<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9031
SUNBELT NURSERY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1932993
(State of incorporation) (I.R.S. Employer Identification No.)
32382 DEL OBISPO STREET, SAN JUAN CAPISTRANO, CALIFORNIA 92675
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 714/248-3811
Registrant (1) has filed all reports required to be filed by Section 13 or 15
(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 7, 1997, the Registrant had 8,500,000 common shares, $.01 par
value, outstanding.
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<PAGE>
SUNBELT NURSERY GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Part I. Financial Information Page
- ------------------------------ ----
Consolidated Statement of Operations for the Three Months
Ended September 28, 1997 and September 29, 1996..................... 3
Consolidated Balance Sheet as of September 28, 1997 and
June 29, 1997........................................................ 4
Consolidated Statement of Cash Flows for the Three Months
Ended September 28, 1997 and September 29, 1996...................... 5
Notes to Consolidated Financial Statements.............................. 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition................................... 10
Part II. Other Information
- ---------------------------
Legal Proceedings....................................................... 13
Exhibits................................................................ 14
Signatures.............................................................. 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUNBELT NURSERY GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Net sales $ 12,734 $ 18,243
Cost of goods sold 7,159 11,097
-------- --------
Gross profit 5,575 7,146
General, administrative and
selling expense 7,859 9,700
Depreciation and amortization 378 674
Interest / other income (3) (730)
Interest expense 125 262
-------- --------
Loss before provision for income taxes (2,784) (2,760)
Provision for income taxes -- --
-------- --------
Net loss $ (2,784) $ (2,760)
======== ========
Net loss per share $ (0.33) $ (0.32)
======== ========
Average common shares outstanding 8,500 8,500
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
SUNBELT NURSERY GROUP, INC.
CONSOLIDATED BALANCE SHEET
(unaudited, in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 28, JUNE 29,
1997 1997
------------ -------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,310 $ 1,838
Cash - restricted 154 154
Accounts receivable, net 368 261
Inventories 12,563 14,088
Other current assets 210 611
------- -------
Total current assets 14,605 16,952
------- -------
Property and equipment, at cost 21,908 22,426
Less accumulated depreciation 17,986 17,847
------- -------
Net property and equipment 3,922 4,579
Other assets 38 66
------- -------
Total assets $18,565 $21,597
======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Accounts payable $10,019 $11,098
Accrued compensation 1,292 1,473
Current portion of long-term debt and capital leases 4,236 3,190
Other current liabilities 5,202 5,063
------- -------
Total current liabilities 20,749 20,824
Long-term debt and capital leases 1,306 1,366
Reserve for store closings 455 543
Other long-term liabilities 1,241 1,266
------- -------
Total liabilities 23,751 23,999
------- -------
Shareholders' deficit:
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 (50,397) (47,613)
Subscriptions receivable from officer (25) (25)
------- -------
Total shareholders' deficit (5,186) (2,402)
------- -------
Total liabilities and shareholders' deficit $18,565 $21,597
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
SUNBELT NURSERY GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,784) $(2,760)
Adjustments to reconcile net loss to cash
used for operating activities:
Depreciation and amortization 378 674
Gain on sale of fixed assets (1) (587)
Payment of store closing costs included in
provision for store closings (88) (43)
Changes in operating assets and liabilities:
Inventories 1,525 1,481
Accounts receivable and other assets 322 222
Accounts payable (1,079) 232
Accrued compensation (181) (311)
Other liabilities 114 26
------- -------
NET CASH USED FOR OPERATING ACTIVITIES (1,794) (1,066)
------- -------
INVESTING ACTIVITIES:
Net sale of property and equipment 280 797
------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 280 797
------- -------
FINANCING ACTIVITIES:
Additions to line of credit 15,944 20,860
Principal payments on line of credit and
capital lease obligations (14,958) (21,031)
Restricted cash for outstanding letters of credit -- (19)
------- -------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 986 (190)
------- -------
Decrease in cash and cash equivalents (528) (459)
Cash and cash equivalents at beginning of period 1,838 2,058
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,310 $ 1,599
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. BASIS OF FINANCIAL STATEMENTS
- --------------------------------------
Sunbelt Nursery Group, Inc. (the "Company") is a specialty retailer of nursery
and garden products with 60 stores operating under three prominent retail trade
names: Wolfe Nursery in Texas, Nurseryland Garden Centers in California, and Tip
Top Nurseries in Arizona. No single customer accounts for more than 10% of
sales.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
June 29, 1997. On August 1, 1996, the Board of Directors of the Company
approved a change in the Company's fiscal year end from the Sunday nearest to
January 31 to the Sunday nearest to June 30. As a result the Company filed a
transition report on Form 10-Q for the five months ended June 30, 1996. All
adjustments are, in the opinion of management, necessary to present fairly the
Company's financial position as of September 28, 1997 and September 29, 1996,
and its results of operations and cash flow for the periods then ended. All
such adjustments are of a normal recurring nature. The results of operations
for the three months ended September 28, 1997 and September 29, 1996 are not
indicative of the results to be expected for the fiscal year due to the highly
seasonal nature of the nursery industry.
NOTE 2. LIQUIDITY AND OPERATING LOSSES
- ---------------------------------------
The Company entered into a Loan and Security Agreement for a $12.0 million
revolving credit facility with a bank (the "Bank") on October 14, 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. This revolving credit facility matured on October 14, 1997 and was
extended by agreement of the parties until November 21, 1997 while the Company
attempts to arrange refinancing. The Bank has not indicated its intention to
extend any further than the current extended period. As of September 28, 1997,
indebtedness owed pursuant to this revolving credit facility approximated $3.7
million. As such, the outstanding balance at September 28, 1997 has been
classified as current in the accompanying September 28, 1997 consolidated
balance sheet. Management is seeking to obtain alternative financing, however,
there can be no assurance that the Company's efforts will be successful. If the
Company is unable to obtain an alternative source of financing and the Bank does
not extend the facility beyond November 21, 1997, the Company would take
whatever actions necessary to preserve shareholders' capital.
