<PAGE>
As filed with the Securities and Exchange Commission on December 16, 1996
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10/A-2
______________________
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
______________________
ZIMMERMAN SIGN COMPANY
(Exact name of registrant as specified in its charter)
TEXAS 75-0864498
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9846 HWY. 31 EAST
TYLER, TEXAS 75705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (903) 535-7400
______________________
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
==============================================================================
<PAGE>
ZIMMERMAN SIGN COMPANY
I. INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN FORM 10
BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION
STATEMENT AND ITEMS OF FORM 10
LOCATION IN
ITEM NO. ITEM CAPTION INFORMATION STATEMENT
- -------- ------------ ---------------------
1. Business Summary; Risk Factors; The Distribution;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business
2. Financial Information Summary; Capitalization; Selected
Historical Financial Data; Selected Pro
Forma Financial Data; Risk Factors;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
3. Properties Business
4. Security Ownership of Ownership of Zimmerman
Certain Beneficial Owners Common Stock
and Management
5. Directors and Executive Management; Description of Capital
Officers Stock
6. Executive Compensation Management
7. Certain Relationships Summary; Risk Factors; Management;
and Related Transactions Certain Transactions
8. Legal Proceedings Business
9. Market Price of and Summary; Risk Factors; the
Dividends on the Distribution; Dividend Policy;
Registrant's Common Ownership of Zimmerman Common Stock;
Equity and Related Description of Capital Stock
Stockholder Matters
10. Recent Sale of Not Applicable
Unregistered Securities
<PAGE>
11. Description of Registrant's Description of Capital Stock
Securities to be Registered
12. Indemnification of Description of Capital Stock
Directors and Officers
13. Financial Statements and Summary; Risk Factors; Capitalization;
Supplementary Data Selected Historical Financial Data;
Selected Pro Forma Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Index to Financial
Statements; Financial Statements;
Supplemental Schedule
14. Changes In and Disagreements Not Applicable
with Accountants on
Accounting and Financial
Disclosure
15. Financial Statements Summary; Risk Factors; Capitalization;
and Exhibits Selected Historical Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Index to Financial
Statements; Financial Statements;
Supplemental Schedule
<PAGE>
Independence Holding Company
96 Cummings Point Road
Stamford, Connecticut 06902
December ___ , 1996
Dear Shareholders:
Earlier this year, Independence Holding Company announced that it would
reposition itself exclusively as a financial services company engaged
principally in insurance activities. In that connection, IHC's Board of
Directors has approved the distribution of its entire investment in Zimmerman
Sign Company, which accounts for 80.14% of Zimmerman's outstanding common
shares, on a pro rata basis to the holders of IHC common stock. The
accompanying Information Statement describes the distribution in detail and
contains relevant information about Zimmerman. Please read it carefully.
IHC's Board and management believe that the distribution of Zimmerman's
common shares is in the best interests of IHC and its shareholders. IHC will
continue to concentrate its activities in financial services and insurance,
and Zimmerman, as a publicly held company, will pursue its objective of
enhancing its position as a leading provider of site identification products
and services. The separation of the companies will allow investors to
evaluate better the merits of their respective businesses and thereby enhance
the likelihood that each entity will gain appropriate market recognition.
As explained in the Information Statement, each holder of IHC common
stock on December 20, 1996, the record date for the distribution, will
receive one share of Zimmerman common stock for each five shares of IHC
common stock held as of that date, provided, that holders will receive cash
in lieu of fractional shares. Zimmerman shares will initially be issued in
book-entry form; a confirmation showing the number of Zimmerman shares you
own will be mailed to you as soon as practicable following the distribution
date. It is anticipated that the distribution will be effective on or about
December 31, 1996.
NO ACTION ON YOUR PART IS REQUIRED AND THE RECEIPT OF ZIMMERMAN SHARES
WILL NOT AFFECT THE NUMBER OF IHC SHARES THAT YOU CURRENTLY OWN.
Sincerely,
Steven B. Lapin
President
<PAGE>
Zimmerman Sign Company
9846 Hwy. 31 East
Tyler, Texas 75705
December ___, 1996
Dear Shareholder,
The document that follows contains important information about Zimmerman
Sign Company, the company of which you are soon to be a shareholder. Your
ownership will arise from the distribution by Independence Holding Company of
its 80.14% ownership of Zimmerman Common Stock to IHC's shareholders. Please
review the accompanying documents for information regarding this transaction.
Zimmerman is a leading provider of site identification products and
services to large national and regional retailers. Our sign products and
services are favorably known and well utilized by the petroleum marketing,
automotive, food and lodging, financial services and other industries.
On behalf of Zimmerman, we are pleased to welcome you as a shareholder.
We are excited about the new opportunities presented to Zimmerman as a public
company and look forward to your participation in our future.
Sincerely,
David E. Anderson
Chairman
<PAGE>
INFORMATION STATEMENT
ZIMMERMAN SIGN COMPANY
COMMON STOCK
(par value $.01 per share)
__________________________
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by Independence Holding Company, a Delaware
corporation ("IHC"), of 100% of its holdings of the common stock, par value
$.01 per share ("Zimmerman Common Stock"), of Zimmerman Sign Company, a Texas
corporation ("Zimmerman"). At the Distribution Date (as defined below), IHC
will hold 80.14% of the outstanding shares of Zimmerman Common Stock.
All of the shares of Zimmerman Common Stock held by IHC on the
Distribution Date will be distributed to holders of record of IHC common
stock, par value $1.00 per share ("IHC Common Stock"), as of the close of
business on December 20, 1996 (the "Record Date"). Each such holder will
receive one share of Zimmerman Common Stock for each five shares of IHC
Common Stock held on the Record Date. It is anticipated that the
Distribution will be effective as at the close of business (New York time) on
December 31, 1996 (the date and time that the Distribution is effective being
referred to as the "Distribution Date"). Holders of IHC Common Stock will
not be required to pay for the shares of Zimmerman Common Stock received in
the Distribution, or to surrender or exchange IHC Common Stock in order to
receive Zimmerman Common Stock in the Distribution.
Shares of Zimmerman Common Stock will be issued initially in book-entry
form (without stock certificates) entered on the records of Zimmerman.
Shareholders will receive a written confirmation from Fleet National Bank,
the distribution and transfer agent (the "Agent"), showing the number of
Zimmerman shares owned. Shareholders can keep their shares in book-entry
form or make a request to the Agent that a stock certificate representing the
shares be issued. The confirmation of the number of shares of Zimmerman
Common Stock owned will be mailed to new Zimmerman shareholders as soon as
practicable following the Distribution Date. There has been no public market
for Zimmerman Common Stock, although a "when-issued" market may develop prior
to the Distribution Date.
Certificates representing fractional shares of Zimmerman Common Stock
will not be distributed to shareholders. Holders of IHC Common Stock who
otherwise would be entitled to receive fractional shares of Zimmerman Common
Stock will receive cash in lieu thereof from the proceeds of the sale of such
shares by the Agent following the Distribution Date.
The Information Statement is first being sent to shareholders of IHC on
December 23, 1996.
-1-
<PAGE>
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY RECIPIENTS
OF ZIMMERMAN COMMON STOCK, SEE "RISK FACTORS."
__________________________
NO VOTE OF IHC SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY IN CONNECTION WITH THE DISTRIBUTION.
__________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
__________________________
IHC shareholders with inquiries related to the Distribution should
contact Independence Holding Company, 96 Cummings Point Road, Stamford,
Connecticut 06902, Attention: Corporate Secretary, Telephone (203) 358-8000.
-2-
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
INFORMATION STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE DETAILED INFORMATION AND FINANCIAL
STATEMENTS CONTAINED HEREIN. CAPITALIZED TERMS IN THIS SUMMARY NOT DEFINED
HERE ARE DEFINED ELSEWHERE IN THIS INFORMATION STATEMENT.
BACKGROUND
On April 1, 1996, IHC announced its intention to reposition itself
exclusively as a financial services company engaged principally in insurance
activities. In that connection, on November 13, 1996, IHC's Board of
Directors approved the distribution of IHC's entire investment in Zimmerman
on a pro rata basis to holders of IHC Common Stock. In order to effect the
Distribution, the following series of transactions were implemented: (i)
Independence Capital Group, Inc., a wholly-owned subsidiary of IHC, merged
into Zimmerman Holdings, Inc., a majority-owned subsidiary of IHC which owned
93.75% of the capital stock of Zimmerman (the 6.25% balance being owned by
certain members of Zimmerman's senior management since 1990), to form
Independence Capital Corp. ("ICC"); (ii) David E. Anderson, Chairman of
Zimmerman ("Anderson"), exchanged a portion of his shares of ICC common stock
for shares of ICC preferred stock; (iii) Zimmerman's senior management
shareholders converted into cash all outstanding options to purchase shares
of Zimmerman Common Stock; (iv) ICC distributed to IHC all of its shares of
Zimmerman Common Stock and exchanged the balance of Anderson's ICC common
stock for Zimmerman Common Stock; and (v) Zimmerman was recapitalized by
means of a 3,863.94 for 1 stock split resulting in 1,854,688 shares of
Zimmerman Common Stock outstanding. Currently, IHC owns 80.14% of the
outstanding shares of Zimmerman Common Stock, Anderson owns 13.61%, and other
members of Zimmerman's senior management own 6.25%.
In connection with the Distribution, Zimmerman entered into a loan
agreement (the "Loan Agreement") with Comerica Bank-Texas ("Comerica") which
provides for a $23.0 million credit facility, secured by substantially all of
the assets of Zimmerman. In addition, Zimmerman entered into a subordinated
credit agreement (the "Subordinated Credit Agreement") with Bank of America
Illinois ("Bank of America"), under which Zimmerman borrowed $10.0 million
(the "Subordinated Debt"); such borrowings are subordinated to the borrowings
under the Loan Agreement and are guaranteed by ICC (the "ICC Guarantee").
The proceeds from the Loan Agreement and the Subordinated Credit Agreement
were used by Zimmerman to (i) repay its then-existing senior indebtedness of
$10.4 million, (ii) fulfill net contractual commitments to Zimmerman's senior
management shareholders of $.7 million, (iii) pay costs of $1.0 million in
connection with the refinancing of Zimmerman's indebtedness, and (iv) declare
a special dividend (the "Special Dividend") of $19.7 million to Zimmerman
shareholders, of which $18.7 million was paid and $1.0 million remains an
obligation to certain management shareholders (the "Deferred Dividend"). ICC
used the proceeds of its portion of the Special Dividend to repay all of its
$10.0 million of outstanding indebtedness, to contribute $5.0 million to its
subsidiary, Madison National Life Insurance Company, Inc. ("Madison Life"),
in exchange for a surplus note, and for working capital.
-3-
<PAGE>
ZIMMERMAN
Zimmerman operates as a leading manufacturer of site identification
products with a primary focus on serving large, national and regional
retailers. From its plant locations in Texas, Zimmerman manufactures and
sells a variety of signage products which range from large highway-located
site identification signs to medium-sized brand and product identification
signs and building fascia, signs on automatic teller machines, gasoline pump
toppers, and other specialty items. Zimmerman also provides installation
services. A majority of Zimmerman's revenue is derived from sales to
customers in the petroleum marketing industry. Zimmerman also supplies
customers in other industries of which the automotive, financial services,
and food and lodging sectors are the most significant.
Since current management became associated with Zimmerman, net sales have
grown from $7.7 million in 1983 to $41.7 million in 1995, a compounded annual
growth rate of approximately 15%. Over the same period, net income has
increased from $.1 million to $2.4 million. Backlog at September 30, 1996
was $23.3 million compared to $24.4 million at September 30, 1995. At
September 30, 1996, Zimmerman had total assets of $28.2 million and
liabilities of $17.7 million. On a pro forma basis giving effect to the
Distribution, the Special Dividend, the Loan Agreement and the Subordinated
Credit Agreement, Zimmerman had liabilities of approximately $37.2 million as
of September 30, 1996. See "Unaudited Pro Forma Condensed Financial
Statements."
Zimmerman was founded in 1901 and was incorporated in Texas in 1953; its
corporate headquarters are located at 9846 Highway 31 East, Tyler, Texas
75705 and its telephone number is 903-535-7400.
-4-
<PAGE>
THE DISTRIBUTION
DISTRIBUTING COMPANY............ IHC
DISTRIBUTED COMPANY............. Zimmerman
SHARES TO BE DISTRIBUTED........ Approximately 1,486,349 shares of Zimmerman
Common Stock will be distributed on the
Distribution Date based on 7,431,748 shares
of IHC Common Stock outstanding as of the
Record Date. No fractional shares will be
issued. The shares to be distributed,
including the fractional shares to be
aggregated and sold by the Agent on behalf of
the holders of IHC Common Stock, will
constitute 80.14% of the outstanding shares
of Zimmerman Common Stock on the Distribution
Date.
DISTRIBUTION RATIO.............. One share of Zimmerman Common Stock for each
five shares of IHC Common Stock owned of
record on the Record Date.
FRACTIONAL SHARE INTERESTS...... Fractional share interests will be sold by
the Agent, and the cash proceeds thereof
distributed to those shareholders entitled to
a fractional interest. See "The Distribution--
Manner of Effecting the Distribution" and
"Federal Income Tax Consequences of the
Distribution."
PROPOSED TRADING SYMBOL......... [ZSCO]
RECORD DATE..................... December 20, 1996
DISTRIBUTION DATE............... December 31, 1996
CONFIRMATION DATE............... The Agent will mail confirmation statements
to new Zimmerman shareholders as soon as
practicable following the Distribution Date.
DIVIDENDS....................... The payment of dividends by Zimmerman after
the Distribution will be subject to the
discretion of Zimmerman's Board of Directors.
Dividend decisions will be based on a number
of factors, including Zimmerman's earnings,
operations, capital requirements, financial
condition and contractual restrictions
contained in Zimmerman's financing
arrangements including the Loan Agreement and
the Subordinated Credit Agreement. In
addition, no dividends may be paid on
Zimmerman Common Stock until payment in full
of the $1.0 million Deferred Dividend. See
"Certain Transactions." Zimmerman intends to
retain earnings for use in the business and to
finance future growth; therefore, it is not
contemplated that dividends (other than the
Deferred Dividend) will be paid in the
foreseeable future.
-5-
<PAGE>
REASONS FOR THE DISTRIBUTION.... IHC's Board of Directors and management have
determined that the Distribution is in the
best interests of IHC and its shareholders.
The Distribution will separate Zimmerman's
sign operations from IHC's financial services
business. Since each of those activities has
different characteristics and strategies, the
Distribution will, in the opinion of IHC's
Board of Directors and management, allow each
company to focus on its respective business
without regard to the corporate objectives
and policies of the other, allow investors to
evaluate better the separate merits and
prospects of IHC and Zimmerman, and enhance
the likelihood that each company will achieve
appropriate market recognition.
DISTRIBUTION AGENT AND
TRANSFER AGENT FOR
ZIMMERMAN COMMON STOCK......... Fleet National Bank
FEDERAL INCOME TAX
CONSEQUENCES................... IHC has received a ruling letter (the "Ruling
Letter") from the Internal Revenue Service to
the effect that, among other things, the
receipt of shares of Zimmerman Common Stock
will be tax-free for federal income tax
purposes to the holders of IHC Common Stock
except to the extent that cash is received for
fractional share interests, and IHC will not
recognize income, gain or loss as a result of
the Distribution. IHC shareholders will be
required to apportion their tax basis in the
IHC Common Stock held immediately before the
Distribution Date between such IHC Common
Stock and the Zimmerman Common Stock received
in the Distribution based on the relative fair
market values of such shares on the
Distribution Date. See "The Distribution--
Federal Income Tax Consequences of the
Distribution."
RISK FACTORS.................... Holders of Zimmerman Common Stock should be
aware of and carefully consider certain risk
factors, including, among other things: (i)
Zimmerman has no operating history as a
separate publicly held company; (ii)
Zimmerman operates in markets that are highly
competitive; (iii) Zimmerman has historically
derived a substantial amount of its revenue
from a small number of customers; (iv)
Zimmerman has significant indebtedness,
and the payment of dividends (other than the
Deferred Dividend) is not expected in the
foreseeable future; (v) principally as a
consequence of the Special Dividend,
Zimmerman, on a pro forma basis as of
September 30, 1996, would begin operations
with a deficit net worth of approximately
$9.3 million; (vi) there has been no prior
public market for Zimmerman Common Stock, and
the market price thereof may be volatile; and
(vii) immediately following the Distribution
Date, Geneve Holdings, Inc. and its
subsidiaries ("Geneve") will own 44.14% of
the outstanding shares of Zimmerman Common
Stock. See "Risk Factors."
-6-
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
Set forth below is certain financial information for the periods and as of
the dates indicated. This information is derived from, and should be read in
conjunction with, Zimmerman's financial statements, including the notes thereto,
appearing elsewhere herein.
<TABLE>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net sales $26,759 $23,941 $33,001 $36,427 $41,667 $30,296 $30,449
Costs and expenses:
Cost of goods sold 22,344 19,949 26,143 28,227 32,529 23,455 23,466
Selling, general and
administrative expenses 3,206 3,294 3,721 4,024 4,155 3,156 3,283
Management fees 600 600 600 600 600 450 450
Interest expense, net 491 365 291 433 782 584 546
------- ------- ------- ------- ------- ------- -------
Total costs and expenses 26,641 24,208 30,755 33,284 38,066 27,645 27,745
------- ------- ------- ------- ------- ------- -------
Income (loss) before
federal income taxes 118 (267) 2,246 3,143 3,601 2,651 2,704
Federal income taxes 40 (91) 768 1,069 1,224 901 919
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 78 $ (176) $ 1,478 $ 2,074 $ 2,377 $ 1,750 $ 1,785
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Net income (loss) per
common share (2) $ .04 $ (.09) $ .80 $ 1.12 $ 1.28 $ .94 $ .96
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
BALANCE SHEET DATA:
Total assets $15,567 $13,578 $18,097 $22,287 $25,957 $26,820 $28,215
Current liabilities 3,999 3,970 6,287 8,129 7,839 9,654 7,869
Long-term debt, excluding
current installments 5,774 3,990 4,715 7,839 9,422 9,097 9,865
Stockholders' equity (1) 5,794 5,618 7,095 6,319 8,696 8,069 10,481
</TABLE>
- --------------
(1) Dividends of $620,000 and $2,850,000 were paid in 1991 and 1994,
respectively.
(2) Net income (loss) per common share is calculated based on 1,854,688
shares of common stock outstanding. Prior to the Distribution,
Zimmerman effected a stock split in which the 480 outstanding shares
of Zimmerman Common Stock were converted into 1,854,688 shares.
-7-
<PAGE>
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are based
on Zimmerman's financial statements and give effect to the Distribution, the
Special Dividend, the Loan Agreement, and the Subordinated Credit Agreement
(collectively, the "Transaction") as if they had been consummated as of January
1, 1995 (in the case of statements of operations data) and as of September 30,
1996 (in the case of balance sheet data). The pro forma condensed financial
statements are based on the assumptions set forth in the accompanying notes and
should be read in conjunction with Zimmerman's financial statements, including
the notes thereto, which are included elsewhere herein. The pro forma condensed
financial statements are not necessarily indicative of (i) Zimmerman's future
financial position or results of operations, (ii) Zimmerman's financial position
had the Transaction been consummated as of September 30, 1996, or (iii) the
results of operations had the Transaction been consummated as of January 1,
1995.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
---------------------------------- ----------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales $41,667 $41,667 $30,449 $30,449
Costs and expenses:
Cost of goods sold 32,529 32,529 23,466 23,466
Selling, general and
administrative expenses 4,155 $ 741 (a) 4,896 3,283 $ 556 (a) 3,839
Management fees 600 (600)(b) 0 450 (450)(b) 0
Interest expense, net 782 1,639 (c) 2,421 546 1,270 (c) 1,816
------- ------- ------- ------- ------- -------
Total expenses 38,066 1,780 39,846 27,745 1,376 29,121
------- ------- ------- ------- ------- -------
Income before federal
income taxes 3,601 (1,780) 1,821 2,704 (1,376) 1,328
Federal income taxes 1,224 (605)(d) 619 919 (468)(d) 451
------- ------- ------- ------- ------- -------
Net income $ 2,377 $(1,175) $ 1,202 $ 1,785 $ (908) $ 877
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Net income per
common share (e) $ 1.28 $ .65 $ .96 $ .47
------- ------- ------- -------
------- ------- ------- -------
Weighted average number
of common shares (e) 1,855 1,855
------- -------
------- -------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements, appearing on
pages 31 and 32.
-8-
<PAGE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
---------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(in thousands)
Current assets $24,927 $ 400 (g) $23,873
(400)(g)
(1,448)(j)(k)(l)
(130)(f)
524 (h)
Other assets 3,288 705 (f) 4,079
86 (h)
------- -------- -------
$28,215 $ (263) $27,952
------- -------- -------
------- -------- -------
Current liabilities $ 7,869 $ 971 (j) $10,415
1,000 (i)
575 (f)
Long-term debt, excluding
current installments 9,865 16,965 (j) 26,830
Stockholders'
equity (deficit) 10,481 (19,774)(h)(i)(k)(l) (9,293)
------- -------- -------
$28,215 $ (263) $27,952
------- -------- -------
------- -------- -------
See notes to Unaudited Pro Forma Condensed Financial Statements, appearing on
pages 31 and 32.
RISK FACTORS
This Information Statement contains a description of certain risk factors
that might impact the future business and results of operations of Zimmerman.
These factors are set forth under "Risk Factors."
-9-
<PAGE>
RISK FACTORS
COMPETITION
Zimmerman operates in a component of the sign and related products industry
that is highly competitive and in which barriers to entry are relatively low.
Competition exists in terms of price, product quality and customer service.
Some of Zimmerman's competitors for the business of large, national and regional
retailing organizations have estimated annual sales up to $140 million and have
greater financial and manufacturing resources than Zimmerman.
LEVERAGE; NET WORTH; DEBT RESTRICTIONS
Zimmerman is a highly leveraged Company; on a pro forma basis as of
September 30, 1996, Zimmerman's total liabilities were approximately $37.2
million. In October 1996, Zimmerman entered into the Loan Agreement providing
for a $23.0 million credit facility consisting of a $17.0 million revolving
credit facility (the "Revolving Credit Facility") and a $6.0 million term loan
(the "Term Loan") (under which Loan Agreement, Zimmerman has borrowed
approximately $18.0 million, leaving approximately $5.0 million of unused credit
availability thereunder to finance ongoing operating and working capital
requirements), and entered into the Subordinated Credit Agreement under which it
has borrowed $10.0 million. The Revolving Credit Facility matures on July 31,
1999 and the Term Loan requires principal payments of approximately $1.2 million
in 1997, $1.6 million in 1998 and $1.6 million in 1999; provided, however, upon
reduction of the Term Loan balance to $2.0 millon or less, mandatory principal
payments are reduced to $.4 million per year. The Term Loan matures on
September 1, 2004, although it may be called by Comerica upon thirty (30) days
prior written notice after maturity of the Revolving Credit Facility. The
Subordinated Debt matures on October 31, 2001. The proceeds of these borrowings
were used to (i) repay Zimmerman's then-existing senior indebtedness of $10.4
million, (ii) fulfill net contractual commitments to Zimmerman's senior
management shareholders of Zimmerman of $.7 million, (iii) pay costs of $1.0
million in connection with the refinancing of Zimmerman's indebtedness, and (iv)
pay $18.7 million of the Special Dividend. The Deferred Dividend of $1.0
million remains an obligation to certain senior management shareholders. See
"Financing Agreements" and "Certain Transactions." Management of Zimmerman
believes that its remaining credit availability is sufficient to satisfy
existing operational requirements. Zimmerman, on a pro forma basis as
of September 30, 1996, would begin operations with a deficit net worth
of approximately $9.3 million, principally as a consequence of the Special
Dividend.
Zimmerman's incurrence of additional indebtedness in connection with the
Distribution will have several important effects on Zimmerman's financial
position, including, but not limited to, the following: (i) significantly higher
debt service obligations; (ii) the Loan Agreement and the Subordinated Credit
Agreement include financial and operational covenants that are more restrictive
than those which were in effect under Zimmerman's prior credit facilities; and
(iii) Zimmerman's greater leverage will likely increase its vulnerability to
downturns in its business. The indebtedness incurred pursuant to the Loan
Agreement and the Subordinated Credit
-10-
<PAGE>
Agreement limits Zimmerman's ability to effect future debt financings and may
otherwise restrict its corporate activities, particularly to the extent that
such activities depend upon additional borrowed funds. Since the Term Loan
and the Revolving Credit Facility bear interest at rates tied to LIBOR or
Comerica's prime rate, and the Subordinated Debt bears interest at rates tied
to an offshore rate (substantially the equivalent of LIBOR) or Bank of
America's prime rate, increases in interest rates could adversely affect
Zimmerman's financial results. See "Financing Agreements."
Zimmerman's management contemplates that, following the Distribution, it
will use any excess cash flow for debt service, capital accumulation and
reinvestment; consequently, it does not anticipate paying dividends (other than
the Deferred Dividend) on Zimmerman Common Stock in the foreseeable future. In
addition, no dividends may be paid on Zimmerman Common Stock until payment in
full of the Deferred Dividend. See "Certain Transactions." Certain covenants
and provisions under the Loan Agreement and the Subordinated Credit Agreement
limit various corporate acts including the payment of dividends (other than the
Special Dividend), the incurrence of additional indebtedness, the creation of
liens, redemption or repurchase of Zimmerman Common Stock, sales of assets and
mergers and consolidations.
In the event Zimmerman's cash resources are insufficient to fund its
expenditures or to service its indebtedness, Zimmerman may be required to raise
additional funds by selling equity securities on terms that dilute the interest
of existing holders, by incurring additional debt or refinancing existing debt
on more burdensome terms, or by selling assets. There can be no assurance that
any of these sources of funds would be available in amounts sufficient for
Zimmerman to meet its obligations or on terms acceptable to it. If Zimmerman
were unable to generate sufficient cash flow or otherwise obtain funds necessary
to meet required payments of the principal of and interest on any of its
outstanding indebtedness, Zimmerman would be in default under the terms of the
Loan Agreement and the Subordinated Credit Agreement. In the event of such
default, the holders of any issue of such indebtedness could elect to declare
such indebtedness to be due and payable immediately, together with accrued
interest. Any such default could have a significant adverse effect on the value
of Zimmerman Common Stock.
Zimmerman intends to explore the possibility of obtaining equity from
public or private financings promptly after the Distribution has been completed,
but there can be no assurance that any such equity financing can be completed in
the near future or later or on attractive or nondilutive terms.
See "Financing Agreements," "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and "Dividend Policy."
DEPENDENCE ON PRINCIPAL CUSTOMERS
In 1995, Citgo, Exxon and Texaco accounted for approximately 23%, 12% and
10%, respectively, of Zimmerman's net sales. In the first nine months of 1996,
Citgo accounted for approximately 23% of Zimmerman's net sales; no other
customer accounted for greater than 10% of net sales in that period. Zimmerman
has supply contracts with each of these customers
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which renew annually unless terminated on 30 days notice. The business of
Zimmerman could be adversely affected if any of these customers substantially
reduces or discontinues purchases of products from Zimmerman. See "Business
- -- Backlog Customers."
OPERATING HISTORY; STAND-ALONE ENTITY
Zimmerman has no history as a publicly held company. While a subsidiary of
IHC, Zimmerman has financed its operations separately from and without credit
enhancements provided by IHC, other than the ICC Guarantee. In addition,
Zimmerman has no prior record of obtaining operating and growth capital in the
public debt or equity markets, and may not be successful in obtaining such
capital as a stand-alone entity.
LACK OF PRIOR PUBLIC MARKET
There is no current public market for Zimmerman Common Stock, although a
"when-issued" market may develop prior to the Distribution Date. There can be
no assurance that an active trading market for Zimmerman Common Stock will be
established or maintained after the Distribution. Trading prices for Zimmerman
Common Stock could be subject to fluctuations in response to numerous factors,
including variations in Zimmerman's quarterly earnings and changing economic
conditions in the sign industry and/or the United States economy in general. In
addition, the general stock market has in recent years experienced significant
price fluctuations, often unrelated to the operating performance of the specific
companies whose stock is traded. These fluctuations may adversely affect the
market price of Zimmerman Common Stock.
OWNERSHIP BY PRINCIPAL SHAREHOLDER
Immediately following the Distribution, Geneve will own 44.14% of the
outstanding shares of Zimmerman Common Stock. The extent of the ownership by
Geneve may have the effect of making more difficult or of discouraging, absent
the support of Geneve, a proxy contest, a merger involving Zimmerman, a tender
offer, an open market purchase program or other purchases of Zimmerman Common
Stock that would give holders of such stock the opportunity to realize a premium
over the then-prevailing market price for their shares of Zimmerman Common
Stock.
DEPENDENCE ON KEY PERSONNEL
Zimmerman's business is managed by certain key executive officers including
David E. Anderson, Chairman, and Tom E. Boner, President, the loss of whom could
have a material adverse effect on Zimmerman. In the event that the employment
of any of these individuals terminates, Zimmerman will seek to find qualified
personnel to fill their positions, although there can be no assurance of the
success thereof. Zimmerman believes that its future success will depend in
large part on its ability to attract and retain highly skilled and qualified
personnel.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the Distribution, approximately 1,854,688 shares of
Zimmerman Common Stock will be outstanding. Of these shares, 1,187,268 shares
are held by "affiliates" (as defined in the Securities Act) of Zimmerman and
will be subject to certain resale limitations, including those imposed by Rule
144 under the Securities Act. The balance of the outstanding shares (including
the shares issued in the Distribution to "non-affiliates") will be freely
tradeable without restriction or further registration under the Securities Act.
Following the Distribution, sales of substantial amounts of Zimmerman Common
Stock in the public market, pursuant to Rule 144 or otherwise, or the potential
of such sales, could adversely affect the prevailing market price of Zimmerman
Common Stock and impair Zimmerman's ability to raise additional capital through
the sale of equity securities. Geneve, which will hold 818,579 shares, will be
able to sell such shares pursuant to the volume resale restrictions of Rule 144
commencing 90 days after the Distribution Date. Anderson will be able to sell
his 252,423 shares pursuant to the volume resale restrictions of Rule 144
commencing in November 1998. Other members of management of Zimmerman, who hold
in the aggregate 115,916 shares, will be able to sell such shares pursuant to
the volume resale restrictions of Rule 144 commencing on the Distribution Date.
IHC's management is not aware of any plan or intention on the part of IHC's
public shareholders, and Geneve has informed IHC's management that it has no
plan, to sell, exchange, transfer or dispose of any of the shares of Zimmerman
Common Stock to be received in the Distribution.
REGISTRATION RIGHTS OF AFFILIATE
Zimmerman has entered into a Registration Rights Agreement providing Geneve
with the right, subsequent to six months from and for a period of seven years
after the Distribution Date, to demand or participate in future registrations of
shares of Zimmerman Common Stock under the Securities Act. Sales of substantial
amounts of Zimmerman Common Stock in the public market, or the potential of such
sales, could have an adverse effect on the market price of Zimmerman Common
Stock. See "Certain Agreements -- Registration Rights Agreement."
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THE DISTRIBUTION
BACKGROUND; REASONS FOR THE DISTRIBUTION
On April 1, 1996, IHC announced its intention to reposition itself
exclusively as a financial services company engaged principally in insurance
activities. In that connection, on November 13, 1996, IHC's Board of Directors
approved the distribution of IHC's entire investment in Zimmerman on a pro rata
basis to holders of IHC Common Stock. In order to effect the Distribution, the
following series of transactions were implemented: (i) Independence Capital
Group, Inc., a wholly-owned subsidiary of IHC, merged into Zimmerman Holdings,
Inc., a majority-owned subsidiary of IHC which owned 93.75% of the capital stock
of Zimmerman (the 6.25% balance being owned by certain members of Zimmerman's
senior management since 1990), to form ICC; (ii) Anderson, Chairman of
Zimmerman, exchanged a portion of his shares of ICC common stock for shares of
ICC preferred stock; (iii) Zimmerman's senior management shareholders converted
into cash all outstanding options to purchase shares of Zimmerman Common Stock;
(iv) ICC distributed to IHC all of its shares of Zimmerman Common Stock and
exchanged the balance of Anderson's ICC common stock for Zimmerman Common Stock;
and (v) Zimmerman was recapitalized by means of a 3,863.94 for 1 stock split
resulting in 1,854,688 shares of Zimmerman Common Stock outstanding. Currently,
IHC owns 80.14% of the outstanding shares of Zimmerman Common Stock, Anderson
owns 13.61%, and other members of Zimmerman's senior management own 6.25%.
In connection with the Distribution, Zimmerman entered into the Loan
Agreement with Comerica which provides for a $23.0 million credit facility,
secured by substantially all of the assets of Zimmerman. In addition, Zimmerman
entered into the Subordinated Credit Agreement with Bank of America, under which
Zimmerman borrowed $10.0 million; such borrowings are subordinated to the
borrowings under the Loan Agreement and are guaranteed by the ICC Guarantee.
The proceeds from the Loan Agreement and the Subordinated Credit Agreement were
used by Zimmerman to (i) repay its then-existing senior indebtedness of $10.4
million, (ii) fulfill net contractual commitments to Zimmerman's senior
management shareholders of $.7 million, (iii) pay costs of $1.0 million in
connection with the refinancing of Zimmerman's indebtedness, and (iv) declare
the Special Dividend of $19.7 million to Zimmerman shareholders, of which $18.7
million was paid and $1.0 million remains an obligation to certain management
shareholders. ICC used the proceeds of its portion of the Special Dividend to
repay all of its $10.0 million of outstanding indebtedness, to contribute $5.0
million to its subsidiary, Madison Life, in exchange for a surplus note, and for
working capital.
The Board of Directors and management of IHC believe that the Distribution
is in the best interests of IHC and its shareholders primarily because the
separation of Zimmerman and IHC will provide each corporation with greater
managerial, operational and financial flexibility to respond to changing market
conditions in their different business environments.
The Distribution is intended to serve several distinct business objectives.
First, IHC's Board of Directors and management believe that the public equity
markets will accord a higher
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aggregate value to the capital stock of IHC and Zimmerman after the
Distribution than currently exists for the shares of IHC Common Stock.
Manufacturing stocks are often valued at a market multiple of their earnings
and cash flow whereas, in general, insurance stocks are valued primarily on
the basis of their book value per share. IHC Common Stock has in recent years
traded below its book value per share, and seemingly no multiple has been
accorded Zimmerman's earnings in its position as a subsidiary of IHC. IHC's
Board of Directors and management believe that the Distribution should permit
the public equity markets to price shares of Zimmerman Common Stock comparably
with other manufacturers, while reflecting an improved valuation for IHC as a
pure insurance company.
Second, IHC intends to concentrate its resources and efforts on
strengthening and expanding its insurance operations. Given the lack of
operating efficiencies and other synergies between their businesses, the
respective managements of IHC and Zimmerman have concluded that it would be in
the best interests of each company to establish Zimmerman as a separate publicly
held entity with the flexibility to pursue independently its own opportunities.
Third, the Distribution should permit Zimmerman the opportunity to raise
capital from third parties in furtherance of its business plan which includes
the pursuit of selected acquisitions. Zimmerman intends to explore the
advisability of raising capital through public or private equity and debt
financing. Since IHC's management has expressed its unwillingness to support
such efforts while Zimmerman remains a subsidiary of IHC, the Distribution is a
necessary step in allowing Zimmerman to pursue its goals.
For the year ended December 31, 1995, Zimmerman accounted for $2.0 million
of IHC's $8.2 million of net income. IHC anticipates that the loss of
Zimmerman's net income will be partially offset by earnings resulting from the
Special Dividend. In the past, IHC has not relied on dividends from Zimmerman
for liquidity.
Zimmerman has not relied on IHC, in any material respect, for capital or
for accounting, management, employee benefits, legal or similar services and
Zimmerman has not utilized IHC's management information systems. Zimmerman's
operations have been conducted at plant and office locations separate from IHC,
and management overlap has been minimal. Zimmerman's banking relationships and
credit facilities (other than the ICC Guarantee) have been independent of those
of IHC. See "Risk Factors."
MANNER OF EFFECTING THE DISTRIBUTION
IHC and Zimmerman have entered into a distribution agreement (the
"Distribution Agreement") providing for, among other things, the principal
corporate transactions required to effect the Distribution, the conditions to
the Distribution, the allocation between IHC and Zimmerman of certain
liabilities and certain other agreements in connection with the Distribution.
Subject to the satisfaction or waiver of the conditions set forth in the
Distribution Agreement, IHC will effect the Distribution on the Distribution
Date by delivering shares of Zimmerman Common Stock to the Agent, for
distribution to holders of record of IHC Common Stock on the Record Date. See
"Certain Agreements."
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<PAGE>
After the Distribution, Zimmerman will be a publicly held company. The
Distribution will be made on the basis of one share of Zimmerman Common Stock
for each five shares of IHC Common Stock outstanding on the Record Date. Based
upon the number of shares of IHC Common Stock outstanding on the Record Date,
approximately 1,486,349 shares of Zimmerman Common Stock would be distributed to
IHC shareholders. All such shares of Zimmerman Common Stock will be fully paid
and nonassessable, and the holders thereof will not be entitled to preemptive
rights. See "Description of Capital Stock." Shares of Zimmerman Common Stock
initially will be issued in book-entry form (without stock certificates) entered
on the records of Zimmerman. Shareholders will receive a written confirmation
from the Agent of the number of shares of Zimmerman Common Stock owned as soon
as practicable after the Distribution Date. Shareholders may keep their shares
in book-entry form or make a request to the Agent that a stock certificate
representing the shares be issued.
No certificates representing fractional shares of Zimmerman Common Stock
will be issued to IHC shareholders as part of the Distribution. The Agent will
aggregate fractional shares into whole shares and sell them in the open market
at then prevailing prices on behalf of holders who otherwise would be entitled
to receive fractional share interests, and such persons will receive instead a
cash payment in the amount of their pro rata share of the total sale proceeds.
See "The Distribution - Federal Income Tax Consequences of the Distribution."
Such sales are expected to be made as soon as practicable after the Distribution
Date, and checks representing fractional share sales of Zimmerman Common Stock
will be mailed shortly thereafter. IHC will bear the cost of commissions
incurred in connection with such sales.
No holder of IHC Common Stock will be required to pay any cash or other
consideration for the shares of Zimmerman Common Stock received in the
Distribution or to surrender or exchange shares of IHC Common Stock in order to
receive shares of Zimmerman Common Stock. The Distribution will not affect the
number of, or the rights attaching to, outstanding shares of IHC Common Stock.
LISTING AND TRADING OF ZIMMERMAN COMMON STOCK
No current public trading market for Zimmerman Common Stock exists,
although a "when--issued" market may develop prior to the Distribution Date.
The extent of the market for Zimmerman Common Stock and the prices at which
Zimmerman Common Stock may trade after the Distribution cannot be predicted.
See "Risk Factors--Lack of Prior Public Market; Possible Volatility of Stock
Price." Currently, Zimmerman Common Stock is not eligible to be traded through
the National Association of Securities Dealers Automated Quotation System
("NASDAQ"). Instead, Zimmerman anticipates that market makers will initiate
quotes for Zimmerman Common Stock on the National Association of Securities
Dealers OTC Bulletin Board. Zimmerman expects to continue to evaluate its
alternatives with respect to the listing and trading of Zimmerman Common Stock.
Subject to the foregoing, shares of Zimmerman Common Stock distributed to
IHC shareholders will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of Zimmerman under the Securities
Act and members of management
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<PAGE>
who hold "restricted" shares of Zimmerman Common Stock. Persons who may be
deemed to be affiliates of Zimmerman after the Distribution generally include
individuals or entities that control, are controlled by or are under common
control with, Zimmerman. Persons who are affiliates of Zimmerman will be
permitted to sell their shares of Zimmerman Common Stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as the exemptions
afforded by Section 4(2) of the Securities Act and Rule 144 thereunder. See
"Certain Agreements -- Registration Rights Agreement."
Immediately following the Distribution, the directors and executive
officers of Zimmerman will own 19.88%, and Geneve will own 44.14%, of the
outstanding shares of Zimmerman Common Stock.
There will be approximately 3,000 holders of record of Zimmerman Common
Stock immediately following the Distribution.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
IHC has received a Ruling Letter from the Internal Revenue Service (the
"Ruling") substantially to the effect that, among other things, the
Distribution will qualify as a tax-free spinoff under Section 355 of the
Internal Revenue Code of 1986 (the "Code"). Under Section 355 of the Code, in
general:
1. Holders of IHC Common Stock will not recognize any income, gain or
loss as a result of the Distribution except that holders of IHC Common Stock
that receive cash in lieu of fractional shares of Zimmerman Common Stock will
recognize gain or loss equal to the difference between such cash and the tax
basis that would have been apportioned to such fractional shares as determined
below. Any such gain or loss will constitute capital gain or loss if such
fractional shares would have been held as a capital asset on the Distribution
Date.
2. Holders of IHC Common Stock will apportion the tax basis of their IHC
Common Stock among such IHC Common Stock and any Zimmerman Common Stock
(including fractional shares of Zimmerman Common Stock to which such holders
would otherwise have been entitled) received by such holder in the Distribution
in proportion to the relative fair market values of such stock on the
Distribution Date. The values of such stock shall be determined by taking the
mean between the highest and lowest selling prices as of the Distribution Date,
or if there were no sales on that date, as of the nearest date either before or
after the Distribution Date upon which sales were made.
3. The holding period for Zimmerman Common Stock received in the
Distribution by holders of IHC Common Stock will include the period during which
such holder held the shares of IHC Common Stock with respect to which the
Distribution was made, provided that such shares are held as a capital asset by
such holder on the Distribution Date.
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4. The Distribution will not be treated as a taxable disposition of
Zimmerman by IHC.
Current Treasury Regulations require each holder of IHC Common Stock who
receives Zimmerman Common Stock pursuant to the Distribution to attach to such
holder's Federal income tax return, for the year in which the Distribution
occurs, a detailed statement setting forth such data as may be appropriate in
order to show the applicability of Section 355 of the Code to the Distribution.
IHC will convey the appropriate information as soon as practicable to each
holder of record of IHC Common Stock as of the Record Date.
The Ruling Letter, while generally binding upon the Internal Revenue
Service, is subject to certain factual representations and assumptions. If such
factual representations and assumptions were incorrect in a material respect,
the Ruling Letter could become invalid. IHC is not aware of any facts or
circumstances which would cause such representations and assumptions to be
untrue. IHC and Zimmerman have each agreed to certain restrictions on their
future actions to provide further assurances that Section 355 of the Code will
apply to the Distribution. If the Distribution were not to qualify under Section
355 of the Code, then, in general, a corporate tax would be payable by the
consolidated group, of which IHC is the common parent, based upon the difference
between the fair market value of Zimmerman Common Stock and the adjusted basis
of such Zimmerman Common Stock. In addition, under the consolidated return
rules, each member of the consolidated group (including Zimmerman and IHC) is
jointly and severally liable for such tax liability. If the Distribution
occurred and it were not to qualify under Section 355 of the Code, the resulting
tax liability would have a material adverse effect on the financial position,
results of operations and liquidity of each of IHC and Zimmerman.
Furthermore, if the Distribution were not to qualify as a tax-free spinoff,
each IHC shareholder receiving shares of Zimmerman Common Stock in the
Distribution would be treated as if such shareholder had received a taxable
distribution in an amount equal to the fair market value of Zimmerman Common
Stock received, which would result in, (i) a dividend to the extent of such
shareholder's pro rata share of IHC's current and accumulated earnings and
profits, (ii) a reduction in such shareholder's basis in IHC Common Stock to the
extent the amount received exceeds such shareholder's share of earnings and
profits, and (iii) a gain from the exchange of IHC Common Stock to the extent
the amount received exceeds both such shareholder's share of earnings and
profits and such shareholder's basis in IHC Common Stock.
IHC has not sought rulings from the Internal Revenue Service as to the
Federal income tax consequences of certain restructurings which were or are to
be effected by IHC prior to the Distribution. IHC has been advised by its tax
counsel that all such restructurings are tax-free to IHC and the members of its
group.
The foregoing summary of the anticipated Federal income tax consequences of
the Distribution is for general information only. IHC SHAREHOLDERS SHOULD
CONSULT THEIR OWN ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL
TAX LAWS.
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REASONS FOR FURNISHING INFORMATION STATEMENT
This Information Statement is being furnished by IHC solely to provide
information to shareholders of IHC who will receive Zimmerman Common Stock in
the Distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of IHC or Zimmerman. The information
contained herein is given as of the date of this Information Statement unless
otherwise indicated.
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FINANCING AGREEMENTS
LOAN AGREEMENT
GENERAL. The Loan Agreement provides for an aggregate $23.0 million credit
facility consisting of a $17.0 million Revolving Credit Facility and a $6.0
million Term Loan.
Borrowings under the Loan Agreement are secured by substantially all of the
assets of Zimmerman. A copy of the Loan Agreement has been filed as an exhibit
to the Registration Statement on Form 10 of which this Information Statement
forms a part (the "Registration Statement") and the following summary is
qualified in its entirety by reference to the agreement filed. Certain
financial, accounting and legal terms used in this summary discussion of the
Loan Agreement are more precisely defined in the Loan Agreement.
PRINCIPAL PAYMENTS. The Revolving Credit Facility matures and is repayable
in a single installment on July 31, 1999. The Term Loan has monthly principal
payments totalling approximately $1.2 million per annum in 1997, $1.6 million
per annum in 1998 and $1.6 million per annum in 1999; provided, however, upon
reduction of the Term Loan balance to $2.0 million or less, mandatory principal
payments are reduced to $.4 million per annum. The Term Loan matures September
1, 2004, although it may be called by Comerica upon thirty (30) days prior
written notice after maturity of the Revolving Credit Facility.
INTEREST AND FEES. Amounts outstanding under the Revolving Credit Facility
bear interest equal to, at Zimmerman's option, LIBOR plus 2.75% or Comerica's
prime rate plus .25%, as such rates may vary from time to time.
Amounts outstanding under the Term Loan bear interest equal to, at
Zimmerman's option, LIBOR plus 3.575% or Comerica's prime rate plus 1.125%. A
commitment fee of 0.25% per annum on the unused portion of the Revolving Credit
Facility will be payable quarterly in arrears.
CERTAIN COVENANTS. The Loan Agreement contains covenants relating to,
among other things, (i) Tangible Net Worth as of the end of each fiscal quarter,
(ii) Senior Indebtedness Ratio, (iii) Cash Flow Coverage Ratio, and (iv) Fixed
Charge Coverage Ratio. The Loan Agreement also contains covenants which, among
other things, limit the ability of Zimmerman to (a) create, assume, or allow to
exist any lien on any assets other than certain permitted liens, (b) enter into
any sale lease-back transaction except for certain permitted lease transactions,
(c) merge, consolidate or dispose of all or substantially all of its assets
except for certain permitted transactions, (d) make any restricted investments
other than certain permitted investments, (e) incur additional indebtedness
other than certain permitted indebtedness, and (f) guarantee obligations of
third parties. The Loan Agreement also prohibits the payment of dividends
(other than the Special Dividend) and repurchases of stock. Zimmerman is, and
as of the Distribution Date expects that it will be, in compliance with the
covenants under the Loan Agreement.
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EVENTS OF DEFAULT. The Loan Agreement contains customary events of default
including (i) failure to pay interest, principal, fees, or other required
amounts when due, (ii) material breach of representations of warranties, (iii)
failure to perform or observe covenants, (iv) commencement of any voluntary or
involuntary bankruptcy or similar proceeding, (v) occurrence of any termination
event which may result in an uninsured payment liability of Zimmerman to the
Pension Benefit Guaranty Corporation, and (vi) default under the Subordinated
Credit Agreement.
SUBORDINATED CREDIT AGREEMENT
GENERAL. The Subordinated Credit Agreement provides for $10.0 million of
Subordinated Debt. Borrowings under the Subordinated Credit Agreement are
subject to the ICC Guarantee. A copy of the Subordinated Credit Agreement has
been filed as an exhibit to the Registration Statement, and the following
summary is qualified in its entirety by reference to the agreement filed.
MATURITY. The loan under the Subordinated Credit Agreement matures and is
repayable in a single installment on October 31, 2001.
INTEREST AND FEES. Amounts outstanding bear interest equal to, at
Zimmerman's option, an offshore rate (substantially the equivalent of LIBOR)
plus 1.6875% or Bank of America's base rate plus .5%, as such rates vary from
time to time.
CERTAIN COVENANTS. The Subordinated Credit Agreement contains covenants
relating to, among other things, (i) Tangible Net Worth as of the end of each
fiscal quarter, (ii) Senior Indebtedness Ratio, (iii) Cash Flow Coverage Ratio,
and (iv) Fixed Charge Coverage Ratio. The Subordinated Credit Agreement also
contains covenants which, among other things, limit the ability of Zimmerman to
(a) enter into any contracts with an affiliate which are not arms length, (b)
create, assume, or allow to exist any lien on any assets other than certain
permitted liens, (c) enter into any sale lease-back transaction except for
certain permitted lease transactions, (d) merge, consolidate or dispose of all
or substantially all of its assets except for certain permitted transactions,
(e) make any restricted investments other than certain permitted investments,
and (f) incur additional indebtedness other than certain permitted indebtedness.
Zimmerman is, and as of the Distribution Date expects that it will be, in
compliance with the covenants of the Subordinated Credit Agreement.
EVENTS OF DEFAULT. The Subordinated Credit Agreement contains customary
events of default including, (i) failure to pay interest, principal, fees, or
other required amounts when due, (ii) material breach of representations of
warranties, (iii) failure to perform or observe covenants, (iv) commencement of
any voluntary or involuntary bankruptcy or similar proceeding, (v) Cross default
with respect to Senior Debt, and (vi) occurrence of any termination event which
may result in an uninsured payment liability of Zimmerman to the Pension Benefit
Guaranty Corporation.
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SUBORDINATION. The payment of all Obligations is, to the extent set forth
in the Subordinated Credit Agreement, subordinated in right of payment to the
prior payment in full in cash or cash equivalents of all Senior Debt. Upon any
distribution to creditors in a liquidation, dissolution, bankruptcy,
receivership or similar proceeding relating to Zimmerman or its property, (a)
the holders of Senior Debt will be entitled to receive payment in full in cash
or cash equivalents of all Senior Debt before any person is entitled to receive
any payment from Zimmerman with respect to the obligations arising under the
Subordinated Credit Agreement, and (b) until all Senior Debt is paid in full in
cash or cash equivalents, any distribution by Zimmerman with respect to the
Obligations to which any person would be entitled but for the subordination
provisions contained in the Subordinated Credit Agreement, shall be made to the
holders of Senior Debt. If a default on Senior Debt occurs and is continuing,
Zimmerman may not make any payment or distribution in respect of obligations
under the Subordinated Credit Agreement until all principal and other
obligations with respect to Senior Debt have been paid in full. In the event
that Bank of America receives any payment at a time when such payment is
prohibited by the subordination provisions, the payment must be held by Bank of
America in trust for the benefit of the holders of Senior Debt entitled to it.
After all Senior Debt is paid in full and before all obligations under the
Subordinated Credit Agreement are paid in full, Bank of America will be
subrogated to the rights of the holders of Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions otherwise payable to
Bank of America were applied to Senior Debt. By reason of such subordination,
in the event of insolvency of Zimmerman, the holders of Senior Debt, as well as
other creditors who hold indebtedness that is not subordinated to the holders of
Subordinated Debt, may recover more, ratably, than holders of the Subordinated
Debt.
CERTAIN DEFINED TERMS
Set forth below are certain defined terms used with respect to the Loan
Agreement and the Subordinated Credit Agreement. Reference is made to the Loan
Agreement and the Subordinated Credit Agreement for a more complete disclosure
of all defined terms used therein. Certain terms used herein not defined in the
Loan Agreement or Subordinated Credit Agreement have the meanings set forth
herein.
"TANGIBLE NET WORTH" means, as of any applicable date of determination, the
excess of, (i) the book value of all assets of Zimmerman (other than patents,
patent rights, trademarks, trade names, franchises, copyrights, goodwill, and
similar intangible assets) after all appropriate deductions (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation and
amortization), all as determined on a consolidated basis in accordance with
GAAP, less (ii) all Debt (excluding the Deferred Dividend Payable to
Management), plus (iii) all Subordinated Debt of Zimmerman which, in accordance
with GAAP, would be required to be presented on its balance sheet at such date.
"SENIOR INDEBTEDNESS RATIO" means, at any particular time, the ratio
resulting as the quotient of (i) Senior Indebtedness divided by (ii) Zimmerman's
EBITDA for the immediately preceding four calendar quarters.
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"CASH FLOW COVERAGE RATIO" means, as of any date of determination, the
Zimmerman's Cash Flow for the previous four calendar quarters divided by
scheduled payments of principal made on all Senior Indebtedness for the same
period.
"FIXED CHARGE COVERAGE RATIO" means, as of any date of determination, an
amount equal to the ratio resulting as the quotient of the Zimmerman's Cash Flow
dividend by Fixed Charges.
"DEBT" means, as of any applicable date of determination, all items of
indebtedness, obligation or liability of a person, whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, joint or
several, that should be classified as balance sheet liabilities in accordance
with GAAP.
"DEFERRED DIVIDEND PAYABLE TO MANAGEMENT" means the deferred portion of the
Special Dividend declared by Zimmerman and to be paid to certain members of
management as a part of the Recapitalization.
"SUBORDINATED DEBT" means all Debt, the payment of which (and the security
for) has been subordinated in writing in a manner satisfactory to the lender.
"SENIOR INDEBTEDNESS" means all loans, advances and indebtedness of
Zimmerman to the lender under the Loan Agreement, together with all other
indebtedness, obligations and liabilities whatsoever of Zimmerman to the lender,
whether matured or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent, joint or several, due or to become due, now existing or
hereafter arising.
"EBITDA" means, as of any applicable date of determination and as
determined in accordance with GAAP, net income (plus the One Time Expenses) for
the previous four calendar quarters, plus (i) interest expense, tax expense,
depreciation and amortization expenses for the same period, excluding (ii) any
gain or loss for the same period arising from the sale of capital assets.
"CASH FLOW" means, as of any date of determination and as determined in
accordance with GAAP, the sum of (i) the consolidated net income of Zimmerman
for the preceding four calendar quarters, PLUS (ii) the consolidated
depreciation, amortization and deferred taxes of Zimmerman for such period, and
PLUS (iii) the One Time Expenses.
"FIXED CHARGES" means, as of any date of determination, the aggregate
principal amount of Indebtedness scheduled to be paid by Zimmerman during the
immediately preceding four calendar quarters, PLUS capital expenditures, for the
same period, PLUS (without duplication) payments actually paid by Zimmerman on
Subordinated Debt during the same period, PLUS payments actually paid by
Zimmerman with respect to the Deferred Dividend Payable to Management for the
same period.
-23-
<PAGE>
"ONE TIME EXPENSES" means the following one time expenses (net of Federal,
state and local income taxes) relating to the Recapitalization: (i) the
fulfillment of net contractual commitments to senior officers of Zimmerman, (ii)
the refinancing fee to Anderson, and (iii) attorney and accounting fees.
"GAAP" means, with respect to the Loan Agreement, as of any applicable date
of determination, generally accepted accounting principals consistently applied,
as in effect on the date of the Loan Agreement except as otherwise agreed by
Zimmerman and the lender.
"RECAPITALIZATION" means, (i) the borrowings under the Loan Agreement, (ii)
the borrowings under the Subordinated Credit Agreement, (iii) the repayment of
Zimmerman's existing Senior Indebtedness to the lender, (iv) the fulfillment of
net contractual commitments to senior officers of Zimmerman, (v) the payment of
costs incurred in connection with clauses (i)-(iv) of this sentence, (vi) the
declaration of the Special Dividend, and (vii) the recapitalization of
Zimmerman's outstanding common stock.
"SENIOR DEBT" means (a) all Senior Indebtedness under the Loan Agreement
in an aggregate principal amount not to exceed $23.0 million (such maximum
amount to be reduced by the amount of any principal payments made on the Term
Loan); (b) all interest and fees payable with respect thereto (including any
interest and fees accruing after the commencement of any bankruptcy or similar
proceeding with respect to Zimmerman, whether or not allowed or allowable as a
claim in such proceeding); (c) all obligations in respect to expenses payable
under Sections 5.1, 5.5, and 12.6 of the Loan Agreement; and (d) additional
Indebtedness incurred by Zimmerman and designated as "Senior Debt" by notice to
the lender not to exceed $2.5 million at any one time outstanding.
"INDEBTEDNESS" means, with respect to the Loan Agreement, (i) all
indebtedness for borrowed money or for the deferred purchase price of property
or services, (ii) all obligations evidenced by notes, bonds, debentures or
similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired, (iv) all capitalized leases, and (v) the Senior Indebtedness; provided
however, the Deferred Dividend does not constitute Indebtedness. With respect
to the Subordinated Credit Agreement, "Indebtedness" means, (a) all Indebtedness
for borrowed money, (b) all obligations issued, undertaken or assumed as a
deferred purchase price of property or services, (c) all non-contingent
reimbursement or payment obligations with respect to surety instruments, (d) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (e) all Indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired, (f) all obligations
with respect to capital leases, (g) all net indebtedness referred to in clauses
(a)-(f) above, secured by any lien upon property owned by a person, and (h) all
guarantee obligations in respect of indebtedness or obligations of others of the
kinds referred to in clauses (a)-(g) above. For purposes of the Subordinated
Credit Agreement, Indebtedness of a person includes all recourse indebtedness of
any partnership or joint venture or limited liability company in which such
person is general partner or a joint venturer or a member.
-24-
<PAGE>
"OBLIGATIONS" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by Zimmerman to Bank
of America or any Indemnified Person, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising.
