soon as practicable and in any event within ten Business Days of the
later of such request and the

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making of any such amendment or waiver, copies of amendments or waivers
with respect to Indebtedness of Holdings or any of its Subsidiaries.

(l) On or prior to the Closing Date and within 90 days after the
commencement of each fiscal year (to the extent there has been a change
since the list provided the prior fiscal year), a complete and accurate
list of the Senior Officers and directors of each Credit Party, which list
shall include any officers authorized to execute any certificates, notices,
reports or other documents provided to the Administrative Agent or the
Banks hereunder or under any other Credit Document, and within 30 days of
any change in personnel affecting the accuracy of such list, a notice
specifying such change in personnel.

(m) Within twenty days after the last Business Day of each fiscal
month, a borrowing base certificate in the form of Exhibit 6.01(m) (each, a
"BORROWING BASE CERTIFICATE") detailing the Borrower's Eligible Accounts
Receivable and Eligible Inventory as of the last day of such fiscal month,
certified as complete and correct on behalf of the Borrower by a Senior
Officer or other Authorized Officer. In addition, each Borrowing Base
Certificate shall have attached to it such additional schedules and/or
other information as the Administrative Agent may reasonably request. If
the Borrower fails to deliver any such Borrowing Base Certificate within
thirty days after the end of any such fiscal month, then the Borrower's
Borrowing Base shall be deemed to be $0 until such time as the Borrower
shall deliver such required Borrowing Base Certificate.

(n) Within 25 days after the last Business Day of each month, or upon
the consummation of any Permitted Business Acquisition, a supplement to
each of Schedules 5.13, 5.16 and 5.17 showing any changes in the
information set forth in such Schedule not previously furnished to the
Banks in writing, and within 25 days after the last Business Day of each
calendar year, an amendment to each such Schedule; PROVIDED that the
Borrower shall only be required to provide a supplement (or amendment) with
respect to any such Schedule where there has been a change in the
information set forth in such Schedule not previously furnished to the
Banks in writing.

(o) With reasonable promptness, such other information and data with
respect to Holdings or any of its Subsidiaries or any other similar entity
in which Holdings or any of its Subsidiaries has an investment, as from
time to time may be reasonably requested by any Bank and may be reasonably
available to the Borrower.

6.02. BOOKS, RECORDS AND INSPECTIONS. Holdings will, and will cause each
of its Subsidiaries to, keep true books of records and accounts in which full
and correct entries will be made of all its business transactions, and will
reflect in its financial statements adequate accruals and appropriations to
reserves, all in accordance with GAAP. Holdings will, and will cause each of
its Subsidiaries to, permit, upon reasonable prior notice to the chief executive
officer or chief financial officer of the Borrower, officers and designated
representatives of the Administrative Agent or any Bank to visit and inspect any
of the properties or assets (including the conduct, at

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the Borrower's cost, of an annual field audit of the Borrowing Base) of Holdings
or any of its Subsidiaries in whosesoever possession, and to examine the books
of account of Holdings or any of its Subsidiaries and discuss the affairs,
finances and accounts of Holdings or any of its Subsidiaries with, and be
advised as to the same by, its and their chief executive officer, chief
financial officer and independent accountants (in the presence of such
officers), all at such reasonable times during normal business hours and
intervals and to such reasonable extent as the Administrative Agent or any Bank
may reasonably request. Notwithstanding anything to the contrary contained in
this Section 6.02, any field audit conducted pursuant to this Section 6.02 may
be conducted by a third party auditor commissioned by the Administrative Agent
or the Banks.

6.03. MAINTENANCE OF PROPERTY; INSURANCE.

(a) Holdings will, and will cause each of its Subsidiaries to,
maintain or cause to be maintained in good repair, working order and
condition (subject to normal wear and tear) all properties used in its
businesses (including, without limitation, any Real Property, whether owned
or leased) and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof and will maintain
and renew as necessary all licenses, permits and other clearances necessary
to use and occupy such properties of Holdings and its Subsidiaries.
Holdings will, and will cause each of its Subsidiaries to, comply with all
material provisions of each lease of Real Property in which any such Person
is the lessee.

(b) Subject to the provisions of Section 6.03(c), Holdings and its
Subsidiaries will maintain or cause to be maintained, with financially
sound and reputable insurers, insurance with respect to its properties and
business against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar
businesses and similarly situated, of such types and in such amounts as are
customarily carried under similar circumstances by such other corporations
to the extent that such types and such amounts of insurance are available
at commercially reasonable rates. Holdings or its Subsidiaries, as
applicable, will furnish to each Bank, upon reasonable request, information
as to the insurance carried, and will not cancel any such insurance without
the consent of the Required Banks, which consent shall not be unreasonably
withheld.

(c) Without limiting Section 6.03(b), Holdings and its Subsidiaries,
as applicable, shall maintain, or cause to be maintained, in full force the
insurance coverages specified in the Security Documents.

(d) The Borrower will use commercially reasonably efforts to obtain,
by no later than 90 days after the Effective Date, key man life insurance
with respect to Michael Vukelich and Jerry Halamuda, which is in form and
substance acceptable to the Administrative Agent, and such insurance shall
be maintained thereafter in full force and

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effect, with no material reduction or alteration in such coverage except as
is reasonably acceptable to the Administrative Agent.

6.04. PAYMENT OF TAXES. Holdings will pay and discharge, and will cause
each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a Lien or charge
upon any properties of Holdings or any of its Subsidiaries or cause a failure or
forfeiture of title thereto; PROVIDED, HOWEVER, that neither Holdings nor any of
its Subsidiaries shall be required to pay any such tax, assessment, charge, levy
or claim that is being contested in good faith and by proper proceedings
promptly instituted and diligently conducted if it has maintained adequate
reserves with respect thereto in accordance with GAAP or if the same shall have
been bonded.

6.05. CORPORATE FRANCHISES. Holdings will do or cause to be done, and
will cause each of its Subsidiaries to do or cause to be done, all things
necessary to preserve and keep in full force and effect its corporate existence,
rights and authority, EXCEPT that any Wholly Owned Subsidiary of the Borrower
may merge with and into the Borrower or into another Wholly Owned Subsidiary of
the Borrower.

6.06. COMPLIANCE WITH STATUTES, ETC. Holdings will, and will cause each
of its Subsidiaries to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all Governmental
Authorities, domestic or foreign, in respect of the conduct of its business and
the ownership of its property (including all applicable laws), except where such
noncompliance would not have a Material Adverse Effect.

6.07. ERISA. The Borrower will furnish to the Administrative Agent, who
will distribute to each of the Banks:

(a) promptly upon any Credit Party's knowing or having reason to know
of the occurrence of any (i) Termination Event, or (ii) "prohibited
transaction," within the meaning of Section 406 of ERISA or Section 4975 of
the Code, in connection with any Pension Plan or any trust created
thereunder, which in the case of all such events described in clause (i) or
(ii) results or could reasonably be expected to result in a liability of
any Credit Party or its ERISA Affiliates in the aggregate in excess of
$250,000, a written notice specifying the nature thereof, what action such
Credit Party or its ERISA Affiliates have taken, are taking or propose to
take with respect thereto, and, when known, any action taken or threatened
by the Internal Revenue Service, Department of Labor, PBGC or Multiemployer
Plan with respect thereto.

(b) with reasonable promptness, copies of (i) all notices received by
any Credit Party or any of its ERISA Affiliates of PBGC's intent to
terminate any Title IV Plan or to have a trustee appointed to administer
any Title IV Plan, the notice of which event is

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required pursuant to Section 6.07(a); (ii) upon the request of the
Administrative Agent, each Schedule B (Actuarial Information) to the annual
report (Form 5500 Series) filed by any Credit Party or any of its ERISA
Affiliates with the Internal Revenue Service with respect to each Pension
Plan for which Schedule B is required; (iii) upon the request of the
Administrative Agent, the most recent actuarial valuation report for each
Title IV Plan; and (iv) all notices received by any Credit Party or any of
its ERISA Affiliates from a Multiemployer Plan concerning the imposition or
amount of withdrawal liability pursuant to Section 4202 of ERISA, the
notice of which event is required pursuant to Section 6.07(a).

6.08. PERFORMANCE OF OBLIGATIONS. Holdings will, and will cause each of
its Subsidiaries to, perform in all material respects all of its obligations
under the terms of each mortgage, indenture, security agreement, other debt
instrument and material contract by which it is bound or to which it is a party,
except where such nonperformance could not reasonably be expected to have a
Material Adverse Effect.

6.09. FISCAL YEAR; FISCAL QUARTERS. Each of Holdings and its
Subsidiaries as of the Closing Date will, for financial reporting purposes have
(a) its fiscal year end on or about June 30, and (b) its fiscal quarters end on
or about September 30, December 31, March 31 and June 30. Neither Holdings nor
any of its Subsidiaries shall change their respective fiscal years from that set
forth above, with respect to Holdings and such Subsidiaries, and from that
currently maintained by any Subsidiary subsequently acquired by the Borrower
without the prior written consent of the Required Banks, except that any such
subsequently acquired Subsidiary may change its fiscal year to end on or about
June 30, with fiscal quarters to end on or about September 30, December 31,
March 31 and June 30, without such prior written consent.

6.10. USE OF PROCEEDS. All proceeds of the Loans shall be used as
provided in Section 5.05.

6.11. INTEREST RATE PROTECTION.

(a) The Borrower shall, no later than 90 days after the Closing Date
and in respect of no less than 50% of the Term A Loan and the Term B Loan
outstanding from time to time, enter into Interest Rate Agreements
reasonably acceptable to the Administrative Agent for a term of not less
than three years.

(b) The Borrower shall, commencing no later than 30 days after the
first to occur of (x) the date on which the outstanding principal balance
of the Acquisition Term Loans equals $15,000,000 or (y) the Acquisition
Term Loan Commitment Termination Date, enter into Interest Rate Agreements
reasonably acceptable to the Administrative Agent for a term ending no
earlier than three years after the Acquisition Term Loan Commitment
Termination Date, in respect of no less than 50% of the Acquisition Term
Loans outstanding from time to time.

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6.12. NO FURTHER NEGATIVE PLEDGES, ETC. Except with respect to
prohibitions against other encumbrances on specific property encumbered to
secure payment of particular Indebtedness permitted hereunder (which
Indebtedness relates solely to the acquisition or improvement of such specific
property), neither Holdings nor any of its Subsidiaries shall enter into any
agreement prohibiting or restricting, in any manner (directly or indirectly and
including by way of covenant, representation or warranty or event of default),
the creation or assumption of any Lien upon its properties or assets, whether
now owned or hereafter acquired (other than in connection with the Security
Documents). Neither Holdings nor any of its Subsidiaries shall create, or
permit to be created, any restriction in the charter or bylaws of any Subsidiary
of the Borrower restricting the payment of dividends to the Borrower or any
Wholly Owned Subsidiary of the Borrower.

6.13. BANK MEETING. The Borrower will participate in a meeting of the
Banks once during each calendar year (the first such meeting to take place prior
to March 31, 1998) to be held at a location and a time selected by the
Administrative Agent and reasonably acceptable to the Borrower, unless the
Required Banks determine in their sole discretion that such meeting is
unnecessary and so inform the Administrative Agent and the Borrower.

6.14. ADDITIONAL COLLATERAL; FURTHER ASSURANCES.

(a) Promptly, and in any event within 30 days after the Borrower or
any of its Subsidiaries acquires any asset or property, including any Real
Property, which is not covered by the existing Security Documents,
including, without limitation, any Capital Stock of any Subsidiary (the
"ADDITIONAL COLLATERAL"), the Borrower will cause any newly acquired
Subsidiary to execute a Subsidiary Guaranty, and the Borrower will, and
will cause each of its Subsidiaries to, grant to the Administrative Agent,
for the benefit of the Banks, security interests and mortgages in such
asset or property, EXCEPT that, with respect to any asset or property
acquired in a Permitted Business Acquisition, including any Subsidiary so
acquired, such actions shall be required to be performed on or before the
applicable Permitted Business Acquisition Closing Date (except as otherwise
assented to by the Administrative Agent). Such security interests and
mortgages shall be granted pursuant to documentation substantially the same
as the Security Documents (the "ADDITIONAL SECURITY DOCUMENTS") reasonably
satisfactory in form and substance to the Administrative Agent, including,
without limitation, and if deemed desirable by the Administrative Agent,
opinions of local counsel in any jurisdictions in which such asset or
property is located, and shall constitute valid and enforceable perfected
security interests superior to and prior to the rights of all third Persons
and subject to no other Liens except Permitted Encumbrances at the time of
perfection thereof. The Additional Security Documents or other instruments
related thereto shall be duly recorded or filed in such manner and in such
places as are required by law to establish, perfect, preserve and protect
the Liens in favor of the Administrative Agent for the benefit of the Banks
required to be granted pursuant to the Additional Security Documents and
all taxes, fees and other charges payable in connection therewith shall
have been paid in full.

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(b) Holdings will, and will cause each of its Subsidiaries to, at its
own expense, make, execute, endorse, acknowledge, file and/or deliver to
the Administrative Agent from time to time such vouchers, invoices,
schedules, confirmatory assignments, conveyances, financing statements,
transfer endorsements, powers of attorney, certificates, real property
surveys, reports and other assurances or instruments and take such further
steps relating to the Collateral covered by any of the Security Documents
or the Additional Security Documents as the Administrative Agent may
reasonably require. Furthermore, Holdings shall cause to be delivered to
the Administrative Agent such opinions of counsel, title insurance and
other related documents as may be requested by the Administrative Agent to
assure themselves that this Section 6.14 has been compiled with. Without
limiting the generality of the foregoing, Holdings will, and will cause
each of its Subsidiaries to, obtain a Landlord Certification and Waiver in
form and substance satisfactory to the Administrative Agent with respect to
any leases of Real Property entered into by any Credit Party after the
Closing Date or held by any Person which becomes a Credit Party after the
Closing Date.

(c) At the request of the Administrative Agent or the Required Banks,
Holdings shall provide to the Administrative Agent appraisals satisfying
applicable requirements of FIRREA in respect of the Real Property of
Holdings and its Subsidiaries, if any, constituting Collateral, from time
to time, in form and substance reasonably satisfactory to the
Administrative Agent.

(d) Holdings and the Borrower agree that each action required by this
Section 6.14 shall be completed as soon as possible, but if such Collateral
has been newly acquired by Holdings or its Subsidiaries or is Collateral
held by any newly acquired Subsidiary of the Borrower, in no event later
than 30 days after the date of the acquisition of such Collateral; PROVIDED
that with respect to any Collateral acquired in a Permitted Business
Acquisition, each action required by this Section 6.14 with respect to such
Collateral (including property of, or Capital Stock of, any newly acquired
Subsidiary) shall be taken no later than the closing of such Permitted
Business Acquisition, unless otherwise consented to by the Administrative
Agent.

6.15. SECURITY INTERESTS. (a) Holdings will, and will cause each of its
Subsidiaries to, perform any and all acts and execute any and all documents
(including, without limitation, the execution, amendment or modification of any
financing statement and continuation statement) for filing in any appropriate
jurisdiction under the provisions of the UCC, local law or any statute, rule or
regulation of any applicable jurisdiction which are necessary in order to
maintain or confirm in favor of the Administrative Agent for the ratable benefit
of the Banks a valid and perfected Lien on the Collateral and any Additional
Collateral, subject to no Liens except for Prior Liens and Permitted
Encumbrances. The Borrower shall, as promptly as practicable after the filing
of any such financing statements, deliver to the Administrative Agent
acknowledgment copies of, or copies of lien search reports confirming the filing
of, financing statements duly filed under the

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UCC of all jurisdictions as may be necessary or, in the reasonable opinion of
the Administrative Agent, desirable to perfect the Lien created, or purported or
intended to be created, by each Security Document.

(b) Commencing immediately after the Closing Date, Holdings shall use its
best efforts and shall cause each of its Subsidiaries to use their best efforts,
to obtain an executed Landlord Certification and Waiver from each lessor of Real
Property to such Persons; PROVIDED that, with respect to a particular leases of
Real Property, Holdings shall not be required to take actions or incur costs
which are commercially unreasonable with respect to such leases of Real Property
which, in the reasonable judgement of the Administrative Agent, are not material
to the business of Holdings and its Subsidiaries taken as a whole, in order to
obtain such Landlord Certification and Waivers.

6.16. ENVIRONMENTAL EVENTS.

(a) Holdings will, and will cause each of its Subsidiaries to, comply
with any and all Environmental Laws, other than noncompliance which could
not reasonably be expected to result in liability under Environmental Laws
which would have a Material Adverse Effect; PROVIDED that Holdings will,
and will cause each of its Subsidiaries to, comply with any and all
Environmental Laws, to the extent any noncompliance would (x) constitute or
create a default under any lease of Real Property as to which a Credit
Party is a tenant which would entitle the lessor of such Real Property to
terminate said lease or (y) materially diminish the value of any Real
Property owned by any Credit Party.

(b) Holdings will, and will cause each of its Subsidiaries to,
promptly give notice to the Administrative Agent upon becoming aware
thereof (i) of any violation of any Environmental Law, (ii) any
Environmental Notice or (iii) any release or threatened release of any
Hazardous Material at, on, into, under or from any Real Property or any
facility or equipment thereat in excess of reportable or allowable
standards or levels under any Environmental Law, or in a manner and/or
amount which could reasonably be expected to either (x) result in liability
under any Environmental Law, in each case, in excess of $500,000
individually or in the aggregate with any other liability under any
Environmental Laws (other than any such events disclosed in Schedule 5.21
or referred to in the reports listed on said Schedule) or (y) materially
interfere with the continued operation of the Real Property which is the
site or subject of the violation, notice or release.

(c) Holdings will, and will cause each of its Subsidiaries to,
promptly provide the Administrative Agent with copies of any notice,
submittal or documentation provided by Holdings or any of its Subsidiaries
to any Governmental Authority or third party under any Environmental Law if
the matter which is the subject of the notice, submittal or other
documentation could reasonably be expected to have a Material Adverse
Effect. Such notice, submittal or documentation shall be provided to the
Administrative Agent

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promptly and, in any event, within ten Business Days after such material is
provided to the Governmental Authority or third party.

(d) In the event of the presence of Hazardous Materials on any Real
Property which is in violation of, or which could reasonably be expected to
result in liability under, any Environmental Laws, in each case, to the
extent such violation, or liability, could reasonably be expected to (x)
have a Material Adverse Effect, or (y) entitle the lessor of any Real
Property with respect to which a Credit Party is the tenant to terminate
the subject lease, or (z) materially diminish the value of any Real
Property owned by any Credit Party, then, in each case, Holdings or any of
its Subsidiaries, upon discovery thereof, shall take appropriate steps to
initiate and expeditiously complete all response, corrective and other
action required under any Environmental Laws to mitigate and eliminate any
such liability.

(e) The Borrower will furnish or cause to be furnished to each Bank,
within six months of the Effective Date, a report detailing the progress
being made towards addressing outstanding environmental issues pertaining
to the Real Properties as identified by ERM -- Rocky Mountain, Inc. in its
report entitled "Review of Previous Environmental Assessments of Color Spot
Properties and Limited Site Investigation of the Fallbrook Property" dated
December 23, 1996.

6.17. ASSIGNMENT OF HOLDINGS' REMAINING ASSETS TO THE BORROWER. Holdings
shall use its best efforts to complete the contribution, assignment and transfer
of all of its assets (excluding the Capital Stock of the Borrower and, until
January 31, 1998, the Put/Call Funds), including all tangible and intangible
property (including all Real Property), to the Borrower, including, without
limitation, making best efforts to obtain any third party consents which are
required to be obtained prior to the assignment of any leases or contractual
rights to the Borrower which Holdings was unable to secure prior to the
Effective Date. The Borrower shall provide the Administrative Agent with
regular reports as to Holdings' progress completing the contribution, assignment
and transfer of all of its assets to the Borrower, and shall provide the
Administrative Agent with copies of any such third party consents and of any
other documentation. Without limiting the foregoing, commencing immediately
after the Closing Date, Holdings shall diligently pursue the obtaining of
consents from the Federal Aviation Administration to the assignment to the
Borrower of the leases referenced as items 1 and 2 on Schedule 6.18 to the
Original Credit Agreement and, in the event that such consent is not obtained on
or before July 31, 1997, shall obtain an extension from the County of San Diego
of the time period to obtain such FAA consent.

SECTION 7. NEGATIVE COVENANTS. Holdings and the Borrower each hereby
covenants and agrees that as of the Closing Date and thereafter until (a) this
Agreement has ceased to be in effect, (b) the Commitments have terminated and
(c) the Loans (together with interest, fees and all other Obligations incurred
hereunder) then due and payable have been paid in full (except as otherwise
agreed or consented to, or waived, in writing by the Required Banks):

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7.01. CAPITAL EXPENDITURES. Holdings will not, and will not permit any of
its Subsidiaries to, make Consolidated Capital Expenditures for any purpose, in
excess of the amount specified in the table below for each of the calendar years
specified in such table:

Year Ending Amount
----------- ------

December 31, 1997 . . . . . . $4.5 million
December 31, 1998 . . . . . . $4.5 million
December 31, 1999 . . . . . . $4.5 million
December 31, 2000 . . . . . . $4.5 million
December 31, 2001 . . . . . . $4.5 million
December 31, 2002 . . . . . . $4.5 million
December 31, 2003 . . . . . . $4.5 million

; PROVIDED, HOWEVER, that for purposes of this Section 7.01, the aggregate
amount of Capitalized Lease Obligations incurred by Holdings and its
Subsidiaries, on a consolidated basis, shall be included in the calculation of
Consolidated Capital Expenditures in the year in which such Capitalized Lease
Obligations were incurred; PROVIDED, FURTHER, that if Holdings and its
Subsidiaries make Consolidated Capital Expenditures in any calendar year in an
amount less than the amount set forth above for such period (such unused portion
the "CARRYOVER AMOUNT"), Holdings and its Subsidiaries may make Consolidated
Capital Expenditures in the immediately succeeding calendar year in an amount
not to exceed the sum of (i) the amount set forth above for such calendar year
and (ii) the Carryover Amount; PROVIDED, FURTHER, that (i) the Carryover Amount
calculated for any calendar year may only be used during the immediately
succeeding calendar year and will not be added to the amount of Consolidated
Capital Expenditure availability for such succeeding calendar year for purposes
of calculating the Carryover Amount for such calendar year, and (ii) the Capital
Expenditures for a given calendar year shall be counted, first, against the
amount set forth above for such calendar year and, second, against the Carryover
Amount.

7.02. TOTAL INTEREST COVERAGE RATIO. The Borrower will not permit the
ratio of (a) Consolidated EBITDA of Holdings for any Test Period ended on or
about a date specified in the table below to (b) Consolidated Interest Expense
of Holdings for such Test Period, to be less than the ratio set forth opposite
such date in such table:

Test Period Ending Ratio
-------------------------

June 30, 1997. . . . . . . . . . . 2.00 to 1.00
September 30, 1997 . . . . . . . . 2.00 to 1.00
December 31, 1997. . . . . . . . . 2.15 to 1.00

March 31, 1998 . . . . . . . . . . 2.15 to 1.00
June 30, 1998. . . . . . . . . . . 2.25 to 1.00

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September 30, 1998 . . . . . . . . 2.25 to 1.00
December 31, 1998. . . . . . . . . 2.25 to 1.00

March 31, 1999 . . . . . . . . . . 2.25 to 1.00
June 30, 1999. . . . . . . . . . . 2.50 to 1.00
September 30, 1999 . . . . . . . . 2.75 to 1.00
December 31, 1999. . . . . . . . . 2.75 to 1.00

March 31, 2000 . . . . . . . . . . 2.75 to 1.00
June 30, 2000. . . . . . . . . . . 3.00 to 1.00
September 30, 2000 . . . . . . . . 3.00 to 1.00
December 31, 2000. . . . . . . . . 3.00 to 1.00

March 31, 2001 . . . . . . . . . . 3.00 to 1.00
June 30, 2001. . . . . . . . . . . 3.25 to 1.00
September 30, 2001 . . . . . . . . 3.25 to 1.00
December 31, 2001. . . . . . . . . 3.25 to 1.00

March 31, 2002 . . . . . . . . . . 3.25 to 1.00
June 30, 2002. . . . . . . . . . . 3.50 to 1.00
September 30, 2002 . . . . . . . . 3.50 to 1.00
December 31, 2002. . . . . . . . . 3.50 to 1.00

March 31, 2003 . . . . . . . . . . 3.50 to 1.00
June 30, 2003. . . . . . . . . . . 3.50 to 1.00
September 30, 2003 . . . . . . . . 3.50 to 1.00
December 31, 2003. . . . . . . . . 3.50 to 1.00

; PROVIDED that, for purposes of this Section 7.02, Consolidated EBITDA for a
given Test Period (x) shall mean Consolidated EBITDA for the twelve month period
ended on the last day of such Test Period and (y) shall also include the EBITDA
(with appropriate adjustments) derived from any business which was acquired by
Holdings and its Subsidiaries during such twelve-month period and which is
consolidated with Holdings and its Subsidiaries as of the last day of such Test
Period, for the portion of such twelve month period before the business was so
acquired; and PROVIDED further that, for purposes of clause (b) of this Section
7.02, (i) Consolidated Interest Expense for (x) the Test Period ending March 31,
1997 shall equal the product of Consolidated Interest Expense for the period
January 1, 1997 through ended March 31, 1997 TIMES 4; (y) the Test Period ending
June 30, 1997 shall equal the product of Consolidated Interest Expense for the
period January 1, 1997 through June 30, 1997 TIMES 2; and (z) the Test Period
ending September 30, 1997 shall equal the product of Consolidated Interest
Expense for the period January 1, 1997 through September 30, 1997 TIMES 1 1/3
and (ii) Consolidated Interest Expense shall include only cash interest expense
paid during the applicable period.

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7.03. FIXED CHARGE COVERAGE RATIO. The Borrower will not permit the ratio
of (a) Consolidated EBITDAC for any Test Period ending on or about the date
specified in the table below MINUS taxes paid in cash during such Test Period to
(b) the sum of (i) Consolidated Interest Expense (which for purposes of this
clause (b) shall mean only cash interest expense paid during such period) of
Holdings for such period PLUS (ii) the amount of cash payments on account of
principal of Indebtedness PLUS (iii) payments on account of noncompetition or
consulting arrangements made by Holdings and its Subsidiaries, on a consolidated
basis, during such period to be less than the ratio specified opposite such
date:

Test Period Ending Ratio
------------------ -----

June 30, 1997. . . . . . . . . . . 1.00 to 1.00
September 30, 1997 . . . . . . . . 1.00 to 1.00
December 31, 1997. . . . . . . . . 1.00 to 1.00

March 31, 1998 . . . . . . . . . . 1.00 to 1.00
June 30, 1998. . . . . . . . . . . 1.00 to 1.00
September 30, 1998 . . . . . . . . 1.00 to 1.00
December 31, 1998. . . . . . . . . 1.00 to 1.00

March 31, 1999 . . . . . . . . . . 1.00 to 1.00
June 30, 1999. . . . . . . . . . . 1.05 to 1.00
September 30, 1999 . . . . . . . . 1.05 to 1.00
December 31, 1999. . . . . . . . . 1.05 to 1.00

March 31, 2000 . . . . . . . . . . 1.05 to 1.00
June 30, 2000. . . . . . . . . . . 1.10 to 1.00
September 30, 2000 . . . . . . . . 1.10 to 1.00
December 31, 2000. . . . . . . . . 1.10 to 1.00

March 31, 2001 . . . . . . . . . . 1.10 to 1.00
June 30, 2001. . . . . . . . . . . 1.10 to 1.00
September 30, 2001 . . . . . . . . 1.10 to 1.00
December 31, 2001. . . . . . . . . 1.10 to 1.00

March 31, 2002 . . . . . . . . . . 1.10 to 1.00
June 30, 2002. . . . . . . . . . . 1.10 to 1.00
September 30, 2002 . . . . . . . . 1.10 to 1.00
December 31, 2002. . . . . . . . . 1.10 to 1.00

March 31, 2003 . . . . . . . . . . 1.10 to 1.00
June 30, 2003. . . . . . . . . . . 1.10 to 1.00
September 30, 2003 . . . . . . . . 1.10 to 1.00

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December 31, 2003. . . . . . . . . 1.10 to 1.00

7.04. LEVERAGE RATIO. The Borrower will not permit the ratio of (a) the
Consolidated Indebtedness (including the outstanding balance under any
noncompete or consulting arrangements) of Holdings as of the last day of each
calendar quarter ending on or about the date specified in the table below to (b)
the Consolidated EBITDA of Holdings for the Test Period ending on or about such
date, to be greater than the ratio specified opposite such date in such table:

Test Period Ending Ratio
------------------ -----

June 30, 1997. . . . . . . . . . . 5.50 to 1.00
September 30, 1997 . . . . . . . . 5.25 to 1.00
December 31, 1997. . . . . . . . . 5.00 to 1.00

March 31, 1998 . . . . . . . . . . 5.00 to 1.00
June 30, 1998. . . . . . . . . . . 4.50 to 1.00
September 30, 1998 . . . . . . . . 4.50 to 1.00
December 31, 1998. . . . . . . . . 4.50 to 1.00

March 31, 1999 . . . . . . . . . . 4.50 to 1.00
June 30, 1999. . . . . . . . . . . 3.75 to 1.00
September 30, 1999 . . . . . . . . 3.75 to 1.00
December 31, 1999. . . . . . . . . 3.75 to 1.00

March 31, 2000 . . . . . . . . . . 3.75 to 1.00
June 30, 2000. . . . . . . . . . . 3.25 to 1.00
September 30, 2000 . . . . . . . . 3.25 to 1.00
December 31, 2000. . . . . . . . . 3.25 to 1.00

March 31, 2001 . . . . . . . . . . 3.25 to 1.00
June 30, 2001. . . . . . . . . . . 2.75 to 1.00
September 30, 2001 . . . . . . . . 2.75 to 1.00
December 31, 2001. . . . . . . . . 2.75 to 1.00

March 31, 2002 . . . . . . . . . . 2.75 to 1.00
June 30, 2002. . . . . . . . . . . 2.75 to 1.00
September 30, 2002 . . . . . . . . 2.75 to 1.00
December 31, 2002. . . . . . . . . 2.75 to 1.00

March 31, 2003 . . . . . . . . . . 2.75 to 1.00
June 30, 2003. . . . . . . . . . . 2.75 to 1.00
September 30, 2003 . . . . . . . . 2.75 to 1.00

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December 31, 2003. . . . . . . . . 2.75 to 1.00

; PROVIDED that, for purposes of this Section 7.04, for a given date set forth
above, (x) Consolidated Indebtedness shall not include any such Indebtedness as
to which the interest on such Indebtedness is not cash-pay (but is, rather,
pay-in-kind or capitalized), EXCEPT that, if cash interest is paid on any such
non cash-pay Indebtedness during the fiscal quarter ended on such date,
Consolidated Indebtedness shall include the non cash-pay Indebtedness on which
such cash interest was paid, and (y) the component of Consolidated Indebtedness
consisting of Revolving Loans shall equal (i) the sum of the balance of the
Revolving Loans as of the last day of each fiscal month during the twelve fiscal
month period ending on such date DIVIDED by (ii) twelve; and PROVIDED further
that for purposes of clause (y) of this Section 7.04, for any fiscal month ended
on a date prior to the Closing Date, the "Revolving Loans" shall mean the
working capital facility maintained by Holdings and its Subsidiaries with Coast
Business Credit (successor by merger to Coastfed Business Credit Corporation);
and PROVIDED further that, for purposes of this Section 7.04, Consolidated
EBITDA for a given Test Period (x) shall mean Consolidated EBITDA for the twelve
month period ended on the last day of such Test Period and (y) shall also
include the EBITDA (with appropriate adjustments) derived from any business
which was acquired by Holdings and its Subsidiaries during such twelve-month
period and which is consolidated with Holdings and its Subsidiaries as of the
last day of such Test Period, for the portion of such twelve month period before
the business was so acquired.

7.05. MINIMUM CONSOLIDATED EBITDA. The Borrower will not permit
Consolidated EBITDA for any Test Period ending on or about the date specified in
the table below to be less than the amount specified in such table opposite such
date:

Test Period Ending Amount
------------------ ------

June 30, 1997. . . . . . . . . . . $13.5 million
September 30, 1997 . . . . . . . . $13.5 million
December 31, 1997. . . . . . . . . $13.5 million

March 31, 1998 . . . . . . . . . . $13.5 million
June 30, 1998. . . . . . . . . . . $15.5 million
September 30, 1998 . . . . . . . . $15.5 million
December 31, 1998. . . . . . . . . $15.5 million

March 31, 1999 . . . . . . . . . . $15.5 million
June 30, 1999. . . . . . . . . . . $18.0 million
September 30, 1999 . . . . . . . . $18.0 million
December 31, 1999. . . . . . . . . $18.0 million

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March 31, 2000 . . . . . . . . . . $18.0 million
June 30, 2000. . . . . . . . . . . $20.0 million
September 30, 2000 . . . . . . . . $20.0 million
December 31, 2000. . . . . . . . . $20.0 million

March 31, 2001 . . . . . . . . . . $20.0 million
June 30, 2001. . . . . . . . . . . $20.0 million
September 30, 2001 . . . . . . . . $20.0 million
December 31, 2001. . . . . . . . . $20.0 million

March 31, 2002 . . . . . . . . . . $20.0 million
June 30, 2002. . . . . . . . . . . $20.0 million
September 30, 2002 . . . . . . . . $20.0 million
December 31, 2002. . . . . . . . . $20.0 million

March 31, 2003 . . . . . . . . . . $20.0 million
June 30, 2003. . . . . . . . . . . $20.0 million
September 30, 2003 . . . . . . . . $20.0 million
December 31, 2003. . . . . . . . . $20.0 million

7.06. LIENS. Holdings will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist any Lien upon or with respect to any item constituting
Collateral, whether now owned or hereafter acquired, except for the Lien of the
Security Document relating thereto, Prior Liens applicable thereto and Permitted
Encumbrances. Holdings will not, and will not permit any of its Subsidiaries to,
create, incur, assume or suffer to exist any Lien upon or with respect to any
property or assets of Holdings or any of its Subsidiaries, whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets or assign any right to receive income, or file or permit the filing of
any financing statement under the UCC or any other similar notice of Lien under
any similar recording or notice statute, except the following, which are herein
collectively referred to as "PERMITTED ENCUMBRANCES":

(a) Liens for taxes, assessments or governmental charges or claims
not yet delinquent or Liens for taxes, assessments or governmental charges
or claims being con tested in good faith and by appropriate proceedings for
which adequate reserves, as may be required by GAAP, have been established
or as to which bonds have been posted with the applicable authority in the
amounts required by applicable law;

(b) Liens in respect of property or assets of Holdings or any of its
Subsidiaries imposed by law (i) which were incurred in the ordinary course
of business, such as carriers', warehousemen's and mechanics' Liens and
other similar Liens arising in the ordinary course of business, and (A)
which do not in the aggregate materially detract from the value of the
property or assets of Holdings and its Subsidiaries, taken as a whole, or

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materially impair the use thereof in the operation of the business of
Holdings or any of its Subsidiaries or (B) which are being contested in
good faith by appropriate proceedings promptly instituted, which
proceedings have the effect of preventing the forfeiture or sale of the
property or asset subject to such Lien or (ii) which do not relate to
material liabilities of Holdings and its Subsidiaries and do not in the
aggregate materially detract from the value of the property and assets of
Holdings and its Subsidiaries taken as a whole and do not create a default
under any lease of Real Property;

(c) Liens in connection with any attachment or judgment (including
judgment or appeal bonds) not in excess of $500,000 in the aggregate
(exclusive of any amount ade quately covered by insurance as to which the
insurance company has acknowledged coverage) unless the attachment or
judgment it secures shall, within 60 days after the entry thereof, not have
been discharged or execution thereof not stayed pending appeal, or shall
not have been discharged within 30 days after the expiration of any such
stay;

(d) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemploy ment 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 other similar obligations incurred in the
ordinary course of business (exclusive of obligations in respect of the
payment for borrowed money or the equivalent);

(e) Easements, rights of way, restrictions, minor defects or
irregularities in title not interfering in any material respect with the
business of Holdings or any of its Subsidiaries, in each case incurred in
the ordinary course of business and which do not materially impair for its
intended purposes the Real Property to which it relates;

(f) Zoning and building bylaws and ordinances, municipal bylaws and
regulations, and restrictive covenants, which do not materially interfere
with the use of the subject property by Holdings or any of its Subsidiaries
as such property is used as of the Closing Date (or, with respect to
property acquired after the Closing Date, as such property is used as of
the acquisition date of such property);

(g) Liens securing Indebtedness of any Subsidiary of the Borrower
owing to the Borrower or any Wholly Owned Subsidiary of the Borrower;

(h) Liens upon real or tangible personal property acquired or
constructed by Holdings or its Subsidiaries after the date hereof or on
such property or equity securities of a Person at the time such Person
becomes a Subsidiary of the Borrower or any of its Subsidiaries; PROVIDED,
HOWEVER, that (A) any such Lien is created solely for the purpose of
securing Indebtedness representing, or incurred to finance, the cost of the
item of property subject thereto or such Liens existed on the date such
property or securities were

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acquired and were not incurred as a result of or in anticipation of such
acquisition, (B) the principal amount of the Indebtedness secured by such
Lien does not exceed when incurred 100% of the fair value (as determined in
good faith by the board of directors of Holdings or the Borrower) of the
property at the time it was so acquired or constructed, (C) the
Indebtedness secured by the Lien is not created more than 180 days after
the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property
subject to the Lien, (D) such Lien does not extend to or cover any other
property other than such item of property, (E) the incurrence of such
Indebtedness secured by such Lien is permitted by Section 7.07 and (F) such
Lien is not in violation of any lease of any Real Property of any Credit
Party; and

(i) Liens on any property existing as of the date hereof securing
Existing Debt and any refinancing, extension, renewal or rearrangement
thereof provided that such Lien does not extend to or cover any other
property other than items of property encumbered as of the date hereof.

7.07. INDEBTEDNESS. Holdings will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume, guarantee, acquire or become
liable for (contingently or otherwise) or suffer to exist any Indebtedness,
except:

(a) Indebtedness incurred pursuant to the Credit Documents;

(b) Indebtedness incurred pursuant to the Heller Subordinated Note;

(c) Indebtedness not in excess of $3,000,000 in aggregate principal
amount at any one time outstanding, incurred pursuant to any note issued to
sellers as part of the consideration for a Permitted Business Acquisition
(any such note, a "SELLER NOTE"), provided that any such Seller Note shall
satisfy the following conditions: (i) it shall be unsecured, (ii) it shall
not pay interest prior to maturity, other than interest which is paid-
in-kind (except that up to $300,000 of cash interest may be paid on Seller
Notes annually, subject to there being, at the time of any such payment of
cash interest, no payment Default hereunder, and subject to restrictions
imposed on such payment pursuant to clause (iii) hereof), and (iii) it
shall contain subordination and related provisions which are acceptable in
form and substance to the Administrative Agent, including, without
limitation, that there shall be no payments made with respect to such
Seller Notes (other than the payment of interest, in-kind) while there is
any payment Default or, subject to such conditions as are acceptable to the
Administrative Agent, upon such other Defaults as are acceptable to the
Administrative Agent, and there shall be no right of acceleration on such
Seller Notes on account of such nonpayment.

(d) Indebtedness arising under noncompetition or consulting
arrangements entered into in connection with Permitted Business
Acquisitions, not to exceed $2,000,000 in the aggregate at any one time
outstanding.

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(e) Existing Debt and any refinancing, extension, rearrangement,
renewal or replacement thereof; PROVIDED, HOWEVER, that any such
refinancing, extension, renewal, rearrangement or replacement of Existing
Debt shall be on terms which, both taken as a whole and specifically as
such terms relate to the identity of the obligors, repayments of principal,
covenants, events of default and security in property of the debtor, are in
each event no less favorable to Holdings or the Borrower than the
correlative terms of the Existing Debt;

(f) Interest Rate Agreements entered into pursuant to Section 6.11 or
for other bona fide hedging purposes;

(g) Indebtedness (other than Indebtedness permitted by Section
7.07(j)) not exceeding $2,000,000 in aggregate principal amount outstanding
at any time to finance the cost of the acquisition of personal tangible
property (including Capital Leases, but excluding Indebtedness incurred to
finance Permitted Business Acquisitions), and any refinancing, extension,
renewal, rearrangement or replacement; PROVIDED, HOWEVER, that such
Indebtedness (or the refinancing thereof) shall not exceed when incurred
100% of the fair value of such property when so acquired; and PROVIDED,
FURTHER, that such Indebtedness (or the refinancing thereof) is not secured
by any Lien other than a Lien referred to in Section 7.06(h);

(h) other unsecured Indebtedness not exceeding $1,000,000 in the
aggregate at any time outstanding;

(i) Indebtedness of the Borrower to any of its Wholly Owned
Subsidiaries or of any Subsidiary of the Borrower to the Borrower or
another Wholly Owned Subsidiary of the Borrower (but only so long as such
Indebtedness is held by the Borrower or a Wholly Owned Subsidiary of the
Borrower) to the extent such Indebtedness is permitted as an Investment by
the Person owed such Indebtedness by the provisions of Section 7.08; and

(j) Indebtedness of any entity, or secured by any personal tangible
property, acquired in a Permitted Business Acquisition, so long as such
Indebtedness is (i) not incurred in contemplation of such Permitted
Business Acquisition, (ii) not in excess of $500,000 in the aggregate at
any one time outstanding and (iii) not secured by any Lien other than a
Lien referred to in Section 7.06(h).

7.08. INVESTMENTS. Holdings will not, and will not permit any of its
Subsidiaries to, have outstanding or make any Investments except:

(a) Investments consisting of Cash and Cash Equivalents;

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(b) Investments consisting of receivables owing to them and advances
to cus tomers and suppliers, in each case if created, acquired or made in
the ordinary course of business and payable or dischargeable in accordance
with customary trade terms;

(c) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers or in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business;

(d) Investments made in Wholly Owned Subsidiaries of the Borrower or
any Person which, as a result of such Investment, becomes a Wholly Owned
Subsidiary of the Borrower (including any such Investment which constitutes
a Permitted Business Acquisition); PROVIDED, HOWEVER, that such Wholly
Owned Subsidiary is engaged in a business related to that of Holdings and
its Subsidiaries in compliance with Section 7.17;

(e) Investments consisting of loans or advances made by the Borrower
to its officers, directors and employees in the ordinary course of business
not to exceed $100,000 in the aggregate outstanding at any time (excluding
any such loans or advances made as of the Closing Date pursuant to the
Put/Call Option Agreement);

(f) Investments made as a result of the receipt of non-cash proceeds
from any Asset Sale made pursuant to and in compliance with Section 7.11;

(g) Investments in Interest Rate Agreements permitted under Section
7.07(f); and

(h) Investments in addition to those permitted above not exceeding
$500,000 in the aggregate at any time outstanding.

7.09. PREPAYMENTS OF INDEBTEDNESS. Holdings will not, and will not permit
any of its Subsidiaries to, make (or give any notice in respect of) any
voluntary or optional payment or prepayment or redemption or acquisition for
value of Indebtedness (including, without limitation, by way of depositing with
any trustee with respect thereto money or securities before such Indebtedness is
due for the purpose of paying such Indebtedness when due) or exchange of any
such Indebtedness, other than the Loans.

7.10. DIVIDENDS, ETC. Holdings will not, and will not permit any of its
Subsidiaries to, declare or pay any dividends or return any capital to its
stockholders or authorize or make any other distribution, payment or delivery of
property or cash to its stockholders, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for any consideration, any shares of any class
of its capital stock now or hereafter outstanding (or any warrants for or
options or stock appreciation rights in respect of any of such shares), or make
any loans or advances to Affiliates, or set aside any funds for any of the
foregoing purposes, or permit any of its Subsidiaries to purchase or otherwise
acquire for consideration any shares of any class of the capital stock of
Holdings or any of its Subsidiaries, as the case may be, now or hereafter
outstanding (or any

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options or warrants or stock appreciation rights issued by such Person with
respect to its capital stock) (all of the foregoing, "DIVIDENDS"), PROVIDED,
HOWEVER, that (a) any direct or indirect Wholly Owned Subsidiary of the Borrower
may pay Dividends to its parent corporation if such parent corporation is the
Borrower or a Wholly Owned Subsidiary of the Borrower; (b) Holdings or any of
its Subsidiaries may make payments to Affiliates pursuant to and in compliance
with Section 7.19; (c) Holdings may make payments from the Put/Call Funds to
Management Stockholders to redeem their "Option Shares" (as defined in the
Put/Call Option Agreement), in accordance with the Put/Call Option Agreement,
provided that any such redemption is effected prior to January 31, 1998; (d)
upon the death, disability or termination of employment of Management
Stockholders, Holdings may repurchase from such Management Stockholders their
Capital Stock of Holdings in an amount not exceeding $250,000 per year or
$1,500,000 in the aggregate; provided that no Default or Event of Default which
has not been cured or waived is in existence, or would result from such payment;
and (e) Holdings may repurchase from the Senior Managers their Capital Stock of
Holdings upon the occurrence of a "TRIGGERING EVENT" (as defined in the Stock
Repurchase Agreement) through the issuance of unsecured pay-in-kind subordinated
notes of Holdings which are not payable (whether in respect of cash interest or
principal) prior to December 31, 2004 and which contain subordination provisions
satisfactory in all respects to the Administrative Agent.

7.11. DISPOSITION OF ASSETS. Holdings will not, and will not permit any
of its Subsidiaries to, dispose of all or any part of its interest in any asset
except that Holdings and its Subsidiaries may sell or otherwise dispose of
assets to any Person other than an Affiliate so long as such sales or other
dispositions are (a) approved by the Required Banks; (b) for at least the fair
market value of such assets and the aggregate amount of such asset sales is less
than $1,000,000 in any 12-month period and, in any such case, Holdings or such
Subsidiary complies with the mandatory prepayment provisions and Commitment
reduction provisions herein and, in the case of Collateral, so long as the
conditions to the release of Collateral described herein and in the applicable
Security Documents are met; (c) of inventory in the ordinary course of business;
(d) (i) of equipment that has become worn out, obsolete or damaged or otherwise
unsuitable or no longer needed for use in connection with the business of
Holdings or any of its Subsidiaries or should be replaced, as the case may be,
in each case as determined in good faith by the board of directors of Holdings
or its Subsidiary, as the case may be; (ii) for at least the fair value of such
equipment, as determined in good faith by the board of directors of Holdings or
its Subsidiaries; and (iii) the proceeds of the sales of such equipment are used
within 120 days of such sales (or such longer period as may be consented to by
the Administrative Agent) to (A) purchase equipment used in substantially
similar lines of business or (B) repay Loans pursuant to Section 3.03 and until
so applied are held in the Reserve Account; or (e) of assets as to which the
likely amount of net sales proceeds that would be realized upon a sale of such
assets is such that a sale of such assets is not, in the reasonable judgment of
the Borrower, economically practicable but such other disposition is otherwise
of commercial value to the Borrower; PROVIDED, HOWEVER, that in no case shall
sales or other dispositions pursuant to this clause (e) be of assets of a fair
market value at the time of such sale which is in excess of an aggregate of
$500,000 in any calendar year, and in the case of Collateral, so long as the
conditions to the release of Collateral described herein and in the

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applicable Security Documents are met; PROVIDED, HOWEVER, that notwithstanding
the foregoing, Holdings will not, and will not permit any of its Subsidiaries
to, sell, with or without recourse, or discount (other than in connection with
trade discounts in the ordinary course of business consistent with past
practice) or otherwise sell for less than the face value thereof, notes or
accounts receivable owed to it by its third-party customers or suppliers.

The consideration received by Holdings and its Subsidiaries from each sale
of assets permitted by this Section 7.11, other than with respect to such sales
involving consideration of not more than $250,000 in the aggregate in any
calendar year, shall be received in whole within 15 days of such sale and at
least 70% of the consideration from each sale shall consist of Cash or Cash
Equivalents. Any non-Cash proceeds received from the sale of assets
constituting Collateral shall be pledged pursuant to and in accordance with the
applicable Security Documents and shall constitute Collateral.

7.12. CONTINGENT OBLIGATIONS. The Borrower will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or become or be
liable with respect to any Contingent Obligation except:

(a) guarantees resulting from endorsement of instruments for deposit
or collection in the ordinary course of business;

(b) Interest Rate Agreements permitted under Section 7.07(f);

(d) obligations with respect to the Indebtedness permitted to be
incurred under Section 7.07;

(e) other Contingent Obligations not to exceed $500,000 outstanding
at any one time; and

(f) Contingent Obligations in respect of the repurchase or redemption
of Capital Stock of Holdings held by Management Stockholders, upon the
termination of such shareholders' employment, which meet the specifications
of Section 7.10.

7.13. MERGER AND CONSOLIDATIONS. Holdings will not, and will not permit
any of its Subsidiaries to, merge or consolidate with or into any other entity;
PROVIDED, HOWEVER, that any Subsidiary of the Borrower or any Person acquired in
a Permitted Business Acquisition may be merged or consolidated with or into (a)
the Borrower, if the Borrower is the continuing or surviving corporation or (b)
any Subsidiary of the Borrower, if (i) the continuing or surviving corporation
is a Wholly Owned Subsidiary of the Borrower and (ii) the continuing or
surviving corporation is, or immediately thereafter becomes, party to a
Subsidiary Guarantee and a Security

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Agreement and all related documentation necessary for the perfection of the
liens and security interests created thereunder.

7.14. AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Without the prior written
consent of the Administrative Agent, Holdings will not, and will not permit any
of its Subsidiaries to, amend, modify or change any of the terms or provisions
of its certificate of incorporation (including, without limitation, by the
filing of any certificate of designation), by-laws or agreement of limited
partnership, in each case to the extent such amendment, modification or change
is adverse to the Banks as Banks hereunder.

7.15. ERISA. At no time shall the actuarial present value of unfunded
liabilities for post- employment health care benefits of Holdings, any
Subsidiary of Holdings or any ERISA Affiliate of any of them, whether or not
provided under a Plan, calculated in a manner consistent with Statement No. 106
of the Financial Accounting Standards Board, exceed $250,000 in aggregate.

7.16. NO NON-WHOLLY OWNED SUBSIDIARIES. Holdings shall not have any
direct Subsidiaries other than the Borrower, which shall, at all times be a
Wholly Owned Subsidiary of Holdings. Neither the Borrower nor any of its
Subsidiaries shall have, create or suffer to exist any Subsidiary of any of them
which is not a Wholly Owned Subsidiary, including, without limitation, any such
Subsidiary acquired in a Permitted Business Acquisition.

7.17. CHANGES IN BUSINESS. Other than asset dispositions permitted under
Section 7.11, Holdings will not, and will not permit any of its Subsidiaries to,
materially alter its business from that conducted by it at the Closing Date,
after giving effect to the Recapitalization.

7.18. AMENDMENTS OR WAIVERS OF CERTAIN DOCUMENTS. After the Closing Date,
Holdings will not, and will not permit any of its Subsidiaries to, amend,
terminate or otherwise change the terms of any of the Recapitalization
Documents, or of the LS Purchase Documents or of the leases of Real Property
referred to on Schedule 5.16 without, with respect to any amendment, termination
or change which is adverse to the Banks as Banks hereunder, the prior written
consent of the Administrative Agent. Holdings will not, and will not permit any
of its Subsidiaries to, amend or otherwise change the terms of any Existing Debt
(excluding such Indebtedness arising under Capital Leases), except as otherwise
permitted under this Section 7.

7.19. TRANSACTIONS WITH AFFILIATES. Holdings will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
transactions, whether or not in the ordinary course of business, with any holder
of 5% or more of any class of equity interests of Holdings or with any Affiliate
of Holdings other than on terms and conditions substantially as favorable to
Holdings or such Subsidiary as would be obtainable by Holdings or such
Subsidiary at the time in a comparable arm's-length transaction with a Person
other than a holder of 5% or more of any class of equity interests of Holdings
or an Affiliate of Holdings; PROVIDED, HOWEVER, that the foregoing restrictions
shall not apply to (a) transactions between the Borrower and any of its Wholly
Owned Subsidiaries and between Wholly Owned Subsidiaries of the Borrower
permitted

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by the other provisions of this Agreement, (b) loans or advances made by the
Borrower to its officers, directors and employees permitted under Section
7.08(e), (c) the payment of fees to Indosuez and its respective Affiliates for
financial services, such fees not to exceed the usual and customary fees for
similar services, (d) the issuance of Capital Stock of Holdings pursuant to any
pension, stock option, profit sharing or other employee benefit plan or
agreement of Holdings or its Subsidiaries in the ordinary course of business,
(e) payments to KCSN or its Affiliates for services rendered in connection with
the Recapitalization not to exceed the amount disclosed to the Agents prior to
the Effective Date, and for management services pursuant to the Management
Agreement, not to exceed, in any fiscal year, the greater of (i) 3% of
Consolidated EBITDA for that fiscal year or (ii) $250,000, PROVIDED that no
Default or Event of Default shall have occurred and be continuing or would
result from such payment, (f) the continuation and renewal of the leases
referred to on Schedule 5.16, (g) the consummation of the Signature Designated
Acquisition on the terms described on Schedule 4.03, (h) distributions with
respect to the Heller Subordinated Note permitted under Section 7.23 and the
Heller Subordination Agreement, (i) the redemption of Capital Stock of Holdings
held by Management Stockholders or the Senior Managers subject to the conditions
described in Section 7.10, and (j) (i) the payment to the Senior Managers, in
accordance with Section 1(b) of the Stock Repurchase Agreement, of up to
$150,000 per year to each Senior Manager and (ii) the exchange by any Senior
Manager of his Subject Securities for redeemable preferred stock of Holdings, in
the case of each of subclause (i) and (ii) of this clause (j) in the event that,
following the occurrence of a "Triggering Event" (as defined in the Stock
Repurchase Agreement), Holdings is precluded from repurchasing such Senior
Manager's Subject Securities, pursuant to clause (y) of section 1(b) of the
Stock Repurchase Agreement.

7.20. CAPITAL STRUCTURE. The Borrower shall not and shall not permit any
of its Subsidiaries to issue, sell, assign, pledge or otherwise encumber or
dispose of any of its Capital Stock (including partnership interests or other
securities or warrants, rights or options to acquire capital stock, partnership
interests or other securities), without first providing prior written notice
thereof to the Administrative Agent and making arrangements satisfactory to the
Administrative Agent to ensure that any such Capital Stock will be deposited
with the Administrative Agent, and that the Administrative Agent will have a
valid first priority perfected security interest in such Capital Stock.

7.21. SALE AND LEASE-BACKS. Holdings will not, and will not permit any of
its Subsidiaries to, directly or indirectly, become or thereafter remain liable
as lessee or as guarantor or other surety with respect to the lessee's
obligations under any lease, whether an Operating Lease or a Capital Lease, of
any property (whether real or personal or mixed) whether now owned or hereafter
acquired, (a) which Holdings or any of its Subsidiaries has sold or transferred
or is to sell or transfer to any other Person (other than in connection with the
Recapitalization) or (b) which Holdings or any such Subsidiary intends to use
for substantially the same purpose as any other property which has been or is to
be sold or transferred by Holdings or any such Subsidiary to any Person in
connection with such lease, if in the case of clause (a) or (b) above, such sale
and

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such lease are part of the same transaction or a series of related transactions
or such sale and such lease occur within one year of each other or are with the
same other Person.

7.22. CLEAN-DOWN PERIOD. During the Clean-down Period for each fiscal
year of the Borrower, the aggregate unpaid principal amount of outstanding
Revolving Loans plus outstanding Letters of Credit Usage shall not exceed the
Clean-down Amount.

7.23. CERTAIN PAYMENTS. Holdings and its Subsidiaries shall make no
payments or distributions with respect to the Heller Subordinated Notes, except
as permitted under the Heller Subordination Agreement. Without limiting the
foregoing, on or after December 31, 1998, the Borrower shall be permitted to pay
interest in cash on the Heller Subordinated Notes to the holders thereof (the
"SUBORDINATED LENDERS") in an amount equal to any scheduled semi-annual interest
payment on the Subordinated Notes if (A) at the time of making such payment
there is not in existence, nor will there occur after giving effect to such
payment, a Default or Event of Default; (B) after giving pro forma effect to
such cash payment as if such payment was made during the relevant Test Period
(i) the ratio of (w) total Consolidated Indebtedness of Holdings and its
Subsidiaries (including the outstanding balance under any noncompete or
consulting arrangements) immediately prior to such payment to (x) Consolidated
EBITDA of Holdings and its Subsidiaries is not more than 3.25:1.0 (PROVIDED,
that, for purpose of the foregoing clause (i), the calculations shall be
performed in accordance with the provisos to Section 7.04) and Consolidated
Indebtedness shall include the outstanding balance (including capitalized
interest) of the Heller Subordinated Notes; and (ii) the ratio of (y)
Consolidated EBITDA of Holdings and its Subsidiaries to (z) Consolidated
Interest Expense (which, for the purposes of this Section 7.23, shall include
only cash interest expense) of Holdings and its Subsidiaries is not less than
3.0:1.0; (C) during the period two weeks before the scheduled interest payment
date on the Heller Subordinated Notes for which the Borrower has proposed a cash
interest payment there shall be $2.5 million of availability for additional
Borrowings of a Revolving Loan pursuant to Section 1.01; and (D) the Borrower
shall have delivered to the Administrative Agent an Officers' Certificate (i)
setting forth the calculation of the financial ratios required by clause (B)
above and (ii) stating that, based on the annual budgets or forecasts currently
in effect and provided pursuant to Section 4.01(j) or 4.03 hereof and after
giving effect to the amount of any interest payment permitted by this Section
7.23, such persons do not expect that a Default or an Event of Default shall
occur in the then current fiscal quarter or the next succeeding fiscal quarter,
in each case, of Holdings and its Subsidiaries.

SECTION 8. EVENTS OF DEFAULT. Each of the events specified in Sections
8.01 through 8.09, inclusive, is referred to as an "EVENT OF DEFAULT":

8.01. PAYMENTS. The Borrower shall (a) default in the payment when due of
any principal of the Loans, (b) default in the payment when due of any interest
on the Loans, and such default shall continue for two or more Business Days or
(c) fail to pay any other amounts owing hereunder or under any other Credit
Document, and such failure shall continue for five Business Days after the
Borrower's receipt of written notice thereof.

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8.02. REPRESENTATIONS, ETC. Any representation, warranty or statement
made or deemed made by operation of Sections 4.01, 4.02 or 4.03 by any Credit
Party herein or in any other Credit Document or in any written statement or
certificate delivered or required to be delivered pursuant hereto or thereto
shall prove to be untrue in any material respect on the date as of which made or
deemed made by operation of Sections 4.01, 4.02 or 4.03.

8.03. COVENANTS.

(a) Any Credit Party shall default in the due performance or
observance by it of any term, covenant or agreement contained in Sections
6.11, 6.12 or Section 7; or

(b) any Credit Party shall default in the due performance or
observance by it of any other term, covenant or agreement contained in this
Agreement, any other Credit Document or any Security Document (except as
otherwise provided in this Section 8) and such default shall continue
unremedied after (i) the expiry of any specified grace period relative to
such default or, (ii) where no grace period is specified, 30 days (or, in
the case of Section 6.16(d), ten Business Days) after the date of such
default.

8.04. DEFAULT UNDER OTHER AGREEMENTS.

(a) Any Credit Party shall (i) default in any payment with respect to
any Indebtedness (other than Obligations) having a principal amount of
$500,000 or more individually or $1,000,000 or more in the aggregate, for
all such Persons, beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created, or (ii)
default in the observance or performance of any agreement or condition
relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or, except for any such default or other event or
condition as to such Indebtedness arising under Capital Leases, to permit
(with or without notice, lapse of time or both) the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause any such Indebtedness to become due (whether by
acceleration, redemption, etc.) prior to its stated maturity;

(b) any such Indebtedness of any Credit Party shall be declared to be
due and payable, or required to be prepaid or redeemed other than by a
regularly scheduled or required prepayment, prior to the stated maturity
thereof; or

(c) Any Credit Party shall default in the performance or observance
of any obligation under any lease reflected on Schedule 5.16 (excluding
those leases which the Borrower has designated on Schedule 5.16 as not
material, and the Administrative Agent

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has agreed with such designation), and such default results in the
termination of such lease.

8.05. BANKRUPTCY, ETC. Any Credit Party shall commence a voluntary case
concerning itself under Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto (the
"BANKRUPTCY CODE"); or an involuntary case is commenced against any Credit Party
and the petition is not controverted within 20 days, or is not dismissed within
60 days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially all
of the property of any Credit Party; or any Credit Party commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to any Credit Party; or
there is commenced against any Credit Party any such proceeding which remains
undismissed for a period of 60 consecutive days; or any Credit Party is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or any Credit Party suffers
any appointment of any custodian or the like for it or any substantial part of
its property to continue undischarged or unstayed for a period of 60 days; or
any Credit Party makes a general assignment for the benefit of creditors; or any
corporate action is taken by any Credit Party for the purpose of effecting any
of the foregoing.

8.06. SECURITY DOCUMENTS; GUARANTEES.

(a) Any Security Document shall cease to be in full force and effect,
or shall cease to give the Administrative Agent the Liens, rights, powers,
and privileges purported to be created thereby, in favor of the
Administrative Agent, superior to and prior to the rights of all third
Persons and subject, in each case, to no Liens other than Permitted
Encumbrances, Prior Liens and Liens expressly permitted by the applicable
Security Document, or any judgment creditor having a Lien against any
material item of Collateral shall commence legal action to foreclose such
Lien or otherwise exercise its remedies against any material item of
Collateral, or the Administrative Agent shall cease to hold, for the
benefit of the Banks, 100% of the Borrower's Capital Stock.

(b) The Holdings Guarantee provided in Section 9 hereof, or any
Subsidiary Guarantee, or any provisions thereof shall cease to be in full
force and effect in all material respects, or any guarantor thereunder or
any Person acting by or on behalf of such guarantor shall deny or disaffirm
such guarantor's obligations under such guarantee or shall default in the
due performance or observance of any term, covenant or agreement on its
part to be performed or observed pursuant to such guarantee.

8.07. SUBORDINATION. (a) The terms of the Heller Subordination
Agreement, or of the subordination as to any Seller Note shall cease, for any
reason, to be in full force and effect for the benefit of the Banks, or any
Credit Party or the holder of the Heller Subordinated Notes or any

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Seller Note shall so assert or shall otherwise assert that the Obligations are
not senior to the Heller Subordinated Notes or any Seller Note, as the case may
be.

(b) An event described in section 2.2(a) of the Heller Subordinated Notes,
as requiring mandatory redemption of the Heller Subordinated Notes,
shall occur.

8.08. JUDGMENTS. One or more judgments or decrees shall be entered against
any Credit Party involving a liability of $500,000 or more in the case of any
one such judgment or decree and $1,000,000 in the aggregate for all such
judgments or decrees for Holdings and its Subsidiaries (in either case in excess
of the amount covered by insurance as to which the insurance company has
acknowledged coverage) and any such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal for a period of 60
consecutive days from the entry thereof.

8.09. OWNERSHIP.

(a) KCSN, together with any other Person controlled by or under
common control with Kohlberg & Company, LLC, shall, collectively,
cease to have and to exercise the right, whether such right is
through ownership and control of sufficient shares of Holdings'
capital stock or otherwise, to elect or designate directors
entitled to cast a majority of the votes of Holdings' board of
directors; or

(b) Any Person, taken together with any Person controlled by or under
common control with such Person, (other than KCSN, taken together
with any other Person controlled by or under common control with
Kohlberg & Company, LLC) shall own and/or control (x) more than
30% of the issued and outstanding capital stock of Holdings
entitled (without regard to the occurrence of any contingency) to
vote for the election of directors, or (y) more of the issued and
outstanding capital stock of Holdings (taking into consideration
both voting and nonvoting capital stock) than KCSN, taken
together with any other Person controlled by or under common
control with Kohlberg & Company, LLC; or

(d) the Borrower shall cease to be a Wholly Owned Subsidiary of
Holdings.

8.10. CERTAIN ACTIONS FOLLOWING AN EVENT OF DEFAULT. Upon the occurrence
and during the continuance of any Event of Default, the Administrative Agent
may, and, upon the written request of the Required Banks shall, by written
notice to the Borrower (which shall be deemed notice to each other Credit Party,
including Holdings), take any or all of the following actions, without prejudice
to the rights of the Administrative Agent or any Bank to enforce its claims

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against the Borrower or any other Credit Party, except as otherwise specifically
provided for in this Agreement (PROVIDED, HOWEVER, that upon an Event of Default
specified in Section 8.05 the actions provided for in clauses (a) and (b) below
shall occur automatically without the giving of any notice):

(a) declare the Total Revolving Loan Commitments terminated (and, if
prior to the Acquisition Term Loan Commitment Termination Date, declare the
Acquisition Term Loan Commitments terminated), whereupon the Revolving Loan
Commitment (and, if applicable, the Acquisition Term Loan Commitment) of
each Bank shall forthwith terminate immediately and any accrued and unpaid
Commitment Fee shall forthwith become due and payable without any other
notice of any kind;

(b) declare the principal of and accrued interest in respect of all
Loans and all Obligations owing hereunder and thereunder to be, whereupon
the same shall become, forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived
by each Credit Party; and/or

(c) enforce, as Administrative Agent (or direct the Administrative
Agent to enforce), any or all of the remedies created pursuant to the
Security Documents. If an Event of Default is cured or waived in
accordance with the terms of this Agreement, it ceases (and, if waived,
pursuant to the terms, and to the extent, of such waiver).

SECTION 9. HOLDINGS GUARANTEE.

9.01. GUARANTEE OF OBLIGATIONS. Holdings unconditionally guarantees that
the Obligations will be performed and will be paid in full in Cash when due and
payable, whether at the stated or accelerated maturity thereof or otherwise,
this guarantee being a guarantee of payment and not of collectibility and being
absolute and in no way conditional or contingent. In the event any part of the
Obligations shall not have been so paid in full when due and payable, Holdings
will, immediately upon notice by the Administrative Agent or, without notice,
immediately upon the occurrence of an Event of Default of the kind described in
Section 8.05 with respect to the Borrower, pay or cause to be paid to the
Administrative Agent for the account of each Bank in accordance with the Bank's
respective Commitments the amount of such Obligations which are then due and
payable and unpaid. Holdings' obligations hereunder shall not be affected by
the invalidity, unenforceability or irrecoverability of any of the Obligations
as against the Borrower, any other guarantor thereof or any other Person. For
purposes hereof, the Obligations shall be due and payable when and as the same
shall be due and payable under the terms of this Agreement or any other Credit
Document notwithstanding the fact that the collection or enforcement thereof may
be stayed or enjoined under the Bankruptcy Code or other applicable law.

9.02. CONTINUING OBLIGATION. Holdings acknowledges that the Banks and the
Agents have entered into this Agreement (and, to the extent that the Banks or
the Administrative Agent may enter into any future Credit Document, will have
entered into such agreement) in reliance on this

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Section 9 being a continuing irrevocable agreement, and Holdings agrees that its
guarantee may not be revoked in whole or in part. The obligations of Holdings
hereunder shall terminate when the commitment of the Banks to extend credit
under this Agreement shall have terminated and all of the Obligations have been
paid in full in Cash and discharged; PROVIDED, HOWEVER, that:

(a) if a claim is made upon the Banks at any time for repayment or
recovery of any amounts or any property received by the Banks from any
source on account of any of the Obligations and the Banks repay or return
any amounts or property so received (including interest thereon to the
extent required to be paid by the Banks) or

(b) if the Banks become liable for any part of such claim by reason
of (i) any judgment or order of any court or administrative authority
having competent jurisdiction, or (ii) any settlement or compromise of any
such claim.

then Holdings shall remain liable under this Agreement for the amounts so repaid
or property so returned or the amounts for which the Banks become liable (such
amounts being deemed part of the Obligations) to the same extent as if such
amounts or property had never been received by the Banks, notwithstanding any
termination hereof or the cancellation of any instrument or agreement evidencing
any of the Obligations. Not later than five days after receipt of notice from
the Administrative Agent, Holdings shall pay to the Administrative Agent an
amount equal to the amount of such repayment or return for which the Banks have
so become liable. Payments hereunder by Holdings may be required by the
Administrative Agent on any number of occasions.

9.03. WAIVERS WITH RESPECT TO OBLIGATIONS. Except to the extent expressly
required by this Agreement or any other Credit Document, Holdings waives, to the
fullest extent permitted by the provisions of applicable law, all of the
following (including all defenses, counterclaims and other rights of any nature
based upon any of the following):

(a) presentment, demand for payment and protest of nonpayment of any
of the Obligations, and notice of protest, dishonor or nonperformance;

(b) notice of acceptance of this guarantee and notice that credit has
been extended in reliance on this guarantee of the Obligations;

(c) notice of any Default or of any inability to enforce performance
of the obligations of the Borrower or any other Person with respect to any
Credit Document, or notice of any acceleration of maturity of any
Obligations;

(d) demand for performance or observance of, and any enforcement of
any provision of, the Obligations, this Agreement or any other Credit
Document or any pursuit or exhaustion of rights or remedies with respect to
any Collateral or against the Borrower or any other Person in respect of
the Obligations or any requirement of diligence or

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promptness on the part of the Administrative Agent or the Banks in
connection with any of the foregoing;

(e) any act or omission on the part of the Administrative Agent or
the Banks which may impair or prejudice the rights of Holdings, including
rights to obtain subrogation, exoneration, contribution, indemnification or
any other reimbursement from the Borrower or any other Person, or otherwise
operate as a deemed release or discharge;

(f) failure or delay to perfect or continue the perfection of any
security interest in any Collateral or any other action which harms or
impairs the value of, or any failure to preserve or protect the value of,
any Collateral;

(g) any statute of limitations or any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than the obligation of the principal;

(h) any "single action" or "anti-deficiency" law which would
otherwise prevent the Banks from bringing any action, including any claim
for a deficiency, against Holdings before or after the Administrative
Agent's or the Banks' commencement or completion of any foreclosure action,
whether judicially, by exercise of power of sale or otherwise, or any other
law which would otherwise require any election of remedies by the
Administrative Agent or the Banks;

(i) all demands and notices of every kind with respect to the
foregoing; and

(j) to the extent not referred to above, all defenses (other than
payment) which the Borrower may now or hereafter have to the payment of the
Obligations, together with all suretyship defenses, which could otherwise
be asserted by Holdings.

Holdings represents that it has obtained the advice of counsel as to the extent
to which suretyship and other defenses may be available to it with respect to
its obligations hereunder in the absence of the waivers contained in this
Section 9.03.

No delay or omission on the part of the Administrative Agent or the Banks
in exercising any right under this Agreement or any other Credit Document or
under any guarantee of the Obligations or with respect to the Collateral shall
operate as a waiver or relinquishment of such right. No action which the
Administrative Agent or the Banks or the Borrower may take or refrain from
taking with respect to the Obligations, including any amendments thereto or
modifications thereof or waivers with respect thereto, shall affect the
provisions of this Agreement or Holdings' obligations hereunder. None of the
Banks' or the Administrative Agent's rights shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of any Credit
Party, or by any noncompliance by the Borrower with the terms, provisions and
covenants

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of this Agreement, regardless of any knowledge thereof which the Administrative
Agent or the Banks may have or otherwise be charged with.

9.04. BANKS' POWER TO WAIVE, ETC. Holdings grants to the Banks full power
in their discretion, without notice to Holdings or its consent, such notice and
consent being expressly waived to the fullest extent permitted by applicable
law, and without in any way affecting Holdings' liability under its guarantee
hereunder;

(a) To waive compliance with, and any Default under, and to consent
to any amendment to or modification or termination of any terms or
provisions of, or to give any waiver in respect of, this Agreement, any
other Credit Document, the Collateral, the Obligations or any guarantee
thereof (each as from time to time in effect);

(b) To grant any extension of the Obligations (for any duration), and
any other indulgence with respect thereto, and to effect any total or
partial release (by operation of law or otherwise), discharge, compromise
or settlement with respect to the obligations of any Credit Party or any
other Person in respect of the Obligations, whether or not rights against
Holdings under this Agreement are reserved in connection therewith;

(c) To take security in any form for the Obligations, and to consent
to the addition to or the substitution, exchange, release or other
disposition of, or to deal in any manner with, any part of any property
contained in the Collateral whether or not the property, if any received
upon the exercise of such power shall be of a character or value the same
as or different from the character or value of any property disposed of,
and to obtain, modify or release any present or future guarantees of the
Obligations and to proceed against any of the Collateral or such guarantees
in any order.

(d) To collect or liquidate or realize upon any of the Obligations or
the Collateral in any manner or to refrain from collecting or liquidating
or realizing upon any of the Obligations or the Collateral; and

(e) To extend credit under this Agreement, any other Credit Document
or otherwise in such amount as the Banks may determine, including
increasing the amount of credit and the interest rate and fees with respect
thereto, even though the condition of the Credit Parties (financial or
otherwise on an individual or consolidated basis) may have deteriorated
since the date hereof.

9.05. INFORMATION REGARDING THE BORROWER, ETC. Holdings has made such
investigation as it deems desirable of the risks undertaken by it in entering
into this Agreement and is fully satisfied that it understands all such risks.
Holdings waives any obligation which may now or hereafter exist on the part of
the Administrative Agent or the Banks to inform it of the risks being undertaken
by entering into this Agreement or of any changes in such risks and, from and
after the date hereof, Holdings undertakes to keep itself informed of such risks
and any changes therein.

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Holdings expressly waives any duty which may now or hereafter exist on the part
of the Administrative Agent or the Banks to disclose to it any matter related to
the business, operations, character, collateral, credit, condition (financial or
otherwise), income or prospects of the Borrower or its Subsidiaries or their
properties or management, whether now or hereafter known by the Administrative
Agent or the Banks. Holdings represents, warrants and agrees that it assumes
sole responsibility for obtaining from the Borrower all information concerning
this Agreement and all other Credit Documents and all other information as to
the Borrower and its Subsidiaries or their properties or management as it deems
necessary or desirable.

9.06. CERTAIN GUARANTOR REPRESENTATIONS. Holdings represents that (a) it
is in its best interest and in pursuit of the purposes for which it was
organized as an integral part of the business conducted and proposed to be
conducted by the Borrower and its Subsidiaries, and reasonably necessary and
convenient in connection with the conduct of the business conducted and proposed
to be conducted by them, to induce the Banks to enter into this Agreement and to
extend credit to the Borrower by making the guarantee contemplated by this
Section 9, (b) the credit available hereunder will directly or indirectly inure
to its benefit, and (c) by virtue of the foregoing it is receiving at least
reasonably equivalent value from the Banks for its guarantee. Holdings
acknowledges that it has been advised by the Administrative Agent that the Banks
are unwilling to enter into this Agreement unless the guarantee contemplated by
this Section 9 are given by it. Holdings represents that (i) it will not be
rendered insolvent as a result of entering into this Agreement, (ii) after
giving effect to the transactions contemplated by this Agreement, it will have
assets having a fair saleable value in excess of the amount required to pay its
probable liability on its existing debts as they become absolute and matured,
(iii) it has, and will have, access to adequate capital for the conduct of its
business and (iv) it has the ability to pay its debts from time to time incurred
in connection therewith as such debts mature.

9.07. SUBROGATION. Holdings agrees that it will not exercise any right of
reimbursement, subrogation, contribution, offset or other claims against the
other Credit Parties arising by contract or operation of law in connection with
any payment made or required to be made by it under this Agreement.

9.08. SUBORDINATION. Holdings covenants and agrees that, after the
occurrence of an Event of Default, all Indebtedness, claims and liabilities then
or thereafter owing by the Borrower or any other Credit Party to Holdings
whether arising hereunder or otherwise are subordinated to the prior payment in
full of the Obligations and are so subordinated as a claim against such Person
or any of its assets, whether such claim be in the ordinary course of business
or in the event of voluntary or involuntary liquidation, dissolution, insolvency
or bankruptcy, so that no payment with respect to any such Indebtedness, claim
or liability will be made or received while any Event of Default exists.

9.09. FURTHER ASSURANCES. Holdings will, promptly upon the request of the
Administrative Agent from time to time, execute, acknowledge and deliver, and
file and record, all such

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instruments, and take all such action, as the Administrative Agent deems
necessary or advisable to carry out the intent and purposes of this Section 9.

SECTION 10. DEFINITIONS. Certain capitalized terms are used in this
Agreement with the specific meanings set forth or referred to below in this
Section 10. Capitalized terms defined in this Agreement in the singular or
plural form include the plural and singular form, respectively.

"ACCOUNT" means all of the "accounts" of Holdings and its Subsidiaries (as
that term is defined in Section 9-106 of the Uniform Commercial Code as in
effect in the State of New York) whether or not such Account has been earned by
performance, whether now existing or existing in the future, including, without
limitation, all (a) accounts receivable, including, without limitation, all
accounts created by or arising from the sale of goods or rendition of services
by Holdings and its Subsidiaries; (b) unpaid seller's rights (including
rescission, replevin, reclamation and stopping in transit) relating to the
foregoing or arising therefrom; (c) rights to any goods represented by any of
the foregoing, including returned or repossessed goods; (d) reserves and credit
balances held by Holdings and its Subsidiaries with respect to any such accounts
receivable or any account debtor; (e) guarantees or collateral for any of the
foregoing; and (f) insurance policies or rights relating to any of the
foregoing.

"ACQUISITION PORTION" means, at any time, the portion of the Loan Facility
evidenced by the Total Acquisition Term Loan Commitment.

"ACQUISITION TERM LOAN" is defined in Section 1.01(d).

"ACQUISITION TERM LOAN CLOSING DATE" is defined in Section 1.01(d).

"ACQUISITION TERM LOAN COMMITMENT" means, with respect to each Bank, the
amount set forth below such Bank's name on Exhibit A hereto directly below the
column entitled "Acquisition Term Loan", as same may be reduced from time to
time pursuant to Sections 2.01, 3.03 and/or 8.

"ACQUISITION TERM LOAN COMMITMENT TERMINATION DATE" means the last Business
Day of December, 1997.

"ACQUISITION TERM LOAN MATURITY DATE" means the last Business Day of
December, 2003.

"ACQUISITION TERM NOTE" is defined in Section 1.05(a)(iv).

"ADDITIONAL SECURITY DOCUMENTS" is defined in Section 6.14(a).

"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling (including but not limited to all directors and executive
officers of such Person), controlled by, or under direct or indirect common
control with such Person; PROVIDED, HOWEVER,

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that neither Indosuez, IBJS, nor any Affiliate of Indosuez or IBJS, shall be
deemed to be an Affiliate of any Credit Party. A Person shall be deemed to
control a corporation for the purposes of this definition if such Person
possesses, directly or indirectly, the power (a) to vote 10% or more of the
securities having ordinary voting power for the election of directors of such
corporation or (b) to direct or cause the direction of the management and
policies of such cor poration, whether through the ownership of voting
securities, by contract or otherwise.

"ADMINISTRATIVE AGENT" is defined in the preamble to this Agreement and
shall include any successor Administrative Agent appointed in accordance
herewith in its capacity as Administrative Agent for the Banks.

"AGENTS" is defined in the preamble to this Agreement.

"AGENT'S OFFICE" shall mean the office of the Administrative Agent located
at 1211 Avenue of the Americas, 7th Floor, New York, New York 10036, or such
other office as the Administrative Agent may hereafter designate in writing as
such to the other parties hereto.

"AGREEMENT" shall mean the Original Credit Agreement, as amended and
restated hereby, including as the same may after its execution be amended,
supplemented or otherwise modified from time to time in accordance with the
terms hereof.

"ACQUISITION" is defined in the recitals to this Agreement.

"ACQUISITION GUARANTEE" means the Subsidiary Guarantee executed by
Acquisition and delivered to the Administrative Agent as of the Closing Date,
pursuant to which Acquisition guarantees the Borrower's Obligations.

"ASSET RESTORATION AMOUNT" is defined in Section 3.03(f)(i).

"ASSET SALE" means the sale, transfer or other disposition, to the extent
consummated after the Closing Date, by Holdings or any of its Subsidiaries to
any Person other than the Borrower or any of its Wholly Owned Subsidiaries of
any asset of Holdings or such Subsidiary, except for (a) transactions included
in the definition of Net Financing Proceeds or (b) the issuance of equity
securities under any stock option or other benefit plan available to the
employees or directors of Holdings or any of its Subsidiaries.

"ASSETS" means all of the assets of Holdings and its Subsidiaries from time
to time after consummation of the LS Purchase.

"ASSIGNMENT AGREEMENT" is defined in Section 12.04(c).

"AUTHORIZED OFFICER" shall mean any senior officer of Holdings or the
Borrower, as applicable, designated as such in writing to the Administrative
Agent by the Borrower.

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"BANK" is defined in the preamble to this Agreement and in Section 12.04.

"BANKRUPTCY CODE" is defined in Section 8.05.

"BASE RATE" means the higher of (a) 1/2% per annum in excess of the Federal
Funds Rate and (b) the rate which the Administrative Agent announces from time
to time as its prime commercial lending rate, as in effect from time to time;
PROVIDED, HOWEVER, that (i) the rate the Administrative Agent announces as its
prime commercial lending rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer and (ii) the
Administrative Agent may make commercial loans or other loans at rates of
interest at, above or below the rate it announces as its prime lending rate.

