<PAGE>
As filed with the Securities and Exchange Commission on November 15, 1996
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10
______________________
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, it is
anticipated that Zimmerman will have a
deficit net worth of approximately $9.3
million as of the Distribution Date; (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 the number of
common shares expected to be outstanding after the Distribution, estimated
to be 1,854,688 shares. 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) $ .65 $ .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"). 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." The Company 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 at
September 30, 1996, would begin operations as a public company 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) $ .65 $ .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 deferred tax assets and corresponding increase in
stockholders' equity which will be recognized through the reversal of
temporary differences previously recorded by IHC.
(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.
(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.
Management believes that Zimmerman's remaining credit availability is sufficient
to satisfy its existing operational requirements. 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.
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 few competitors provide
the distortion screening capability and other processes necessary to satisfy
these customer demands, and that the focus on and commitment to its target
market customers has resulted in the establishment of a loyal customer base and
expanded market share for Zimmerman in a growing market. 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,
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 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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(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) any liability arising out of or
related to any act or omission of Zimmerman causing or resulting in certain
of the representations, covenants or other agreements contained in the Ruling
Letter to be untrue. 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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<PAGE>
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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<PAGE>
When the stock split of Common Stock described in note 13 in the accompanying
financial statements has been consummated, we will be in a position to render
the following report.
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.
Dallas, Texas
February 2, 1996, except as to note 13,
which is as of November ___, 1996
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<PAGE>
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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<PAGE>
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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<PAGE>
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
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<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
IHC's Board of Directors and management have determined to distribute 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 fulfill net contractual
obligations to senior officers of the Company in the amount of $.7
million. Upon completion of the distribution, the Company will be a
public company.
On November ___, 1996, the Board of Directors of the Company approved a
3,864-for-1 common stock split effective November ___, 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 (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.
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<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.
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<PAGE>
EXHIBITS
EXHIBIT NO. TITLE
- ----------- -----
3.1 Form of Amended and Restated Articles of Incorporation of
Zimmerman Sign Company.*
3.2 Form of Amended and Restated Bylaws of Zimmerman Sign Company.*
4.1 Distribution Agreement, dated as of November ___, 1996, by and
between Zimmerman Sign Company and Independence Holding
Company.(1)
4.2 Registration Rights Agreement, dated as of November ___, 1996,
by and between Zimmerman Sign Company and Geneve Holdings, Inc.(1)
10.1 First Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of October 31, 1996, by and between Zimmerman
Sign Company and Comerica Bank-Texas.*
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 Employment Agreement, effective January 1, 1997, by and between
Zimmerman Sign Company and David E. Anderson.(1)
10.5 Employment Agreement, effective January 1, 1997, by and between
Zimmerman Sign Company and Tom E. Boner.(1)
10.6 Employment Agreement, effective January 1, 1997, by and between
Zimmerman Sign Company and Michael W. Coppinger.(1)
10.7 Employment Agreement, effective January 1, 1997, by and between
Zimmerman Sign Company and Jeffrey P. Johnson.(1)
10.8 Employment Agreement, effective January 1, 1997, by and between
Zimmerman Sign Company and John T. Griggs.(1)
- ----------------------
* Filed herewith
(1) To be filed by amendment
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<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
November 15, 1996.
ZIMMERMAN SIGN COMPANY
By: /s/ DAVID E. ANDERSON
----------------------------------
Name: David E. Anderson
Title: Chairman
499612.14/D
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<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ZIMMERMAN SIGN COMPANY
Pursuant to the provisions of Art. 4.07 of the Texas Business Corporation
Act, the undersigned Corporation does hereby adopt the following Amended and
Restated Articles of Incorporation:
ARTICLE ONE
The name of the Corporation is Zimmerman Sign Company.
ARTICLE TWO.
The following amendments to the Articles of Incorporation were adopted by
the shareholders of the Corporation on the _______ day of ____________________,
1996.
ARTICLE THREE
The following amendment alters Article II of the original Articles of
Incorporation to read as follows:
"ARTICLE II. The purpose for which the Corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the Texas Business Corporation Act."
