<PAGE>
As filed with the Securities and Exchange Commission on March 17, 1997
Registration No. __________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SUNBELT NURSERY GROUP, INC.
(Exact name of registrant as specified in its charter)
---------------------
DELAWARE 75-1932993
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
SUNBELT NURSERY GROUP, INC.
500 TERMINAL ROAD
FORT WORTH, TEXAS 76106
(817) 624-7253
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
RICHARD R. DWYER
PRESIDENT
SUNBELT NURSERY GROUP, INC.
500 TERMINAL ROAD
FORT WORTH, TEXAS 76106
(817) 624-7253
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
Murphy Mahon Keffler & Farrier, L.L.P.
1810 Bank One Tower
500 Throckmorton street
Fort Worth, Texas 76102
Attn: Robert J. Keffler
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
<PAGE>
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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>
==================================================================================================
Title of each Amount to Proposed Proposed Amount of
Class of be Registered Maximum Offering Maximum Registration Fee (1)
Securities to be Price Per Unit (1) Aggregate Offering
Registered Price (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common 1,000,000 $ 1.50 $1,500,000 $454.55
Stock, par
value $0.01 per
share
==================================================================================================
</TABLE>
(1)Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457(c) based on the average of the high and low sales prices of the
Common Stock as reported by the American Stock Exchange on March 10, 1997.
<PAGE>
SUNBELT NURSERY GROUP, INC.
CROSS-REFERENCE SHEET
Between Items of Form S-3 and the Prospectus
Item
No. Prospectus Caption or Page
- -- --------------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page/Cross Reference
Sheet/and Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back
Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Outside Front Cover Page and
Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ *
6. Dilution................................... *
7. Selling Security Holders................... Selling Stockholder
8. Plan of Distribution....................... Plan of Distribution
9. Description of Securities to be Registered. *
10. Interest of Named Experts and Counsel...... Legal Matters and Experts
11. Material Changes........................... Financial Statements
12. Incorporation of Certain Information by
Reference.................................. Inside Front Cover Page
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ *
- --------------------
* Not Applicable
<PAGE>
The Date of This Prospectus is March 17, 1997
PROSPECTUS
SUNBELT NURSERY GROUP, INC.
1,000,000 shares of Common Stock
The 1,000,000 shares (the "Shares") of Common Stock, par value $0.01 per
share ("Common Stock"), of Sunbelt Nursery Group, Inc., a Delaware corporation
("Sunbelt" or the "Company"), offered hereby are being offered by Timothy R.
Duoos, Chairman of the Board and Chief Executive Officer of the Company ("Duoos"
or "Selling Stockholder"). The Company will not receive any of the proceeds
from the sale of the Shares, but the Company has agreed to bear certain expenses
of registration of the Shares under the federal and state securities laws
(currently estimated to be $10,000), and of any offering and sale hereunder not
including certain expenses such as commissions and discounts of underwriters,
dealers or agents. See "Selling Stockholder" and "Use of Proceeds."
The Common Stock is traded on the American Stock Exchange, under the symbol
"SBN." On March 10, 1997, the closing sales price of the Company's Common
Stock as reported on the American Stock Exchange was $1.50 per share.
As part of the restructuring of certain indebtedness owed by the Company to
Pier 1 Imports, Inc., a Delaware corporation ("Pier 1"), the Company, Wolfe
Nursery, Inc., a wholly-owned subsidiary of the Company ("Wolfe"), Pier 1, and
Duoos entered into that certain Note Modification Agreement (herein so called)
and dated January 31, 1997. As a result of that transaction, all or
substantially all of the Shares being registered pursuant to the Registration
Statement of which this Prospectus is a part shall be sold by Duoos for the
benefit of Pier 1. The actual number of the Shares being sold for Pier 1's
benefit depends on the closing price of the Common Stock on the effective date
of the Registration Statement, as set forth in the Note Modification Agreement.
The Shares subject to the Note Modification Agreement (the "Pier 1 Shares")
shall be delivered by Duoos to a securities broker designated by Pier 1 upon the
effective date of the Registration Statement. The Pier 1 Shares shall be sold
in one or more transactions that may take place through the American Stock
Exchange (or any other national securities exchange on which the Company's
Common Stock is approved for listing in the future), including block trades or
ordinary brokers' transactions or through privately negotiated transactions or
through a combination of any such methods of sale, at such prices as may then be
obtainable. The proceeds of such sales of the Pier 1 Shares, net of sales
commissions and other costs of sale to be borne by Pier 1, shall inure solely to
the benefit of Pier 1. See "Pier 1 Transaction-Recent Developments" for a
---
summary of the terms of the Note Modification Agreement and the method for
determining the exact number of the Shares to be delivered by Duoos.
The balance of the Shares (after deduction of the Pier 1 Shares) shall be
retained by Duoos (the "Duoos Shares") and may be offered and sold from time to
time directly or through
<PAGE>
broker-dealers or underwriters who may act solely as agents of Duoos, or who may
acquire the Duoos Shares as principals. The distribution of the Duoos Shares may
be effected in one or more transactions that may take place through the American
Stock Exchange (or any other national securities exchange on which the Common
Stock is approved for listing in the future), including block trades or ordinary
brokers' transactions, or through privately negotiated transactions, or through
a combination of any such methods of sale, at such prices as may be obtainable.
Usual and customary or specially negotiated brokerage fees or commissions may be
paid in connection with such sales. The Company shall not receive any portion of
the proceeds from the sale of the Duoos Shares. See "Plan of Distribution."
---
The Selling Stockholder and any broker-dealers, agents or underwriters that
participate with the Selling Stockholder in the distribution of any of the
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), and any commission received by
them and any profit on the resale of the Shares purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act.
PROSPECTIVE INVESTORS SHOULD CONSIDER AND REVIEW THE INFORMATION UNDER THE
CAPTION "RISK FACTORS" PRIOR TO AN INVESTMENT IN THE SHARES OFFERED HEREBY.
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.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied, at prescribed rates, at the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, as
well as at the regional offices of the Commission at Seven World Trade Center,
13th Floor, New York, New York 10048, the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601. Copies of such material
may also be obtained at prescribed rates by writing to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Common Stock is listed on the American Stock Exchange. Reports, proxy
statements and other information described above may also be inspected and
copied at the offices of the American Stock Exchange at 86 Trinity Place, New
York, New York 10006.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to the
Shares offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits thereto. For further information with
respect to the Company and the Shares, reference is hereby made to such
Registration Statement and exhibits. Statements contained herein concerning the
provisions of any documents are necessarily summaries of those documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. The Registration Statement and
any amendments thereto, including exhibits filed as a part thereof, are
available for inspection and copying as set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended January 28,
1996 (See Item 11 for reissuance of Independent Accountants opinion with
an explanatory paragraph regarding the Company's ability to continue as a
going concern);
(2) The Company's Annual Report on Form 10-K/A-1 for the year ended January 28,
1996 (See Item 11 for reissuance of Independent Accountants opinion with
an explanatory paragraph regarding the Company's ability to continue as a
going concern);
(3) The Company's Proxy Statement for the Annual Meeting of Stockholders held
on October 17, 1996;
(4) The description of the Common Stock contained in the Company's Registration
Statement on Form 8-A, including all amendments and reports filed for the
purpose of updating such description,
(5) The Company's Quarterly Report on Form 10-Q for the quarterly period ended
April 28, 1996;
(6) The Company's Transition Report on Form 10-Q for the transition period from
January 29, 1996 to June 30, 1996;
(7) The Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 29, 1996;
3
<PAGE>
(8) The Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 29, 1996; and
(9) The Company's Current Report on Form 8-K dated August 1, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of the
filing of such documents. Any statement contained in this Prospectus, in a
supplement to this Prospectus or in a document incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any subsequently filed supplement to this Prospectus or in any document
that also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will furnish without charge to each person to whom a copy of
this Prospectus has been delivered, upon written or oral request, a copy of any
or all documents incorporated by reference in this Prospectus, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference in such documents. Written or oral requests for such copies should be
directed to Richard R. Dwyer, Sunbelt Nursery Group, Inc., 500 Terminal Road,
Fort Worth, Texas 76106 (Telephone: (817) 624-7253).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER
TO OR SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
----------------------------------
4
<PAGE>
THE COMPANY
The Company is a specialty retailer of nursery and garden products,
currently operating 69 stores primarily in the seven major metropolitan areas of
Dallas-Fort Worth, Houston, San Antonio, Austin, Phoenix, San Diego and Los
Angeles. The Company conducts its business through three retail nursery
subsidiaries, each of which has operated under its own geographically recognized
trade name for a quarter of a century or more: Wolfe Nursery in Texas and
Oklahoma, Nurseryland Garden Centers in California, and Tip Top Nurseries in
Arizona.
The Company was incorporated in Delaware in 1983 as a holding company of
the nursery retailing businesses of Pier 1. In 1985, all shares of Common Stock
of the Company were distributed as a dividend to the shareholders of Pier 1, and
the Company operated as a public company from 1985 until 1990. In September
1990, Pier 1 purchased a 50.4% of the then outstanding Common Stock of the
Company in a private transaction and commenced a public tender offer for the
remaining shares. In November 1990, Pier 1 completed the tender offer and
subsequent merger of the Company with a subsidiary so that the Company became a
wholly owned subsidiary of Pier 1. In October 1991, the Company sold 3,680,000
shares in an initial public offering that left Pier 1 holding 56.6% of the
outstanding Common Stock. In February 1992, Pier 1 sold 600,000 shares of Common
Stock which reduced Pier 1's ownership interest in the Company to 49.5%. In
April 1993, Pier 1 sold its remaining 4,200,000 shares of Common Stock to
General Host Corporation ("General Host") for consideration of 1,940,000 shares
of General Host Common Stock. In October 1994, a subsidiary of General Host sold
its 4,200,000 shares of Common Stock to Duoos.
RISK FACTORS
Prior to making an investment decision, prospective investors should
consider carefully all of the information set forth in this Prospectus and, in
particular, should evaluate the following risk factors.
Losses from Continuing Operations
- ---------------------------------
The Company reported losses from continuing operations for the fiscal years
ended January 30, 1994, January 29, 1995, and January 28, 1996, in the
approximate amounts of $8.7 million, $5.0 million and $25.2 million
respectively. The Company also reported losses from continuing operations for
the transition period from January 29, 1997 to June 30, 1997 and six month
period ended December 29, 1996 in the amount of $3.1 million and $4.8 million,
respectively. The Company is currently estimating that it will continue to incur
losses from operations.
Liquidity
- ---------
The Company and its subsidiaries are parties to a Loan and Security
Agreement (the "Loan Agreement") with a commercial bank (the "Bank") providing
for a line of revolving credit which matures in October of 1997. The amount that
can be borrowed under the Loan Agreement is dependent on an inventory borrowing
base for each operating subsidiary of the Company, and the aggregate principal
amount outstanding may not exceed $9.0 million. The borrowing base and amount
outstanding pursuant to the Loan Agreement at December 29, 1996, was $6.4
million and $4.0 million, respectively. The borrowing base and amount
outstanding pursuant to the Loan Agreement at March 9, 1997 was $7.6 million and
$7.7 million, respectively. The outstanding loan balance exceeds the borrowing
base due to the additional borrowings against restricted cash of $1.0 million,
which the bank has approved until March 26, 1997 to purchase inventory for the
Spring season. In October 1997, the Company will either extend the Loan
Agreement, if acceptable to the Bank, or seek alternate financing to the extent
available to the Company based upon the Company's financial condition, operating
results and the then prevailing lending environment. There are no assurances
that the Company will be able to extend the Loan Agreement or obtain alternate
financing.
