<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 DECEMBER 29, 1996
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.)
500 TERMINAL ROAD, FORT WORTH, TEXAS 76106
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING ARE CODE: 817/624-7253
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 February 12, 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 and Six Months
Ended December 29, 1996 and December 31, 1995......................... 3
Consolidated Balance Sheet as of December 29, 1996 and
June 30, 1996.......................................................... 4
Consolidated Statement of Cash Flows for the Six Months
Ended December 29, 1996 and December 31, 1995.......................... 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 Six Months Ended
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 23,412 30,112 $41,655 $52,280
Cost of goods sold 13,559 19,495 24,656 33,219
------------ ------------ ------------ ------------
Gross profit 9,853 10,617 16,999 19,061
General, administrative and
selling expense 11,055 13,112 20,755 24,482
Depreciation and amortization 617 882 1,291 1,820
Interest / other income (30) (20) (760) (43)
Interest expense 277 308 539 758
------------ ------------ ------------ ------------
Loss before provision for
income taxes (2,066) (3,665) (4,826) (7,956)
Provision for income taxes - - - -
------------ ------------ ------------ ------------
Net loss ($2,066) ($3,665) ($4,826) ($7,956)
============ ============ ============ ============
Net loss per share ($0.24) ($0.43) ($0.57) ($0.94)
============ ============ ============ ============
Average common shares
outstanding 8,500 8,500 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>
December 29, June 30,
1996 1996
------------ ---------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 1,409 $ 2,058
Cash - restricted 2,064 1,352
Accounts and notes receivable, net 499 577
Inventories 14,181 18,847
Other current assets 333 281
-------- --------
Total current assets 18,486 23,115
-------- --------
Property and equipment, at cost 24,882 27,189
Less accumulated depreciation 16,044 16,481
-------- --------
Net property and equipment 8,838 10,708
Other assets 120 175
-------- --------
Total assets $ 27,444 $ 33,998
======== ========
Liabilities and Shareholders' Equity (Deficit)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 11,853 $ 11,699
Accrued compensation 1,651 1,846
Current portion of long-term debt and
capital leases 4,800 6,863
Other current liabilities 6,809 5,637
-------- -------
Total current liabilities 25,113 26,045
Long-term debt and capital leases 2,417 3,037
Reserve for store closings 16 102
Other long-term liabilities 1,548 1,638
-------- --------
Total liabilities 29,094 30,822
-------- --------
Shareholders' equity (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 (46,836) (42,010)
Subscriptions receivable from officer (50) (50)
-------- --------
Total shareholders' equity (deficit) (1,650) 3,176
-------- --------
Total liabilities and shareholders'
equity (deficit) $ 27,444 $ 33,998
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
Sunbelt Nursery Group, Inc.
Consolidated Statement of Cash Flows
(in thousands, unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $ (4,826) $ (7,956)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization 1,291 1,820
Gain on sale of fixed assets (626) 69
Payment of store closing costs included in
provision for store closings (86) (316)
Changes in operating assets and liabilities:
Inventories 4,232 5,841
Accounts receivable and other assets 265 325
Accounts payable 154 (754)
Accrued compensation (195) (504)
Other liabilities 1,082 1,884
-------- --------
Net cash provided by operating activities 1,291 409
-------- --------
Investing activities:
Purchase of property and equipment (162) (130)
Sale of property and equipment 1,464 42
-------- --------
Net cash provided by (used for) investing
activities 1,302 (88)
-------- --------
Financing activities:
Additions to line of credit 44,180 57,418
Principal payments of line of credit and
capital lease obligations (46,710) (59,460)
Restricted cash for outstanding letters of
credit (712) (450)
-------- --------
Net cash used for financing activities (3,242) (2,492)
-------- --------
Increase (decrease) in cash and cash
equivalents (649) (2,171)
Cash and cash equivalents at beginning
of period 2,058 3,388
-------- --------
Cash and cash equivalents at end of period $ 1,409 $ 1,217
======== ========
</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 71 stores operating under three prominent retail trade
names: Wolfe Nursery in Texas and Oklahoma, Nurseryland Garden Centers in
California, and Tip Top Nurseries in Arizona.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K and Form 10-K\A-1 for
the year ended January 28, 1996. 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 December 29, 1996 and
December 31, 1995, 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 interim periods ended December 29, 1996 and December 31,
1995 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, CONTINGENCIES AND OPERATING LOSSES
- ------------------------------------------------------
LIQUIDITY - 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.
In October, the Company will either extend the Loan Agreement or seek 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 extend the Loan Agreement or
obtain alternative financing. Accordingly, the amount outstanding under the Loan
Agreement is classified as current at December 29, 1996. 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 $9.0 million. Subsequent to
December 29, 1996, the Bank has approved borrowings against the restricted cash
of $2.0 million to purchase inventory for the spring season. The amount that
may be borrowed decreases to $1.0 million on March 1, 1997 and will return to
the original borrowing base on March 26, 1997. The interest rate on the
outstanding loans is currently 9.75%. The borrowing base and amounts borrowed
pursuant to the Loan Agreement amounted to $6.4 million and $4.0 million,
respectively, at December 29, 1996.