-25-
<PAGE>
DIVIDEND POLICY
The payment of future dividends will be at the discretion of Zimmerman's
Board of Directors, and will depend upon, among other things, Zimmerman's
earnings, operations, capital requirements, financial condition and restrictions
contained in financing arrangements. Zimmerman intends to retain earnings to
support operations and finance growth; consequently, Zimmerman does not
anticipate paying dividends (other than the Deferred Dividend) on Zimmerman
Common Stock in the foreseeable future. Furthermore, the terms of the Loan
Agreement and the Subordinated Credit Agreement prohibit Zimmerman from paying
dividends other than the Special Dividend; and no dividends may be paid on
Zimmerman Common Stock until payment in full of the Deferred Dividend. See
"Certain Transactions." Since 1991 (in addition to the Special Dividend which
includes the Deferred Dividend of $1.0 million), Zimmerman has paid cash
dividends of $620,000 and $2,850,000 in 1991 and 1994, respectively.
-26-
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
Zimmerman as of September 30, 1996 and as adjusted to give effect to the
Distribution, Special Dividend, Loan Agreement and Subordinated Credit Agreement
(collectively, the "Transaction"). This table should be read in conjunction
with Zimmerman's financial statements, including the notes thereto, which are
included in this Registration Statement, and with the financial data set forth
under "Unaudited Pro Forma Condensed Financial Statements." The as adjusted
data are not necessarily indicative of (i) Zimmerman's future short-term debt
and capitalization, or (ii) Zimmerman's short-term debt and capitalization had
the Transaction been consummated as of September 30, 1996.
<TABLE>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS,
EXCEPT SHARE INFORMATION)
<S> <C> <C>
Short-term debt:
Current installments of long-term debt $ 199 $ 1,170
------- -------
------- -------
Long-term debt:
Senior long-term:
Revolving line of credit $ 9,225 $12,000
Term notes payable 640 4,830
Subordinated long-term notes -0- 10,000
------- -------
Total long-term debt $ 9,865 $26,830
------- -------
------- -------
Total debt $10,064 $28,000
------- -------
------- -------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none outstanding $ -0- $ -0-
Common Stock, $.01 par value, 15,000,000 shares authorized;
1,854,688 shares issued and outstanding 19 19
Additional paid-in capital 441 -0-
Retained earnings (accumulated deficit) 10,021 (9,312)
------- -------
Total stockholders' equity (deficit) $10,481 $(9,293)
------- -------
Total capitalization $20,545 $18,707
------- -------
------- -------
</TABLE>
-27-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from Zimmerman's
financial statements, which have been audited by KPMG Peat Marwick LLP,
independent auditors. The historical financial data as of and for the nine
months ended September 30, 1995 and 1996 have been derived from unaudited
financial statements, which in the opinion of management, reflect all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position and the results of operations of
Zimmerman as of the end of and for those periods. Interim results are not
necessarily indicative of the results which may be expected for any other
interim period or for the full year. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and Zimmerman's financial statements, including the
notes thereto, included elsewhere herein.
<TABLE>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net sales $26,759 $23,941 $33,001 $36,427 $41,667 $30,296 $30,449
Costs and expenses:
Cost of goods sold 22,344 19,949 26,143 28,227 32,529 23,455 23,466
Selling, general and
administrative expenses 3,206 3,294 3,721 4,024 4,155 3,156 3,283
Management fees 600 600 600 600 600 450 450
Interest expense, net 491 365 291 433 782 584 546
------- ------- ------- ------- ------- ------- -------
Total costs and expenses 26,641 24,208 30,755 33,284 38,066 27,645 27,745
------- ------- ------- ------- ------- ------- -------
Income (loss) before federal income
taxes 118 (267) 2,246 3,143 3,601 2,651 2,704
Federal income taxes 40 (91) 768 1,069 1,224 901 919
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 78 $ (176) $ 1,478 $ 2,074 $ 2,377 $ 1,750 $ 1,785
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
December 31, September 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $15,567 $13,578 $18,097 $22,287 $25,957 $26,820 $28,215
Current liabilities 3,999 3,970 6,287 8,129 7,839 9,654 7,869
Long-term debt, excluding current
installments 5,774 3,990 4,715 7,839 9,422 9,097 9,865
Stockholders' equity (1) 5,794 5,618 7,095 6,319 8,696 8,069 10,481
</TABLE>
- -------------------------
(1) Dividends of $620,000 and $2,850,000 were paid in 1991 and 1994,
respectively.
-28-
<PAGE>
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are based
on Zimmerman's financial statements, including the notes thereto, and give
effect to the Transaction as if such Transaction had been consummated as of
January 1, 1995 (in the case of statements of operations data) or as of
September 30, 1996 (in the case of balance sheet data). The pro forma condensed
financial statements are based on the assumptions set forth in the accompanying
notes and should be read in conjunction with Zimmerman's financial statements,
including the notes thereto, which are included in the Registration Statement.
The pro forma condensed financial statements are not necessarily indicative of
(i) Zimmerman's future financial position or results of operations, (ii)
Zimmerman's financial position had the Transaction been consummated as of
September 30, 1996, or (iii) the results of operations had the Transaction been
consummated as of January 1, 1995.
-29-
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
------------------------------------ ------------------------------------
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- ---------
(In thousands,
except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net sales $41,667 $41,667 $30,449 $30,449
Costs and expenses:
Cost of goods sold 32,529 32,529 23,466 23,466
Selling, general and
administrative expenses 4,155 $ 741 (a) 4,896 3,283 $ 556 (a) 3,839
Management fees 600 (600)(b) 0 450 (450)(b) 0
Interest expense, net 782 1,639 (c) 2,421 546 1,270 (c) 1,816
------- ------- ------- ------- ------- -------
Total expenses 38,066 1,780 39,846 27,745 1,376 29,121
------- ------- ------- ------- ------- -------
Income before federal income taxes 3,601 (1,780) 1,821 2,704 (1,376) 1,328
Federal income taxes 1,224 (605)(d) 619 919 (468)(d) 451
------- ------- ------- ------- ------- -------
Net income $ 2,377 $(1,175) $ 1,202 $ 1,785 $ (908) $ 877
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Net income per common share (e) $ 1.28 $ .65 $ .96 $ .47
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of common
shares (e) 1,855 1,855
------- -------
------- -------
</TABLE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
September 30, 1996
--------------------------------------------
Historical Adjustments Pro Forma
---------- ----------- ---------
(in thousands)
<S> <C> <C> <C>
Current assets $24,927 $ 400 (g) $23,873
(400)(g)
(1,448)(j)(k)(l)
(130)(f)
524 (h)
Other assets 3,288 705 (f) 4,079
86 (h)
------- -------- -------
$28,215 $ (263) $27,952
------- -------- -------
------- -------- -------
Current liabilities $ 7,869 $ 971 (j) $10,415
1,000 (i)
575 (f)
Long-term debt, excluding current
installments 9,865 16,965 (j) 26,830
Stockholders' equity (deficit) 10,481 (19,774)(h)(i)(k)(l) (9,293)
------- -------- -------
$28,215 $ (263) $27,952
------- -------- -------
------- -------- -------
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
statements of operations and condensed balance sheet.
-30-
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
(a) Gives effect to estimated incremental costs and expenses that would be
incurred on an ongoing basis by Zimmerman as a separate publicly held
company as follows (in thousands):
Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
----------------- ------------------
Incremental personnel costs $305 $229
Other administrative expenses 436 327
---- ----
Total $741 $556
---- ----
---- ----
(b) Gives effect to the elimination of the management fees, which do not
continue after the Transaction.
(c) Gives effect to the estimated additional interest expense related to the
refinancing of the long-term debt (see (j) below) along with amortization
of financing costs incurred in connection with the credit facility of
$132,000 for the year ended 1995 and $99,000 for the nine months ended
September 30, 1996. The estimated additional interest expense was
determined using the interest rates in effect at the time the financing was
consummated (7.187% to 9.375%). Interest expense on the Revolving Credit
Facility ($12,000,000), the Term Loan ($6,000,000) and the Subordinated
Debt ($10,000,000) is $1,008,000, $562,000, and $719,000, respectively, for
the year ended December 31, 1995, and $756,000, $422,000, and $539,000,
respectively, for the nine months ended September 30, 1996.
(d) Pro forma adjustment to reflect the income tax effects of (a), (b) and (c)
above, using Zimmerman's historical tax rate of 34%.
(e) Net income per common share is calculated based on the number of shares of
Zimmerman Common Stock expected to be outstanding after the Transaction;
estimated to be 1,854,688 shares.
(f) Gives effect to capitalizable costs to obtain the Loan Agreement and the
Subordinated Credit Agreement (see (j) below) including a $475,000 payment
due to ICC in connection with the ICC Guarantee and other loan costs of
$230,000.
(g) Gives effect to the repayment of $400,000 of notes receivable from officers
of Zimmerman which were repaid in connection with the Transaction, and the
resulting increase in cash of $400,000 for a net adjustment of $ -0- to
current assets.
-31-
<PAGE>
(h) Gives effect to the establishment of deferred tax assets and corresponding
increase in stockholders' equity relating to temporary differences
previously recorded by IHC and transferred to Zimmerman.
(i) Reflects a deferral of payment of an aggregate of $1,000,000 of Zimmerman
management's pro rata portion of the Special Dividend.
(j) Gives effect to the payment of the existing long-term debt of $10,064,000
and the borrowings of $6,000,000 under the Term Loan, $12,000,000 under the
Revolving Credit Facility and $10,000,000 under the Subordinated Credit
Agreement. With respect to the Term Loan, monthly principal payments
totalling approximately $1.2 million per annum in 1997, $1.6 million
per annum in 1998 and $1.6 million in 1999 are scheduled, however,
upon reduction of the Term Loan balance to $2.0 million or less,
principal payments are reduced to $.4 million per annum. The Term
Loan matures September 1, 2004. The Revolving Credit Facility
matures and is repayable in a single installment on July 31, 1999.
The Subordinated Credit Agreement matures and is repayable in a
single installment on October 31, 2001. See "Financing Agreements."
(k) Reflects the payment of the $18,701,000 cash portion of the Special
Dividend.
(l) The pro forma condensed balance sheet includes, and the pro forma
statements of operations exclude, the one-time charges of $683,000 (net of
income tax) associated, (i) with a fee paid to an officer of Zimmerman in
connection with the refinancing of Zimmerman's outstanding indebtedness,
and (ii) payments in consideration of cancellation of all outstanding
options to purchase Zimmerman Common Stock. These charges will be included
in Zimmerman's historical financial statements for the year ending December
31, 1996. Other one-time costs associated with the Transaction are not
significant.
-32-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of Zimmerman's financial condition and results of
operations should be read in conjunction with the financial statements of
Zimmerman and the notes thereto included elsewhere herein.
GENERAL
Zimmerman began operations as a sign manufacturer in 1901. Privately owned
until its acquisition by IHC in 1982, Zimmerman was, until the late 1980's,
generally regarded as a regional manufacturer of custom signs which had also
established a small amount of national account business.
In the 1980's, Zimmerman refocused its business to concentrate almost
exclusively on satisfying the site identification needs of large national and
regional retailers in the United States. It focused its marketing efforts on
several major retailing sectors and broadened its product line to provide both
standard long-production-run site identification products and more specialized
shorter-run items. During this period, Zimmerman also began to restructure and
expand its product design and installation service capabilities. In the 1980's,
sales to petroleum marketing companies produced much of Zimmerman's growth and
at times accounted for over 90% of Zimmerman's annual sales.
From 1991 through 1995, Zimmerman's sales grew significantly. This growth
was internally generated and resulted from expansion of several customer
relationships established in earlier periods, plus the addition of several new
large customers. Approximately 50% of Zimmerman's sales growth in the 1990's is
attributable to the petroleum retailing market and the other half is spread
among several retailing markets, foremost of which are the automotive and
financial services sectors. Most of Zimmerman's sales have been to United
States based customers; however, Zimmerman has sold product to and managed
installation for international customers. Sales to customers with headquarters
located outside of the United States accounted for less than 1% of total sales
in 1995, and accounted for approximately 10% and 6% of total sales in 1994 and
1993, respectively. For the first nine months of 1996, international sales have
accounted for less than 1% of total sales. Since 1993, substantially all
international sales have been to financial institutions in Mexico. Management
of Zimmerman believes that through its established contacts in Mexico, Zimmerman
is particularly well positioned to obtain orders if the Mexican economy
improves. Management of Zimmerman intends to pursue international opportunities
and continue to expand sales of products and services to its domestic customers.
-33-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain statement of operations items for the periods presented.
<TABLE>
Nine Months
Ended
Year Ended December 31, September 30,
--------------------------- ---------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales ..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ............................ 79.2 77.5 78.1 77.4 77.0
Selling, general and administrative expenses... 11.3 11.1 10.0 10.4 10.8
Management fees ............................... 1.8 1.6 1.4 1.5 1.5
Interest expense, net ......................... 0.9 1.2 1.9 1.9 1.8
----- ----- ----- ----- -----
Total expenses .......................... 93.2 91.4 91.4 91.2 91.1
----- ----- ----- ----- -----
Income before federal income taxes ............ 6.8 8.6 8.6 8.8 8.9
Federal income taxes .......................... 2.3 2.9 2.9 3.0 3.0
----- ----- ----- ----- -----
Net income .................................... 4.5% 5.7% 5.7% 5.8% 5.9%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the period increased $153,000, or .5%, from $30.3 million to
$30.4 million. The slight increase in sales was the net effect of higher demand
from petroleum retailing and automotive customers offset by declining sales to
financial institution customers.
Cost of goods sold decreased from 77.4% of net sales for the first nine
months of 1995 to 77.0% of net sales for the first nine months of 1996. The
decline in the cost of goods sold resulted from improved product mix which
provided better profit margins.
Selling, general and administrative expenses increased from 10.4% of net
sales in the first nine months of 1995 to 10.8% of net sales for the comparable
period in 1996. The period-to-period increase was caused by higher expense
associated with expanded information systems and the hiring of additional
customer service personnel in order to accommodate expected increases in net
sales.
Management fees remained unchanged at 1.5% of net sales for the first nine
months of 1995 and 1996. This fee has been fixed at $50,000 per month for
several years.
Interest expense, net, declined from 1.9% of net sales for the first nine
months of 1995 to 1.8% of net sales for the comparable period in 1996. Lower
interest rates, resulting from Zimmerman's obtaining a LIBOR based borrowing
option in mid-1995, offset higher levels of borrowing.
Income before federal income taxes was unchanged at approximately $2.7
million; federal income taxes were unchanged at $.9 million. Net income of $1.8
million was unchanged for the first nine months of 1995 and 1996.
-34-
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 increased by $5.2 million, or 14.4%, from $36.4 million
in 1994 to $41.6 million in 1995. The increase in net sales resulted primarily
from an increase in sales to petroleum marketing customers, which was offset, in
part, by a $2.9 million decline in sales to financial institutions, $2.3 million
of which was associated with a decline in sales to Mexican banking institutions.
A broadened product line, increased sales to a significant customer, and brand
expansion activities with several petroleum marketing customers contributed to
increased sales to the petroleum sector of Zimmerman's business. Sales to
financial institutions in Mexico decreased significantly in 1995 as a result of
difficult economic conditions in Mexico.
Cost of goods sold increased $4.3 million, or 15.2%, from $28.2 million in
1994 to $32.5 million in 1995. This increase was primarily a result of net
sales increases as noted above. As a percentage of net sales, cost of goods
sold increased from 77.5% in 1994 to 78.1% in 1995. Manufacturing costs
increased as a percentage of net sales in 1995 because of higher costs incurred
on Mexican bank projects, and certain manufacturing cost overruns associated
with new products sold to petroleum marketing customers.
Selling, general and administrative expenses increased from $4.0 million in
1994 to $4.2 million in 1995, primarily as a result of an increased level of net
sales. Selling, general and administrative expenses, as a percent of net sales,
declined from 11.1% in 1994 to 10.0% in 1995.
Interest expense, net, increased $.3 million from $.5 million in 1994 to
$.8 million in 1995. The increase was primarily attributable to higher interest
rates and increased debt levels associated with expanded working capital
financing requirements.
Federal income taxes increased from $1.1 million in 1994 to $1.2 million in
1995. This increase is due to higher income levels in 1995. Zimmerman's
federal tax rate in 1994 and 1995 was 34%.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Net sales for 1994 increased by $3.4 million, or 10.4%, from $33.0 million
in 1993 to $36.4 million in 1994. The net sales increase resulted from higher
sales to financial institutions, principally to a Mexican bank in connection
with a reidentification project, and sales of ATM related signage.
Cost of goods sold increased $2.1 millon, or 8.0%, from $26.1 million in
1993 to $28.2 million in 1994. Cost of goods sold as a percentage of net sales
decreased from 79.2% in 1993 to 77.5% in 1994. This reduction in the cost of
goods sold percentage was due in part to above average profit margins on new
reidentification projects and lower factory overhead costs. The reduced factory
overhead costs resulted from reduced workers compensation expense, more
efficient utilization of manufacturing personnel, and an increase in capitalized
factory overhead associated with a build up in inventories in 1994.
-35-
<PAGE>
Selling, general and administrative expenses increased 8.1% from $3.7
million to $4.0 million as a result of increased net sales. As a percentage of
net sales, selling, general and administrative expenses declined from 11.3% of
net sales in 1993 to 11.1% of net sales in 1994. This decline was caused
primarily by a mix-driven decrease in sales commissions.
Interest expense, net, increased $.1 million to $.4 million in 1994. This
increase was due primarily to increased borrowings to finance higher levels of
inventory, the payment of a $2.8 million dividend in 1994 and, to a lesser
extent, higher interest rates.
Federal income taxes increased from $.8 million in 1993 to $1.1 million in
1994. This increase is due to the higher income levels in 1994. Zimmerman's
federal tax rate in 1993 and 1994 was 34%.
PRICING; VOLUME
Zimmerman believes that increases in costs have generally been recovered by
a combination of price and unit volume increases during each of the years
presented. Price increases have been small over the past several years;
however, changes in the cost of raw materials, which constitutes Zimmerman's
largest cost element, have not materially impacted manufacturing costs over the
periods presented.
LIQUIDITY; CAPITAL RESOURCES
From 1992 to 1995 Zimmerman's net sales increased from $23.9 million to
$41.7 million. During periods of sustained net sales growth, Zimmerman
typically experiences increases in accounts receivable, inventories, trade
payables and backlog. As a result of this net sales growth, Zimmerman has
experienced increases in its operating working capital (defined as accounts
receivable plus inventories, less accounts payable).
During 1995, operating working capital increased $4.2 million to $14.4
million. Accounts receivable increased $1.6 million primarily because of
increased net sales and slower payments from one customer. Inventories
increased by $2.2 million, primarily as a result of an increase in net sales
and, to a lesser extent, as a result of customers postponing projects from 1995
to 1996. Accounts payable declined by $.4 million due to slight reductions in
accruals and payments to vendors. As a result, operating working capital
increased by $4.2 million in 1995.
During 1994, operating working capital increased $3.2 million to $10.2
million. Accounts receivable increased $2.7 million to $7.7 million and
inventories increased $2.2 million to $10.5 million. Accounts receivable
increased primarily because of increased net sales and slower payments by
Zimmerman's customers in general. Inventories increased as a result of
increased net sales and a large increase in the backlog of unshipped orders.
Accounts payable increased by $1.7 million primarily due to increased purchases
of raw materials. As a result, operating working capital increased in 1994 by
$3.2 million.
Zimmerman's backlog, which consists primarily of blanket purchase orders
from customers for sign products which the customer has not yet released for
shipment to retail locations, increased from $13.2 million at December 31, 1993
to $23.3 million at September 30, 1996.
-36-
<PAGE>
Approximately 5% of backlog consists of orders for sign installation services,
while most of the remainder consists of orders for manufactured products
covered by blanket purchase orders for which the customer has not yet
requested delivery. Between December 31, 1993 and September 30, 1996,
approximately 55% of the growth in backlog was attributable to new customers,
and approximately 45% of the growth was attributable to increased demand from
existing customers.
During 1995, Zimmerman's cash flows used in operations totaled $1.5
million. Zimmerman also utilized $.7 million of cash flow on capital
expenditures. These cash flows were provided by $1.7 million in increased
long-term debt, and a net reduction in cash of $.5 million.
During 1994, cash flows provided by operations totaled $1.2 million.
Zimmerman spent $1.0 million on capital items and borrowed $3.1 million in
long-term debt. Zimmerman also paid a dividend to its shareholders of $2.8
million, resulting in a net increase in cash of $.5 million.
Capital projects to reduce product costs, improve product quality, increase
manufacturing efficiency and operating flexibility or expand production capacity
resulted in expenditures of $.7 million in 1995, compared with $1.1 million in
1994. At December 31, 1995, there were no material commitments for capital
expenditures. In 1996, $.8 million is expected to be spent on capital items, of
which $.5 million has been expended during the first nine months. Zimmerman's
budget for capital expenditures in 1997 is approximately $1.0 million. Capital
expenditures related to environmental projects have not been significant in the
past and are not expected to be significant in the foreseeable future.
Zimmerman has not relied on IHC, in any material respect, for capital and
Zimmerman's banking relationships and credit facilities (other than the ICC
Guarantee) have been independent of those of IHC. Zimmerman has used a
combination of secured revolving credit facilities and secured term loans to
finance its working capital requirements and capital expenditures. Management
believes that Zimmerman's remaining credit availability is sufficient to satisfy
its existing operational requirements. See "Financing Agreements" and "Risk
Factors--Leverage; Net Worth; Debt Restrictions."
LIQUIDITY AFTER DISTRIBUTION
The Company maintains a $23.0 million credit facility under the Loan
Agreement and borrowed $10.0 million under the Subordinated Credit
Agreement. The borrowings under these agreements were used to finance the
payment of the Special Dividend and provide working capital for
Zimmerman's operations. Assuming that net sales growth in fiscal 1997 is
within a range of 5%-15%, management believes that Zimmerman's remaining
credit availability is sufficient to satisfy its existing operational
requirements for fiscal 1997. If Zimmerman experiences growth in excess
of such range, Zimmerman would need to seek additional sources of capital
to fund such growth which could be in the form of the incurrence of
additional debt, the sale of equity securities or a combination thereof.
See "Risk Factors--Leverage; Net Worth; Debt Restrictions."
Management expects that Zimmerman's future cash flows will be sufficient to
fund anticipated expenses and the scheduled debt service under its credit
facilities (except for principal payments at the final maturities of the
Revolving Credit Facility and the Subordinated Credit Agreement) and leave
Zimmerman with satisfactory liquidity. These expectations are based on the
assumptions that no material adverse change in market conditions or interest
rates will occur and that Zimmerman continues to effectively manage its
operating costs in relation to its sales levels. If otherwise, Zimmerman's
liquidity could be adversely affected with the result that
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management would need to consider measures to conserve resources, such as
curtailing normal capital spending or other actions as may be appropriate.
Zimmerman anticipates that the final maturities of the Revolving Credit
Facility and the Subordinated Debt will be repaid in part from the proceeds of
additional public or private debt or equity offerings or from the refinancing of
Zimmerman's indebtedness. Zimmerman intends to explore the possibility of
obtaining equity from public or private financings promptly after the
Distribution has been completed, but there can be no assurance that any such
equity financing can be obtained on terms acceptable to Zimmerman. See "Risk
Factors--Leverage; Net Worth; Debt Restrictions."
INFLATION
During the periods presented, inflation had a relatively minor effect on
Zimmerman's reported results of operations. In recent years, the U.S. rate of
inflation has been relatively low. In addition, because Zimmerman's inventories
are valued on a modified FIFO method, current inventory costs are matched
against current sales so that increases in cost are reflected in earnings on a
current basis.
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BUSINESS
GENERAL
Zimmerman operates as a leading manufacturer of site identification
products with a primary focus on serving large, national and regional retailers.
From its plant locations in Texas, Zimmerman manufactures and sells a variety of
signage products which range from large highway-located site identification
signs to medium-sized brand and product identification signs and building
fascia, signs on automatic teller machines, gasoline pump toppers, and other
specialty items. Zimmerman also provides installation services. A majority of
Zimmerman's revenue is derived from sales to customers in the petroleum
marketing industry. Zimmerman also supplies customers in other industries of
which the automotive, financial services, and food and lodging sectors are the
most significant.
Zimmerman's typical customer is a United States based retailer which
operates at least several hundred branded locations; many customers have
company-owned and/or independently-owned facilities numbering in the several
thousands. In addition to new store openings, demand for Zimmerman's products
and services is driven by same store maintenance, obsolescence, facilities
upgrading, and brand expansion.
Through the mid-1980s, Zimmerman served large national retailers requiring
production quantity signage in a limited fashion, concentrating a significant
portion of its manufacturing efforts and related design and services resources
in support of the custom, one-at-a-time, sign market. Since that time, however,
Zimmerman has focused primarily on the production quantity sign user, which
places a premium on product design, engineering and production consistency. As
a result of this transition, which entailed significant operational changes to
marketing, production, staffing, and data information systems, Zimmerman has
become a leading provider of site identification products and services on a
national basis.
From 1992 though 1995, Zimmerman's sales grew from $23.9 million to $41.7
million. This growth was internally generated and resulted from expansion of
several customer relationships established in earlier periods, plus the
addition of several new large customers. Approximately 50% of Zimmerman's
sales growth in the 1990s is attributable to the petroleum retailing market
and the other half is spread among several retailing markets, primarily the
automotive and financial services markets. Most of Zimmerman's sales have
been to United States based customers; however, Zimmerman has sold product to
and managed installation for international customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
General."
Zimmerman's principal manufactured product is an exterior site and/or brand
identification sign which is double-faced, pole-mounted, and interior
illuminated. In addition, Zimmerman provides a full complement of related
services, including graphics design, production engineering, expedited
manufacturing and delivery, installation management and maintenance. While
products and services are primarily provided in the United States, Zimmerman
has, on occasion, produced for and managed international sign projects.
Management of Zimmerman will continue to pursue opportunities in the
international marketplace.
Zimmerman is a Texas based company with corporate headquarters in Tyler,
production facilities in Longview and Jacksonville, and a small office in
Dallas. Zimmerman began business as a partnership in 1901, was incorporated in
Texas in 1953, and has operated under its current name, Zimmerman Sign Company,
since 1987.
At September 30, 1996, Zimmerman employed 413 people, of which 315 were
production employees covered under two separate collective bargaining
agreements.
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BUSINESS STRATEGY
Zimmerman's primary objective has been to focus the marketing of its
products and services on large, expanding retailing organizations which purchase
significant quantities of site identification and/or product advertising
displays on an annual basis. In general, each of Zimmerman's customers operates
several hundred to several thousand retail outlets.
By focusing on large retail organizations, Zimmerman has targeted a
customer base which, in general, is well capitalized and places a premium on
product design, engineering, and production consistency. Zimmerman's
customers, whether seeking large or small unit quantities of a particular
product, demand adherence to exacting materials, construction, graphics, and
installation specifications. Zimmerman's management believes that its
ability to provide the distortion screening capability and other processes
necessary to satisfy customer demands, and its focus on and commitment to
its target market customers, have resulted in the establishment of a loyal
customer base and expanded market share for Zimmerman in a growing market.
Distortion screening is a process which involves the screen painting of
distorted graphics on flat plastic so as to straighten and register correctly
on the embossed sign face during the plastic forming process. This process,
which is less time consuming than alternative methods such as hand painting
or spraying, permits mass production of consistent screen painted graphics on
embossed surfaces. Market growth has occurred through increased demand for
production signage and related services.
Zimmerman's target market retailing organizations have signage requirements
driven by normal operations and, from time to time, special reidentification
projects which often are caused by an acquisition, name change, or other
nonrecurring event. Zimmerman reserves sufficient manufacturing capacity to
satisfy the needs of its ongoing customer base and selectively participates in
reidentification projects.
Zimmerman intends to continue to pursue this business strategy through a
combination of internal growth and selective acquisitions. Zimmerman remains
committed to providing superior customer service, increasing sales to its
existing customers, and diversifying its customer base.
INDUSTRY OVERVIEW
The United States sign and related products industry is large and highly
fragmented, consisting of over 4,000 participants. Management believes that,
depending on the amount of point of purchase product display and point of
purchase signage included, market size is in the $4.0 - $6.0 billion sales range
per annum.
Zimmerman's management believes that its target market, which consists of
large national retailers requiring either long run or short run production
quantity signage, generates sales of approximately $1.0 billion annually. In
addition, Zimmerman pursues special re-identification projects driven by
one-time corporate name changes; this business is often caused by an
acquisition or consolidation, involves very short lead times, and requires
high volume production sign applications.
In the high unit volume production market, customers generally demand
several hundred or more identical units annually. Zimmerman's target market
retailing organizations also have custom production signage requirements which
normally entail delivery of much lower quantities of a specific sign product
over a given year, sometimes as low as five to ten units. Specifications
governing graphics and engineering consistency are equally demanding in both the
high unit
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volume production and the lower unit volume custom-production markets. Most
of Zimmerman's customers have annual site identification requirements that
span both market components.
COMPETITION
In serving the above markets, Zimmerman frequently competes with
(compared on the basis of estimated annual net sales) approximately four
larger firms, two to three firms of about the same size and perhaps ten
smaller firms. In general, these competitors and Zimmerman are the only
domestic sign manufacturers that have the capacity or manufacturing
applications to satisfy the structural or graphics consistency demanded by
production quantity sign users. Zimmerman believes it has the ability and
resources to compete effectively and expand in its markets. Zimmerman's
competitors for the business of large, national and regional retailing
organizations have estimated annual sales up to $140 million, and some of
which have greater financial and manufacturing resources than Zimmerman.
Zimmerman's principal competitors are Acme-Wiley Corporation, Collins Sign
Company, Inc., Cummings Incorporated, Dualite, Inc., Everbrite, Inc., Federal
Sign Company, Milwaukee Sign Company, Inc., Mulholland-Harper Co.,
Plasti-Line, Inc. and Young Electric Sign Company. Management of Zimmerman
believes that sales growth will result from a combination of market
expansion, new customers and extension of product lines.
PRODUCTS AND SERVICES
Zimmerman's products include exterior illuminated signs, which vary from
high-rise site identification signs (100-250 square feet) to medium-sized,
on-site identification signs (40-100 square feet), as well as specialty
products such as building fascia, gasoline pump toppers and spandrels, and
automatic teller machine signage. Zimmerman also produces steel poles for
certain of its sign products. Typically, Zimmerman's products carry underlying
warranties from paint, plastic and electrical component manufacturers together
with a Zimmerman one-year warranty covering workmanship defects. Zimmerman has
not experienced any material expense as a result of warranty claims.
Zimmerman provides design, engineering, and prototype development services,
as well as site surveys and installation management.
Zimmerman carries product liability insurance. Zimmerman has not
experienced any material product liability claims.
MARKETING; ADVERTISING
Zimmerman sells its products and services to large national and regional
retailers through its five person direct sales force. When appropriate,
Zimmerman's design, engineering, and prototyping services are utilized to
support sales and marketing efforts. Zimmerman believes that its customers
purchase Zimmerman's products and services on the basis of competitive pricing,
product quality, delivery schedules, and support service.
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MANUFACTURING
Zimmerman's manufacturing operations generally involve metal working,
plastic face screening and molding, and electrical component installation and
sign assembly. Primary processes include metal cutting, bending, and welding.
Plastic face fabrication operations incorporate distortion screening of sign
graphics and vacuum molding of prescreened sign faces. Electrical components
are installed during sign assembly.
MATERIALS
The principal materials utilized in Zimmerman's manufacturing operations
are aluminum, plastic, steel, and electrical components. Most plastic and
aluminum components are customer specific. As a result, the majority of
Zimmerman's inventory purchases are made in conjunction with firm purchase
orders from its customers.
RESEARCH AND DEVELOPMENT
Sign advancements are made at each of Zimmerman's plants. Product
development and improvement involves periodic experimental work with new paints,
painting applications, plastics and composites, and electrical apparatuses.
Typically, product advancements entailing more than engineering or structural
improvements are made in a coordinated effort among the raw material producer,
Zimmerman and the end user. Historically, amounts spent by Zimmerman on product
development which have not been charged directly to the customer have been
immaterial.
BACKLOG; CUSTOMERS
As of September 30, 1996, Zimmerman's backlog of unshipped orders totaled
$23.3 million compared to $24.4 million as of September 30, 1995. Customer
commitments to order signs for shipment under blanket orders constitute a major
component of Zimmerman's backlog. Generally, management anticipates all backlog
will be shipped within twelve months. Zimmerman's customers typically place
orders for very large dollar amounts; therefore, backlog statistics can change
significantly within short periods to time. This fact, coupled with project
scheduling changes, decreases the reliability of backlog as a business
indicator.
Zimmerman's customer base consists of large, integrated oil companies,
independent gasoline marketing companies, independently-owned service stations
or convenience stores, automotive companies, financial institutions, convenience
store companies, and other large, product retailing and service organizations.
Zimmerman's credit experience with its customers has been excellent. Since
1990, Zimmerman's annual bad debt expense has averaged .1% of sales and has not
exceeded .4% of sales in any fiscal year. See "Risk Factors - Dependence on
Principal Customers" and "Management's Discussion and Analysis of Financial
Conditions and Results of Operations -- Liquidity and Capital Resources."
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SEASONALITY
Seasonal influences tend to negatively impact Zimmerman's sales in the
first and last quarter of the calendar year. Zimmerman ships its product
nationally and adverse weather typically impedes outside sign installation in
the first quarter. Adverse weather conditions and holidays often negatively
impact fourth quarter shipments, particularly in the month of December. Normal
seasonal trends in Zimmerman's business are frequently offset, however, by
large, special projects involving corporate identification and/or brand name
changes.
PROPERTIES
The following table sets forth certain information with respect to
Zimmerman's Texas properties.
LOCATION FUNCTION SQUARE FEET OWNED OR LEASED
- -------- -------- ----------- ---------------
Jacksonville Sign manufacturing 102,000 Leased
Pole manufacturing 10,000 Owned
Longview Sign manufacturing 75,000 Owned
Tyler Corporate Headquarters and 12,000 Leased
Customer Service
Dallas Sales and Administrative 1,000 Leased
In order to meet anticipated increased demand, Zimmerman plans to increase
its production capability, either through the expansion of its current
facilities or the acquisition or leasing of new properties.
EMPLOYEES; LABOR RELATIONS
Zimmerman employed 413 people as of September 30, 1996, of which 315 were
covered under two separate collective bargaining agreements. Over the past
year, Zimmerman's employment has ranged between a low of 380 and a high of 490.
Zimmerman has not experienced a significant work stoppage since 1982;
Zimmerman believes that its relationships with its work force and the labor
unions that hourly plant employees have selected to represent them are good.
ENVIRONMENTAL MATTERS
Compliance with Federal, state and local laws regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment has not had, nor is it expected to have, a material effect upon
Zimmerman's capital expenditures, earnings or competitive position.
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LEGAL PROCEEDINGS
Zimmerman is party to various legal proceedings, all of which are of an
ordinary or routine nature incidental to the operations of Zimmerman. In the
opinion of Zimmerman's management, such proceedings should not, individually or
in the aggregate, have a material adverse effect on Zimmerman's liquidity,
financial condition, or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information relating to the executive
officers and directors of Zimmerman as of the Distribution Date:
NAME AGE POSITION
- ---- --- --------
David E. Anderson 52 Chairman and Director
Tom E. Boner 58 President, Treasurer and Director
Michael W. Coppinger 48 Vice President-Sales
John T. Griggs 39 Vice President-Manufacturing
Jeffrey P. Johnson 35 Vice President, Chief Financial Officer
and Secretary
Michael F. St. Onge 49 Vice President-Customer Services
Carl A. Goldman 62 Director
Steven B. Lapin 51 Director
Roy T. K. Thung 52 Director
David E. Anderson has been Chairman of Zimmerman since November 1996 and a
Director since 1982. Mr. Anderson was Chairman of Zimmerman Holdings, Inc.
(formerly the immediate parent company of Zimmerman) for more than five years
prior to November, 1996. From 1981 until 1986, he was Executive Vice President
and a Director of IHC. Previously, Mr. Anderson was a Vice President of The
Dyson-Kissner-Moran Corporation and a Vice President of Continental Illinois
National Bank and Trust Company of Chicago.
Tom E. Boner has been President, Treasurer and a Director of Zimmerman
since 1984, having joined Zimmerman in 1981 as Director of Sales and Marketing.
Mr. Boner has over 25 years of experience in the sign industry. From 1970 to
1975, he was in sales with American Sign and Indicator, and from 1976 until
1981, was with American Bank Equipment Company. Mr. Boner served as a Director
of the International Sign Association from 1986 until 1995 and was Chairman
thereof in 1993.
Michael W. Coppinger has been Vice President of Sales of Zimmerman since
1987, having joined Zimmerman in 1982 as a Regional Sales Manager. From 1973 to
1981, he was with State Sign of Houston as a sales representative and was a
Branch Manager for Bajon Sign of Corpus Christi from 1981 to 1982.
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John T. Griggs has been Vice President-Manufacturing of Zimmerman since
1987. Previously, he was a National Sales Manager for Tenncon, Inc. and held
manufacturing and inventory management positions with Aladdin Industries.
Jeffrey P. Johnson has been Vice President and Chief Financial Officer of
Zimmerman since 1990 and will be Secretary of Zimmerman as of the Distribution
Date. He joined Zimmerman in 1985 as Controller. Previously, Mr. Johnson was
employed with Price Waterhouse. Mr. Johnson is a CPA and a member of the AICPA
and the Texas Society of CPAs. He is a Director of the Texas Sign Manufacturers
Association and a Director of the Southwest Sign Council of the International
Sign Association.
Michael F. St. Onge has been Vice President-Customer Services of Zimmerman
since January 1996. Mr. St. Onge has had 18 years of sign industry experience.
Mr. St. Onge was with Jim Pattison Sign Group's Pacific Northwest Region for
more than five years prior to joining Zimmerman serving most recently as
Executive Vice President and General Manager. He is a past Chairman of the
International Sign Association.
Carl A. Goldman is co-founder and has been President and Chief Executive
Officer of Corporate Capital Consultants, Inc. since its inception in 1974.
Prior thereto, he spent ten years in the investment banking department of three
Wall Street firms and five years as Treasurer of The Franklin Corporation, a
small business investment company. Mr. Goldman has been a consultant to
Zimmerman and IHC since February 1996. Mr. Goldman will become a director of
Zimmerman as of the Distribution Date.
Steven B. Lapin has been a Director of Zimmerman since August 1992. He has
been President and Chief Operating Officer of IHC since November 1993, and for
more than two years prior thereto, was its Executive Vice President -
Operations. Mr. Lapin has also been President and Chief Operating Officer of
Geneve Corporation since October 1993, and for more than two years prior
thereto, was Executive Vice President and Chief Operating Officer of Geneve
Corporation. Mr. Lapin is also a director of IHC and Geneve Corporation.
Roy T. K. Thung has been a Director of IHC since December 1990. He has
also served as Executive Vice President and Chief Financial Officer of IHC since
November 1993, and for more than two years prior thereto was Senior Vice
President, Chief Financial Officer and Treasurer of IHC. Mr. Thung has also
been Executive Vice President and Chief Financial Officer of Geneve Corporation
since November 1993, and for more than two years prior thereto was Senior Vice
President and Chief Financial Officer of Geneve Corporation. Mr. Thung will
become a director of Zimmerman as of the Distribution Date.
BOARD OF DIRECTORS
As of the Distribution Date, the Board of Directors will be composed of
Messrs. Anderson, Boner, Goldman, Lapin, and Thung. Zimmerman's By-laws provide
that the Board of Directors shall have no less than one and no more than seven
members as determined from time to time by the Board of Directors.
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COMMITTEES OF THE BOARD OF DIRECTORS
As of the Distribution Date, the committees of the Board of Directors will
be an Executive Committee, an Audit Committee and a Compensation Committee.
The Executive Committee has been provided with all powers and rights
necessary to exercise the full authority of the Board of Directors in the
management of the business and affairs of Zimmerman when necessary in between
meetings of the Board of Directors. The members of the Executive Committee will
be Messrs. Anderson, Boner, and Lapin.
The Audit Committee is primarily concerned with the effectiveness of
Zimmerman's accounting policies and practices, financial reporting, and internal
controls. The Audit Committee is authorized to (i) make recommendations to the
Board of Directors regarding the engagement of Zimmerman's independent
accountants, (ii) review the plan, scope and results of the annual audit, the
independent accountants' letter of comments and management's response thereto,
and the scope of any non-audit services that may be performed by the independent
accountants, (iii) manage Zimmerman's policies and procedures with respect to
internal accounting and financial controls, and (iv) review any changes in
accounting policy. The members of the Audit Committee will be Messrs. Goldman
and Thung.
The Compensation Committee is authorized and directed to (i) review and
approve the compensation and benefits of the executive officers, (ii) preview
and approve the annual compensation plans, (iii) review management organization
and development, (iv) review and advise management regarding employee benefits,
including bonuses, and other terms and conditions of employment, (v) administer
Zimmerman's 1996 stock option plan (the "Stock Option Plan") and the granting of
options thereunder, and (vi) review and recommend for the approval of the Board
the compensation of directors. The members of the Compensation Committee will
be Messrs. Anderson, Goldman and Lapin.
COMPENSATION PAID TO THE BOARD OF DIRECTORS
Directors who are not employees of Zimmerman or affiliates of Zimmerman are
paid an annual fee of $7,000, as well as $1,000 per Board meeting attended and
$500 per committee meeting attended. Such directors are eligible to receive
stock options to purchase shares of Zimmerman Common Stock under the Stock
Option Plan. Directors who are employees of Zimmerman or employees of an
affiliate of Zimmerman do not receive compensation for serving as a director;
however, all directors are reimbursed for out-of-pocket expenses incurred in
attending Board and committee meetings.
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SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid by Zimmerman to its chief
executive officer and the four next most highly compensated executive officers
(the "Named Officers") for the years ended December 31, 1995, 1994, and 1993.
<TABLE>
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
----------------------------------- ----------------------- -------
Other Annual Restricted Securities LTIP All Other
Name and Principal Compensation Stock Underlying Payouts Compensation(2)
Position Year Salary($) Bonus($) ($) Awards ($) Options ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David E. Anderson 1995 188,000 52,441 -- -- -- -- 3,120
Chairman (1) 1994 182,000 118,000 -- -- -- -- 744
1993 170,300 99,000 -- -- -- -- 744
Tom E. Boner 1995 150,500 43,410 -- -- -- -- 2,652
President and Treasurer 1994 145,000 80,856 -- -- -- -- 744
1993 136,500 77,875 -- -- -- -- 744
Michael W. Coppinger 1995 100,000 25,033 -- -- -- -- 2,020
Vice President-Sales 1994 96,000 47,600 -- -- -- -- 714
1993 92,686 53,691 -- -- -- -- 690
John T. Griggs 1995 100,000 24,534 -- -- -- -- 2,020
Vice President- 1994 96,200 50,800 -- -- -- -- 716
Manufacturing 1993 92,164 52,666 -- -- -- -- 686
Jeffrey P. Johnson 1995 100,000 25,033 -- -- -- -- 2,020
Vice President and 1994 95,000 47,600 -- -- -- -- 707
Chief Financial Officer 1993 86,693 46,032 -- -- -- -- 645
</TABLE>
(1) Mr. Anderson's compensation includes amounts received from
Zimmerman Holdings, Inc., Zimmerman's majority shareholder.
(2) Dollar value of premiums paid for term life insurance and
contributions made under Zimmerman's 401(k) savings plan
instituted in 1995. All amounts for 1993 and 1994 represent term
life insurance premiums. The amount for 1995 term life insurance
for all executive officers was $744; the balance of 1995 All
Other Compensation for each executive officer represents 401(k)
contributions.
EMPLOYMENT AGREEMENTS
Mr. Anderson has entered into an amendment and restatement of his
existing employment agreement with Zimmerman for a term of four years
commencing January 1, 1997 which, at the end of such initial four-year
term, is automatically renewable for continuous one-year periods unless
earlier terminated in accordance with the terms of the agreement. Pursuant
to such agreement, Mr. Anderson's annual base salary is not less than
$125,000, as fixed by Zimmerman's Board of Directors from time to time.
Mr. Anderson is eligible also for a bonus of up to 60% of his base
salary, the amount of such bonus earned to be based upon quantitative and
qualitative benchmarks. Prior to December 31, 1996, under certain
circumstances after (a) a change of control of Zimmerman, (b) the
termination of Mr. Anderson's employment without cause, or (c) his death
or disability, Mr. Anderson is entitled to a severance payment in the
amount of four years then-base salary plus the maximum earnable bonus.
If such events occur after December 31, 1999, Mr. Anderson is entitled to a
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severance payment in the amount of three years' then-base salary plus three
times the greater of 50% of the maximum earnable bonus and the most recent
bonus earned.
Mr. Boner has entered into an amendment and restatement of his
existing employment agreement with Zimmerman for a term of three years
commencing January 1, 1997 which, at the end of such initial three-year
term, is automatically renewable for continuous one-year periods unless
earlier terminated in accordance with the agreement. Pursuant to such
agreement, Mr. Boner's annual base salary is not less than $155,000, as
fixed by Zimmerman's Board of Directors from time to time. In addition
to his annual base salary under the agreement, Mr. Boner will receive
supplemental salary payments of $45,000 for each of 1997 and 1998.
Additionally, Mr. Boner is eligible to receive a bonus of up to 60% of
his base salary (exclusive of the supplemental salary payments), the
amount of such bonus earned to be based upon quantitative and qualitative
benchmarks. Under certain circumstances, (a) after a change of control,
(b) termination without cause, or (c) death or disability, Mr. Boner is
entitled to a severance payment equal to three years' then-base salary
(exclusive of the supplemental salary payments) plus three times the
maximum earnable bonus.
Each of Messrs. Coppinger, Johnson and Griggs has entered into an
amendment and restatement of his existing employment agreement with
Zimmerman for a term of two years commencing January 1, 1997 which, at
the end of such initial two-year term, is automatically renewable for
continuous one-year periods unless earlier terminated in accordance with
the agreement. Purusant to such agreements, Messrs. Coppinger, Johnson,
and Griggs will each receive an annual base salary of not less than
$104,000, as fixed by Zimmerman's Board of Directors from time to time.
In addition to the annual base salary under his employment agreement,
each of these individuals will receive a supplemental salary payment for
each of 1997 and 1998 of $17,000, $11,500, and $11,500, respectively.
Additionally, each of these officers is eligible to receive a bonus of up
to 50% of his base salary, the amount of such bonus earned to be based
upon quantitative and qualitative benchmarks. Under certain
circumstances, (a) after a change of control, (b) termination without
cause, or (c) death or disability, such officer is entitled to a
severance payment equal to two year's then-base salary (exclusive of the
supplemental salary payments) plus two times the maximum earnable bonus.
STOCK OPTION PLAN
In November 1996, Zimmerman's Board of Directors adopted, and its
shareholders approved, the Stock Option Plan. The purpose of the Stock Option
Plan is to provide employees, officers and directors with additional incentives
by increasing their proprietary interest in Zimmerman. The aggregate number of
shares of Zimmerman Common Stock with respect to which options may be granted
may not exceed 185,000 shares.
The Stock Option Plan provides for the grant of incentive stock options
("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, and nonqualified stock options (collectively "Awards"). The Stock
Option Plan is administered by the Compensation Committee. The Compensation
Committee has, subject to the terms of the Stock Option Plan, the sole authority
to grant Awards under the Stock Option Plan, to construe and interpret the Stock
Option Plan and to make all other determinations and take any and all actions
necessary or advisable for the administration of the Stock Option Plan.
All of Zimmerman's full-time, salaried employees and members of the
Board of Directors are eligible to receive Awards under the Stock Option
Plan. Options will be exercisable during the period specified in each
option agreement and will generally be
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exercisable in installments pursuant to a vesting schedule to be designated by
the Compensation Committee. The provisions of option agreements may provide
for the acceleration of the exercisability in the event of certain events
including certain reorganizations and changes in control of Zimmerman. No
option will remain exercisable later than ten years after the date of grant.
The exercise prices for ISO's granted under the Stock Option Plan may be no
less than the fair market value of the Zimmerman Common Stock on the date of
grant. The exercise prices of nonqualified stock options are set by the
Compensation Committee.
There are no federal income tax consequences upon the grant of an option
under the Stock Option Plan. Upon exercise of a nonqualified option, the
optionee generally will recognize ordinary income in the amount equal to the
difference between the fair market value of the option shares at the time of
exercise and the exercise price, and Zimmerman is generally entitled to a
corresponding tax deduction. When an optionee sells shares issued upon the
exercise of a non-qualified stock option, the optionee realizes short-term or
long-term capital gain or loss, depending on the length of the holding period,
but Zimmerman is not entitled to any tax deduction in connection with such sale.
An optionee will not be subject to federal income taxation upon the
exercise of ISO's granted under the Stock Option Plan, and Zimmerman will not be
entitled to a federal income tax deduction by reason of such exercise. A sale
of shares of Zimmerman Common Stock acquired upon exercise of an ISO that does
not occur within one year after the exercise or within two years after the grant
of the option generally will result in the recognition of long-term capital gain
or loss by the optionee in the amount of the difference between the amount
realized on the sale and the exercise price, and Zimmerman is not entitled to
any tax deduction in connection therewith. If a sale of the option or within
two years from the date of the option grant (a "disqualifying disposition"), the
optionee generally will recognize ordinary income equal to the lesser of (i) the
excess of the fair market value of the shares on the date of exercise of the
options over the exercise price or (ii) the excess of the amount realized on the
sale of the shares over the exercise price. Any amount realized on a
disqualifying disposition in excess of the amount treated as ordinary income
will be long-term or short-term capital gain, depending upon the length of time
the shares were held. Zimmerman generally will be entitled to a tax deduction
on a disqualifying disposition corresponding to the ordinary income recognized
by the optionee.
No options have been granted under the Stock Option Plan. Zimmerman has
agreed to grant, as of the day immediately succeeding the Distribution Date,
options under the Stock Option Plan to purchase 38,639 shares, 7,728 shares,
15,456 shares and 15,456 shares to Messrs. Boner, Griggs, Johnson and
Coppinger, respectively.
401(K) SAVINGS PLAN
Zimmerman has a defined contribution savings plan (the "Savings Plan")
covering all full-time employees who have at least one year of service and who
are not members of a collective bargaining unit. Messrs. Anderson, Boner and
Johnson are the Savings Plan trustees. Participants in the Savings Plan may
make salary-reduction contributions pursuant to Section 401(k) of the Code.
Zimmerman makes matching contributions to each participant's account
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<PAGE>
(not to exceed 50% of a participant's contribution), up to a maximum of 3% of a
participant's monthly compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Zimmerman has paid Mr. Goldman $37,000 for consulting services performed
through September 1996. No other directors have interlocking or other
relationships with other boards or Zimmerman that require disclosure under Item
402(j) or Item 404 of SEC Regulation S-K.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
Prior to the Distribution Date, Zimmerman will not have had a Compensation
Committee, and executive compensation has been set by the Board of Directors.
Under the guidance of the Board, compensation policies have been designed which
align executive compensation to performance in areas key to Zimmerman's long-
term success. Zimmerman's compensation objective is to maximize shareholder
value by attracting, rewarding, and retaining highly qualified and productive
individuals and by motivating executives and key employees toward achieving
Zimmerman's strategic goals and plans. The key components of Zimmerman's
executive compensation are base salary and annual incentive awards.
The Board annually reviews and establishes base salaries, which are at
levels that the Board believes are competitive with industry and regional pay
practices and economic conditions. In determining appropriate salary levels,
the Board considers criteria including the individual's level and scope of
responsibility and performance contributions, as well as internal and market
comparisons. Zimmerman awards annual cash incentive bonuses to reward executive
officers and other key employees based upon individual performance and the
achievement of specific financial and operational goals determined for the year.
In regard to Mr. Anderson, in 1995, he participated in Zimmerman's profit
incentive plan under which he was entitled to earn a cash incentive bonus of up
to 60% of base salary. The plan had an escalating schedule under which profit
incentive awards were linked to year-to-year improvement in Zimmerman's pre-tax
income. Through this mechanism, approximately two-thirds of Mr. Anderson's
achievable bonus in 1995 was directly tied to profit improvement. The remaining
one-third of Mr. Anderson's maximum earnable bonus was based upon the completion
of other specific corporate objectives established for such year.
Messrs. Boner, Coppinger, Griggs and Johnson also participate in
Zimmerman's profit incentive plan. As in the case of Mr. Anderson, the bonus
awards listed in the Summary Compensation Table reflect cash incentive awards
under such plan.
Under the Stock Option Plan, Zimmerman's executive officers will be
eligible to receive stock option grants at the discretion of the Compensation
Committee.
David E. Anderson Tom E. Boner Steven B. Lapin
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<PAGE>
OWNERSHIP OF ZIMMERMAN COMMON STOCK
The following table sets forth certain information with respect to the
anticipated beneficial ownership of Zimmerman Common Stock as of the
Distribution Date, based upon the record and beneficial ownership of IHC Common
Stock as of the Record Date by (i) all persons known to Zimmerman who will
become the beneficial owner of 5% or more of Zimmerman Common Stock, (ii) each
director of Zimmerman, (iii) each of the Named Officers of Zimmerman and (iv)
all Zimmerman executive officers and directors as a group. Except as otherwise
indicated, to the knowledge of Zimmerman, the persons identified below will have
sole voting power and sole investment power with respect to the shares to be
beneficially owned.
NAME AND ADDRESS OF NUMBER OF SHARES TO BE
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT
- ------------------- ----------------------- -------
Geneve Holdings, Inc.(1) 818,579 44.14%
96 Cummings Point Road
Stamford, Connecticut 06902
David E. Anderson 252,423 13.61
8350 North Central Expressway
Suite 600
Dallas, Texas 75206
Tom E. Boner 61,823 3.33
9846 Hwy. 31 East
Tyler, Texas 75705
Michael W. Coppinger 23,183 1.25
9846 Hwy. 31 East
Tyler, Texas 75705
John T. Griggs 15,455 *
9846 Hwy. 31 East
Tyler, Texas 75705
Jeffrey P. Johnson 15,455 *
9846 Hwy. 31 East
Tyler, Texas 75705
Carl A. Goldman 0 -
1185 Avenue of the Americas
New York, New York 10036
Steven B. Lapin 100 *
96 Cummings Point Road
Stamford, Connecticut 06902
Roy T.K. Thung 250 *
96 Cummings Point Road
Stamford, Connecticut 06902
All directors and executive
officers as a group (9 persons) 368,689 19.88
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<PAGE>
* Represents less than 1%
(1) Based upon information available to Zimmerman, a group consisting of
Geneve Holdings, Inc. ("GHI") and its subsidiaries is the beneficial owner of
4,092,906 shares of IHC Common Stock and, as at the Distribution Date, will
become the beneficial owner of 818,579 shares of Zimmerman Common Stock. By
virtue of his ownership of capital stock of GHI, Mr. Edward Netter, Chairman of
GHI, may be deemed to be the controlling person thereof. Mr. Netter disclaims
beneficial ownership as to the shares of Zimmerman Common Stock owned by GHI and
its subsidiaries.
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<PAGE>
CERTAIN AGREEMENTS
DISTRIBUTION AGREEMENT
IHC and Zimmerman have entered into the Distribution Agreement, providing
for, among other things, the principal corporate transactions required to
effect the Distribution, the conditions to the Distribution, the allocation
between IHC and Zimmerman of certain liabilities and certain other agreements
governing the relationship between IHC and Zimmerman.
Subject to certain exceptions, Zimmerman has agreed to indemnify IHC and
its subsidiaries against (i) any liabilities and obligations arising out of
the failure by Zimmerman to perform its obligations under the Distribution
Agreement, (ii) all claims and liabilities arising out of the conduct or
operation of the business of Zimmerman or the ownership or use of assets in
connection therewith, whether arising before, on or after the Distribution
Date, (iii) any liabilities arising in connection with the Registration
Statement filed by Zimmerman, (iv) any liabilities referenced in the
financial statements of Zimmerman, and (v) certain liabilities for taxes
arising out of or related to any breach by Zimmerman of certain
representations and covenants of Zimmerman relating to the qualification of
the Distribution under Section 355 of the Code. IHC has agreed to indemnify
Zimmerman and its subsidiaries against (a) any liabilities and obligations
arising out of the failure by IHC to perform its obligations under the
Distribution Agreement, (b) all liabilities of IHC and its subsidiaries
(other than Zimmerman), whether arising before, on or after the Distribution
Date, and (c) taxes attributable to the Distribution, including taxes
attributable to the failure of the Distribution to qualify as a tax-free
distribution, other than those for which Zimmerman indemnifies IHC. The
Distribution Agreement also includes procedures for notice and payment of
indemnification claims, and provides that the indemnifying party may assume
the defense of a claim or suit brought by a third party.
The Distribution Agreement contains certain representations and
covenants of Zimmerman relating to the acquisition and disposition of
assets, other than in the ordinary course of Zimmerman's business, the
acquisition and issuance of securities (including Zimmerman's intention
to explore the possibility of obtaining equity from public or private
financings after the Distribution Date) and the continuance of the active
conduct of Zimmerman's business, in each case in a manner so as to not
adversely affect qualification of the Distribution under Section 355 of
the Code.
The Distribution Agreement requires that all intercompany receivables and
payables between IHC and Zimmerman be paid in full as of the Distribution
Date; provided, that Zimmerman's fee payable to ICC of $475,000, in
consideration of the ICC Guarantee will be outstanding as of the Distribution
Date.
The Distribution Agreement provides that, except as otherwise
specifically noted therein, all costs and expenses incurred in connection
with the preparation, execution, delivery and implementation of the
Distribution Agreement and with the consummation of the transactions
contemplated thereby (including transfer taxes and the fees and expenses of
all counsel, accountants and financial and other advisors) shall be paid by
the party incurring such cost or expense. Notwithstanding the foregoing,
Zimmerman shall be obligated to pay the legal, filing, accounting, printing
and other accountable and out-of-pocket expenditures in connection with the
preparation, printing and filing of the Registration Statement.