Going Concern
- -------------
The financial statements for the three and six-month periods ended December
29, 1996, the five-month transition period ended June 30, 1996, and the year
ended January 28, 1996, have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 3 to the consolidated
financial statements, the Company has suffered recurring losses from operations,
has a net capital deficiency and the Company's revolving line of credit matures
in October of 1997. See "Financial Statements" included herein under Item 11.
---
The bank has not indicated its intention to extend the maturity date of the
revolving line of credit, all of which raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to these matters are also discussed in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
In the reissuance of its report of the Company's consolidated financial
statements for the year ended January 28, 1996, the independent accountants have
included an explanatory paragraph regarding the Company's ability to continue as
a going concern. (See Item 11 for inclusion of the Company's January 28, 1997
consolidated financial statements).
5
<PAGE>
Seasonality
- -----------
Sales in the retail nursery and garden center industry are highly seasonal
and subject to significant impact from weather variations. The spring months
provide the greatest sales volume. Each geographic market enjoys its own
extended growing season, which stretches from February to October in Houston,
San Antonio and Austin; from March to September in Dallas-Fort Worth; and
virtually year-round in Phoenix, San Diego and Los Angeles. If unusual weather
patterns continue through the spring and early summer and/or if inclement
weather persists on weekends, the sales lost during that time generally cannot
be made up and will negatively impact the Company's operating results.
Competition
- -----------
The retail nursery and garden business is highly competitive. While no
national nursery chain competes with the Company in its present markets, the
Company experiences significant competition. The Company faces competition
principally from three types of businesses: nursery departments of major home
improvement and discount store chains such as Home Depot and Wal-Mart that
compete on the basis of price and have more financial resources and strength
than the Company; regional retail nursery chains such as Armstrong Garden
Centers in Los Angeles and Callaway's Nursery in Dallas-Fort Worth; and
independent single unit garden centers.
Effect of Sale of Pier 1 Shares on Market Price of Common Stock
- ----------------------------------------------------------------
As of March 10, 1997, there were 8,500,000 shares of the Company's shares
outstanding. The Shares being registered by Duoos pursuant to the Registration
Statement of which this Prospectus is a part represent approximately 12% of the
outstanding Common Stock of the Company. The Company has no knowledge of the
proposed plan of distribution of the Shares other than as described in the Note
Modification Agreement and in this Prospectus. See "Plan of Distribution." The
---
average daily trading volume of the Company's Common Stock during the four
calendar weeks prior to the date of this Prospectus is 3,606 shares of
Common Stock. There can be no assurance that the sale of the Shares will not
have a material adverse effect on the then prevailing market price of the
Company's Common Stock.
USE OF PROCEEDS
The Company will not receive any part of the proceeds from the sale of
Shares covered by this Registration Statement. See "Pier 1 Transaction" and
---
"Plan of Distribution" for a discussion of the proposed distribution of the
Shares.
6
<PAGE>
SELLING STOCKHOLDER
This Prospectus covers the offer and sale of the Shares by Duoos. Set
forth below is information concerning all the positions, offices, or other
material relationships that Duoos has with the Company or any of its
predecessors or affiliates for the past three (3) years, the number of shares of
Common Stock owned by Duoos as of the date of this Prospectus, the number of
shares of Common Stock which may be offered by Duoos pursuant to this
Prospectus, and the number of shares of Common Stock owned by Duoos upon
completion of the offering if all of the Shares held by Duoos are sold.
<TABLE>
<CAPTION>
Shares Owned Shares Percentage of
Prior to the Offered Class After
Selling Stockholder Offering Hereby the Offering/1/
- ------------------- ------------ --------- ----------------
<S> <C> <C> <C>
Timothy R. Duoos, 4,200,500 1,000,000 37.6%
Chief Executive
Officer and Chairman
of the Board of
Directors
- ---------------------------------------------------------------
</TABLE>
/1/ Assumes no other disposition or acquisition of Common Stock and all Shares
included herein are sold.
Other Material Arrangements
- ---------------------------
On October 19, 1994, Duoos purchased 4,200,000 shares of Common Stock from
a wholly-owned subsidiary of General Host Corporation. The shares constitute
approximately 49.4% of the total issued and outstanding Common Stock. All of
the shares of Common Stock of the Company owned by Duoos have been pledged to
the Bank as additional security for the Company's obligations under the Loan
Agreement. Duoos has also personally guaranteed the repayment of the Company's
indebtedness under the Loan Agreement. In exchange therefore, the Company pays
to Duoos a loan guarantee fee in an annual amount equal to $60,000. In
September 1995, Duoos loaned to the Company $600,000 to be repaid by October 31,
1995. On October 27, 1995, the loan and accrued interest of $7,000 was paid in
full by the Company.
PIER 1 TRANSACTION
Background
- ----------
Prior to October 1994, Pier 1 made available up to $25.0 million for the
acquisition of properties and construction of new facilities and renovation of
existing facilities for the conduct of the Company's business operations (the
"Lease Facility"). As of October 31, 1994, the Company had utilized $22.8
million of the Lease Facility to acquire or construct 13 facilities
7
<PAGE>
which the Company subleased from Pier Lease, Inc., a Delaware corporation and an
affiliate of Pier 1 ("Pier Lease"). The Company later defaulted on its
obligations under the Lease Facility, and Pier Lease terminated the 13 subleases
effective April 21, 1995.
Effective July 31, 1995, the Company restructured the thirteen subleases
and other guarantees of leases with Pier 1 pursuant to an Agreement of
Settlement (the "Agreement of Settlement") which provides six-month lease terms
renewable at Pier 1's option through June 30, 1998, after which the Company must
consent to any further extensions. The initial term ended December 31, 1995,
and Pier 1 has since renewed options through June 30, 1997. Rent is calculated
as a percentage of gross sales, subject to minimum levels. Pier 1 is actively
marketing the facilities for sale and the Company has no purchase obligation.
The Company may make an offer to purchase any of these properties, but Pier 1 is
not obligated to accept the offer. As of December 31, 1996, seven of the
properties had been sold to third parties and the Company has negotiated new
lease agreements on three of these locations, and has vacated the other four
properties. Also, as of June 30, 1996, the Company closed three of the
properties and recorded an estimated liability of $831,000 in non-cancelable
future minimum lease payments, of which $724,000 was remaining as of December
31, 1996, on these stores pursuant to the Agreement of Settlement. The
subleases have been accounted for as operating leases subsequent to July 31,
1995.
The Agreement of Settlement also fixed a $14.7 million claim against the
Company in favor of Pier 1. The claim is secured up to $6.0 million by
substantially all of the Company's assets, subordinate to the rights of the
Bank, and comprised of (i) a promissory note for $8.0 million (the "Earn-out
Claim") and (ii) the remaining portion of the claim (the "Residual Claim") which
is a non-interest bearing claim payable only in the event of non-performance
under the Agreement of Settlement. The Earn-out Claim is payable in annual
installments ("Cash Flow Payments"), subject to certain minimum financial
requirements pursuant to the Agreement of Settlement and the Loan Agreement, or
may be fully satisfied by aggregate payments of either $2.0 million by May 1,
1996, $4.0 million by May 1, 1997, or $6.0 million by May 1, 1998. The Residual
Claim will be fully discharged by the satisfaction of the Earn-out Claim and the
termination, without additional liability to Pier 1, of the subleases and other
leases guaranteed by Pier 1. Due to covenants in the Loan Agreement, the
Company was prohibited from satisfying the Earn-out Claim with a prepayment of
$2.0 million on May 1, 1996. As a result, the $2.0 million present value of the
$8.0 million in deferred Cash Flow Payments was initially recorded as a long-
term liability in the accompanying consolidated balance sheet.
Recent Developments
- --------------------
On January 31, 1997, the Company modified the terms of the Agreement of
Settlement (the "Note Modification Agreement") with Pier 1 which provides the
Company with the option of modifying the terms of the existing $8.0 million
Earn-out Claim (as discussed above, the Company currently has a $2.0 million
liability recorded in relation to this $8.0 million Earn-out Claim) for total
consideration of $2.0 million, which is comprised of $200,000 in cash payable on
March 3, 1997, a promissory note to Pier 1 in the amount of $800,000, delivered
on March 3, 1997 (the "Promissory Note"), and $1,000,000 in notes payable to
Duoos for consideration of the use of proceeds paid to Pier 1 from the sale of
the Pier 1 Shares. The $200,000 cash payment and the $800,0000 Promissory Note
have been
8
<PAGE>
delivered by the Company in escrow pursuant to the Note Modification Agreement.
Subject to certain termination rights of Pier 1, the Promissory Note constitutes
the Earn-out Claim. The Promissory Note will bear interest at 6% per annum with
interest only paid monthly until May 1, 1998, at which time, the first of four
annual principal installments of $200,000 will be due. The Company may elect to
defer any or all of the annual principal payments with any deferred principal
due in full on May 1, 2001. In the event of such a deferral, however, the
interest rate on any deferred principal amount shall be increased to 10% per
annum until retirement. The Note Modification Agreement provides that the
remaining $1.0 million will be settled by Duoos on behalf of the Company upon
the registration and sale of the Pier 1 Shares. The number of Pier 1 Shares to
be sold by Duoos on behalf of Pier 1 will be determined as the quotient of $1.0
million divided by the closing price of the Common Stock on the last trading day
immediately preceding the date on which the Registration Statement becomes
effective (the "Delivery Date"). The proceeds from the sale of such shares will
inure solely to the benefit of Pier 1. Pier 1 has the unilateral right to
terminate the Note Modification Agreement if the Delivery Date does not occur
(i) by May 30, 1997 or (ii) if the closing price of the Common Stock on the day
immediately preceding the Delivery Date is less than one dollar per share. In
conjunction with the sale of Duoos' personal stock, the Company will deliver a
promissory note payable to Duoos in the principal amount of $1.0 million (the
"Duoos Note"). It is currently contemplated that the Duoos Note shall be for a
term of three years with interest payable at an annual rate of 12% with monthly
payments of interest only during the first year and thereafter monthly payments
of principal and interest fully amortized during years two and three. It is also
anticipated that Duoos (or any subsequent holder) shall have the right to
convert all or a portion of the indebtedness due under the Duoos Note into
shares of Common Stock at a rate equal to the quotient of the amount of
indebtedness so converted divided by the closing price of the Common Stock on
the Delivery Date. Duoos or any holder of the Duoos Note shall have the right to
require the Company to register the shares following conversion, at the expense
of the Company, under a registration statement filed with the Securities and
Exchange Commission. In addition, to secure payment of the Duoos Note it is
proposed that Duoos will take a second lien on all of the assets of the Company
junior only to the lien of the Bank. The Duoos Note shall be pledged to the
Bank. The final terms of the Duoos Note are subject to the approval of the Bank
and Board of Directors of the Company. Neither the Bank nor the Board of
Directors of the Company have approved the proposed terms of the Duoos Note and
therefore its terms may be different from the proposed terms described herein.