On October 24, 1996, the Bank issued waivers of certain defaults of provisions
in the Loan Agreement and amended the debt service coverage covenant; eliminated
the earnings before interest expense, income taxes and depreciation and
amortization covenant (EBITDA) and established a gross margin dollar covenant.
These waivers of the specified default conditions were necessary because as of
July 28, 1996, the Company was in default of the provisions of the Loan
Agreement relating to (i) EBITDA, and (ii) the debt service coverage ratio, both
of which were below the requirements established by the Loan Agreement. As of
December 29, 1996, the Company is in compliance with all current covenants of
the Loan Agreement.
Effective July 31, 1995, the Company restructured thirteen subleases and other
guarantees of leases with Pier 1 Imports (the "Agreement of Settlement") which
provides six-month lease terms renewable at Pier 1 Import's ("Pier 1") 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
6
<PAGE>
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
and recorded an estimated liability of $831,000 in non-cancelable future minimum
lease payments, of which $724,000 is 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 fixes 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 $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 eight 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.
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, 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 of which
the terms have not yet been negotiated. The Company has reflected this
transaction in the December 29, 1996 financial statements and, accordingly, has
reclassified $200,000 of the Earn-out Claim as a current liability.
OPERATING LOSSES - The Company continues to report declining sales on a
comparable store basis, however there has been significant improvement in gross
margins over the same period in the previous year. The declining sales reflect
competition in key market areas, inclement weather which kept the consumer out
of the stores, management's emphasis on increasing margins and working capital
management decisions. During fiscal 1997, management has addressed these issues
as well as others in its continuing efforts to return the Company to
profitability. Management's plans for fiscal 1997 include: improvements in
store layout, product display, product
7
<PAGE>
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
quality, and advertising; reductions in store operating expenses; and the sale
or closure of additional underperforming stores.
Management has not yet completed its strategic analysis of other
underperforming stores and their respective positions in the Company's and the
overall lawn and garden competitive environment. 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 for such underperforming stores.
Management has taken additional actions that will be applicable to future
periods, including: changes in senior management personnel, enhancements to
associate training programs, implementation of stricter product quality
standards, an inventory control philosophy and implementation of a new
sales/markdown control and analysis system.
These plans are designed 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.
NOTE 3. CASH - RESTRICTED
- --------------------------
As of December 29, 1996, the Company had restricted cash of $2.1 million
established to segregate proceeds from the sale of properties per the Loan
Agreement. Subsequent to December 29, 1996, the Bank has approved borrowings
against the restricted cash while the Company prepares for the Spring season.
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. LEGAL PROCEEDINGS
- --------------------------
LITIGATION - The Company is a defendant in litigation styled Principal Financial
Securities, Inc. and Loeb Partners Corporation v. Sunbelt Nursery Group, Inc.,
General Host Corporation, Lyndale Garden Center, Inc., and Timothy Duoos which
is pending in the 352nd District Court of Tarrant County, Texas in Cause No.
352-157413-95. This suit was filed on January 26, 1995. In this lawsuit, the
Plaintiffs allege that they are entitled to payment as an assignee of Hamilton
Investments, Inc. ("Hamilton"). According to the Plaintiffs, they are entitled
to payment based upon a contract between Hamilton and the Company. The
Plaintiffs allege that Hamilton was a procuring cause of financing obtained by
the Company in connection with the sale of General Host's shares of the
Company's stock to Mr. Timothy Duoos. The Plaintiffs seek actual damages which
they allege to be in excess of $700,000, plus punitive damages, court costs, and
attorney's fees. The Company denies the allegations of the Plaintiffs. If the
claim cannot be resolved by settlement, the Company has indicated an intention
to vigorously contest the case.
There are various claims, lawsuits, investigations and pending actions against
the Company and its subsidiaries incident to the operations of its business.
Liability of the Company and its subsidiaries, if any, associated with these
matters is not determinable at December 29, 1996. 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.
8
<PAGE>
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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. One of the two properties was
sold in October 1996.
NOTE 6. GAIN OF SALE OF OPERATING ASSETS
- -----------------------------------------
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
non-cancelable minimum lease commitments due as of December 29, 1996 are
$661,000.
