<PAGE>
As filed with the Securities and Exchange Commission on December 6, 1996
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10/A
______________________
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 [ ], 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,
<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,
<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 [ ], 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 ___, 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 ___, 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.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This Information Statement includes "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Since Zimmerman is not yet a company subject to
the reporting requirements imposed under the Exchange Act, Zimmerman is not
yet eligible to take advantage of the safe harbor for forward looking
statements contained in Section 27A of the Securities Act and Section 21E of
the Exchange Act. Zimmerman's actual results may differ significantly from
results discussed in such forward looking statements. Certain factors that
might cause such differences include those set forth under "Risk Factors."
Further, Zimmerman disclaims any obligation to update any such factors or to
publicly announce the result of any revision to any of the forward-looking
statements contained herein to reflect future events or developments.
-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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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 as of the Distribution Date.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
IHC has received a Ruling Letter from the Internal Revenue Service
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 each year, is automatically renewable such that the
agreement has a continuous four-year term unless earlier terminated. 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. Under
certain circumstances prior to December 31, 1999, including a change of control
of Zimmerman, or the termination of Mr. Anderson's employment without cause, by
death or by 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 providing for an annual base salary of 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 employment 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, including
the termination of Mr. Boner's employment after a change of control, termination
without cause, death or disability, Mr. Boner is entitled to a severance payment
equal to three years' then-base salary (exclusive of the supplemental salary
payments) and 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 providing for 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, including the termination
of such officers' employment after a change of control, termination without
cause, 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) and 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, members of the Board of
Directors and advisors to Zimmerman 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 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
90 days 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.
KPMG Peat Marwick LLP
/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
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<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
------------ ----------
------------ ----------
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<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.
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<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
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<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.(2)
3.2 Form of Amended and Restated Bylaws of Zimmerman Sign Company.(2)
4.1 Distribution Agreement, dated as of November 26, 1996, by and
between Zimmerman Sign Company and Independence Holding
Company.*
4.2 Form of Registration Rights Agreement, dated as of December __,
1996, by and between Zimmerman Sign Company and Geneve Holdings,
Inc.*
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.(2)
10.2 Subordinated Credit Agreement, dated as of October 31, 1996,
between Zimmerman Sign Company and Bank of America Illinois.(1)
10.3 Stock Option Plan of Zimmerman Sign Company, dated as of
November ___, 1996, together with form of Stock Option
Agreement.(1)
10.4 Amended & Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and David E. Anderson.(1)
10.5 Amended & Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and Tom E. Boner.(1)
10.6 Amended & Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and Michael W. Coppinger.(1)
10.7 Amended & Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and Jeffrey P. Johnson.(1)
10.8 Amended & Restated Employment Agreement, dated December 1, 1996,
by and between Zimmerman Sign Company and John T. Griggs.(1)
- ----------------------
* Filed herewith
(1) To be filed by amendment
(2) Filed previously
-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 5, 1996.
ZIMMERMAN SIGN COMPANY
By: /s/ DAVID E. ANDERSON
----------------------------------
Name: David E. Anderson
Title: Chairman
499612.14/D
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<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT ("Agreement") dated as of November 26, 1996 by and
between Independence Holding Company, a Delaware corporation ("IHC"), and
Zimmerman Sign Company, a Texas corporation ("Zimmerman").
RECITALS
A. Zimmerman is presently a more than 80% owned subsidiary of IHC.
B. The Board of Directors of IHC has determined that it is in the
best interests of IHC and the stockholders of IHC to distribute (the
"Distribution") to the holders of IHC Common Stock (as defined herein) all of
the outstanding shares of Zimmerman Common Stock (as defined herein) owned by
IHC as of the Distribution Date (as defined herein.)
C. It is the intention of the parties that the Distribution will
not be taxable to the stockholders of IHC (pursuant to Section 355 of the
Code (as defined herein) as more fully described in that certain Internal
Revenue Service Ruling dated August 9, 1996, and Supplemental Ruling dated
November 8, 1996 (the "Ruling").
D. The parties have determined that it is necessary and desirable
to set forth the principal corporate transactions required to effect the
Distribution and to set forth other agreements that will govern certain other
matters.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements, provisions and covenants contained in this Agreement, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used herein, the following terms have the
following meanings:
"ACTION" means any claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any other tribunal.
1
<PAGE>
"ANCILLARY AGREEMENTS" means all of the agreements, instruments,
understandings, assignments and other arrangements entered into in connection
with the transactions contemplated hereby, including, without limitation, the
Tax Sharing Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"DISTRIBUTION" has the meaning set forth in the Recitals to this
Agreement.
"DISTRIBUTION AGENT" means Fleet National Bank.
"DISTRIBUTION DATE" means the business day as of which the
Distribution shall be effective, as determined by the Board of Directors of IHC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FORM 10" means the registration statement on Form 10 to be filed by
Zimmerman with the Commission to effect the registration of Zimmerman Common
Stock pursuant to the Exchange Act, as such registration statement may be
amended from time to time.
"IHC COMMON STOCK" means the outstanding shares of common stock, par
value $1.00 per share, of IHC.
"IHC GROUP" means IHC and its direct or indirect subsidiaries (other
than Zimmerman) as of the date hereof.
"IHC LIABILITIES" means all of (i) the Liabilities of IHC under this
Agreement, (ii) the Liabilities of the IHC Group (other than any Zimmerman
Liabilities), whether arising before, on or after the Distribution Date, and
(iii) any third party claims arising from the conduct or operation of the
business of the IHC Group or the ownership or use of assets in connection
therewith.
"INDEMNIFIABLE LOSS" has the meaning set forth in Section 4.01.
"INFORMATION STATEMENT" means the information statement to be sent to
each holder of IHC Common Stock in connection with the Distribution.
"INSURANCE SWITCHOVER DATE" has the meaning set forth in Section 3.6.
"LIABILITIES" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including, without limitation, those debts, liabilities and obligations arising
under this Agreement, any law, rule, regulation, action, order or consent decree
of any
2
<PAGE>
governmental entity or any award of any arbitrator if any kind, and those
arising under any contract, commitment or undertaking.
"RECORD DATE" means the date determined by IHC's Board of Directors as
the record date for determining the stockholders of IHC entitled to receive
Zimmerman Common Stock in connection with the Distribution.
"RULING" has the meaning set forth in the Recitals to this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TAX AUTHORITY" includes the Internal Revenue Service and any other
state, local or foreign governmental authority responsible for the
administration of Taxes.
"TAXES" means all federal, state, local, and foreign taxes, levies,
and other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement of January 1,
1985 by and between IHC and Zimmerman, as amended from time to time.
"ZIMMERMAN BUSINESS" means the business of Zimmerman to be described
in the Form 10.
"ZIMMERMAN BY-LAWS" means the Amended and Restated By-Laws of
Zimmerman in the form to be filed as an exhibit to the Form 10.