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 provided for six-month lease terms that initially
ended on December 31, 1995. The leases were renewable at Pier 1 Imports' option
in six-month intervals through June 30, 1998, after which the Company would have
to consent to any further extensions. Under the Agreement of Settlement, the
Company was released from any obligation to purchase any of the Pier 1
properties. As of September 28, 1997, the Company was no longer obligated to
Pier 1 Imports under these subleases as the properties had been sold to third
parties, closed or Pier 1 Imports did not exercise their option to renew the
lease term for an additional six months and thus the Company vacated the
properties. As Pier 1 Imports did not exercise their option to renew the lease
term on certain of these subleases the Company has no future minimum lease
obligations associated with these properties as of September 28, 1997.
The Agreement of Settlement fixed 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
6
<PAGE>
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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. Debt service obligations with
respect to the Earn-out Claim are determined by a formula indexed to and
contingent upon future operating cash flows of the Company, as described below.
To the extent the formula requires debt service payments, they are to be made in
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. The obligation to make debt service payments that are measured
based on cash flow are also 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. However, such payments
remain subject to certain maximum and minimum limitations, as discussed above.
The Earn-out Claim could have been 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 Earn-out Claim bears interest only in the event a formula-based
required debt service payment becomes delinquent. During any such interest-
bearing period, interest shall accrue as follows: (i) 18% per annum on the
amount of Cash Flow Payment not otherwise paid and (ii) 10% per annum on the
aggregate amount of unpaid Earn-out Claim less the aggregate unpaid 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,
representing previously capitalized leases with a net book value of $20.5
million was removed from the Company's consolidated balance sheet; (ii) the
related capitalized lease obligation of $22.8 million due Pier 1 Imports was
removed from the consolidated balance sheet and; (iii) the fair value of the
indexed Earn-out Claim for the settlement obligation to Pier 1 Imports of $2.0
million, representing the optional payment the Company initially believed it had
the ability and intention to make on May 1, 1996 to satisfy the Earn-out Claim
in full was recognized during fiscal 1996. The resulting difference of $213,000
was reported as a deferred gain which will be recognized once all obligations to
Pier 1 have been settled or transferred to the recorded Earn-out Claim
obligation to account for any increases in the contingent payment obligation.
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 estimated $2.0 million present value of
the Earn-out Claim was recorded as a long-term liability in the accompanying
consolidated balance sheets.
On January 31, 1997, the Company and Pier 1 agreed to proposed modifications
to the terms of the Agreement of Settlement (the "Note Modification Agreement")
which provided 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 was comprised of $200,000 in cash payable on March 3, 1997 and $1.8
million in notes. Certain terms of the Note Modification Agreement were not
fulfilled and as a result the Earn-out Claim and Agreement of Settlement remain
unmodified and in full force and effect.
As of September 28, 1997, the Company remains unable to meet certain minimum
financial requirements pursuant to the Agreement of Settlement and the Loan
Agreement. In addition, the Company estimates that it will not be able to meet
these requirements in the near future. As such, the Company reviewed its
assumptions used in estimating the present value of future cash flow payments to
Pier 1 to satisfy the Earn-out Claim and determined that the estimated present
value at September 28, 1997 approximates $1.0 million. Thus, the estimated $1.0
million present value of the Earn-out Claim is recorded as a long-term liability
in the accompanying consolidated balance sheet at September 28, 1997. In
addition, a $1.0 million gain on the revaluation of the Pier 1 Earn-out Claim
was recognized in the fiscal 1997 consolidated statement of operations.
7
<PAGE>
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
OPERATING LOSSES
The Company has operating losses for the three months ended September 28, 1997
and for the fiscal years ended June 29, 1997, January 28, 1996 and January 29,
1995. In addition, at September 28, 1997, the Company has a working capital
deficit and a net capital deficiency and the Company's revolving line of credit
expires November 21, 1997 and the Bank has not indicated its intention to extend
the date of the revolving line of credit extension. All of the above 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
fiscal 1997 and the three months ended September 28, 1997, management has
addressed these issues as well as others in an attempt to return the Company to
profitability. These actions included the following:
. Accelerating the closing of underperforming stores;
. Continuing emphasis on improving gross margins;
. 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 and pricing, and use and timing
of advertising mediums;
. Implementing reductions in store operating expenses, including
payroll, by reorganizing store management and by modification of the
Company's bonus program;
. Identifying further reductions of general and administrative expenses;
and,
. Seeking the most appropriate alternative financing sources based upon
the Company's financial results, financial condition, and the lending
environment; however, there can be no assurance that the Company will
be able to obtain alternative financing.
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 previously had been assigned to inventory in the
off-seasons;
. Review of all advertising items to eliminate unnecessary or non-impact
price reductions;
. Elimination of corporate staff resulting from decentralization of key
functions such as merchandising and advertising; and,
. Continued review of underperforming stores and analysis of potential new
store locations, if new funding sources can be successfully identified.
8
<PAGE>
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Management expects these plans to improve cash flow and improve the Company's
operating performance. However, there can be no assurance that such operational
improvements 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 preserve capital.
NOTE 3. CASH - RESTRICTED
- --------------------------
As of September 28, 1997, the Company had restricted cash of $154,000
established to segregate proceeds from the sale of properties per the Loan
Agreement.
NOTE 4. INCOME TAXES
- ---------------------
No provision for income taxes has been recognized in the accompanying
financial statements, as management does not currently expect the Company to
have taxable income during the applicable tax year.
NOTE 5. LITIGATION AND OTHER CONTINGENCIES
- -------------------------------------------
LITIGATION - The Company, the Company's Chief Executive Officer (the "CEO"), a
company owned by the CEO, 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 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 is vigorously defending itself against any claims by the Plaintiffs.
There are various claims, lawsuits, investigations and pending actions against
the Company and its subsidiaries incidental to the operations of its business.
Liability, if any, associated with these matters is not determinable at
September 28, 1997. While settlement of these lawsuits may impact the Company's
results of operations and liquidity 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 during
fiscal 1995. 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.