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
- ---------------------
Net sales decreased by 22.3% for the quarter ended December 29, 1996, as
compared to the quarter ended December 31, 1995. Net sales for the six months
ended December 29, 1996 decreased by 20.3% as compared to the same period in the
prior year. Comparable store sales decreased by 12.9% and 11.2% for the three
months and six months ended December 29, 1996. The decline in comparable store
sales is attributed to a competitive market, management's focus on increasing
margins and the Company's merchandising direction. Management has implemented
various plans to stimulate sales in the stores including: new merchandising
strategies targeted toward our typical guest, new advertising styles,
establishment of an events calendar in each district, and a company-wide effort
to create a "sales culture". While sales for the quarter were down $6.7 million
from those achieved last year, approximately $ 3.1 million of this sales decline
was attributed to the fifteen stores the Company closed or sold during the year.
During the quarter ended December 29, 1996, the Company lost $2.1 million which
represented a $1.6 million improvement over the $3.7 million deficit incurred in
the same period last year. For the six months ended December 29, 1996, the net
loss was $4.8 million compared to a net loss of $8.0 million for the same period
in the prior year; an improvement of 39.3%.
Gross margins improved from 35.3% to 42.1% during the second quarter of fiscal
1997 and from 36.5% to 40.8% for the six months ended December 29, 1996. The
improvement is substantially attributed to lower than normal gross margins in
the previous year and the Company's effort to return margins to previous levels.
The specific actions which substantially contributed to the increase included:
elimination of underperforming stores, increased prices, reduced advertising
markdowns, strict inventory controls to reduce inventory excesses and the
associated markdowns, and implementation of an inventory/markdown system for
daily review and management of markdowns.
General, administrative and selling expenses during the first quarter were
down 15.7% or $2.1 million and 15.2% or $3.7 million for the three and six month
periods ended December 29, 1996, respectively, primarily resulting from the
reduction in the number of stores operated by the Company as well as the ongoing
efforts focused on achieving reductions in store operating and general and
administrative expenses. The Company's improved labor scheduling system has
begun to have the desired effect of reducing expenditures in the costs of
personnel. The sale of operating assets during the first quarter resulted in
the recording of a $710,000 gain, which was a significant factor in the increase
reflected in other income.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the six months ended December 29, 1996, $1.3 million cash was provided
by operations. Investing activities provided $1.3 million in cash and the
Company repaid a net of $2.5 million on an asset based revolving loan from a
bank.
LIQUIDITY - 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.
In October, the Company will either extend the Loan Agreement or seek 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 extend the Loan Agreement or
obtain alternative financing. Accordingly, the amount outstanding under the Loan
Agreement is classified as current at December 29, 1996. 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 $9.0 million. Subsequent to
December 29, 1996, the Bank has approved borrowings against the restricted cash
of $2.0 million to purchase inventory for the spring season. The amount that
may be borrowed decreases to $1.0 million on March 1, 1997 and will return to
the original borrowing base on March 26, 1997. The interest rate on the
outstanding loans is
10
<PAGE>
currently 9.75%. The borrowing base and amounts borrowed pursuant to the Loan
Agreement amounted to $6.4 million and $4.0 million, respectively, at December
29, 1996.
On October 24, 1996, the Bank issued waivers of certain defaults of provisions
in the Loan Agreement and amended the debt service coverage covenant; eliminated
the earnings before interest expense, income taxes and depreciation and
amortization covenant (EBITDA) and established a gross margin dollar covenant.
These waivers of the specified default conditions were necessary because as of
July 28, 1996, the Company was in default of the provisions of the Loan
Agreement relating to (i) EBITDA, and (ii) the debt service coverage ratio, both
of which were below the requirements established by the Loan Agreement. As of
December 29, 1996, the Company is in compliance with all current covenants of
the Loan Agreement.
Effective July 31, 1995, the Company restructured thirteen subleases and other
guarantees of leases with Pier 1 Imports (the "Agreement of Settlement") which
provides six-month lease terms renewable at Pier 1 Import's ("Pier 1") 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 is 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 fixes 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 $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 eight 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.
On January 31, 1997 the Company modified the terms of the Agreement of
Settlement (the "Note Modification Agreement") with Pier 1 Imports ("Pier 1")
which provides Sunbelt 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, 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").
11
<PAGE>
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 of which
the terms have not yet been negotiated. The Company has reflected this
transaction in the December 29, 1996 financial statements and, accordingly, has
reclassified $200,000 of the Earn-out Claim as a current liability.
OPERATING LOSSES - The Company continues to report declining sales on a
comparable store basis, however there has been significant improvement in gross
margins over the same period in the previous year. The declining sales reflect
competition in key market areas, inclement weather which kept the consumer out
of the stores, management's emphasis on increasing margins and working capital
management decisions. During fiscal 1997, management has addressed these issues
as well as others in its continuing efforts to return the Company to
profitability. Management's plans for fiscal 1997 include: improvements in
store layout, product display, product quality, and advertising; reductions in
store operating expenses; and the sale or closure of additional underperforming
stores.
Management has not yet completed its strategic analysis of other
underperforming stores and their respective positions in the Company's and the
overall lawn and garden competitive environment. 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 for such underperforming stores.