"BASE RATE LOAN" means each Loan bearing interest at the rate provided in
Section 1.08(a).

"BASE RATE MARGIN" means:

(a) with respect to any Term A Loan, 1.25% per annum;

(b) with respect to any Term B Loan, 1.75% per annum;

(d) with respect to any Acquisition Term Loan, 1.75% per annum.

"BORROWER" is defined in the preamble to this Agreement.

"BORROWING" means the incurrence pursuant to a Notice of Borrowing and
under the Loan Facility of one Type of Loan by the Borrower (or the Initial
Borrowers, as applicable) from all of the Banks on a pro rata basis on a given
date (or resulting from conversions on a given date), having, in the case of
Reserve Adjusted Eurodollar Loans, the same Interest Period.

"BORROWING BASE" means, at any date of determination, an amount equal to
the sum of (x) 85% of Eligible Accounts Receivable PLUS (y) the lesser of (a)
$15,000,000 and (b)(i) for the period May 1 through October 31, 40% of Eligible
Inventory or (ii) for the period November 1 through April 30, 60% of Eligible
Inventory, in each case as shown on the most recent Borrowing Base Certificate
delivered prior to such date of determination; PROVIDED that during any
Clean-down Period, the Borrowing Base shall be the lesser of (x) the amount
derived from the foregoing calculation and (y) the Clean-down Amount.

"BORROWING BASE CERTIFICATE" is defined in Section 6.01(m).

"BREAKAGE COSTS" is defined in Section 1.10(f).

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"BUSINESS DAY" means (a) for all purposes other than as covered by clause
(b) below, any day excluding Saturday, Sunday and any day which shall be in the
City of New York or the State of California a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close and (b) with respect to all notices and determinations in connection with,
and payments of principal and interest on, Reserve Adjusted Eurodollar Loans,
any day which is a Business Day described in clause (a) and which is also a day
for trading by and between banks in U.S. dollar deposits in the interbank
Eurodollar market.

"CAPITAL LEASE" of any Person means any lease of any property (whether
real, personal or mixed) by that Person as lessee which, in conformity with
GAAP, is, or is required to be, accounted for as a capital lease on the balance
sheet of that Person, together with any renewals of such leases (or entry into
new leases) on substantially similar terms.

"CAPITAL STOCK" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase, or securities convertible into,
any of the foregoing.

"CAPITALIZED LEASE OBLIGATIONS" of any Person means all obligations under
Capital Leases of such Person or any of its Subsidiaries in each case taken at
the amount thereof accounted for as liabilities in accordance with GAAP.

"CARRYOVER AMOUNT" is defined in Section 7.01.

"CASH" means Dollars in money, currency or a credit balance in a Deposit
Account.

"CASH EQUIVALENTS" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than three years from the date of acquisition; (b) marketable direct obligations
issued by any State of the United States of America or any local government or
other political subdivision thereof rated (at the time of acquisition of such
security) at least AA by S&P or the equivalent thereof by Moody's having
maturities of not more than one year from the date of acquisition; (c) U.S.
dollar denominated time deposits, certificates of deposit and bankers'
acceptances of (i) any Bank, (ii) any domestic commercial bank of recognized
standing having capital and surplus in excess of $10,000,000,000 or (iii) any
bank whose short-term commercial paper rating (at the time of acquisition of
such security) by S&P is at least A-1 or the equivalent thereof or by Moody's
is at least P-1 or the equivalent thereof (any such bank, an "APPROVED BANK"),
in each case with maturities of not more than six months from the date of
acquisition; (d) commercial paper and variable or fixed rate notes issued by any
Bank or Approved Bank or by the parent company of any Bank or Approved Bank and
commercial paper and variable rate notes issued by, or guaranteed by, any
industrial or financial company with a short-term commercial paper rating (at
the time of acquisition of such security) of at least A-1 or the equivalent
thereof by S&P or at

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least P-1 or the equivalent thereof by Moody's, or guaranteed by any industrial
company with a long-term unsecured debt rating (at the time of acquisition of
such security) of at least AA or the equivalent thereof by S&P or the equivalent
thereof by Moody's and in each case maturing within one year after the date of
acquisition; (e) repurchase agreements with any Bank or any primary dealer
maturing within one year from the date of acquisition that are fully
collateralized by investment instruments that would otherwise be Cash
Equivalents; PROVIDED that the terms of such repurchase agreements comply with
the guidelines set forth in the Federal Financial Institutions Examination
Council Supervisory Policy -- Repurchase Agreements of Depository Institutions
With Securities Dealers and Others, as adopted by the Comptroller of the
Currency on October 31, 1985; and (f) investments in money market mutual funds,
all of the assets of which are invested in securities and instruments of the
types set forth in clauses (a) through (d) above.

"CERCLA" is defined in Section 5.21(b).

"CLEAN-DOWN AMOUNT" means $5,000,000.

"CLEAN-DOWN PERIOD" means, for each fiscal year of the Borrower, the 30
consecutive calendar day period designated by the Borrower for such fiscal year,
falling within the 90 day period commencing on July 1 of that year and ending on
September 30 of that year.

"CLOSING DATE" means the date on which the Initial Loans are made and the
LS Purchase is consummated.

"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

"COLLATERAL" means all assets of Holdings and/or its Subsidiaries from time
to time (excluding the Put/Call Funds) and any other assets which are required
to be subjected to Liens and security interests in favor of the Administrative
Agent, for the benefit of the Banks, as collateral security for the payment or
performance of any of the Obligations, including the assets described as
collateral security in the Security Documents, the Newco Guarantee, the
Acquisition Guarantee and any Subsidiary Guarantee.

"COMMERCIAL LETTER OF CREDIT" means any letter of credit or similar
instrument issued for the account of the Borrower for the benefit of the
Borrower or any of its Subsidiaries, for the purpose of providing the primary
payment mechanism in connection with the purchase of any materials, goods or
services by the Borrower or any of its Subsidiaries in the ordinary course of
business of the Borrower or such Subsidiaries.

"COMMITMENTS" means, with respect to each Bank, the Term A Loan Commitment,
the Term B Loan Commitment, the Revolving Loan Commitment and the Acquisition
Term Loan Commitment of such Bank.

"COMMITMENT FEE" is defined in Section 2.03.

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"COMPLIANCE CERTIFICATE" means a certificate issued pursuant to Section
6.01(e) signed by a chief financial officer, controller, chief accounting
officer or other Authorized Officer of the Borrower.

"CONSOLIDATED AMORTIZATION EXPENSE" for any Person means, for any period,
the consolidated amortization expense of such Person for such period (including
amortization of any step-up in value of inventory or other assets as may be
required by purchase accounting), determined on a consolidated basis for such
Person and its Subsidiaries in conformity with GAAP.

"CONSOLIDATED CAPITAL EXPENDITURES" of any Person means, for any period,
the aggregate gross increase during that period, in the property, plant or
equipment reflected in the consolidated balance sheet of such Person and its
consolidated Subsidiaries, in conformity with GAAP, but excluding expenditures
made in connection with the replacement, substitution or restoration of assets
(a) to the extent financed from insurance proceeds paid on account of the loss
of or damage to the assets being replaced or restored or from indemnity
payments, received under the Recapitalization Documents or from any Replacement
Asset Amount or Asset Restoration Amount, (b) with awards of compensation
arising from the taking by eminent domain or condemnation of the assets being
replaced or (c) with regard to equipment that is purchased substantially
simultaneously with the trade-in of existing equipment, fixed assets or
improvements, the credit granted by the seller of such equipment for the
trade-in of such equipment, fixed assets or improvements; PROVIDED, HOWEVER,
that Consolidated Capital Expenditures shall exclude the purchase price paid in
connection with the acquisition of any other Person in a Permitted Business
Acquisition financed, in whole or in part, with the proceeds of an Acquisition
Term Loan (including through the purchase of all of the capital stock or other
ownership interests of such Person or through merger or consolidation) to the
extent allocable to property, plant and equipment.

"CONSOLIDATED CURRENT ASSETS" means, with respect to any Person as at any
date of determination, the total assets of such Person and its consolidated
Subsidiaries which may properly be classified as current assets on a
consolidated balance sheet of such Person and its Subsidiaries in accordance
with GAAP.

"CONSOLIDATED CURRENT LIABILITIES" means, with respect to any Person as at
any date of determination, the total liabilities of such Person and its
consolidated Subsidiaries which may properly be classified as current
liabilities (other than the current portion of any Loans or any Existing Debt)
on a consolidated balance sheet of such Person and its consolidated Subsidiaries
in accordance with GAAP.

"CONSOLIDATED DEPRECIATION EXPENSE" for any Person means, for any period,
the consolidated depreciation expense of such Person for such period, determined
on a consolidated basis for such Person and its consolidated Subsidiaries in
conformity with GAAP.

"CONSOLIDATED EBITDA" for any Person means, without duplication, for any
period,

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the sum of the amounts for such period of

(i) Consolidated Net Income,

(ii) Consolidated Tax Expense,

(iii) Consolidated Interest Expense,

(iv) Consolidated Depreciation Expense,

(v) Consolidated Amortization Expense, and

(vi) other non-cash expenses incurred during such period.

"CONSOLIDATED EBITDAC" for any Person means, for any period, Consolidated
EBITDA minus Consolidated Capital Expenditures.

"CONSOLIDATED INDEBTEDNESS" for any Person means, at any time for the
determination thereof, the principal amount of all Indebtedness of such Person
and its consolidated Subsidiaries, determined on a consolidated basis in
accordance with GAAP.

"CONSOLIDATED INTEREST EXPENSE" for any Person means, for any period, the
sum of (a) total interest expense (including that attributable to Capital
Leases in accordance with GAAP) and (b) total dividends paid on any preferred
stock, in each case of such Person and its Subsidiaries on a consolidated
basis with respect to all outstanding Indebtedness and preferred stock of
such Person and its Subsidiaries, including, without limitation, all
commissions, discounts and other fees and charges of a similar nature owed
with respect to letters of credit and bankers' acceptance financing, but
excluding, however, any amortization of deferred financing costs, all as
determined on a consolidated basis for such Person and its consolidated
Subsidiaries in accordance with GAAP. For purposes of clause (b) above,
dividend requirements shall be increased to an amount representing the pretax
earnings that would be required to cover such dividend requirements;
accordingly, the increased amount shall be equal to such dividend
requirements multiplied by a fraction, the numerator of which is such
dividend requirement and the denominator of which is one MINUS the applicable
actual combined federal, state, local and foreign income tax rate of such
Person and its subsidiaries (expressed as a decimal), on a consolidated
basis, for the calendar year immediately preceding the date of the
transaction giving rise to the need to calculate Consolidated Interest
Expense.

"CONSOLIDATED NET INCOME" for any Person means, for any period, the net
income (or loss) of such Person and its Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined on a consolidated
basis for such Person and its consolidated Subsidiaries in conformity with GAAP;
PROVIDED, HOWEVER, that there shall be excluded (a) the income (or loss) of any
other Person (other than consolidated Subsidiaries of such Person) in

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which any third Person (other than such Person or any of its consolidated
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually received by such Person or any of its
consolidated Subsidiaries from such other Person during such period, and (b) the
income of any consolidated Subsidiary of such Person to the extent that the
declaration or payment of dividends or similar distributions by that
consolidated 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 consolidated
Subsidiary.

"CONSOLIDATED TAX EXPENSE" for any Person means, for any period, the
consolidated tax expense of such Person for such period, determined on a
consolidated basis for such Person and its consolidated Subsidiaries in
conformity with GAAP.

"CONTINGENT OBLIGATIONS" means, as to any Person, without duplication, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("PRIMARY OBLIGATIONS") of
any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
PROVIDED, HOWEVER, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the maximum amount that such Person may be obligated to expend
pursuant to the terms of such Contingent Obligation or, if such Contingent
Obligation is not so limited, the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as determined
by such Person in good faith.

"CREDIT DOCUMENTS" means (a) the Original Credit Agreement, as amended and
restated by this Agreement, (b) each Note, (c) each Security Document, (d) the
Newco Guarantee, (e) the Acquisition Guarantee, (f) any other Subsidiary
Guarantee, and (g) any other agreement, document or instrument between the
Administrative Agent and the Borrower or any other Credit Party or between or
among the Agent, the Banks and the Borrower or any other Credit Party, which
amends, supplements or modifies this Agreement, the Notes, any Security Document
or any Subsidiary Guarantee or which is stated to be a Credit Document.

"CREDIT PARTIES' COUNSEL" is defined in Section 6.18.

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"CREDIT PARTY" means each of Holdings, the Borrower, Newco, Acquisition and
each other Subsidiary of the Borrower.

"DEFAULT" means any event, act or condition which with notice or lapse of
time, or both, would constitute an Event of Default.

"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.

"DESIGNATED ACQUISITION" means each transaction listed on Schedule 4.03.

"DIVIDENDS" is defined in Section 7.10.

"DOLLARS" means United States dollars.

"EFFECTIVE DATE" means December 31, 1996, such being the date of the
Original Credit Agreement and the making of the initial Loans thereunder.

"ELIGIBLE ACCOUNTS RECEIVABLE" means, as at any applicable date of
determination, the aggregate face amount of Borrower's and its Subsidiaries'
Accounts included in clause (a) of the definition of Account hereunder, without
duplication, MINUS (i) (without duplication) the aggregate amount of all
reserves, limits and deductions with respect to such Accounts required by
paragraphs (a) through (q) below and (ii) the aggregate amount of all returns,
discounts, claims, credits, charges (including warehouseman's charges) and
allowances of any nature with respect to such Accounts (whether issued, owing,
granted or outstanding). Unless otherwise approved in writing by the
Administrative Agent in its sole discretion, no individual Account shall be
deemed to be an Eligible Account Receivable if:

(a) the Borrower or its Subsidiary does not have legal and valid
title to the Account or the account has been written off as uncollectible;
or

(b) the Account is not the valid, binding and legally enforceable
obligation of the account debtor subject, as to enforceability, only to
(i) applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws at the time in effect affecting the enforceability of
creditors' rights generally and (ii) judicial discretion in connection with
the remedy of specific performance and other equitable remedies; or

(c) the Account arises out of a sale made by the Borrower or a
Subsidiary to an Affiliate of the Borrower (other than a Person that is an
Affiliate solely by virtue of being under common control with the
Borrower); or

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(d) the Account or any portion thereof is unpaid more than 90 days
after the original invoice date; or

(e) other than Accounts of Home Depot, the Account, when aggregated
with all other Accounts of the same account debtor (or any Affiliate
thereof), exceeds 30% in face value of all Accounts of the Borrower then
outstanding, to the extent of such excess; or

(f) (i) the Account is subject to any claim on the part of the
account debtor disputing liability under such Account in whole or in part,
to the extent of the amount of such dispute or (ii) the Account otherwise
is or is reasonably likely to become subject to any right of setoff or any
counterclaim, claim or defense by the account debtor, to the extent of the
amount of such setoff or counterclaim, claim or defense or (iii) the
account debtor for such Account is also a creditor of the Borrower, to the
extent of the amount owed by the Borrower to the account debtor; or

(g) the account debtor has commenced a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or made
an assignment for the benefit of creditors or if a decree or order for
relief has been entered by a court having jurisdiction in the premises in
respect of the account debtor in an involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or if any other
petition or other application for relief under the federal bankruptcy laws
has been filed by or against the account debtor, or if the account debtor
has failed, suspended business, ceased to be solvent, or consented to or
suffered a receiver, trustee, liquidator or custodian to be appointed for
it or for all or a significant portion of its assets or affairs; or

(h) the Administrative Agent does not have a valid and perfected
first priority security interest in such Account; or

(i) the sale to the account debtor for such Account is on a
consignment, bill-and-hold, sale on approval, guaranteed sale or
sale-and-return basis or pursuant to any written agreement providing for
repurchase or return other than return arrangements in the ordinary course
of business consistent with the past business practices of Borrower; or

(j) it is from an account debtor (or any Affiliate thereof) and 25%
or more, in face amount, of other Accounts from either such account debtor
or any Affiliate thereof are due or unpaid for more than 90 days after the
original invoice date; or

(k) 25% or more, in face amount, of other Accounts from the same
account debtor are not deemed Eligible Accounts Receivable hereunder; or

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(l) the amount debtor is a foreign Governmental Authority;

(m) the Account is an Account a security interest in which would be
subject to the Federal Assignment of Claims Act of 1940, as amended (31
U.S.C. Section 3727 et seq.), unless (i) such Account, together with all
other Eligible Accounts a security interest in which would be subject to
such Act, does not exceed 2% in face value of all Eligible Accounts of
Holdings and its Subsidiaries then outstanding, or (ii) Borrower has
assigned the Account to the Administrative Agent in compliance with the
provisions of such Act; or

(n) the sale is to an account debtor outside the United States or
Canada or incorporated in or primarily doing business in any jurisdiction
located outside the United States or Canada, unless (i) the obligations
with respect to such Account are secured by the issuance of a letter of
credit by a bank reasonably acceptable to the Agent, guarantee or
acceptance terms, (PROVIDED, HOWEVER, that obligations so secured shall not
exceed 5% in face value of all Eligible Accounts of Borrower and its
Subsidiaries then outstanding) or (ii) such Account is otherwise approved
by and acceptable to the Administrative Agent; or

(o) the Administrative Agent determines in good faith, and in
accordance with its internal credit policies and reasonable commercial
banking practices that (i) collection of the Account is insecure or (ii)
the Account may not be paid by reason of the account debtor's financial
inability to pay; PROVIDED, HOWEVER, that any Account referred to in this
clause (o) shall not become ineligible until the Administrative Agent shall
have given the Borrower five Business Days' advance notice of such
determination; or

(p) the goods giving rise to such Account have not been shipped and
delivered to and accepted by the account debtor or the services giving rise
to such Account have not been performed by the Borrower and accepted by the
account debtor or the Account otherwise does not represent a final sale; or

(q) the Account does not comply in all material respects with all
applicable legal requirements, including, where applicable, 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, in
each case as amended.

In addition to the foregoing, Eligible Accounts Receivable shall include
such Accounts as the Borrower shall request and that the Administrative Agent
approves in advance, in writing and in its sole discretion (or if the aggregate
face amount to be approved exceeds $1,000,000 at any one time, the approval of
the Required Banks has been obtained in writing).

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"ELIGIBLE ASSIGNEE" means (a) a commercial bank organized under the laws of
the United States, or any State thereof, and having total assets in excess of
$1,000,000,000; (b) a savings and loan association or savings bank organized
under the laws of the United States, or any State thereof, and having total
assets in excess of $1,000,000,000; (c) a finance company, insurance company,
investment company or other financial institution organized under the laws of
the United States, or any State thereof, that is engaged in purchasing or
otherwise investing in commercial loans in the ordinary course of business,
having total assets in excess of $100,000,000; or (d) an entity managed by a
Bank or Affiliate of a Bank; PROVIDED, HOWEVER, that the Commitment held by such
entity is less than $20,000,000.

"ELIGIBLE INVENTORY" means the total of:

(a) the gross amount of Inventory of the Borrower and its
Subsidiaries, valued at the lower of cost (on a FIFO basis) or market,
which (i) is owned solely by the Borrower or any of its Subsidiaries and
with respect to which the Borrower or such Subsidiary has good, valid and
marketable title; (ii) is stored on property that is owned or leased by
(A) the Borrower or any of its Subsidiaries or (B) a warehouseman that has
contracted with the Borrower or any of its Subsidiaries to store Inventory
on such warehouseman's property (PROVIDED, HOWEVER, that, with respect to
Inventory stored on property owned or leased by a warehouseman, the
Borrower or such Subsidiary shall have delivered to the Administrative
Agent acknowledgment agreements executed by such warehouseman); (iii) is
subject to a valid, enforceable and first priority Lien in favor of the
Administrative Agent (subject, with respect to Eligible Inventory stored at
sites described in clause (ii)(B) above, to Liens for normal and customary
warehouseman charges); (iv) is located in the United States; and (v) is
not, in the reasonable judgment of the Agent, obsolete or slow moving in
relation to customary industry practice, and which otherwise conforms to
the requirements for eligibility contained in clauses (i) through (iv)
above; MINUS (without duplication);

(b) the amount of any goods returned or rejected by the customers of
the Borrower or any of its Subsidiaries and goods in transit to third
parties (other than to agents or warehousemen of the Borrower or any of its
Subsidiaries that comply with clause (a)(ii)(B) above); MINUS (without
duplication); and

In addition to the foregoing, Eligible Inventory shall include such items of the
Inventory of the Borrower and its Subsidiaries as the Borrower shall request and
the Administrative Agent (or if the aggregate amount to be approved exceeds
$1,000,000 at any one time, the Required Banks) shall approve in advance, in
writing and in its (their) sole discretion.

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"ENVIRONMENT" means any surface water, ground water, drinking water supply,
land surface or subsurface strata or ambient air and includes, without
limitation, any indoor location.

"ENVIRONMENTAL AUTHORIZATIONS" is defined in Section 5.21.

"ENVIRONMENTAL LAWS" means the common law and all federal, state, local and
foreign laws or regulations, codes, orders, decrees, judgments or injunctions
issued, promulgated, approved or entered thereunder, now or hereafter in effect,
relating to pollution or protection of public or employee health or safety or
the Environment, including, without limitation, laws relating to (a) emissions,
discharges, releases or threatened releases of Hazardous Materials into the
Environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), (b) the manufacture, processing,
distribution, use, generation, treat ment, storage, disposal, transport or
handling of Hazardous Materials, and (c) underground and aboveground storage
tanks, and related piping, and emissions, discharges, releases or threatened
releases therefrom.

"ENVIRONMENTAL NOTICE" means any written notice or claim by any
Governmental Authority or other third party alleging liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental costs, compliance costs or harm, injuries or damages to any person,
property or natural resources, or any fines or penalties) arising out of, based
upon, resulting from or relating to any Environmental Law.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.

"ERISA AFFILIATE" of a Person means any entity, whether or not
incorporated, which is under common control or would be considered a single
employer with such Person within the meaning of Section 414(b) or (c) of the
Code and regulations promulgated under those sections or within the meaning of
section 4001(b) of ERISA and regulations promulgated under that section.

"EURODOLLAR RATE" means with respect to each Interest Period for a Reserve
Adjusted Eurodollar Loan, (a) the arithmetic average (rounded to the nearest
1/100 of 1%) of the offered quotation to first-class banks in the interbank
Eurodollar market by each of the Reference Banks for dollar deposits of amounts
in same day funds comparable to the outstanding principal amount of the Reserve
Adjusted Eurodollar Loan for which an interest rate is then being determined
with maturities comparable to the Interest Period to be applicable to such
Eurodollar Loan, determined as of 10:00 A.M. (New York time) on the date which
is two Business Days prior to the commencement of such Interest Period divided
(and rounded upward to the next whole multiple of 1/16 of 1%) DIVIDED BY (b) a
percentage equal to 100% minus the then stated maximum rate of all reserve
requirements (including, without limitation, any marginal,

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emergency, supplemental, special or other reserves) applicable 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); PROVIDED, HOWEVER, that if any Reference Bank fails to provide
the Administrative Agent with its aforesaid rate, then the Eurodollar Rate shall
be determined based on the rate or rates provided to the Administrative Agent by
the remaining Reference Banks.

"EURODOLLAR RATE MARGIN" means:

(a) with respect to any Term A Loan, 2.75% per annum;

(b) with respect to any Term B Loan, 3.25% per annum;

(d) with respect to any Acquisition Term Loan, 3.25% per annum.

"EVENT OF DEFAULT" is defined in Section 8.

"EXCESS" is defined in Section 3.03(b).

"EXCESS CASH FLOW" means, without duplication, for any Person for any
period for which such amount is being determined, (a) Consolidated Net Income,
MINUS (b) any amount which is both (i) included in Consolidated Net Income and
(ii) required to be applied to the prepayment of the Loans pursuant to Section
3.03, PLUS (minus) (c) the amount of depreciation, depletion, amortization of
intangibles, deferred taxes and other non-cash expenses (revenues) which,
pursuant to GAAP, were deducted (added) in determining such Consolidated Net
Income of such Person, MINUS (d) additions to working capital for such period
(I.E., the increase or decrease in Consolidated Current Assets of such Person
from the beginning to (excluding Cash or Cash Equivalents which are either Net
Cash Proceeds or Net Financing Proceeds required to be applied to the prepayment
of the Loans pursuant to Section 3.03(d) during such period) of such Person
minus the increase or plus the decrease in Consolidated Current Liabilities),
MINUS (e) cash expenditures in respect of Consolidated Capital Expenditures that
are made during such period, MINUS (f) Scheduled Term A Loan Principal Payments,
Scheduled Term B Loan Principal Payments, Scheduled Acquisition Term Loan
Principal Payments and voluntary prepayments of Loans not subject to reborrowing
made during such period, MINUS (g) cash payments to Management Stockholders to
repurchase capital stock pursuant to Section 7.10, MINUS (h) principal payments
on Indebtedness permitted under Section 7.07. For purposes of the foregoing and
without duplication, Consolidated Net Income will exclude (A) all net losses on
the sale of capital assets or out of the ordinary course of business and (B) all
write-downs of capital assets.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

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"EXISTING DEBT" means Indebtedness of Borrower and its Subsidiaries set
forth on Schedule 5.20.

"EXISTING LEASES" means the Leases of Holdings and its Subsidiaries set
forth on Schedule 5.16.

"EXISTING ACQUISITION TERM LOANS" is defined in the recitals to this
Agreement.

"EXISTING LOANS" means the Existing Term A Loans, the Existing Term B
Loans, the Existing Acquisition Term Loans and the Existing Revolving Loans, all
of which are to be refinanced and replaced with the proceeds of the Initial
Loans hereunder.

"EXISTING REVOLVING LOANS" is defined in the recitals to this Agreement.

"EXISTING TERM A LOANS" is defined in the recitals to this Agreement.

"EXISTING TERM B LOANS" is defined in the recitals to this Agreement.

"FEDERAL FUNDS RATE" means on any one day the weighted average of the rate
on overnight Federal funds transactions with members of the Federal Reserve
System only arranged by Federal funds brokers as published as of such day by the
Federal Reserve Bank of New York, or if not so published, the rate then used by
first-class banks in extending overnight loans to other first-class banks.

"FINANCING PROCEEDS" means the Cash or Cash Equivalents (other than Net
Cash Proceeds or proceeds of any sale, transfer or other disposition of assets
excluded from the definition of "Asset Sale" by the exceptions contained
therein) received by Holdings or any of its Subsidiaries, directly or
indirectly, from any financing transaction of whatever kind or nature, including
without limitation from any incurrence of Indebtedness from any mortgage or
pledge of an asset or interest therein (including any transaction which is the
substantial equivalent of a mortgage or pledge), from any lease to a third party
and a pledge of the lease payments due thereunder to secure Indebtedness, from
any joint venture arrangement, from any exchange of assets and a sale of the
assets received in such exchange, or any other similar arrangement or technique
whereby a Credit Party obtains Cash in respect of an asset, net of direct costs
associated therewith. Financing Proceeds shall not include any amounts with
respect to (a) any Borrowings of Revolving Loans or Acquisition Term Loans, (b)
the incurrence or refinancing of Indebtedness permitted by Sections 7.07(e), (f)
and (g) effected in accordance with the applicable provisions of such Sections
and (c) transactions between any of the Borrower and its Wholly Owned
Subsidiaries.

"FIRREA" means the Financial Institutions Reform, Recovery & Enforcement
Act of 1989, as amended from time to time, and any successor statute.

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"FOREIGN BANK" is defined in Section 3.07(c).

"GAAP" means generally accepted accounting principles in the United States
of America observed in the preparation of the audited financial statements of
Holdings for its fiscal year ended June 30, 1996 and delivered pursuant to
Section 4.01(j), consistently applied.

"GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign or other
governmental or administrative (including self-regulatory) body,
instrumentality, department or agency or any court, tribunal, administrative
hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body including, without limitation, those governing the regulation and
protection of the Environment, whether now or hereafter in existence, or any
officer or official thereof.

"HAZARDOUS MATERIALS" means all pollutants, contaminants or chemical,
industrial, hazardous or toxic materials, substances, constituents or wastes,
including, without limitation, asbestos, or asbestos-containing materials,
polychlorinated biphenyls and petroleum, oil, or petroleum or oil products,
derivatives or constituents, including, without limitation, crude oil or any
fraction thereof, or any other material, waste, chemical, substance or
constituent subject to regulation under any Environmental Law.

"HELLER" is defined in the preamble to this Agreement.

"HELLER SUBORDINATED NOTES" means the 8% unsecured subordinated convertible
notes in the aggregate principal amount of $7,100,000 issued by Holdings and the
Borrower to Heller in connection with the Recapitalization.

"HELLER SUBORDINATION AGREEMENT" means the Subordination Agreement dated as
of December 31, 1996 among the Borrower, Holdings, Heller and the Administrative
Agent, providing for the subordination of the Heller Subordinated Note.

"HOLDINGS" is defined in the preamble to this Agreement.

"IBJS" is defined in the preamble to this Agreement.

"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) the deferred purchase price
of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, (c) the undrawn amount of
all letters of credit issued for the account of such Person and, without
duplication, all unreimbursed drafts drawn thereunder, (d) all Indebtedness of a
second Person secured by any Lien on any property owned by such first Person,
whether or not such Indebtedness has been assumed by such first Person, (e) all
Capitalized Lease Obligations of such Person, (f) all obligations of such Person
to pay a specified purchase price for goods or services whether or not delivered
or accepted, i.e., take-or-pay and similar obligations, (g) all Obligations

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of such Person under Interest Rate Agreements and (h) all Contingent Obligations
of such Person; PROVIDED, HOWEVER, that Indebtedness shall not include trade
payables, accrued expenses, accrued dividends and accrued income taxes, in each
case arising in the ordinary course of business.

"INDOSUEZ" is defined in the preamble to this Agreement.

"INFORMATION" is defined in Section 12.04(e).

"INITIAL BANK" means a Bank that is an original signatory to this
Agreement.

"INITIAL BORROWERS" is defined in the preamble to this Agreement.

"INITIAL DATE" means, in the case of each Bank party hereto on the Closing
Date, the Closing Date, and in the case of each other Bank, the effective date
of the Assignment Agreement pursuant to which it became a Bank hereunder.

"INITIAL LOANS" means the Loans made on the Closing Date.

"INITIAL REVOLVING LOANS" means the initial Revolving Loans made on the
Closing Date in an aggregate amount not to exceed $3,000,000 used to make
payments as set forth in Section 1.01(c).

"INTELLECTUAL PROPERTY" is defined in Section 5.14.

"INTEREST PERIOD" means, with respect to any Reserve Adjusted Eurodollar
Loan, the interest period applicable thereto, as determined pursuant to Section
1.09.

"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement, interest rate futures
contract, interest rate option contract or other similar agreement or
arrangement to which any Credit Party is a party, designed to protect Holdings
or any of its Subsidiaries against fluctuations in interest rates.

"INTEREST RATE DETERMINATION DATE" means, with respect to a Reserve
Adjusted Eurodollar Loan, the date for calculating the Eurodollar Rate for
purposes of determining the interest rate in respect of an Interest Period, and
for each such Borrowing the date which is two Business Days prior to the
commencement of the Interest Period for such Borrowing.

"INVENTORY" means all of the inventory of the Borrower and its Subsidiaries
(on a consolidated basis), including, without limitation, (a) all finished
goods, raw materials, work in process and packaging materials produced, used or
consumed in the business of the Borrower and its Subsidiaries, whether finished
or unfinished, held for sale or furnished or to be furnished

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under contracts of service, and (b) all finished goods returned or repossessed
by the Borrower or any of its Subsidiaries.

"INVESTMENT" means with respect to any Person (a) any share of Capital
Stock, partnership interest, evidence of Indebtedness or other security issued
by any other Person, (b) any loan, advance, extension of credit to, or
contribution to the capital of, any other Person, (c) the acquisition of the
stock or assets of a business or (d) any other investment; PROVIDED, HOWEVER,
that the term "Investment" shall not include (i) fixed assets or inventory
acquired in the ordinary course of business and payable in accordance with
customary trade terms, (ii) advances to employees for travel expenses, drawing
accounts and similar expenditures, (iii) stock or other securities acquired in
connection with the satisfaction or enforcement of Indebtedness or claims due or
owing to any Person or as security for any such Indebtedness or claim, (iv) any
investment or purchase made through the issuance of common stock of Holdings or
(v) demand deposits in banks or trust companies. The amount of an Investment
outstanding at any time shall be determined in accordance with GAAP; PROVIDED,
HOWEVER, that no Investment shall be increased as a result of an increase in the
undistributed retained earnings of the Person in whom an Investment was made or
decreased as a result of equity in the losses of any such Person.

"IPO" is defined in Section 8.09.

"KCSN" is defined in the preamble to this Agreement.

"LANDLORD CERTIFICATION AND WAIVER" means, with respect to any Real
Property leased by Holdings or any of its Subsidiaries, a statement executed by
the landlord of such Real Property, in form and substance satisfactory to the
Administrative Agent, providing the Administrative Agent with, among other
things, (i) the right to take and perfect a mortgage or other assignment of the
applicable Credit Party's interest in the lease as collateral security for the
Obligations, (ii) the right to cure defaults and perform under the lease in the
event of a failure to perform by such Credit Party, (iii) the right to foreclose
or otherwise realize upon said security interest in the lease and to assign the
Credit Party's rights in the lease to a third party in connection with such
foreclosure or other realization and (iv) the right to take upon such
foreclosure or other realization any property of the Credit Party located on the
leased Real Property (which right shall be superior to that of the lessor).

"LEASE" means any lease, sublease, franchise agreement, license, occupancy
or concession agreement.

"LETTER OF CREDIT" or "LETTERS OF CREDIT" means, (i) Standby Letter or
Letters of Credit and (ii) Commercial Letter or Letters of Credit, in each case,
issued or to be issued by Issuing Banks for the account of Borrower pursuant to
Section 1.13.

"LETTER OF CREDIT CASH COLLATERAL" shall have the meaning provided in
Section 1.13(a)(iv).

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"LETTER OF CREDIT CASH COLLATERAL ACCOUNT" shall have the meaning provided
in Section 1.13(a)(iv).

"LETTER OF CREDIT PARTICIPATION" shall have the meaning provided in Section
1.13(a)(ii).

"LETTERS OF CREDIT USAGE" means, as at any date of determination, the sum
of (i) the maximum aggregate amount that is or at any time thereafter may become
available to be drawn under all Letters of Credit then outstanding plus (ii) the
aggregate amount of all drawings under Letters of Credit honored by all Issuing
Banks and not theretofore reimbursed by Borrower.

"LIEN" means any mortgage, pledge, security interest, encumbrance, lien,
claim, hypothecation, assignment for security or charge of any kind (including
any agreement to give any of the foregoing, any conditional sale or other title
retention agreement or any lease in the nature thereof).

"LOAN" means each Term A Loan, Term B Loan, Revolving Loan and Acquisition
Term Loan.

"LOAN FACILITY" means the credit facility evidenced by the Total Term A
Loan Commitment, the Total Term B Loan Commitment, the Total Revolving Loan
Commitment and the Total Acquisition Term Loan Commitment.

"LOSS PROCEEDS" is defined in Section 3.03(f).

"LS PURCHASE" is defined in the recitals to this Agreement.

"LS PURCHASE AGREEMENT" is defined in the recitals to this Agreement.

"LS PURCHASE DOCUMENTS" means the LS Purchase Agreement and the other
documents evidencing or implementing the transactions contemplated thereby.

"MATERIAL ADVERSE EFFECT" means, (a) with respect to Holdings and its
Subsidiaries, any material adverse effect (whether occurring before or after
giving effect to the Recapitalization and the financing thereof and the other
transactions contemplated hereby and by the other Transaction Documents) with
respect to the operations, business, properties, assets, liabilities (contingent
or otherwise), financial condition or prospects of Holdings and its
Subsidiaries, taken as a whole, or (b) any fact or circumstance (whether or not
the result thereof would be covered by insurance) as to which singly or in the
aggregate there is a reasonable likelihood of (i) a material adverse change
described in clause (a) with respect to Holdings and its Subsidiaries, taken as
a whole, or (ii) the inability of any Credit Party to perform in any material
respect its Obligations hereunder or under any of the other Transaction
Documents or the inability of the Banks to enforce in any material respect their
rights purported to be granted hereunder or under

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any of the other Transaction Documents or the Obligations (including realizing
on the Collateral).

"MANAGEMENT AGREEMENT" means the Fee Agreement dated as of the date hereof
between the Borrower and Kohlberg & Company, LLC.

"MANAGEMENT STOCKHOLDERS" means, collectively, Michael F. Vukelich, Jerry
L. Halamuda, Gary E. Mariani, Gene Malcolm, Steven J. Bookspan, Michael T.
Neenan, Robert F. Strange, Jim Tsurudome, Richard George, Gary Crook, Dave
Grimshaw, John Negrete, Dennis Bahen, and other individuals from time to time
party to the Stockholders Agreement.

"MINIMUM BORROWING AMOUNT" means $100,000.

"MOODY'S" means Moody's Investors Service, Inc.

"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA with respect to which the Borrower or any of its
ERISA Affiliates is or has been required to contribute.

"NET CASH PROCEEDS" means with respect to any Asset Sale, the aggregate
payments of Cash or Cash Equivalents received by Holdings and/or any of its
Subsidiaries, as the case may be, from such Asset Sale, net of direct expenses
of sale, net of taxes (including income taxes and transfer taxes) and net of
repayment of Indebtedness or Capitalized Leases in each case secured by a Lien
on the asset subject to such Asset Sale; PROVIDED, HOWEVER, that with respect to
taxes, expenses shall only include taxes to the extent that taxes are payable in
cash with respect to the current year; and PROVIDED, FURTHER, that Net Cash
Proceeds shall not include any amounts or items included in the definition of
Financing Proceeds or Net Financing Proceeds.

"NET FINANCING PROCEEDS" means Financing Proceeds, net of direct expenses
of the transaction and net of taxes (including income taxes) currently paid or
payable in cash with respect to the current year as a result of the transaction
generating such Financing Proceeds.

"NEWCO" is defined in the recitals to this Agreement.

"NEWCO GUARANTEE" means the Subsidiary Guarantee executed by Newco and
delivered to the Administrative Agent as of the Closing Date, pursuant to which
Newco guarantees the Borrower's Obligations.

"NOTE" means each Term A Note, Term B Note, Revolving Note and Acquisition
Term Note.

"NOTICE OF ACQUISITION LOAN BORROWING" is defined in Section 1.03.

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"NOTICE OF BORROWING" is defined in Section 1.03.

"NOTICE OF REVOLVING LOAN BORROWING" is defined in Section 1.03.

"NOTICE OF CONVERSION/CONTINUATION" is defined in Section 1.06.

"OBLIGATIONS" means all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to the
Administrative Agent or any Bank pursuant to the terms of this Agreement or any
other Credit Document or secured by any of the Security Documents, including,
without limitation, interest accruing subsequent to the filing of a petition
initiating any proceeding in bankruptcy, insolvency or like proceeding of any
Credit Party, whether or not such interest is an allowed claim enforceable
against the debtor in a bankruptcy case under the Bankruptcy Code.

"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, its Chief Financial
Officer or its Treasurer (in such Person's capacity as an officer and not
individually); PROVIDED, HOWEVER, that every Officers' Certificate with respect
to compliance with a condition precedent to the making of any Loan hereunder
shall include (a) a statement that the officers making or giving such Officers'
Certificate have read such condition and any definitions or other provisions
contained in this Agreement relating thereto, (b) 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
(c) a statement as to whether, in the opinion of the signers, such condition has
been complied with.

"OLD NOTE" means each Old Term A Note, Old Term B Note, Old Revolving Note
and Old Acquisition Term Note.

"OLD ACQUISITION TERM NOTES" means the Acquisition Term Notes issued
pursuant to the Original Credit Agreement and dated the Effective Date, to be
cancelled upon issuance of the Acquisition Term Notes to be issued hereunder as
of the Closing Date.

"OLD REVOLVING NOTES" means the Revolving Notes issued pursuant to the
Original Credit Agreement and dated the Effective Date, to be cancelled upon
issuance of the Revolving Notes to be issued hereunder as of the Closing Date.

"OLD TERM A NOTES" means the Term A Notes issued pursuant to the Original
Credit Agreement and dated the Effective Date, to be cancelled upon issuance of
the Term A Notes to be issued hereunder as of the Closing Date.

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"OLD TERM B NOTES" means the Term B Notes issued pursuant to the Original
Credit Agreement and dated the Effective Date, to be cancelled upon issuance of
the Term B Notes to be issued hereunder as of the Closing Date.

"OPERATING LEASE" of any Person shall mean any lease (including, without
limitation, leases which may be terminated by the lessee at any time) of any
property (whether real, per sonal or mixed) by such Person as lessee which is
not a Capital Lease.

"ORIGINAL CREDIT AGREEMENT" is defined in the preamble to this Agreement.

"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.

"PENSION PLAN" means any pension plan as defined in Section 3(2) of ERISA
(other than a Multiemployer Plan) which is or has been maintained by or to which
contributions are or have been made by the Borrower or any of its ERISA
Affiliates.

"PERMITTED BUSINESS ACQUISITION" means either (i) a Designated Acquisition
or (ii) an Unspecified Permitted Acquisition.

"PERMITTED ENCUMBRANCES" is defined in Section 7.06.

"PERSON" means any individual, partnership, joint venture, limited
liability company, firm, corporation, association, trust or other enterprise or
any government or political subdivision or any agency, department or
instrumentality thereof.

"PLAN" means, at any time, any pension benefit plan subject to Title IV of
ERISA.

"PORTION" means the Term A Portion, the Term B Portion, the Revolving
Portion or the Acquisition Term Portion.

"PREPAYMENT COLLATERAL ACCOUNT" is defined in Section 3.08(b).

"PRIOR LIENS" is defined in Section 5.10.

"PROJECTED FINANCIAL STATEMENTS" is defined in Section 5.09(c).

"PUT/CALL FUNDS" means the aggregate $5,690,898 set aside by Holdings from
the proceeds of the Initial Loans to redeem "Option Shares" (as defined in the
Put/Call Option Agreement) pursuant to the Put/Call Option Agreement.

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"PUT/CALL OPTION AGREEMENT" means the Put/Call Option Agreement dated as of
December 31, 1996 among Holdings, KCSN and the Management Stockholders.

"REAL PROPERTY" means all right, title and interest of Holdings or any of
its Subsidiaries (including, without limitation, any leasehold estate) in and to
a parcel of real property owned or leased (or, with respect to representations,
warranties and covenants relating to compliance with Environmental Laws,
operated) by Holdings or any of its Subsidiaries together with, in each case,
all improvements and appurtenant fixtures, equipment, personal property,
easements and other property and rights incidental to the ownership or lease (or
operation, as applicable) thereof, in each case, from time to time after the
Closing Date.

"RECAPITALIZATION" means the recapitalization of Holdings whereby a
controlling interest in Holdings is acquired by KCSN pursuant to the
Recapitalization Agreement.

"RECAPITALIZATION AGREEMENT" is defined in the recitals to this Agreement.

"REDEEMING SHAREHOLDER" has the meaning provided in the Recapitalization
Agreement.

"REFERENCE BANKS" means Indosuez, Citibank, N.A. and The Chase Manhattan
Bank, N.A.

"REGISTER" is defined in Section 12.04(c).

"REGULATIONS D, G, T, U AND X" means Regulations D, G, T, U and X (or any
one or more of them specified) of the Board of Governors of the Federal Reserve
System as from time to time in effect and any successor to all or a portion
thereof establishing margin requirements.

"REPLACEMENT ASSET AMOUNT" is defined in Section 3.03(c)(i).

"REQUIRED BANKS" means at any time Banks holding at least 51% of the sum of
the (x) Total Commitments and (y) outstanding Loans; PROVIDED, HOWEVER that in
the event there is only one Bank, "Required Banks" shall mean such Bank; and
PROVIDED, FURTHER that for the purposes of Section 4, the requirement that any
document, agreement, certificate or other writing is to be satisfactory to the
Required Banks shall be satisfied if (a) such document, agreement, certificate
or other writing was delivered in its final form to the Banks prior to the
Closing Date (or if amended or modified thereafter, the Administrative Agent
shall have reasonably determined such amendment or modification not to be
material), (b) such document, agreement, certificate or other writing is
satisfactory to the Administrative Agent and (c) Banks holding more than 51% of
the Total Commitments held by Banks have not objected in writing to such
document, agreement, certificate or other writing to the Administrative Agent
prior to the Closing Date.

"RESERVE ACCOUNT" is defined in Section 3.08(a).

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"RESERVE ADJUSTED EURODOLLAR LOAN" means any Loan bearing interest at a
rate determined by reference to the Eurodollar Rate in accordance with the
provisions of Section 1.08(b).

"REVOLVING LOAN COMMITMENT" means, with respect to each Bank, the amount
set forth below such Bank's name on Schedule A hereto directly below the column
entitled "Revolving Loan", as same may be reduced from time to time pursuant to
Sections 2.01, 3.03 and/or 8.

"REVOLVING LOAN COMMITMENT TERMINATION DATE" means the Business Day
immediately preceding the Revolving Loan Maturity Date.

"REVOLVING LOAN MATURITY DATE" means the last Business Day of June, 2002.

"REVOLVING LOAN" is defined in Section 1.01(c).

"REVOLVING NOTE" is defined in Section 1.05(a)(iii).

"REVOLVING PORTION" means, at any time, the portion of the Loan Facility
evidenced by the Total Revolving Loan Commitment.

"S&P" means Standard & Poor's Corporation.

"SCHEDULED ACQUISITION TERM LOAN PRINCIPAL PAYMENTS" means, with respect to
the principal payments on the Acquisition Term Loan to be made on the last
Business Day of each calendar quarter specified in the table below, in each
case, for each such date, in the Dollar amount which is the product of (x) the
total outstanding principal amount of all of the Acquisition Term Loans as of
the close of business on the Acquisition Term Loan Commitment Termination Date
(after giving effect to any Borrowings under the Acquisition Term Loans on such
date) and (y) the percentage specified opposite such date in such table:

Percentage to Obtain
Acquisition Term Loan
Period Principal Payment
------ ---------------------

January 1, 1998 through 0.250%
December 31, 2001

January 1, 2002 through 8.083%
December 31, 2002

January 1, 2003 through 15.920%
September 30, 2003

December 31, 2003 15.908%

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"SCHEDULED TERM A LOAN PRINCIPAL PAYMENTS" means, with respect to the
principal payments on the Term A Loan to be made on the last Business Day of
each calendar quarter specified in the table below, the Dollar amount specified
opposite such date in such table:

Scheduled Term A Loan
Date Principal Payment
---- ---------------------

March 31, 1997 $450,000
June 30, 1997 $625,000
September 30, 1997 $625,000
December 31, 1997 $625,000

March 31, 1998 $975,000
June 30, 1998 $975,000
September 30, 1998 $975,000
December 31, 1998 $975,000

March 31, 1999 $1,125,000
June 30, 1999 $1,125,000
September 30, 1999 $1,125,000
December 31, 1999 $1,125,000

March 31, 2000 $1,200,000
June 30, 2000 $1,200,000
September 30, 2000 $1,200,000
December 31, 2000 $1,200,000

March 31, 2001 $1,400,000
June 30, 2001 $1,400,000
September 30, 2001 $1,400,000
December 31, 2001 $1,400,000

March 31, 2002 $1,937,500
June 30, 2002 $1,937,500

"SCHEDULED TERM B LOAN PRINCIPAL PAYMENTS" means, with respect to the Term
B Loan, principal payments to be made on the last Business Day of each calendar
quarter specified in the table below, in each case, in the Dollar amount
specified opposite such period in such table:

Scheduled Term B Loan
Period Principal Payment
------ ---------------------

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January 1, 1997 through
June 30, 2002 $87,620
July 1, 2002 through
December 31, 2003 $5,512,060

"SEC" means the Securities and Exchange Commission or any successor
thereto.

"SECURITIES" means any stock, shares, partnership interests, membership
interests, voting trust certificates, bonds, debentures, options, warrants,
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 participation 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.

"SECURITY AGREEMENTS" means, collectively, the Security Agreements executed
by Holdings, the Borrower, Newco, Acquisition and any other Subsidiary of the
Borrower pursuant to Sections 6.14 or 6.15, each substantially in the form of
Exhibit 10A, except for such changes therein as shall have been approved by the
Administrative Agent as the same may after its execution be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof and hereof.

"SECURITY DOCUMENTS" means each of the Security Agreements, the Landlord
Certification and Waivers, any mortgages, deeds of trust or leasehold mortgages
granting a security interest in favor of the Administrative Agent (or other
agent for the Banks) in any Real Property of any Credit Party, the Trademark
Security Agreement and any other documents (including UCC financing statements)
utilized to pledge or perfect a security interest in any other property or
assets of whatever kind or nature as Collateral for the Obligations.

"SELLER NOTE" is defined in Section 7.07(c).

"SELLERS" is defined in the preamble to this Agreement.

"SENIOR MANAGERS" means, collectively, Michael F. Vukelich and Jerry L.
Halamuda.

"SENIOR OFFICER" means any of the chief executive officer, president, chief
financial officer, controller, chief accounting officer, chief operating
officer, treasurer or any vice president of the Borrower.

"SIGNATURE DESIGNATED ACQUISITION" means the acquisition described in the
letter of intent dated November 27, 1996 between CSN, Inc. and Signature Trees,
a copy of which is included in Schedule 4.03.

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"SPECIFIED COLLATERAL PERFECTION ACTIONS" is defined in Section 6.18 of the
Original Credit Agreement.

"STANDBY LETTER OF CREDIT" means any standby letter of credit or similar
instrument issued for the purpose of supporting (i) workers' compensation
liabilities of the Borrower or any of its Subsidiaries, (ii) the obligations of
third-party insurers of the Borrower or any of its Subsidiaries arising by
virtue of the laws of any jurisdiction requiring third-party insurers to obtain
such letters of credit, or (iii) performance, payment, deposit or surety
obligations of the Borrower or any of its Subsidiaries, including with respect
to the obligations of Borrower to third party vendors, if required by law or
governmental rule or regulation or in accordance with custom and practice in the
industry.

"STATE AND LOCAL REAL PROPERTY DISCLOSURE REQUIREMENTS" means any state or
local laws requiring notification of the buyer of real property, or
notification, registration, or filing to or with any state or local agency,
prior to the sale of any real property or transfer of control of an
establishment, of the actual or threatened presence or release into the
environment, or the use, disposal, or handling of Hazardous Materials on, at,
under, or near the real property to be sold or the establishment for which
control is to be transferred.

"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement dated as of
December 31, 1996 among Holdings, KCSN, Heller and the Management Stockholders,
as amended as of the Closing Date.

"STOCK REPURCHASE AGREEMENT" means the Stock Repurchase Agreement dated as
of the date hereof between Holdings and the Senior Managers.

"SUBJECT SECURITIES" has the meaning provided in the Stock Repurchase
Agreement.

"SUBORDINATED LENDERS" is defined in Section 7.23.

"SUBSIDIARY" of any Person means and includes (a) any corporation more than
50% of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (b) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries has more than a 50% equity interest at the time.

"SUBSIDIARY GUARANTEE" means the guarantee of the Borrower's Obligations
hereunder to be executed by each Subsidiary of the Borrower, in the form
attached hereto as Exhibit 10B, including, without limitation, the Acquisition
Guarantee and the Newco Guarantee.

"TARGET" is defined in the preamble to this Agreement.

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"TAXES" means all taxes, levies, imposts, duties or other charges of
whatsoever nature imposed by any Governmental Authority, together with interest,
penalties and expenses payable or incurred in connection therewith, except that
such term shall not refer to any of the following:

(a) any taxes imposed by the United States or any political
subdivision thereof on the effectively connected net income of any Bank or
any franchise taxes imposed by any such jurisdiction;

(b) taxes imposed on the net income of, or franchise taxes imposed
upon, any Bank by the jurisdiction under the laws of which such Bank is
organized or by any political subdivision thereof;

(c) taxes imposed on the net income of such Bank's lending office,
and franchise taxes imposed on it, by the jurisdiction of such Bank's
lending office, or any political subdivision thereof;

(d) any taxes imposed on any Bank by Section 884(a) of the Code (and
any successor statute to Section 884(a)); and

(e) any United States withholding tax payable with respect to any
payments to such Bank under the laws (including, without limitation, any
treaty, ruling, judicial or administrative determination or regulation) in
effect on the Initial Date or as a result of the Bank's having voluntarily
changed the jurisdiction of its lending office from a jurisdiction in which
payments made to such Bank are exempt from United States withholding tax to
a jurisdiction in which such payments are not so exempt; PROVIDED, HOWEVER,
that the term "Taxes" shall include any United States withholding tax
payable or increased as a result of any change in any law, treaty, ruling,
judicial or administrative determination or regulation occurring after the
Initial Date.

"TERM A LOAN COMMITMENT" means, with respect to each Bank, the amount set
forth below such Bank's name on Schedule A hereto directly below the column
entitled "Term A Loan", as the same may be reduced from time to time pursuant to
Sections 2.01, 2.02, 3.03 and/or 8.

"TERM A LOAN" is defined in Section 1.01(a).

"TERM A LOAN MATURITY DATE" means the last Business Day of June, 2002.

"TERM A NOTE" is defined in Section 1.05(a)(i).

"TERM A PORTION" means, at any time, the portion of the Loan Facility
evidenced by the Total Term A Loan Commitment.

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"TERM B LOAN COMMITMENT" means, with respect to each Bank, the amount set
forth below such Bank's name on Schedule A hereto directly below the column
entitled "Term B Loan", as the same may be reduced from time to time pursuant to
Sections 2.01, 2.02, 3.03 and/or 8.

"TERM B LOAN" is defined in Section 1.01(b).

"TERM B LOAN MATURITY DATE" means the last Business Day of December, 2003.

"TERM B NOTE" is defined in Section 1.05(a)(ii).

"TERM B PORTION" means, at any time, the portion of the Loan Facility
evidenced by the Total Term B Loan Commitment.

"TERMINATION EVENT" means (a) a "reportable event" described in Section
4043 of ERISA or in the regulations thereunder (excluding events for which the
requirement for notice of such reportable event has been waived by the PBGC)
with respect to a Title IV Plan, or (b) the withdrawal of Holdings or any of its
ERISA Affiliates from a Title IV Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the
filing of a notice of intent to terminate a Title IV Plan or the treatment of a
Title IV Plan amendment as a termination under Section 4041 of ERISA, or (d) the
institution of proceedings by the PBGC to terminate a Title IV Plan or to
appoint a trustee to administer a Title IV Plan, or (e) any other event or
condition which might constitute reasonable and probable grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan, or (f) the complete or partial withdrawal (within
the meaning of Sections 4203 and 4205, respectively, of ERISA) of Holdings or
any of its ERISA Affiliates from a Multiemployer Plan, or (g) the insolvency or
reorganization (within the meaning of Sections 4245 and 4241, respectively, of
ERISA) or termination of any Multiemployer Plan.

"TEST PERIOD" means, for any specified date, the shorter of (x) the four
consecutive complete calendar quarters last ended or (y) the period of all
complete calendar quarters since the Effective Date.

"TITLE IV PLAN" means any plan (other than a Multiemployer Plan) described
in Section 4021(a) of ERISA, and not excluded under Section 4021(b) of ERISA,
which is or has been maintained by, or to which contributions are or have been
made by, Borrower or any of its ERISA Affiliates.

"TOTAL ACQUISITION TERM LOAN COMMITMENT" means the sum of the Acquisition
Term Loan Commitments of each of the Banks.

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"TOTAL COMMITMENTS" means the sum of (a) the Total Term A Loan Commitments
(b) the Total Term B Loan Commitments, (c) the Total Revolving Loan Commitments
and (d) Total Acquisition Term Loan Commitments.

"TOTAL REVOLVING LOAN COMMITMENT" means the sum of the Revolving Loan
Commitments of each of the Banks.

"TOTAL TERM A LOAN COMMITMENT" means the sum of the Term A Loan Commitments
of each of the Banks.

"TOTAL TERM B LOAN COMMITMENT" means the sum of the Term B Loan Commitments
of each of the Banks.

"TOTAL UTILIZATION" means, at any date of determination, the sum of the
aggregate principal amount of all Revolving Loans and all Acquisition Term Loans
then outstanding.

"TRADEMARK SECURITY AGREEMENT" means the trademark security agreement
substantially in the form of Exhibit 10C.

"TRANSACTION DOCUMENTS" means each Credit Document and each
Recapitalization Document.

"TYPE" of Loan means a Base Rate Loan or Reserve Adjusted Eurodollar Loan.

"UCC" means the Uniform Commercial Code as in effect in the State of New
York.

"UCP" is defined in Section 1.13(k).

"UNSPECIFIED PERMITTED ACQUISITION" means an acquisition by the Borrower or
its Subsidiaries of assets or property used or useful in the Borrower's business
which is proposed to be financed with the proceeds of an Acquisition Term Loan
Borrowing and either (x) the amount of the Acquisition Term Loan required to
finance any such acquisition is less than $2,000,000 individually, and not more
than $5,000,000 in the aggregate for all such acquisitions under this clause
(x), or (y) the acquisition, and the related Acquisition Term Loan Borrowing is
approved by the Required Banks.

"UNUTILIZED COMMITMENT" for any Bank at any time means, on and after the
Closing Date, the amount by which the sum of the Revolving Loan Commitment and
the Acquisition Term Loan Commitment of such Bank exceeds its portion of the
Total Utilization.

"WATER RIGHTS" means the water rights set forth on Schedule 3.21 of the LS
Purchase Agreement.

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"WHOLLY OWNED SUBSIDIARY" of any Person shall mean any Subsidiary of such
Person to the extent all of the capital stock or other ownership interests in
such Subsidiary, other than directors' or nominees' qualifying shares, is owned
directly or indirectly by such Person.

"WRITTEN" or "IN WRITING" means any form of written communication or a
communication by means of telex, telecopier device, telegraph or cable.

SECTION 11. THE AGENT.

11.01. APPOINTMENT. Each Bank hereby irrevocably designates and appoints
Indosuez as Administrative Agent, and IBJS as Co-Agent, of such Bank to act as
specified herein and in the other Credit Documents and each such Bank hereby
irrevocably authorizes the Agents to take such action on its behalf under the
provisions of this Agreement and the other Credit Documents and to exercise such
powers and perform such duties as are expressly delegated to the Agents by the
terms of this Agreement and the other Credit Documents, together with such other
powers as are reasonably incidental thereto. The Agents agrees to act as such
upon the express conditions contained in this Section 11. Notwithstanding any
provision to the contrary elsewhere in this Agreement, the Agents shall not have
any duties or responsibilities, except those expressly set forth herein or in
the other Credit Documents, or any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against either
Agent. The provisions of this Section 11 are solely for the benefit of the
Agents and the Banks, and no Credit Party shall have any rights as a third party
beneficiary of any of the provisions hereof. In performing its functions and
duties under this Agreement, each Agent shall act solely as an Agent of the
Banks and does not assume and shall not be deemed to have assumed any obligation
or relationship of agency or trust with or for any Credit Party.

11.02. DELEGATION OF DUTIES. The Agents may each execute any of its
duties under this Agreement or any other Credit Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Neither Agent shall not be responsible for
the negligence or misconduct of any agents or attorneys-in-fact selected by it
with reasonable care except to the extent otherwise required by Section 11.03.

11.03. EXCULPATORY PROVISIONS. Neither Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (a)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement (except for its or such Person's own
gross negligence or willful misconduct) or (b) responsible in any manner to any
of the Banks for any recitals, statements, representations or warranties by any
of the Credit Parties or their respective officers contained in this Agreement,
any other Transaction Document or any LS Purchase Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by each Agent under or in connection with, this Agreement or any
other Transaction Document or any LS Purchase Document or for any failure of any
of the Credit Parties or their respective officers to perform its obligations
hereun-

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der or thereunder. The Administrative Agent shall not be under any obligation
to any Bank to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement, or to
inspect the properties, books or records of any Credit Party. Neither Agent
shall be responsible to any Bank for the effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any Credit
Document or for any representations, warranties, recitals or statements made
herein or therein or made in any written or oral statement or in any financial
or other statements, instruments, reports, certificates or any other documents
in connection herewith or therewith furnished or made by such Agent to the Banks
or by or on behalf of any Credit Party to such Agent or any Bank or be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or of the existence or possible
existence of any Default or Event of Default.

11.04. RELIANCE BY THE AGENT. Each Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and to have been signed, sent or
made by the proper Person or Persons and upon advice and statements of legal
counsel (including, without limitation, counsel to the Credit Parties),
independent accountants and other experts selected by the Administrative
Agent. Each Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other Credit Document unless it shall
first receive such advice or concurrence of the Required Banks as it deems
appropriate or it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. Each Agent shall in
all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Credit Documents in accordance with a request of
the Required Banks (or to the extent specifically provided in Section 12.11,
all the Banks), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Banks.

11.05. NOTICE OF DEFAULT. Neither Agent shall be deemed to have knowledge
of the occurrence of any Default or Event of Default, other than a default in
the payment of principal or interest on the Loans hereunder unless it has
received notice from a Bank or any Credit Party referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Administrative Agent receives such a
notice, the Agent shall give prompt notice thereof to the Banks. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Banks;
PROVIDED, HOWEVER, that, unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Banks.

11.06. NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER BANKS. Each Bank
expressly acknowledges that neither Agent nor any officers, directors,
employees, agents, attorneys-in-fact

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or affiliates of such Agent have made any representations or warranties to it
and that no act by such Agent hereinafter taken, including any review of the
affairs of any Credit Party, shall be deemed to constitute any representation or
warranty by such Agent to any Bank. Each Bank represents to each Agent that it
has, independently and without reliance upon such Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, assets, operations,
property, financial and other conditions, prospects and creditworthiness of the
Credit Parties and made its own decision to make its Loans hereunder and enter
into this Agreement and the other agreements contemplated hereby. Each Bank
also represents that it will, independently and without reliance upon either
Agent or any other Bank, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Credit Parties. Except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Administrative Agent hereunder, neither Agent shall have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, operations, assets, property, financial and other
conditions, prospects or creditworthiness of any Credit Party which may come
into the possession of either such Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.

11.07. INDEMNIFICATION. The Banks agree to indemnify each Agent in its
capacity as such or in any other representative capacity under any other Credit
Document ratably according to the sum of their aggregate Commitments and Loans,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Obligations) be imposed on,
incurred by or asserted against either Agent in its capacity as such, in any way
relating to or arising out of this Agreement or any other Credit Document, or
any documents contemplated by or referred to herein or the transactions
contemplated hereby or any action taken or omitted to be taken by either or both
of the Agents under or in connection with any of the foregoing, but only to the
extent that any of the foregoing is not paid by any Credit Party; PROVIDED,
HOWEVER, that no Bank shall be liable to either Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from any
such Agent's gross negligence or willful misconduct. If any indemnity furnished
to either Agent for any purpose shall, in the opinion of such Agent, be
insufficient or become impaired, either Agent may call for additional indemnity
and cease, or not commence, to do the acts indemnified against until such
additional indemnity is furnished. The agreements in this Section 11.07 shall
survive the payment of all Obligations.

11.08. THE AGENTS IN THEIR INDIVIDUAL CAPACITIES. The Agents and their
respective Affiliates may make loans to, accept deposits from and generally
engage in any kind of business with any Credit Party and any Affiliate of any
Credit Party as though such Agent were not an

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Agent hereunder. With respect to the Loans made by it and all Obligations owing
to it, such Agent shall have the same rights and powers under this Agreement as
any Bank and may exercise the same as though it were not an Agent, and the terms
"Bank" and "Banks" shall include each Agent in its individual capacity.

11.09. SUCCESSOR AGENT. Upon the acceptance of any appointment as an
Administrative Agent hereunder by a successor Administrative Agent, the term
"Administrative Agent" shall include such successor Administrative Agent
effective upon its appointment, and the resigning Administrative Agent's rights,
powers and duties as Administrative Agent shall be terminated, without any other
or further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement. After the retiring Administrative Agent's
resignation hereunder as Administrative Agent, the provisions of this Section 11
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement.

11.10. RESIGNATION, TRANSFER BY AGENT.

(a) The Administrative Agent may resign from the performance of all
its functions and duties hereunder at any time by giving 30 Business Days'
prior written notice to the Borrower and the Banks. Such resignation shall
take effect upon the acceptance by a successor Administrative Agent of
appointment pursuant to Sections 11.10(b) and (c) or as otherwise provided
below.

(b) Upon any such notice of resignation of the Administrative Agent,
the Required Banks shall appoint a successor Administrative Agent
acceptable to the Borrower and which shall be an incorporated bank or trust
company or other qualified financial institution with operations in the
United States and total assets of at least $5 billion.

(c) If a successor Administrative Agent shall not have been so
appointed within said 30 Business Day period, the resigning Administrative
Agent with the consent of the Borrower shall then appoint a successor
Administrative Agent (which shall be an incorporated bank or trust company
or other qualified financial institution with operations in the United
States and total assets of at least $5 billion) who shall serve as a
successor Administrative Agent until such time, if any, as the Required
Banks appoint a successor Administrative Agent as provided above.

(d) If no successor Administrative Agent has been appointed pursuant
to Section 11.10(b) or (c) by the 30th Business Day after the date such
notice of resignation was given by the resigning Administrative Agent, such
Administrative Agent's resignation shall become effective and the Required
Banks shall thereafter perform all the duties of Administrative Agent
hereunder until such time, if any, as the Required Banks appoint a
successor Administrative Agent as provided above.

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(e) Notwithstanding anything to the contrary contained in this
Section 11, Indosuez, as Administrative Agent, may transfer its rights and
obligations to perform all of its functions and duties hereunder to its
parent company or to any Affiliate of it or its parent company.

11.11. CO-AGENT. The Co-Agent, in such capacity, shall have no
obligations, duties or responsibilities, and shall incur no liabilities, under
this Agreement or any other Credit Document.

SECTION 12. MISCELLANEOUS.

12.01. PAYMENT OF EXPENSES, ETC. Holdings and the Borrower each agrees
to: (a) whether or not the transactions herein contemplated are consummated, pay
all reasonable out-of-pocket costs and expenses of the Agents in connection with
the negotiation, preparation, execution, syndication and delivery of the Credit
Documents and the documents and instruments referred to therein (in accordance
with the terms of the letter agreement between KGRO Acquisition Company, LLC and
Indosuez dated November 18, 1996 and the letter agreement between the Borrower
and Indosuez dated February 10, 1997), other than any expenses of Indosuez
incurred after the Closing Date solely in its capacity as one of the Banks
hereunder, and any amendment, waiver or consent relating thereto (including,
without limitation, the reasonable fees and disbursements of Ropes & Gray and
local counsel to Indosuez, and of Cadwalader, Wickersham & Taft, counsel to
IBJS) and of each of the Banks after the occurrence and during the continuation
of an Event of Default in connection with the enforcement of the Credit
Documents and the documents and instruments referred to therein (including,
without limitation, the reasonable fees and disbursements of counsel for each of
the Banks) with prior notice to the Borrower of the engagement of any counsel,
and hold each of the Banks harmless from and against any and all reasonable fees
and expenses of any appraisers or any consultants or other advisors reasonably
engaged by the Administrative Agent; (b) pay and hold each of the Banks harmless
from and against any and all present and future stamp and other similar taxes
with respect to the foregoing matters and save each of the Banks harmless from
and against any and all liabilities with respect to or resulting from any delay
or omission (other than to the extent attributable to such Bank) to pay such
taxes; and (c) indemnify each Agent and each Bank, its officers, directors,
employees, representatives and agents from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses (including,
without limitation, any and all losses, liabilities, claims, damages or expenses
arising under Environmental Laws except with regard to any losses, costs,
damages or expenses under Environmental Laws, excluding such losses, costs,
damages or expenses arising from or relating to acts or omissions occurring
after the Administrative Agent or any Bank takes possession of, uses, operates,
manages, controls or sells any Real Property provided, however, that such
exception shall apply only to the extent such losses, costs, damages or expenses
arise solely from the gross negligence, bad faith or willful misconduct of the
applicable Administrative Agent or any Bank or of the agents of such
Administrative Agent or any Bank) incurred by any of them as a result of, or
arising out of, or in any way related to, or by reason of, any investigation,
litigation or other

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proceeding (whether or not any Bank is a party thereto) related to the entering
into and/or performance of any Credit Document or the use of the proceeds of any
Loans hereunder or the Recapitalization or the consummation of any other
transactions contemplated in any Credit Document, including, without limitation,
the reasonable fees and disbursements of counsel incurred in connection with any
such investigation, litigation or other proceeding (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).

12.02. RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occur rence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of any Credit Party against and on account of
the Obligations and liabilities of such Credit Party to such Bank under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations of such Credit Party purchased by such
Bank pursuant to Section 12.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Bank shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured. Notwithstanding the foregoing, the Banks
shall have no right of setoff as to the Put/Call Funds and shall not seek to
enjoin payments from the Put/Call Funds made pursuant to the Put/Call Option
Agreement or otherwise prevent Holdings from honoring its obligations
thereunder; PROVIDED that nothing in the foregoing shall be construed to prevent
the Administrative Agent from exercising remedies against Holdings and the
Borrower generally available under this Agreement or applicable law, including,
without limitation the commencement of a case under the Bankruptcy Code relative
to any Credit Party.

12.03. NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and hand
delivered, telegraphed, telexed, telecopied, cabled or delivered:

(a) If to Holdings or the Borrower, to it at:

3478 Buskirk Avenue, Suite 260
Pleasant Hill CA 94523
Attention: President

with a copy to each of the following:

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Brownstein Hyatt Farber & Strickland, PC
410 Seventeenth Street
22nd Floor
Denver, CO 80202-4437
Attention: Steven Siegel, Esq.
Fax: (303) 623-1956

and

Kohlberg & Company
111 Radio Circle
Mt. Kisco, NY 10549
Attention: Samuel Frieder
Fax: (914) 241-7476

(b) if to any Bank, to it at its address specified on Schedule 12.03;

All such notices and communications shall, when hand delivered,
telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be
effective the following Business Day when delivered to the telegraph company,
cable company or overnight courier, as the case may be, or when transmission is
confirmed, if by telex or telecopier, except that notices and communications to
the Administrative Agent shall not be effective until received by the
Administrative Agent.

12.04. BENEFIT OF AGREEMENT.

(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto, all future holders of the Notes,
and their respective successors and assigns; PROVIDED, HOWEVER, that
Holdings or the Borrower shall not assign or transfer any of its interests
hereunder without the prior written consent of the Banks; and PROVIDED,
FURTHER, that the rights of each Bank to transfer, assign or grant
participation in its rights and/or obligations hereunder shall be limited
as set forth below in this Section 12.04; and PROVIDED, FURTHER, that
nothing in this Section 12.04 shall prevent or prohibit any Bank from (i)
pledging its Loans hereunder to a Federal Reserve Bank in support of
borrowings made by such Bank from such Federal Reserve Bank and (ii)
granting participation in or assignments of such Bank's Loans, Notes and/or
Commitments hereunder to its parent company and/or to any Affiliate of such
Bank that is at least 50% owned by such Bank or its parent company.

(b) Each Bank shall have the right to transfer, assign or grant
participation in all or any part of its remaining Loans, Notes and/or
Revolving Loan Commitments here under on

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the basis set forth below in this Section 12.04. Subject to Section
12.04(e), each Bank may furnish any information concerning Holdings or any
Subsidiary in the possession of such Bank from time to time to assignees
and participants (including prospective assignees and participants).

(c) Each Bank, with the written consent of the Administrative Agent,
which consent shall not be unreasonably withheld may assign pursuant to an
Assignment Agreement substantially in the form of Exhibit 12.04(c) hereto
(the "ASSIGNMENT AGREEMENT") all or a portion of its Loans, Notes,
Revolving Loan Commitments and/or Acquisition Term Loan Commitments
hereunder pursuant to this Section 12.04(c) to one or more Eligible
Assignees; PROVIDED, HOWEVER, that any assignment pursuant to this Section
12.04(c)(i) shall be in a minimum aggregate amount, for all Loans and
Commitments assigned, of $5,000,000, and (ii) shall not result in the
Borrower incurring any obligation to pay additional amounts as of the time
of such assignment pursuant to Section 1.10(e), 1.11 or 3.05. Any
assignment pursuant to this Section 12.04(c) will become effective five
Business Days after the Administrative Agent's receipt of (i) a written
notice in the form of Exhibit 12.04(c) executed by the assigning Bank and
the Eligible Assignee, and (ii) a processing and recordation fee of $2,500
from the assigning Bank in connection with the Administrative Agent's
recording of such sale, assignment, transfer or negotiation; PROVIDED,
HOWEVER, that such fee shall only be payable if the assignment is between a
Bank and an Eligible Assignee that is not a Bank prior to the assignment.
Such assignment shall be recorded by the Administrative Agent in the
Register. The Borrower shall issue new Notes to the assignee Bank or
Eligible Assignee, as the case may be, in conformity with Section 1.05 and
the assignor shall return the old Notes to the Borrower. Upon the
effectiveness of any assignment in accordance with this Section 12.04(c),
the assignee, if not a Bank, will become a "Bank" for all purposes of this
Agreement and the other Credit Documents and, to the extent of such
assignment, the assigning Bank shall be relieved of its obligations
hereunder with respect to the Commitments being assigned. The
Administrative Agent shall maintain at its address specified in Exhibit
12.03 a copy of each Assignment Agreement delivered to and accepted by it
and a register in which it shall record the names and addresses of the
Banks and the Commitments of, and principal amount of the Loans owing to,
each Bank from time to time (the "REGISTER"). The entries in the Register
shall be conclusive and binding for all purposes, absent demonstrable
error, and the Borrower, the Administrative Agent and the Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for
all purposes of this Agreement. The Register shall be available for
inspection by the Borrower, the Administrative Agent or any Bank at any
reasonable time and from time to time upon reasonable prior notice.

(d) Each Bank may transfer, grant or assign participation in all or
any part of such Bank's Loans, Notes and/or Commitments hereunder pursuant
to this Section 12.04(d) to any Person; PROVIDED, HOWEVER, that (i) such
Bank shall remain a "Bank" for all purposes of this Agreement and the
transferee of such participation shall not constitute a Bank

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hereunder and (ii) no participant under any such participation shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (A)
change the scheduled final maturity date of any of the Loans, Notes,
Revolving Loan Commitments or Acquisition Term Loan Commitments in which
such participant is participating or (B) reduce the principal amount,
interest rate or fees applicable to any of the Loans, Notes or Revolving
Loan Commitments in which such participant is participating or postpone the
payment of any interest or fees or (C) release all or substantially all of
the Collateral and PROVIDED, FURTHER, that any participation pursuant to
this Section 12.04(d) shall not result in the Borrower paying additional
amounts as of the time of such participation pursuant to Section 1.10(e),
1.11 or 3.05. In the case of any such participation, the participant shall
not have any rights under this Agreement or any of the other Credit
Documents (the participant's rights against the granting Bank in respect of
such participation to be those set forth in the agreement with such Bank
creating such participation) and all amounts payable by the Borrower
hereunder shall be determined as if such Bank had not sold such
participation; PROVIDED, HOWEVER, that such participant shall be considered
to be a "Bank" for purposes of Sections 12.02 and 12.06(b).

(e) The Agents and the Banks agree to keep confidential (and to cause
their respective officers, directors, employees, agents, representatives
and counsel to keep confidential) all information, materials and documents
furnished by any Credit Party to the Agents or any Bank (the
"INFORMATION"). Notwithstanding the foregoing the Agents and each Bank
shall be permitted to disclose Information (i) to such of its officers,
directors, employees, agents, representatives and counsel as need to know
such Information in connection with its participation in any of the
transactions contemplated hereby or the administration of this Agreement;
(ii) to the extent required by applicable laws and regulations or by any
subpoena or similar legal process, or requested by any governmental agency
or authority; (iii) to the extent such Information (A) becomes publicly
available other than as a result of a breach of this Agreement or any other
confidentiality agreement with respect thereto, (B) becomes available to
such Agent or such Bank on a non-confidential basis from a source other
than the Borrower or its Subsidiaries, officers, directors, employees,
agents or representatives or (C) was available to such Agent or such Bank
on a non-confidential basis prior to its disclosure to the Agent or such
Bank by the Borrower or any of its Subsidiaries; (iv) to the extent the
Borrower or any of its Subsidiaries shall have consented to such disclosure
in writing; (v) in connection with the sale of any Collateral pursuant to
the provisions of any of the Security Documents; (vi) in connection with
any litigation or claim concerning enforcement of the Obligations or
arising under this Agreement or any Credit Document or any related
agreement; or (vii) pursuant to Section 12.04(b); PROVIDED, HOWEVER, that
prior to any such disclosure under Section 12.04(b), each prospective
Eligible Assignee or participant shall enter into a written agreement with
the assigning or selling Bank to preserve the confidentiality of any
Information to the extent set forth in this Section 12.04(e).

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(f) If the Borrower shall: (i) as a result of the requirements of
Section 1.01(b) or 1.11 of this Agreement, be required to pay to any Bank
the additional amounts referred to in such Sections at any time when all of
the Banks have not requested payment of such amounts; (ii) as a result of
the requirements of Section 3.07, be required to pay any Bank the Taxes
referred to in Section 3.07, or (iii) as a result of the failure of any
Bank to make available to the Administrative Agent such Bank's ratable
portion of any Borrowing, be required to repay to the Administrative Agent
such corresponding amount pursuant to Section 1.04(b), then, in each such
case, (A) the Borrower shall be entitled to designate an Eligible Assignee
to replace such Bank, (B) such Bank shall execute and deliver to such
Eligible Assignee an Assignment Agreement with respect to such Bank's
entire interest under this Agreement and the Notes, and (C) upon the
execution by such Eligible Assignee of such Assignment Agreement and
compliance with the requirements of Section 12.04(c), such Eligible
Assignee shall succeed to all of such Bank's rights and duties under this
Agreement; PROVIDED, HOWEVER, that notwithstanding anything to the contrary
in this Agreement, the Borrower shall be responsible to pay any and all
out-of- pocket expenses of any Bank replaced by the Borrower pursuant to
this Section 12.04(f) or of the Administrative Agent incurred by such Bank
or by the Administrative Agent, in either case incurred in connection with
the Borrower's replacement of any Bank pursuant to this Section 12.04(f).

12.05. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
the Administrative Agent or any Bank in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
any Credit Party and any Administrative Agent or any Bank shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power, or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which any Administrative
Agent or any Bank would otherwise have. No notice to or demand on any Credit
Party in any case shall entitle any Credit Party to any other or further notice
or demand in similar or other circum stances or constitute a waiver of the
rights of any Administrative Agent or the Banks to any other or further action
in any circumstances without notice or demand.

12.06. PAYMENTS PRO RATA.

(a) The Administrative Agent agrees that promptly after its receipt
of each payment from or on behalf of any Credit Party in respect of any
Obligations of such Credit Party, it shall distribute such payment to the
Banks pro rata based upon their respective shares, if any, of the
Obligations with respect to which such payment was received and in
accordance with the provisions hereof as to the application of prepayments.

(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of

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<PAGE>

setoff or banker's lien, by counterclaim or cross action, by the
enforcement of any right under the Credit Documents, or otherwise) which is
applicable to the payment of the principal of, or interest on, the Loans,
of a sum which with respect to the related sum or sums received by other
Banks is in a greater proportion than the total of such Obligations then
owed and due to such Bank bears to the total of such Obligations then owed
and due to all of the Banks immediately prior to such receipt, then such
Bank receiving such excess payment shall purchase for cash without recourse
or warranty from the other Banks an interest in the Obligations of the
respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all of the Banks in such amount; PROVIDED,
HOWEVER, that if all or any portion of such excess amount is thereafter
recovered from such Bank, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.

12.07. CALCULATIONS; COMPUTATIONS. Unless otherwise indicated, all
computations of interest and fees hereunder shall be made on the actual number
of days elapsed over a year of 365 days; PROVIDED, HOWEVER, that all
computations of Reserve Adjusted Eurodollar Loans and Commitment Fees shall be
made on the actual number of days elapsed over a year of 360 days.

12.08. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; SERVICE OF
PROCESS.

(a) This Agreement and the rights and obligations of the parties
hereunder shall be construed and enforced in accordance with and be
governed by the laws of the State of New York applicable to contracts made
and to be performed wholly therein, without giving effect to principles of
conflicts of law. Any legal action or proceeding with respect to this
Agreement or any other Credit Document may be brought in the courts of the
State of New York or the United States for the Southern District of New
York, and, by execution and delivery of this Agreement, each Credit Party
hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the non- exclusive jurisdiction of the
aforesaid courts. Each Credit Party designates and appoints CT Corporation
System, with an address at 1633 Broadway, New York, New York 10019 and such
other persons as may hereafter be selected by the Credit Parties and shall
irrevocably agree in writing to so serve, as their administrative agent to
receive on their behalf, service of all process in any such proceedings in
any such court, such service being hereby acknowledged by each Credit Party
to be effective and binding service in every respect. A copy of such
process so served shall be mailed by registered mail to any Credit Parties
at the address provided for Holdings and the Borrower in Section 12.03 of
this Agreement except that unless otherwise provided by applicable law, any
failure to mail such copy shall not affect the validity of service of
process. If any agent appointed by the Credit Parties refuses to accept
service, the Credit Parties hereby agree that service upon them by mail
shall constitute sufficient notice. Nothing herein shall affect the right
to serve process in any other manner permitted by law or shall limit the
right of the Administrative Agent to bring proceedings against any Credit
Party in the courts of any other jurisdiction.