OTHER CONTINGENCIES - In August 1996, the Company recorded a gain of $710,000
from the sale of operating assets. Concurrent with the sale of certain stores
during this period, the Company assigned to the purchaser the leases on two
stores and, as a result, the Company remains secondarily liable as a guarantor.
These non-cancelable leases expire in October 1999 and December 2003 and the
remaining undiscounted non-cancelable minimum lease commitments due as of
September 28, 1997 are approximately $553,000.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
With the exception of historical information, the matters discussed herein are
forward-looking statements that involve risks and uncertainties including, but
not limited to, economic conditions, weather conditions in the Company's market
areas, interest rate fluctuations, product demand, competitors' merchandise mix,
service and pricing, availability of merchandise, the regulatory and trade
environment, real estate market fluctuations and other risks indicated in
filing, with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
- ---------------------
During the quarter ended September 28, 1997, the Company lost $2.8 million
which is comparable to the same period in the prior year. However, the prior
year included a gain from the sale of fixed assets of $710,000. While sales for
the quarter were down $5.5 million from those achieved last year, approximately
$2.2 million of this sales decline was attributed to the stores the Company
closed or sold during fiscal 1997. The companies improvement in operating
results, is primarily due to improved gross margins and reduced operating
expenses.
Gross margins improved from 39.2% to 43.8% during the first quarter of fiscal
1998. This improvement is substantially due to the Company's operational
improvements at the store level as well as the elimination of the less
profitable stores included in the comparative period in fiscal 1997. Same store
sales for the first quarter of fiscal 1998 decreased by 14.1% compared to the
same period in fiscal 1996 reflecting unseasonably warm weather in all markets
and increased competitive pressures in certain markets.
General, administrative and selling expenses for the three month period ended
September 28, 1997 were down 12.6% or $1.1 million, primarily resulting from the
reduction in the number of stores operated by the company as well as the ongoing
efforts of the Company's announced reductions in general and administrative
expenses. The Company's decentralization of management has begun to have the
desired effect of reducing administrative expenditures and enhancing store
operations.
Other significant improvements realized during the quarter included a 44%
reduction in depreciation and amortization due to the numerous store closings,
and a 52% reduction in the Company's interest expense when compared to the same
period last year. Management's efforts to reduce its inventory investment and
the related costs to carry this investment, when combined with the reduction in
the number of stores, accounts for the majority of the reduction in interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the quarter, $1.8 million cash was used for operations. Investing
activities provided $0.3 million in cash and the Company borrowed a net of $1.0
million on an asset based revolving loan from a bank.
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 14, 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. This revolving credit facility matured on October 14, 1997 and
was extended by agreement of the parties until November 21, 1997 while the
Company attempts to arrange refinancing. The Bank has not indicated its
intention to extend any further than the current extended period. As of
September 28, 1997, indebtedness owed pursuant to this revolving credit facility
approximated $3.7 million. As such, the outstanding balance at September 28,
1997 has been classified as current in the accompanying September 28, 1997
consolidated balance sheet. Management is seeking to obtain alternative
financing, however, there can be no assurance that the Company's efforts will be
successful. If the Company is unable to obtain an alternative source of
financing and the Bank does not extend the facility beyond November 21, 1997,
the Company would take whatever actions necessary to preserve shareholders'
capital.
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 provided for six-month lease terms that initially
ended on December 31, 1995. The leases were renewable at Pier 1 Imports' option
in six-month intervals through June 30, 1998, after which the Company would have
to consent to any further extensions. Under the Agreement of Settlement, the
Company was released from any obligation to purchase any of the Pier 1
properties. As
10
<PAGE>
Agreement of Settlement, the Company was released from any obligation to
purchase any of the Pier 1 properties. As of September 28, 1997, the Company was
no longer obligated to Pier 1 Imports under these subleases as the properties
had been sold to third parties, closed or Pier 1 Imports did not exercise their
option to renew the lease term for an additional six months and thus the Company
vacated the properties. As Pier 1 Imports did not exercise their option to renew
the lease term on certain of these subleases the Company has no future minimum
lease obligations associated with these properties as of September 28, 1997.
The Agreement of Settlement fixed 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. Debt service obligations with respect to the Earn-out Claim are
determined by a formula indexed to and contingent upon future operating cash
flows of the Company, as described below. To the extent the formula requires
debt service payments, they are to be made in 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. The obligation to
make debt service payments that are measured based on cash flow are also 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. However, such payments remain subject to certain maximum and minimum
limitations, as discussed above. The Earn-out Claim could have been 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 Earn-out Claim bears interest only in
the event a formula-based required debt service payment becomes delinquent.
During any such interest-bearing period, interest shall accrue as follows: (i)
18% per annum on the amount of Cash Flow Payment not otherwise paid and (ii) 10%
per annum on the aggregate amount of unpaid Earn-out Claim less the aggregate
unpaid 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,
representing previously capitalized leases with a net book value of $20.5
million was removed from the Company's consolidated balance sheet; (ii) the
related capitalized lease obligation of $22.8 million due Pier 1 Imports was
removed from the consolidated balance sheet and; (iii) the fair value of the
indexed Earn-out Claim for the settlement obligation to Pier 1 Imports of $2.0
million, representing the optional payment the Company initially believed it had
the ability and intention to make on May 1, 1996 to satisfy the Earn-out Claim
in full was recognized during fiscal 1996. The resulting difference of $213,000
was reported as a deferred gain which will be recognized once all obligations to
Pier 1 have been settled or transferred to the recorded Earn-out Claim
obligation to account for any increases in the contingent payment obligation.
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 estimated $2.0 million present value of
the Earn-out Claim was recorded as a long-term liability in the accompanying
consolidated balance sheets.
On January 31, 1997, the Company and Pier 1 agreed to proposed modifications
to the terms of the Agreement of Settlement (the "Note Modification Agreement")
which provided 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 was comprised of $200,000 in cash payable on March 3, 1997 and $1.8
million in notes. Certain terms of the Note Modification Agreement were not
fulfilled and as a result the Earn-out Claim and Agreement of Settlement remain
unmodified and in full force and effect.