This amendment deletes all of Article II of the original Articles of
Incorporation. The article that was deleted read as follows:
"ARTICLE II. This association is formed for the purpose of transacting any
manufacturing business and to purchase and sell goods, wares and
merchandise used for such business as provided in Article 1302, Subdivision
No. 34 of the Revised Civil Statutes of the State of Texas, and being more
specifically, classified as manufacture and sale of signs."
ARTICLE FOUR
The following amendment changes the amount of the stated capital of the
Corporation. This amendment alters Article VI of the original Articles of
Incorporation to read as follows:
<PAGE>
"ARTICLE VI. The aggregate number of shares of capital stock that the
Corporation will have authority to issue is 17,000,000, 15,000,000 of which
will be shares of Common Stock, having a par value of $.01 per share, and
2,000,000 of which will be shares of preferred stock, having a par value of
$.01 per share.
Preferred stock may be issued in one or more series as may be
determined from time to time by the Board of Directors. All shares of any
one series of preferred stock will be identical except as to the date of
issue and the dates from which dividends on shares of the series issued on
different dates will cumulate, if cumulative. Authority is hereby
expressly granted to the Board of Directors to authorize the issuance of
one or more series of preferred stock, and to fix by resolution or
resolutions providing for the issue of each such series the voting powers,
designations, preferences, and relative, participating, optional,
redemption, conversion, exchange or other special rights, qualifications,
limitations or restrictions of such series, and the number of shares in
each series, to the full extent now or hereafter permitted by law."
This amendment deletes all of Article VI of the original Articles of
Incorporation. The article that was deleted read as follows:
"ARTICLE VI. The amount of the Capital Stock is One Hundred Thousand
Dollars ($100,000.00) divided into Five Hundred (500) shares of One Hundred
Dollars ($100.00) par each Common Stock and Five Hundred (500) shares of
Non-voting Preferred Stock of the par value of One Hundred Dollars
($100.00) per share, all of which Capital Stock has been subscribed and in
good faith paid in cash."
ARTICLE FIVE
The following amendments are additions to the original and all subsequent
amendments to the Articles of Incorporation and the full text of the provisions
added reads as follows:
"ARTICLE VII. No shareholder of the Corporation will, solely by reason of
his holding shares of any class, have any preemptive or preferential right
to purchase or subscribe for any shares of the Corporation, now or
hereafter to be authorized, or any notes, debentures, bonds or other
securities convertible into or carrying warrants, rights or options to
purchase shares of any class, now or hereafter to be authorized, whether or
not the issuance of any such shares or such notes, debentures, bonds or
other securities would adversely affect the dividend, voting or any other
rights of such shareholder. The Board of Directors may authorize the
issuance of, and the Corporation may issue, shares of any class of the
Corporation, or any notes, debentures, bonds or other securities
convertible into or carrying
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<PAGE>
warrants, rights or options to purchase any such shares, without offering
any shares of any class to the existing holders of any class of stock of
the Corporation.
ARTICLE VIII. Shareholders of the Corporation will not have the right of
cumulative voting for the election of directors or for any other purpose.
ARTICLE IX. The Board of Directors is expressly authorized to alter, amend
or repeal the Bylaws of the Corporation or to adopt new Bylaws.
ARTICLE X. (a) The Corporation will, to the fullest extent permitted by
the Texas Business Corporation Act, as the same exists or may hereafter be
amended ("TBCA"), indemnify any and all persons who it has power to
indemnify under such Act from and against any and all of the expenses,
liabilities or other matters referred to in or covered by the TBCA. Such
indemnification may be provided pursuant to any Bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in
his director or officer capacity and as to action in another capacity while
holding such office, will continue as to a person who has ceased to be a
director, officer, employee or agent, and inure to the benefit of the
heirs, executors and administrators of such a person.
(b) Reasonable expenses incurred by a person who was, is, or is threatened
to be made a named defendant or respondent in a proceeding shall be paid or
reimbursed by the Corporation in advance of the final disposition of the
proceeding (and without any prior determination or authorization being
first required) after (a) the Corporation receives a written affirmation by
such person of his good faith belief that he has met the standard of
conduct necessary for indemnification under this Article X and the TBCA,
and (b) a written undertaking by or on behalf of such person to repay the
amount paid or reimbursed if it is ultimately determined that he has not
met that standard or if it is ultimately determined that indemnification of
such person against expenses incurred by him in connection with that
proceeding is prohibited by the TBCA. This mandatory payment or
reimbursement provision shall be deemed to constitute authorization of that
payment or reimbursement. The written undertaking must be an unlimited
general obligation of such person that need not be secured and may be
accepted without reference to financial ability to make repayment.