If for any reason the terms of the Note Modification Agreement are not
fulfilled, then the Earn-Out Claim and Agreement of Settlement shall remain
unmodified and in full force and effect.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the sale of the Shares
covered by the Registration Statement. Except as otherwise indicated herein, it
is anticipated that the Selling Stockholder will offer the Shares in the manner
set forth on the cover page of this Prospectus, from time to time, directly or
through broker-dealers or underwriters who may act solely as
9
<PAGE>
agents or may acquire the Shares as principals, in all cases as designated by
the Selling Stockholder. Such underwriters or broker-dealers acting either as
principal or as agent, may receive compensation in the form of usual and
customary or specifically negotiated underwriting discounts, concessions or
commissions from the Selling Stockholder or the purchasers of the securities
offered hereby for whom they may act as agent.
Pursuant to the terms of the Note Modification Agreement, the Company has
agreed to file a registration statement under the Securities Act covering the
sale of certain shares of the Company's Common Stock held by Duoos, and to use
its reasonable best efforts to maintain the effectiveness of any such
registration statement for no less than 90 days from the date of effectiveness
of such registration statement. In addition, the Company has agreed to bear
certain expenses of registration of the Shares under the federal and state
securities laws (currently estimated to be $10,000) and of any offering and sale
hereunder not including certain expenses such as commissions or discounts of
underwriters, dealers or agents attributable to the sale of such Shares. Under
the Note Modification Agreement, Pier 1 will receive all proceeds from the sale
of the Pier 1 Shares, being the net proceeds from the sale of the Pier 1 Shares
offered hereby, less the aggregate selling agents' commissions and underwriting
discounts, if any, and other expenses of issuance and distribution of the Pier 1
Shares, none of which expenses shall be borne by the Company.
The net proceeds to Duoos from the sale of the Duoos Shares offered hereby
will be the purchase price of the Common Stock sold less the aggregate agents'
commissions and underwriters' discounts, if any, and other expenses of issuance
and distribution not borne by the Company. The Selling Stockholder and any
dealers or agents that participate in the distribution of Common Stock may be
deemed to be "underwriters" within the meaning of the Securities Act.
To comply with the securities laws of certain jurisdictions, the securities
offered hereby may be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain
jurisdictions the securities offered hereby may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
The Selling Stockholder and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Rules 10b-6
and 10b-7, which provisions may limit the timing of purchases and sales by the
Selling Stockholder and any other such person. Furthermore, under Rule 10b-6
under the Exchange Act, any person engaged in a distribution of the Common Stock
may not simultaneously engage in market making activities with respect to such
securities for a period of two business days prior to the commencement of such
distribution. All of the foregoing may affect the marketability of the
securities offered hereby.
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by Murphy
Mahon Keffler & Farrier, L.L.P.
10
<PAGE>
EXPERTS
The consolidated financial statements as of January 28, 1996 and January
29, 1995 and for each of the three year periods ended January 28, 1996 included
in this Prospectus have been so included in reliance on the report (which
contains an explanatory paragraph relating to the Company's ability to continue
as a going concern as described in Note 3 to the consolidated financial
statements) of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
11
<PAGE>
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Sunbelt Nursery Group, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Sunbelt Nursery Group, Inc. and its subsidiaries (the "Company") at January 28,
1996 and January 29, 1995, and the results of their operations and their cash
flows for the three years ended January 28, 1996, January 29, 1995 and January
30, 1994 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, has a net capital deficiency at December 29, 1996 and the
Company's revolving line of credit matures in October 1997, and the bank has not
indicated its intention to extend the maturity date of the revolving line of
credit, all of which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans with regard to these matters are
also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in fiscal 1994 and adopted FAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" in fiscal 1996.
PRICE WATERHOUSE LLP
Fort Worth, Texas
May 10, 1996 Except Note 3 as to which the date is March 14, 1997
12
<PAGE>
Sunbelt Nursery Group, Inc.
Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
January 28, January 29,
1996 1995
----------- -----------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $1,140 $1,287
Cash - restricted 1,006 711
Accounts receivable, net 310 517
Inventories 25,595 27,020
Other current assets 672 1,477
----------- -----------
Total current assets 28,723 31,012
----------- -----------
Property and equipment, at cost 27,951 49,448
Less accumulated depreciation 16,220 13,249
----------- -----------
Net property and equipment 11,731 36,199
Goodwill, net - 19,620
Other assets 221 526
----------- -----------
Total assets $40,675 $87,357
=========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $21,676 $19,934
Accrued compensation 1,669 2,484
Current portion of long-term debt and
capital leases 658 594
Other current liabilities 4,194 4,837
----------- -----------
Total current liabilities 28,197 27,849
Long-term debt and capital leases 11,473 32,857
Reserve for store closings 336 928
Other long-term liabilities 633 509
----------- -----------
Total liabilities 40,639 62,143
----------- -----------
Shareholders' equity:
Common stock, $.01 par value, 25 million
shares authorized, 8,500,000 issued and
outstanding 85 85
Additional paid-in capital 45,151 45,151
Retained deficit (45,150) (19,972)
Subscriptions receivable from officer (50) (50)
----------- -----------
Total shareholders' equity 36 25,214
Commitments and contingencies (Notes 3, 6,
7 and 13)
----------- -----------
Total liabilities and shareholders' equity $40,675 $87,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE>
Sunbelt Nursery Group, Inc.
Consolidated Statement of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended
January 28, January 29, January 30,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $129,658 $138,565 $146,034
Cost of goods sold 77,864 78,568 82,614
---------- ---------- ----------
Gross profit 51,794 59,997 63,420
General, administrative
and selling expense 50,522 57,591 65,154
Depreciation and amortization 3,885 4,595 4,459
Impairment of goodwill and long-lived
assets 20,537 - -
Interest and other income (173) (189) (90)
Interest expense 2,394 3,031 2,056
Provision for store closings (193) - -
---------- ---------- ----------
Loss before provision for income taxes
and cumulative effect of change in
accounting principle (25,178) (5,031) (8,159)
Provision for income taxes - - 213
---------- ---------- ----------
Loss before cumulative effect of
change in accounting principle (25,178) (5,031) (8,372)
Cumulative effect of change in
accounting principle for income
taxes - - (366)
---------- ---------- ----------
Net loss ($25,178) ($5,031) ($8,738)
========== ========== ==========
Loss per share before cumulative
effect of change in accounting
principle ($2.96) ($0.59) ($0.99)
Cumulative effect of change in
accounting principle for income
taxes - - (0.04)
---------- --------- ----------
Net loss per share ($2.96) ($0.59) ($1.03)
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
14
<PAGE>
Sunbelt Nursery Group, Inc.
Consolidated Statement of Changes in Shareholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Additional Retained
Common Treasury Paid-in Earnings Subscriptions
Stock Stock Capital (Deficit) Receivable
------ -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1993 $85 - $45,118 ($6,203) -
Net loss - - - (8,738) -
------ -------- --------- --------- -------------
Balance at January 30, 1994 85 - 45,118 (14,941) -
Issuance of stock - 20,000
shares - - 55 - -
Treasury stock purchases -
38,000 shares - ($96) - - -
Exercise of employee stock
options - 38,000 shares - 96 (22) - ($50)
Net loss - - - (5,031) -
------ -------- --------- --------- -------------
Balance at January 29, 1995 85 - 45,151 (19,972) (50)
Net loss - - - (25,178) -
------ -------- --------- --------- -------------
Balance at January 28, 1996 $85 $ - $45,151 ($45,150) ($50)
====== ======== ========= ========= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
15
<PAGE>
Sunbelt Nursery Group, Inc.
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended
January 28, January 29, January 30,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss ($25,178) ($5,031) ($8,738)
Adjustments to reconcile net loss to
cash provided by (used for) operating
activities:
Depreciation and amortization 3,885 4,595 4,459
Deferred income taxes - - 415
Cumulative effect of change in
accounting principle - - 366
Gain on sale of fixed assets (156) (51) (10)
Reversal of store closing reserve (193) - -
Payment of store closing costs
included in provision for store
closings (785) (763) (527)
Impairment of goodwill and long-lived
assets 20,537 - -
Changes in operating assets and
liabilities:
Inventories 1,425 2,240 (893)
Accounts receivable and other assets (349) 416 1,180
Accounts payable 2,247 1,630 1,279
Accrued compensation (815) (220) (282)
Other liabilities (326) (651) 321
---------- --------- ----------
Net cash provided by (used for)
operating activities 292 2,165 (2,430)
---------- --------- ----------
Investing activities:
Purchase of property and equipment (369) (798) (3,382)
Proceeds from sale of property and
equipment 1,252 13 10
---------- --------- ----------
Net cash provided by (used for)
investing activities 883 (785) (3,372)
---------- --------- ----------
Financing activities:
Increase in short-term borrowings - 100 1,500
Repayments of notes payable - (9,600) -
Proceeds from (repayment of) short-term
borrowings - Pier 1 Imports - (2,000) 2,000
Proceeds from Pier 1 Imports lease
facility - - 5,360
Additions to long-term debt and capital
leases 140,655 41,513 -
Principal payments on long-term debt,
including notes payable and capital
lease obligations (141,682) (33,668) (730)
Purchase of treasury stock - (96) -
Exercise of employee stock options - 24 -
Restricted cash for outstanding letters
of credit (295) (711) -
Debt issuance costs - (329) -
---------- ---------- ----------
Net cash provided by (used for)
financing activities (1,322) (4,767) 8,130
---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents (147) (3,387) 2,328
Cash and cash equivalents at beginning
of period 1,287 4,674 2,346
---------- ---------- ----------
Cash and cash equivalents at end of
period $1,140 $1,287 $4,674
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
16
<PAGE>
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND BASIS OF PRESENTATION
- -----------------------------------------------
Sunbelt Nursery Group, Inc. ("Sunbelt" or the "Company") is a specialty
retailer of nursery and garden products operating under three prominent retail
trade names: Wolfe Nursery and Wolfe's Gardenland in Oklahoma and Texas,
Nurseryland Garden Centers in California and Tip Top Nurseries in Arizona. No
single customer accounts for more than 10% of sales. Prior to October 1, 1990,
Intermark, Inc. ("Intermark") owned a 50.4% interest in the Company and also
owned a controlling interest in Pier 1 Imports, Inc. ("Pier 1 Imports").
Intermark subsequently disposed of its entire interest in Pier 1 Imports.
Effective October 1, 1990, Pier 1 Imports acquired Intermark's interest in the
Company and commenced a tender offer for the remaining shares, which was
consummated effective November 30, 1990, at which time Pier 1 Imports became the
sole shareholder of the Company.