As of September 28, 1997, the Company remains unable to meet certain minimum
financial requirements pursuant to the Agreement of Settlement and the Loan
Agreement. In addition, the Company estimates that it will not be able to meet
these requirements in the near future. As such, the Company reviewed its
assumptions used in estimating the present value of future cash flow payments to
Pier 1 to satisfy the Earn-out Claim and determined that
11
<PAGE>
the estimated present value at September 28, 1997 approximates $1.0 million.
Thus, the estimated $1.0 million present value of the Earn-out Claim is recorded
as a long-term liability in the accompanying consolidated balance sheet at
September 28, 1997. In addition, a $1.0 million gain on the revaluation of the
Pier 1 Earn-out Claim was recognized in the fiscal 1997 consolidated statement
of operations.
OPERATING LOSSES
The Company has operating losses for the three months ended September 28, 1997
and for the fiscal years ended June 29, 1997, January 28, 1996 and January 29,
1995. In addition, at September 28, 1997, the Company has a working capital
deficit and a net capital deficiency and the Company's revolving line of credit
expired November 21, 1997 and the Bank has not indicated its intention to extend
the date of the revolving line of credit extension. All of the above 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
fiscal 1997 and the three months ended September 28, 1997, management has
addressed these issues as well as others in an attempt to return the Company to
profitability. These actions included the following:
. Accelerating the closing of underperforming stores;
. Continuing emphasis on improving gross margins;
. 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 and pricing, and use and timing
of advertising mediums;
. Implementing reductions in store operating expenses, including
payroll, by reorganizing store management and by modification of the
Company's bonus program;
. Identifying further reductions of general and administrative expenses;
and,
. Seeking the most appropriate alternative financing sources based upon
the Company's financial results, financial condition, and the lending
environment; however, there can be no assurance that the Company will
be able to obtain alternative financing.
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 previously had been assigned to inventory in the
off-seasons;
. Review of all advertising items to eliminate unnecessary or non-impact price
reductions;
. Elimination of corporate staff resulting from decentralization of key
functions such as merchandising and advertising; and,
12
<PAGE>
. Continued review of underperforming stores and analysis of potential new
store locations, if new funding sources can be successfully identified.
Management expects these plans to improve cash flow and improve the Company's
operating performance. However, there can be no assurance that such operational
improvements 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 preserve capital.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
See Note 5 to the Consolidated Financial Statements.
13
<PAGE>
ITEM 6. EXHIBITS
--------
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporated by reference to
Incorporation Exhibit 3.1 to the Company's
Registration Statement on Form
S-1 (Reg. No. 33-42292)(the
"Registration Statement"),
filed August 16, 1991
3.2 By-Laws Incorporated by reference to
Exhibit 3.2 to the Company's
Registration Statement
10.1 Form of Post-Employment Incorporated by reference to
Consulting Agreement with Exhibit 10.3 of the Company's
executive officers Registration Statement
10.2 Form of Indemnity Agreement with Incorporated by reference to
directors and executive officers Exhibit 10.4 to the Company's
Registration Statement
10.3 Management Bonus Plan Incorporated by reference to
Exhibit 10.5 to the Company's
Annual Report on Form 10-K, for
the fiscal year ended January
31, 1993
10.4 1991 Stock Option Plan Incorporated by reference to
Exhibit 10.6 to Amendment No. 1
to the Company's Registration
Statement, filed September 25,
1991 (the "Amended Registration
Statement")
10.5 Executive Officers' Medical Plan Incorporated by reference to
Exhibit 10.10 to the Company's
Registration Statement
10.6 Executive Officers' Financial Incorporated by reference to
Planning Plan Exhibit 10.11 to the Company's
Registration Statement
10.7 Credit Facilities Agreement Incorporated by reference to
between the Company and Pier 1 Exhibit 10.12 to the Company's
Imports Registration Statement
10.8 Extension Agreement dated April Incorporated by reference to
25, 1994 between the Company and Exhibit 10.14 to the Company's
Pier-SNG, Inc. relating to the Report on Form 8-K, filed April
Credit Facility Agreement between 28, 1994
the Company and Pier 1 Imports
10.9 Waiver Agreement dated May 13, Incorporated by reference to
1994 between the Company and Pier Exhibit 10.15 to the Company's
1 Imports and Pier-SNG, Inc. Annual Report on Form 10-K for
relating to the Credit Facility the fiscal year ended January
Agreement between the Company and 31, 1994
Pier 1 Imports
14
<PAGE>
EXHIBIT DESCRIPTION
- ------- -----------
10.10 Loan and Security Agreement dated Incorporated by reference to
October 14, 1994, among Wolfe Exhibit 10.19 to the Company's
Nursery, Inc., Tip Top Nurseries, Report on Form 10-Q for the
Inc., Nurseryland Garden Centers, nine months ended October 31,
Inc. as Borrowers, the 1994
Registrant, Sunbelt Nursery
Holdings, Inc. and Sunbelt
Management Services, Inc., as
Guarantors, and American National
Bank and Trust Company of Chicago
(the "Loan and Security
Agreement")
10.11 Qualified Stock Option Agreement Incorporated by reference to
dated October 18, 1994 with an Exhibit 10.11 to the Company's
Executive Officer Report on Form 10-K for the
fiscal year ended January 31,
1995, filed May 15, 1995