Management has taken additional actions that will be applicable to future
periods, including: changes in senior management personnel, enhancements to
associate training programs, implementation of stricter product quality
standards, an inventory control philosophy and implementation of a new
sales/markdown control and analysis system.
These plans are designed 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.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
See Note 5 to the Consolidated Financial Statements.
13
<PAGE>
ITEM 6. EXHIBITS
--------
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporated by reference to Exhibit 3.1 to
Incorporation 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 Exhibit 10.3 of
Consulting Agreement with the Company's Registration Statement
executive officers
10.2 Form of Indemnity Incorporated by reference to Exhibit 10.4 to
Agreement with directors the Company's Registration Statement
and executive officers
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' Incorporated by reference to Exhibit 10.10
Medical Plan to the Company's Registration Statement
10.6 Executive Officers' Incorporated by reference to Exhibit 10.11
Financial Planning Plan to the Company's Registration Statement
10.7 Credit Facilities Incorporated by reference to Exhibit 10.12
Agreement between the to the Company's Registration Statement
Company and Pier 1 Imports
10.8 Extension Agreement dated Incorporated by reference to Exhibit 10.14
April 25, 1994 between the to the Company's Report on Form 8-K, filed
Company and Pier-SNG, Inc. April 28, 1994
relating to the Credit
Facility Agreement between
the Company and Pier 1
Imports
10.9 Waiver Agreement dated May Incorporated by reference to Exhibit 10.15
13, 1994 between the to the Company's Annual Report on Form 10-K
Company and Pier 1 Imports for the fiscal year ended January 31, 1994
and Pier-SNG, Inc.
relating to the Credit
Facility Agreement between
the Company and Pier 1
Imports
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.10 Loan and Security Incorporated by reference to Exhibit 10.19
Agreement dated October to the Company's Report on Form 10-Q for
14, 1994, among Wolfe the nine months ended October 31, 1994
Nursery, Inc., Tip Top
Nurseries, Inc.,
Nurseryland Garden
Centers, Inc. as
Borrowers, the 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 Incorporated by reference to Exhibit 10.11
Agreement dated October to the Company's Report on Form 10-K for
18, 1994 with an Executive the fiscal year ended January 31, 1995,
Officer filed May 15, 1995
10.12 Amended and Restated Incorporated by reference to Exhibit 10.11
Credit Facilities to the Company's Report on Form 10-K for
Agreement dated October the fiscal year ended January 31, 1995,
14, 1994 between the filed May 15, 1995
Company and Pier 1
Imports, Inc.
10.13 Nonqualified Stock Option Incorporated by reference to Exhibit 10.13
Agreement dated March 6, to the Company's Report on Form 10-K for
1995 with non-employee the fiscal year ended January 31, 1995,
Directors filed May 15, 1995
10.14 First Amendment and Waiver Incorporated by reference to Exhibit 10.14
dated April 7, 1995 to the to the Company's Report on Form 10-K for
Loan and Security Agreement the fiscal year ended January 31, 1995,
filed May 15, 1995
10.15 Agreement of Settlement Incorporated by reference to Exhibit 10.15
dated July 31, 1995 to the Company's Report on Form 10K/A-2 for
between Pier Lease, Pier 1 the fiscal year ended January 31, 1995,
Imports and Sunbelt filed August 11, 1995
Nursery Group, and Timothy
R. Duoos
10.16 Security Agreement dated Incorporated by reference to Exhibit 10.16
July 31, 1995, by Sunbelt to the Company's Report on Form 10-K/A-2
Nursery Group, Inc. and for the fiscal year ended January 31, 1995,
Wolfe Nursery, Inc. for filed August 11, 1995
the benefit of Pier 1
Imports, Inc., identified
as Exhibit A to the
Agreement of Settlement
10.17 Lease Guaranty Incorporated by reference to Exhibit 10.17
Indemnification Agreement to the Company's Report on Form 10-K/A-2
dated July 31, 1995, by for the fiscal year ended January 31, 1995,
Sunbelt Nursery Group, filed August 11, 1995
Inc. and Wolfe Nursery,
Inc. for the benefit of
Pier 1 Imports, Inc.,
identified as Exhibit C to
the Agreement of Settlement
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.18 Environmental Indemnity Incorporated by reference to Exhibit 10.18
dated July 31, 1995 by to the Company's Report on Form 10-K/A-2
Sunbelt Nursery Group, for the fiscal year ended January 31, 1995,
Inc. and Wolfe Nursery, filed August 11, 1995
Inc. for the benefit of
Pier 1 Imports, Inc.,
identified as Exhibit D to
the Agreement of Settlement
10.19 Duoos Indemnification Incorporated by reference to Exhibit 10.19
Agreement dated July 31, to the Company's Report on Form 10-K/A-2
1995 by Timothy R. Duoos for the fiscal year ended January 31, 1995,
for the benefit of Pier 1 filed August 11, 1995
Imports, Inc., identified
as Exhibit E to the
Agreement of Settlement
10.20 Sublease Guaranty dated Incorporated by reference to Exhibit 10.20
July 31, 1995, between to the Company's Report on Form 10-K/A-2
Sunbelt Nursery Group, for the fiscal year ended January 31, 1995,
Inc. and Pier Lease, Inc. filed August 11, 1995
identified as Exhibit G to
the Agreement of Settlement
10.21 Promissory Note dated July Incorporated by reference to Exhibit 10.21
31, 1995, in the principal to the Company's Report on Form 10-K/A-2
amount of $8,000,000 by for the fiscal year ended January 31, 1995,
Sunbelt Nursery Group, filed August 11, 1995
Inc. for the benefit of
Pier 1 Imports, Inc.