The Distribution Agreement further provides that consummation of the
Distribution is subject to certain conditions precedent including (i) receipt
of all required regulatory approvals, (ii) the Registration Statement
becoming effective under the Exchange Act, (iii) the approval of the
Distribution by the IHC Board of Directors not having been abandoned,
deferred or modified prior to the Record Date, (iv) Zimmerman obtaining
insurance providing similar coverage to the insurance in place prior to the
Distribution Date, (v) no material adverse change in the financial
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<PAGE>
condition of either IHC or Zimmerman prior to the Distribution Date, and (vi)
no material adverse change in market conditions prior to the Distribution
Date. Notwithstanding the foregoing, consummation of the Distribution is at
the sole discretion of IHC.
REGISTRATION RIGHTS AGREEMENT
In connection with the Distribution, Zimmerman has entered into a
registration rights agreement (the "Registration Rights Agreement") for the
benefit of Geneve. Immediately following the Distribution, approximately
818,579 outstanding shares of Zimmerman Common Stock are expected to
constitute registrable Zimmerman Common Stock under the Registration Rights
Agreement.
The terms of the Registration Rights Agreement generally provide
that, under certain circumstances, Geneve will be entitled at any time,
but not more than twice during any twelve month period, to request that
Zimmerman register Geneve's shares of Zimmerman Common Stock under the
Securities Act (a "Demand Registration"), provided that no such request
may be made prior to six months, or after seven years, from the
Distribution Date. The Registration Rights Agreement provides that
Zimmerman will keep effective for six (6) months after the date on which
such registration statement is declared effective, or such shorter period
terminating when all of the registrable Zimmerman Common Stock has been
sold, any registration statement filed as a Demand Registration.
The Registration Rights Agreement also provides that Geneve is entitled
to request that its shares of Zimmerman Common Stock be included in any
underwritten offering by Zimmerman, subject to certain customary limitations,
provided that no such request may be made prior to six months, or after seven
years, from the Distribution Date. The Registration Rights Agreement also
contains customary provisions regarding indemnification and contribution and
the furnishing of information by Geneve for inclusion in the prospectus
relating to an underwritten offering in which it is participating.
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<PAGE>
CERTAIN TRANSACTIONS
In November 1996, Zimmerman declared a Special Dividend of $19.7 million;
of such amount, $18.5 million was paid to ICC, $.2 million was paid, in the
aggregate, to Messrs. Boner, Coppinger, Griggs and Johnson, and the $1.0
million represents the Deferred Dividend obligation to Zimmerman's senior
management shareholders. The Deferred Dividend will be paid upon the earlier
to occur of the repayment in full of the Subordinated Debt or the elimination
of the ICC Guarantee. No dividends may be paid on Zimmerman Common Stock
until payment in full of the Deferred Dividend.
In November 1996, Zimmerman paid Messrs. Boner, Coppinger, Griggs and
Johnson an aggregate of $.7 million in consideration of the termination of
all of their options to acquire Zimmerman Common Stock (which totalled 3.75%
of the then-outstanding shares of Zimmerman Common Stock on a fully diluted
basis). In addition, in November 1996, Messrs. Boner, Coppinger, Griggs and
Johnson repaid in full loans outstanding to Zimmerman aggregating $.4 million.
In connection with refinancing its indebtedness, Zimmerman incurred a fee
of $475,000 payable to ICC in consideration of the ICC Guarantee. In
addition, Zimmerman paid a one-time fee of $350,000 to Mr. Anderson in
consideration of services performed in connection with such refinancing.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Zimmerman consists of 15,000,000 shares
of Zimmerman Common Stock, par value $.01 per share, and 2,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). The
following statements relating to the capital stock of Zimmerman are summaries
and do not purport to be complete. Reference is made to the more detailed
provisions of, and such statements are qualified in their entirety by
reference to, the Articles of Incorporation and the Bylaws of Zimmerman,
copies of which are filed as exhibits to the Registration Statement of which
this Information Statement is a part.
COMMON STOCK
Holders of Zimmerman Common Stock will be entitled to one vote per share
with respect to all matters required by law to be submitted to holders of
Zimmerman Common Stock. Zimmerman Common Stock will not have cumulative
voting rights.
Subject to the prior rights of holders of Preferred Stock, if any,
holders of Zimmerman Common Stock will be entitled to receive such dividends
as may be lawfully declared by the Board of Directors of Zimmerman. Upon any
dissolution, liquidation or winding up of Zimmerman, whether voluntary or
involuntary, holders of Zimmerman Common Stock are entitled to share ratably
in all assets remaining after the liquidation payments have been made on all
outstanding shares of Preferred Stock, if any.
Shares of Zimmerman Common Stock distributed as part of the Distribution
will be fully paid and nonassessable. Zimmerman Common Stock will not have
any preemptive, subscription or conversion rights. Additional shares of
Zimmerman Common Stock may be issued without shareholder approval, other than
such approval as may be required by applicable stock exchange or other
applicable rules. The transfer agent and registrar for the Zimmerman Common
Stock is Fleet National Bank.
PREFERRED STOCK
Zimmerman is authorized to issue up to 2,000,000 shares of Preferred
Stock without further shareholder approval (except as may be required by
applicable law or stock exchange or other applicable rules). The shares of
Preferred Stock may be issued in one or more series, with the number of
shares of each series and the rights, preferences and limitations of each
series to be determined by the Board of Directors. Among the specific matters
that may be determined by the Board of Directors are dividend rights, if any,
redemption rights, if any, the terms of a sinking or purchase fund, if any,
the amount payable in the event of any voluntary liquidation, dissolution or
winding up of the affairs of Zimmerman, conversion rights, if any, and voting
powers, if any.
Although Zimmerman has no current plans to issue Preferred Stock, the
issuance of shares of Preferred Stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition proposal.
For instance, the issuance of a series of Preferred Stock might impede a
business combination by including class voting rights that would provide a
required percentage vote of the shareholders. In addition, under certain
circumstances, the
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<PAGE>
issuance of Preferred Stock could adversely affect the voting power of the
holders of Zimmerman Common Stock. Although the Board of Directors is
required to make any determination to issue such stock based on its judgment
as to the best interests of the shareholders of Zimmerman, the Board of
Directors could act in a manner that would discourage an acquisition attempt
or other transaction that some, or a majority, of the shareholders might
believe to be in their best interests or in which shareholders might receive
a premium for their stock over the then market price of such stock. The Board
of Directors does not at present intend to seek shareholder approval prior to
any issuance of currently authorized stock, unless otherwise required by law
or stock exchange or other applicable rules.
LIMITATIONS ON DIRECTOR LIABILITY
Zimmerman's Articles of Incorporation provide that, to the fullest extent
permitted by Texas law, no director shall be liable to Zimmerman or its
shareholders for monetary damages for breach of fiduciary duty as a director.
By virtue of these provisions, a director of Zimmerman is not personally
liable for monetary damages for a breach of such director's fiduciary duty
except for liability for (i) breach of the duty of loyalty to Zimmerman or
its shareholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) any transaction
from which such director receives an improper personal benefit and (iv) an
act or omission for which the liability of a director is expressly provided
by an applicable statute. In addition, Zimmerman's Articles of Incorporation
provide that if the Texas Business Corporation Act ("TBCA") is amended to
authorize the further elimination or limitation of the liability of a
director, then the liability of the directors will be eliminated or limited
to the fullest extent permitted by the TBCA, as amended. In addition, such
Articles provide that Zimmerman will indemnify, to the fullest extent
permissible, persons named or threatened to be named in a proceeding
resulting from their status as a director of Zimmerman.
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<PAGE>
AVAILABLE INFORMATION
Zimmerman has filed with the Securities and Exchange Commission a
Registration Statement under the Exchange Act with respect to Zimmerman
Common Stock. This Information Statement does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements made in
this Information Statement as to the contents of any contract, agreement or
other document referred to herein are not necessarily complete. With respect
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement, together with any exhibits or amendments
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 5th Street,
N.W., Washington, D.C. 20549 and at the following regional offices of the
Commission: 7 World Trade Center (13th floor), New York, NY 10048 and 500
West Madison Street, Suite 1400, Chicago, IL 60661. Copies of all such
materials or any part thereof may be obtained from the Public Reference
Section of the Commission at 450 5th Street, N.W., Washington, D.C. 20549
upon payment of the fees described by the Commission.
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INDEX TO FINANCIAL STATEMENTS
ZIMMERMAN SIGN COMPANY
(a subsidiary of Zimmerman Holdings, Inc.)
Index to Financial Statements
Page
----
Independent Auditors' Report........................................... F-2
Financial Statements:
Balance Sheets as of December 31, 1994 and 1995 and September 30,
1996 (unaudited).................................................... F-3
Statements of Operations and Retained Earnings for the years ended
December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1995 and 1996 (unaudited)............................. F-4
Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995 and for the nine months ended September 30, 1995 and 1996
(unaudited)......................................................... F-5
Notes to Financial Statements........................................ F-6
Financial Statement Schedule - Valuation and Qualifying Accounts....... F-14
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Zimmerman Sign Company:
We have audited the financial statements of Zimmerman Sign Company (a
subsidiary of Zimmerman Holdings, Inc.) as listed in the accompanying index.
In connection with our audits of the financial statements, we also have
audited the financial statement schedule as listed in the accompanying index.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Zimmerman Sign Company as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
February 2, 1996, except as to note 13,
which is as of December 5, 1996
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ZIMMERMAN SIGN COMPANY
(a subsidiary of Zimmerman Holdings, Inc.)
Balance Sheets
<TABLE>
DECEMBER 31 SEPTEMBER 30, 1996
------------------------ -----------------------
ASSETS (NOTE 4) PRO FORMA
1994 1995 HISTORICAL (NOTE 14)
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 600,887 107,756 62,410 62,410
Accounts receivable, net
of allowance for doubtful
accounts of $150,000 in
1994 $100,288 in 1995
and $118,414 in 1996 7,726,823 9,283,962 9,163,635 9,163,635
Inventories (note 2) 10,497,007 12,658,987 14,976,876 14,976,876
Prepaids and other current
assets 150,344 282,228 325,789 325,789
Receivable from parent
company 48,374 74,925 - -
Notes and accrued interest
receivable (note 10) 389,967 400,313 398,261 398,261
----------- ---------- ---------- ----------
Total current assets 19,413,402 22,808,171 24,926,971 24,926,971
Property, plant and
equipment, net (note 3) 2,810,620 3,068,611 3,252,764 3,252,764
Other assets 63,186 80,313 34,810 34,810
----------- ---------- ---------- ----------
$22,287,208 25,957,095 28,214,545 28,214,545
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current installments of
long-term debt (note 4) $ 150,750 266,750 198,750 1,368,750
Accounts payable 5,111,849 5,792,971 5,123,857 5,123,857
Accrued expenses 1,408,553 1,191,888 995,101 995,101
Payable to parent company - - 692,505 692,505
Dividend payable - - - 1,000,000
Customer deposits 1,457,538 587,101 858,569 858,569
----------- ---------- ---------- ----------
Total current liabilities 8,128,690 7,838,710 7,868,782 10,038,782
----------- ---------- ---------- ----------
Long-term debt, excluding
current installments
(note 4) 7,838,938 9,422,188 9,865,125 27,396,125
----------- ---------- ---------- ----------
Stockholders' equity (deficit)
(notes 5, 6 and 13):
Preferred stock, $.01 par
value. Authorized
2,000,000 shares; none
issued - - - -
Common stock, $.01 par
value. Authorized
15,000,000 shares; issued
and outstanding 1,854,688
shares 18,547 18,547 18,547 18,547
Additional paid-in capital 441,128 441,128 441,128 441,128
Retained earnings
(accumulated deficit) 5,859,905 8,236,522 10,020,963 (9,680,037)
----------- ---------- ---------- ----------
Total stockholders'
equity (deficit) 6,319,580 8,696,197 10,480,638 (9,220,362)
Commitments (note 7)
----------- ---------- ---------- ----------
$22,287,208 25,957,095 28,214,545 28,214,545
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
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ZIMMERMAN SIGN COMPANY
(a subsidiary of Zimmerman Holdings, Inc.)
Statements of Operations and Retained Earnings
<TABLE>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales (note 11) $33,000,603 36,426,651 41,666,570 30,296,421 30,449,010
Cost of goods sold 26,143,346 28,226,620 32,529,430 23,454,725 23,466,296
----------- ---------- ---------- ---------- ----------
Gross profit 6,857,257 8,200,031 9,137,140 6,841,696 6,982,714
Selling, general and
administrative expenses 3,720,762 4,023,721 4,154,690 3,156,173 3,283,037
Management fees (note 10) 600,000 600,000 600,000 450,000 450,000
Interest expense, net 290,861 433,482 781,516 584,482 545,978
----------- ---------- ---------- ---------- ----------
Income before federal
income taxes 2,245,634 3,142,828 3,600,934 2,651,041 2,703,699
Federal income taxes (note 8) 768,072 1,068,595 1,224,317 901,354 919,258
----------- ---------- ---------- ---------- ----------
Net income 1,477,562 2,074,233 2,376,617 1,749,687 1,784,441
Retained earnings at beginning
of period 5,158,110 6,635,672 5,859,905 5,859,905 8,236,522
Dividends paid - (2,850,000) - - -
----------- ---------- ---------- ---------- ----------
Retained earnings at end
of period $ 6,635,672 5,859,905 8,236,522 7,609,592 10,020,963
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Net income per share (note 13) $ .80 1.12 1.28 .94 .96
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
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ZIMMERMAN SIGN COMPANY
(a subsidiary of Zimmerman Holdings, Inc.)
Statements of Cash Flows
<TABLE>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 1,477,562 2,074,233 2,376,617 1,749,687 1,784,441
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 358,636 349,835 435,590 322,268 364,643
(Decrease) increase in
provision for losses on
accounts receivable 95,000 5,000 (49,712) (9,639) 18,126
Changes in operating assets
and liabilities:
Accounts receivable (1,260,678) (2,705,219) (1,507,427) (2,788,825) 102,201
Inventories (2,085,500) (2,159,587) (2,161,980) (2,033,319) (2,317,889)
Prepaids and other
current assets 188,508 210,131 (131,884) (82,061) (43,561)
Receivable from/payable
to parent company (1,451,235) 1,557,947 (26,551) 438,877 767,430
Accrued interest
receivable - (14,967) (10,346) (19,013) 2,052
Other assets (47,330) 12,394 (17,127) (63,590) 45,503
Customer deposits 586,902 456,366 (870,437) 812,922 271,468
Accounts payable and
accrued expenses 1,729,781 1,385,655 464,457 180,161 (865,901)
----------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities (408,354) 1,171,788 (1,498,800) (1,492,532) 128,513
----------- ---------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchases of property, plant
and equipment (304,798) (1,083,269) (693,581) (448,659) (548,796)
Proceeds from notes receivable - 125,000 - - -
----------- ---------- ---------- ---------- ----------
Net cash used in
investing activities (304,798) (958,269) (693,581) (448,659) (548,796)
----------- ---------- ---------- ---------- ----------
Cash flows from financing
activities:
Dividends paid - (2,850,000) - - -
Proceeds from revolving line
of credit 875,000 2,275,000 2,200,000 6,450,000 5,125,000
Proceeds from subordinated debt - 1,000,000 - - -
Proceeds from long-term debt - - 750,000 649,625 -
Principal payments on
long-term debt (150,750) (150,750) (1,250,750) (5,700,188) (4,750,063)
----------- ---------- ---------- ---------- ----------
Net cash provided by
financing activities 724,250 274,250 1,699,250 1,399,437 374,937
----------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash 11,098 487,769 (493,131) (541,754) (45,346)
Cash at beginning of period 102,020 113,118 600,887 600,887 107,756
----------- ---------- ---------- ---------- ----------
Cash at end of period $ 113,118 600,887 107,756 59,133 62,410
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements
-64-
<PAGE>
ZIMMERMAN SIGN COMPANY
(a subsidiary of Zimmerman Holdings, Inc.)
Notes to Financial Statements
December 31, 1994 and 1995
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL INFORMATION
Zimmerman Sign Company (the Company), a subsidiary of Zimmerman
Holdings, Inc. (Holdings), is a manufacturer of commercial exterior
signs with its operations located in east Texas. Holdings is a
subsidiary of Independence Holding Company (IHC). The Company's
customers, consisting primarily of petroleum retailers, automotive
retailers and food and lodging establishments, are located primarily
in the United States and Mexico.
(b) INVENTORIES
Inventories are recorded at the lower of cost (first-in, first-out) or
market (net realizable value).
(c) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Improvements are
capitalized while repair and maintenance costs are charged to
operations as incurred.
Property, plant and equipment are depreciated and amortized using the
straight-line method over the following estimated useful lives of the
respective assets or lease terms, if shorter:
Estimated life
(in years)
----------
Building 25
Manufacturing equipment 5 - 8
Transportation equipment 3 - 7
Leasehold improvements 5 - 15
Office furniture and equipment 3 - 8
(d) OTHER ASSETS
Other assets are recorded at cost and consist primarily of deposits.
(e) REVENUE RECOGNITION
Revenue is recognized upon the shipment of product unless installation
is required, at which time revenue is recognized when the installation
is complete. Sales returns and allowances have not been significant.
(f) INCOME TAXES
The Company is included in the consolidated federal income tax return
filed by IHC. Under a tax-sharing agreement with Holdings, the
Company is required to pay to Holdings total income taxes
-65-
<PAGE>
computed for financial reporting purposes as determined as if the
Company filed a separate income tax return.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
(g) STATEMENTS OF CASH FLOWS
The Company paid $314,592, $458,341 and $730,958 for interest in 1993,
1994 and 1995, respectively. Additionally, the Company paid $768,072,
$1,068,595 and $1,224,317 for income taxes to Holdings in 1993, 1994
and 1995, respectively.
(h) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(i) NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares
outstanding during each period presented after giving effect to the
common stock split described in note 13.
(j) RECLASSIFICATIONS
Certain 1993, 1994 and 1995 amounts have been reclassified to conform
with the 1996 presentation.
(k) INTERIM FINANCIAL STATEMENTS
The interim financial statements as of September 30, 1996, and for the
nine months ended September 30, 1995 and 1996, are unaudited, but
reflect all adjustments, consisting only of normal recurring accruals,
which are, in the opinion of management, necessary to present a fair
presentation of financial position and results of operations for the
interim periods.
(2) INVENTORIES
A summary of inventories follows:
December 31
---------------------------
1994 1995
---- ----
Raw materials $ 4,558,175 5,375,196
Work in process 4,077,627 5,609,708
Finished goods 1,861,205 1,674,083
------------ ----------
$ 10,497,007 12,658,987
------------ ----------
------------ ----------
-66-
<PAGE>
(3) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
December 31
------------------------
1994 1995
---- ----
Land $ 343,730 343,730
Building 1,369,814 1,550,504
Manufacturing equipment 1,694,689 1,783,642
Transportation equipment 126,849 129,201
Leasehold improvements 1,101,505 1,252,646
Office furniture and equipment 1,313,604 1,580,412
----------- ---------
5,950,191 6,640,135
Less accumulated depreciation and amortization 3,139,571 3,571,524
----------- ---------
Property, plant and equipment, net $ 2,810,620 3,068,611
----------- ---------
----------- ---------
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
December 31
-----------------------
1994 1995
---- ----
<S> <C> <C>
Revolving line of credit to a bank, due July 1997, monthly
interest at prime or Eurodollar rate plus 200 basis
points (8.50% at December 31, 1994 and 7.40% to
8.50% at December 31, 1995) $ 6,450,000 8,650,000
Secured note payable to same bank, due July 1996,
monthly payments of $8,500 plus interest at prime
(8.50% at December 31, 1995) plus .50% 170,000 68,000
Secured note payable to same bank, due July 2002,
monthly payments of $4,063 plus interest at prime plus
.75% 369,688 320,938
Secured note payable to same bank, due April 2000,
monthly payments of $12,500 plus interest at prime
plus a percentage ranging up to .75% - 650,000
Subordinated debt, due April 2001, quarterly
interest payments of 10% per annum 1,000,000 -
----------- ---------
7,989,688 9,688,938
Less current installments 150,750 266,750
----------- ---------
$ 7,838,938 9,422,188
----------- ---------
----------- ---------
</TABLE>
The Company has a revolving line of credit which is not to exceed the
greater of $10,000,000 or 85% of eligible accounts receivable plus the
lesser of $3,500,000 or 35% of the eligible inventory less 100% of the face
amount of any standby letters of credit. During 1995, the due date of the
principal balance was
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<PAGE>
extended to July 31, 1997. The Company had $1,350,000 available for
additional borrowings under the revolving line of credit at December 31,
1995.
The credit agreement related to the revolving line and notes payable
contains certain restrictive covenants, including restrictions on
additional indebtedness, investments in or advances to others, acquisitions
of other businesses, declaration and payment of dividends and repurchase of
capital stock. The line of credit and related notes payable are secured by
all of the Company's assets including inventory and accounts receivable.
The estimated fair value of notes payable and long-term debt approximated
the carrying value at December 31, 1994 and 1995.
The aggregate maturities of long-term debt are as follows:
Amount
Year ending December 31: -----------
1996 $ 266,750
1997 8,848,750
1998 198,750
1999 198,750
2000 98,750
Thereafter 77,188
-----------
Total $ 9,688,938
-----------
-----------
(5) PREFERRED STOCK
The Company is authorized to issue up to 2,000,000 shares of preferred
stock, par value of $.01 (see note 13). As of December 31, 1995, no
preferred shares were issued and outstanding.
(6) STOCK OPTIONS
The Company has a stock option agreement which provides for the grant of
incentive stock options to certain key employees to acquire a total of 20
shares of common stock. The stock options are exercisable for a period of
eight years from date of grant (December 15, 1990) at a price equal to the
market value of approximately $22,300 per share on the date of grant. The
stock options vest ratably on each annual anniversary of the date of grant
and became exercisable in full on December 15, 1995. No options have been
exercised as of December 31, 1995. In connection with the transaction
described in note 13, the options were terminated in November 1996.
(7) LEASES
The Company has several noncancellable operating leases, primarily for
office and plant facilities in Dallas, Jacksonville and Tyler, Texas,
respectively, that expire on various dates through 2000. The operating
leases contain options at the end of the lease terms to extend the leases
at the then fair rental value for a period of up to five years. Its former
Dallas plant is being subleased through the expiration of the primary lease
term.
-68-
<PAGE>
Approximate future minimum lease payments and rents and sublease receipts
under operating lease commitments with initial or noncancellable terms in
excess of one year as of December 31, 1995 follow:
Operating
Operating lease sub-lease
payments receipts
--------------- ---------
Year ending December 31:
1996 $303,444 64,800
1997 295,373 64,800
1998 243,884 64,800
1999 125,975 64,800
2000 29,880 27,000
-------- -------
Total minimum payments and receipts $998,556 286,200
-------- -------
-------- -------
Total rental expense for operating leases was approximately $225,000 in
1993, $254,000 in 1994 and $314,000 in 1995. Total sublease rental income
for operating leases was approximately $68,000 in 1993 and 1994 and $54,000
in 1995.
(8) INCOME TAXES
The Company is included in the consolidated federal income tax return filed
by IHC. Under a tax-sharing agreement with Holdings, the Company is
required to pay to Holdings total income taxes computed for financial
reporting purposes (see note 1) and, accordingly, deferred tax assets and
liabilities are maintained on the financial accounting records of IHC.
The provision for income taxes for 1993, 1994 and 1995 was computed in all
material respects as if the Company filed a separate income tax return.
Actual income tax expense did not differ from income tax expense determined
using the statutory federal income tax rate of 34%. Income tax expense
consists of the following:
1993 1994 1995
-------- --------- ---------
Current expense $846,872 1,144,043 1,209,294
Deferred expense (benefit) (78,800) (75,448) 15,023
-------- --------- ---------
$768,072 1,068,595 1,224,317
-------- --------- ---------
-------- --------- ---------
Deferred federal income taxes result from temporary differences in
reporting income and expenses for financial and tax purposes. A summary of
the source and tax effect of these differences follows:
1993 1994 1995
-------- ------- -------
Excess tax (book) depreciation $(37,169) 4,410 36,197
Bad debt expense less (greater) than actual
write-offs allowable for tax purposes (32,300) (1,700) 16,902
Expenses capitalized for tax purposes and
expensed for financial reporting purposes (9,331) (78,158) (38,076)
-------- ------- -------
Deferred expense (benefit) $(78,800) (75,448) 15,023
-------- ------- -------
-------- ------- -------
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<PAGE>
(9) EMPLOYEE BENEFITS
The Company makes payments to a multi-employer retirement plan for certain
employees in accordance with the bargaining unit contracts. Under the
terms of the union contracts, the Company is obligated to contribute 3% of
gross wages paid to covered employees. Total expense paid for employees
represented by the bargaining units was approximately $61,500 in 1993,
$68,700 in 1994 and $122,600 in 1995.
(10) RELATED PARTY TRANSACTIONS
Management fees paid to Holdings were $600,000 in each of the years 1993,
1994 and 1995. In addition, the Company pays federal income taxes, if any,
to Holdings (see note 8). The account balances are noninterest bearing.
Following is a summary of transactions included in the receivable from
parent company:
<TABLE>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Transfers of cash to Holdings $2,819,306 110,548 1,850,868
Federal income tax payment (768,071) (1,068,595) (1,224,317)
Management fees (600,000) (600,000) (600,000)
Receivable from parent company at beginning
of year 155,186 1,606,421 48,374
---------- ---------- ----------
Receivable from parent company at end of year $1,606,421 48,374 74,925
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
On December 15, 1990, the Company entered into agreements to loan an
aggregate of $500,000 to four members of management (outstanding principal
balance at December 31, 1995 is $375,000). Interest charged on these notes
is computed at rates which approximate the prime rate associated with the
Company's revolving line of credit. Interest earned on these notes was
$45,000 in 1993, $28,063 in 1994 and $25,313 in 1995. Common stock of the
Company acquired by the management members from a third party for an
aggregate amount of $669,843 is pledged as collateral on the loans. The
notes receivable are due on demand.
(11) SIGNIFICANT CUSTOMERS
The Company has certain customers, primarily in the petroleum retailing
industry, that individually account for greater than 10% of net sales in
1995, 1994 and 1993. In 1995, the Company had three such customers,
accounting for $9,667,801, $5,127,581 and $4,470,210 of revenues. In 1994,
there were two such customers, accounting for $7,012,010 and $4,061,618 of
revenues. In 1993, the Company had one such customer, accounting for
$8,419,174 of revenues. Additionally, accounts receivable from one
customer exceeded 10% of total accounts receivable at December 31, 1995.
Ten percent of the Company's net sales were to customers outside of the
United States during 1994.
(12) PROFIT SHARING PLAN
In August 1995, the Company began sponsoring a profit sharing plan (Plan)
in accordance with Section 401(k) of the Internal Revenue Code which allows
substantially all employees to participate. The Company's contribution to
the Plan is determined based on 50% of each dollar an employee contributes
with a maximum of 3% of gross wages per employee. Contributions were
$23,688 in 1995.
(13) SUBSEQUENT EVENTS
On November 13, 1996, IHC's Board of Directors and management approved
the distribution of 100% of IHC's investment in the Company to holders of
IHC common stock. In connection with this transaction, the Company entered
into a loan agreement in October 1996 with a bank which provides for a
$23 million credit facility and entered into a subordinated note purchase
agreement with another bank under which the Company will issue $10
-70-
<PAGE>
million of subordinated notes. The proceeds from the loan agreement and
the subordinated notes were used to repay existing long-term debt, declare
a dividend of $19.7 million and compensate certain senior officers of the
Company in the amount of $.7 million as consideration for termination of
their stock options. Upon completion of the distribution, the Company will
be a public company.
On December 3, 1996, the Board of Directors of the Company approved a
3,864-for-1 common stock split effective December 5, 1996. The stock
split increased the Company's issued common stock by 1,854,208 shares. The
accompanying financial statements have been retroactively restated to
reflect the stock split. In connection with the stock split, authorized
common shares were increased from 500 shares to 15,000,000 shares and the
par value was reduced from $100 to $.01 per share. Also, the Company
increased the number of authorized shares of preferred stock from 500 to
2,000,000 shares and reduced the par value from $100 to $.01 per share.
(14) PRO FORMA BALANCE SHEET (UNAUDITED)
The pro forma balance sheet at September 30, 1996 gives effect to the $19.7
million dividend and the corresponding increase in debt, as if such
transactions had been consummated as of September 30, 1996 (see note 13).
Other pro forma adjustments necessary to reflect the transactions discussed
in note 13 have not been presented in the accompanying unaudited pro forma
balance sheet. The pro forma balance sheet at September 30, 1996 is not
necessarily indicative of the Company's future financial position.
-71-
<PAGE>
ZIMMERMAN SIGN COMPANY
(a subsidiary of Zimmerman Holdings, Inc.)
Schedule II - Valuation and Qualifying Accounts
<TABLE>
Additions
Balance at charged to Balance at
beginning costs and end of
Allowance for doubtful accounts of period expenses Deductions(A) period
- ------------------------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Nine months ended September 30, 1996
(unaudited) $100,288 $ 36,800 (18,674) 118,414
Year ended December 31, 1995 150,000 (40,000) (9,712) 100,288
Year ended December 31, 1994 145,000 24,693 (19,693) 150,000
Year ended December 31, 1993 50,000 131,122 (36,122) 145,000
</TABLE>
(A) Write-off of uncollectible accounts.
-72-
<PAGE>
EXHIBITS
EXHIBIT NO. TITLE
- ----------- -----
3.1 Form of Amended and Restated Articles of Incorporation of
Zimmerman Sign Company.(1)
3.2 Form of Amended and Restated Bylaws of Zimmerman Sign Company.(1)
4.1 Distribution Agreement, dated as of November 26, 1996, by and
between Zimmerman Sign Company and Independence Holding
Company.(1)
4.2 Form of Registration Rights Agreement, dated as of December __,
1996, by and between Zimmerman Sign Company and Geneve Holdings,
Inc.(1)
10.1 First Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of October 31, 1996, by and between Zimmerman
Sign Company and Comerica Bank-Texas.(1)
10.2 Subordinated Credit Agreement, dated as of October 31, 1996,
between Zimmerman Sign Company and Bank of America Illinois.*
10.3 Stock Option Plan of Zimmerman Sign Company, dated as of
December 1, 1996.*
10.4 Form of Amended & Restated Employment Agreement, dated December 1,
1996, by and between Zimmerman Sign Company and David E.
Anderson.*
10.5 Form of Amended & Restated Employment Agreement, dated December 1,
1996, by and between Zimmerman Sign Company and Tom E. Boner.*
10.6 Form of Amended & Restated Employment Agreement, dated December 1,
1996, by and between Zimmerman Sign Company and Michael W.
Coppinger.*
10.7 Form of Amended & Restated Employment Agreement, dated December 1,
1996, by and between Zimmerman Sign Company and Jeffrey P.
Johnson.*
10.8 Form of Amended & Restated Employment Agreement, dated December 1,
1996, by and between Zimmerman Sign Company and John T. Griggs.*
- ----------------------
* Filed herewith
(1) Previously filed
-73-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized in Dallas, Texas on
December 12, 1996.
ZIMMERMAN SIGN COMPANY
By: /s/ DAVID E. ANDERSON
----------------------------------
Name: David E. Anderson
Title: Chairman
499612.14/D
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<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SUBORDINATED CREDIT AGREEMENT
DATED AS OF OCTOBER 31, 1996
BETWEEN
ZIMMERMAN SIGN COMPANY
AND
BANK OF AMERICA ILLINOIS
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . 12
1.3 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE II
THE CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Amount and Terms of Commitment. . . . . . . . . . . . . . . . . . . 13
2.2 Loan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . . 14
2.4 Conversion and Continuation Elections . . . . . . . . . . . . . . . 14
2.5 Optional Prepayments. . . . . . . . . . . . . . . . . . . . . . . . 15
2.6 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.8 Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.9 Computation of Fees and Interest. . . . . . . . . . . . . . . . . . 15
2.10 Payments by the Company . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . . . . . . . . 16
3.1 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Increased Costs and Reduction of Return . . . . . . . . . . . . . . 17
3.4 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Inability to Determine Rates. . . . . . . . . . . . . . . . . . . . 17
3.6 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IV
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1 Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 Conditions to All Loans . . . . . . . . . . . . . . . . . . . . . . 19
i
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . 20
5.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . 20
5.2 Corporate Authorization; No Contravention . . . . . . . . . . . . . 20
5.3 Governmental Authorization. . . . . . . . . . . . . . . . . . . . . 20
5.4 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.5 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.7 ERISA Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.8 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . 22
5.9 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . 22
5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.11 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 22
5.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 23
5.13 Regulated Entities. . . . . . . . . . . . . . . . . . . . . . . . . 23
5.14 No Burdensome Restrictions. . . . . . . . . . . . . . . . . . . . . 23
5.15 Copyrights, Patents, Trademarks and Licenses, etc.. . . . . . . . . 23
5.16 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI
AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . 24
6.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.4 Preservation of Corporate Existence, Etc. . . . . . . . . . . . . . 25
6.5 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . 26
6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . . . 26
6.8 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . 26
6.10 Inspection of Property and Books and Records. . . . . . . . . . . . 26
6.11 Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . . . 27
6.12 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Property Transfer, Merger or Lease-Back . . . . . . . . . . . . . . 28
7.3 Acquire Securities. . . . . . . . . . . . . . . . . . . . . . . . . 28
ii
<PAGE>
7.4 Limitation on Indebtedness. . . . . . . . . . . . . . . . . . . . . 29
7.5 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . 29
7.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.7 Contingent Obligations. . . . . . . . . . . . . . . . . . . . . . . 29
7.8 Joint Ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.9 Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.10 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . 30
7.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.12 Change in Business. . . . . . . . . . . . . . . . . . . . . . . . . 30
7.13 Accounting Changes. . . . . . . . . . . . . . . . . . . . . . . . . 30
7.15 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . 30
7.16 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII
EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.1 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 Rights Not Exclusive. . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX
SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Agreement to Subordinate. . . . . . . . . . . . . . . . . . . . . . 34
9.2 Liquidation; Dissolution; Bankruptcy. . . . . . . . . . . . . . . . 34
9.3 Default on Senior Debt. . . . . . . . . . . . . . . . . . . . . . . 35
9.4 Notice of Acceleration of Obligations . . . . . . . . . . . . . . . 36
9.5 When Distribution Must Be Paid Over . . . . . . . . . . . . . . . . 36
9.6 Notice by Company . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.7 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Subordination May Not Be Impaired by Company. . . . . . . . . . . . 37
9.10 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE X
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 38
10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . 39
10.4 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 39
10.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 39
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10.6 Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . 39
10.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 40
10.8 Assignments, Participations, etc.. . . . . . . . . . . . . . . . . 40
10.9 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.10 Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.11 Automatic Debits of Fees . . . . . . . . . . . . . . . . . . . . . 41
10.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.14 No Third Parties Benefited . . . . . . . . . . . . . . . . . . . . 42
10.15 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.16 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 42
Exhibits:
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Opinion of Guarantor's Counsel
Exhibit E Form of Guarantee and Contingent Purchase
Agreement of ICC
Exhibit F Form of the ICC Credit Agreement
Schedules:
Schedule 5.16 Minority Interests
Schedule 7.1 Permitted Liens
Schedule 7.5 Permitted Indebtedness
Schedule 7.8 Contingent Obligations
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SUBORDINATED CREDIT AGREEMENT
This SUBORDINATED CREDIT AGREEMENT is entered into as of October 31, 1996
(the "Agreement") between Zimmerman Sign Company, a Texas corporation (the
"COMPANY"), and Bank of America Illinois (the "BANK").
WHEREAS, the Bank has agreed to make available to the Company a credit
facility upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms have the following
meanings:
"AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities,
membership interests, by contract, or otherwise.
"AGREEMENT" means this Credit Agreement.
"APPLICABLE MARGIN" means: (i) with respect to Base Rate Loans,
0.50%; and (ii) with respect to Offshore Rate Loans, 1.6875%.
"ATTORNEY COSTS" means and includes all fees reasonable and
disbursements of any law firm or other external counsel, the reasonable
allocated cost of internal legal services and all disbursements of internal
counsel.
"BASE RATE" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate, which means, for any day, the rate set
forth in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New York
(including any such successor, "H.15(519)") on the preceding Business Day
opposite the caption "Federal Funds (Effective)"; or, if for any relevant
day such rate is not so published on any such preceding Business Day, the
rate for such day will be the arithmetic mean as determined by the Bank of
the rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m. (New York City time) on that day by each of three
leading brokers of Federal funds transactions in New York City selected by
the Bank; and (b) the rate of interest in effect for such day as publicly
announced from time to time by BofA in San Francisco, California, as its
"reference rate." (The "reference rate" is a rate set by BofA based upon
various factors including BofA's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing
some loans, which may be priced at, above, or below such announced rate.)
Any change in the reference rate announced by BofA shall take effect at the
opening of business on the day specified in the public announcement of such
change.
"BASE RATE LOAN" means a Loan that bears interest based on the Base
Rate.
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"BOFA" means Bank of America National Trust and Savings Association, a
national banking association.
"BORROWING DATE" means any date on which the Loan is made to the
Company under Section 2.3.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in Chicago are authorized or required by law
to close and, if the applicable Business Day relates to any Offshore Rate
Loan, means such a day on which dealings are carried on in the applicable
offshore dollar interbank market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"CASH FLOW" means, as of any date of determination and as determined
in accordance with GAAP, the sum of (i) the consolidated net income of the
Company for the preceding four calendar quarters, PLUS (ii) the
consolidated depreciation, amortization and deferred taxes of the Company
for such period, PLUS (iii) the following one-time expenses (net of
Federal, state and local income taxes) relating to the Reorganization: (A)
the fulfillment of net contractual commitments to senior officers of the
Company, (B) a refinancing fee to David E. Anderson, and (C) attorney and
accountant fees (collectively, "(A)" through "(C)" preceding are referred
to herein as the "One Time Expenses").
"CASH FLOW COVERAGE RATIO" means, as of any date of determination, the
Company's Cash Flow for the previous four calendar quarters divided by
scheduled principal payments made on the Senior Debt for the same period.
"CLOSING DATE" means the date on which all conditions precedent set
forth in Section 4.1 are satisfied or waived by the Bank.
"CODE" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT C.
"CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease, dividend,
letter of credit or other obligation (the "primary obligations") of another
Person (the "primary obligor"), including any obligation of that Person (i)
to purchase, repurchase or otherwise acquire such primary obligations or
any security therefor, (ii) to advance or provide funds for the payment or
discharge of any such primary obligation, or to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net
worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the
holder of any such primary obligation against loss in respect thereof
(each, a "GUARANTY OBLIGATION"); (b) with respect to any Surety Instrument
issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c) to purchase
any materials, supplies or other property from, or to obtain the services
of, another Person if the relevant contract or other related document or
obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether
delivery of such materials, supplies or other property is ever made or
tendered, or such services are ever performed or tendered, or (d) in
respect of any Swap Contract.
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"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound.
"CONVERSION/CONTINUATION DATE" means any date on which, under Section
2.4, the Company (a) converts a Loan of one Type to a Loan of another Type,
or (b) continues as a Loan of the same Type, but with a new Interest
Period, a Loan having an Interest Period expiring on such date.
"DEBT" means, as of any applicable date of determination, all items of
indebtedness, obligation or liability of a Person, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as balance sheet
liabilities in accordance with GAAP.
"DEFAULT" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"DEFERRED DIVIDEND PAYABLE TO MANAGEMENT" means the deferred portion
of the Special Dividend declared by the Company and to be paid to certain
members of management as a part of the Reorganization.
"DOLLARS", "DOLLARS" and "$" each mean lawful money of the United
States.
"EBITDA" means, as of any applicable date of determination and as
determined in accordance with GAAP, net income (plus for any period in
which the One Time Expenses were paid, the One Time Expenses) for the
previous four calendar quarters, plus (i) interest expense, tax expense,
depreciation and amortization expenses for the same period, plus (ii) any
loss for the same period and excluding (iii) any gain or loss for the same
period arising from the sale of capital assets other than from sales of
equipment held for lease.
"ENVIRONMENTAL CLAIMS" means all written claims by any Governmental
Authority or other Person alleging potential liability or responsibility
for violation of any Environmental Law, or for release or injury to the
environment for which a remedial or compliance obligation has arisen under
Environmental Laws.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities applicable to the Company, in each case relating to protection
or conservation of the environment or occupational health and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA EVENT" means (a) with respect to a Pension Plan, any of the
events set forth in Section 4043(c) of ERISA or the regulations thereunder,
other than any such event for which the 30-day notice requirement under
ERISA has been waived in regulations issued by the PBGC; (b) a withdrawal
by the Company or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial
employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of
operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Company or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer
Plan is in reorganization; (d) the filing of a notice of intent to
terminate, the treatment of a Plan amendment as a termination under Section
4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to
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terminate a Pension Plan or Multiemployer Plan; (e) an event or condition
which might reasonably be expected to constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan or Multiemployer Plan; or (f) the imposition
of any liability under Title IV of ERISA, other than PBGC premiums due but
not delinquent under Section 4007 of ERISA, upon the Company or any ERISA
Affiliate.
"EVENT OF DEFAULT" means any of the events or circumstances specified
in Section 8.1.
"EXISTING ICG CREDIT AGREEMENT" means the credit agreement dated
December 30, 1993 among ICG, certain financial institutions, and the Bank,
as agent.
"FIXED CHARGES" means, as of any date of determination, the aggregate
principal amount of Indebtedness scheduled to be paid by the Company during
the immediately preceding four calendar quarters, plus capital expenditures
for the same period.
"FIXED CHARGE COVERAGE RATIO" means, as of any date of determination,
an amount equal to the ratio resulting as the quotient of the Company's
Cash Flow divided by Fixed Charges.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to
the circumstances as of the date hereof.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary
or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"GUARANTY OBLIGATION" has the meaning specified in the definition of
"Contingent Obligation."
"ICC" means Independence Capital Corp., a Delaware corporation.
"ICC Credit Agreement" means the credit agreement between ICC and the
Bank in the form attached as EXHIBIT F.
"ICC GUARANTEE" means the guarantee and contingent purchase agreement
of ICC in the form attached as EXHIBIT E hereto.
"ICG" means Independence Capital Group, Inc., a Delaware corporation.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations with
respect to Surety Instruments; (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets
or businesses; (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property
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acquired by the Person (even though the rights and remedies of the seller
or bank under such agreement in the event of default are limited to
repossession or sale of such property); (f) all obligations with respect to
capital leases; (g) all net indebtedness referred to in clauses (a) through
(f) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including accounts and contracts rights) owned by such Person,
even though such Person has not assumed or become liable for the payment of
such Indebtedness; and (h) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses
(a) through (g) above. For all purposes of this Agreement, the Indebtedness
of any Person shall include all recourse Indebtedness of any partnership or
joint venture or limited liability company in which such Person is a general
partner or a joint venturer or a member.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section 10.5.
"INDEMNIFIED PERSON" has the meaning specified in Section 10.5.
"INDEPENDENT AUDITOR" has the meaning specified in subsection 6.1(a).
"INSOLVENCY PROCEEDING" means, with respect to any person, (a) any
case, action or proceeding with respect to such Person before any court or
other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial
portion of its creditors; undertaken under U.S. Federal, state or foreign
law, including the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Section
101, ET SEQ.).
"INTEREST PAYMENT DATE" means, as to any Offshore Rate Loan, the last
day of each Interest Period applicable to such Loan and, as to any Base
Rate Loan, the last Business Day of each calendar quarter and each date
such Loan is converted into another Type of Loan, PROVIDED, HOWEVER, that
if any Interest Period for an Offshore Rate Loan exceeds three months, the
date that falls three months after the beginning of such Interest Period
and after each Interest Payment Date thereafter is also an Interest Payment
Date.
"INTEREST PERIOD" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two, three
or six months thereafter as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation; PROVIDED that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period; and
(iii) no Interest Period for any Loan shall extend beyond the
Termination Date as determined by subsection (a) of the definition of
that term.
"JOINT VENTURE" means a single-purpose corporation, partnership,
limited liability company, joint venture or other similar legal arrangement
(whether created by contract or conducted through a separate legal
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entity) now or hereafter formed by the Company or any of its Subsidiaries
with another Person in order to conduct a common venture or enterprise with
such Person.
"LIEN" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the Uniform Commercial
Code or any comparable law), but not including the interest of a lessor
under an operating lease.
"LOAN" means the extension of credit by the Bank to the Company under
Article II, or any portion thereof remaining after or resulting from any
conversion of a Loan under Section 2.4, and may be a Base Rate Loan or an
Offshore Rate Loan (each, a "TYPE" of Loan).
"LOAN DOCUMENTS" means this Agreement and all other documents
delivered by the Company to the Bank in connection herewith.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Company or the
Company and its Subsidiaries taken as a whole; (b) a material impairment of
the ability of the Company to perform under any Loan Document and to avoid
any Event of Default; or (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against the Company of any Loan
Document.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", within the meaning
of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the
preceding three calendar years, has made, or been obligated to make,
contributions.
"NOTICE OF BORROWING" means a notice in substantially the form of
EXHIBIT A.
"NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially
the form of EXHIBIT B.
"OBLIGATIONS" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company
to the Bank or any Indemnified Person, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising.
"OFFSHORE RATE" means, for any Interest Period, with respect to an
Offshore Rate Loan the rate of interest per annum (rounded upward to the
next 1/16th of 1%) determined by the Bank as follows:
Offshore Rate = IBOR
-------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on such
day (whether or not applicable to the Bank) under regulations issued
from time to time by the FRB for determining the maximum reserve
requirement (including any emergency, supplemental or
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other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency liabilities"); and
"IBOR" means the rate of interest per annum determined by the
Bank as the rate at which dollar deposits in the approximate amount of
the Bank's Offshore Rate Loan for such Interest Period would be
offered by the BofA's Grand Cayman Branch, Grand Cayman B.W.I. (or
such other office as may be designated for such purpose by the Bank),
to major banks in the offshore dollar interbank market at their
request at approximately 11:00 a.m. (New York City time) two Business
Days prior to the commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"OFFSHORE RATE LOAN" means a Loan that bears interest based on the
Offshore Rate.
"ORGANIZATION DOCUMENTS" means, for any corporation, the certificate
or articles of incorporation, the bylaws, any certificate of determination
or instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"PARTICIPANT" has the meaning specified in subsection 9.8(b).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under
ERISA.
"PENSION PLAN" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Company sponsors, maintains,
or to which it makes, is making, or is obligated to make contributions, or
in the case of a multiple employer plan (as described in Section 4064(a) of
ERISA) has made contributions at any time during the immediately preceding
five (5) plan years.
"PERMITTED LIENS" has the meaning specified in Section 7.1.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Company sponsors or maintains or to which the Company
makes, is making, or is obligated to make contributions and includes any
Pension Plan.
"REORGANIZATION" means (i) the borrowing contemplated hereby, (ii) the
borrowing under the Senior Credit Agreement, (iii) the repayment of the
Company's existing senior indebtedness to Comerica Bank - Texas, (iv) the
fulfillment of net contractual commitments to senior officers of the
Company, (v) the payment of costs incurred in connection with clauses (i)
through (iv) of this sentence, (vi) the declaration of the Special Dividend
and the related Deferred Dividend Payable to Management, and (vii) the
recapitalization of the Company's outstanding Common Stock.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of
a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject.
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"RESPONSIBLE OFFICER" means the chief executive officer or the
president of the Company, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of the
Company, or any other officer having substantially the same authority and
responsibility.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"SENIOR AGENT" means the agent under the Senior Credit Agreement.
"SENIOR CREDIT AGREEMENT" means the Credit Agreement dated October
31,1996 among the Company, certain financial institutions and Comerica Bank
- Texas, as amended, modified, restructured and supplemented from time to
time in accordance with SECTION 7.15.
"SENIOR CREDIT DOCUMENTS" means the "Documents" as defined in the
Senior Credit Agreement, each as amended, supplemented or modified from
time to time in accordance with SECTION 7.15.
"SENIOR DEBT" means (a) all "Senior Indebtedness" (as defined in the
Senior Credit Agreement) under the Senior Credit Agreement in an aggregate
principal amount not to exceed $23,000,000 (such maximum amount to be
reduced by the amount of any principal payments made from time to time on
the term loan portion of the Senior Debt); (b) all interest and fees
payable with respect thereto (including any interest and fees accruing
subsequent to the commencement of any bankruptcy or similar proceeding with
respect to the Company, whether or not allowed or allowable as a claim in
such proceeding); (c) all obligations in respect of expenses payable under
Sections 5.1, 5.5, and 12.6 of the Senior Credit Agreement; and (d)
additional Indebtedness incurred by the Company and designated as "Senior
Debt" by notice to the Bank not to exceed $2,500,000 at any one time
outstanding.
"SENIOR LENDERS" means the lenders from time to time party to the
Senior Credit Agreement.
"SPECIAL DIVIDEND" means the special dividends declared by the Board
of Directors of the Company in the aggregate amount of $19,700,000 payable
to the Company's shareholders.
"SENIOR NOTES" means the "Notes" as defined in the Senior Credit
Agreement.
"SUBORDINATED DEBT" means all Debt, the payment of which (and the
security for) has been subordinated to the Senior Debt, including the
Obligations.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests or
other equity interests (in the case of Persons other than corporations), is
owned or controlled directly or indirectly by the Person, or one or more of
the Subsidiaries of the Person, or a combination thereof. Unless the
context otherwise clearly requires, references herein to a "Subsidiary"
refer to a Subsidiary of the Company.
"SURETY INSTRUMENTS" means all letters of credit (including standby
and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"SWAP CONTRACT" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap
or option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other,
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similar transaction (including any option to enter into any of the
foregoing) or any combination of the foregoing, and, unless the context
otherwise clearly requires, any master agreement relating to or governing
any or all of the foregoing.
"TANGIBLE NET WORTH" means, as of any applicable date of
determination, the excess of (i) the book value of all assets of the
Company and the Subsidiaries (other than patents, patent rights,
trademarks, trade names, franchises, copyrights, goodwill, and similar
intangible assets) after all appropriate deductions (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation,
and amortization), all as determined on a consolidated basis in accordance
with GAAP, less (ii) all Debt (excluding the Deferred Dividend Payable to
Management) and plus (iii) all Subordinated Debt of the Company and its
Subsidiaries which, in accordance with GAAP, would be required to be
presented on their consolidated balance sheet at such date.
"TERMINATION DATE" means October 31, 2001.
"TYPE" has the meaning specified in the definition of "Loan."
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"UNITED STATES" and "U.S." each means the United States of America.
"WHOLLY-OWNED SUBSIDIARY" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of
each class having ordinary voting power, and 100% of the capital stock of
every other class, in each case, at the time as of which any determination
is being made, is owned, beneficially and of record, by the Company, or by
one or more of the other Wholly-Owned Subsidiaries at the Company, or both.
1.2 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified. The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced. The term "including" is not limiting and means
"including without limitation." In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding", and the
word "through" means "to and including."
(c) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(d) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement. This
Agreement and other Loan Documents may use several different limitations, tests
or measurements to regulate the same or similar matters. All such limitations,
tests and measurements are cumulative and shall each be performed in accordance
with their terms. Unless otherwise expressly provided, any
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reference to any action of the Agent or the Banks by way of consent, approval
or waiver shall be deemed modified by the phrase "in its/their sole
discretion."
(e) This Agreement and the other Loan Documents are the result of
negotiations between and have been reviewed by counsel to the Bank and the
Company, and are the products of both parties. Accordingly, they shall not be
construed against the Bank merely because of the Bank's involvement in their
preparation.
1.3 ACCOUNTING PRINCIPLES. Unless the context otherwise clearly requires,
all accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied. References herein to "fiscal year"
and "fiscal quarter" refer to such fiscal periods of the Company.
ARTICLE II
THE CREDIT
2.1 AMOUNT AND TERMS OF COMMITMENT. The Bank agrees, on the terms and
conditions set forth herein, to make a Loan to the Company on a Business Day
prior to November 15, 1996 in the amount of $10,000,000. The Bank shall make
only one Loan under this Agreement, although such Loan may be continued or
converted in parts, i.e. as multiple Loans hereunder, subject to the terms
hereof. Any amount repaid may not be reborrowed.
2.2 LOAN ACCOUNTS. The Loans made by the Bank shall be evidenced by one or
more loan accounts or records maintained by the Bank in the ordinary course of
business. The loan accounts or records maintained by the Bank shall be
conclusive absent manifest error in calculating the amount of the Loans made by
the Bank to the Company and the interest and payments thereon. Any failure so
to record or any error in doing so shall not, however, limit or otherwise affect
the obligation of the Company hereunder to pay any amount owing with respect to
the Loans.
2.3 PROCEDURE FOR BORROWING. The Loan shall be made upon the Company's
irrevocable written notice delivered to the Bank in the form of a Notice of
Borrowing (which notice must be received by the Bank prior to 11:00 a.m.
(Chicago time) (a) three Business Days prior to the requested Borrowing Date, in
the case of an Offshore Rate Loan; and (b) on the requested Borrowing Date, in
the case of a Base Rate Loan, specifying: (i) the amount ; (ii) the requested
Borrowing Date, which shall be a Business Day; (iii) the Type of Loan requested;
and (iv) the duration of the Interest Period applicable to such Loan. If the
Notice of Borrowing fails to specify the duration of the Interest Period for an
Offshore Rate Loan, such Interest Period shall be three months. The proceeds of
the Loan will be made available to the Company by the Bank either (i) by
crediting the account of the Company on the books of the Bank, or by wire
transfer in accordance with written instructions provided to the Bank by the
Company.
2.4 CONVERSION AND CONTINUATION ELECTIONS. (a) The Company may, upon
irrevocable written notice to the Bank in accordance with subsection 2.4(b):
(i) elect, as of any Business Day, in the case of a Base Rate Loan, or as of the
last day of the applicable Interest Period, in the case of an Offshore Rate
Loan, to convert any such Loan (or any part thereof in an amount not less than
$1,000,000, or that is in an integral multiple of $1,000,000 in excess thereof)
into a Loan of any other Type; or (ii) elect, as of the last day of the
applicable Interest Period, to continue a Loan having an Interest Period
expiring on such day (or any part thereof in an amount not less than $1,000,000,
or that is in an integral multiple of $1,000,000 in excess thereof); PROVIDED,
that if at any time the amount of any Offshore Rate Loan is reduced, by payment,
prepayment, or conversion of part thereof to be less than $1,000,000, such
Offshore Rate Loan shall automatically convert into a Base Rate Loan, and on and
after such date the right of the Company to continue such Loan as, and convert
such Loan into, an Offshore Rate Loan shall terminate.
(b) The Company shall deliver a Notice of Conversion/Continuation to
be received by the Bank not later than 11:00 a.m. (Chicago time) at least (i)
three Business Days in advance of the Conversion/Continuation Date,
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if any Loan is to be converted into or continued as an Offshore Rate Loan;
and (ii) on the Conversion/Continuation Date, if any Loan is to be converted
into a Base Rate Loan, specifying: (A) the proposed Conversion/Continuation
Date; (B) the amount of the Loan to be converted or continued; (C) the Type
of Loan resulting from the proposed conversion or continuation; and (D) other
than in the case of conversions into Base Rate Loans, the duration of the
requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to an
Offshore Rate Loan, the Company has failed to select timely a new Interest
Period to be applicable to such Loan, or if any Default or Event of Default then
exists, the Company shall be deemed to have elected to convert such Loan into a
Base Rate Loan effective as of the expiration date of such Interest Period.
(d) Unless the Bank otherwise consents, during the existence of a
Default or Event of Default, the Company may not elect to have a Loan converted
into or continued as an Offshore Rate Loan.
2.5 OPTIONAL PREPAYMENTS. Subject to Section 3.4, the Company may, at any
time or from time to time, upon not less than one Business Day's irrevocable
notice to the Bank, prepay Loans in whole or in part, in minimum amounts of
$100,000, or any multiple of $100,000 in excess thereof. Such notice of
prepayment shall specify the date and amount of such prepayment and the Type(s)
of Loans to be prepaid. If such notice is given by the Company, the Company
shall make such prepayment and the payment amount specified in such notice shall
be due and payable on the date specified therein, together with accrued interest
to each such date on the amount prepaid and any amounts required pursuant to
Section 3.4.
2.6 REPAYMENT. The Company shall repay to the Bank on the Termination Date
the aggregate principal amount of all Loans outstanding on such date. The
Company shall also prepay the Loans as required pursuant to SECTION 7.16. Any
such prepayment shall reduce the scheduled installments in inverse order of
their maturity.
2.7 INTEREST. (a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Offshore Rate or the Base Rate, as the case may be (and subject to
the Company's right to convert to other Types of Loans under Section 2.4), PLUS
the Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of
Loans under Section 2.6 for the portion of the Loans so prepaid and upon payment
(including prepayment) in full thereof and, during the existence of any Event of
Default, interest shall be paid on demand of the Bank.
(c) Notwithstanding subsection (a) of this Section, while any Event of
Default exists or after acceleration, the Company shall pay interest (after as
well as before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Loans, at a rate per annum which is
determined by adding 2% per annum to the Applicable Margin then in effect for
such Loans; PROVIDED, HOWEVER, that, on and after the expiration of any Interest
Period applicable to any Offshore Rate Loan outstanding on the date of
occurrence of such Event of Default or acceleration, the principal amount of
such Loan shall, during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%.
2.8 FEE. The Company shall pay an upfront fee of $50,000 to the Bank on
the Closing Date.
2.9 COMPUTATION OF FEES AND INTEREST. All computations of interest and
fees shall be made on the basis of a 360-day year and actual days elapsed (which
results in more interest being paid than if computed on the basis of a 365-day
year). Interest shall accrue during each period during which interest is
computed from the first day thereof to the last day thereof. Each determination
of an interest rate by the Bank shall be conclusive and binding on the Company
in the absence of manifest error.