In October 1991, the Company completed the sale of 3,680,000 shares of newly
issued common stock in a public offering. Subsequent to the sale, Pier 1
Imports' ownership approximated 56.6%. Net proceeds of the offering
approximated $28.1 million, of which $18.1 million was utilized to pay a
dividend to Pier 1 Imports.
In February 1992, Pier 1 Imports sold 600,000 shares of common stock which
reduced Pier 1 Imports' ownership in the Company to 49.5%. Effective April 28,
1993, Pier 1 Imports sold its remaining 4,200,000 shares of common stock to
General Host Corporation ("General Host") in exchange for 1,940,000 shares of
General Host common stock.
On October 19, 1994, General Host sold its 4,200,000 shares of Sunbelt's
common stock to Timothy R. Duoos ("Mr. Duoos") giving Mr. Duoos a 49.4%
ownership interest in Sunbelt.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
- ----------------------------------------
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly owned.
All significant intercompany accounts and transactions have been eliminated in
consolidation. Certain amounts in the consolidated financial statements have
been reclassified to conform to the current year's presentation.
REVENUE RECOGNITION - The Company recognizes revenue when the customer takes
possession of merchandise.
CASH EQUIVALENTS - For purposes of the statement of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
INVENTORIES - Inventories are comprised primarily of finished merchandise and
are stated at the lower of average cost or market, average cost being determined
principally on the retail inventory method.
PROPERTY AND EQUIPMENT - Property and equipment, including renewals and
improvements which extend the life of existing properties, are capitalized at
cost and depreciated using the straight-line method over estimated useful lives
or lease
17
<PAGE>
terms, if shorter. Expenditures for normal maintenance and repairs are expensed
as incurred. The cost of property and equipment sold or otherwise retired and
the related accumulated depreciation and amortization are removed from the
accounts and any resultant gain or loss, after taking into consideration
proceeds from sale, is credited or charged to income.
INCOME TAXES - In February 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes. FAS 109
utilizes an asset and liability approach in accounting for income taxes. The
asset and liability approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. The adjustment to adopt FAS 109 aggregated a charge of $366,000
which has been reflected in fiscal year 1994 income as a cumulative effect of a
change in accounting principle. The cumulative effect primarily represents the
effect of providing a valuation allowance for all net tax assets.
ADVERTISING - The Company expenses all advertising costs in the period in which
the cost are incurred. Total advertising expenditures approximated $4,526,000,
$6,007,000 and $6,939,000 for fiscal 1996, 1995 and 1994, respectively.
EARNINGS (LOSS) PER SHARE - Earnings (loss) per share are computed on the
weighted average number of shares plus common stock equivalents outstanding
during the period if dilutive. For the year ended January 28, 1996, the average
number of shares outstanding approximated 8,500,000. For the years ended
January 29, 1995 and January 30, 1994, the average number of shares outstanding
approximated 8,496,000 and 8,480,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of financial instruments is
determined by reference to various market data and other valuation techniques as
appropriate. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values due primarily to the short-term
nature of their maturities.
GOODWILL - Goodwill represents the excess purchase cost over the fair value
of the net assets of businesses acquired. As a result of the Company's adoption
of FAS 109 at February 1, 1993, the Company increased goodwill by $682,000
reflecting a valuation allowance for certain tax benefits previously recognized
under APB 11 that were associated with assets acquired having a tax basis in
excess of their estimated fair value. Accumulated amortization of goodwill at
January 29, 1995 approximated $2.7 million.
The Company periodically reviews goodwill to assess recoverability. The
Company continues to experience intense competition and operating losses (see
Note 3 for a further discussion of these factors). As a result, during the
fourth quarter of fiscal 1996 the Company reviewed the valuation of goodwill and
concluded that its future recoverability was in doubt and recognized an
impairment of the remaining balance of goodwill of approximately $19.2 million,
which is reflected as Impairment of Goodwill and Long-Lived Assets in the
accompanying consolidated statement of operations.
NEW ACCOUNTING STANDARDS - In March 1995, the Financial Accounting Standards
Board (the "FASB") issued Statement of Financial Accounting Standards ("FAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("FAS 121"), which is effective for fiscal years
beginning after December 15, 1995, although early adoption is allowed. As such,
the Company elected to adopt FAS 121 for the year ended January 28, 1996, which
requires that long-lived assets held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the net
book value of the asset may not be recoverable. An impairment loss is recognized
if the sum of the expected
18
<PAGE>
future cash flows (undiscounted and before interest) from the use of the asset
is less than the book value of the asset. The amount of the impairment loss is
measured as the difference between the net book value of the assets and the
estimated fair value of the related assets.
Upon adoption, the Company reviewed its long-lived assets on a store-by-store
basis, which represents the Company's lowest level of identifiable cash flows,
and recorded an initial pre-tax impairment loss of approximately $1.3 million to
conform with this statement. The Company will review its long-lived assets for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of a long-lived asset may not be recoverable.
STOCK BASED COMPENSATION - In October 1995, the FASB issued FAS No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), which is effective for
fiscal years beginning after December 15, 1995. Effective January 29, 1996, the
Company will adopt FAS 123 which establishes financial accounting and reporting
standards for stock-based employee compensation plans. The pronouncement
defines a fair value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock option compensation plans. However,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting as prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees: ("APB 25"). Entities electing to remain with the accounting in APB 25
must make pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting defined in FAS 123 had been applied. The
Company will continue to account for stock-based employee compensation plans
under the intrinsic method pursuant to APB 25 and will make the disclosures in
its footnotes as required by FAS 123.
PERVASIVENESS 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 related revenues and expenses, and disclosure of gain and loss
contingencies at the date of the financial statements. Actual results could
differ from those estimates.
NOTE 3 -- LIQUIDITY AND OPERATING LOSSES
- ----------------------------------------
LIQUIDITY - The Company entered into a Loan and Security Agreement for a $12.0
million revolving credit facility with a bank (the "Bank") on October 19, 1994.
The proceeds of this credit facility, along with cash on hand, were used to
retire the indebtedness approximating $11.6 million owed pursuant to that
certain credit facilities agreement dated April 28, 1993 between the Company and
Pier 1 Imports. As of January 28, 1996, the Company was in default of the Loan
and Security Agreement by virtue of (i) the Company's failure to maintain a
specified minimum earnings before interest expense, income taxes and
depreciation and amortization ("EBITDA") for the quarter and fiscal year ended
January 28, 1996, as required by the Loan and Security Agreement and (ii) the
Company's failure to meet a specified debt service coverage ratio for the four
quarters ended January 28, 1996. As of May 10, 1996, the Bank waived all past
events of default occurring under the Loan Agreement and amended the EBITDA and
debt service coverage covenants included in the Loan Agreement. In recognition
of the waiver of defaults provided by the Bank and the amended bank covenants,
which the Company believes it will reasonably meet based upon the fiscal 1997
budget, the entire $8.3 million due under the Loan Agreement has been recorded
as Long-Term Debt in the accompanying consolidated balance sheet. However,
there can be no assurance that the Company will achieve budgeted results for
fiscal 1997.
19
<PAGE>
Pier 1 Imports previously made available up to $25.0 million of properties for
lease to the Company, which properties were to be acquired or constructed by an
unaffiliated third party (the "Lease Facility"). As of October 31, 1994, the
Company had utilized $22.8 million of the Lease Facility to acquire or construct
thirteen facilities which the Company subleased from Pier 1 Imports and
thereafter agreed with Pier 1 Imports that no additional facilities would be
financed under the Lease Facility. Under the Lease Facility and subsequent
amendments which provided for an extension of the thirteen subleases through
June 30, 2000, as well as revised rent obligations under the subleases, the
Company made monthly payments of rent under each sublease in an amount equal to
the greater of 6.5% of sales or an amount equal to the total cost of the
facility multiplied by LIBOR plus 2%. The Company defaulted on certain
provisions of the Lease Facility, and Pier 1 Imports terminated the subleases
effective April 21, 1995.
Effective as of July 31, 1995, the Company restructured thirteen subleases and
other guarantees of leases with Pier 1 Imports (the "Agreement of Settlement").
The Agreement of Settlement provides for six-month lease terms initially ending
on December 31, 1995. The leases are renewable at Pier 1 Imports' option in six-
month intervals through June 30, 1998, after which the Company must consent to
any further extensions. Pier 1 Imports granted the first six month option ending
on June 30, 1996. Rent calculated as 6.5% of gross sales will be payable during
the initial two terms and will vary from 6.5% to 5.0% of gross sales during
subsequent terms. The gross sales amounts from which rent payable shall be
calculated are subject to specified minimum levels. Pier 1 Imports is actively
marketing the facilities for sale. The Company is obligated to vacate any
facility at the end of the then-current six-month lease term should Pier 1
Imports locate a buyer for such property. However, the Company is free to
negotiate a new lease agreement with the purchaser of such property. Under the
Agreement of Settlement, the Company is released from any obligation to purchase
any of the Pier 1 properties. The Company may make an offer to purchase any of
these properties, but there is no obligation for Pier 1 Imports to accept the
Company's offer. As of January 28, 1996, one of the thirteen properties had been
sold to a third party and Sunbelt had negotiated a new lease agreement with the
purchaser. Concerning future purchases, should the Company be unable to
negotiate new lease terms with the eventual purchasers, it currently would
attempt to find alternative locations in the same area for each of the twelve
remaining properties. Fiscal 1996 and 1995 sales and gross profit for these
twelve locations aggregated approximately $20.8 million and $22.2 million and
$8.2 million and $9.4 million, respectively.
The Agreement of Settlement fixes a claim against the Company in favor of Pier
1 Imports in the amount of $14.7 million comprised of two components -- an earn-
out claim for $8.0 million (the "Earn-out Claim") and the remaining portion of
the claim (the "Residual Claim"). The Earn-out Claim is evidenced by a
promissory note. The Residual Claim is a contingent, non-interest bearing claim
payable only in the event of non-performance under the Agreement of Settlement.
Both the Earn-out Claim and the Residual Claim are secured up to a $6.0 million
maximum by substantially all of the Company's assets, subordinate to the rights
of the Bank. The Earn-out Claim is payable in consecutive annual installments,
beginning May 10, 1996. Each annual payment ("Cash Flow Payment") will be in an
amount equal to the sum of 10% of the first $2.0 million of the Company's
operating cash flow and 40% of the Company's operating cash flow in excess of
$2.0 million. Operating cash flow is based upon the Company's prior fiscal year
results and is calculated in accordance with the Agreement of Settlement. Cash
Flow Payments are subject to certain maximum and minimum limitations on debt
service coverage, EBITDA, availability of borrowings pursuant to revolving
credit facilities, accounts payable levels and accrued liability levels. Any
Cash Flow Payment not payable due to the limitations listed above accrues and
becomes payable the following May 10th. The Earn-out Claim may be fully
satisfied by aggregate payments of $2.0 million by May 1, 1996, $4.0 million by
May 1, 1997, or $6.0 million by May 1, 1998. The Residual Claim does not bear
interest, and the Earn-out Claim bears interest only
20
<PAGE>
when a Cash Flow Payment is deferred, and such deferral is not due to EBITDA,
loan availability or debt service coverage limitations. During any such period
of Cash Flow Payment deferral, interest shall accrue as follows: (i) 18% per
annum on the amount of Cash Flow Payment deferred and (ii) 10% per annum on the
aggregate amount of unpaid Earn-out Claim less the aggregate deferred Cash Flow
Payments. Any accrued interest is payable out of subsequent Cash Flow Payments.