identified as Exhibit H to
the Agreement of Settlement
10.22 Note Guaranty dated July Incorporated by reference to Exhibit 10.22
31, 1995, by Wolfe to the Company's Report on Form 10-K/A-2
Nursery, Inc. for the for the fiscal year ended January 31, 1995,
benefit of Pier 1 Imports, filed August 11, 1995
Inc., identified as
Exhibit I to the Agreement
of Settlement
10.23 Second Amendment, Waiver Incorporated by reference to Exhibit 10.23
and Consent dated July 31, to the Company's Report on Form 10-K/A-2
1995 to the Loan and for the fiscal year ended January 31, 1995,
Security Agreement filed August 11, 1995
10.24 Third Amendment dated Incorporated by reference to Exhibit 10.24
February 14, 1996 to the to the Company's Annual Report on Form
Loan and Security Agreement 10-K, for the fiscal year ended January 28,
1996, filed May 10, 1996
10.25 Fourth Amendment and Incorporated by reference to Exhibit 10.25
Waiver dated May 9, 1996 to the Company's Annual Report on Form
to the Loan and Security 10-K, for the fiscal year ended January 28,
Agreement 1996, filed May 10, 1996
10.26 Fifth Amendment and Waiver Incorporated by reference to Exhibit 10.26
dated October 24, 1996 to to the Company's Report on Form 10-Q for
the Loan and Security the three months ended September 29, 1996
Agreement
10.27 Note Modification Filed herewith
Agreement dated January
31, 1997 among Pier 1
Imports, Inc., Sunbelt
Nursery Group, Inc.,
Wolfe Nursery, Inc., and
Timothy R. Duoos
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.28 Sixth Amendment and Filed herewith
Waiver dated February 11,
1997 to the Loan and
Security Agreement
21 Subsidiaries of the Incorporated by
Company 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
</TABLE>
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: February 12, 1997 /s/ Richard R. Dwyer
----------------------------------------
Richard R. Dwyer
President and Chief Accounting
Officer
18
<PAGE>
EXHIBIT 10.27
NOTE MODIFICATION AGREEMENT
---------------------------
THIS NOTE MODIFICATION AGREEMENT ("Agreement") is made and entered into
this 31st day of January, 1997 by PIER 1 IMPORTS, INC. ("Pier 1"), SUNBELT
NURSERY GROUP, INC. ("Sunbelt"), WOLFE NURSERY, INC. ("Wolfe") and TIMOTHY R.
DUOOS ("Duoos").
RECITALS
--------
1. Pier 1 and Sunbelt entered into that certain Agreement of
Settlement dated July 31, 1995 ("Agreement of Settlement") pursuant to which
Sunbelt agreed to allowance of a Pier 1 earn out claim in the amount of
$8,000,000 ("Earn-Out Claim") to be paid or discharged pursuant to the terms of
a Promissory Note dated July 31, 1995 in the original principal amount of
$8,000,000 ("Earn-Out Note") and secured pursuant to the terms of a Security
Agreement dated July 31, 1995 ("Security Agreement"). The Security Agreement is
subject to the terms of a Subordination Agreement dated July 31, 1995 between
American National Bank and Trust of Chicago ("ANB") and Pier 1 ("Subordination
Agreement").
2. Sunbelt is not in Default under the Agreement of Settlement as
of the date of execution of this Agreement.
3. Duoos owns 49.5% of the issued and outstanding common stock of
Sunbelt ("Duoos Stock"). Duoos pledged and delivered the Duoos Stock to ANB to
secure payment of certain obligations which remain outstanding.
4. By Letter Agreement dated October 1, 1994 Duoos committed,
subject to conditions stated therein, to make certain payments to Pier 1 upon
the sale of some or all of the Duoos Stock ("Letter Agreement"). Pursuant to
Paragraph 8 of the Agreement of Settlement the Letter Agreement was amended to
provide for expiration of all Duoos obligations thereunder as of July 1, 1998.