10.12 Amended and Restated Credit Incorporated by reference to
Facilities Agreement dated Exhibit 10.11 to the Company's
October 14, 1994 between the Report on Form 10-K for the
Company and Pier 1 Imports, Inc. fiscal year ended January 31,
1995, filed May 15, 1995
10.13 Nonqualified Stock Option Incorporated by reference to
Agreement dated March 6, 1995 Exhibit 10.13 to the Company's
with non-employee Directors Report on Form 10-K for the
fiscal year ended January 31,
1995, filed May 15, 1995
10.14 First Amendment and Waiver dated Incorporated by reference to
April 7, 1995 to the Loan and Exhibit 10.14 to the Company's
Security Agreement Report on Form 10-K for the
fiscal year ended January 31,
1995, filed May 15, 1995
10.15 Agreement of Settlement dated Incorporated by reference to
July 31, 1995 between Pier Lease, Exhibit 10.15 to the Company's
Pier 1 Imports and Sunbelt Report on Form 10K/A-2 for the
Nursery Group, and Timothy R. fiscal year ended January 31,
Duoos 1995, filed August 11, 1995
10.16 Security Agreement dated July 31, Incorporated by reference to
1995, by Sunbelt Nursery Group, Exhibit 10.16 to the Company's
Inc. and Wolfe Nursery, Inc. for Report on Form 10-K/A-2 for the
the benefit of Pier 1 Imports, fiscal year ended January 31,
Inc., identified as Exhibit A to 1995, filed August 11, 1995
the Agreement of Settlement
10.17 Lease Guaranty Indemnification Incorporated by reference to
Agreement dated July 31, 1995, by Exhibit 10.17 to the Company's
Sunbelt Nursery Group, Inc. and Report on Form 10-K/A-2 for the
Wolfe Nursery, Inc. for the fiscal year ended January 31,
benefit of Pier 1 Imports, Inc., 1995, filed August 11, 1995
identified as Exhibit C to the
Agreement of Settlement
15
<PAGE>
EXHIBIT DESCRIPTION
- ------- -----------
10.18 Environmental Indemnity dated Incorporated by reference to
July 31, 1995 by Sunbelt Nursery Exhibit 10.18 to the Company's
Group, Inc. and Wolfe Nursery, Report on Form 10-K/A-2 for the
Inc. for the benefit of Pier 1 fiscal year ended January 31,
Imports, Inc., identified as 1995, filed August 11, 1995
Exhibit D to the Agreement of
Settlement
10.19 Duoos Indemnification Agreement Incorporated by reference to
dated July 31, 1995 by Timothy R. Exhibit 10.19 to the Company's
Duoos for the benefit of Pier 1 Report on Form 10-K/A-2 for the
Imports, Inc., identified as fiscal year ended January 31,
Exhibit E to the Agreement of 1995, filed August 11, 1995
Settlement
10.20 Sublease Guaranty dated July 31, Incorporated by reference to
1995, between Sunbelt Nursery Exhibit 10.20 to the Company's
Group, Inc. and Pier Lease, Inc. Report on Form 10-K/A-2 for the
identified as Exhibit G to the fiscal year ended January 31,
Agreement of Settlement 1995, filed August 11, 1995
10.21 Promissory Note dated July 31, Incorporated by reference to
1995, in the principal amount of Exhibit 10.21 to the Company's
$8,000,000 by Sunbelt Nursery Report on Form 10-K/A-2 for the
Group, Inc. for the benefit of fiscal year ended January 31,
Pier 1 Imports, Inc. identified 1995, filed August 11, 1995
as Exhibit H to the Agreement of
Settlement
10.22 Note Guaranty dated July 31, Incorporated by reference to
1995, by Wolfe Nursery, Inc. for Exhibit 10.22 to the Company's
the benefit of Pier 1 Imports, Report on Form 10-K/A-2 for the
Inc., identified as Exhibit I to fiscal year ended January 31,
the Agreement of Settlement 1995, filed August 11, 1995
10.23 Second Amendment, Waiver and Incorporated by reference to
Consent dated July 31, 1995 to Exhibit 10.23 to the Company's
the Loan and Security Agreement Report on Form 10-K/A-2 for the
fiscal year ended January 31,
1995, filed August 11, 1995
10.24 Third Amendment dated February Incorporated by reference to
14, 1996 to the Loan and Security Exhibit 10.24 to the Company's
Agreement Annual Report on Form 10-K, for
the fiscal year ended January
28, 1996, filed May 10, 1996
10.25 Fourth Amendment and Waiver dated Incorporated by reference to
May 9, 1996 to the Loan and Exhibit 10.25 to the Company's
Security Agreement Annual Report on Form 10-K, for
the fiscal year ended January
28, 1996, filed May 10, 1996
10.26 Fifth Amendment and Waiver dated Incorporated by reference to
October 24, 1996 to the Loan and Exhibit 10.26 to the Company's
Security Agreement Report on Form 10-Q for the
three months ended September
29, 1996, filed November 13,
1996
10.27 Note Modification Agreement dated Incorporated by reference to
January 31, 1997 among Pier 1 Exhibit 10.27 to the Company's
Imports, Inc., Sunbelt Nursery Report of Form 10-Q for the six
Group, Inc., Wolfe Nursery, Inc., months ended December 29, 1996,
and Timothy R. Duoos filed February 12, 1997
16
<PAGE>
EXHIBIT DESCRIPTION
- ------- -----------
10.28 Sixth Amendment and Waiver dated Incorporated by reference to
February 11, 1997 to the Loan and Exhibit 10.28 to the Company's
Security Agreement Report of Form 10-Q for the six
months ended December 29, 1996,
filed February 12, 1997
10.29 Seventh Amendment and Waiver Incorporated by reference to
dated May 12, 1997 to the Loan Exhibit 10.29 to the Company's
and Security Agreement Report of Form 10-K for the
year ended June 29, 1997, filed
October 10, 1997
10.30 Eighth Amendment and Waiver dated Incorporated by reference to
June 23, 1997 to the Loan and Exhibit 10.30 to the Company's
Security Agreement Report of Form 10-K for the
year ended June 29, 1997, filed
October 10, 1997
10.31 Ninth Amendment and Waiver dated Filed herewith
October 13, 1997 to the Loan and
Security Agreement
10.32 Tenth Amendment and Waiver dated Filed herewith
October 31, 1997 to the Loan and
Security Agreement
21 Subsidiaries of the Company Incorporated by reference to
Exhibit 22 to the Company's
Annual Report on Form 10-K, for
the fiscal year ended January
31, 1993
27 Financial Data Schedule Filed herewith
17
<PAGE>
SUNBELT NURSERY GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sunbelt Nursery Group, Inc.