The Residual Claim will be fully discharged by the satisfaction of the Earn-out
Claim and the termination, without liability to Pier 1 Imports, of the subleases
and other leases guaranteed by Pier 1 Imports.
To reflect the Agreement of Settlement (i) property and equipment with a net
book value of $20.5 million was removed from the Company's consolidated balance
sheet; (ii) the obligation of $22.8 million due Pier 1 Imports was removed from
the consolidated balance sheet and; (iii) a current payable to Pier 1 Imports of
$2.0 million was recorded representing the single payment the Company initially
intended to make on May 1, 1996 to satisfy the Earn-out Claim in full. The
Company also recorded a deferred gain of $213,000 in conjunction with the
Agreement of Settlement. This gain will be recognized once the Earn-out Claim is
satisfied. Reflective of the terms of the Agreement of Settlement, the remaining
twelve subleases have been accounted for as operating leases subsequent to July
31, 1995.
The Company was unable to meet certain minimum financial requirements pursuant
to the Agreement of Settlement and the Loan Agreement. Due to covenants in the
Loan Agreement, the Company was prohibited from satisfying the Earn-out Claim
with a prepayment of $2.0 million on May 1, 1996. As a result of the Company's
inability to make this prepayment, the $2.0 million present value of the entire
$8.0 million in deferred Cash Flow Payments has been recorded as Long-Term Debt
in the accompanying consolidated balance sheet.The present value of future Cash
Flow Payments to Pier 1 to satisfy the Earn-out Claim have been estimated based
upon the following assumptions:
. Pursuant to the Agreement of Settlement, the Company's future Cash Flow
Payments to Pier 1 are based upon 10% of the first $2.0 million of the
Company's operating cash flow and 40% of the Company's operating cash
flow in excess of $2.0 million,
. Expected future Cash Flow Payments are discounted at 10%,
. Annual sales are increased at 1% per year,
. Overall gross margins are estimated to be 41.5%,
. The Company estimates that payments to Pier 1 will commence in fiscal
2009 and the Earn-out Claim will be fully satisfied in the year 2016.
The delay of the commencement of payments to Pier 1 results from the
Company's estimate that certain financial requirements will not be met
until fiscal 2009.
SUBSEQUENT EVENT - On January 31, 1997 the Company modified the terms of the
Agreement of Settlement (the "Note Modification Agreement") with Pier 1 which
provides the Company with the opportunity to modify the terms of the existing
$8.0 million Earn-out Claim for total consideration of $2.0 million, which is
comprised of $200,000 in cash payable on March 3, 1997 and $1.8 million in
notes. As discussed above, the Company currently has a $2.0 million liability
recorded in relation to this $8.0 million Earn-out Claim. Pursuant to the Note
Modification Agreement, on March 3, 1997, the Company will issue a promissory
note payable to Pier 1 in the amount of $800,000. This note will bear interest
at 6% per annum with interest only paid monthly until May 1, 1998, at which
time, the first of four annual principal installments of $200,000 will be due.
The Company may elect to defer any or all of the annual principal payments with
any deferred principal due in full on May 1,
21
<PAGE>
2001. In the event of such a deferral, however, the interest rate on any
deferred principal amount shall be increased to 10% per annum until retirement.
The remaining $1.0 million will be settled by Mr. Duoos, Chairman of the Board,
on behalf of the Company upon the registration and sale of a certain portion of
his personal shares of common stock in the Company, which is currently
restricted. The number of shares to be sold by Mr. Duoos will be determined as
the quotient of $1.0 million divided by the closing price of the Company's
common stock on the last trading day immediately preceding the date on which a
registration statement becomes effective (the "Delivery Date"). Proceeds from
the sale of such shares will inure to the benefit of Pier 1. The Company must
file a registration statement with the Securities and Exchange Commission
relating to this stock as soon as practicable but not later than March 17, 1997.
Pier 1 has the unilateral right to terminate this Note Modification Agreement if
the Delivery Date does not occur (i) by May 30, 1997 or (ii) if the closing
price of the Company's common stock on the day immediately preceding the
Delivery Date is less than one dollar per share. In conjunction with the sale of
Mr. Duoos' personal stock, the Company will deliver a promissory note payable to
Mr. Duoos in the amount of $1.0 million. It is currently contemplated that the
Duoos Note shall be for a term of three years with interest payable at an annual
rate of 12% with monthly payments of interest only during the first year and
thereafter monthly payments of principal and interest fully amortized during
years two and three. It is also anticipated that Duoos (or any subsequent
holder) shall have the right to convert all or a portion of the indebtedness due
under the Duoos Note into shares of Common Stock at a rate equal to the quotient
of the amount of indebtedness so converted divided by the closing price of the
Common Stock on the Delivery Date. Duoos or any holder of the Duoos Note shall
have the right to require the Company to register the shares following
conversion, at the expense of the Company under a registration statement filed
with the Securities and Exchange Commission. In addition, to secure payment of
the Duoos Note it is proposed that Duoos will take a second lien on all of the
assets of the Company junior only to the lien of the Bank. The Duoos Note shall
be pledged to the Bank. The final terms of the Duoos Note are subject to the
approval of the Bank and Board of Directors of the Company. Neither the Bank nor
the Board of Directors of the Company have approved the proposed terms of the
Duoos Note and therefore its terms may be different form the proposed terms
described herein. If for any reason the terms of the Note Modification Agreement
are not fulfilled, then the Earn-out Claim and Agreement of Settlement shall
remain unmodified and in full force and effect.
OPERATING LOSSES - In addition to operating losses for each of the three years
ended January 28, 1996, the Company continued to incur losses and declining
sales for its five-month transition period ended June 30, 1996 and for the six-
month period ended December 29, 1996. In addition, at December 29, 1996, the
Company has a net capital deficiency and the Company's revolving line of credit
matures in October 1997. The bank has not indicated its intention to extend the
maturity date of the revolving line of credit. All of the above which raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. During 1996
and throughout fiscal 1997, management has addressed these issues as well as
others in an attempt to return the Company to profitability. These actions
include:
. Entertaining negotiations with numerous landlords to achieve lower store
occupancy costs,
. Introducing changes in product mix, new philosophies on product set and
display, improving product quality, product pricing and use and timing of
advertising mediums, and increasing vendor participation for advertising
expenditures,
22
<PAGE>
. Implementing reductions in store operating expenses, including payroll,
by reorganizing store management and by modification of the Company's
bonus program, and
. Identifying further reductions of general and administrative expenses.
Management has taken certain additional actions that will be applicable to
future periods in an effort to increase sales, improve the Company's liquidity
and return the Company to profitability. These actions include, but are not
limited to, the following:
. Negotiations to further reduce or redefine lease and long-term debt
agreements,
. Comprehensive training programs, designed to promote consistent execution
at the store level and specifically to ensure that excellent guest
service is achieved by all associates, through video taped instructions,
store and district manager training sessions, and cashier and key
personnel training,
. Enhanced vigilance to maintain product quality standards with a heavy
emphasis on rejecting inferior products at the loading dock,
. Implementing an inventory control philosophy of maintaining increasingly
lower inventory levels for stock replenishment as the spring season ends,
which will: (a) decrease the use of markdowns and increase margins, and
(b) make funds available which had previously been assigned to inventory
in the off-seasons,
. Review of all advertising items to eliminate unnecessary or non-impact
price reductions, and
. Implement an aggressive plan to eliminate non-performing stores and open
stores in new locations.
Management has not yet completed its review of underperforming stores. Upon
completion, identified underperforming stores may require the accrual of closure
expenses for severance, rent buyouts and/or other costs associated with store
closing. These expenses will be accrued in the period in which management adopts
a formal plan of store closure.
Management expects these plans to improve cash flow and return the Company to
profitability. However, there can be no assurance that such profitability will
be achieved, and, if not, the Company may be required to close additional
stores, liquidate inventories, sell certain assets or take other measures to
meet working capital needs and preserved capital.
NOTE 4 -- STORE ACQUISITIONS, CLOSINGS AND RELOCATIONS
- ------------------------------------------------------
During the fourth quarter of fiscal 1993 the Company decided to convert or
relocate additional existing stores. As a result of this decision, the Company
recognized a restructuring charge of $2,300,000 in the fourth quarter of fiscal
1993 which represented the estimated costs of this program. Charges to the store
closing reserve during fiscal 1996 amounted to $793,000 which consisted of cash
payments primarily for rent and taxes on closed stores. In addition, $193,000 of
the reserve was reversed to eliminate excess reserves on leases that were
terminated early at amounts less than originally estimated. The reserve at
January 28, 1996 of $609,000 (of which $273,000 is reported as current and
$336,000 is
23
<PAGE>
reported as non-current in the accompanying consolidated balance sheet) is
related to noncancellable lease obligations of closed stores. No additional
restructuring charges were necessary for fiscal years 1996 and 1995.
NOTE 5 -- PROPERTY AND EQUIPMENT
- --------------------------------
Property and equipment, stated at cost, including capital leases, consisted of
the following:
<TABLE>
<CAPTION>
January 28, January 29,
1996 1995
----------- -----------
(in thousands)
<S> <C> <C>
Buildings $ 3,640 $ 17,115
Equipment, furniture and fixtures 12,014 12,051
Leasehold interests and improvements 11,504 11,380
Land 793 8,902
------- --------
27,951 49,448
Less accumulated depreciation 16,220 13,249
------- --------
$11,731 $ 36,199
======= ========
</TABLE>
During fiscal year 1996, the Company adopted FAS No. 121. (see Note 2) The
adjustment resulted in a decrease in the carrying value of property and
equipment of $1.3 million and was reflected as impairment of long-lived assets
in the accompanying consolidated statement of operations.
NOTE 6 -- NOTES PAYABLE AND OTHER INDEBTEDNESS
- ----------------------------------------------
As of January 30, 1994, the Company had two revolving credit facilities with
commercial banks (the "Banks") aggregating $10.0 million, each guaranteed by
Pier 1 Imports, and a $2.0 million line of credit provided directly by Pier 1
Imports. On April 25, 1994, Pier-SNG, Inc., a subsidiary of Pier 1 Imports,
purchased the notes representing the Company's obligations to the Banks in the
aggregate amount of $10.0 million. At that time, the Company entered into an
Extension Agreement and, on May 13, 1994, the Company entered into a waiver
agreement (collectively, the "Extension") with Pier 1 Imports and Pier-SNG,
Inc., pursuant to which the maturity date of the $11.6 million (the
"Indebtedness") was extended from April 28, 1994 to June 30, 1994. Subsequent
extensions of the Indebtedness were executed with maturities of September 21,
1994 and October 15, 1994.