"ZIMMERMAN CERTIFICATE" means the Amended and Restated Certificate of
Incorporation of Zimmerman in the form to be filed as an exhibit to the Form 10.
"ZIMMERMAN COMMON STOCK" means the outstanding shares of common stock
of Zimmerman.
"ZIMMERMAN LIABILITIES" means all of (a) the Liabilities of Zimmerman
under this Agreement and (b) the Liabilities arising from the conduct or
operation of the Zimmerman Business or the ownership or use of assets or other
activities in connection therewith, whether arising before, on, or after the
Distribution Date, including but not limited to any third party claims arising
from the
3
<PAGE>
conduct or operation of the Zimmerman Business or the ownership or use of
assets in connection therewith, and any Liabilities set forth or referenced
in the audited financial statements of Zimmerman included in the Form 10.
ARTICLE II
THE DISTRIBUTION
SECTION 2.1 COOPERATION PRIOR TO THE DISTRIBUTION.
(a) IHC and Zimmerman shall prepare, and IHC shall mail to the holders
of IHC Common Stock as of the Record Date, the Information Statement, which
shall set forth appropriate disclosure concerning Zimmerman, the Distribution
and any other appropriate matters. IHC and Zimmerman shall also prepare, and
Zimmerman shall file with the Commission, the Form 10, which shall include or
incorporate by reference the Information Statement. IHC and Zimmerman shall use
reasonable efforts to cause the Form 10 to become effective under the Exchange
Act; provided, however, that nothing contained in this Agreement shall create an
obligation for IHC to complete the Distribution, it being understood that IHC,
in its sole discretion, will decide if and when the Distribution shall occur.
(b) IHC and Zimmerman shall take all such action as may be necessary
or appropriate under the securities or blue sky laws of states or other
political subdivisions of the United States in connection with the transactions
contemplated by this Agreement.
SECTION 2.2 IHC BOARD ACTION; CONDITIONS PRECEDENT TO THE
DISTRIBUTION. IHC's Board of Directors may, in its discretion, establish the
Record Date and the Distribution Date and any appropriate procedures in
connection with the Distribution. In no event shall the Distribution occur
unless the following conditions shall, unless waived by IHC, have been
satisfied:
(a) all necessary regulatory approvals shall have been received;
(b) the Form 10 shall have become effective under the Exchange Act;
(c) Zimmerman's Board of Directors, as named in the Form 10, shall
have been elected by its stockholders, and the Zimmerman Certificate and
Zimmerman By-laws shall be in effect;
4
<PAGE>
(d) IHC's Board of Directors shall have formally approved the
Distribution and shall not have abandoned, deferred or modified the Distribution
at any time prior to the Record Date;
(e) Zimmerman shall have obtained insurance (or binders therefor)
providing coverage to it similar to the types of coverage provided by insurance
in place prior to the Distribution Date;
(f) there shall have been no material adverse change in the financial
condition of either IHC or Zimmerman from the date hereof to the Distribution
Date; and
(g) there shall have been no material adverse change in market
conditions from the date hereof to the Distribution Date.
SECTION 2.3 THE DISTRIBUTION. On the Distribution Date or as soon
thereafter as practicable, subject to the conditions set forth in this
Agreement, IHC shall deliver to the Distribution Agent a certificate or
certificates representing all of the then outstanding shares of Zimmerman held
by the IHC Group, endorsed in blank, and shall instruct the Distribution Agent
to distribute to each holder of record of IHC Common Stock on the Record Date a
certificate or certificates representing one (1) share of Zimmerman Common Stock
for each five (5) shares of IHC Common Stock so held. Zimmerman agrees to
provide all certificates for shares of Zimmerman Common Stock that the
Distribution Agent shall require in order to effect the Distribution.
SECTION 2.4 FEES AND EXPENSES OF DISTRIBUTION AGENT. The fees and
expenses of the Distribution Agent shall be paid by IHC.
ARTICLE III
TRANSITION ARRANGEMENTS
SECTION 3.1 CONDUCT OF ZIMMERMAN BUSINESS PENDING DISTRIBUTION.
Pending consummation of the Distribution, and except as provided herein, the
business of Zimmerman shall be operated in the ordinary course consistent with
past practice.
SECTION 3.2 INSURANCE.
(a) On or prior to the Distribution Date, Zimmerman shall obtain
liability and other insurance providing coverage for the operations of
Zimmerman. From and after the effective date of the policies obtained by
Zimmerman in accordance with the preceding sentence ("Insurance Switchover
Date"), IHC may terminate coverage of Zimmerman under IHC's corporate policies.
5
<PAGE>
Until the Insurance Switchover Date, IHC shall either (i) keep in effect all
policies under its insurance program which provide coverage for the operations
of Zimmerman in effect as of the date hereof or (ii) arrange for substitute
insurance policies which provide coverage for the operations of Zimmerman which
is substantially similar to the coverage provided by policies under IHC's
insurance program in effect as of the date hereof. Prior to the Insurance
Switchover Date, and subsequent to the date hereof, Zimmerman shall pay to IHC
IHC's proportionate share of any insurance premiums paid by IHC for such
continued policies in accordance with the methods currently employed by IHC for
the allocation of such premiums among IHC and its affiliates.
(b) On and after the Distribution Date, IHC shall, in connection with
any claims arising from the conduct or operation of the Zimmerman Business or
the ownership or use of assets in connection therewith which are covered by the
insurance policies of IHC, instruct the applicable insurance carrier to
negotiate with, accept proof of loss and pay any claim directly to Zimmerman.
The parties hereto acknowledge that claims arising out of an occurrence or event
which occurred prior to the Insurance Switchover Date may be filed by Zimmerman
against "occurrence-based" insurance policies of IHC following the date hereof,
in accordance with the terms of such policies. IHC, with respect to claims
relating to the IHC Group, and Zimmerman, with respect to claims relating to it,
shall bear and be responsible for any deductible or retention or obligation to
indemnify any insurance carrier relating to any claims for which such party has
coverage.
(c) As to claims relating to the Zimmerman Business or the ownership
or use of assets in connection therewith which are covered by insurance policies
of IHC, IHC shall, and shall cause each of its affiliates to, cooperate fully
with Zimmerman and its designated insurance representatives, including providing
necessary documentation, assistance and, where appropriate, testimony. IHC and
Zimmerman will use their reasonable best efforts to collect under their
respective available insurance policies before seeking indemnification, where
allowed.
SECTION 3.3 REPAYMENT OF INTERCOMPANY DEBT. On or prior to the
Distribution Date, the parties shall pay in full any intercompany receivables
and payables between the parties; provided, that it is contemplated that
Zimmerman will have a fee payable to a subsidiary of IHC as of the Distribution
Date of $475,000 in consideration of such subsidiary's guaranty of a
subordinated term loan facility entered into by Zimmerman prior to the
Distribution.