(c) If a claim under this Article is not paid in full by the Corporation
within 30 days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit against the Corporation
to recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant will be entitled to be paid also the expense of
prosecuting such claim. It will be a defense to any such action (other
than an action brought to enforce a claim for expenses
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<PAGE>
incurred in defending any proceeding in advance of its final disposition
where the required undertaking, if any is required, has been tendered to
the Corporation) that the claimant has not met the standards of conduct
that make it permissible under the laws of the State of Texas for the
Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense will be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its shareholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the laws of the State of Texas nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant has not
met such applicable standard of conduct, will be a defense to the action or
create a presumption that the claimant has not met the applicable standard
of conduct.
ARTICLE XI. To the fullest extent permitted by the laws of the State of
Texas as the same exist or may hereafter be amended, a director of the
Corporation will not be liable to the Corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director except for liability for (i) breach of the duty of loyalty to the
Corporation 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. If the 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. Any repeal or
modification of this Article XI will not increase the personal liability of
any director of the Corporation for any act or occurrence taking place
before such repeal or modification, or adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification. The provisions of this Article XI shall not be
deemed to limit or preclude indemnification of a director by the
Corporation for any liability of a director that has not been eliminated by
the provisions of this Article XI."
ARTICLE SIX
The number of shares of the Corporation outstanding at the time of such
amendments was 480 and the number of shares entitled to vote thereon was 480.
ARTICLE SEVEN
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<PAGE>
The holders of all of the shares outstanding and entitled to vote on said
amendments have signed a consent in writing adopting said amendments.
ARTICLE EIGHT
Each amendment herein has been effected in conformity with the provisions
of the Texas Business Corporation Act.
ARTICLE NINE
The following is a restatement of the text of the entire Articles of
Incorporation as amended and supplemented by all certificates of amendment
previously issued by the Secretary of State and as further amended by these
Amended and Restated Articles of Incorporation:
"ARTICLE I. The name of the Corporation is Zimmerman Sign Company.
ARTICLE II. The purpose for which the Corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the Texas Business Corporation Act.
ARTICLE III. The place of business of this Corporation shall be in the
city of Dallas, Dallas County, Texas, which shall be its principal office.
ARTICLE IV. The existence of this Corporation shall be perpetual.
ARTICLE V. The business of this Corporation shall be transacted by three
directors, who shall be elected by those holding the common capital stock,
annually. The names and their Post Office Addresses of the Directors are
as follows:
Name Post Office Address
---- -------------------
David E. Anderson Dallas, Texas
Tom E. Boner Tyler, Texas
Steven B. Lapin Stamford, Connecticut
ARTICLE VI. The aggregate number of shares of capital stock that the
Corporation will have authority to issue is 17,000,000, 15,000,000 of which
will be shares of Common Stock, having a par value of $.01 per share, and
2,000,000 of which will be shares of preferred stock, having a par value of
$.01 per share.
Preferred stock may be issued in one or more series as may be
determined from time to time by the Board of Directors. All shares of any
one series of
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<PAGE>
preferred stock will be identical except as to the date of issue and the
dates from which dividends on shares of the series issued on different
dates will cumulate, if cumulative. Authority is hereby expressly granted
to the Board of Directors to authorize the issuance of one or more series
of preferred stock, and to fix by resolution or resolutions providing for
the issue of each such series the voting powers, designations, preferences,
and relative, participating, optional, redemption, conversion, exchange or
other special rights, qualifications, limitations or restrictions of such
series, and the number of shares in each series, to the full extent now or
hereafter permitted by law.