As of October 19, 1994, the Company and its subsidiaries entered into a Loan
and Security Agreement with a commercial bank ("Bank") providing a line of
revolving credit (the "Loan Agreement") which matures in October 1997. On
October 19, 1994, the Company borrowed approximately $9.9 million under the Loan
Agreement and used that amount, along with cash on hand, to repay the $11.6
million Indebtedness owed to Pier 1 Imports.
The amount that may be borrowed under the Loan Agreement is dependent upon an
inventory borrowing base for each operating subsidiary determined on a monthly
basis, and the aggregate principal amount outstanding may not exceed $12.0
million. The borrowing base and amounts borrowed pursuant to the Loan Agreement
amounted to $12.0 million and $8.3 million, respectively, at January 28, 1996.
Outstanding letters of credit issued primarily to meet insurance requirements
amounted to approximately $409,000 at January 28, 1996. The revolving credit
loans bear interest at a rate equal to the Bank's prime or base rate plus 1.5%
per annum. The interest rate at January 28, 1996 was 10%. Facility fees equal to
.5% per annum of the total $12.0 million borrowing facility and 2% per annum of
the outstanding face amount of letters of credit are payable under the Loan
Agreement.
24
<PAGE>
The Loan Agreement contains covenants limiting the Company's ability to incur
indebtedness, issue stock, create liens on its property, merge or consummate
acquisitions, dispose of its property, incur capital expenditures greater than
$1.2 million annually and pay any dividends. The Loan Agreement also requires
the Company to maintain certain financial ratios, including debt service
coverage and earnings before interest expense, income tax, depreciation and
amortization. The Loan Agreement also provides that any event of default under
the agreement with Pier 1 Imports is deemed an event of default under the Loan
Agreement. As discussed in Note 3, the Company was in default of certain Loan
Agreement covenants at January 28, 1996, but such defaults have been
subsequently waived by the Bank. The covenants have also been amended and the
Company believes that it can reasonably meet the amended covenants for the
remainder of fiscal 1997 provided the Company achieves budgeted results.
However, there can be no assurance that the Company will achieve its budgeted
results for fiscal 1997. The Loan Agreement is secured by a first lien on
substantially all of the Company's assets as well as the personal guarantee of
Mr. Timothy Duoos and the common stock of the Company owned by Mr. Duoos and the
President of the Company.
The Loan Agreement provided that Mr. Duoos and the President of the Company
pledge at least 50.1% of the Company's outstanding common stock to the Bank. To
enable this condition to be satisfied, the Board of Directors granted options,
immediately exercisable based on the closing sales price on the day of grant, to
the President for 50,000 shares of Common Stock, of which he subsequently
exercised 38,000 options.
Pier 1 Imports previously made available up to $25.0 million of properties for
lease to the Company. As of October 31, 1994 the Company had utilized $22.8
million of the Lease Facility to acquire or construct thirteen facilities which
the Company subleased from Pier 1 Imports and thereafter agreed with Pier 1
Imports that no additional facilities would be financed under the Lease
Facility. The Lease Facility was amended in October 1994 to provide for an
extension of the thirteen subleases through June 30, 2000. The Company
defaulted under the thirteen subleases and Pier 1 Imports terminated the
subleases effective April 21, 1995. As described in Note 3, the Company and
Pier 1 Imports restructured the Lease Facility on July 31, 1995, and Pier 1
Imports withdrew its demand that the Company purchase the sublease facilities.
The Agreement of Settlement fixes a claim against the Company in favor of Pier
1 Imports in the amount of $14.7 million comprised of two components -- an earn-
out claim for $8.0 million (the "Earn-out Claim") and the remaining portion of
the claim (the "Residual Claim"). The Earn-out Claim is evidenced by a
promissory note. The Residual Claim is a contingent, non interest bearing claim
payable only in the event of non performance under the Agreement of Settlement.
Both the Earn-out Claim and the Residual Claim are secured up to a $6.0 million
maximum by substantially all of the Company's assets, subordinate to the rights
of the Bank. The Earn-out Claim is payable in consecutive annual installments,
beginning May 10, 1996. Each annual payment ("Cash Flow Payment") will be in an
amount equal to the sum of 10% of the first $2.0 million of the Company's
operating cash flow and 40% of the Company's operating cash flow in excess of
$2.0 million. Operating cash flow is based upon the Company's prior fiscal year
results and is calculated in accordance with the Agreement of Settlement. Cash
Flow Payments are subject to certain maximum and minimum limitations on debt
service coverage, EBITDA, availability of borrowings pursuant to revolving
credit facilities, accounts payable levels and accrued liability levels. Any
Cash Flow Payment not payable due to the limitations listed above accrues and
becomes payable the following May 10th. The Earn-out Claim may be fully
satisfied by aggregate payments of $2.0 million by May 1, 1996, $4.0 million by
May 1, 1997, or $6.0 million by May 1, 1998. The Residual Claim does not bear
interest, and the Earn-out Claim bears interest only when a Cash Flow Payment is
deferred, and such deferral is not due to EBITDA, loan availability or debt
service coverage limitations. During any such period of Cash Flow Payment
25
<PAGE>
deferral, interest shall accrue as follows: (i) 18% per annum on the amount of
Cash Flow Payment deferred and (ii) 10% per annum on the aggregate amount of
unpaid Earn-out Claim less the aggregate deferred Cash Flow Payments. Any
accrued interest is payable out of subsequent Cash Flow Payments. The Residual
Claim will be fully discharged by the satisfaction of the Earn-out Claim and the
termination, without liability to Pier 1 Imports, of the subleases and other
leases guaranteed by Pier 1 Imports.
The Company was unable to meet certain minimum financial requirements pursuant
to the Agreement of Settlement and the Loan Agreement. Due to covenants in the
Loan Agreement, the Company was prohibited from satisfying the Earn-out Claim
with a prepayment of $2.0 million on May 1, 1996. As a result of the Company's
inability to make this prepayment, the $2.0 million present value of the entire
$8.0 million in deferred Cash Flow Payments has been recorded as Long-Term Debt
in the accompanying consolidated balance sheet. (see Note 3 for further
discussion).
Notes payable and other long-term debt consisted of the following:
<TABLE>
<CAPTION>
January 28, January 29,
1996 1995
----------- -----------
(in thousands)
<S> <C> <C>
Notes payable under credit agreements with
a bank due at or before maturity in
October 1997, plus interest at 10% $ 8,290 $ 8,645
Earn-out Claim payable to Pier 1 Imports
from cash flow (see discussion above) 2,000 -
Financing provided through lease facility
with Pier 1 Imports - 22,759
Capital lease obligations 1,841 2,038
Other - 9
-------- --------
12,131 33,451
Less portion due within one year 658 594
-------- --------
$ 11,473 $ 32,857
======== ========
</TABLE>
Notes payable and other long-term debt outstanding at January 28, 1996 mature
as follows:
<TABLE>
<CAPTION>
Fiscal year (in thousands)
----------- --------------
<S> <C>
1997 $ 658
1998 8,892
1999 295
2000 57
2001 42
Thereafter 2,187
-------
Total $12,131
=======
</TABLE>
26
<PAGE>
NOTE 7 -- LEASE OBLIGATIONS
- ---------------------------
The Company leases certain property, consisting principally of retail stores,
under leases expiring through the year 2010. Certain of the leases contain
renewal options, rent escalation clauses and provisions requiring additional
rental payments based on sales in excess of specified levels. Capital leases are
recorded in the Company's balance sheet as assets along with the related lease
obligation. All other lease obligations are operating leases, and payments are
reflected in the Company's consolidated statement of operations as rental
expense. Assets recorded under capital leases are included in property and
equipment as follows:
<TABLE>
<CAPTION>
January 28, January 29,
1996 1995
----------- -----------
(in thousands)
<S> <C> <C>
Buildings $ 686 $ 502
Equipment, furniture
and fixtures 2,766 2,505
------ -------
3,452 3,007
Less accumulated amortization 1,913 1,119
------ -------
$1,539 $ 1,888
====== =======
At January 28, 1996, the Company had the following minimum lease commitments:
Fiscal Capital Operating
Year leases leases
------ ------- ---------
(in thousands)
1997 $ 820 $ 5,554
1998 705 5,236
1999 341 4,845
2000 87 4,146
2001 67 3,086
Thereafter 232 15,233
------ -------
Total lease commitments 2,252 $38,100
=======
Less imputed interest 411
------
Present value of total capital
lease obligations, including
current portion of $658,000 $1,841
======
</TABLE>
Rental expense approximated $8,094,000, $7,537,000 and $8,234,000, including
approximately $190,000, $323,000 and $320,000 of contingent rentals based upon a
specified percentage of sales for fiscal 1996, 1995 and 1994, respectively.
Sublease rentals were immaterial each year.
NOTE 8 -- STOCK OPTION PLANS
- ----------------------------
On August 14, 1991, the Company's Board of Directors and sole shareholder
approved the Company's 1991 Stock Option Plan (the "Plan"), which provides for
the issuance of stock options to the Company's officers, directors and key
employees. Options covering an aggregate of 500,000 shares of common stock may
be granted under the Plan. Shares subject to any option that expires, terminates
or is forfeited will again be available for options subsequently granted.
Currently, there are 20 participants in the Plan. The vesting period of options
is determined at the discretion of the plan administrative committee. Options
become exercisable at the rate of 20% per year on a cumulative basis beginning
one year after the date of grant. All options granted have been
27
<PAGE>
priced at market value at date of grant. All options outstanding at January 29,
1995 are exercisable in light of the change in control, as defined in the 1991
Stock Option Plan, occurring in fiscal 1995. The recently appointed President of
the Company received options for 50,000 shares in October 1994, exercisable
immediately at the market price at the date of grant, in order to fulfill a
covenant of the Loan and Security Agreement with a commercial bank.
On March 6, 1995, the Board of Directors approved, and on November 9, 1995,
the stockholders ratified, an amendment to the 1991 Stock Option Plan suspending
the provisions of 1991 Stock Option Plan applicable to non-employee directors,
and the grant of certain non-qualified stock options to the then-current non-
employee directors. As a result, each of the Company's non-employee directors
received 50,000 shares of the Company's Common Stock at an exercise price equal
to the fair market value of the Common Stock on the date each was elected to the
board of directors. Accordingly, options to purchase 150,000 shares were issued
during fiscal 1996. For each director, the options will become 50% vested on
their first anniversary date, and the remaining 50% vests on the second
anniversary date assuming continuous service as a member of the Board of
Directors. Once vested, the options may be exercised at any time during his
period of service and for a period of three years following his resignation from
the Board. The options expire ten years from the March 6, 1995 and April 11,
1995 grant dates. The exercise price at the date of grant approximated fair
market value and thus no compensation expense has been recognized in relation to
the granting of these options.