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SECTION 3.4 TAX PAYMENT; TAX SHARING AGREEMENT. As between the
parties, the Tax Sharing Agreement shall terminate as of the Distribution Date
and, except as specifically provided in this Agreement, neither party shall have
any further obligation to the other in respect of Taxes (including, without
limitation, refunds of Taxes and subsequent adjustments and assessments of Taxes
previously reported) for periods before, on and after the Distribution Date;
provided, that the parties shall use their best efforts to agree upon a fair
apportionment of any Tax attributes required or permitted by applicable law to
be apportioned among the parties as a result of the Distribution; and provided
further, that any payments of Taxes due between the parties (as determined
pursuant to the Tax Sharing Agreement) applicable to periods ending on or prior
to the Distribution Date shall be settled on an estimated basis on or prior to
the Distribution Date, with any final adjustments to be based on actual results
of operations of Zimmerman through and including the Distribution Date and
settled on or prior to March 15, 1997.
SECTION 3.5 TAX RETURNS.
(a) IHC shall prepare and file with the appropriate Tax authorities
all Tax returns with respect to Zimmerman required or permitted to be filed on a
combined, unitary or consolidated basis with the IHC Group for any period ending
on or before the Distribution Date, and shall pay all Taxes due in respect of
any such return.
(b) Zimmerman shall prepare and file with the appropriate Tax
authorities all Tax returns with respect to Zimmerman other than those required
or permitted to be filed on a combined, unitary or consolidated basis with the
IHC Group for any period ending on or before the Distribution Date, and shall
pay all Taxes due in respect of any such return.
(c) The parties shall cooperate with each other in the preparation
and filing of such returns (and any claims for refunds or audits or other
proceedings related to Taxes) to the extent reasonably necessary or appropriate
to carry out the intent of this Section.
SECTION 3.6 CERTAIN REPRESENTATIONS AND COVENANTS OF ZIMMERMAN.
(a) Zimmerman represents to IHC, as of the date of the Ruling and as
of the Distribution Date, as follows:
(i) The five years of financial information submitted on behalf
of Zimmerman in connection with the request for the Ruling is representative of
Zimmerman's present
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operations and there has been no substantial operational changes since the
date of the last financial statement so submitted;
(ii) Zimmerman has no plan or intention to liquidate, to merge
with any other corporation or to sell, exchange or otherwise dispose of any
substantial portion of its assets, other than in the ordinary course of
business;
(iii) Zimmerman has no plan or intention to reacquire any
shares of its outstanding stock, to issue any stock or any options, warrants,
rights or other securities evidencing a right to acquire shares of its stock or
to enter into any agreement providing for the sale, exchange or other
disposition of any shares of its outstanding stock, (other than transfers of
Zimmerman stock described in the Ruling or the request for Ruling dated March 5,
1996 (the "Ruling Request") including the initial public offering of shares of
Zimmerman common stock) and issuances of employee stock options in the ordinary
course of business; and
(iv) Management of Zimmerman is not aware of any plan or
intention on the part of the shareholders of IHC to sell, exchange, transfer by
gift or otherwise dispose of any of the shares of Zimmerman stock to be
distributed to them pursuant to the Distribution (other than pursuant to
transactions permitted by Section 4.052(b) of Rev. Proc. 86-41, as modified by
Rev. Proc. 91-63).
(b) Zimmerman covenants and agrees with IHC as follows:
(i) During the two year period following the Distribution Date,
Zimmerman will continue the active conduct of its business, independently and
with its separate employees, unless, in the prior written opinion of tax counsel
selected by IHC, failure to do so would not adversely affect qualification of
the Distribution under Section 355 of the Code;
(ii) During the two year period following the Distribution Date,
Zimmerman will not reacquire any shares of its outstanding stock, issue any
stock or any options, warrants, rights or other securities evidencing a right to
acquire shares of its stock or enter into any agreement providing for the sale,
exchange or other disposition of any shares of its outstanding stock (other than
transfers of Zimmerman stock described in the Ruling or the Ruling Request,
including the initial public offering of shares of Zimmerman common stock) and
issuances of employee stock options in the ordinary course of business unless,
in the prior written opinion of tax counsel selected
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by IHC, such would not adversely affect qualification of the Distribution
under Section 355 of the Code; and
(iii) During the twelve month period following the
Distribution, Zimmerman will use its best efforts to consummate an initial
public offering of shares of its common stock as described in the Ruling,
provided, that Zimmerman shall have no liability hereunder if the failure to so
consummate such offering results from adverse business, financial or market
conditions not within Zimmerman's control.
ARTICLE IV
INDEMNIFICATION
SECTION 4.1 ZIMMERMAN INDEMNIFICATION OF THE IHC GROUP.
(a) Subject to Section 4.3, Zimmerman shall indemnify, defend and hold
harmless the IHC Group, and each of their respective directors, officers,
employees, shareholders, representatives and agents (the "IHC Indemnitees") from
and against (i) any Taxes incurred by the IHC Group as a result of the failure
of the Distribution to qualify for nonrecognition treatment under Section 355 of
the Code but only to the extent that such failure results from the breach by
Zimmerman of any of the representations or covenants set forth in Section 3.6
hereof, and (ii) any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any and all Actions or
threatened Actions) (collectively, "Indemnifiable Losses") incurred or suffered
by any of the IHC Indemnitees and arising out of, or due to the failure of
Zimmerman to pay, perform or otherwise discharge, any of the Zimmerman
Liabilities other than for Taxes required pursuant to Section 3.5(a) hereof to
be paid by IHC.
(b) Subject to Section 4.3, Zimmerman shall indemnify, defend and hold
harmless the IHC Indemnitees and each person, if any, who controls any of the
IHC Indemnitees within the meaning of Section 15 of the Securities Act from any
Indemnifiable Losses, joint or several, to which they or any of them may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, as and when incurred,
insofar as such Indemnifiable Losses (or Actions in respect thereof) arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in the Form 10 or in the
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Information Statement, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or arise
out of or are based upon any violation by Zimmerman of the Securities Act,
any blue sky laws, securities laws or other applicable laws of any state or
country in which the securities covered by the Form 10 are offered or
distributed and relating to action or inaction required of Zimmerman in
connection with such offering or distribution, and agrees to promptly
reimburse each such IHC Indemnitee or such person controlling such IHC
Indemnitee, as and when incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
Indemnifiable Losses; provided, HOWEVER, that Zimmerman will not be liable in
any such case to the extent that any such Indemnifiable Losses arise out of,
or are based upon, any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to Zimmerman by IHC specifically for use
in connection with the preparation thereof.
SECTION 4.2 IHC INDEMNIFICATION OF ZIMMERMAN.
(a) Subject to Section 4.3, IHC shall indemnify, defend and hold
harmless, Zimmerman, and its directors, officers, employees, representatives and
agents (the "Zimmerman Indemnitees") from and against any and all Indemnifiable
Losses incurred or suffered by any of the Zimmerman Indemnitees and arising out
of, or due to the failure of any member of the IHC Group to pay, perform or
otherwise discharge, any of the IHC Liabilities, including without limitation,
any liability for Taxes resulting from the Distribution, other than any
liabilities subject to indemnification by Zimmerman pursuant to Section
4.1(a)(i).