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<PAGE>

(b) Each party hereto hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Agreement
or any other Credit Document brought in the courts referred to in Section
12.08(a) and hereby further irrevocably waives and agrees not to plead or
claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum.

12.09. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all of
which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Administrative Agent.

12.10. HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

12.11. AMENDMENT OR WAIVER. Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the Required Banks; PROVIDED, HOWEVER, that no such change, waiver,
discharge or termination shall, without the consent of each affected Bank and
the Administrative Agent, (a) extend the scheduled final maturity date of any
Loan, or any portion thereof, or reduce the rate or extend the time of payment
of interest thereon or fees or reduce the principal amount thereof, or increase
the Commitments of any Bank over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Commitment shall not constitute a change in the terms of
any Commitment of any Bank), (b) release all or substantially all of the
Collateral (except as expressly permitted by the Credit Documents), (c) amend,
modify or waive any provision of this Section, or Section 1.10, 1.11, 3.05, 8,
11.07, 12.01, 12.02, 12.04, 12.06, 12.07 or 12.12, (d) reduce any percentage
specified in, or otherwise modify, the definition of Required Banks or (e)
consent to the assignment or transfer by any Credit Party of any of its rights
and obligations under this Agreement. No provision of Section 12 may be amended
without the consent of the Administrative Agent.

12.12. SURVIVAL. All indemnities set forth herein including, without
limitation, in Section 1.11, 3.05, 10.07 or 12.01 shall survive the execution
and delivery of this Agreement and the making of the Loans, the repayment of the
Obligations and the termination of the Total Commitments.

12.13. DOMICILE OF LOANS. Each Bank may transfer and carry its Loans at,
to or for the account of any branch office, subsidiary or Affiliate of such
Bank; PROVIDED, HOWEVER, that any

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<PAGE>

such transfer shall not result in the Borrower paying additional amounts as of
the time of such transfer pursuant to any provision of any Credit Document.

12.14. WAIVER OF JURY TRIAL. Each of the parties to this Agreement hereby
irrevocably waives all rights to a trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Agreement or the other Credit
Documents or the transactions contemplated hereby or thereby.

12.15. 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 be otherwise within the limitation of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.

12.16. REINSTATEMENT. If, at any time, all or part of any payment of the
Obligations made by the Borrower is rescinded or otherwise must be returned by
any Bank or the Administrative Agent for any reason whatsoever (including the
insolvency, bankruptcy or reorganization of the Borrower), this Agreement shall
be reinstated as to the Obligations which were satisfied by the payment to be
rescinded or returned, all as though such payment had not been made.

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<PAGE>

[Amended and Restated Credit Agreement]

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.

COLOR SPOT NURSERIES, INC.

By: /s/ Michael F. Vukelich
-------------------------------
Name:
Title:

CSN, Inc.

By: /s/ Michael F. Vukelich
-------------------------------
Name:
Title:

BANQUE INDOSUEZ, NEW YORK BRANCH
as a Bank and as Administrative Agent

By: /s/ Patricia Frankel
-------------------------------
Name: PATRICIA FRANKEL
Title: FIRST VICE PRESIDENT

By: [ILLEGIBLE]
-------------------------------
Name:
Title:

IBJ SCHRODER BANK & TRUST COMPANY,
as a Bank and as Co-Agent

By: /s/ DeVer G. Warner
-------------------------------
Name: DeVer G. Warner
Title: Managing Director

Total Term A Loan Commitment: $25,000,000
Total Term B Loan Commitment: $35,000,000
Total Revolving Loan Commitment: $27,500,000
Total Acquisition Term Loan Commitment: $15,000,000

<PAGE>

SCHEDULE A

LIST OF BANKS
COMMITMENTS

Term A Loan Term B Loan
----------- -----------
$17,779,780 $24,891,700
7,220,220 10,108,300
----------- -----------
$25,000,000 $35,000,000

Revolving Loan Acquisition Term Loan
-------------- ---------------------
$19,557,760 $10,667,870
7,942,240 4,332,130
----------- -----------
$27,500,000 $15,000,000

Banque Indosuez, New York Branch
IBJ Schroder Bank & Trust Co.

ASSIGNEE BANKS

<PAGE>

SCHEDULE 12.03

BANK ADDRESSES

Banque Indosuez, New York Branch
1211 Avenue of the Americas - 7th Floor
New York, New York 10036

IBJ Schroder Bank & Trust Co.
One State Street
New York, NY 10004

<PAGE>

AMENDMENT NO. 4

This Amendment No. 4 (this "AMENDMENT") is made and entered into as of
September 3, 1997, by and among CSN Inc., a Delaware corporation ("HOLDINGS"),
Color Spot Nurseries, Inc., a Delaware corporation (the "BORROWER"), Credit
Agricole Indosuez (formerly Banque Indosuez, New York branch), as Administrative
Agent for itself and the other Banks (each as defined in the Credit Agreement
referenced below) (the "ADMINISTRATIVE AGENT"), IBJ Schroder Bank & Trust
Company, as Co-Agent (together with the Administrative Agent, "THE AGENTS") and
the other Banks party hereto. The parties agree as follows:

1. REFERENCE TO CREDIT AGREEMENT; DEFINITIONS. Reference is made to the
Amended and Restated Credit Agreement dated as of February 20, 1997, as
amended and in effect on the date hereof prior to giving effect to this
Agreement (the "CREDIT AGREEMENT"), among Holdings, the Borrower, the Banks
and the Agents. Terms defined in the Credit Agreement as amended hereby
(the "AMENDED CREDIT AGREEMENT") and not otherwise defined herein are used
herein with the meanings so defined. References in this Agreement to
"Sections" and "Exhibits", except as the context otherwise dictates, are
references to sections hereof and exhibits hereto.

2. BACKGROUND.

2.1. The Borrower desires to enter into a transaction (the "ODA
ACQUISITION") pursuant to which it shall acquire a nursery
business located in California and owned and operated by Oda
Nursery, Inc., a California corporation.

2.2. The Oda Acquisition will be financed through the incurrence by
the Borrower of up to an additional $15.5 million in
indebtedness under the Credit Agreement (as described below).

2.3. Pursuant to the Credit Agreement, as of the date hereof, (i)
the Borrower has heretofore incurred Term A Loans in the
aggregate principal amount of $27.5 million, Term B Loans in an
aggregate principal amount of $47 million; (ii) the Total
Acquisition Term Loan Commitment is $15 million, (all of which
is currently outstanding in principal amount of Acquisition
Term Loan); and (iii) the Total Revolving Loan Commitment is
$37.5 million, of which $7.8 million is drawn.

3. AMENDMENTS AND WAIVERS. Subject to all the terms and conditions hereof,
and in reliance upon the representations and warranties set forth in
Section 4, the Credit Agreement is hereby amended as follows, effective
upon the date (the "AMENDMENT DATE") that the conditions in Section 5 are
satisfied, which conditions must be satisfied not later than September 15,
1997 or this Agreement will be of no force or effect:

3.1. Schedule A to the Credit Agreement is hereby amended to add
the following column to the right side of the table of Banks:

<PAGE>

Oda Term A Loan Oda Term B Loan
--------------- ---------------

$7,500,000 $8,000,000
0 0

3.2. Section 1.01 of the Credit Agreement is hereby amended as
follows:

(a) clause (i) of the first paragraph of Section 1.01 is
amended to read in its entirety as follows:

"(i) in the case of any Borrowings under the Term A
Portion or the Term B Portion, (x) on the Closing Date
with respect to Term A Loans and Term B Loans other than
the Texas Term B Loans, the Summersun Term A Loans,
Summersun Term B Loans, Oda Term A Loans and Oda Term B
Loans, (y) on the Texas Acquisition Closing Date with
respect to the Texas Term B Loans, (z) on the Summersun
Acquisition Closing Date with respect to the Summersun
Terms A Loans and the Summersun Term B Loans, and (aa) on
the Oda Acquisition Closing Date with respect to Oda Term
A Loans and the Oda Term B Loans";

(b) the first sentence of Section 1.01(a) is amended to read
in its entirety as follows:

"(a) Loans under the Term A Portion of the Loan Facility
(each a "TERM A LOAN") shall, (i) with respect to the Term
A Loans other than the Summersun Term A Loans and the Oda
Term A Loans, be made to the Borrower on the Closing Date,
(ii) with respect to the Summersun Term A Loans, be made
to the Borrower on the Summersun Acquisition Closing Date,
and (iii) with respect to the Oda Term A Loans, be made to
the Borrower on the Oda Acquisition Closing Date";

"(i) except as hereinafter provided, shall initially be
Base Rate Loans and, 30 days after the Closing Date, the
Summersun Acquisition Closing Date or the Oda Acquisition
Closing Date, as applicable, or such earlier time as"

(d) the first sentence of Section 1.01(b) is amended to read
in its entirety as follows:

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<PAGE>

"(b) Loans under the Term B Portion of the Loan Facility
(each a "TERM B LOAN") shall, (i) with respect to the Term
B Loans other than the Texas Term B Loans, the Summersun
Term B Loans and the Oda Term B Loans, be made to the
Borrower on the Closing Date, (ii) with respect to the
Texas Term B Loans, be made to the Borrower on the Texas
Acquisition Closing Date, (iii) with respect to the
Summersun Term B Loans, be made to the Borrower on the
Summersun Acquisition Closing Date, and (iv) with respect
to the Oda Term B Loans, be made to the Borrower in the
Oda Acquisition Closing Date."

(e) the lead in to clause (i) of the second sentence of
Section 1.01(b) is amended to read in its entirety as
follows:

"(i) except as hereinafter provided, shall initially be
Base Rate Loans and, 30 days after the Closing Date, the
Texas Acquisition Closing Date, the Summersun Acquisition
Closing Date or the Oda Acquisition Closing Date, as
applicable, or such earlier time as"

3.3. Clause (i) of Section 1.02 of the Credit Agreement is hereby
amended to read in its entirety as follows:

"(i) the Banks' Term A Loan Commitments and Term B Loan
Commitments shall terminate, on a pro rata basis, with
respect to any portion of the Total Term A Loan
Commitments or the Total Term B Loan Commitments, as the
case may be, not utilized by the Borrower on the Closing
Date (except for the Texas Term B Loan Commitment, the
Summersun Term A Loan Commitment, the Summersun Term B
Loan Commitment, the Oda Term A Loan Commitment and the
Oda Term B Loan Commitment, which shall each terminate as
to any portion not utilized on the Texas Acquisition
Closing Date, the Summersun Acquisition Closing Date or
the Oda Acquisition Closing Date, as the case may be) and"

3.4. Clause (iii) of Section 1.05(b) is hereby amended to read in
its entirety as follows:

"(iii) be dated the Closing Date (except that the Term A
Notes evidencing the Summersun Term A Loans shall be dated
the Summersun Acquisition Closing Date and the Term A
Notes evidencing the Oda Term A Loans shall be dated the
Oda Acquisition Closing Date),"

3.5. Clause (iii) of Section 1.05(c) is hereby amended to read in
its entirety as follows:

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<PAGE>

"(iii) be dated the Closing Date (except that the Term B
Notes evidencing the Texas Term B Loans shall be dated the
Texas Acquisition Closing Date, the Term B Notes
evidencing the Summersun Term B Loans shall be dated the
Summersun Acquisition Closing Date and the Term B Notes
evidencing the Oda Term B Loans shall be dated the Oda
Acquisition Closing Date),"

3.6. Section 1.12 of the Credit Agreement is hereby amended to add
the following immediately after the second sentence of such
Section:

"As of the Summersun Acquisition Closing Date, the amount of (a)
the Total Commitment is $142.5 million, (b) the Total Term A
Loan Commitment is $35 million (c) the Total Term B Loan
Commitment is $55 million, (d) the Total Revolving Loan
Commitment is $37.5 million and (e) the Total Acquisition Term
Loan Commitment is $15 million (all of which is currently
outstanding in aggregate principal amount under Acquisition
Term Loans)."

3.7. Clause (c) of Section 2.02 of the Credit Agreement is hereby
amended to read in its entirety as follows:

"Each of the Term A Loan Commitments and the Term B Loan
Commitments shall terminate as of the close of business on the
Closing Date (except with respect to (i) the Texas Term B Loan
Commitments, which shall terminate as of the close of business
on the Texas Acquisition Closing Date, (ii) the Summersun Term
A Loans Commitments and the Summersun Term B Loan Commitments,
which shall terminate on the Summersun Acquisition Closing
Date, and the Oda Term A Loans Commitments and (iii) the Oda
Term B Loan Commitments, which shall terminate on the Oda
Acquisition Closing Date), and any amounts not borrowed with
respect to each of the Term A Loans and the Term B Loans on the
Closing Date (or the Texas Acquisition Closing Date, the
Summersun Acquisition Date or the Oda Acquisition Closing Date,
as the case may be) shall cease to be available."

3.8. Section 2.02 shall be amended to add clause (h) immediately
following clause (g) thereof which shall read in its entirety
as follows:

"(h) The Oda Term A Loan Commitment and the Oda Term B Loan
Commitment shall be reduced proportionately by the amount of
any reduction in the cash purchase price to be paid by the
Borrower to consummate the Oda Acquisition."

3.9. Section 5.05 of the Credit Agreement is hereby amended to add
clause (g) immediately following clause (f) which shall read in
its entirety as follows:

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<PAGE>

"(g) All proceeds of the Oda Term A Loans and the Oda Term B
Loans shall be used by the Borrower to (i) to pay the cash
consideration to be paid by the Borrower in connection with the
Oda Acquisition and (ii) to pay fees and expenses related to
the consummation of the Oda Acquisition."

3.10. Section 10 of the Credit Agreement is hereby amended as follows:

(a) the following definitions are hereby added to Section 10:

"ODA ACQUISITION" means the acquisition by the Borrower,
of a nursery business located in California and owned and
operated by Oda Nursery, Inc., a California corporation
("ODA"), which is to be accomplished by the acquisition of
all of the outstanding capital stock of Oda by the
Borrower, and in consideration of such acquisition the
shareholders of Oda will receive approximately $15 million
in cash and a Seller Note for $1,000,000 in accordance
with the Stock Purchase Agreement dated as of September 3,
1997 among the Borrower, Oda and the shareholders of Oda
(the "ODA PURCHASE AGREEMENT").

"ODA ACQUISITION CLOSING DATE" shall mean September 3,
1997.

"ODA ACQUISITION DOCUMENTS" means the Oda Purchase
Agreement, as amended and in effect on the date hereof,
and the other documents evidencing or implementing the
transactions contemplated thereby.

"ODA TERM A LOAN" means loans under the portion of the
Loan Facility evidenced by the Oda Term A Loan Commitment.

"ODA TERM A LOAN COMMITMENT" means, with respect to each
Bank, the amount set forth below such Bank's name on
Exhibit A hereto directly below the column entitled "Oda
Term A Loan," as same may be reduced from time to time
pursuant to Sections 2.01, 3.03 and/or 8.

"ODA TERM B LOAN" means loans under the portion of the
Loan Facility evidenced by the Oda Term B Loan Commitment.

"ODA TERM B LOAN COMMITMENT" means, with respect to each
Bank, the amount set forth below such Bank's name on
Exhibit A hereto directly below the column entitled "Oda
Term B Loan," as same may be reduced from time to time
pursuant to Sections 2.01, 3.03 and/or 8.

-5-
<PAGE>

(b) The following definitions are hereby amended to read in
their entirety as follows:

"SCHEDULED TERM A LOAN PRINCIPAL PAYMENTS" means, with
respect to the principal payments on the Term A Loan to be
made on the last Business Day of each calendar quarter
specified in the table below, the Dollar amount specified
opposite such date in such table:

Scheduled Term A Loan
Date Principal Payment
---- ---------------------

March 31, 1997 $450,000
June 30, 1997 $625,000
September 30, 1997 $886,233
December 31, 1997 $886,233

March 31, 1998 $1,382,524
June 30, 1998 $1,382,524
September 30, 1998 $1,382,524
December 31, 1998 $1,382,524

March 31, 1999 $1,595,220
June 30, 1999 $1,595,220
September 30, 1999 $1,595,220
December 31, 1999 $1,595,220

March 31, 2000 $1,701,568
June 30, 2000 $1,701,568
September 30, 2000 $1,701,568
December 31, 2000 $1,701,568

March 31, 2001 $1,985,160
June 30, 2001 $1,985,160
September 30, 2001 $1,985,160
December 31, 2001 $1,985,160

March 31, 2002 $2,747,323
June 30, 2002 $2,747,323

"SCHEDULED TERM B LOAN PRINCIPAL PAYMENTS" means, with
respect to the Term B Loan, principal payments to be made
on the last Business Day of each calendar quarter
specified in the table below, in each case, in the Dollar
amount specified opposite such period in such table:

-6-
<PAGE>

Scheduled Term B Loan
Period Principal Payment
------ ---------------------

January 1, 1997 through
June 30, 1997 $87,620
July 1, 1997 through
June 30, 1997 $117,812
July 1, 1997 through
June 30, 2002 $137,940
July 1, 2002 through
December 31, 2003 $8,677,660

"Total Term A Loan Commitment" means the sum of the Term A Loan
Commitments, the Summersun Term A Loan Commitments and the Oda
Term A Loan Commitments of each of the Banks.

"Total Term B Loan Commitment" means the sum of the Term B Loan
Commitments, the Texas Term B Loan Commitments, the Summersun
Term B Loan Commitments and the Oda Term B Loan Commitments of
each of the Banks.

3.11. WAIVER. The Banks hereby waive compliance with the
requirements of only Sections 4.03(d), 6.14, 6.15 and 6.18 as
to the Staging Area Real Property until the period ending
September 30, 1997

4. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank and the Agents
to enter into this Amendment, the Borrower represents and warrants to each
of the Banks and the Agent that:

4.1. NO DEFAULT. Immediately after giving effect to this Agreement,
no Default will exist.

4.2. INCORPORATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in Section 5 of the
Amended Credit Agreement are true and correct on the date
hereof as if originally made on and as of the date hereof
(except to the extent any representation or warranty refers to
a specific earlier date).

4.3. DISCLOSURE. The Oda Acquisition Documents and the other
information and certificates furnished to or to be furnished to
the Administrative Agent in connection with the Oda Acquisition
and this Amendment do not contain and will not contain any
untrue statement of a material fact or omit to state any
material fact and, to the knowledge of the Credit Parties,
there is no material fact relating to Oda or the Oda
Acquisition which may adversely affect the same which has not
been disclosed in writing to the Administrative Agent.

-7-
<PAGE>

5. CONDITIONS. The effectiveness of this Amendment, and the making of the Oda
Term A Loans and the Oda Term B Loans to be made on the Oda Acquisition
Closing Date, provided for hereby, are subject to the satisfaction of the
following conditions:

5.1. CREDIT DOCUMENTS.

(a) This Amendment and each other Credit Document (to the
extent not previously executed and delivered), including,
without limitation, the Subsidiary Guarantee of Oda and
any related security documentation evidencing the
guarantees and pledges by each of the Borrower and Oda,
shall (A) have been, on or before the Oda Acquisition
Closing Date, duly authorized, executed and delivered by
each of the parties signatory thereto and (B) constitute
the legal, valid and binding obligation of each Credit
Party, enforceable in accordance with its terms (subject
to bankruptcy and principles of equity).

(b) There shall have been delivered to the Administrative
Agent (i) for the account of each of the Banks which are
extending Oda Term A Loans and Oda Term B Loans, Term A
Notes and Term B Notes evidencing such Borrowings, each
duly executed by the Borrower in the amount and maturity
and as otherwise provided in the Amended Credit Agreement
and (ii) updated Schedules 5.13, 5.16 and 5.17 after
giving effect to the Oda Acquisition, the merger of Peters
into LSGR Holdings and the related asset transfers.

5.2. OFFICERS' CERTIFICATE. The Administrative Agent shall have
received a certificate dated the Oda Acquisition Closing Date
signed by the appropriate officer(s) of the Borrower on behalf
of the Borrower in substantially the form of Exhibit 4.01(b)
stating that (i) all of the conditions set forth in this
Section 5 have been either satisfied or waived in writing by
the Administrative Agent, and the Required Banks as of such
date, (ii) immediately before and after giving effect to this
Agreement, the Oda Acquisition, the Borrowings related thereto,
the merger of Peters into LSGR Holdings and the related asset
transfers, all representations and warranties contained herein
or in any other Credit Document (except as expressly amended
hereunder or under another Credit Document) shall be true and
correct, (iii) no Default or Event of Default has occurred or
will have occurred after giving effect to this Agreement, the
Oda Acquisition, the Borrowings related thereto, the merger of
Peters into LSGR Holdings and the related asset transfers and
(iv) since June 30, 1996 no material adverse change in the
business, assets, prospects, properties or condition (financial
or otherwise) of Holdings and its Subsidiaries shall have
occurred.

-8-
<PAGE>

5.3. OPINIONS OF COUNSEL. The Administrative Agent shall have
received an opinion dated the Oda Acquisition Closing Date
addressed to each of the Banks from each of (i) Brownstein
Hyatt Farber & Strickland, P.C., counsel to the Credit Parties
and (ii) Butterwick, Bright & O'Laughlin, Inc., counsel to Oda,
in each case, in form and substance reasonably acceptable to
the Administrative Agent.

5.4. CORPORATE PROCEEDINGS. All corporate and legal proceedings and
all instruments and agreements in connection with the Oda
Acquisition, the merger of Peters into LSGR Holdings and the
related asset transfers, the execution of this Amendment and
the other Credit Documents to be executed in connection with
the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to the Administrative Agent,
and the Administrative Agent shall have received all
information and copies of all certificates, documents and
papers, including records of corporate proceedings and
governmental approvals, if any, which it may have reasonably
requested from the Credit Parties or in connection therewith,
such documents and papers where appropriate to be certified by
proper corporate or governmental authorities. Without limiting
the foregoing, the Administrative Agent shall have received
from each Credit Party:

(a) resolutions of the board of each such Person which shall
include, without limitation, (1) resolutions approving
such documents and actions as are contemplated by this
Amendment or the Oda Acquisition, and any related
transactions to the extent such Person is a party thereto
and (2) resolutions as to the due authorization, execution
and delivery of this Amendment and the Oda Acquisition
Documents, to the extent such Person is a party thereto,
all such resolutions to be in form and substance
reasonably satisfactory to the Administrative Agent; and

(b) signature and incumbency certificates of each officer of
each such Credit Party executing instruments, documents or
agreements required to be executed in connection with the
transactions contemplated by this Amendment and the Oda
Acquisition Documents.

5.5. ACQUISITION DOCUMENTS.

(a) The Oda Acquisition Documents and any amendments thereto,
shall be in form and substance satisfactory to the
Administrative Agent; and on the Oda Acquisition Closing
Date each of the conditions to closing contained in each
of the Oda Acquisition Documents shall have been satisfied
in all material respects (or waived in writing, such
waiver to be reasonably satisfactory to the Administrative
Agent) to the reasonable satisfaction of the
Administrative Agent. Each Credit Party and each of the
other parties to the Oda Acquisition Documents shall have
done and

-9-
<PAGE>

performed such acts and observed such covenants which each
is required to do or perform under the Oda Acquisition
Documents on or prior to the Oda Acquisition Closing Date
(or such acts and covenants shall have been waived in
writing, such waiver to be reasonably satisfactory to the
Administrative Agent). Full, complete and accurate copies
of each of the Oda Acquisition Documents (including all
schedules and exhibits thereto) shall have been provided
to the Administrative Agent.

(b) Holdings and the Borrower shall have provided evidence
satisfactory in form and substance to the Administrative
Agent that the Oda Acquisition has been consummated or
will be consummated simultaneously with the closing of the
transactions contemplated by this Agreement.

5.6. CAPITAL STRUCTURE. On the Oda Acquisition Closing Date, after
giving effect to the Oda Acquisition, (i) there shall be no
outstanding Capital Stock of Holdings other than as set forth
in Schedule 5.17, (ii) the Borrower shall be a Wholly Owned
Subsidiary of Holdings, (iii) Holdings shall have no direct
Subsidiaries other than the Borrower, and no indirect
Subsidiaries other than as set forth on Schedule 5.13.

5.7. ORGANIZATIONAL DOCUMENTATION, ETC. On or prior to the Oda
Acquisition Closing Date, the Administrative Agent shall have
received a true and complete certified copy of the following
documents of each of Holdings, the Borrower, and Oda, the
provisions of which shall be reasonably satisfactory to the
Agents:

(a) Copies of its certificate of incorporation, or certificate
of limited partnership, as the case may be, which (A)
shall be certified by, and accompanied by a good standing
certificate from, the Secretary of State or similar
official of the jurisdiction of its organization and (B)
in the case of Holdings, the Borrower, and Oda shall be
accompanied by good standing certificates from each
jurisdiction in which it is required to be qualified to do
business as a foreign corporation, each to be dated a
recent date prior to the Oda Acquisition Closing Date;

(b) Copies of its by-laws or limited partnership agreement as
the case may be, certified as of a recent date prior to
the Oda Acquisition Closing Date by its corporate
secretary or other person serving in a similar capacity.

-10-
<PAGE>

all other fees and expenses (including, without limitation,
reasonable legal fees and expenses) of the Agents or the Banks,
in each case to the extent due and payable and, with respect to
costs and expenses, invoiced or presented on or before the Oda
Acquisition Closing Date. In addition, on or prior to the Oda
Acquisition Closing Date, there shall have been delivered to
the Agents evidence satisfactory to the Agents that the fees
and expenses payable by Holdings and its Subsidiaries in
connection with the Oda Acquisition shall not exceed $_________
in the aggregate.

5.9. FINANCIAL STATEMENTS, ETC. On or before the Oda Acquisition
Closing Date, the Agents shall have received: (i) a pro forma
balance sheet for Holdings and its Subsidiaries, as of
_______________ after giving effect to the Texas Acquisitions,
the Summersun Acquisition, the Oda Acquisition, the Oda Term A
Loans and Oda Term B Loans contemplated hereby; and (ii) a
revised annual plan, giving effect to the Texas Acquisitions,
the Summersun Acquisition, the Oda Acquisition, the Oda Term A
Loans and the Oda Term B Loans contemplated hereby for each of
Holdings' and its Subsidiaries' and projections for five
calendar years commencing on or about January 1, 1997, in each
case, accompanied by a statement by Holdings that such
projections are based on estimates and assumptions believed by
Holdings in good faith to be reasonable in light of the
conditions which existed at the time of their preparation as to
the future financial performance of Holdings, each in form,
scope and substance satisfactory to the Administrative Agent,
prepared in accordance with Holdings' normal accounting
procedures applied on a consistent basis, including (A)
forecasted balance sheets and statements of operations,
stockholders' equity and cash flows of Holdings and its
Subsidiaries for such periods, (B) the amount of forecasted
capital expenditures (including the amount of such costs to be
capitalized, if any) for such periods, and (C) Holdings and its
Subsidiaries' forecasted compliance with Sections 7.01 through
7.05 of the Amended Credit Agreement. Each of the items
delivered pursuant to this Section 4.9, shall be satisfactory
to the Administrative Agent in its reasonable discretion.
Since the time of the preparation of such financial
projections, no fact or facts have come to the attention of any
Credit Party to cause such Person to believe that any of the
estimates and assumptions on which such projections are based
are not reasonable.

-11-
<PAGE>

any Oda Acquisition Document or any of the properties or assets
of any such Person that could reasonably be expected to have a
material adverse effect on the operations or properties being
acquired in the Oda Acquisition or the ability of the Credit
Parties to operate the same or that could reasonably be
expected to have a Material Adverse Effect.

5.11. INDEBTEDNESS, ETC. (i) Each Credit Party shall have received
all necessary consents or waivers or shall have amended,
supplemented or otherwise modified, repaid or defeased its
outstanding Indebtedness in a manner and on terms satisfactory
to the Agents such that there exists no default or potential
default (as a result of the consummation of the Oda
Acquisition) with respect to such Indebtedness or under any
note, evidence of indebtedness, capital lease, mortgage, deed
of trust, security document or other agreement relating to such
Indebtedness and such indentures, notes, evidences of
indebtedness, capital lease mortgages, deeds of trust or other
agreements relating to such Indebtedness shall not contain (i)
any restriction on the ability of Holdings or any of its
Subsidiaries to grant any Lien in favor of the Banks (other
than in the case of Capital Leases, or purchase money debt
(excluding Real Property leases), a Lien on the property
financed thereby) or any financial covenants or tests
applicable to Holdings or any of its Subsidiaries.

(ii) The terms and conditions of any Indebtedness of
Holdings and its Subsidiaries as of the Oda Acquisition
Closing Date which remains outstanding after giving effect
to the Oda Acquisition and the making of the Oda Term A
Loans and the Oda Term B Loans, the extent to which any
Indebtedness of Oda remains outstanding as Indebtedness of
the Borrower after giving effect to the Oda Acquisition
and the making of the Oda Term A Loans and Oda Term B
Loans shall, in each case, be reasonably acceptable to the
Agents. The Administrative Agent shall have received
evidence satisfactory to it that the Indebtedness
reflected on Schedule A hereto as being paid as of the Oda
Acquisition Closing Date is being paid with the proceeds
of the Oda Term A Loans and Oda Term B Loans made on the
date hereof.

-12-
<PAGE>

Peters into LSGR Holdings as to which a security interest may
be perfected by the filing of a financing statement, which Lien
shall be superior to and prior to the rights of all third
persons and subject to no other Liens; (ii) certified copies of
Requests for Information (Form UCC-11 or the equivalent), or
equivalent reports or lien search reports listing all effective
financing statements which name the Borrower, its subsidiaries,
or Oda and which are filed in any jurisdiction in which any of
such Collateral is located and the jurisdiction in which such
Person's principal place of business is located (none of which
shall cover the Collateral covered, or purported to be covered,
by the Security Documents and Additional Security Documents
other than Permitted Encumbrances); and (iv) evidence of the
completion of all recordings and filings (or of the making of
arrangements to file contemporaneously with the making of
additional Borrowings contemplated hereby) of each such
Security Document and delivery of such other security and other
documents as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Liens created,
or purported or intended to be created, by such Security
Documents; and (v) payoff letters executed by the holders of
any Indebtedness reflected as being paid as of the Oda
Acquisition Closing Date on Schedule A hereto setting forth the
amount required to discharge such Indebtedness, and evidence
that the proceeds of the Oda Term A Loans and Oda Term B Loans
will be used to so discharge such Indebtedness.

5.13. LEASES. All Capital Leases and Operating Leases of Holdings
and its Subsidiaries and all Capital Leases and Operating
Leases of Oda shall remain outstanding after giving effect to
the Oda Acquisition and the making of the Oda Term A Loans and
Oda Term B Loans hereunder.

5.14. CONSENTS, ETC. All necessary or required governmental and
third party approvals and consents (including, without
limitation, all approvals and consents required in connection
with any Environmental Laws), in connection with the Oda
Acquisition or the transactions contemplated by this Amendment
and the Oda Acquisition Documents and otherwise referred to
herein or therein to be completed on or before the Oda
Acquisition Closing Date shall have been disclosed to the
Administrative Agent and shall have been obtained and remain in
effect, and all applicable waiting periods shall have expired
without any action being taken by any competent authority which
restrains, prevents or imposes, in the reasonable judgment of
the Administrative Agent, material adverse conditions upon the
consummation of the Oda Acquisition. There shall not exist any
judgment or order enjoining or otherwise restraining the making
of the Oda Term A Loans or Oda Term B Loans hereunder or the
consummation of the Oda Acquisitions.

5.15. BORROWING BASE; BORROWING BASE CERTIFICATE. The Administrative
Agent and the Banks shall have received and the Required Banks
shall be satisfied in all

-13-
<PAGE>

reasonable respects with a Borrowing Base Certificate which
shall be substantially in the form of Exhibit 6.01(m) to the
Credit Agreement and shall be prepared as of a date prior to
the Oda Acquisition Closing Date that is reasonably
satisfactory to the Agents. Such Borrowing Base Certificate
shall indicate that the Borrowing Base on the Oda Acquisition
Closing Date (before and after giving effect to the Oda
Acquisition) exceeds the amount of the Revolving Loans to be
outstanding as of such date by not less than $5 million.

5.16. NO MATERIAL ADVERSE CHANGE. Since June 30, 1996 nothing shall
have occurred or become known to any Credit Party which the
Administrative Agent shall have determined has or could
reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the business or operations of
Holdings and its Subsidiaries or on the business or operations
of Oda or has resulted or could result in a material adverse
change in the business, assets, prospects, properties or
condition (financial or otherwise) of any Credit Party or of
Oda or in the ability of the Borrower or any of its
Subsidiaries (after giving effect to the Oda Acquisition and
the Borrowings provided for in connection therewith) as of the
Oda Acquisition Closing Date to conduct its operations in
accordance with the revised projections furnished to the
Administrative Agent pursuant to Section 4.9 hereof. As of the
Oda Acquisition Closing Date, there shall not have occurred and
be continuing a material disruption of, or material adverse
change in, United States financial, banking or capital markets,
as reasonably determined by the Administrative Agent in its
sole discretion.

The acceptance of the proceeds of each Borrowing of Oda Term A Loans and
Oda Term B Loans in connection with the Oda Acquisition shall constitute a
representation and warranty by the Borrower to each of the Banks that all
of the applicable conditions specified above have been satisfied or waived
as of that time. All of the certificates, legal opinions and other
documents and papers referred to in this Section 4, unless otherwise
specified, shall be delivered to the Agents at the Agent's Office (or such
other location as may be specified by the Agents) for the account of each
of the Banks and in sufficient counterparts for each of the Banks and shall
be reasonably satisfactory in form and substance to the Agents.

6. CREDIT AGREEMENT OTHERWISE UNAFFECTED. The Amended Credit Agreement and
all of the Credit Documents are each confirmed as being in full force and
effect. This Amendment, the Amended Credit Agreement and the other Credit
Documents referred to herein or therein constitute the entire understanding
of the parties with respect to the subject matter hereof and thereof and
supersede all prior and current understandings and agreements, whether
written or oral, with respect to such subject matter. The invalidity or
unenforceability of any provision hereof shall not affect the validity or
enforceability of any other term or provision hereof. The headings in this
Amendment are for convenience of reference only and shall not alter, limit
or otherwise affect the meaning hereof. Each of this Amendment and the
Amended Credit Agreement is a

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<PAGE>

Credit Document and may be executed in any number of counterparts, which
together shall constitute one instrument, and shall bind and inure to the
benefit of the parties and their respective permitted successors and
assigns.

7. APPLICABLE LAW. The amendments and waivers set forth herein shall be
governed by, and shall be construed and enforced in accordance with the law
and as set forth in Section 12.08 of the Credit Agreement, and this
Amendment shall be in all respects a part of the Credit Agreement.

-15-
<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment and Waiver to be duly executed and delivered as of the date first
above written.

COLOR SPOT NURSERIES, INC.

By: /s/ Karla D. Vukelich
-------------------------------
Name: Karla D. Vukelich
Title: EVP/Administration

CREDIT AGRICOLE INDOSUEZ
(formerly known as Banque Indosuez,
New York Branch)
as Administrative Agent

By: /s/ Patricia Frankel
-------------------------------
Name: Patricia Frankel
Title: First Vice President

By: /s/ Melissa Marano
-------------------------------
Name: Melissa Marano
Title: Vice President
Consented to:

IBJ SCHRODER BANK & TRUST COMPANY

By /s/ Merily McLaughlin
-------------------------------
Name: Merily McLaughlin
Title: Vice President

FIRST SOURCE FINANCIAL LLP,
an Illinois registered limited
liability partnership
By: First Source Financial, Inc.,
its manager

By: /s/ James W. Wilson
-------------------------------
Name: James W. Wilson
Title: Senior Vice President

-16-
<PAGE>

CREDITANSTALT-BANKVEREIN

By /s/ (illegible)
----------------------------
Name:
Title:

By /s/ Patrick J. Rounds
----------------------------
Name: Patrick J. Rounds
Title: Vice President

BANKBOSTON, N.A.

By: /s/ Linda E.C. Alto
---------------------------
Name: Linda Alto
Title: VP

BANK OF THE WEST

By: /s/ Dale J. Kobsar
---------------------------
Name: DALE J. KOBSAR
Title: REGIONAL VICE PRESIDENT

LEHMAN COMMERCIAL PAPER, INC.

By
----------------------------
Name:
Title:

THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By ING Capital Advisors, Inc. as
Investment Advisor

By: /s/ Kathleen Lenarcic
---------------------------
Name: KATHLEEN A. LENARCIC
Title: VICE PRESIDENT &
PORTFOLIO MANAGER

-17-
<PAGE>
CREDIT AGRICOLE INDOSUEZ
(formerly known as Banque Indosuez,
New York Branch)

By /s/ (illegible)
----------------------------
Name:
Title:

By /s/ Melissa Marano
----------------------------
Name: Melissa Marano
Title: Vice President

INDOSUEZ CAPITAL FUNDING II,
LIMITED
By: INDOSUEZ CAPITAL
LUXEMBOURG, S.A.,
as Collateral Manager

By /s/ Francoise Berthelot
----------------------------
Name: FRANCOISE BERTHELOT
Title: AUTHORIZED SIGNATORY

INDOSUEZ CAPITAL FUNDING III,
LIMITED
By: INDOSUEZ CAPITAL
LUXEMBOURG, S.A.,
as Collateral Manager

By /s/ Francoise Berthelot
----------------------------
Name: FRANCOISE BERTHELOT
Title: AUTHORIZED SIGNATORY

-18-

<PAGE>

COMMERCIAL LOAN FUNDING
TRUST I

By: Lehman Commercial Paper, Inc.,
not in its individual capacity
but as Administrative Agent

By /s/ Michele Swanson
----------------------------
Name: MICHELE SWANSON
Title: AUTHORIZED SIGNATORY

-19-
<PAGE>

AMENDMENT NO. 2 AND WAIVER

This Amendment No. 2 and Waiver (this "Amendment and Waiver") is made and
entered into as of July 31, 1997, by and among CSN Inc., a Delaware
corporation ("Holdings"), Color Spot Nurseries, Inc., a Delaware corporation
(the "Borrower"),Credit Agricole Indosuez (formerly Banque Indosuez, New York
branch), as Administrative Agent for itself and the other Banks (each as
defined in the Credit Agreement referenced below) (the "Administrative
Agent"), IBJ Schroder Bank & Trust Company, as Co-Agent (together with the
Administrative Agent, "the Agents") and the other Banks party hereto. The
parties agree as follows:

1. REFERENCE TO CREDIT AGREEMENT; DEFINITIONS. Reference is made to the
Amended and Restated Credit Agreement dated as of February 20, 1997, as
amended and in effect on the date hereof prior to giving effect to this
Agreement (the "CREDIT AGREEMENT"), among Holdings, the Borrower, the
Banks and the Agents. Terms defined in the Credit Agreement as amended
hereby (the "AMENDED CREDIT AGREEMENT") and not otherwise defined herein
are used herein with the meanings so defined. References in this
Agreement to "Sections" and "Exhibits", except as the context otherwise
dictates, are references to sections hereof and exhibits hereto.

2. BACKGROUND.

2.1. The Borrower desires to enter into a series of transactions
(collectively the "Texas Acquisitions") pursuant to which it
shall acquire, either directly or indirectly through Lone
Star Growers, L.P. ("Lone Star"), (i) a nursery business
located in Texas and owned and operated by Peters Wholesale
Greenhouses, Inc., a Texas corporation, (ii) a nursery
business located in Texas and owned and operated by Plants,
Inc., Waller Greenhouse Corp., Huntsville Greenhouse Corp.
and Murphy Properties, (iii) a nursery business located in
Texas and owned and operated by Wolfe Greenhouses, LLC, a
Texas limited liability company and (iv) a Christmas tree
business located in Florida, Michigan and North Carolina and
owned and operated by Cracon Inc. (d/b/a Happy Holiday
Christmas Trees), a Florida corporation.

2.2. The Texas Acquisitions will be financed through the
incurrence by the Borrower of up to an additional $16 million
in indebtedness under the Credit Agreement (as described
below).

2.3. Pursuant to the Credit Agreement, as of the date hereof, (i)
the Borrower has heretofore incurred Term A Loans in the
aggregate principal amount of $25 million, Term B Loans in an
aggregate principal amount of $35 million; and the Total
Acquisition Term Loan Commitment is $15 million, with respect
to which there are outstanding Acquisition Term Loans in the
aggregate

<PAGE>

principal amount of $8.2 million; and the Total Revolving
Loan Commitment is $27.5 million, of which $7.8 million is
drawn.

3. AMENDMENTS AND WAIVERS. Subject to all the terms and conditions hereof,
and in reliance upon the representations and warranties set forth in
Section 4, the Credit Agreement is hereby amended as follows, effective
upon the date (the "AMENDMENT DATE") that the conditions in Section 5 is
satisfied, which conditions must be satisfied not later than August 30,
1997 or this Agreement will be of no force or effect:

3.1. Schedule A to the Credit Agreement is hereby amended to add
the following columns to the right side of the table of
Banks:

TEXAS TERM B LOAN ADDITIONAL REVOLVING LOAN
$6,000,000 $10,000,000
0 0

3.2. Section 1.01 of the Credit Agreement is hereby amended as
follows:

(a) clause (i) of the first paragraph of Section 1.01 is amended
to read in its entirety as follows:

"(i) in the case of any Borrowings under the Term A Portion
or the Term B Portion, (x) on the Closing Date with respect
to Term A Loans and Term B Loans other than the Texas Term B
Loans, and (y) on the Texas Acquisition Closing Date with
respect to the Texas Term B Loans,";

(b) the first sentence of Section 1.01(b) is amended to read in its
entirety as follows:

"(b) Loans under the Term B Portion of the Loan Facility
(each a "TERM B LOAN") shall, with respect to the Term B
Loans other than the Texas Term B Loans, be made to the
Borrower on the Closing Date, and, with respect to the Texas
Term B Loans, be made to the Borrower on the Texas
Acquisition Closing Date."

"(i) except as hereinafter provided, shall initially be Base
Rate Loans and, 30 days after the Closing Date or the Texas
Acquisition Closing Date, as applicable, or such earlier time
as"

3.3. Clause (i) of Section 1.02 of the Credit Agreement is hereby
amended to read in its entirety as follows:

-2-
<PAGE>

3.4. Clause (iii) of Section 1.05(c) is hereby amended to read in
its entirety as follows:

"(iii) be dated the Closing Date (except that the Term B
Notes evidencing the Texas Term B Loans shall be dated the
Texas Acquisition Closing Date),"

3.5. Section 1.12 of the Credit Agreement is hereby amended to add
the following immediately after the first sentence of such
Section:

"As of the Texas Acquisition Closing Date, the amount of (a) the Total
Commitment is $118.5 million, (b) the Total Term A Loan Commitment is
$25 million (c) the Total Term B Loan Commitment is $41 million,
(d) the Total Revolving Loan Commitment is $37.5 million and (e) the
Total Acquisition Term Loan Commitment is $15 million (all of which is
currently outstanding in aggregate principal amount under Acquisition
Term Loans); provided, however, if the Holiday Acquisition is not
consummated on or before August 15, 1997 the Total Term B Loan
Commitment shall be reduced to $39.6 million."

3.6. Clause (c) of Section 2.02 of the Credit Agreement is hereby
amended to read in its entirety as follows:

"Each of the Term A Loan Commitments and the Term B Loan Commitments
shall terminate as of the close of business on the Closing Date
(except with respect to the Texas Term B Loan Commitments, which shall
terminate as of the close of business on the Texas Acquisition Closing
Date), and any amounts not borrowed with respect to each of the Term A
Loans and the Term B Loans on the Closing Date (or the Texas
Acquisition Closing Date, with respect to the Texas Term B Loans)
shall cease to be available."

3.7. Section 2.02 shall be amended to add clause (f) immediately
following clause (e) thereof which shall read in its entirety
as follows:

-3-
<PAGE>

"(f) The Texas Term B Loan Commitment shall be reduced by the amount
of any reduction in the cash purchase price to be paid by the Borrower
or any of its Subsidiaries to consummate the Texas Acquisitions."

3.8. Paragraph (a) of Section 3.02 of the Credit Agreement is
hereby amended to read in its entirety as follows:

"(a) The Borrower shall prepay the outstanding principal amount of
(x) the Revolving Loans on any date on which the sum of the aggregate
outstanding principal amount of such Loans (after giving effect to any
other repayments or prepayments on such date) and the then outstanding
Letters of Credit Usage exceeds the Total Revolving Loan Commitment,
in an amount equal to the amount of such excess, (y) the Acquisition
Term Loans on any date on which the aggregate outstanding principal
amount of such Loans (after giving effect to any other repayments or
prepayments on such date) exceeds the Total Acquisition Term Loan
Commitment, in an amount equal to the amount of such excess, or (z)
the Texas Term B Loans on any date on which the aggregate outstanding
principal amount of such Loans (after giving effect to any other
repayments or prepayments on such date) exceeds the Texas Term B Loan
Commitment, in an amount equal to the amount of such excess."

3.9. Paragraph (d) of Section 4.03 of the Credit Agreement is
hereby amended to read in its entirety as follows:

"(d) On or before the applicable Acquisition Term Loan Closing Date,
the Borrower shall have complied, in all material respects, with the
provisions of Sections 6.14 and 6.15 as to any property acquired or to
be acquired in connection with any such Permitted Business Acquisition
(other than the Holiday Acquisition), except for any such provisions
with which compliance is waived by the Administrative Agent,
including, without limitation, that the Borrower and its Subsidiaries
(including any Subsidiary so acquired) shall execute and deliver to
the Administrative Agent any Additional Security Documents (or
Subsidiary Guarantees) required to provide the Administrative Agent
for the benefit of the Banks with a valid, perfected security interest
in any Collateral to be acquired in such Permitted Business
Acquisition; and"

3.10. The preamble to paragraph (e) of Section 4.03 of the Credit
Agreement is hereby amended to read in its entirety as
follows:

"(e) Without limiting the foregoing clause (d), with respect to any
Real Property (whether fee title or leasehold) in which an interest is
acquired in connection with any such Permitted Business Acquisition
other than the Holiday Acquisition

-4-
<PAGE>

(including any such interest held by any Subsidiary of the Borrower
acquired in such acquisition), the following conditions shall be
satisfied on or before the Acquisition Term Loan Closing Date, except,
solely with respect to any Permitted Business Acquisition as to which
the amount of the related Borrowings is less than $6,500,000, for any
such conditions with which compliance is waived by the Administrative
Agent:"

3.11. Section 5.05 of the Credit Agreement is hereby amended to
add clause (f) immediately following clause (e) which shall
read in its entirety as follows:

"(f) All proceeds of the Texas Term B Loans shall be used by the
Borrower to (i) to pay the cash consideration to be paid by the
Borrower and Lone Star, L.P. in connection with the Texas Acquisitions
and (ii) to pay fees and expenses related to the consummation of the
Texas Acquisitions."

3.12. Paragraph (d) of Section 6.03 of the Credit Agreement is
hereby amended to read in its entirety as follows:

" (d) The Borrower will use commercially reasonably efforts to
obtain, by no later than 90 days after the Effective Date, key man
life insurance with respect to Jerry Halamuda, which is in form and
substance acceptable to the Administrative Agent, and such insurance
shall be maintained thereafter in full force and effect, with no
material reduction or alteration in such coverage except as is
reasonable acceptable to the Administrative Agent."

3.13. Section 7.01 of the Credit Agreement is hereby amended to
read in its entirety as follows:

" CAPITAL EXPENDITURES. Holdings will not, and will not permit any of
its Subsidiaries to, make Consolidated Capital Expenditures for any
purpose, in excess of the amount specified in the table below for each
of the calendar years specified in such table:

YEAR ENDING AMOUNT
----------------- -------------
December 31, 1997.......................$10.4 million
December 31, 1998.......................$11.7 million
December 31, 1999....................... $10 million
December 31, 2000.........................$10 million
December 31, 2001 ........................$10 million
December 31, 2002.........................$10 million
December 31, 2003.........................$10 million

-5-
<PAGE>

; PROVIDED, HOWEVER, that for purposes of this Section 7.01, the
aggregate amount of Capitalized Lease Obligations incurred by Holdings
and its Subsidiaries, on a consolidated basis, shall be included in
the calculation of Consolidated Capital Expenditures in the year in
which such Capitalized Lease Obligations were incurred; PROVIDED,
FURTHER, that if Holdings and its Subsidiaries make Consolidated
Capital Expenditures in any calendar year in an amount less than the
amount set forth above for such period (such unused portion the
"CARRYOVER AMOUNT"), Holdings and its Subsidiaries may make
Consolidated Capital Expenditures in the immediately succeeding
calendar year in an amount not to exceed the sum of (i) the amount set
forth above for such calendar year and (ii) the Carryover Amount;
PROVIDED, FURTHER, that (i) the Carryover Amount calculated for any
calendar year may only be used during the immediately succeeding
calendar year and will not be added to the amount of Consolidated
Capital Expenditure availability for such succeeding calendar year for
purposes of calculating the Carryover Amount for such calendar year,
and (ii) the Capital Expenditures for a given calendar year shall be
counted, first, against the amount set forth above for such calendar
year and, second, against the Carryover Amount."

3.14. Section 7.05 of the Credit Agreement is hereby amended to
read in its entirety as follows:

"MINIMUM CONSOLIDATED EBITDA. The Borrower will not permit
Consolidated EBITDA for any Test Period ending on or about the date
specified in the table below to be less than the amount specified in
such table opposite such date:

TEST PERIOD ENDING AMOUNT
---------------------- ----------------
June 30, 1997 . . . . . . . . . . . . . $13.5 million
September 30, 1997. . . . . . . . . . . $20.5 million
December 31, 1997 . . . . . . . . . . . $20.5 million

March 31, 1998. . . . . . . . . . . . . $20.5 million
June 30, 1998 . . . . . . . . . . . $26 million
September 30, 1998. . . . . . . . . $26 million
December 31, 1998 . . . . . . . . . $26 million

March 31, 1999. . . . . . . . . . . . . . $26 million
June 30, 1999 . . . . . . . . . . . . . . $30 million
September 30, 1999. . . . . . . . . . . . $30 million
December 31, 1999 . . . . . . . . . . . . $30 million

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<PAGE>

March 31, 2000. . . . . . . . . . . . . . $30 million
June 30, 2000 . . . . . . . . . . . . . . $35 million
September 30, 2000. . . . . . . . . . . . $35 million
December 31, 2000 . . . . . . . . . . . . $35 million

March 31, 2001. . . . . . . . . . . . . . $35 million
June 30, 2001 . . . . . . . . . . . . . . $35 million
September 30, 2001. . . . . . . . . . . . $35 million
December 31, 2001 . . . . . . . . . . . . $35 million

March 31, 2002. . . . . . . . . . . . . . $35 million
June 30, 2002 . . . . . . . . . . . . . . $35 million
September 30, 2002. . . . . . . . . . . . $35 million
December 31, 2002 . . . . . . . . . . . . $35 million

March 31, 2003. . . . . . . . . . . . . . $35 million
June 30, 2003 . . . . . . . . . . . . . . $35 million
September 30, 2003. . . . . . . . . . . . $35 million
December 31, 2003 . . . . . . . . . . . . $35 million"

3.15. Section 10 of the Credit Agreement is hereby amended as
follows:

(a) the following definitions are hereby added to Section 10:

"Additional Revolving Loan Commitment" means, with respect to
each Bank, the amount set forth below such Bank's name on
Exhibit A hereto directly below the column entitled "Additional
Revolving Loan," as same may be reduced from time to time
pursuant to Sections 2.01, 3.03 and/or 8.

"Expansion Capital Expenditures" means up to $7.5 million of
Consolidated Capital Expenditures incurred during the
period from the Texas Acquisition Closing Date to and
including January 31, 1998 in connection with the existing
properties and buildings located in the Texas cities of
Huntsville , Houston, Waco, Waller and Walnut Springs.

"Holiday Acquisition" means the acquisition by the Borrower,
either directly or indirectly through a Subsidiary, of a
Christmas tree business located in Florida, Michigan and
North Carolina and owned and operated by Cracon Inc. (d/b/a
Happy Holiday Christmas Trees), a Florida corporation
("Holiday"), which is to be accomplished by the acquisition
of substantially all the assets of Holiday by Color Spot
Christmas Trees, Inc. (Signature Tree), and in consideration
of such acquisition Holiday will receive approximately
$1,425,000 in cash, 25,000 shares of common stock of

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<PAGE>

Holdings and five annual payments which total $1,600,000, in
accordance with the Asset Purchase Agreement dated as of July
31, 1997 among Holdings, Signature Tree and Holiday (the
"Holiday Purchase Agreement").

"Peters Acquisition" means the acquisition by the Borrower of
a nursery business located in Texas and owned and operated by
Peters Wholesale Greenhouses, Inc., a Texas corporation
("Peters") which is to be accomplished by the acquisition by
the Borrower of all of the outstanding capital stock of
Peters, and in consideration for such merger the sellers of
Peters will receive approximately $5,697,879 in cash in
accordance with the Stock Purchase Agreement dated as of July
31, 1997, among the Borrower, Peters and the Shareholders of
Peters (the "Peters Purchase Agreement").

"Plants Acquisition" means the acquisition by the Borrower,
either directly or indirectly through a Subsidiary, of a
nursery business located in Texas and owned and operated by
Plants, Inc., Waller Greenhouse Corp., Huntsville Greenhouse
Corp. and Murphy Properties (collectively referred to as
"Plants") which is to be accomplished by the acquisition of
substantially all the assets of Plants by Acquisition and in
consideration of such acquisition the sellers of Plants will
receive approximately $2,600,000 in cash, will be repaid the
then outstanding amount under certain shareholder loans made
to Plants (which shall not exceed $698,497) and Acquisition
will assume certain liabilities of Plants, in accordance
with the Asset Purchase Agreement dated as of July 31, 1997
among Acquisition and Plants (the "Plants Purchase
Agreement").

"Texas Acquisition Closing Date" shall mean July 31, 1997.

"Texas Acquisition Documents" means the Peters Purchase
Agreement, the Plants Purchase Agreement, the Wolfe Merger
Agreement, and the Holiday Purchase Agreement, each as
amended and in effect on the date hereof, and the other
documents evidencing or implementing the transactions
contemplated thereby.

"Texas Acquisitions" means all of the Peters Acquisition, the
Plants Acquisition, the Wolfe Acquisition and the Holiday
Acquisition, taken together.

"Texas Term B Loan" loans under the portion of the Loan
Facility evidenced by the Texas Term B Loan Commitment.

"Texas Term B Loan Commitment" means, with respect to each
Bank, the amount set forth below such Bank's name on Exhibit
A hereto directly

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<PAGE>

below the column entitled "Texas Term B Loan," as same may be
reduced from time to time pursuant to Sections 2.01, 3.03
and/or 8.

"Wolfe Acquisition" means the acquisition by the Borrower,
either directly or indirectly through a Subsidiary, of a
nursery business located in Texas and owned and operated by
Wolfe Greenhouses, Inc., a Texas limited liability company
("Wolfe") which is to be accomplished by the merger of Wolfe
with and into Acquisition, with Acquisition surviving and in
consideration of this merger the sellers shall receive
approximately $6,160,000 in cash, in accordance with the
Merger Agreement dated as of July 31, 1997 among Acquisition,
Wolfe and the members of Wolfe (the "Wolfe Merger Agreement").

(b) The following definitions are hereby amended to read in their
entirety as follows:

"Borrowing Base" means, at any date of determination, an
amount equal to the sum of (x) 85% of Eligible Accounts
Receivable PLUS (y) the lesser of (a) $20,000,000 and (b)(i)
for the period May 1 through October 31, 40% of Eligible
Inventory or (ii) for the period November 1 through April 30,
60% of Eligible Inventory, in each case as shown on the most
recent Borrowing Base Certificate delivered prior to such
date of determination; PROVIDED that during any Clean-down
Period, the Borrowing Base shall be the lesser of (x) the
amount derived from the foregoing calculation and (y) the
Clean-down Amount.

"Clean-down Amount" means $10,000,000.

"Consolidated EBITDAC" for any Person, means, for any period,
Consolidated EBITDA minus Consolidated Capital Expenditures
(other than Expansion Capital Expenditures).

"SCHEDULED TERM B LOAN PRINCIPAL PAYMENTS" means, with
respect to the Term B Loan, principal payments to be made on
the last Business Day of each calendar quarter specified in
the table below, in each case, in the Dollar amount specified
opposite such period in such table:

SCHEDULED TERM B LOAN
PERIOD PRINCIPAL PAYMENT
------ ----------------------

January 1, 1997 through
June 30, 1997 $87,620
July 1, 1997 through
June 30, 2002 $102,716

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<PAGE>

July 1, 2002 through
December 31, 2003 $6,461,740

"Total Revolving Loan Commitment" means the sum of the
Revolving Loan Commitments and the Additional Revolving Loan
Commitments of each of the Banks.

"Total Term B Loan Commitment" means the sum of the Term B
Loan Commitments and the Texas Term B Loan Commitments of
each of the Banks.

4. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank and the Agents
to enter into this Agreement, the Borrower represents and warrants to each
of the Banks and the Agent that:

4.1. NO DEFAULT. Immediately after giving effect to this
Agreement, no Default will exist.

5. CONDITIONS. The effectiveness of this Amendment and Waiver, and the making
of the Texas Term B Loans and the Acquisition Term Loans to be made on the
Texas Acquisition Closing Date, provided for hereby, are subject to the
satisfaction of the following conditions:

5.1. CREDIT DOCUMENTS.

(a) This Amendment and Waiver and each other Credit Document (to
the extent not previously executed and delivered),
including, without limitation, the Subsidiary Guarantee of
Peters and any related security documentation evidencing the
guarantees and pledges by each of the Borrower, Lone Star and
Peters, shall (A) have been, on or before the Texas
Acquisition Closing Date, duly authorized, executed and
delivered by each of the parties signatory thereto and (B)
constitute the legal, valid and binding obligation of each
Credit Party, enforceable in accordance with its terms
(subject to bankruptcy and principles of equity).

(b) There shall have been delivered to the Administrative Agent
(i) for the account of each of the Banks which are extending
Texas Term B Loans and which are increasing their Revolving
Loan Commitments, Term B Notes evidencing such Borrowings and
Revolving Loan Notes in the principal amounts of such
commitments, each duly executed by the Borrower in the amount
and maturity and

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<PAGE>

as otherwise provided in the Amended Credit Agreement and
(ii) updated Schedules 5.13 and 5.16 after giving effect to
the Texas Acquisitions.

5.2. EQUITY CONTRIBUTION. KCSN Acquisition Company, L.P., Heller
Equity Capital Corporation and members of the management of
the Borrower shall have made an additional equity
contribution of $5.6 million to the Borrower on or before the
Texas Acquisition Closing Date.

5.3. OFFICERS' CERTIFICATE. The Administrative Agent shall have
received a certificate dated the Texas Acquisition Closing
Date signed by the appropriate officer(s) of the Borrower on
behalf of the Borrower in substantially the form of Exhibit
4.01(b) stating that (i) all of the conditions set forth in
this Section 5 have been either satisfied or waived in
writing by the Administrative Agent, and the Required Banks
as of such date, (ii) immediately before and after giving
effect to this Agreement, the Texas Acquisitions and the
Borrowings related thereto, all representations and
warranties contained herein or in any other Credit Document
(except as expressly amended hereunder or under another
Credit Document) shall be true and correct, (iii) no Default
or Event of Default has occurred or will have occurred after
giving effect to this Agreement, the Texas Acquisitions and
the Borrowings related thereto and (iv) since June 30, 1996
no material adverse change in the business, assets,
prospects, properties or condition (financial or otherwise)
of Holdings and its Subsidiaries shall have occurred;.

5.4. OPINIONS OF COUNSEL. The Administrative Agent shall have
received an opinion dated the Texas Acquisition Closing Date
addressed to each of the Banks from each of (i) Brownstein
Hyatt Farber & Strickland, P.C., counsel to the Credit
Parties, (ii) Shannon, Gracey, Ratliff & Miller, L.L.P.,
counsel to Peters, and (iii) Sheehey, Lovelace & Mayfield,
P.C., counsel to Wolfe, in each case, in form and substance
reasonably acceptable to the Administrative Agent.

5.5. CORPORATE PROCEEDINGS. All corporate and legal proceedings
and all instruments and agreements in connection with the
Texas Acquisitions, the execution of this Amendment and
Waiver and the other Credit Documents to be executed in
connection with the transactions contemplated hereby shall be
reasonably satisfactory in form and substance to the
Administrative Agent, and the Administrative Agent shall have
received all information and copies of all certificates,
documents and papers, including records of corporate
proceedings and governmental approvals, if any, which it may
have reasonably requested from the Credit Parties or in
connection therewith, such documents and papers where
appropriate to be certified by proper corporate or
governmental authorities. Without limiting the foregoing, the
Administrative Agent shall have received from each Credit
Party:

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<PAGE>

(a) resolutions of the board of each such Person which shall
include, without limitation, (1) resolutions approving
such documents and actions as are contemplated by this
Amendment and Waiver each of the Texas Acquisitions, and any
related transactions to the extent such Person is a party
thereto and (2) resolutions as to the due authorization,
execution and delivery of this Amendment and Waiver and the
Texas Acquisition Documents, to the extent such Person is a
party thereto, all such resolutions to be in form and
substance reasonably satisfactory to the Administrative
Agent; and

(b) signature and incumbency certificates of each officer of each
such Credit Party executing instruments, documents or
agreements required to be executed in connection with the
transactions contemplated by this Amendment and Waiver and
the Texas Acquisition Documents.

5.6. ACQUISITION DOCUMENTS.

(a) The Texas Acquisition Documents and any amendments thereto,
shall be in form and substance satisfactory to the
Administrative Agent; and on the Texas Acquisition Closing
Date each of the conditions to closing contained in each of
the Texas Acquisition Documents shall have been satisfied in
all material respects (or waived in writing, such waiver to
be reasonably satisfactory to the Administrative Agent) to
the reasonable satisfaction of the Administrative Agent.
Each Credit Party and each of the other parties to the Texas
Acquisition Documents shall have done and performed such acts
and observed such covenants which each is required to do or
perform under the Texas Acquisition Documents on or prior to
the Texas Acquisition Closing Date (or such acts and
covenants shall have been waived in writing, such waiver to
be reasonably satisfactory to the Administrative Agent).
Full, complete and accurate copies of each of the Texas
Acquisition Documents (including all schedules and exhibits
thereto) shall have been provided to the Administrative Agent.

(b) Holdings and the Borrower shall have provided evidence
satisfactory in form and substance to the Administrative
Agent that the Texas Acquisitions have been consummated or
will be consummated simultaneously with the closing of the
transactions contemplated by this Agreement.

5.7 CAPITAL STRUCTURE. On the Texas Acquisition Closing Date,
after giving effect to the Texas Acquisitions, (i) there
shall be no outstanding Capital Stock of Holdings other than
as set forth in Schedule 5.17, (ii) the Borrower shall be a
Wholly Owned Subsidiary of Holdings, (iii) Holdings shall
have no direct Subsidiaries other than the Borrower, and no
indirect Subsidiaries other than as set forth on Schedule
5.13.

5.8. ORGANIZATIONAL DOCUMENTATION, ETC. On or prior to the Texas
Acquisition Closing Date, the Administrative Agent shall
have received a true and complete certified

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<PAGE>

copy of the following documents of each of Holdings, the
Borrower, Lone Star, Signature Tree, the provisions of which
shall be reasonably satisfactory to the Agents:

(a) Copies of its certificate of incorporation, or certificate of
limited partnership, as the case may be, which (A) shall be
certified by, and accompanied by a good standing certificate
from, the Secretary of State or similar official of the
jurisdiction of its organization and (B) in the case of
Holdings, the Borrower, Lone Star and Signature Tree shall be
accompanied by good standing certificates from each
jurisdiction in which it is required to be qualified to do
business as a foreign corporation, each to be dated a recent
date prior to the Texas Acquisition Closing Date;

(b) Copies of its by-laws or limited partnership agreement as the
case may be, certified as of a recent date prior to the Texas
Acquisition Closing Date by its corporate secretary or other
person serving in a similar capacity.

5.9. CERTAIN FEES; INTEREST ON OUTSTANDING LOANS. All fees and
reasonable costs and expenses (including, without limitation,
reasonable legal fees and expenses) and other compensation
payable to the Agents or the Banks by Holdings or the
Borrower shall have been paid in full, and there shall have
been paid in full all accrued interest and all accrued
commitment fees on the Outstanding Loans and all other fees
and expenses (including, without limitation, reasonable legal
fees and expenses) of the Agents or the Banks, in each case
to the extent due and payable and, with respect to costs and
expenses, invoiced or presented on or before the Texas
Acquisition Closing Date. In addition, on or prior to the
Texas Acquisition Closing Date, there shall have been
delivered to the Agents evidence satisfactory to the Agents
that the fees and expenses payable by Holdings and its
Subsidiaries in connection with the Texas Acquisitions shall
not exceed $_________ in the aggregate.

5.10. FINANCIAL STATEMENTS, ETC. On or before the Texas
Acquisition Closing Date, the Agents shall have received:
(i) a pro forma balance sheet for Holdings and its
Subsidiaries, as of the Texas Acquisition Closing Date after
giving effect to the Texas Acquisitions, the proposed
acquisitions of nursery businesses owned and operated by Oda
Nurseries and Summersun Greenhouse Company, and the Texas
Term B Loans contemplated hereby and the Acquisition Term
Loans made on the Texas Acquisition Closing Date; and (ii) a
revised annual plan, giving effect to the Texas Acquisitions,
the proposed acquisitions of nursery businesses owned and
operated by Oda Nurseries and Summersun Greenhouse Company,
the Texas Term B Loans and the Acquisition Term Loans made on
the Texas Acquisition Closing Date contemplated hereby for
each of Holdings' and its Subsidiaries' and projections for
five calendar years commencing on or about January 1, 1997,
in each case, accompanied by a statement by Holdings that
such projections are based on estimates and assumptions
believed by Holdings in good faith to be reasonable in

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<PAGE>

light of the conditions which existed at the time of their
preparation as to the future financial performance of
Holdings, each in form, scope and substance satisfactory to
the Administrative Agent, prepared in accordance with
Holdings' normal accounting procedures applied on a
consistent basis, including (A) forecasted balance sheets and
statements of operations, stockholders' equity and cash flows
of Holdings and its Subsidiaries for such periods, (B) the
amount of forecasted capital expenditures (including the
amount of such costs to be capitalized, if any) for such
periods, and (C) Holdings and its Subsidiaries' forecasted
compliance with Sections 7.01 through 7.05 of the Amended
Credit Agreement. Each of the items delivered pursuant to
this Section 4.9, shall be satisfactory to the Administrative
Agent in its reasonable discretion. Since the time of the
preparation of such financial projections, no fact or facts
have come to the attention of any Credit Party to cause such
Person to believe that any of the estimates and assumptions
on which such projections are based are not reasonable.

5.11. LITIGATION. Except as set forth on Schedule 4.01(l), there
shall be no litigation pending or threatened by any entity
(private or governmental) involving any Credit Party or any
other party to any Texas Acquisition Document or any of the
properties or assets of any such Person that could reasonably
be expected to restrain, enjoin or result in the obtaining of
a judgment for substantial damages with respect to the Texas
Acquisitions or the consummation of the transactions
contemplated by the Texas Acquisition Documents, and there
shall be no pending or threatened litigation involving any
Credit Party or involving any other party to any Texas
Acquisition Document or any of the properties or assets of
any such Person that could reasonably be expected to have a
material adverse effect on the operations or properties being
acquired in the Texas Acquisitions or the ability of the
Credit Parties to operate the same or that could reasonably
be expected to have a Material Adverse Effect.

5.12. INDEBTEDNESS, ETC. (i) Each Credit Party shall have received
all necessary consents or waivers or shall have amended,
supplemented or otherwise modified, repaid or defeased its
outstanding Indebtedness in a manner and on terms
satisfactory to the Agents such that there exists no default
or potential default (as a result of the con summation of the
Texas Acquisitions) with respect to such Indebtedness or
under any note, evidence of indebtedness, capital lease,
mortgage, deed of trust, security document or other agreement
relating to such Indebtedness and such indentures, notes,
evidences of indebtedness, capital lease mortgages, deeds of
trust or other agreements relating to such Indebtedness shall
not contain (i) any restriction on the ability of Holdings or
any of its Subsidiaries to grant any Lien in favor of the
Banks (other than in the case of Capital Leases, or purchase
money debt (excluding Real Property leases), a Lien on the
property financed thereby) or any financial covenants or
tests applicable to Holdings or any of its Subsidiaries.

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<PAGE>

(ii) The terms and conditions of any Indebtedness of
Holdings and its Subsidiaries as of the Texas Acquisition
Closing Date which remains outstanding after giving effect to
the Texas Acquisitions and the making of the Texas Term B
Loans, the extent to which any Indebtedness of any of Peters,
Plants, Wolfe or Holiday remains outstanding as Indebtedness
of the Borrower, Lone Star or Peters after giving effect to
the Texas Acquisitions and the making of the Texas Term B
Loans and the Acquisition Term Loans shall, in each case, be
reasonably acceptable to the Agents. The Administrative Agent
shall have received evidence satisfactory to it that the
Indebtedness reflected on Schedule A hereto as being paid as
of the Texas Acquisition Closing Date is being paid with the
proceeds of the Acquisition Term Loans and the Texas Term B
Loans made on the date hereof.

5.13. SECURITY DOCUMENTS. In each case, to the extent the same
shall not have been previously delivered to the
Administrative Agent, the Security Documents and Additional
Security Documents shall have been duly executed and
delivered by each of the Credit Parties party thereto and
there shall have been delivered to the Administrative Agent:
(i) executed financing statements for filing under the
provisions of the UCC in each of the offices where such
filing is necessary or appropriate, including those set forth
on Schedule B hereto to grant the Administrative Agent a
perfected first priority Lien in the Collateral acquired in
the Texas Acquisitions as to which a security interest may be
perfected by the filing of a financing statement, which Lien
shall be superior to and prior to the rights of all third
persons and subject to no other Liens; (ii) certified copies
of Requests for Information (Form UCC-11 or the equivalent),
or equivalent reports or lien search reports listing all
effective financing statements which name the Borrower, its
subsidiaries, Peters, Plants, Wolfe or Holiday and which are
filed in any jurisdiction in which any of such Collateral is
located and the jurisdiction in which such Person's principal
place of business is located (none of which shall cover the
Collateral covered, or purported to be covered, by the
Security Documents and Additional Security Documents other
than Permitted Encumbrances); and (iv) evidence of the
completion of all recordings and filings (or of the making of
arrangements to file contemporaneously with the making of
additional Borrowings contemplated hereby) of each such
Security Document and delivery of such other security and
other documents as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Liens created,
or purported or intended to be created, by such Security
Documents; and (v) payoff letters executed by the holders of
any Indebtedness reflected as being paid as of the Texas
Acquisition Closing Date on Schedule A hereto setting forth
the amount required to discharge such Indebtedness, and
evidence that the proceeds of the Texas Term B Loans or the
Acquisition Term Loans made on the Texas Acquisition Closing
Date will be used to so discharge such Indebtedness.

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<PAGE>

5.14. LEASES. All Capital Leases and Operating Leases of Holdings
and its Subsidiaries and all Capital Leases and Operating
Leases of each of Peters, Plants, Wolfe and Holiday acquired
by Holdings or its Subsidiaries pursuant to the Texas
Acquisitions shall remain outstanding after giving effect to
the Texas Acquisitions and the making of the Texas Term B
Loans hereunder and the Acquisition Term Loans made on the
Texas Acquisition Closing Date.

5.15. CONSENTS, ETC. All necessary or required governmental and
third party approvals and consents (including, without
limitation, all approvals and consents required in connection
with any Environmental Laws), in connection with the Texas
Acquisitions or the transactions contemplated by this
Amendment and Waiver and the Texas Acquisition Documents and
otherwise referred to herein or therein to be completed on or
before the Texas Acquisition Closing Date shall have been
disclosed to the Administrative Agent and shall have been
obtained and remain in effect, and all applicable waiting
periods shall have expired without any action being taken by
any competent authority which restrains, prevents or imposes,
in the reasonable judgment of the Administrative Agent,
material adverse conditions upon the consummation of the
Texas Acquisitions. There shall not exist any judgment or
order enjoining or otherwise restraining the making of the
Texas Term B Loans hereunder or the consummation of the Texas
Acquisitions.

5.16. BORROWING BASE; BORROWING BASE CERTIFICATE. The
Administrative Agent and the Banks shall have received and
the Required Banks shall be satisfied in all reasonable
respects with a Borrowing Base Certificate which shall be
substantially in the form of Exhibit 6.01(m) to the Credit
Agreement and shall be prepared as of a date prior to the
Texas Acquisition Closing Date that is reasonably
satisfactory to the Agents. Such Borrowing Base Certificate
shall indicate that the Borrowing Base on the Texas
Acquisition Closing Date (before and after giving effect to
the Texas Acquisitions) exceeds the amount of the Revolving
Loans to be outstanding as of such date by not less than $10
million.

5.17. NO MATERIAL ADVERSE CHANGE. Since June 30, 1996 nothing
shall have occurred or become known to any Credit Party
which the Administrative Agent shall have determined has or
could reasonably be expected to have a Material Adverse
Effect or a material adverse effect on the business or
operations of Holdings and its Subsidiaries or on the
business or operations of any of Peters, Plants, Wolfe or
Holiday or has resulted or could result in a material adverse
change in the business, assets, prospects, properties or
condition (financial or otherwise) of any Credit Party or of
any of Peters, Plants, Wolfe or Holiday or in the ability of
the Borrower or any of its Subsidiaries (after giving effect
to the Texas Acquisitions and the Borrowings provided for in
connection therewith) as of the Texas Acquisition Closing
Date to conduct its operations in accordance with the revised
projections furnished to the Administrative Agent pursuant to
Section 4.9 hereof. As of the Texas Acquisition

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<PAGE>

Closing Date, there shall not have occurred and be continuing
a material disruption of, or material adverse change in,
United States financial, banking or capital markets, as
reasonably determined by the Administrative Agent in its sole
discretion.

The acceptance of the proceeds of each Borrowing of Texas Term B Loans or
Acquisition Term Loans in connection with the Texas Acquisitions shall
constitute a representation and warranty by the Borrower to each of the
Banks that all of the applicable conditions specified above have been
satisfied or waived as of that time. All of the certificates, legal
opinions and other documents and papers referred to in this Section 4,
unless otherwise specified, shall be delivered to the Agents at the Agent's
Office (or such other location as may be specified by the Agents) for the
account of each of the Banks and in sufficient counterparts for each of the
Banks and shall be reasonably satisfactory in form and substance to the
Agents.

6. CREDIT AGREEMENT OTHERWISE UNAFFECTED. The Amended Credit Agreement
and all of the Credit Documents are each confirmed as being in full
force and effect. This Amendment and Waiver, the Amended Credit
Agreement and the other Credit Documents referred to herein or therein
constitute the entire understanding of the parties with respect to the
subject matter hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral, with respect
to such subject matter. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of
any other term or provision hereof. The headings in this Amendment
and Waiver are for convenience of reference only and shall not alter,
limit or otherwise affect the meaning hereof. Each of this Amendment
and Waiver and the Amended Credit Agreement is a Credit Document and
may be executed in any number of counterparts, which together shall
constitute one instrument, and shall bind and inure to the benefit of
the parties and their respective permitted successors and assigns.

7. WAIVER. The conditions set forth in Section 5 hereof are hereby
waived with respect to the Holiday Acquisition until the earlier of
the consummation of the Holiday Acquisition and August 15, 1997.

8. APPLICABLE LAW. The amendments and waivers set forth herein shall be
governed by, and shall be construed and enforced in accordance with
the law and as set forth in Section 12.08 of the Credit Agreement, and
this Amendment and Waiver shall be in all respects a part of the
Credit Agreement.

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<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment and Waiver to be duly executed and delivered as of the date first
above written.

COLOR SPOT NURSERIES, INC.

By: /s/ Karla D. Vukelich
--------------------------------
Name: KARLA D. VUKELICH
Title: CORPORATE SECRETARY

CREDIT AGRICOLE INDOSUEZ
(formerly known as Banque Indosuez, New York
Branch)
as Administrative Agent

By: /s/[illigible]
---------------------------------
Name:
---------------------------
Title:
--------------------------
By: /s/ [illigible]
----------------------------------
Name:
--------------------------
Title:
--------------------------
Consented to:

IBJ SCHRODER BANK & TRUST COMPANY

By /s/ M McLaughlin
---------------------------------
Name: MARY McLAUGHLIN
Title: VICE PRESIDENT

FIRST SOURCE FINANCIAL LLP,
an Illinois registered limited liability
partnership
By: First Source Financial, Inc., its
manager
By: /s/ Gary L. Francis
--------------------------------
Name: GARY L. FRANCIS
Title: SENIOR VICE PRESIDENT

<PAGE>

CREDITANSTALT-BANKVEREIN

By /s/ John P. Macukas
---------------------------------
Name: JOHN P. MACUKAS
Title: SENIOR VICE PRESIDENT

By /s/ Patrick J. Rounds
---------------------------------
Name: Patrick J. Rounds
Title: Vice President

THE FIRST NATIONAL BANK OF
BOSTON

By: /S/ Linda E.C. Alto
---------------------------------
Name: LINDA ALTO
Title: V P
BANK OF THE WEST

By: /s/ Dale J. Kobsar
---------------------------------
Name: DALE J. KOBSAR
Title: REGIONAL VICE PRESIDENT

LEHMAN COMMERCIAL PAPER, INC.

By /s/ Michele Swanson
--------------------------------
Name: Michele Swanson
Title: Authorized Signatory

THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By ING Capital Advisors, Inc. as
Investment Advisor

By: /s/ Kathleen A. Lenarcic
---------------------------------
Name: KATHLEEN A. LENARCIC
Title: VICE PRESIDENT & PORTFOLIO MANAGER

<PAGE>

CREDIT AGRICOLE INDOSUEZ (formerly
known as Banque Indosuez, New York
Branch)

By /s/ Patricia Frank
--------------------------------
Name: Patricia Frank
Title: First Vice President

By /s/ [illigible]
--------------------------------
Name: [illigible]
Title: Vice President

INDOSUEZ CAPITAL FUNDING II,
LIMITED
By: INDOSUEZ CAPITAL
LUXEMBOURG, S.A.,
as Collateral Manager
By /s/ Francoise Berthelot
--------------------------------
Name: FRANCOISE BERTHELOT
Title: AUTHORIZED SIGNATORY

INDOSUEZ CAPITAL FUNDING III,
LIMITED
By: INDOSUEZ CAPITAL
LUXEMBOURG, S.A.,
as Collateral Manager

By /s/ Francoise Berthelot
-------------------------------
Name: FRANCOISE BERTHELOT
Title: AUTHORIZED SIGNATORY
<PAGE>

AMENDMENT NO. 3

This Amendment No. 3 (this "AMENDMENT") is made and entered into as of
August 11, 1997, by and among CSN Inc., a Delaware corporation ("HOLDINGS"),
Color SPOT Nurseries, Inc., a Delaware corporation (the "BORROWER"), Credit
Agricole Indosuez (formerly Banque Indosuez, New York branch), as Administrative
Agent for itself and the other Banks (each as defined in the Credit Agreement
referenced below) (the "ADMINISTRATIVE AGENT"), IBJ Schroder Bank & Trust
Company, as Co-Agent (together with the Administrative Agent, "THE AGENTS") and
the other Banks party hereto. The parties agree as follows:

2. BACKGROUND.

2.1. The Borrower desires to enter into a transaction (collectively
the "SUMMERSUN ACQUISITION") pursuant to which it shall acquire a
nursery business located in Washington and Oregon and owned and
operated by Summersun Greenhouse Co., a Washington corporation.

2.2. The Summersun Acquisition will be financed through the incurrence
by the Borrower of up to an additional $8.5 million in
indebtedness under the Credit Agreement (as described below).

2.3. Pursuant to the Credit Agreement, as of the date hereof, (i) the
Borrower has heretofore incurred Term A Loans in the aggregate
principal amount of $25 million, Term B Loans in an aggregate
principal amount of $41 million; (ii) the Total Acquisition Term
Loan Commitment is $15 million, (all of which is currently
outstanding in principal amount of Acquisition Term Loan); and
(iii) the Total Revolving Loan Commitment is $37.5 million, of
which $7.8 million is drawn.

2.4. In connection with the recent Peters Acquisition, the Borrower
desires to create a new subsidiary, LSGR Holdings, Inc., a
Delaware corporation ("LSGR HOLDINGS") to which it will
contribute all of the Borrower's limited partnership interests in
Lone Star Growers, L.P. ("LONE STAR") and desires to have its
subsidiary, Peters Wholesale Greenhouses, Inc. ("PETERS")
contribute all of its assets (other than its real property) to
Lone Star in exchange for a 12% limited partnership interest in
Lone Star.