(The Letter Agreement, as amended, is hereinafter referred to as the "Letter
Agreement")
5. Pursuant to Paragraph 4 of the Agreement of Settlement and the
Lease Guarantee Indemnification Agreement incorporated as Exhibit D thereto
Sunbelt committed to reduce and in no event increase Pier 1's exposure as an
assignor or guarantor of certain Sunbelt real estate leases and subleases.
Duoos also executed the Duoos Indemnification dated July 31, 1995 under which
he agreed to indemnify Pier 1 for Claims and Liabilities arising out of any
Extended Lease, as defined therein ("Duoos Indemnification").
<PAGE>
6. Sunbelt and Duoos have proposed and Pier 1 has agreed to amend
the Agreement of Settlement and to amend and restate or provide for
satisfaction of the Earn-Out Note according to the terms and provisions of this
Note Modification Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Pier 1, Sunbelt, Wolfe and Duoos agree as follows:
1. Satisfaction of the Earn-Out Note. Notwithstanding anything in the
---------------------------------
Agreement of Settlement or Earn-Out Note to the contrary, Sunbelt, at its
option, may satisfy the Earn-Out Claim and satisfy and discharge all obligations
under the Earn-Out Note by making a cash payment of $1,500,000, in immediately
available funds, after March 2, but not later than March 17, 1997, provided
Duoos has discharged his obligations under the Letter Agreement and Duoos
Indemnification as provided in Paragraph 2 herein. If Duoos sells 500,000 or
more shares of the Duoos Stock on or before March 17, 1997, then Sunbelt shall
satisfy the Earn-Out Note as provided in this Paragraph 1. Upon receipt of the
cash payment as provided herein Pier 1 shall immediately deliver the Earn-Out
Note to Sunbelt.
2. Discharge of Duoos Obligations. Notwithstanding anything in the
------------------------------
Agreement of Settlement, Letter Agreement or Duoos Indemnification to the
contrary, Duoos, at his option, may satisfy, discharge and obtain an
unconditional release from Pier 1 of all obligations, if any, arising under the
Letter Agreement and Duoos Indemnification, except as provided herein ("Pier 1
Release"), by making a cash payment to Pier 1 of $500,000, in immediately
available funds, after March 2, 1997, but not later than March 17, 1997
provided Sunbelt has satisfied the Earn-Out Note as provided in Paragraph 1
herein. Duoos liability, if any, under the Duoos Indemnification for Claims
and Liabilities, as defined therein, arising out of any Extended Lease the
lease term of which was renewed or extended after October 19, 1994 and before
execution of this Agreement (excluding that certain lease, dated August 17,
1978 between Bernhard Lifshutz, Vernor Friesenhahn and Selig H. Carr, as
lessor, and Wolfe Nurseries of Texas, Inc. for Store No. 979, 6214 NW Loop 410,
San Antonio, Texas) shall survive execution of the Pier 1 Release.
3. Earn-Out Claim and Earn-Out Note Modification. In the event
---------------------------------------------
Sunbelt does not satisfy the Earn-Out Claim and discharge all obligations under
the Earn-Out Note as provided in Paragraph 1 herein, the Earn-Out Claim and the
principal amount of the Earn-Out Note shall be fixed at $800,000 and the Earn-
Out Note amended and restated provided that:
a) On March 3, 1997 Sunbelt pays Pier 1, in cash or certified
funds, the sum of $200,000 ("Cash Payment");
b) On March 3, 1997 Sunbelt delivers an Amended Promissory Note
in the original principal amount of $800,000 which, subject to
termination as provided in subparagraph 3(c) herein, shall amend
and restate the Earn-Out Note and which shall thereinafter
constitute the Earn-Out Note for all purposes under the Agreement
of Settlement, Security Agreement and Subordination Agreement
2
<PAGE>
("Amended Earn-Out Note"), provided in the Event of Default under
the Agreement of Settlement or Security Agreement the Earn-Out
Claim shall be $6,800,000 less payments received under the Amended
Earn-Out Note notwithstanding anything in this Agreement to the
contrary. The Amended Earn-Out Note shall be payable in four equal
annual installments of $200,000 commencing May 1, 1998 together
with interest on the unpaid principal balance at the rate of six
percent (6%) per annum through May 1, 2001 at which time the
entire principal balance and any accrued interest shall be due and
payable in full ("Maturity Date"). All past due principal payments
under the Amended Earn-Out Note shall bear interest at the rate of
ten percent (10%) per annum until the Maturity Date after which
all delinquent principal shall bear interest at a default rate of
eighteen percent (18%) per annum. Interest shall accrue as of
March 3, 1997 and be payable monthly commencing on the first day
of the first month following delivery of the Amended Earn-Out Note
to Pier 1. All past due interest payments shall bear interest at
the rate of eighteen percent (18%) per annum. The Amended Earn-Out
Note may be prepaid without penalty. The Amended Earn-Out Note
shall continue to be secured by the Security Agreement and subject
to the terms of the Subordination Agreement. The lien of the
Security Agreement shall be subordinate to the Duoos Security
Interest, as defined in Paragraph 4 herein. Failure to timely pay