--------------------------------------
(Registrant)
Date: November 11, 1997 /s/ Thomas R. Hoekstra
--------------------------------------
Thomas R. Hoekstra
Chief Financial Officer
18
<PAGE>
EXHIBIT 10.31
NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Ninth Amendment to Loan and Security Agreement, dated as of
October 13, 1997 (this "Amendment"), is by and among Wolfe Nursery, Inc., a
---------
Delaware corporation, Tip Top Nurseries, Inc., an Arizona corporation,
Nurseryland Garden Centers, Inc., a California corporation, as borrowers
(collectively, the "Borrowers"), Sunbelt Nursery Group, Inc., a Delaware
---------
corporation, Sunbelt Nursery Holdings, Inc., an Arizona corporation, Sunbelt
Management Services, Inc., a Delaware corporation, as guarantors (collectively,
the "Guarantors" and, together with the Borrowers, the "Loan Parties"), and
---------- ------------
American National Bank and Trust Company of Chicago, a national banking
association, as lender (the "Lender"). Capitalized terms used in this Amendment
------
and not otherwise defined have the meanings assigned to such terms in the Loan
Agreement (as defined below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Loan Parties and the Lender are parties to the Loan and
Security Agreement dated as of October 14, 1994 (as such agreement has been or
may be amended, modified, restated or supplemented from time to time, the "Loan
----
Agreement");
- ---------
WHEREAS, the Loan Parties and the Lender desire to amend the Loan
Agreement to extend the maturity date of the Loan Agreement to October 31, 1997,
all on the terms and subject to the conditions of this Amendment;
NOW, THEREFORE, in consideration of the foregoing recitals, the
actions contemplated therein and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties to this Amendment
agree as follows:
SECTION 1. AMENDMENTS TO LOAN AGREEMENT
----------------------------
On the date this Amendment becomes effective, after completion by the
Loan Parties of the conditions set forth in Section 3 of this Amendment (the
---------
"Closing Date"), the Loan Agreement is amended as follows:
- -------------
1.1 Section 1.1 of the Loan Agreement is amended by deleting the
-----------
definition of "Maturity Date" in its entirety and replacing it as follows:
-------------
"Maturity Date" shall mean October 31, 1997.
-------------
1.2 Section 2.7 of the Loan Agreement is amended by deleting the
-----------
first sentence of such section in its entirety and replacing it as follows:
<PAGE>
The term for this Agreement shall be from the date hereof until the
Maturity Date and shall not be renewable without the prior written consent
of Lender.
SECTION 2. REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lender to enter into this Amendment and to extend
further credit under the Loan Agreement, as amended by this Amendment, each Loan
Party severally represents and warrants to the Lender that:
2.1 Due Authorization, Etc. The execution, delivery and performance
-----------------------
by such Loan Party of this Amendment are within its corporate powers, have been
duly authorized by all necessary corporate action, have received all necessary
governmental, regulatory or other approvals (if any are required), and do not
and will not contravene or conflict with any provision of (i) any law, (ii) any
judgment, decree or order, or (iii) such Loan Party's Certificate of
Incorporation or By-Laws, and do not and will not contravene or conflict with,
or cause any lien to arise under any provision of any agreement or instrument
binding upon such Loan Party or upon any of its property. This Amendment and
the Loan Agreement, as amended by this Amendment, are the legal, valid and
binding obligations of such Loan Party, enforceable against such Loan Party in
accordance with their respective terms.
2.2 No Default, Etc. As of the Closing Date, (i) no Event of Default
----------------
or Default under the Loan Agreement, as amended by this Amendment, has occurred
and is continuing or will result from the amendments set forth in this Amendment
and (ii) the representations and warranties of such Loan Party contained in the
Loan Agreement are true and correct.
SECTION 3. CONDITIONS TO EFFECTIVENESS
---------------------------
The obligation of the Lender to make the amendments contemplated by
this Amendment and the effectiveness thereof, are subject to the following:
3.1 Representations and Warranties. The representations and
------------------------------
warranties of the Loan Parties contained in this Amendment are true and correct
as of the Closing Date.
3.2 Documents. The Lender has received all of the following, each
---------
duly executed and dated as of the Closing Date (or such other date as is
satisfactory to the Lender) in form and substance satisfactory to the Lender:
(A) Ninth Amendment. This Amendment;
---------------
(B) Resolutions. Resolutions of the Board of Directors of each Loan
-----------
Party authorizing or ratifying the execution, delivery and performance of
this Amendment;
-2-
<PAGE>
(C) Consents, Etc. Certified copies of all documents evidencing any
--------------
necessary corporate action, consents and governmental approvals, if any,
with respect to this Amendment or any other document provided for under
this Amendment; and
(D) Other. Such other documents as the Lender may reasonably request.
-----
SECTION 4. MISCELLANEOUS
-------------
4.1 Captions. The recitals to this Amendment (except for
--------
definitions) and the section captions used in this Amendment are for convenience
only, and do not affect the construction of this Amendment.
4.2 Governing Law; Severability. THIS AMENDMENT IS A CONTRACT MADE
---------------------------
UNDER AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES. Wherever possible, each provision of this
Amendment must be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment is prohibited by or
invalid under such law, such provision is only ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Amendment.
4.3 Counterparts. This Amendment may be executed in any number of
------------
counterparts and by the different parties on separate counterparts, and each
such counterpart is deemed to be an original, but all such counterparts together
constitute but one and the same Amendment.
4.4 Successors and Assigns. This Amendment is binding upon each Loan
----------------------
Party and the Lender and their respective successors and assigns, and inures to
the sole benefit of each Loan Party and the Lender and their successors and
assigns. The Loan Parties have no right to assign their respective rights or
delegate their respective duties under this Amendment.
4.5 References. From and after the Closing Date, each reference in
----------
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein," or
words of like import, and each reference in any Financing Agreement to the Loan
Agreement or to any term, condition or provision contained "thereunder,"
"thereof," "therein," or words of like import, mean and are a reference to the
Loan Agreement (or such term, condition or provision, as applicable) as amended,
supplemented or otherwise modified by this Amendment.