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2.10 PAYMENTS BY THE COMPANY. All payments to be made by the Company shall
be made without set-off, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by the Company shall be made to the Bank
at the address from time to time specified by the Bank for such purpose, and
shall be made in dollars and in immediately available funds, no later than 3:00
p.m. (Chicago time) on the date specified herein. Any payment received by the
Bank later than 3:00 p.m. (Chicago time) shall be deemed to have been received
on the following Business Day and any applicable interest or fee shall continue
to accrue. Subject to the provisions set forth in the definition of "Interest
Period" herein, whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1 TAXES. If any payments to the Bank under this Agreement are made from
outside the United States, the Company will not deduct any foreign taxes from
any payments it makes to the Bank. If any such taxes are imposed on any
payments made by the Company (including payments under this Section), the
Company will pay the taxes and will also pay to the Bank, at the time interest
is paid, any additional amount which the Bank specifies as necessary to preserve
the after-tax yield the Bank would have received if such taxes had not been
imposed. The Company will confirm that it has paid the taxes by giving the Bank
official tax receipts (or notarized copies) within 30 days after the due date.
3.2 ILLEGALITY. (a) If the Bank determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for the Bank or any applicable lending office of the Bank
to make Offshore Rate Loans, then, on notice thereof by the Bank to the Company,
any obligation of the Bank to make Offshore Rate Loans shall be suspended until
the Bank notifies the Company that the circumstances giving rise to such
determination no longer exist.
(b) If the Bank determines that it is unlawful to maintain Offshore
Rate Loans, the Company shall, upon its receipt of notice of such fact and
demand from the Bank, prepay in full all Offshore Rate Loans then outstanding,
together with interest accrued thereon and amounts required under Section 3.4,
either on the last day of the Interest Period thereof, if the Bank may lawfully
continue to maintain Offshore Rate Loans to such day, or immediately, if the
Bank may not lawfully continue to maintain Offshore Rate Loans. If the Company
is required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, the Company shall borrow from the Bank, in the amount of such
repayment, a Base Rate Loan.
3.3 INCREASED COSTS AND REDUCTION OF RETURN. (a) If the Bank determines
that, due to either (i) the introduction of or any change in or in the
interpretation of any law or regulation or (ii) the compliance by the Bank with
any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to the Bank of agreeing to make or making, funding or maintaining any
Offshore Rate Loan, then the Company shall be liable for, and shall from time to
time, upon demand, pay to the Bank, additional amounts as are sufficient to
compensate the Bank for such increased costs.
(b) If the Bank shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Bank (or any
applicable lending office of the Bank) or any corporation controlling the Bank
with any Capital Adequacy Regulation, affects or would affect the amount of
capital required or expected to be maintained by the Bank or any corporation
controlling the Bank and (taking into consideration the
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Bank's or such corporation's policies with respect to capital adequacy and
the Bank's desired return on capital) determines that the amount of such
capital is increased as a consequence of its Commitment, loans, credits or
obligations under this Agreement, then, upon demand of the Bank to the
Company, the Company shall pay to the Bank, from time to time as specified by
the Bank, additional amounts sufficient to compensate the Bank for such
increase.
3.4 FUNDING LOSSES. The Company shall reimburse the Bank and hold the Bank
harmless from any loss or expense which the Bank may sustain or incur as a
consequence of: (a) the failure of the Company to make on a timely basis any
payment of principal of any Offshore Rate Loan; (b) the failure of the Company
to borrow, continue or convert a Loan after the Company has given (or is deemed
to have given) a Notice of Borrowing or a Notice of Conversion/Continuation;
(c) the failure of the Company to make any prepayment in accordance with any
notice delivered under Section 2.6; (d) the prepayment or other payment
(including after acceleration thereof) of an Offshore Rate Loan on a day that is
not the last day of the relevant Interest Period; or (e) the automatic
conversion under Section 2.4 of any Offshore Rate Loan to a Base Rate Loan on a
day that is not the last day of the relevant Interest Period; INCLUDING any such
loss or expense arising from the liquidation or reemployment of funds obtained
by it to maintain any Offshore Rate Loans or from fees payable to terminate the
deposits from which such funds were obtained.
3.5 INABILITY TO DETERMINE RATES. If the Bank determines that for any
reason adequate and reasonable means do not exist for determining the Offshore
Rate for any requested Interest Period with respect to a proposed Offshore Rate
Loan, or that the Offshore Rate applicable pursuant to subsection 2.9(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to the Bank of funding such Loan, the
Bank will promptly so notify the Company. Thereafter, the obligation of the
Bank to make or maintain Offshore Rate Loans hereunder shall be suspended until
the Bank revokes such notice in writing. Upon receipt of such notice, the
Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation
then submitted by it. If the Company does not revoke such Notice, the Bank
shall make, convert or continue the Loan, as proposed by the Company, in the
amount specified in the applicable notice submitted by the Company, but such
Loans shall be made, converted or continued as a Base Rate Loan instead of an
Offshore Rate Loan, as the case may be.
3.6 SURVIVAL. The agreements and obligations of the Company in this
Article III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 DELIVERY OF DOCUMENTS. The obligation of the Bank to make the Loan
hereunder is subject to the condition that the Bank has received on or before
the Closing Date all of the following, in form and substance satisfactory to
the Bank:
(a) CREDIT AGREEMENT. This Agreement executed by the Company;
(b) RESOLUTIONS; INCUMBENCY. (i) Copies of the resolutions of the
board of directors of the Company authorizing the transactions contemplated
hereby, certified as of the Closing Date by the Secretary of the Company; and
(ii) a certificate of the Secretary of the Company certifying the names and true
signatures of the officers of the Company authorized to execute, deliver and
perform, as applicable, this Agreement, and all other Loan Documents to be
delivered by it hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the following
documents: (i) the articles or certificate of incorporation and the bylaws of
the Company as in effect on the Closing Date, certified by the Secretary of the
Company as of the Closing Date; and (ii) a good standing and tax good standing
certificate for the Company from
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the Secretary of State (or similar, applicable Governmental Authority) of its
state of incorporation and each state where the Company is qualified to do
business as a foreign corporation as of a recent date.
(d) ICC GUARANTEE. The ICC Guarantee executed by ICC;
(e) RESOLUTIONS; INCUMBENCY - ICC. (i) Copies of the resolutions of
the Board of Directors of ICC authorizing transactions contemplated by the ICC
Guarantee, certified as of Closing Date by the Secretary of ICC; and (ii) a
certificate of the Secretary of ICC certifying the names and the signatures of
the officers of ICC authorized to execute, deliver, and perform, as applicable,
the ICC Guarantee and the ICC Credit Agreement;
(f) ORGANIZATION DOCUMENT; GOOD STANDING - ICC. Each of the following
documents: (i) the articles or certificate of incorporation and bylaws of ICC as
in effect on the Closing Date and the articles of merger pursuant to which ICG
has been merged into ICC, certified by the Secretary of ICC as of the Closing
Date; (ii) a good standing and tax good standing certificate for ICC from the
Secretary of State (or similar, applicable Governmental Authority) of its state
of incorporation and in each state where ICC is qualified to do business as a
foreign corporation as of a recent date;
(g) LEGAL OPINION. A favorable opinion of counsel to ICC, in
substantially the form of Exhibit D, addressed to the Bank;
(h) PAYMENT OF FEES. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of the Bank to the extent
invoiced prior to or on the Closing Date, plus such additional amounts of
Attorney Costs as shall constitute the Bank's reasonable estimate of Attorney
Costs incurred or to be incurred by it through the closing proceedings (provided
that such estimate shall not thereafter preclude final settling of accounts
between the Company and the Bank); including any such costs, fees and expenses
arising under or referenced in Sections 2.10 and 9.4;
(i) CERTIFICATE. A certificate signed by a Responsible Officer, dated
as of the Closing Date, stating that: (i) the representations and warranties
contained in Article V are true and correct on and as of such date, as though
made on and as of such date; (ii) no Default or Event of Default exists or would
result from the execution and delivery of this Agreement; and (iii) there has
occurred since December 31, 1995 no event or circumstance that has resulted or
could reasonably be expected to result in a Material Adverse Effect; and
(j) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as the Bank may reasonably request.
4.2 CONDITIONS TO ALL LOANS. The obligation of the Bank to make the Loan
is subject to the satisfaction of the following additional conditions precedent
on the Borrowing Date:
(a) NOTICE OF BORROWING. The Bank shall have received a Notice of
Borrowing;
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in Article V shall be true and correct in all
material respects on and as of the Borrowing Date with the same effect as if
made on and as of such Borrowing Date (except to the extent such representations
and warranties expressly refer to an earlier date, in which case they shall be
true and correct in all material respects as of such earlier date); and
(c) NO EXISTING DEFAULT. No Default or Event of Default shall exist
or shall result from such Loan.
(d) MERGER. ICG shall have been merged with and into ICC.
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(e) EXISTING ICG AGREEMENT. The obligations of ICG under the Existing
ICG Credit Agreement shall be concurrently repaid with the Loan and the
commitment of the lenders thereunder shall have been terminated.
(f) ICC CREDIT AGREEMENT. The ICC Credit Agreement shall have become
effective.
The Notice of Borrowing submitted by the Company hereunder shall constitute a
representation and warranty by the Company hereunder, as of the date of such
notice and as of such Borrowing Date, that the conditions in this Section 4.2
are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Bank that:
5.1 CORPORATE EXISTENCE AND POWER. The Company: (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) has the power and authority and all
governmental licenses, authorizations, consents and approvals to own its assets,
carry on its business and to execute, deliver, and perform its obligations under
the Loan Documents; (c) is duly qualified as a foreign corporation and is
licensed and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification or license; and (d) is in compliance with all
Requirements of Law; except, in each case referred to in clause (c) or clause
(d), to the extent that the failure to do so would not reasonably be expected to
have a Material Adverse Effect.
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by the Company of this Agreement and each other Loan Document to
which the Company is party, have been duly authorized by all necessary corporate
action, and do not and will not: (a) contravene the terms of any of the
Company's Organization Documents; (b) conflict with or result in any breach or
contravention of, or the creation of any Lien under, any document evidencing any
Contractual Obligation to which the Company is a party or any order, injunction,
writ or decree of any Governmental Authority to which the Company or its
property is subject; or (c) violate any Requirement of Law.
5.3 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company of
the Agreement or any other Loan Document.
5.4 BINDING EFFECT. This Agreement and each other Loan Document to which
the Company is a party constitute the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
5.5 LITIGATION. There are no actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company or any of its respective properties which: (a)
purport to affect or pertain to this Agreement or any other Loan Document, or
any of the transactions contemplated hereby or thereby; or (b) if determined
adversely to the Company, would reasonably be expected to have a Material
Adverse Effect. No injunction, writ, temporary restraining order or any order
of any nature has been issued by any court or other Governmental Authority
purporting to enjoin or restrain the execution, delivery or performance of this
Agreement or any other Loan Document, or directing that the transactions
provided for herein or therein not be consummated as herein or therein provided.
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5.6 NO DEFAULT. No Default or Event of Default exists or would result from
the incurring of any Obligations by the Company. As of the Closing Date, the
Company is not in default under or with respect to any Contractual Obligation in
any respect which, individually or together with all such defaults, would
reasonably be expected to have a Material Adverse Effect, or that would, if such
default had occurred after the Closing Date, create an Event of Default under
subsection 8.1(e).
5.7 ERISA COMPLIANCE. (a) Each Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law. Each Plan which is intended to qualify under Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service, and any Governmental Authority succeeding to any of its principal
functions under the Code, and to the best knowledge of the Company, nothing has
occurred which would cause the loss of such qualification. The Company and each
ERISA Affiliate has made all required contributions to any Plan subject to
Section 412 of the Code, and no application for a funding waiver or an extension
of any amortization period pursuant to Section 412 of the Code has been made
with respect to any Plan.
(b) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(c)(i) No ERISA Event has occurred or is reasonably expected to
occur;(ii) no Pension Plan has any Unfunded Pension Liability;(iii) neither the
Company nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability under Title IV of ERISA with respect to any Pension Plan (other
than premiums due and not delinquent under Section 4007 of ERISA);(iv) neither
the Company nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability (and no event has occurred which, with the giving of notice
under Section 4219 of ERISA, would result in such liability) under Section 4201
or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the
Company nor any ERISA Affiliate has engaged in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA.
5.8 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans are to
be used solely for the purposes set forth in and permitted by Section 6.12 and
Section 7.7. The Company is not generally engaged in the business of purchasing
or selling Margin Stock or extending credit for the purpose of purchasing or
carrying Margin Stock.
5.9 TITLE TO PROPERTIES. The Company has good record and indefeasible
title in fee simple to, or valid leasehold interests in, all real property
necessary or used in the ordinary conduct of its businesses, except for such
defects in title as could not, individually or in the aggregate, have a Material
Adverse Effect. As of the Closing Date, the property of the Company is subject
to no Liens, other than Permitted Liens.
5.10 TAXES. The Company has filed (or in the case of any consolidated,
unitary or combined return, the Company has been included in a return filed) all
Federal and other material tax returns and reports required to be filed, and has
paid all Federal and other taxes, assessments, fees and other governmental
charges levied or imposed upon it or its properties, income or assets otherwise
due and payable, for which failure to timely file or pay would be reasonably
likely to have a Material Adverse Effect, except those which are being contested
in good faith by appropriate proceedings and for which adequate reserves have
been provided in accordance with GAAP. There is no proposed tax assessment
against the Company or any Subsidiary that would, if made, have a Material
Adverse Effect.
5.11 FINANCIAL CONDITION. The audited consolidated financial statements of
the Company dated December 31, 1995, and the related consolidated statements of
income or operations, shareholders' equity and cash flows for the fiscal year
ended on that date and the unaudited consolidated financial statements of the
Company dated June 30, 1996, and the related consolidated statements of income
on operations, shareholders' equity and cash flows for the fiscal quarter ended
on that date:(i) were prepared in accordance with GAAP consistently applied
throughout the period covered
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thereby, except as otherwise expressly noted therein, subject to ordinary,
good faith year end audit adjustments; (ii) fairly present the financial
condition of the Company as of the date thereof and results of operations for
the period covered thereby; and (iii) show all material indebtedness and
other liabilities, direct or contingent, of the Company as of the date
thereof, including liabilities for taxes, material commitments and Contingent
Obligations. Since December 31, 1995, there has been no Material Adverse
Effect.
5.12 ENVIRONMENTAL MATTERS. The Company conducts in the ordinary course of
business a review of the effect of existing requirements of Environmental Laws
and existing Environmental Claims on its business, operations and properties,
and as a result thereof the Company has reasonably concluded that, such
Environmental Laws and Environmental Claims could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
5.13 REGULATED ENTITIES. The Company is not an "Investment Company" within
the meaning of the Investment Company Act of 1940. The Company is not subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.
5.14 NO BURDENSOME RESTRICTIONS. The Company is not a party to or bound by
any Contractual Obligation, or subject to any restriction in any Organization
Document, or any Requirement of Law, which could reasonably be expected to have
a Material Adverse Effect.
5.15 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Company owns
or is licensed or otherwise has the right to use all of the patents, trademarks,
service marks, trade names, copyrights, contractual franchises, authorizations
and other rights that are reasonably necessary for the operation of its
businesses, without conflict with the rights of any other Person. To the best
knowledge of the Company, no slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed, by the Company infringes upon any rights held by
any other Person. No claim or litigation regarding any of the foregoing is
pending or, to the knowledge of the Company, threatened, and no patent,
invention, device, application, principle or any statute, law, rule, regulation,
standard or code is pending or, to the knowledge of the Company, proposed,
which, in either case, could reasonably be expected to have a Material Adverse
Effect.
5.16 SUBSIDIARIES. As of the Closing Date, the Company has no Subsidiaries
and has no equity investments in any other corporation or entity other than
those specifically disclosed in SCHEDULE 5.16.
5.17 INSURANCE. The properties of the Company are insured with financially
sound and reputable insurance companies not Affiliates of the Company, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where the Company operates.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as the Bank shall have any
Commitment hereunder, or any Loan or other Obligation shall remain unpaid or
unsatisfied, unless the Bank waives compliance in writing:
6.1 FINANCIAL STATEMENTS. The Company shall deliver to the Bank, in form
and detail satisfactory to the Bank:
(a) as soon as available, but not later than 90 days after the end of
each fiscal year, a copy of the audited consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year and the related
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consolidated statements of income or operations, shareholders' equity and cash
flows for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, and accompanied by the opinion of KPMG Peat
Marwick L.L.P. or another nationally-recognized independent public accounting
firm ("INDEPENDENT AUDITOR") which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted
or limited examination by the Independent Auditor of any material portion of the
Company's or any Subsidiary's records; and
(b) as soon as available, but not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year, a copy of the
unaudited consolidated balance sheet of the Company and its Subsidiaries as of
the end of such quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, and certified by a Responsible
Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good
faith year-end audit adjustments), the financial position and the results of
operations of the Company and the Subsidiaries.
6.2 CERTIFICATES; OTHER INFORMATION. The Company shall furnish to the
Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), a Compliance Certificate executed by
a Responsible Officer;
(b) promptly, copies of all financial statements and reports that the
Company sends to its shareholders, and copies of all financial statements and
regular, periodical or special reports (including Forms 10-K, 10-Q and 8-K) that
the Company or any Subsidiary may make to, or file with, the SEC; and
(c) promptly, such additional information regarding the business,
financial or corporate affairs of the Company or any Subsidiary as the Bank may
from time to time reasonably request.
6.3 NOTICES. The Company shall promptly notify the Bank:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of any matter that has resulted or may result in a Material
Adverse Effect, including (i) breach or non-performance of, or any default
under, a Contractual Obligation of the Company or any Subsidiary; (ii) any
dispute, litigation, investigation, proceeding or suspension between the Company
or any Subsidiary and any Governmental Authority; or (iii) the commencement of,
or any material development in, any litigation or proceeding affecting the
Company or any Subsidiary; including pursuant to any applicable Environmental
Laws;
(c) of the occurrence of any of the following events affecting the
Company or any ERISA Affiliate (but in no event more than 10 Business Days after
such event), and deliver to the Bank a copy of any notice with respect to such
event that is filed with a Governmental Authority and any notice delivered by a
Governmental Authority to the Company or any ERISA Affiliate with respect to
such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension
Liability of any Pension Plan; (iii) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code by the Company or
any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to
Section 412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability; and
(d) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries.
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Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Company or any affected
Subsidiary proposes to take with respect thereto and at what time. Each
notice under subsection 6.3(a) shall describe with particularity any and all
clauses or provisions of this Agreement or other Loan Document that have been
(or foreseeably will be) breached or violated.
6.4 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Company shall: (a)
preserve and maintain in full force and effect its corporate existence and
good standing under the laws of its state or jurisdiction of incorporation;
(b) preserve and maintain in full force and effect all governmental rights,
privileges, qualifications, permits, licenses and franchises necessary or
desirable in the normal conduct of its business; (c) use reasonable efforts,
in the ordinary course of business, to preserve its business organization and
goodwill; and (d) preserve or renew all of its registered patents,
trademarks, trade names and service marks, the non-preservation of which
could reasonably be expected to have a Material Adverse Effect.
6.5 MAINTENANCE OF PROPERTY. The Company shall maintain, and shall
cause each Subsidiary to maintain, and preserve all its property which is
used or useful in its business in good working order and condition, ordinary
wear and tear excepted.
6.6 INSURANCE. The Company shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss
or damage of the kinds customarily insured against by Persons engaged in the
same or similar business, of such types and in such amounts as are
customarily carried under similar circumstances by such other Persons.
6.7 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including: (a) all tax
liabilities, assessments and governmental charges or levies upon it or its
properties or assets, unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are
being maintained by the Company or such Subsidiary; (b) all lawful claims
which, if unpaid, would by law become a Lien upon its property; and (c) all
indebtedness, as and when due and payable, but subject to any subordination
provisions contained in any instrument or agreement evidencing such
Indebtedness.
6.8 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of
Law of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
6.9 COMPLIANCE WITH ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal
or state law; (b) cause each Plan which is qualified under Section 401(a) of
the Code to maintain such qualification; and (c) make all required
contributions to any Plan subject to Section 412 of the Code.
6.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company shall
maintain and shall cause each Subsidiary to maintain proper books of record
and account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Company and such Subsidiary. The
Company shall permit, and shall cause each Subsidiary to permit,
representatives and independent contractors of the Bank to visit and inspect
any of their respective properties during normal business hours, to examine
their respective corporate, financial and operating records, and make copies
thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and
independent public accountants, all at the expense of the Company and at such
reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Company;
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PROVIDED, HOWEVER, when an Event of Default exists the Bank may do any of the
foregoing at the expense of the Company at any time during normal business
hours and without advance notice.
6.11 ENVIRONMENTAL LAWS. The Company shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws except where the failure to so comply
would not have a Material Adverse Effect.
6.12 USE OF PROCEEDS. The Company shall use the proceeds of the Loan
to make a distribution to its shareholders (including ICC) and the proceeds
thereof shall then be used by ICC to repay its obligations under the Existing
ICG Agreement, which ICC assumed as a result of its merger with ICG prior to
such distribution.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Bank shall have any Loan or other Obligation shall remain
unpaid or unsatisfied, unless the Bank waives compliance in writing:
7.1 LIMITATION ON LIENS. The Company shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, make, create, incur,
assume or suffer to exist any Lien upon or with respect to any part of its
property, whether now owned or hereafter acquired, other than the following
("PERMITTED LIENS"):
(a) any Lien existing on property of the Company or any
Subsidiary on the Closing Date and set forth in SCHEDULE 7.1 securing
Indebtedness outstanding on such date or Lien associated with the Senior
Credit Agreement, as it may be amended, increased or modified from time to
time;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by Section 6.7, provided that no
notice of lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary
course of business which are not delinquent or remain payable without penalty
or which are being contested in good faith and by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale of the
property subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on the property of the Company or its Subsidiary
securing (i) the non-delinquent performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, (ii) contingent
obligations on surety and appeal bonds, and (iii) other non-delinquent
obligations of a like nature; in each case, incurred in the ordinary course
of business, provided all such Liens in the aggregate would not (even if
enforced) cause a Material Adverse Effect;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially
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detract from the value of the property subject thereto or interfere with the
ordinary conduct of the businesses of the Company and its Subsidiaries; and
(h) Liens arising solely by virtue of any statutory or common
law provision relating to banker's liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds maintained with a creditor
depository institution; PROVIDED THAT (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated
by the FRB, and (ii) such deposit account is not intended by the Company or
any Subsidiary to provide collateral to the depository institution.
7.2 PROPERTY TRANSFER, MERGER OR LEASE-BACK. The Company shall not,
nor permit any Subsidiary to, (a) sell, lease, transfer or otherwise dispose
of all or, except as to the sale of inventory or unneeded equipment in the
ordinary course of business, any material part of its properties and assets
(whether in one transaction or in a series of transactions), (b) change its
name, consolidate with or merge into any other corporation, permit another
corporation to merge into it, acquire all or substantially all the properties
or assets of any other Person, enter into any reorganization or
recapitalization or reclassify its capital stock, or (c) enter into any
sale-leaseback transaction, provided that the Company and its Subsidiaries
may make transfers of assets among themselves.
7.3 ACQUIRE SECURITIES. The Company shall not, nor permit any
Subsidiary to, purchase or hold beneficially any stock or other securities
of, or make any investment or acquire any interest whatsoever in, any other
Person except for investments:
(a) in commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit rating
given by either Standard & Poor's Corporation or Moody's Investors Service,
Inc.;
(b) in obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America
or an instrumentality or agency thereof and entitled to the full faith and
credit of the United States of America;
(c) in demand deposits, and time deposits (including
certificates of deposit) maturing within 12 months from the date of deposit
thereof, with any office of the Bank or a Senior Lender, any of a Senior
Lender's affiliates, or any national or state bank or trust company which is
organized under the laws of the United States of America or any state therein
and which has capital, surplus and undivided profits of at least
$100,000,000; or
(d) in repurchase obligations of any bank or trust company
described in the above subsection (c) which relate to the repurchase of
obligations described in the above subsection (b).
7.4 LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement; (b)
Indebtedness consisting of Contingent Obligations permitted pursuant to Section
7.8; (c) Indebtedness incurred pursuant to the Senior Credit Agreement; (d)
Indebtedness existing on the Closing Date and set forth in SCHEDULE 7.5; and (e)
additional Indebtedness in an amount not to exceed $2,500,000 for the sole
purpose of acquiring plant and equipment.
7.5 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Company, (a) except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of the Company or
such Subsidiary, and (b) except as contemplated by the Reorganization.
7.6 USE OF PROCEEDS. The Company shall not, and shall not suffer or
permit any Subsidiary to, use any portion of the Loan proceeds, directly or
indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise
refinance
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indebtedness of the Company or others incurred to purchase or carry Margin
Stock, (iii) to extend credit for the purpose of purchasing or carrying any
Margin Stock, or (iv) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Securities and Exchange Act of 1934, and
regulations promulgated thereunder.
7.7 CONTINGENT OBLIGATIONS. The Company shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume or suffer to exist
any Contingent Obligations except: (a) endorsements for collection or deposit
in the ordinary course of business; (b) Contingent Obligations of the Company
and its Subsidiaries existing as of the Closing Date and listed in SCHEDULE
7.8; and (c) Contingent Obligations arising out of the Reorganization.
7.8 JOINT VENTURES. The Company shall not, and shall not suffer or
permit any Subsidiary to enter into any Joint Venture, other than in the
ordinary course of business.
7.9 LEASE OBLIGATIONS. The Company shall not, and shall not suffer or
permit any Subsidiary to, create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease, except for:
(a) leases of the Company and of Subsidiaries in existence on the Closing Date
and any renewal, extension or refinancing thereof; and (b) operating leases
entered into by the Company or any Subsidiary after the Closing Date in the
ordinary course of business requiring payments not in excess of $200,000 in any
fiscal year.
7.10 RESTRICTED PAYMENTS. The Company shall not, and shall not suffer
or permit any Subsidiary to, declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities
on account of any shares of any class of its capital stock, or purchase,
redeem or otherwise acquire for value any shares of its capital stock or any
warrants, rights or options to acquire such shares, now or hereafter
outstanding; except that the Company and any Wholly-Owned Subsidiary may:
(a) declare and make dividend payments or other distributions payable solely
in its common stock; (b) purchase, redeem or otherwise acquire shares of its
common stock or warrants or options to acquire any such shares with the
proceeds received from the substantially concurrent issue of new shares of
its common stock; and (c) declare and make dividend payments or other
distributions arising out of the Reorganization.
7.11 ERISA. The Company shall not, and shall not suffer or permit any
of its ERISA Affiliates to: (a) engage in a prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or could reasonably expected to result in liability of the
Company, or (b) engage in a transaction that could be subject to Section 4069
or 4212(c) of ERISA.
7.12 CHANGE IN BUSINESS. The Company shall not, and shall not suffer or
permit any Subsidiary to, engage in any material line of business substantially
different from those lines of business carried on by the Company and its
Subsidiaries on the date hereof.
7.13 ACCOUNTING CHANGES. The Company shall not, and shall not suffer
or permit any Subsidiary to, make any significant change in accounting
treatment or reporting practices, except as required by GAAP, or change the
fiscal year of the Company or of any Subsidiary.
7.14 MODIFICATION, ETC. OF CERTAIN AGREEMENTS. The Company shall not
consent to or enter into any amendment, supplement or other modification of
any term, provision or agreement contained in the Senior Credit Documents, if
such amendment, supplement or other modification would increase the aggregate
principal amount of Senior Debt outstanding thereunder at any time to more
than an amount equal to $23,000,000 minus the aggregate amount of principal
payments made at or prior to such time on the term loan portion of the Senior
Debt.
7.15 FINANCIAL COVENANTS.
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(a) TANGIBLE NET WORTH. The Company shall maintain Tangible Net
Worth (plus Subordinated Debt) in an amount not less than the following
amounts at the end of each calendar quarter during each of the following
respective periods:
PERIODS AMOUNT
------- ------
(i) From December 31, 1996 through $ 500,000
September 30, 1997
(ii) From December 31, 1997 through $2,250,000
September 30, 1998
(iii) From December 31, 1998 and $4,000,000
thereafter
(b) CASH FLOW COVERAGE RATIO. The Company shall maintain as
of the end of each calendar quarter a Cash Flow Coverage Ratio of not less
than 1.25 to 1.00.
(c) FIXED CHARGE COVERAGE RATIO. The Company shall maintain
as of the end of each calendar quarter a Fixed Charge Coverage Ratio
(computed on the basis of the previous twelve-month period) of not less than
1.0:1.0 (or such lesser ratio as may have been agreed to from time to time by
the Senior Lenders).
(d) MAXIMUM SENIOR DEBT TO EBITDA RATIO. The Company shall
maintain as of the end of each quarter a ratio of Senior Debt to EBITDA of
not more than the following respective ratios:
PERIODS AMOUNT
------- ------
From December 31, 1996 through 4.25:1.0
March 31, 1997
From June 30, 1997 through 4.0:1.0
September 30, 1997
From December 31, 1997 through 3.75:1.0
September 30, 1998
From December 31, 1998 and thereafter 3.5:1.0
7.16 OFFERING. The Company shall apply the proceeds of all equity
offerings (net of expenses related thereto) first in an amount necessary to
pay down the term loan portion of the Senior Credit Agreement outstanding to
the greater of $2,000,000 or 80% of the appraised value of the Company's
plant and equipment as determined by Comerica Bank - Texas. The Company
shall apply the proceeds of all debt offerings (net of expenses related
thereto) to prepay the principal payable hereunder and under the Loan
Documents.
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ARTICLE VIII
EVENTS OF DEFAULT
8.1 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT
OF DEFAULT":
(a) NON-PAYMENT. The Company fails to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan, or (ii)
within five days after the same becomes due, any interest, fee or any other
amount payable hereunder or under any other Loan Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty
by the Company made or deemed made herein, in any other Loan Document, or
which is contained in any certificate, document or financial or other
statement by the Company, or any Responsible Officer, furnished at any time
under this Agreement, or in or under any other Loan Document, is incorrect in
any material respect on or as of the date made or deemed made; or
(c) SPECIFIC DEFAULTS. The Company fails to perform or observe
any term, covenant or agreement contained in any of Sections 6.1, 6.2, 6.3 or
6.9 or in Article VII; or
(d) OTHER DEFAULTS. The Company fails to perform or observe
any other term or covenant contained in this Agreement or any other Loan
Document, and such default shall continue unremedied for a period of 30 days
after the earlier of (i) the date upon which a Responsible Officer knew or
reasonably should have known of such failure and (ii) the date upon which
written notice thereof is given to the Company by the Bank; or
(e) CROSS-DEFAULT. (i) The Company or any Subsidiary (A) fails
to make any payment in respect of any Indebtedness or Contingent Obligation,
having an aggregate principal amount (including undrawn committed or
available amounts and including amounts owing to all creditors under any
combined or syndicated credit arrangement) of more than $100,000 when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise) and such failure continues after the applicable grace or notice
period, if any, specified in the relevant document on the date of such
failure; or (B) fails to perform or observe any other condition or covenant,
or any other event shall occur or condition exist, under any agreement or
instrument relating to any such Indebtedness or Contingent Obligation, and
such failure continues after the applicable grace or notice period, if any,
specified in the relevant document on the date of such failure if the effect
of such failure, event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause such Indebtedness to be declared to be
due and payable prior to its stated maturity, or such Contingent Obligation
to become payable or cash collateral in respect thereof to be demanded;
provided that if the failure, event or condition shall not be continuing at
the time of a proposed declaration under SECTION 8.2, no such declaration may
be made.
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Company or any
Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject
to applicable grace periods, if any, whether at stated maturity or otherwise;
(ii) voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Subsidiary, or
any writ, judgment, warrant of attachment, execution or similar process, is
issued or levied against a substantial part of the Company's or any
Subsidiary's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or
similar process shall not be released, vacated or fully bonded within 60 days
after commencement, filing or levy; (ii) the Company or any Subsidiary admits
the material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief
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(or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) the Company or any Subsidiary acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for
itself or a substantial portion of its property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Company under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess
of $50,000; (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $100,000; or (iii) the Company or any ERISA
Affiliate shall fail to pay when due, after the expiration of any applicable
grace period, any installment payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan in an
aggregate amount in excess of $50,000; or
(i) MONETARY JUDGMENTS. One or more non-interlocutory
judgments, non-interlocutory orders, decrees or arbitration awards is entered
against the Company or any Subsidiary involving in the aggregate a liability
(to the extent not covered by independent third-party insurance as to which
the insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $250,000 or more, and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a period
of 10 days after the entry thereof; or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order
or decree is entered against the Company or any Subsidiary which does or
would reasonably be expected to have a Material Adverse Effect, and there
shall be any period of 10 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect.
8.2 REMEDIES. If any Event of Default occurs, the Bank may: (a)
declare the commitment of the Bank to make Loans to be terminated, whereupon
such commitment shall be terminated; (b) declare the unpaid principal amount
of all outstanding Loans, all interest accrued and unpaid thereon, and all
other amounts owing or payable hereunder or under any other Loan Document to
be immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Company;
and (c) exercise all rights and remedies available to it under the Loan
Documents or applicable law; PROVIDED, HOWEVER, that upon the occurrence of
any event specified in subsection (f) or (g) of Section 8.1 (in the case of
clause (i) of subsection (g) upon the expiration of the 60-day period
mentioned therein), the obligation of the Bank to make Loans shall
automatically terminate and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically
become due and payable without further act of the Bank.
8.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any
other rights, powers, privileges or remedies provided by law or in equity, or
under any other instrument, document or agreement now existing or hereafter
arising.
ARTICLE IX
SUBORDINATION
9.1 AGREEMENT TO SUBORDINATE. The Company and the Bank agree that the
payment of all Obligations is subordinated in right of payment, to the extent
and in the manner provided in this ARTICLE IX, to the prior payment in full
in cash or cash equivalents of all Senior Debt, and that the subordination is
for the benefit of the holders of the Senior Debt.
9.2 LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to
creditors of the Company in a liquidation or dissolution of the Company or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
25
<PAGE>
relating to the Company or its property or in an assignment for the benefit
of creditors or any marshalling of the Company's assets and liabilities:
(i) the holders of the Senior Debt shall be entitled to
receive payment in full in cash or cash equivalents of all Senior Debt
before any Person shall be entitled to receive any payment from the
Company with respect to the Obligations (except that such Persons may
receive securities that are subordinated to at least the same extent as
the Obligations to the Senior Debt to the extent authorized by a final
order or decree entered in a reorganization proceeding giving effect,
and stating in such order or decree that effect has been given, to
subordination of the Obligations to the Senior Debt, PROVIDED that (i)
the Senior Debt is assumed by the new corporation, if any, resulting
from any such reorganization and (ii) the rights of the holders of the
Senior Debt are not, without the consent of such holders, altered by
such reorganization); and
(ii) until all Senior Debt is paid in full in cash or
cash equivalents, any distribution from the Company with respect to the
Obligations to which any Person would be entitled but for this ARTICLE
IX shall be made to the holders of the Senior Debt (except that such
Persons may receive securities that are subordinated to at least the
same extent as the Obligations to the Senior Debt to the extent
authorized by a final order or decree entered in a reorganization
proceeding giving effect, and stating in such order or decree that
effect has been given, to subordination of the Obligations to the
Senior Debt, PROVIDED that (i) the Senior Debt is assumed by the new
corporation, if any, resulting from any such reorganization and (ii)
the rights of the holders of the Senior Debt are not, without the
consent of such holders, altered by such reorganization).
Each holder of the Obligations shall retain the right to vote its claim
in any bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, PROVIDED that if such
holder fails to file a proof of claim with respect to the Obligations held by
it by 10 days before the applicable bar date, the Senior Agent may file a
proof of claim on behalf of such holder in such proceeding and vote such
claim.
9.3 DEFAULT ON SENIOR DEBT. (a) Unless SECTION 9.2 shall be
applicable, the Company may not make any payment or distribution to the Bank
upon or in respect of the Obligations for cash or property until all
principal and other obligations with respect to the Senior Debt have been
paid in full if:
(i) a default in the payment of any principal of, or interest
on, Senior Debt occurs and is continuing; or
(ii) a default, other than a payment default, on Senior Debt
occurs and is continuing that would then permit the holders of such Senior
Debt to accelerate its maturity and the Bank has received written notice
(the "NONPAYMENT DEFAULT NOTICE") of the default from the Senior Agent.
With respect to any Nonpayment Default Notice received by the Bank (x) no
subsequent Nonpayment Default Notice received within 365 calendar days
after such first Nonpayment Default Notice shall be effective for purposes
of this Section and (y) no nonpayment default that existed or was
continuing on the date of delivery of any Nonpayment Default Notice shall
be, or be made, the basis for a subsequent Nonpayment Default Notice.
(b) The Company may and shall resume payments on and distributions in
respect of the Obligations (including any missed payments, which the Company
will make as soon as permitted hereunder) when:
(i) the default is cured or waived or acceleration is rescinded
or annulled or the Senior Debt shall have been discharged in accordance
with this ARTICLE IX or as agreed to by the holders of the Senior Debt, or
(ii) 179 days shall pass after a Nonpayment Default Notice was
received if the maturity of such Senior Debt has not been accelerated at
such time,
26
<PAGE>
if this ARTICLE IX otherwise permits the payment at such time.
9.4 NOTICE OF ACCELERATION OF OBLIGATIONS. If any Event of Default
described in SECTION 8.1(f) or (g) shall have occurred and be continuing and
the Bank shall have given notice thereof to the Company and the Senior Agent,
the Bank may accelerate the Obligations and demand payment of the
Obligations. If any Event of Default under SECTION 8.1(a) or (e) shall have
occurred or the Company fails to perform or observe any term, covenant or
agreement contained in SECTIONS 7.5, 7.15 or 7.16 and such failure or Event
of Default shall be continuing for a period of 30 days and the Bank shall
have given notice thereof to the Company and the Senior Agent, the Bank may
not (i) accelerate the Obligations until the earlier of (x) 90 calendar days
(or 180 calendar days in the case of an Event of Default under SECTION
8.1(e)) after the date of such notice (and only then if the Event of Default
or failure shall be continuing) and (y) the date on which the Senior Debt is
accelerated or (ii) demand payment of the Obligations or commence any action,
suit or other legal or equitable proceeding (including without limitation any
bankruptcy, insolvency, reorganization or similar proceeding) in respect of
the Obligations, exercise any contractual or statutory right of setoff or
bankers lien or otherwise exercise remedies hereunder (other than termination
of the Commitment) until the earlier of (x) 90 (or 180 days in the case of an
Event of Default under Section 8.1(e)) days after the date of such notice
(and only then if the Event of Default or failure shall be continuing) and
(y) the date on which the Senior Lenders have taken such action in respect of
the Senior Debt; PROVIDED that if any such acceleration of the Senior Debt is
rescinded by the Senior Lenders, the Bank agrees promptly to rescind any
acceleration then in effect of the Loan hereunder if such acceleration of the
Loan hereunder was effected at a time when the Senior Debt had already been
accelerated. Otherwise, until the Senior Debt has been paid in full and any
financing commitments with respect to the Senior Debt have been terminated,
no other acceleration by the Bank shall be effective.
9.5 WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Bank
receives any payment (including by way of set-off) on any of the Obligations
at a time when such payment is prohibited by SECTION 9.2 or 9.3 hereof, such
payment shall (if at the time the Bank has actual knowledge of such
prohibition) be held by the Bank in trust for the benefit of, and shall in
any event promptly upon the Bank becoming aware of such prohibition be paid
forthwith over and delivered upon written request to, the holders of the
Senior Debt entitled thereto, for application to the payment of all
obligations with respect to Senior Debt remaining unpaid to the extent
necessary to pay such obligations in full in accordance with their terms,
after giving effect to any concurrent payment or distribution to or for the
benefit of the holders of the Senior Debt.
9.6 NOTICE BY COMPANY. The Company shall promptly notify the Bank in
writing of any facts known to the Company that would cause a payment of any
Obligations to violate this ARTICLE IX, but failure to give such notice shall
not affect the subordination of the Obligations to the Senior Debt as
provided in this ARTICLE IX.
9.7 SUBROGATION. After all Senior Debt is paid in full in accordance
with its then applicable terms and until the Obligations are paid in full,
the Bank shall be subrogated to the rights of the holders of the Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Bank have been applied to the payment
of Senior Debt. A distribution made under this ARTICLE IX to the holders of
the Senior Debt that otherwise would have been made to the Bank is not, as
between the Company and the Bank, a payment by the Company on the Obligations.
9.8 RELATIVE RIGHTS. This ARTICLE IX defines the relative rights of the
Bank and the holders of the Senior Debt. Nothing in this Article shall:
(a) impair, as between the Company and the Bank, the obligation of
the Company, which is absolute and unconditional, to pay the Obligations
in accordance with their terms;
(b) affect the relative rights of the Bank and creditors of the
Company other than the holders of the Senior Debt; or
27
<PAGE>
(c) prevent the Bank from exercising its available remedies upon an
Event of Default, subject to SECTION 9.4 and to the rights of the holders
of the Senior Debt to receive distributions and payments otherwise payable
to the Bank.
If the Company fails because of this ARTICLE IX to pay any Obligation on
the due date therefor, or if any such payment is received by the Bank but must
be paid over to the holders of the Senior Debt (whether under SECTION 9.2 or 9.5
or otherwise), the failure is still an Event of Default.
9.9 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of the holders
of the Senior Debt to enforce the subordination of the Obligations shall be
impaired by any act or failure to act by the Company or the Bank or by the
failure of the Company or the Bank to comply with this Agreement.
9.10 AMENDMENTS. The provisions of this ARTICLE IX shall not be amended or
modified without the written consent of the Senior Lenders.
9.11 REINSTATEMENT. The provisions of this Article IX shall continue to be
effective or reinstated, as the case may be, if at any time any payment of the
Senior Debt is rescinded or must otherwise be returned by any holder of Senior
Debt or any of such holder's agents upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, all as though such payment had not
been made.
ARTICLE X
MISCELLANEOUS
10.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Bank and the Company, and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
10.2 NOTICES. (a) All notices, requests, consents, approvals, waivers and
other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by the Company by facsimile (i) shall be immediately
confirmed by a telephone call to the recipient at the number specified on the
signature page hereof with respect to such Person, and (ii) shall be followed
promptly by delivery of a hard copy original thereof) and mailed, telecopied or
delivered, to the address or facsimile number specified for notices on the
signature page hereof with respect to such Person; or, as directed to the
Company or the Bank, to such other address as shall be designated by such party
in a written notice to the other parties, and as directed to any other party, at
such other address as shall be designated by such party in a written notice to
the Company and the Bank.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II shall not be effective until actually received by
the Bank.
(c) Any agreement of the Bank herein to receive certain notices by
telephone or facsimile is solely for the convenience and at the request of the
Company. The Bank shall be entitled to rely on the authority of any Person
purporting to be a Person authorized by the Company to give such notice and the
Bank shall not have any liability to the Company or other Person on account of
any action taken or not taken by the Bank in reliance upon such telephonic or
facsimile notice. The obligation of the Company to repay the Loans shall not be
affected in any way or to any extent by any failure by the Bank to receive
written confirmation of any telephonic or facsimile notice or the receipt by the
28
<PAGE>
Bank of a confirmation which is at variance with the terms understood by the
Bank to be contained in the telephonic or facsimile notice.
10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Bank, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege.
10.4 COSTS AND EXPENSES. The Company shall: (a) whether or not the
transactions contemplated hereby are consummated, pay or reimburse the Bank
within five Business Days after demand (subject to subsection 4.1(e)) for all
reasonable costs and expenses incurred by the Bank in connection with the
development, preparation, delivery, administration and execution of, and any
amendment, supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including Attorney Costs incurred by the Bank
with respect thereto; and (b) pay or reimburse the Bank within five Business
Days after demand for all costs and expenses (including Attorney Costs) incurred
by it in connection with the enforcement, attempted enforcement, or preservation
of any rights or remedies under this Agreement or any other Loan Document during
the existence of an Event of Default or after acceleration of the Loans
(including in connection with any "workout" or restructuring regarding the
Loans, and including in any Insolvency Proceeding or appellate proceeding).
10.5 INDEMNIFICATION. Whether or not the transactions contemplated hereby
are consummated, the Company shall indemnify, defend and hold the Bank and each
of its officers, directors, employees, counsel, agents and attorneys-in-fact
(each, an "INDEMNIFIED PERSON") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, charges, expenses and disbursements (including Attorney Costs) of any
kind or nature whatsoever which may at any time (including at any time following
repayment of the Loans) be imposed on, incurred by or asserted against any such
Person in any way relating to or arising out of this Agreement or any document
contemplated by or referred to herein, or the transactions contemplated hereby,
or any action taken or omitted by any such Person under or in connection with
any of the foregoing, including with respect to any investigation, litigation or
proceeding (including any Insolvency Proceeding or appellate proceeding) related
to or arising out of this Agreement or the Loans or the use of the proceeds
thereof, whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED, that the
Company shall have no obligation hereunder to any Indemnified Person with
respect to Indemnified Liabilities resulting solely from the gross negligence or
willful misconduct of such Indemnified Person. The agreements in this Section
shall survive payment of all other Obligations.
10.6 PAYMENTS SET ASIDE. To the extent that the Company makes a payment to
the Bank, or the Bank exercises its right of set-off, and such payment or the
proceeds of such set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Bank in its discretion) to be
repaid to a trustee, receiver or any other party, in connection with any
Insolvency Proceeding or otherwise, then to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred.
10.7 SUCCESSORS AND ASSIGNS. The Company hereby consents to any assignment
or transfer by the Bank of any of its rights or obligations under this Agreement
to ICC. The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Company may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of the Bank.
10.8 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) The Bank may at any time and
from time to time, with the prior consent of the Company, at all times other
than during the existence of an Event of Default, which consent shall not be
unreasonably withheld (provided, that no consent of the Company shall be
required in connection with any assignment and delegation by the Bank to an
Affiliate of the Bank), assign and delegate to one or more commercial banks
(each an "Assignee") all, or any part of all, of the Loans, the Commitment and
the other rights and obligations of the Bank
29
<PAGE>
hereunder, in a minimum amount of $5,000,000; provided, however, that the
Company may continue to deal solely and directly with the Bank in connection
with the interest so assigned to an Assignee until written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the
Company by the Bank and the Assignee.
(b) The Bank may at any time and from time to time, without notice to
or the consent of the Company, sell to one or more commercial banks or other
Persons (a "PARTICIPANT") participating interests in any Loans, the Commitment
and the other interests of the Bank hereunder and under the other Loan
Documents.
(c) Notwithstanding any other provision in this Agreement, the Bank
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the FRB or 31 U.S. Treasury Regulation
CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or
security interest in any manner permitted under applicable law.
10.9 CONFIDENTIALITY. The Bank agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
information identified as "confidential" or "secret" by the Company and
provided to it by the Company or any Subsidiary, under this Agreement or any
other Loan Document, and the Bank shall not use any such information other than
in connection with or in enforcement of this Agreement and the other Loan
Documents or in connection with other business now or hereafter existing or
contemplated with the Company or any Subsidiary; except to the extent such
information (i) was or becomes generally available to the public other than as a
result of disclosure by the Bank, or (ii) was or becomes available on a
non-confidential basis from a source other than the Company, provided that such
source is not bound by a confidentiality agreement with the Company known to the
Bank; PROVIDED, HOWEVER, that the Bank may disclose such information (A) at the
request or pursuant to any requirement of any Governmental Authority to which
the Bank is subject or in connection with an examination of the Bank by any such
authority; (B) pursuant to subpoena or other court process; (C) when required to
do so in accordance with the provisions of any applicable Requirement of Law;
(D) to the extent reasonably required in connection with any litigation or
proceeding to which the Bank or may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to the Bank's independent auditors and other
professional advisors; (G) to any Participant or Assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Bank hereunder; (H) as expressly
permitted under the terms of any other document or agreement regarding
confidentiality to which the Company or any Subsidiary is party or is deemed
party with the Bank; and (I) to its Affiliates.
10.10 SET-OFF. In addition to any rights and remedies of the Bank provided
by law, if an Event of Default exists or the Loans have been accelerated, the
Bank is authorized at any time and from time to time, without prior notice to
the Company, any such notice being waived by the Company to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, the Bank to or for the credit or the account
of the Company against any and all Obligations owing to the Bank, now or
hereafter existing, irrespective of whether or not the Bank shall have made
demand under this Agreement or any Loan Document and although such Obligations
may be contingent or unmatured. The Bank agrees promptly to notify the Company
after any such set-off and application made by the Bank; PROVIDED, HOWEVER, that
the failure to give such notice shall not affect the validity of such set-off
and application.
10.11 AUTOMATIC DEBITS OF FEES. With respect to any fee, or any other cost
or expense (including Attorney Costs) due and payable to the Bank under the Loan
Documents, the Company hereby irrevocably authorizes the Bank to debit any
deposit account of the Company with the Bank in an amount such that the
aggregate amount debited from all such deposit accounts does not exceed such fee
or other cost or expense. If there are insufficient funds in such deposit
accounts to cover the amount of the fee or other cost or expense then due, such
debits will be reversed (in whole or in part, in the Bank's sole discretion) and
such amount not debited shall be deemed to be unpaid. No such debit under this
Section shall be deemed a set-off.
30
10.12 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.13 SEVERABILITY. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
10.14 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into
for the sole protection and legal benefit of the Company, the Bank and their
permitted successors and assigns, and no other Person shall be a direct or
indirect legal beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any of the other Loan Documents.
10.15 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED, HOWEVER THAT THE
PROVISIONS OF ARTICLE IX OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS; PROVIDED, FURTHER, THAT THE
BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
10.16 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding between the Company
and the Bank, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Chicago, Illinois by their proper and duly
authorized officers as of the day and year first above written.
ZIMMERMAN SIGN COMPANY
By: /s/ David E. Anderson
---------------------------------------------------
Title: Chairman
-----------------------------------------------
NOTICES:
Attention: Jeffrey P. Johnson, Chief Financial Office
-------------------------------------------
Telephone: 903-535-7400
-------------------------------------------
Facsimile: 903-535-7401
-------------------------------------------
cc: Independence Capital Corp.
96 Cummings Point Road
Stamford, Connecticut 06902
Attention: Controller
BANK OF AMERICA ILLINOIS
By: /s/ Ronald J. Drobny
---------------------------------------------------
Title: Senior Vice President
NOTICES (OTHER THAN BORROWING NOTICES AND NOTICES OF
CONVERSION/CONTINUATION):
Bank of America Illinois
231 S. LaSalle Street
Chicago, Illinois 60697
Attention: Deborah Lacy
-------------------------------------------
Telephone: (312) 828-1784
-------------------------------------
Facsimile: (312) 974-9626
-------------------------------------
32
<PAGE>
DOMESTIC AND OFFSHORE LENDING OFFICE:
231 South LaSalle Street
-----------------------------
Chicago, Illinois 60697
Attention: Deborah Lacy
-------------------------------------------
Telephone: (312) 828-1784
-------------------------------------
Facsimile: (312) 974-9626
-------------------------------------
33
<PAGE>
EXHIBIT A
NOTICE OF BORROWING
Date: ______________________ , 199_
To: Bank of America Illinois regarding that certain Subordinated Credit
Agreement dated as of October 31, 1996 (as extended, renewed, amended
or restated from time to time, the "AGREEMENT") between Zimmerman Sign
Company and Bank of America Illinois (the "BANK")
Ladies and Gentlemen:
The undersigned, Zimmerman Sign Company (the "COMPANY"), refers to the
Agreement, the terms defined therein being used herein as therein defined, and
hereby gives you notice irrevocably, pursuant to Section 2.3 of the Agreement,
of the Loan specified below:
1. The Business Day of the proposed Loan is ______________________, 19__.
2. The aggregate amount of the proposed Loan is $________________________.
3. The Loan is to be comprised of $_______________of [Base Rate][Offshore
Rate] Loans.
4. [The duration of the Interest Period for the Offshore Rate Loans shall
be _____ months].
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the proposed Loan, before and
after giving effect thereto and to the application of the proceeds therefrom:
(a) the representations and warranties of the Company contained in
Article V of the Agreement are true and correct as though made on and as of
such date (except to the extent such representations and warranties relate
to an earlier date, in which case they are true and correct as of such
date); and
(b) no Default or Event of Default has occurred and is continuing, or
would result from such proposed Loan.
A-1
<PAGE>
ZIMMERMAN SIGN COMPANY
By:
-------------------------------------------------
Title:
----------------------------------------------
A-2
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION/CONTINUATION
Date: ______________________ , 199_
To: Bank of America Illinois regarding that certain Subordinated Credit
Agreement dated as of October 31, 1996 (as extended, renewed, amended
or restated from time to time, the "AGREEMENT") between Zimmerman Sign
Company and Bank of America Illinois (the "BANK")
Ladies and Gentlemen:
The undersigned, Zimmerman Sign Company (the "COMPANY"), refers to the
Agreement, the terms defined therein being used herein as therein defined, and
hereby gives you notice irrevocably, pursuant to Section 2.4 of the Agreement,
of the [conversion] [continuation] of the Loans specified herein, that:
1. The Conversion/Continuation Date is ____________________, 19__.
2. The aggregate amount of the Loans to be [converted] [continued] is
$____________________.
3. The Loans are to be [converted into] [continued as] [Offshore Rate]
[Base Rate] Loans.
4. [If applicable:] The duration of the Interest Period for the Loans
included in the [conversion] [continuation] shall be [__ months].
ZIMMERMAN SIGN COMPANY
By:
-------------------------------------------------
Title:
----------------------------------------------
B-1
<PAGE>
EXHIBIT C
ZIMMERMAN SIGN COMPANY
COMPLIANCE CERTIFICATE
Financial
Statement Date: _____________________, 199_
Reference is made to that certain Credit Agreement dated as of ___________,
199__ (as extended, renewed, amended or restated from time to time, the
"AGREEMENT") between Zimmerman Sign Company, a Texas corporation (the "COMPANY")
and Bank of America Illinois (the "BANK"). Unless otherwise defined herein,
capitalized terms used herein have the respective meanings assigned to them in
the Credit Agreement.
The undersigned Responsible Officer of the Company, hereby certifies as of
the date hereof that he/she is the __________________ of the Company, and that,
as such, he/she is authorized to execute and deliver this Certificate to the
Bank on the behalf of the Company and its consolidated Subsidiaries, and that:
[USE THE FOLLOWING PARAGRAPH IF THIS CERTIFICATE IS DELIVERED IN CONNECTION WITH
THE FINANCIAL STATEMENTS REQUIRED BY SUBSECTION 6.1(A) OF THE AGREEMENT.]
1. Attached as SCHEDULE 1 hereto are (a) a true and correct copy of the
audited consolidated balance sheet of the Company and its consolidated
Subsidiaries as at the end of the fiscal year ended _______________, 199__ and
(b) the related consolidated statements of income or operations, shareholders'
equity and cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, reported on without a
"going concern" or like qualification or exception, or qualification arising out
of the scope of the audit and accompanied by the opinion of _________________ or
another nationally-recognized certified independent public accounting firm (the
"INDEPENDENT AUDITOR") which report shall state that such consolidated financial
statements are complete and correct and have been prepared in accordance with
GAAP, and fairly present, in all material respects, the financial position of
the Company and its consolidated Subsidiaries for the periods indicated and on a
basis consistent with prior periods.
or
[USE THE FOLLOWING PARAGRAPH IF THIS CERTIFICATE IS DELIVERED IN CONNECTION WITH
THE FINANCIAL STATEMENTS REQUIRED BY SUBSECTION 6.1(B) OF THE AGREEMENT.]
1. Attached as SCHEDULE 1 hereto are (a) a true and correct copy of the
unaudited consolidated balance sheet of the Company and its consolidated
Subsidiaries as of the end of the
C-1
<PAGE>
fiscal quarter ended __________, 199__, and (b) the related unaudited
consolidated statements of income, shareholders' equity, and cash flows for
the period commencing on the first day and ending on the last day of such
quarter, setting forth in each case in comparative form the figures for the
previous year, and certified by a Responsible Officer that such financial
statements were prepared in accordance with GAAP (subject only to ordinary,
good faith year-end audit adjustments and the absence of footnotes) and
fairly present, in all material respects, the financial position and the
results of operations of the Company and its consolidated Subsidiaries.
2. The undersigned has reviewed and is familiar with the terms of the
Agreement and has made, or has caused to be made under his/her supervision, a
detailed review of the transactions and conditions (financial or otherwise) of
the Company during the accounting period covered by the attached financial
statements.
3. To the best of the undersigned's knowledge, the Company, during such
period, has observed, performed or satisfied all of its covenants and other
agreements, and satisfied every condition in the Credit Agreement to be
observed, performed or satisfied by the Company, and the undersigned has no
knowledge of any Default or Event of Default.
4. The following financial covenant analyses and information set forth on
SCHEDULE 2 attached hereto are true and accurate on and as of the date of this
Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of _______________________, 199__.