<PAGE>

3. AMENDMENTS AND WAIVERS. Subject to all the terms and conditions hereof,
and in reliance upon the representations and warranties set forth in
Section 4, the Credit Agreement is hereby amended as follows, effective
upon the date (the "AMENDMENT DATE") that the conditions in Section 5 are
satisfied, which conditions must be satisfied not later than August 30,
1997 or this Agreement will be of no force or effect:

3.1. Schedule A to the Credit Agreement is hereby amended to add the
following column to the right side of the table of Banks:

Summersun Term A Loan Summersun Term B Loan
--------------------- ---------------------

$2,500,000 $6,000,000
0 0

3.2. Section 1.01 of the Credit Agreement is hereby amended as
follows:

(a) clause (i) of the first paragraph of Section 1.01 is amended
to read in its entirety as follows:

"(i) in the case of any Borrowings under the Term A Portion
or the Term B Portion, (x) on the Closing Date with respect
to Term A Loans and Term B Loans other than the Texas Term B
Loans, (y) on the Texas Acquisition Closing Date with
respect to the Texas Term B Loans, and (z) on the Summersun
Acquisition Closing Date with respect to the Summersun Terms
A Loans and the Summersun Term B Loans";

(b) the first sentence of Section 1.01(a) is amended to read in
its entirety as follows:

"(a) Loans under the Term A Portion of the Loan Facility
(each a "TERM A LOAN") shall, with respect to the Term A
Loans other than the Summersun Term A Loans, be made to the
Borrower on the Closing Date, and, with respect to the
Summersun Term A Loans, be made to the Borrower on the
Summersun Acquisition Closing Date";

" (i) except as hereinafter provided, shall initially be
Base Rate Loans and, 30 days after the Closing Date or the
Summersun Acquisition Closing Date, as applicable, or such
earlier time as"

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<PAGE>

(d) the first sentence of Section 1.01(b) is amended to read in
its entirety as follows:

"(b) Loans under the Term B Portion of the Loan Facility
(each a "TERM B LOAN") shall, (i) with respect to the Term B
Loans other than the Texas Term B Loans and the Summersun
Term B Loans, be made to the Borrower on the Closing Date,
(ii) with respect to the Texas Term B Loans, be made to the
Borrower on the Texas Acquisition Closing Date, and, (iii)
with respect to the Summersun Term B Loans, be made to the
Borrower on the Summersun Closing Date."

(e) the lead in to clause (i) of the second sentence of Section
1.01(b) is amended to read in its entirety as follows:

"(i) except as hereinafter provided, shall initially be Base
Rate Loans and, 30 days after the Closing Date, the Texas
Acquisition Closing Date or the Summersun Acquisition
Closing Date, as applicable, or such earlier time as"

3.3. Clause (i) of Section 1.02 of the Credit Agreement is hereby
amended to read in its entirety as follows:

"(i) the Banks' Term A Loan Commitments and Term B Loan
Commitments shall terminate, on a pro rata basis, with respect to
any portion of the Total Term A Loan Commitments or the Total
Term B Loan Commitments, as the case may be, not utilized by the
Borrower on the Closing Date (except for the Texas Term B Loan
Commitment and the Summersun Term B Loan Commitment, which shall
each terminate as to any portion not utilized on the Texas
Acquisition Closing Date or the Summersun Acquisition Date, as
the case may be) and"

3.4. Clause (iii) of Section 1.05(b) is hereby amended to read in its
entirety as follows:

"(iii) be dated the Closing Date (except that the Term A
Notes evidencing the Summersun Term A Loans shall be dated
the Summersun Acquisition Closing Date),"

3.5. Clause (iii) of Section 1.05(c) is hereby amended to read in its
entirety as follows:

"(iii) be dated the Closing Date (except that the Term B
Notes evidencing the Texas Term B Loans shall be dated the
Texas Acquisition Closing

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<PAGE>

Date and the Term B Notes evidencing the Summersun Term B
Loans shall be dated the Summersun Acquisition Closing
Date),"

3.6. Section 1.12 of the Credit Agreement is hereby amended to add the
following immediately after the second sentence of such Section:

"As of the Summersun Acquisition Closing Date, the amount of (a)
the Total Commitment is $127 million, (b) the Total Term A Loan
Commitment is $27.5 million (c) the Total Term B Loan Commitment
is $47 million, (d) the Total Revolving Loan Commitment is $37.5
million and (e) the Total Acquisition Term Loan Commitment is $15
million (all of which is currently outstanding in aggregate
principal amount under Acquisition Term Loans)."

3.7. Clause (c) of Section 2.02 of the Credit Agreement is hereby
amended to read in its entirety as follows:

"Each of the Term A Loan Commitments and the Term B Loan
Commitments shall terminate as of the close of business on the
Closing Date (except with respect to the Texas Term B Loan
Commitments, which shall terminate as of the close of business on
the Texas Acquisition Closing Date and the Summersun Term A Loans
Commitments and the Summersun Term B Loan Commitments, which
shall terminate on the Summersun Acquisition Closing Date), and
any amounts not borrowed with respect to each of the Term A Loans
and the Term B Loans on the Closing Date (or the Texas
Acquisition Closing Date, or the Summersun Acquisition Date, as
the case may be) shall cease to be available."

3.8. Section 2.02 shall be amended to add clause (g) immediately
following clause (f) thereof which shall read in its entirety as
follows:

"(g) The Summersun Term A Loan Commitment and the Summersun Term
B Loan Commitment shall be reduced proportionately by the amount
of any reduction in the cash purchase price to be paid by the
Borrower to consummate the Summersun Acquisition."

3.9. Section 5.05 of the Credit Agreement is hereby amended to add
clause (f) immediately following clause (e) which shall read in
its entirety as follows:

"(f) All proceeds of the Summersun Term A Loans and the Summersun
Term B Loans shall be used by the Borrower to (i) to pay the
cash consideration to be paid by the Borrower in connection with
the Summersun Acquisition and (ii) to pay fees and expenses
related to the consummation of the Summersun Acquisition."

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<PAGE>

3.10. Section 6 of the Credit Agreement is hereby amended by adding a
new Section 6.18 to the end thereof immediately following Section
6.17 which Section 6.18 shall read in its entirety as follows:

"6.18. STAGING AREA, MOUNT VERNON, WASHINGTON PROPERTY. On or
before August 30, 1997 with respect to the Real Property being
leased by the Borrower located in Mount Vernon, Skagit County,
Washington constituting the so-called "staging area" and not
previously made subject to a first leasehold mortgage or deed of
trust in favor of Administrative Agent, ("STAGING AREA REAL
PROPERTY"), the Borrower shall satisfy to the reasonable
satisfaction of the Administrative Agent all of the requirements
of Section 4.03(e) hereof."

3.11. Section 10 of the Credit Agreement is hereby amended as follows:

(a) the following definitions are hereby added to Section 10:

"SUMMERSUN ACQUISITION" means the acquisition by the
Borrower, of a nursery business located in Oregon and
Washington and owned and operated by Summersun Greenhouse
Co., a Washington corporation ("SUMMERSUN"), which is to be
accomplished by the acquisition of substantially all the
assets, excluding owned real estate and certain liabilities
of Summersun by the Borrower, and in consideration of such
acquisition Summersun will receive approximately $7,100,000
in cash in accordance with the Asset Purchase Agreement
dated as of August 11, 1997 among the Borrower and Summersun
(the "SUMMERSUN PURCHASE AGREEMENT").

"SUMMERSUN ACQUISITION CLOSING DATE" shall mean August 11,
1997.

"SUMMERSUN ACQUISITION DOCUMENTS" means the Summersun
Purchase Agreement, as amended and in effect on the date
hereof, and the other documents evidencing or implementing
the transactions contemplated thereby.

"SUMMERSUN TERM A LOAN" means loans under the portion of
the Loan Facility evidenced by the Summersun Term A Loan
Commitment.

"SUMMERSUN TERM A LOAN COMMITMENT" means, with respect to
each Bank, the amount set forth below such Bank's name on
Exhibit A hereto directly below the column entitled
"Summersun Term A Loan," as same may be reduced from time to
time pursuant to Sections 2.01, 3.03 and/or 8.

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<PAGE>

"SUMMERSUN TERM B LOAN" means loans under the portion of
the Loan Facility evidenced by the Summersun Term B Loan
Commitment.

"SUMMERSUN TERM B LOAN COMMITMENT" means, with respect to
each Bank, the amount set forth below such Bank's name on
Exhibit A hereto directly below the column entitled
"Summersun Term B Loan," as same may be reduced from time to
time pursuant to Sections 2.01, 3.03 and/or 8.

(b) The following definitions are hereby amended to read in
their entirety as follows:

"SCHEDULED TERM A LOAN PRINCIPAL PAYMENTS" means, with
respect to the principal payments on the Term A Loan to be
made on the last Business Day of each calendar quarter
specified in the table below, the Dollar amount specified
opposite such date in such table:

Scheduled Term A Loan
Date Principal Payment
---- ---------------------

March 31, 1997 $450,000
June 30, 1997 $625,000
September 30, 1997 $690,308
December 31, 1997 $690,308

March 31, 1998 $1,076,881
June 30, 1998 $1,076,881
September 30, 1998 $1,076,881
December 31, 1998 $1,076,881

March 31, 1999 $1,242,555
June 30, 1999 $1,242,555
September 30, 1999 $1,242,555
December 31, 1999 $1,242,555

March 31, 2000 $1,325,392
June 30, 2000 $1,325,392
September 30, 2000 $1,325,392
December 31, 2000 $1,325,392

March 31, 2001 $1,546,290
June 30, 2001 $1,546,290
September 30, 2001 $1,546,290
December 31, 2001 $1,546,290

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<PAGE>

March 31, 2002 $2,139,956
June 30, 2002 $2,139,956

"SCHEDULED TERM B LOAN PRINCIPAL PAYMENTS" means, with
respect to the Term B Loan, principal payments to be made on
the last Business Day of each calendar quarter specified in
the table below, in each case, in the Dollar amount
specified opposite such period in such table:

Scheduled Term B Loan
Period Principal Payment
------ ---------------------

January 1, 1997 through
June 30, 1997 $87,620
July 1, 1997 through
June 30, 2002 $117,812
July 1, 2002 through
December 31, 2003 $7,411,420

"Total Term A Loan Commitment" means the sum of the Term A Loan
Commitments and the Summersun Term A Loan Commitments of each of
the Banks.

"Total Term B Loan Commitment" means the sum of the Term B Loan
Commitments, the Texas Term B Loan Commitments and the Summersun
Term B Loan Commitments of each of the Banks.

3.12. WAIVER. The Banks hereby waive compliance with the requirements
of Sections 4.03(d), 6.14 and 6.15 as to the Staging Area Real
Property until the period ending August 30, 1997.

4. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank and the Agents
to enter into this Amendment, the Borrower represents and warrants to each
of the Banks and the Agent that:

4.1. NO DEFAULT. Immediately after giving effect to this Agreement,
no Default will exist.

4.2. INCORPORATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in Section 5 of the
Amended Credit Agreement are true and correct on the date hereof
as if originally made on and as of the date hereof (except to the
extent any representation or warranty refers to a specific
earlier date).

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<PAGE>

4.3. DISCLOSURE. The Summersun Acquisition Documents and the other
information and certificates furnished to or to be furnished to
the Administrative Agent in connection with the Summersun
Acquisition and this Amendment do not contain and will not
contain any untrue statement of a material fact or omit to state
any material fact and, to the knowledge of the Credit Parties,
there is no material fact relating to Summersun or the Summersun
Acquisition which may adversely affect the same which has not
been disclosed in writing to the Administrative Agent.

5. CONDITIONS. The effectiveness of this Amendment, and the making of the
Summersun Term A Loans and the Summersun Term B Loans to be made on the
Summersun Acquisition Closing Date, provided for hereby, are subject to the
satisfaction of the following conditions:

5.1. CREDIT DOCUMENTS.

(a) This Amendment and each other Credit Document (to the extent
not previously executed and delivered), including, without
limitation, the Subsidiary Guarantee of LSGR Holdings and
any related security documentation evidencing the guarantees
and pledges by each of the Borrower, LSGR Holdings and
Peters, shall (A) have been, on or before the Summersun
Acquisition Closing Date, duly authorized, executed and
delivered by each of the parties signatory thereto and (B)
constitute the legal, valid and binding obligation of each
Credit Party, enforceable in accordance with its terms
(subject to bankruptcy and principles of equity).

(b) There shall have been delivered to the Administrative Agent
(i) for the account of each of the Banks which are extending
Summersun Term A Loans and Summersun Term B Loans, Term A
Notes and Term B Notes evidencing such Borrowings, each duly
executed by the Borrower in the amount and maturity and as
otherwise provided in the Amended Credit Agreement and (ii)
updated Schedules 5.13, 5.16 and 5.17 after giving effect to
the Summersun Acquisition, the creation of LSGR Holdings and
the related asset transfers.

5.2. OFFICERS' CERTIFICATE. The Administrative Agent shall have
received a certificate dated the Summersun Acquisition Closing
Date signed by the appropriate officer(s) of the Borrower on
behalf of the Borrower in substantially the form of Exhibit
4.01(b) stating that (i) all of the conditions set forth in this
Section 5 have been either satisfied or waived in writing by the
Administrative Agent, and the Required Banks as of such date,
(ii) immediately before and after giving effect to this
Agreement, the Summersun Acquisition, the Borrowings related
thereto, the creation of LSGR Holdings and the related asset
transfers, all representations and warranties contained herein or
in any other Credit

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<PAGE>

Document (except as expressly amended hereunder or under another
Credit Document) shall be true and correct, (iii) no Default or
Event of Default has occurred or will have occurred after giving
effect to this Agreement, the Summersun Acquisition, the
Borrowings related thereto, the creation of LSGR Holdings and the
related asset transfers and (iv) since June 30, 1996 no material
adverse change in the business, assets, prospects, properties or
condition (financial or otherwise) of Holdings and its
Subsidiaries shall have occurred.

5.3. OPINIONS OF COUNSEL. The Administrative Agent shall have
received an opinion dated the Summersun Acquisition Closing Date
addressed to each of the Banks from each of (i) Brownstein Hyatt
Farber & Strickland, P.C., counsel to the Credit Parties,
(ii) Stoel Rieves, LLP, special Washington counsel to the Credit
Parties, and (iii) Jack R. Wallace, counsel to Summersun, in each
case, in form and substance reasonably acceptable to the
Administrative Agent.

5.4. CORPORATE PROCEEDINGS. All corporate and legal proceedings and
all instruments and agreements in connection with the Summersun
Acquisition, the creation of LSGR Holdings and the related asset
transfers, the execution of this Amendment and the other Credit
Documents to be executed in connection with the transactions
contemplated hereby shall be reasonably satisfactory in form and
substance to the Administrative Agent, and the Administrative
Agent shall have received all information and copies of all
certificates, documents and papers, including records of
corporate proceedings and governmental approvals, if any, which
it may have reasonably requested from the Credit Parties or in
connection therewith, such documents and papers where appropriate
to be certified by proper corporate or governmental authorities.
Without limiting the foregoing, the Administrative Agent shall
have received from each Credit Party:

(a) resolutions of the board of each such Person which shall
include, without limitation, (1) resolutions approving such
documents and actions as are contemplated by this Amendment or
the Summersun Acquisition, and any related transactions to the
extent such Person is a party thereto and (2) resolutions as
to the due authorization, execution and delivery of this
Amendment and the Summersun Acquisition Documents, to the
extent such Person is a party thereto, all such resolutions to
be in form and substance reasonably satisfactory to the
Administrative Agent; and

(b) signature and incumbency certificates of each officer of each
such Credit Party executing instruments, documents or
agreements required to be executed in connection with the
transactions contemplated by this Amendment and the Summersun
Acquisition Documents.

5.5. ACQUISITION DOCUMENTS.

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<PAGE>

(a) The Summersun Acquisition Documents and any amendments
thereto, shall be in form and substance satisfactory to the
Administrative Agent; and on the Summersun Acquisition Closing
Date each of the conditions to closing contained in each of
the Summersun Acquisition Documents shall have been satisfied
in all material respects (or waived in writing, such waiver to
be reasonably satisfactory to the Administrative Agent) to the
reasonable satisfaction of the Administrative Agent. Each
Credit Party and each of the other parties to the Summersun
Acquisition Documents shall have done and performed such acts
and observed such covenants which each is required to do or
perform under the Summersun Acquisition Documents on or prior
to the Summersun Acquisition Closing Date (or such acts and
covenants shall have been waived in writing, such waiver to be
reasonably satisfactory to the Administrative Agent). Full,
complete and accurate copies of each of the Summersun
Acquisition Documents (including all schedules and exhibits
thereto) shall have been provided to the Administrative Agent.

(b) Holdings and the Borrower shall have provided evidence
satisfactory in form and substance to the Administrative Agent
that the Summersun Acquisition has been consummated or will be
consummated simultaneously with the closing of the
transactions contemplated by this Agreement.

5.6. CAPITAL STRUCTURE. On the Summersun Acquisition Closing Date,
after giving effect to the Summersun Acquisition, (i) there shall
be no outstanding Capital Stock of Holdings other than as set
forth in Schedule 5.17, (ii) the Borrower shall be a Wholly Owned
Subsidiary of Holdings, (iii) Holdings shall have no direct
Subsidiaries other than the Borrower, and no indirect
Subsidiaries other than as set forth on Schedule 5.13.

5.7. ORGANIZATIONAL DOCUMENTATION, ETC. On or prior to the Summersun
Acquisition Closing Date, the Administrative Agent shall have
received a true and complete certified copy of the following
documents of each of Holdings, the Borrower, and LSGR Holdings,
the provisions of which shall be reasonably satisfactory to the
Agents:

(a) Copies of its certificate of incorporation, or certificate
of limited partnership, as the case may be, which (A) shall
be certified by, and accompanied by a good standing
certificate from, the Secretary of State or similar official
of the jurisdiction of its organization and (B) in the case
of Holdings, the Borrower, and LSGR Holdings shall be
accompanied by good standing certificates from each
jurisdiction in which it is required to be qualified to do
business as a foreign corporation, each to be dated a recent
date prior to the Summersun Acquisition Closing Date;

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<PAGE>

(b) Copies of its by-laws or limited partnership agreement as
the case may be, certified as of a recent date prior to the
Summersun Acquisition Closing Date by its corporate
secretary or other person serving in a similar capacity.

5.8. CERTAIN FEES; INTEREST ON OUTSTANDING LOANS. All fees and
reasonable costs and expenses (including, without limitation,
reasonable legal fees and expenses) and other compensation
payable to the Agents or the Banks by Holdings or the Borrower
shall have been paid in full, and there shall have been paid in
full all accrued interest and all accrued commitment fees on the
Outstanding Loans and all other fees and expenses (including,
without limitation, reasonable legal fees and expenses) of the
Agents or the Banks, in each case to the extent due and payable
and, with respect to costs and expenses, invoiced or presented on
or before the Summersun Acquisition Closing Date. In addition,
on or prior to the Summersun Acquisition Closing Date, there
shall have been delivered to the Agents evidence satisfactory to
the Agents that the fees and expenses payable by Holdings and its
Subsidiaries in connection with the Summersun Acquisition shall
not exceed $_________ in the aggregate.

5.9. FINANCIAL STATEMENTS, ETC. On or before the Summersun
Acquisition Closing Date, the Agents shall have received: (i) a
pro forma balance sheet for Holdings and its Subsidiaries, as of
_______________ after giving effect to the Texas Acquisitions,
the Summersun Acquisition, the proposed acquisition of a nursery
business owned and operated by Oda Nurseries, the Summersun Term
A Loans and Summersun Term B Loans contemplated hereby; and (ii)
a revised annual plan, giving effect to the Texas Acquisitions,
the Summersun Acquisition the proposed acquisition of a nursery
business owned and operated by Oda Nurseries, and the Summersun
Term B Loans contemplated hereby for each of Holdings' and its
Subsidiaries' and projections for five calendar years commencing
on or about January 1, 1997, in each case, accompanied by a
statement by Holdings that such projections are based on
estimates and assumptions believed by Holdings in good faith to
be reasonable in light of the conditions which existed at the
time of their preparation as to the future financial performance
of Holdings, each in form, scope and substance satisfactory to
the Administrative Agent, prepared in accordance with Holdings'
normal accounting procedures applied on a consistent basis,
including (A) forecasted balance sheets and statements of
operations, stockholders' equity and cash flows of Holdings and
its Subsidiaries for such periods, (B) the amount of forecasted
capital expenditures (including the amount of such costs to be
capitalized, if any) for such periods, and (C) Holdings and its
Subsidiaries' forecasted compliance with Sections 7.01 through
7.05 of the Amended Credit Agreement. Each of the items
delivered pursuant to this Section 4.9, shall be satisfactory to
the Administrative Agent in its reasonable discretion.

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<PAGE>

Since the time of the preparation of such financial projections,
no fact or facts have come to the attention of any Credit Party
to cause such Person to believe that any of the estimates and
assumptions on which such projections are based are not
reasonable.

5.10. LITIGATION. Except as set forth on Schedule 4.01(l), there shall
be no litigation pending or threatened by any entity (private or
governmental) involving any Credit Party or any other party to
any Summersun Acquisition Document or any of the properties or
assets of any such Person that could reasonably be expected to
restrain, enjoin or result in the obtaining of a judgment for
substantial damages with respect to the Summersun Acquisition or
the consummation of the transactions contemplated by the
Summersun Acquisition Documents, and there shall be no pending or
threatened litigation involving any Credit Party or involving any
other party to any Summersun Acquisition Document or any of the
properties or assets of any such Person that could reasonably be
expected to have a material adverse effect on the operations or
properties being acquired in the Summersun Acquisition or the
ability of the Credit Parties to operate the same or that could
reasonably be expected to have a Material Adverse Effect.

5.11. INDEBTEDNESS, ETC. (i) Each Credit Party shall have received all
necessary consents or waivers or shall have amended, supplemented
or otherwise modified, repaid or defeased its outstanding
Indebtedness in a manner and on terms satisfactory to the Agents
such that there exists no default or potential default (as a
result of the consummation of the Summersun Acquisition) with
respect to such Indebtedness or under any note, evidence of
indebtedness, capital lease, mortgage, deed of trust, security
document or other agreement relating to such Indebtedness and
such indentures, notes, evidences of indebtedness, capital lease
mortgages, deeds of trust or other agreements relating to such
Indebtedness shall not contain (i) any restriction on the ability
of Holdings or any of its Subsidiaries to grant any Lien in favor
of the Banks (other than in the case of Capital Leases, or
purchase money debt (excluding Real Property leases), a Lien on
the property financed thereby) or any financial covenants or
tests applicable to Holdings or any of its Subsidiaries.

(ii) The terms and conditions of any Indebtedness of Holdings
and its Subsidiaries as of the Summersun Acquisition Closing Date
which remains outstanding after giving effect to the Summersun
Acquisition and the making of the Summersun Term A Loans and the
Summersun Term B Loans, the extent to which any Indebtedness of
Summersun remains outstanding as Indebtedness of the Borrower
after giving effect to the Summersun Acquisition and the making
of the Summersun Term A Loans and Summersun Term B Loans shall,
in each case, be reasonably acceptable to the Agents. The
Administrative Agent shall have received evidence satisfactory to
it that the Indebtedness reflected on Schedule A

-12-
<PAGE>

hereto as being paid as of the Summersun Acquisition Closing Date
is being paid with the proceeds of the Summersun Term A Loans and
Summersun Term B Loans made on the date hereof.

5.12. SECURITY DOCUMENTS. In each case, to the extent the same shall
not have been previously delivered to the Administrative Agent,
the Security Documents and Additional Security Document,
including the Subsidiary Guarantee and Security Agreement of
LSGR Holding, shall have been duly executed and delivered by each
of the Credit Parties party thereto and there shall have been
delivered to the Administrative Agent: (i) executed financing
statements for filing under the provisions of the UCC in each of
the offices where such filing is necessary or appropriate,
including those set forth on Schedule B hereto to grant the
Administrative Agent a perfected first priority Lien in the
Collateral acquired in the Summersun Acquisition and the assets
transferred in connection with the formation of LSGR Holdings as
to which a security interest may be perfected by the filing of a
financing statement, which Lien shall be superior to and prior to
the rights of all third persons and subject to no other Liens;
(ii) certified copies of Requests for Information (Form UCC-11 or
the equivalent), or equivalent reports or lien search reports
listing all effective financing statements which name the
Borrower, its subsidiaries, or Summersun and which are filed in
any jurisdiction in which any of such Collateral is located and
the jurisdiction in which such Person's principal place of
business is located (none of which shall cover the Collateral
covered, or purported to be covered, by the Security Documents
and Additional Security Documents other than Permitted
Encumbrances); and (iv) evidence of the completion of all
recordings and filings (or of the making of arrangements to file
contemporaneously with the making of additional Borrowings
contemplated hereby) of each such Security Document and delivery
of such other security and other documents as may be necessary
or, in the opinion of the Administrative Agent, desirable to
perfect the Liens created, or purported or intended to be
created, by such Security Documents; and (v) payoff letters
executed by the holders of any Indebtedness reflected as being
paid as of the Summersun Acquisition Closing Date on Schedule A
hereto setting forth the amount required to discharge such
Indebtedness, and evidence that the proceeds of the Summersun
Term A Loans and Summersun Term B Loans will be used to so
discharge such Indebtedness.

5.13. LEASES. All Capital Leases and Operating Leases of Holdings and
its Subsidiaries and all Capital Leases and Operating Leases of
Summersun acquired by Holdings or its Subsidiaries pursuant to
the Summersun Acquisition shall remain outstanding after giving
effect to the Summersun Acquisition and the making of the
Summersun Term A Loans and Summersun Term B Loans hereunder.

-13-
<PAGE>

5.14. CONSENTS, ETC. All necessary or required governmental and third
party approvals and consents (including, without limitation, all
approvals and consents required in connection with any
Environmental Laws), in connection with the Summersun Acquisition
or the transactions contemplated by this Amendment and the
Summersun Acquisition Documents and otherwise referred to herein
or therein to be completed on or before the Summersun Acquisition
Closing Date shall have been disclosed to the Administrative
Agent and shall have been obtained and remain in effect, and all
applicable waiting periods shall have expired without any action
being taken by any competent authority which restrains, prevents
or imposes, in the reasonable judgment of the Administrative
Agent, material adverse conditions upon the consummation of the
Summersun Acquisition. There shall not exist any judgment or
order enjoining or otherwise restraining the making of the
Summersun Term A Loans or Summersun Term B Loans hereunder or the
consummation of the Summersun Acquisitions.

5.15. BORROWING BASE; BORROWING BASE CERTIFICATE. The Administrative
Agent and the Banks shall have received and the Required Banks
shall be satisfied in all reasonable respects with a Borrowing
Base Certificate which shall be substantially in the form of
Exhibit 6.01(m) to the Credit Agreement and shall be prepared as
of a date prior to the Summersun Acquisition Closing Date that is
reasonably satisfactory to the Agents. Such Borrowing Base
Certificate shall indicate that the Borrowing Base on the
Summersun Acquisition Closing Date (before and after giving
effect to the Summersun Acquisition) exceeds the amount of the
Revolving Loans to be outstanding as of such date by not less
than $10 million.

5.16. NO MATERIAL ADVERSE CHANGE. Since June 30, 1996 nothing shall
have occurred or become known to any Credit Party which the
Administrative Agent shall have determined has or could
reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the business or operations of Holdings
and its Subsidiaries or on the business or operations of
Summersun or has resulted or could result in a material adverse
change in the business, assets, prospects, properties or
condition (financial or otherwise) of any Credit Party or of
Summersun or in the ability of the Borrower or any of its
Subsidiaries (after giving effect to the Summersun Acquisition
and the Borrowings provided for in connection therewith) as of
the Summersun Acquisition Closing Date to conduct its operations
in accordance with the revised projections furnished to the
Administrative Agent pursuant to Section 4.9 hereof. As of the
Summersun Acquisition Closing Date, there shall not have occurred
and be continuing a material disruption of, or material adverse
change in, United States financial, banking or capital markets,
as reasonably determined by the Administrative Agent in its sole
discretion.

-14-
<PAGE>

The acceptance of the proceeds of each Borrowing of Summersun Term A Loans
and Summersun Term B Loans in connection with the Summersun Acquisition
shall constitute a representation and warranty by the Borrower to each of
the Banks that all of the applicable conditions specified above have been
satisfied or waived as of that time. All of the certificates, legal
opinions and other documents and papers referred to in this Section 4,
unless otherwise specified, shall be delivered to the Agents at the Agent's
Office (or such other location as may be specified by the Agents) for the
account of each of the Banks and in sufficient counterparts for each of the
Banks and shall be reasonably satisfactory in form and substance to the
Agents.

-15-
<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment and Waiver to be duly executed and delivered as of the date first
above written.

COLOR SPOT NURSERIES, INC.

By: /s/ Karla D. Virkelich
-------------------------------------
Name: Karla D. Virkelich
Title: Corp. Secretary

CREDIT AGRICOLE INDOSUEZ
(formerly known as Banque Indosuez, New
York Branch)
as Administrative Agent

By: /s/ Illegible
-------------------------------------
Name:
Title:

By: /s/ Illegible
-------------------------------------
Name:
Title:
Consented to:

IBJ SCHRODER BANK & TRUST COMPANY

By /s/ M. McLaughlin
---------------------------------
Name: Mary McLaughlin
Title: Vice President

FIRST SOURCE FINANCIAL LLP,
an Illinois registered limited
liability partnership
By: First Source Financial, Inc.,
its manager
By: /s/ Gary L. Francis
--------------------------------
Name: Gary L. Francis
Title: Senior Vice President

CREDITANSTALT-BANKVEREIN

By /s/ Dennis O'Dowd
---------------------------------
Name: Dennis O'Dowd
Title: Chief Executive Officer

By /s/ Patrick J. Rounds
---------------------------------
Name: Patrick J. Rounds
Title: Vice President

BANKBOSTON, N.A.

By: /s/ Linda EC. Alto
--------------------------------
Name: Linda Alto
Title: VP

BANK OF THE WEST

By: /s/ Dale J. Kobsar
--------------------------------
Name: Dale J. Kobsar
Title: Regional Vice President

LEHMAN COMMERCIAL PAPER, INC.

By /s/ Michele Swanson
---------------------------------
Name: Michele Swanson
Title: Authorized Signatory

THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By ING Capital Advisors, Inc. as
Investment Advisor

By: /s/ Kathleen A. Lenarcic
--------------------------------
Name: Kathleen A. Lenarcic
Title: Vice President &
Portfolio Manager

CREDIT AGRICOLE INDOSUEZ
(formerly known as Banque Indosuez,
New York Branch)

By /s/ Illegible
---------------------------------
Name:
Title:

INDOSUEZ CAPITAL FUNDING II,
LIMITED
By: INDOSUEZ CAPITAL
LUXEMBOURG, S.A.,
as Collateral Manager
By /s/ Francoise Berthelot
---------------------------------
Name: Francoise Berthelot
Title: Authorized Signatory

INDOSUEZ CAPITAL FUNDING III,
LIMITED
By: INDOSUEZ CAPITAL
LUXEMBOURG, S.A.,
as Collateral Manager

By /s/ Francoise Berthelot
---------------------------------
Name: Francoise Berthelot
Title: Authorized Signatory

<PAGE>

THE SECURITY OR SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION COMPLIES WITH ALL APPLICABLE PROVISIONS OF STATE
SECURITIES LAWS AND (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR (B) IF (I) THE "PURCHASER" AND "HOLDINGS"
(AS SUCH TERMS ARE HEREINAFTER DEFINED), HAVE BEEN FURNISHED WITH A
REASONABLY SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND (II) IF THE
HOLDER IS A CITIZEN OR RESIDENT OF ANY COUNTRY OTHER THAN THE UNITED
STATES, OR THE HOLDER DESIRES TO EFFECT ANY SUCH TRANSACTION IN ANY
SUCH COUNTRY, THE PURCHASER AND THE COMPANY HAVE BEEN FURNISHED WITH A
REASONABLY SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH
TRANSACTION WILL NOT VIOLATE THE LAWS OF SUCH COUNTRY.

THIS 8.0% SUBORDINATED CONVERTIBLE NOTE (THIS "NOTE") IS SUBORDINATED
TO THE PRIOR PAYMENT AND SATISFACTION OF ALL "SENIOR INDEBTEDNESS",
PURSUANT TO, AND AS DEFINED IN, THAT CERTAIN SUBORDINATION AGREEMENT
DATED AS OF DECEMBER 31, 1996, AS AMENDED FROM TIME TO TIME (THE
"SUBORDINATION AGREEMENT") AMONG THE "ISSUERS" (AS HEREINAFTER
DEFINED), HELLER EQUITY CAPITAL CORPORATION, AS PAYEE UNDER THIS NOTE,
AND THE "ADMINISTRATIVE AGENT" (AS DEFINED IN THE SUBORDINATION
AGREEMENT) TO THE EXTENT, AND IN THE MANNER PROVIDED IN, THE
SUBORDINATION AGREEMENT. A COPY OF THE SUBORDINATION AGREEMENT WILL
BE PROVIDED TO ANY HOLDER OF THIS NOTE UPON WRITTEN REQUEST TO THE
ISSUERS.

8.0% SUBORDINATED CONVERTIBLE NOTE

December 31, 1996 $7,100,000

FOR VALUE RECEIVED, COLOR SPOT NURSERIES, INC., a Delaware corporation
("Holdings"), and COLOR SPOT WATSONVILLE, INC., a Delaware corporation (the
"Company"; Holdings and the Company may be collectively referred to as the
"Issuers" and the term Issuers shall include any successor, by name change or
otherwise, of such entities), hereby promise,

<PAGE>

jointly and severally, to pay to the order of HELLER EQUITY CAPITAL CORPORATION,
a Delaware corporation ("Heller"), or any successor holder of this Note, the
principal amount of $7,100,000, together with interest thereon calculated from
the date hereof in accordance with the provisions of this Note.

This Note was issued pursuant to a Recapitalization and Stock Purchase
Agreement, dated as of December 31, 1996 (the "Purchase Agreement"), among
Holdings, KCSN Acquisition Company, L.P., a Delaware limited partnership (the
"Purchaser"), the Shareholders of the Company (other than Heller), and Heller,
and this Note is one of the "8.0% Subordinated Convertible Notes" (the "Notes"),
referred to in the Purchase Agreement and in the following provisions of this
Note. The principal amount of this Note and interest thereon is subject to
offset in the circumstances set forth in the Purchase Agreement. In connection
with Purchaser's purchase of certain stock of Holdings pursuant to the Purchase
Agreement, all or substantially all of the assets and liabilities of Holdings
will be assigned and assumed to and by the Company, including, without
limitation, the obligations of Holdings under this Note; PROVIDED, HOWEVER, that
no such assignment and assumption shall serve to release Holdings of its
obligations hereunder. Capitalized terms used herein and not otherwise defined
herein will have the meanings given to such terms in the Purchase Agreement or
the Subordination Agreement, as applicable.

1. PAYMENT OF INTEREST. Subject in all events to the Subordination Agreement,
interest (computed on the basis of a 365-day year) shall accrue on a daily basis
at the rate of eight percent (8.0%) per annum on the unpaid principal amount of
this Note outstanding from time to time. The Issuers shall pay to the holder of
this Note all accrued interest (i) on June 30, 1997 for the period from the date
hereof through such date, and (ii) semi-annually thereafter on June 30 and
December 31 of each year (each, an "Interest Payment Date"), beginning December
31, 1997; provided that the Issuers, in their sole discretion, may elect to
capitalize and add to the principal amount of this Note all interest payable on
any Interest Payment Date, whereupon such amount of capitalized interest
(together with any interest capitalized on any prior Interest Payment Date, the
"Capitalized Amount") shall, from and after such Interest Payment Date and until
paid in full by the Issuers, constitute principal hereunder for all purposes
hereof. In the event that the Issuers fail to pay accrued interest in cash on
any Interest Payment Date, the Issuers shall be deemed to have elected to
capitalize such interest. Unless prohibited under applicable law, any accrued
interest which is payable hereunder and which is not paid on the date on which
it is payable shall bear interest from and after such date at the same rate at
which interest is then accruing on the principal amount of this Note. Any
accrued interest which for any reason has not theretofore been paid, shall be
paid in full in immediately available funds on the date on which the final
principal payment on this Note is paid. Interest shall accrue on any principal
payment due under this Note and, to the extent permitted by applicable law, on
any interest which has not been paid on the date on which it is payable, until
such time as payment therefor is actually delivered to the holder of this Note.

2. PAYMENT OF PRINCIPAL ON NOTE. Subject in all events to the
Subordination Agreement:

2.1 SCHEDULED PAYMENT. The Issuers shall pay the outstanding
principal amount of this Note, plus all accrued and unpaid interest (including
the Capitalized Amount (which amount,

-2-

<PAGE>

if any, shall at all times be assumed to constitute part of the principal
amount), if any), to the holder of this Note on the earlier of (i) December 31,
2004 or (ii) the time set forth pursuant to Section 8.2(b) hereof in connection
with any acceleration of this Note.

2.2 REDEMPTION.

(a) MANDATORY REDEMPTION. To the maximum extent permitted by
applicable law, at the option of the "Required Holders" (as hereinafter
defined), the entire principal balance of the Notes, plus all accrued and unpaid
interest, shall become immediately due and payable, without demand or notice:

(i) upon any sale or issuance or series of sales and/or
issuances of Common Stock by Holdings or any holders thereof which results in
any "Person" (as hereinafter defined) or group of affiliated Persons (other than
Purchaser and its "Affiliates" (as hereinafter defined)) owning capital stock of
Holdings possessing the voting power (under ordinary circumstances) to elect
directors entitled to cast a majority of the votes of Holdings' board of
directors; or

(ii) upon (A) any sale or transfer of more than 50% of the
assets of Holdings and its Subsidiaries on a consolidated basis (measured by the
greater of (i) book value in accordance with generally accepted accounting
principles, consistently applied, and (ii) fair market value determined in the
reasonable good faith judgment of Holdings' board of directors) in any
transaction or series of transactions (other than sales in the ordinary course
of business) or (B) any merger or consolidation to which Holdings is a party,
except for a merger or consolidation in which, after giving effect to such
merger or consolidation, the holders of Holdings' outstanding capital stock
possessing the voting power (under ordinary circumstances) to elect directors
entitled to cast a majority of the votes of Holdings' board of directors
immediately prior to the merger or consolidation shall own capital stock or
similar equity interests of the entity surviving such merger or consolidation
possessing the voting power (under ordinary circumstances) to elect directors or
similar positions entitled to cast a majority of the votes of the board of
directors or similar governing body of such surviving entity and such surviving
entity (including Holdings, if applicable) shall comply with Section 3.4(b)
below.

(b) OPTIONAL REDEMPTION. The Issuers may, at any time and from
time to time, redeem all or a portion (in whole number multiples of $500,000) of
the outstanding principal amount of the Notes, pro rata among the holders of the
Notes on the basis of the outstanding principal amount of the Notes held by each
holder; provided that the Issuers have paid all interest on the Notes accrued
through the date of redemption specified in the Issuers' notice referred to in
subparagraph (c) below (to the extent such interest has not yet become part of
the Capitalized Amount). A redemption of less than all of the outstanding
principal amount of this Note shall not relieve the Issuers of their obligation
to pay the remaining outstanding principal amount of this Note on the date
specified in Section 2.1 above.

-3-
<PAGE>

(c) NOTICE. The Issuers shall send written notice of its
election to make a redemption on the Notes to each holder of the Notes by
registered or certified mail, return receipt requested, at least forty-five (45)
days prior to the date of redemption.

2.3 PRO RATA PAYMENT. The Issuers agree that any payments to the
holders of the Notes (whether for principal, interest or otherwise) shall be
made pro rata among such holders based upon the aggregate principal amount of
the Notes held by each such holder. If any holder of a Note obtains any payment
(whether voluntary, involuntary, by application of offset or otherwise) of
principal or interest on any Note in excess of such holder's pro rata share of
payments obtained by all holders of the Notes, such holder shall purchase from
the other holders of the Notes such participation in the Notes held by them as
is necessary to cause such holders to share the excess payment ratably among
each of them as provided in this paragraph.

2.4 PAYMENT ON NON-BUSINESS DAYS. If any payment on this Note shall
become due on a Saturday, Sunday or a bank or legal holiday under the laws of
the State of California, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing any interest due in connection with such payment.

3. CONVERSION.

3.1 CONVERSION PROCEDURE.

(a) At any time and from time to time, including
after the date of notice required in Section 2.2(c) but before any redemption,
any holder of this Note may convert all or any portion of the principal amount,
together with accrued interest on such principal amount, of this Note into the
number of shares of Holdings' non-voting Common Stock (provided that any such
conversion effected in connection with a "Public Offering" (as hereinafter
defined) shall be a conversion to voting Common Stock), computed by dividing the
principal amount to be converted (plus interest accrued on such principal
amount) by the "Conversion Price" (as defined in Section 3.2 below) in effect at
the time of conversion.

(b) Each conversion of any portion of this Note will be deemed
to have been effected as of the close of business on the date on which this
Note, or any replacement Note herefor, has been surrendered at the principal
office of Holdings accompanied by a notice of conversion specifying the portion
of this Note to be converted. At such time as such conversion has been
effected, the rights of the holder of this Note with respect to the amount so
converted, as such holder, will cease and the Person or Persons in whose name or
names any certificate or certificates for shares of non-voting or voting Common
Stock, as applicable, are to be issued upon such conversion will be deemed to
have become the holder or holders of record of the shares of non-voting or
voting Common Stock, as applicable, represented thereby.

-4-
<PAGE>

(i) a certificate or certificates representing the
number of shares of non-voting or voting Common Stock, as
applicable, issuable by reason of such conversion in such name or
names and such denomination or denominations as the converting
holder has specified;

(ii) the amount payable under Section 3.1(f) below with
respect to such conversion; and

(iii) a replacement Note which represents the principal
portion, if any, of this Note, or any replacement Note herefor,
which was not converted.

(d) The issuance of certificates for shares of non-voting or
voting Common Stock, as applicable, upon conversion of this Note, or any
replacement Note herefor, will be made without charge to the holders of such
Note in respect thereof or other cost incurred by Holdings in connection with
such conversion and the related issuance of shares of non-voting or voting
Common Stock, as applicable. Upon conversion of any Note, Holdings will take
all such actions as are necessary in order to insure that the Common Stock
issued as a result of such conversion is validly issued, fully paid and
nonassessable.

(e) Holdings will not close its books against the transfer of
Notes or of Common Stock issued or issuable upon conversion of Notes in any
manner which interferes with the timely conversion of Notes.

(f) If any fractional interest in a share of non-voting or
voting Common Stock, as applicable, would, except for the provisions of this
Section 3.1(f), be deliverable upon any conversion of the Notes, Holdings, in
lieu of delivering the fractional share therefor, shall pay an amount to the
holder thereof equal to the fair value of such fractional interest as of the
date of conversion, determined in good faith by Holdings' "Board" (as
hereinafter defined).

(g) Notwithstanding any other provision hereof, if a conversion
of Notes is to be made in connection with a Public Offering, the holder of such
Notes shall give Holdings notice thereof within thirty (30) days of receipt of
notice of Holdings' intention to effect such Public Offering and the conversion
of any portion of the Notes may, at the election of the holder of such Notes, be
conditioned upon the consummation of the Public Offering, in which case such
conversion shall not be deemed to be effective until the consummation of the
Public Offering.

(h) Holdings shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock (both voting and
non-voting), solely for the purpose of issuance upon the conversion of the
Notes, such number of shares of Common Stock

-5-
<PAGE>

(both voting and non-voting) issuable upon the conversion of all outstanding
Notes. 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. Holdings 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
Holdings upon each such issuance).

3.2 CONVERSION PRICE. The "CONVERSION PRICE" will be $13.86, subject
to adjustment as provided in Sections 3.3 and 3.4 below.

3.3 SUBDIVISION OR COMBINATION OF COMMON STOCK. If Holdings 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 Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced, and if Holdings at any time
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.

3.4 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.

(a) HOLDINGS SURVIVES. Upon the consummation of an "Organic
Change" (as hereinafter defined) (other than a transaction in which Holdings is
not the surviving entity) the terms of the Notes shall be deemed modified,
without payment of any additional consideration therefor, so as to provide that
upon the conversion of the Notes following the consummation of such Organic
Change, the holder of such Notes shall have the right to acquire and receive (in
lieu of or in addition to the shares of Common Stock acquirable and receivable
prior to the Organic Change) such shares of stock, securities or assets as such
holder would have received if such holder had converted its Notes into Common
Stock immediately prior to such Organic Change, in each case giving effect to
any adjustment of the Conversion Price made after the date of consummation of
the Organic Change. All other terms of the Notes shall remain in full force and
effect following such an Organic Change. The provisions of this Section 3.4(a)
shall similarly apply to successive Organic Changes.

(b) HOLDINGS DOES NOT SURVIVE. Holdings shall not enter into an
Organic Change that is a transaction in which Holdings is not the surviving
entity unless the surviving entity shall issue new securities, without payment
of any additional consideration therefor, with terms that provide that upon the
conversion of such securities following the consummation of such Organic Change,
the holder of such securities shall have the right to acquire and receive (in
lieu of or in addition to the shares of Common Stock acquirable and receivable
prior to the Organic Change) such shares of stock, securities or assets as such
holder would have received if such holder had converted

-6-
<PAGE>

its Notes into Common Stock immediately prior to such Organic Change, in each
case giving effect to any adjustment of the Conversion Price of such new
securities made after the date of consummation of the Organic Change on an
equivalent basis to the adjustments provided for the Conversion Price herein.
All other terms of the new securities shall be equivalent to the terms of the
Notes provided for herein. The provisions of this Section 3.4(b) shall
similarly apply to successive Organic Changes.

3.5 CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 3 but not expressly provided for
by such provisions, then the Board of Directors of Holdings (the "Board") will
make an appropriate adjustment in the Conversion Price to reflect such event.

3.6 NOTICES.

(a) Promptly upon any adjustment of the Conversion Price,
Holdings will give written notice thereof to all holders of Notes.

(b) Holdings will give written notice to all holders of Notes at
least twenty (20) days prior to the date on which Holdings closes its books or
takes a record (i) with respect to any dividend or distribution upon Common
Stock, (ii) with respect to any pro rata subscription offer to holders of Common
Stock or (iii) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.

(c) Holdings will also give written notice to the holders of
Notes at least twenty (20) days prior to the date on which any Organic Change
will take place.

3.7 MANDATORY CONVERSION. Holdings may require the conversion of all
of the outstanding Notes to shares of voting Common Stock of Holdings upon the
closing of a firm commitment underwritten Public Offering of shares of Holdings'
Common Stock in which (i) the net proceeds received by Holdings will be at least
$20,000,000 and (ii) the price per share paid by the public for such shares will
be at least equal to the Conversion Price then in effect. Any such mandatory
conversion shall only be effected at the time of and subject to the closing of
the sale of such shares pursuant to such Public Offering and upon written notice
of such mandatory conversion delivered to all holders of Notes at least twenty
(20) but not more than sixty (60) days prior to such closing.

4. PURCHASE RIGHTS.

If at any time Holdings distributes, grants or issues for no
consideration any rights or options to subscribe for or to purchase shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock (such rights or options referred to herein as "OPTIONS" and such
convertible or exchangeable stock or securities referred to herein as
"CONVERTIBLE

-7-
<PAGE>

SECURITIES") or rights to purchase stock, warrants, securities or other property
to any Affiliate of Holdings other than pursuant to the Approved Stock Plan (the
"PURCHASE RIGHTS"), then each holder of Notes will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired had such grant, distribution or issuance
been made to all holders of Common Stock and if such holder had held the number
of shares of Common Stock acquirable upon conversion of such holder's Notes
immediately before the date on which a record is taken for the distribution,
issuance or grant of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
distribution, issue or grant of such Purchase Rights.

5. COVENANTS. For as long as any Notes (which if converted would
represent at least five percent (5%) of the outstanding Common Stock) remain
outstanding:

5.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Issuers will
deliver to each holder of Notes:

(a) AUDITED FINANCIAL STATEMENTS. As soon as practicable after
the end of each fiscal year of Holdings, and in any event within one hundred and
twenty (120) days thereafter, consolidated balance sheets of Holdings and its
Subsidiaries, as at the end of such year, and consolidated statements of
operations and cash flows of Holdings and its Subsidiaries, for such fiscal
year, prepared in accordance with GAAP (as defined in the Purchase Agreement but
including any changes in accounting practices that are approved by Holdings'
independent accountants) and setting forth in each case in comparative form the
figures for the previous fiscal year, certified by nationally recognized
independent public accountants selected by Holdings;

(b) INTERIM FINANCIAL STATEMENTS. As soon as practicable after
the end of each month and in any event within forty-five (45) days
thereafter, consolidated balance sheets of Holdings and its Subsidiaries as of
the end of such period, and consolidated statements of operations of Holdings
and its Subsidiaries for such period and for the current fiscal year to date,
prepared substantially in accordance with GAAP (except for the absence of
required footnotes and normal year-end adjustments) and setting forth in
comparative form the figures for the corresponding periods of the previous
fiscal year, together with a comparison of such statements to Holdings' budget,
subject to changes resulting from normal year-end audit adjustments, all in
reasonable detail and certified by the principal financial officer of Holdings;

(c) BUDGET. Promptly upon the completion of its preparation, an
annual business plan, including a budget and detailed financial projections for
Holdings and its Subsidiaries for such period, all in reasonable detail,
together with any related information reasonably requested by the Required
Holders and approved by a majority of the Board;

(d) AUDITORS' REPORTS. Promptly upon receipt thereof, copies of
all other reports, if any, submitted to either of the Issuers by independent
public accountants in connection

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<PAGE>

with any annual or interim audit of the books of Holdings and its Subsidiaries
made by such accountants;

(e) LENDER INFORMATION. A copy of each notice of default that
Holdings or any Subsidiary delivers to, or has delivered to it, by any holder of
Senior Indebtedness;

(f) LITIGATION. Promptly upon either of the Issuers learning
thereof, notice of any litigation, suit or administrative proceeding that could
reasonably be expected to have a Material Adverse Effect, whether or not the
claim is considered by either of the Issuers to be covered by insurance;

(g) OTHER INFORMATION. With reasonable promptness, all material
press releases issued by Holdings or any Subsidiary, any filings made with the
Securities and Exchange Commission by Holdings or any Subsidiary and such other
data and information as either of the Issuers from time to time may furnish to
the holders of their respective securities in their capacities as such;

5.2 ACCOUNTING. Holdings will maintain and will cause each of its
Subsidiaries to maintain a system of accounting established and administered
substantially in accordance with GAAP (except for changes in accounting
practices that are approved by Holdings' independent accountants) and all
financial statements delivered under this Section 5 will be prepared in
accordance with GAAP (except for changes in accounting practices that are
approved by Holdings' independent accountants);

5.3 INSURANCE. The Issuers agree to maintain or cause to be
maintained, with financially sound and reputable insurers or through an adequate
self-insurance program, insurance with respect to their respective assets and
business and the assets and business of their respective Subsidiaries against
loss or damage, in amounts which are deemed adequate by the Issuers and are
commercially reasonable under the circumstances, and at the request of any
holder of Notes shall furnish such holder with evidence of the same.

5.4 PAYMENT OF TAXES AND OTHER OBLIGATIONS. The Issuers agree to pay
or cause to be paid all taxes, assessments and other governmental charges levied
upon any of their respective assets or those of their respective Subsidiaries or
in respect of its or their respective franchises, businesses, premium, income or
profits, and all claims for work, labor or materials, which if unpaid could
result in a Material Adverse Effect, before the same become delinquent, except
that (unless and until foreclosure, sale or other similar proceedings shall have
been commenced) no such charge need be paid if being contested in good faith and
by appropriate measures promptly initiated and diligently conducted if (a) such
reserve or other appropriate provision, if any, as shall be required by sound
accounting practice shall have been made therefor, and (b) such contest does not
have a Material Adverse Effect.

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<PAGE>

5.5 COMPLIANCE WITH LAWS. The Issuers agree to use their respective
commercially reasonable best efforts to comply, and shall use their respective
commercially reasonable best efforts to cause each of their respective
Subsidiaries to comply, with all laws, rules, regulations, judgments, orders and
decrees of any governmental or regulatory authority applicable to it and its
respective assets, including, but not limited to, those of Delaware and
California, and with all contracts, and agreements to which it is a party or
shall become a party, in each case to the extent that any failure to comply with
or violation of which would have a Material Adverse Effect.

5.6 PRESERVATION OF CORPORATE EXISTENCE AND PROPERTY; OPERATIONS.
The Issuers each agree to preserve, protect, and maintain, and cause each of
their respective material Subsidiaries to preserve, protect, and maintain, (a)
its corporate existence, and (b) all rights, franchises, accreditations,
privileges, and properties in each case to the extent that any failure to comply
with or failure to preserve, protect, and maintain would have a Material Adverse
Effect.

5.7 AFFILIATE TRANSACTIONS. The Issuers agree that they will not
enter into, or permit any of their respective Subsidiaries to enter into, any
transaction with any of their or any Subsidiary's Affiliates, except for (i)
employment arrangements and benefit programs on terms approved by the Board,
(ii) transactions not less favorable to the Issuers or any of their Subsidiaries
than would be available from unaffiliated parties, and (iii) transactions
contemplated by the Fee Agreement dated December 31, 1996 between Holdings and
Kohlberg & Co., L.L.C., a Delaware limited liability company. In no event shall
Holdings and/or any Subsidiary of Holdings transfer, in any transaction or
series of transactions, substantially all of Holdings' consolidated assets to
any Affiliate other than a direct or indirect Subsidiary of Holdings.

6. REGISTRATION OF TRANSFER.

Holdings will keep at its principal office a register for the
registration of the Notes. Upon the surrender of any of the Notes at such
place, Holdings will, at the request of the record holder of such Note, execute
and deliver (at Holdings' expense) a new Note or Notes in exchange therefor
representing in the aggregate the amount of outstanding principal and accrued
interest represented by the surrendered Note. Each such new Note will be
registered in such name and will represent such amount of outstanding principal
and accrued interest as is requested by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered Note;
provided, however, that any transfer shall be subject to any applicable
restrictions on the transfer of such Note and the payment of any applicable
transfer taxes, if any, by the holder thereof.

7. REPLACEMENT.

Upon receipt of evidence reasonably satisfactory to Holdings (an
affidavit of the registered holder will be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any of the Notes, and in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to Holdings (provided that if the holder is an institutional
investor its own agreement will be satisfactory), or, in the case of any such
mutilation, upon surrender of such

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<PAGE>

certificate, Holdings will (at its expense) execute and deliver in lieu of such
Note a new Note of like kind representing the principal amount and accrued
interest outstanding on such Note and represented by such lost, stolen,
destroyed or mutilated Note and dated the date of such lost, stolen, destroyed
or mutilated Note.

8. EVENTS OF DEFAULT.

8.1 DEFINITION. For purposes of this Note, an Event of Default shall
be deemed to have occurred:

(a) FAILURE TO PAY INTEREST. If the Issuers fail to pay on any
Interest Payment Date the full amount of interest then accrued and payable with
respect to the Notes (and such failure continues for a period of five (5) days),
provided that the Issuers' actual or deemed election to capitalize interest
accrued and payable on this Note, as and to the extent provided in Section 1
above, shall not constitute an Event of Default;

(b) FAILURE TO PAY PRINCIPAL. If the Issuers fail to pay when
due the full amount of any principal payment on any Note;

(c) COVENANT BREACH. If the Issuers breach or otherwise fail to
perform or observe any covenant or agreement contained in the Notes and such
failure to perform or observe a covenant or agreement is not cured within thirty
(30) days after the Issuers receive written notice of the occurrence thereof;

(d) BANKRUPTCY, ETC. If either of the Issuers or any of their
respective material Subsidiaries makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts generally as they
become due; or an order, judgment or decree is entered adjudicating either of
the Issuers or any of their respective material Subsidiaries bankrupt or
insolvent; or any order for relief with respect to either of the Issuers or any
of their respective material Subsidiaries is entered under the United States
Bankruptcy Code, as amended; or either of the Issuers or any of their respective
material Subsidiaries petitions or applies to any tribunal for the appointment
of a custodian, trustee, receiver or liquidator of either of the Issuers or any
of their respective material Subsidiaries, or of any substantial part of its
assets, or commences any proceeding (other than a proceeding for the voluntary
liquidation and dissolution of any of their respective Subsidiaries (other than
the Company)) relating to either of the Issuers or any of their respective
material Subsidiaries under any bankruptcy reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against either of the Issuers or any of their
respective material Subsidiaries and either (i) either of the Issuers or any of
their respective material Subsidiaries by any act indicates its approval
thereof, consent thereto or acquiescence therein or (ii) such petition,
application or proceeding is not dismissed within sixty (60) days;

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<PAGE>

(e) MONEY JUDGMENT. If any final money judgment, writ or
warrant of attachment, or similar process involving (i) an amount in any
individual case in excess of $250,000 or (ii) an amount in the aggregate in
excess of $1,000,000 is entered or filed against either of the Issuers or any of
their respective material Subsidiaries or any of their respective assets and
remains undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days;

(f) CROSS-ACCELERATION. If either of the Issuers or any of
their respective material Subsidiaries defaults in the performance of any
obligation or obligations, if the effect of such default is to cause an amount
having an individual principal amount in excess of $1,000,000 or having an
aggregate principal amount in excess of $2,500,000 to become due prior to its
stated maturity; or

(g) FAILURE TO REDEEM. If the Issuers shall fail to make a
mandatory redemption of the Notes when required hereunder.

8.2 CONSEQUENCES OF EVENTS OF DEFAULT.

(a) If an Event of Default of the type described in paragraph
(d) of Section 8.1 above has occurred, the entire outstanding principal amount
of the Notes, plus all accrued interest thereon, shall immediately become due
and payable, without any demand or other action on the part of the holders
thereof.

(b) If any Event of Default (other than of the type described in
paragraph (d) of Section 8.1 above) has occurred, the Required Holders may
declare (by written notice delivered to the Issuers) all or any portion of the
outstanding principal amount of Notes immediately due and payable and demand
immediate payment of all or any portion of the outstanding principal amount of
the Notes owned by such holder or holders. The Issuers shall give prompt
written notice of any such demand to the other holders of Notes (but in any
event within five (5) days after the initial declaration of acceleration), and
each such other holder may demand immediate payment of all or any portion of
such holder's Notes by giving written notice thereof to the Issuers within seven
(7) days after receipt of the Issuers' notice. If any holder or holders of
Notes demands immediate payment of all or any portion of such holder's Notes
pursuant to the terms of this Section 8.2(b), the Issuers shall pay to such
holder or holders the principal amount of Notes requested to be paid plus
accrued interest thereon within thirty (30) days after the initial declaration
of acceleration; provided that if at any time after any Notes shall have become
due and payable pursuant to this Section 8.2(b), the Issuers shall pay all
arrears of interest on the Notes and all payments on account of the principal
(if any) on the Notes which shall have become due otherwise than by acceleration
(with interest on such overdue principal (if any) and overdue interest at the
rate specified in the Notes) and all Events of Default (other than nonpayment of
principal of, and interest on, the Notes due and payable solely by virtue of
acceleration) shall be remedied prior to the expiration of such 30-day period or
waived by the Required Holders at any time, then, such acceleration and its
consequences shall be automatically rescinded.

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<PAGE>

Each holder of Notes shall also have any other rights which such
holder may have been afforded under any contract or agreement, including,
without limitation, this Note, and specifically, without limitation, the rights
to convert contained in Section 3 hereof, at any time and any other rights which
such holder may have pursuant to applicable law.

9. NOTICES. Any notice, demand, or communication required or permitted
to be given by any provision of this Note shall be deemed to have been
sufficiently given or served for all purposes if (a) personally delivered, (b)
sent by a nationally recognized overnight courier service for next business day
delivery, to the recipient at the address below indicated or (c) delivered by
facsimile which is confirmed in writing by sending a copy of such facsimile to
the recipient thereof pursuant to clause (a) or (b) above:

If to the Issuers:

Color Spot Nurseries, Inc.
Color Spot Watsonville, Inc.
3478 Buskirk Avenue
Suite 260
Pleasant Hill, California 94523
(510) 935-0799 (telecopier)
(510) 934-4443 (telephone)
Attention: Michael F. Vukelich

If to Heller:

Heller Equity Capital Corporation
500 West Monroe Street
Chicago, Illinois 60661
(312) 441-7173 (telecopier)
(312) 441-6798 (telephone)
Attention: Charles P. Brissman, Esq.

With copies to:

Heller International, Inc.
500 West Monroe Street
Chicago, Illinois 60661
(312) 441-7173 (telecopier)
(312) 441-6798 (telephone)
Attention: Charles P. Brissman, Esq.

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<PAGE>

or to such other address as any party hereto may, from time to time, designate
in a written notice given in like manner.

Except as otherwise provided herein, any notice under this Agreement will be
deemed to have been given (x) on the date such notice is personally delivered or
delivered by confirmed facsimile, or (y) the next succeeding business day after
the date such notice is delivered to the overnight courier service if sent by
overnight courier for next business day delivery; PROVIDED that in each case
notices received after 4:00 p.m. (local time of the recipient) shall be deemed
to have been duly given on the next business day.

10. SUBORDINATION. ALL OF THE HOLDERS' RIGHTS AND REMEDIES UNDER THIS
NOTE, INCLUDING THE RIGHT TO PAYMENT, ARE AND SHALL BE SUBORDINATED AND JUNIOR
TO THE PAYMENT IN FULL OF "SENIOR INDEBTEDNESS" (AS HEREINAFTER DEFINED) ON
TERMS AND CONDITIONS SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT AMONG
HELLER, THE ISSUERS AND BANQUE INDOSUEZ, AS ADMINISTRATIVE AGENT, DATED OF EVEN
DATE HEREWITH (THE "SUBORDINATION AGREEMENT"). PAYMENTS UNDER THIS NOTE ARE
SUBJECT TO THE HOLDER'S OBLIGATIONS TO PAY SUCH AMOUNTS OVER TO THE HOLDERS OF
SENIOR INDEBTEDNESS AT THE TIMES, AND IN THE MANNER, PROVIDED IN SUCH
SUBORDINATION AGREEMENT.

11. AMENDMENT AND WAIVER. Except as otherwise expressly provided herein,
the provisions of the Notes may be amended and the Issuers may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Issuers have obtained the written consent of the holders of at
least a majority of the outstanding principal amount of the Notes (the "Required
Holders"). Without limiting the foregoing, no such action shall change (i) the
rate at which or the manner in which interest accrues on the Notes or the times
at which such interest becomes payable, (ii) any provision relating to the
scheduled payments or prepayments of principal on the Notes, or (iii) the
provisions of this Section 11, without the written consent of the Required
Holders.

12. CANCELLATION. After all principal and accrued interest at any time
owed on this Note has been paid in full (and not subject to an order to return
or turn-over payments), or upon conversion of the entire amount of this Note as
may be outstanding, this Note shall be surrendered to the Company for
cancellation and shall not be reissued.

13. MANNER OF PAYMENT. Except as otherwise provided herein, any payment
to be made hereunder shall be made at the direction of the holder of this Note
by check or draft payable to or upon the order of the holder of this Note or, if
such payment exceeds $100,000, by wire transfer of immediately available federal
funds to an account designated by such holder. If any payment of principal or
interest on this Note shall become due on a Saturday, Sunday or a bank or legal
holiday under the laws of the State of California, such payment shall be made on
the next succeeding business day and such extension of time shall in such case
be included in computing interest in

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<PAGE>

connection with such payment. Payments of principal and interest are to be
delivered to the holder hereof at the address indicated on the Issuers' records
or to such other address or to the attention of such other person as specified
by prior written notice to the Issuers.

14. WAIVER OF NOTICE. To the extent permitted by law, each of the Issuers
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note.

15. GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the laws of
the State of California, without giving effect to provisions thereof regarding
conflict of laws.

16. CERTAIN DEFINITIONS.

"APPROVED STOCK PLAN" shall mean collectively, all contracts, plans or
agreements which have been approved by the board of directors of Holdings,
pursuant to which Holdings' securities representing up to an aggregate of
fifteen percent (15%) shares of Common Stock (on a fully diluted basis) may be
issued to employees, officers, directors, consultants or other service providers
of the Issuers.

"AFFILIATE" shall mean any Person that directly or indirectly, through
one or more intermediaries, controls or is controlled by or is under common
control with another Person. The term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. For the purposes hereof, any Person which owns or
controls, directly or indirectly, ten percent (10%) or more of the securities of
any other Person shall be deemed to "control" such Person. All of each of the
Issuers' executive officers, shareholders, directors, Subsidiaries, joint
venturors and partners shall be deemed to be Affiliates of the Company for
purposes hereof.

"COMMON STOCK" means the common stock of Holdings.

"ORGANIC CHANGE" means any capital reorganization, reclassification,
consolidation, merger, lease, or sale of all or substantially all of Holdings'
assets to another Person which is effected in such a way that 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 shares of Common
Stock.

"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, a limited
liability company, an unincorporated organization or a governmental entity or
any department, agency or political subdivision thereof.

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<PAGE>

"PUBLIC OFFERING" means any offering by Holdings of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act of 1933, as then in effect, or any comparable statement under
any similar federal statute then in force; provided that a Public Offering will
not include an offering made on Securities and Exchange Commission Form S-4.

"SENIOR INDEBTEDNESS" has the meaning set forth in the Subordination
Agreement.
"SUBSIDIARY" means any corporation of which the shares of stock having
a majority of the general voting power in electing the board of directors are,
at the time as of which any determination is being made, owned by Holdings
either directly or indirectly through Subsidiaries.

17. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE ISSUERS HEREBY
CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COUNTY OF CONTRA COSTA, STATE OF CALIFORNIA AND IRREVOCABLY AGREE THAT SUBJECT
TO HELLER'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS NOTE SHALL BE LITIGATED IN SUCH COURTS. THE ISSUERS ACCEPT FOR THEMSELVES
AND IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM
NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS NOTE. EACH OF THE ISSUERS DESIGNATES AND
APPOINTS PRENTICE-HALL CORPORATION SYSTEM, INC. AND SUCH OTHER PERSONS AS MAY
HEREINAFTER BE SELECTED BY THE ISSUERS WHO IRREVOCABLY AGREE IN WRITING TO SO
SERVE AS AGENT TO RECEIVE ON THE ISSUERS' BEHALF SERVICE OF ALL PROCESS IN ANY
SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY
THE ISSUERS TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY
SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE ISSUERS AS
PROVIDED HEREIN, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.
IF ANY AGENT APPOINTED BY THE ISSUERS REFUSES TO ACCEPT SERVICE, THE ISSUERS
HEREBY AGREE THAT SERVICE UPON THEM BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF HELLER TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF HELLER TO BRING PROCEEDINGS
AGAINST THE ISSUERS IN THE COURTS OF ANY OTHER JURISDICTION.

19. WAIVER OF JURY TRIAL. EACH OF THE ISSUERS AND HELLER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS NOTE OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. EACH OF THE ISSUERS AND HELLER ALSO WAIVE ANY BOND OR SURETY OR
SECURITY UPON SUCH BOND WHICH

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<PAGE>

MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. 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 NOTE, INCLUDING
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE ISSUERS AND HELLER
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO, OR
ACCEPTING, THIS NOTE, AS THE CASE MAY BE AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF THE ISSUERS AND HELLER
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH THEIR
RESPECTIVE LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES THEIR
RESPECTIVE JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF
LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

[SIGNATURE PAGE FOLLOWS]

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<PAGE>

IN WITNESS WHEREOF, each of the Issuers have executed and delivered this
Note as of the date first written above.

COLOR SPOT NURSERIES, INC., a
Delaware corporation

By: /s/ Michael F. Vukelich
------------------------------------------
Michael F. Vukelich
Chairman/CEO

COLOR SPOT WATSONVILLE, INC., a
Delaware corporation

By: /s/ Michael F. Vukelich
------------------------------------------
Michael F. Vukelich
President

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<PAGE>

EXHIBIT 10.4

PUT/CALL OPTION AGREEMENT

Put/Call Option Agreement dated as of December 31, 1996 among COLOR SPOT
NURSERIES, INC., a Delaware corporation whose name is to be changed to "CSN,
Inc." (the "Company"), KCSN ACQUISITION COMPANY, L.P. ("KCSN"), and the
stockholders of the Company listed on Schedule A hereto (collectively, the
"Stockholders"). The Company is a party to a Recapitalization and Stock
Purchase Agreement of even date herewith (the "Recapitalization Agreement")
with KCSN and certain of the Stockholders pursuant to which KCSN has agreed
to purchase $21.5 million of the Common Stock, $.01 par value (the "Common
Stock"), of the Company. The execution and delivery of this Agreement is a
condition precedent to KCSN's obligations under the Recapitalization
Agreement.

THEREFORE, in consideration of the mutual undertakings contained herein,
the parties agree as follows:

Section 1. GRANT OF PUT AND CALL OPTIONS. (a) The Company hereby
grants to each of the Stockholders the right to sell to the Company, for a
purchase price per share of $4.95037 in cash (the "Purchase Price"), the
number of shares of Common Stock set forth opposite the name of such
Stockholder (the "Redeemed Shares") on Schedule A hereto (the "Put Option").
The Put Option shall be exercisable as to all but not less than all the
Redeemed Shares covered thereby at any time following the closing of the
transactions contemplated by the Recapitalization Agreement (the "Effective
Date") and prior to the 30th day following the Purchase Date set forth
opposite the name of such Stockholder on Schedule A hereto (the "Put Exercise
Period"). The Put Option shall be exercised by the Stockholder by delivering
written notice of exercise to the Company prior to the expiration of the Put
Exercise Period.

(b) Each Stockholder hereby grants to the Company the right to purchase
from such Stockholder, at a cash purchase price per share equal to the
Purchase Price, the number of Redeemed Shares set forth opposite such
Stockholder's name on Schedule A hereto (the "Call Option"). The Call Option
shall be exercisable as to all but not less than all of the Redeemed Shares
covered thereby at any time following the Purchase Date set forth opposite
the name of such Stockholder on Schedule A hereto and prior to the 60th day
following such date (the "Call Exercise Period"). The Call Option shall be
exercised by the Company by delivering written notice of exercise to the
Stockholder prior to the expiration of the Call Exercise Period.

(c) The closing of the purchase and sale of Common Stock pursuant to
exercise of the Put or Call Option shall be consummated within 30 days
following delivery of the applicable notice of exercise. At such closing,
the Company shall deliver the Purchase Price by wire transfer of immediately
available funds against delivery of certificates evidencing the Redeemed
Shares to be purchased, duly endorsed or accompanied by stock powers duly
executed in blank.

<PAGE>

Section 2. EXERCISE OF INCENTIVE STOCK OPTIONS. Each Stockholder
holding an "incentive stock option" agrees to exercise such option as of the
Effective Date and to pay the aggregate exercise price reflected on Schedule
A. In connection with such exercise, the Company will make a loan to each
such Stockholder on the Effective Date in the amount of such Stockholder's
aggregate exercise price (a "Loan"). Each Loan shall bear interest at the
applicable federal rate for short-term obligations and shall mature on the
last day of the Put Exercise Period applicable to such Stockholder or earlier
exercise of the Put or Call Option with respect to such Stockholder. Each
Loan shall be secured by the shares of Common Stock issued upon exercise of
the related options, and the Company shall be entitled to retain all
certificates evidencing such shares until such Loan is repaid in full. In
addition, on the Effective Date, the Company shall pay to each Stockholder a
bonus in the amount reflected on Schedule A, which bonus shall be paid in the
form of a reduction of such Stockholder's Loan amount. The net amount of the
Loan to be made to each Stockholder is set forth on Schedule A.

Section 3. EXERCISE OF HALAMUDA OPTION; PAYMENT OF HELLER FEE. On
January 2, 1997, Michael F. Vukelich and Jerry L. Halamuda agree to pay to
Heller Equity Capital Corporation ("Heller") a fee in the amount of $152,848
and 192,731, respectively. On January 2, 1997, Mr. Halamuda agrees to
exercise his non-qualified stock option with respect to 274,242 shares of
Common Stock and to pay the exercise price therefor reflected on Schedule A.

Section 4. REPRESENTATIONS AND WARRANTIES. Each Stockholder severally
represents and warrants to the Company, both as of the date hereof and as of
the date of closing of an exercise of the Put or Call Option with respect to
such Stockholder (i) that such Stockholder is the record and beneficial owner
of the Redeemed Shares set forth opposite such Stockholder's name on Schedule
A, free and clear of any liens, encumbrances or claims of third parties, (ii)
that this Agreement is the valid and binding obligation of such Stockholder
enforceable in accordance with its terms, and (iii) that such Stockholder's
execution and delivery of this Agreement and performance of such
Stockholder's obligations hereunder do not and will not violate any law or
regulation applicable to such Stockholder or any contract or agreement to
which such Stockholder is subject. Each Stockholder agrees to indemnify and
hold harmless the Company for any loss or expense suffered by the Company as
a result of a breach of such Stockholder's representations and warranties set
forth herein.

Section 5. TRANSFER RESTRICTIONS; GRANT OF PROXY. Each Stockholder
hereby agrees that the Redeemed Shares may not be sold, pledged, hypothecated
or otherwise transferred without the Company's prior written consent so long
as the Put and Call Options remain in effect. In addition, each Stockholder
hereby grants to KCSN an irrevocable proxy with respect to the Redeemed
Shares held by it to vote such shares on all matters submitted for
stockholder approval by the Company or to take action by written consent in
lieu thereof so long as the Put and Call Options remain in effect. Such
proxy shall be deemed to be coupled with an interest and shall survive the
death or incapacity of the Stockholder.

<PAGE>

Section 6. CONDITIONS TO COMPANY'S OBLIGATIONS. The Company's
obligation to purchase Redeemed Shares from any Stockholder pursuant to an
exercise of the Put or Call Option shall be subject to satisfaction of the
following conditions precedent: (i) the representations and warranties of
such Stockholder set forth herein shall be true and correct in all respects,
and (ii) such purchase shall not constitute a default under the terms of the
Company's indebtedness for borrowed money. In the event of a restriction on
the purchase of Redeemed Shares pursuant to the terms of the Company's
indebtedness, the Company shall purchase the maximum amount of Redeemed
Shares that it is able to purchase consistent with such restriction and shall
exercise reasonable commercial efforts (in no event to require the
refinancing of the Company's indebtedness or the payment of money) to remove
such restriction and, upon such removal, the Company shall purchase the
balance of such Redeemed Shares.

Section 7. NOTICES. Any notice provided for in this Agreement shall be
in writing and shall be either personally delivered, sent by telecopy
(confirmed in writing) or sent by reputable overnight courier service for
next-day delivery (charges prepaid) to the Company at its address set forth
below and to any Stockholder at the address indicated by the Company's
records, or at such address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder when delivered
personally, on the date of transmission if sent by confirmed telecopy (or on
the next business day if transmission is not made on a business day) or on
the next business day after deposit with a reputable overnight courier
service for next business day delivery.

The Company's address is:

Color Spot Nurseries, Inc.
3478 Buskirk Avenue, Suite 260
Pleasant Hill, CA 94523
Attention: Michael F. Vukelich
Telecopy: (510) 935-0799

Section 8. ASSIGNMENT. This Agreement may not be assigned by any
party; provided, however, that the Company may assign its right to purchase
Redeemed Shares to any third party subject only to compliance with applicable
securities laws. This Agreement shall be binding upon the successors of the
parties hereto.

Section 9. TERMINATION. This Agreement and the obligations of the
parties hereunder shall terminate in the event that the Recapitalization
Agreement is terminated prior to the Effective Date.

Section 10. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, all of which shall constitute one instrument.

<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.

COLOR SPOT NURSERIES, INC.

By: /s/ Michael F. Vukelich
---------------------------

KCSN ACQUISITION COMPANY, L.P.

By KCSN Management Company, L.P.
Its General Partner

By KCSN G.P., Inc.
Its General Partner

By: /s/ Samuel P. Frieder
---------------------------
Samuel P. Frieder
Vice President

STOCKHOLDERS:

/s/ Jerry L. Halamuda
------------------------------
Jerry L. Halamuda

/s/ Gary E. Mariani
------------------------------
Gary E. Mariani

/s/ Gene Malcolm
------------------------------
Gene Malcolm

<PAGE>

/s/ Steven J. Bookspan
------------------------------
Steven J. Bookspan

/s/ Michael T. Neenan
------------------------------
Michael T. Neenan

/s/ Robert F. Strange
------------------------------
Robert F. Strange

/s/ Jim Tsurudome
------------------------------
Jim Tsurudome

/s/ Dick George
------------------------------
Dick George

/s/ Gary Crook
------------------------------
Gary Crook

/s/ Dave Grimshaw
------------------------------
Dave Grimshaw

/s/ John Negrete
------------------------------
John Negrete

/s/ Dennis Bahen
------------------------------
Dennis Bahen

/s/ Michael F. Vukelich
------------------------------
Michael F. Vukelich

<PAGE>

SCHEDULE A TO PUT/CALL OPTION AGREEMENT

<TABLE>
<CAPTION>
Stockholder Option Shares Purchase Date Exercise Price Bonus Amount Loan Amount
- - - ----------- ------------- ------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Michael Vukelich 368,482 January 1, 1997 N/A N/A N/A

Jerry Halamuda 299,242 January 1, 1997 $274,242 N/A N/A
125,000 May 1, 1997

Steven Bookspan 32,718 May 1, 1997 57,335 $14,431 $42,904

Gary Crook 7,475 December 31, 1996 57,335 8,431 48,904
11,641 December 1, 1997

Dave Grimshaw 19,116 December 1, 1997 57,335 8,431 48,904

Gene Malcolm 39,334 May 1, 1997 57,335 23,137 34,198

Michael Neenan 29,291 December 1, 1997 57,335 9,902 47,433

Robert Strange 29,291 December 1, 1997 57,335 9,902 47,433

Jim Tsurodome 20,201 May 1, 1997 57,335 12,108 45,227

John Negrete 13,130 December 1, 1997 25,000 3,876 21,324

Gary Mariani 109,689 May 1, 1997 57,335 26,814 30,521

Richard George 52,455 July 1, 1997 57,335 23,137 34,198

Dennis Bahen N/A N/A 10,000 1,471 8,529
</TABLE>

<PAGE>

EXHIBIT 10.5

STOCKHOLDERS AGREEMENT

Stockholders Agreement dated as of December 31, 1996 among (i) COLOR
SPOT NURSERIES, INC., a Delaware corporation whose name is to be changed to
"CSN, Inc." (the "COMPANY"), (ii) KCSN ACQUISITION COMPANY, L.P., a Delaware
limited partnership ("KCSN"), (iii) HELLER EQUITY CAPITAL CORPORATION, a
Delaware corporation ("HELLER"), and (iv) MICHAEL F. VUKELICH, JERRY L.
HALAMUDA and the other members of management of the Company who have executed
this Agreement or have otherwise agreed to be bound by the provisions hereof
(the "MANAGEMENT STOCKHOLDERS" and, together with KCSN and Heller, the
"STOCKHOLDERS").

The parties hereby agree as follows:

SECTION 1. DEFINITIONS. For purposes of this Agreement, the following
terms have the indicated meanings:

"AFFILIATE" of a person means any other person controlling, controlled
by or under common control with such person, whether by ownership of voting
securities, by contract or otherwise, and in the case of KCSN shall include
any member of KCSN and in the case of the Company shall include any officer
or director of the Company.

"APPROVED STOCK PLAN" means, collectively, all contracts, plans or
agreements which have been approved by the Company's Board of Directors
(including the Company's 1997 Stock Option Plan) pursuant to which securities
representing up to an aggregate of 15% of the Common Stock outstanding on a
fully-diluted basis may be issued to employees, officers, directors,
consultants or other service providers of the Company or its subsidiaries.

"CAUSE" means (i) the commission by the Management Stockholder of theft
or embezzlement of Company property or other acts of dishonesty or criminal
conduct harmful in any significant respect to the business, property or
reputation of the Company or the commission by the Management Stockholder of
other acts harmful in any significant respect to the business, property or
reputation of the Company; (ii) the commission by the Management Stockholder
while an employee of the Company or its Affiliates of an act determined in
good faith by the Company's Board of Directors to amount to gross, willful or
wanton negligence of the Management Stockholder's duties under the terms of
his or her employment; (iii) the refusal by the Management Stockholder while
an employee of the Company or its Affiliates to perform, or substantial
neglect of, the duties assigned to the Management Stockholder by the Company;
(iv) any significant violation by the Management Stockholder of any statutury
or common law duty of loyalty to the Company; or (v) a material breach by the
Management Stockholder of his or her employment agreement (if any) with the
Company. The determination of Cause shall be made in good faith by the Board
of Directors after written notice to the Management Stockholder and, in

<PAGE>

the case of conduct described in clause (iii), (iv) or (v) above, a
reasonable opportunity to cure such conduct.

"COMMON STOCK" means, collectively, the Company's Common Stock, $.01 par
value, and the Company's Nonvoting Common Stock, $.01 par value.

"FAIR MARKET VALUE" as of any date means the per-share value of the
Common Stock determined under the following formula: (i) the product of the
amount of the Company's earnings before interest, taxes, depreciation and
amortization (calculated for the 12-month period preceding the date of
determination) multiplied by five, less (ii) all long-term debt (including,
without limitation, the average outstanding amounts under any revolving
credit facility of the Company for the 12 months preceding the date of
determination), divided by (iii) the total number of the then-outstanding
shares of Common Stock, determined as if all then-outstanding "in the money"
options (whether or not vested), warrants and other rights exercisable,
convertible or exchangeable into shares of Common Stock had been exercised,
converted or exchanged (as the case may be) and all consideration payable in
connection with such exercise, conversion or exchange had in fact been paid.