(b) Subject to Section 4.3, IHC shall indemnify, defend and hold
harmless the Zimmerman Indemnitees and each person, if any, who controls any of
the Zimmerman Indemnities within the meaning of Section 15 of the Securities Act
from any Indemnifiable Losses, joint or several, to which they or any of them
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise, as and when
incurred, insofar as such Indemnifiable Losses (or Actions in respect thereof)
arise out of, or are based upon, any untrue statement or alleged untrue
statement of a material fact contained in the Form 10, or in the Information
Statement, or arise out of or are based upon the omission or alleged
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omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that the same was made therein in reliance
upon and in conformity with written information furnished to Zimmerman by
IHC specifically for use in connection with the preparation thereof, or
arise out of or are based upon any violation or alleged violation by IHC of
the Securities Act, any blue sky laws, securities laws or other applicable
laws of any state or country in which the securities covered the Form 10
are offered or distributed and relating to action or inaction required of
IHC in connection with such offering or distribution, and agrees to promptly
reimburse each such Zimmerman Indemnitee or such person controlling such
Zimmerman Indemnitee, as and when incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such Indemnifiable Losses.
SECTION 4.3 INSURANCE AND THIRD-PARTY OBLIGATIONS. Any indemnification
pursuant to Section 4.1 or 4.2 shall be paid net of the amount of any insurance
(other than any insurance paid for by the applicable Indemnitee) or other
amounts that would be payable by any third party to the indemnified party in the
absence of this Agreement. It is expressly agreed that no insurer or any other
third party shall be (a) entitled to a benefit it would not be entitled to
receive in the absence of the foregoing indemnification provisions, (b) relieved
of the responsibility to pay any claims to which it is obligated or (c) entitled
to any subrogation rights with respect to any obligation hereunder.
SECTION 4.4 INFORMATION PROVIDED BY ZIMMERMAN. For purposes of
Sections 4.1(b) and 4.2(b), the written information furnished to Zimmerman by
IHC specifically for use in connection with the preparation of the Form 10 and
the Information Statement, consists only of the information set forth under
those headings of the Information Statement which are identified in Annex A
hereto, which the parties agree is preliminary. At the time of the mailing of
the Information Statement, the information listed on Annex A shall be revised
and initialed by the proper officer or officers of each of IHC and Zimmerman,
such initials representing the parties' agreement thereto.
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ARTICLE V
INDEMNIFICATION PROCEDURES
SECTION 5.1 NOTICE AND PAYMENT OF CLAIMS. If any IHC or Zimmerman
Indemnitee (the "Indemnified Party") determines that it is or may be entitled to
indemnification by any party (the "Indemnifying Party") under Article IV (other
than in connection with any Action or claim subject to Section 5.2), the
Indemnified Party shall deliver to the Indemnifying Party a written notice
specifying, to the extent reasonably practicable, the basis for its claim for
indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. After the Indemnifying Party shall
have been notified of the amount for which the Indemnified Party seeks
indemnification, the Indemnifying Party shall, within 30 days after receipt of
such notice, pay the Indemnified Party such amount in cash or other immediately
available funds unless the Indemnifying Party objects to the claim for
indemnification or the amount thereof, in which case the parties shall comply
with Section 7.11 hereof. If the Indemnifying Party does not give the
Indemnified Party written notice objecting to such claim and setting forth the
grounds therefor within the same 30-day period, the Indemnifying Party shall be
deemed to have acknowledged its liability for such claim and the Indemnified
Party may exercise any and all of its rights under applicable law to collect
such amount.
SECTION 5.2 NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS. Promptly
following the earlier of (a) receipt of notice of the commencement by a third
party of any Action against or otherwise involving any Indemnified Party or (b)
receipt of information from a third party alleging the existence of a claim
against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party written notice
thereof. The failure of the Indemnified Party to give notice as provided in this
Section 5.2 shall not relieve the Indemnifying Party of its obligations under
this Agreement, except to the extent that the Indemnifying Party is prejudiced
by such failure to give notice. Within 30 days after receipt of such notice, the
Indemnifying Party may (a) by giving written notice thereof to the Indemnified
Party, acknowledge liability for, and at its option elect to assume the defense
of, such Third-Party Claim at its sole cost and expense or (b) object to the
claim of indemnification set forth in the notice delivered by the Indemnified
Party
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pursuant to the first sentence of this Section 5.2; provided, that if the
Indemnifying Party does not within the same 30-day period give the
Indemnified Party written notice objecting to such claim and setting forth
the grounds therefor or electing to assume the defense, the Indemnifying
Party shall be deemed to have acknowledged its liability for such Third-Party
Claim. Any contest of a Third-Party Claim as to which the Indemnifying Party
has elected to assume the defense shall be conducted by attorneys employed by
the Indemnifying Party and reasonably satisfactory to the Indemnified Party;
provided, that the Indemnified Party shall have the right to participate in
such proceedings and to be represented by attorneys of its own choosing at
the Indemnified Party's sole cost and expense. If the Indemnifying Party
assumes the defense of a Third-Party Claim, the Indemnifying Party may settle
or compromise the claim without the prior written consent of the Indemnified
Party; provided, that the Indemnifying Party may not agree to any such
settlement pursuant to which any such remedy or relief, other than monetary
damages for which the Indemnifying Party shall be responsible hereunder,
shall be applied to or against the Indemnified Party, without the prior
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. If the Indemnifying Party does not assume the defense
of a Third-Party Claim for which it has acknowledged liability for
indemnification under Article IV, the Indemnified Party may require the
Indemnifying Party to reimburse it on a current basis for its reasonable
expenses of investigation, reasonable attorneys' fees and reasonable
out-of-pocket expenses incurred in defending against such Third-Party Claim
and the Indemnifying Party shall be bound by the result obtained with respect
thereto by the Indemnified Party; provided, that the Indemnifying Party shall
not be liable for any settlement effected without its consent, which consent
shall not be unreasonably withheld. The Indemnifying Party shall pay to the
Indemnified Party in cash the amount for which the Indemnified Party is
entitled to be indemnified (if any) within 15 days after the final
resolution of such Third-Party Claim (whether by the final nonappealable
judgment of a court of competent jurisdiction or otherwise) or, in the case
of any Third-Party Claim as to which the Indemnifying Party has not
acknowledged liability, within 15 days after such Indemnifying Party's
objection has been resolved pursuant to Section 7.11 or by settlement,
compromise or the final nonappealable judgment of a court of competent
jurisdiction.
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ARTICLE VI
SERVICES
SECTION 6.1 PROVISION OF SERVICES. Subject to the provisions of the
Tax Sharing Agreement, each party shall make available to the other party during
normal business hours and in a manner that will not unreasonably interfere with
such party's business, its financial, tax, accounting, and similar staff and
services (collectively, "Services") whenever and to the extent that they may be
reasonably required in connection with the preparation of returns of Taxes,
audits, claims or litigation and otherwise to assist in effecting an orderly
transition following the date hereof. The Services shall be provided for a
period of up to one year following the Distribution Date.