ARTICLE VII. No shareholder of the Corporation will, solely by reason of
his holding shares of any class, have any preemptive or preferential right
to purchase or subscribe for any shares of the Corporation, now or
hereafter to be authorized, or any notes, debentures, bonds or other
securities convertible into or carrying warrants, rights or options to
purchase shares of any class, now or hereafter to be authorized, whether or
not the issuance of any such shares or such notes, debentures, bonds or
other securities would adversely affect the dividend, voting or any other
rights of such shareholder. The Board of Directors may authorize the
issuance of, and the Corporation may issue, shares of any class of the
Corporation, or any notes, debentures, bonds or other securities
convertible into or carrying warrants, rights or options to purchase any
such shares, without offering any shares of any class to the existing
holders of any class of stock of the Corporation.
ARTICLE VIII. Shareholders of the Corporation will not have the right of
cumulative voting for the election of directors or for any other purpose.
ARTICLE IX. The Board of Directors is expressly authorized to alter, amend
or repeal the Bylaws of the Corporation or to adopt new Bylaws.
ARTICLE X. (a) The Corporation will, to the fullest extent permitted by
the Texas Business Corporation Act, as the same exists or may hereafter be
amended ("TBCA"), indemnify any and all persons who it has power to
indemnify under such Act from and against any and all of the expenses,
liabilities or other matters referred to in or covered by the TBCA. Such
indemnification may be provided pursuant to any Bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in
his director or officer capacity and as to action in another capacity while
holding such office, will continue as to a person who has ceased to be a
director, officer, employee or agent, and inure to the benefit of the
heirs, executors and administrators of such a person.
(b) Reasonable expenses incurred by a person who was, is, or is threatened
to be made a named defendant or respondent in a proceeding shall be paid or
reimbursed
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<PAGE>
by the Corporation in advance of the final disposition of the proceeding
(and without any prior determination or authorization being first required)
after (a) the Corporation receives a written affirmation by such person of
his good faith belief that he has met the standard of conduct necessary for
indemnification under this Article X and the TBCA, and (b) a written
undertaking by or on behalf of such person to repay the amount paid or
reimbursed if it is ultimately determined that he has not met that standard
or if it is ultimately determined that indemnification of such person
against expenses incurred by him in connection with that proceeding is
prohibited by the TBCA. This mandatory payment or reimbursement provision
shall be deemed to constitute authorization of that payment or
reimbursement. The written undertaking must be an unlimited general
obligation of such person that need not be secured and may be accepted
without reference to financial ability to make repayment.
(c) If a claim under this Article is not paid in full by the Corporation
within 30 days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit against the Corporation
to recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant will be entitled to be paid also the expense of
prosecuting such claim. It will be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct that
make it permissible under the laws of the State of Texas for the
Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense will be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its shareholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the laws of the State of Texas nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant has not
met such applicable standard of conduct, will be a defense to the action or
create a presumption that the claimant has not met the applicable standard
of conduct.
ARTICLE XI. To the fullest extent permitted by the laws of the State of
Texas as the same exist or may hereafter be amended, a director of the
Corporation will not be liable to the Corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director except for liability for (i) breach of the duty of loyalty to the
Corporation 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
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<PAGE>
benefit and (iv) an act or omission for which the liability of a director
is expressly provided by an applicable statute. If the 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. Any repeal or
modification of this Article XI will not increase the personal liability of
any director of the Corporation for any act or occurrence taking place
before such repeal or modification, or adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification. The provisions of this Article XI shall not be
deemed to limit or preclude indemnification of a director by the
Corporation for any liability of a director that has not been eliminated by
the provisions of this Article XI."
ARTICLE TEN
This instrument accurately copies the Articles of Incorporation of the
Corporation and all amendments thereto that are in effect to date and as further
amended by these Amended and Restated Articles of Incorporation. This
instrument contains no other change in any provision thereof; except that the
current number of directors constituting the board of directors and the names
and addresses of the persons currently serving as directors has been inserted in
lieu of similar information concerning the initial board of directors, and the
names and addresses of each incorporator has been omitted.
EXECUTED as of the __________ day of ______________, 19_____.