"HELLER STOCK" means Stockholder Shares held by Heller and its
transferees giving effect to the conversion of all Notes held by such persons.

"INDEPENDENT THIRD PARTY" means any person who does not own in excess
of 10% of the Common Stock on a fully-diluted basis, who is not controlling,
controlled by or under common control with any such 10% owner of Common Stock
and who is not the spouse, ancestor or descendant (by birth or adoption) of any
such 10% owner of Common Stock.

"INVESTOR STOCK" means Stockholder Shares held by KCSN, its Affiliates
and their respective transferees.

"MANAGEMENT STOCK" means Stockholder Shares held by the Management
Stockholders and their respective Permitted Transferees, including without
limitation all shares acquired pursuant to the exercise of Options.

"NOTES" means the Company's 8.0% Convertible Subordinated Notes.

"OPTIONS" means options to purchase shares of Common Stock granted
pursuant to the Company's 1997 Stock Option Plan.

"OPTION STOCK" means Management Stock acquired upon exercise of Options
granted pursuant to the Company's 1997 Stock Option Plan.

"ORIGINAL COST" means a Management Stockholder's average original
purchase price per share of Option Stock acquired from the Company and held
by such Management Stockholder, as reflected in the records of the Company.

-2-

<PAGE>

"SALE OF THE COMPANY" means the acquisition of beneficial ownership of a
majority or more of the outstanding voting securities of the Company by any
person or "group" (as that term is used in Regulation 13D under the Securities
Exchange Act of 1934) other than stockholders of the Company as of the date
hereof and their respective Affiliates.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"STOCKHOLDER SHARES" means (i) all shares of Common Stock held or deemed
to be held by the Stockholders, including all shares of Common Stock acquired
pursuant to exercise of Options or conversion of Notes, and (ii) all shares
of Common Stock or other securities issued or issuable directly or indirectly
with respect to the securities referred to in clause (i) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. Stockholder
Shares shall cease to be such when they have been sold (x) pursuant to a
registered public offering under the Securities Act, or (y) to the public
pursuant to Rule 144 under the Securities Act or any successor provision.

"VESTED OPTIONS" means Options that are exercisable by the holder
thereof on the date of determination.

"VOLUNTARY TERMINATION" means the voluntary termination of employment by
a Management Stockholder within three years after the date hereof.

SECTION 2. REPURCHASE ON TERMINATION OF EMPLOYMENT.

(a) REPURCHASE OPTION. Upon the termination of a Management Stockholder's
employment by the Company and its subsidiaries:

(i) if such termination is for any reason other than for Cause
or a Voluntary Termination (A) the Company may elect to repurchase all but
not less than all of the Management Stock and Vested Options held by such
Management Stockholder and its Permitted Transferees at a cash price per
share equal to Fair Market Value (as of the date of termination) and, in
the case of Vested Options, the excess of Fair Market Value (as of the date
of termination) over the exercise price per share under such Options, and
(B) all Options held by such Management Stockholder other than Vested
Options shall be automatically cancelled; and

(ii) if such termination is for Cause or is a Voluntary
Termination (A) the Company may elect to repurchase all but not less than
all of the Management Stock held by such Management Stockholder and its
Permitted Transferees at a cash price per share equal to Fair Market Value
(as of the date of termination) or, in the case of Option Stock, the lesser
of Fair Market Value (as of the date of termination) or Original Cost, and
(B) all Options held by such Management Stockholder (whether or not vested)
shall be automatically cancelled.

-3-

<PAGE>

(b) REPURCHASE OBLIGATION. In the event of termination of a Management
Stockholder's employment with the Company due to death or permanent
disability (as determined in good faith by the Board of Directors), the
Management Stockholder (or his estate or personal representative) may require
the Company to repurchase all or any portion of the Management Stock (other
than Option Stock) held by such Management Stockholder and his Permitted
Transferees at a cash price per share equal to Fair Market Value as of the
date of termination, which purchase price shall be payable in four equal
annual installments on the date of closing of such repurchase and on the
three succeeding anniversaries of such date. The portion of the purchase
price not paid at closing will bear interest at the applicable federal rate
for medium-term obligations, and will become due and payable upon
consummation of the Company's initial public offering under the Securities
Act or a Sale of the Company. Notwithstanding any other provision of this
Section 2, the Company shall not be obligated to repurchase Management Stock
pursuant to this Section 2(b) to the extent that such repurchase is not
permitted pursuant to the terms of any of the Company's indebtedness for
borrowed money or by applicable corporate law. In the event of a restriction
on the purchase of Management Stock, the Company shall purchase the maximum
amount of Management Stock that it is able to purchase consistent with such
restriction and shall exercise reasonable commercial efforts (in no event to
require the refinancing of the Company's indebtedness or the payment of
money) to remove such restriction and, upon such removal, the Company shall
purchase the balance of such Management Stock.

(c) REPURCHASE PROCEDURE. The Company may exercise its option to
purchase Management Stock and Vested Options pursuant to Section 2(a) by
delivery to the Management Stockholder, within 30 days after the termination
of such Management Stockholder's employment, of a written notice specifying
the number of shares of Management Stock and/or Vested Options to be
repurchased. The Management Stockholder (or his estate or personal
representative) may exercise his option to require the Company to repurchase
Management Stock pursuant to Section 2(b) by delivery to the Company, within
30 days after the termination of such Management Stockholder's employment, of
a written notice specifying the number of shares of Management Stock to be
repurchased. The closing of any repurchase of securities pursuant to this
Section 2 shall take place not later than 90 days following the termination
of the Management Stockholder's employment. The shares of Management Stock
to be repurchased by the Company shall be satisfied (i) first, from the
shares of Management Stock held by the Management Stockholder at the time of
delivery of the Repurchase Notice and (ii) second, if the number of such
shares is less than the number of shares to be repurchased by the Company,
from the shares of Management Stock held by the Permitted Transferees of such
Management Stockholder in such proportions as shall be determined by the
Management Stockholder.

-4-

<PAGE>

SECTION 3. RESTRICTIONS ON TRANSFER.

(a) PROHIBITION ON TRANSFERS. No Management Stock may be sold,
transferred, pledged or otherwise disposed of (including by gift) otherwise
than in accordance with this Section 3. No Management Stock may be
transferred without the prior written consent of the Company, which will not
be unreasonably withheld.

(b) RIGHT OF FIRST REFUSAL.

(i) Not less than 30 days prior to any proposed transfer of
Management Stock, the transferring Management Stockholder shall deliver to
KCSN and the other Management Stockholders a written notice (the "OFFER
NOTICE") specifying in reasonable detail the number of shares to be
transferred, the identity of the transferee(s), the price (which shall be
payable solely in cash) and the other terms and conditions of the proposed
transfer. KCSN and the other Management Stockholders may elect to purchase
all but not less than all of the Management Stock proposed to be
transferred upon the terms and conditions specified in the Offer Notice by
delivering to the transferring Management Stockholder a written notice of
such election within the 20-day period following its receipt of the Offer
Notice (the "ELECTION PERIOD"). Each electing Stockholder shall be
entitled to purchase its pro rata share of the Management Stock covered by
the Offer Notice (based on its percentage ownership of the Common Stock on
a fully-diluted basis) and, in the event that less than all the
Stockholders elect to purchase their pro rata shares, the remaining shares
shall be reoffered to the electing Stockholders for a period of 10 days
following the Election Period and shall be purchased by the electing
Stockholders in proportion to the numbers of shares requested to be
purchased by them in excess of their pro rata shares. The purchase of such
shares by KCSN and/or the other Management Stockholders shall be
consummated within 30 days following expiration of the Election Period.

(ii) In the event that KCSN and/or the other Management
Stockholders do not elect to purchase the Management Stock described in the
Offer Notice, during the 30-day period following expiration of the Election
Period, the transferring Management Stockholder may transfer such
Management Stock to the transferee(s) specified in the Offer Notice on
terms no more favorable to such transferee(s) than those specified in the
Offer Notice. Any shares of Management Stock not transferred within such
30-day period shall again be subject to Section 3(b)(i) in connection with
any proposed transfer thereof.

(c) CERTAIN PERMITTED TRANSFERS. Sections 3(a) and 3(b) shall not
apply to transfers of Management Stock (i) pursuant to Sections 5, 6 or 7
hereof, or (ii) within a Management Stockholder's family group (including by
will or pursuant to applicable laws of descent and distribution); provided that,
in connection with any transfer pursuant to this clause (ii), each transferee (a
"PERMITTED TRANSFEREE") agrees in writing to be bound by the provisions of this
Agreement. Any shares of Management Stock transferred to a Permitted Transferee
shall continue to be Management Stock for purposes of this Agreement. A
Management Stockholder's "FAMILY GROUP" means such Management Stockholder's
spouse and lineal descendants (whether natural

-5-

<PAGE>

or adopted) and any trust formed and maintained solely for the benefit of
such Management Stockholder, such Management Stockholder's spouse and/or such
Management Stockholder's lineal descendants.

SECTION 4. ADDITIONAL RESTRICTIONS ON TRANSFER.

(a) STOCK LEGEND. The certificates representing Stockholder Shares
shall bear the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON _______________, 19__, HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH
IN A STOCKHOLDERS AGREEMENT DATED AS OF DECEMBER 31, 1996 AMONG
COLOR SPOT NURSERIES, INC. AND CERTAIN STOCKHOLDERS THEREOF, A
COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY THE HOLDER HEREOF
AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS.

(b) OPINION OF COUNSEL. No holder of Stockholder Shares may sell,
transfer or dispose of any such stock (other than pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company upon its request an opinion of counsel reasonably acceptable in form and
substance to the Company that registration under the Securities Act is not
required in connection with such transfer.

SECTION 5. SALE OF THE COMPANY. If the holders of a majority of the
Investor Stock then outstanding approve the sale of the Company to an
Independent Third Party, whether by merger, consolidation, sale of all or
substantially all of its assets, sale of all of the outstanding Common Stock
or otherwise (an "APPROVED SALE"), the Stockholders shall consent to and
raise no objections against such Approved Sale (including exercising any
rights of appraisal) and shall take all necessary and desirable actions in
their capacities as stockholders in connection with the consummation of such
Approved Sale. If the Approved Sale is structured as a sale of stock, the
Stockholders shall agree to sell all of their shares of Common Stock and
rights to acquire shares of Common Stock on the terms and conditions approved
by the holders of a majority of the Investor Stock then outstanding. The
obligations of the Stockholders with respect to any Approved Sale are subject
to the condition that, upon the consummation of such Approved Sale,

-6-

<PAGE>

all of the holders of Common Stock will receive the same form and amount of
consideration per share of Common Stock, or if any holders are given an
option as to the form and amount of consideration to be received, all holders
will be given the same option. In connection with an Approved Sale, each
holder of Vested Options or Notes may elect to exercise such Options or
convert such Notes and participate in the Approved Sale as a holder of Common
Stock or, in lieu of the exercise of Options, to receive in exchange for such
Options the excess of the consideration per share of Common Stock receivable
in such Approved Sale over the exercise price per share under such Options.

SECTION 6. PARTICIPATION RIGHTS. Not less than 30 days prior to any
proposed transfer of Common Stock by KCSN or any Affiliate of KCSN, such
transferring Stockholder shall deliver to the other Stockholders a written
notice (the "SALE NOTICE") specifying in reasonable detail the identity of
the proposed transferee(s) and the terms and conditions of the proposed
transfer. Each other Stockholder may elect to participate in the proposed
transfer by delivering to the transferring Stockholder a written notice of
such election within the 20-day period following delivery of the Sale Notice.
If any Stockholders elect to participate in such transfer, the transferring
Stockholder and each such participating Stockholder will be entitled to sell
in such proposed transfer, at the same price and on the same terms, a number
of shares of Common Stock equal to the product of (i) the quotient determined
by dividing the percentage of the Common Stock then held by the transferring
Stockholder or such participating Stockholder, as the case may be, by the
aggregate percentage of the Common Stock then held by the transferring
Stockholder and all participating Stockholders, multiplied by (ii) the number
of shares of Common Stock to be sold in such proposed transfer. For purposes
of this Section 6, each participating Stockholder shall be deemed to hold all
shares of Common Stock acquirable pursuant to the exercise of Vested Options
or the conversion of Notes then held by such Stockholder. The participating
Stockholders shall pay a pro rata portion of the transaction expenses
associated with such transfer. This Section 6 shall not apply to transfers to
Affiliates of KCSN (provided that such Affiliates shall continue to be bound
by the terms hereof).

SECTION 7. REGISTRATION RIGHTS.

(a) DEMAND REGISTRATION. At any time not less than 180 days after the
consummation of the Company's initial public offering of Common Stock under
the Securities Act, (i) the holders of a majority of the then-outstanding
Investor Stock shall have the right to require the Company to effect up to
four registrations of their Common Stock on Form S-1 under the Securities Act
and, if available, unlimited registrations on Form S-2 or S-3 under the
Securities Act, and (ii) the holders of a majority of the then-outstanding
Heller Stock shall have the right to require the Company to effect one
registration of their Common Stock under the Securities Act on Form S-1 or,
if available, on Form S-2 or S-3 (any such registration, a "DEMAND
REGISTRATION"). Upon receipt of any request for a Demand Registration, the
Company shall give prompt written notice of such request to each Stockholder,
and shall include in such Demand Registration all Stockholder Shares with
respect to which the Company has received written requests for inclusion
therein within 30 days after the delivery of the Company's notice, including
shares covered by Vested Options or Notes to the extent that the Company
receives appropriate assurances that such

-7-

<PAGE>

Options will be exercised or such Notes will be converted upon effectiveness
of such registration. If other securities are included in any Demand
Registration that is not an underwritten offering, all Stockholder Shares
included in such offering shall be sold prior to the sale of any of such
other securities. If other securities are included in any Demand
Registration that is an underwritten offering, and the managing underwriter
for such offering advises the Company that in its opinion the number of
securities to be included exceeds the number of securities which can be sold
in such offering without adversely affecting the marketability thereof, the
Company will include in such registration all Stockholder Shares requested to
be included therein prior to the inclusion of any securities that are not
Stockholder Shares. If the number of Stockholder Shares requested to be
included in such registration exceeds the number of securities which in the
opinion of such underwriter can be sold without adversely affecting the
marketability of such offering, such Stockholder Shares shall be included pro
rata among the holders thereof based on the percentage of the outstanding
Stockholder Shares held by each such Stockholder (assuming the exercise of
all Vested Options and conversion of all Notes). The Company shall have the
right to select the investment banker(s) and manager(s) to administer any
Demand Registration that is an underwritten offering, subject to the approval
of the holders of a majority of the Stockholder Shares to be included in such
Demand Registration. If, as a result of inclusion of Stockholder Shares
other than Investor Stock or Heller Stock in any Demand Registration
initiated by such holders, the holders of Investor Stock or Heller Stock (as
applicable) are unable to sell at least 80% of the Investor Stock or Heller
Stock requested to be included in such registration, such registration shall
not count as one of the Demand Registrations afforded the holders of Investor
Stock or Heller Stock under this Section 7(a).

(b) COMPANY REGISTRATION. In the event that the Company proposes to
register any Common Stock under the Securities Act in connection with a
public offering (other than a Demand Registration) on any form (other than
Form S-4 or Form S-8) that would legally permit the inclusion of Stockholder
Shares, the Company shall give each of the Stockholders written notice
thereof as soon as practicable but in no event less than 30 days prior to
such registration, and shall include in such registration all Stockholder
Shares requested in writing to be included therein, including shares covered
by Vested Options or Notes to the extent that the Company receives
appropriate assurances that such Options will be exercised or such Notes will
be converted upon effectiveness of such registration, subject to the
limitations set forth in this Section 7(b). If in connection with such
proposed registration the managing underwriter for such offering advises the
Company that the number of Stockholder Shares requested to be included
therein exceeds the number of shares that can be sold in such offering, any
shares to be sold by the Company in such offering shall have priority over
any Stockholder Shares, and the number of Stockholder Shares to be included
by a Stockholder in such registration shall be reduced pro rata on the basis
of the numbers of shares of Common Stock held by such Stockholder (assuming
the exercise of all Vested Options and conversion of all Notes) and all other
holders of the Company's securities exercising similar registration rights.

(c) COSTS OF REGISTRATION. The Company shall bear the costs of each
registration in which Stockholders participate pursuant to this Section 7,
including the reasonable fees and expenses of one counsel for the selling
Stockholders (to be selected by the holders of a majority

-8-

<PAGE>

of the Stockholder Shares to be included in such registration) but excluding
any underwriting discounts or commissions on the sale of Stockholder Shares
or the fees and expenses of any additional counsel retained by the
Stockholders. As a condition to the inclusion of Stockholder Shares in any
registration, the participating Stockholder and the Company 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. Notwithstanding the
foregoing, no Stockholder shall be required to incur indemnification
obligations (whether several or joint and several) which is in excess of the
net proceeds received by such Stockholder pursuant to such registration or
relates to information not supplied by such Stockholder for inclusion in the
registration statement.

(d) INITIAL PUBLIC OFFERING. Notwithstanding any other provision of
this Section 7, (i) the Company shall not be required to include Stockholder
Shares in a registration that relates to the Company's initial public
offering of Common Stock if no Investor Stock is sold in such offering, and
(ii) the Company shall not be required to include in any registration
pursuant to this Section 7 any Stockholder Shares (other than any Investor
Stock or Heller Stock in the case of a Demand Registration) that are then
eligible for transfer pursuant to Rule 144 under the Securities Act or may
otherwise be freely transferred without registration under the Securities Act.

SECTION 8. PREEMPTIVE RIGHTS. If the Company or any subsidiary of the
Company proposes to issue any shares of capital stock or other equity
securities (other than issuances by a subsidiary of the Company to the
Company, issuances to persons that are not Affiliates of the Company,
issuances pursuant to the Approved Stock Plan or issuances of Common Stock
upon the exercise or conversion of options, warrants or convertible
securities that were originally issued to non-Affiliates or pursuant to the
Approved Stock Plan), each Stockholder shall have the right of first refusal
to purchase a portion of such securities equal to such Stockholder's
percentage interest in the Common Stock on a fully-diluted basis (giving
effect to the exercise of all Vested Options and the conversion of all
outstanding Notes) immediately prior to such issuance. The Company shall give
each Stockholder at least 30 days' prior written notice of any such proposed
issuance setting forth in reasonable detail the proposed terms and conditions
thereof and shall offer to each Stockholder the opportunity to purchase such
securities at the same price, on the same terms, and at the same time as the
securities are proposed to be issued by the Company; provided, however, that
if such securities are to be sold for non-cash consideration, the Board of
Directors shall make a good faith determination of the fair value of such
non-cash consideration and the Stockholders shall be entitled to pay such
value in cash. A Stockholder may exercise its right of first refusal by
delivery of an irrevocable written notice to the Company not more than 20
days after delivery of the Company's notice. The obligation of the
Stockholders exercising their rights pursuant to this Section 8 to purchase
and pay for securities shall be conditioned upon the consummation of the
proposed issuance by the Company. Notwithstanding the foregoing, in the
event that the Company proposes to issue shares of Common Stock to the
Stockholders in connection with the Company's proposed acquisition of Lone
Star Growers, Heller shall be entitled to purchase a number of shares
sufficient to increase its percentage interest in the Common Stock on a
fully-diluted basis to the percentage interest it would have held immediately
prior to such issuance assuming KCSN had purchased $20.0 million of Common
Stock pursuant

-9-

<PAGE>

to the Recapitalization and Stock Purchase Agreement of even date herewith
among the Company, KCSN, Heller and certain of the other Stockholders.

SECTION 9. CORPORATE GOVERNANCE.

(a) BOARD OF DIRECTORS. Each Stockholder agrees to vote all
securities of the Company over which such Stockholder has voting control and
to take all other necessary or desirable actions within its control (whether
as a stockholder, director or officer of the Company or otherwise, and
including without limitation attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all necessary and desirable actions
within its control (including, without limitation, calling special board and
stockholder meetings), so that:

(i) the Company shall have a Board of Directors comprised of no
more than nine members;

(ii) the following persons shall be elected to the Board of
Directors:

(A) Two representatives of management which shall be
Michael F. Vukelich and Jerry L. Halamuda so long as such persons are
employed as executive officers of the Company;

(B) Five representatives designated by KCSN; and

(iii) in the event that any director for any reason ceases to
serve as a member of the Board during his term of office, the
resulting vacancy on the Board shall be filled by the Stockholders
entitled to designate such director as provided in this Section 9 and
not by a vote of the Stockholders generally; and

(iv) if the Stockholders fail to designate a representative to
fill a directorship pursuant to the terms of this Section 9, such
directorship shall remain vacant until filled by the Stockholders
entitled to designate such director.

(b) OBSERVER RIGHTS. Prior to the Company's initial public offering
under the Securities Act, so long as Heller holds any Notes or Common Stock
representing 5% or more of the then-outstanding Common Stock, Heller shall be
entitled to designate a non-voting observer to attend all meetings of the
Board of Directors either in person, by telephone or by teleconference (if
available). The reasonable travel expenses of such observer incurred in
attending meetings shall be reimbursed by the Company to the same extent that
expenses of directors are reimbursed. In the event that Heller is entitled
to observation rights pursuant to this Section 9(b), the Company shall give
Heller copies of all notices of meetings of the Board of Directors, all
actions to be taken

-10-

<PAGE>

by unanimous written consent and all other written materials provided to
members of the Board in their capacities as directors concurrently with
delivery of such materials to members of the Board. Notwithstanding the
foregoing, the Company may exclude Heller's observer from any meeting of the
Board (or portion thereof) or restrict access to any materials if the Company
believes upon the advice of counsel that such exclusion or restriction is
necessary to preserve the Company's attorney-client privilege. In no event
shall Heller's representative be deemed a member of the Board for any purpose
or be charged with any of the duties or obligations (fiduciary or otherwise)
imposed upon members of the Board.

(c) INCONSISTENT PROVISIONS. To the extent that any provision of the
Company's Certificate of Incorporation or by-laws is inconsistent with the
provisions of this Agreement, the Stockholders agree to take all actions
necessary to effect such amendments to the Certificate of Incorporation or
by-laws as may be necessary and appropriate to give full effect to the
provisions of this Agreement.

SECTION 10. ASSIGNMENT OF RIGHTS; REPRESENTATIONS ON SALE. The
Company may assign to one or more third parties its right to repurchase
shares of Management Stock pursuant to Section 2, subject only to compliance
with applicable securities laws. The purchasers of Management Stock pursuant
to Sections 2 and 3 shall be entitled to receive customary representations
and warranties from the seller regarding the seller's good title to, and
freedom from liens, encumbrances and restrictions on the sale of, such
Management Stock.

SECTION 11. TRANSFERS IN VIOLATION OF AGREEMENT. Any transfer or
attempted transfer of any Stockholder Shares in violation of this Agreement
shall be void, and the Company shall not be obligated to record such transfer
on its books or treat any purported transferee of such Stockholder Shares as
the owner of such shares for any purpose.

SECTION 12. AMENDMENT AND WAIVER. Except as otherwise provided
herein, no amendment or waiver of any provision of this Agreement shall be
effective against the Company, KCSN, Heller or the Management Stockholders
unless such amendment or waiver is approved in writing by the Company, KCSN,
Heller or the holders of at least a majority of the then-outstanding
Management Stock, as the case may be. The failure of any party to enforce
any provision of this Agreement shall not be construed as a waiver of such
provision and shall not affect the right of such party thereafter to enforce
each provision of this Agreement in accordance with its terms.

SECTION 13. SEVERABILITY. 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 shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.

SECTION 14. ENTIRE AGREEMENT. Except as otherwise expressly set
forth herein, this document embodies the complete agreement and understanding
among the parties hereto with

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<PAGE>

respect to the subject matter hereof and supersedes and preempts 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.

SECTION 15. SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of and be enforceable by the Company, KCSN, Heller and
their respective successors and transferees, and by the Management
Stockholders and their Permitted Transferees, in each case so long as such
persons hold Stockholder Shares.

SECTION 16. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken
together shall constitute one and the same agreement.

SECTION 17. REMEDIES. The Company, KCSN, Heller and the Management
Stockholders shall be entitled to enforce their rights under this Agreement
specifically to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights existing in their 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
the Company, KCSN, Heller or any Management Stockholder may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a bond or
other security) in order to enforce or prevent any violation of the
provisions of this Agreement. In the event of any legal proceedings seeking
to enforce any rights or obligations under this Agreement, the prevailing
party shall be entitled to recover its attorneys fees and costs in connection
with such proceeding from the non-prevailing party.

SECTION 18. NOTICES. Any notice provided for in this Agreement shall
be in writing and shall be either personally delivered, or sent by telecopy
(confirmed in writing) or sent by reputable overnight courier service for
next-day delivery (charges prepaid) to the Company, KCSN or Heller at their
respective addresses set forth below and to any other recipient at the
address indicated on the schedules hereto and to any subsequent holder of
Management Stock subject to this Agreement at such address as indicated by
the Company's records, or at such address or to the attention of such other
person as the recipient party has specified by prior written

-12-

<PAGE>

notice to the sending party. Notices will be deemed to have been given
hereunder when delivered personally, on the date of transmission if sent by
confirmed telecopy (or on the next business day if transmission is not made
on a business day) or on the next business day after deposit with a reputable
overnight courier service.

The Company's address is:

Color Spot Nurseries, Inc.
3478 Buskirk Avenue, Suite 260
Pleasant Hill, CA 94523
Attention: Michael F. Vukelich
Telecopy: (510) 935-0799

KCSN's address is:

c/o Kohlberg & Co., L.L.C.
2400 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Attention: W. Dexter Paine, III
Telecopy: (415) 854-5415

Heller's address is:

Heller Equity Capital Corporation
500 West Monroe Street
Chicago, IL 60661
Attention: Charles Brissman, Esq.
Telecopy: (312) 441-7173

SECTION 19. GOVERNING LAW. The corporate law of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and
not the law of conflicts, of California.

SECTION 20. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.

SECTION 21. SPOUSAL CONSENT. By his or her signature on this
Agreement, each spouse of a Management Stockholder agrees to be bound by the
provisions hereof to the extent of such spouse's interest in any Stockholder
Shares and further agrees (i) in the event of the death of such spouse, the
surviving Management Stockholder shall succeed to such deceased spouse's
interest in the Stockholder Shares held by such Management Stockholder on the
date of death, (ii) in the event of separation or dissolution of marriage,
the Management Stockholder shall have the right to purchase the spouse's
interest in the Stockholder Shares held by such Management

-13-

<PAGE>

Stockholder at Fair Market Value (as defined in Section 1), and (iii) any
decree of divorce or dissolution of marriage, separate maintenance agreement
or property settlement between any Management Stockholder and his or her
spouse shall include a provision granting such Management Stockholder such
spouse's entire interest in the Stockholder Shares held by such Management
Stockholder as part of the division of the community property or separate
property of the marriage.

SECTION 22. PRIOR AGREEMENTS. All prior stockholders' agreements
between the Company, Heller and the Management Stockholders are hereby
terminated and shall be of no further force and effect.

SECTION 23. TERMINATION; SURVIVAL. This Agreement (other than
Sections 5, 7 and 9 hereof) shall terminate and be of no further force and
effect upon consummation of the Company's initial public offering of Common
Stock under the Securities Act. This Agreement shall terminate in its
entirety on the tenth anniversary of the date hereof.

* * * * *

-14-

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COLOR SPOT NURSERIES, INC.

By: /s/ Michael F. Vukelich
---------------------------------
Name:
Title:

KCSN ACQUISITION COMPANY, L.P.

By KCSN Management Company, L.P.
Its General Partner

By KCSN G.P., Inc.
Its General Partner

By: /s/ Samuel P. Frieder
---------------------------
Samuel P. Frieder
Vice President

HELLER EQUITY CAPITAL
CORPORATION

By: /s/ Jeffrey Gonyo
---------------------------------
Name: Jeffrey Gonyo
Title: Vice President

MANAGEMENT STOCKHOLDERS:

/s/ Michael F. Vukelich
----------------------------------------
Michael F. Vukelich

Spouse:/s/ Karla D. Vukelich
----------------------

-14-

<PAGE>
/s/ Jerry Halamuda
----------------------------------------
Jerry Halamuda

Spouse: /s/ Ellen N. Halamuda
----------------------

/s/ Gary E. Mariani
----------------------------------------
Gary E. Mariani

Spouse: /s/ Mary M. Mariani
----------------------

/s/ Gene Malcolm
----------------------------------------
Gene Malcolm

Spouse:
----------------------

/s/ Steven J. Bookspan
----------------------------------------
Steven J. Bookspan

Spouse: /s/ Sarah Bookspan
----------------------

/s/ Michael T. Neenan
----------------------------------------
Michael T. Neenan

Spouse: /s/ Hilary Neenan
----------------------

/s/ Robert F. Strange
----------------------------------------
Robert F. Strange

Spouse: /s/ Ann Marie Strange
----------------------

/s/ Jim Tsurudome
----------------------------------------
Jim Tsurudome

Spouse: /s/ Laura L. Tsurudome
----------------------

/s/Dick George
----------------------------------------
Dick George

Spouse: /s/ Judy George
----------------------

-15-

<PAGE>

/s/ Gary Crook
----------------------------------------
Gary Crook

Spouse: /s/ Joy Crook
----------------------

/s/ Dave Grimshaw
----------------------------------------
Dave Grimshaw

Spouse: /s/ Maria D. Grimshaw
----------------------

/s/ John Negrete
----------------------------------------
John Negrete

Spouse: /s/ Susan L. Negrete
----------------------

/s/ Dennis Bahen
----------------------------------------
Dennis Bahen

Spouse: /s/ Christine Bahen
----------------------

-16-

<PAGE>

EXHIBIT C

EMPLOYEE STOCKHOLDERS AGREEMENT

Employee Stockholders Agreement dated as of June 1, 1997 among CSN,
INC., a Delaware corporation (the "COMPANY"), KCSN ACQUISITION COMPANY, L.P., a
Delaware limited partnership ("KCSN"), and each of the employees of the Company
which have executed this Agreement or have otherwise agreed to be bound by the
provisions hereof (the "EMPLOYEE STOCKHOLDERS").

The parties hereby agree as follows:

SECTION 1. DEFINITIONS. For purposes of this Agreement, the
following terms have the indicated meanings:

"AFFILIATE" of a person means any other person controlling, controlled
by or under common control with such person, whether by ownership of voting
securities, by contract or otherwise, and in the case of KCSN shall include any
member of KCSN and in the case of the Company shall include any officer or
director of the Company.

"BOARD" means the Board of Directors of the Company.

"CAUSE" means, with respect to any Employee Stockholder, (i) the
commission by the Employee Stockholder of theft or embezzlement of Company
property or other acts of dishonesty or criminal conduct harmful in any
significant respect to the business, property or reputation of the Company or
the commission by the Employee Stockholder of other acts harmful in any
significant respect to the business, property or reputation of the Company; (ii)
the commission by the Employee Stockholder while an employee of the Company or
its Affiliates of an act determined in good faith by the Company's Board of
Directors to amount to gross, willful or wanton negligence of the Employee
Stockholder's duties under the terms of his or her employment; (iii) the refusal
by the Employee Stockholder while an employee of the Company or its Affiliates
to perform, or substantial neglect of, the duties assigned to the Employee
Stockholder by the Company; (iv) any significant violation by the Employee
Stockholder of any statutory or common law duty of loyalty to the Company; or
(v) a material breach by the Employee Stockholder of his or her employment
agreement (if any) with the Company. The determination of Cause shall be made
in good faith by the Board of Directors after written notice to the Employee
Stockholder and, in the case of conduct described in clause (iii), (iv) or (v)
above, a reasonable opportunity to cure such conduct.

"COMMON STOCK" means the Company's Nonvoting Common Stock, $.01 par
value.

"EMPLOYEE STOCK" means Stockholder Shares held by the Employee
Stockholders.

<PAGE>

"FAIR MARKET VALUE" means, the fair market value of a share of Common
Stock as determined in good faith by the Board.

"INVESTOR STOCK" means the Voting Stock held by KCSN, its Affiliates
and their Permitted Transferees.

"EMPLOYEE STOCK" means Stockholder Shares held by the Employee
Stockholders.

"ORIGINAL COST" means a Employee Stockholder's average original
purchase price per share of Employee Stock and held by such Employee
Stockholder, as reflected in the records of the Company.

"PERMITTED TRANSFEREE" is defined in Section 3(c).

"SALE OF THE COMPANY" means the acquisition of beneficial ownership of
a majority or more of the outstanding voting securities of the Company by any
person or "group" (as that term is used in Regulation 13D under the Securities
Exchange Act of 1934) other than stockholders of the Company as of the date
hereof and their respective Affiliates.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"STOCKHOLDER SHARES" means (i) all shares of Common Stock held or
deemed to be held by the Employee Stockholders, including all shares of Common
Stock acquired pursuant to exercise of Options or conversion of Notes, and (ii)
all shares of Common Stock or other securities issued or issuable directly or
indirectly with respect to the securities referred to in clause (i) by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. Stockholder
Shares shall cease to be such when they have been sold (x) pursuant to a
registered public offering under the Securities Act, or (y) to the public
pursuant to Rule 144 under the Securities Act or any successor provision.

"VOLUNTARY TERMINATION" means the voluntary termination of employment
by a Employee Stockholder within three years after the date hereof.

"VOTING STOCK" means the common stock, par value $.01 per share, of
the Company.

- 2 -

<PAGE>

SECTION 2. REPURCHASE ON TERMINATION OF EMPLOYMENT.

(a) REPURCHASE OPTION. Upon the termination of a Employee
Stockholder's employment by the Company and its subsidiaries:

(i) if such termination is for any reason other than for Cause
or a Voluntary Termination, the Company may elect to repurchase all but not
less than all of the Employee Stock held by such Employee Stockholder and
his Permitted Transferees at a cash price per share equal to Fair Market
Value (as of the date of termination); and

(ii) if such termination is for Cause or is a Voluntary
Termination, the Company may elect to repurchase all but not less than all
of the Employee Stock held by such Employee Stockholder and his Permitted
Transferees at a cash price per share equal to the lesser of Fair Market
Value (as of the date of termination and Original Cost).

(b) REPURCHASE PROCEDURE. The Company may exercise its option to
purchase Employee Stock pursuant to Section 2(a) by delivery to the Employee
Stockholder, within 30 days after the termination of such Employee Stockholder's
employment, of a written notice specifying the number of shares of Employee
Stock to be repurchased. The closing of any repurchase of securities pursuant
to this Section 2 shall take place not later than 90 days following the
termination of the Employee Stockholder's employment. The shares of Employee
Stock to be repurchased by the Company shall be satisfied (i) first, from the
shares of Employee Stock held by the Employee Stockholder at the time of
delivery of the Repurchase Notice and (ii) second, if the number of such shares
is less than the number of shares to be repurchased by the Company, from the
shares of Employee Stock held by the Permitted Transferees of such Employee
Stockholder in such proportions as shall be determined by the Employee
Stockholder.

SECTION 3. RESTRICTIONS ON TRANSFER.

(a) PROHIBITION ON TRANSFERS. No Employee Stock may be sold,
transferred, pledged or otherwise disposed of (including by gift) otherwise than
in accordance with this Section 3. No Employee Stock may be transferred without
the prior written consent of the Company, which will not be unreasonably
withheld.

(b) RIGHT OF FIRST REFUSAL.

(i) Not less than 30 days prior to any proposed transfer of
Employee Stock, the transferring Employee Stockholder shall deliver to the
Company a written notice (the "OFFER NOTICE") specifying in reasonable
detail the number of shares to be transferred, the identity of the
transferee(s), the price (which shall be payable solely in cash) and the
other terms and conditions of the proposed transfer. The Company may elect
to purchase all but not less than all of the Employee Stock proposed to be
transferred upon the terms and conditions specified in the Offer Notice by
delivering to the transferring Employee Stockholder a written notice of
such election within the 20-day period following its receipt of the Offer

- 3 -

<PAGE>

Notice (the "ELECTION PERIOD"). The purchase of such shares by the Company
shall be consummated within 30 days following expiration of the Election
Period.

(ii) In the event that the Company does not elect to purchase the
Employee Stock described in the Offer Notice, during the 30-day period
following expiration of the Election Period, the transferring Employee
Stockholder may transfer such Employee Stock to the transferee(s) specified
in the Offer Notice on terms no more favorable to such transferee(s) than
those specified in the Offer Notice. Any shares of Employee Stock not
transferred within such 30-day period shall again be subject to
Section 3(b)(i) in connection with any proposed transfer thereof.

(c) CERTAIN PERMITTED TRANSFERS. Sections 3(a) and 3(b) shall not
apply to transfers of Employee Stock (i) pursuant to Section 5 hereof, or (ii)
within a Employee Stockholder's family group (including by will or pursuant to
applicable laws of descent and distribution); provided that, in connection with
any transfer pursuant to this clause (ii), each transferee (a "PERMITTED
TRANSFEREE") agrees in writing to be bound by the provisions of this Agreement.
Any shares of Employee Stock transferred to a Permitted Transferee shall
continue to be Employee Stock for purposes of this Agreement. A Employee
Stockholder's "FAMILY GROUP" means such Employee Stockholder's spouse and lineal
descendants (whether natural or adopted) and any trust formed and maintained
solely for the benefit of such Employee Stockholder, such Employee Stockholder's
spouse and/or such Employee Stockholder's lineal descendants.

SECTION 4. ADDITIONAL RESTRICTIONS ON TRANSFER.

(a) STOCK LEGEND. The certificates representing Stockholder Shares
shall bear the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON _______________, 19__, HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH
IN AN EMPLOYEE STOCKHOLDERS AGREEMENT DATED AS OF JUNE 1, 1997
AMONG CSN, INC. AND CERTAIN STOCKHOLDERS THEREOF, A COPY OF WHICH
MAY BE OBTAINED WITHOUT CHARGE BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS.

(b) OPINION OF COUNSEL. No holder of Stockholder Shares may sell,
transfer or dispose of any such stock (other than pursuant to an effective
registration statement under the

- 4 -

<PAGE>

Securities Act) without first delivering to the Company upon its request an
opinion of counsel reasonably acceptable in form and substance to the Company
that registration under the Securities Act is not required in connection with
such transfer.

SECTION 5. SALE OF THE COMPANY. If the holders of a majority of
the Investor Stock then outstanding approve the sale of the Company to an
Independent Third Party, whether by merger, consolidation, sale of all or
substantially all of its assets, sale of all of the outstanding Common Stock or
otherwise (an "APPROVED SALE"), the Employee Stockholders shall consent to and
raise no objections against such Approved Sale (including exercising any rights
of appraisal) and shall take all necessary and desirable actions in their
capacities as stockholders in connection with the consummation of such Approved
Sale. If the Approved Sale is structured as a sale of stock, the Employee
Stockholders shall agree to sell all of their shares of Common Stock and rights
to acquire shares of Common Stock on the terms and conditions approved by the
holders of a majority of the Investor Stock then outstanding. The obligations
of the Employee Stockholders with respect to any Approved Sale are subject to
the condition that, upon the consummation of such Approved Sale, all of the
holders of Common Stock will receive the same form and amount of consideration
per share of Common Stock, or if any holders are given an option as to the form
and amount of consideration to be received, all holders will be given the same
option.

SECTION 6. LOCK-UP. In the event that any shares of Voting Stock
are registered for sale under the Securities Act (other than on Form S-8), each
Employee Stockholder agrees that for a period of 180 days from the consummation
of any such offering, he shall not offer for sale, sell, or otherwise dispose
of, directly or indirectly, any shares of Voting Stock, including any shares of
Voting Stock issued on conversion of the Common Stock, or sell or grant options,
rights or warrants with respect to any shares of Voting Stock, without the prior
written consent of the managing underwriter for any such offering.

SECTION 7. ASSIGNMENT OF RIGHTS; REPRESENTATIONS ON SALE. The
Company may assign to one or more third parties its right to repurchase shares
of Employee Stock pursuant to Section 2, subject only to compliance with
applicable securities laws. The purchasers of Employee Stock pursuant to
Sections 2 and 3 shall be entitled to receive customary representations and
warranties from the seller regarding the seller's good title to, and freedom
from liens, encumbrances and restrictions on the sale of, such Employee Stock.

SECTION 8. TRANSFERS IN VIOLATION OF AGREEMENT. Any transfer or
attempted transfer of any Stockholder Shares in violation of this Agreement
shall be void, and the Company shall not be obligated to record such transfer on
its books or treat any purported transferee of such Stockholder Shares as the
owner of such shares for any purpose.

SECTION 9. AMENDMENT AND WAIVER. Except as otherwise provided
herein, no amendment or waiver of any provision of this Agreement shall be
effective against the Company, KCSN, or the Employee Stockholders unless such
amendment or waiver is approved in writing by the Company, KCSN, or the holders
of at least a majority of the then-outstanding Employee Stock, as the case may
be. The failure of any party to enforce any provision of this Agreement

- 5 -

<PAGE>

shall not be construed as a waiver of such provision and shall not affect the
right of such party thereafter to enforce each provision of this Agreement in
accordance with its terms.

SECTION 10. SEVERABILITY. 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
shall not affect any other provision or any other jurisdiction, but this
Agreement shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained
herein.

SECTION 11. ENTIRE AGREEMENT. Except as otherwise expressly set
forth herein, this document embodies the complete agreement and understanding
among the parties hereto with respect to the subject matter hereof and
supersedes and preempts 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.

SECTION 12. SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of and be enforceable by the Company, KCSN and their
respective successors and transferees, and by the Employee Stockholders and
their Permitted Transferees, in each case so long as such persons hold
Stockholder Shares.

SECTION 13. COUNTERPARTS. This Agreement may be executed in
separate counterparts each of which shall be an original and all of which taken
together shall constitute one and the same agreement.

SECTION 14. REMEDIES. The Company and KCSN shall be entitled to
enforce their rights under this Agreement specifically to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their 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 the Company and KCSN may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of this
Agreement. In the event of any legal proceedings seeking to enforce any rights
or obligations under this Agreement, the prevailing party shall be entitled to
recover its attorneys fees and costs in connection with such proceeding from the
non-prevailing party.

SECTION 15. NOTICES. Any notice provided for in this Agreement
shall be in writing and shall be either personally delivered, or sent by
telecopy (confirmed in writing) or sent by reputable overnight courier service
for next-day delivery (charges prepaid) to the Company or KCSN at their
respective addresses set forth below and to any other recipient at the address
indicated on the schedules hereto and to any subsequent holder of Employee Stock
subject to this Agreement at such address as indicated by the Company's records,
or at such address or to the attention of such other person as the recipient
party has specified by prior written notice to the

- 6 -

<PAGE>

sending party. Notices will be deemed to have been given hereunder when
delivered personally, on the date of transmission if sent by confirmed telecopy
(or on the next business day if transmission is not made on a business day) or
on the next business day after deposit with a reputable overnight courier
service.

The Company's address is:

CSN, Inc.
3478 Buskirk Avenue, Suite 260
Pleasant Hill, CA 94523
Attention: Michael F. Vukelich
Telecopy: (510) 935-0799

KCSN's address is:

c/o Kohlberg & Company, L.L.C.
111 Radio Circle
Mt. Kisco, NY 10549
Attention: Samuel Frieder
Telecopy: (914) 241-7476

SECTION 16. GOVERNING LAW. The corporate law of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and not
the law of conflicts, of California.

SECTION 17. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.

SECTION 21. SPOUSAL CONSENT. By his or her signature on this
Agreement, each spouse of a Employee Stockholder agrees to be bound by the
provisions hereof to the extent of such spouse's interest in any Stockholder
Shares and further agrees (i) in the event of the death of such spouse, the
surviving Employee Stockholder shall succeed to such deceased spouse's interest
in the Stockholder Shares held by such Employee Stockholder on the date of
death, (ii) in the event of separation or dissolution of marriage, the Employee
Stockholder shall have the right to purchase the spouse's interest in the
Stockholder Shares held by such Employee Stockholder at Fair Market Value (as
defined in Section 1), and (iii) any decree of divorce or dissolution of
marriage, separate maintenance agreement or property settlement between any
Employee Stockholder and his or her spouse shall include a provision granting
such Employee Stockholder such spouse's entire interest in the Stockholder
Shares held by such Employee Stockholder as part of the division of the
community property or separate property of the marriage.

- 7 -

<PAGE>

SECTION 23. TERMINATION; SURVIVAL. This Agreement (other than
Section 6 hereof) shall terminate and be of no further force and effect upon
consummation of the Company's initial public offering of Common Stock under the
Securities Act. This Agreement shall terminate in its entirety on the tenth
anniversary of the date hereof.

* * * * *

- 8 -

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

CSN, INC.

By:
----------------------------------
Michael Vukelich
Chief Executive Officer

KCSN ACQUISITION COMPANY, L.P.

By KCSN Management Company, L.P.
Its General Partner

By KCSN G.P., Inc.
Its General Partner

By:
------------------------------------
Samuel P. Frieder
Vice President

EMPLOYEE STOCKHOLDERS:

- 9 -

<PAGE>

EXHIBIT 10.7

EMPLOYMENT AGREEMENT

Employment Agreement dated as of December 31, 1996 (the "Agreement") by and
between Color Spot Nurseries, Inc., a Delaware corporation whose name is to be
changed to "CSN, Inc." (the "Company"), and Michael F. Vukelich, an individual
("Executive").

A. This Agreement is entered into pursuant to that certain Recapitalization
and Stock Purchase Agreement of even date herewith among the Company, KCSN
Acquisition Company, L.P., Executive and the other stockholders of the Company
(the "Recapitalization Agreement").

B. The Company is in the business of producing, selling and distributing
packaged bedding plants (the "Business"). Executive is the Chairman of the
Board and Chief Executive Officer of the Company and has been involved in the
business of the Company since its formation. Executive has extensive knowledge
and a unique understanding of the Business.

C. The Company and Executive desire to enter into this Agreement to assure
the Company of the continued services of Executive and to set forth the rights
and duties of the parties hereto.

NOW, THEREFORE, in consideration of the mutual undertakings set forth
herein, the Company and Executive agree as follows:

1. ENGAGEMENT OF EMPLOYMENT. In accordance with the terms and subject to
the conditions set forth in this Agreement, as of the Effective Date (as defined
below), the Company agrees to continue to employ Executive, and Executive agrees
to continue such employment, as the Chairman of the Board and Chief Executive
Officer of the Company. During the Employment Period, Executive shall also
serve as the Chief Executive Officer of Color Spot Watsonville, Inc. and any
other subsidiary of the Company that conducts all or substantially all of the
Company's operations conducted on the date hereof.

2. DUTIES AND POWERS. During the Employment Period (as hereinafter
defined), Executive shall perform such duties, render such services and have
such authority and responsibilities consistent with the position of Chief
Executive Officer as shall from time to time be reasonably delegated or assigned
to him by the Board of Directors of the Company (the "Board"). So long as
Executive owns 10% of the issued and outstanding shares of the Company's Common
Stock (giving effect to the exercise of all vested options held by Executive),
Executive shall be elected to and shall serve on the Board. Executive shall
report directly to the Board and/or such Committee(s) of the Board as the Board
shall designate in connection with the performance by the Executive of his
duties and services hereunder.

<PAGE>

3. PERFORMANCE AND EXCLUSIVITY. Executive agrees to faithfully and
conscientiously serve the Company, to devote his full time, skill, attention and
energy to the business and affairs of the Company and its subsidiaries and
affiliated entities (collectively, the "Affiliates"), and to perform his duties
hereunder competently, diligently and to the best of his abilities. During the
Employment Period, Executive's services shall be rendered exclusively for the
Company and the Affiliates and Executive shall not render services for his own
account or for any third party.

4. TERM. The term of employment under this Agreement (the "Employment
Period") shall commence as of the date of closing of the transactions
contemplated by the Recapitalization Agreement (the "Effective Date") and shall
continue until the third anniversary of the Effective Date or earlier
termination pursuant to Section 7 below. The Employment Period shall be
automatically renewed for successive one-year periods unless either Executive or
the Company gives written notice of non-renewal to the other party at least
ninety (90) days in advance of the then-current scheduled expiration date of the
Employment Period.

5. COMPENSATION AND BENEFITS.

5.1 BASE SALARY. During the Employment Period, the Company shall pay
Executive a base salary of Two Hundred Thousand Dollars ($200,000) per annum
(the "Base Salary"), payable in accordance with the Company's regular pay
schedule for salaried employees. For each year of the Employment Period (if
any) subsequent to the initial three-year term, the Base Salary shall be
increased to reflect any increases in the cost of living determined by
multiplying $200,000 by a percentage equal to the percentage increase in the
Consumer Price Index for all Urban Consumers-New Series (1982-84=100) for San
Francisco/Oakland/San Jose as published by the United States Department of Labor
for the month immediately preceding such renewal of the Employment Period as
compared to December 1996.

5.2 BONUS. In addition to the other compensation payable to
Executive hereunder, Executive shall be eligible to receive an annual bonus
during the Employment Period in accordance with the bonus plan term sheet
attached hereto.

5.3 STOCK OPTIONS; DEFERRED COMPENSATION. (a) Following the
Effective Date, Executive's existing option to purchase 573,346 shares of the
Company's Common Stock granted pursuant to Executive's existing Employment and
Non-Competition Agreement with the Company dated as of September 8, 1995, as
amended August 1, 1996 (the "Existing Employment Agreement"), shall continue in
effect notwithstanding any subsequent termination of Executive's employment with
the Company.

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<PAGE>

per share (the "Option Price") pursuant to the Company's 1997 Stock Option
Plan, which Option will be evidenced by the option agreement attached hereto.

(c) Executive shall be entitled to receive deferred compensation in the
amount of $573,346 which shall be payable by the Company in a lump sum upon the
earlier of consummation of the Company's initial public offering of Common Stock
or the acquisition of a majority of the outstanding Common Stock by any person
or group of related persons (other than stockholders of the Company on the
Effective Date) at a purchase price in excess of $1.00 per share.

5.4 VACATION AND SICK DAYS. Executive shall be entitled to three (3)
weeks of paid vacation and sick days during each year of the Employment Period,
in addition to legal holidays. Any vacation shall be taken during periods
mutually and reasonably satisfactory to both the Board and Executive. Vacation
and sick day allowance hereunder shall be cumulative, and shall accrue, from
year to year, up to a maximum of six (6) weeks at any time.

5.5 CAR ALLOWANCE. During the Employment Period, the Company shall
pay to Executive a car allowance of Four Hundred Fifty Dollars ($450) per month,
payable in accordance with the Company's regular pay schedule for salaried
employees. Executive shall be responsible for and pay all gasoline, insurance,
repairs, maintenance and other expenses in connection with an automobile used by
Executive for services rendered hereunder. Executive acknowledges and agrees
that the Company may report the foregoing car allowance as additional
compensation to Executive, if the Company believes such reporting may be
required by applicable law.

5.6 BENEFITS. The Company shall provide Executive with such
additional benefits as is provided by the Company to its other salaried
employees.

5.7 TAXES, ETC. All compensation payable to Executive hereunder is
stated in gross amounts and shall be subject to all applicable withholding
taxes, other normal payroll deductions and any other amounts required by law to
be withheld.

6. BUSINESS EXPENSES. The Company shall reimburse Executive for his
reasonable, ordinary and necessary expenses incurred in connection with the
performance of his duties hereunder, including travel (except as provided in
Section 5.5 above) and entertainment expenses; provided, however, that Executive
shall provide the Company with an accounting of his expenses together with such
supporting documentation and other substantiation of reimbursable expenses as
will conform to Internal Revenue Service or other requirements.

7. TERMINATION.

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<PAGE>

of any of the following events: (i) the commission by Executive of theft or
embezzlement of Company property or other acts of dishonesty or criminal
conduct harmful in any significant respect to the business, property or
reputation of the Company or the commission by Executive of other acts
harmful in any significant respect to the business, property or reputation of
the Company; (ii) the commission by Executive while an employee of the
Company or its Affiliates of an act determined in good faith by the Board to
amount to gross, willful or wanton negligence of Executive's duties under the
terms of his employment; (iii) the refusal by Executive while an employee of
the Company or its Affiliates to perform, or substantial neglect of, the
duties assigned to Executive by the Company; (iv) any significant violation
by Executive of any statutory or common law duty of loyalty to the Company;
or (v) a material breach by Executive of this Agreement. The determination
of Cause shall be made in good faith by the Board after written notice to
Executive and, in the case of conduct described in clause (iii), (iv) or (v)
above, a reasonable opportunity to cure such conduct. Any termination under
this Section 7.1 shall not be deemed to be an election of remedy or a waiver
by the Company of any of the Company's rights or remedies otherwise available
to the Company at law, in equity or otherwise (including without limitation,
all rights under Section 8 hereof).

7.2 TERMINATION BY COMPANY OR EXECUTIVE. Either the Company (with or
without Cause) or Executive has the right to terminate Executive's employment
hereunder for any reason, upon thirty (30) days' prior written notice to the
other.

7.3 TERMINATION DUE TO DEATH OR DISABILITY. Executive's employment
shall automatically terminate in the event of Executive's death or permanent
disability (as determined in good faith by the Board).

7.4 COMPENSATION AFTER TERMINATION

7.4.1 If Executive's employment hereunder is terminated (i) by
the Company for Cause, (ii) by Executive prior to the scheduled expiration of
the Employment Period, or (iii) by Executive's failure to renew this Agreement
pursuant to Section 4 of this Agreement, then the Company shall have no further
obligations hereunder or otherwise with respect to Executive's employment from
and after the termination or expiration date (except payment of the Base Salary
accrued through the date of termination or expiration).

4
<PAGE>

Agreement pursuant to Section 4 of this Agreement, the Company shall pay to
Executive the Base Salary for the six (6) month period following the
expiration of the Employment Period (the "Renewal Severance Payment"). The
Cause Severance Payment and the Renewal Severance Payment shall hereinafter
be referred to collectively as the "Severance Payments." The Severance
Payments shall be payable in accordance with Section 5.1 above. Except for
the Severance Payments, if the Executive's employment hereunder is terminated
without Cause prior to the expiration of the Employment Period, the Company
shall have no further obligations hereunder or otherwise with respect to
Executive's employment from and after the termination date (except payment of
the Base Salary accrued through the date of termination).

7.4.3 If Executive's employment hereunder is terminated by
reason of Executive's death or disability, the Company shall continue to pay
Executive (or his estate) his Base Salary through the first anniversary of the
date of termination or earlier expiration of the Employment Period and shall
have no further obligations hereunder or otherwise with respect to Executive's
employment.

7.4.4 The termination of Executive's employment hereunder for
any reason shall not affect any rights of Executive pursuant to (i) the Stock
Repurchase Agreement of even date herewith among the Company, Executive and
Jerry L. Halamuda, (ii) the Stockholders Agreement of even date herewith among
the Company, Executive and other stockholders of the Company, (iii) Executive's
existing option described in Section 5.3(a) above, or (iv) the Company's 1997
Stock Option Plan and Executive's related stock option agreement, which rights
shall survive such termination in accordance with their respective terms.

7.5 SURVIVAL OF COVENANTS. The covenants of Executive set forth in
Section 8 below shall survive the expiration of the Employment Period or the
prior termination of this Agreement, regardless of the cause or reason therefor.

7.6 RETURN OF CONFIDENTIAL INFORMATION. Promptly upon the expiration
or the prior termination of this Agreement, Executive shall return to the
Company all Confidential Information in his possession, regardless of the cause
or reason for such expiration or termination.

8. COVENANTS OF EXECUTIVE. In order to protect the value of the Business
to the Company and in order to induce the Company to enter into the
Recapitalization Agreement, Executive covenants and agrees as follows:

8.1 NON-COMPETITION.

5
<PAGE>

creditor of such business or of the entity or person that controls such
business, or as an employee, director, officer, partner, consultant or agent
or in any capacity that calls for the rendering of personal services, advice,
or acts of management, operation or control or in any other manner
whatsoever) that is directly or indirectly competitive with or similar to the
Business as now or hereafter conducted by the Company or any of the
Affiliates; provided, however that this Section 8 shall not prohibit
Executive from engaging in any venture involving the production of bedding
plants otherwise than for sale to third party wholesale or retail resellers
of such plants.

(b) During the Restrictive Period and for a period of one (1) year
thereafter, Executive shall not, directly or indirectly, as a principal,
director, officer, partner, consultant, agent or in any other capacity, solicit,
advise or induce any officer, director, employee, agent or consultant of the
Company or any of its Affiliates, or any individual who holds any other similar
position, to leave his employment with Company or any of its Affiliates, or
otherwise terminate their relationship with the Company or any of its
Affiliates.

(c) During the Restrictive Period and for a period of one (1) year
thereafter, Executive shall not solicit, advise or induce any client or customer
of the Company or any of its Affiliates to withdraw, curtail or cancel its
business or relationship with the Company or any of its Affiliates.

8.2 RESTRICTIONS ON THE USE OF CONFIDENTIAL INFORMATION.

(a) All Confidential Information, whether or not prepared by
Executive, or which comes into Executive's direct or indirect, actual or
constructive possession during or after the Restrictive Period, or in any other
way, and whether or not such information and materials contain or constitute
confidential information or trade secrets, are and shall remain the exclusive
property of the Company.

(b) Executive shall not, directly or indirectly, at any time during
or after the Restricted Period, disclose to any third party or use or authorize
any third party to use any Confidential Information except in connection with
the performance of Executive's duties to Company under this Agreement.

8.3 SEVERABILITY. Each of the covenants and provisions contained in
this Section 8 (the "Non-Competitive Provisions") are separate and distinct. If
any Non-Competitive Provision or any provision or portion thereof is held
invalid, inoperative or unenforceable, the remaining Non-Competitive Provisions
and the provisions or portions thereof shall be considered valid, operative and
enforceable and, to the extent possible, effect shall be given to the intent
manifested by the Non-Competitive Provisions (or the portions thereof) held
invalid, inoperative or unenforceable.

6
<PAGE>

8.4 INJUNCTIVE RELIEF. Executive hereby acknowledges and agrees that
any breach or threatened breach of the covenants contained in this Section 8
will cause substantial and irreparable injury and damage to the Company in an
amount and of a character difficult to ascertain. Accordingly, in addition to
any other relief to which the Company may otherwise legally or equitably be
entitled, the Company shall also be entitled to immediate temporary, preliminary
and/or permanent injunctive relief to prevent any such breach or threatened
breach and/or continuation thereof, through appropriate legal proceedings
without proof of actual damages that have been incurred or may be incurred by
the Company with respect to such breach or threatened breach.

8.5 DEFINITIONS.

(a) As used herein, the "Restrictive Period" shall mean a period
commencing on the Effective Date and ending one year after the later of (i)
termination or expiration of Executive's employment hereunder for any reason, or
(ii) the expiration of any period following termination of Executive's
employment during which Executive is receiving any Severance Payment; provided,
however, that Executive may elect to forego receipt of any Severance Payment, in
which case the Restrictive Period shall expire one year after termination of
Executive's employment.

(b) As used herein, the "Restrictive Territories" shall mean (i)
during the Employment Period, within any state, possession, territory or
jurisdiction of the United States of America, and all other countries, nations,
territories and areas of the world and universe, and (ii) during the Restrictive
Period subsequent to the Employment Period, for so long as the Company or any of
its Affiliates carries on the Business or other similar business in the counties
and states hereafter specified, within (A) the California counties of Los
Angeles, Orange, San Bernadino, San Diego, Ventura, Fresno, Alameda, Alpine,
Amador, Butte, Calaveras, Colusa, Contra Costa, Del Norte, El Dorado, Glenn,
Humboldt, Imperial, Inyo, Kern, Kings, Lake, Lassen, Madera, Marin, Mariposa,
Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Placer, Plumas,
Riverside, Sacramento, San Benito, San Francisco, San Joaquin, San Luis Obispo,
San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Shasta, Sierra, Siskiyou,
Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, Yolo and
Yuba, and (B) the States of Arizona, Colorado, Texas, Nevada, Oregon, Utah and
Washington.

(c) As used herein, "Confidential Information" shall mean all of the
Company's trade secrets, know-how, financial information, intellectual property
and other proprietary rights, including without limitation growing,
manufacturing and marketing information, formulae, knowledge, data, budgets,
products, customer lists, computer programs, software, telephone numbers,
prices, costs, personnel, suppliers, developments and techniques concerning the
Company and the Business and all of the Company's books, files, records,
documents, plans, drawings, designs, renderings, estimates, specifications,
operating manuals, manuals, user documentation, product literature, catalogues,
marketing materials and similar items relating to

7
<PAGE>

the Business or the Company; provided, however, that Confidential Information
shall not include such of the foregoing as is in the public domain otherwise
than as a result of unauthorized disclosure by Executive.

9. REPRESENTATIONS OF EXECUTIVE. Executive represents and warrants to the
Company that there are no agreements or arrangements, whether written or oral,
which would be breached by Executive upon execution of this Agreement or which
would impair or prevent Executive from performing his duties or rendering his
services to the Company during the Employment Period, and Executive has not made
and will not make any commitment or do any act in conflict with this Agreement.

10. GENERAL PROVISIONS.

10.1 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 duly given if (i) delivered
personally to the recipient, (ii) sent to the recipient by reputable express
courier service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid, or (iii)
transmitted by telecopier to the recipient with a confirmation copy to follow
the next day to be delivered by overnight carrier. Such notices, demands and
other communications shall be sent to the addresses indicated below:

(a) If to Executive:

Michael F. Vukelich
1859 Danielle Court
Walnut Creek, CA 94598
Facsimile: (510) 943-7225

with a copy to:

Knox Ricksen
1999 Harrison Street
Suite 1700
Oakland, CA 94612-3500
Facsimile: (510) 446-1946
Attention: Thomas A. Palmer, Esq.

8
<PAGE>

(b) If to the Company:

Color Spot Nurseries, Inc.
13880 San Pablo Avenue
Second Floor
San Pablo, CA 94806
Facsimile: (510) 232-7445
Attention: Secretary

with copies to:

Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street
Suite 2200
Denver, CO 80202
Facsimile: (303) 623-1956
Attention: John R. Garrett, Esq.

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.
Date of service of such notice shall be (i) the date such notice is personally
delivered, (ii) three days after the date of mailing if sent by certified or
registered mail, (iii) one day after the date of delivery to the overnight
courier if sent by overnight courier or (iv) the next business day after the
date of transmittal by telecopier.

10.2 AMENDMENT AND WAIVER. No amendment or modification of this
Agreement shall be valid or binding unless made in writing and authorized by the
Board and by Executive. The waiver by the Company of any breach of this
Agreement by Executive shall not operate or be construed as a waiver of any
subsequent breach by the Executive.

10.3 ARBITRATION.

(a) The parties acknowledge that this Agreement evidences a
transaction involving interstate commerce. Except as otherwise provided in this
Section 10.3, any controversy, dispute or claim of any nature arising out of, in
connection with or in relation to the interpretation, performance or breach of
this Agreement, including any claim based on contract, tort or statute, shall be
resolved at the request of any party to this Agreement by final and binding
arbitration conducted (i) by a panel (the "Panel") of three (3) members of the
Judicial Arbitration & Mediation Services, Inc. San Francisco, elected pursuant
to the rules and regulations thereof, (ii) at a location in San Francisco,
California selected by the Panel, and (iii) administered in accordance with the
Federal Arbitration Act (9 USC Sections 1 et seq.) and the then existing Rules
of Practice and Procedure of Judicial Arbitration & Mediation Services, Inc.
The decision of the

9
<PAGE>

Panel shall be governed by and in accord with all applicable California and
federal laws. Judgment upon any award rendered by the Panel may be entered
by any state or federal court having jurisdiction thereof. The Panel shall
not be empowered to award punitive damages.

(b) Any party may seek from a court any interim or provisional relief
that may be necessary to protect or preserve its rights under this Agreement
pending the establishment of an arbitration proceeding under this Section 10.3
and the Panel's determination of the merits of the controversy; provided,
however, that the Panel shall be empowered to dissolve, discharge or otherwise
release such interim or provisional relief at any time before conclusion of
proceedings upon a proper showing. The Panel shall be empowered to award
monetary damages to any party for loss occasioned by such interim or provisional
relief upon an ultimate showing of lack of merit.

(c) The parties shall allow and participate in discovery in
accordance with the Federal Rules of Civil Procedure, except (i) depositions may
be taken at any time after the appointment of the Panel and (ii) the response to
a written discovery request shall be served within fourteen (14) days after
service of the request. The parties shall allow and participate in such
discovery for a period of forty-five (45) days after the appointment of the
Panel, plus such additional time as the Panel determines to be necessary to
protect an inquiring party from a responding party's delay in responding to one
or more discovery requests. Unresolved discovery disputes shall be resolved by
the Panel. The United States Arbitration Act and the then existing Rules of
Practice and Procedure of Judicial Arbitration & Mediation Services, Inc. to the
contrary notwithstanding, this paragraph sets forth the exclusive rights of the
parties to discovery in any arbitration proceeding under this Section 10.3.

(d) The Panel shall render a final award within ninety (90) days
after the date of its appointment, plus such additional time, if any, as the
Panel permits for discovery pursuant to this Section 10.3.

(e) The Panel may award to the prevailing party, if any, as
determined by the Panel, part or all of the prevailing party's costs and fees.
"Costs and fees" means all reasonable pre-award expenses of the arbitration,
including the Panel's fees, administrative fees, travel expenses, out-of-pocket
expenses such as photocopy, telecopy and telephone charges, witness fees and
attorneys' fees.

(f) The award of the arbitration shall be final, binding and
nonappealable.

10.4 ASSIGNMENT. No party hereto may assign or delegate any of its
rights or obligations hereunder without the prior written consent of the other
party hereto, provided, however, that the Company shall have the right to assign
all or any part of its rights and obligations under this Agreement to (i) any
affiliate of the Company (which assignment shall not relieve the Company of its
obligations hereunder) or (ii) the purchaser of substantially all or all

10
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of the assets of the Company. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of
any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed
or not.

10.5 ATTORNEYS' FEES. Subject to Section 10.3(e), if the Company or
Executive commences an action against the other to enforce any of the terms of
this Agreement, or to obtain damages for any alleged breach of any of the terms
hereof, or for a declaration of rights hereunder, the non-prevailing party shall
pay to the prevailing party the prevailing party's reasonable attorneys' fees
and costs incurred in connection with the prosecution of such action, whether or
not such action proceeds to arbitration, trial or appeal.

10.6 GOVERNING LAW. This Agreement shall be construed in accordance
with and be governed by the internal laws of the State of California.

10.7 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the transferees, successors and assigns of the Company
and Executive, including any entity with which the Company may merger or
consolidate, provided that Executive may not transfer his rights or obligations
under this Agreement without the Company's prior written consent.

10.8 HEADINGS. The headings and other captions in this Agreement are
included solely for convenience of reference and shall not control the meaning
and the interpretation of any provision of this Agreement.

10.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which, when so executed, shall be deemed an original but all of which
together shall constitute one and the same instrument.

10.10 ENTIRE AGREEMENT. This Agreement contains all of the terms and
conditions agreed upon by the parties with respect to the subject matter hereof
and supersedes all prior agreements, arrangements, communications and term
sheets between the parties dealing with such subject matter, whether oral or
written. Except as expressly set forth herein, there are no representations or
warranties, expressed or implied, made by either party hereto to the other party
hereto.

10.11 FURTHER ASSURANCES. Each of the parties to this Agreement
shall execute and deliver any and all additional papers, documents and other
assurances, and shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and to carry out
the intent of the parties to this Agreement.

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<PAGE>

10.12 TERMINATION OF EXISTING EMPLOYMENT AGREEMENT. As of the
Effective Date, the Existing Employment Agreement shall be automatically
terminated and shall be of no further force and effect.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.

COMPANY:

COLOR SPOT NURSERIES, INC., a
Delaware corporation

/s/ Steven Bookspan
------------------------------------
Name:
Title:

EXECUTIVE:

/s/ Michael F. Vukelich
------------------------------------
MICHAEL F. VUKELICH

<PAGE>

EMPLOYMENT AGREEMENT

A. This Agreement is entered into pursuant to that certain Recapitalization and
Stock Purchase Agreement of even date herewith among the Company, KCSN
Acquisition Company, L.P., Executive and the other stockholders of the Company
(the "Recapitalization Agreement").

B. The Company is in the business of producing, selling and distributing
packaged bedding plants (the "Business"). Executive is the President of the
Company and has been involved in the business of the Company since its
formation. Executive has extensive knowledge and a unique understanding of the
Business.

C. The Company and Executive desire to enter into this Agreement to assure
the Company of the continued services of Executive and to set forth the rights
and duties of the parties hereto.

NOW, THEREFORE, in consideration of the mutual undertakings set forth
herein, the Company and Executive agree as follows:

4. TERM. The term of employment under this Agreement (the "Employment
Period") shall commence as of the date of closing of the transactions
contemplated by the Recapitalization

<PAGE>

Agreement (the "Effective Date") and shall continue until the third anniversary
of the Effective Date or earlier termination pursuant to Section 7 below. The
Employment Period shall be automatically renewed for successive one-year periods
unless either Executive or the Company gives written notice of non-renewal to
the other party at least ninety (90) days in advance of the then-current
scheduled expiration date of the Employment Period.

5. COMPENSATION AND BENEFITS.

(b) On the Effective Date, in addition to other compensation payable to
Executive hereunder, the Company will grant to Executive the option to purchase
up to 300,000 shares ("Option Shares") of the Company's Common Stock (the
"Option") at an exercise price of $4.95 per share (the "Option Price") pursuant
to the Company's 1997 Stock Option Plan, which Option will be evidenced by the
option agreement attached hereto.

(c) Executive shall be entitled to receive deferred compensation in the
amount of $299,104 which shall be payable by the Company in a lump sum upon the
earlier of consummation of the Company's initial public offering of Common Stock
or the acquisition of a majority of the outstanding Common Stock by any person
or group of related persons (other than stockholders of the Company on the
Effective Date) at a purchase price in excess of $1.00 per share.

2
<PAGE>

and Executive. Vacation and sick day allowance hereunder shall be cumulative,
and shall accrue, from year to year, up to a maximum of six (6) weeks at any
time.

5.6 BENEFITS. The Company shall provide Executive with such
additional benefits as is provided by the Company to its other salaried
employees.

7. TERMINATION.

7.1 TERMINATION BY COMPANY FOR CAUSE. The Company shall have the
option to terminate Executive's employment hereunder for Cause (defined below),
effective immediately upon written notice of termination to Executive. "Cause"
as used herein means the occurrence of any of the following events: (i) the
commission by Executive of theft or embezzlement of Company property or other
acts of dishonesty or criminal conduct harmful in any significant respect to the
business, property or reputation of the Company or the commission by Executive
of other acts harmful in any significant respect to the business, property or
reputation of the Company; (ii) the commission by Executive while an employee of
the Company or its Affiliates of an act determined in good faith by the Board to
amount to gross, willful or wanton negligence of Executive's duties under the
terms of his employment; (iii) the refusal by Executive while an employee of the
Company or its Affiliates to perform, or substantial neglect of, the duties
assigned to Executive by the Company; (iv) any significant violation by
Executive of any statutory or common law duty of loyalty to the Company; or (v)
a material breach by Executive of this Agreement. The determination of Cause
shall be made in good faith by the Board after written notice to Executive and,
in the case of conduct described in clause (iii), (iv) or (v) above, a
reasonable opportunity to cure such conduct. Any termination under this Section
7.1 shall not be deemed to be an election of remedy or a waiver by the Company
of any of the Company's rights

3
<PAGE>

or remedies otherwise available to the Company at law, in equity or otherwise
(including without limitation, all rights under Section 8 hereof).

7.3 TERMINATION DUE TO DEATH OR DISABILITY. Executive's employment
shall automatically terminate in the event of Executive's death or permanent
disability (as determined in good faith by the Board).

7.4 COMPENSATION AFTER TERMINATION

7.4.2 If Executive's employment hereunder is terminated by the
Company without Cause prior to the expiration of the Employment Period,
Executive shall be entitled to receive as severance pay the sum of the following
(the "Cause Severance Payment"): (i) the Base Salary for the period remaining
in the Employment Period, plus (ii) the pro rata amount (based upon the period
for which Executive has rendered services to the Company in the calendar year in
which Executive is being terminated) of the total bonus paid to Executive by the
Company in the calendar year preceding the calendar year in which Executive is
being terminated. If the Executive's employment hereunder is terminated by the
Company's failure to renew this Agreement pursuant to Section 4 of this
Agreement, the Company shall pay to Executive the Base Salary for the six (6)
month period following the expiration of the Employment Period (the "Renewal
Severance Payment"). The Cause Severance Payment and the Renewal Severance
Payment shall hereinafter be referred to collectively as the "Severance
Payments." The Severance Payments shall be payable in accordance with Section
5.1 above. Except for the Severance Payments, if the Executive's employment
hereunder is terminated without Cause prior to the expiration of the Employment
Period, the Company shall have no further obligations hereunder or otherwise
with respect to Executive's employment from and after the termination date
(except payment of the Base Salary accrued through the date of termination).

4
<PAGE>

8.1 NON-COMPETITION.

(a) During the Restrictive Period (as hereinafter defined), within
the Restrictive Territories (as hereinafter defined), Executive shall not,
directly or indirectly, organize, own, operate or otherwise participate in or
carry on any business (either financially as owner of an equity interest in such
business or of the entity or person that controls such business, or as creditor
of such business or of the entity or person that controls such business, or as
an employee, director, officer, partner, consultant or agent or in any capacity
that calls for the rendering of personal services, advice, or acts of
management, operation or control or in any other manner whatsoever) that is
directly or indirectly competitive with or similar to the Business as now or
hereafter conducted by the Company or any of the Affiliates; provided, however
that this Section 8 shall not prohibit Executive from engaging in any venture
involving the production of bedding plants otherwise than for sale to third
party wholesale or retail resellers of such plants.

5
<PAGE>

8.2 RESTRICTIONS ON THE USE OF CONFIDENTIAL INFORMATION.

8.5 DEFINITIONS.

6
<PAGE>

or any of its Affiliates carries on the Business or other similar business in
the counties and states hereafter specified, within (A) the California counties
of Los Angeles, Orange, San Bernardino, San Diego, Ventura, Fresno, Alameda,
Alpine, Amador, Butte, Calaveras, Colusa, Contra Costa, Del Norte, El Dorado,
Glenn, Humboldt, Imperial, Inyo, Kern, Kings, Lake, Lassen, Madera, Marin,
Mariposa, Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Placer,
Plumas, Riverside, Sacramento, San Benito, San Francisco, San Joaquin, San Luis
Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Shasta, Sierra,
Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne,
Yolo and Yuba, and (B) the States of Arizona, Colorado, Texas, Nevada, Oregon,
Utah and Washington.

10. GENERAL PROVISIONS.

(a) If to Executive:

Jerry L. Halamuda
16222 Wind Piper Road
Poway, CA 92064

7
<PAGE>

with a copy to:

Knox Ricksen
1999 Harrison Street
Suite 1700
Oakland, CA 94612-3500
Facsimile: (510) 446-1946
Attention: Thomas A. Palmer, Esq.

(b) If to the Company:

Color Spot Nurseries, Inc.
13880 San Pablo Avenue
Second Floor
San Pablo, CA 94806
Facsimile: (510) 232-7445
Attention: Secretary

with copies to:

Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street
Suite 2200
Denver, CO 80202
Facsimile: (303) 623-1956
Attention: John R. Garrett, Esq.

10.3 ARBITRATION.

8
<PAGE>

conducted (i) by a panel (the "Panel") of three (3) members of the Judicial
Arbitration & Mediation Services, Inc. San Francisco, elected pursuant to the
rules and regulations thereof, (ii) at a location in San Francisco, California
selected by the Panel, and (iii) administered in accordance with the Federal
Arbitration Act (9 USC Sections 1 et seq.) and the then existing Rules of
Practice and Procedure of Judicial Arbitration & Mediation Services, Inc. The
decision of the Panel shall be governed by and in accord with all applicable
California and federal laws. Judgment upon any award rendered by the Panel may
be entered by any state or federal court having jurisdiction thereof. The Panel
shall not be empowered to award punitive damages.

(f) The award of the arbitration shall be final, binding and
nonappealable.

9
<PAGE>

obligations under this Agreement to (i) any affiliate of the Company (which
assignment shall not relieve the Company of its obligations hereunder) or (ii)
the purchaser of substantially all or all of the assets of the Company. Except
as otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not.

10.6 GOVERNING LAW. This Agreement shall be construed in accordance
with and be governed by the internal laws of the State of California.

10.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which, when so executed, shall be deemed an original but all of which
together shall constitute one and the same instrument.

10
<PAGE>

10.12 TERMINATION OF EXISTING EMPLOYMENT AGREEMENT. As of the
Effective Date, the Existing Employment Agreement shall be automatically
terminated and shall be of no further force and effect.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.

COMPANY:

COLOR SPOT NURSERIES, INC., a
Delaware corporation

----------------------------------------
Name:
Title:

EXECUTIVE:

----------------------------------------
JERRY L. HALAMUDA

<PAGE>

COLOR SPOT NURSERIES, INC.

STOCK INCENTIVE PLAN

<PAGE>

COLOR SPOT NURSERIES, INC.
STOCK INCENTIVE PLAN
TABLE OF CONTENTS

Page
----

ARTICLE I ESTABLISHMENT. . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-

ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.1 "Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.2 "Agreement" or "Option Agreement" or "Stock Option Agreement". -1-
2.3 "Board of Directors" or "Board". . . . . . . . . . . . . . . . -1-
2.4 "Cause". . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.5 "Code" or "Internal Revenue Code". . . . . . . . . . . . . . . -2-
2.6 "Commission" . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.7 "Committee". . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.8 "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.9 "Company". . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.10 "Controlled Entity". . . . . . . . . . . . . . . . . . . . . . -2-
2.11 "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.12 "Disinterested Person" . . . . . . . . . . . . . . . . . . . . -3-
2.13 "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . -3-
2.14 "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.15 "Executive". . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.16 "Exercisable Option" . . . . . . . . . . . . . . . . . . . . . -3-
2.17 "Grant Date" . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.18 "Heller" . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.19 "Incentive Stock Option" . . . . . . . . . . . . . . . . . . . -4-
2.20 "Management Stockholder" . . . . . . . . . . . . . . . . . . . -4-
2.21 "Nonqualified Stock Option". . . . . . . . . . . . . . . . . . -4-
2.22 "Option Period". . . . . . . . . . . . . . . . . . . . . . . . -4-
2.23 "Option Price" . . . . . . . . . . . . . . . . . . . . . . . . -4-
2.24 "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
2.25 "Public Offering". . . . . . . . . . . . . . . . . . . . . . . -4-
2.26 "Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . -4-
2.27 "Redemption Event" . . . . . . . . . . . . . . . . . . . . . . -4-
2.28 "Redemption Price" . . . . . . . . . . . . . . . . . . . . . . -5-
2.29 "Representative" . . . . . . . . . . . . . . . . . . . . . . . -5-
2.30 "Rule 16b-3 and Rule 16a-1(c)(3)". . . . . . . . . . . . . . . -6-
2.31 "Securities Act" . . . . . . . . . . . . . . . . . . . . . . . -6-
2.32 "Stock Option" or "Option" . . . . . . . . . . . . . . . . . . -6-
2.33 "Stockholders' Agreement". . . . . . . . . . . . . . . . . . . -6-
2.34 "Termination of Employment". . . . . . . . . . . . . . . . . . -6-
2.35 "Vested Option". . . . . . . . . . . . . . . . . . . . . . . . -6-

-i-

<PAGE>
Page
----

ARTICLE III ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . -6-
3.1 Committee Structure and Authority. . . . . . . . . . . . . . . -6-

ARTICLE IV STOCK SUBJECT TO PLAN . . . . . . . . . . . . . . . . . . . . . -9-
4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . -9-
4.2 Release of Shares. . . . . . . . . . . . . . . . . . . . . . . -9-
4.3 Restrictions on Shares . . . . . . . . . . . . . . . . . . . . -9-
4.4 Stockholder Rights . . . . . . . . . . . . . . . . . . . . . . -10-
4.5 Committee's Right to Adjust. . . . . . . . . . . . . . . . . . -10-

ARTICLE V ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
5.1 Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . -10-

ARTICLE VI STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . -11-
6.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
6.2 Grant and Exercise . . . . . . . . . . . . . . . . . . . . . . -11-
6.3 Terms and Conditions . . . . . . . . . . . . . . . . . . . . . -11-
6.4 Redemption of Options. . . . . . . . . . . . . . . . . . . . . -13-

ARTICLE VII PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN. . . . -13-
7.1 Limited Transfer During Offering . . . . . . . . . . . . . . . -13-
7.2 Restriction on Disposition . . . . . . . . . . . . . . . . . . -13-
7.3 Stockholders' Agreement. . . . . . . . . . . . . . . . . . . . -13-

ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . -14-
8.1 Amendments and Termination . . . . . . . . . . . . . . . . . . -14-
8.2 Unfunded Status of Plan. . . . . . . . . . . . . . . . . . . . -14-
8.3 General Provisions . . . . . . . . . . . . . . . . . . . . . . -15-
8.4 Mitigation of Excise Tax . . . . . . . . . . . . . . . . . . . -16-
8.5 Status of Stock Options Under Code Section 162(m). . . . . . . -16-
8.6 Rights with Respect to Continuance of Employment . . . . . . . -16-
8.7 Stock Options in Substitution for Stock Options Granted by
Other Corporations . . . . . . . . . . . . . . . . . . . . . . -17-
8.8 Procedure for Adoption . . . . . . . . . . . . . . . . . . . . -17-
8.9 Procedure for Withdrawal . . . . . . . . . . . . . . . . . . . -17-
8.10 Delay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
8.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
8.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . -17-
8.13 Successors and Assigns . . . . . . . . . . . . . . . . . . . . -18-
8.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . -18-

-ii-

<PAGE>

COLOR SPOT NURSERIES, INC.