SECTION 6.2 REIMBURSEMENT. A party providing Services to the other
party pursuant to this Article VI shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payment for all
out-of-pocket costs and expenses, exclusive of wages and salaries of employees,
as may be reasonably incurred in providing such Services. Payments made in
connection with any continuing transactions between the parties will be for fair
market value based on terms and conditions arrived at by the parties bargaining
at arm's length.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 CONFIDENTIALITY. Each party shall hold and shall cause its
directors, officers, employees, agents, consultants and advisors to holder in
strict confidence, unless compelled to disclose by judicial or administrative
process or, in the opinion of its counsel, by other requirements of law, all
information (other than any such information relating solely to the business or
affairs of such party) concerning the other party (except to the extent that
such information can be shown to have been (a) in the public domain through no
fault of such party or (b) later lawfully acquired on a non-confidential basis
from other sources by the party to which it was furnished), and neither party
shall release or disclose such information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors who shall be advised of and agree to comply with the provisions of this
Section 7.1. Each party shall be deemed to have satisfied
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its obligation to hold confidential information concerning or supplied by the
other party if it exercises the same care as it takes to preserve
confidentiality for its own similar information.
SECTION 7.2 EXPENSES. Except as specifically provided in this
Agreement (or the Tax Sharing Agreement, if relevant) or except as otherwise
agreed to in writing between IHC and Zimmerman, all costs and expenses incurred
in connection with the preparation, execution, delivery and implementation of
this Agreement and with the consummation of the transactions contemplated by
this Agreement (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 Form 10 and IHC shall be obligated to pay the costs
of mailing the Information Statement to its shareholders.
SECTION 7.3 NOTICES. All notices and communications under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly given when received addressed as follows:
If to IHC to:
96 Cummings Point Road
Stamford, Connecticut 06902
Attention: Corporate Secretary
If to Zimmerman to:
8350 North Central Expressway
Suite 600
Dallas, Texas 75206
Attention: David E. Anderson
Any party may, by written notice so delivered to the other parties, change
the address to which delivery of any notice shall thereafter be made.
SECTION 7.4 AMENDMENT AND WAIVER. This Agreement may not be altered or
amended, nor may rights hereunder be waived, except by an instrument in writing
executed by the party or parties to be charged with such amendment or waiver. No
waiver of any terms, provision
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or condition of or failure to exercise or delay in exercising any rights or
remedies under this Agreement, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such term,
provision, condition, right or remedy or as a waiver of any other term,
provision or condition of this Agreement.
SECTION 7.5 COUNTERPARTS. This Agreement may be executed in one or
more counterparts each of which shall be deemed an original instrument, but all
of which together shall constitute but one and the same Agreement.
SECTION 7.6 GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of Delaware, without
regard to the conflicts of law rules of such state.
SECTION 7.7 ENTIRE AGREEMENT. This Agreement, together with the
Ancillary Agreements, constitutes the entire understanding of the parties hereto
with respect to the subject matter hereof, superseding all negotiations, prior
discussions and prior agreements and understandings relating to such subject
matter. To the extent that the provisions of this Agreement are inconsistent
with the provisions of any Ancillary Agreements, the provisions of such
Ancillary Agreement shall prevail.
SECTION 7.8 PARTIES IN INTEREST. None of the parties hereto may assign
its rights or delegate any of its duties under this Agreement without the prior
written consent of each other party. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. Nothing contained in this Agreement, express
or implied, is intended to confer any benefits, rights or remedies upon any
person or entity other than IHC and Zimmerman, and the IHC and Zimmerman
Indemnitees under Articles IV and V hereof.
SECTION 7.9 FURTHER ASSURANCES AND CONSENTS. In addition to the
actions specifically provided for elsewhere in this Agreement, each of the
parties hereto will use its reasonable efforts to (i) execute and deliver such
further instruments and documents and take such other actions as the other party
may reasonably request in order to effectuate the purposes of this Agreement and
to carry out the terms hereof and (ii) take, or cause to be taken, all actions,
and to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements or otherwise to
consummate and make effective the transactions
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contemplated by this Agreement, including, without limitation, using its
reasonable efforts to obtain any consents and approvals and to make any
filings and applications necessary or desirable in order to consummate the
transactions contemplated by this Agreement; provided, that no party hereto
shall be obligated to pay any consideration therefor (except for filing fees
and other similar charges) to any third party from whom such consents,
approvals and amendments are requested or to take any action or omit to take
any action if the taking of or the omission to take such action would be
unreasonably burdensome to the party or its business.
SECTION 7.10 MEDIATION. The parties hereto shall attempt in good faith
to resolve any controversy, claim or dispute of whatever nature arising out of
this Agreement or the breach or enforceability thereof (a "Dispute"). If a
Dispute has not been resolved within thirty (30) days after the Dispute arose,
any party ("Disputing Party") may give the other ("Non-Disputing Party") written
notice ("Dispute Notice") which includes a description of the Dispute and a
statement that the Disputing Party thereby invokes the mediation procedures set
forth herein. Within fifteen (15) days after the delivery of the Dispute Notice,
the parties shall mutually select a mediator. To the extent an agreement on a
mediator cannot be reached, the parties shall request the American Arbitration
Association to select a mediator. The mediation shall be conducted in accordance
with the Commercial Mediation Rules of the American Arbitration Association and
any decision of the mediator shall not be binding upon the parties. Unless
otherwise agreed by the Disputing Party and the Non-Disputing Party, in the
event that the Dispute is not resolved by mediation hereunder within sixty (60)
days subsequent to submitting the Dispute to a mediator, the mediation shall
then terminate and the Disputing Party shall have all rights and remedies
otherwise available to it. All conferences and discussions which occur in
connection with mediation pursuant to this Agreement shall be deemed settlement
discussions and nothing said or disclosed, nor any document produced, which is
not otherwise independently discoverable, shall be offered or received as
evidence or used for impeachment or for any other purpose in any current or
future litigation. The fees and expenses of the mediator, including any filing
or other fees of the American Arbitration Association, shall be paid by the
non-prevailing party, of if none, equally by IHC and Zimmerman.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
INDEPENDENCE HOLDING COMPANY
By: /s/ Steven B. Lapin
-----------------------------
Steven B. Lapin
President
ZIMMERMAN SIGN COMPANY
By: /s/ David E. Anderson
-----------------------------
David E. Anderson
Chairman
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ANNEX A
SUMMARY
- Background -- first paragraph
- The Distribution -- except for "Dividends" and "Special Factors"
THE DISTRIBUTION
- Background; Reasons for the Distribution
- Listing and Trading of Zimmerman Common Stock -- last two paragraphs
- Federal Income Tax Consequences of the Distribution
- Reasons for Furnishing Information Statement
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of December __, 1996, by and between Zimmerman Sign Company, a Texas
corporation (the "Company"), and Southern Investors Corp., Southern Mortgage
Holding Corporation, Geneve Securities Portfolio Corp., Geneve Securities
Holding Corp., and First International Reinsurance Company, Inc. (the
"Holders").