All stock options currently outstanding are non-qualified. Shares available
for grant amounted to 180,500, 267,000 and 198,000 at January 28, 1996, January
29, 1995 and January 30, 1994. The following is a summary of the outstanding
stock options issued by the Company for the three years ended January 28, 1996,
January 29, 1995 and January 30, 1994:
<TABLE>
<CAPTION>
Employee stock Non-employee director
options stock options
- ----------------------------------------------------------------------
Number Option Number Option
of price of price
shares per share shares per share
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Outstanding at
January 31, 1993 385,000 4.65-8.50 12,000 $5.00-8.50
Granted - - - -
Canceled 83,000 5.00-8.50 12,000 5.00-8.50
------- ---------- -------- ----------
Outstanding at
January 31, 1994 302,000 4.65-8.50 - -
Granted 123,000 1.94-2.94 - -
Exercised 38,000 1.94 - -
Canceled 192,000 2.94-8.50 - -
------- ---------- -------- ----------
Outstanding at
January 29, 1995 195,000 1.94-8.50 - -
Granted - - $150,000 1.81-1.94
Canceled 63,500 - - -
------- ---------- -------- ----------
Outstanding at
January 28, 1996 131,500 $1.94-8.50 150,000 $1.81-1.94
======= ========== ======== ==========
Exercisable at
January 28, 1996 131,500 $1.94-8.50 50,000 $1.81-1.94
======= ========== ======== ==========
</TABLE>
28
<PAGE>
NOTE 9 -- INCOME TAXES
- ----------------------
The Company adopted FAS No. 109 effective February 1, 1993, which utilizes an
asset and liability approach in accounting for income taxes. The asset and
liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the book and tax bases of assets and liabilities.
The components of the income tax provisions for the last three fiscal years
are as follows:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal:
Current - - -
Deferred - - 213
---- ---- ----
- - $213
==== ==== ====
</TABLE>
Differences between the provision for income taxes and income taxes based on
statutory federal income tax rates for the last three fiscal years are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal tax benefit computed
at statutory rate (35)% (34)% (34)%
Impairment expense of
intangible asset 26 - -
Amortization of intangible - 4 3
Alternative minimum tax credits - - -
Increase in valuation allowance
for tax benefits 10 30 34
Other (1) - -
--- --- ---
0% 0% 3%
=== === ===
Deferred tax assets and liabilities were comprised of the following:
January 28, January 29,
1996 1995
-------- --------
(In thousands)
Loss carryforwards $ 6,594 $ 5,123
Reserve for store closings 258 599
Lease obligations 626 693
Depreciation 1,582 1,019
Insurance reserves 176 168
Pier 1 Imports Earn-out Claim 680 -
Other 1,124 780
-------- --------
11,040 8,382
Valuation allowance (11,040) (8,382)
-------- --------
Total deferred tax assets $ 0 $ 0
======== ========
</TABLE>
29
<PAGE>
At January 28, 1996, the Company has net operating loss carryforwards of
approximately $19.4 million and $15.9 million for regular tax purposes and for
alternative minimum tax purposes, respectively, which will expire commencing in
fiscal 2008 through fiscal 2011. The Internal Revenue Code imposes certain
restrictions on the utilization of net operating loss carryforwards following a
change in control of the Company. "Change of control" is defined by complex
regulations. There may be restrictions on the future utilization of the
Company's net operating loss carryforwards.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
- ---------------------------------
On August 14, 1991, the Board of Directors of the Company authorized the
Company's Stock Purchase Plan, under which Common Stock is purchased on behalf
of participants at market prices through regular payroll deductions. Generally,
the Company makes matching contributions ranging from 10% to 50% (up to a
maximum of 10% of annual compensation) with the amount of the Company's
contribution depending upon the years of continuous participation by the
employees in the Stock Purchase Plan. The Company contribution is currently
suspended pending improvement in the Company's operating results. Contributions
by outside Directors are limited to the amount of their monthly Directors' fees.
The Company did not make a contribution to the Stock Purchase Plan in fiscal
1996. Company contributions to the Stock Purchase Plan for fiscal 1995 and 1994,
were $159,000 and $362,000, respectively.
The Company has a defined contribution retirement and savings plan that is
intended to qualify under Section 401(a) and 401(k) of the Internal Revenue Code
of 1986, as amended. Employees of the Company and its subsidiaries who are at
least 21 years of age and have worked 1,000 hours in a 12-month period are
eligible to participate. Participants may contribute from 1% to 15% of annual
earnings, subject to statutory limitations. The Company made matching
contributions ranging from 1% up to a maximum of 3% depending on the level of
the participant's contributions. In addition, the Company may make discretionary
contributions out of net profits. The Company did not make a contribution to the
plan in fiscal 1996. The Company's contribution is currently suspended pending
improvement in the Company's operating results. Company contributions under this
plan for fiscal 1995 and 1994 were $232,000 and $275,000 respectively. As of
January 28, 1996, approximately 920 employees were eligible to participate, of
which 372 were participating in this plan.
NOTE 11 -- OTHER RELATED PARTY TRANSACTIONS
- -------------------------------------------
LOAN COMMITMENTS - Effective December 1991 and January 1992, the Company
entered into loan agreements with two commercial banks to provide a total of
$10.0 million of revolving lines of credit. Both commitments were guaranteed by
Pier 1 Imports under the Credit Facilities Agreement dated April 28, 1993
between Pier 1 Imports and the Company. Effective April 25, 1994, Pier 1
Imports purchased the notes from the banks and extended the maturity date to
September 21, 1994 and then October 15, 1994. The Credit Facilities Agreement,
dated April 28, 1993 also included a fixed rate loan and a lease facility. The
agreement was amended October 19, 1994. Subsequent to the amendment, Pier 1
Imports is no longer a related party.
30
<PAGE>
During fiscal years 1995 and 1994, the Company paid Pier 1 Imports the
following:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Bank loan guarantee fees $ 40,000 $ 50,000
Interest on purchased bank loans 277,000 -
Interest on $2.0 million fixed
rate loan 218,000 180,000
Commitment fees pursuant to the
total credit facilities agree-
ment, which includes a lease
facility 373,000 396,000
Interest under capital lease facility 1,445,000 606,000
Additional charges pursuant to
the lease facility $ 72,000 $395,000
</TABLE>
Additional charges included a portion of all non-capitalized amounts related
to the properties under the lease facility as well as any origination costs
related to obtaining new financing or establishing a new facility.
On October 19, 1994, the Company entered into a new loan agreement with a
bank. For each of the fiscal years 1996 and 1995 the Company paid an annual
guarantee fee of $60,000 to Mr. Duoos, who personally guaranteed the Company's
Loan Agreement (see Note 6).
In September 1995, Mr. Duoos loaned the Company $600,000 to be repaid by
October 31, 1995. Interest accrued at the Company's bank borrowing rate of
10.25%. On October 27, 1995, the loan and accrued interest of $7,000 was paid
in full.
COMMITMENTS - The Company leases three stores, an office and warehouse from an
employee of the Company. The rental payments were $152,000 , $171,000 and
$129,000 for the fiscal years ended January 28, 1996, January 29, 1995 and
January 30, 1994, respectively. Future lease commitments are $323,000.
OTHER CHARGES - The Company and Pier 1 Imports entered into a services agreement
effective until April 1993. Pursuant to the agreement, the Company paid $18,000
during fiscal year 1994 to Pier 1 Imports for in-house legal services.
In April 1993, General Host obtained a 49.5% ownership interest in the
Company. The Company paid General Host $51,000 and $54,000 for in-house legal
services during fiscal 1995 and 1994, respectively.
During fiscal years 1995 and 1994, the Company purchased inventory totaling
$300,000 and $403,000, respectively, from Frank's Nursery and Crafts, Inc., the
principal operating subsidiary of General Host.
During fiscal 1996, the Company paid $93,000, representing transportation
services, to a travel service company of which Mr. Duoos is a partial owner.
Lyndale Garden Centers, Inc,. ("Lyndale") whose sole shareholder is Mr. Duoos,
has a receivable to the Company for $5,600 for merchandise purchased from the
Company. In addition, the Company paid a total of $29,000 as reimbursement for
travel and professional fees associated with arranging financing for the
Company.
OTHER - The Company holds a subscription receivable for $50,000 from the
President of the Company for the purchase of Company stock pursuant to the Loan
Agreement. The subscription terminates on December 31, 1997 and accrues interest
at the bank loan rate.
31
<PAGE>
NOTE 12 -- SUPPLEMENTAL CASH FLOW INFORMATION
- ---------------------------------------------
During fiscal 1996, the Company leased computer equipment valued at $236,000
and store equipment valued at $43,000 resulting in the recording of a capital
lease obligation for those amounts. The Company also entered into a land and
building lease for a relocated store, in which the terms of the lease resulted
in a capital lease obligation and a building value of $185,000 was recorded.
Also during fiscal 1996, to reflect the Agreement of Settlement with Pier 1
Imports (i) property and equipment with a net book value of $20.5 million was
removed from the Company's consolidated balance sheet; (ii) the obligation of
$22.8 million due Pier 1 Imports was removed from the consolidated balance sheet
and; (iii) a current payable to Pier 1 Imports of $2.0 million was recorded
representing the single payment the Company initially intended to make on
May 1, 1996 to satisfy the Earn-out Claim in full. The Company also
recorded a deferred gain of $213,000 in conjunction with the Agreement of
Settlement. This gain will be recognized once the Earn-out Claim is satisfied.
Reflective of the terms of the Agreement of Settlement, the remaining
twelve subleases have been accounted for as operating leases subsequent to July
31, 1995.
During fiscal 1995, the Company leased store fixtures and equipment valued at
$318,000 resulting in the recording of a capital lease obligation for that same
amount.
During fiscal 1994, the Company leased computer equipment valued at $800,000
and store fixtures valued at $990,000 resulting in the recording of capital
lease obligations for those amounts.
During fiscal 1995 and 1994, the Company utilized $22.8 million of the Pier 1
Imports lease facility for the construction of new stores.
Cash paid for interest and income taxes for the last three fiscal years was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
(In thousands)
<S> <C> <C> <C>
Interest paid $2,531 $2,893 $ 2,056
Income taxes paid (refunded) - - (1,398)
</TABLE>
NOTE 13 -- LITIGATION AND OTHER CONTINGENCIES
- ---------------------------------------------
LITIGATION: During fiscal 1996 the Company settled the suit relating to post-
employment consulting agreements filed by two (2) former officers of the
Company. The settlement had no material impact on results of operations,
liquidity or financial position.
The Company, the Company's Chief Executive Officer, a company owned by the
Chief Executive Officer and General Host Corporation (a former 49.5% shareholder
of the Company) are defendants in a suit filed by a brokerage firm (the
"Plaintiffs") with regard to breach of contract of an agreement the Plaintiffs
had with the Company to raise financing. The Plaintiffs allege that they are
due payment under the agreement. They also allege that the Company's CEO and/or
the company owned by the CEO along with defendant General Host Corporation
intentionally interfered with the
32
<PAGE>
agreement between the Plaintiffs and the Company. The Plaintiffs seek $700,000
in actual damages against the Company under the agreement and an unspecified
amount for quantum meruit as well as attorney's fees. The Company believes that
it proceeded properly under the agreement and accordingly denies that any
payments are due to the Plaintiffs. The Company intends to vigorously defend
itself against any claims by the Plaintiffs.
There are various claims, lawsuits, investigations and pending actions against
the Company and its subsidiaries incident to the operations of its business.