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<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
ZIMMERMAN SIGN COMPANY
<PAGE>
Adopted as of _______, 1996
<PAGE>
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE.............................. 1
Section 2. OTHER OFFICES.................................. 1
ARTICLE II
SHAREHOLDERS
Section 1. PLACE OF MEETINGS.............................. 1
Section 2. ANNUAL MEETING................................. 1
Section 3. LIST OF SHAREHOLDERS........................... 1
Section 4. SPECIAL MEETINGS............................... 2
Section 5. NOTICE......................................... 2
Section 6. QUORUM......................................... 2
Section 7. VOTING......................................... 2
Section 8. METHOD OF VOTING............................... 2
Section 9. RECORD DATE; CLOSING TRANSFER BOOKS............ 3
ARTICLE III
BOARD OF DIRECTORS
Section 1. MANAGEMENT..................................... 3
Section 2. QUALIFICATION; ELECTION; TERM.................. 3
Section 3. NUMBER......................................... 3
Section 4. REMOVAL........................................ 4
Section 5. VACANCIES...................................... 4
Section 6. PLACE OF MEETINGS.............................. 4
Section 7. ANNUAL MEETING................................. 4
Section 8. REGULAR MEETINGS............................... 4
Section 9. SPECIAL MEETINGS............................... 4
Section 10. QUORUM......................................... 4
Section 11. INTERESTED DIRECTORS........................... 5
Section 12. COMMITTEES..................................... 5
Section 13. ACTION BY CONSENT.............................. 5
Section 14. COMPENSATION OF DIRECTORS...................... 5
ARTICLE IV
NOTICE
Section 1. FORM OF NOTICE................................. 5
Section 2. WAIVER......................................... 6
ARTICLE V
OFFICERS AND AGENTS
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Section 1. IN GENERAL..................................... 6
Section 2. ELECTION....................................... 6
Section 3. OTHER OFFICERS AND AGENTS...................... 6
Section 4. COMPENSATION................................... 6
Section 5. TERM OF OFFICE AND REMOVAL..................... 6
Section 6. EMPLOYMENT AND OTHER CONTRACTS................. 7
Section 7. CHAIRMAN....................................... 7
Section 8. PRESIDENT...................................... 7
Section 9. VICE PRESIDENTS................................ 7
Section 10. SECRETARY...................................... 7
Section 11. ASSISTANT SECRETARIES.......................... 8
Section 12. TREASURER...................................... 8
Section 13. ASSISTANT TREASURERS........................... 8
Section 14. BONDING........................................ 8
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. FORM OF CERTIFICATES........................... 8
Section 2. LOST CERTIFICATES.............................. 9
Section 3. TRANSFER OF SHARES............................. 9
Section 4. REGISTERED SHAREHOLDERS........................ 9
ARTICLE VII
GENERAL PROVISIONS
Section 1. DIVIDENDS...................................... 10
Section 2. RESERVES....................................... 10
Section 3. TELEPHONE AND SIMILAR MEETINGS................. 10
Section 4. BOOKS AND RECORDS.............................. 10
Section 5. FISCAL YEAR.................................... 10
Section 6. SEAL........................................... 11
Section 7. INDEMNIFICATION................................ 11
Section 8. INSURANCE...................................... 11
Section 9. RESIGNATION.................................... 11
Section 10. AMENDMENT OF BYLAWS............................ 11
Section 11. INVALID PROVISIONS............................. 11
Section 12. RELATION TO ARTICLES OF INCORPORATION.......... 11
ii
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
ZIMMERMAN SIGN COMPANY
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office and registered
agent of Zimmerman Sign Company (the "Corporation") will be as from time to time
set forth in the Corporation's Articles of Incorporation.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places, both within and without the State of Texas, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the shareholders for the
election of Directors will be held at such place, within or without the State of
Texas, as may be fixed from time to time by the Board of Directors. Meetings of
shareholders for any other purpose may be held at such time and place, within or
without the State of Texas, as may be stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETING. An annual meeting of the shareholders will
be held at such time as may be determined by the Board of Directors, at which
meeting the shareholders will elect a Board of Directors and transact such other
business as may properly be brought before the meeting.
SECTION 3. LIST OF SHAREHOLDERS. At least ten days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at such
meeting, arranged in alphabetical order, with the address of and the number of
voting shares registered in the name of each, will be prepared by the officer or
agent having charge of the stock transfer books. Such list will be kept on file
at the registered office of the Corporation for a period of ten days prior to
such meeting and will be subject to inspection by any shareholder at any time
during usual business hours. Such list will be produced and kept open at the
time and place of the meeting during the whole time thereof, and will be subject
to the inspection of any shareholder who may be present.