The parties hereto agree as follows:
1. DEFINITIONS. The terms used herein shall have the following meanings:
(a) "ACT" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
from time to time.
(b) "COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency administering the Act.
(c) "COMMON STOCK" shall mean the common stock, par value $0.01 per share,
of the Company.
(d) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
(e) "REGISTER", "REGISTERED" OR "REGISTRATION" shall mean a registration
effected by preparing and filing a registration statement on any appropriate
form in compliance with the Act which form shall be available for the sale of
the Registrable Securities in accordance with the intended method of
distribution thereof, and the declaration or ordering of the effectiveness of
such registration statement by the Commission.
(f) "REGISTRABLE SECURITIES" shall mean the Common Stock held of record by
the Holders; provided, however, as to any particular Registrable Securities,
such securities will cease to be Registrable Securities when (i) a registration
statement covering such securities has been declared effective, or (ii) they are
publicly sold in compliance with Rule 144 (or any comparable rule) under the
Act, whether or not the exemption from such provisions provided in paragraph (k)
of Rule 144 (or any comparable exemption) is available.
2. REQUESTED REGISTRATION.
(a) If at any time, and from time to time, after June 30, 1997 and prior
to December 31, 2003, one or more of the Holders shall notify the Company in
writing that such Holder or Holders intend to offer or cause to be offered for
public sale all or any portion of their Registrable Securities, the Company will
notify all of the other Holders of its receipt of such notification from such
Holder or Holders. Upon the written request of any such remaining Holder
delivered to the Company within
<PAGE>
15 days after receipt from the Company of such notification, the Company will
use commercially reasonable efforts to cause such of the Registrable Securities
as may be requested by the Holders to be registered under the Act in accordance
with the terms of this Section 2 ("Demand Registration"). Notwithstanding the
foregoing, the Company shall not be required to effect, or to take any action
to effect, a registration requested pursuant to this Section 2 if any of the
following conditions exist:
(i) if the Company has effected two Demand Registrations for the
Holders pursuant to this Section 2 in the preceding twelve (12) months or;
(ii) if the request for registration has been received by the
Company subsequent to the giving of written notice by the Company, made in
good faith, to the Holders to the effect that the Company is commencing to
prepare a Company-initiated registration statement (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission
under the Securities Act is applicable);
The Company may postpone the filing of any registration statement required
hereunder for a reasonable period time, not to exceed 120 days, if the Company
has been advised by legal counsel that such filing would require the disclosure
of a material transaction or other factor and the Company determines reasonably
and in good faith that such disclosure would have a material adverse effect on
the Company.
(b) In any Demand Registration, the Holders to be included therein shall
have the right to select the investment banker or bankers and manager or
managers to administer the offering; provided, however, that such investment
banker or bankers and manager or managers is reasonably satisfactory to the
Company. If the manager or managers deliver an opinion to the Holders that the
total amount of securities which other persons or entities (by virtue of
"piggy-back" or similar registration rights) intend to include in such offering
is sufficiently large to materially and adversely affect the success of such
offering, then the amount or kind of securities to be offered for the accounts
of such other persons or entities shall be reduced pro rata with respect to each
holder to the extent necessary to reduce the total amount of securities to be
included in such offering to the amount recommended by such manager or managers.
The amount or kind of securities to be offered for the accounts of the Holders
shall not be so reduced.
(c) The Company shall use commercially reasonable efforts to keep any
Demand Registration effective until the earlier of (i) six months following the
date on which the registration statement relating thereto was declared effective
and (ii) the sale pursuant to such registration statement of the Registrable
Securities covered thereby.
3. PIGGY-BACK REGISTRATION.
If at any time, and from time to time, after June 30, 1997 and prior to
December 31, 2003, the Company proposes to file a registration statement under
the Act with respect to an offering by
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the Company for its own account or for the account of others of any class of
security (other than a registration statement on Forms S-4 or S-8 or filed
in connection with an exchange offer or an offering of securities solely to
the Company's existing stockholders), then the Company shall in each case
give written notice of such proposed filing to the Holders at least 30 days
prior to the anticipated filing date, and such notice shall offer the Holders
the opportunity to register such shares of Registrable Securities as each
Holder may request (a "Piggy-Back Registration"). The Company shall use its
best efforts to cause the managing underwriter or underwriters of a proposed
underwritten offering to permit the holders of Registrable Securities
requested in writing within fifteen (15) days after the notice given by the
Company to be included in the registration for such offering to include such
securities in such offering on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding the foregoing,
if the managing underwriter or underwriters of such offering delivers an
opinion to the Holders that the total amount of securities which they or the
Company or any other persons or entities intend to include in such offering
is sufficiently large to materially and adversely affect the success of such
offering, then the amount or kind of securities to be offered for the
accounts of the Holders shall be reduced to the extent necessary to reduce
the total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters; PROVIDED, HOWEVER,
that if securities are being offered for the account of other persons or
entities who received registration rights after those provided for herein,
the securities of such persons or entities shall be reduced in full prior to
any reduction in the securities of the Holders begin offered.
4. HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDERS. Each Holder agrees not to
effect any public sale or distribution of securities which are the same as or
which are similar in nature as the securities of the Company being registered,
during the fourteen days prior to, and during the 90-day period beginning on,
the effective date of a registration statement filed by the Company (except as
part of such registration), but only if and to the extent requested in writing
(with reasonable prior notice) by the managing underwriter or underwriters in
the case of an underwritten public offering or, if such offering is not
underwritten, by the Company of securities similar to the Registrable
Securities.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND OTHERS. The Company
agrees (i) not to effect any public sale or distribution of any securities
similar to those being registered, or any securities convertible into or
exchangeable or exercisable during the 90-day period beginning on, the effective
date of any registration statement in which the Holders are participating
(except as part of such registration); and (ii) that any agreement entered into
on or after the date of this Agreement pursuant to which the Company issues or
agrees to issue any privately placed securities shall contain a provision under
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the periods described in (i) above,
in each case including a sale pursuant to Rule 144 under the Act (except as part
of any such registration, if permitted).