ZIMMERMAN SIGN COMPANY
By:
-------------------------------------------------
Title:
----------------------------------------------
C-2
<PAGE>
[NOTE: SAMPLE ONLY]
SCHEDULE 2
to the Compliance Certificate
Date: ______________, 199__
For the fiscal quarter/year
ended ______________, 199__
I. TANGIBLE NET WORTH
(a) Book value of all assets of the Company and the $__________
Subsidiaries (other than patents, patent rights,
trademarks, trade names, franchises, copyrights,
goodwill, and similar intangible assets) after all
appropriate deductions (including, without
limitation, reserves for doubtful receivables,
obsolescence, depreciation and amortization),
determined on a consolidated basis in accordance
with GAAP
(b) All Debt (excluding the Deferred Dividend Payable $__________
to Management)
(c) All Subordinated Debt of the Company and the $__________
Subsidiaries which, in accordance with GAAP,
would be required to be presented on their
consolidated balance sheet at such
(d) Tangible Net Worth = The sum of lines (a) and (c) $__________
minus line (b)
(e) Subordinated Debt $__________
(f) Tangible Net Worth plus Subordinated Debt = line $__________
(d) plus line (e), which shall not be less than
the following amounts at the end of each calendar
quarter during each of the following respective
periods:
(i) From December 31, 1996 $ 500,000
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<PAGE>
through September 30, 1997
(ii) From December 31, 1997 $ 2,250,000
through September 30, 1998
(iii) From December 31, 1998 and thereafter $ 4,000,000
II. CASH FLOW COVERAGE RATIO
Note: All calculations shall be for the four calendar
quarters then ending
(a) Consolidated net income $__________
(b) Consolidated depreciation $__________
(c) Consolidated amortization $__________
(d) Deferred taxes $__________
[(e) The following one time expenses (net of Federal, $__________
state and local income taxes) relating to the
Reorganization: (i) the fulfillment of net contractual
commitments to senior officers of the Company, (ii)
a financing fee to David E. Anderson, and (iii)
attorney and accountant fees]
(f) Cash Flow = the sum of lines (a), (b), (c), (d) and $__________
[(e)]
(g) Scheduled principal payments made on the Senior $__________
Debt
(h) Cash Flow Coverage Ratio = The ratio of line (f) to _____to 1.0
line (g), which shall not be less than 1.25 to 1.0
as of the end of each calendar quarter
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<PAGE>
III. FIXED CHARGE COVERAGE RATIO
(a) Cash Flow [Line (f) of Section II] $__________
(b) Aggregate principal amount of Indebtedness $__________
scheduled to be paid by the Company during the
immediately preceding four calendar quarters
(c) Capital expenditures for the preceding four calendar $__________
quarters
(d) Fixed Charges = the sum of lines (b) and (c) $__________
(e) Fixed Charge Coverage Ratio = the ratio of line (a) _____to 1.0
to line (d), which shall not be less than 1.0 to 1.0 as
of the end of each calendar quarter
IV. MAXIMUM SENIOR DEBT TO EBITDA RATIO
Note: Calculations for lines (b), (d), (e), (f), (g), [(h)], [(i)] and
[(j)] shall be computed, on the basis of the previous four calendar
quarters
(a) Senior Debt $__________
(b) Net income $__________
[(c) The following one time expenses (net of Federal, $__________
state and local income taxes) relating to the
Reorganization: (i) the fulfillment of net contractual
commitments to senior officers of the Company, (ii)
a financing fee to David E. Anderson, and (iii)
attorney and accountant fees]
(d) Interest expense $__________
(e) Tax expense $__________
(f) Depreciation expense $__________
(g) Amortization expense $__________
[(h) Losses] $__________
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<PAGE>
[(i) Gain from the sale of capital assets other than from $__________
sales of equipment held for lease]
[(j) Loss from the sale of capital assets other than from $__________
sales of equipment held for lease.]
(k) EBITDA = The sum of lines (b), (c), (d), (e), (f), $__________
(g), [(h)] and [(j)] minus line [(i)]
(l) Maximum Senior Debt to EBITDA Ratio = the ratio _____to 1.0
of line (a) to line (k), which as of the end of each
quarter shall not be more than the following
respective ratios:
(i) From December 31, 1996 through 4.25 to 1.0
March 31, 1997
(ii) From June 30, 1997 through 4.0 to 1.0
September 30, 1997
(iii) From December 31, 1997 through 3.75 to 1.0
September 30, 1998
(iv) From December 31, 1998 3.5 to 1.0
and thereafter
C-6
<PAGE>
EXHIBIT D
FORM OF OPINION OF GUARANTOR'S COUNSEL
October 31, 1996
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Gentlemen:
I am general counsel of Independence Capital Corp. (the "Guarantor") and
have represented the Guarantor in connection with its execution and delivery of
the Guarantee and Contingent Purchase Agreement between the Guarantor and Bank
of America Illinois, dated as of October 31, 1996 (the "Guarantee"), entered
into pursuant to a Subordinated Credit Agreement between Zimmerman Sign Company
(the "Company") and Bank of America Illinois, dated October 31, 1996 (the "Loan
Agreement"). All capitalized terms used in this opinion without definition
shall have the meanings attributed to them in the Loan Agreement.
I have examined the Guarantee, together with the Loan Agreement and each
other Loan Document evidencing the transaction giving rise to the Guarantee, and
originals or copies certified to my satisfaction of all such corporate records
of the Guarantor and other instruments and certificates of public officials and
officers and representatives of the Guarantor, and have made such other
investigations, reviewed such other documents and considered such questions of
law, as I have deemed necessary or appropriate in connection with the opinions
hereinafter expressed.
Based upon the foregoing, it is my opinion that:
1. The Guarantor is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted.
2. The Guarantor owns 93.75% of the outstanding capital stock of the
Company.
3. The Guarantor has full power to execute the Guarantee and such action
is not in conflict with any provision of law or of the charter or by-laws of the
Guarantor or with any provision of an existing indenture or agreement of the
Guarantor of which counsel has knowledge.
4. All necessary corporate action has been taken to approve or authorize
the execution of the Guarantee.
D-1
<PAGE>
Bank of America Illinois
October __, 1996
Page 2
5. The Guarantee is the legal, valid, and binding obligation of the
Guarantor.
I am a member of the Bar of the State of New York and I do not express any
opinions herein concerning any laws other than the corporation laws of the State
of Delaware and the laws of the State of New York. For the purpose of my
opinion in Section 5, I have assumed with your permission that the laws of the
State of Illinois are substantially similar to the laws of the State of New
York.
Very truly yours,
---------------------------------------------
David T. Kettig
General Counsel
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<PAGE>
SCHEDULE 5.16
MINORITY INTERESTS
None.
<PAGE>
SCHEDULE 7.1
PERMITTED LIENS
(1) Lien of Comerica Bank-Texas pursuant to the First Amended and Restated
Revolving Credit and Term Loan Agreement dated as of October 31, 1996
between Zimmerman Sign Company and Comerica Bank-Texas
*(2) 92-00152971 dated 7/31/92
Secured Party: Integrated Systems Engineering
Collateral: accounts receivable and equipment in the amount of all
outstanding invoices owed to Integrated Systems
Engineering
*(3) 93-00139772 dated 7/19/93
Secured Party: Amoco Oil Company
Collateral: Finished Amoco Oil Company inventory purchased by
Amoco Oil only.
*to be released
D-4
<PAGE>
SCHEDULE 7.5
PERMITTED INDEBTEDNESS
First Amended and Restated Revolving Credit and Term Loan Agreement dated as
of October 31, 1996 between Zimmerman Sign Company and Comerica Bank-Texas.
<PAGE>
SCHEDULE 7.8
CONTINGENT OBLIGATIONS
None.
<PAGE>
EXHIBIT E
GUARANTEE AND CONTINGENT PURCHASE AGREEMENT
GUARANTEE AND CONTINGENT PURCHASE AGREEMENT, dated as of October 31,
1996, between INDEPENDENCE CAPITAL CORP., a Delaware corporation (the
"Company"), and BANK OF AMERICA ILLINOIS, an Illinois banking corporation
(the "Bank").
Pursuant to a Subordinated Credit Agreement dated as of October 31,
1996 (as modified and supplemented and in effect from time to time, the "LOAN
AGREEMENT") between Zimmerman Sign Company, a Texas corporation (the
"Borrower") and the Bank, the Bank has agreed, subject to the terms and
conditions of the Loan Agreement, to make a loan to the Borrower for the
purpose of enabling the Borrower to make a distribution to its shareholders,
including the Company. Prior to such distribution, Independence Capital
Group, Inc., a Delaware corporation ("ICG"), had been merged into the
Company. The Company will use the proceeds of such distribution to repay its
outstanding $10,000,000 of indebtedness (the "Existing Debt") under ICG's
credit agreement dated December 30, 1993 with certain financial institutions
and Bank of America Illinois (formerly known as Continental Bank N.A.) as
agent, which the Company assumed as a result of its merger with ICG.
Simultaneously with the execution of this Guarantee, the Bank shall enter
into a Credit Agreement (the "COMPANY CREDIT AGREEMENT") pursuant to which
the Bank may make a loan to the Company to fund its obligations hereunder.
The Company wishes to induce the Bank to make the Loan to the Borrower under
the Loan Agreement in order to provide for the payment of the Existing Debt.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby agrees with
the Bank as follows:
Section 1. DEFINITIONS. Except as expressly provided herein, terms
defined in the Loan Agreement are used herein as defined therein.
Section 2. THE GUARANTEE.
2.1. GUARANTEE. The Company hereby guarantees to the Bank and its
successors and assigns the prompt payment in full when due (whether at stated
maturity, by acceleration or otherwise) of the principal of and interest on
the Loan made by the Bank to, and the Note held by the Bank of, the Borrower
and all other amounts from time to time owing to the Bank under the Loan
Agreement and the Note, in each case strictly in accordance with the terms
thereof (such obligations being herein collectively called the "GUARANTEED
OBLIGATIONS"). In addition, the Company hereby further agrees that if the
Borrower shall fail to pay when due (whether at stated maturity, by
acceleration or otherwise) any of the Guaranteed Obligations, the Company
will
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<PAGE>
promptly pay the same upon demand, and that in the case of any extension of
time of payment or renewal of any of the Guaranteed Obligations, the same
will be promptly paid in full when due (whether at extended maturity or
otherwise) in accordance with the terms of such extension or renewal.
2.2. OBLIGATIONS UNCONDITIONAL. The obligations of the Company
under Section 2.1 hereof are absolute and unconditional, irrespective of the
value, genuineness, validity, regularity or enforceability of the Loan
Agreement, the Note or any other agreement or instrument referred to herein
or therein, or any substitution, release or exchange of any other guarantee
of or security for any of the Guaranteed Obligations, and, to the fullest
extent permitted by applicable law, irrespective of any other circumstance
whatsoever which might otherwise constitute a legal or equitable discharge or
defense of a surety or guarantor, it being the intent of this Section 2.2
that the obligations of the Company hereunder shall be absolute and
unconditional under any and all circumstances. Without limiting the
generality of the foregoing, it is agreed that the occurrence of any one or
more of the following shall not affect the liability of the Company hereunder:
(a) at any time or from time to time, without notice to or consent of
the Company, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(b) any of the acts mentioned in any of the provisions of the Loan
Agreement or the Note or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(c) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under the Loan
Agreement or the Note or any other agreement or instrument referred to
herein or therein shall be waived or any other guarantee or any of the
Guaranteed Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with; or
(d) any lien or security interest granted to, or in favor of, the Bank
as security for any of the Guaranteed Obligations shall fail to be
perfected.
The Company hereby expressly waives diligence, presentment, demand of payment
upon the Borrower, protest and all notices whatsoever (other than demand of
payment upon the Company), and any requirement that the Bank exhaust any
right, power or remedy or proceed against the Borrower under the Loan
Agreement or the Note or any other agreement or instrument referred to herein
or therein, or against any other Person under any other guarantee of, or
security for, any of the Guaranteed Obligations.
2.3. REINSTATEMENT. The obligations of the Company under this
Section 2 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of
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<PAGE>
the Borrower in respect of any of the Guaranteed Obligations is rescinded or
must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and the Company agrees that it will indemnify
the Bank on demand for all reasonable costs and expenses (including, without
limitation, fees of counsel) incurred by the Bank in connection with such
rescission or restoration.
2.4. SUBROGATION. The Company hereby agrees that until the payment
and satisfaction in full of all Guaranteed Obligations it shall not exercise
any right or remedy arising by reason of any performance by the Company of
its guarantee in Section 2.1 hereof, whether by subrogation or otherwise,
against the Borrower or any other guarantor of any of the Guaranteed
Obligations or any security for any of the Guaranteed Obligations.
2.5. REMEDIES. The Company agrees that, as between the Company and
the Bank, the obligations of the Borrower under the Loan Agreement and the
Note may be declared to be forthwith due and payable as provided in Section
8.2 of the Loan Agreement for purposes of Section 2.1 hereof, notwithstanding
any stay, injunction or other prohibition preventing such declaration (or
such obligations from becoming automatically due and payable) as against the
Borrower and that, in the event of such declaration (or such obligations
being deemed to have become automatically due and payable) such obligations
(whether or not due and payable by the Borrower) shall forthwith become due
and payable by the Company for purposes of said Section 2.1
2.6. PURCHASE OF NOTE. Without limiting the provisions of Section
2.5 hereof, on any date on which any Event of Default or an "Event of
Default" as defined under the Company Credit Agreement (a "Company Event of
Default") shall have occurred and be continuing, the Company shall, upon
request of the Bank (which request shall be given in a written notice
delivered to the Company at least 5 Business Days prior to the purchase date)
purchase, upon tender to the Company of the Note held by the Bank with an
instrument of assignment attached thereto, the Loan held by the Bank (and
such Note), by payment to the Bank of an amount in immediately available
funds equal to the sum of the principal of and accrued and unpaid interest on
the Loan at the time of such purchase, plus all other amounts owed by the
Borrower under the Loan Agreement, including any amounts which would have
been payable by the Borrower if the Loan had been prepaid by the Borrower on
the date of the purchase hereunder (such amount being herein referred to as
the "PURCHASE PRICE" for such Note). Such tender shall be deemed to be made,
and title to the Note shall be deemed to have passed to the Company, if the
Bank notifies the Company that the Bank is holding the Note for the account
of the Company, whereupon the Company shall become obligated forthwith to pay
such Purchase Price to the Bank. In connection with any legal proceeding
instituted by the Bank to enforce the obligation of the Company to pay the
Purchase Price therefor, the Company hereby waives any defense based upon
adequate remedy at law. The Company hereby expressly waives tender of the
Note in connection with any purchase thereof by the Company required
hereunder as a result of an Event of Default specified in clause (f) or (g)
of Section 8.1 of the Loan Agreement or a Company Event of Default specified
in Section 8.1.9 of the Company Credit Agreement.
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<PAGE>
In the event that, as contemplated by Section 8.2 of the Loan
Agreement, the Bank declares the principal amount then outstanding of, and
the accrued interest on, the Loan and all other amounts payable by the
Borrower under the Loan Agreement and the Note to be due and payable (or in
the event that such principal amount and accrued interest and other amounts
shall become automatically due and payable as provided in said Section 8.2)
and the Bank makes demand upon the Company pursuant to this Agreement for
payment of the same, the Company may, at its option, perform its obligation
to pay the same hereunder either by making payment of such amount on behalf
of the Borrower to the Bank hereunder or by purchasing the Note held by the
Bank, such purchase to be effected by payment to the Bank of the Purchase
Price therefor; in such event, the Bank shall, as soon as practicable
following such payment by the Company hereunder, deliver, with an instrument
of assignment attached thereto, the Note held by the Bank.
Any purchase under this Section 2.6 shall be made by the Company
from the Bank without recourse and without representation or warranty of any
kind whatsoever (except as to the right of the Bank to transfer valid title
to the Note free of any Lien). Following any such purchase, the Company
shall remain obligated under this Section 2 in respect of its guarantee of
any other amounts owing by the Borrower under the Loan Agreement which may
remain unpaid at the time.
2.7. SALE OF NOTE. Without limiting the provisions of Sections 2.5
and 2.6 hereof, on any date on which any Event of Default or Default shall
have occurred and be continuing, the Bank shall, upon request of the Company
(which request shall be given in a written notice delivered to the Bank at
least five Business Days prior to the sale date) sell, upon tender by the
Company of an amount in immediately available funds equal to the sum of the
principal of and accrued and unpaid interest on the Loan at the time of such
sale, plus all other amounts owed by the Borrower under the Loan Agreement,
including any amounts which would have been payable by the Borrower if the
Loan had been prepaid by the Borrower on the date of the sale hereunder.
Such sale shall be accomplished by the delivery of an instrument of
assignment with the attached Note.
Any sale under this Section 2.7 shall be made by the Bank to the
Company without recourse and without representation or warranty of any kind
whatsoever (except as to the right of the Bank to transfer valid title to the
Note free of any Lien). Following any such sale, the Company shall remain
obligated under this Section 2 in respect of its guarantee of any other
amounts owing by the Borrower under the Loan Agreement which may remain
unpaid at the time.
2.8. CONTINUING GUARANTEE. The guarantee in this Section 2 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
Section 3. MISCELLANEOUS.
3.1. WAIVER. No failure on the part of the Bank to exercise and no
delay in exercising, and no course of dealing with respect to, any right,
power or privilege under this Agreement shall operate as a waiver thereof,
nor shall any single or partial exercise of any right,
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<PAGE>
power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
3.2. AMENDMENTS, ETC. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or waived
only by a written instrument signed by the Company and the Bank, and any
provision of this Agreement may be waived by the Bank.
3.3. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and the successors and assigns
of the Company, and to the successors and assigns of the Bank and each
subsequent holder of the Guaranteed Obligations (provided, however, that the
Company shall not assign its obligations hereunder without the prior written
consent of the Bank).
3.4. CAPTIONS. The captions and section headings appearing herein
are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
3.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and either of the parties hereto may execute this Agreement by
signing any such counterpart.
3.6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of Illinois.
E-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Guarantee
and Contingent Purchase Agreement to be duly executed as of the day and year
first above written.
INDEPENDENCE CAPITAL CORP.
By
------------------------------------
Title: President
Address for Notices
Independence Capital Corp.
96 Cummings Point Road
Stamford, Connecticut 06902
Telecopier No.: 203-348-3103
Telephone No.:
Attention: Steven B. Lapin
BANK OF AMERICA ILLINOIS
By
----------------------------------
Title: Senior Vice President
Address for Notices
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Telecopier No.: 312-828-4203
Telephone No.:
Attention: Gary Peet
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<PAGE>
EXHIBIT F
U.S. $10,000,000
CREDIT AGREEMENT,
dated as of October 31, 1996
between
INDEPENDENCE CAPITAL CORP.
as the Borrower,
and
BANK OF AMERICA ILLINOIS, as the Lender.
F-1
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of October 31, 1996, between INDEPENDENCE
CAPITAL CORP., a Delaware corporation (the "BORROWER") and BANK OF AMERICA
ILLINOIS (the "LENDER").
W I T N E S S E T H:
WHEREAS, Independence Capital Group, Inc. ("ICG") has $10,000,000 of
outstanding indebtedness to the Bank pursuant to the Credit Agreement (the
"Existing Credit Agreement") dated as of December 30, 1993 among ICG, certain
financial institutions and Bank of America Illinois (then known as Continental
Bank N.A.), as agent;
WHEREAS, ICG has been merged with and into the Borrower;
WHEREAS, concurrently herewith Zimmerman Sign Company ("ZSC") has
outstanding $10,000,000 borrowed from the Bank pursuant to a Credit Agreement
dated the date hereof, the proceeds of which loan shall be paid as a dividend to
the Borrower concurrently herewith;
WHEREAS, it is a condition to the Lender's agreement to lend to ZSC that
the Borrower enter into this Credit Agreement and the Guarantee and Contingent
Purchase Agreement dated the date hereof; and
WHEREAS, the Borrower shall apply the proceeds of such dividend to repay
the indebtedness under the Existing Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. DEFINED TERMS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"AFFILIATE" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or
F-2
<PAGE>
any committee with responsibility for administering, any Plan). A Person
shall be deemed to be "controlled by" any other Person if such other Person
possesses, directly or indirectly, power
(a) to vote 10% or more of the securities or interests (on a fully
diluted basis) having ordinary voting power for the election of directors
or managing general partners; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise,
or the ownership, direct or indirect or beneficial, of 10% or more of any class
of stock or other ownership interest of such Person.
"AGREEMENT" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"ALTERNATE BASE RATE" means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate, which means, for any day, the rate
set forth in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New York
(including any such successor, "H.15(519)") on the preceding Business Day
opposite the caption "Federal Funds (Effective)"; or, if for any relevant day
such rate is not so published on any such preceding Business Day, the rate for
such day will be the arithmetic mean as determined by the Bank of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York City time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Bank; and (b) the rate of interest
in effect for such day as publicly announced from time to time by BofA in San
Francisco, California, as its "reference rate." (The "reference rate" is a rate
set by BofA based upon various factors including BofA's costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate.) Any change in the reference rate announced by BofA shall
take effect at the opening of business on the day specified in the public
announcement of such change.
"AUTHORIZED OFFICER" means, relative to any Obligor, those of its officers
whose signatures and incumbency shall have been certified to the Lender pursuant
to SECTION 5.1.1.
"AVAILABLE INVESTMENT AMOUNT" means (i) the sum of (A) 50% of the amount of
dividends that would have been permitted to be paid by Madison under applicable
law after September 30, 1996 plus (B) 50% of interest paid after September 30,
1996 under the Surplus Debentures to IFSC plus (C) 50% of payments received by
the Borrower from Madison and its Subsidiaries in respect of tax liabilities
after September 30, 1996 minus (ii) the sum of (A) Investments made by IFSC as
permitted pursuant to the proviso set forth in Section 7.2.1(b) (ii) plus
(B)Investments made by the Borrower as permitted pursuant to the proviso set
forth in Section 7.2.5 plus (C) amounts applied as permitted pursuant to the
proviso set forth in Section 7.2.6; PROVIDED, that the
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<PAGE>
sum of the amounts set forth in clauses (ii)(A) and (B) shall be reduced by
$5,000,000 but not to an amount less than zero; and PROVIDED, further, on and
after the making of any Loan hereunder, the Available Investment Amount shall
be reduced to zero.
"BASE RATE LOAN" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"BofA" means Bank of America National Trust and Savings Association, a
national banking association.
"BORROWER" is defined in the PREAMBLE.
"BORROWING REQUEST" means a loan request and certificate duly executed by
an Authorized Officer of the Borrower, substantially in the form of EXHIBIT B
hereto.
"BUSINESS DAY" means
(a) any day which is neither a Saturday or Sunday nor a legal holiday
on which banks are authorized or required to be closed in Chicago,
Illinois; and
(b) relative to the making, continuing, prepaying or repaying of any
Eurodollar Rate Loans, including with respect to the giving of notices
required under this Agreement therefor, any day described in the preceding
CLAUSE (a) which is also a day on which dealings in Dollars are carried on
in the London interbank market.
"CAPITAL EXPENDITURES" means, for any period, the sum of
(a) the aggregate amount of all expenditures of the Borrower and its
Subsidiaries for fixed or capital assets made during such period which, in
accordance with GAAP, would be classified as capital expenditures; and
(b) the aggregate amount of all Capitalized Lease Liabilities
incurred during such period.
"CAPITALIZED LEASE LIABILITIES" means all monetary obligations of the
Borrower or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as capitalized leases, and,
for purposes of this Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
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"CASH EQUIVALENT INVESTMENT" means, at any time:
(a) any evidence of Indebtedness issued or guaranteed by the United
States Government (including, but not limited to, securities issued by the
Government National Mortgage Association);
(b) commercial paper, maturing not more than nine months from the
date of issue, which is issued by
(i) a corporation (other than an Affiliate of the Borrower)
organized under the laws of any state of the United States or of the
District of Columbia and rated A-1 by Standard & Poor's Corporation or
P-1 by Moody's Investors Service, Inc., or
(ii) the Lender (or its holding company);
(c) any certificate of deposit or bankers acceptance, maturing not
more than one year after such time, which is issued by either
(i) a commercial banking institution that is a member of the
Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $500,000,000, or
(ii) the Lender; or
(d) any repurchase agreement entered into with the Lender, any other
commercial banking institution of the stature referred to in CLAUSE (c)(i)
or any investment banking firm or broker which (directly or through a
parent or subsidiary corporation) issues commercial paper maturing not more
than nine months from the date of issue with a rating of at least A-1 by
Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc.,
which repurchase agreement
(i) is secured by a fully perfected security interest in any
obligation of the type described in any of CLAUSES (a) through (c),
and
(ii) has a market value at the time such repurchase agreement is
entered into of not less than 100% of the repurchase obligation of the
Lender (or such other commercial banking institution) thereunder.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
F-5
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"CHANGE IN CONTROL" means the failure of Independence to own and control,
directly and free and clear of all Liens, options or other encumbrances or
rights, at least 95% of the outstanding shares of capital stock having ordinary
voting power for the election of directors of the Borrower on a fully diluted
basis.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"COMMITMENT" means the Lender's obligation to make the Loan pursuant to
SECTION 2.1.1.
"COMMITMENT AMOUNT" means, on any date on or prior to the Commitment
Termination Date, $10,000,000.
"COMMITMENT TERMINATION DATE" means the earliest of
(a) October 31, 2001;
(b) immediately after the making of Loans on the Effective Date; and
(c) the date of any termination of the Commitments pursuant to
SECTION 8.2 or 8.3.
Upon the occurrence of any event described in CLAUSES (a), (b) or (c), the
Commitments shall terminate automatically and without any further action.
"CONSOLIDATED CASH SOURCES" means, at any time during a particular Fiscal
Year, the sum of (a) the maximum amount of dividends available to be paid by
Madison during such Fiscal Year, plus (b) the amount of interest available to be
paid on the Surplus Debentures during such Fiscal Year, plus (c) Madison's good
faith reasonable estimate of the amount of tax sharing payments available to be
paid by Madison and its Subsidiaries to Independence pursuant to the Tax Sharing
Agreements during such Fiscal Year, PLUS (d) the amount of management fees
available to be paid to the Borrower by its Subsidiaries during such Fiscal
Year, in the case of CLAUSE (a), based on the Statutory Financial Statements
filed by Madison for the immediately preceding Fiscal Year and otherwise as
computed in accordance with SAP and, in the case of CLAUSE (c), as computed in
accordance with SAP.
"CONSOLIDATED FIXED CHARGE RATIO" means, as of the close of any Fiscal
Quarter, but determined prospectively for the balance of the then current Fiscal
Year (or, in the case of a Fiscal Year end, for the next Fiscal Year), the ratio
of Consolidated Cash Sources to Consolidated Fixed Charges for the balance of
the then current Fiscal Year (or in the case of a Fiscal Year end, for the next
Fiscal Year).
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum of
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<PAGE>
(a) Consolidated Interest Expense of the Borrower and its
Subsidiaries for such period;
plus
(b) amounts required to be paid on Indebtedness (including amounts
paid pursuant to CLAUSE (b) of SECTION 3.1) and any regularly scheduled
payment with respect to Capitalized Lease Liabilities allocable to
principal, in each case by the Borrower and its Subsidiaries for such
period.
"CONSOLIDATED INTEREST EXPENSE" means, for any Fiscal Quarter, the
aggregate interest expense of the Borrower and its Subsidiaries for such Fiscal
Quarter, as determined in accordance with GAAP consistently applied, including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and banker's acceptances and net costs under
interest rate swap or exchange agreements and the portion of any obligation
under capital leases allocable to interest expense; PROVIDED that for purposes
of determining Consolidated Interest Expense for periods occurring after the
date of determination, it shall be assumed that the rate of interest on the Loan
is equal to the Eurodollar Rate for an Interest Period of 3 months as of the
date of determination.
"CONSOLIDATED TANGIBLE NET WORTH" of a Person and its Subsidiaries means,
at any time, all amounts which, in accordance with GAAP consistently applied,
would be included under shareholders' equity on a consolidated balance sheet of
such Person and each of its Subsidiaries at such time; PROVIDED that, in any
event, such amounts are to be net of amounts carried on the books of such Person
and each of its Subsidiaries for (a) any write-up in the book value of any
assets of such Person and any of its Subsidiaries resulting from a revaluation
thereof subsequent to December 31, 1992, (b) treasury stock, (c) unamortized
debt discount and expense, and (d) goodwill and other intangibles and, provided;
further, no effect shall be given to Statement of Financial Accounting Standards
No. 115 in such calculation.
"CONTINGENT LIABILITY" means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other
Person. The amount of any Person's obligation under any Contingent Liability
shall (subject to any limitation set forth therein) be deemed to be the
outstanding principal amount (or maximum principal amount, if larger) of the
debt, obligation or other liability guaranteed thereby.
"CONTINUATION/CONVERSION NOTICE" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of EXHIBIT C hereto.
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"CONTRIBUTION AGREEMENT" means the letter agreement among Independence, the
Borrower and the Lender, dated as of the Effective Date, relating to the
contribution of certain amounts from time to time by Independence to the
Borrower, substantially in the form of EXHIBIT H hereto, as amended or otherwise
modified in accordance with and subject to the provisions of SECTION 7.2.19
hereof.
"CONTROLLED GROUP" means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code or
Section 4001 of ERISA.
"DEFAULT" means any Event of Default or any condition, occurrence or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"DEPARTMENT" means the Insurance Department of the State of Wisconsin.
"DEPARTMENT-DELAWARE" means the Insurance Department of the State of
Delaware.
"DEPARTMENT-NY" means the Insurance Department of the State of New York.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule attached hereto as
SCHEDULE I, as it may be amended, supplemented or otherwise modified from time
to time by the Borrower with the written consent of the Lender.
"DOLLAR" and the sign "$" mean lawful money of the United States.
"DOMESTIC OFFICE" means the office of the Lender designated as such below
its signature hereto or such other office of the Lender within the United States
as may be designated from time to time by notice from the Lender to the
Borrower.
"EFFECTIVE DATE" means the date this Agreement becomes effective pursuant
to SECTION 5.1.
"ENVIRONMENTAL LAWS" means all applicable federal, state or local statutes,
laws, ordinances, codes, rules, regulations and guidelines (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"EURODOLLAR OFFICE" means the office of the Lender designated as such below
its signature hereto or such other office of the Lender as designated from time
to time by notice from the Lender to Borrower, whether or not outside the United
States, which shall be making or maintaining Eurodollar Rate Loans of the Lender
hereunder.
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"EURODOLLAR RATE" is defined in SECTION 3.2.1.
"EURODOLLAR RATE LOAN" means a Loan bearing interest, at all times during
an Interest Period applicable to such Loan, at a fixed rate of interest
determined by reference to the Eurodollar Rate (Reserve Adjusted).
"EURODOLLAR RATE (RESERVE ADJUSTED)" is defined in SECTION 3.2.1.
"EURODOLLAR RESERVE PERCENTAGE" is defined in SECTION 3.2.1.
"EVENT OF DEFAULT" is defined in SECTION 8.1.
"EXISTING CREDIT AGREEMENT" is defined in the recitals.
"FIRST STANDARD" means First Standard Security Insurance Company, a
Delaware corporation which as of the Effective Date is a wholly-owned indirect
Subsidiary of Standard.
"FISCAL QUARTER" means any quarter of a Fiscal Year.
"FISCAL YEAR" means any period of twelve consecutive calendar months ending
on December 31; references to a Fiscal Year with a number corresponding to any
calendar year (E.G. the "1996 Fiscal Year") refer to the Fiscal Year ending on
the December 31 occurring during such calendar year.
"F.R.S. BOARD" means the Board of Governors of the Federal Reserve System
or any successor thereto.
"GAAP" is defined in SECTION 1.4.
"GUARANTEE" means the Guarantee and Contingent Purchase Agreement of the
Borrower in the form attached as Exhibit G.
"HAZARDOUS MATERIAL" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource Conservation
and Recovery Act, as amended;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any other applicable
federal, state or local law, regulation, ordinance or requirement
(including consent decrees and administrative orders)
F-9
<PAGE>
relating to or imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous waste, substance or material, all as amended
or hereafter amended.
"HEDGING OBLIGATIONS" means, with respect to any Person, all liabilities of
such Person under interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements, and all other agreements or arrangements
designed to protect such Person against fluctuations in interest rates or
currency exchange rates.
"HEREIN", "HEREOF", "HERETO", "HEREUNDER" and similar terms contained in
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular Section,
paragraph or provision of this Agreement or such other Loan Document.
"ICG" is defined in the recitals.
"IFSC" means Independence Financial Services Corp., a Delaware corporation.
"IMPERMISSIBLE QUALIFICATION" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of the Borrower, any qualification or exception to such opinion or certification
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement; or
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause
the Borrower to be in default of any of its obligations under SECTION
7.2.4.
"INCLUDING" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of EJUSDEM GENERIS
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"INDEBTEDNESS" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
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(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all obligations of such Person as lessee under leases which have
been or should be, in accordance with GAAP, recorded as Capitalized Lease
Liabilities;
(d) all other items which, in accordance with GAAP, would be included
as liabilities on the liability side of the balance sheet of such Person as
of the date at which Indebtedness is to be determined;
(e) net liabilities of such Person under all Hedging Obligations;
(f) whether or not so included as liabilities in accordance with
GAAP, all obligations of such Person to pay the deferred purchase price of
property or services, and indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(g) all Contingent Liabilities of such Person in respect of any of
the foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer.
"INDEMNIFIED LIABILITIES" is defined in SECTION 10.4.
"INDEMNIFIED PARTIES" is defined in SECTION 10.4.
"INDEPENDENCE" means Independence Holding Company, a Delaware corporation.
"INSIGNIFICANT SUBSIDIARY" means any Subsidiary of the Borrower which is
not a Significant Subsidiary.
"INTEREST PERIOD" means, relative to any Eurodollar Rate Loan, the period
beginning on (and including) the date on which such Eurodollar Rate Loan is made
or continued as, or converted into, a Eurodollar Rate Loan pursuant to SECTION
2.2 or 2.3 and ending on (but excluding) the day which numerically corresponds
to such date one, three or, if available (as determined in the sole discretion
of the Lender), six or twelve months thereafter (or, if such month has no
numerically corresponding day, on the last Business Day of such month), as the
Borrower may select in its relevant notice pursuant to SECTION 2.2 or 2.3;
PROVIDED, HOWEVER, that
(a) the Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more
than five different dates;
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(b) Interest Periods commencing on the same date for Loans shall be
of the same duration;
(c) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the next following
Business Day unless such next following Business Day is the first Business
Day of a calendar month, in which case such Interest Period shall end on
the Business Day next preceding such numerically corresponding day; and
(d) no Interest Period may end later than the Stated Maturity Date.
"INVESTMENT" means, relative to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business);
(b) any Contingent Liability of such Person; and
(c) any ownership or similar interest held by such Person in any
other Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property.
"INVESTMENT GRADE INVESTMENT" means, relative to any Person, any Investment
by such Person in
(a) Cash Equivalent Investments;
(b) preferred stock rated A or better by Standard & Poor's
Corporation or rated A2 or better by Moody's Investors Service, Inc.;
(c) fixed-income securities which are rated BBB- or better by
Standard & Poor's Corporation or rated Baa3 or better by Moody's Investors
Service, Inc.; or
(d) preferred stock having mandatory sinking fund provisions and
rated BBB or better by Standard & Poor's Corporation or rated Baa2 or
better by Moody's Investors Service, Inc.;
PROVIDED, HOWEVER, that, in any event, any Investment of the type referred to in
CLAUSES (b), (c) or (d) above which is rated by both Standard & Poor's
Corporation and Moody's Investors
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Service, Inc. must have the ratings from both such rating agencies set forth
in such CLAUSE (b), (c) or (d) in order to qualify as an "Investment Grade
Investment".
"LENDER" is defined in the PREAMBLE.
"LIEN" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"LOAN" is defined in SECTION 2.1.1.
"LOAN DOCUMENTS" means this Agreement, the Note, the Pledge Agreements, the
Fee Letter, the Contribution Agreement and any other document executed in
connection or pursuant hereto or thereto from time to time which sets forth that
it constitutes a "Loan Document", in each case as amended, supplemented, amended
and restated or otherwise modified from time to time.
"MADISON" means Madison National Life Insurance Company, Inc.
"MADISON CONSOLIDATED STATUTORY SURPLUS" means, at any time, an amount
equal to Madison Statutory Surplus PLUS the value of the stock of Standard
carried on the books of Madison in accordance with SAP.
"MADISON RESTRICTED INVESTMENTS" is defined in Section 7.2.4(b).
"MADISON STATUTORY SURPLUS" means, at any time, the excess of
(a) the sum of "common capital stock", "preferred capital stock",
"gross paid-in and contributed surplus" and "unassigned funds (surplus)",
PLUS the aggregate write-ins for "special surplus funds" and for "other
than special surplus funds", PLUS Madison's "asset valuation reserve"
OVER
(b) "treasury stock" PLUS the value of the stock of Standard as
carried in the books of Madison in accordance with SAP,
of Madison on a stand-alone basis at such time, all as classified and valued in
accordance with applicable Statutory Requirements plus any inclusions (and minus
any exclusions) promulgated from time to time under Statutory Requirements to
enhance, replace or otherwise modify any of the foregoing classes of inclusions.
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<PAGE>
"MATERIALLY ADVERSE EFFECT" means, relative to any occurrence of whatever
nature (including, without limitation, any adverse determination in any
litigation, arbitration, or governmental investigation or proceeding), a
materially adverse effect on:
(a) the consolidated business, assets, revenues, financial condition,
operations, or prospects of the Borrower and its Subsidiaries; or
(b) the ability of the Borrower to perform any of its payment or
other material obligations under this Agreement, the Note, Pledge Agreement
I or any other Loan Document.
"NAIC" means the National Association of Insurance Commissioners.
"NON-INVESTMENT GRADE INVESTMENTS" means, relative to any Person, any
Investment by such Person which does not comprise an Investment Grade Investment
and shall include, in any event, any common equity securities and all real
estate; PROVIDED that, (a) any Investment which falls within more than one of
the categories listed above shall only be counted once and (b) if an Investment
in a particular type of Person falls within one of the categories listed above
so that it counts as a "Non-Investment Grade Investment", the further Investment
by such Person of the proceeds of such Investment in Investments which would
otherwise constitute "Non-Investment Grade Investments" shall not count for
purposes of this definition.
"NOTE" means a promissory note of the Borrower payable to the Lender,
executed and delivered by the Borrower in accordance with this Agreement,
substantially in the form of EXHIBIT A hereto (as such promissory note may be
amended, endorsed or otherwise modified from time to time), evidencing the
aggregate Indebtedness of the Borrower to the Lender resulting from outstanding
Loans, and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"OBLIGATIONS" means all obligations (monetary or otherwise) of the Borrower
and each other Obligor arising under or in connection with this Agreement, the
Note, the Pledge Agreements and each other Loan Document.
"OBLIGOR" means the Borrower or any other Person (other than the Lender)
obligated under any Loan Document.
"ORGANIC DOCUMENT" means, relative to any Obligor, its certificate of
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
F-14
<PAGE>
"PENSION PLAN" means a "pension plan", as such term is defined in section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or
any corporation, trade or business that is, along with the Borrower, a member of
a Controlled Group, may have liability, including any liability by reason of
having been a substantial employer within the meaning of section 4063 of ERISA
at any time during the preceding five years, or by reason of being deemed to be
a contributing sponsor under section 4069 of ERISA.
"PERSON" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
"PLAN" means any Pension Plan or Welfare Plan.
"PLEDGE AGREEMENT I" means the Pledge Agreement, to be executed and
delivered by the Borrower pursuant to SECTION 5.1.6, substantially in the form
of EXHIBIT D hereto, as amended, supplemented, amended and restated or otherwise
modified from time to time.
"PLEDGE AGREEMENT II" means the Pledge Agreement, to be executed and
delivered by IFSC pursuant to SECTION 5.1.6, substantially in the form of
EXHIBIT E hereto, as amended, supplemented, amended and restated on otherwise
modified from time to time.
"PLEDGE AGREEMENTS" shall be the collective reference to Pledge Agreement I
and Pledge Agreement II.
"QUARTERLY PAYMENT DATE" means the last day of each June, September,
December and March or, if any such day is not a Business Day, the last preceding
Business Day.
"RELEASE" means a "release", as such term is defined in CERCLA.
"RESOURCE CONSERVATION AND RECOVERY ACT" means the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, ET SEQ., as in effect from time to
time.
"RISK BASED CAPITAL RATIO" means, at any time, the consolidated risk based
capital ratio, determined in accordance with the risk based capital guidelines
of the NAIC, and shall be expressed as a percentage of the "Company Action
Level" as defined therein, PROVIDED that the ratio which is defined to be the
"Company Action Level" shall, for purposes of this definition, be 100%.
"SAP" means the statutory accounting practices for life insurance companies
as prescribed from time to time by, in the case of Madison, the Department and,
in the case of Standard, the Department-NY.
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<PAGE>
"SEMI-ANNUAL PAYMENT DATE" means the last day of each June and December or,
if such day is not a Business Day, the last preceding Business Day.
"SIGNIFICANT SUBSIDIARY" means (a) (i) IFSC, (ii) Madison, (iii) Standard
and (iv) any other Subsidiary of the Borrower which would qualify as a
"significant subsidiary" under Section 210.1-02(u) of Regulation S-X (17 CFR
Part 210) of the Securities and Exchange Commission as such regulation is in
effect on the date hereof or which has a Consolidated Tangible Net Worth of
$2,000,000 or more, and (b) when used in SECTION 8.1.9, any two or more
Insignificant Subsidiaries in respect of which any event or action of the nature
referred to in SECTION 8.1.9 has occurred or has been taken and as to which
Consolidated Tangible Net Worth exceeds, in the aggregate, $2,000,000.
"STANDARD" means Standard Security Life Insurance Company of New York, a
New York corporation.
"STANDARD RESTRICTED INVESTMENTS" is defined in Section 7.2.4(f).
"STANDARD STATUTORY SURPLUS" means the excess of
(a) the sum of "common capital stock", "preferred capital stock",
"gross paid-in and contributed surplus" and "unassigned funds (surplus)",
PLUS the aggregate write-ins for "special surplus funds" and for "other
than special surplus funds", PLUS "unassigned funds", PLUS Standard's
"asset valuation reserve"
OVER
(b) "treasury stock",
of Standard on a stand alone basis, all as classified and valued in accordance
with applicable Statutory Requirements plus any inclusions (and minus any
exclusions) promulgated from time to time under Statutory Requirements to
enhance, replace or otherwise modify any of the foregoing classes of inclusions.
"STATED MATURITY DATE" means October 31, 2001.
"STATUTORY FINANCIAL STATEMENTS" means financial statements prepared in
accordance with SAP and suitable for filing with, and covering in scope items
required or requested by, in the case of Madison, the Department or, in the case
of Standard, the Department-NY.
"STATUTORY REQUIREMENTS" means, relative to
(a) consolidated Statutory Financial Statements of Madison and its
Subsidiaries prepared for filing with the Department, the accounting
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practices of the NAIC as prescribed or permitted by the Department as
complied with in connection with the preparation of the 1995 Madison
Consolidated Statutory Report,
(b) stand-alone Statutory Financial Statements of Madison prepared
for filing with the Department, the accounting practices of the NAIC as
prescribed or permitted by the Department as complied with in connection
with the preparation of its 1995 Madison Consolidated Statutory Report, and
(c) consolidated Statutory Financial Statements of Standard and its
Subsidiaries prepared for filing with the Department-NY, the accounting
practices of the NAIC as prescribed or permitted by the Department as
complied with in connection with the preparation of its 1995 Standard
Stand-Alone Statutory Report,
together, in each case, with all modifications and changes from time to time
promulgated thereto which shall become mandatory upon, or be adopted by, such
reporting company.
"SUBORDINATED NOTE" means the subordinated grid promissory note in the
maximum aggregate principal amount of $362,500, payable by the Borrower to
Independence Holding Company dated December 30, 1993, as the same may be
modified in accordance with and subject to the provisions of SECTION 7.2.19
hereof.
"SUBSIDIARY" means, with respect to any Person, any corporation of which
more than 50% of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person; provided, however that ZSC shall not be
deemed a Subsidiary of the Borrower.
"SURPLUS DEBENTURES" means the Amended and Restated Contribution Note,
dated October 30, 1996, payable by Madison to IFSC in the principal amount of
$15,000,000, the Amended and Restated Contribution Note, dated October 30, 1996,
payable by Madison to IFSC in the principal amount of $5,000,000 and the
Contribution Note, dated October 31, 1996, payable by Madison to IFSC in the
principal amount of $5,000,000, all of which have been pledged to the Lender
pursuant to Pledge Agreement II.
"SURPLUS RELIEF REINSURANCE AGREEMENT" means any agreement whereby the
Borrower or any of its Subsidiaries (including Madison, Standard or any
Subsidiaries of Madison or Standard) assumes or cedes business under a finite
risk reinsurance agreement or a reinsurance agreement that would be considered a
"financing-type" reinsurance agreement, as determined in the Fourth Edition of
the AICPA Audit Guide for Stock Life Insurance Companies on pp. 91-92 thereof,
as the same may be revised from time to time.
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"TAX SHARING AGREEMENTS" means, collectively, the Tax Allocation Agreement,
dated July 30, 1993, between Independence and Standard and the Tax Allocation
Agreement, dated July 30, 1993, between Madison and Independence.
"TAXES" is defined in SECTION 4.6.
"TYPE" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a Eurodollar Rate Loan.
"UNITED STATES" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"WELFARE PLAN" means a "welfare plan", as such term is defined in section
3(1) of ERISA.
"ZSC" is defined in the recitals.
"ZSC CREDIT AGREEMENT" means the Subordinated Credit Agreement between ZSC
and the Lender dated the date hereof.
SECTION 1.2. USE OF DEFINED TERMS. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and the
Pledge Agreements and in the Note, Borrowing Request, Continuation/Conversion
Notice, Loan Document, notice and other communication delivered from time to
time in connection with this Agreement or any other Loan Document.
SECTION 1.3. CROSS-REFERENCES. Unless otherwise specified, references in
this Agreement, the Pledge Agreements and in each other Loan Document to any
Article or Section are references to such Article or Section of this Agreement,
the applicable Pledge Agreement or such other Loan Document, as the case may be,
and, unless otherwise specified, references in any Article, Section or
definition to any clause are references to such clause of such Article, Section
or definition.
SECTION 1.4. ACCOUNTING AND FINANCIAL DETERMINATIONS. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 7.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared in
accordance with, those generally accepted accounting principles ("GAAP") applied
in the preparation of the financial statements referred to in CLAUSE (a) of
SECTION 6.5 or, as to the delivery of Statutory Financial Statements, SAP.
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ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTE
SECTION 2.1. COMMITMENTS. On the terms and subject to the conditions of
this Agreement (including ARTICLE V) on a single occasion on or prior to the
Commitment Termination Date, the Lender will make a term loan the "LOAN") to the
Borrower in a principal amount not to exceed the Commitment Amount. The
commitment of the Lender described in this SECTION 2.1.1 is herein referred to
as its "COMMITMENT". The Lender shall make one Loan under this Agreement,
although such Loan may be continued or converted in parts i.e., as multiple
Loans hereunder, subject to the terms hereof. No amounts paid or prepaid with
respect to the Loan may be reborrowed.
SECTION 2.2. BORROWING PROCEDURE. By delivering a Borrowing Request to
the Lender on or before 10:00 a.m., Chicago, Illinois time, on a Business Day
not less than one Business Day prior to the Effective Date, the Borrower may
request that the Loan be made in an amount not to exceed the Commitment Amount.
On the terms and subject to the conditions of this Agreement, the borrowing
shall be comprised of the type of Loans specified in the Borrowing Request and
shall be made on the Effective Date. On or before 10:00 a.m. Chicago, Illinois
time, the Lender shall make such funds available to the Borrower by wire
transfer to the account the Borrower shall have specified in the Borrowing
Request.
SECTION 2.3. CONTINUATION AND CONVERSION ELECTIONS. By delivering a
Continuation/Conversion Notice to the Lender on or before 10:00 a.m., Chicago,
Illinois time, on a Business Day, the Borrower may from time to time irrevocably
elect, on not less than three nor more than five Business Days' notice, that
all, or any portion in an aggregate minimum amount of $1,000,000 and an integral
multiple of $500,000, of the Loan be, in the case of Base Rate Loans, converted
into Eurodollar Rate Loans or, in the case of Eurodollar Rate Loans, be
converted into a Base Rate Loan or continued as Eurodollar Rate Loans (in the
absence of delivery of a Continuation/Conversion Notice with respect to any
Eurodollar Rate Loan at least three Business Days before the last day of the
then current Interest Period with respect thereto, such Eurodollar Rate Loan
shall, on such last day, automatically convert to a Base Rate Loan); PROVIDED,
HOWEVER, that no portion of the outstanding principal amount of any Loan may be
continued as, or be converted into, Eurodollar Rate Loans when any Default has
occurred and is continuing.
SECTION 2.4. FUNDING. The Lender may, if it so elects, fulfill its
obligation to make, continue or convert Eurodollar Rate Loans hereunder by
causing one of its foreign branches or Affiliates (or an international banking
facility created by the Lender) to make or maintain such Eurodollar Rate Loan;
PROVIDED, HOWEVER, that such Eurodollar Rate Loan shall nonetheless be deemed to
have been made and to be held by the Lender, and the obligation of the Borrower
to repay such Eurodollar Rate Loan shall nevertheless be to the Lender for the
account of such foreign branch, Affiliate or international banking facility. In
addition, the Borrower hereby consents and agrees that, for purposes of any
determination to be made for purposes of SECTION 4.1, 4.2, 4.3 or 4.4, it shall
be conclusively assumed that the Lender elected to fund all
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Eurodollar Rate Loans by purchasing, as the case may be, Dollar certificates
of deposit in the U.S. or Dollar deposits in its Eurodollar Office's
interbank eurodollar market.
SECTION 2.5. NOTE. The Loan shall be evidenced by a Note payable to the
order of the Lender in a maximum principal amount equal to the Commitment
Amount. The Borrower hereby irrevocably authorizes the Lender to make (or cause
to be made) appropriate notations on the grid attached to the Note (or on any
continuation of such grid), which notations, if made, shall evidence, INTER
ALIA, the date of, the outstanding principal of, and the interest rate and
Interest Period applicable to the Loan evidenced thereby. Such notations shall
be conclusive and binding on the Borrower absent manifest error; PROVIDED,
HOWEVER, that the failure of the Lender to make any such notations shall not
limit or otherwise affect any Obligations of the Borrower.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. REPAYMENTS AND PREPAYMENTS. On the Stated Maturity Date, the
Borrower shall repay in full the entire unpaid principal amount of the
outstanding Loan, together with all accrued and unpaid interest thereon, all
fees in connection therewith and all other Obligations hereunder. Prior
thereto, the Borrower
(a) may, from time to time on any Business Day, make a voluntary
prepayment, in whole or in part, of the outstanding principal amount of any
Loans; PROVIDED, HOWEVER, that
(i) no such prepayment of any Eurodollar Rate Loan may be made on
any day other than the last day of the Interest Period for such Loan,
(ii) all such voluntary prepayments shall require at least three
but no more than five Business Days' prior written notice to the
Lender, and
(iii) all such voluntary partial prepayments shall be in an
aggregate minimum amount of $100,000 and an integral multiple of
$50,000 in excess thereof; and
(b) shall, immediately upon any acceleration of the Stated Maturity
Date of all or any portion of the Loan pursuant to SECTION 8.2 or SECTION
8.3, repay all or such portion of the Loan so accelerated.
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Each prepayment of the Loan shall be applied first to any Base Rate Loans
outstanding prior to being applied to any Eurodollar Rate Loans outstanding.
Each prepayment of any portion of the Loan made pursuant to this Section shall
be without premium or penalty, except as may be required by SECTION 4.4. Once
repaid or prepaid, that portion of the repaid or prepaid Loan may not be
reborrowed.
SECTION 3.2. INTEREST PROVISIONS. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this SECTION 3.2.
SECTION 3.2.1. RATES. Pursuant to an appropriately delivered Borrowing
Request or Continuation/Conversion Notice, the Borrower may elect that all or a
permitted portion of the Loan accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a Base Rate Loan,
equal to the sum of the Alternate Base Rate from time to time in effect
plus a margin of 0.50 of 1%; and
(b) on that portion maintained as a Eurodollar Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the Eurodollar Rate
(Reserve Adjusted) for such Interest Period plus a margin of 1.6875%.
"EURODOLLAR RATE (RESERVE ADJUSTED)" means, for any Interest Period, with
respect to a Eurodollar Rate Loan the rate of interest per annum (rounded upward
to the next 1/16th of 1%) determined by the Lender as follows:
Eurodollar Rate
(Reserve Adjusted) = Eurodollar Rate
-----------------------------------
1.00- Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on such
day (whether or not applicable to the Lender) under regulations issued
from time to time by the F.R.S. Board for determining the maximum
reserve requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"); and
"EURODOLLAR RATE" means the rate of interest per annum determined
by the Lender as the rate at which dollar deposits in the approximate
amount of the Lender's Eurodollar Rate Loan for such Interest Period
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would be offered by the BofA's Grand Cayman Branch, Grand Cayman
B.W.I. (or such other office as may be designated for such purpose by
the Lender), to major banks in the offshore dollar interbank market at
their request at approximately 11:00 a.m. (New York City time) two
Business Days prior to the commencement of such Interest Period.
The Eurodollar Rate shall be adjusted automatically as to all
Eurodollar Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
All Eurodollar Rate Loans shall bear interest from and including the first
day of the applicable Interest Period to (but not including) the last day of
such Interest Period at the interest rate determined as applicable to such
Eurodollar Rate Loan. All Base Rate Loans shall bear interest from and
including the date such Loans are made to (but not including) the day such Loans
are repaid or converted into Eurodollar Rate Loans.
SECTION 3.2.2. DEFAULT RATES. So long as any Event of Default shall have
occurred and be continuing hereunder, interest on the unpaid principal amount of
the Loans outstanding shall be paid on demand at a rate per annum equal to the
Alternate Base Rate plus a margin of 2.50%, and after the date any principal
amount of any Loan has become due and payable (whether on the Stated Maturity
Date, upon acceleration or otherwise), or after any other monetary Obligation of
the Borrower shall have become due and payable, the Borrower shall pay interest
(after as well as before judgment) on demand on such principal amounts and, if
permitted by law, all such other monetary Obligations, at a rate per annum equal
to the Alternate Base Rate plus a margin of 2.50%
SECTION 3.2.3. PAYMENT DATES. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on that portion of the Loan being paid or prepaid, on the date of
any such payment or prepayment;
(c) with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the Effective Date;
(d) with respect to Eurodollar Rate Loans, the last day of each
applicable Interest Period (and, if such Interest Period shall exceed three
months, at the end of each three month day period occurring during such
Interest Period);
(e) with respect to any Base Rate Loans converted into Eurodollar Rate
Loans on a day when interest would not otherwise have been payable pursuant
to CLAUSE (c), on the date of such conversion; and
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(f) on that portion of any Loans the Stated Maturity Date of which is
accelerated pursuant to SECTION 8.2 or SECTION 8.3, immediately upon such
acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 3.2.4. FEES. The Borrower agrees to pay to the Lender, for the
period (including any portion thereof when its Commitment is suspended by reason
of the Borrower's inability to satisfy any condition of ARTICLE V) commencing on
the date hereof and continuing through the final Commitment Termination Date, a
commitment fee at the rate of 0.0625% per annum of the sum of the average daily
unused portion of the Commitment Amount. Such commitment fees shall be payable
by the Borrower in arrears on each Quarterly Payment Date, commencing with the
first such date after the date hereof, and on the Commitment Termination Date.
ARTICLE IV
CERTAIN EURODOLLAR RATE AND OTHER PROVISIONS
SECTION 4.1. EURODOLLAR RATE LENDING UNLAWFUL. If the Lender shall
determine (which determination shall, upon notice thereof to the Borrower, be
conclusive and binding on the Borrower) that the introduction of or any change
in or in the interpretation of any law makes it unlawful, or any central bank or
other governmental authority asserts that it is unlawful, for the Lender to
make, continue or maintain any Loan as, or to convert any Loan into, a
Eurodollar Rate Loan, the obligations of the Lender to make, continue, maintain
or convert any such Loans shall, upon such determination, forthwith be suspended
until the Lender shall notify the Borrower that the circumstances causing such
suspension no longer exist, and all Eurodollar Rate Loans of such type shall
automatically convert into Base Rate Loans at the end of the then current
Interest Periods with respect thereto or sooner, if required by such law or
assertion.
SECTION 4.2. DEPOSITS UNAVAILABLE. If the Lender shall have determined
that
(a) Dollar deposits, in the relevant amount and for the relevant
Interest Period are not available to the Lender in its relevant market; or
(b) by reason of circumstances affecting the Lender's relevant
market, adequate means do not exist for ascertaining the interest rate
applicable hereunder to Eurodollar Rate Loans of such type,
then, upon notice from the Lender to the Borrower the obligations of the Lender
under SECTION 2.3 and SECTION 2.4 to make or continue any Loans as, or to
convert any Loans into, Eurodollar
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Rate Loans of such type shall forthwith be suspended until the Lender shall
notify the Borrower that the circumstances causing such suspension no longer
exist.
SECTION 4.3. INCREASED COSTS, ETC. The Borrower agrees to reimburse the
Lender, upon demand, for any increase in the cost to the Lender of, or any
reduction in the amount of any sum receivable by the Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, Eurodollar Rate Loans (including without limitation by reason of any
increase in any reserve requirements or taxes).
The Lender shall promptly notify the Borrower in writing of the occurrence
of any such event, such notice to state, in reasonable detail, the reasons
therefor and the additional amount required fully to compensate the Lender for
such increased cost or reduced amount. Such additional amounts shall be payable
by the Borrower directly to the Lender within five days of its receipt of such
notice, and such notice shall, in the absence of manifest error, be conclusive
and binding on the Borrower. The Lender will use such method of allocation as
it deems reasonable and appropriate.
SECTION 4.4. FUNDING LOSSES. In the event the Lender shall incur any loss
or expense (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by the Lender to make,
continue or maintain any portion of the principal amount of any Loan as, or to
convert any portion of the principal amount of any Loan into, a Eurodollar Rate
Loan) as a result of
(a) any conversion or repayment or prepayment of the principal amount
of any Eurodollar Rate Loan on a date other than the scheduled last day of
the Interest Period applicable thereto, whether pursuant to SECTION 3.1 or
otherwise;
(b) any Loans not being made as Eurodollar Rate Loans in accordance
with the Borrower's request therefor; or
(c) any Loans not being continued as, or converted into, Eurodollar
Rate Loans in accordance with the Continuation/Conversion Notice therefor,
then, upon the written notice of the Lender to the Borrower, the Borrower shall,
within five days of its receipt thereof, pay directly to the Lender such amount
as will (in the reasonable determination of the Lender) reimburse the Lender for
such loss or expense. Such written notice (which shall include calculations in
reasonable detail) shall, in the absence of manifest error, be conclusive and
binding on the Borrower.