STOCK INCENTIVE PLAN

ARTICLE I

ESTABLISHMENT

1.1 PURPOSE.

The Color Spot Nurseries, Inc. Stock Incentive Plan ("Plan") is hereby
established by Color Spot Nurseries, Inc. ("Company"). The purpose of this Plan
is to promote the overall financial objectives of the Company and its
stockholders by motivating those persons selected to participate in this Plan to
achieve long-term growth in stockholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth. The Plan and the grant of Options (as hereinafter defined) hereunder is
expressly conditioned upon the Plan's approval by the security holders of the
Company. If such approval is not obtained, then this Plan and all Stock Options
hereunder shall be null and void AB INITIO. This Plan is adopted effective as
of the Effective Date.

ARTICLE II

DEFINITIONS

For purposes of this Plan, the following terms are defined as set forth
below:

2.1 "AFFILIATE" means any individual, corporation, partnership,
association, joint-stock company, limited liability company, trust,
unincorporated association or other entity (other than the Company) that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company including, without
limitation, any member of an affiliated group of which the Company is a common
parent corporation as provided in Section 1504 of the Code.

2.2 "AGREEMENT" or "OPTION AGREEMENT" or "STOCK OPTION AGREEMENT"
means, individually or collectively, any agreement entered into pursuant to this
Plan pursuant to which an Option is granted to an Executive.

2.3 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of
the Company.

2.4 "CAUSE" means

(a) that term as defined in any written agreement or arrangement
of employment between the Company and the Executive, or

(b) if no such written agreement or arrangement exists or such
term is not defined therein, then the occurrence of any of
the following events:
<PAGE>

(i) the commission by the Executive of theft or
embezzlement of Company property or other acts of
dishonesty or other crime resulting in injury to
the business, property or reputation of the
Company or the commission by the Executive of
other significant activities harmful to the
business, property or reputation of the Company;

(ii) the commission by the Executive while an employee
of the Company or an Affiliate of an act
determined by the Board (in its sole discretion)
to amount to gross, willful or wanton negligence
of the Executive's duties under the terms of his
or her employment;

(iii) the refusal by the Executive while an employee of
the Company or an Affiliate to perform, or
substantial neglect of, the duties assigned to the
Executive by the Company; and

(iv) any significant violation by the Executive of any
statutory or common law duty of loyalty to the
Company.

2.5 "CODE" or "INTERNAL REVENUE CODE" means the Internal Revenue Code
of 1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.

2.6 "COMMISSION" means the Securities and Exchange Commission or any
successor agency.

2.7 "COMMITTEE" means the person or persons appointed by the Board of
Directors to administer this Plan, as further described herein.

2.8 "COMMON STOCK" means the shares of the regular voting Common
Stock, par value $.01 per share, of the Company, whether presently or hereafter
issued, and any other stock or security resulting from adjustment thereof as
described hereinafter or the common stock of any successor to the Company which
is designated for the purpose of this Plan.

2.9 "COMPANY" means Color Spot Nurseries, Inc., a Delaware
corporation, and includes any successor or assignee corporation or corporations
into which the Company may be merged, changed or consolidated; any corporation
for whose securities substantially all of the securities of the Company shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Company.

2.10 "CONTROLLED ENTITY" means any entity purchasing or acquiring all
of the assets of the Company, if, immediately following such purchase or
acquisition, the Management Stockholders or Heller, or a combination of the
Management Stockholders and Heller, own, directly or indirectly, more than fifty
percent (50%) of (a) the then outstanding shares of capital stock, or any other
then outstanding ownership interests, of such entity, and (b) the combined
voting power of the then outstanding securities, or any other then outstanding
interests, entitled to vote generally with respect to the matters relating to
such entity. A "Controlled Entity" shall include, without limitation, an entity
which purchases or acquires all or substantially all of the

-2-
<PAGE>

assets of the Company through one or more subsidiaries or controlled entities,
if, immediately following such purchase or acquisition, the Management
Stockholders or Heller, or a combination of the Management Stockholders and
Heller, own the shares of capital stock and voting securities (or any other
ownership or voting interests) of such parent or controlling entity as set forth
in the preceding sentence.

2.11 "DISABILITY" means (a) that term as defined in any written
agreement or arrangement of employment between the Company and the Executive or
(b) if there is no such written agreement or arrangement that defines such term
or such term is not defined therein, then a mental or physical illness that
renders an Executive incapable of performing the Executive's duties for the
Company or an Affiliate. Notwithstanding the foregoing, a Disability shall not
qualify under this Plan if it is the result of (a) a willfully self-inflicted
injury or willfully self-induced sickness; or (b) an injury or disease
contracted, suffered, or incurred, while participating in a criminal offense.
The determination of Disability shall be made by the Committee. The
determination of Disability for purposes of this Plan shall not be construed to
be an admission of disability for any other purpose.

2.12 "DISINTERESTED PERSON" shall have the meaning set forth in Rule
16b-3, or any successor definition adopted by the Commission, and shall mean a
person who is also an "outside director" under Section 162(m) of the Code.

2.13 "EFFECTIVE DATE" means September 7, 1995.

2.14 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

2.15 "EXECUTIVE" means a person who satisfies the eligibility
conditions of Article V and to whom a Stock Option has been granted by the
Committee under this Plan, and in the event a Representative is appointed for an
Executive or a person becomes a Representative, then the term "Executive" shall
mean such Representative. The term shall also include a trust for the benefit
of the Executive, a partnership all of the interests of which are held by or for
the benefit of the Executive, the Executive's parents, spouse or descendants, or
a custodian under a uniform gifts to minors act or similar statute for the
benefit of the Executive's descendants, to the extent permitted by the Committee
and not inconsistent with Rule 16b-3.

2.16 "EXERCISABLE OPTION" shall mean an outstanding Vested Option with
respect to which an employment term and all other conditions imposed by the Plan
or an Option Agreement have been satisfied, and which the Executive may exercise
pursuant to the Plan and an Option Agreement.

2.17 "GRANT DATE" means the date as of which a Stock Option is granted
for purposes of the Plan.

2.18 "HELLER" means Heller Equity Capital Corporation, a Delaware
corporation, and any successor thereto and any entity controlling, controlled by
or under common control with Heller.

-3-
<PAGE>

2.19 "INCENTIVE STOCK OPTION" means any Stock Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.

2.20 "MANAGEMENT STOCKHOLDER" means an employee, officer, director or
independent contractor of the Company who is a stockholder by virtue of shares
of Common Stock issued in connection with employment with the Company as an
Affiliate. A person shall continue as a "Management Stockholder" for purposes
of the Plan as long as the person is an owner of shares of Common Stock even
though he ceases to render services to the Company or an Affiliate.

2.21 "NONQUALIFIED STOCK OPTION" means an Option to purchase Common
Stock in the Company granted under this Plan the taxation of which is pursuant
to Section 83 of the Code.

2.22 "OPTION PERIOD" means the period during which the Option shall be
exercisable in accordance with an Agreement and Article VI.

2.23 "OPTION PRICE" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3.

2.24 "PLAN" means this Color Spot Nurseries, Inc. Stock Incentive
Plane, as the same may be amended from time to time.

2.25 "PUBLIC OFFERING" means a public offering of shares of Common
Stock under the Securities Act.

2.26 "PURCHASE PRICE" means the per share value of the Common Stock
based upon of the following calculation: (a) the product of the amount of the
Company's earnings before interest, taxes, depreciation and amortization
(calculated for the twelve (12) month period preceding the date of the event
causing a purchase of the Option ("Valuation Date")) multiplied by five (5),
less (b) all long-term debt (including, without limitation, the average
outstanding amounts under any revolving credit facility of the Company for the
twelve (12) months preceding the Valuation Date), divided by (c) the total
number of the then issued and outstanding shares of Common Stock, determined as
if all then outstanding options (whether or not vested), warrants, debt and
other rights exercisable, convertible or exchangeable into shares of Common
Stock have been exercised, converted or exchanged (as the case may be).

2.27 "REDEMPTION EVENT" means the occurrence of any of the following
events:

(a) the completion of a sale by Heller of all or substantially
all of the shares of Common Stock owned by Heller, other than a sale of
shares of Common Stock by Heller to Management Stockholders or to an
entity which controls, is controlled by or is under common control with
Heller;

(b) the completion of sale or disposition of all or
substantially all of the assets of the Company other than a disposition or
sale of assets to a Controlled Entity; or

(c) the completion of a reorganization, recapitalization, merger
or consolidation of the Company such that Heller and the Management
Stockholders, voting their shares

-4-
<PAGE>

of Common Stock together, no longer can elect a majority of the members of
the Board or of a board of directors of the surviving or resulting
corporation or entity.

A Public Offering shall not constitute a Redemption Event.

2.28 "REDEMPTION PRICE" means the following (as the case may be):

(a) In the event the Redemption Event is the event described in
Section 2.27(a), the Redemption Price shall mean the per share price paid
to Heller in connection with Heller's sale of its shares of Common Stock;

(b) In the event the Redemption Event is the event described
in Section 2.27(b) (a "Redemption Sale"), the Redemption Price shall
mean the result of the following calculation: (i) the aggregate
consideration received by the Company in connection with the Redemption
Sale, plus (ii) the aggregate consideration received by the Company in
connection with the liquidation of the remaining assets of the Company
following the Redemption Sale (the "Liquidation Sale"), less (iii) all
expenses incurred in connection with the Redemption Sale and Liquidation
Sale, less (iv) all remaining liabilities of the Company following the
Redemption Sale and the Liquidation Sale (including, without limitation,
all tax liabilities), divided by (v) the total number of the then issued
and outstanding shares of Common Stock, determined as if all the then
outstanding options (whether or not vested), warrants, debt or other
rights exercisable, convertible or exchangeable into shares of Common
Stock have been exercised, converted or exchanged (as the case may be);
or

(c) In the event the Redemption Event is the event described in
Section 2.27(c) (the "Merger Redemption"), the Redemption Price shall be
the Purchase Price

2.29 "REPRESENTATIVE" means

(a) the person or entity acting as the executor or administrator
of an Executive's estate pursuant to the last will and testament of an
Executive or pursuant to the laws of the jurisdiction in which the
Executive had the Executive's primary residence at the date of the
Executive's death;

(b) the person or entity acting as the guardian or temporary
guardian of an Executive;

(c) the person or entity which is the beneficiary of the
Executive upon or following the Executive's death or who has acquired any
right, title or interest in or to the Common Stock or an Option whether
pursuant to community property law or other laws of any jurisdiction by
reason of the death of the Executor; or

(d) any person to whom an Option has been transferred with the
permission of the Committee or by operation of law; provided that only one
of the foregoing shall be the Representative at any point in time as
determined under applicable law and recognized by the Committee.

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2.30 "RULE 16b-3 AND RULE 16a-1(c)(3)" means Rule 16b-3 and Rule
16a-1(c)(3), as promulgated under the Exchange Act, as amended from time to time
and applicable to the Plan and Executive, or any successor thereto.

2.31 "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.

2.32 "STOCK OPTION" or "OPTION" means an option granted to an
Executive under Article VI to purchase Common Stock at a specified price during
specified time periods.

2.33 "STOCKHOLDERS' AGREEMENT" means an agreement in substantially the
same form attached as an exhibit to the Option Agreement, the execution of which
is a condition precedent to the Executive's receipt of any shares of Common
Stock hereunder.

2.34 "TERMINATION OF EMPLOYMENT" means the Executive's ceasing to be
an officer, independent contractor, director, trustee or employee of the Company
or of an Affiliate (if the Executive is principally employed by, or principally
renders services to, such Affiliate) as a result of (a) dismissal by the Company
or such Affiliate (with or without Cause), (b) a voluntary resignation by the
Executive, (c) a voluntary retirement by the Executive, or (d) the dissolution
or liquidation of the Company or such Affiliates (other than as a result of a
Redemption Event).

2.35 "VESTED OPTION" shall mean the portion of an Executive's Option
for which the Executive has satisfied a condition of employment or other
obligation specified by the Committee, but which shall be forfeited in the event
the Executive incurs a Termination of Employment for Cause or a Termination of
Employment as a result of a voluntary resignation or retirement or fails to
satisfy some other condition specified by the Committee. If the Executive
incurs a Termination of Employment (for any reason) or dies or is Disabled on or
before a specified date or the satisfaction of any other condition, the portion
of the Option which is not a Vested Option shall be cancelled, and the Executive
shall have no further rights with respect thereto. All of an Option granted to
an Executive shall be a Vested Option on the date of a Redemption Event if the
Executive has not incurred a Termination of Employment (for any reason), died or
incurred a Disability prior to the date of the Redemption Event.

In addition, certain other terms used herein are hereinafter defined.

ARTICLE III

ADMINISTRATION

3.1 COMMITTEE STRUCTURE AND AUTHORITY. This Plan shall be
administered by the Committee which, except as provided herein, shall be
comprised of one or more persons. The Committee shall be the Compensation
Committee of the Board of Directors, unless such committee does not exist or the
Board establishes a committee whose purpose is the administration of this Plan.
In the absence of an appointment, the Board or the portion thereof that is a
Disinterested Person shall be the Committee. A majority of the Committee shall
constitute a quorum at any meeting thereof (including telephone conference) and
the acts of a majority of the

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<PAGE>

member present, or acts approved in writing by a majority of the entire
Committee without a meeting, shall be the acts of the Committee for purposes
of this Plan. The Committee may authorize any one or more of its members or
an officer of the Company to execute and deliver documents on behalf of the
Committee. On and after a Public Offering, the Committee shall be comprised
of such number of Disinterested Persons as is required for application of
Rule 16b-3 and the deduction of compensation under Section 162(m) of the
Code. A member of the Committee shall not exercise any discretion respecting
himself or herself under this Plan. The Board shall have the authority ro
remove, replace or fill any vacancy of any member of the Committee upon
notice to the Committee and the affected member. Any member of the Committee
may resign upon notice to the Board. The Committee may allocate among one or
more of its members, or may delegate to one or more of its agents, such
duties and responsibilities as it determines.

Among other things, the Committee shall have the authority, subject to the
terms of this Plan (including, without limitation, Section 8.1):

(a) to select those persons to whom Stock Options may be granted
from time to time;

(b) to determine whether and to what extent Stock Options are to
be granted hereunder;

(d) to determine the terms and conditions of any Stock Option
granted hereunder (including, but not limited to, the Option Price, the
Option Period, any exercise restriction or limitation and any exercise
acceleration or forfeiture waiver regarding any Stock Option and the shares
of Common Stock relating thereto);

(e) to adjust the terms and conditions, at any time or from time
to time, of any Stock Option;

(f) to provide for the forms of Stock Option Agreement and
Stockholders' Agreement to be utilized in connection with this Plan;

(g) to determine whether an Executive has a Disability;

(h) to determine what securities law requirements are
applicable to this Plan, Stock Options, and the issuance of shares of
Common Stock and to require of an Executive that appropriate action be
taken with respect to such requirements;

(i) to cancel, with the consent of the Executive or as otherwise
provided in this Plan or an Agreement, outstanding Stock Options;

(j) to interpret and make a final determination with respect to
the remaining number of shares of Common Stock available under this Plan;

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(k) to require as a condition of the exercise of a Stock Option
or the issuance or transfer of a certificate of Common Stock, the
withholding from an Executive of the amount of any federal, state or local
taxes as may be necessary in order for the Company or any other employer to
obtain a deduction or as may be otherwise required by law;

(l) to determine whether and with what effect an individual has
incurred a Termination of Employment;

(m) to determine whether the Company or any other person has a
right or obligation to purchase an Option or Common Stock from an Executive
and, if so, the terms and conditions on which such Common Stock is to be
purchased;

(n) to determine the restrictions or limitations on the transfer
of Common Stock;

(o) to determine whether a Stock Option is to be adjusted,
modified or purchased, or is to become fully exercisable, under this Plan
or the terms of an Agreement;

(p) to determine the permissible methods of Stock Option
exercise;

(q) to approve and modify the form and terms of the Stock Option
Agreement or Stockholders' Agreement;

(r) to adopt, amend and rescind such rules and regulations as,
in its opinion, may be advisable in the administration of the Plan; and

(s) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.

The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing this Plan as it
shall, from time to time, deem advisable, to interpret the terms and
provisions of this Plan, any Stock Option Agreement and any Stockholders'
Agreement issued under or in connection with this Plan and to otherwise
supervise the administration of this Plan. The Committee's policies and
procedures may differ with respect to Stock Options granted at different
times or different Executive.

Any determination made by the Committee pursuant to the provisions of
this Plan shall be made in its sole discretion, and in the case of any
determination relating to a Stock Option, may to be made at the time of the
grant of the Stock Option or, unless in contravention of any express term of
this Plan, an Option Agreement or Stockholders' Agreement, at any time
thereafter. All decisions made by the Committee pursuant to the provisions
of this Plan shall be final and binding on all persons, including the Company
and Executive. Any determination shall not be subject to DE NOVO review if
challenged in court.

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ARTICLE IV

STOCK SUBJECT TO PLAN

4.1 NUMBER OF SHARES. Subject to the adjustment under Section 4.5,
the total number of shares of Common Stock reserved and available for
distribution pursuant to Stock Options under this Plan shall be 608,350 shares
of Common Stock authorized for issuance of the Effective Date. Such shares may
consist, in whole of in part, of authorized and unissued shares or treasury
shares. The Board may amend this Plan at any time in order to increase the
number of shares of Common Stock reserved and available for distribution
pursuant to Stock Options under this Plan.

4.2 RELEASE OF SHARES. The Committee shall have full authority to
determine the number of shares of Common Stock available under the Plan, and
in its discretion may include (without limitation) as available for
distribution any shares of Common Stock that have ceased to be subject to a
Stock Option, any shares of Common Stock subject to any Stock Option that are
forfeited, any Stock Option that otherwise terminates without issuance of
shares of Common Stock being made to the Executive, or any shares (whether or
not restricted) of Common Stock that are received by the Company in
connection with the exercise of a Stock Option including the satisfaction of
any tax liability or the satisfaction of a tax withholding obligation. If
any shares could not again be available for Options to a particular Executive
under any applicable law, such shares shall be available exclusively for
Options to Executive who are not subject to such limitations.

4.3 RESTRICTIONS ON SHARES. Shares of Common Stock issued upon
exercise of a Stock Option shall be subject to the terms and conditions
specified herein and to such other terms, conditions and restrictions as the
Committee in its discretion may determine or provide in a Stock Option Agreement
or Stockholders' Agreement. The Company shall not be required to issue or
deliver any certificate for shares of Common Stock, cash or other property prior
to (a) the listing of such shares on any stock exchange (or other public market)
on which the Common Stock may then be listed (or regularly traded), (b) the
completion of any registration or qualification of such shares under federal or
state law, or any ruling or regulation of any government body which the
Committee determines to be necessary or advisable, and (c)) the satisfaction of
any applicable withholding obligation in order for the Company or an Affiliate
to obtain a deduction with respect to the exercise of a Stock Option. The
Company may cause any certificate for any share of Common Stock to be delivered
to be properly marked with a legend or other notation reflecting the limitations
on transfer of such Common Stock as provided in this Plan or as the Committee
may otherwise require. The Committee may require any person exercising a Stock
option to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. All shares of
Common Stock issued to Executive upon exercise of the Option shall be subject to
the Stockholders' Agreement. No person shall have any right regarding the
registration of shares of Common Stock except and only to the extent expressly
provided in the Stockholders' Agreement and subject to any requirement or
condition imposed by the Company or an underwriter managing an offering of the
Company's securities. Fractional shares shall not be delivered, but shall be
rounded to the next lower whole number of shares with

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appropriate payment for such fractional shares as shall reasonably be
determined by the Committee.

4.4 STOCKHOLDER RIGHTS. No person shall have any rights of a
stockholder as to shares of Common Stock subject to a Stock Option until, after
proper exercise of the Stockholders' Agreement or other action required, such
shares shall have been recorded on the Company's official stockholder records as
having been issued and transferred. Upon exercise of the Stock option or any
portion thereof, the company will have thirty (30) days in which to issue the
shares, and the Executive will not be treated as a stockholder for any purpose
whatsoever prior to such issuance. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date such
shares are recorded as issued and transferred in the Company's official
stockholder records, except as provided herein or in an Agreement.

4.5 COMMITTEE'S RIGHT TO ADJUST. The number of Options granted under
the Plan, the Option Prices of any outstanding Options (or other characteristics
or terms of such Options), the number or class of shares of Common Stock subject
to outstanding Options and the number or class of shares of Common Stock
available for issuance upon exercise of Options may be adjusted by the
Committee, in its sole discretion, if it shall deem such an adjustment to be
necessary or appropriate to reflect any Company stock dividend, stock split or
reverse stock split, any recapitalization, corporate separation or division, or
other change in the capital structure of the Company. Any fractional shares
resulting from adjustment shall be eliminated by rounding to the next lower
whole number of shares with appropriate payment for such fractional share as
shall reasonably be determined by the Board. Nothing in the Plan or a Stock
Option Agreement or Shareholders Agreement shall grant or be implied to grant a
preemption or similar right to a Participant.

ARTICLE V

ELIGIBILITY

5.5 ELIGIBILITY. Except as herein provided, the persons who shall
be eligible to participate in this Plan and be granted Stock Options shall be
those persons who are directors, officers, employees and consultants of the
Company or any subsidiary, who shall be in a position, in the opinion of the
Committee, to make contributions to the growth, management, protection and
success of the Company and its subsidiaries. Of those persons described in
the preceding sentence, the Committee may, from time to time, select persons
to be granted Stock Options and shall determine the terms and conditions with
respect thereto. In making any such selection and in determining the form of
the Stock Option, the Committee may give consideration to the functions and
responsibilities of the person's contributions to the Company and its
subsidiaries, the value of the individual's service to the Company and its
subsidiaries and such other factors deemed relevant by the Committee. The
Committee may designate any person as not eligible to participate in this
Plan if such person would otherwise be eligible to participate in this Plan
(and members of the Committee are expressly excluded to the extent such
persons are intended to be Disinterested Persons).

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ARTICLE VI

STOCK OPTIONS

6.1 GENERAL. The Committee shall have authority to grant Options
under this Plan at any time or from time to time. Stock Options may be granted
alone or in addition to other Stock Options and may be either Incentive Stock
Options or Non-Qualified Stock Options. An Option shall be entitle the Executive
to receive shares of Common Stock upon exercise of such Option, subject to the
Executive's satisfaction in full of any conditions, restrictions or limitations
imposed in accordance with this Plan or an Agreement (the terms and provisions
of which may differ from other Agreements) including without limitation, payment
of the Option Price. After the effective date of a Public Offering, the
Committee may limit the number of Options granted to any Executive during a
certain period.

6.2 GRANT AND EXERCISE. The grant of a Stock Option shall occur as
of the date the Committee determines. Each Option granted under this Plan
shall be evidenced by an Agreement, in a form approved by the Committee,
which shall embody the terms and conditions of such Option and which shall be
subject to the express terms and conditions set forth in this Plan. Such
Agreement shall become effective upon execution by the Executive. Only a
person who is a common-law employee of the Company, any parent corporation of
the Company or a subsidiary (as such terms are defined in Section 424 of the
Code) on the date of grant shall be eligible to be granted an Option which is
intended to be and is an Incentive Stock Option. To the extent that any Stock
Option is not designated as an Incentive Stock Option or even if so
designated does not qualify as an Incentive Stock Option, it shall constitute
a Non-Qualified Stock Option. Anything in this Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options
shall be interpreted, amended or altered, not shall any discretion or
authority granted under this Plan be exercised, so as to disqualify this Plan
under Section 422 of the Code or, without consent of the Executive affected,
to disqualify any Incentive Stock Option under such Section 422.

6.3 TERMS AND CONDITIONS. Stock Options shall be subject to such
terms and conditions as shall be determined by the Committee, including the
following:

(a) OPTION PERIOD. The Option Period of each Stock Option shall be
fixed by Committee; provided that no Non-Qualified Stock Option shall be
exercisable more that fifteen (15) years after the date the Stock Option is
granted. In the case of an Incentive Stock Option, the Option Period shall
not exceed ten (10) years from the date of grant or five (5) years in the
case of an individual who owns more than ten percent (10%) of the combined
voting power of all classes of stock of the Company, a corporation which is a
parent corporation of the Company or any subsidiary of the Company (each as
defined in Section 424 of the Code). No Option which is intended to be an
Incentive Stock Option shall be granted more than ten (10) years from the
date this Plan is adopted by the Company or the date this Plan is approved by
the stockholders of the Company, whichever is earlier.

(b) OPTION PRICE. The Option Price per share of the Common Stock
purchasable under an Option shall be determined by the Committee. If such Option
is intended to qualify as an Incentive Stock Option, the Option Price per share
shall be not less than the fair market value

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per share on the date the Option is granted, or where granted to an individual
who owns or who is deemed to own stock possessing more than ten percent (10%) of
the combined voting power of all classes of stock of the Company, a corporation
which is a parent corporation of the Company or any subsidiary of the Company
(each as defined in Section 424 of the Code), not less than one hundred ten
percent (110%) of such fair market value per share.

(c) EXERCISABILITY. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined
by the Committee. Subject to the Plan and unless otherwise provided in an
Agreement, an Option shall be exercisable only during the Option Period, and
only to the extent the Option is a Vested Option and an Exercisable Option.
Unless otherwise provided in an Agreement, the portion of an Option which is
a Vested Option shall be an Exercisable Option if the Executive incurs a
Termination of Employment other than for Cause or other than as a result of
voluntary resignation or retirement or if the Executive dies or incurs a
Disability prior to his Termination of Employment. Unless otherwise provided
in an Agreement, if the Executive incurs a Termination of Employment for
Cause or incurs a Termination of Employment due to a voluntary resignation or
retirement, any Option (whether or not a Vested Option) granted to the
Executive and outstanding shall be cancelled immediately, no payment of any
kind shall be made in respect of the Option and the Executive shall have no
further rights with respect to the Option. If the Committee intends that an
Option be an Incentive Stock Option, the Committee may, in its discretion,
provide that the aggregate fair market value (determined at the Grant Date)
of the Incentive Stock Option which is exercisable for the first time during
the calendar year shall not exceed $100,000.

(d) METHOD OF EXERCISE. Subject to the provisions of this Article VI
and an Agreement, an Executive may exercise Stock Options, in whole or in part,
during the Option Period only after satisfying any conditions to the exercise of
the Option as provided in an Option Agreement or under the Plan, by the
Executive's executing the Stockholders' Agreement and by the Executive's giving
written notice of exercise on a form provided by the Committee (if available) to
the Company specifying the number of shares of Common Stock subject to the Stock
Option to be purchased and such other information as requested by the Committee.
Such notice shall be accompanied by payment in full of the purchase price by
cash or check or such other form or method of payment as the Company may accept.
No shares of Common Stock shall be issued until full payment therefor, as
determined by the Committee, has been made. An Executive shall have all of the
rights of a stockholder of the Company holding the class of Common Stock that is
subject to such Stock Option (including, if applicable, the right to vote the
shares and the right to receive dividends), when the Executive has given written
notice of exercise, satisfied the conditions to exercise, has paid in full for
such shares and such shares have been recorded on the Company's official
stockholder records as having been issued and transferred.

(e) NON-TRANSFERABILITY OF OPTIONS. Except as provided herein or in
an Agreement and then only consistent with the intent that the Option be an
Incentive Stock Option, no Stock Option or interest therein shall be
transferable by the Executive other than by will or by the laws of descent and
distribution or by a designation of beneficiary effective upon the death of the
Executive, and all Stock Options shall be exercisable during the Executive's
lifetime only by the Executive.

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6.4 REDEMPTION OF OPTIONS.

(a) Upon the occurrence of a Redemption Event, the Executive
shall have the right to cause the Company to redeem the Vested Options that
the Executive may own, and the Company shall redeem such Vested Options,
based upon the terms and conditions specified in the Option Agreement. Unless
provided otherwise in an Option Agreement, the amount to be paid for the
redemption of the Vested Options pursuant to this Section 6.4(a) shall be the
Redemption Price less the Option Price per share.

(b) In the event of Executive's Termination of Employment
other than for Cause or other than as a result of voluntary resignation or
retirement, or if the Executive dies or suffers a Disability (prior to or
after his Termination of Employment), the Company shall have the right to
redeem the Executive's Vested Options on the terms and conditions set forth
in the Option Agreement. Unless provided otherwise in an Option Agreement,
the amount to be paid for the redemption of the Vested Options pursuant to
this Section 6.49(b) shall be the Purchase Price less any Option Price per
share.

ARTICLE VII

PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN

7.1 LIMITED TRANSFER DURING OFFERING. In the event there is an
effective registration statement under the Securities Act pursuant to which
shares of Common Stock shall be offered for sale in an underwritten offering,
an Executive shall not, during the period requested by the underwriters
managing the registered public offering, effect any public sale or
distribution of shares received directly or indirectly pursuant to an
exercise of a Stock Option.

7.2 RESTRICTION ON DISPOSITION. Other than in accordance with the
terms and conditions of this Plan, an Agreement or a Stockholders' Agreement,
any attempted sale, transfer, conveyance, gift, assignment, pledge,
encumbrance, hypothecation, alienation or other disposition of any of the
shares of Common Stock by the Executive is void and transfers no right,
title, or interest in or to such shares of Common Stock, or any portion of
them, to the purported buyer, transferee, donee, assignee, pledgee or
encumbrance holder. Notwithstanding the foregoing or anything to the contrary
contained in an Agreement, the Executive may transfer some or all of the
shares of Common Stock (or any interest therein) to his or her spouse;
provided, however, prior to any such transfer, the Executive's spouse shall
execute and deliver to the Company a counterpart of the Stockholders'
Agreement indicating the spouse's consent to be bound by its terms to the
same extent as the Executive but in any event the Executive's spouse shall be
deemed to be bound by the terms and conditions of the Stockholders' Agreement
to the same extent as the Executive.

7.3 STOCKHOLDERS' AGREEMENT. Shares of common stock issued upon the
exercise of an Option shall be subject to terms and conditions of the
Stockholders' Agreement which may contain such terms as the Committee may
determine.

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ARTICLE VIII

MISCELLANEOUS

8.1 AMENDMENTS AND TERMINATION. The Board may amend, alter, or
discontinue this Plan at any time, but no amendment, alteration or
discontinuation shall be made which would impair the rights of an Executive
under a Stock Option theretofore granted without the Executive's consent,
except such an amendment (a) made to avoid an expense charge to the Company
or an Affiliate, (b) made to qualify the Plan for the exemption provided by
Rule 16b-3, (c) made to prevent the Plan from being disqualified from the
exemption provided by Rule 16b-3 or (d) made to permit the Company or an
Affiliate a deduction under the Code. In addition, no such amendment shall be
made without the approval of the Company's stockholders to the extent such
approval is required by law or agreement. On and after a Public Offering, the
Board may amend the Plan to remove or eliminate the Company's obligation to
purchase, or the obligation of any Executive to sell, the Option.

The Committee may amend this Plan at any time provided that (a) an
amendment shall be subject to the same limitations (and the exceptions to the
limitations) as apply to any amendment by the Board and (b) any amendment
shall be subject to the approval or rejection of the Board.

The Committee may amend the terms of any Stock Option theretofore
granted, prospectively or retroactively, but no such amendment shall impair
the rights of any Executive without the Executive's consent, except such an
amendment (a) made to avoid an expense charge to the Company or an Affiliate,
(b) made to qualify the Plan for the exemption provided by Rule 16b-3, (c)
made to prevent the Plan from being disqualified from the exemption provided
by Rule 16b-3 or (d) made to permit the Company or an Affiliate a deduction
under the Code. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is
required by law or agreement. On and after a Public Offering, the Company may
amend any Option Agreement to remove or eliminate its obligation or the
obligation of Heller to purchase, or the obligation of any Executive to sell
to the Company or Heller, the Option.

Subject to the above provisions, the Board shall have authority to amend
this Plan to take into account changes in law and tax and accounting rules,
as well as other developments and to grant Stock Options which qualify for
beneficial treatment under such rules without stockholder approval.
Notwithstanding anything in the Plan to the contrary, if any right under
this Plan or in an Option Agreement or the Stockholders' Agreement would
cause a transaction to be ineligible for pooling of interest accounting (and
such transaction is otherwise eligible for such accounting treatment), the
Committee may modify or adjust the right so that pooling of interest
accounting shall be available.

8.2 UNFUNDED STATUS OF PLAN. It is intended that this Plan be an
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the
obligations created under this Plan to deliver Common Stock or make payments;
provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the
"unfunded" status of this Plan.

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8.3 GENERAL PROVISIONS.

(a) REPRESENTATION. The Committee may require each
person purchasing or receiving shares pursuant to a Stock Option to
represent to and agree with the Company in writing that such person is
acquiring the shares without a view to the distribution thereof. The
certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.

(b) NO ADDITIONAL OBLIGATION. Nothing contained in this
Plan shall prevent the Company or an Affiliate from adopting other or
additional compensation arrangements for its employees.

(c) WITHHOLDING. No later than the date as of which an
amount first becomes includible in the gross income of the Executive for
Federal income tax purposes with respect to any Stock Option, the
Executive shall pay to the Company (or other entity identified by the
Committee), or make arrangements satisfactory to the Company or other
entity identified by the Committee regarding the payment of, any
Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount required in order for the Company
or an Affiliate to obtain a current deduction. Unless otherwise
determined by the Committee, withholding obligations may be settled with
Common Stock, including Common Stock that is part of the Stock Option
that gives rise to the withholding requirement provided that any
applicable requirements under Section 16 of the Exchange Act are
satisfied. The obligations of the Company under this Plan shall be
conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Executive.
If the Executive disposes of shares of Common Stock acquired pursuant to
an Incentive Stock Option in any transaction considered to be a
disqualifying transaction under the Code, the Executive must give
written notice of such transfer and the Company shall have the right to
deduct any taxes required by law to be withheld from any amounts
otherwise payable to the Executive.

(d) REPRESENTATION. The Committee shall establish such
procedures as it deems appropriate for an Executive to designate a
Representative to whom any amounts payable in the event of the
Executive's death are to be paid.

(e) CONTROLLING LAW. This Plan and all Stock Options made and
actions taken thereunder shall be governed by and construed in
accordance with the laws of the State of California (other than its law
respecting choice of law except in so far as the Delaware General
Corporation law and federal Laws and regulations may be applicable).
This Plan shall be construed to comply with all applicable law, and to
avoid liability to the Company, an Affiliate or an Executive, including,
without limitation, liability under Section 16(b) of the Exchange Act.

(f) OFFSET. Any amounts owed to the Company or an Affiliate
by the Executive of whatever nature may be offset by the Company from
the value of any shares of Common Stock, cash or other thing of value
under this Plan or an Agreement to be transferred to the Executive, and
no shares of Common Stock, cash or other thing of value

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under this Plan or an Option Agreement shall be transferred unless
and until all disputes between the Company and the Executive have been
fully and finally resolved and the Executive has waived all claims to such
against the Company or an Affiliate.

(g) FAIL-SAFE. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as
applicable. To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee. Moreover,
in the event the Plan does not include a provision required by Rule
16b-3 or Rule 16a-1(c)(3), as applicable to be stated therein, such
provision (other than one relating to eligibility requirements, or the
price and amount of Stock Options) shall be deemed to be incorporated by
reference into the Plan with respect to Executives subject to Section 16.

8.4 MITIGATION OF EXCISE TAX. If any payment or right accruing to
an Executive under this Plan (without the application of this Section 8.4),
either alone or together with other payments or rights accruing to the
Executive from the Company or an Affiliate ("Total Payments") would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the
largest amount or greatest right that will result in no portion of the amount
payable or right accruing under this Plan being subject to an excise tax
under Section 4999 of the Code or being disallowed as a deduction under
Section 280G of the Code. The determination of whether any reduction in the
rights or payments under this Plan is to apply shall be made by the Committee
in good faith after consultation with the Executive, and such determination
shall be conclusive and binding on the Executive. The Executive shall
cooperate in good faith with the Committee in making such determination and
providing the necessary information for this purpose.

8.5 STATUS OF STOCK OPTIONS UNDER CODE SECTION 162(m). After
Section 162(m) of the Code applies to the Company, it is the intent of the
Company that Stock Options granted to persons who are "covered employees"
within the meaning of the Code Section 162(m) shall constitute "qualified
performance-based compensation" satisfying the requirements of Code Section
162(m). Accordingly, the provisions of the Plan shall be interpreted in a
manner consistent with Code Section 162(m). If any provision of the Plan or
any agreement relating to such Stock Option does not comply or is
inconsistent with the requirements of Code Section 162(m), such provision
shall be construed or deemed amended to the extent necessary to conform to
such requirements.

8.6 RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT. Nothing
contained herein shall be deemed to alter the relationship between the
Company or an Affiliate and an Executive, or the contractual relationship
between an Executive and the Company or an Affiliate if there is a written
contract regarding such relationship. Nothing contained herein shall be
construed to constitute a contract of employment between the Company or an
Affiliate and an Executive. The Company or an Affiliate and each of the
Executives continue to have the right to terminate the employment or service
relationship at any time for any reason, except as provided in a written
contract. The Company or an Affiliate shall have no obligation to retain the
Executive in its employ or service as a result of this Plan. There shall be
no inference as to the length of employment or service hereby, and the
Company or an Affiliate reserves the same rights to

-16-
<PAGE>

terminate the Executive's employment or service as existed prior to the
individual becoming an Executive in this Plan.

8.7 STOCK OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY
OTHER CORPORATIONS. Stock Options may be granted under this Plan from time
to time in substitution for awards held by employees, directors or service
providers of other corporations who are about to become officers, directors
or employees of the Company or an Affiliate as the result of a merger or
consolidation of the employing corporation with the Company or an Affiliate,
or the acquisition by the Company or an Affiliate of the assets of the
employing corporation, or the acquisition by the Company or Affiliate of the
stock of the employing corporation, as the result of which it becomes a
designated employer under this Plan. The terms and conditions of the Stock
Options so granted may vary from the terms and conditions set forth in this
Plan at the time of such grant as the majority of the members of the
Committee may deem appropriate to conform, in whole or in part, to the
provisions of the awards in substitution for which they are granted.

8.8 PROCEDURE FOR ADOPTION. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the
Board of Directors and subject to such conditions as may be imposed by the
Board of Directors, adopt this Plan for the benefit of its employees as of
the date specified in the board resolution.

8.9 PROCEDURE FOR WITHDRAWAL. Any Affiliate which has adopted this
Plan may, by resolution of the board of directors of such direct or indirect
subsidiary, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its
adoption of this Plan.

8.10 DELAY. If at the time an Executive incurs a Termination of
Employment (other than with Cause) or if at the time of a Change in Control,
the Executive is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under this Plan or an Agreement to
the extent necessary to avoid the imposition of liability shall be suspended
and delayed during the period the Executive would be subject to such
liability, but not more than six (6) months and one (1) day and not to exceed
the Option Period. The Company shall have the right to suspend or delay any
time period described in this Plan or an Agreement if the Committee shall
determine that the action may constitute a violation of any law or result in
liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not
constitute a violation of law or result in liability to the Company, an
Affiliate or a stockholder of the Company. The Committee shall have the
discretion to suspend the application of the provisions of this Plan required
solely to comply with Rule 16b-3 if the Committee shall determine that Rule
16b-3 does not apply to this Plan.

8.11 HEADINGS. The headings contained in this Plan are for
reference purposes only and shall not affect the meaning or interpretation of
this Plan.

8.12 SEVERABILITY. If any provision of this Plan shall for any
reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not effect any other provision hereby, and this Plan
shall be construed as if such invalid or unenforceable provision were omitted.

-17-

<PAGE>

8.13 SUCCESSORS AND ASSIGNS. This Plan shall inure to the benefit
of and be binding upon each successor and assign of the Company. All
obligations imposed upon an Executive, and all rights granted to the Company
hereunder, shall be binding upon the Executive's heirs, legal representatives
and successors.

8.14 ENTIRE AGREEMENT. This Plan, the Agreement and the
Stockholders' Agreement, and any documents referenced herein or therein,
constitute the entire agreement with respect to the subject matter hereof and
thereof, provided that in the event of any inconsistency among such
documents, the terms and conditions of the Agreement shall control, followed
by the terms of this Plan.

Executed on this 22nd day of July, 1996.

COLOR SPOT NURSERIES, INC.

By: /s/ [ILLEGIBLE]
-------------------------------
Title: /s/ [ILLEGIBLE]
----------------------------

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<PAGE>

EXHIBIT 10.10

CSN, INC.

1997 STOCK OPTION PLAN

ARTICLE I

PURPOSE OF PLAN

The 1997 Stock Option Plan (the "PLAN") of CSN, Inc., formerly Color
Spot Nurseries, Inc. (the "COMPANY"), adopted by the Board of Directors and
stockholders of the Company effective as of January 1, 1997, is intended to
advance the best interests of the Company by providing directors, executive
officers and other key employees of the Company and its Subsidiaries who have
substantial responsibility for the management and growth of the Company with
additional incentives by allowing such employees to acquire an ownership
interest in the Company. The Plan is a compensatory benefit plan within the
meaning of Rule 701 under the Securities Act of 1933. The issuance of Common
Stock pursuant to the Plan is intended to qualify for the exemption from
registration under the Securities Act provided by Rule 701.

ARTICLE II

DEFINITIONS

For purposes of the Plan the following terms have the indicated
meanings:

"BOARD" means the Board of Directors of the Company.

"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor statute.

"COMMITTEE" means the Compensation Committee or such other committee
of the Board as the Board may designate to administer the Plan or, if for any
reason the Board has not designated such a committee, the Board.

"CAUSE" means cause as defined in a Participant's written employment
agreement with the Company or, if no written employment agreement exists, shall
mean (i) a Participant's willful and repeated failure to comply with the lawful
directives of the Board or such Participant's supervisory personnel, (ii) any
criminal act or act of dishonesty, disloyalty, misconduct or moral turpitude by
a Participant that is injurious in any significant respect to the property,
operations, business or reputation of the Company or any subsidiary thereof, or
(iii) material breach by a Participant of his written employment agreement (if
any) with the Company after notice by the Company and reasonable opportunity to
cure.

<PAGE>

"COMMON STOCK" means the Common Stock, $.01 par value per share, of
the Company.

"FAIR MARKET VALUE" of the Common Stock as of any date means the fair
market value of the Common Stock (expressed on a per-share basis) as of such
date, as determined in good faith by the Committee based on the consolidated
results of operations, financial condition and future prospects of the Company
and such other factors as the Committee may deem appropriate. Fair Market Value
shall be determined without regard to any restriction on transferability of the
Common Stock other than any such restriction which by its terms will never
lapse.

"PARTICIPANT" means any executive or other key employee of the Company
or any Subsidiary who has been selected to participate in the Plan by the
Committee or the Board.

"SALE OF THE COMPANY" means the acquisition of a majority or more of
the outstanding voting securities of the Company by any person or "group" (as
that term is used in Regulation 13D under the Securities Exchange Act of 1934)
other than the stockholders of the Company as of December 31, 1996 and their
respective affiliates.

"SUBSIDIARY" means any subsidiary corporation (as such term is defined
in Section 424(f) of the Code) of the Company.

ARTICLE III

ADMINISTRATION

The Plan shall be administered by the Committee. Subject to the
limitations of the Plan, the Committee acting in good faith shall have the
sole and complete authority to: (i) select Participants, (ii) grant Options
to Participants in such forms and amounts as it shall determine, (iii) impose
such limitations, restrictions and conditions upon such Options and/or shares
of Common Stock issued upon exercise thereof as it shall deem appropriate,
(iv) interpret the Plan and adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the Plan, (v) correct
any defect or omission or reconcile any inconsistency in the Plan or in any
Options granted under the Plan and (vi) make all other determinations and
take all other actions necessary or advisable for the implementation and
administration of the Plan. The Committee's determinations on matters within
its authority shall be conclusive and binding upon the Participants, the
Company and all other persons. All expenses associated with the
administration of the Plan shall be borne by the Company. The Committee may,
as approved by the Board and to the extent permissible by law, delegate any
of its authority hereunder to such persons or entities as it deems
appropriate.

2
<PAGE>

ARTICLE IV

LIMITATION ON AGGREGATE SHARES

The number of shares of Common Stock with respect to which stock
purchase options ("OPTIONS") may be granted under the Plan shall not exceed, in
the aggregate, 1,300,000 shares, subject to adjustment in accordance with
paragraph 6.5. To the extent any Options expire unexercised or are cancelled,
terminated or forfeited in any manner without the issuance of Common Stock
thereunder, such shares shall again be available under the Plan. The shares of
Common Stock available under the Plan may consist of authorized and unissued
shares, treasury shares or a combination thereof, as the Committee shall
determine.

ARTICLE V

AWARDS

5.1 GRANT OF OPTIONS. The Committee may grant Options to Participants
from time to time in accordance with this Article V. Options granted under the
Plan may be nonqualified stock options or "incentive stock options" within the
meaning of Section 422 of the Code or any successor provision, as specified by
the Committee; provided, however, that no Option intended as an incentive stock
option shall so qualify unless such Option satisfies all of the requirements of
Section 422 of the Code. The exercise price per share of Common Stock under
each Option shall be fixed by the Committee at the time of grant of the Option,
except that the exercise price of any Option shall equal at least 100% of the
Fair Market Value of the Common Stock on the date of grant. Options shall have
a term not to exceed ten years from the date of grant as specified by the
Committee, and shall be exercisable at such time or times as the Committee shall
determine.

5.2 EXERCISE PROCEDURE. Options shall be exercisable by written notice to
the Company (to the attention of the Company's Secretary) accompanied by payment
in full of the applicable exercise price. Payment of such exercise price may be
made (i) in cash (including check, bank draft or money order), (ii) at the
discretion of the Committee, by delivery of a full recourse promissory note
bearing interest at a rate not less than the applicable federal rate determined
pursuant to Section 1274 of the Code as of the date of purchase or exercise (a
"NOTE"), (iii) in shares of Common Stock valued at their Fair Market Value as of
the date of exercise or (iv) a combination of the foregoing.

3
<PAGE>

a Sale of the Company, the Committee may provide, in its discretion, that the
outstanding Options shall become immediately exercisable and/or that such
Options shall terminate if not exercised as of the date of the Sale of the
Company or any other designated date or that such Options shall thereafter
represent only the right to receive the excess of the consideration per share
of Common Stock offered in such Sale of the Company over the exercise price
of such Options.

5.4 EXPIRATION OF OPTIONS.

(a) NORMAL EXPIRATION. In no event shall any part of any Option be
exercisable after the tenth anniversary of the date of grant or earlier stated
date of expiration thereof.

(b) EARLY EXPIRATION UPON TERMINATION OF EMPLOYMENT. Except as
otherwise provided by the Committee at the time of grant of such Options, upon
termination for any reason of a Participant's employment by the Company and its
Subsidiaries, all Options or portions thereof held by such Participant that are
not vested and exercisable on the date of such termination shall expire and be
forfeited as of such date and all vested Options held by such Participant shall
expire to the extent not exercised within 90 days following the date of such
termination or, in the case of termination due to the Participant's death or
disability, within one year following the date of such termination.
Notwithstanding the foregoing, in the event of termination of a Participant's
employment by the Company for Cause or a voluntary termination by the
Participant prior to the third anniversary of the date hereof (or, if later, the
third anniversary of the date of commencement of such Participant's employment),
all Options held by such Participant (whether or not vested) shall expire on the
date of such termination.

ARTICLE VI

GENERAL PROVISIONS

6.1 WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied in
a written option agreement which shall be signed by the Participant to whom the
Option is granted and shall be subject to the terms and conditions set forth
herein.

6.2 LISTING, REGISTRATION AND LEGAL COMPLIANCE. If at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of the shares subject to Options upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of Options or the purchase or
issuance of shares thereunder, no Options may be granted or exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options will supply the
Company with such certificates, representations and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may at any time impose

4
<PAGE>

any limitations upon the exercise of Options that, in the Committee's
discretion, are necessary or desirable in order to comply with such Section
16(b) and the rules and regulations thereunder. If the Company, as part of
an offering of securities or otherwise, finds it desirable because of federal
or state regulatory requirements to reduce the period during which any
Options may be exercised, the Committee may, in its discretion and without
the Participant's consent, so reduce such period on not less than 20 days'
prior written notice to the holders thereof.

6.3 OPTIONS NOT TRANSFERABLE. Options may not be transferred other than
by will or the laws of descent and distribution and, during the lifetime of the
Participant to whom they were granted, may be exercised only by such Participant
(or his or her legal guardian or legal representative). In the event of the
death of a Participant, exercise of Options granted hereunder to such
Participant may be made only by the executor or administrator of such
Participant's estate or the person or persons to whom such Participant's rights
under the Options will pass by will or the laws of descent and distribution.

6.4 WITHHOLDING OF TAXES. The Company may, if necessary or desirable,
withhold from any amounts due and payable by the Company to any Participant (or
secure payment from such Participant in lieu of withholding) the amount of any
withholding or other tax due from the Company with respect to any issuance or
exercise of Options granted under the Plan to such Participant, and the Company
may defer such issuance or exercise unless indemnified to its satisfaction
against the payment of any such amount.

6.5 ADJUSTMENTS. In the event of a reorganization, recapitalization,
stock dividend or stock split, or combination or other change in the shares of
Common Stock, the Board or the Committee shall, in order to prevent the dilution
or enlargement of rights under outstanding Options, make such adjustments in the
number and type of shares authorized by the Plan, the number and type of shares
covered by outstanding Options and the exercise prices specified therein as may
be determined to be appropriate and equitable.

6.6 RIGHTS OF PARTICIPANTS. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time (with or without cause), or confer upon any
Participant any right to continue in the employ of the Company or any Subsidiary
for any period of time or to continue to receive such Participant's current (or
other) rate of compensation. No employee shall have a right to be selected as a
Participant or, having been so selected, to be selected again as a Participant.

6.7 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. The Board or the
Committee may suspend or terminate the Plan or any portion thereof at any time
and may amend it from time to time in such respects as the Board or the
Committee may deem advisable; provided, however, that no such amendment shall be
made without stockholder approval to the extent such approval is required by
law, agreement or the rules of any exchange upon which the Common Stock is
listed, and no such amendment, suspension or termination shall impair the rights
of Participants under outstanding Options without the consent of the
Participants affected thereby, except as provided below. No Options shall be
granted hereunder after the tenth anniversary of the approval of the Plan by the
stockholders of the Company.

5
<PAGE>

6.8 AMENDMENT OF OUTSTANDING OPTIONS. The Committee may amend or modify
any Option in any manner to the extent that the Committee would have had the
authority under the Plan initially to grant such Option; provided that, except
as expressly contemplated elsewhere herein or in any agreement evidencing such
Option, no such amendment or modification shall impair the rights of any
Participant under any outstanding Option without the consent of such
Participant.

6.9 INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be party by reason of any action taken or failure
to act under or in connection with the Plan or any Option granted under the
Plan, and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding; provided, however, that any such Committee member shall be entitled
to the indemnification rights set forth in this paragraph 6.9 only if such
member has acted in good faith and in a manner that such member reasonably
believed to be in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that such conduct was unlawful, and further provided that upon the institution
of any such action, suit or proceeding a Committee member shall give the Company
written notice thereof and an opportunity to handle and defend the same before
such Committee member undertakes to handle and defend it on his own behalf.

* * * * *

<PAGE>

CSN, INC.

SPECIAL STOCK OPTION PLAN

ARTICLE I

PURPOSE OF PLAN

The Special Stock Option Plan (the "PLAN") of CSN, Inc. (the
"COMPANY"), adopted by the Board of Directors and stockholders of the Company
effective as of February 20, 1997, is intended to advance the best interests
of the Company by providing key employees of Lone Star Growers, L.P., a
subsidiary of the Company, additional incentives by allowing such employees
to acquire an ownership interest in the Company. The Plan is a compensatory
benefit plan within the meaning of Rule 701 under the Securities Act of 1933.
The issuance of Common Stock pursuant to the Plan is intended to qualify for
the exemption from registration under the Securities Act provided by Rule 701.

ARTICLE II

DEFINITIONS

For purposes of the Plan the following terms have the indicated
meanings:

"BOARD" means the Board of Directors of the Company.

"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor statute.

<PAGE>

"COMMON STOCK" means the Common Stock, $.01 par value per share, of
the Company.

"PARTICIPANT" means any executive or other key employee of the Company
or any Subsidiary who has been selected to participate in the Plan by the
Committee or the Board.

"SUBSIDIARY" means any subsidiary corporation (as such term is defined
in Section 424(f) of the Code) of the Company.

ARTICLE III

ADMINISTRATION

The Plan shall be administered by the Committee. Subject to the
limitations of the Plan, the Committee acting in good faith shall have the sole
and complete authority to: (i) select Participants, (ii) grant Options to
Participants in such forms and amounts as it shall determine, (iii) impose such
limitations, restrictions and conditions upon such Options and/or shares of
Common Stock issued upon exercise thereof as it shall deem appropriate, (iv)
interpret the Plan and adopt, amend and rescind administrative guidelines and
other rules and regulations relating to the Plan, (v) correct any defect or
omission or reconcile any inconsistency in the Plan or in any Options granted
under the Plan and (vi) make all other determinations and take all other actions
necessary or advisable for the implementation and administration of the Plan.
The Committee's determinations on matters within its authority shall be
conclusive and binding upon the Participants, the Company and all other persons.
All expenses associated with the administration of the Plan shall be borne by
the Company. The Committee may, as approved by the Board and to the extent
permissible by law, delegate any of its authority hereunder to such persons or
entities as it deems appropriate.

2
<PAGE>

ARTICLE IV

LIMITATION ON AGGREGATE SHARES

The number of shares of Common Stock with respect to which stock
purchase options ("OPTIONS") may be granted under the Plan shall not exceed, in
the aggregate, 202,005 shares, subject to adjustment in accordance with
paragraph 6.5. To the extent any Options expire unexercised or are cancelled,
terminated or forfeited in any manner without the issuance of Common Stock
thereunder, such shares shall again be available under the Plan. The shares of
Common Stock available under the Plan may consist of authorized and unissued
shares, treasury shares or a combination thereof, as the Committee shall
determine.

ARTICLE V

AWARDS

5.3 CONDITIONS AND LIMITATIONS ON EXERCISE. At the discretion of the
Committee, Options may be made exercisable, in one or more installments, upon
(i) the happening of certain events, (ii) the passage of a specified period of
time, (iii) the fulfillment of certain conditions, or (iv) the achievement by
the Company or any Subsidiary of certain performance goals. As a condition to
the exercise of Options, the Participant shall agree to be bound by the
Stockholders Agreement dated as of December 31, 1996 among the Company and the
various stockholders signatory thereto, with the Option Shares constituting
"Option Stock" as defined therein. In the event of a Sale of the Company, the
Committee may provide, in its discretion, that the outstanding Options shall
become immediately exercisable and/or that such Options shall terminate if not
exercised as of the date of the Sale of the Company or any other designated date
or that such Options shall

3
<PAGE>

thereafter represent only the right to receive the excess of the consideration
per share of Common Stock offered in such Sale of the Company over the exercise
price of such Options.

5.4 EXPIRATION OF OPTIONS.

(a) NORMAL EXPIRATION. In no event shall any part of any Option be
exercisable after the tenth anniversary of the date of grant or earlier stated
date of expiration thereof.

ARTICLE VI

GENERAL PROVISIONS

4
<PAGE>

federal or state regulatory requirements to reduce the period during which any
Options may be exercised, the Committee may, in its discretion and without the
Participant's consent, so reduce such period on not less than 20 days' prior
written notice to the holders thereof.

6.8 AMENDMENT OF OUTSTANDING OPTIONS. The Committee may amend or modify
any Option in any manner to the extent that the Committee would have had the
authority under the

5
<PAGE>

Plan initially to grant such Option; provided that, except as expressly
contemplated elsewhere herein or in any agreement evidencing such Option, no
such amendment or modification shall impair the rights of any Participant under
any outstanding Option without the consent of such Participant.

* * * * *

<PAGE>

CSN, INC.
3478 BUSKIRK AVENUE, SUITE 260
PLEASANT HILL, CALIFORNIA 94523

January 1, 1997

[Optionee]
c/o Color Spot Nurseries, Inc.
3478 Buskirk Avenue
Pleasant Hill, CA 94523

RE: GRANT OF STOCK PURCHASE OPTIONS

Dear [Optionee]:

CSN, Inc., formerly Color Spot Nurseries, Inc. (the "COMPANY"), is
pleased to advise you that you have been granted a stock purchase option (an
"OPTION") under its 1997 Stock Option Plan (the "PLAN") (a copy of which is
enclosed) as provided below. Capitalized terms used and not defined herein have
the meanings set forth in the Plan.

1. OPTION TERMS.

(a) GRANT. In connection with your service as an employee of the
Company, you are hereby granted an Option to purchase up to [ ] shares of the
Company's Common Stock, $.01 par value (the "OPTION SHARES"), at a price of
$4.96 per Option Share, subject to adjustment pursuant to paragraph 8 below (the
"EXERCISE PRICE"), payable upon exercise as set forth in paragraph 2 below.
Your Option will expire at the close of business on the tenth anniversary of the
date hereof (the "EXPIRATION DATE"), subject to earlier expiration in connection
with the termination of your service as a director as provided below. Your
Option is intended to be an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.

(b) EXERCISABILITY/VESTING.

(i) VESTING. Your Option will be exercisable only to the extent
it has vested. Your Option will be vested with respect to 25% of your Option
Shares (rounded to the nearest whole share) as of each of the next four
anniversaries of the date hereof, in each case IF AND ONLY IF you have been
continuously serving as a member of the Company's Board of Directors from the
date of this Agreement through such dates.

<PAGE>

(ii) ACCELERATION OF VESTING. In the event of a Sale of the
Company or the consummation of a public offering of Common Stock resulting in
gross proceeds to the Company of $30.0 million or more, in either case during
the term of your service as a director of the Company, your Option will
automatically become 100% vested. In connection with any Sale of the Company,
the Company may provide on not less than 20 days' notice to you that any portion
of your Option which has not been exercised prior to or in connection with the
Sale of the Company will be forfeited. In lieu of requiring such exercise, the
Company may provide for the cancellation of your Option in exchange for a
payment equal to the excess (if any) of the consideration per share of Common
Stock receivable in connection with such Sale of the Company over the Exercise
Price.

(iii) CONDITIONS ON EXERCISE. As a condition to exercise of
your Option, you agree to be bound by the Stockholders Agreement dated as of
December 31, 1996 among the Company and the various stockholders signatory
thereto, with the Option Shares constituting "Option Stock" as defined therein.

(c) TERMINATION OF OPTION. In no event shall any part of your Option
be exercisable after the Expiration Date set forth in paragraph 1(a). If your
service as a director of the Company is terminated by the Company as a result of
your refusal to perform the normal duties of a director or is terminated
voluntarily by you prior to the third anniversary of the date hereof, all of
your Option not previously exercised shall expire and be forfeited whether or
not vested. If your service as a director of the Company terminates for any
other reason, that portion of your Option that is not vested and exercisable on
the date of termination of your employment shall expire and be forfeited, and
the portion of your Option that is vested and exercisable on the date of such
termination shall expire, to the extent not theretofore exercised, 90 days
following such date of termination or, in the case of termination due to your
death or disability, one year following such date of termination.

2. PROCEDURE FOR EXERCISE. You may exercise all or any portion of your
Option to the extent permitted hereby, at any time and from time to time by
delivering written notice to the Company (to the attention of the Company's
Secretary) accompanied by payment in full of an amount equal to the product of
(i) the Exercise Price multiplied by (ii) the number of Option Shares to
be acquired. The Company may delay effectiveness of any exercise of your Option
for such period of time as may be necessary to comply with any legal or
contractual provisions to which it may be subject relating to the issuance of
its securities. As a condition to any exercise of your Option, you will permit
the Company to deliver to you all financial and other information regarding the
Company necessary to enable you to make an informed investment decision, and you
will make all customary investment representations which the Company requires.

3. SECURITIES LAW RESTRICTIONS. You represent that when you exercise
your Option you will be purchasing the Common Stock covered thereby for your own
account and not on behalf of others. You may not sell, transfer or dispose of
any Common Stock issued pursuant to your Option (except pursuant to an effective
registration statement under the Securities Act of 1933) without first
delivering to the Company an opinion of counsel reasonably acceptable in form

<PAGE>

and substance to the Company that registration under the Securities Act or any
applicable state securities laws is not required in connection with such
transfer. You further understand that the certificates for any Common Stock you
purchase will bear such legends as the Company deems necessary or desirable in
connection with the Securities Act or other rules, regulations or laws.

4. OPTION NOT TRANSFERABLE. Your Option is personal to you and is not
transferable by you other than by will or the laws of descent and distribution.
During your lifetime only you (or your guardian or legal representative) may
exercise your Option. In the event of your death, your Option may be exercised
only by the executor or administrator of your estate or the person or persons to
whom your rights under the Option shall pass by will or the laws of intestate
succession.

5. CONFORMITY WITH PLAN. Your Option is intended to conform in all
respects with, and is subject to all applicable provisions of, the Plan, which
is incorporated herein by reference. Inconsistencies between this Agreement and
the Plan shall be resolved in accordance with the terms of the Plan. By
executing and returning the enclosed copy of this Agreement, you acknowledge
your receipt of this Agreement and the Plan and agree to be bound by all of the
terms of this Agreement and the Plan.

6. WITHHOLDING OF TAXES. The Company may, if necessary or desirable,
withhold from any amounts due and payable by the Company to you (or secure
payment from you in lieu of withholding) the amount of any withholding or other
tax due from the Company with respect to the issuance or exercise of your
Option, and the Company may defer such issuance or exercise unless indemnified
by you to its satisfaction against the payment of any such amount.

7. ADJUSTMENTS. In the event of a reorganization, recapitalization,
stock dividend or stock split, or combination or other change in the shares of
Common Stock, the Company may, in order to prevent the dilution or enlargement
of rights under your Option, make such adjustments in the number and type of
shares authorized by the Plan, the number and type of shares covered by your
Option and the Exercise Price specified herein as may be determined to be
appropriate and equitable.

* * * * *

<PAGE>

Please execute the extra copy of this Agreement in the space below and
return it to the Company's Secretary at its executive offices to confirm your
understanding and acceptance of the agreements contained in this Agreement.

Very truly yours,

CSN, INC.

By:
-------------------------------------
Michael Vukelich
Chief Executive Officer

Enclosures: 1. Extra copy of this Agreement
2. Copy of the Plan

The undersigned hereby acknowledges that he or she has read this
Agreement and the Plan and hereby agrees to be bound by all provisions set forth
herein and therein.

Dated as of __________, 1997 OPTIONEE

-------------------------------
Name: [Optionee]

<PAGE>

EXHIBIT 10.13

FEE AGREEMENT

FEE AGREEMENT dated as of December 31, 1996 between COLOR SPOT
NURSERIES, INC., a Delaware corporation whose name is to be changed to "CSN,
Inc." (the "Company"), and KOHLBERG & CO., L.L.C., a Delaware limited liability
company ("KoCo").

KoCo has previously provided services to the Company in connection
with the transactions contemplated by the Recapitalization and Stock Purchase
Agreement dated as of December 31, 1996 among the Company, KCSN Acquisition
Company, L.P. and the stockholders of the Company (the "Recapitalization
Agreement"). The Company desires for KoCo to provide certain ongoing management
and advisory services to the Company, and KoCo is willing to provide such
services subject to the terms and conditions contained herein.

NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:

Section 1. SERVICES. During the term of this Agreement, KoCo shall
provide such advisory and management services to the Company and its
subsidiaries as the Board of Directors of the Company shall reasonably request.
Such services shall be performed at KoCo's offices.

Section 2. COMPENSATION. In consideration of the services previously
provided and to be provided in accordance with Section 1, the Company shall pay
to KoCo (i) an advisory fee of $1.5 million by wire transfer of immediately
available funds on January 2, 1997, and (ii) an annual management fee equal to
the greater of (x) $300,000 or (y) 3.0% of the Company's earnings before
interest, taxes, depreciation and amortization for the year in question (not to
exceed $750,000), which fee shall accrue beginning January 1, 1997 and shall be
payable quarterly in advance in installments of $62,500 with the balance (if
any) payable within ten days of delivery of the Company's audited financial
statements for such year.

Section 3. REIMBURSEMENT. KoCo and its affiliates shall be entitled
to reimbursement of all reasonable out-of-pocket expenses (including travel
expenses) incurred in connection with the transactions contemplated by the
Recapitalization Agreement and in connection with the performance of this
Agreement (other than salary expenses and associated overhead charges), which
amounts shall be promptly reimbursed by the Company upon request.

Section 4. NO LIABILITY. (a) None of KoCo, any of its affiliates or
any of their respective members, partners, officers, directors, stockholders,
agents or employees (each an "Indemnified Party") shall have any liability to
the Company for any services provided pursuant to the Recapitalization Agreement
or this Agreement, except as may result from such Indemnified Party's gross
negligence or willful misconduct.

<PAGE>

(b) The Company hereby agrees to indemnify each Indemnified Party
against any and all damages, costs, liabilities, losses, judgments, penalties,
fines, expenses or other costs, including attorney's fees, arising from any
claims by third parties relating to this Agreement.

Section 5. NOTICES. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
will be in writing and will be deemed to have been given when delivered
personally, mailed by certified or registered mail, return receipt requested and
postage prepaid, or sent via a nationally recognized overnight courier, or sent
via facsimile to the recipient. Such notices, demands and other communications
will be sent to the address indicated below:

To the Company:

Color Spot Nurseries, Inc.
3478 Buskirk Avenue, Suite 260
Pleasant Hill, CA 94523
Attention: Michael F. Vukelich
Telecopy No.: (510) 935-0799

To KoCo:

Kohlberg & Co., LLC
2400 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Attention: W. Dexter Paine III
Telecopy No.: (415) 854-5415

or 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.

Section 6. ADDITIONAL COMPENSATION. KoCo shall be entitled to
customary investment banking fees in connection with material future
transactions involving the Company or its subsidiaries other than the Company's
initial public offering or its proposed acquisition of Lone Star Growers.
Neither KoCo nor any affiliate of KoCo shall receive any other compensation
without the approval of a majority of the members of the Company's board of
directors that are not affiliated with KoCo.

Section 7. GOVERNING LAW; SUBMISSION TO JURISDICTION. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW (AND NOT THE
LAW OF CONFLICTS) OF THE STATE OF CALIFORNIA.

- 2 -
<PAGE>

Section 8. TERMINATION. This Agreement may be terminated by KoCo at
any time by written notice to the Company. In addition, this Agreement will
terminate automatically as of the earlier of (i) the tenth anniversary of this
Agreement and (ii) the end of the fiscal year in which the aggregate percentage
interest in the Company's outstanding common stock held by affiliates of KoCo
falls below 20%. The provisions of Section 4 shall survive any termination of
this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.

COLOR SPOT NURSERIES, INC.

By: /s/ Michael F. Vukelich
---------------------------------
Name:
Title:

KOHLBERG & CO., L.L.C.

By: /s/ Samuel P. Frieder
---------------------------------
Name: Samuel P. Frieder
Title: Principal

- 3 -

<PAGE>

MERGER AGREEMENT

DATED AS OF FEBRUARY 20, 1997

AMONG

CSN, INC.,

LONE STAR GROWERS, L.P.,

THE PARTNERS OF

LONE STAR GROWERS CO.

AND

LONE STAR GROWERS CO.

- 1 -

<PAGE>

TABLE OF CONTENTS

Page
----

SECTION 1. DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 2. MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 FILING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 EFFECTIVENESS OF THE MERGER . . . . . . . . . . . . . . . . . . . . . 4
2.4 CERTIFICATES, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 EFFECTS OF MERGER.. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 PAYOFF OF DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . . . . . . . . 5
3.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 POWER AND AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 NO VIOLATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 OWNERSHIP OF INTERESTS. . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 6
3.7 INTERIM CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.8 REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9 PERSONAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.10 INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.12 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.13 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.15 ENVIRONMENTAL AND SAFETY MATTERS . . . . . . . . . . . . . . . . . . 9
3.16 TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.17 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . .11
3.18 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.19 AFFILIATE INTERESTS. . . . . . . . . . . . . . . . . . . . . . . . .12
3.20 INVESTMENT INTENT. . . . . . . . . . . . . . . . . . . . . . . . . .12
3.21 WATER RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.22 FEES, COMMISSIONS AND EXPENSES . . . . . . . . . . . . . . . . . . .13
3.23 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT . . . . . . . .13
4.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
4.2 POWER AND AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . .13
4.3 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .13

- i -

<PAGE>

4.4 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . .14
4.5 NO VIOLATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
4.6 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
4.7 INVESTMENT INTENT . . . . . . . . . . . . . . . . . . . . . . . . . .14
4.8 FEES, COMMISSIONS AND EXPENSES. . . . . . . . . . . . . . . . . . . .14

SECTION 5. COVENANTS OF THE PARTIES. . . . . . . . . . . . . . . . . . . . . .14
5.1 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . .14
5.2 ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .15
5.3 EFFORTS TO CONSUMMATE TRANSACTION . . . . . . . . . . . . . . . . . .16
5.4 NO SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . . . . .16
5.5 AMENDMENT OF DISCLOSURE SCHEDULES . . . . . . . . . . . . . . . . . .16
5.6 CHANGE OF NAME; LONE STAR DE MEXICO S.A. DE C.V.. . . . . . . . . . .16
5.7 COOPERATION ON TAX MATTERS. . . . . . . . . . . . . . . . . . . . . .16
5.8 NOTIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
5.9 RELEASE OF LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . .17
5.10 NONCOMPETE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
5.11 TRANSFER OF VEHICLES; DISTRIBUTIONS OF RIGHTS TO ADVANCEMENTS. . . .17
5.12 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . .17
5.13 WARN ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
5.14 TERMINATION OF INSURANCE . . . . . . . . . . . . . . . . . . . . . .18
5.15 NOTICE TO EMPLOYEES, CUSTOMERS, ETC. . . . . . . . . . . . . . . . .18
5.16 RIGHT OF ACCESS. . . . . . . . . . . . . . . . . . . . . . . . . . .18

SECTION 6. CLOSING CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . .18
6.1 OBLIGATION OF BUYER TO CLOSE. . . . . . . . . . . . . . . . . . . . .18
6.2 OBLIGATION OF SELLERS TO CLOSE. . . . . . . . . . . . . . . . . . . .19

SECTION 7. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . .20
7.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . .20
7.2 LIMITATIONS OF INDEMNITY. . . . . . . . . . . . . . . . . . . . . . .20
7.3 PROCEDURE FOR INDEMNIFICATION CLAIMS. . . . . . . . . . . . . . . . .21
7.4 OUTSTANDING LITIGATION. . . . . . . . . . . . . . . . . . . . . . . .21
7.5 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . .22
7.6 EXCLUSIVE REMEDY. . . . . . . . . . . . . . . . . . . . . . . . . . .22

SECTION 8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . .22
8.1 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
8.2 PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
8.3 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . .22
8.4 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
8.5 WAIVERS AND AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . .23
8.6 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
8.7 GOVERNING LAW; SEVERABILITY . . . . . . . . . . . . . . . . . . . . .23
8.8 DISPUTE RESOLUTION; ENFORCEMENT OF VENUE; SERVICE OF PROCESS. . . . .24
8.9 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
8.10 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

- ii -

<PAGE>

SCHEDULES

Schedule 3.1 -- Ownership Interests
Schedule 3.3 -- Consents and Approvals
Schedule 3.4 -- Violations
Schedule 3.5 -- Ownership of Company Interests
Schedule 3.6 -- Historical Financials
Schedule 3.7 -- Interim Changes
Schedule 3.8 -- Real Property
Schedule 3.9 -- Personal Property
Schedule 3.10 -- Intellectual Property
Schedule 3.11 -- Contracts
Schedule 3.12 -- Litigation
Schedule 3.13 -- Governmental Permits
Schedule 3.14 -- Labor Matters
Schedule 3.15 -- Environmental Matters
Schedule 3.16 -- Tax Matters
Schedule 3.17 -- Employee Benefit Matters
Schedule 3.18 -- Insurance
Schedule 3.19 -- Affiliate Interests
Schedule 3.21 -- Water Rights
Schedule 6.2(e) -- Option Recipients
Schedule 7.5 -- Environmental Indemnity

EXHIBITS

Exhibit A -- Form of Employment Agreement
Exhibit B -- Form of Plan of Merger
Exhibit C -- Certificate of Merger
Exhibit D -- Form of Notice to Creditors
Exhibit E -- Form of Opinion

- iii -

<PAGE>

MERGER AGREEMENT

MERGER AGREEMENT dated as of February 20, 1997 among LONE STAR
GROWERS, L.P., a Delaware limited partnership ("BUYER"), CSN, INC., a Delaware
corporation ("Parent"), LONE STAR GROWERS CO., a Texas general partnership (the
"Company"), JOSEPH F. BRADBERRY ("Bradberry") and TETCO, INC., a Texas
corporation ("Tetco") (Tetco and Bradberry individually, a "SELLER" and,
collectively, the "SELLERS").

Sellers own 100% of the outstanding partnership interests of the
Company, which is engaged in the production and wholesale, sale and distribution
of bedding plant, ground cover, ornamental and other live garden products in the
State of Texas (the "BUSINESS"). Sellers desire to cause the Company to merge
with Buyer, and Buyer desires to merge with the Company, on the terms and
conditions set forth herein.

THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

SECTION 1. DEFINED TERMS

1.1 DEFINITIONS. For purposes of this Agreement, the following terms
shall have the respective meanings set forth below:

"AFFILIATE" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
when used with respect to any specified person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.

"AGREEMENT" means this Agreement and includes all of the schedules and
exhibits annexed hereto.

"BUSINESS" has the meaning set forth in the introduction to this
Agreement.

"BUSINESS DAY" means any day that is not a Saturday, Sunday or
statutory holiday in the State of Texas.

"CLOSING" means the closing of the purchase and sale of the Company
Interests contemplated by this Agreement.

"CLOSING DATE" means the date hereof.

"CODE" means the Internal Revenue Code of 1986, as amended.

"COMPANY INTERESTS" means all of the outstanding partnership interests
of the Company.

"COMPETING TRANSACTION" means any business combination or
recapitalization involving the Company or any acquisition or purchase of all or
a significant portion of the assets of, or any material equity interest in, the
Company or any other similar transaction with respect to the Company involving
any person or entity other than Buyer or its Affiliates.

"CONTRACT" means any contract, lease, license, purchase order, sales
order or other agreement or binding commitment, whether or not in written form.

<PAGE>

"COMPANY" has the meaning set forth in the introduction to this
Agreement.

"EMPLOYEE PLANS" means all employee benefit plans (as defined in
Section 3(3) of ERISA) to which the Company is a party or is bound, with respect
to which payments or contributions are required to be made by the Company, or in
respect of which the Company may otherwise have any liability.

"EMPLOYMENT AGREEMENT" means agreement between the Company and Joseph
Bradberry in substantially the form of Exhibit A hereto.

"ENCUMBRANCE" means any lien, charge, claim, security interest or
other encumbrance of any kind.

"ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all federal, state and
municipal statutes, regulations, common law and similar provisions having force
or effect of law, all orders, permits, licenses and approvals with respect to
environmental, public health and safety, occupational health and safety, product
liability and transportation including without limitation all such standards of
conduct or bases of obligations relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labelling, testing, processing, discharge, release, control or
cleanup of any contaminant, waste, hazardous materials, substances, chemical
substances or mixtures, pesticides, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"FUNDED DEBT" means all long-term indebtedness (including accrued
interest) and long-term capital lease obligations of the Company, including in
each case the current portion thereof as of the date of determination, other
than borrowings under the Line of Credit.

"FURNITURE BUSINESS" means the furniture business operated by WR
Dallas Furniture Shops, Inc.

"GAAP" means generally accepted accounting principles in effect in the
United States.

"GOVERNMENTAL PERMIT" means any franchise, consent, license, marketing
right, permit, authorization, approval or other operating authority issued by
any governmental or regulatory body.

"HISTORICAL FINANCIALS" means the audited balance sheets and unaudited
statements of income of the Company as of and for the fiscal year ended June 30,
1996 (including the footnotes thereto) and the unaudited balance sheet and
statements of income for the fiscal quarter ended September 30, 1996 attached
hereto as Schedule 3.6.

"HSR ACT" has the meaning set forth in Section 3.3.

"INDEMNIFIED PARTY" means a party entitled to indemnification pursuant
to Section 7.

"INDEMNIFYING PARTY" means a party liable for indemnification pursuant
to Section 7.

"LATEST BALANCE SHEET" means the unaudited balance sheet of the
Company as of

- 2 -

<PAGE>

September 30, 1996 included in the Historical Financials.

"LINE OF CREDIT" means the $5 million line of credit under the Amended
and Restated Loan Agreement dated as of October 29, 1996 between the Company and
The Frost National Bank.

"LOSSES" means any and all out-of-pocket damages, costs, liabilities,
losses (including consequential losses), judgments, penalties, fines, expenses
or other costs, including reasonable attorney's fees, incurred by an Indemnified
Party.

"MATERIAL ADVERSE EFFECT" means a material adverse effect on either
(i) the assets, operations, financial condition or prospects of the Business, or
(ii) Sellers' or Buyer's (as applicable) ability to consummate the transactions
contemplated hereby.

"MERGER" has the meaning set forth in Section 2.1.

"MEXICAN OPERATIONS" means the nursery and turf grass farms in Mexico
producing nursery stock and turf for import into the United States operated by
or through Lone Star de Mexico S.A. de C.V. and Pastes y Jardines Estrella de
Mexico, S.A. de C.V. which are corporations organized in Mexico of which LSG
International L.L.C. owns a 50% and 33 1/3% ownership interest, respectively.

"MUSHROOM BUSINESS" means the operation of Organotech, Inc. and
Vitasol, Inc. with respect to the selling of Reish mushroom products.

"PARENT STOCK" means the common stock of Parent, $.01 par value.

"PERMITTED LIENS" means (i) Encumbrances and other exceptions to title
that are disclosed on Schedule 3.8 or Schedule 3.9; (ii) liens for Taxes, fees,
levies, duties or other governmental charges of any kind which are not yet
delinquent or are being contested in good faith by appropriate proceedings which
suspend the collection thereof and for which appropriate reserves have been
established in accordance with GAAP; (iii) liens for mechanics, material,
laborers, employees, suppliers or similar liens arising by operation of law for
sums which are not yet delinquent or which are being contested in good faith by
appropriate proceedings or with respect to which arrangements for payment and/or
release have been made and for which appropriate reserves have been established
in accordance with GAAP; and (iv) with respect to real property, easements,
servitudes, leases, reservations or rights vested in public authorities or
public or private utility companies for rights-of-way, streets, roads, bridges,
pipes, pipelines, railroads, electric transmission and distribution lines,
telegraph and telephone lines, sewage and drainage rights and other similar
purposes, provided that such Encumbrances do not in the aggregate materially
affect the marketability of title to the property subject thereto for the
purposes for which it is currently held and do not in the aggregate materially
interfere with the conduct of the Business.

"PERSON" means any individual, partnership, corporation, association,
joint stock company, trust, joint venture, unincorporated organization or
governmental entity (or any department, agency or political subdivision
thereof).

"PROPRIETARY RIGHTS" means all patents, trademarks, service marks,
copyrights, trade names and all registrations and applications and renewals for
any of the foregoing and all goodwill associated therewith.

- 3 -

<PAGE>

"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement dated as of
December 31, 1996 among Parent and the stockholders signatory thereto.

"TAX" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (pursuant to Section 59A of the Code or
otherwise), custom duties, capital stock, franchise, employee's income
withholding, foreign withholding, social security (or its equivalent),
unemployment, disability, real property, personal property, sales, use,
transfer, value added, registration, alternative or add-on minimum, estimated or
other tax, including any interest, penalties or additions to tax in respect of
the foregoing, whether disputed or not, and any obligation to indemnify, assume
or succeed to the liability of any other person in respect of the foregoing, and
the term "TAX LIABILITY" shall mean any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated, and whether
due or to become due) with respect to Taxes.

"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.

"THIRD PARTY CLAIM" means a claim or demand made by any person,
corporation, governmental authority or other third party against an Indemnified
Party.

SECTION 2. MERGER

2.1 GENERAL. Upon the terms and conditions contained herein and in
accordance with the Delaware Revised Uniform Limited Partnership Act (the
"DRULPA") and the Texas Revised Partnership Act ("TRPA"), on the date hereof,
the Company shall be merged with and into Buyer (the "Merger") and thereupon the
separate corporate existence of the Company shall cease, and Buyer, as the
surviving entity (the "Surviving Entity"), shall continue to exist under and be
governed by the DRULPA.

2.2 FILING. On the date hereof, the Company and Buyer will (i)
execute the Plan of Merger in the form of Exhibit B hereto and (ii) cause a
certificate of merger in the form of Exhibit C hereto (the "Certificate of
Merger") to be executed and filed pursuant to the applicable provisions of the
DRULPA.