5. REGISTRATION PROCEDURES.
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Whenever any Registrable Securities are required to be registered pursuant
to Sections 2 or 3 of this Agreement, the Company will use its best efforts to
effect the registration of such Registrable Securities in accordance with the
intended method of disposition thereof as diligently as practicable, and in
connection therewith, the Company agrees that it shall also do the following:
(a) use reasonable best efforts to diligently prepare for filing and file
with the Commission a registration statement which includes the Registrable
Securities and use reasonable best efforts to cause such registration to become
effective; provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, including documents incorporated by
reference, the Company will furnish to counsel to the Holders covered by such
registration statement and the managing underwriter or underwriters, if any,
draft copies of all such documents proposed to be filed (other than exhibits,
unless so requested) a reasonable time prior thereto, which documents will be
subject to the reasonable review of such counsel and the Holders and
underwriters, and the Company will not file any registration statement or
amendment thereto or any prospectus or any supplement thereto (including such
documents incorporated by reference) to which the Holders or the managing
underwriter or underwriters with respect to such securities, if any, shall
reasonably object, and will notify the Holders of any stop order issued or
threatened by the Commission in connection therewith and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the registration statement as may be necessary to
keep the registration statement effective for a period of not less than six (6)
months (or such shorter period which will terminate when all Registrable
Securities covered by such registration statement have been sold or withdrawn,
but not prior to the expiration of the 25-day period referred to in Section 4(3)
of the Act and Rule 174 thereunder, if applicable); cause the prospectus to be
supplemented by any required prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Act; and comply with the provisions of the
Act applicable to it with regard to the disposition of all securities covered by
such registration statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement or supplement to the prospectus;
(c) furnish to any Holder included in such registration statement and the
underwriter or underwriters, if any, without charge, at least one signed copy of
the registration statement and any post-effective amendment thereto upon
request, and such number of conformed copies thereof and such number of copies
of the prospectus (including each preliminary prospectus) and any amendments or
supplements thereto and any documents incorporated by reference therein, as such
Holder or underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities being sold by such Holder (it being
understood that the Company consents to the use of the prospectus and any
amendment or supplement thereto by each Holder covered by the registration
statement and the underwriter or underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the prospectus or any
amendment or supplement thereto);
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<PAGE>
(d) notify each Holder included in such registration statement, at any
time when a prospectus relating thereto is required to be delivered under the
Act, when the Company becomes aware of the happening of any event as a result of
which the prospectus included in such registration statement (as then in effect)
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein (in the case of the prospectus or
any preliminary prospectus, in light of the circumstances under which they were
made) not misleading and, as promptly as practicable thereafter, prepare and
file with the Commission and furnish a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(e) notify each Holder included in such registration statement and the
managing underwriters, if any, promptly, and confirm such advice in writing, (i)
when a prospectus or any prospectus supplement or post-effective amendment has
been filed, and, with respect to a registration statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
Commission for amendments or supplements to a registration statement or related
prospectus or for additional information, and (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of any of the registrable securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose;
(f) use reasonable best efforts to cause all Registrable Securities
included in such registration statement to be listed, by the date of the first
sale of Registrable Securities pursuant to such registration statement, on each
securities market on which the Common Stock of such issuer is then listed or
proposed to be listed, if any;
(g) make generally available to its security holders an earnings statement
satisfying the provisions of Section 11(a) of the Act and Rule 158 thereunder no
later than 45 days after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the effective date of
the registration statement, which earnings statement shall cover said 12-month
period;
(h) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible moment;
(i) if requested by the managing underwriter or underwriters or any Holder
covered by the registration statement, promptly incorporate in a prospectus
supplement or post-effective amendment such information as the managing
underwriter or underwriters or such holder, as the case may be, reasonably
requested to be included therein, including, without limitation, information
with respect to the number of Registrable Securities being sold by such Holder
to an underwriter or underwriters, the purchase price being paid therefor by
such underwriter or underwriters and with respect to any other terms of the
underwritten offering of the Registrable Securities to be sold in such
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<PAGE>
offering, and promptly make all required filings of such prospectus
supplement or post-effective amendment;
(j) as promptly as practicable after filing with the Commission of any
document which is incorporated by reference in a prospectus contained in a
registration statement, deliver a copy of such document to each Holder covered
by such registration statement;
(k) on or prior to the date on which the registration statement is
declared effective, use reasonable best efforts to register or qualify, and
cooperate with the Holders included in such registration statement, the
underwriter or underwriters, if any, and their counsel, in connection with the
registration or qualification of the Registrable Securities covered by the
registration statement for offer and sale under the securities or blue sky laws
of each state and other jurisdiction of the United States as any such holder or
underwriter reasonably requests in writing, to use reasonable best efforts to
keep each such registration or qualification effective, including through new
filings, or amendments or renewals, during the period such registration
statement is required to be kept effective and to do any and all other acts or
things necessary or advisable to enable the disposition in all such
jurisdictions of the Registrable Securities covered by the applicable
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(l) cooperate with the Holders covered by the registration statement and
the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legends)
representing securities to be sold under the registration statement, and enable
such securities to be in such denominations and registered in such names as the
managing underwriter or underwriters, if any, or such holders may request;
(m) use reasonable best efforts to cause the Registrable Securities
covered by the registration statement to be registered with or approved by such
other governmental agencies or authorities within the United States as may be
necessary to enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such securities;
(n) enter into such customary agreements (including an underwritten
agreement in customary form with provisions as may be reasonably required by the
managing underwriter retained by the Holders) and take all such other actions as
the Holders or the managing director or underwriters retained by the Holders
participating in an underwritten public offering, if any, reasonably request in
order to expedite or facilitate the disposition of such Registrable Securities;
(o) make available for inspection by any Holder included in such
registration statement, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by any such seller or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise
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<PAGE>
their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such inspector in connection with such registration statement; provided that
records which the Company determines, in good faith, to be confidential and
which it notifies the Inspectors are confidential shall not be disclosed by
the Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in the registration statement or
(ii) the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction; provided, further, each holder
of Registrable Securities agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice
to the Company and allow the Company at its expense, to undertake appropriate
action and to prevent disclosure of the Records deemed confidential; and
(p) use reasonable best efforts to obtain a cold comfort letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters as the Holders
reasonably request.
Each Holder, upon receipt of any notice from the Company of the happening
of any event of the kind described in subsection (d) of this Section 5, will
forthwith discontinue disposition of the Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by subsection (d) of this Section 5 or until it is advised in
writing (the "Advice") by the Company that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the prospectus, and, if so directed by the
Company, such Holder will, or will request the managing underwriter or
underwriters, if any, to deliver to the Company (at the Company's expense) all
copies (other than permanent file copies) then in the possession of such Holder
and of any underwriter or underwriters, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time periods mentioned in
subsection (b) of this Section 5 shall be extended by the number of days during
the period from and including the date of the giving of such notice to and
including the date when each seller of Registrable Securities covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by subsection (d) of this Section 5 hereof or
the Advice.
Each Holder hereby covenants that it will not make any sale of Registrable
Securities that are registered in accordance with Section 2 or 3 hereof without
first effectively causing the prospectus delivery requirements under the Act to
be satisfied, and each such Holder acknowledges and agrees that if sold in a
non-underwritten public offering, such shares are not transferrable on the books
of the Company unless the stock certificates submitted to the transfer agent
evidencing the shares is accompanied by a certificate to the effect that the
shares have been sold in accordance with an effective registration statement and
the requirements of delivering a current prospectus have been satisfied.