SECTION 4.5. INCREASED CAPITAL COSTS. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required
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or expected to be maintained by the Lender or any Person controlling the
Lender, and the Lender determines (in its sole and absolute discretion) that
the rate of return on its or the controlling Person's capital as a
consequence of its Commitment or Loans is reduced to a level below that which
the Lender or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case upon notice from
time to time by the Lender to the Borrower, the Borrower shall immediately
pay directly to the Lender additional amounts sufficient to compensate the
Lender or such controlling Person for such reduction in rate of return. A
statement of the Lender as to any such additional amount or amounts
(including calculations thereof in reasonable detail) shall, in the absence
of manifest error, be conclusive and binding on the Borrower. In determining
such amount, the Lender may use any method of averaging and attribution that
it (in its sole and absolute discretion) shall deem applicable.
SECTION 4.6. TAXES. All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by the Lender's net
income or receipts (such non-excluded items being called "TAXES"). In the event
that any withholding or deduction from any payment to be made by the Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then the Borrower will
(a) pay directly to the relevant authority the full amount required to
be so withheld or deducted;
(b) promptly forward to the Lender an official receipt or other
documentation satisfactory to the Lender evidencing such payment to such
authority; and
(c) pay to the Lender such additional amount or amounts as is
necessary to ensure that the net amount actually received by Lender will
equal the full amount the Lender would have received had no such
withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Lender with respect to
any payment received by the Lender hereunder, the Lender may pay such Taxes and
the Borrower will promptly pay such additional amounts (including any penalties,
interest or expenses) as is necessary in order that the net amount received by
such person after the payment of such Taxes (including any Taxes on such
additional amount) shall equal the amount such person would have received had
not such Taxes been asserted.
If the Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Lender, for the account of the Lender, the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Lender for any incremental Taxes, interest or penalties that may
become payable by the Lender as a result of any such failure. For purposes of
this SECTION 4.6, a distribution hereunder by the Lender to or for the account
of the Lender shall be deemed a payment by the Borrower.
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SECTION 4.7. PAYMENTS, COMPUTATIONS, ETC. All such payments required to
be made to the Lender shall be made, without setoff, deduction or counterclaim,
not later than 11:00 a.m., Chicago, Illinois time on the date due, in same day
or immediately available funds, to such account as the Lender shall specify from
time to time by notice to the Borrower. Funds received after that time shall be
deemed to have been received by the Lender on the next succeeding Business Day.
The Borrower hereby authorizes the Lender to charge any account maintained by
the Borrower with the Lender for any amount due and payable under this Agreement
as and when so due and payable. All interest and fees shall be computed on the
basis of the actual number of days (including the first day but excluding the
last day) occurring during the period for which such interest or fee is payable
over a year comprised of 360 days. Whenever any payment to be made shall
otherwise be due on a day which is not a Business Day, such payment shall
(except as otherwise required by CLAUSE (c) of the definition of the term
"INTEREST PERIOD" with respect to Eurodollar Rate Loans) be made on the next
succeeding Business Day and such extension of time shall be included in
computing interest and fees, if any, in connection with such payment.
SECTION 4.8. SETOFF. The Lender shall, upon the occurrence of any Default
described in CLAUSES (a) through (d) of SECTION 8.1.9 or, upon the occurrence of
any other Event of Default, have the right to appropriate and apply to the
payment of the Obligations owing to it (whether or not then due), and (as
security for such Obligations) the Borrower hereby grants to the Lender a
continuing security interest in, any and all balances, credits, deposits,
accounts or moneys of the Borrower then or thereafter maintained with or
otherwise held by the Lender. The Lender agrees promptly to notify the Borrower
after any such setoff and application made by the Lender; PROVIDED, HOWEVER,
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of the Lender under this Section are in
addition to other rights and remedies (including other rights of setoff under
applicable law or otherwise) which the Lender may have.
SECTION 4.9. USE OF PROCEEDS. The Borrower shall apply the proceeds of
the Loan to finance the payment of any liabilities of the Borrower under the
Guarantee.
ARTICLE V
CONDITIONS TO EFFECTIVENESS AND BORROWING
SECTION 5.1. EFFECTIVENESS. This Agreement shall become effective on the
date (the "EFFECTIVE DATE") when the Lender shall have received counterparts
hereof executed by each of the parties listed on the signature pages hereto and
when the Lender shall be satisfied that each of the conditions precedent set
forth in SECTIONS 5.1.1 through 5.1.12 have been fulfilled.
SECTION 5.1.1. RESOLUTIONS, ETC. The Lender shall have received
(a) from each of the Borrower and IFSC a certificate, dated the
Effective Date, of its Secretary or Assistant Secretary as to
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(i) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance of, in the
case of the Borrower, this Agreement, the Note, Pledge Agreement I,
the Guarantee and each other Loan Document executed or to be executed
by it and, in the case of IFSC, Pledge Agreement II and each other
Loan Document executed or to be executed by it; and
(ii) the incumbency and signatures of those of its officers
authorized to act with respect to, in the case of the Borrower, this
Agreement, the Note, Pledge Agreement I, the Guarantee and each other
Loan Document executed or to be executed by it and, in the case of
IFSC, Pledge Agreement II and each other Loan Document executed or to
be executed by it,
upon which certificate the Lender may conclusively rely until the Lender shall
have received a further certificate of the Secretary of the Borrower or IFSC, as
appropriate, canceling or amending such prior certificate, which further
certificate shall be reasonably satisfactory to the Lender; and
(b) such other documents (certified if requested) as the Lender may
reasonably request with respect to any matter relevant to this Agreement or
the Loan Documents or the transactions contemplated hereby or thereby.
SECTION 5.1.2. DELIVERY OF NOTE. The Lender shall have received from the
Borrower a duly executed Note, with appropriate insertions, dated as of the
Effective Date.
SECTION 5.1.3. SATISFACTION WITH TAX SHARING AGREEMENTS. The Lender shall
have received true copies (as certified by an authorized officer of the
Borrower) of, and reviewed and become satisfied with the provisions of, the Tax
Sharing Agreements and any other arrangements with respect thereto or a
certificate from the Borrower that such Tax Sharing Agreements and other
arrangements remain unchanged since December 30, 1993.
SECTION 5.1.4. OPINIONS OF COUNSEL. The Lender shall have received an
opinion, dated the Effective Date and addressed to the Lender, from David T.
Kettig, general counsel to the Borrower, substantially in the form of EXHIBIT F
hereto.
SECTION 5.1.5. CLOSING FEES, EXPENSES, ETC. The Lender shall have
received all fees, and all costs and expenses for which invoices have been
provided, due and payable pursuant to SECTIONS 3.2.4 and 10.9.
SECTION 5.1.6. PLEDGE AGREEMENTS. The Lender shall have received the
Pledge Agreements, each dated as of the Effective Date, duly executed by the
Borrower or IFSC, as appropriate, together with (a) the certificates, evidencing
all of the issued and outstanding shares of capital stock pledged pursuant to
the Pledge Agreements, which certificates shall in each case be accompanied by
undated stock powers duly executed in blank, or, if any securities pledged
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pursuant to the Pledge Agreements are uncertificated securities, confirmation
and evidence satisfactory to the Lender that the security interest in such
uncertificated securities has been transferred to and perfected by the Lender in
accordance with the Uniform Commercial Code, as in effect in the State of
Illinois, in each case together with any Uniform Commercial Code Financing
Statements which may be requested by the Lender and (b) the original Surplus
Debentures, duly endorsed in blank and accompanied by a consent by Madison to
such pledge by IFSC in favor of the Lender.
SECTION 5.1.7. GUARANTEE. The Lender shall have received the Guarantee,
duly executed by the Borrower.
SECTION 5.1.8. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before
and after giving effect to the making of the Loan on the Effective Date (but, if
any Default of the nature referred to in SECTION 8.1.5 shall have occurred with
respect to any other Indebtedness, without giving effect to the application,
directly or indirectly, of the proceeds thereof), the following statements shall
be true and correct (and the Borrower shall have furnished the Lender with a
certificate of an Authorized Officer of the Borrower, dated the Effective Date,
to the effect that):
(a) the representations and warranties set forth in ARTICLE VI
(excluding, however, those contained in SECTION 6.7) of this Agreement and
Article III of each of the Pledge Agreements shall be true and correct in
all material respects with the same effect as if then made (unless stated
to relate solely to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date);
(b) except as disclosed by the Borrower to the Lender pursuant to
SECTION 6.7,
(i) no labor controversy, litigation, arbitration or governmental
investigation or proceeding shall be pending or, to the knowledge of
the Borrower, threatened against the Borrower or any of its
Subsidiaries which might have a Materially Adverse Effect or which
purports to affect the legality, validity or enforceability of this
Agreement, the Note, either Pledge Agreement, or any other Loan
Document, and
(ii) no development shall have occurred in any labor controversy,
litigation, arbitration or governmental investigation or proceeding
disclosed pursuant to SECTION 6.7 which might have a Materially
Adverse Effect; and
(c) no Default shall have then occurred and be continuing, and neither
the Borrower nor any of its Subsidiaries shall be in violation of any law
or governmental regulation or court order or decree, the violation of which
could have a Materially Adverse Effect.
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SECTION 5.1.9. CONTRIBUTION AGREEMENT. The Lender shall have received
fully executed counterparts of the Contribution Agreement, in form and substance
satisfactory to the Lender.
SECTION 5.1.10. EXISTING CREDIT AGREEMENT. Concurrently with the Loan,
the Existing Credit Agreement shall have been paid and terminated and the ZSC
Credit Agreement shall be effective.
SECTION 5.1.11. SATISFACTORY LEGAL FORM. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries shall be satisfactory in form and substance to the Lender and its
counsel; the Lender and its counsel shall have received all information,
approvals, opinions, documents or instruments as the Lender or its counsel may
reasonably request.
SECTION 5.1.12. BORROWING REQUEST. The Lender shall have received a
Borrowing Request for the Loan to be made on the Effective Date. Each of the
delivery of a Borrowing Request and the acceptance by the Borrower of the
proceeds of such Loans shall constitute a representation and warranty by the
Borrower that on the date of the Loan (both immediately before and after giving
effect to the Loan and the application of the proceeds thereof) the statements
made in SECTION 5.1.8 are true and correct.
SECTION 5.1.13. CONSENTS AND AMENDMENTS. The Lender shall have received
from the Borrower each of the following, substantially in form of Exhibits I and
J, respectively: (a) a consent and amendment of the Subordinated Note, duly
executed by ICC and Independence, and (b) a duly executed consent and amendment
of the Tax Allocation Agreement executed on February 15, 1995 and effective as
of December 16, 1993, between ICC (as successor by merger to ICG), Independence
Holding Company, and Independence Financial Services Corp.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make the
Loan hereunder, the Borrower represents and warrants unto the Lender as set
forth in this ARTICLE VI.
SECTION 6.1. ORGANIZATION, ETC. The Borrower and each of its Subsidiaries
is a corporation validly organized and existing and in good standing under the
laws of the State of its incorporation, is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction where the nature
of its business requires such qualification (except where the failure to be so
qualified would not have a Materially Adverse Effect), and has full power and
authority and holds all requisite governmental licenses, permits and other
approvals to enter into and perform its Obligations under this Agreement, the
Note, the Pledge Agreements, the Guarantee and each other Loan Document to which
it is a party and to own and hold under lease its property and to conduct its
business substantially as currently conducted by it.
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SECTION 6.2. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution,
delivery and performance by the Borrower or IFSC, as the case may be, of this
Agreement, the Note, the Pledge Agreements, the Guarantee and each other Loan
Document executed or to be executed by it, are within the corporate powers of
the Borrower or IFSC, as the case may be, have been duly authorized by all
necessary corporate action, and do not
(a) contravene the Organic Documents of the Borrower or IFSC, as the
case may be;
(b) contravene any contractual restriction, law or governmental
regulation or court decree or order binding on or affecting the Borrower or
IFSC, as the case may be; or
(c) result in, or require the creation or imposition of, any Lien on
any of the Borrower's properties or the properties of any of its
Subsidiaries (except pursuant to the Loan Documents).
SECTION 6.3. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by the Borrower or IFSC, as the case may be, of this
Agreement, the Note, the Pledge Agreements, the Guarantee or any other Loan
Document to which it or IFSC, as the case may be, is a party. Neither the
Borrower nor any of its Subsidiaries is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
SECTION 6.4. VALIDITY, ETC. This Agreement has been duly executed and
delivered and constitutes, and the Note, each Pledge Agreement, the Guarantee
and each other Loan Document executed by the Borrower or IFSC, as the case may
be, will, on the due execution and delivery thereof, constitute, the legal,
valid and binding obligations of the Borrower or IFSC, as the case may be,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws applying to creditor's rights generally or general equitable principles.
SECTION 6.5. FINANCIAL INFORMATION. (a) The audited consolidated balance
sheet of the Borrower and its Subsidiaries, dated as of December 31, 1995, the
unaudited consolidating balance sheet of the Borrower and its Subsidiaries,
dated as of December 31, 1995, the unaudited consolidated and consolidating
balance sheet of the Borrower and its Subsidiaries dated as of June 30, 1996,
and the related consolidated statements of income and cash flow have been
prepared in accordance with GAAP consistently applied, and present fairly the
consolidated financial condition of the corporations covered thereby as at the
dates thereof and the results of their operations for the periods then ended;
and since December 31, 1995, there has been no material adverse change in the
financial condition, operations, assets, business, properties or
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prospects of the Borrower and its Subsidiaries on a consolidated basis or in
the ability of the Borrower to repay the Obligations when due in accordance
with the terms hereof.
(b) The Statutory Financial Statements of each of (i) Madison and its
Subsidiaries and (ii) Standard and its Subsidiaries dated December 31, 1995 and
June 30, 1996, have been prepared in accordance with SAP and present fairly the
consolidated financial condition of the corporations covered thereby as at the
dates thereof and the results of their operations for the periods then ended and
have been duly filed with the Department or the Department-NY, as the case may
be; and, since December 31, 1995, there has been no material adverse change in
the financial condition, operations, assets, business, properties or prospects
of Madison and its Subsidiaries or Standard and its Subsidiaries, in each case
on a consolidated basis, or any adverse or critical notice received by the
Borrower or any of its Subsidiaries or action (to the best of the knowledge of
the Borrower and its Subsidiaries) taken by the Department or the Department-NY,
as the case may be, with respect thereto.
SECTION 6.6. RESTRICTIVE AGREEMENTS. Neither the Borrower nor any of its
Subsidiaries is a party to any agreement or arrangement of the nature referred
to in SECTION 7.2.13.
SECTION 6.7. LITIGATION, LABOR CONTROVERSIES, ETC. There is no pending
or, to the knowledge of the Borrower, threatened litigation, action, proceeding
or labor controversy affecting the Borrower or any of its Subsidiaries, or any
of their respective properties, businesses, assets or revenues, which has any
reasonable likelihood of having a Materially Adverse Effect or which purports to
affect the legality, validity or enforceability of this Agreement, the Note,
either Pledge Agreement, the Guarantee or any other Loan Document, except as
disclosed in ITEM 6.7 ("Litigation") of the Disclosure Schedule.
SECTION 6.8. SUBSIDIARIES. The Borrower has, as of the date hereof, no
Subsidiaries, except those Subsidiaries which are identified in ITEM 6.8
("Existing Subsidiaries") of the Disclosure Schedule.
SECTION 6.9. OWNERSHIP OF PROPERTIES. The Borrower and each of its
Subsidiaries owns good and marketable title to all of its owned properties and
assets, real and personal, tangible and intangible, of any nature whatsoever
(including patents, trademarks, trade names, service marks and copyrights), and
a good leasehold interest in all of its leased properties, in each case free and
clear of all Liens, charges or claims (including infringement claims with
respect to patents, trademarks, copyrights and the like) except as permitted
pursuant to SECTION 7.2.3.
SECTION 6.10. TAXES. The Borrower and each of its Subsidiaries has filed
all tax returns and reports required by law to have been filed by it and has
paid all taxes and governmental charges thereby shown to be owing, except any
such taxes or charges which are being contested in good faith by appropriate
action and for which adequate reserves in accordance with GAAP shall have been
set aside on its books.
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SECTION 6.11. PENSION AND WELFARE PLANS. During the twelve-consecutive-
month period prior to the date of the execution and delivery of this Agreement
and prior to the date of any Loan hereunder, no steps have been taken to
terminate any Pension Plan, and no contribution failure has occurred with
respect to any Pension Plan sufficient to give rise to a Lien under section
302(f) of ERISA. No condition exists or event or transaction has occurred with
respect to any Pension Plan which might result in the incurrence by the Borrower
or any member of the Controlled Group of any material liability, fine or
penalty. Except as disclosed in ITEM 6.11 ("Employee Benefit Plans") of the
Disclosure Schedule, neither the Borrower nor any member of the Controlled Group
has any contingent liability with respect to any post-retirement benefit under a
Welfare Plan, other than liability for continuation coverage described in Part 6
of Title I of ERISA.
SECTION 6.12. ENVIRONMENTAL WARRANTIES. Except as set forth in ITEM 6.12
("Environmental Matters") of the Disclosure Schedule:
(a) all facilities and property (including underlying groundwater)
owned or leased by the Borrower or any of its Subsidiaries have been, and
continue to be, owned or leased by the Borrower and its Subsidiaries in
material compliance with all Environmental Laws;
(b) there have been no past, and there are no pending or, to the best
of the Borrower's knowledge, threatened
(i) claims, complaints, notices or requests for information
received by the Borrower or any of its Subsidiaries with respect to
any alleged violation of any Environmental Law, or
(ii) complaints, notices or inquiries to the Borrower or any of
its Subsidiaries regarding potential liability under any Environmental
Law;
(c) there have been no Releases of Hazardous Materials at, on or under
any property now or previously owned or leased by the Borrower or any of
its Subsidiaries that, singly or in the aggregate, have, or may reasonably
be expected to have, a Materially Adverse Effect;
(d) the Borrower and its Subsidiaries have been issued and are in
material compliance with all permits, certificates, approvals, licenses and
other authorizations relating to environmental matters and necessary or
appropriate for their businesses;
(e) no property now or previously owned or leased by the Borrower or
any of its Subsidiaries is listed or, to the best of the Borrower's
knowledge, proposed for listing (with respect to owned property only) on
the National Priorities List pursuant to CERCLA, on the CERCLIS or on any
similar state list of sites requiring investigation or clean-up;
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(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned or leased by the Borrower or any of its Subsidiaries that,
singly or in the aggregate, have, or may reasonably be expected to have, a
Materially Adverse Effect;
(g) neither the Borrower nor any Subsidiary of the Borrower has
directly transported or directly arranged for the transportation of any
Hazardous Material to any location which is listed or, to the best of the
Borrower's knowledge, proposed for listing on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list or which is
the subject of federal, state or local enforcement actions or other
investigations which may lead to material claims against the Borrower or
such Subsidiary thereof for any remedial work, damage to natural resources
or personal injury, including claims under CERCLA;
(h) there are no polychlorinated biphenyls or friable asbestos present
at any property now or previously owned or leased by the Borrower or any
Subsidiary of the Borrower that, singly or in the aggregate, have, or may
reasonably be expected to have, a Materially Adverse Effect; and
(i) no conditions exist at, on or under any property now or previously
owned or leased or operated by the Borrower which, with the passage of
time, or the giving of notice or both, would give rise to liability which
would have, or may reasonably be expected to have, singly or in the
aggregate, a Materially Adverse Effect under any Environmental Law.
SECTION 6.13. REGULATIONS G, U AND X. Neither the Borrower nor any
Subsidiary of the Borrower is engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock, and no proceeds of any Loans
will be used for a purpose which violates, or would be inconsistent with, F.R.S.
Board Regulation G, U or X. Less than 25% of the assets of the Borrower and the
consolidated assets of the Borrower and its Subsidiaries consist of margin
stock. Terms for which meanings are provided in F.R.S. Board Regulation G, U or
X or any regulations substituted therefor, as from time to time in effect, are
used in this Section with such meanings.
SECTION 6.14. ACCURACY OF INFORMATION. All factual information heretofore
or contemporaneously furnished by or on behalf of the Borrower, or any
Subsidiary of the Borrower, in writing to the Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby and all
other such factual information hereafter furnished by or on behalf of the
Borrower, or any Subsidiary of the Borrower, to the Lender will be, true and
accurate in every material respect on the date as of which such information is
dated or certified, and, as to information (other than financial statements)
furnished prior to the Effective Date, as of the Effective Date, and such
information is not, or shall not be, as the case may be, incomplete by omitting
to state any material fact necessary to make such information not misleading.
The Borrower has furnished the Lender a true and complete copy of the Tax
Sharing Agreements and
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the Contribution Agreement and any agreement required to be entered into
pursuant to any of the foregoing constitute or will constitute the only
arrangements in respect of taxes to which the Borrower, Standard or Madison
is a party as of the Effective Date.
SECTION 6.15. SUBORDINATED NOTE. Notwithstanding any bankruptcy,
insolvency, reorganization, moratorium or similar proceeding in respect of the
Borrower, at all times, (a) the subordination provisions of the Subordinated
Note will be enforceable by the Lender with respect to the Obligations, (b) all
Obligations, including the Obligations to pay principal of and interest on the
Loan and fees in connection therewith, constitute "Senior Indebtedness", as
defined in the Subordinated Note, and all such Obligations will be entitled to
the benefits of subordination created by the Subordinated Note, and (c) all
payments of principal of or interest on the Subordinated Note made by the
Borrower or from the liquidation of its property will be subject to such
subordination provisions. The Borrower acknowledges that the Lender is entering
into this Agreement, and is extending the Loan, in reliance upon the
subordination provisions contained in the Subordinated Note. The Borrower has
heretofore or simultaneously with the execution of this Agreement furnished to
the Lender a true and complete copy of the executed Subordinated Note.
ARTICLE VII
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS. The Borrower agrees with the Lender
that, until the Commitment has terminated and all Obligations have been paid and
performed in full, the Borrower will perform the obligations set forth in this
SECTION 7.1.
SECTION 7.1.1. FINANCIAL INFORMATION, REPORTS, NOTICES, ETC. The Borrower
will furnish, or will cause to be furnished, to the Lender copies of the
following financial statements, reports, notices and information:
(a) as soon as available and in any event within 60 days after the end
of each of the first three Fiscal Quarters of each Fiscal Year of the
Borrower, consolidated and consolidating balance sheets of the Borrower and
its Subsidiaries (and separately for each of Madison and its Subsidiaries
and Standard and its Subsidiaries) as of the end of such Fiscal Quarter and
consolidated and consolidating statements of income and cash flow of the
Borrower and its Subsidiaries (and separately for each of Madison and its
Subsidiaries and Standard and its Subsidiaries, except that such financial
statements for Madison and its Subsidiaries and Standard and its
Subsidiaries shall comprise consolidated and consolidating statements of
income and consolidated statements of cash flow) for such Fiscal Quarter
and for the period commencing at the end of the previous Fiscal Year and
ending with the end of such Fiscal Quarter, certified by the chief
financial Authorized Officer of the Borrower;
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(b) as soon as available and in any event within 120 days after the
end of each Fiscal Year of the Borrower, a copy of the annual audit report
for such Fiscal Year for the Borrower and its Subsidiaries (and separately
for Madison and its Subsidiaries and Standard and its Subsidiaries),
including therein consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries (and separately for Madison and its
Subsidiaries and Standard and its Subsidiaries) as of the end of such
Fiscal Year and consolidated and consolidating statements of income and
cash flow of the Borrower and its Subsidiaries (and separately for Madison
and its Subsidiaries and Standard and its Subsidiaries, except that such
financial statements for Madison and its Subsidiaries and Standard and its
Subsidiaries shall comprise consolidated and consolidating statements of
income and consolidated statements of cash flow) for such Fiscal Year, in
each case certified (without any Impermissible Qualification) in a manner
acceptable to the Lender by KPMG Peat Marwick or other independent public
accountants acceptable to the Lender, together with a certificate from such
accountants containing a computation of, and showing compliance with, each
of the financial ratios and restrictions contained in SECTION 7.2.4 and to
the effect that, in making the examination necessary for the signing of
such annual report by such accountants, they have not become aware of any
Default or Event of Default that has occurred and is continuing, or, if
they have become aware of such Default or Event of Default, describing such
Default or Event of Default and the steps, if any, being taken to cure it;
(c) as soon as available and in any event within 45 days after the end
of each of the first three Fiscal Quarters of each Fiscal Year of Madison
and Standard, Statutory Accounting Statements for Madison and Standard as
of the end of such Fiscal Quarter and for the period commencing at the end
of the previous Fiscal Year and ending with the end of such Fiscal Quarter,
in each case as filed with the Department or the Department-NY, as the case
may be, and certified by the chief financial Authorized Officers of each of
Madison and Standard;
(d) as soon as available and in any event within 60 days after the end
of each Fiscal Year of Madison and Standard, Statutory Accounting
Statements for Madison and Standard as of the end of such Fiscal Year and
for the period comprising such Fiscal Year, in each case as filed with the
Department or the Department-NY, as the case may be, and certified by the
chief financial Authorized Officers of each of Madison and Standard;
(e) as soon as available and in any event within 60 days after the end
of each Fiscal Quarter and within 120 days after the end of each Fiscal
Year, a certificate, executed by the chief financial Authorized Officer of
the Borrower, showing (in reasonable detail and with appropriate
calculations and computations in all respects satisfactory to the Lender)
compliance with the financial covenants set forth in SECTION 7.2.4;
(f) as soon as possible and in any event within five days after the
occurrence of each Default, a statement of the chief financial Authorized
Officer of the Borrower setting
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forth details of such Default and, within four Business Days thereafter,
the action which the Borrower has taken and proposes to take with respect
thereto;
(g) as soon as possible and in any event within five days after (x)
the occurrence of any adverse development with respect to any litigation,
action, proceeding or labor controversy described in SECTION 6.7 or (y) the
commencement of any labor controversy, litigation, action or proceeding of
the type described in SECTION 6.7, notice thereof and copies of all
documentation relating thereto;
(h) promptly after the sending or filing thereof, copies of (x) all
reports and registration statements which the Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission or any
national securities exchange or, as to any reports or materials bearing on
the financial condition of the Borrower or any of its Subsidiaries or as to
any other reports which the Borrower reasonably determines to be material
to the Lender or the Obligations, with the Department, the Department-NY or
the Department-Delaware and (y) all reports which the Borrower sends to any
of its securityholders and which the Borrower reasonably determines to be
material to the Lender or the Obligations;
(i) immediately upon becoming aware of the institution of any steps by
the Borrower or any other Person to terminate any Pension Plan, or the
failure to make a required contribution to any Pension Plan if such failure
is sufficient to give rise to a Lien under section 302(f) of ERISA, or the
taking of any action with respect to a Pension Plan which could result in
the requirement that the Borrower furnish a bond or other security to the
PBGC or such Pension Plan, or the occurrence of any event with respect to
any Pension Plan which could result in the incurrence by the Borrower of
any material liability, fine or penalty, or any material increase in the
contingent liability of the Borrower with respect to any post-retirement
Welfare Plan benefit, notice thereof and copies of all documentation
relating thereto;
(j) within five Business Days of the receipt of any such notice,
notice of actual suspension, termination, revocation or cancellation of any
license for Madison or Standard by any governmental authority or agency or
of receipt of notice from any governmental authority or agency notifying
the Borrower or Standard or Madison of a hearing, relating to any proposed
suspension, termination, revocation or cancellation, including any request
by a governmental authority or agency which commits the Borrower or Madison
or Standard to take, or to refrain from taking, any action which, in each
case, would have a Materially Adverse Effect; and
(k) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries as the
Lender may from time to time reasonably request.
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SECTION 7.1.2. COMPLIANCE WITH LAWS, ETC. The Borrower will, and will
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include
(without limitation):
(a) the maintenance and preservation of its corporate existence
(except as otherwise permitted under SECTION 7.2.10) and qualification as a
foreign corporation in each jurisdiction where the nature of its business
makes such qualification necessary and where the failure to so qualify
might have a Materially Adverse Effect; and
(b) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent being contested in good faith by appropriate action
and for which adequate reserves in accordance with GAAP shall have been set
aside on its books.
SECTION 7.1.3. MAINTENANCE OF PROPERTIES. The Borrower will, and will
cause each of its Subsidiaries to, maintain, preserve, protect and keep its
properties in good repair, working order and condition, and make necessary and
proper repairs, renewals and replacements, so that its business carried on in
connection therewith may be properly conducted at all times unless the Borrower
determines in good faith that the continued maintenance of any of its properties
is no longer economically desirable and the failure to so maintain such
properties would not have a Materially Adverse Effect.
SECTION 7.1.4. INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained with responsible insurance
companies insurance with respect to its properties and business (including
business interruption insurance) against such casualties and contingencies and
of such types and in such amounts as is customary in the case of similar
businesses and will, upon request of the Lender, furnish to the Lender at
reasonable intervals a certificate of an Authorized Officer of the Borrower
setting forth the nature and extent of all insurance maintained by the Borrower
and its Subsidiaries in accordance with this Section.
SECTION 7.1.5. BOOKS AND RECORDS. The Borrower will, and will cause each
of its Subsidiaries to, keep books and records which accurately reflect all of
its material business affairs and transactions and permit the Lender or any of
its representatives, at reasonable times and intervals, to visit all of its
offices, to discuss its financial matters with its officers and independent
public accountant (and the Borrower hereby authorizes such independent public
accountant to discuss the Borrower's financial matters with the Lender or its
representatives whether or not any representative of the Borrower is present)
and to examine (and, at the expense of the Borrower, photocopy extracts from)
any of its books or other corporate records. The Borrower shall pay any fees of
such independent public accountant incurred in connection with the Lender's
exercise of its rights pursuant to this Section.
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SECTION 7.1.6. ENVIRONMENTAL COVENANT. The Borrower will, and will cause
each of its Subsidiaries to,
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with
all applicable Environmental Laws;
(b) immediately notify the Lender and provide copies upon receipt of
all written claims, complaints, notices or inquiries relating to the
condition of its facilities and properties or compliance with Environmental
Laws; and
(c) provide such information and certifications which the Lender may
reasonably request from time to time to evidence compliance with this
SECTION 7.1.6.
SECTION 7.2. NEGATIVE COVENANTS. The Borrower agrees with the Lender
that, until the Commitment has terminated and all Obligations have been paid and
performed in full, the Borrower will, and will cause each of its Subsidiaries
to, perform the obligations set forth in this SECTION 7.2.
SECTION 7.2.1. BUSINESS ACTIVITIES. The Borrower will not, and will not
permit any of its Subsidiaries to (a) engage in any business activity, except in
the case of the Borrower as a holding company which directly owns 100% of the
capital stock of IFSC, which is a holding company which owns 100% of the capital
stock of Madison, which owns 100% of the capital stock of Standard, which are
insurance companies engaged in the life and health insurance businesses and the
insurance business, in the case of International Benefit Administrators LLC, the
business of a third party insurance administrator and such activities as may be
incidental or related thereto (or, in the case of First Standard, the property
and casualty insurance and reinsurance businesses, in the case of On-Line
Brokerage, Inc., the insurance agency business and, in the case of existing or,
as permitted by SECTION 7.2.4(c), to-be-formed investment subsidiaries,
investments consistent with applicable insurance laws and not otherwise
inconsistent with this Agreement) or (b) permit IFSC to (i) create, incur,
assume or suffer to exist any Indebtedness, Contingent Liabilities, other
liabilities or Liens (other than pursuant to the Loan Documents), (ii) make any
Investments of any kind in any Person (other than its existing Investment in
Madison and the Investment made in Madison with the proceeds of the Loan) or
make any Capital Expenditures; provided, that IFSC may make additional
Investments so long as the amount of any Investment shall not exceed the
Available Investment Amount at the time such Investment is made, (iii) enter
into any transaction of merger, consolidation or combination or make any other
fundamental change in or terminate its corporate existence, (iv) sell, lease,
license or otherwise dispose of or encumber any assets (except a customary lease
for its office) or enter into any material agreements, (v) sell, transfer or
pledge any of its capital stock or any capital stock of any of its Subsidiaries
to any Person (other than pursuant to the Pledge Agreements), or
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(vi) conduct, transact or otherwise engage in any business or activity
whatsoever, except holding its Investment in Madison.
SECTION 7.2.2. INDEBTEDNESS. The Borrower will not create, incur, assume
or suffer to exist or otherwise become or be liable in respect of any
Indebtedness, other than (a) Indebtedness in respect of the Loan and the other
Obligations and (b) subordinated Indebtedness in an aggregate principal amount
not to exceed $362,500 at any one time outstanding incurred from its controlling
stockholder pursuant to the Subordinated Note or on terms (including but not
limited to subordination terms) satisfactory to the Lender (as evidenced by its
written approval thereof).
SECTION 7.2.3. LIENS. The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any
of its property, revenues or assets, whether now owned or hereafter acquired,
except:
(a) Liens securing payment of the Obligations, granted pursuant to any
Loan Document;
(b) Liens consisting of deposits made by Madison and its Subsidiaries
in connection with reinsurance arrangements in the ordinary course of
business;
(c) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being contested in good faith by appropriate action and for which adequate
reserves in accordance with GAAP shall have been set aside on its books;
(d) Liens incurred in the ordinary course of business for sums not
overdue or being contested in good faith to the extent, and only to the
extent, such Liens, in the aggregate, secure obligations which do not
exceed an aggregate amount of $500,000;
(e) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being contested in good faith by appropriate action and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(f) Liens incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;
(g) judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full
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(subject to a customary deductible) by insurance maintained with
responsible insurance companies; and
(h) Liens incurred by Madison or its Subsidiaries in connection with
repurchase agreements or similar investments made in the ordinary course of
business.
SECTION 7.2.4. FINANCIAL COVENANTS. The Borrower will not at any time
permit:
(a)(i) Madison Statutory Surplus to be less than $7,500,000 plus 50%
of the increase in the Madison Statutory Surplus in any fiscal year ending
on or after December 31, 1996 in which Madison realizes such an increase or
(ii) Madison Consolidated Statutory Surplus, as reflected on the then most
recent Statutory Financial Statements filed by Madison with the Department,
to be less than $40,000,000 plus 50% of the increase in the Madison
Consolidated Statutory Surplus in any fiscal year ending on or after
December 31, 1996 in which Madison realizes such an increase;
(b) Madison and its Subsidiaries (other than Standard and its
Subsidiaries), on a consolidated basis, to (i) have Investments (the
"Madison Restricted Investments") in Non-Investment Grade Investments
(excluding Madison's Investment in Standard and Madison's Investment in its
other direct Subsidiaries) which exceed 30% of the aggregate amount of its
"Invested Assets", valued in each case as set forth on the then most recent
Statutory Financial Statements filed by Madison with the Department;
provided, however that the Madison Restricted Investments plus the Standard
Restricted Investments shall not exceed 25% of the aggregate amount of the
"Investment Assets" of Madison and its Subsidiaries, valued in each case as
set forth on the then most recent Statutory Financial Statement filed by
Madison with the Department plus the aggregate amount of the "Invested
Assets" of Standard and its Subsidiaries valued in each case are set forth
in the then most recent Statutory Financial Statement filed by Standard
with the Department-NY, or (ii) have Investments in any particular Person
(other than its Subsidiaries, the United States Federal Government or
agencies thereof carrying the full faith and credit of the United States
Federal Government and investments in securities issued by the Government
National Mortgage Association) which exceed 15% of Madison Consolidated
Statutory Surplus as of its then most recent Statutory Financial Statements
filed with the Department;
(c) Madison to form, or permit Madison's Subsidiaries to form,
Subsidiaries not in existence on the date hereof except for new investment
Subsidiaries in accordance with applicable insurance regulations and
otherwise not inconsistent with the terms of this Agreement which, at any
time of determination, do not contain assets exceeding, in the aggregate,
an amount equal to 10% of Madison Consolidated Statutory Surplus as of its
then most recent Statutory Financial Statements filed with the Department
and furnished to the Lender;
(d) the Risk Based Capital Ratio for Madison to be less than 200%;
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(e) Standard Statutory Surplus, as reflected on the then most recent
Statutory Financial Statements filed by Standard with the Department-NY, to
be less than $32,500,000 plus 50% of the increase in the Standard Statutory
Surplus in any fiscal year ending on or after December 31, 1996 in which
Standard realizes such an increase;
(f) Standard and its Subsidiaries, on a consolidated basis, to have
(i) Investments in Non-Investment Grade Investments (the"Standard
Restricted Investments") (excluding Standard's Investment in its direct
Subsidiaries) which exceed 30% of the aggregate amount of its consolidated
"Invested Assets", valued in each case as set forth on the then most recent
Statutory Financial Statements filed by Standard with the Department-NY;
provided, however, that the Standard Restricted Investments plus the
Madison Restricted Investments shall not exceed 25% of the aggregate amount
of the "Invested Assets" of Standard and its Subsidiaries, valued in each
case as set forth in the then most recent Statutory Financial Statements
filed by Standard and its Subsidiaries with the Department-NY plus the
aggregate amount of the "Invested Assets" of Madison and its Subsidiaries
valued in each case as set forth in the then most recent Statutory
Financial Statement filed by Madison with the Department, or (ii)
Investments in any particular Person (other than its Subsidiaries, the
United States Federal Government or agencies thereof carrying the full
faith and credit of the United States Federal Government and investments in
securities issued by the Government National Mortgage Association) which
exceed 20% of Standard Statutory Surplus as of its then most recent
Statutory Financial Statements filed with the Department-NY;
(g) the Risk Based Capital Ratio for Standard to be less than 200%;
(h) the Borrower's Consolidated Tangible Net Worth at any time to be
less than $40,000,000 plus 50% of any increase in such Consolidated
Tangible Net Worth in any fiscal year ending on or after December 31, 1996
in which the Borrower realizes such an increase; and
(i) the Borrower's Consolidated Fixed Charge Ratio at any time to be
less than 1.5:1.
SECTION 7.2.5. INVESTMENTS. The Borrower will not make, incur, assume or
suffer to exist any Investment in any Person, except (a) Cash Equivalent
Investments, (b) its existing Investments in IFSC, (c) its contribution of the
proceeds of the Loan to IFSC; provided, that the Borrower may make additional
Investments so long as the amount of any Investment shall not exceed the
Available Invested Amount at the time of such Investment, and (d) its
contribution of $5,000,000 to IFSC, which $5,000,000 will be contributed by IFSC
to Madison in exchange for a Contribution Note dated October 31, 1996 which
shall be pledged to the Lender pursuant to the Pledge Agreement II.
SECTION 7.2.6. RESTRICTED PAYMENTS, ETC. On and at all times after the
Effective Date the Borrower will not, and will not permit any of its
Subsidiaries to:
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(a) declare, pay or make any dividend or distribution (in cash,
property or obligations) on any shares of any class of capital stock (now
or hereafter outstanding) of the Borrower or on any warrants, options or
other rights with respect to any shares of any class of capital stock (now
or hereafter outstanding) of the Borrower (other than dividends or
distributions payable in its common stock or warrants to purchase its
common stock or splitups or reclassifications of its stock into additional
or other shares of its common stock) or apply, or permit any of its
Subsidiaries to apply, any of its funds, property or assets to the
purchase, redemption, sinking fund or other retirement of, or agree or
permit any of its Subsidiaries to purchase or redeem or otherwise retire,
any shares of any class of capital stock (now or hereafter outstanding) of
the Borrower, or grant warrants, options or other rights with respect to
any shares of any class of capital stock (now or hereafter outstanding) of
the Borrower or any of its Subsidiaries; or
(b) make any deposit for any of the foregoing purposes;
provided, however, that the Borrower may take such actions otherwise prohibited
by this Section so long as the amount applied thereto shall not exceed the
Available Investment Amount at the time of such application; and provided,
further, that the Borrower may distribute shares of ZSC common stock held by it
to its stockholders; and provided, further, that the Borrower may exchange with
David E. Anderson shares of common stock in ZSC held by it for shares of common
stock in the Borrower.
SECTION 7.2.7. RENTAL OBLIGATIONS. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into at any time any arrangement which
does not create a Capitalized Lease Liability and which involves the leasing by
the Borrower or any of its Subsidiaries from any lessor of any real or personal
property (or any interest therein), other than leases entered into by Madison or
Standard or their Subsidiaries in the ordinary course of their respective
businesses.
SECTION 7.2.8. CAPITAL EXPENDITURES. The Borrower will not, and will not
permit any of its Subsidiaries to, make or commit to make any Capital
Expenditures, except Capital Expenditures made by Madison or Standard or their
Subsidiaries in the ordinary course of their respective businesses.
SECTION 7.2.9. TAKE OR PAY CONTRACTS. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into or be a party to any arrangement
for the purchase of materials, supplies, other property or services if such
arrangement by its express terms requires that payment be made by the Borrower
or such Subsidiary regardless of whether such materials, supplies, other
property or services are delivered or furnished to it.
SECTION 7.2.10. CONSOLIDATION, MERGER, ETC. The Borrower will not, and
will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate
with, or merge into or with, any other Person, or purchase or otherwise acquire
all or any substantial part of the assets of any Person (or of any division
thereof), PROVIDED that Subsidiaries of Madison may be liquidated or
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merged into parent corporations or other Subsidiaries (other than Madison or
Standard) if to do so would not have a Materially Adverse Effect.
SECTION 7.2.11. ASSET DISPOSITIONS, ETC. The Borrower will not, and will
not permit any of its Subsidiaries to, sell, transfer, lease, contribute or
otherwise convey, or grant options, warrants or other rights with respect to,
all or any substantial part of its assets (including accounts receivable and
capital stock of Subsidiaries) to any Person, except for sales, transfers,
leases, contributions or conveyances by Madison or Standard in the ordinary
course of its business consistent with past practice and except that the
Borrower may exchange shares of common stock in ZSC held by it with David E.
Anderson for shares of common stock in the Borrower.
SECTION 7.2.12. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into, or cause, suffer or
permit to exist, any arrangement or contract with any of its other Affiliates
unless such arrangement or contract is fair and equitable to the Borrower or
such Subsidiary and is an arrangement or contract of the kind which would be
entered into by a prudent Person in the position of the Borrower or such
Subsidiary with a Person which is not one of its Affiliates.
SECTION 7.2.13. NEGATIVE PLEDGES, UPSTREAMING MONEY, ETC. The Borrower
will not, and will not permit any of its Subsidiaries to, enter into any
agreement (excluding this Agreement and any other Loan Document) or arrangement
restricting or prohibiting
(a) the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired, or the ability
of the Borrower or any other Obligor to amend or otherwise modify this
Agreement or any other Loan Document; or
(b) except as may be required pursuant to the insurance laws of the
State of Wisconsin in the case of Madison, of the State of New York in the
case of Standard or of the State of Delaware in the case of First Standard,
the ability of any Subsidiary to make any payments, directly or indirectly,
to the Borrower by way of dividends, advances, repayments of loans or
advances, reimbursements of management and other intercompany charges,
expenses and accruals or other returns on investments, or any other
agreement or arrangement which restricts the ability of any such Subsidiary
to make any payment, directly or indirectly, to the Borrower.
SECTION 7.2.14. MADISON AND STANDARD'S RATINGS. The Borrower will not at
any time permit or suffer to exist the rating by A.M. Best in its publication
"Best's Review" (or the rating of any nationally recognized rating agency in the
event a rating is not available from A.M. Best) of Madison to be less than "B+"
or Standard to be less than "B+" (or its equivalent of such other nationally
recognized agency).
SECTION 7.2.15. SURPLUS RELIEF REINSURANCE AGREEMENTS. The Borrower will
not, and will not permit Madison or Standard or any of their Subsidiaries to, at
any time enter into any Surplus Relief Reinsurance Agreement, other than Surplus
Relief Reinsurance Agreements entered
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into by Madison or Standard, PROVIDED, HOWEVER, that in any event, the
aggregate amount invested in such Surplus Relief Reinsurance Agreements by
Madison shall not exceed 15% of Madison Consolidated Statutory Surplus and by
Standard shall not exceed 15% of Standard Statutory Surplus.
SECTION 7.2.16. MANAGEMENT FEES. The Borrower will not, and will not
permit any of its Subsidiaries (including Madison and Standard) to, pay
management, consulting or similar fees to the ultimate majority shareholder or
any of its Affiliates (other than the Borrower) in excess of, in the aggregate,
a per annum amount equal to $725,000; PROVIDED, HOWEVER, that, in any event, any
such fees may be paid only so long as no Default shall have occurred and be
continuing or would occur after giving effect to payment of such fees.
SECTION 7.2.17. FISCAL YEAR. The Borrower will not, and will not permit
Madison or Standard to, change their Fiscal Year.
SECTION 7.2.18. DOMICILE, ETC. The Borrower will not permit Madison or
Standard to change the state of their domicile from Wisconsin or New York,
respectively.
SECTION 7.2.19. MODIFICATION OF AGREEMENTS, SUBORDINATED NOTE AND
CONTRIBUTION AGREEMENT. The Borrower will not consent to or enter into any
amendment, supplement or other modification of any of the terms or provisions
contained in, or applicable to, (a) the Tax Sharing Agreements, (b) the
Subordinated Note, (c) the Contribution Agreement, or (d) any agreement required
to be entered into pursuant to any of the foregoing.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. LISTING OF EVENTS OF DEFAULT. Each of the following events
or occurrences described in this SECTION 8.1 shall constitute an "EVENT OF
DEFAULT".
SECTION 8.1.1. NON-PAYMENT OF OBLIGATIONS. The Borrower shall default in
the payment or prepayment when due of any principal of the Loan, or the Borrower
shall default (and such default shall continue unremedied for a period of five
days) in the payment when due of any interest, fee or any other Obligation.
SECTION 8.1.2. BREACH OF WARRANTY. Any representation or warranty of
the Borrower or any other Obligor made or deemed to be made hereunder, in
either Pledge Agreement or in any other Loan Document executed by the
Borrower or any other Obligor or any other writing or certificate furnished
by or on behalf of the Borrower or any other Obligor to the Lender for the
purposes of or in connection with this Agreement, Pledge Agreement or any
such other Loan Document (including any certificates delivered pursuant to
ARTICLE V) is or shall be incorrect when made or deemed made in any material
respect.
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SECTION 8.1.3. NON-PERFORMANCE OF CERTAIN COVENANTS AND OBLIGATIONS. The
Borrower or any other Obligor shall default in the due performance and
observance of any of its respective obligations under SECTION 7.2 or SECTION
7.1.1 hereof or under Article IV of either Pledge Agreement, provided that for
purposes of a default under SECTION 7.1.1, an Event of Default shall exist only
if such default shall continue unremedied for a period of five days.
SECTION 8.1.4. NON-PERFORMANCE OF OTHER COVENANTS AND OBLIGATIONS. The
Borrower or any Obligor shall default in its due performance and observance of
any other agreement contained herein, in either Pledge Agreement, in the
Guarantee or in any other Loan Document, and such default shall continue
unremedied for a period of 30 days after notice thereof shall have been given to
the Borrower by the Lender.
SECTION 8.1.5. DEFAULT ON OTHER INDEBTEDNESS. A default shall occur in
the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness equal to or exceeding $100,000
(other than Indebtedness described in SECTION 8.1.1) of Independence, the
Borrower or any of its Significant Subsidiaries, or a default shall occur in the
performance or observance of any obligation or condition with respect to such
Indebtedness if the effect of such default is to accelerate the maturity of any
such Indebtedness or such default shall continue unremedied for any applicable
period of time sufficient to permit the holder or holders of such Indebtedness,
or any trustee or agent for such holders, to cause such Indebtedness to become
due and payable prior to its expressed maturity.
SECTION 8.1.6. JUDGMENTS. Any judgment or order for the payment of money
in excess of $250,000 shall be rendered against the Borrower or any of its
Subsidiaries and there shall be any period of 30 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect or, during such 30 day period, enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order and shall not have been stayed or withdrawn.
SECTION 8.1.7. PENSION PLANS. Any of the following events shall occur
with respect to any Pension Plan
(a) the institution of any steps by the Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such termination, the Borrower or any such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a liability or obligation to such Pension Plan, in excess
of $100,000; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION 8.1.8. CHANGE IN CONTROL. Any Change in Control shall occur.
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SECTION 8.1.9. BANKRUPTCY, INSOLVENCY, ETC. The Borrower or any of its
Significant Subsidiaries or Independence shall
(a) become insolvent or generally fail to pay, or admit in writing its
inability or unwillingness to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian or supervisor for
Independence the Borrower or any of its Significant Subsidiaries or any
property of any thereof, or make a general assignment for the benefit of
creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for Independence the Borrower or any of its
Significant Subsidiaries or for a substantial part of the property of any
thereof, and such trustee, receiver, sequestrator or other custodian shall
not be discharged within 60 days, PROVIDED that each of Independence, the
Borrower and each Significant Subsidiary hereby expressly authorize the
Lender to appear in any court conducting any relevant proceeding during
such 60-day period to preserve, protect and defend its rights under the
Loan Documents;
(d) commence voluntarily or have commenced against it involuntarily
any bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of Independence, the
Borrower or any of its Significant Subsidiaries and, if any such case or
proceeding is not commenced by Independence, the Borrower or such
Significant Subsidiary such case or proceeding shall be consented to or
acquiesced in by Independence, the Borrower or such Significant Subsidiary
or shall result in the entry of an order for relief or shall remain for 60
days undismissed, PROVIDED that each of Independence, the Borrower and each
Significant Subsidiary hereby expressly authorize the Lender to appear in
any court conducting any such case or proceeding during such 60-day period
to preserve, protect and defend its rights under the Loan Documents; or
(e) take any action authorizing, or in furtherance of, any of the
foregoing.
SECTION 8.1.10. IMPAIRMENT OF SECURITY, ETC. Any Loan Document, or any
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of any Obligor party thereto; or the
Borrower, any other Obligor or any other party shall, directly or indirectly,
contest in any manner such effectiveness, validity, binding nature or
enforceability; or any Lien securing any Obligation shall, in whole or in part,
cease to be a perfected first priority Lien, subject only to those exceptions
expressly permitted by such Loan Document.
SECTION 8.1.11. LICENSING; SEIZURE; ETC. The Department or the
Department-NY shall revoke, suspend, cancel or terminate Madison or Standard's
insurance licenses or otherwise cause
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Madison or Standard to cease, or effectively to cease, operating as a life
and health insurance company; or the Department or the Department-NY shall
seize control or effective control over Madison or Standard, or all or a
substantial part of their assets or properties; or, other than such
prohibitions or restrictions in effect on the Effective Date, the Department
or the Department-NY, as the case may be, shall prohibit or further restrict
in any manner the ability of Madison or Standard to pay dividends or make
advances to their respective Shareholders or, in turn through intermediary
corporations, to the Borrower.
SECTION 8.2. ACTION IF BANKRUPTCY. If any Event of Default described in
CLAUSES (a) through (d) of SECTION 8.1.9 shall occur, the Commitment (if not
theretofore terminated) shall automatically immediately terminate and the
outstanding principal amount of the Loan and all other Obligations shall
automatically be and become immediately due and payable, without notice or
demand.
SECTION 8.3. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default
(other than any Event of Default described in CLAUSES (a) through (d) of SECTION
8.1.9) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Lender shall by notice to the Borrower declare all or any
portion of the outstanding principal amount of the Loan and other Obligations to
be due and payable and/or the Commitment (if not theretofore terminated) to be
terminated, whereupon the full unpaid amount of the Loan and other Obligations
which shall be so declared due and payable shall be and become immediately due
and payable, without further notice, demand or presentment, and/or, as the case
may be, the Commitment shall terminate.
SECTION 8.4. CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided below.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1. WAIVERS, AMENDMENTS, ETC. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrower and the Lender. No failure or delay on the part of the Lender
or the holder of any Note in exercising any power or right under this Agreement
or any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No notice
to or demand on the Borrower in any case shall entitle it to any notice or
demand in similar or other circumstances. No waiver or approval by the Lender
or the holder of any Note under this Agreement or any other Loan Document shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
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SECTION 9.2. NOTICES. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party at
its address or facsimile number set forth below its signature hereto or at such
other address or facsimile number as may be designated by such party in a notice
to the other parties. Any notice, if mailed and properly addressed with postage
prepaid or if properly addressed and sent by pre-paid courier service, shall be
deemed given when received; any notice, if transmitted by facsimile, shall be
deemed given when transmitted (upon receipt of electronic confirmation of
transmission)
SECTION 9.3. PAYMENT OF COSTS AND EXPENSES. The Borrower agrees to pay
on demand all expenses of the Lender (including the reasonable fees and
out-of-pocket expenses of counsel to the Lender and of local counsel, if any,
who may be retained by counsel to the Lender) in connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement, the Note, each Pledge Agreement, the Guarantee and of each other
Loan Document, including schedules and exhibits, and any amendments,
waivers, consents, supplements or other modifications to this Agreement,
the Note, either Pledge Agreement, the Guarantee or any other Loan Document
as may from time to time hereafter be required or requested, whether or not
the transactions contemplated hereby or thereby are consummated;
(b) the filing, recording, refiling or rerecording of any instruments
providing for or relating to collateral security and/or any Uniform
Commercial Code financing statements relating thereto and all amendments,
supplements and modifications to any thereof and any and all other
documents or instruments of further assurance required to be filed or
recorded or refiled or rerecorded by the terms hereof or of the other Loan
Documents;
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement, the Note, either Pledge Agreement,
the Guarantee or any other Loan Document; and
(d) the administration of this Agreement, the Note, each Pledge
Agreement, the Guarantee and the other Loan Documents and the consideration
of legal questions relevant hereto and thereto.
The Borrower further agrees to pay, and to save the Lender harmless from all
liability for, any stamp or other taxes which may be payable in connection
with the execution or delivery of this Agreement, the borrowings hereunder,
or the issuance of the Note, the Guarantee or any other Loan Documents. The
Borrower also agrees to reimburse the Lender upon demand for all reasonable
out-of-pocket expenses (including reasonable attorneys' fees and legal
expenses)
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incurred by the Lender in connection with (x) the negotiation of
any restructuring or "work-out", whether or not consummated, of any
Obligations, and (y) the enforcement of any Obligations.
SECTION 9.4. INDEMNIFICATION. In consideration of the execution and
delivery of this Agreement by the Lender and the extension of the Commitment,
the Borrower hereby indemnifies, exonerates and holds the Lender and each of its
officers, directors, employees and agents (collectively, the "INDEMNIFIED
PARTIES") free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "INDEMNIFIED
LIABILITIES"), incurred by the Indemnified Parties or any of them as a result
of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the Loan;
(b) the entering into and performance of this Agreement and any other
Loan Document by any of the Indemnified Parties (including any action
brought by or on behalf of the Borrower as the result of any determination
by the Lender pursuant to Article V not to fund any Loans);
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any Person,
whether or not the Lender is party thereto;
(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the Release by the Borrower or any of its
Subsidiaries of any Hazardous Material; and
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrower or any Subsidiary thereof of any
Hazardous Material (including any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any Environmental Law),
regardless of whether caused by, or within the control of, the Borrower or
such Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or wilful misconduct. If and to the extent that the
foregoing undertaking may be unenforceable for any reason, the Borrower
hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
SECTION 9.5. SURVIVAL. The obligations of the Borrower under SECTIONS
4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lender under
SECTION 9.1, shall in each case survive
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any termination of this Agreement, the payment in full of all Obligations and
the termination of all Commitments. The representations and warranties made
by the Borrower in this Agreement and in each other Loan Document shall
survive the execution and delivery of this Agreement and each such other Loan
Document. This Agreement shall not be terminated, even upon payment in full
of the Obligations, until the ZSC Credit Agreement shall have been terminated
and all obligations thereunder paid in full.
SECTION 9.6. SEVERABILITY. Any provision of this Agreement, the Note,
either Pledge Agreement, the Guarantee or any other Loan Document which is
prohibited or unenforceable in any jurisdiction shall, as to such provision
and such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, the Note, the Pledge Agreement or such Loan Document or affecting
the validity or enforceability of such provision in any other jurisdiction.
SECTION 9.7. HEADINGS. The various headings of this Agreement and of each
other Loan Document are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such other Loan Document or any
provisions hereof or thereof.
SECTION 9.8. EXECUTION IN COUNTERPARTS. This Agreement may be executed by
the parties hereto in several counterparts and be deemed to be an original and
all of which shall constitute together but one and the same agreement.
SECTION 9.9. GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTE,
EACH PLEDGE AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
This Agreement, the Note, each Pledge Agreement, the Guarantee and the other
Loan Documents constitute the entire understanding among the parties hereto with
respect to the subject matter hereof and supersede any prior agreements, written
or oral, with respect thereto.
SECTION 9.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of the Lender.
SECTION 9.11. CONSENT OF BORROWER AS SOLE SHAREHOLDER. The Borrower, as
the sole shareholder of IFSC, hereby expressly and irrevocably consents to the
execution, delivery and performance by IFSC of Pledge Agreement II.
SECTION 9.12. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT,
THE NOTE, EITHER PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE LENDER OR
F-50
<PAGE>
THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE
STATE OF ILLINOIS, COOK COUNTY, OR IN THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR
OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS, COOK
COUNTY AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH SUCH LITIGATION. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM
THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE
OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT, THE NOTE, THE PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 9.13. WAIVER OF JURY TRIAL. THE LENDER AND THE BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE NOTE, EITHER PLEDGE AGREEMENT
OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
aSTATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE BORROWER.
THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT AND EACH SUCH LOAN
DOCUMENT.
F-51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
INDEPENDENCE CAPITAL CORP.