Liability, if any, associated with these matters is not determinable at January
28, 1996. While settlement of these lawsuits may impact the Company's results
of operations in the year of settlement or resolution, it is the opinion of
management that the ultimate resolution of such litigation will not have a
material adverse effect on the Company's financial position.
ENVIRONMENTAL CONTINGENCIES - In connection with a possible sale-leaseback
transaction, which was not completed, the Company authorized a third party to
undertake environmental assessments of two owned, non-retail properties. The
results indicated potential contamination at the two sites. The extent and
nature of the contamination is not clear. It is also not clear whether the
Company has an obligation to remediate whatever contamination is ultimately
found to exist. If an obligation does exist, it is not presently possible to
estimate the potential range of costs involved.
33
<PAGE>
======================================= =======================================
No dealer, salesman or any person has
been authorized to give any information
or to make any representations other
than those contained in this Prospectus 1,000,000 Shares
in connection with the offer contained
herein, and, if given or made, such
information or representations must not COMMON STOCK
be relied upon as having been
authorized by Sunbelt or the Selling
Stockholder. This Prospectus does not
constitute an offer to sell,
solicitation of an offer to sell,
solicitation of an offer to buy those
shares to which it relates in any SUNBELT NURSERY GROUP, INC.
jurisdiction to any person to whom it
is not lawful to make any such offer or
solicitation in such jurisdiction. The
delivery of this Prospectus at any time
does not imply that the information
herein is correct as of anytime
subsequent to the date hereof.
---------------
TABLE OF CONTENTS ---------------
Page
---- PROSPECTUS
Available Information............. 3 ---------------
Incorporation of Certain
Documents by reference........... 3
The Company....................... 5
Risk Factors...................... 5
Use of Proceeds................... 6 MARCH 17, 1997
Selling Stockholder............... 7
Pier 1 Transaction................ 7
Plan of Distribution.............. 9
Legal Matters..................... 10
Experts........................... 11
Financial Statements.............. 12
======================================= =======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses to be paid by the Company in connection with the offering
described in this Registration Statement are estimated as follows:
Commission Registration Fee............... $ 454.55
Printing and Engraving Expenses........... $ 1,045.45
Accounting and Legal Fees and Expenses.... $ 7,500.00
Blue Sky Fees and Expenses................ $ 1,000.00
Total................................ $10,000.00
Item 15. Indemnification of Directors and Officers.
Under Section 145 of the General Corporation Law of the State of
Delaware ("Delaware Law"), a Delaware corporation may indemnify its directors,
officers, employees and agents against expenses (including attorneys fees),
judgments, fines and settlements in nonderivative suits, actually and reasonably
incurred by them in connection with the defense of any action, suit or
proceeding in which they or any of them were or are made parties or are
threatened to be made parties by reason of their serving or having served in
such capacity. Delaware law, however provides that such person must have acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the corporation, and in the case of a criminal action,
such person must have had no reasonable cause to believe his or her conduct was
unlawful. Section 145 further provides that in connection with the defense or
settlement of any action by or in the right of the corporation, a Delaware
corporation may indemnify its directors and officers against expenses actually
and reasonably incurred by them if, in connection with the matters in issue,
they acted in good faith, in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made with respect to any claim, issue or matter as to which such person
has been adjudged liable for negligence or misconduct unless the Court of
Chancery or the court in which such action or suit is brought approves such
indemnification. Section 145 further permits a Delaware corporation to grant
its directors and officers additional rights of indemnification through bylaw
provisions and otherwise, and to purchase indemnity insurance on behalf of its
directors and officers. Indemnification is mandatory to the extent a claim,
issue or matter has been successfully defended.
Article Eight of the Company's Restated Certificate of Incorporation and
Article VIII of the Company's bylaws provide, in general, that the Company shall
indemnify its directors and officers under certain of the circumstances defined
in Section 145.
II-1
<PAGE>
Item 16. Exhibits.
5.1 Opinion of Murphy Mahon Keffler & Farrier, L.L.P.
23.1 Consent of Price Waterhouse, L.L.P.
23.2 Consent of Murphy Mahon Keffler & Farrier, L.L.P. (included in opinion
filed as Exhibit 5.1)
24.1 Power of Attorney.
99.1 Note Modification Agreement dated January 31, 1997, among Pier 1
Imports, Inc., Sunbelt Nursery Group, Inc., Wolfe Nursery, Inc., and
Timothy R. Duoos (filed as Exhibit 10.27 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 29, 1996,
and incorporated by reference)
99.2 Agreement of Settlement dated July 31, 1995, between Pier Lease, Inc.,
Pier 1 Imports, Inc., Sunbelt Nursery Group, Inc. and Timothy R. Duoos
(filed as Exhibit 10.15 to the Company's Report on Form 10K/A-2 for the
fiscal year ended January 31, 1995, filed August 11, 1995, and
incorporated by reference)
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereto) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the
II-2
<PAGE>
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously enclosed in the
Registration Statement or any material change to such
information to the Registration Statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(c) 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 provisions described under Item 15 above, or
otherwise, the Registrant has been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities 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
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Worth, State of Texas, on March 14, 1997.
Sunbelt Nursery Group, Inc.
/s/ Richard R. Dwyer
---------------------------
Richard R. Dwyer, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
*
- ----------------------
Timothy R. Duoos Chairman of the Board and Chief March 14, 1997
Executive Officer (principal executive
officer)
/s/ Richard R. Dwyer
- ----------------------
Richard R. Dwyer President and Principal Financial and March 14, 1997
Accounting Officer and Director
(principal financial officer)
*
- ----------------------
Rudy Boschwitz Director March 14, 1997
*
- ----------------------
Rodney P. Burwell Director March 14, 1997
* Richard R. Dwyer, by signing his name hereto, does hereby sign this
Registration Statement on behalf of Sunbelt Nursery Group, Inc. and each of the
above-named officers and directors of such Company pursuant to powers of
attorney, executed on behalf of the Company and each officer and director.
/s/ Richard R. Dwyer
- ----------------------------------
Richard R. Dwyer, Attorney-in-Fact
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
- -----------
5.1 Opinion of Murphy Mahon Keffler & Farrier, L.L.P.
23.1 Consent of Price Waterhouse, L.L.P.
23.2 Consent of Murphy Mahon Keffler & Farrier, L.L.P.
24.1 Powers of Attorney
99.1 Note Modification Agreement dated January 31, 1997, among Pier 1
Imports, Inc., Sunbelt Nursery Group, Inc., Wolfe Nursery, Inc.
and Timothy R. Duoos (filed as Exhibit 10.27 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 29, 1996, and incorporated by reference)
99.2 Agreement of Settlement dated July 31, 1995, between Pier Lease,
Pier 1 Imports, Sunbelt Nursery Group, Inc. and Timothy R. Duoos
(filed as Exhibit 10.15 to the Company's Report on Form 10K/A-2
for the fiscal year ended January 31, 1995, filed August 11,
1995, and incorporated by reference)
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MURPHY MAHON KEFFLER & FARRIER, L.L.P. APPEARS HERE]
March 14, 1997
Sunbelt Nursery Group, Inc.
500 Terminal Road
Fort Worth, Texas 76106
Re: Registration Statement on Form S-3
Gentlemen:
We have acted as counsel to Sunbelt Nursery Group, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of the offer and sale of an
aggregate of 1,000,000 shares (the "Shares") of common stock, $.01 par value per
share, of the Company ("Common Stock") pursuant to a Registration Statement on
Form S-3 of the Company (the "Registration Statement") to which this opinion
letter is an exhibit.
Based on the assumptions, exceptions and qualifications hereinafter stated,
we are of the opinion that, subject to compliance with federal and state
securities laws (as to which I express no opinion), the Shares have been duly
authorized, validly issued, fully paid and nonassessable.
In rendering this opinion, We have assumed that (i) all signatures on all
documents we examined are genuine, (ii) all documents submitted to us as
originals are accurate and complete, (iii) all documents submitted to us as
copies are true and correct copies of the originals thereof, (iv) all
information submitted to us is accurate and complete as of the date hereof, (v)
all persons executing and delivering documents reviewed by us were competent to
execute and deliver such documents and (vi) that all persons signing, in a
representative capacity, documents reviewed by us had authority to sign in such
capacity. Further, the opinions expressed below are limited to the laws of the
State of Texas, the General Corporation Law of the State of Delaware and the
federal laws of the United States of America.
The opinions expressed herein are subject to the following: (i) rights to
indemnity and contribution thereunder may be limited by federal or state
securities laws, (ii) the enforceability or performance of documents may be
limited by bankruptcy, insolvency, reorganization, moratorium and other laws now
or hereafter in effect relating to or affecting creditors' rights generally
(regardless of whether such enforceability is considered in a proceeding in law
or equity), (iii) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor must be brought,
(iv) applicable laws relating to fraudulent conveyances or transfers and (v)
rights of the United States under the Federal Tax Lien Act of 1966, as amended.
<PAGE>
MURPHY MAHON KEFFLER & FARRIER, L.L.P.
March 14, 1997
Page 2
This opinion is being delivered to you in connection with the preparation
of the Registration Statement, and neither this opinion nor any part hereof may
be delivered to, used or relied upon by any other person or for any other
purpose without our prior written consent; provided, however, we consent to the
filing of this opinion with the Securities and Exchange Commission (the
"Commission") as an exhibit to the Registration Statement for the limited
purpose of complying with the Commission's instructions to Form S-3.
We also consent to the reference to this law firm under "Legal Matters" in
the Prospectus forming a part of such Registration Statement.
Sincerely,
MURPHY MAHON KEFFLER & FARRIER L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituing part of this
Registration Statement on Form S-3 of our report dated May 10, 1996, except Note
3 as to which the date is March 14, 1997, relating to the consolidated financial
statements of Sunbelt Nursery Group, Inc., which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Fort Worth, Texas
March 15, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard R. Dwyer, his true and lawful attorney-in-fact and agent, with
full power of substitution, for him and on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and file a Registration
Statement of Form S-3 under the Securities Act of 1933, as amended, and any or
all amendments (including without limitation, post-effective amendments and any
amendment or amendments increasing the amount of securities for which
registration is being sought), with all exhibits and any and all documents
required to be filed with respect thereto, with the Securities and Exchange
Commission and/or any regulatory authority relating to the registration of
shares of Common Stock, $0.01 par value, of Sunbelt Nursery Group, Inc.,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same, as fully and to all intents
and purposes as he himself might or could do if personally present, hereby
ratifying and confirming all that the said attorney-in-fact and agent, may
lawfully do or cause to be done.
IN WITNESS WHEREOF, this Power of Attorney has been signed by the
following persons in the capacities indicated as of the 11th day of March, 1997.
NAME CAPACITY
- ---- --------
/s/ Timothy R. Duoos Chairman of the Board and Chief
- -------------------- Executive Officer (principal executive officer)
Timothy R. Duoos
/s/ Rudy Boschwitz Director
- ------------------
Rudy Boschwitz
/s/ Rodney P. Burwell Director
- ---------------------
Rodney P. Burwell