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<PAGE>
Each seller of Registrable Securities as to which any registration is
being effected shall use reasonable efforts to cooperate with the Company,
and the Company may require each such seller to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
6. REGISTRATION EXPENSES.
All expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation all Commission and National
Association of Securities Dealers, Inc. registration and filing fees, fees
and expenses of compliance with securities or blue sky laws (including fees
and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), printing expenses, messenger and delivery
expenses, internal expenses (including, without limitation, all salaries and
expenses of the Company's officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing of the securities to be registered on each securities market on which
similar securities issued by the Company are then listed, and fees and
disbursements of counsel for the Company and its independent certified public
accountants (including the expenses of any "cold comfort" letters required by
or incident to such performance and the fees and expenses of any special
audit required or incident to a registration hereunder), securities act
liability insurance of the Company and its officers and directors (if the
Company elects to obtain such insurance), the fees and expenses of any
special experts retained by the Company in connection with such registration,
fees and expenses of other persons retained by the Company incurred in
connection with each registration hereunder (but not including any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, fees and expenses of counsel and any other special
experts retained by the Holders in connection with a registration required
hereunder, and transfer taxes, if any), will be borne by the Company.
7. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless each Holder, its officers, directors, agents, employees,
representatives and each person or entity who controls such Holder (within
the meaning of the Act), against all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation) arising out of or
based upon any untrue or alleged untrue statement of material fact contained
in any registration statement, any amendment or supplement thereto, any
prospectus or preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as the same arise
out of or are based upon any such untrue statement or omission based upon
information with respect to such holder furnished in writing to the Company
by such Holder expressly for use therein. In connection with an underwritten
offering, the Company will indemnify the underwriters thereof, their officers
and directors and each person who controls such underwriters (within the
meaning of the Act) to the same extent as provided above with respect to the
indemnification of the Holders.
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<PAGE>
(b) INDEMNIFICATION BY HOLDERS. In connection with any registration
statement in which a Holder is participating, each such Holder will furnish
to the Company in writing such information with respect to the name and
address of such Holder, the amount of Registrable Securities held by such
Holder, and such other information as is required by the Company for use in
connection with any such registration statement or prospectus and agrees to
indemnify, to the extent permitted by law, the Company, its directors and
officers and each person or entity who controls the Company (within the
meaning of the Act) against any losses, claims, damages, liabilities and
expenses arising out of or based upon any untrue statement of material fact
contained in any registration statement, any amendment or supplement thereto,
any prospectus or preliminary prospectus or any omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, to the extent, but only to the extent,
that such untrue statement or omission is contained in any information with
respect to such Holder so furnished in writing by such Holder specifically
for inclusion in any prospectus or registration statement. In no event shall
the liability of any selling Holder hereunder be greater in amount than the
dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim indemnification or contribution
pursuant to this Agreement and, unless in the reasonable judgment of such
indemnified party (i) a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim or (ii) the named
parties to any such action, suit, proceeding or investigation (including any
impleaded parties) include both an indemnifying party and an indemnified party,
and such indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party, permit the indemnifying
party to assume the defense of such claim with counsel reasonably satisfactory
to such indemnified party. Whether or not such defense is assumed by the
indemnifying party, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent will not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, it will not be obligated to pay the fees and expenses of more than one
counsel with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of one additional counsel.
(d) CONTRIBUTION. If the indemnification provided for in this Section 7
from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred
to therein, then the indemnifying party, in lieu of
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<PAGE>
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified parties
in connection with the actions which resulted in such loses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied
by, such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above shall
be deemed to include, subject to the limitations set forth in Section 7(c),
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 7(d), no
underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, and no selling Holder shall be required to
contribute any amount in excess of the amount by which the total price at
which the Registrable Securities of such selling Holder were offered to the
public exceeds the amount of any damages which such selling Holder has
otherwise been required to pay by reason of such untrue statement or
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 7, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Section 7(a) and (b) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 7(d).
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Holder may participate in any underwritten registration hereunder unless
such Holder (a) agrees to sell such Holder's securities on the basis provided in
any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
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9. RULE 144.
The Company agrees that it will use reasonable best efforts to make and
keep public information available, as those terms are understood and defined in
Rule 144 under the Act, at all times. The Company agrees that it will use its
best efforts to file with the Commission in a timely manner the reports required
to be filed by it under the Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder. The Company shall furnish to
any Holder upon written request a written statement as to the steps it has taken
to comply with the current public information requirements of Rule 144.
10. TRANSFER OF REGISTRATION RIGHTS. The registration rights provided to each
of the Holders under Section 2 and 3 hereof may not be transferred to any other
person or entity; provided, however, the Holders may transfer the registration
rights provided hereunder in connection with a transfer of all or any portion of
Registrable Securities to an affiliate of Geneve Holdings, Inc. ("GHI"). Any
transferee of Registrable Securities pursuant to the preceding sentence shall be
a holder of Registrable Securities within the meaning of this Agreement and
shall have the rights as such hereunder.
11. ADDITIONAL GRANTS OF REGISTRATION RIGHTS. The Company shall not hereafter
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the Holders in this Agreement. If the Company shall
hereafter grant any registration or similar rights with respect to securities of
the Company which are more favorable than the rights granted pursuant to this
Agreement, each Holder shall immediately be vested with such more favorable
rights.
12. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of all of the Holders.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telex or telecopies, registered or
certified mail (return receipt requested), postage prepaid or courier to the
parties at the following addresses (or at such other address for any party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof). Notices sent by mail shall be
effective when answered back, notices sent by telecopier shall be effective when
receipt is acknowledged, and notices sent by courier guaranteeing next day
deliver shall be effective on the next business day after timely delivery to the
courier:
(i) if to a holder of Registrable Securities at the most current
address given by such holder to the Company in writing;
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(ii) if to the Company at:
Zimmerman Sign Company
9846 Hwy. 31 East
Tyler, Texas 75705
Attn: Chairman
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED WHOLLY WITHIN THAT STATE.
(g) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
(h) ENTIRE AGREEMENT. This Agreement, is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
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EXECUTED, as of the date first above written.
COMPANY:
ZIMMERMAN SIGN COMPANY
By:
----------------------------------
Its:
---------------------------------
HOLDERS:
SOUTHERN INVESTORS CORP.
By:
----------------------------------
Its:
---------------------------------
SOUTHERN MORTGAGE
HOLDING CORPORATION
By:
----------------------------------
Its:
---------------------------------
GENEVE SECURITIES PORTFOLIO CORP.
By:
----------------------------------
Its:
---------------------------------
GENEVE SECURITIES HOLDING CORP.
By:
----------------------------------
Its:
---------------------------------
FIRST INTERNATIONAL REINSURANCE
COMPANY, INC.
By:
----------------------------------
Its:
---------------------------------
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