4.6 Continued Effectiveness. Notwithstanding anything contained in
-----------------------
this Amendment, the terms of this Amendment are not intended to and do not serve
to effect a novation as to the Loan Agreement. The parties to this Amendment
expressly do not intend
-3-
<PAGE>
to extinguish the Loan Agreement. Instead, it is the express intention of the
parties to this Amendment to reaffirm the indebtedness created by and secured
under the Loan Agreement. The Loan Agreement, as amended by this Amendment,
remains in full force and effect.
4.7 Costs, Expenses and Taxes. Each Loan Party affirms and
-------------------------
acknowledges that Section 10.2 and Section 10.3 of the Loan Agreement applies to
this Amendment and the transactions and agreements and documents contemplated
under this Amendment.
4.8 Guarantors Reaffirmation. Each of the Guarantors acknowledges
------------------------
that it has read this Amendment and consents to this Amendment and agrees that
its Guaranty of the Guaranteed Obligations (as defined in such Guaranty)
continues in full force and effect, is valid and enforceable and is not impaired
or otherwise affected by the execution of this Amendment or any other document
or instrument delivered in connection with this Amendment.
* * * * *
-4-
<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above
written.
WOLFE NURSERY, INC.,
as a Borrower
By: /s/ RICHARD R. DWYER
-----------------------------
Name: Richard R. Dwyer
Title: President
TIP TOP NURSERIES, INC.,
as a Borrower
By: /s/ RICHARD R. DWYER
-----------------------------
Name: Richard R. Dwyer
Title: President
NURSERYLAND GARDEN CENTERS, INC.,
as a Borrower
By: /s/ RICHARD R. DWYER
-----------------------------
Name: Richard R. Dwyer
Title: President
SUNBELT NURSERY GROUP, INC.,
as a Guarantor
By: /s/ RICHARD R. DWYER
-----------------------------
Name: Richard R. Dwyer
Title: President
SUNBELT NURSERY HOLDINGS, INC.,
as a Guarantor
By: /s/ RICHARD R. DWYER
-----------------------------
Name: Richard R. Dwyer
Title: President
<PAGE>
SUNBELT MANAGEMENT SERVICES, INC.,
as a Guarantor
By: /s/ RICHARD R. DWYER
-----------------------------
Name: Richard R. Dwyer
Title: President
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: /s/ ELIZABETH J. LIMPERT
-----------------------------
Elizabeth J. Limpert
First Vice President
Timothy R. Duoos, guarantor under the Guaranty dated as of October 14,
1994 (the "Duoos Guaranty") made in favor of the Lender, acknowledges that he
--------------
has read this Amendment referenced herein and consents to this Amendment and
agrees that his guarantee of the Guaranteed Obligations (as defined in the Duoos
Guaranty) continues in full force and effect, is valid and enforceable and is
not impaired or otherwise affected by the execution of this Amendment or any
other document or instrument delivered in connection with this Amendment.
/s/ TIMOTHY R. DUOOS
-----------------------------
Timothy R. Duoos
<PAGE>
EXHIBIT 10.32
TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Tenth Amendment to Loan and Security Agreement, dated as of
October 31, 1997 (this "Amendment"), is by and among Wolfe Nursery, Inc., a
---------
Delaware corporation, Tip Top Nurseries, Inc., an Arizona corporation,
Nurseryland Garden Centers, Inc., a California corporation, as borrowers
(collectively, the "Borrowers"), Sunbelt Nursery Group, Inc., a Delaware
---------
corporation, Sunbelt Nursery Holdings, Inc., an Arizona corporation, Sunbelt
Management Services, Inc., a Delaware corporation, as guarantors (collectively,
the "Guarantors" and, together with the Borrowers, the "Loan Parties"), and
---------- ------------
American National Bank and Trust Company of Chicago, a national banking
association, as lender (the "Lender"). Capitalized terms used in this Amendment
------
and not otherwise defined have the meanings assigned to such terms in the Loan
Agreement (as defined below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Loan Parties and the Lender are parties to the Loan and
Security Agreement dated as of October 14, 1994 (as such agreement has been or
may be amended, modified, restated or supplemented from time to time, the "Loan
----
Agreement");
- ---------
WHEREAS, the Loan Parties and the Lender desire to amend the Loan
Agreement to extend the maturity date of the Loan Agreement to November 21,
1997, all on the terms and subject to the conditions of this Amendment;
NOW, THEREFORE, in consideration of the foregoing recitals, the
actions contemplated therein and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties to this Amendment
agree as follows:
SECTION 1. AMENDMENTS TO LOAN AGREEMENT
----------------------------
On the date this Amendment becomes effective, after completion by the
Loan Parties of the conditions set forth in Section 3 of this Amendment (the
---------
"Closing Date"), the Loan Agreement is amended as follows:
- -------------
1.1 Section 1.1 of the Loan Agreement is amended by deleting the
-----------
definition of "Maturity Date" in its entirety and replacing it as follows:
-------------
"Maturity Date" shall mean November 21, 1997.
-------------
1.2 Section 2.7 of the Loan Agreement is amended by deleting the
-----------
first sentence of such section in its entirety and replacing it as follows:
<PAGE>
The term for this Agreement shall be from the date hereof until the
Maturity Date and shall not be renewable without the prior written consent
of Lender.
SECTION 2. REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lender to enter into this Amendment and to extend
further credit under the Loan Agreement, as amended by this Amendment, each Loan
Party severally represents and warrants to the Lender that:
2.1 Due Authorization, Etc. The execution, delivery and performance
-----------------------
by such Loan Party of this Amendment are within its corporate powers, have been
duly authorized by all necessary corporate action, have received all necessary
governmental, regulatory or other approvals (if any are required), and do not
and will not contravene or conflict with any provision of (i) any law, (ii) any
judgment, decree or order, or (iii) such Loan Party's Certificate of
Incorporation or By-Laws, and do not and will not contravene or conflict with,
or cause any lien to arise under any provision of any agreement or instrument
binding upon such Loan Party or upon any of its property. This Amendment and
the Loan Agreement, as amended by this Amendment, are the legal, valid and
binding obligations of such Loan Party, enforceable against such Loan Party in
accordance with their respective terms.