2.3 EFFECTIVENESS OF THE MERGER. The Merger shall become effective
(the "Effective Time") immediately upon the filing and acceptance of the
Certificate of Merger with the Secretary of State of Delaware.

2.4 CERTIFICATES, ETC. . Upon the Effective Time, the certificate of
limited partnership and the partnership agreement of Buyer in effect immediately
prior to the Effective Time shall become the certificate of limited partnership
and the partnership agreement of the Surviving Entity. The general partner of
the Surviving Entity shall be Lone Star, Inc., a Delaware corporation. The
registered office and registered agent of the Surviving Entity shall be The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801. The principal office of the
Surviving Entity shall be 7960 Cagnon Road, San Antonio, Texas 78252.

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2.5 EFFECTS OF MERGER. The Merger shall have the effects set forth
in the DRULPA and TRPA. Without limiting the foregoing, on and after the
Effective Time, the Surviving Entity shall possess all the assets and interests
of every description, wherever located, and all rights, privileges, immunities,
powers, franchises and authority, of a public as well as of a private nature, of
each of the Company and Buyer, all of which shall be vested in the Surviving
Entity without further act or deed and without any transfer or assignment having
occurred. The Surviving Entity shall be liable for all the obligations of the
Company and Buyer, and any claims existing, or action or proceeding pending, by
or against the Company or the Buyer may be prosecuted to judgment, with right of
appeal, as if the Merger had not taken place, or the Surviving Entity may be
substituted in its place, and all the rights of creditors of each of the Company
and Buyer shall be preserved unimpaired.

2.6 CONSIDERATION. At the Closing, Buyer shall deliver to Sellers
aggregate Merger consideration as follows: (a) 404,010 shares of Parent Stock
issued in the name of Joseph Bradberry and (b) cash in the amount of
$36,000,000, less sum of (i) the aggregate amount of Funded Debt as of the
Closing Date and (ii) the amount of all advances (less any writedowns or
reserves with respect thereto) by the Company outstanding as of the Closing with
respect to the Furniture Business, the Mexican Operations and the Mushroom
Business, payable by wire transfer of immediately available funds. All payments
of cash pursuant to this Section 2.2 shall be made to Sellers on a pro rata
basis in accordance with their respective ownership percentages of the Company
Interests; provided, however, that Buyer shall be entitled to withhold from such
payments to a Seller, any amounts owed to the Company by such Sellers or its
Affiliates on the Closing Date.

2.7 CLOSING. The Closing shall take place on the Closing Date at the
offices of Cox & Smith Incorporated, 112 East Pecan, Suite 1800, San Antonio,
Texas, at 10:00 A.M. local time, or at such other place or at such other time as
Buyer and Sellers shall agree.

2.8 PAYOFF OF DEBT. Simultaneously with the Closing, Buyer agrees to
payoff the Funded Debt and Line of Credit.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS

Sellers, jointly and severally, represent and warrant to Buyer as
follows:

3.1 ORGANIZATION. The Company is a general partnership duly
organized and existing in good standing under the laws of the State of Texas
with full corporate power and authority to own its properties and to carry on
the Business. The Company is qualified to do business in all jurisdictions
where failure to so qualify would, individually or in the aggregate, have a
Material Adverse Effect. Except as set forth on Schedule 3.1, the Company has
no subsidiaries and has no equity or other ownership interest in any other
entity or business enterprise.

3.2 POWER AND AUTHORITY. Each of Sellers and the Company have all
requisite power and authority to enter into this Agreement and to assume and
perform fully their obligations hereunder. This Agreement is a valid and
binding obligation of each Seller and the Company enforceable against such
Seller and the Company in accordance with its terms.

3.3 CONSENTS AND APPROVALS. Except as set forth on Schedule 3.3, and
with respect to filing under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), no filings with, notices to, or approvals of any
governmental or regulatory body are required to be obtained or made by Sellers
or the Company in connection with the consummation of the transactions
contemplated hereby.

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3.4 NO VIOLATIONS. The execution and delivery of this Agreement and
the performance by Sellers of their obligations hereunder (i) do not and will
not conflict with or violate any provision of the certificate of general
partnership or the partnership agreement (or similar organizational documents)
of the Company or either Seller and (ii) except as set forth on Schedule 3.4 or
except for such of the following as, individually or in the aggregate, would not
have a Material Adverse Effect, do not and will not (a) conflict with or result
in a breach of the terms, conditions or provisions of, (b) constitute a default
under, (c) result in the creation of any Encumbrance upon the capital stock or
assets of the Company pursuant to, (d) give any third party the right to modify,
terminate or accelerate any obligation under, (e) result in a violation of, or
(f) require any authorization, consent, approval, exemption or other action by
or notice to any court or administrative or governmental body or other third
party pursuant to, any law, statute, rule or regulation or any agreement,
instrument, order, judgment or decree to which the Company is subject or by
which any of its assets are bound.

3.5 OWNERSHIP OF INTERESTS. The Company Interests consist of a 100%
general partnership interest in the Company, 60% of which is owned (beneficially
and of record) by Tetco and 40% of which is owned (beneficially and of record)
by Bradberry in each case free and clear of all Encumbrances. Other than the
Company Interests, the Company has no outstanding interests and there are no
outstanding options, warrants or similar rights to acquire, or any securities
convertible into or exchangeable for, any interests of the Company. As a result
of the Merger, Buyer will own the entire ownership interest in the Company.

3.6 FINANCIAL STATEMENTS. The Historical Financials have been
prepared in accordance with GAAP consistently applied and fairly present the
financial position of the Company as of the dates specified and the results of
operations in all material respects of the Company for the periods covered
thereby, and the Company has no liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise) that are not either (i) reflected
or fully reserved against on the Latest Balance Sheet or incurred in the
ordinary course of the Business subsequent to the date of the Latest Balance
Sheet or (ii) set forth on the disclosure schedules hereto.

3.7 INTERIM CHANGES. Except as set forth on Schedule 3.7 or
otherwise expressly contemplated herein, since the date of the Latest Balance
Sheet there have not been:

(a) any changes in the financial condition, assets,
liabilities, personnel or operations of the Business or in the Company's
relationships with suppliers, distributors, or others with whom it has business
dealings, other than changes which individually or in the aggregate do not have
a Material Adverse Effect;

(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the Company or the Business;

(c) any increase in the compensation or benefits paid or to
become payable to any officers of the Company or any increase in the
compensation or benefits payable to non-officer employees of the Company or the
Subsidiary other than in the ordinary course of business;

(d) any transfer, lease, license or other disposition of
assets of the Company other than sales of inventory in the ordinary course of
business;

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(e) any incurrence of indebtedness for borrowed money or any
Encumbrances placed on any of the assets of the Company;

(f) any new contract (or amendment to any existing contract)
obligating the Company to purchase goods or services for a period of 90 days or
more, any amendment or termination of any material lease, contract, license or
other agreement relating to the Business or any waiver of material claims or
rights of the Company against third parties;

(g) any material change in the collection, payment or credit
experience or practices of the Business or in the accounting practices,
procedures or methods of the Company;

(h) any material agreement, arrangement or transaction between
the Company and Sellers or any Affiliate of Sellers;

(i) any other transaction not in the ordinary course of
business and consistent with past practices of the Business that, individually
or in the aggregate, could have a Material Adverse Effect; or

(j) any commitment with respect to any of the foregoing.

3.8 REAL PROPERTY.

(a) Schedule 3.8 sets forth a complete and correct list of (i)
all real properties or premises that are owned in whole or in part by the
Company, and (ii) all real properties or premises that are leased in whole or in
part by the Company. The properties listed on Schedule 3.8 constitute all the
real properties utilized in connection with the Business. As to each leased
property, Schedule 3.8 sets forth the (i) lease term, (ii) annual rent and (iii)
renewal option, if any. Complete and correct copies of all mortgages, deeds of
trust, leases, guarantees of lease and other documents concerning such real
property have been made available to Buyer.

(b) The Company possesses good and indefeasible title in fee
simple (except with respect to leased real property) to all real property
reflected as owned in fee simple on Schedule 3.8, free and clear of all
Encumbrances other than Permitted Liens and those matters reflected on Schedule
3.8. Each lease of premises utilized by the Company in connection with the
Business is legal, valid and binding in all material respects, as between the
Company and the other party or parties thereto, and the Company is a tenant or
possessor in good standing thereunder, free of any material default or breach on
the part of the Company and to the knowledge of Sellers free of any material
default or breach on the part of the lessors thereunder, and quietly enjoys the
premises provided for therein.

(c) Except as set forth on Schedule 3.8 (i) the Company has
all required legal or governmental approvals necessary to use in the manner
currently used, for each of the properties and premises owned, leased, used or
occupied by it, other than any such approvals the absence of which, individually
or in the aggregate, would not have a Material Adverse Effect; (ii) the Company
has good and indefeasible title and owns outright, free and clear (except for
rights of landlords with respect to fixtures and leasehold improvements, if any,
with respect to leased premises) of all Encumbrances (other than Permitted Liens
and those matters reflected on Schedule 3.8), each improvement, fixture or
material item of equipment purported to be owned by it that is located in or on
any of the properties and premises owned, leased or occupied by it and used in
connection with the Business; (iii) no improvement, fixture or equipment on any
such premises is in violation of any law,

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including without limitation any zoning, building, safety, health or other law
which, individually or in the aggregate, would have a Material Adverse Effect;
(iv) each of such premises and properties is zoned for the purposes for which
such premises or properties are currently being used and, except as set forth on
Schedule 3.8, has access to and from public road; and (v) no material portion of
such premises or properties has been condemned or otherwise taken by any public
authority, and, to Seller's knowledge, no such condemnation or taking is
threatened or contemplated by any public authority.

3.9 PERSONAL PROPERTY. Except as set forth on Schedule 3.9, the
Company has good and marketable title to its assets (other than real property,
which is covered in Section 3.8) free and clear of all Encumbrances other than
Permitted Liens. The Company's machinery, equipment and other tangible assets
have been maintained in good working condition (normal wear and tear excepted)
and are sufficient for the conduct of the Business as presently conducted. The
Company's accounts receivable represent bona fide obligations arising in the
ordinary course of the Business and are fully collectible by the Company, net of
reserves for doubtful accounts reflected on the Latest Balance Sheet. Except as
set forth on Schedule 3.9, the Company's inventory is of marketable quality, is
not obsolete, damaged or slow-moving, and has been prepared in compliance in all
material respects with all applicable legal requirements. The assets reflected
on the Latest Balance Sheet constitute all of the assets, properties and other
rights used in the conduct of the Business except for those assets acquired or
disposed of in the ordinary course of business subsequent to the date of the
Latest Balance Sheet and as contemplated by Section 5.11.

3.10 INTELLECTUAL PROPERTY. Schedule 3.10 sets forth a complete and
correct list of all material Proprietary Rights owned or used by the Company in
connection with the Business. Except as set forth on Schedule 3.10, (a) the
Company owns and possesses all right, title and interest in and to, or has a
written and enforceable license to use, all of the Proprietary Rights set forth
on Schedule 3.10, free and clear of all Encumbrances (other than Permitted
Liens); (b) the Company has received no notice of any claim by any third party
contesting the validity, enforceability, use or ownership of any Proprietary
Rights used in connection with the Business nor to Sellers' best knowledge is
any such claim threatened; (c) the Company has not infringed, misappropriated or
otherwise conflicted in any material respect with any Proprietary Rights of any
third party; (d) all Proprietary Rights set forth on Schedule 3.10 will be owned
by or available for use by the Company on identical terms and conditions
immediately subsequent to Closing; and (e) the Company has made the necessary
filings and recordations and have paid all required fees to record and maintain
its ownership of all registered Proprietary Rights.

3.11 CONTRACTS. Schedule 3.11 sets forth a complete and correct list
of all Contracts (other than real property leases) relating to the Business to
which the Company is a party or to which its respective assets are subject
(excluding customary inventory purchase orders in the ordinary course of
business) (i) which involve consideration with a value of $25,000 or more,
(ii) which will require the Company to purchase or provide goods or services for
a period of more than 90 days after the Closing Date, (iii) which evidence or
provide for any indebtedness for borrowed money for which the Company will be
liable following the Closing or any Encumbrance on any of its assets, (iv) which
guarantee the performance, liabilities or obligations of any other entity,
(v) which restrict in any material respect the ability of the Company to conduct
any business activities, (vi) which involve any related party, including Sellers
or any Affiliate of Sellers, (vii) which are not in the ordinary course of
business, (viii) which are subject to termination or modification by any third
party as a result of the transactions contemplated by this Agreement, or
(ix) which are otherwise material to the Business. The Company is not in
material breach of any of agreement set forth on Schedule 3.11, nor to Sellers'
best knowledge is any third party in material breach of any such agreement.
True and complete copies of all agreements set forth on Schedule 3.11 have
previously been delivered to Buyer.

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3.12 LITIGATION. Except as set forth on Schedule 3.12, there are no
pending or, to Seller's knowledge, threatened claims, actions, suits or
proceedings against the Company which, if adversely determined, individually or
in the aggregate, would have a Material Adverse Effect. Neither the Company nor
any Seller is presently subject to any injunction, order or other decree of any
court of competent jurisdiction.

3.13 COMPLIANCE WITH LAWS. The Business has been conducted in
compliance with all applicable laws and regulations of governmental authorities,
except for such violations that have been cured or that, individually or in the
aggregate, may not reasonably be expected to have a Material Adverse Effect.
The Company possesses, and is in compliance in all material respects with, all
Governmental Permits necessary to the conduct of the Business, except as set
forth in Schedule 3.13, and such Governmental Permits will be in full force and
effect for the benefit of the Company following immediately the Closing Date.

3.14 LABOR MATTERS. Except as set forth on Schedule 3.14, the Company
is not a party to any collective bargaining agreement or any employment,
consulting or similar agreement or any agreement, plan or arrangement providing
for severance payments to any employee upon termination of employment or which
provide benefits upon a change in control. Except as set forth on Schedule 3.14,
there is no labor strike, work stoppage, unfair labor practice charge, grievance
or other labor dispute pending or, to Sellers' best knowledge, threatened
against or with respect to the Company. Except as set forth on Schedule 3.14,
there is no existing representation question respecting any employees of the
Company, nor to Sellers' best knowledge are there any organizational efforts
with respect to any employees of the Company. The Company has complied in all
respects with immigration and naturalization laws in connection with the
employment of its work force.

3.15 ENVIRONMENTAL AND SAFETY MATTERS.

(a) Except as set forth on Schedule 3.15 and except for such
of the following as, individually or in the aggregate, do not and will not have
a Material Adverse Effect:

(i) The Company is and has been in compliance at all
times with all applicable Environmental and Safety Requirements, and the
Company has received no notice, report or information regarding any
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), or any corrective, investigatory or remedial obligations,
arising under Environmental and Safety Requirements with respect to the
past or present operations or properties of the Business.

(ii) The Company has obtained, and is and has been in
compliance at all times with all terms and conditions of, all permits,
licenses and other authorizations required pursuant to Environmental and
Safety Requirements for the occupation of the properties of the Business
and the conduct of its operations.

(iii) To Seller's knowledge, none of the following
exists at any property owned or occupied by the Company: asbestos-
containing material in any form or condition; polychlorinated biphenyl-
containing materials or equipment; or underground storage tanks.

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(iv) The transactions contemplated by this Agreement
do not impose any obligations under Environmental and Safety
Requirements for site investigation or cleanup or notification to or
consent of any government agencies or third parties.

(v) No facts, events or conditions relating to the
past or present properties or operations of the Business or, to Sellers'
knowledge, properties contiguous thereto will (x) prevent, hinder or limit
continued compliance, to Seller's knowledge, by the Company with
Environmental and Safety Requirements, (y) give rise to any corrective,
investigatory or remedial obligations on the part of the Company pursuant
to Environmental and Safety Requirements, or (z) give rise to any
liabilities on the part of the Company (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental and Safety
Requirements, including without limitation those liabilities relating to on
site or off site hazardous substance releases, personal injury, property
damage or natural resources damage.

(vi) The Company has not assumed any liabilities or
obligations of any third party under Environmental and Safety Requirements.

(b) Sellers have delivered or made available to Buyer true,
complete and correct copies of all environmental reports, analyses, tests or
monitoring in the possession of Sellers or the Company pertaining to any
property owned or operated in connection with the Business and a true, complete
and correct list identifying all third party facilities at which contaminants
generated in connection with the Business (whether by the Company or any prior
owner or occupant) have been transported, treated, stored, handled or disposed
within the past five years.

3.16 TAX MATTERS.

(i) Except as set forth in Schedule 3.16, the Company
or Sellers with respect to the Company have timely filed all Tax Returns
required to be filed through the date hereof, and all such Tax Returns are true
and complete in all material respects. The Company or Sellers with respect to
the Company have timely paid all Taxes that are due, or claimed or asserted by
any taxing authority to be due, from or with respect to the Company for all
periods prior to the date hereof, whether or not shown on any Tax Return. With
respect to any period for which Tax Returns have not yet been filed, or for
which Taxes are not yet due or owing, the Company has no liability for Taxes
other than that set forth on the Latest Balance Sheet or incurred subsequent to
the date of the Latest Balance Sheet in the ordinary course of business. The
Company has made all required current estimated Tax payments sufficient to avoid
any underpayment penalties.

(ii) Except as set forth in Schedule 3.16, no Tax
Return of the Company or Sellers with respect to the Company have been audited
or examined by the Internal Revenue Service or any other taxing authority.
There are no outstanding agreements, waivers or arrangements extending the time
within which the Company may file any Tax Return or the statutory period of
limitation applicable to any claim for, or the period for the collection or
assessment of, any Taxes due from or with respect to the Company for any taxable
period. Sellers have previously delivered to Buyer true and complete copies of
all federal, state, local or foreign income or franchise Tax Returns filed by
the Company. No closing agreement pursuant to Section 7121 of the Code (or any
predecessor provision) or any similar provision of any state, local, or foreign
law has been entered into by or with respect to the Company for any Tax period.

(iii) Except as set forth on Schedule 3.16, no audit or
other proceeding by any court or other governmental or regulatory authority is
pending or, to the best

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knowledge of Sellers, threatened with respect to any Taxes due from or with
respect to the Company or any Tax Return filed by or with respect to the
Company, and there is no pending dispute or claim concerning any Tax Liability
of the Company.

(iv) The Company has not made and is not obligated to
make any payment, nor is the Company bound by any contract or other agreement,
plan or arrangement covering any Person that, individually or collectively,
could give rise to any payment, that would not be deductible under Section 280G
or 162(m) of the Code.

(v) Schedule 3.16 contains a list of all jurisdictions
(whether foreign or domestic) in which the Company presently files Tax Returns.
No claim has ever been made by an authority in a jurisdiction where the Company
or Sellers with respect to the Company do not file Tax Returns that it is or
they are or may be subject to taxation by that jurisdiction.

3.17 EMPLOYEE BENEFIT PLANS.

(a) Schedule 3.17 contains an accurate and complete list of
all Employee Plans and all stock option, bonus or other incentive plans,
vacation policies, and other material employee benefit arrangements of the
Company, copies of which have been delivered to Buyer.

(b) Except as set forth on Schedule 3.17 and except for
contributions not yet due and payable, the Company has no liability or potential
liability (including, but not limited to, actual or potential withdrawal
liability) with respect to (x) any multiemployer plan within the meaning of
Section 4001(a)(3) of ERISA, or (y) any Employee Plan of the type described in
Section 4063 and 4064 of ERISA or in Section 413(c) of the Code (and regulations
promulgated thereunder).

(c) No Employee Plan provides any health, life or other
welfare benefits to retired or former employees of the Company, other than as
required by Section 4980B of the Code. No Employee Plan is a defined benefit
plan (as defined in Section 3(35) of ERISA), and the Company has no actual or
potential liability with respect to any defined benefit plan. With respect to
each of the Employee Plans, all contributions attributable to plan years ending
on or prior to the Closing Date and all employer and salary reduction employee
contributions for all months ending on or prior to the Closing Date have been
made.

(d) Each Employee Plan and all related trusts, insurance
contracts and funds (as applicable) have been maintained, funded and
administered in compliance in all material respects with all applicable laws and
regulations, including but not limited to ERISA and the Code. Neither the
Company or any Affiliate of the Company nor, to Sellers' best knowledge, any
trustee or administrator of any Employee Plan or any other person, has engaged
in any transaction with respect to any Employee Plan which could reasonably be
expected to subject the Company or any trustee or administrator of such Employee
Plan to any material liability, tax or penalty (civil or otherwise) imposed by
ERISA or the Code. No actions, suits, investigations or claims with respect to
the Employee Plans or with respect to any fiduciary or other person dealing with
any Employee Plan are pending or to Sellers' best knowledge threatened, and
Sellers have no knowledge of any facts which could reasonably be expected to
give rise to any such actions, suits, investigations or claims. The Company has
complied in all material respects with the requirements of Section 4980B of the
Code.

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(e) No Employee Plan has been terminated within the last three
calendar years. No Employee Plan has incurred any accumulated funding
deficiency, whether or not waived, and none of the assets of the Company are
subject to any lien arising under 302(f) of ERISA or 412(n) of the Code.

(f) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code, and each trust forming a part thereof, has received
a favorable determination letter from the Internal Revenue Service as to the
qualification under the Code of such Employee Plan and the tax exempt status of
such related trust, and nothing has occurred since the date of such
determination letter that could reasonably be expected to adversely affect the
qualification of such Employee Plan or the tax exempt status of such related
trust.

(g) With respect to each Employee Plan, the Company has
provided Buyer with true, complete and correct copies, to the extent applicable,
of (i) all documents (including summary plan descriptions and other material
employee communications) pursuant to which such Employee Plan is maintained,
funded and administered, (ii) the most recent annual report (Form 5500 series)
filed with the Internal Revenue Service (with attachments), (iii) the most
recent financial statements, and (iv) all governmental rulings, determinations
and opinions (and pending requests for governmental rulings, determinations and
opinions) and correspondence with respect thereto.

3.18 INSURANCE. Schedule 3.18 contains a complete listing of all
policies of insurance carried by the Company, including the type and amount of
coverage, deductible levels and expiration dates. All premiums due with respect
to such policies have been paid and such policies are in full force and effect
and will remain in full force and effect until the Closing Date.

3.19 AFFILIATE INTERESTS. Except as disclosed in Schedule 3.19, the
Company is not a party to any transaction with (a) any Seller, (b) any employee,
officer or director of the Company, (c) any relative of any Seller or of any
such employee, officer or director, or (d) any entity, corporation or
partnership that, directly or indirectly, is controlled by or under common
control with any Seller or with any such employee, officer, director or
relative, including without limitation any contract, agreement or other
arrangement (i) providing for the furnishing of services by such person, (ii)
providing for the rental of real or personal property from or to such person,
(iii) providing for the guaranty of any obligation of such person, (iv)
requiring any payment to such person which will continue beyond the Closing
Date, or (v) establishing any right or interest of such person in any of the
assets or rights of the Company.

3.20 INVESTMENT INTENT. Sellers are acquiring the Parent Stock solely
for purposes of investment and not with a view to any distribution thereof in
violation of applicable securities laws.

3.21 WATER RIGHTS. The water rights set forth in SCHEDULE 3.21 (the
"Water Rights") represent all water rights, well permits, applications and water
diversion, storage, and conveyance facilities held by Sellers or the Company and
used in connection with the conduct of the Business. Except as set forth on
Schedule 3.21:

(i) The Water Rights are sufficient to produce a legal and physical supply
of water which is adequate for the conduct of the Business under existing
hydrologic conditions.

(ii) The Sellers have good and valid title to the Water Rights and no party
has asserted a claim of title to them.

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(iii) No express written consent to the use, diversion or adjudication of
the Water Rights has been granted to any third party by the Sellers or their
predecessors.

(iv) Based on the laws of the State of Texas in effect on the date
hereof, the Water Rights are represented by validly entered permits (to the
extent such permits are available), based on timely applications, and any
filings required to be made to preserve, restore or continue the validity of the
Water Rights have been made.

Notwithstanding any of the foregoing, in no event shall the Sellers be
deemed to have made any representation or warranty herein with respect to any
actions taken from or after the date hereof by any governmental agency or
federal or state court having or asserting jurisdiction over the withdrawal of
water from the Edwards Aquifer.

3.22 FEES, COMMISSIONS AND EXPENSES. Neither Sellers nor the Company
has paid or is obligated to pay any brokerage commissions, finders' fees or
similar compensation (including any payments to employees of the Company) in
connection with the transactions contemplated by this Agreement.

3.23 DISCLOSURE. No information supplied by Sellers or the Company in
this Agreement or the Schedules or Exhibits hereto, or in the financial
statements, certificates or other writings furnished by Sellers or the Company
to Buyer or any of its representatives prior to the date hereof, contains any
untrue statement of material fact or omits or shall omit to state any material
fact necessary in order to make the statements herein or therein, in the light
of circumstances under which they were made, not misleading.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT

Buyer and Parent, jointly and severally, represent and warrant to
Sellers as follows:

4.1 ORGANIZATION. (a) Buyer is a limited partnership duly organized
and existing in good standing under the laws of the State of Delaware with the
requisite partnership power and authority to own its properties and to carry on
its business. Buyer is a newly-formed entity with no assets or liabilities
other than as contemplated by this Agreement. As of Closing, Buyer will have
applied for qualification to do business in the State of Texas.

(b) Parent is a corporation duly organized and existing in
good standing under the laws of the State of Delaware with the requisite
corporate power and authority to own its properties and to carry on its
business.

4.2 POWER AND AUTHORITY. Each of Buyer and Parent has the requisite
power and authority to enter into this Agreement and to assume and perform fully
its respective obligations hereunder. The execution and delivery of this
Agreement and the performance by each of Buyer and Parent of its respective
obligations hereunder have been duly and validly authorized by all necessary
action on the part of Buyer and Parent. This Agreement is the valid and binding
obligation of Buyer and Parent enforceable in accordance with its respective
terms.

4.3 CAPITALIZATION. The authorized capital stock of Parent consists
of 20,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), of which ____ shares are issued and outstanding, and 1,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"). All of
the issued and outstanding shares of Parent are held of record as of the date

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hereof as set forth on Schedule 4.3. None of the authorized shares of Preferred
Stock are issued and outstanding. All of the Parent Stock, when delivered
pursuant to the provisions of this Agreement, will be validly issued, fully paid
and non-assessable, free and clear of all Encumbrances and will not be issued in
violation of any preemptive rights.

4.4 CONSENTS AND APPROVALS. Except with respect for filings under
the HSR Act, no filings with, notices to, or approvals of any governmental or
regulatory body are required to be obtained or made by Buyer or Parent for the
consummation by Buyer or Parent of the transactions contemplated hereby.

4.5 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by Buyer and Parent and the performance by each of Buyer and Parent of
its obligations hereunder (i) do not and will not conflict with or violate any
provision of the organizational documents of Buyer or Parent; and (ii) do not
and will not (a) conflict with or result in a breach of the terms, conditions or
provisions of, (b) constitute a default under, (c) result in the creation of any
lien, security interest, charge or encumbrance upon its assets pursuant to,
(d) give any third party the right to modify, terminate or accelerate any
obligation under, (e) result in a violation of, or (f) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body or any third party pursuant to, any
law, statute, rule or regulation or any agreement, instrument, order, judgment
or decree to which Buyer and Parent are subject.

4.6 LITIGATION. There are no claims, actions, suits or proceedings
pending against Buyer or, to Buyer's best knowledge, threatened against Buyer,
or an Affiliate of Buyer, before or by any court or governmental agency which,
if adversely determined, individually or in the aggregate, would have a Material
Adverse Effect. Buyer is not presently subject to any injunction, order or
other decree of any court of competent jurisdiction.

4.7 INVESTMENT INTENT. Buyer is acquiring the Company Interests
solely for purposes of investment and not with a view to any distribution
thereof in violation of applicable securities laws.

4.8 FEES, COMMISSIONS AND EXPENSES. No agent, broker, person or firm
acting on behalf of Buyer or Parent, or engaged by Buyer or Parent, is, or will
be, entitled to any brokerage commissions, finders' fees or similar compensation
from Sellers in connection with the transactions contemplated by this Agreement.

SECTION 5. COVENANTS OF THE PARTIES

5.1 CONDUCT OF BUSINESS. From the date hereof to the Closing, except
as expressly contemplated by this Agreement or otherwise consented to by Buyer
in writing, Sellers shall use their reasonable efforts to cause the Company to,
and the Company shall:

(a) conduct the Business only in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and
maintain working capital and levels of Funded Debt and borrowings under the Line
of Credit at current levels subject to normal fluctuation consistent with past
experience;

(b) maintain in all material respects all of the structures,
equipment and other tangible personal property of the Business in its present
condition, except for ordinary wear and tear and damage by unavoidable casualty;

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(c) preserve and maintain all Proprietary Rights used in the
Business substantially in accordance with current business practices;

(d) keep in full force and effect insurance comparable in
amount and scope of coverage to insurance now carried with respect to the
Business;

(e) perform in all material respects all obligations under
leases, agreements, contracts and instruments relating to or affecting the
Business;

(f) maintain the books of account and records of the Business
in the usual, regular and ordinary manner;

(g) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to the conduct of the Business;

(h) not enter any employment agreement or commitment to
employees of the Business or effect any increase in the compensation or benefits
payable or to become payable to any officer, director or employee of the
Business other than increases in non-officer employee compensation effected in
the ordinary course of business;

(i) create or permit to exist any Encumbrance on the assets of
the Company other than non-consensual Permitted Liens arising by operation of
law;

(j) not enter into or modify any agreement for indebtedness or
any contract obligating the Company to purchase goods or services for a period
of 90 days or more, or sell, lease, license or otherwise dispose of any asset of
the Business (other than dispositions of obsolete assets and inventory in the
ordinary course of business) or acquire any substantial assets other than
replacement assets, inventory and supplies to be used in the Business; and

(k) not authorize or enter into any commitment with respect to
any of the matters described in (h), (i) or (j) above.

5.2 ACCESS TO INFORMATION.

(a) BUYER'S INVESTIGATION. Between the date of this Agreement
and the Closing Date, Sellers will (i) give Buyer and its authorized
representatives (including lenders, legal counsel and accountants) reasonable
access to all employees, plants, offices, warehouses and other facilities and
property of the Business and to its books and records, (ii) permit Buyer and its
authorized representatives to make such inspections thereof as Buyer may
reasonably require, and (iii) furnish Buyer and its representatives and advisers
with such financial and operating data and other information with respect to the
business and properties of the Business as Buyer may from time to time
reasonably request; provided, however, that any such investigation shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the Business.

(b) CONFIDENTIALITY. If the transactions contemplated by this
Agreement are not consummated (and in any event prior to the Closing Date),
Buyer will maintain the confidentiality of all information and materials
obtained from Sellers and will not use or permit others to use such information
for any other purpose, except to the extent disclosure of any such information
is authorized by Sellers or required by law, and upon termination of this
Agreement Buyer and its representatives

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will return to Sellers all materials obtained from Sellers in connection with
the transactions contemplated by this Agreement and all copies thereof. The
provisions of this Section 5.2(b) will not apply to any information, documents
or material which are in the public domain other than by reason of a breach of
this Section 5.2(b).

5.3 EFFORTS TO CONSUMMATE TRANSACTION. The parties shall use their
best efforts to take or cause to be taken all such actions required to
consummate the transactions contemplated hereby including, without limitation,
such actions as may be necessary to obtain, prior to the Closing, all necessary
governmental or other third-party approvals and consents required to be obtained
by Sellers in connection with the consummation of the transactions contemplated
by this Agreement.

5.4 NO SOLICITATION. Unless and until this Agreement shall have been
terminated pursuant to Section 8.1, Sellers shall not, and shall not permit the
Company to directly or indirectly through any officer, director, employee,
agent, affiliate or otherwise, enter into any agreement, agreement in principle
or other commitment (whether or not legally binding) relating to a Competing
Transaction or solicit, initiate or encourage the submission of any proposal or
offer from any person or entity (including any of the Company's officers,
directors, employees and agents) relating to any Competing Transaction, nor
participate in any discussions or negotiations regarding, or furnish to any
other person or entity any information with respect to, or otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person or entity to effect a Competing
Transaction. Sellers and the Company shall immediately cease any and all
contacts, discussions and negotiations with third parties regarding any
Competing Transaction. Sellers shall, and shall cause the Company to notify
Buyer if any proposal regarding a Competing Transaction (or any inquiry or
contact with any person or entity with respect thereto) is made and shall advise
Buyer of the contents thereof (and, if in written form, provide Buyer with
copies thereof).

5.5 AMENDMENT OF DISCLOSURE SCHEDULES. From time to time prior to
the Closing Date, Sellers will supplement or amend the schedules hereto with
respect to any matter known to them which, if existing or occurring at or prior
to the date of this Agreement, would have been required to be set forth or
described in the schedules hereto or which is necessary to correct any
information in such schedules or in any representation or warranty of Sellers
which has been rendered inaccurate thereby. Such supplemented or updated
disclosures shall not be deemed a modification of Sellers' representations and
warranties and shall not affect Buyer's rights under Sections 6 and 7 hereof.

5.6 CHANGE OF NAME; LONE STAR DE MEXICO S.A. DE C.V. Simultaneously
with Closing, Sellers shall change the name of Lone Star Growers, Inc. to a name
which is reasonably acceptable to Buyer and which is not confusingly similar
therewith. Bradberry shall not permit Lone Star de Mexico S.A. de C.V. to do
business in the United States under a name using the words "Lone Star" or any
name confusingly similar therewith unless otherwise consented to by Buyer.

5.7 COOPERATION ON TAX MATTERS. Buyer agrees (i) to retain and
provide Sellers with access to all books and records with respect to tax matters
pertinent to the Company relating to any tax period ending on or prior to the
Closing Date, (ii) to give Sellers reasonable written notice prior to destroying
or discarding any such books and records and, if Sellers so request, Buyer shall
allow Sellers to take possession of such books and records and (iii) permit
Sellers to prepare and file the final federal Tax Return of the Company for the
tax period ending on or before the Closing Date; provided that Buyer shall have
the right to review such returns and to the extent applicable, make an election
under Section 754 of the Code.

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5.8 NOTIFICATION. Between the date of this Agreement and the Closing
Date, each party will promptly notify the other in writing if such party becomes
aware of any fact or condition that causes or constitutes a breach of any of
Sellers' or Buyer's representations and warranties as of the date of this
Agreement, or if either party becomes aware of the occurrence after the date of
this agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. During the same
period, each party will promptly notify the other of the occurrence of any event
or discovery of any fact that may make the satisfaction of the conditions in
Sections 6 and 7 impossible or unlikely.

5.9 RELEASE OF LIABILITIES. Buyer shall use reasonable efforts to
cause Sellers to be released at or prior to Closing from all of the obligations
set forth on Schedule 5.9 hereto.

5.10 NONCOMPETE. During the five year period commencing as of the
Closing Date (the "Noncompete Period"), each of the Sellers agrees to not,
directly or indirectly, own, manage, control, or in any manner engage in the
production, sale or distribution of bedding plant, ground cover, ornamental or
any other live garden products in the State of Texas other than, in the case of
Bradberry in his capacity as and employee of the Company after the Closing Date
and in connection with (x) his ownership interests in Milberger Landscaping &
Nurseries but only to the extent such company is engaged in the landscaping and
retail nursery business and (y) the Mexican Operations. It is agreed that
"beneficial ownership" by either of Sellers, either individually or as a member
of a "group," as such terms are used in Rule 13d of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, of not more
than one percent (1%) of the voting stock of any publicly held corporation shall
not, in and of itself, constitute a violation of this Section 5.10. During the
Noncompete Period, neither Seller shall, directly or indirectly, (i) induce or
attempt to induce any employee of the Company or Buyer to leave the employ of
the Company or Buyer, or in any way interfere with the relationship between
Buyer, the Company and any employee thereof, or (ii) induce or attempt to induce
any customer of the Company or Buyer to cease doing business with the Company or
Buyer, in each case other than through general media solicitations not targeted
at any particular person.

5.11 TRANSFER OF VEHICLES; DISTRIBUTIONS OF RIGHTS TO ADVANCEMENTS.
Prior to or at the Closing, the Company shall (i) transfer title of the three
vehicles set forth on Schedule 5.11 to Bradberry as a distribution from the
Company, and (ii) distribute to Sellers the right to receive all payments from
Organotech, Inc., Vitasol, Inc. or W.R. Dallas Furniture Shops, Inc. with
respect to advances made by the Company to LSG International, L.L.C.,
Organotech, Inc., Vitasol, Inc. or W.R. Dallas Furniture Shops, Inc. with
respect to the Mexican Operations, the Mushroom Business and the Furniture
Business, in each case in a manner satisfactory to Buyer.

5.12 EMPLOYEE BENEFIT PLANS. (a) Effective as of the Closing, all
employees of the Company shall cease to participate in all employee welfare and
pension benefit plans of Tetco, except as may otherwise be required by law, and
shall, at the employee's election, commence participation in employee welfare
and pension benefit plans of Buyer, or an affiliate of Buyer, provided that with
respect to participation in health and dental insurance plans of Buyer, or an
affiliate of Buyer, such participation shall be commenced on a basis whereby all
waiting period and pre-existing condition requirements shall have been waived or
shall otherwise be inapplicable to such employees (and covered dependents).
Sellers shall take, and shall cause the Company to take, all action necessary or
required so to terminate the participation of the employees of the Company in
any such employee welfare and pension benefit plans of Tetco as of the Closing
Date. Any such health or dental insurance plan maintained by Buyer, or an
affiliate of Buyer, shall only cover (to the extent provided in such plan)

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claims relating to health care and dental services rendered after the Closing
Date. The health insurance plans maintained by the Company, through Tetco,
shall cover (to the extent provided in such plans) all claims relating to health
care services rendered to such employees (and covered dependents) on or prior to
the Closing Date. Nothing contained herein shall obligate Buyer or any
affiliate of Buyer to maintain any particular type or level of benefit plans.

(b) With respect to the Tetco, Incorporated Employees' Profit
Sharing Plan and Trust (the "Plan"), the Company shall and does hereby revoke
its participation in such plans as of the Closing Date. All funds held in the
Plan as of the Closing Date shall continue to be maintained by the Trustee of
the Plan for the benefit of the employees of the Company participating in the
Plan until distributed as may be permitted by the Plan. Any amounts owing under
the Plan to any such employees shall be paid by the Plan.

5.13 WARN ACT. Buyer agrees not to take any action following Closing
Date which would impose liability on Sellers under the Worker Adjustment and
Retraining Notification Act.

5.14 TERMINATION OF INSURANCE. Buyer acknowledges that the insurance
policies set forth on Schedule 3.18 shall be terminated as of the Closing Date.

5.15 NOTICE TO EMPLOYEES, CUSTOMERS, ETC. Buyer hereby consents to
Sellers distributing the notice attached as Exhibit D to the current and former
employees, customers, suppliers, vendors and other creditors of the Company.

5.16 RIGHT OF ACCESS. With respect to the approximately 48.284 acre
tract of land owed by the Company (which is separated from the larger tract of
land by Cagnon Road), the Company has no right of access from Cagnon Road or
otherwise. Sellers agree to take such actions as may be necessary to secure
right of access from Cagnon Road onto such tract of land within 90 days from the
date hereof.

SECTION 6. CLOSING CONDITIONS

6.1 OBLIGATION OF BUYER TO CLOSE. The obligation of Buyer to close
the transactions contemplated hereby shall be subject to the fulfillment and
satisfaction, prior to or at the Closing, of the following conditions, or the
written waiver thereof by Buyer:

(a) REPRESENTATIONS AND COVENANTS. The representations and
warranties of Sellers contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date. Sellers shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by
Sellers on or prior to the Closing Date.

(b) HSR ACT. Buyer and Sellers shall have received early
termination under the HSR Act or the applicable waiting periods thereunder shall
have expired.

(c) NO INJUNCTION. No injunction or restraining order shall
be in effect which forbids or enjoins the consummation of the transactions
contemplated by this Agreement, no proceedings for such purpose shall be
pending, and no federal, state, local or foreign statute, rule or regulation
shall have been enacted which prohibits, restricts or delays the consummation of
the transactions contemplated hereby.

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(d) APPROVALS. All material governmental and third party
approvals, consents, permits or waivers necessary for consummation of the
transactions contemplated by this Agreement shall have been obtained in form and
substance satisfactory to Buyer.

(e) TITLE INSURANCE. Buyer shall have received (i) binders
for ALTA title insurance policies or other evidence of title insurance
reasonably acceptable to Buyer with respect to each parcel of real property
owned by the Company showing fee title vested in the Company (subject only to
Permitted Liens) and containing such endorsements and affirmative coverages as
Buyer may reasonably require (including access, zoning, contiguity, survey and
extended coverage), and (ii) surveys of such properties conforming to ALTA
Minimum Detail Requirements for Land Title Surveys.

(f) LEGAL OPINION. Buyer shall have received the legal
opinion of Cox & Smith Incorporated, counsel to Sellers in the form of Exhibit E
hereto.

(g) RELATED PARTY PAYMENTS. Buyer shall have received
evidence satisfactory to it of the receipt by the Company of all monies owed to
the Company by Sellers or any Affiliate or relative of any Seller.

(h) FINANCING. Buyer shall have obtained all necessary third-
party financing required in order to consummate the transactions contemplated
hereby and to meet the ongoing working capital requirements of the Business.

(i) EQUITY ARRANGEMENTS. Bradberry shall have agreed to be
bound by the Stockholders Agreement in a manner satisfactory to Buyer.

(j) FUNDED DEBT. The amount of the Company's Funded Debt
shall not be less than $8,559,663.58 and the amount outstanding under the Line
of Credit shall not be greater than $5,021,770.84. All Funded Debt and the Line
of Credit shall have been repaid and the Encumbrances associated therewith
released.

6.2 OBLIGATION OF SELLERS TO CLOSE. The obligation of Sellers to
close the transactions contemplated hereby shall be subject to the fulfillment
and satisfaction, prior to or at the Closing, of the following conditions, or
the written waiver thereof by Sellers:

(a) REPRESENTATIONS AND COVENANTS. The representations and
warranties of Buyer and Parent contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. Buyer and Parent
shall have performed and complied in all material respects with all covenants
and agreements required by this Agreement to be performed or complied with by
Buyer or Parent on or prior to the Closing Date.

(b) HSR ACT. Buyer and Sellers shall have received early
termination under the HSR Act or the applicable waiting periods thereunder shall
have expired.

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(d) EMPLOYMENT AGREEMENT. Buyer shall have executed and
delivered the Employment Agreement.

(e) PARENT STOCK. Parent shall have issued options to
purchase 202,005 shares of Parent Stock as set forth on Schedule 6.2(e) pursuant
to Parent's Special Stock Option Plan.

(f) RELEASES. Sellers shall have been released from all
liabilities and obligations with respect to the obligations set forth on
Schedule 5.9.

SECTION 7. INDEMNIFICATION

7.1 INDEMNIFICATION.

(a) BY SELLERS. Sellers shall, jointly and severally,
indemnify and hold harmless Buyer, the Company and their respective directors,
officers, employees, Affiliates and agents, at all times from and after the
Closing Date, against and in respect of Losses arising from or this Agreement
to: (i) any breach of any of the representations or warranties made by Sellers
in this Agreement (without regard to any materiality qualification contained in
any such representation or warranty); (ii) any breach of the covenants and
agreements made by Sellers in this Agreement or any Exhibit hereto delivered by
Sellers in connection with the Closing, (iii) the Furniture Business, the
Mexican Operations and the Mushroom Business; (iv) the Plan other than
contributions owing under the Plan for fiscal 1996 for employees of the Company
up to a maximum contribution of $105,000; (v) any matter set forth on Schedule
3.12 in excess of $171,000 in the aggregate; and (vi) the remediation of the
environmental matters set forth on Schedule 7.5. Notwithstanding the foregoing,
Sellers' indemnification obligations with respect to breaches of covenants and
agreements to be performed under Section 5 after the Closing shall be several,
and not joint and several.

(b) BY BUYER. Buyer shall indemnify and hold harmless Sellers
at all times from and after the Closing Date against and in respect of Losses
arising from or relating to: (i) any breach of any of the representations or
warranties made by Buyer in this Agreement (without regard to any materiality
qualification contained in any such representation or warranty); (ii) any breach
of the covenants and agreements made by Buyer in this Agreement or any Exhibit
hereto delivered by Buyer in connection with the Closing and (iii) any
liabilities or obligations of the Company not performed or satisfied by Buyer
after the Closing (except to the extent Buyer is entitled to indemnification
with respect thereto pursuant to Section 7.1(a)).

7.2 LIMITATIONS OF INDEMNITY. Notwithstanding the foregoing, (i) no
amounts shall be payable by Sellers under Section 7(a)(i) unless and until the
aggregate amount otherwise payable by Sellers in the absence of this clause
exceeds $250,000, in which event such amounts in excess of such amount (but only
such amounts in excess) shall be due; (ii) the maximum liability of Sellers
under this Section 7 shall be $5,000,000 and (iii) no claim for indemnification
under this Section 7.1(a)(i) shall first be asserted after the 18 month
anniversary of the date hereof; provided, however, that a claim for
indemnification under Sections 3.15 and 3.17 may be asserted until the third
anniversary of the date hereof and a claim for indemnification under
Sections 3.5 and 3.8(b) may be asserted at any time, and provided further, that
a claim for indemnification under Section 3.16 may be asserted at any time prior
to the expiration of the statute of limitations applicable thereto, including
any extension thereof. In case any event shall occur which would otherwise
entitle any party to assert a claim for indemnification hereunder, no claim,
loss, liability, cost or expense shall be deemed to have been sustained by such
party to the extent of any proceeds received by such party from any insurance
policies with respect thereto. With respect to any claim which may be covered
by insurance, Buyer agrees to pursue such

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claim in good faith or assign such claim to Sellers.

7.3 PROCEDURE FOR INDEMNIFICATION CLAIMS.

(a) Any Indemnified Party asserting a right of indemnification
provided for under this Agreement in respect of a Third Party Claim shall notify
the Indemnifying Party in writing of the Third Party Claim within ten business
days after receipt by such Indemnified Party of written notice of the Third
Party Claim. As part of such notice, the Indemnified Party shall furnish the
Indemnifying Party with copies of any pleadings, correspondence or other
documents relating thereto that are in the Indemnified Party's possession. The
Indemnified Party's failure to notify the Indemnifying Party of any such matter
within the time frame specified above shall not release the Indemnifying Party,
in whole or in part, from its obligations under this Section 7 except to the
extent that the Indemnifying Party's ability to defend against such claim is
actually prejudiced thereby. The Indemnifying Party agrees (and, at such time
as the Indemnifying Party acknowledges its liability under this Section 7 with
respect to such Third Party Claim, the Indemnifying Party shall have the sole
and exclusive right) to defend against, settle or compromise such Third Party
Claim at the expense of such Indemnifying Party; provided, however, such
acknowledgement shall not effect or be deemed a waiver of the limitation on
liability set forth in Section 7.2. The Indemnified Party shall have the right
(but not the obligation) to participate in the defense of such claim through
counsel selected by it, which counsel shall be at the Indemnified Party's
expense to the extent that the Indemnifying Party has assumed the defense of
such claim unless counsel for the Indemnifying Party could not adequately
represent the interests of the Indemnified Party due to an actual or potential
conflict of interest, in which case such counsel shall be at the Indemnifying
Party's expense. The Indemnified Party shall cooperate with the Indemnifying
Party and provide such assistance at the Indemnifying Party's expense as the
Indemnifying Party may reasonably request in connection with the defense of such
claim, including but not limited to providing the Indemnifying Party access to
and use of all relevant corporate records and making available its officers and
employees for depositions, other pre-trial discovery and as witnesses at trial,
if required. If the Indemnified Party asserts a right of indemnification under
this Agreement for a Third Party Claim and the Indemnifying Party has not yet
acknowledged its liability under this Section 7 with respect to such Third Party
Claim, then the Indemnifying Party and the Indemnified Party shall cooperate in
defending against such Third Party Claim at the Indemnifying Party's expense,
and neither party shall have the right, without the other's consent, to settle
or compromise any such Third Party Claim.

(b) In the event of any claim for indemnification hereunder
that is not a Third Party Claim, the Indemnified Party shall give reasonable
notice thereof to the Indemnifying Party and shall afford the Indemnifying Party
access to all relevant corporate records and other information in its possession
relating thereto.

(c) If any party becomes obligated to indemnify another party
with respect to any claim for indemnification hereunder and the amount of
liability with respect thereto shall have been finally determined, the
Indemnifying Party shall pay such amount to the Indemnified Party in immediately
available funds within ten days following written demand by the Indemnified
Party.

7.4 OUTSTANDING LITIGATION. Notwithstanding anything contained in
this Agreement to the contrary, Sellers shall have the right to defend the
matters set forth on Schedule 3.12. Buyer shall have the right to participate
in such defense, at its expense. Sellers shall provide to Buyer copies of any
pleadings, correspondence or other documents produced in connection with such
matters. Sellers shall not settle any such matter without the prior written
consent of Buyer, which consent shall not be unreasonably withheld.

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7.5 ENVIRONMENTAL MATTERS. Within the 90 day period following the
Closing Date, Sellers shall take the actions set forth on Schedule 7.5 with
respect to the environmental conditions described on such schedule.

7.6 EXCLUSIVE REMEDY. The provisions for indemnification set forth
in this Section 7 are the exclusive remedies of Buyer and Sellers arising out of
or in connection with this Agreement, and shall be in lieu of any rights under
contract, tort, equity or otherwise (other than claims based on actual fraud or
intentional breach of this Agreement).

SECTION 8. MISCELLANEOUS

8.1 TERMINATION. Anything herein to the contrary notwithstanding,
this Agreement may be terminated at any time prior to the Closing Date: (i) by
mutual written consent of Buyer and Sellers; (ii) by either Buyer or Sellers if
for any reason the Closing shall not have occurred on or before February 20,
1997 (or such other date as may be mutually agreed by the parties); or (iii) by
either Buyer or Sellers in the event that a condition to the terminating party's
obligations to close the transactions contemplated by this Agreement shall
become incapable of satisfaction; provided, however, that no party shall be
entitled to terminate this Agreement in the event that the failure of the
Closing to occur or any condition to Closing to be satisfied shall be
attributable to such party's breach of this Agreement.

8.2 PUBLICITY. No press release or other public announcement
concerning this Agreement or the transactions contemplated hereby shall be made
without advance approval thereof by Sellers and Buyer, except as required by
law.

8.3 ENTIRE AGREEMENT. This Agreement and the exhibits delivered in
connection herewith constitute the entire agreement of the parties with respect
to the subject matter hereof. The representations, warranties, covenants and
agreements set forth in this Agreement and in any schedules or exhibits
delivered pursuant hereto constitute all the representations, warranties,
covenants and agreements of the parties hereto and upon which the parties have
relied, and except as specifically provided herein, no change, modification,
amendment, addition or termination of this Agreement or any part thereof shall
be valid unless in writing and signed by or on behalf of the party to be charged
therewith.

8.4 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be given or made pursuant to any of the
provisions of this Agreement shall be deemed to have been duly given or made for
all purposes if (i) hand delivered, (ii) sent by a nationally recognized
overnight courier or (iii) sent by telephone facsimile transmission (with prompt
oral confirmation of receipt) as follows:

If to Buyer, at:

3478 Buskirk Avenue, Suite 260
Pleasant Hill, CA 94523
Attention: Michael Vukelich
Telecopy No.: (510) 935-0799

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With copies to:

Kohlberg & Company
111 Radio Circle
Mt. Kisco, NY 10545
Attention: Samuel Frieder
Telecopy No.: (914) 242-7476

Brownstein, Hyatt, Farber & Strickland, P.C.
410 17th Street, 22nd Floor
Denver CO 80202-4437
Attention: Steven S. Siegel, Esq.
Telecopy No.: (303) 623-1956

If to either Seller;

7960 Cagnon Road
San Antonio, TX 78252
Attention: Joseph Bradberry
Telecopy No.: (210) 258-3838

and:

Tetco, Inc.
1777 N.E. Loop 410
San Antonio, Texas 78217
Attention: Dayton H. Simms
Telecopy No. (210) 826-3003

With a copy to:

Cox & Smith Incorporated
112 E. Pecan, Suite 1800
San Antonio, Texas 78205
Attention: Dan G. Webster, III
Telecopy No.: (210) 226-8395

or at such other address as any party may specify by notice given to the other
party in accordance with this Section 8.4. The date of giving of any such
notice shall be the date of hand delivery, the date sent by telephone facsimile,
and the day after delivery to the overnight courier service.

8.5 WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended and the terms hereof may be waived
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance.

8.6 COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.

- 23 -

<PAGE>

8.7 GOVERNING LAW; SEVERABILITY. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE DELAWARE WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER
OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
SHOULD ANY CLAUSE, SECTION OR PART OF THIS AGREEMENT BE HELD OR DECLARED TO BE
VOID OR ILLEGAL FOR ANY REASON, ALL OTHER CLAUSES, SECTIONS OR PARTS OF THIS
AGREEMENT SHALL NEVERTHELESS CONTINUE IN FULL FORCE AND EFFECT.

8.8 DISPUTE RESOLUTION; ENFORCEMENT OF VENUE; SERVICE OF PROCESS.

(a) If any controversy, claim or dispute arises out of or relating to this
Agreement or the transactions contemplated hereby, the disputing parties shall
attempt to resolve in good faith such controversy, claim or dispute among
themselves and, if they cannot, such controversy, claim or dispute shall be
submitted to nonbinding mediation to be held for a maximum of one day
administered by the American Arbitration Association ("AAA") in accordance with
its Commercial Mediation Rules then in effect. If such controversy, claim or
dispute is not resolved through such mediation, it shall be resolved by
arbitration before a panel of three arbitrators in accordance with the
Commercial Arbitration Rules then in effect of the AAA, and any judgment on the
award rendered by the arbitrators shall be final and binding on the parties and
may be entered in any court having jurisdiction thereof. The parties agree that
exclusive venue for all mediation and arbitration hearings pursuant to this
section shall be held in Denver, Colorado. In any arbitration proceeding, the
arbitrators shall apply the law of Delaware.

(b) In the event either party shall seek enforcement of any covenant,
warranty or other terms or provision of this Agreement or seek to recover
damages for the breach thereof, the party which prevails in such proceedings
shall be entitled to recover reasonable attorneys' fees and expenses actually
incurred by it in connection therewith. Without limiting Section 8.8(a), the
parties hereto agree that this Agreement is performable in Denver, Colorado and
that the sole and exclusive venue for any proceeding involving any claim arising
under or relating to this Agreement shall be in Denver, Colorado. The parties
hereto agree that the service of process or any other papers upon them or any of
them in accordance with Section 8.5 shall be deemed good, proper, and effective
service upon them.

8.9 ASSIGNMENT. This Agreement shall be binding upon, and inure to
the benefit of, the parties and their respective successors and permitted
assigns. Neither this Agreement nor any rights or obligations hereunder shall
be assignable by either party; provided that Buyer may assign its rights (i) a
security to any lender providing financing for the transactions contemplated
hereby (and any replacement thereof) and (ii) in connection with a sale of all
or substantially all of the Business. Buyer agrees not to assign or
substantially all of its assets until such time as the material expenses and
payables of the Company reflected on the Latest Balance Sheet or incurred in the
ordinary course of Business subsequent to the date of the Latest Balance Sheet
and prior to the date hereof have been discharged unless such expenses are
assumed by the purchaser in any such transaction.

8.10 EXPENSES. Each of Buyer and Sellers shall bear all of their own
expenses in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, including without limitation
all fees and expenses of its agents, representatives, counsel and accountants.
Any amount owing to any governmental authority as a result of the transactions
contemplated hereby (such as transfer Taxes) shall be borne equally by Buyer, on
the one hand, and Sellers, on the other hand. Notwithstanding the foregoing,
Sellers shall not be responsible for the payment of any expenses with respect to
title insurance policies, surveys or environmental tests and studies performed
at the request of Buyer.
* * * * *

- 24 -

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed on the date and year first above written.

LONE STAR GROWERS, L.P.
By: Lone Star, Inc., its general partner

By: /s/ Michael Vukelich
------------------------------
Michael Vukelich
Chief Executive Officer

CSN, INC.

By: /s/ Michael Vukelich
------------------------------
Michael Vukelich
Chief Executive Officer

/s/ Joseph F. Bradberry
----------------------------------
Joseph F. Bradberry

TETCO, INC.

By: /s/ Dayton H. Simms
------------------------------
Dayton H. Simms
Vice President

LONE STAR GROWERS CO.

By: /s/ Joseph F. Bradberry
------------------------------
Joseph F. Bradberry
General Partner

- 25 -

<PAGE>

REAL PROPERTY LEASE

DATED: December 1, 1995

BETWEEN: M.F. VUKELICH CO LANDLORD

AND: COLOR SPOT NURSERIES, INC. TENANT

Tenant wishes to lease from Landlord certain real property located in
Contra Costa County, California and described in attached Exhibit A (the "Land")
together with the potting house structure and all green-house structures (the
"Leased Improvements") presently on the Land. The Land and the Leased
Improvements are hereinafter referred to collectively as the "Leased Premises."

NOW, THEREFORE, Landlord hereby leases the Leased Premises to Tenant on the
following terms:

1. TERM; POSSESSION. The lease term shall be three (3) years commencing
on March 1, 1993 (the "Commencement Date") and, unless sooner terminated as
hereinafter provided, ending on February 29, 1996. Tenant will have the option
to renew this lease (i) at the end of the initial term for an additional one
year term and (ii) if the first option was exercised, at the end of the first
additional one year term for a second one year term, each such additional one
year term to commence on the day following expiration of the preceding term. A
renewal option shall be deemed exercised unless notice of nonexercise is given
by Tenant to Landlord at least six (6) months before expiration of the preceding
term. The terms and conditions of this lease will remain the same during the
renewal term(s).

2. RENTAL. Tenant will pay to Landlord annual rent of $252,000, payable
in advance in equal quarterly installments Of $63,000 on or before the first day
of each March, June, September and December during the lease term, commencing
March 1, 1993. Rent shall be paid to Landlord at Landlord's address set forth
in Section 14 hereof. If Tenant fails to make a rent payment within seven days
after it is due, Tenant shall pay Landlord a late charge of $3,150.

3. USE OF LEASED PREMISES. Tenant may use the leased Premises for any
lawful purpose.

4. MAINTENANCE.

4.1 OBLIGATION TO REPAIR. Except as otherwise provided herein,
neither Landlord nor Tenant shall have any obligation to maintain or repair all
or any part of the Leased Premises.

4.2 ROUTINE MAINTENANCE. If Tenant uses any Leased Improvements,
Tenant will provide such ordinary day-to-day maintenance of such Leased
Improvements as Tenant, in its sole,

<PAGE>

subjective judgement, determines to be necessary in the conduct by Tenant of its
business on the Leased Premises (which will not in any event require Tenant to
perform any major repairs, any repairs to the structure of the Leased
Improvements, or any repairs necessitated by defects in the Leased Improvements
as of the Commencement Date or necessitated by any present or future
noncompliance of the Leased Improvements with applicable statutes, codes,
regulations, ordinances, orders and other governmental requirements). For
purposes of this Section 4.2, Tenant will be deemed to be using a Leased
Improvement unless Tenant notifies Landlord that it is not using such Leased
Improvement.

4.3 REPLACEMENTS. Tenant, at its election, may replace or repair
all or any part of any one or more of the Leased Improvements if, in Tenant's
sole, subjective judgment, such replacement or repair is reasonably necessary in
the conduct by Tenant of its business on the Leased Premises. In making any
such replacement or repair, Tenant shall use such materials and
construction/repair techniques as Tenant, in its the sole, subjective
judgement, determines to be necessary in conduct by Tenant of its business on
the Leased Premises. Upon the end of the lease term, Tenant, at its election,
may remove (or leave) any such replacement or repair.

5. TAXES; UTILITIES.

5.1 PERSONAL PROPERTY TAXES. Tenant shall pay when due all personal
property taxes assessed against Tenant's personal property, equipment or trade
fixtures on the Leased Premises.

5.2 TAXES AND ASSESSMENTS. Tenant shall pay when due all taxes,
assessments, and public charges on the Leased Premises; provided that taxes and
assessments for any partial year during the lease term shall be prorated between
Landlord and Tenant on the basis of the portion of the tax year that Tenant
occupies the Leased Premises. Tenant may use any available installment payment
plans for special assessments and in such case shall be obligated to pay only
those installments coming due during the term of this lease.

5.3 PAYMENT OF UTILITIES CHARGES. Tenant shall pay when due all
charges for services and utilities incurred in connection with Tenant's use of
the Leased Premises.

6. LIABILITY TO THIRD PERSONS.

6.1 LIENS. Tenant shall pay as due all claims for work done on or
for services rendered on or for material furnished to the Leased Premises at
Tenant's request, and shall keep the Leased Premises free from any liens for
such work, services and materials, except. that Tenant may withhold payment of
any claim in connection with a good faith dispute over the obligation io pay, so
long as Landlord's property interest is not jeopardized.

6.2 CONTEST BY TENANT. If Tenant withholds payment of a claim and a
lien is filed as a result of nonpayment, Tenant shall (within 10 days after
knowledge of the filing) secure the

<PAGE>

discharge of the lien or deposit with Landlord cash or sufficient corporate
surety bond or other security reasonably satisfactory to Landlord in an amount
sufficient to discharge the lien plus all costs, attorneys' fees, and other
charges that could reasonably accrue as a result of a foreclosure or sale under
the lien.

6.3 INDEMNIFICATION OF LANDLORD. Tenant shall indemnify and defend
Landlord from any claim, loss, or liability arising out of or related to any
action or inaction of Tenant or its invitees.

7. INSURANCE AND DAMAGE.

7.1 INSURANCE. If Tenant maintains general liability insurance and
fire and casualty insurance with respect to its activities on the Leased
Premises, it will cause Landlord to be named as an additional insured on such
insurance as Landlord's interests may appear.

7.2 DAMAGE. If fire or other casualty materially damages the Leased
Improvements and if the total of (i) the insurance proceeds (if any) and (ii)
other proceeds made available by Landlord (at Landlord's sole discretion and
without obligations to make any such proceeds available.) available to Tenant
for rebuilding the damaged Leased Premises within 60 days following the date of
such damage are not sufficient in Tenant's reasonable judgment to rebuild the
damaged Leased Premises, Tenant may elect to terminate this lease by giving
written notice of such termination to Landlord within 70 days following the date
of damage. Neither Landlord nor Tenant shall have any obligation to restore the
Leased Improvements.

8. CONDEMNATION. If more than 30% of the Land area or more than 30% of
the Land are or more than 30% of the square footage of the Leased Improvements
is condemned, Tenant may elect to terminate this Lease as of the date upon which
possession of the Leased Premises is taken by the condemning authority by
written notice to Landlord. If a condemnation action is filed against the
Leased Premises or threatened by a condemning authority, Landlord is authorized
to negotiate with the condemning authority and will promptly notify and
cooperate with Tenant in the response to or defense of such action or threat;
provided, however, Landlord will not consent to or settle such condemnation
action or convey any portion of the Leased Premises under threat of condemnation
without first obtaining Tenant's approval thereof in writing, which approval
will not be unreasonably withheld. Neither Landlord nor Tenant shall have any
obligation to restore the Leased Premises. Landlord and Tenant shall
participate in the condemnation proceeds as their interests shall appear. Sale
of more than 30% of the Land area or more than 30% of the square footage of the
Leased Improvements to a purchaser with the power of eminent domain in the face
of a threat or the probability of the exercise of the power shall be treated as
a taking by condemnation. If less than 30% of the Land area or less than 30% of
the square footage of the Lease improvements is condemned or sold in lieu
thereof, a pro rata rent adjustment shall be made for the balance of the lease
term. If not more than a fifteen foot wide strip along the western boundary of
the land is condemned or sold in lieu thereof, such portion so condemned or sold
shall not be considered part

<PAGE>

of the Land for purposes of determining if 30% or more of the Land area was
condemned or sold in lieu thereof.

9. TRANSFERS BY TENANT. Tenant may assign Tenant's leasehold estate or
sublet any portion of the Leased Premises without the consent of Landlord;
provided, however, that no such transfer shall relieve Tenant of its obligations
hereunder.

10. ENVIRONMENTAL COMPLIANCE INDEMNITY. Tenant shall not engage in any
activity in its use of the Leased Premises which violates any environmental law.
Tenant shall indemnify and hold Landlord harmless from and against and reimburse
Landlord for all liabilities, claims, demands, costs, fees (including, without
limitation, attorneys' fees and expenses, whether incurred in arbitration,
trial, appeal or otherwise) and expenses incurred by Landlord or for which
Landlord becomes obligated arising out of any breach by Tenant of Tenant's
obligations pursuant to the preceding sentence.

11. DEFAULT. The following shall be events of default:

(i) if Tenant fails to make any rent or other , payment under this
lease within two business days. after written notice that it is due; or

(ii) if Tenant fails to comply with any other term or condition or
fulfill any other obligation of this lease within 30 days after written notice
by Landlord specifying the nature of the default with reasonable particularity.
If the default is of such a nature that it cannot be remedied fully within the
30-day period, this requirement shall be satisfied if Tenant begins correction
of the default within the 30-day period and thereafter proceeds with reasonable
diligence and in good faith to effect the remedy as soon as practicable.

12. REMEDIES ON DEFAULT. On the occurrence of any default by Tenant:

(i) Landlord may terminate Tenant's right to possession of the
Leased Premises by any lawful means, in which case this Lease shall terminate
and Tenant shall immediately surrender possession of the Leased Premises to
Landlord.

(ii) Landlord shall be entitled to recover from Tenant the following
damages incurred by Landlord by reason of Tenant's default: (a) the worth at
the time of the award of the unpaid rent which had been earned at the time of
the termination; (b) the worth at the time of the award of the amount by which
the unpaid rent which would have been earned after termination until the time of
the award exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided; (c) the worth at the time of the award of the amount by
which the unpaid rent which would have been paid for the balance of the term
after the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; and (d) any costs or expenses
incurred by Landlord in recovering possession of the Leased Premises, Landlord's
reasonable attorneys' fees incurred in connection with reletting, and any real
estate commission paid

<PAGE>

or payable. As used in subparts (a) and (b) above, the "worth at the time of
the award" is computed by allowing interest on unpaid amounts at a per annum
rate equal to the discount rate of the Federal Reserve Bank of San Francisco at
the time of the award, plus 100 basis points, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (c) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus 100
basis points.

(iii) Landlord may maintain Tenant's right to possession in which case
this lease will continue in effect whether or not Tenant has vacated or
abandoned the Leased Premises. In such event Landlord shall be entitled to
enforce all of Landlord's rights and remedies under this Lease, including the
right (subject to Landlord's duty to mitigate damages) to recover rent as it
becomes due hereunder.

(iv) Subject to Section 16 hereof, Landlord may pursue any other
remedy now or hereafter available to it.

13. SURRENDER AT EXPIRATION.

13.1 CONDITION OF LEASED PREMISES. Upon expiration of the lease term
or earlier termination on account of default, Tenant shall surrender the Leased
Premises in its then present condition, except that the amount of debris left on
the Land shall not be substantially more than the amount of debris on the Land
at the commencement of this Lease. Tenant is entitled to remove its property
from the Leased Premises at any time, and Landlord hereby acknowledges that all
fans, louvers, lights, heaters, fertilizer injectors and irrigation systems
currently on or used in connection with the Leased Premises are the property of
Tenant.

13.2 HOLDOVER. If Tenant does not vacate the Leased Premises at the
time required and Landlord accepts rent from Tenant, Tenant shall be a tenant
from month to month, subject to all of the provisions of this lease (except that
the term will be month-to-month and the rent will be $23,100 per month). If a
month-to-month tenancy results from a holdover by Tenant, the tenancy shall be
terminable by either party by giving written notice to the other not less than
30 days prior to the termination date which shall be specified in the notice.

14. WARRANTY OF QUIET ENJOYMENT. So long as Tenant complies with all
terms of this lease, Tenant shall be entitled to peaceable and undisturbed
possession of the Leased Premises free from any interference by Landlord or
those claiming through Landlord.

15. GENERAL PROVISIONS.

15.1 MODIFICATIONS. This lease may. not be modified except by
endorsement in writing attached to this lease, dated and signed by the parties.

<PAGE>

15.2 NONWAIVER. Waiver of performance of any provision of this lease
shall not be a waiver of nor prejudice the party's right otherwise to require
performance of the same provision or any other provision.

15.3 SUCCESSION. This lease shall bind and inure to the benefit of
the parties, their respective successors, and assigns.

15.4 NOTICES Any notice or notification to any party required,
permitted or contemplated hereunder will be in writing, will be addressed to the
party to be notified at the address set forth below, or at such other address as
each party may designate for itself from time by notice hereunder, and will be
deemed to have been validly served, given or delivered (i) five days following
deposit in the United States mails, by certified mail, with proper postage
prepaid, (ii) the next business day after such notice was delivered to a
regularly scheduled overnight delivery carrier with delivery fees either prepaid
or an arrangement, satisfactory to such carrier, made for the payment of such
fees, or (iii) upon receipt (provided that any notice received during non-
business hours will be deemed received at the beginning of the next business
hour) of notice given by telecopy, mailgram, telegram, telex, or personal
delivery:

To Landlord: c/o Michael F. Vukelich
1859 Danielle Court
Walnut Creek, California 94598
Telecopy No. (510) 934-7178

with a copy to: Thomas A. Palmer, Esq.
Knox Ricksen
Suite 1700
1999 Harrison Street
Oakland, California 94612
Telecopy No. (510) 446-1946

To Tenant: Color Spot Nurseries, Inc.
13880 San Pablo Blvd., 2nd Floor
San Pablo, California 94806
Telecopy No. (510) 237-8066

with a copy to: James K. Baer, Esq.
Katten Muchin Zavis & Weitzman
1999 Avenue of the Stars
Suite 1400
Los Angeles, California 90067
Telecopy No. (310) 788-4471

<PAGE>

15.5 APPLICABLE LAW. Except as otherwise provided in Section 16,
this lease shall be construed, applied and enforced in accordance with the
internal laws of the State of California without regard to its conflict of laws
doctrine.

16. ARBITRATION.

16.1 ARBITRATION. The parties acknowledge that this lease evidences
a transaction involving interstate commerce. Except as otherwise provided in
this Section 16, any controversy, dispute or claim of any nature arising out
of, in connection with or in relation to the interpretation, performance or
breach of this lease, including any claim based on contract, tort or statute,
shall be resolved at the request of any party to this lease by final and binding
arbitration conducted (i) by a member of the Judicial Arbitration & Mediation
Services, Inc. San Francisco Panel, (ii) at a location in San Francisco,
California selected by the arbitrator, and (iii) administered in accordance with
the Federal Arbitration Act (9 USC Sections 1 ET SEQ.) and the then existing
Rules of Practice and Procedure of Judicial Arbitration & Mediation Services,
Inc. Judgment upon any award rendered by the arbitrator may be entered by any
state or federal court having jurisdiction thereof. The arbitrator shall not be
empowered to award punitive damages..

16.2 INTERIM RELIEF. Any party may seek from a court any interim or
provisional relief that may be necessary to protect or preserve it's/his rights
under this lease pending the establishment of an arbitration proceeding under
this Section 16 and the arbitrator's determination of the merits of the
controversy; provided, however, that the arbitrator shall be empowered to
dissolve, discharge or otherwise release such interim or provisional relief at
any time before conclusion of proceedings upon a proper showing. The arbitrator
shall be empowered to award monetary damages to any party for loss occasioned by
such interim or provisional relief upon an ultimate showing of lack of merit.

16.3 DISCOVERY. The parties shall allow and participate in discovery
in accordance with the Federal Rules of Civil Procedure, except (i) depositions
may be taken at any time after the appointment of the arbitrator and (ii) the
response to a written discovery request shall be served within 14 days after
service of the request. The parties shall allow and participate in such
discovery for a period of 45 days after the appointment of the arbitrator, plus
such additional time as the arbitrator determines to be appropriate to protect
an inquiring party from a responding party's delay in responding to one or more
discovery requests. Unresolved discovery disputes shall be resolved by the
arbitrator. The United States Arbitration Act and the then existing Rules of
Practice and Procedure of Judicial Arbitration & Mediation Services, Inc. to the
contrary notwithstanding, this Section 16.3 sets forth the exclusive rights of
the parties to discovery in any arbitration proceeding under this Section 16.

16.4 TIME PERIOD. The arbitrator shall render a final award within
90 days after the date of his or her appointment, plus such additional tine, if
any, as the arbitrator permits for discovery pursuant to Section 16.3.

<PAGE>

16.5 EXPENSES. The arbitrator may award to the prevailing party, if
any, as determined by the arbitrator, part or all of the prevailing party's
costs and fees. "Costs and fees" means all reasonable pre-award expenses of the
arbitration, including the arbitrator's fees, administrative fees, travel
expenses, out-of-pocket expenses such as photocopy, telecopy and telephone
charges, witness fees and attorneys' fees.

16.6 NONAPPEALABLE. The award of the arbitration shall be final,
binding and nonappealable.

IN WITNESS OF, the parties have executed this lease as of the date first
above written.

LANDLORD: TENANT:
M.F. VUKELICH CO., a California COLOR SPOT NURSERIES, INC., a
corporation Delaware corporation

By: /s/ Michael F. Vukelich By: /s/ Michael F. Vukelich
------------------------------ ---------------------------------
Michael F. Vukelich Michael F. Vukelich
President President

<PAGE>

ADDENDUM TO REAL PROPERTY LEASE

THIS ADDENDUM TO REAL PROPERTY LEASE ("Addendum") is made and entered into
this 13th day of December, 1995 by and between M.F. Vukelich Co., a California
corporation ("Landlord") and Color Spot Nurseries, Inc., a Delaware corporation
("Tenant") and modifies that certain Real Property Lease of even date herewith
("Lease").

WITNESSETH:

NOW, THEREFORE, the parties hereby agree as follows:

1. ADDENDUM TO LEASE.

(a) Paragraph 1. of the Lease shall be deleted and replaced in its
entirety with the following:

"TERM; POSSESSION. The Lease Term shall be nine (9) years and nine
(9) months commencing on December 1, 1995 (the "Commencement Date")
and unless sooner terminated as hereinafter provided, shall end on
August 31, 2005. Tenant shall have the right, in its sole and
absolute discretion, to terminate the Lease effective at any time on
or after September 1, 1999, by providing written notice to Landlord of
such election not less than one (1) year prior to the effective date
of such termination. Landlord shall have the right, in its sole and
absolute discretion, to terminate the Lease effective at any time on
or after September 1, 1999, by providing written notice to Tenant of
such election not less than one (1) year prior to the effective date
of such termination."

(b) The first sentence of Paragraph 2. shall be deleted and replaced
with the following:

"Tenant will pay rent to Landlord in advance in equal installments of
$21,000 ("Monthly Rent'") on or before the first day of each month
during the Lease Term, commencing on the Commencement Date. The
Monthly Rent shall increase in amount by three percent (3%) per year,
with the first increase effective as of the first day of the first
month following one (1) year after the Commencement Date. The Monthly
Rent shall thereafter increase once each year by three percent (3%)
from the immediately preceding Monthly Rent. If the Commencement Date
does not fall on the first of the month, rent shall be prorated for
the first and last month of the term based upon the number of days in
such partial month."

<PAGE>

"Tenant shall not, without first obtaining the written consent of
Landlord, which consent shall not be unreasonably withheld: 1) Bring
or cause to be brought onto the property any fill material, 2) Develop
any structures or improvements upon the property; and 3) Lease the
property to any person."

(d) Delete Paragraph 10 in its entirety and replace with the
following:

"10. ENVIRONMENTAL COMPLIANCE; INDEMNITY.

(i) DEFINITIONS.

(a) "Hazardous Materials" means any (a) oil, petroleum
products, flammable substances, explosives, radioactive materials, hazardous
wastes or substances, toxic wastes or substances or any other wastes, materials
or pollutants which (i) pose a hazard to the Land or to persons on or about the
Land or (ii) cause the Land to be in violation of any Hazardous Materials Laws;
(b) asbestos in any form, urea formaldehyde foam insulation, transformers or
other equipment which contain dielectric fluid containing levels of
polychlorinated byphenyls, or radon gas; (c) chemical, material or substance
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous waste" "restricted
hazardous waste," or "toxic substances" or words of similar import under any
applicable local, state or federal law or under the regulations adopted or
publications promulgated pursuant thereto, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. Section 1801, et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251, et seq.; Sections 25115, 25117,
25122.7, 25140, 25249.8, 25281, 25316, 25501, and 25316 of the California Health
and Safety Code; and Article 9 or Article 11 of Title 22 of the Administrative
Code, Division 4, Chapter 20; (d) other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any governmental
authority or may or could pose a hazard to the health and safety of the
occupants of the Land or the owners and/or occupants of property adjacent to or
surrounding the Land, or any other person coming upon the Land or adjacent
property; and (e) other chemical, materials or substance which may or could pose
a hazard to the environment.

(b) "Hazardous Materials Claims" means any and all
enforcement, cleanup, removal, remedial or other governmental or regulatory
actions, agreements or orders threatened, instituted or completed pursuant to
any Hazardous Materials Laws, together with any and all claims made or
threatened by any third party against Landlord, Tenant, any of their respective
partners or any of their partners' officers, directors, employees, agents or
representatives, or the Land relating to damage, contribution, cost recovery
compensation, loss or injury resulting from the presence, release or discharge
of any Hazardous Materials used, brought onto, released, generated, stored or
disposed of in, on or under the Land.

<PAGE>

(c) "Hazardous Materials Laws" means any federal state or
local laws, ordinances, regulations or policies relating to the environment,
health and safety, and Hazardous Materials (including, without limitation, the
use, handling, transportation, production, disposal, discharge or storage
thereof) or to industrial hygiene or the environmental conditions on, under or
about the Land, including, without limitation, soil, groundwater and indoor and
ambient air conditions.

(ii) LANDLORD ENVIRONMENTAL INDEMNIFICATION. Landlord shall
protect and indemnify Tenant and hold Tenant, its partners, directors, officers,
employees and agents, and all directors, officers, employees and agents of all
of the aforementioned indemnified parties, harmless from and against any and all
actual or potential claims, liabilities, damages, losses, fines, penalties,
judgments, awards, costs and expenses (including, without limitation, attorneys'
fees and costs and expenses of investigation) which arise out of or relate in
any way to any Hazardous Materials Claims or any use, handling, production,
transportation, disposal, release or storage of any Hazardous Materials in,
under or on the Land and whether by Landlord or any other party other than
Tenant or Tenant's agents, employees, subcontractors and any other party acting
by or on behalf of Tenant or with Tenant's knowledge or permission
(collectively, "Tenant's Agents"), including, without limitation, (a) all
foreseeable and all unforeseeable consequential damages directly or indirectly
arising out of (i) Hazardous Materials Claims or the use, generation, storage,
discharge or disposal of Hazardous Materials by Landlord or any party on or
about the Land, other than Tenant or Tenant's Agents; (ii) any residual
contamination affecting any natural resource or the environment caused by
Hazardous Materials used, brought onto, released, stored, discharged, generated
or disposed of in, under or onto the Land other than by Tenant or Tenant's
Agents; and (iii) any exercise by Tenant of any of its rights and remedies
hereunder; and (b) the costs of any required or necessary repair, cleanup, or
detoxification of the Land and the preparation of any closure or other required
plans. Liability to the aforementioned indemnified parties shall arise upon the
earlier to occur of (a) discovery of any Hazardous Materials on, under or about
the Land, or (b) the institution of any Hazardous Materials Claims, and not upon
the realization of loss or damage, and shall be terminated three (3) years from
the date of termination of the Lease.

(iii) Tenant Environmental Indemnification. Tenant shall not
engage in, allow or permit any activity in its use of the Leased Premises which
violates any Hazardous Materials laws. Tenant shall protect and indemnify
Landlord and hold Landlord, its partners, directors, officers, employees and
agents, and all directors, officers, employees and agents of all of the
aforementioned indemnified parties, harmless from and against any and all actual
or potential claims, liabilities, damages, losses, fines, penalties, judgments,
awards, costs and expenses (including, without limitation, attorneys' fees and
costs and expenses of investigation) which arise out of or relate in any way to
any Hazardous Materials Claims or any use, handling, production, transportation,
disposal, release or storage of any Hazardous Materials in, under or on the Land
after the Commencement Date by Tenant or Tenant's Agents, including, without
limitation, (a) all foreseeable and all unforeseeable consequential damages
directly or indirectly arising out of (i) Hazardous Materials Claims or the use,
generation, storage, discharge or disposal of Hazardous Materials by Tenant or
Tenant's Agents on or about the Land after the Commencement Date; (ii) any

<PAGE>

residual contamination affecting any natural resource or the environment caused
by Hazardous Materials used, brought onto, released, stored, discharged,
generated or disposed of in, under or onto the Land by Tenant or Tenant's Agents
after the Commencement Date; and (iii) any exercise by Landlord of any of its
rights and remedies hereunder; and (b) the costs of any required or necessary
repair, cleanup, or detoxification of the Land and the preparation of any
closure or other required plans. Liability to the aforementioned indemnified
parties shall arise upon the earlier to occur of (a) discovery of any Hazardous
Materials on, under or about the Land, or (b) the institution of any Hazardous
Materials Claims, and not upon the realization of loss or damage, and shall be
terminated three (3) years from the date of termination of the Lease.