interest on the Amended Earn-Out Note shall constitute an Event of
Default under the Agreement of Settlement and the Security
Agreement. Notwithstanding the provisions of Paragraph 7 of the
Agreement of Settlement or Paragraph 7 of the Security Agreement,
failure to make timely payment of principal under the Amended
Earn-Out Note shall not constitute an Event of Default under the
Agreement of Settlement or the Security Agreement until the
Maturity Date, at which time Pier 1, in the event of nonpayment of
principal, may exercise all of its rights under the Amended Earn-
Out Note, Agreement of Settlement and Security Agreement, subject
to the terms of the Subordination Agreement and the Duoos
Subordination, as defined herein; and
c) Duoos delivers the Shares, as defined herein and with respect
to which a registration statement becomes effective ("Delivery
Date") to a securities brokerage firm ("Broker") acceptable to
Pier 1 with irrevocable instructions, in a form acceptable to Pier
1, to sell the Shares and deliver the proceeds of sale, net of
sales commissions and other cost of sale, to Pier 1. Sunbelt shall
file a registration statement with the Securities and Exchange
Commission relating to the Shares as soon as practicable but not
later than March 17, 1997. Sunbelt shall use its best efforts to
cause the registration statement to become effective as soon as
possible after the filing thereof. The number of shares of Duoos
Stock delivered by Duoos to the Broker shall equal the quotient of
1,000,000 divided by the closing price of Sunbelt common stock on
the last trading day immediately preceding the Delivery Date
("Closing Price") not to exceed 1,000,000 shares (the "Shares").
Pier 1 shall
3
<PAGE>
have the unilateral right to terminate this Agreement if the
Delivery Date does not occur (i) by May 30, 1997 or (ii) the
Closing Price is less than one dollar per Share in which case this
Agreement shall not amend or otherwise affect enforceability of
the Earn-Out Note. Duoos and Sunbelt shall cause an registration
statement to be effective for sale of the Shares from the Delivery
Date through the earlier of (i) the date of sale of the last
Shares or (ii) ninety (90) days following the Delivery Date. In
consideration for the delivery of the Shares Pier 1 shall (i)
unconditionally release Duoos from all obligations under the
Letter Agreement arising from delivery and sale of the Shares and
(ii) subordinate the lien of the Security Agreement to the lien of
the Duoos Security Agreement according to the terms of a
subordination agreement in the form of the Subordination Agreement
("Duoos Subordination").
4. Escrow. Sunbelt shall deposit the Cash Payment and the Amended
------
Earn-Out Note into an escrow to be established by Sunbelt and Pier 1 which shall
provide for delivery of the Cash Payment and the Amended Earn-Out Note to (i)
Pier 1 on the Delivery Date or (ii) Sunbelt upon receipt of written confirmation
from Pier 1 of termination of this Agreement.
5. Sunbelt Note. In consideration for Duoos delivery of the Shares,
------------
Sunbelt and Wolfe shall make a promissory note payable to Duoos in the
principal amount of $1,000,000 ("Sunbelt Note") in a form acceptable to
Sunbelt, Duoos and ANB which shall be secured by a security interest in the
Collateral, as defined in the Security Agreement ("Duoos Security Agreement").
The Duoos Security Agreement shall be junior and subordinate to the Senior
Liens, as defined in the Subordination Agreement, but senior and superior to
the lien of the Security Agreement. Duoos shall pledge the Sunbelt Note to ANB
and enter into a subordination agreement with ANB in a form acceptable to ANB.
6. Attorneys' Fees. Each party shall bear its own costs with respect
---------------
to the negotiation, preparation and execution of this Agreement and the
agreements, instruments and other documents related hereto.
7. Amendments, Etc. No amendment or waiver of any provision of this
----------------
Agreement nor consent to any departure herefrom by Pier 1, Sunbelt, Wolfe or
Duoos, shall in any event be effective unless the same shall be in writing and
signed by Pier 1, Sunbelt, Wolfe and Duoos in all cases, and then, in any case,
such waiver or consent shall be effective only in the specific instances and
for the specific instance and for the specific purpose for which given.
8. Governing Law. This Agreement and all other documents executed in
-------------
connection herewith, shall be deemed to be contracts and agreements executed by
the parties hereto under the Laws of the State of Texas and for all purposes
shall be construed in accordance with, and governed by, the Laws of the State
of Texas without reference to the principles of conflicts of laws.
4
<PAGE>
9. Entire Agreement. This Agreement represents the final and entire
----------------
agreement and understanding among Pier 1, Sunbelt, Wolfe and Duoos relating to
the subject matter hereof, supersedes all prior proposals, agreements and
understandings relating to such subject matter and may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of the
parties. There are no unwritten oral agreements among the parties.
10. Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Note
Modification Agreement to be executed as of the day and year first above
written.