2.2 No Default, Etc. As of the Closing Date, (i) no Event of Default
----------------
or Default under the Loan Agreement, as amended by this Amendment, has occurred
and is continuing or will result from the amendments set forth in this Amendment
and (ii) the representations and warranties of such Loan Party contained in the
Loan Agreement are true and correct.
SECTION 3. CONDITIONS TO EFFECTIVENESS
---------------------------
The obligation of the Lender to make the amendments contemplated by
this Amendment and the effectiveness thereof, are subject to the following:
3.1 Representations and Warranties. The representations and
------------------------------
warranties of the Loan Parties contained in this Amendment are true and correct
as of the Closing Date.
3.2 Documents. The Lender has received all of the following, each
---------
duly executed and dated as of the Closing Date (or such other date as is
satisfactory to the Lender) in form and substance satisfactory to the Lender:
(A) Tenth Amendment. This Amendment;
---------------
(B) Resolutions. Resolutions of the Board of Directors of each Loan
-----------
Party authorizing or ratifying the execution, delivery and performance of
this Amendment;
-2-
<PAGE>
(C) Consents, Etc. Certified copies of all documents evidencing any
--------------
necessary corporate action, consents and governmental approvals, if any,
with respect to this Amendment or any other document provided for under
this Amendment; and
(D) Other. Such other documents as the Lender may reasonably request.
-----
SECTION 4. MISCELLANEOUS
-------------
4.1 Captions. The recitals to this Amendment (except for
--------
definitions) and the section captions used in this Amendment are for convenience
only, and do not affect the construction of this Amendment.
4.2 Governing Law; Severability. THIS AMENDMENT IS A CONTRACT MADE
---------------------------
UNDER AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES. Wherever possible, each provision of this
Amendment must be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment is prohibited by or
invalid under such law, such provision is only ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Amendment.
4.3 Counterparts. This Amendment may be executed in any number of
------------
counterparts and by the different parties on separate counterparts, and each
such counterpart is deemed to be an original, but all such counterparts together
constitute but one and the same Amendment.
4.4 Successors and Assigns. This Amendment is binding upon each Loan
----------------------
Party and the Lender and their respective successors and assigns, and inures to
the sole benefit of each Loan Party and the Lender and their successors and
assigns. The Loan Parties have no right to assign their respective rights or
delegate their respective duties under this Amendment.
4.5 References. From and after the Closing Date, each reference in
----------
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein," or
words of like import, and each reference in any Financing Agreement to the Loan
Agreement or to any term, condition or provision contained "thereunder,"
"thereof," "therein," or words of like import, mean and are a reference to the
Loan Agreement (or such term, condition or provision, as applicable) as amended,
supplemented or otherwise modified by this Amendment.
4.6 Continued Effectiveness. Notwithstanding anything contained in
-----------------------
this Amendment, the terms of this Amendment are not intended to and do not serve
to effect a novation as to the Loan Agreement. The parties to this Amendment
expressly do not intend
-3-
<PAGE>
to extinguish the Loan Agreement. Instead, it is the express intention of the
parties to this Amendment to reaffirm the indebtedness created by and secured
under the Loan Agreement. The Loan Agreement, as amended by this Amendment,
remains in full force and effect.
4.7 Costs, Expenses and Taxes. Each Loan Party affirms and
-------------------------
acknowledges that Section 10.2 and Section 10.3 of the Loan Agreement applies to
this Amendment and the transactions and agreements and documents contemplated
under this Amendment.
4.8 Guarantors Reaffirmation. Each of the Guarantors acknowledges
------------------------
that it has read this Amendment and consents to this Amendment and agrees that
its Guaranty of the Guaranteed Obligations (as defined in such Guaranty)
continues in full force and effect, is valid and enforceable and is not impaired
or otherwise affected by the execution of this Amendment or any other document
or instrument delivered in connection with this Amendment.
* * * * *
-4-
<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above
written.
WOLFE NURSERY, INC.,
as a Borrower
By: /s/ THOMAS R. HOERSTRA
--------------------------------
Name: Thomas R. Hoerstra
Title: Chief Financial Officer
TIP TOP NURSERIES, INC.,
as a Borrower
By: /s/ THOMAS R. HOERSTRA
--------------------------------
Name: Thomas R. Hoerstra
Title: Chief Financial Officer
NURSERYLAND GARDEN CENTERS, INC.,
as a Borrower
By: /s/ THOMAS R. HOERSTRA
--------------------------------
Name: Thomas R. Hoerstra
Title: Chief Financial Officer
SUNBELT NURSERY GROUP, INC.,
as a Guarantor
By: /s/ THOMAS R. HOERSTRA
--------------------------------
Name: Thomas R. Hoerstra
Title: Chief Financial Officer
SUNBELT NURSERY HOLDINGS, INC.,
as a Guarantor
By: /s/ WAYNE ECHSTEIN
--------------------------------
Name: Wayne Eckstein
Title: President/Treasurer
<PAGE>
SUNBELT MANAGEMENT SERVICES, INC.,
as a Guarantor
By: /s/ THOMAS R. HOERSTRA
--------------------------------
Name: Thomas R. Hoerstra
Title: Chief Financial Officer
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: /s/ DONNA EVANS
--------------------------------
Name: Donna Evans
Title: First Vice President
Timothy R. Duoos, guarantor under the Guaranty dated as of October 14,
1994 (the "Duoos Guaranty") made in favor of the Lender, acknowledges that he
--------------
has read this Amendment referenced herein and consents to this Amendment and
agrees that his guarantee of the Guaranteed Obligations (as defined in the Duoos
Guaranty) continues in full force and effect, is valid and enforceable and is
not impaired or otherwise affected by the execution of this Amendment or any
other document or instrument delivered in connection with this Amendment.
/s/ TIMOTHY R. DUOOS
-------------------------------
Timothy R. Duoos
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