By
---------------------------------
Title: President
Address: 96 Cummings Point Road
Stamford, Connecticut 06902
Telecopier No.: 203-348-3103
Attention: Steven B. Lapin
BANK OF AMERICA ILLINOIS
By
---------------------------------
Title: Senior Vice President
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Telecopier No.: 312-828-4203
Attention: Gary Peet
F-52
<PAGE>
SCHEDULE I
DISCLOSURE SCHEDULE
ITEM 6.7 LITIGATION.
None.
ITEM 6.8 EXISTING SUBSIDIARIES.
<TABLE>
State of
Incorporation or Ownership Business
Name Organization % Description
- ---- ---------------- --------- -----------
<S> <C> <C> <C>
Independence Financial
Services Corp. Delaware 100% Holding Company
Madison National Life
Insurance Company, Inc. Wisconsin 100% Life and Health
Insurance
Madison Investors
Corporation Delaware 100% Investments
Standard Security Life
Insurance Company of
New York New York 100% Life and Health
Insurance
Standard Security
Investors
Corporation New York 100% Investments
Standard Life Asset
Management Corp. New York 100% Investments
SSH Corp. Delaware 100% Insurance Holding
Company
First Standard
Security
Insurance Company Delaware 100% Property and Casualty
Insurance
On-Line Brokerage,
Inc. Delaware 100% Insurance Agency
</TABLE>
F-53
<PAGE>
<TABLE>
<S> <C> <C> <C>
International Benefit
Administrators LLC New York 51% Third Party Administrator
ITEM 6.11 EMPLOYEE BENEFIT PLANS.
None.
ITEM 6.12 ENVIRONMENTAL MATTERS.
None.
</TABLE>
F-54
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Use of Defined Terms. . . . . . . . . . . . . . . . . . . 19
SECTION 1.3. Cross-References. . . . . . . . . . . . . . . . . . . . . 19
SECTION 1.4. Accounting and Financial Determinations . . . . . . . . . 19
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTE
SECTION 2.1. Commitments . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.2. Borrowing Procedure . . . . . . . . . . . . . . . . . . . 20
SECTION 2.3. Continuation and Conversion Elections . . . . . . . . . . 20
SECTION 2.4. Funding . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.5. Note. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments. . . . . . . . . . . . . . . . 21
SECTION 3.2. Interest Provisions . . . . . . . . . . . . . . . . . . . 22
SECTION 3.2.1. Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.2.2. Default Rates . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.2.3. Payment Dates . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.2.4. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IV
CERTAIN EURODOLLAR RATE AND OTHER PROVISIONS
SECTION 4.1. Eurodollar Rate Lending Unlawful. . . . . . . . . . . . . 24
SECTION 4.2. Deposits Unavailable. . . . . . . . . . . . . . . . . . . 24
SECTION 4.3. Increased Costs, etc. . . . . . . . . . . . . . . . . . . 25
SECTION 4.4. Funding Losses. . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.5. Increased Capital Costs . . . . . . . . . . . . . . . . . 26
F-55
<PAGE>
PAGE
----
SECTION 4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.7. Payments, Computations, etc. . . . . . . . . . . . . . . 27
SECTION 4.8. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.9. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 28
ARTICLE V
CONDITIONS TO EFFECTIVENESS AND BORROWING
SECTION 5.1. Effectiveness . . . . . . . . . . . . . . . . . . . . . .28
SECTION 5.1.1. Resolutions, etc.. . . . . . . . . . . . . . . . . . . . 28
SECTION 5.1.2. Delivery of Note . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.1.3. Satisfaction with Tax Sharing Agreements . . . . . . . . 29
SECTION 5.1.4. Opinions of Counsel. . . . . . . . . . . . . . . . . . . 29
SECTION 5.1.5. Closing Fees, Expenses, etc. . . . . . . . . . . . . . . 29
SECTION 5.1.6. Pledge Agreements. . . . . . . . . . . . . . . . . . . . 29
SECTION 5.1.7. Guarantee . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.1.8. Compliance with Warranties, No Default, etc. . . . . . . 30
SECTION 5.1.9. Contribution Agreement . . . . . . . . . . . . . . . . . 31
SECTION 5.1.10. Existing Credit Agreement. . . . . . . . . . . . . . . . 31
SECTION 5.1.11. Satisfactory Legal Form. . . . . . . . . . . . . . . . . 31
SECTION 5.1.12. Borrowing Request. . . . . . . . . . . . . . . . . . . . 31
SECTION 5.1.13. Consents and Amendments. . . . . . . . . . . . . . . . . 31
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1. Organization, etc.. . . . . . . . . . . . . . . . . . . . 31
SECTION 6.2. Due Authorization, Non-Contravention, etc.. . . . . . . . 32
SECTION 6.3. Government Approval, Regulation, etc. . . . . . . . . . . 32
SECTION 6.4. Validity, etc.. . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.5. Financial Information . . . . . . . . . . . . . . . . . . 33
SECTION 6.6. Restrictive Agreements. . . . . . . . . . . . . . . . . . 33
SECTION 6.7. Litigation, Labor Controversies, etc. . . . . . . . . . . 33
SECTION 6.8. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.9. Ownership of Properties . . . . . . . . . . . . . . . . . 34
SECTION 6.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 34
F-56
<PAGE>
PAGE
----
SECTION 6.11. Pension and Welfare Plans . . . . . . . . . . . . . . . . 34
SECTION 6.12. Environmental Warranties. . . . . . . . . . . . . . . . . 34
SECTION 6.13. Regulations G, U and X. . . . . . . . . . . . . . . . . . 36
SECTION 6.14. Accuracy of Information . . . . . . . . . . . . . . . . . 36
SECTION 6.15. Subordinated Note . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . 37
SECTION 7.1.1. Financial Information, Reports, Notices, etc. . . . . . . 37
SECTION 7.1.2. Compliance with Laws, etc.. . . . . . . . . . . . . . . . 40
SECTION 7.1.3. Maintenance of Properties . . . . . . . . . . . . . . . . 40
SECTION 7.1.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.1.5. Books and Records . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.1.6. Environmental Covenant. . . . . . . . . . . . . . . . . . 41
SECTION 7.2. Negative Covenants. . . . . . . . . . . . . . . . . . . . 42
SECTION 7.2.1. Business Activities . . . . . . . . . . . . . . . . . . . 42
SECTION 7.2.2. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.2.3. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.2.4. Financial Covenants . . . . . . . . . . . . . . . . . . . 44
SECTION 7.2.5. Investments . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.2.6. Restricted Payments, etc. . . . . . . . . . . . . . . . . 46
SECTION 7.2.7. Rental Obligations. . . . . . . . . . . . . . . . . . . . 46
SECTION 7.2.8. Capital Expenditures. . . . . . . . . . . . . . . . . . . 47
SECTION 7.2.9. Take or Pay Contracts . . . . . . . . . . . . . . . . . . 47
SECTION 7.2.10 Consolidation, Merger, etc. . . . . . . . . . . . . . . . 47
SECTION 7.2.11 Asset Dispositions, etc.. . . . . . . . . . . . . . . . . 47
SECTION 7.2.12. Transactions with Affiliates. . . . . . . . . . . . . . . 47
SECTION 7.2.13. Negative Pledges, Upstreaming Money, etc. . . . . . . . . 48
SECTION 7.2.14. Madison and Standard's Ratings . . . . . . . . . . . . . 48
SECTION 7.2.15. Surplus Relief Reinsurance Agreements . . . . . . . . . . 48
SECTION 7.2.16. Management Fees . . . . . . . . . . . . . . . . . . . . . 48
SECTION 7.2.17. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 7.2.18. Domicile, etc. . . . . . . . . . . . . . . . . . . . . . 49
SECTION 7.2.19. Modification of Agreements, Subordinated Note and
Contribution Agreement . . . . . . . . . . . . . . . . . 49
F-57
<PAGE>
PAGE
----
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. . . . . . . . . . . . . . . 49
SECTION 8.1.1. Non-Payment of Obligations. . . . . . . . . . . . . . . . 49
SECTION 8.1.2. Breach of Warranty. . . . . . . . . . . . . . . . . . . . 49
SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations . . 49
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations . . . 50
SECTION 8.1.5. Default on Other Indebtedness . . . . . . . . . . . . . . 50
SECTION 8.1.6. Judgments . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.1.7. Pension Plans . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.1.8. Change in Control . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.1.9. Bankruptcy, Insolvency, etc.. . . . . . . . . . . . . . . 51
SECTION 8.1.10 Impairment of Security, etc.. . . . . . . . . . . . . . . 52
SECTION 8.1.11. Licensing; Seizure; etc. . . . . . . . . . . . . . . . . 52
SECTION 8.2. Action if Bankruptcy. . . . . . . . . . . . . . . . . . . 52
SECTION 8.3. Action if Other Event of Default. . . . . . . . . . . . . 52
SECTION 8.4. Cumulative Remedies . . . . . . . . . . . . . . . . . . . 52
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1. Waivers, Amendments, etc. . . . . . . . . . . . . . . . . 53
SECTION 9.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.3. Payment of Costs and Expenses . . . . . . . . . . . . . . 53
SECTION 9.4. Indemnification . . . . . . . . . . . . . . . . . . . . . 54
SECTION 9.5. Survival. . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 9.6. Severability. . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 9.7. Headings. . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 9.8. Execution in Counterparts . . . . . . . . . . . . . . . . 56
SECTION 9.9. Governing Law; Entire Agreement . . . . . . . . . . . . . 56
SECTION 9.10. Successors and Assigns. . . . . . . . . . . . . . . . . . 56
SECTION 9.11. Consent of Borrower as Sole Shareholder . . . . . . . . . 56
SECTION 9.12. Forum Selection and Consent to Jurisdiction . . . . . . . 56
SECTION 9.13. Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . 57
F-58
<PAGE>
PAGE
----
SCHEDULE I - Disclosure Schedule
EXHIBIT A - Form of Term Note
EXHIBIT B - Form of Borrowing Request
EXHIBIT C - Form of Continuation/Conversion Notice
EXHIBIT D - Form of Pledge Agreement I
EXHIBIT E - Form of Pledge Agreement II
EXHIBIT F - Form of Opinion of Counsel to the Borrower
EXHIBIT G - Form of Guarantee and Contingent Purchase Agreement of the
Borrower
EXHIBIT H Form of Contribution Agreement
EXHIBIT I - Form of Consent and Amendment of Subordinated Note
EXHIBIT J - Form of Consent and Amendment of Tax Allocation Agreement
1525104
F-59
<PAGE>
1996 STOCK OPTION PLAN
ZIMMERMAN SIGN COMPANY
<PAGE>
TABLE OF CONTENTS
Page(s)
-------
ARTICLE I
THE PLAN. . . . . . . . . . . . . . . . 1
1.1 NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 ELIGIBILITY TO PARTICIPATE. . . . . . . . . . . . . . . . . . . . . . 1
1.5 SHARES SUBJECT TO THE PLAN. . . . . . . . . . . . . . . . . . . . . . 1
1.6 MAXIMUM NUMBER OF PLAN SHARES . . . . . . . . . . . . . . . . . . . . 1
1.7 OPTIONS AND STOCK GRANTED UNDER PLAN. . . . . . . . . . . . . . . . . 1
1.8 CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.9 RESERVATION OF SHARES OF COMMON STOCK . . . . . . . . . . . . . . . . 2
1.10 TAX WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 EXERCISE OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.12 ACCELERATION IN CERTAIN EVENTS. . . . . . . . . . . . . . . . . . . . 3
1.13 WRITTEN NOTICE REQUIRED . . . . . . . . . . . . . . . . . . . . . . . 5
1.14 COMPLIANCE WITH SECURITIES LAWS . . . . . . . . . . . . . . . . . . . 5
1.15 EMPLOYMENT OR SERVICE OF OPTIONEE . . . . . . . . . . . . . . . . . . 5
1.16 RIGHTS OF OPTIONEES UPON TERMINATION OF EMPLOYMENT OR SERVICE . . . . 5
1.17 TRANSFERABILITY OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . 7
1.18 INFORMATION TO OPTIONEES. . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II
ADMINISTRATION . . . . . . . . . . . . . . 7
2.1 COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 APPOINTMENT OF COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . 8
2.3 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. . . . . . . . . . . . . . . 8
2.4 COMPANY ASSISTANCE. . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 EXCULPATION OF COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
INCENTIVE STOCK OPTIONS . . . . . . . . . . . . 8
3.1 TERMS AND CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 DURATION OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 MAXIMUM AMOUNT OF OPTIONS FIRST EXERCISABLE IN ANY CALENDAR YEAR. . . 9
3.5 INDIVIDUAL OPTION AGREEMENTS. . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
i
<PAGE>
NONQUALIFIED STOCK OPTIONS . . . . . . . . . . . 9
4.1 OPTION TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . 9
4.2 DURATION OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 INDIVIDUAL OPTION AGREEMENTS. . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
TERMINATION, AMENDMENT, AND ADJUSTMENT . . . . . . . . 10
5.1 TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . 10
5.2 ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VI
MISCELLANEOUS. . . . . . . . . . . . . . . 10
6.1 OTHER COMPENSATION PLANS. . . . . . . . . . . . . . . . . . . . . . . 10
6.2 PLAN BINDING ON SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . 10
6.3 NUMBER AND GENDER . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VII
DEFINITIONS . . . . . . . . . . . . . . . 11
7.1 "AFFILIATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 "BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 "CAUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 "CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.5 "CODE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.6 "COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.7 "COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.8 "COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.9 "EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.10 "EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.11 "ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.12 "EXCHANGE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.13 "FAIR MARKET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.14 "GHI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.15 "INCENTIVE STOCK OPTION . . . . . . . . . . . . . . . . . . . . . . . 12
7.16 "NONEMPLOYEE DIRECTOR . . . . . . . . . . . . . . . . . . . . . . . . 12
7.17 "NONQUALIFIED STOCK OPTION. . . . . . . . . . . . . . . . . . . . . . 12
7.18 "OFFICER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.19 "OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.20 "OPTIONEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.21 "OPTION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.22 "PERMANENT DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . 13
7.23 "PERSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ii
<PAGE>
7.24 "PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.25 "PLAN SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.26 "RETIREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.27 "RULE 16B-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.28 "SECURITIES ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.29 "SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.30 "TAX DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.31 "TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.32 "VOTING SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
ZIMMERMAN SIGN COMPANY 1996 STOCK OPTION PLAN
ARTICLE I
THE PLAN
1.1 NAME. This Plan shall be known as the "Zimmerman Sign Company 1996
Stock Option Plan." Capitalized terms used herein are defined in ARTICLE VII
hereof.
1.2 PURPOSE. The purpose of the Plan is to promote the growth and
general prosperity of the Company by permitting the Company to grant to its
Employees and Nonemployee Directors Options to purchase Common Stock of the
Company. The Plan is designed to help the Company and its Subsidiaries
attract and retain superior personnel for positions of substantial
responsibility and to provide Employees and Nonemployee Directors with an
additional incentive to contribute to the success of the Company. The
Company intends that Incentive Stock Options granted pursuant to ARTICLE III
shall qualify as "incentive stock options" within the meaning of Section 422
of the Code.
1.3 EFFECTIVE DATE. The Plan shall become effective upon the Effective
Date.
1.4 ELIGIBILITY TO PARTICIPATE. Any Employee or Nonemployee Director
shall be eligible to participate in the Plan. Subject to the following
provisions, the Committee may grant Options in accordance with such
determinations as the Committee from time to time in its sole discretion
shall make; provided, however, that Incentive Stock Options may be granted
only to persons who are Employees.
1.5 SHARES SUBJECT TO THE PLAN. The shares of Common Stock to be issued
pursuant to the Plan shall be either authorized and unissued shares of Common
Stock or shares of Common Stock issued and thereafter acquired by the Company.
1.6 MAXIMUM NUMBER OF PLAN SHARES. Subject to adjustment pursuant to
the provisions of SECTION 5.2, and subject to any additional restrictions
elsewhere in the Plan, the maximum aggregate number of shares of Common Stock
that may be issued and sold hereunder shall not exceed 185,000 shares. The
maximum aggregate number of shares of Common Stock with respect to which
Options may be granted to any Optionee during the term of the Plan shall not
exceed 92,500 shares.
1.7 OPTIONS AND STOCK GRANTED UNDER PLAN. Plan Shares with respect to
which an Option shall have been exercised shall not again be available for
grant hereunder. If Options terminate for any reason without being wholly
exercised, new Options may be granted hereunder covering the number of Plan
Shares to which such Option termination relates.
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1.8 CONDITIONS PRECEDENT. The Company shall not issue any certificate
for Plan Shares pursuant to the Plan prior to fulfillment of all of the
following conditions:
(a) The admission of the Plan Shares to listing on all stock
exchanges on which the Common Stock is then listed, unless the Committee
determines in its sole discretion that such listing is neither necessary
nor advisable;
(b) The completion of any registration or other qualification of the
offer or sale of the Plan Shares under any federal or state law or under
the rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body that the Committee shall in its sole
discretion deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any federal
or state governmental agency that the Committee shall in its sole
discretion determine to be necessary or advisable.
1.9 RESERVATION OF SHARES OF COMMON STOCK. During the term of the Plan,
the Company shall at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of
the Plan as to the number of Plan Shares. In addition, the Company shall
from time to time, as is necessary to accomplish the purposes of the Plan,
seek or obtain from any regulatory agency having jurisdiction any requisite
authority that is necessary to issue Plan Shares hereunder. The inability of
the Company to obtain from any regulatory agency having jurisdiction the
authority deemed by the Company's counsel to be necessary to the lawful
issuance of any Plan Shares shall relieve the Company of any liability in
respect of the non-issuance of Plan Shares as to which the requisite
authority shall not have been obtained.
1.10 TAX WITHHOLDING.
(a) CONDITION PRECEDENT. The issuance of Plan Shares pursuant to the
exercise of any Option under the Plan is subject to the condition that if
at any time the Committee shall determine, in its discretion, that the
satisfaction of withholding tax or other withholding liabilities under any
federal, state or local law is necessary or desirable as a condition of, or
in connection with such issuances, then the issuances shall not be
effective unless the withholding shall have been effected or obtained in a
manner acceptable to the Committee.
(b) MANNER OF SATISFYING WITHHOLDING OBLIGATION. When an Optionee
is required by the Committee to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with the exercise
of an Option, such payment may be made (i) in cash, (ii) by check, (iii) if
permitted by the Committee, by delivery to the Company of shares of Common
Stock already owned by the Optionee having a Fair Market Value on the Tax
Date equal to the amount required to be withheld,
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(iv) through the withholding by the Company ("Company Withholding") of a
portion of the Plan Shares acquired upon the exercise of the Options having
a Fair Market Value on the Tax Date equal to the amount required to be
withheld or (v) in any other form of valid consideration, as permitted by
the Committee in its discretion.
(c) NOTICE OF DISPOSITION OF STOCK ACQUIRED PURSUANT TO INCENTIVE
STOCK OPTIONS. The Company may require as a condition to the issuance of
Plan Shares covered by any Incentive Stock Option that the party exercising
such Option give a written representation to the Company, which is
satisfactory in form and substance to its counsel and upon which the
Company may reasonably rely, that he shall report to the Company any
disposition of such shares prior to the expiration of the holding periods
specified by Section 422(a)(1) of the Code. If and to the extent that the
realization of income in such a disposition imposes upon the Company
federal, state or local withholding tax requirements, or any such
withholding is required to secure for the Company an otherwise available
tax deduction, the Company shall have the right to require that the
recipient remit to the Company an amount sufficient to satisfy those
requirements; and the Company may require as a condition to the issuance of
Plan Shares covered by an Incentive Stock Option that the party exercising
such Option give a satisfactory written representation promising to make
such a remittance.
1.11 EXERCISE OF OPTIONS.
(a) METHOD OF EXERCISE. Each Option shall be exercisable in
accordance with the terms of the Option Agreement pursuant to which the
Option was granted. No Option may be exercised for a fraction of a Plan
Share.
(b) PAYMENT OF PURCHASE PRICE. The purchase price of any Plan Shares
purchased shall be paid at the time of exercise of the Option either (i) in
cash, (ii) by certified or cashier's check, (iii) if permitted by the
Committee, by shares of Common Stock, (iv) if permitted by the Committee,
by cash or certified or cashier's check for the par value of the Plan
Shares plus a promissory note for the balance of the purchase price, which
note shall provide for full personal liability of the maker and shall
contain such terms and provisions as the Committee may determine, including
without limitation the right to repay the note partially or wholly with
Common Stock, (v) by delivery of a copy of irrevocable instructions from
the Optionee to a broker or dealer, reasonably acceptable to the Company,
to sell certain of the Plan Shares purchased upon exercise of the Option or
to pledge them as collateral for a loan and promptly deliver to the Company
the amount of sale or loan proceeds necessary to pay such purchase price or
(vi) in any other form of valid consideration, as permitted by the
Committee in its discretion. If any portion of the purchase price or a
note given at the time of exercise is paid in shares of Common Stock, those
shares shall be valued at the then Fair Market Value.
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1.12 ACCELERATION IN CERTAIN EVENTS. The Committee may accelerate the
exercisability of any Option in whole or in part at any time.
Notwithstanding the provisions of any Option Agreement, the following
provisions shall apply:
(a) MERGERS, CONSOLIDATION, ETC. In the event that the Company
shall, pursuant to action by the Board, at any time enter into an agreement
whereby the Company will merge into, consolidate with, or sell or otherwise
transfer all or substantially all of its assets to another corporation and
provision is not made pursuant to the terms of such transaction for the
assumption by the surviving, resulting, or acquiring corporation of
outstanding Options, or for the substitution of new Options with
substantially equivalent benefit therefor, each outstanding Option shall
become fully (100%) vested. The Committee shall advise each Optionee, in
writing, of the manner and terms under which such fully vested Options
shall be exercised.
(b) CHANGE IN CONTROL. Anything contained herein to the contrary
notwithstanding, (1) an Optionee shall become fully (100%) vested in each
of his or her Options upon the occurrence of a change in control (as
defined below) or a threatened change in control (as determined by the
Committee in its sole discretion); and (2) no Option held by an Optionee at
the time a change in control or threatened change in control occurs or at
any time thereafter shall terminate for any reason before the end of the
Option's express term. For purposes of this section, "change in control"
means one or more of the following events:
(i) Any person within the meaning of Section 13(d) and 14(d) of the
Exchange Act, other than (A) the Company (including its Subsidiaries,
directors or executive officers) or (B) GHI has become the beneficial
owner, within the meaning of Rule 13d-3 under the Exchange Act, of 50% or
more of the combined voting power of the Company's then outstanding Common
Stock or equivalent in voting power of any class or classes of the
Company's outstanding securities ordinarily entitled to vote in elections
of directors ("voting securities"); or
(ii) Shares representing 50% or more of the combined voting power of
the Company's voting securities are purchased pursuant to a tender offer or
exchange offer (other than an offer by the Company or its subsidiaries or
affiliates); or
(iii) As a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were Directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the
Company or of any successor to the Company; or
(iv) Following the effective date of the Plan, the Company is merged
or consolidated with another corporation and as a result of such merger or
consolidation less
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than 50% of the outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the former shareholders
of the Company, other than (A) any party to such merger or consolidation, or
(B) any affiliates of any such party; or
(v) The Company transfers more than 50% of its assets, or the last of
a series of transfers results in the transfer of more than 50% of the
assets of the Company, to another entity that is not wholly-owned by the
Company. For purposes of this subsection (v), the determination of what
constitutes 50% of the assets of the Company shall be made by the
Committee, as constituted immediately prior to the events that would
constitute a change of control if 50% of the Company's assets were
transferred in connection with such events, in its sole discretion.
1.13 WRITTEN NOTICE REQUIRED. Any Option shall be deemed to be exercised
for purposes of the Plan when written notice of exercise has been received by
the Company at its principal office from the person entitled to exercise the
Option and payment for the Plan Shares with respect to which the Option is
exercised has been received by the Company in accordance with SECTION 1.11.
1.14 COMPLIANCE WITH SECURITIES LAWS. Plan Shares shall not be issued
with respect to any Option unless the issuance and delivery of the Plan
Shares (and the exercise of an Option, if applicable) shall comply with all
relevant provisions of state and federal law (including without limitation
(i) the Securities Act, the rules and regulations promulgated thereunder, and
(ii) the requirements of any stock exchange upon which the Plan Shares may
then be listed) and shall be further subject to the approval of counsel for
the Company with respect to such compliance. The Committee may also require
an Optionee to furnish evidence satisfactory to the Company, including
without limitation a written and signed representation letter and consent to
be bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation
of any state or federal law, rule, or regulation. Further, each Optionee
shall consent to the imposition of a legend on the certificate representing
the Plan Shares issued pursuant to the exercise of an Option restricting
their transfer as required by law or this Section.
1.15 EMPLOYMENT OR SERVICE OF OPTIONEE. Nothing in the Plan or in any
Option granted hereunder shall confer upon any Employee any right to
continued employment by the Company or any of its Subsidiaries or limit in
any way the right of the Company or any Subsidiary at any time to terminate
or alter the terms of that employment. Nothing in the Plan or in any Option
granted hereunder shall confer upon any Nonemployee Director any right to
continued service as a Nonemployee Director of the Company or any of its
Subsidiaries or limit in any way the right of the Company or any Subsidiary
at any time to terminate or alter the terms of that service.
1.16 RIGHTS OF OPTIONEES UPON TERMINATION OF EMPLOYMENT OR SERVICE. In the
event an Optionee ceases to be an Employee or Nonemployee Director for any
reason other than death,
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Retirement, Permanent Disability, for Cause or upon providing certain
required notice of termination prior to an annual anniversary of an
Employee's employment agreement with the Company, (i) the Committee shall
have the ability to accelerate the vesting of the Optionee's Option, in its
sole discretion, and (ii) such Optionee's Option shall be exercisable (to the
extent exercisable on the date of termination of employment or rendition of
services, or, if the vesting of such Option has been accelerated, to the
extent exercisable following such acceleration) at any time within three
months after the date of termination of employment or rendition of services,
unless by its terms the Option expires earlier or unless, with respect to a
Nonqualified Stock Option, the Committee agrees, in its sole discretion, to
further extend the term of such Nonqualified Stock Option; provided that the
term of any such Nonqualified Stock Option shall not be extended beyond its
initial term. In the event an Optionee ceases to serve as an Employee or
Nonemployee Director due to death, Permanent Disability, Retirement, for
Cause or upon providing certain required notice of termination prior to an
annual anniversary of an Employee's employment agreement with the Company, an
Optionee's Options may be exercised as follows:
(a) DEATH. Except as otherwise limited by the Committee at the time
of the grant of an Option, if an Optionee dies while serving as an Employee
or Nonemployee Director or within three months after ceasing to be an
Employee or Nonemployee Director, his Option shall become fully (100%)
vested on the date of his death and shall expire 12 months thereafter,
unless by its terms it expires sooner or unless, with respect to a
Nonqualified Stock Option, the Committee agrees, in its sole discretion, to
further extend the term of such Nonqualified Stock Option; provided that
the term of any such Nonqualified Stock Option shall not be extended beyond
its initial term. During such period, the Option may be fully exercised,
to the extent that it remains unexercised on the date of death, by the
Optionee's personal representative or by the distributees to whom the
Optionee's rights under the Option shall pass by will or by the laws of
descent and distribution.
(b) RETIREMENT. If an Optionee ceases to serve as an Employee or
Nonemployee Director as a result of Retirement, (i) the Committee shall
have the ability to accelerate the vesting of the Optionee's Option, in its
sole discretion, and (ii) such Optionee's Option shall be exercisable (to
the extent exercisable on the effective date of such Retirement or, if the
vesting of such Option has been accelerated, to the extent exercisable
following such acceleration) at any time within three months after the
effective date of such Retirement, unless by its terms the Option expires
earlier or unless, with respect to a Nonqualified Stock Option, the
Committee agrees, in its sole discretion, to further extend the term of
such Nonqualified Stock Option; provided that the term of any such
Nonqualified Stock Option shall not be extended beyond its initial term.
(c) DISABILITY. If an Optionee ceases to serve as an Employee or
Nonemployee Director as a result of Permanent Disability, the Optionee's
Option shall become fully (100%) vested and shall expire 12 months
thereafter, unless by its terms it expires sooner or, unless, with respect
to a Nonqualified Stock Option, the Committee agrees, in its sole
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discretion, to extend the term of such Nonqualified Stock Option; provided
that the term of any Option shall not be extended beyond its initial term.
(d) CAUSE. If an Optionee ceases to be employed by the Company or a
Subsidiary or ceases to serve as a Nonemployee Director because the
Optionee's relationship with the Company or a Subsidiary is terminated for
Cause, the Optionee's Options shall automatically expire on the date of
such termination. If any facts that would constitute Cause for termination
or removal of an Optionee are discovered after the Optionee's relationship
with the Company has ended, any Options then held by the Optionee may be
immediately terminated by the Committee. Notwithstanding the foregoing, if
an Optionee is an Employee employed pursuant to a written employment
agreement with the Company or a Subsidiary, the Optionee's relationship
with the Company or a Subsidiary shall be deemed terminated for Cause for
purposes of the Plan only if the Optionee is considered under the
circumstances to have been terminated "for cause" for purposes of such
written agreement or the Optionee voluntarily ceases to be an Employee in
breach of such Optionee's employment agreement with the Company or a
Subsidiary.
(e) NOTICE. If an Optionee's employment agreement with the Company
or a Subsidiary is terminated by either the Company, a Subsidiary or the
Optionee by providing certain required notices of termination prior to an
annual anniversary of such Optionee's employment agreement, the Options
that are exercisable as of the date of termination shall remain exercisable
for a period of twelve months (three months if Incentive Stock Options)
after the date of termination and shall expire at the end of such twelve
month period (three month period if Incentive Stock Options).
1.17 TRANSFERABILITY OF OPTIONS. Except as may be agreed upon by the
Committee in accordance with the following paragraph, Options shall not be
transferable other than by will or the laws of descent and distribution or,
with respect to Nonqualified Stock Options, pursuant to the terms of a
qualified domestic relations order as defined by the Code or Title I of
ERISA, or the rules thereunder, and, with respect to Incentive Stock Options,
may be exercised during the lifetime of an Optionee only by that Optionee or
by his legally authorized representative. The designation by an Optionee of
a beneficiary shall not constitute a transfer of the Option. The Committee
may, in its discretion, provide in an Option Agreement that Nonqualified
Stock Options granted hereunder may be transferred by the Optionee to members
of his immediate family, trusts for the benefit of such immediate family
members and partnerships in which such immediate family members are the only
partners, provided that there cannot be any consideration for the transfer.
1.18 INFORMATION TO OPTIONEES. The Company shall furnish to each Optionee
a copy of the annual report, proxy statements and all other reports sent to the
Company's shareholders. Upon written request, the Company shall furnish to each
Optionee a copy of its most recent
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Annual Report or Form 10-K and each quarterly report to shareholders issued
since the end of the Company's most recent fiscal year.
ARTICLE II
ADMINISTRATION
2.1 COMMITTEE. Subject to SECTION 2.2, the Plan shall be administered
by a Committee of not fewer than two members of the Board. Each member of
the Committee shall be a "Non-Employee Director" within the meaning of Rule
16b-3 under the Exchange Act. Subject to the provisions of the Plan, the
Committee shall have the sole discretion and authority to determine from time
to time the Employees and Non-Employee Directors to whom Options shall be
granted and the number of Plan Shares subject to each Option, to interpret
the Plan, to prescribe, amend and rescind any rules and regulations necessary
or appropriate for the administration of the Plan, to determine and interpret
the details and provisions of each Option Agreement, to modify or amend any
Option Agreement or waive any conditions or restrictions applicable to any
Options (or the exercise thereof), and to make all other determinations
necessary or advisable for the administration of the Plan.
2.2 APPOINTMENT OF COMMITTEE. The Committee shall be appointed by the
Board; provided that the Board may remove any Committee member, with or
without cause.
2.3 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. A majority of the members
of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action
taken without a meeting evidenced by a writing executed by all members of the
Committee shall constitute the action of the Committee. Meetings of the
Committee may take place by telephone conference call.
2.4 COMPANY ASSISTANCE. The Company shall supply full and timely
information to the Committee on all matters relating to Employees and
Nonemployee Directors, their employment, death, Retirement, Permanent
Disability, or other termination of employment or service, and such other
pertinent facts as the Committee may require. The Company shall furnish the
Committee with such clerical and other assistance as is necessary in the
performance of its duties.
2.5 EXCULPATION OF COMMITTEE. No member of the Committee shall be
personally liable for, and the Company shall indemnify all members of the
Committee and hold them harmless against, any claims resulting directly or
indirectly from any action or inaction by the Committee pursuant to the Plan,
including without limitation any determination by the Committee regarding
whether a "change in control" (within the meaning of Section 1.12) is
threatened and any failure by the Committee to consider such a determination.
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ARTICLE III
INCENTIVE STOCK OPTIONS
3.1 TERMS AND CONDITIONS. The terms and conditions of Options granted
under this Article may differ from one another as the Committee shall, in its
discretion, determine, as long as all Options granted under this Article
satisfy the requirements of this Article.
3.2 DURATION OF OPTIONS. Each Option granted pursuant to this Article
and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
earlier than one year or later than 10 years after the date on which the
Option is granted. In addition, each Option shall be subject to early
termination as provided elsewhere in the Plan.
3.3 PURCHASE PRICE. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option granted under
this Article shall not be less than the Fair Market Value of the Plan Shares
at the time of the grant of the Option; provided, however, in the event of
the grant of any Option to an individual who, at the time the Option is
granted, owns shares of stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary or
affiliate thereof within the meaning of Section 422 of the Code, the purchase
price for the Plan Shares subject to that Option must be at least 110% of the
Fair Market Value of those Plan Shares at the time the Option is granted and
the Option must not be exercisable after the expiration of five years from
the date of its grant.
3.4 MAXIMUM AMOUNT OF OPTIONS FIRST EXERCISABLE IN ANY CALENDAR YEAR.
The aggregate Fair Market Value of Plan Shares (determined at the time the
Option is granted) with respect to which Options issued under this Article
are exercisable for the first time by any Employee during any calendar year
under all incentive stock option plans of the Company and its Subsidiaries
and affiliates shall not exceed $100,000. Any portion of an Option granted
under the Plan in excess of the foregoing limit shall be considered granted
pursuant to ARTICLE IV.
3.5 INDIVIDUAL OPTION AGREEMENTS. Each Employee receiving Options
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company. In such Option Agreement, the Employee shall
agree to be bound by the terms and conditions of the Plan, the Options made
pursuant hereto, and such other matters as the Committee deems appropriate.
ARTICLE IV
NONQUALIFIED STOCK OPTIONS
4.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Committee
shall, in its discretion, determine as long as all Options granted under this
Article satisfy the requirements of this Article.
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4.2 DURATION OF OPTIONS. Each Option granted pursuant to this Article
and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
later than 10 years after the date on which the Option is granted. In
addition, each Option shall be subject to early termination as provided
elsewhere in the Plan.
4.3 PURCHASE PRICE. The purchase price for the Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option granted under
this Article shall not be less than the Fair Market Value of the Plan Shares
at the time of the grant of the Option.
4.4 INDIVIDUAL OPTION AGREEMENTS. Each Optionee receiving Options
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company. In such Option Agreement, the Optionee shall
agree to be bound by the terms and conditions of the Plan, the Options made
pursuant hereto, and such other matters as the Committee deems appropriate.
ARTICLE V
TERMINATION, AMENDMENT, AND ADJUSTMENT
5.1 TERMINATION AND AMENDMENT. The Plan shall terminate on December 1,
2006. No Option shall be granted under the Plan after that date of
termination. Subject to the limitations contained in this Section, the
Committee may at any time amend or revise the terms of the Plan, including
the form and substance of the Option Agreements to be used in connection
herewith; provided that no amendment or revision may be made without the
approval of the shareholders of the Company if such approval is required
under the Code, Rule 16b-3, or any other applicable law or rule. No
amendment, suspension, or termination of the Plan shall, without the consent
of the individual who has received an Option hereunder, alter or impair any
of that individual's rights or obligations under any Option granted under the
Plan prior to that amendment, suspension, or termination.
5.2 ADJUSTMENTS. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of
shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split, or reverse stock split, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of Plan
Shares as to which Option may be granted under the Plan. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
Options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in outstanding Options
shall be made without change in the aggregate purchase price applicable to
the unexercised portion of the Options, but with a corresponding adjustment
in the price for each share covered by the Options. The foregoing adjustments
and the manner of application of the foregoing provisions shall be determined
solely by the Committee, and any such adjustment may provide for the
elimination of fractional share interests.
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ARTICLE VI
MISCELLANEOUS
6.1 OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary or affiliate of the Company, nor shall the Plan
preclude the Company or any Subsidiary or affiliate thereof from establishing
any other forms of incentive or other compensation plans.
6.2 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon the
successors and assigns of the Company and any Subsidiary or affiliate of the
Company that adopts the Plan.
6.3 NUMBER AND GENDER. Whenever used herein, nouns in the singular
shall include the plural where appropriate, and the masculine pronoun shall
include the feminine gender.
6.4 HEADINGS. Headings of articles and sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
ARTICLE VII
DEFINITIONS
As used herein with initial capital letters, the following terms have the
meanings hereinafter set forth unless the context clearly indicates to the
contrary:
7.1 "AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling or controlled by, or under direct or
indirect common control with such Person.
7.2 "BOARD" means the Board of Directors of the Company.
7.3 "CAUSE" means conviction of a crime involving moral turpitude or a
crime providing for a term of imprisonment in a federal or state
penitentiary; failure or refusal to follow reasonable instructions of the
Board; failure or refusal to comply with the reasonable policies, standards
and regulations of the Company, which from time to time may be established;
failure or refusal to faithfully and diligently perform the usual customary
duties of his employment or service; acting in an unprofessional, unethical,
immoral or fraudulent manner; acting in a manner which discredits or is
detrimental to the reputation, character and standing of Company or a
Subsidiary; or the commission of any other act that causes or reasonably may
be expected to cause substantial injury to the Company.
7.4 "CHANGE OF CONTROL" has the meaning set forth in Section 1.12(b).
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7.5 "CODE" means the Internal Revenue Code of 1986, as amended.
7.6 "COMMITTEE" means the Committee appointed in accordance with SECTION
2.2.
7.7 "COMMON STOCK" means the Common Stock, par value $0.01 per share, of
the Company or, in the event that the outstanding shares of such Common Stock
are hereafter changed into or exchanged for shares of a different stock or
security of the Company or some other corporation, such other stock or
security.
7.8 "COMPANY" means Zimmerman Sign Company, a Texas corporation or one
or more of its Subsidiaries.
7.9 "EFFECTIVE DATE" means December 1, 1996.
7.10 "EMPLOYEE" means an employee of the Company or of any Subsidiary of
the Company, including Officers, that adopts the Plan, as defined under
Section 3401(c) of the Code and the regulations thereunder.
7.11 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
7.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
7.13 "FAIR MARKET VALUE" means such value as determined by the Committee
on the basis of such factors as it deems appropriate; provided that if the
Common Stock is traded on a national securities exchange or transactions in
the Common Stock are quoted on the Nasdaq National Market System, such value
as shall be determined by the Committee on the basis of the reported sales
prices for the Common Stock on the date for which such determination is
relevant, as reported on the national securities exchange or the Nasdaq
National Market System, as the case may be. If the Common Stock is not
listed and traded upon a recognized securities exchange or on the Nasdaq
National Market System, the Committee shall make a determination of Fair
Market Value on a reasonable basis which may include the mean between the
closing bid and asked quotations for such stock on the date for which such
determination is relevant (as reported by a recognized stock quotation
service) or, in the event that there shall be no bid or asked quotations on
the date for which such determination is relevant, then on the basis of the
mean between the closing bid and asked quotations on the date nearest
preceding the date for which such determination is relevant for which such
bid and asked quotations were available.
7.14 "GHI" means Geneve Holdings, Inc., and its subsidiaries and
affiliates.
7.15 "INCENTIVE STOCK OPTION" means an Option granted pursuant to ARTICLE
III.
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7.16 "NONEMPLOYEE DIRECTOR" means a member of the Board who is not an
Officer or Employee.
7.17 "NONQUALIFIED STOCK OPTION" means an Option granted pursuant to
ARTICLE IV.
7.18 "OFFICER" means an officer of the Company or any Subsidiary of the
Company.
7.19 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
7.20 "OPTIONEE" means an Employee or Nonemployee Director to whom an
Option has been granted hereunder.
7.21 "OPTION AGREEMENT" means an agreement between the Company and an
Optionee with respect to one or more Options.
7.22 "PERMANENT DISABILITY" has the same meaning as that provided in
Section 22(e)(3) of the Code.
7.23 "PERSON" means any individual, corporation, partnership, joint
venture, trust or unincorporated organization.
7.24 "PLAN" means the Zimmerman Sign Company 1996 Stock Option Plan, as
amended from time to time.
7.25 "PLAN SHARES" means shares of Common Stock issuable pursuant to the
Plan.
7.26 "RETIREMENT" occurs when an Optionee terminates his relationship
with the Company or a Subsidiary on or after the date the Optionee (a) turns
65 years old or (b) turns 55 years old and has completed 10 years of service
with the Company or a Subsidiary as otherwise determined by the Board.
7.27 "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor rule.
7.28 "SECURITIES ACT" means the Securities Act of 1933, as amended.
7.29 "SUBSIDIARY" means a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
7.30 "TAX DATE" means the date on which the amount of tax to be withheld
is determined.
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7.31 "TRANSACTION" has the meaning set forth in Section 1.12(b)(iii).
7.32 "VOTING SECURITIES" has the meaning set forth in Section 1.12(b)(i).
14
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AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") made and
entered into as of the 1st day of December, 1996, by and between ZIMMERMAN SIGN
COMPANY, a Texas corporation ("Employer"), and DAVID E. ANDERSON ("Employee").
W I T N E S S E T H:
WHEREAS, Employee is a party to that certain Employment Agreement, dated
December 1, 1990 with Zimmerman Holdings, Inc., a Delaware corporation (k/n/a
Independence Capital Corporation) (the "Original Agreement"); and
WHEREAS, Employer desires to employ Employee and Employee desires to be
employed by Employer effective as of the Effective Date (as hereinafter
defined), in accordance with the terms and conditions set forth hereinafter and
that this Agreement, amend, restate and supersede, in all respects the Original
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties to this Agreement agree as follows:
1. EMPLOYMENT AND DUTIES. Employer hereby employs Employee and Employee hereby
accepts such employment and agrees to devote his full time and best efforts
to the diligent and faithful performance of his duties as may be assigned
by the Board of Directors of Employer.
2. TERM OF EMPLOYMENT. This Agreement shall commence on January 1, 1997 (the
"Effective Date"), and continue for a term of four years ending on December
31, 2000, unless sooner terminated as herein provided. Unless either party
elects to terminate this Agreement at the end of the original, or any
renewal term, by giving the other party notice of such election at least
thirty (30) days before the expiration of the then current term, this
Agreement shall be deemed to have been renewed for an additional term of
one (1) year commencing on the date after the expiration of the then
current term.
3. COMPENSATION. (a) BASE SALARY. As compensation for Employee's services
hereunder, Employer shall pay Employee a salary of not less than $125,000
per year as shall be fixed by the Board of Directors from time to time
("Base Salary") payable in reasonable periodic
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<PAGE>
installments in accordance with Employer's regular payroll practices in
effect from time to time.
(b) EXPENSES. Employee shall be reimbursed such ordinary and necessary
expenses reasonably incurred by Employee in the pursuit of Employer's
business upon receipt of vouchers therefor and in accordance with
Employer's regular reimbursement procedures and practices in effect from
time to time.
(c) BONUS. Employee shall be eligible to receive a bonus of up to sixty
percent (60%) of his Base Salary, such bonus to be based on quantitative
and qualitative factors as determined from time to time by the Board of
Directors of Employer, the existence and amounts of which shall be in
Employer's sole discretion.
(d) BENEFITS. Employee shall be entitled to vacations, insurance and such
other employee benefits as are provided from time to time to comparable
employees of Employer.
4. CHANGE IN CONTROL. (a) DEFINITION. For purposes of this Agreement a
"change in control of the Employer" shall mean the occurrence of any of
the following events: (i) there shall be consummated (x) any
consolidation or merger of the Employer in which the Employer is not the
continuing or surviving corporation or pursuant to which shares of the
Employer's Common Stock would be converted into cash, securities or other
property, other than a merger of the Employer in which the holders of the
Employer's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (y) any sale, lease, exchange or other
transfer (excluding transfer by way of pledge or hypothecation), in one
transaction or a series of related transactions, of all, or substantially
all, of the assets of the Employer, except, with respect to (x) and (y)
above, any transaction in which the Employee is, or will become, an
investor in the buying group or its affiliates (ii) the shareholders of
the Employer approve any plan or proposal for the liquidation or
dissolution of the Employer, (iii) any "person" (as such term is defined
in Section 3(a)(9) or Section 13(d)(3) under the Securities Exchange Act
of 1934, as amended (the "1934 Act") or any "group" (as such term is used
in Rule 13d-5 promulgated under the 1934 Act), other than the Employer or
any successor of the Employer or any subsidiary of the Employer or any
employee benefit plan of the Employer or any subsidiary (including such
plan's trustee) or Geneve Holdings, Inc. and its subsidiaries or
affiliates, becomes, without the prior approval of the board of directors
of the Employer, a beneficial owner for purposes of Rule 13d-3
promulgated under the 1934 Act, directly or indirectly, of securities of
the Employer representing 50.0% or more of the Employer's then
outstanding securities having the right to vote in the election of
directors of the Employer, or (iv) during any period of two consecutive
years, individuals who, at the beginning of such period constituted the
entire
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<PAGE>
board of directors of the Employer, cease for any reason (other than
death) to constitute a majority of the directors of the Employer, unless
the election, or the nomination for election, by the Employer's
shareholders, of each new director of the Employer was approved
by a vote of at least two-thirds of the directors of the Employer then
still in office who were directors of the Employer at the beginning of the
period.
(b) RATIFICATION OF AGREEMENT UPON CHANGE OF CONTROL. If any of the
events described in Section 4(a) hereof constituting a change in control of
the Employer shall have occurred and Employer (or any successor to Employer
if the change of control of the Employer results from an asset sale) has
not, in writing, agreed to assume and perform the obligations of Employer
under this Agreement for the greater of the remaining term of this
Agreement or a period of one (1) year, then (i) if such change of control
of the Employer occurs prior to December 31, 1999, Employer shall pay
Employee a lump sum payment equal to four times (A) his then Base Salary
plus (B) the maximum earnable bonus such payment to be made within five (5)
business days of in control of the Company, or (ii) if such change of
control of the Employer occurs on or after December 31, 1999, Employer
shall be entitled to receive a lump sum payment equal to three times (A)
his then Base Salary plus (B) the greater of (x) 50% of the maximum
earnable bonus or (y) the most recent bonus earned, such payment to be made
within five (5) business days of the change of control of the Company.
Upon payment of such lump sum by Employer, neither Employer nor Employee
shall have any further obligations under this Agreement.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. Employee's employment
shall terminate automatically upon Employee's death. If Employer
determines in good faith that the Disability of Employee has occurred,
Employee shall give to Employee written notice of its intention to
terminate Employee's employment. In such event, Employee's employment
shall terminate effective on the 30th day after delivery of such notice by
Employer. For purposes of this Agreement, "Disability" shall mean the
absence of Employee from his duties with Employer on a full-time basis for
90 consecutive days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician
selected by Employer.
(b) DISCHARGE FOR CAUSE. Employer may terminate Employee's employment
for Cause. If Employer determines to terminate Employee's employment for
Cause, Employer shall give to Employee written notice thereof. In such
event, Employee's employment shall terminate effective on the 15th day
after delivery of such notice by Employer which notice shall contain a
resolution of the Board of Directors of Employer (or committee thereof)
terminating Employee's employment hereunder and specifying such Cause.
Prior to the 15th day after delivery of such notice by Employer, Employee
shall have had the opportunity to discuss such termination with the Board
of Directors (or a committee thereof) and if such Cause can be cured by
Employee, Employee shall have until the 15th day after delivery of such
notice to cure or correct such Cause in the sole determination of the
Board of Directors (or committee thereof). For purposes of this
Agreement, "Cause" shall mean (i) breach by Employee of the terms of this
Agreement which is demonstrably willful and deliberate on Employee's
part, or any other act which, in the reasonable judgment of the Board of
Directors of Employer, is committed in bad faith and is inconsistent with
the best interests of Employer, and, in any case, which is not remedied
prior to the effective termination date provided for herein, or (ii) the
conviction of Employee of a felony involving moral turpitude.
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<PAGE>
(c) GOOD REASON. Employee's employment and any obligations of Employee
under this Agreement may be terminated by Employee for Good Reason. If
Employee determines to terminate his employment for Good Reason, Employee
shall give to Employer written notice thereof. In such event, Employee's
employment shall terminate effective on the 15th business day after delivery
of such notice by Employee. For purposes of this Agreement, "Good Reason"
shall mean
(i) the assignment to Employee of any duties inconsistent in any
significant respect with Employee's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1 hereof, or any
other action by Employer which results in a significant
diminution in such position, authority, duties or
responsibilities, excluding for this purpose any action which is
remedied by Employer prior to the effective termination date
provided for herein; or
(ii) any breach by Employer of the terms of this Agreement, other than
an isolated or inadvertent failure not occurring in bad faith and
which is remedied by Employer prior to the effective termination
date provided for herein.
(d) OTHER. Employee's employment may be terminated by either Employer or
Employee for any reason whatsoever, effective 30 days following
delivery of notice thereof to the other.
6. OBLIGATIONS OF EMPLOYER UPON TERMINATION. (a) TERMINATION FOR DEATH,
DISABILITY, GOOD REASON OR OTHER THEN FOR CAUSE. If, prior to December
31, 1999, (i) Employer shall terminate Employee's employment other than
for Cause, or (ii) Employee shall terminate his employment for Good
Reason, or (iii) Employee's employment is terminated as a result of the
death or Disability of Employee, then Employer shall pay to Employee an
amount equal to four times (A) his Base Salary as of the date of
termination of employment plus (B) the maximum earnable bonus. If, on or
after December 31, 1999 but prior to the expiration of the term of this
Agreement, (i) Employer shall terminate Employee's employment other than
or Cause, or (ii) Employee shall terminate his employment for Good Reason,
or (iii) Employee's employment is terminated as a result of the death
or Disability of Employee, then Employer shall pay to Employee an amount
equal to three times (A) his Base Salary as of the date of termination of
employment plus (B) the greater of (x) 50% of the maximum earnable bonus
or (y) the most recent bonus earned. Such amounts to be paid under this
Section 6 (the "Termination Payments") shall be paid, if pursuant to the
first sentence hereof, in forty-eight equal monthly installments, or if
pursuant to the second sentence hereof, in thirty-six equal monthly
installments, commencing with the month following the
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<PAGE>
termination. Employer's obligation to make such payments shall cease
immediately upon Employee's employment (as employee or paid
consultant or similar advisor) by any entity.
(b) TERMINATION FOR CAUSE OR OTHER THAN GOOD REASON. If, prior to
the expiration of the term of this Agreement (i) Employer
shall terminate Employee's employment for Cause or (ii) Employee terminates
his employment, excluding a termination for Good Reason, (x) this Agreement
shall terminate without further obligation to Employee, other than the
obligation to pay Employee his salary through the effective date of
termination.
(c) EXPIRATION OF AGREEMENT. Upon the termination of this Agreement
pursuant to notice given in accordance with Section 2 at the end of the
original or any renewal term, neither Employee nor Employer shall have
any obligation to the other under this Agreement, except pursuant to
Sections 8, 10 and 11 hereof.
7. EFFECT OF PAYMENTS. If the amount of any payment to be made to Employee
hereunder, together with the amount of any other payments from the
Employer, constitutes a "parachute payment" (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")),
the amount of such payment required to be made hereunder shall be reduced
(but not below zero) to an amount that, together with the amount of such
other payments from the Employer, is 2.99 times Employee's "base amount"
(within the meaning of Code Section 280G(b)(3)). If, after reduction to
zero of the amount payable hereunder, the amount of such other payments
from the Employer exceeds 2.99 times Employee's "base amount", no amount
shall be payable hereunder if such amount constitutes a "parachute payment".
8. CONFIDENTIAL INFORMATION. (a) ACKNOWLEDGMENT OF PROPRIETARY INTEREST.
Employee acknowledges the proprietary interest of Employer in all
Confidential Information. Employee agrees that all Confidential
Information learned by Employee during his employment with Employer or
otherwise, whether developed by Employee alone or in conjunction with
others or otherwise, is and shall remain the exclusive property of
Employer. Employee further acknowledges and agrees that his disclosure of
any Confidential Information will result in irreparable injury and damage
to Employer.
(b) CONFIDENTIAL INFORMATION DEFINED. "Confidential Information" means
all confidential and proprietary information of Employer, including without
limitation (i) information derived from reports, investigations,
experiments, research and work in progress, (ii) methods of operation,
(iii) market data, (iv) proprietary computer programs and codes, (v)
drawings, designs, plans and proposals, (vi) marketing and sales programs,
(vii) client lists, (viii) historical financial information and financial
projections, (ix) pricing formulae and policies, (x) all other concepts,
ideas, materials and information prepared or performed for or by Employer
and (xi) all information related to the business, products, purchases or
sales of Employer or any of its suppliers and customers, other than
information that is publicly available.
(c) COVENANT NOT TO DIVULGE CONFIDENTIAL INFORMATION. Employer is
entitled to prevent the disclosure of Confidential Information. As a
portion of the consideration for the employment of Employee and for the
compensation being paid to Employee by
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<PAGE>
Employer, Employee agrees at all times during the term of his employment
hereunder and thereafter to hold in strict confidence and not to
disclose or allow to be disclosed to any person, firm or corporation,
other than to persons engaged by Employer to further the business of
Employer, and not to use except in the pursuit of the business of
Employer, the Confidential Information, without the prior written
consent of Employer.
(d) RETURN OF MATERIALS AT TERMINATION. In the event of any termination
or cessation of his employment with Employer for any reason, Employee shall
promptly deliver to Employer all documents, data and other information
derived from or otherwise pertaining to Confidential Information. Employee
shall not take or retain any documents or other information, or any
reproduction or excerpt thereof, containing or pertaining to any
Confidential Information.
9. NONCOMPETITION. (a) NONCOMPETITION AGREEMENT. So long as Employee is
receiving Termination Payments hereunder, Employee shall not do any of the
following:
(i) engage directly or indirectly, alone or as a shareholder,
partner, director, officer, employee of or consultant to any
other business organization, in any business activities that:
(1) relate to the business of Employer (the "Designated
Industry"); or
(2) were either conducted by Employer prior to the termination
of Employee's employment hereunder or proposed to be
conducted by Employer at the time of such termination;
(ii) divert to any competitor of Employer in the Designated Industry
any customer of Employer; or
(iii) solicit or encourage any director, officer, employee of or
consultant to Employer to end his relationship with Employer
or commence any such relationship with any competitor of
Employer in the Designated Industry.
(b) OWNERSHIP INTERESTS. Employee's noncompetition obligations hereunder
shall not preclude Employee from owning less than five percent of the
common stock of any publicly traded corporation conducting business
activities in the Designated Industry. If at any time the provisions of
this Section 9 are determined to be invalid or unenforceable by reason of
being vague or unreasonable as to area, duration or scope of activity, this
Section 9 shall be considered divisible and shall be immediately amended to
only such area, duration and scope of activity as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction
over the matter, and Employee
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<PAGE>
agrees that this Section 9 as so amended shall be valid and binding as
though any invalid or unenforceable provision had not been included
herein.
(c) VIOLATION. If Employee shall violate the terms of this Section 9,
such violation shall permit Employer to immediately cease making
Termination Payments under Section 6.
10. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit
of Employer and its successors and assigns and shall be binding upon
Employee, his heirs and legal representatives. This Agreement shall not be
assignable by Employee.
11. MISCELLANEOUS. (a) GOVERNING LAW, ENTIRE AGREEMENT, ETC. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Texas, without reference to principles of conflict of laws. This
Agreement constitutes the entire agreement between Employer and Employee
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, between Employer and Employee and between Employee
and Zimmerman Holdings, Inc. in connection with his employment, including,
without limitation, the Original Agreement. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified except by a written agreement
executed by the Employee and the Employer hereto or its successor.
(b) NOTICES. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employee:
David E. Anderson
c/o Zimmerman Sign Company
9846 Highway 31 East
Tyler, Texas 75705
If to Employer:
Zimmermann Sign Company
9846 Highway 31 East
Tyler, Texas 75705
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<PAGE>
or to such other address as either party shall have furnished to the other
in writing in accordance herewith.
(c) SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) WITHHOLDING. Employer may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
IN WITNESS WHEREOF, Employee has hereunto set his hand and Employer has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
ZIMMERMAN SIGN COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
---------------------------------
David E. Anderson
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AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") made and
entered into as of the 1st day of December, 1996, by and between ZIMMERMAN SIGN
COMPANY, a Texas corporation ("Employer"), and TOM E. BONER ("Employee").
W I T N E S S E T H:
WHEREAS, Employee is a party to that certain Employment Agreement, dated
December 1, 1990 with Employer (the "Original Agreement"); and
WHEREAS, Employer desires to employ Employee and Employee desires to be
employed by Employer effective as of the Effective Date (as hereinafter
defined), in accordance with the terms and conditions set forth hereinafter and
that this Agreement, amend, restate and supersede, in all respects the Original
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties to this Agreement agree as follows:
1. EMPLOYMENT AND DUTIES. Employer hereby employs Employee and Employee hereby
accepts such employment and agrees to devote his full time and best efforts
to the diligent and faithful performance of his duties as may be assigned
by the Board of Directors of Employer.