PIER 1 IMPORTS, INC.
By: /s/Clark A. Johnson
---------------------
Its Chairman
SUNBELT NURSERY GROUP, INC.
By: /s/Richard R. Dwyer
---------------------
Richard R. Dwyer
President
WOLFE NURSERY GROUP, INC.
By: /s/Richard R. Dwyer
---------------------
Its President
/s/Timothy R. Duoos
------------------------
Timothy R. Duoos
5
<PAGE>
ACKNOWLEDGMENT
--------------
The foregoing Note Modification Agreement is hereby acknowledged and
agreed to this 31st day of January, 1997.
AMERICAN NATIONAL BANK AND
TRUST OF CHICAGO
By: /s/Elizabeth J. Limpert
--------------------------
Its First Vice President
6
<PAGE>
EXHIBIT 10.28
SIXTH AMENDMENT, WAIVER AND CONSENT TO
LOAN AND SECURITY AGREEMENT
This Sixth Amendment to Loan and Security Agreement, dated as of
February 11, 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") under which the Lender provided the Borrowers with a $12,000,000
- ---------
revolving credit facility;
WHEREAS, the Borrowers have requested the Lender temporarily increase
the maximum facility under the Loan Agreement and the Lender has agreed to such
a request; and
WHEREAS, the Loan Parties and the Lender desire to amend the Loan
Agreement to, among other things, temporarily increase the maximum facility
under the Loan Agreement to $9,000,000 until May 30, 1997, at which time the
maximum facility will reduce to $8,000,000, 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:
------------
2. Section 1.1 of the Loan Agreement is amended by deleting the
-----------------
last sentence of the definition of "Maximum Revolving Facility" in its entirety
--------------------------
and replacing it as follows:
<PAGE>
The Maximum Revolving Facility shall be $9,000,000 through May 30,
1997. Commencing May 31, 1997, the Maximum Revolving Facility shall
be $8,000,000.
3. Section 1.1 of the Loan Agreement is further amended by
-----------------
deleting the definition of "Total Facility" in its entirety and replacing it as
--------------
follows:
"Total Facility" shall mean the amount of $9,000,000 through
--------------
May 30, 1997. Commencing May 31, 1997, the Total Facility shall mean
the amount of $8,000,000.
4. Section 2.1(A) of the Loan Agreement is amended by deleting
--------------------
the first sentence of such section in its entirety and replacing it as follows:
Subject to the provisions of Section 4 below, after execution of the
---------
Financing Agreements, Lender shall advance to each Borrower, on a
revolving credit basis, Revolving Loans ("Revolving Loans") in such
---------------
aggregate amounts as such Borrower may from time to time request but
not exceeding at any one time outstanding an amount equal to (i) the
Borrowing Base of such Borrower plus, (a) for the period commencing
----
February __, 1997, and ending February 28, 1997, an amount for all
Borrowers not to exceed $2,000,000 or (b) for the period commencing
March 1, 1997, and ending March 25, 1997, an amount for all Borrowers
not to exceed $1,000,000, minus (ii) the aggregate stated amount of
-----
all outstanding Letters of Credit; provided, however, that Lender
-------- -------
shall not be obligated to make any such advance to any Borrower if,
after such advance, the aggregate amount of all Revolving Loans made
to all Borrowers would exceed the Maximum Revolving Facility minus the
-----
aggregate stated amount of all Letters of Credit for all Borrowers.
SECTION 5. 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:
<PAGE>
6. 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.
7. 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.
8. Litigation. As of the Closing Date, except as previously
----------------
disclosed by such Loan Party to the Lender in writing, no claims, litigation
(including, without limitation, derivative actions), arbitration proceedings,
governmental investigations or proceedings or regulatory proceedings are
pending, or to the knowledge of such Loan Party, threatened against it, nor does
such Loan Party know of any basis for the foregoing. In addition, there are no
inquiries, formal or informal, which might give rise to such actions,
proceedings or investigations.
9. Pier 1 Agreements. As of the Closing Date, no default exists
----------------------
under any of the Pier 1 Agreements.
10. Securities Matters. All filings made by the Loan Parties to
-----------------------
the Securities and Exchange Commission during the last 12 months have complied
with the Securities Laws and all provisions of such Securities Laws, including
any provision requiring the filing of audited financial statements.
SECTION 11. 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:
12. Representations and Warranties. The representations and
-----------------------------------
warranties of the Loan Parties contained in this Amendment are true and correct
as of the Closing Date.
13. 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:
<PAGE>
(A) Sixth 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;
(C) Consents, Etc. Certified copies of all documents evidencing
-------------
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 req
-----
SECTION 14. MISCELLANEOUS
-------------
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
<PAGE>
20. 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 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.
21. 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.
22. 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.
* * * * *
<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/Michael P. Martin
-------------------------
Name: Michael P. Martin
Title: Vice 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
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