(e) Delete Paragraph 16 in its entirety.

2. WHOLE AGREEMENT. This Addendum sets forth the entire agreement
between the parties with respect to the matters set forth herein. There have
been no additional oral or written representations or agreements.

3. RATIFICATION. Except as specifically modified hereby, the Lease shall
remain in full force and effect and unmodified. The provisions set forth in
this Addendum shall be deemed part of the Lease and shall supersede, to the
extent appropriate, any contrary provisions of the Lease. In case of any
inconsistency between the provisions of the Lease and this Addendum, the
provisions of the latter shall govern and control.

4. COUNTERPARTS. This Addendum may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
first above written.

LANDLORD:
M.F. VUKELICH CO.,
a California corporation

By: /s/ Michael F. Vukelich
-------------------------
Its: President
-------------------------

TENANT:
COLOR SPOT NURSERIES, Inc.
a Delaware corporation

By: /s/ Michael F. Vukelich
-------------------------
Its: President
-------------------------

<PAGE>

EXHIBIT "A"

DESCRIPTION

Order No. 110730
UNINCORPORATED AREA

PARCEL ONE:

PORTION OF LOT 198, AS SAID LOT IS SHOWN ON THE "MAP OF THE SAN PABLO RANCHO,
ACCOMPANYING AND FORMING A PART OF THE FINAL REPORT OF THE REFEREES IN
PARTITION", FILED MARCH 1, 1894, IN THE OFFICE OF THE COUNTY RECORDER OF CONTRA
COSTA COUNTY, AND A PORTION OF SWAMP AND OVERFLOWED LAND SURVEY NO 151, CONTRA
COSTA COUNTY, CALIFORNIA, DESCRIBED AS FOLLOWS:

BEGINNING AT STAKE NO. 91 AT THE NORTHWESTERN CORNER TO LOT 198 OF THE SAN PABLO
RANCHO; THENCE SOUTH 0 10' WEST 728.5 FEET TO STATION 92; THENCE WEST 514.8
FEET TO STATION IN CENTER OF OLD COURSE OF SAN PABLO CREEK; THENCE ALONG OLD
CREEK LINE, SOUTH 40 45' WEST 67.32 FEET; THENCE SOUTH 89 45' WEST, 165 FEET;
THENCE SOUTH 82 37' WEST, 201.55 FEET; THENCE SOUTH 64 21' WEST 140.72 FEET;
THENCE SOUTH 33 13' WEST 135.33 FEET; THENCE SOUTH 5 18' EAST 87.15 FEET; THENCE
SOUTH 41 54' EAST 145.04 FEET; THENCE SOUTH 60 39' EAST 302.05 FEET; THENCE
SOUTH 49 04' EAST 194.70 FEET TO STATION 28 AT THE JUNCTION OF SAN PABLO AND
WILD CAT CREEKS, COURSES OF WHICH HAVE BEEN OBLITERATED; THENCE SOUTH 52 01'
WEST 237.32 FEET TO STATION ON THE WESTERN BOUNDARY LINE OF THE SAN PABLO
RANCHO; THENCE SOUTH 61 17' WEST 1173.25 FEET; THENCE SOUTH 58.08 FEET TO
STATION ON THE NORTHERN LINE OF LANDS OF THE STANDARD OIL COMPANY; THENCE ALONG
LINE OF STANDARD OIL CO. LANDS, NORTH 89 45' EAST 72.22 FEET; THENCE NORTH 73
02' EAST 72.8 FEET; THENCE NORTH 57 30' EAST 492 FEET; THENCE NORTH 59 30' BUT
400 FEET; THENCE NORTH 63 36' EAST 200 FEET; THENCE NORTH 76 05' EAST 110 FEET;
THENCE NORTH 55 49' EAST 500 FEET; THENCE NORTH 59 15' EAST 400 FEET; THENCE
NORTH 55 26' EAST 81.16 FEET; THENCE SOUTH 0 39' EAST, 46.1 FEET; THENCE LEAVING
LINE OF STANDARD OIL CO. LAND, AND ALONG THE NORTHERN LINE OF THE TRUMAN
ADDITION TO RICHMOND, NORTH 67 10' EAST 184.04 FEET; THENCE NORTH 86 30'' EAST
100.18 FEET; .THENCE NORTH 89 56' EAST 441 FEET TO THE WESTERN LINE OF LANDS OF
STANDARD OIL CO.; THENCE ALONG THE LINE OF THE STANDARD OIL CO. LANDS, NORTH O
15' WEST, 30.75 FEET TO A CONCRETE MONUMENT SET FOR CORNER OF STANDARD OIL CO.
LANDS; THENCE SOUTH 89 31' WEST 462 FEET TO A MONUMENT; THENCE NORTH 0 15' WEST
50 FEET TO A MONUMENT; THENCE SOUTH 89 26' EAST 542.06 FEET TO A MONUMENT;
THENCE NORTH 0 15' WEST 177.09 FEET TO A MONUMENT; THENCE NORTH 89 45' EAST 40
FEET TO A MONUMENT;

<PAGE>

THENCE LEAVING LINE OF STANDARD OIL CO. LANDS, NORTH 0 151 WEST 801.2 FEET;
THENCE NORTH 89 55' WEST 1009.5 FEET TO THE POINT OF BEGINNING.

EXCEPTING THEREFROM:

1) ALL THAT PORTION THEREOF LYING EASTERLY OF THE WESTERN LINE OF THAT CERTAIN
TRACT OF LAND CONVEYED TO CONTRA COSTA COUNTY, A POLITICAL SUBDIVISION, BY
ANTONIO BRUZZONE AND LINA BRUZZONE, HUSBAND AND WIFE, BY DEED EXECUTED
OCTOBER 21, 1929, AND RECORDED OCTOBER 24, 1929, IN BOOK 172 OF OFFICIAL
RECORDS OF CONTRA COSTA COUNTY, PAGE 483.

2) ALL THAT PORTION THEREOF LYING EASTERLY OF THE WESTERN LINE OF THAT PORTION
THEREOF LYING WITHIN THE PARCEL OF LAND DESCRIBED IN THE DEED TO CONTRA
COSTA COUNTY, A POLITICAL SUBDIVISION, RECORDED DECEMBER 24, 1938, IN BOOK
487 OF OFFICIAL RECORDS OF CONTRA COSTA COUNTY, PAGE 188.

3) THAT PORTION CONVEYED TO CONTRA COSTA COUNTY, BY DEED RECORDED APRIL 16,
1974, IN BOOK 7202, PAGE 75, OFFICIAL RECORDS, INSTRUMENT NO. 30242.

4) THAT PORTION CONVEYED TO CONTRA COSTA COUNTY FLOOD CONTROL AND WATER
CONSERVATION DISTRICT, RECORDED MARCH 23, 1988, IN BOOK 14230, PAGE 546,
OFFICIAL RECORDS.

5) THAT PORTION CONVEYED TO CONTRA COSTA COUNTY FLOOD CONTROL AND WATER
CONSERVATION DISTRICT, BY DEED RECORDED FEBRUARY 21, 1992, BOOK 17244, PAGE
49, INSTRUMENT NO. 92-37674, OFFICIAL RECORDS.

6) THAT PORTION CONVEYED TO WEST COUNTY RESOURCE RECOVERY, INC., A CALIFORNIA
CORPORATION, BY INSTRUMENT DATED MAY 19, 1995 AND RECORDED JUNE 1, 1995,
SERIES NO. 95-86866, OFFICIAL RECORDS.

PARCEL TWO:

PORTION OF LOT 201, AS SAID LOT IS SHOWN ON THE "MAP OF THE SAN PABLO RANCHO,
ACCOMPANYING AND FORMING A PART OF THE FINAL REPORT OF THE REFEREES IN
PARTITION", FILED MARCH 1, 1894, IN THE OFFICE OF THE COUNTY RECORDER OF CONTRA
COSTA COUNTY. DESCRIBED AS FOLLOWS:

BEGINNING AT STAKE NO. 93, AT THE SOUTHWESTERN CORNER OF LOT 200 OF THE SAN
PABLO RANCHO; THENCE FROM SAID POINT OF BEGINNING, SOUTH 89 54'

<PAGE>

WEST, 525.40 FEET; THENCE SOUTH 4 18' 41", WEST 138.01 FEET TO THE LINE BETWEEN
LOTS 198 AND 201 OF THE SAN PABLO RANCHO; THENCE ALONG SAID LINE, AS FOLLOWS:
NORTH 64 21' EAST, 140.72 FEET; NORTH 82 37' EAST, 201.55 FEET; NORTH 89 45'
EAST, 165 FEET; AND NORTH 48 45' EAST, 67.32 FEET TO THE POINT OF BEGINNING.

EXCEPTING THEREFROM, THAT PORTION LYING WITHIN THE LINES OF PARCEL ONE, ABOVE.

ALSO EXCEPTING THEREFROM, THAT PORTION CONVEYED TO CONTRA COSTA COUNTY, BY DEED
RECORDED APRIL 16, 1974, IN BOOK 7202, PAGE 75, OFFICIAL RECORDS, INSTRUMENT NO.
30242.

PARCEL THREE:

THAT CERTAIN PARCEL OF DESIGNATED AS PARCEL "A" IN THE DECREE IN THE MATTER OF
THE APPLICATION OF ANTONIO BRUZZONE AND LINA BRUZZONE, HIS WIFE, TO EXCLUDE
CERTAIN LANDS FROM A SUBDIVISION, IN THE SUPERIOR COURT OF THE COUNTY OF CONTRA
COSTA, STATE OF CALIFORNIA, CASE NO. 78889, FILED SEPTEMBER 8, 1960, A COPY OF
WHICH WAS RECORDED SEPTEMBER 14, 1960, IN BOOK 3702 OF OFFICIAL RECORDS OF
CONTRA COSTA COUNTY, PAGE 155, DESCRIBED AS FOLLOWS:

THAT PORTION OF "NORTH HARBOR TRACT, AN ADDITION TO RICHMOND, CALIFORNIA", WHICH
MAP WAS FILED MAY 29, 1913, IN BOOK 10 OF MAPS, PAGE 229, IN THE OFFICE OF THE
COUNTY RECORDER OF CONTRA COSTA CO DESCRIBED AS FOLLOWS:.

BEGINNING AT THE NORTHEASTERN CORNER OF LOT 8, IN BLOCK 4, AS SAID LOT AND BLOCK
ARE SHOWN ON SAID MAP; RUNNING THENCE ALONG THE WESTERN LINE OF CENTRAL AVENUE,
SOUTH 726 FEET TO THE SOUTHERN LINE OF SAID TRACT; BEING ALSO THE SOUTHERN LIKE
OF A "1 FOOT RESERVED STRIP"; THENCE ALONG SAID SOUTHERN LINE, WEST 989 FEET TO
THE EASTERN LINE OF GOLDEN GATE AVENUE; THENCE ALONG THE LAST NAMED LINE, NORTH
726 FEET TO THE SOUTHERN LINE OF PITTSBURG AVENUE; AND THENCE ALONG THE LAST
NAMED LINE, EAST 989 FEET TO THE POINT OF BEGINNING.

EXCEPTING THEREFROM:

1) THAT PORTION CONVEYED TO CONTRA COSTA COUNTY, BY DEED RECORDED APRIL 16,
1974, IN BOOK 7202, PAGE 75, OFFICIAL RECORDS, INSTRUMENT NO. 30242.

<PAGE>

2) THAT PORTION THEREOF AS CONVEYED TO CITY OF RICHMOND BY INSTRUMENT DATED
SEPTEMBER 2, 1994 AND RECORDED MAY 5, 1995, SERIES NO. 95-72493, OFFICIAL
RECORDS, AS FOLLOWS:

A PORTION OF THE TRACT OF LAND SHOWN ON THE MAP ENTITLED "NORTH HARBOR
TRACT, AN ADDITION TO RICHMOND, CALIFORNIA" FILED MAY 29, 1913 IN BOOK 10
OF MAPS AT PAGE 229, CONTRA COSTA COUNTY RECORDS, CALIFORNIA, DESCRIBED AS
FOLLOWS:

BEGINNING ON THE EASTERLY LINE OF THE RIGHT OF WAY OF NORTH RICHMOND BYPASS
AS SHOWN ON THE MAP ENTITLED "A PRECISE SECTION OF STREETS AND HIGHWAYS
PLAN, COUNTY COSTA COUNTY, NORTH RICHMOND BYPASS" RECORDED NOVEMBER 5, 1969
IN BOOK 5998 OF OFFICIAL RECORDS OF CONTRA COSTA COUNTY AT PAGE 209, AT THE
SOUTHERLY LINE OF THE PARCEL OF LAND DESCRIBED AS PARCEL THREE IN THE DEED
FROM GOLDEN STATE SANWA BANK TO COLOR SPOT, INC. RECORDED MARCH 6, 1991 IN
BOOK 16435 OF OFFICIAL RECORDS AT PAGE 659; THENCE ALONG SAID EASTERLY LINE
OF NORTH RICHMOND BYPASS NORTH 00 35' 10" EAST 694.93 FEET; THENCE
NORTHEASTERLY ALONG A TANGENT CURVE CONCAVE TO THE SOUTHEAST HAVING A
RADIUS OF 20.00 FEET THROUGH A CENTRAL ANGLE OF 90 34' 39", AN ARC DISTANCE
OF 31.62 FEET; THENCE NORTH 1 09' 50" EAST 10.00 FEET TO THE SOUTHERLY LINE
OF PITTSBURG AVENUE; THENCE ALONG SAID LINE THEREOF SOUTH 88 50' 11" EAST
1.70 FEET; THENCE LEAVING SAID SOUTHERLY LINE 0 35' 10" WEST 725.14 FEET
THE SOUTHERLY LINE OF SAID PARCEL THREE (16435 OR 659); THENCE ALONG SAID
SOUTHERLY LINE NORTH 88 49' 40" WEST 22.00 FEET TO THE POINT OF BEGINNING.

3) THAT PORTION THEREOF AS CONVEYED TO WEST COUNTY RESOURCE RECOVERY, INC., A
CALIFORNIA CORPORATION, BY INSTRUMENT DATED MAY 19, 1995 AND RECORDED
JUNE 1, 1995, SERIES NO. 95-86866, OFFICIAL RECORDS, AS FOLLOWS:

THE PROPERTY SITUATE IN UNINCORPORATED CONTRA COSTA COUNTY, STATE OF
CALIFORNIA, BEING A PORTION OF LOTS 198 AND 201 AS DESIGNATED ON THE MAP OF
THE SAN PABLO RANCHO, FILED MARCH 1, 1894 IN THE OFFICE OF THE RECORDER OF
CONTRA COSTA COUNTY, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT THE INTERSECTION OF THE SOUTHERN LINE OF PITTSBURG AVENUE
(FORMERLY PITTSBURGH AVENUE) AND THE WESTERN LINE OF STREET (FORMERLY
CENTRAL AVENUE) AS SAID STREET AND AVENUE ARE DESIGNATED ON THE MAP OF
NORTH HARBOR TRACT, FILED MAY 29, 1913,

<PAGE>

MAP BOOK 10, PAGE 229; THENCE ALONG SAID WESTERN LINE OF CENTRAL STREET,
SOUTH 1 09' 47" WEST (BEARING USED FOR THE PURPOSE OF THIS DESCRIPTION)
725.23 FEET TO THE SOUTHERN LINE OF SAID NORTH HARBOR TRACT, SAID SOUTHERN
LINE BEING THE SOUTHERN LINE OF THE AREA DESIGNATED AS "1 FT. RESERVED
STRIP" ON SAID MAP; THENCE ALONG SAID SOUTHERN LINE, SOUTH 88 50' 13" EAST,
5.00 FEET TO THE NORTHWEST CORNER OF THE PARCEL OF LAND DESCRIBED IN THE
DEED TO CONTRA COSTA COUNTY RECORDED OCTOBER 24, 1929, BOOK 172, OFFICIAL
RECORDS, PAGE 483; THENCE ALONG THE BOUNDARY OF SAID COUNTY PARCEL THE TWO
(2) FOLLOWING COURSES; SOUTH 1 09' 47" WEST, 217.43 FEET (217.21 FEET, DEED
DISTANCE) AND SOUTH 89 11' 13" EAST, 38.23 FEET TO THE MOST WESTERN CORNER
OF THE PARCEL OF LAND DESCRIBED IN THE DEED TO CONTRA COSTA COUNTY,
RECORDED DECEMBER 24, 1938, BOOK 487, OFFICIAL RECORDS, PAGE 188; THENCE
ALONG THE SOUTHWESTERN BOUNDARY OF SAID PARCEL THE TWO (2) FOLLOWING
COURSES; SOUTHEASTERLY ALONG THE ARC OF A CURVE TO THE LEFT, HAVING A
RADIUS OF 125.00 FEET, THE RADIUS POINT OF WHICH BEARS NORTH 71 01' 48"
EAST, THROUGH A CENTRAL ANGLE OF 27 48' 40", AN ARC DISTANCE OF 60.67 FEET
AND TANGENT TO SAID CURVE, SOUTH 46 46' 52" EAST, 10.78 FEET TO THE
NORTHWESTERN LINE OF THE PARCEL OF LAND DESCRIBED UNDER EXHIBIT "A" IN THE
DEED TO CONTRA COSTA COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT,
RECORDED NOVEMBER 18, 1987, BOOK 14025, OFFICIAL RECORDS, PAGE 833; THENCE
ALONG SAID NORTHWESTERN LINE, SOUTH 57 00 00" WEST, 138.82 FEET TO A LINE
DRAWN PARALLEL TO AND 30.00 FEET WESTERLY, MEASURED AT RIGHT ANGLES, OF THE
ABOVE NAMED WESTERN LINE OF CENTRAL STREET; THENCE ALONG SAID PARALLEL
LINE, NORTH 1 09' 47" EAST, 1077.39 FEET TO SAID SOUTHERN LINE OF
PITTSBURGH AVENUE; THENCE ALONG SAID LINE, SOUTH 88 50' 13"EAST, 30.00 FEET
TO THE POINT OF BEGINNING.

PARCEL FOUR:

THAT PORTION OF THE PARCEL OF LAND DESCRIBED IN THE DEED TO CONTRA COSTA COUNTY
RECORDED SEPTEMBER 21, 1976 IN VOLUME 8022 OF OFFICIAL RECORDS AT PAGE 483
(SHOWN AS PARCEL 4 ON CONTRA COSTA COUNTY PUBLIC WORKS DWG. R/W 0572B-72) LYING
EAST OF NORTH RICHMOND BYPASS, NORTHWEST OF WILDCAT CREEK, AND DESCRIBED AS
FOLLOWS:

COMMENCING AT THE 1-1/2" IRON PIPE TAGGED "CONTRA COSTA COUNTY" MARKING NORTH
RICHMOND BYPASS STATION 45+00 P.O.T. AS SHOWN ON THE MAP ENTITLED "A PRECISE
SECTION OF THE STREETS AND HIGHWAY PLAN, CONTRA COSTA COUNTY, NORTH RICHMOND
BYPASS" RECORDED NOVEMBER 5, 1969 IN

<PAGE>

VOLUME 5998 OF OFFICIAL RECORDS AT PAGE 209; THENCE ALONG THE CENTERLINE OF
NORTH RICHMOND BYPASS SOUTH 0 35' 08" WEST 795.75 FEET; THENCE SOUTH 88 16' 54"
EAST 55 FEET TO THE TRUE POINT OF BEGINNING ON THE PROPOSED RIGHT OF WAY LINE OF
NORTH RICHMOND BYPASS (5958 O.R. 209) ; SAID POINT IS SHOWN AS PT. "A" ON CONTRA
COSTA COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT DWG. ED-738.2 AND IS
THE BEGINNING OF A NON-TANGENT CURVE CONCAVE TO THE SOUTH TO WHICH A RADIAL
BEARS NORTH 1 43' 06" EAST 138 FEET; THENCE FROM THE TRUE POINT OF BEGINNING,
ALONG THE ARC OF SAID CURVE, EASTERLY 30.78 FEET, THROUGH A CENTRAL ANGLE OF 12
46' 54", TO A REVERSE CURVE CONCAVE TO THE NORTH TO WHICH A RADIAL BEARS SOUTH
14 30' 00" WEST 77 FEET; THENCE ALONG THE ARC OF SAID REVERSE CURVE, EASTERLY
57.52 FEET, THROUGH A CENTRAL ANGLE OF 42 48' 05", TO A REVERSE CURVE CONCAVE TO
THE SOUTHEAST TO WHICH A RADIAL BEARS NORTH 28 18' 05" WEST 2,513 FEET; THENCE
ALONG THE ARC OF SAID REVERSE CURVE, NORTHEASTERLY 188.38 FEET, THROUGH A
CENTRAL ANGLE OF 4 17' 42"; THENCE NORTH 65 59' 37" EAST 15.32 FEET TO A CURVE
CONCAVE TO THE NORTHWEST HAVING A RADIUS OF 2,287 FEET; THENCE ALONG THE ARC OF
SAID CURVE, NORTHEASTERLY 144.73 FEET, THROUGH A CENTRAL ANGLE OF 3 37' 33", TO
A POINT ON THE NORTHEAST LINE OF CONTRA COSTA COUNTY PARCEL (8022 O.R. 483) THAT
BEARS NORTH 47 16' 11" WEST 19.00 FEET FROM THE MOST EASTERN CORNER OF SAID
COUNTY PARCEL (8022 O.R. 483) ; THENCE NON-TANGENT TO SAID CURVE, ALONG THE
NORTHEAST LINE OF SAID COUNTY PARCEL, NORTH 47 16' 11" WEST 175.69 FEET AND
NORTH 59 17' 52" WEST 57.24 FEET, TO THE SOUTH LINE OF CONTRA COSTA COUNTY
PARCEL RECORDED JANUARY 16, 1974 IN VOLUME 7135 OF OFFICIAL RECORDS AT PAGE 155;
THENCE ALONG SAID SOUTH LINE, SOUTH 69 59' 08" WEST 233.04 FEET TO A POINT
HEREINAFTER REFERRED TO AS PT. "C", ON THE PROPOSED EAST RIGHT OF WAY LINE OF
NORTH RICHMOND BYPASS (5998 O.R. 209); THENCE ALONG SAID EAST LINE, SOUTH 0 35'
08" WEST 223.38 FEET, TO THE TRUE POINT OF BEGINNING.

PARCEL FIVE:

THAT PORTION OF THE PARCEL OF LAND DESCRIBED IN THE DEED TO CONTRA COSTA COUNTY
RECORDED JANUARY 16, 1974 IN VOLUME 7135 OF OFFICIAL RECORDS AT PAGE 155 (SHOWN
AS PARCEL 5 ON SAID PUBLIC WORKS DWG. R/W 0572B-72) WHICH LIES EAST OF NORTH
RICHMOND BYPASS AND IS DESCRIBED AS FOLLOWS:

BEGINNING AT PT. "C" DESCRIBED IN PARCEL FOUR OF THIS DOCUMENT; THENCE ALONG THE
PROPOSED EAST RIGHT OF WAY LINE OF NORTH RICHMOND BYPASS (5998 O.R. 209), NORTH
0 35' 08" EAST 10.68 FEET, TO A POINT, HEREINAFTER

<PAGE>

REFERRED TO AS PT. "D", ON THE NORTH LINE OF SAID COUNTY PARCEL (7135 O.R. 155);
THENCE ALONG THE BOUNDARY OF SAID COUNTY PARCEL (7135 O.R. 155) AS FOLLOWS:
(1) NORTH 69 59' 08" EAST 221.10 FEET, (2) SOUTH 59 17' 52" EAST 12.92 FEET, AND
(3) SOUTH 69 59' 08" WEST 223.04 FEET, TO PT. "C", THE POINT OF BEGINNING.

PARCEL SIX:

THAT PORTION OF THE PARCEL OF LAND DESCRIBED IN THE DEED TO CONTRA COSTA COUNTY'
RECORDED JULY 5, 1974 IN VOLUME 7267 OF OFFICIAL RECORDS AT PAGE 115 (SHOWN AS
PARCEL 6 ON SAID PUBLIC WORKS DWG. R/W 0572B-72) WHICH LIES EAST OF NORTH
RICHMOND BYPASS AND IS DESCRIBED AS FOLLOWS:

BEGINNING AT PT. "D" DESCRIBED IN PARCEL FIVE OF THIS DOCUMENT; THENCE ALONG THE
PROPOSED EAST RIGHT OF WAY LINE OF NORTH RICHMOND BYPASS (5998 O.R. 209), NORTH
0 35' 08" EAST 201.41 FEET, TO THE BOUNDARY OF SAID COUNTY PARCEL (7267 O.R.
115); THENCE ALONG SAID BOUNDARY AS FOLLOWS: (1) SOUTH 40 42' 42" EAST 9.68
FEET, (2) SOUTH 59 17, 52" EAST 231.88 FEET, AND (3) SOUTH 69 59' 08" WEST
221.10 FEET TO PT. "D", THE POINT OF BEGINNING.

PARCEL SEVEN:

THAT CERTAIN PARCEL OF LAND CONVEYED BY THE CONTRA COSTA COUNTY FLOOD CONTROL
AND WATER CONSERVATION DISTRICT, A POLITICAL SUBDIVISION OF THE STATE OF
CALIFORNIA, TO COLOR SPOT, INC. BY DEED RECORDED OCTOBER 5, 1992, BOOK 17905,
PAGE 4, OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:

"PARCEL X1397T-1: FEE TITLE (CONTRA COSTA COUNTY FLOOD CONTROL AND WATER
CONSERVATION DISTRICT TO COLOR SPOT, INC.)

"A PORTION OF PARCEL 1397T CONVEYED IN THE DEED TO CONTRA COSTA COUNTY FLOOD
CONTROL AND WATER CONSERVATION DISTRICT RECORDED MARCH 23, 1988 IN VOLUME 14230
OF OFFICIAL RECORDS AT PAGE 546 BEING ALL OF PARCEL 1397T THAT LIES
NORTHWESTERLY OF THE "CHANNEL PARCEL" DESCRIBED IN PARCEL 1397A" OF THAT CERTAIN
DOCUMENT RECORDED FEBRUARY 21, 1992 IN BOOK 17244, PAGE 49, OFFICIAL RECORDS.

<PAGE>

RESIDENTIAL LEASE-RENTAL AGREEMENT AND DEPOSIT RECEIPT

RECEIVED FROM COLOR SPOT NURSERIES, INC. (hereinafter referred to as
Tenant), the sum of One Thousand Two Hundred and no/100 Dollars ($1,200.00),
evidenced by a check, as a deposit which, upon acceptance of this rental
agreement, the Owner of the premises, hereinafter referred to as Owner, shall
apply said deposit as follows:

BALANCE DUE
TOTAL RECEIVED PRIOR TO
OCCUPANCY
Rent for the period from 12/1/95 to 8/31/96 $1,200.00 $1,200.00 $ - 0 -
Security deposit (not applicable toward
last month's rent) $ - 0 -
Other $ - 0 -
TOTAL $1,200.00 $1,200.00 $ - 0 -

In the event that this agreement is not accepted by the Owner or his
authorized agent within five (5) days, the total deposit received shall be
refunded. Tenant hereby offers to rent from the Owner the premises situated in
the City of Lodi, County of San Joaquin, State of California, described as 5298
Harney Lane and consisting of a home, upon the following TERMS and CONDITIONS:

1. TERM: The term hereof shall commence on 12/1/95 and continue (check one of
the two following alternatives):

until 8/31/96 for a total rent of Forty Three Thousand Two Hundred and
no/100 Dollars ($43,200.00)

on a month-to-month basis thereafter, until either party shall terminate
the same by giving the other party ____ days written notice delivered by
certified mail.

2. RENT: Rent shall be $1,200.00 per month, payable in advance, upon the 1st
day of each calendar month to Owner or his authorized agent, at the following
address: M Vukelich, P. O. Box 5081, Richmond, CA 94806, or at such other places
as may be designated by Owner from time to time. In the event rent is not paid
within five (5) days after due date, Tenant agrees to pay a late charge of
$25.00 plus interest at 10% per month on the delinquent amount. Tenant further
agrees to pay $25.00 for each dishonored bank check. The late charge period is
not a grace period, and Owner is entitled to make written demand for any rent
unpaid on the second day of the rental period. Any unpaid balances remaining
after termination of occupancy are subject to 1-1/2% interest per month or the
maximum rate allowed by law.

3. MULTIPLE OCCUPANCY: It is expressly understood that this agreement is
between the Owner and each signatory

<PAGE>

jointly and severally. In the event of default by any one signatory each and
every remaining signatory shall be responsible for timely payment of rent and
all other provisions of this agreement.

4. UTILITIES: Tenant shall be responsible for the payment of all utilities and
services, except: N/A which shall be paid by Owner.

5. USE: The premises shall be used exclusively as a residence for no more than
2 persons. Guests staying more than a total of 3 days in a calendar year
without written consent of Owner shall constitute a violation of this agreement.

6. ANIMALS: No animals shall be brought on the premises without the prior
consent of the Owner.

7. HOUSE RULES: In the event that the premises are a portion of a building
containing more than one unit, Tenant agrees to abide by any and all house
rules, whether promulgated before or after the execution hereof, including, but
not limited to, rules with respect to noise, odors, disposal of refuse, animals,
parking, and use of common areas. Tenant shall not have a waterbed on the
premises without prior written consent of the Owner.

8. ORDINANCES AND STATUTES: Tenant shall comply with all statutes, ordinances
and requirements of all municipal, state and federal authorities now in force,
or which may hereafter be in force, pertaining to the use of the premises. If
you are located in a rent control area, contact Rent and Arbitration Board for
your legal rights.

9. ASSIGNMENT AND SUBLETTING: Tenant shall not assign this agreement or sublet
any portion of the premises without prior written consent of the Owner.

10. MAINTENANCE, REPAIRS, OR ALTERATIONS: Tenant acknowledges that the premises
are in good order and repair, unless otherwise indicated herein. Owner may at
any time give tenant a written inventory of furniture and furnishings on the
premises and Tenant shall be deemed to have possession of all said furniture and
furnishings in good condition and repair, unless he objects thereto in writing
within five (5) days after receipt of such inventory. Tenant shall, at his own
expense, and at all times, maintain the premises in a clean and sanitary manner
including all equipment, appliances, furniture and furnishings therein and shall
surrender the same, at termination hereof, in as good condition as received,
normal wear and tear excepted. Tenant shall be responsible for damages caused
by his negligence and that of his family or invitees and guests. Tenant shall
not paint, paper or otherwise redecorate or make alterations to the premises
without the prior written consent of the Owner. Tenant shall irrigate and
maintain any surrounding grounds, including lawns and shrubbery, and keep the
same clear of rubbish or weeds. If such grounds are a part of the premises and
are exclusively for the use of the Tenant, Tenant shall not commit any waste
upon said premises, or any nuisance or act which may disturb the quiet enjoyment
of any tenant in the building.

<PAGE>

11. INVENTORY: Any furnishings and equipment to be furnished by Owner shall be
set out in a special inventory. The inventory shall be signed by both Tenant
and Owner concurrently with this Lease and shall be a part of this Lease.

12. DAMAGES TO PREMISES: If the premises are so damaged by fire or from any
other cause as to render them untenantable, then either party shall have the
right to terminate this Lease as of the date on which such damage occurs,
through written notice to the other party, to be given within fifteen (15) days
after occurrence of such damage; except that should such damage or destruction
occur as the result of the abuse or negligence of Tenant, or its invitees, then
Owner only shall have the right to termination. Should this right be exercised
by either Owner or Tenant, then rent for the current month shall be prorated
between the parties as of the date the damage occurred and any prepaid rent and
unused security deposit shall be refunded to Tenant. If this Lease is not
terminated, then Owner shall promptly repair the premises and there shall be a
proportionate deduction of rent until the premises are repaired and ready for
Tenant's occupancy. The proportionate reduction shall be based on the extent to
which the making of repairs interferes with Tenant's reasonable use of the
premises.

13. ENTRY AND INSPECTION: Owner shall have the right to enter the premises: (a)
in case of emergency; (b) to make necessary or agreed repairs, decorations,
alterations, improvements, supply necessary or agreed services, exhibit the
premises to prospective or actual purchasers, mortgagees, tenants, workmen, or
contractors; (c) when Tenant has abandoned or surrendered the premises. Except
under (a) and (c), entry may not be made other than during normal business
hours, and without not less than 24 hours prior notice to Tenant.

14. INDEMNIFICATION: Owner shall not be liable for any damage or injury to
Tenant, or any other person, or to any property, occurring on the premises or
any part thereof, or in common areas thereof, unless such damage is the
proximate result of the negligence or unlawful act of Owner, his agents, or his
employees. Tenant agrees to hold Owner harmless from any claims for damages, no
matter how caused, except for injury or damages for which Owner is legally
responsible.

15. PHYSICAL POSSESSION: If Owner is unable to deliver possession of the
premises at the commencement hereof, Owner shall not be liable for any damage
caused thereby, nor shall this agreement be void or voidable, but Tenant shall
not be liable for any rent until possession is delivered. Tenant may terminate
this agreement if possession is not delivered within five (5) days of the
commencement of the term hereof.

16. DEFAULT: If Tenant shall fail to pay rent when due, or perform any term
hereof, after not less than three (3) days written notice of such default given
in the manner required by law, the Owner, at his option, may terminate all
rights of Tenant hereunder, unless Tenant, within said time, shall cure such
default. If Tenant abandons or vacates the property, while in default of the
payment of rent, Owner may consider any property left on the premises to be
abandoned and may dispose of the same in any manner allowed by law. In the
event the Owner reasonably believes

<PAGE>

that such abandoned property has no value, it may be discarded. All property on
the premises is hereby subject to a lien in favor of Owner for the payment of
all sums due hereunder, to the maximum extent allowed by law.

In the event of a default by Tenant, Owner may elect to (a) continue the
lease in effect and enforce all his rights and remedies hereunder, including the
right to recover the rent as it becomes due, or (b) at any time, terminate all
of Tenant's rights hereunder and recover from Tenant all damages he may incur by
reason of the breach of the lease, including the cost of recovering the
premises, and including the worth at the time of such termination, or at the
time of an award if such be instituted to enforce this provision, of the amount
by which the unpaid rent for the balance of the term exceeds the amount of such
rental loss which the Tenant proves could be reasonably avoided.

17. SECURITY: The security deposit set forth, if any, shall secure the
performance of Tenant's obligations hereunder Owner may, but shall not be
obligated to, apply all portions of said deposit on account of Tenant's
obligations hereunder. Any balance remaining upon termination shall be returned
to Tenant. Tenant shall not have the right to apply the security deposit in
payment of the last month's rent. Funds held at N/A.

18. DEPOSIT REFUNDS: The balance of all deposits shall be refunded within two
weeks from date possession is delivered to Owner or his Authorized Agent,
together with a statement showing any charges made against such deposits by
Owner.

19. ATTORNEYS' FEES: In any legal action brought to either party to enforce the
terms hereof or relating to the demised premises, the prevailing party shall be
entitled to all costs incurred in connection with such action, including a
reasonable attorney's fees.

20. WAIVER: No failure of Owner to enforce any term hereof shall be deemed a
waiver. The acceptance of rent by Owner shall not waive his right to enforce any
term hereof.

21. NOTICES: Any notice which either party may give or is required to give, may
be given by mailing the same, certified mail, to Tenant at the premises or to
Owner at the address shown herein or at such other places as may be designated
by the parties from time to time.

22. HOLDING OVER: Any holding over after expiration hereof, with the consent of
Owner, shall be construed as a month-to-month tenancy in accordance with the
terms hereof, as applicable, until either party shall terminate the same by
giving the other party thirty (30) days written notice delivered by certified
mail.

23. TIME: Time is of the essence of this agreement.

ADDITIONAL TERMS AND CONDITIONS are set forth on the following pages.

<PAGE>

ENTIRE AGREEMENT: The foregoing constitutes the entire agreement between the
parties and may be modified only by a writing signed by both parties. The
following __________, if any, have been made a part of this agreement before the
parties' execution hereof:

Dated: 12/13/95
- - - ----------------------------------- ---------------------

The undersigned Tenant hereby acknowledges ______________________ Tenant
receipt of a copy hereof: _____________________________
_________________________ Real Estate Company _______________________ Owner
_____________________________________________ Dated: ______________________
ACCEPTANCE: ________________________ Owner

<PAGE>

ADDENDUM TO LEASE

THIS ADDENDUM TO LEASE ("Addendum") is made and entered into this 13th day
of December, 1995 by and between Michael F. Vukelich, Guardian of Trisha
Vukelich ("Lessor") and Color Spot Nurseries, Inc., a Delaware corporation
("Lessee") and modifies that certain Residential Lease - Rental Agreement of
even date herewith ("Lease").

NOW, THEREFORE, in consideration of the above recitations, which are hereby
acknowledged to be true and correct, and of the Premises and mutual covenants
and agreements herein contained, the parties hereby agree as follows:

1. MODIFICATIONS TO LEASE.

a. Paragraph 1 of the Lease shall be deleted and replaced in its
entirety with the following:

"TERM". The Lease term shall be extended from the date hereof through
August 31, 1996. Lessee shall have the option to renew the Lease for
an additional nine (9) consecutive one (1) year periods beginning
September 1, 1996 by giving Lessor notice of the exercise of such
option before July 1 of the year in which such option is to be
exercised. If said notification of the exercise of the options are
not so given and received, the options shall automatically expire; the
options may only be exercised consecutively. If, as of Lessor's
receipt of an option notice, Lessee is in default under the Lease, the
option notice shall be ineffective. Except as otherwise provided, the
terms and conditions of the Lease will remain the same during any
renewal term."

b. Delete Paragraph 2 of the Lease and replace with the following:

"Lessee will pay to Lessor annual rent of $14,400.00, payable in
advance in equal monthly installments of $1,200.00 on or before the
first day of each month. If Lessee exercises any option to extend the
Lease as provided in this Paragraph 2, the monthly rent payable during
such one-year renewal term shall be an amount equal to $1200.00
multiplied by that fraction, the numerator of which is the Consumer
Price Index for all Urban Consumers, U.S. City Average, all items,
published by the U.S. Bureau of Labor Statistics ("Consumer Price
Index") for September 1 of the year in which the option is to be
exercised and the denominator of which is the Consumer Price Index for
September 1, 1995. Said rent shall be temporarily computed on
September I of the year in which the option is exercised based on the
latest available Consumer Price Index and shall be finally computed
retroactive to September 1 of such year when the Consumer Price Index
from September 1 of that year is available. Any adjustment in rent
due to a difference between the rent as temporarily and as finally
computed

<PAGE>

shall be added to or subtracted from the first monthly installment of
rent which becomes payable after the final computation is made. If
the U.S. Bureau of Labor Statistics discontinues publishing the
Consumer Price Index, then "Consumer Price Index" as used herein shall
mean any comparable index published by the U.S. Bureau of Labor
Statistics, or if none, any comparable index published by an agency of
the United States Government."

2. OPTION TO PURCHASE.

a. Lessor hereby grants to Lessee the exclusive right and option to
purchase the premises which are the subject of Lease ("Lease Premises") . The
option may be exercised by Lessee giving Lessor notice of Lessee's election to
purchase the Leased Premises at any time prior to July 1, 2005; provided, that,
Lessee's option to purchase the Leased Premises shall expire at such time as the
Lease terminates, whether by breach of Lessee or by Lessee failing to exercise
any of the extension options referenced in Paragraph 2 hereof. If Lessee
exercises the option, the closing of the Leased Premises will be held within 30
days after said notice is delivered to Lessor.

b. The purchase price for the Leased Premises shall be $135,000.
Lessor shall convey the Leased Premises to Lessee by transferrable, California
Grant Deed, and title shall be in fee simple, marketable, free, clear and
unencumbered except for real estate taxes and assessments not yet due and
payable which shall be prorated as of the closing date, easements and
restrictions of record as of the date hereof and such other easements and
restrictions of record which do not materially interfere with the use and
enjoyment of the Lease Premises as used by Lessee.

3. NOTICE. Any notice or notification to any party required, permitted
or contemplated hereunder will be in writing, will be addressed to the party to
be notified at the address set forth below, or at such other address as each
party address set forth below, or at such other address as each party may
designate f or itself from time to time by notice hereunder, and will be deemed
to have been validly served, given or delivered (i) five days following deposit
in the United States mails, by certified mail, with proper postage prepaid, (ii)
the next business day after such notice was delivered to regularly scheduled
overnight delivery carrier with delivery fees either prepaid or an arrangement,
satisfactory to such carrier, made for the payment of such fees, or (iii) upon
receipt (provided that any notice received during nonbusiness hours will be
deemed received at the beginning of the next business hour) of notice given by
telecopy, mailgram, telegram, telex, or personal delivery:

To Lessor: Michael F. Vukelich
1859 Danielle Court
Walnut Creek, CA 94598
Telecopy No. (510) 934-7178

<PAGE>

To Lessor: Color Spot Nurseries, Inc.
13880 San Pablo Blvd.
2nd Floor
San Pablo, CA 94806
Telecopy No. (510) 237-8066

4. WHOLE AGREEMENT. This Addendum sets f orth the entire agreement
between the parties with respect to the matters set f orth herein. There have
been no additional oral or written representations or agreements.

5. RATIFICATION. Except as specifically modified hereby, the Lease shall
remain in full force and effect and unmodified. The provisions set forth in
this Addendum shall be deemed part of the Lease and shall supersede, to the
extent appropriate, any contrary provisions of the Lease. In case of any
inconsistency between the provisions of the Lease and this Addendum, the
provisions of the latter shall govern and control.

IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
first above written.

LESSOR:

MICHAEL F. VUKELICH
GUARDIAN FOR TRISHA VUKELICH

By:
------------------------------
Michael F. Vukelich

LESSEE:

COLOR SPOT NURSERIES, INC.,
A DELAWARE CORPORATION

By:
------------------------------
Its:
------------------------------

<PAGE>

EXECUTION COPY

ASSET PURCHASE AGREEMENT

DATED AS OF MARCH 14, 1997

BETWEEN

SIGNATURE TREES

AND

COLOR SPOT CHRISTMAS TREES, INC.

<PAGE>

TABLE OF CONTENTS
Page
----

SECTION 1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 2. PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . 3
2.1 Transferred Assets . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . 5
2.5 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . . . . . . 5
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . 5
3.3 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 6
3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . 8
4.1 Organization and Authorization . . . . . . . . . . . . . . . . . . 8
4.2 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . 8
4.3 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Parent Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Efforts to Consummate Transaction. . . . . . . . . . . . . . . . . 9
5.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.4 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.5 Access to Information. . . . . . . . . . . . . . . . . . . . . . 9
5.6 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.7 Name of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.8 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.9 Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Obligation of Buyer to Close . . . . . . . . . . . . . . . . . . . 10
6.2 Obligation of Seller to Close. . . . . . . . . . . . . . . . . . . 11

SECTION 7. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 11

<PAGE>

7.2 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . 12
7.3 Procedure for Claims By Third Parties. . . . . . . . . . . . . . . 12
7.4 Procedure for Claims Between the Parties . . . . . . . . . . . . . 13
7.5 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.2 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.4 GOVERNING LAW; SEVERABILITY. . . . . . . . . . . . . . . . . . . . 15
8.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

<PAGE>

EXHIBITS

Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C Form of Employment Agreement
Exhibit D Form of Lease
Exhibit E Form of Non-Disturbance Agreement
Exhibit F Stockholders Agreement
Exhibit G Form of Agreement to be Bound

SCHEDULES

Schedule 1 Properties
Schedule 2.2 Deposits
Schedule 2.5 Purchase Price Allocation
Schedule 3.3 Violations
Schedule 3.5 Permitted Liens
Schedule 3.6 Permits
Schedule 3.8 Contracts

<PAGE>

ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT dated as of March 14, 1997 between COLOR SPOT
CHRISTMAS TREES, INC., a Delaware corporation ("Buyer"), and SIGNATURE TREES, a
California general partnership ("Seller").

A. Seller is engaged in the production, sale, purchase and
distribution of Christmas trees (the "Business").

B. Seller desires to sell, assign and transfer, and Buyer desires to
purchase and acquire, substantially all of the assets comprising the Business,
subject to the assumption by Buyer of the Assumed Liabilities (as defined
herein) relating to the Business, all on the terms and conditions set forth
herein.

NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

SECTION 1. DEFINED TERMS

1.1 DEFINITIONS. For purposes of this Agreement, the following terms
shall have the respective meanings set forth below:

"AGREEMENT" means this Agreement and includes all of the schedules and
exhibits annexed hereto.

"ASSUMED LIABILITIES" means all liabilities arising (i) under the
contracts, leases and promissory note set forth on Schedule 3.8 hereto arising
after the Closing Date and (ii) from the operation of the Business by Buyer on
or after the Closing Date.

"ASSIGNMENT AND ASSUMPTION AGREEMENT" means an assignment and
assumption agreement with respect to the Assumed Liabilities in the form of
Exhibit A hereto.

"BILL OF SALE" means a bill of sale in the form of Exhibit B hereto.

"BUSINESS DAY" means any day that is not a Saturday, Sunday or
statutory holiday in the State of California or Oregon.

"BUYER TRANSACTION DOCUMENTS" mean this Agreement, the Assignment and
Assumption Agreement, the Leases and the Employment Agreement.

"CLOSING" means the closing of the purchase and sale of the
Transferred Assets and the other transactions contemplated by this Agreement.

<PAGE>

"CLOSING DATE" means March 14, 1997 or such other date as is mutually
acceptable to Buyer and Seller. The Closing shall be effective for accounting
purposes as of the 11:59 p.m. on the date immediately preceding the Closing
Date.

"COMPETING TRANSACTION" means any acquisition or business combination
transaction involving Seller, the Business, or any interest therein.

"EMPLOYMENT AGREEMENT" means the employment agreement between Buyer
and Ken Cook in the form of Exhibit C hereto.

"ENVIRONMENTAL AND SAFETY REQUIREMENTS" has the meaning set forth in
Section 3.6.

"ENCUMBRANCE" means any lien, pledge, option, charge, easement,
security interest, right-of-way or similar restriction or encumbrance.

"EXCLUDED ASSETS" means (i) Seller's fee interest in the real property
described in the Leases and the improvements thereon and (ii) Seller's accounts
receivable.

"EXCLUDED LIABILITIES" means all liabilities or obligations of Seller
of whatever nature, whether known or unknown, absolute or contingent or
otherwise other than the Assumed Liabilities, including without limitation (i)
any liabilities or obligations of Seller with respect to any debt, liability or
trade payable, (ii) any liabilities or obligations of any officer, employee, or
partner of Seller, (iii) any leases except for those set forth on Schedule 1,
(iv) any severance costs of any employees not rehired by Buyer, including
without limitation any accrued vacation, sick leave, COBRA obligations, personal
time, vehicle leases and any other prerequisites (including accrued bonuses),
(v) except as provided in Section 5.9, any Taxes, including any Taxes resulting
from the transactions contemplated hereby, (vi) any liabilities arising under
Environmental and Safety Requirements related to any condition in existence
prior to the Closing Date, (vii) any liabilities or obligations with respect to
worker's compensation claims and (viii) to the extent applicable, liabilities
arising from Seller's failure to comply with applicable "bulk sales" laws.

"GOVERNMENTAL PERMIT" means any franchise, consent, license, marketing
right, permit, authorization, approval or other operating authority issued by
any governmental or regulatory body.

"HISTORICAL FINANCIALS" means the unaudited balance sheets dated
December 31, 1996 and the related statements of income, partners' equity and
cash flows for the years then ended of Seller.

"INTERIM FINANCIALS" means the unaudited balance sheet as of January
31, 1997 and the related statements of income, stockholders' equity and cash
flows for the month then ended of Seller.

"LEASES" means a lease for each of the Properties in the form of
Exhibit D hereto.

<PAGE>

"LOSSES" means any and all damages, costs, liabilities, losses,
judgments, penalties, fines, expenses or other costs (including reasonable
attorney's fees, costs of defense and costs of collection).

"NON-DISTURBANCE AGREEMENT" means a Non-Disturbance Agreement from
each lender to the Properties in the form of Exhibit E hereto.

"PARENT" means CSN, Inc., a Delaware corporation.

"PARENT STOCK" means 80,802 shares of common stock, par value $.01 per
share, of Parent.

"PERMITTED LIENS" means the Encumbrances and other exceptions to title
that are disclosed on Schedule 3.5.

"PROPERTIES" means Seller's properties described on Schedule 1 hereto.

"PURCHASE PRICE" has the meaning set forth in Section 2.2.

"SELLER TRANSACTION DOCUMENTS" means, collectively, this Agreement,
the Assignment and Assumption Agreement, the Bill of Sale, the Leases and the
Non-Disturbance Agreements.

"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement dated as of
December 31, 1996 of Parent in the form of Exhibit F hereto.

"TAXES" means any tax based upon, or measured by, income or gross
receipts, and any sales, use, ad valorem, transfer, franchise, withholding,
payroll, employment, excise, occupation, premium, property or other taxes
(including any interest or penalties or additional amounts imposed by any tax
authority).

"TRANSFERRED ASSETS" means (i) all machinery, equipment, furniture,
fixtures and other assets comprising the Business, including but not limited to
the contracts set forth on Schedule 3.8 hereto but excluding the Excluded
Assets, (ii) all inventory of the Business (including any trees which have not
yet been harvested), (iii) all Governmental Permits relating to the Business to
the extent the same are transferable; (iv) all rights to the name "Signature
Trees"; (v) all deposits and pre-paid expenses relating to the Business; (vi)
all contracts, agreements and other instruments relating to the Business; (vii)
all books and records relating to the Business; and (vii) all goodwill
associated with the Business.

SECTION 2. PURCHASE AND SALE OF ASSETS

2.1 TRANSFERRED ASSETS. Subject to the terms and conditions set forth in
this Agreement, Seller shall sell, transfer, convey, assign and deliver to
Buyer, and Buyer shall purchase and acquire

<PAGE>

from Seller, on the Closing Date, all of the Transferred Assets, free and clear
of all Encumbrances other than Permitted Liens, held by Seller.

2.2 PURCHASE PRICE. The purchase price for the Transferred Assets (the
"Purchase Price") shall be $3,000,000, which shall consist of (i) $2,600,000 in
cash, (ii) the Parent Stock, and (iii) the assumption by Buyer of the Assumed
Liabilities. In addition, at the Closing, Buyer shall reimburse Seller for each
of the deposits and prepaid expenses set forth on Schedule 2.2 hereto
(collectively, the "Deposits").

2.3 THE CLOSING. The Closing shall take place on the Closing Date at
the offices of Peter Lawrence, San Diego, CA at 10:00 A.M. local time, or at
such other place or at such other time as Buyer and Seller shall agree. At the
Closing, the parties hereto shall make the deliveries described below, provided
that the obligation of each to do so shall depend upon the performance by the
other party of its obligations hereunder:

(a) Seller shall deliver to Buyer the following (which shall be in form
and substance reasonably satisfactory to Buyer):

(i) a Bill of Sale and such other instruments of transfer and
conveyance as shall be effective to vest in Buyer good and marketable title
to the tangible personal property included in the Transferred Assets held
by Seller free and clear of all Encumbrances other than Permitted Liens;

(ii) the Leases;

(iii) the Assignment and Assumption Agreement;

(iv) the Non-Disturbance Agreements;

(v) at Buyer's expense, an Lessee's ALTA leasehold title insurance
policy from a title company acceptable to Buyer and in form acceptable to
Buyer, naming Buyer as insured, in amounts equal to the fair market value
of such property and the improvements thereon and containing such
endorsements and affirmative coverages as Buyer may reasonably require
(including access, zoning, contiguity, survey and extended coverage) with
respect to the property under the Leases; and

(vi) such other documents as may be reasonably necessary to
consummate the transactions contemplated hereby.

(b) Buyer shall deliver to Seller the following:

(i) a wire transfer of immediately available funds in the amount of
the cash portion of the Purchase Price and the Deposits;

<PAGE>

(ii) the Parent Stock;

(iii) the Leases;

(iv) the Assignment and Assumption Agreement;

(v) the Employment Agreement; and

(vi) such other documents as may be reasonably necessary to
consummate the transactions contemplated hereby.

2.4 ALLOCATION OF PURCHASE PRICE. Seller and Buyer agree to allocate the
Purchase Price among the Transferred Assets as set forth on Schedule 2.4.
Seller and Buyer shall report for tax and other relevant purposes (and shall
defend in any tax audit or contest) the sale of the Transferred Assets in a
manner consistent with such allocation. Seller and Buyer agree to execute an
Internal Revenue Service Form 8594 reflecting such allocation.

2.5 FURTHER ASSURANCES. From time to time after the Closing, Seller will
execute and deliver to Buyer such instruments of sale, transfer, conveyance,
assignment and delivery, and such consents, assurances, powers of attorney and
other instruments as may be reasonably requested by Buyer or its counsel in
order to vest in Buyer all right, title and interest of Seller in and to the
Transferred Assets and otherwise in order to carry out the purpose and intent of
this Agreement.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer as follows:

3.1 ORGANIZATION AND AUTHORIZATION. Seller is a general partnership duly
organized and existing in good standing under the laws of the State of
California. Seller has all requisite power and authority to enter into the
Transaction Documents and to perform fully its obligations hereunder and
thereunder. The execution and delivery of the Transaction Documents and the
performance by Seller of its obligations hereunder have been duly and validly
authorized by all necessary partnership action. This Agreement is, and when
executed and delivered in accordance with this Agreement, each other Seller
Transaction Document will be, a valid and binding obligation of Seller
enforceable in accordance with its terms. The only partners of Seller are
McKenzie D. Cook, Gary Bishop, Jerry Halamuda and Norman S. Osborne.

3.2 CONSENTS AND APPROVALS. No filings with, notices to, or approvals of
any governmental or regulatory body are required to be obtained or made by
Seller in connection with the consummation of the transactions contemplated
hereby.

3.3 NO VIOLATIONS. The execution and delivery of the Seller Transaction
Documents and the performance by Seller of its obligations thereunder do not and
will not conflict with or violate any provision of the Agreement of Partnership
of Seller. Except as set forth on Schedule 3.3, the

<PAGE>

execution and delivery of the Seller Transaction Documents and the performance
by Seller of its obligations thereunder do not and will not (a) conflict with or
result in a breach of the terms, conditions or provisions of, (b) constitute a
default under, (c) result in the creation of any Encumbrance upon the
Transferred Assets pursuant to, (d) give any third party the right to modify,
terminate or accelerate any obligation under, (e) result in a violation of, or
(f) require any authorization, consent, approval, exemption or other action by
or notice to any court or administrative or governmental body or other third
party pursuant to, in each case, any law, statute, rule or regulation to which
Seller or the Business is subject, or any agreement, instrument, order, judgment
or decree to which Seller or the Business is subject or by which any of the
Transferred Assets is bound.

3.4 FINANCIAL STATEMENTS. Seller has previously furnished to Buyer
copies of the Historical Financials and Interim Financials. The Historical
Financials and Interim Financials (i) fairly present, in all material respects,
the financial condition of the Business as of the dates thereof and the results
of operations of the Business for the periods covered thereby; and (ii) have
been prepared in accordance with generally accepted accounting principles,
applied on a consistent basis throughout the periods involved. To the best of
Seller's knowledge, the Business has no liabilities of any kind or nature, fixed
or contingent, matured or unmatured, of nature that would be required to be set
forth on the Interim Financials which are not adequately reflected or reserved
against on the face of the Interim Financials. The inventory reflected on the
Interim Financials is in fairly valued and in good condition.

3.5 TITLE TO ASSETS. Except as set forth on Schedule 3.5, Seller has good
and marketable title to the Transferred Assets held by it free and clear of all
Encumbrances. The Transferred Assets are held by Seller as set forth on
Schedule 3.5. Seller has provided to Buyer true and correct copies of all
deeds, title insurance policies and surveys with respect to the Business in its
possession.

3.6 COMPLIANCE WITH LAWS. To the best of Seller's knowledge, the Business
has been operated in compliance in all material respects with all applicable
laws and regulations of governmental authorities. To the best of Seller's
knowledge, Seller possesses, and is in compliance in all material respects with,
all Governmental Permits necessary to the operation of the Business (all of
which are listed are set forth on Schedule 3.6). Without limiting the
foregoing, to the best of Seller's knowledge:

(i) The Business is and has been in compliance at all times with all
applicable environmental laws and all laws and regulations related to
occupational health and safety (collectively, "Environmental and Safety
Requirements"), and Seller has received any notice, report or information
regarding any liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), or any corrective, investigatory or remedial
obligations, arising under applicable Environmental and Safety Requirements
with respect to the past or present operations of the Business.

(ii) Seller has obtained, and is and has been in compliance at all
times with all terms and conditions of, all permits, licenses and other
authorizations required pursuant to

<PAGE>

Environmental and Safety Requirements for the occupation of the Business
and the conduct of its operations.

(iii) None of the following exists at the Business in violation of
applicable Environmental and Safety Requirements: hazardous or toxic
materials, substances, pollutants, contaminants or waste; asbestos-
containing material in any form or condition; polychlorinated biphenyl-
containing materials or equipment; or underground storage tanks.

(iv) The transactions contemplated by this Agreement do not impose
any obligations under Environmental and Safety Requirements for site
investigation or cleanup or notification to or consent of any government
agencies or third parties.

(v) No facts, events or conditions relating to the past or present
condition or operation of the Business will (x) prevent, hinder or limit
continued compliance with currently applicable Environmental and Safety
Requirements, (y) give rise to any corrective, investigatory or remedial
obligations on the part of Buyer pursuant to currently applicable
Environmental and Safety Requirements, or (z) give rise to any liabilities
on the part of Buyer (whether accrued, absolute, contingent, unliquidated
or otherwise) pursuant to currently applicable Environmental and Safety
Requirements, including without limitation those liabilities relating to
onsite or offsite hazardous substance releases, personal injury, property
damage or natural resources damage.

3.7 LITIGATION. There are no claims, actions, suits, approvals,
investigations, informal objections, complaints or proceedings pending before
any court, arbitrator or administrative, governmental or regulatory authority or
body with respect to the Business or Seller relating to the Business nor is the
Business or Seller subject to any order, judgment, writ, injunction or decree.

3.8 CONTRACTS. Schedule 3.8 sets forth a list of each contract,
agreement or instrument (written or oral) to which Seller is a party with
respect to the Business. True and correct copies of each such contract,
agreement and instrument have been provided to Buyer. Seller nor, to the
knowledge of Seller, any other party to any such contract, agreement or
instrument, is in default of the terms thereof.

3.9 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Seller.

3.10 PARENT STOCK. Seller intends to distribute the Parent Stock to Ken
Cook. Ken Cook is acquiring the Parent Stock for investment purposes and not
with a view towards distribution in violation of applicable securities laws.

3.11 DISCLOSURE. No information supplied by Seller in connection with the
Seller Transaction Documents or in the other writings furnished by Seller or any
of their representatives in connection with the transactions contemplated hereby
contains any untrue statement of material

<PAGE>

fact or omits to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as follows:

4.1 ORGANIZATION AND AUTHORIZATION. Buyer is a corporation duly organized
and existing in good standing under the laws of the Delaware. Buyer, as of the
Closing Date, will be duly qualified as a foreign corporation in the State of
Oregon. Buyer has all requisite corporate power and authority to enter into
this Agreement and to assume and perform fully its obligations hereunder. The
execution and delivery of the Buyer Transaction Documents and the performance by
Buyer of its obligations thereunder have been duly and validly authorized by all
necessary corporate action. This Agreement is, and when executed and delivered
in accordance with the terms hereof the other Buyer Transaction Documents will
be, a valid and binding obligation of Buyer enforceable in accordance with its
terms.

4.2 CONSENTS AND APPROVALS. No filings with, notices to, or approvals of
any governmental or regulatory body are required to be obtained or made by Buyer
for the consummation by Buyer of the transactions contemplated hereby.

4.3 NO VIOLATIONS. The execution and delivery of the performance of the
Buyer Transaction Documents by Buyer of its obligations thereunder do not and
will not conflict with or violate any provision of the Certificate of
Incorporation or Bylaws of Buyer. Except for such of the following as,
individually or in the aggregate, will not have a material adverse effect on
Buyer's ability to consummate the transactions contemplated hereby, the
execution and delivery of the Buyer Transaction Documents and the performance by
Buyer of its obligations thereunder do not and will not (a) conflict with or
result in a breach of the terms, conditions or provisions of, (b) constitute a
default under, (c) result in the creation of any lien, security interest, charge
or encumbrance upon its assets pursuant to, (d) give any third party the right
to modify, terminate or accelerate any obligation under, (e) result in a
violation of, or (f) require any authorization, consent, approval, exemption or
other action by or notice to any court or administrative or governmental body or
any third party pursuant to, in each case, any law, statute, rule or regulation
or any agreement, instrument, order, judgment or decree to which Buyer is
subject.

4.4 PARENT STOCK. The Parent Stock will be, when issued, duly authorized,
validly issued and nonassessable, free and clear of all liens and other
restrictions other than (i) the Stockholders Agreement and (ii) those created by
applicable law.

<PAGE>

SECTION 5. COVENANTS OF THE PARTIES

5.1 CONDUCT OF BUSINESS. From the date hereof to the Closing, except as
expressly contemplated by this Agreement or otherwise consented to by Buyer in
writing, Seller shall (i) operate the Business only in the usual, regular and
ordinary course in substantially the same manner as heretofore operated, (ii)
maintain all of the structures, equipment and other tangible personal property
comprising the Business in good repair, order and condition consistent with the
normal use and life expectancy thereof and subject to ordinary wear and tear and
damage caused by unavoidable casualty, (iii) keep in full force and effect
insurance comparable in amount and scope of coverage to insurance now carried
with respect to the Business, (iv) exercise commercially reasonable efforts to
retain the services of employees of the Business, and (v) not create or suffer
to exist any Encumbrance on the Transferred Assets other than Permitted Liens.

5.2 EFFORTS TO CONSUMMATE TRANSACTION. Buyer and Seller shall use their
respective commercially reasonable efforts to take or cause to be taken all such
actions required to consummate the transactions contemplated hereby including,
without limitation, such actions as may be necessary to obtain, prior to the
Closing, all necessary governmental or other third-party approvals and consents
required to be obtained in connection with the consummation of the transactions
contemplated by this Agreement.

5.3 EXPENSES. Each party agrees to bear its own expenses incurred in
connection with the transactions contemplated hereby.

5.4 EMPLOYEE MATTERS. Buyer shall have the right (but not the obligation)
to offer employment to any employee of the Business on terms acceptable to
Buyer. Seller agrees to provide Buyer with a complete listing of the employees
of the Business not less than five days prior to the Closing Date, which listing
shall include employee census data such as salary, age, tenure and background.

5.5 ACCESS TO INFORMATION. From the date hereof to the Closing Date,
Seller shall, and shall cause their partners, officers, directors, employees and
agents to, afford the members, officers, employees, agents, representatives and
advisors of Buyer complete access at all reasonable times to Seller' officers,
employees, agents, properties, books, records and contracts as they shall relate
to the Business, and shall furnish Buyer all financial, operating and other data
and information as Buyer may reasonably request with respect to the Business.
Buyer and its representatives shall have the right to enter the Business at
anytime and from time to time for the purpose of conducting its due diligence
investigations.

5.6 NO SOLICITATION. Unless and until this Agreement shall have been
terminated pursuant to Section 8.1, Seller shall not directly or indirectly
through any officer, director, employee, partner, agent, affiliate or otherwise,
enter into any agreement, agreement in principle or other commitment (whether or
not legally binding) relating to a Competing Transaction or solicit, initiate or
encourage the submission of any proposal or offer from any person or entity
(including any of its officers, directors, employees and agents) relating to any
Competing Transaction, nor participate in any

<PAGE>

discussions or negotiations regarding, or furnish to any other person or entity
any information with respect to, or otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or attempt by any
other person or entity to effect a Competing Transaction. Seller shall
immediately cease any and all contacts, discussions and negotiations with third
parties regarding any Competing Transaction. Seller shall notify Buyer if any
written proposal regarding a Competing Transaction is made and shall provide
Buyer with copies thereof.

5.7 NAME OF SELLER. Simultaneously with the Closing, Seller shall change
its name to not include the words "Signature Trees" or any derivative thereof or
confusingly similar therewith.

5.8 TRANSFER TAXES. Buyer agrees that any charges associated with the
transfer to Buyer of title to any licensed rolling stock and trailers shall be
paid by it.

5.9 NONCOMPETITION. Each of Seller, McKenzie Cook and Norman Osborne
agrees that during the five year period following the Closing Date, that, except
in the case of Mr. Cook as required under the Employment Agreement, it or he
shall not, directly or indirectly, either for itself, himself or for any other
person, partnership, corporation, company, limited liability company, limited
liability limited partnership or other entity participate in any business or
enterprise engaged in the production or wholesale of Christmas trees anywhere in
the United States of America. For purposes of this Agreement, the term
"participate" includes any direct or indirect interest in any enterprise,
whether as an officer, director, employee, partner, member, sole proprietor,
agent, representative, independent contractor, consultant, franchisor,
franchisee, creditor, owner or otherwise; provided that the term "participate"
shall not include (i) ownership of less than 2% of the stock of a publicly-held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market or (ii) the wholesale of not more than 100 Christmas
trees per year purchased from the Company. Each of Seller, McKenzie Cook and
Norman Osborne agrees that this covenant is reasonable with respect to its
duration, geographical area and scope.

SECTION 6. CONDITIONS TO CLOSING

6.1 OBLIGATION OF BUYER TO CLOSE. The obligation of Buyer to close the
transactions contemplated hereby shall be subject to the fulfillment and
satisfaction, prior to or at the Closing, of the following conditions, or the
written waiver thereof by Buyer:

(a) REPRESENTATIONS AND COVENANTS. The representations and warranties of
Seller contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date. Seller shall have performed and complied in
all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by Seller on or prior to the Closing
Date.

<PAGE>

(b) NO INJUNCTION. No injunction or restraining order shall be in effect
which forbids or enjoins the consummation of the transactions contemplated by
this Agreement, no proceedings for such purpose shall be pending, and no
federal, state, local or foreign statute, rule or regulation shall have been
enacted which prohibits, restricts or delays the consummation of the
transactions contemplated hereby.

(c) APPROVALS. All governmental and third party approvals, consents,
permits or waivers necessary for consummation of the transactions contemplated
by this Agreement or the financing thereof, and all Governmental Permits
required for the operation by Buyer of the Business, shall have been obtained in
form and substance reasonably satisfactory to Buyer.

(d) MATERIAL ADVERSE CHANGE. No material adverse change to the
Transferred Assets or the condition (financial or otherwise) or prospects of the
Business shall have occurred.

(e) FINANCING. Buyer shall have received the proceeds of a loan from its
senior lenders to enable it to consummate the transactions contemplated hereby.

(f) DUE DILIGENCE. Buyer shall be satisfied with the results of its
business, accounting and legal due diligence operations.

(g) STOCKHOLDERS AGREEMENT. Ken Cook shall have agreed to be bound by the
terms of the Stockholders Agreement by executing the Agreement to be Bound in
the form of Exhibit G hereto.

6.2 OBLIGATION OF SELLER TO CLOSE. The obligation of Seller to close the
transactions contemplated hereby shall be subject to the fulfillment and
satisfaction, prior to or at the Closing, of the following conditions, or the
written waiver thereof by Seller:

(a) REPRESENTATIONS AND COVENANTS. The representations and warranties of
Buyer contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date. Buyer shall have performed and complied in
all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by Buyer on or prior to the Closing
Date.

(b) NO INJUNCTION. No injunction or restraining order shall be in effect
which forbids or enjoins the consummation of the transactions contemplated by
this Agreement and no federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restricts or delays such
consummation.

SECTION 7. INDEMNIFICATION

7.1 INDEMNIFICATION BY SELLER. Seller shall indemnify and hold harmless
Buyer and its

<PAGE>

directors, officers, employees, affiliates and agents, at all times from and
after the Closing Date, against and in respect of all Losses incurred by such
persons arising from or relating to: (i) any breach of any of the
representations or warranties made by Seller in the Seller Transaction Documents
or any other agreement, document or instrument delivered by Seller in connection
with the Closing (without regard to any materiality qualification contained in
any such representation or warranty); (ii) any breach of the covenants and
agreements made by Seller in the Seller Transaction Documents or any other
agreement, document or instrument delivered by Seller in connection with the
Closing; and (iii) the Excluded Liabilities.

7.2 INDEMNIFICATION BY BUYER. Buyer shall indemnify and hold harmless
Seller and its directors, officers, employees, affiliates and agents, at all
times from and after the Closing Date, against and in respect of Losses incurred
by such persons arising from or relating to: (i) any breach of any of the
representations or warranties made by Buyer in the Buyer Transaction Documents
or any other agreement, document or instrument delivered by Buyer in connection
with the Closing (without regard to any materiality qualification contained in
any such representation or warranty), (ii) any breach of the covenants and
agreements made by Buyer in the Buyer Transaction Documents or any other
agreement, document or instrument delivered by Buyer in connection with the
Closing, and (iii) the Assumed Liabilities.

7.3 PROCEDURE FOR CLAIMS BY THIRD PARTIES.

(a) Any party asserting a right of indemnification provided for
under this Agreement (the "Indemnified Party") in respect of, arising out of or
involving a claim or demand made by any unrelated person, firm, governmental
authority or corporation against the Indemnified Party (a "Third Party Claim")
shall notify the indemnifying party (the "Indemnifying Party") in writing of the
Third Party Claim within ten business days after such Indemnified Party becomes
aware of such Third Party Claim. As part of such notice, the Indemnified Party
shall furnish the Indemnifying Party with copies of any pleadings,
correspondence or other documents relating thereto that are in the Indemnified
Party's possession. The Indemnified Party's failure to notify the Indemnifying
Party of any such matter within the time frame specified above shall not release
the Indemnifying Party, in whole or in part, from its obligations under this
Section 7 except to the extent that the Indemnified Party's ability to defend
against such claim is actually prejudiced thereby. The Indemnifying Party
agrees (and, at such time as the Indemnifying Party acknowledges its liability
under this Section 7 with respect to such Third Party Claim, the Indemnifying
Party shall have the sole and exclusive right) to defend against, settle or
compromise such Third Party Claim at the expense of such Indemnifying Party.
The Indemnified Party shall have the right (but not the obligation) to
participate in the defense of such claim through counsel selected by it. If the
Indemnifying Party has not yet acknowledged its liability under this Section 7.3
with respect to such Third Party Claim, then the Indemnifying Party and the
Indemnified Party shall cooperate in defending against such Third Party Claim,
and neither party shall have the right, without the other's consent, to settle
or compromise any such Third Party Claim.

(b) If any party becomes obligated to indemnify another party
with respect to any Third Party Claim and the amount of liability with respect
thereto shall have been finally

<PAGE>

determined, the Indemnifying Party shall pay such amount to the Indemnified
Party in immediately available funds within ten days following written demand by
the Indemnified Party. All amounts paid hereunder shall be paid as an
adjustment to the Purchase Price.

7.4 PROCEDURE FOR CLAIMS BETWEEN THE PARTIES. In the event that either
Buyer or Seller desire to assert a claim for indemnification against the other
under this Section 7, such party shall assert such claim in writing, stating the
nature and basis of such claim. The party making such claim shall, on request,
provide all information and documentation reasonably necessary to support and
verify any Losses which such person believes gives rise to a claim for
indemnification and shall give the indemnifying party reasonable access to its
books, records and personnel for the purpose of investigating and verifying any
such claim.

7.5 DISPUTE RESOLUTION. If any controversy, claim or dispute arises out
of or relating to any of the Buyer Transaction Documents or the Seller
Transaction Documents, the disputing parties shall attempt to resolve such
controversy, claim or dispute among themselves and, if they cannot, such
controversy, claim or dispute shall be submitted to nonbinding mediation to be
held for a maximum of one day administered by the American Arbitration
Association ("AAA") in accordance with its Commercial Mediation Rules then in
effect. If such controversy, claim or dispute cannot be resolved through
mediation, it shall be resolved by binding arbitration before a panel of three
arbitrators in accordance with the Commercial Arbitration Rules then in effect
of the AAA, and any judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The parties agree that all
mediation and arbitration hearings pursuant to this section shall be held in San
Francisco, California.

SECTION 8. MISCELLANEOUS

8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:

(i) by mutual written consent of Buyer and Seller;

(ii) by either Buyer or Seller if for any reason the Closing shall
not have occurred on or before March 31, 1997 (or such other date as may be
mutually agreed by the parties);

(iii) by either Buyer or Seller in the event that a condition to the
terminating party's obligations to close the transactions contemplated by
this Agreement shall become incapable of satisfaction; provided, however,
that no party shall be entitled to terminate this Agreement in the event
that the failure of the Closing to occur or any condition to Closing to be
satisfied shall be attributable to such party's breach of this Agreement.

8.2 PUBLICITY. No press release or other public announcement concerning
this Agreement or the transactions contemplated hereby shall be made without
advance approval thereof by Seller and Buyer, except as required by law.

<PAGE>

8.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be given or made pursuant to any of the provisions of
this Agreement shall be deemed to have been duly given or made for all purposes
if (i) hand delivered, (ii) sent by a nationally recognized overnight courier
for next business day deliver or (iii) sent by confirmed facsimile transmission
as follows:

If to Buyer, at:

34768 Buskirk Avenue
Pleasant Hill, CA 94523
Attention: Chief Executive Officer
Telecopy No.: (510) 935-0799

With a copy to:

Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Steven S. Siegel
Telecopy No.: (303) 623-1956

If to Seller:

P.O. Box 1148
Welches, Oregon 97087
Attention: McKenzie D. Cook
Telecopy No.:

960 Ranger Road
Fallbrook, CA 92028
Attention: McKenzie D. Cook
Telecopy No.:

With a copy to:

2359 Fourth Avenue, Suite 215
San Diego, CA 92101
Attention: Peter H. Lawrence
Telecopy No.: (619) 239-5847

or at such other address as any party may specify by notice given to the other
party in accordance with this Section 8.3. The date of giving of any such
notice shall be the date of hand delivery, the next Business Day after delivery
to the overnight courier service, or the date sent by telephone facsimile.

<PAGE>

8.4 GOVERNING LAW; SEVERABILITY. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
CALIFORNIA. Should any clause, section or part of this Agreement be held or
declared to be void or illegal for any reason, all other clauses, sections or
parts of this Agreement shall nevertheless continue in full force and effect.

8.5 ASSIGNMENT. This Agreement may not be assigned by either party
without the prior written consent of the other party, except that Buyer may (i)
assign its rights hereunder to a lender providing financing to Buyer or (ii) in
connection with a sale of the Business.

* * * * *

15
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed on the date and year first above written.

COLOR SPOT CHRISTMAS TREES, INC.

By:
-------------------------------------
Michael Vukelich
Chief Executive Officer

SIGNATURE TREES

-----------------------------------
McKenzie D. Cook

-----------------------------------
Gary Bishop

-----------------------------------
Jerry Halamuda

-----------------------------------
Norman S. Osborne

AS TO SECTION 5.9

-----------------------------------
McKenzie D. Cook

-----------------------------------
Norman S. Osborne

<PAGE>

SCHEDULE I

PROPERTIES

Park Field (84.20 acres)
Signature 1 (58.29 acres)

<PAGE>

EXHIBIT 11.1

COMPUTATION OF NET INCOME PER COMMON SHARE

Company
----------------------
9/8/95
Through Year Ended
6/30/96 6/30/97
---------- ----------
Net income for computing net income per common share

Income before extraordinary loss $ 2,988 $ 3,055

Extraordinary loss on early extinguishment
of debt, net of tax - 215
--------- ---------

Net Income $ 2,988 $ 2,840
--------- ---------
--------- ---------

Primary:
Net income per common share $ 0.52 $ 0.43
Extraordinary loss on early extinguishment
of debt, net of tax - 0.03
--------- ---------
Net income per common share $ 0.52 $ 0.40
--------- ---------
--------- ---------

Fully diluted:
Net income per common share $ 0.52 $ 0.42
Extraordinary loss on early extinguishment
of debt, net of tax - 0.03
--------- ---------
Net income per common share $ 0.52 $ 0.39
--------- ---------
--------- ---------

COMPUTATION OF WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING

Company
----------------------
9/8/95
Through Year Ended
6/30/96 6/30/97
---------- ----------

Weighted average common shares
outstanding during the period 5,593,146 6,208,735

SAB 83 transactions 145,987 207,831

Assuming exercise of options
using the Treasury Stock Method - 616,408
---------- ----------
---------- ----------

Weighted average number of
common shares outstanding
as adjusted: Primary shares 5,739,133 7,032,974
---------- ----------
---------- ----------

Incremental additional shares upon the
exercise of options using the
end of period price - 258,239
---------- ----------

Weighted average number of
common shares outstanding
as adjusted: Fully diluted shares 5,739,133 7,291,212
---------- ----------
---------- ----------

<PAGE>

EXHIBIT 12.1

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
The Predecessor The Company
- - - ------------------------------------------------------------------------------------------------ ------------------------------
Year 1/1/93 3/1/93 Year 1/1/95 9/8/95 Year
Ended Through Through Ended Through Through Ended
12/31/92 2/28/93 12/31/93 12/31/94 9/8/95 6/30/96 6/30/97
- - - ------------------------------------------------------------------------------------------------ ------------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing
operations $ (5,385) $ (2,186) $ (4,908) $ (5,947) $ (5,485) $ 5,057 $ 5,885
Total fixed charges 4,439 853 2,846 3,636 2,963 1,375 5,343
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Earnings (1) $ (946) $ (1,333) $ (2,062) $ (2,311) $ (2,522) $ 6,432 $ 11,228
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------

Fixed Charges:
Interest expense,
including
amortization
of deferred
financing fees $ 3,728 $ 725 $ 2,182 $ 3,170 $ 2,576 $ 687 $ 4,179
Interest element
of rentals (2) 711 128 664 466 387 688 1,164
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Fixed
Charges (1) $ 4,439 $ 853 $ 2,846 $ 3,636 $ 2,963 $ 1,375 $ 5,343
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------

Ratio of Earnings to
Fixed Charges (0.21) (1.56) (0.72) (0.64) (0.85) 4.68 2.10

Dollar Deficiency
of Earnings to
Fixed Charges (3) (5,385) (2,186) (4,908) (5,947) (5,485) - -
</TABLE>

Note:

1. In computing the ratio of earnings to fixed charges: (a) "earnings" have
been based on income from continuing operations before income taxes and
fixed charges and (b) "fixed charges" consists of interest expense,
including amortization of deferred financing fees and the estimated
interest portion of rents.

2. The interest portion of rent expense was assumed to be one-third of the
total rental expense.

3. For the year ended December 31, 1992, the periods from January 1, 1993
through February 28, 1993 and March 1, 1993 through December 31, 1993,
the year ended December 31, 1994 and the period January 1, 1995 through
September 8, 1995, earnings are inadequate to cover fixed charges.

<PAGE>

Exhibit 21.1

Subsidiary Jurisdiction of Incorporation Names under which
- - - ---------- ----------------------------- Conduct Business
----------------

Oda Nursery, Inc. California Oda Nursery, Color
Spot Nurseries

Color Spot Christmas Delaware Color Spot Christmas
Trees, Inc. Trees, Signature
Trees, Happy Holiday
Christmas Trees

Lone Star, Inc. Delaware Lone Star, Inc.

LSGR Holdings, Inc. Delaware LSGR Holdings, Inc.

Lone Star Growers, L.P. Delaware Lone Star Growers,
Color Spot Nurseries

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to the references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

San Francisco, California
October 7, 1997

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We hereby consent to the use of our report dated June 20, 1997 relating to
the financial statements of the Wholesale Bedding Plant Division of Summersun
Greenhouse Co. for the years ended May 31, 1997 and 1996, which is included in
the Registration Statement on Form S-1 of Color Spot Nurseries, Inc. We also
consent to the reference to our Firm as experts in the same Registration
Statement.

MOSS ADAMS LLP

Seattle, Washington
October 2, 1997

<PAGE>
EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the use of our report included herein and to the reference to
our firm under the heading "EXPERTS" in the prospectus.

JAYNES, REITMEIER, BOYD & THERRELL, P.C.

Waco, Texas
October 6, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS OF COLOR SPOT
NURSERIES, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,762
<SECURITIES> 0
<RECEIVABLES> 27,185
<ALLOWANCES> 1,661
<INVENTORY> 27,759
<CURRENT-ASSETS> 56,938
<PP&E> 37,574
<DEPRECIATION> 2,801
<TOTAL-ASSETS> 133,417
<CURRENT-LIABILITIES> 43,672
<BONDS> 83,408
2,062
0
<COMMON> 162
<OTHER-SE> 4,113
<TOTAL-LIABILITY-AND-EQUITY> 133,417
<SALES> 113,400
<TOTAL-REVENUES> 113,400
<CGS> 64,026
<TOTAL-COSTS> 64,026
<OTHER-EXPENSES> 38,294
<LOSS-PROVISION> 1,164
<INTEREST-EXPENSE> 4,179
<INCOME-PRETAX> 5,885
<INCOME-TAX> 2,830
<INCOME-CONTINUING> 3,055
<DISCONTINUED> 0
<EXTRAORDINARY> 215
<CHANGES> 0
<NET-INCOME> 2,840
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39

</TABLE>