2. TERM OF EMPLOYMENT. This Agreement shall commence on January 1, 1997 (the
"Effective Date"), and continue for a term of three years ending on
December 31, 1999, unless sooner terminated as herein provided. Unless
either party elects to terminate this Agreement at the end of the original,
or any renewal term, by giving the other party notice of such election at
least thirty (30) days before the expiration of the then current term, this
Agreement shall be deemed to have been renewed for an additional term of
one (1) year commencing on the date after the expiration of the then
current term.
3. COMPENSATION. (a) BASE SALARY. As compensation for Employee's services
hereunder, Employer shall pay Employee a salary of not less than $155,000
per year as shall be fixed by the Board of Directors from time to time
("Base Salary") payable in reasonable periodic installments in accordance
with Employer's regular payroll practices in effect from time to time.
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<PAGE>
(b) TEMPORARY SALARY ADJUSTMENT. In addition to the Base Salary, Employer
shall pay Employee a temporary salary adjustment of $45,000 per year, for
the first two years of this Agreement (the "Temporary Salary Adjustment")
payable in reasonable periodic installments in accordance with Employer's
regular payroll practices in effect from time to time. The Temporary
Salary Adjustment shall not be deemed part of the Base Salary.
(c) EXPENSES. Employee shall be reimbursed such ordinary and necessary
expenses reasonably incurred by Employee in the pursuit of Employer's
business upon receipt of vouchers therefor and in accordance with
Employer's regular reimbursement procedures and practices in effect from
time to time.
(d) BONUS. Employee shall be eligible to receive a bonus of up to sixty
percent (60%) of his Base Salary, such bonus to be based on quantitative
and qualitative factors as determined from time to time by the Board of
Directors of Employer, the existence and amounts of which shall be in
Employer's sole discretion.
(e) BENEFITS. Employee shall be entitled to vacations, insurance and such
other employee benefits as are provided from time to time to comparable
employees of Employer.
4. CHANGE IN CONTROL. (a) DEFINITION. For purposes of this Agreement a
"change in control of the Employer" shall mean the occurrence of any of the
following events: (i) there shall be consummated (x) any consolidation or
merger of the Employer in which the Employer is not the continuing or
surviving corporation or pursuant to which shares of the Employer's Common
Stock would be converted into cash, securities or other property, other
than a merger of the Employer in which the holders of the Employer's Common
Stock immediately prior to the merger have the same proportionate ownership
of common stock of the surviving corporation immediately after the merger,
or (y) any sale, lease, exchange or other transfer (excluding transfer by
way of pledge or hypothecation), in one transaction or a series of related
transactions, of all, or substantially all, of the assets of the Employer,
except, with respect to (x) and (y) above, any transaction in which the
Employee is, or will become, an investor in the buying group or its
affiliates, (ii) the shareholders of the Employer approve any plan
or proposal for the liquidation or dissolution of the Employer,
(iii) any "person" (as such term is defined in Section 3(a)(9)
or Section 13(d)(3) under the Securities Exchange Act of 1934,
as amended (the "1934 Act") or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act), other than the Employer or any
successor of the Employer or any subsidiary of the Employer or any employee
benefit plan of the Employer or any subsidiary (including such plan's
trustee) or Geneve Holdings, Inc. and its subsidiaries or affiliates,
becomes, without the prior approval of the board of directors of the
Employer, a beneficial owner for purposes of Rule 13d-3 promulgated under
the 1934 Act, directly or indirectly, of securities of the Employer
representing 50.0% or more of the Employer's then outstanding securities
having the right
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<PAGE>
to vote in the election of directors of the Employer, or (iv) during any
period of two consecutive years, individuals who, at the beginning of
such period constituted the entire board of directors of the Employer,
cease for any reason (other than death) to constitute a majority of
the directors of the Employer, unless the election, or the nomination
for election, by the Employer's shareholders, of each new director of the
Employer was approved by a vote of at least two-thirds of the directors of
the Employer then still in office who were directors of the Employer at the
beginning of the period.
(b) RATIFICATION OF AGREEMENT UPON CHANGE OF CONTROL. If any of the
events described in Section 4(a) hereof constituting a change in control of
the Employer shall have occurred and Employer (or any successor to Employer
if the change of control of the Employer results from an asset sale) has
not, in writing, agreed to assume and perform the obligations of Employer
under this Agreement for the greater of the remaining term of this
Agreement or a period of one (1) year, Employer shall pay Employee a lump
sum payment equal to three times (A) his then Base Salary plus (B) the
maximum earnable bonus, such payment to be made within five (5) business
days of the change in control of the Employer. Upon payment of such lump
sum by Employer, neither Employer nor Employee shall have any further
obligations under this Agreement.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. Employee's employment
shall terminate automatically upon Employee's death. If Employer
determines in good faith that the Disability of Employee has occurred,
Employee shall give to Employee written notice of its intention to
terminate Employee's employment. In such event, Employee's employment
shall terminate effective on the 30th day after delivery of such notice by
Employer. For purposes of this Agreement, "Disability" shall mean the
absence of Employee from his duties with Employer on a full-time basis for
90 consecutive days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician
selected by Employer.
(b) DISCHARGE FOR CAUSE. Employer may terminate Employee's employment
for Cause. If Employer determines to terminate Employee's employment
for Cause, Employer shall give to Employee written notice thereof. In
such event, Employee's employment shall terminate effective on the 15th
day after delivery of such notice by Employer which notice shall contain
a resolution of the Board of Directors of Employer (or committee thereof)
terminating Employee's employment hereunder and specifying such
Cause. Prior to the 15th day after delivery of such notice by Employer,
Employee shall have had the opportunity to discuss such termination with
the Board of Directors (or a committee thereof) and if such Cause can be
cured by Employee, Employee shall have until the 15th day after delivery
of such notice to cure or correct such Cause in the sole determination
of the Board of Directors (or committee thereof). For purposes of this
Agreement, "Cause" shall mean (i) breach by Employee of the terms of
this Agreement which is demonstrably willful and deliberate on
Employee's part, or any other act which, in the reasonable judgment of
the Board of Directors of Employer, is committed in bad faith and is
inconsistent with the best interests of Employer, and, in any case,
which is not remedied prior to the effective termination date provided
for herein, or (ii) the conviction of Employee of a felony involving
moral turpitude.
(c) GOOD REASON. Employee's employment and any obligations of Employee
under this Agreement may be terminated by Employee for Good Reason. If
Employee
- 3 -
<PAGE>
determines to terminate his employment for Good Reason, Employee
shall give to Employer written notice thereof. In such event, Employee's
employment shall terminate effective on the 15th business day after
delivery of such notice by Employee. For purposes of this Agreement,
"Good Reason" shall mean
(i) the assignment to Employee of any duties inconsistent in any
significant respect with Employee's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1 hereof, or any
other action by Employer which results in a significant
diminution in such position, authority, duties or
responsibilities, excluding for this purpose any action which
is remedied by Employer prior to the effective termination date
provided for herein; or
(ii) any breach by Employer of the terms of this Agreement, other than
an isolated or inadvertent failure not occurring in bad faith and
which is remedied by Employer prior to the effective termination
date provided for herein.
(c) OTHER. Employee's employment may be terminated by either Employer or
Employee for any reason whatsoever, effective 30 days following
delivery of notice thereof to the other.
6. OBLIGATIONS OF EMPLOYER UPON TERMINATION. (a) TERMINATION FOR DEATH,
DISABILITY, GOOD REASON OR OTHER THEN FOR CAUSE. If, prior to the
expiration of the term of this Agreement, (i) Employer shall
terminate Employee's employment other than for Cause, or (ii) Employee
shall terminate his employment for Good Reason, or (iii) Employee's
employment is terminated as a result of the death or Disability of
Employee, then Employer shall pay to Employee an amount equal to three
times (A) his Base Salary as of the date of termination of employment plus
(B) the maximum earnable bonus. Such amounts to be paid under this
Section 6 (the "Termination Payments") shall be paid in thirty-six equal
monthly installments, commencing with the month following the termination.
Employer's obligations to make such payments shall cease immediately upon
Employee's employment (as employee or paid consultant or similar
advisor) by any entity.
(b) TERMINATION FOR CAUSE OR OTHER THAN GOOD REASON. If prior to
the expiration of the term of this Agreement (i) Employer shall terminate
Employee's employment for Cause or (ii) Employee terminates his
employment, excluding a termination for Good Reason, this Agreement
shall terminate without further obligation to Employee, other than the
obligation to pay Employee his salary through the effective date of
termination.
(c) EXPIRATION OF AGREEMENT. Upon termination of this Agreement
pursuant to notice given in accordance with Section 2 at the end of the
original or any renewal term, neither Employee nor Employer shall have
any obligation to the other under this Agreement, except pursuant to
Sections 8, 10 and 11 hereof.
7. EFFECT OF PAYMENTS. If the amount of any payment to be made to Employee
hereunder, together with the amount of any other payments from the
Employer, constitutes a
- 4 -
<PAGE>
"parachute payment" (within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the amount of
such payment required to be made hereunder shall be reduced (but not
below zero) to an amount that, together with the amount of such other
payments from the Employer, is 2.99 times Employee's "base amount"
(within the meaning of Code Section 280G(b)(3)). If, after reduction to
zero of the amount payable hereunder, the amount of such other payments
from the Employer exceeds 2.99 times Employee's "base amount", no amount
shall be payable hereunder if such amount constitutes a "parachute
payment".
8. CONFIDENTIAL INFORMATION. (a) ACKNOWLEDGMENT OF PROPRIETARY INTEREST.
Employee acknowledges the proprietary interest of Employer in all
Confidential Information. Employee agrees that all Confidential
Information learned by Employee during his employment with Employer or
otherwise, whether developed by Employee alone or in conjunction with
others or otherwise, is and shall remain the exclusive property of
Employer. Employee further acknowledges and agrees that his disclosure of
any Confidential Information will result in irreparable injury and damage
to Employer.
(b) CONFIDENTIAL INFORMATION DEFINED. "Confidential Information" means
all confidential and proprietary information of Employer, including without
limitation (i) information derived from reports, investigations,
experiments, research and work in progress, (ii) methods of operation,
(iii) market data, (iv) proprietary computer programs and codes, (v)
drawings, designs, plans and proposals, (vi) marketing and sales programs,
(vii) client lists, (viii) historical financial information and financial
projections, (ix) pricing formulae and policies, (x) all other concepts,
ideas, materials and information prepared or performed for or by Employer
and (xi) all information related to the business, products, purchases or
sales of Employer or any of its suppliers and customers, other than
information that is publicly available.
(c) COVENANT NOT TO DIVULGE CONFIDENTIAL INFORMATION. Employer is
entitled to prevent the disclosure of Confidential Information. As a
portion of the consideration for the employment of Employee and for the
compensation being paid to Employee by Employer, Employee agrees at all
times during the term of his employment hereunder and thereafter to hold in
strict confidence and not to disclose or allow to be disclosed to any
person, firm or corporation, other than to persons engaged by Employer to
further the business of Employer, and not to use except in the pursuit of
the business of Employer, the Confidential Information, without the prior
written consent of Employer.
(d) RETURN OF MATERIALS AT TERMINATION. In the event of any termination
or cessation of his employment with Employer for any reason, Employee shall
promptly deliver to Employer all documents, data and other information
derived from or otherwise pertaining to Confidential Information. Employee
shall not take or retain any documents or other
- 5 -
<PAGE>
information, or any reproduction or excerpt thereof, containing or
pertaining to any Confidential Information.
9. NONCOMPETITION. (a) NONCOMPETITION AGREEMENT. So long as Employee is
receiving Termination Payments hereunder, Employee shall not do any of the
following:
(i) engage directly or indirectly, alone or as a shareholder,
partner, director, officer, employee of or consultant to any
other business organization, in any business activities that:
(1) relate to the business of Employer (the "Designated
Industry"); or
(2) were either conducted by Employer prior to the termination
of Employee's employment hereunder or proposed to be
conducted by Employer at the time of such termination;
(ii) divert to any competitor of Employer in the Designated Industry
any customer of Employer; or
(iii) solicit or encourage any director, officer, employee of or
consultant to Employer to end his relationship with Employer
or commence any such relationship with any competitor of
Employer in the Designated Industry.
(b) OWNERSHIP INTERESTS. Employee's noncompetition obligations hereunder
shall not preclude Employee from owning less than five percent of the
common stock of any publicly traded corporation conducting business
activities in the Designated Industry. If at any time the provisions of
this Section 9 are determined to be invalid or unenforceable by reason of
being vague or unreasonable as to area, duration or scope of activity, this
Section 9 shall be considered divisible and shall be immediately amended to
only such area, duration and scope of activity as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction
over the matter, and Employee agrees that this Section 9 as so amended
shall be valid and binding as though any invalid or unenforceable provision
had not been included herein.
(c) VIOLATION. If Employee shall violate the terms of this Section 9,
such violation shall permit Employer to immediately cease making
Termination Payments under Section 6.
10. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit
of Employer and its successors and assigns and shall be binding upon
Employee, his heirs and legal representatives. This Agreement shall not be
assignable by Employee.
- 6 -
<PAGE>
11. MISCELLANEOUS. (a) GOVERNING LAW, ENTIRE AGREEMENT, ETC. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Texas, without reference to principles of conflict of laws. This
Agreement constitutes the entire agreement between Employer and Employee
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, between Employer and Employee in connection with
his employment including, without limitation, the Original Agreement. The
captions of this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or modified
except by a written agreement executed by the Employee and the Employer
hereto or its successor.
(b) NOTICES. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employee:
Tom E. Boner
c/o Zimmerman Sign Company
9846 Highway 31 East
Tyler, Texas 75705
If to Employer:
Zimmermann Sign Company
9846 Highway 31 East
Tyler, Texas 75705
or to such other address as either party shall have furnished to the other
in writing in accordance herewith.
(c) SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) WITHHOLDING. Employer may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
- 7 -
<PAGE>
IN WITNESS WHEREOF, Employee has hereunto set his hand and Employer has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
ZIMMERMAN SIGN COMPANY
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
--------------------------------------
Tom E. Boner
- 8 -
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") made and
entered into as of the 1st day of December, 1996, by and between ZIMMERMAN
SIGN COMPANY, a Texas corporation ("Employer"), and MICHAEL W. COPPINGER
("Employee").
W I T N E S S E T H:
WHEREAS, Employee is a party to that certain Employment Agreement, dated
December 1, 1990 with Employer (the "Original Agreement"); and
WHEREAS, Employer desires to employ Employee and Employee desires to be
employed by Employer effective as of the Effective Date (as hereinafter
defined), in accordance with the terms and conditions set forth hereinafter and
that this Agreement, amend, restate and supersede, in all respects the Original
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties to this Agreement agree as follows:
1. EMPLOYMENT AND DUTIES. Employer hereby employs Employee and Employee hereby
accepts such employment and agrees to devote his full time and best efforts
to the diligent and faithful performance of his duties as may be assigned
by the Board of Directors of Employer.
2. TERM OF EMPLOYMENT. This Agreement shall commence on January 1, 1997 (the
"Effective Date"), and continue for a term of two years ending on December
31, 1998, unless sooner terminated as herein provided. Unless either party
elects to terminate this Agreement at the end of the original, or any
renewal term, by giving the other party notice of such election at least
thirty (30) days before the expiration of the then current term, this
Agreement shall be deemed to have been renewed for an additional term of
one (1) year commencing on the date after the expiration of the then
current term.
3. COMPENSATION. (a) BASE SALARY. As compensation for Employee's services
hereunder, Employer shall pay Employee a salary of not less than $104,000
per year as shall be fixed by the Board of Directors from time to time
("Base Salary") payable in reasonable periodic installments in accordance
with Employer's regular payroll practices in effect from time to time.
-1-
<PAGE>
(b) TEMPORARY SALARY ADJUSTMENT. In addition to the Base Salary, Employer
shall pay Employee a temporary salary adjustment of $17,000 per year, for
the first two years of this Agreement (the "Temporary Salary Adjustment")
payable in reasonable periodic installments in accordance with Employer's
regular payroll practices in effect from time to time. The Temporary
Salary Adjustment shall not be deemed part of the Base Salary.
(c) EXPENSES. Employee shall be reimbursed such ordinary and necessary
expenses reasonably incurred by Employee in the pursuit of Employer's
business upon receipt of vouchers therefor and in accordance with
Employer's regular reimbursement procedures and practices in effect from
time to time.
(d) BONUS. Employee shall be eligible to receive a bonus of up to fifty
percent (50%) of his Base Salary, such bonus to be based on quantitative
and qualitative factors as determined from time to time by the Board of
Directors of Employer, the existence and amounts of which shall be in
Employer's sole discretion.
(e) BENEFITS. Employee shall be entitled to vacations, insurance and such
other employee benefits as are provided from time to time to comparable
employees of Employer.
4. CHANGE IN CONTROL. (a) DEFINITION. For purposes of this Agreement a
"change in control of the Employer" shall mean the occurrence of any of the
following events: (i) there shall be consummated (x) any consolidation or
merger of the Employer in which the Employer is not the continuing or
surviving corporation or pursuant to which shares of the Employer's Common
Stock would be converted into cash, securities or other property, other
than a merger of the Employer in which the holders of the Employer's Common
Stock immediately prior to the merger have the same proportionate ownership
of common stock of the surviving corporation immediately after the merger,
or (y) any sale, lease, exchange or other transfer (excluding transfer by
way of pledge or hypothecation), in one transaction or a series of related
transactions, of all, or substantially all, of the assets of the Employer,
except, with respect to (x) and (y) above, any transaction in which the
Employee is, or will become, an investor in the buying group or its
affiliates, (ii) the shareholders of the Employer approve any plan or
proposal for the liquidation or dissolution of the Employer, (iii) any
"person" (as such term is defined in Section 3(a)(9) or Section 13(d)(3)
under the Securities Exchange Act of 1934, as amended (the "1934 Act") or
any "group" (as such term is used in Rule 13d-5 promulgated under the
1934 Act), other than the Employer or any successor of the Employer or any
subsidiary of the Employer or any employee benefit plan of the Employer or
any subsidiary (including such plan's trustee) or Geneve Holdings, Inc. and
its subsidiaries or affiliates, becomes, without the prior approval of the
board of directors of the Employer, a beneficial owner for purposes of
Rule 13d-3 promulgated under the 1934 Act, directly or indirectly, of
securities of the Employer representing 50.0% or more of the Employer's
then outstanding securities having the right
-2-
<PAGE>
to vote in the election of directors of the Employer, or (iv) during any
period of two consecutive years, individuals who, at the beginning of such
period constituted the entire board of directors of the Employer, cease for
any reason (other than death) to constitute a majority of the directors of
the Employer, unless the election, or the nomination for election, by the
Employer's shareholders, of each new director of the Employer was approved
by a vote of at least two-thirds of the directors of the Employer then
still in office who were directors of the Employer at the beginning of the
period.
(b) RATIFICATION OF AGREEMENT UPON CHANGE OF CONTROL. If any of the
events described in Section 4(a) hereof constituting a change in control of
the Employer shall have occurred and Employer (or any successor to Employer
if the change of control of the Employer results from an asset sale) has
not, in writing, agreed to assume and perform the obligations of Employer
under this Agreement for the greater of the remaining term of this
Agreement or a period of one (1) year, Employer shall pay Employee a lump
sum payment equal to two times (A) his then Base Salary plus (B) the
maximum earnable bonus, such payment to be made within five (5) business
days of the change in control of the Employer. Upon payment of such lump
sum by Employer, neither Employer nor Employee shall have any further
obligations under this Agreement.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. Employee's employment
shall terminate automatically upon Employee's death. If Employer
determines in good faith that the Disability of Employee has occurred,
Employee shall give to Employee written notice of its intention to
terminate Employee's employment. In such event, Employee's employment
shall terminate effective on the 30th day after delivery of such notice by
Employer. For purposes of this Agreement, "Disability" shall mean the
absence of Employee from his duties with Employer on a full-time basis for
90 consecutive days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician
selected by Employer.
(b) DISCHARGE FOR CAUSE. Employer may terminate Employee's employment for
Cause. If Employer determines to terminate Employee's employment for
Cause, Employer shall give to Employee written notice thereof. In such
event, Employee's employment shall terminate effective on the 15th day
after delivery of such notice by Employer which notice shall contain a
resolution of the Board of Directors of Employer (or committee thereof)
terminating Employee's employment hereunder and specifying such Cause.
Prior to the 15th day after delivery of such notice by Employer, Employee
shall have had the opportunity to discuss such termination with the Board
of Directors (or a committee thereof) and if such Cause can be cured by
Employee, Employee shall have until the 15th day after delivery of such
notice to cure or correct such Cause in the sole determination of the Board
of Directors (or committee thereof). For purposes of this Agreement,
"Cause" shall mean (i) breach by Employee of the terms of this Agreement
which is demonstrably willful and deliberate on Employee's part, or any
other act which, in the reasonable judgment of the Board of Directors of
Employer, is committed in bad faith and is inconsistent with the best
interests of Employer, and, in any case, which is not remedied prior to the
effective termination date provided for herein, or (ii) the conviction of
Employee of a felony involving moral turpitude.
(c) GOOD REASON. Employee's employment and any obligations of Employee
under this Agreement may be terminated by Employee for Good Reason. If
Employee
-3-
<PAGE>
determines to terminate his employment for Good Reason, Employee shall give
to Employer written notice thereof. In such event, Employee's employment
shall terminate effective on the 15th business day after delivery of such
notice by Employee. For purposes of this Agreement, "Good Reason" shall
mean
(i) the assignment to Employee of any duties inconsistent in any
significant respect with Employee's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1 hereof, or any
other action by Employer which results in a significant
diminution in such position, authority, duties or
responsibilities, excluding for this purpose any action which
is remedied by Employer prior to the effective termination date
provided for herein; or
(ii) any breach by Employer of the terms of this Agreement, other than
an isolated or inadvertent failure not occurring in bad faith and
which is remedied by Employer prior to the effective termination
date provided for herein.
(c) OTHER. Employee's employment may be terminated by either Employer or
Employee for any reason whatsoever, effective 30 days following
delivery of notice thereof to the other.
6. OBLIGATIONS OF EMPLOYER UPON TERMINATION. (a) TERMINATION FOR DEATH,
DISABILITY, GOOD REASON OR OTHER THAN FOR CAUSE. If, prior to the
expiration of the term of this Agreement, (i) Employer shall terminate
Employee's employment other than for Cause, or (ii) Employee shall terminate
his employment for Good Reason, or (iii) Employee's employment is
terminated as a result of the death or Disability of Employee, then Employer
shall pay to Employee an amount equal to two times (A) his Base Salary as
of the date of termination of employment plus (B) the maximum earnable
bonus. Such amounts to be paid under this Section 6 (the "Termination
Payments") shall be paid in twenty-four equal monthly installments,
commencing with the month following the termination. Employer's obligations
to make such payments shall cease immediately upon Employee's employment
(as employee or paid consultant or similar advisor) by any entity.
(b) TERMINATION FOR CAUSE OR OTHER THAN GOOD REASON. If (i) Employer
shall terminate Employee's employment for Cause or (ii) Employee terminates
his employment, excluding a termination for Good Reason, (x) this Agreement
shall terminate without further obligation to Employee, other than the
obligation to pay Employee his salary through the effective date of
termination.
(c) EXPIRATION OF AGREEMENT. Upon the termination of this Agreement
pursuant to notice given in accordance with Section 2 at the end of the
original or any renewal term, neither Employee nor Employer shall have
any obligation to the other under this Agreement, except pursuant to
Sections 8, 10 and 11 hereof.
7. EFFECT OF PAYMENTS. If the amount of any payment to be made to Employee
hereunder, together with the amount of any other payments from the
Employer, constitutes a
-4-
<PAGE>
"parachute payment" (within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the amount of
such payment required to be made hereunder shall be reduced (but not below
zero) to an amount that, together with the amount of such other payments
from the Employer, is 2.99 times Employee's "base amount" (within the
meaning of Code Section 280G(b)(3)). If, after reduction to zero of the
amount payable hereunder, the amount of such other payments from the
Employer exceeds 2.99 times Employee's "base amount", no amount shall be
payable hereunder if such amount constitutes a "parachute payment".
8. CONFIDENTIAL INFORMATION. (a) ACKNOWLEDGMENT OF PROPRIETARY INTEREST.
Employee acknowledges the proprietary interest of Employer in all
Confidential Information. Employee agrees that all Confidential
Information learned by Employee during his employment with Employer or
otherwise, whether developed by Employee alone or in conjunction with
others or otherwise, is and shall remain the exclusive property of
Employer. Employee further acknowledges and agrees that his disclosure of
any Confidential Information will result in irreparable injury and damage
to Employer.
(b) CONFIDENTIAL INFORMATION DEFINED. "Confidential Information" means
all confidential and proprietary information of Employer, including without
limitation (i) information derived from reports, investigations,
experiments, research and work in progress, (ii) methods of operation,
(iii) market data, (iv) proprietary computer programs and codes, (v)
drawings, designs, plans and proposals, (vi) marketing and sales programs,
(vii) client lists, (viii) historical financial information and financial
projections, (ix) pricing formulae and policies, (x) all other concepts,
ideas, materials and information prepared or performed for or by Employer
and (xi) all information related to the business, products, purchases or
sales of Employer or any of its suppliers and customers, other than
information that is publicly available.
(c) COVENANT NOT TO DIVULGE CONFIDENTIAL INFORMATION. Employer is
entitled to prevent the disclosure of Confidential Information. As a
portion of the consideration for the employment of Employee and for the
compensation being paid to Employee by Employer, Employee agrees at all
times during the term of his employment hereunder and thereafter to hold in
strict confidence and not to disclose or allow to be disclosed to any
person, firm or corporation, other than to persons engaged by Employer to
further the business of Employer, and not to use except in the pursuit of
the business of Employer, the Confidential Information, without the prior
written consent of Employer.
(d) RETURN OF MATERIALS AT TERMINATION. In the event of any termination
or cessation of his employment with Employer for any reason, Employee shall
promptly deliver to Employer all documents, data and other information
derived from or otherwise pertaining to Confidential Information. Employee
shall not take or retain any documents or other
-5-
<PAGE>
information, or any reproduction or excerpt thereof, containing or
pertaining to any Confidential Information.
9. NONCOMPETITION. (a) NONCOMPETITION AGREEMENT. So long as Employee is
receiving Termination Payments hereunder, Employee shall not do any of the
following:
(i) engage directly or indirectly, alone or as a shareholder,
partner, director, officer, employee of or consultant to any
other business organization, in any business activities that:
(1) relate to the business of Employer (the "Designated
Industry"); or
(2) were either conducted by Employer prior to the termination
of Employee's employment hereunder or proposed to be
conducted by Employer at the time of such termination;
(ii) divert to any competitor of Employer in the Designated Industry
any customer of Employer; or
(iii) solicit or encourage any director, officer, employee of or
consultant to Employer to end his relationship with Employer
or commence any such relationship with any competitor of
Employer in the Designated Industry.
(b) OWNERSHIP INTERESTS. Employee's noncompetition obligations hereunder
shall not preclude Employee from owning less than five percent of the
common stock of any publicly traded corporation conducting business
activities in the Designated Industry. If at any time the provisions of
this Section 9 are determined to be invalid or unenforceable by reason of
being vague or unreasonable as to area, duration or scope of activity, this
Section 9 shall be considered divisible and shall be immediately amended to
only such area, duration and scope of activity as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction
over the matter, and Employee agrees that this Section 9 as so amended
shall be valid and binding as though any invalid or unenforceable provision
had not been included herein.
(c) VIOLATION. If Employee shall violate the terms of this Section 9,
such violation shall permit Employer to immediately cease making
Termination Payments under Section 6.
10. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit
of Employer and its successors and assigns and shall be binding upon
Employee, his heirs and legal representatives. This Agreement shall not be
assignable by Employee.
-6-
<PAGE>
11. MISCELLANEOUS. (a) GOVERNING LAW, ENTIRE AGREEMENT, ETC. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Texas, without reference to principles of conflict of laws. This
Agreement constitutes the entire agreement between Employer and Employee
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, between Employer and Employee in connection with
his employment including, without limitation, the Original Agreement. The
captions of this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or modified
except by a written agreement executed by the Employee and the Employer
hereto or its successor.
(b) NOTICES. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employee:
Michael W. Coppinger
c/o Zimmerman Sign Company
9846 Highway 31 East
Tyler, Texas 75705
If to Employer:
Zimmermann Sign Company
9846 Highway 31 East
Tyler, Texas 75705
or to such other address as either party shall have furnished to the other
in writing in accordance herewith.
(c) SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) WITHHOLDING. Employer may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
-7-
<PAGE>
IN WITNESS WHEREOF, Employee has hereunto set his hand and Employer has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
ZIMMERMAN SIGN COMPANY
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
-------------------------------------------------
Michael W. Coppinger
-8-
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") made and
entered into as of the 1st day of December, 1996, by and between ZIMMERMAN SIGN
COMPANY, a Texas corporation ("Employer"), and JEFFREY P. JOHNSON ("Employee").
W I T N E S S E T H:
WHEREAS, Employee is a party to that certain Employment Agreement, dated
December 1, 1990 with Employer (the "Original Agreement"); and
WHEREAS, Employer desires to employ Employee and Employee desires to be
employed by Employer effective as of the Effective Date (as hereinafter
defined), in accordance with the terms and conditions set forth hereinafter and
that this Agreement, amend, restate and supersede, in all respects the Original
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties to this Agreement agree as follows:
1. EMPLOYMENT AND DUTIES. Employer hereby employs Employee and Employee hereby
accepts such employment and agrees to devote his full time and best efforts
to the diligent and faithful performance of his duties as may be assigned
by the Board of Directors of Employer.
2. TERM OF EMPLOYMENT. This Agreement shall commence on January 1, 1997 (the
"Effective Date"), and continue for a term of two years ending on December
31, 1998, unless sooner terminated as herein provided. Unless either party
elects to terminate this Agreement at the end of the original, or any
renewal term, by giving the other party notice of such election at least
thirty (30) days before the expiration of the then current term, this
Agreement shall be deemed to have been renewed for an additional term of
one (1) year commencing on the date after the expiration of the then
current term.
3. COMPENSATION. (a) BASE SALARY. As compensation for Employee's services
hereunder, Employer shall pay Employee a salary of not less than $104,000
per year as shall be fixed by the Board of Directors from time to time
("Base Salary") payable in reasonable periodic installments in accordance
with Employer's regular payroll practices in effect from time to time.
-1-
<PAGE>
(b) TEMPORARY SALARY ADJUSTMENT. In addition to the Base Salary, Employer
shall pay Employee a temporary salary adjustment of $11,500 per year, for
the first two years of this Agreement (the "Temporary Salary Adjustment")
payable in reasonable periodic installments in accordance with Employer's
regular payroll practices in effect from time to time. The Temporary
Salary Adjustment shall not be deemed part of the Base Salary.
(c) EXPENSES. Employee shall be reimbursed such ordinary and necessary
expenses reasonably incurred by Employee in the pursuit of Employer's
business upon receipt of vouchers therefor and in accordance with
Employer's regular reimbursement procedures and practices in effect from
time to time.
(d) BONUS. Employee shall be eligible to receive a bonus of up to fifty
percent (50%) of his Base Salary, such bonus to be based on quantitative
and qualitative factors as determined from time to time by the Board of
Directors of Employer, the existence and amounts of which shall be in
Employer's sole discretion.
(e) BENEFITS. Employee shall be entitled to vacations, insurance and such
other employee benefits as are provided from time to time to comparable
employees of Employer.
4. CHANGE IN CONTROL. (a) DEFINITION. For purposes of this Agreement a
"change in control of the Employer" shall mean the occurrence of any of the
following events: (i) there shall be consummated (x) any consolidation or
merger of the Employer in which the Employer is not the continuing or
surviving corporation or pursuant to which shares of the Employer's Common
Stock would be converted into cash, securities or other property, other
than a merger of the Employer in which the holders of the Employer's Common
Stock immediately prior to the merger have the same proportionate ownership
of common stock of the surviving corporation immediately after the merger,
or (y) any sale, lease, exchange or other transfer (excluding transfer by
way of pledge or hypothecation), in one transaction or a series of related
transactions, of all, or substantially all, of the assets of the Employer,
except, with respect to (x) and (y) above, any transaction in which the
Employee is, or will become, an investor in the buying group or its
affiliates, (ii) the shareholders of the Employer approve any plan or
proposal for the liquidation or dissolution of the Employer, (iii) any
"person" (as such term is defined in Section 3(a)(9) or Section 13(d)(3)
under the Securities Exchange Act of 1934, as amended (the "1934 Act") or
any "group" (as such term is used in Rule 13d-5 promulgated under the
1934 Act), other than the Employer or any successor of the Employer or
any subsidiary of the Employer or any employee benefit plan of the
Employer or any subsidiary (including such plan's trustee) or Geneve
Holdings, Inc. and its subsidiaries or affiliates, becomes, without the
prior approval of the board of directors of the Employer, a beneficial
owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly
or indirectly, of securities of the Employer representing 50.0% or more
of the Employer's then outstanding securities having the right
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<PAGE>
to vote in the election of directors of the Employer, or (iv) during
any period of two consecutive years, individuals who, at the
beginning of such period constituted the entire board of directors of
the Employer, cease for any reason (other than death) to constitute
a majority of the directors of the Employer, unless the election, or
the nomination for election, by the Employer's shareholders, of each
new director of the Employer was approved by a vote of at least
two-thirds of the directors of the Employer then still in office who
were directors of the Employer at the beginning of the period.
(b) RATIFICATION OF AGREEMENT UPON CHANGE OF CONTROL. If any of the
events described in Section 4(a) hereof constituting a change in control of
the Employer shall have occurred and Employer (or any successor to Employer
if the change of control of the Employer results from an asset sale) has
not, in writing, agreed to assume and perform the obligations of Employer
under this Agreement for the greater of the remaining term of this
Agreement or a period of one (1) year, Employer shall pay Employee a lump
sum payment equal to two times (A) his then Base Salary plus (B) the
maximum earnable bonus, such payment to be made within five (5) business
days of the change in control of the Employer. Upon payment of such lump
sum by Employer, neither Employer nor Employee shall have any further
obligations under this Agreement.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. Employee's employment
shall terminate automatically upon Employee's death. If Employer
determines in good faith that the Disability of Employee has occurred,
Employee shall give to Employee written notice of its intention to
terminate Employee's employment. In such event, Employee's employment
shall terminate effective on the 30th day after delivery of such notice by
Employer. For purposes of this Agreement, "Disability" shall mean the
absence of Employee from his duties with Employer on a full-time basis for
90 consecutive days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician
selected by Employer.
(b) DISCHARGE FOR CAUSE. Employer may terminate Employee's employment
for Cause. If Employer determines to terminate Employee's employment for
Cause, Employer shall give to Employee written notice thereof. In such
event, Employee's employment shall terminate effective on the 15th day
after delivery of such notice by Employer which notice shall contain a
resolution of the Board of Directors of Employer (or committee thereof)
terminating Employee's employment hereunder and specifying such Cause.
Prior to the 15th day after delivery of such notice by Employer, Employee
shall have had the opportunity to discuss such termination with the Board
of Directors (or a committee thereof) and if such Cause can be cured by
Employee, Employee shall have until the 15th day after delivery of such
notice to cure or correct such Cause in the sole determination of the
Board of Directors (or committee thereof). For purposes of this
Agreement, "Cause" shall mean (i) breach by Employee of the terms of this
Agreement which is demonstrably willful and deliberate on Employee's
part, or any other act which, in the reasonable judgment of the Board of
Directors of Employer, is committed in bad faith and is inconsistent with
the best interests of Employer, and, in any case, which is not remedied
prior to the effective termination date provided for herein, or (ii) the
conviction of Employee of a felony involving moral turpitude.
(c) GOOD REASON. Employee's employment and any obligations of Employee
under this Agreement may be terminated by Employee for Good Reason. If
Employee
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<PAGE>
determines to terminate his employment for Good Reason, Employee
shall give to Employer written notice thereof. In such event, Employee's
employment shall terminate effective on the 15th business day after delivery
of such notice by Employee. For purposes of this Agreement, "Good Reason"
shall mean
(i) the assignment to Employee of any duties inconsistent in any
significant respect with Employee's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1 hereof, or any
other action by Employer which results in a significant
diminution in such position, authority, duties or
responsibilities, excluding for this purpose any action which
is remedied by Employer prior to the effective termination date
provided for herein; or
(ii) any breach by Employer of the terms of this Agreement, other than
an isolated or inadvertent failure not occurring in bad faith and
which is remedied by Employer prior to the effective termination
date provided for herein.
(c) OTHER. Employee's employment may be terminated by either Employer or
Employee for any reason whatsoever, effective 30 days following
delivery of notice thereof to the other.
6. OBLIGATIONS OF EMPLOYER UPON TERMINATION. (a) TERMINATION FOR DEATH,
DISABILITY, GOOD REASON OR OTHER THEN FOR CAUSE. If, prior to the
expiration of the term of this Agreement, (i) Employer shall terminate
Employee's employment other than for Cause, or (ii) Employee shall
terminate his employment for Good Reason, or (iii) Employee's employment
is terminated as a result of the death or Disability of Employee, then
Employer shall pay to Employee an amount equal to two times (A) his Base
Salary as of the date of termination of employment plus (B) the maximum
earnable bonus. Such amounts to be paid under this Section 6 (the
"Termination Payments") shall be paid in twenty-four equal monthly
installments, commencing with the month following the termination.
Employer's obligations to make such payments shall cease immediately upon
Employee's employment (as employee or paid consultant or similar
advisor) by any entity.
(b) TERMINATION FOR CAUSE OR OTHER THAN GOOD REASON. If (i) Employer
shall terminate Employee's employment for Cause or (ii) Employee terminates
his employment, excluding a termination for Good Reason, (x) this Agreement
shall terminate without further obligation to Employee, other than the
obligation to pay Employee his salary through the effective date of
termination.
(c) EXPIRATION OF AGREEMENT. Upon the termination of this Agreement
pursuant to notice given in accordance with Section 2 at the end of this
original or any renewal term, neither Employee nor Employer shall have
any obligation to the other under this Agreement, except pursuant to
Sections 8, 10 and 11 hereof.
7. EFFECT OF PAYMENTS. If the amount of any payment to be made to Employee
hereunder, together with the amount of any other payments from the
Employer, constitutes a
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<PAGE>
"parachute payment" (within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the amount of
such payment required to be made hereunder shall be reduced (but not below
zero) to an amount that, together with the amount of such other payments
from the Employer, is 2.99 times Employee's "base amount" (within the
meaning of Code Section 280G(b)(3)). If, after reduction to zero of the
amount payable hereunder, the amount of such other payments from the
Employer exceeds 2.99 times Employee's "base amount", no amount shall be
payable hereunder if such amount constitutes a "parachute payment".
8. CONFIDENTIAL INFORMATION. (a) ACKNOWLEDGMENT OF PROPRIETARY INTEREST.
Employee acknowledges the proprietary interest of Employer in all
Confidential Information. Employee agrees that all Confidential
Information learned by Employee during his employment with Employer or
otherwise, whether developed by Employee alone or in conjunction with
others or otherwise, is and shall remain the exclusive property of
Employer. Employee further acknowledges and agrees that his disclosure of
any Confidential Information will result in irreparable injury and damage
to Employer.
(b) CONFIDENTIAL INFORMATION DEFINED. "Confidential Information" means
all confidential and proprietary information of Employer, including without
limitation (i) information derived from reports, investigations,
experiments, research and work in progress, (ii) methods of operation,
(iii) market data, (iv) proprietary computer programs and codes, (v)
drawings, designs, plans and proposals, (vi) marketing and sales programs,
(vii) client lists, (viii) historical financial information and financial
projections, (ix) pricing formulae and policies, (x) all other concepts,
ideas, materials and information prepared or performed for or by Employer
and (xi) all information related to the business, products, purchases or
sales of Employer or any of its suppliers and customers, other than
information that is publicly available.
(c) COVENANT NOT TO DIVULGE CONFIDENTIAL INFORMATION. Employer is
entitled to prevent the disclosure of Confidential Information. As a
portion of the consideration for the employment of Employee and for the
compensation being paid to Employee by Employer, Employee agrees at all
times during the term of his employment hereunder and thereafter to hold
in strict confidence and not to disclose or allow to be disclosed to any
person, firm or corporation, other than to persons engaged by Employer
to further the business of Employer, and not to use except in the
pursuit of the business of Employer, the Confidential Information,
without the prior written consent of Employer.
(d) RETURN OF MATERIALS AT TERMINATION. In the event of any termination
or cessation of his employment with Employer for any reason, Employee shall
promptly deliver to Employer all documents, data and other information
derived from or otherwise pertaining to Confidential Information. Employee
shall not take or retain any documents or other
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<PAGE>
information, or any reproduction or excerpt thereof, containing or
pertaining to any Confidential Information.
9. NONCOMPETITION. (a) NONCOMPETITION AGREEMENT. So long as Employee is
receiving Termination Payments hereunder, Employee shall not do any of the
following:
(i) engage directly or indirectly, alone or as a shareholder,
partner, director, officer, employee of or consultant to any
other business organization, in any business activities that:
(1) relate to the business of Employer (the "Designated
Industry"); or
(2) were either conducted by Employer prior to the termination
of Employee's employment hereunder or proposed to be
conducted by Employer at the time of such termination;
(ii) divert to any competitor of Employer in the Designated Industry
any customer of Employer; or
(iii) solicit or encourage any director, officer, employee of or
consultant to Employer to end his relationship with Employer
or commence any such relationship with any competitor of
Employer in the Designated Industry.
(b) OWNERSHIP INTERESTS. Employee's noncompetition obligations hereunder
shall not preclude Employee from owning less than five percent of the
common stock of any publicly traded corporation conducting business
activities in the Designated Industry. If at any time the provisions of
this Section 9 are determined to be invalid or unenforceable by reason of
being vague or unreasonable as to area, duration or scope of activity, this
Section 9 shall be considered divisible and shall be immediately amended to
only such area, duration and scope of activity as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction
over the matter, and Employee agrees that this Section 9 as so amended
shall be valid and binding as though any invalid or unenforceable
provision had not been included herein.
(c) VIOLATION. If Employee shall violate the terms of this Section 9,
such violation shall permit Employer to immediately cease making
Termination Payments under Section 6.
10. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit
of Employer and its successors and assigns and shall be binding upon
Employee, his heirs and legal representatives. This Agreement shall not be
assignable by Employee.
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<PAGE>
11. MISCELLANEOUS. (a) GOVERNING LAW, ENTIRE AGREEMENT, ETC. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Texas, without reference to principles of conflict of laws. This
Agreement constitutes the entire agreement between Employer and Employee
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, between Employer and Employee in connection with
his employment including, without limitation, the Original Agreement. The
captions of this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or modified
except by a written agreement executed by the Employee and the Employer
hereto or its successor.
(b) NOTICES. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employee:
Jeffrey P. Johnson
c/o Zimmerman Sign Company
9846 Highway 31 East
Tyler, Texas 75705
If to Employer:
Zimmermann Sign Company
9846 Highway 31 East
Tyler, Texas 75705
or to such other address as either party shall have furnished to the other
in writing in accordance herewith.
(c) SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) WITHHOLDING. Employer may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
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<PAGE>
IN WITNESS WHEREOF, Employee has hereunto set his hand and Employer has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
ZIMMERMAN SIGN COMPANY
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
-------------------------------
Jeffrey P. Johnson
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<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") made and
entered into as of the 1st day of December, 1996, by and between ZIMMERMAN SIGN
COMPANY, a Texas corporation ("Employer"), and JOHN T. GRIGGS ("Employee").
W I T N E S S E T H:
WHEREAS, Employee is a party to that certain Employment Agreement, dated
December 1, 1990 with Employer (the "Original Agreement"); and
WHEREAS, Employer desires to employ Employee and Employee desires to be
employed by Employer effective as of the Effective Date (as hereinafter
defined), in accordance with the terms and conditions set forth hereinafter and
that this Agreement, amend, restate and supersede, in all respects the Original
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties to this Agreement agree as follows:
1. EMPLOYMENT AND DUTIES. Employer hereby employs Employee and Employee hereby
accepts such employment and agrees to devote his full time and best efforts
to the diligent and faithful performance of his duties as may be assigned
by the Board of Directors of Employer.
2. TERM OF EMPLOYMENT. This Agreement shall commence on January 1, 1997 (the
"Effective Date"), and continue for a term of two years ending on December
31, 1998, unless sooner terminated as herein provided. Unless either party
elects to terminate this Agreement at the end of the original, or any
renewal term, by giving the other party notice of such election at least
thirty (30) days before the expiration of the then current term, this
Agreement shall be deemed to have been renewed for an additional term of
one (1) year commencing on the date after the expiration of the then
current term.
3. COMPENSATION. (a) BASE SALARY. As compensation for Employee's services
hereunder, Employer shall pay Employee a salary of not less than $104,000
per year as shall be fixed by the Board of Directors from time to time
("Base Salary") payable in reasonable periodic installments in accordance
with Employer's regular payroll practices in effect from time to time.
- 1 -
<PAGE>
(b) TEMPORARY SALARY ADJUSTMENT. In addition to the Base Salary, Employer
shall pay Employee a temporary salary adjustment of $11,500 per year, for
the first two years of this Agreement (the "Temporary Salary Adjustment")
payable in reasonable periodic installments in accordance with Employer's
regular payroll practices in effect from time to time. The Temporary
Salary Adjustment shall not be deemed part of the Base Salary.
(c) EXPENSES. Employee shall be reimbursed such ordinary and necessary
expenses reasonably incurred by Employee in the pursuit of Employer's
business upon receipt of vouchers therefor and in accordance with
Employer's regular reimbursement procedures and practices in effect from
time to time.
(d) BONUS. Employee shall be eligible to receive a bonus of up to fifty
percent (50%) of his Base Salary, such bonus to be based on quantitative
and qualitative factors as determined from time to time by the Board of
Directors of Employer, the existence and amounts of which shall be in
Employer's sole discretion.
(e) BENEFITS. Employee shall be entitled to vacations, insurance and such
other employee benefits as are provided from time to time to comparable
employees of Employer.
4. CHANGE IN CONTROL. (a) DEFINITION. For purposes of this Agreement a
"change in control of the Employer" shall mean the occurrence of any of the
following events: (i) there shall be consummated (x) any consolidation or
merger of the Employer in which the Employer is not the continuing or
surviving corporation or pursuant to which shares of the Employer's Common
Stock would be converted into cash, securities or other property, other
than a merger of the Employer in which the holders of the Employer's Common
Stock immediately prior to the merger have the same proportionate ownership
of common stock of the surviving corporation immediately after the merger,
or (y) any sale, lease, exchange or other transfer (excluding transfer by
way of pledge or hypothecation), in one transaction or a series of related
transactions, of all, or substantially all, of the assets of the Employer,
except with respect to (x) and (y) above, any transaction in which
the Employee is, or will become, an investor in the buying group or
its affiliates, (ii) the shareholders of the Employer approve any plan
or proposal for the liquidation or dissolution of the Employer, (iii) any
"person" (as such term is defined in Section 3(a)(9) or Section 13(d)(3)
under the Securities Exchange Act of 1934, as amended (the "1934 Act") or
any "group" (as such term is used in Rule 13d-5 promulgated under the
1934 Act), other than the Employer or any successor of the Employer or
any subsidiary of the Employer or any employee benefit plan of the Employer
or any subsidiary (including such plan's trustee) or Geneve Holdings, Inc.
and its subsidiaries or affiliates, becomes, without the prior approval of
the board of directors of the Employer, a beneficial owner for purposes of
Rule 13d-3 promulgated under the 1934 Act, directly or indirectly, of
securities of the Employer representing 50.0% or more of the Employer's
then outstanding securities having the right
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<PAGE>
to vote in the election of directors of the Employer, or (iv) during any
period of two consecutive years, individuals who, at the beginning of
such period constituted the entire board of directors of the Employer,
cease for any reason (other than death) to constitute a majority of the
directors of the Employer, unless the election, or the nomination for
election, by the Employer's shareholders, of each new director of the
Employer was approved by a vote of at least two-thirds of the directors
of the Employer then still in office who were directors of the Employer
at the beginning of the period.
(b) RATIFICATION OF AGREEMENT UPON CHANGE OF CONTROL. If any of the
events described in Section 4(a) hereof constituting a change in control of
the Employer shall have occurred and Employer (or any successor to Employer
if the change of control of the Employer results from an asset sale) has
not, in writing, agreed to assume and perform the obligations of Employer
under this Agreement for the greater of the remaining term of this
Agreement or a period of one (1) year, Employer shall pay Employee a lump
sum payment equal to two times (A) his then Base Salary plus (B) the
maximum earnable bonus, such payment to be made within five (5) business
days of the change in control of the Employer. Upon payment of such lump
sum by Employer, neither Employer nor Employee shall have any further
obligations under this Agreement.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. Employee's employment
shall terminate automatically upon Employee's death. If Employer
determines in good faith that the Disability of Employee has occurred,
Employee shall give to Employee written notice of its intention to
terminate Employee's employment. In such event, Employee's employment
shall terminate effective on the 30th day after delivery of such notice by
Employer. For purposes of this Agreement, "Disability" shall mean the
absence of Employee from his duties with Employer on a full-time basis for
90 consecutive days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician
selected by Employer.
(b) DISCHARGE FOR CAUSE. Employer may terminate Employee's employment for
Cause. If Employer determines to terminate Employee's employment for
Cause, Employer shall give to Employee written notice thereof. In such
event, Employee's employment shall terminate effective on the 15th day
after delivery of such notice by Employer which such notice shall
contain a resolution of the Board of Directors of Employer (or committee
thereof) terminating Employee's employment hereunder and specifying such
Cause. Prior to the 15th day after delivery of such notice by Employer,
Employee shall have had the opportunity to discuss such termination with
the Board of Directors (or a committee thereof) and if such Cause can be
cured by Employee, Employee shall have until the 15th day after delivery
of such notice to cure or correct such Cause in the sole determination
of the Board of Directors (or committee thereof). For purposes of this
Agreement, "Cause" shall mean (i) breach by Employee of the terms of
this Agreement which is demonstrably willful and deliberate on
Employee's part, or any other act which, in the reasonable judgment of
the Board of Directors of Employer, is committed in bad faith and is
inconsistent with the best interests of Employer, and, in any case,
which is not remedied prior to the effective termination date provided
for herein, or (ii) the conviction of Employee of a felony involving
moral turpitude.
(c) GOOD REASON. Employee's employment and any obligations of Employee
under this Agreement may be terminated by Employee for Good Reason. If
Employee
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<PAGE>
determines to terminate his employment for Good Reason, Employee shall
give to Employer written notice thereof. In such event, Employee's
employment shall terminate effective on the 15th business day after
delivery of such notice by Employee. For purposes of this Agreement,
"Good Reason" shall mean
(i) the assignment to Employee of any duties inconsistent in any
significant respect with Employee's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1 hereof, or any
other action by Employer which results in a significant
diminution in such position, authority, duties or
responsibilities, excluding for this purpose any action which
is remedied by Employer prior to the effective termination date
provided for herein; or
(ii) any breach by Employer of the terms of this Agreement, other than
an isolated or inadvertent failure not occurring in bad faith and
which is remedied by Employer prior to the effective termination
date provided for herein.
(c) OTHER. Employee's employment may be terminated by either Employer or
Employee for any reason whatsoever, effective 30 days following
delivery of notice thereof to the other.
6. OBLIGATIONS OF EMPLOYER UPON TERMINATION. (a) TERMINATION FOR DEATH,
DISABILITY, GOOD REASON OR OTHER THEN FOR CAUSE. If, prior to the
expiration of the term of this Agreement, (i) Employer shall
terminate Employee's employment other than for Cause, or (ii) Employee
shall terminate his employment for Good Reason, or (iii) Employee's
employment is terminated as a result of the death or Disability of
Employee, then Employer shall pay to Employee an amount equal to two times
(A) his Base Salary as of the date of termination of employment plus (B)
the maximum earnable bonus. Such amounts to be paid under this Section 6
(the "Termination Payments") shall be paid in twenty-four equal monthly
installments, commencing with the month following the termination.
Employer's obligations to make such payments shall cease immediately upon
Employee's employment (as employee or paid consultant or similar
advisor) by any entity.
(b) TERMINATION FOR CAUSE OR OTHER THAN GOOD REASON. If (i) Employer
shall terminate Employee's employment for Cause or (ii) Employee terminates
his employment, excluding a termination for Good Reason, (x) this Agreement
shall terminate without further obligation to Employee, other than the
obligation to pay Employee his salary through the effective date of
termination.
(c) EXPIRATION OF AGREEMENT. Upon the termination of this Agreement
pursuant to notice given in accordance with Section 2 at the end of this
original or any renewal term, neither Employee nor Employer shall have
any obligation to the other under this Agreement, except pursuant to
Sections 8, 10 and 11 hereof.
7. EFFECT OF PAYMENTS. If the amount of any payment to be made to Employee
hereunder, together with the amount of any other payments from the
Employer, constitutes a
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<PAGE>
"parachute payment" (within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), the amount of
such payment required to be made hereunder shall be reduced (but not
below zero) to an amount that, together with the amount of such other
payments from the Employer, is 2.99 times Employee's "base amount"
(within the meaning of Code Section 280G(b)(3)). If, after reduction
to zero of the amount payable hereunder, the amount of such other
payments from the Employer exceeds 2.99 times Employee's "base amount",
no amount shall be payable hereunder if such amount constitutes a
"parachute payment".
8. CONFIDENTIAL INFORMATION. (a) ACKNOWLEDGMENT OF PROPRIETARY INTEREST.
Employee acknowledges the proprietary interest of Employer in all
Confidential Information. Employee agrees that all Confidential
Information learned by Employee during his employment with Employer or
otherwise, whether developed by Employee alone or in conjunction with
others or otherwise, is and shall remain the exclusive property of
Employer. Employee further acknowledges and agrees that his disclosure of
any Confidential Information will result in irreparable injury and damage
to Employer.
(b) CONFIDENTIAL INFORMATION DEFINED. "Confidential Information" means
all confidential and proprietary information of Employer, including without
limitation (i) information derived from reports, investigations,
experiments, research and work in progress, (ii) methods of operation,
(iii) market data, (iv) proprietary computer programs and codes, (v)
drawings, designs, plans and proposals, (vi) marketing and sales programs,
(vii) client lists, (viii) historical financial information and financial
projections, (ix) pricing formulae and policies, (x) all other concepts,
ideas, materials and information prepared or performed for or by Employer
and (xi) all information related to the business, products, purchases or
sales of Employer or any of its suppliers and customers, other than
information that is publicly available.
(c) COVENANT NOT TO DIVULGE CONFIDENTIAL INFORMATION. Employer is
entitled to prevent the disclosure of Confidential Information. As a
portion of the consideration for the employment of Employee and for the
compensation being paid to Employee by Employer, Employee agrees at all
times during the term of his employment hereunder and thereafter to hold in
strict confidence and not to disclose or allow to be disclosed to any
person, firm or corporation, other than to persons engaged by Employer to
further the business of Employer, and not to use except in the pursuit of
the business of Employer, the Confidential Information, without the prior
written consent of Employer.
(d) RETURN OF MATERIALS AT TERMINATION. In the event of any termination
or cessation of his employment with Employer for any reason, Employee shall
promptly deliver to Employer all documents, data and other information
derived from or otherwise pertaining to Confidential Information. Employee
shall not take or retain any documents or other
- 5 -
<PAGE>
information, or any reproduction or excerpt thereof, containing or
pertaining to any Confidential Information.
9. NONCOMPETITION. (a) NONCOMPETITION AGREEMENT. So long as Employee is
receiving Termination Payments hereunder, Employee shall not do any of the
following:
(i) engage directly or indirectly, alone or as a shareholder,
partner, director, officer, employee of or consultant to any
other business organization, in any business activities that:
(1) relate to the business of Employer (the "Designated
Industry"); or
(2) were either conducted by Employer prior to the termination
of Employee's employment hereunder or proposed to be
conducted by Employer at the time of such termination;
(ii) divert to any competitor of Employer in the Designated Industry
any customer of Employer; or
(iii) solicit or encourage any director, officer, employee of or
consultant to Employer to end his relationship with Employer
or commence any such relationship with any competitor of
Employer in the Designated Industry.
(b) OWNERSHIP INTERESTS. Employee's noncompetition obligations hereunder
shall not preclude Employee from owning less than five percent of the
common stock of any publicly traded corporation conducting business
activities in the Designated Industry. If at any time the provisions of
this Section 9 are determined to be invalid or unenforceable by reason of
being vague or unreasonable as to area, duration or scope of activity, this
Section 9 shall be considered divisible and shall be immediately amended to
only such area, duration and scope of activity as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction
over the matter, and Employee agrees that this Section 9 as so amended
shall be valid and binding as though any invalid or unenforceable provision
had not been included herein.
(c) VIOLATION. If Employee shall violate the terms of this Section 9,
such violation shall permit Employer to immediately cease making
Termination Payments under Section 6.
10. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit
of Employer and its successors and assigns and shall be binding upon
Employee, his heirs and legal representatives. This Agreement shall not be
assignable by Employee.
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<PAGE>
11. MISCELLANEOUS. (a) GOVERNING LAW, ENTIRE AGREEMENT, ETC. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Texas, without reference to principles of conflict of laws. This
Agreement constitutes the entire agreement between Employer and Employee
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, between Employer and Employee in connection with
his employment including, without limitation, the Original Agreement. The
captions of this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or modified
except by a written agreement executed by the Employee and the Employer
hereto or its successor.
(b) NOTICES. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employee:
John T. Griggs
c/o Zimmerman Sign Company
9846 Highway 31 East
Tyler, Texas 75705
If to Employer:
Zimmermann Sign Company
9846 Highway 31 East
Tyler, Texas 75705
or to such other address as either party shall have furnished to the other
in writing in accordance herewith.
(c) SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) WITHHOLDING. Employer may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
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<PAGE>
IN WITNESS WHEREOF, Employee has hereunto set his hand and Employer has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
ZIMMERMAN SIGN COMPANY
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
----------------------------------
John T. Griggs
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