<PAGE>
SECTION 4. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by law, the Articles of
Incorporation or these Bylaws, may be called by the President or the Board of
Directors, or will be called by the President or Secretary at the request in
writing of the holders of not less than 10% of all the shares issued,
outstanding and entitled to vote (unless a different percentage is specified in
the Articles of Incorporation). Such request will state the purpose or purposes
of the proposed meeting. Business transacted at all special meetings will be
confined to the purposes stated in the notice of the meeting unless all
shareholders entitled to vote are present and consent.
SECTION 5. NOTICE. Written or printed notice stating the place, day
and hour of any meeting of the shareholders and, in case of a special meeting,
the purpose or purposes for which the meeting is called, will be delivered not
less than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person calling the meeting, to each shareholder of record
entitled to vote at the meeting. If mailed, such notice will be deemed to be
delivered when deposited in the United States mail, addressed to the shareholder
at his/her address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid.
SECTION 6. QUORUM. With respect to any matter, the presence in person
or by proxy of the holders of a majority of the shares entitled to vote on that
matter will be necessary and sufficient to constitute a quorum for the
transaction of business except as otherwise provided by law, the Articles of
Incorporation or these Bylaws. If, however, such quorum is not present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, will have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present or represented. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting will be given to
each shareholder of record entitled to vote at the meeting. At such adjourned
meeting at which a quorum is present or represented, any business may be
transacted that might have been transacted at the meeting as originally
notified.
SECTION 7. VOTING. When a quorum is present at any meeting of the
Corporation's shareholders, the vote of the holders of a majority of the shares
entitled to vote that are actually voted on any question brought before the
meeting will be sufficient to decide such question; provided that if the
question is one upon which, by express provision of law, the Articles of
Incorporation or these Bylaws, a different vote is required, such express
provision shall govern and control the decision of such question.
SECTION 8. METHOD OF VOTING. Each outstanding share of the
Corporation's capital stock, regardless of class or series, will be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders, except
to the extent that the voting rights of the shares of any class or series are
limited or denied by the Articles of Incorporation, as amended from time to
time.
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At any meeting of the shareholders, every shareholder having the right to vote
will be entitled to vote in person or by proxy executed in writing by such
shareholder and bearing a date not more than 11 months prior to such meeting,
unless such instrument provides for a longer period. A telegram, telex,
cablegram or similar transmission by the shareholder, or a photographic,
photostatic, facsimile or similar reproduction of a writing executed by the
shareholder, shall be treated as an execution in writing for purposes of the
preceding sentence. Each proxy will be revocable unless expressly provided
therein to be irrevocable and if, and only so long as, it is coupled with an
interest sufficient in law to support an irrevocable power. Such proxy will be
filed with the Secretary of the Corporation prior to or at the time of the
meeting. Voting for directors will be in accordance with Article III of these
Bylaws. Voting on any question or in any election may be by voice vote or show
of hands unless the presiding officer orders or any shareholder demands that
voting be by written ballot.
SECTION 9. RECORD DATE; CLOSING TRANSFER BOOKS. The Board of Directors
may fix in advance a record date for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such record date
to be not less than ten nor more than sixty days prior to such meeting, or the
Board of Directors may close the stock transfer books for such purpose for a
period of not less than ten nor more than sixty days prior to such meeting. In
the absence of any action by the Board of Directors, the date upon which the
notice of the meeting is mailed will be the record date.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. MANAGEMENT. The business and affairs of the Corporation
will be managed by or under the direction of the Board of Directors, who may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law, the Articles of Incorporation or these Bylaws directed
or required to be exercised or done by the shareholders.
SECTION 2. QUALIFICATION; ELECTION; TERM. None of the Directors need
be a shareholder of the Corporation or a resident of the State of Texas. The
Directors will be elected by plurality vote at the annual meeting of the
shareholders, except as hereinafter provided, and each Director elected will
hold office until whichever of the following occurs first: his/her successor is
elected and qualified, his/her resignation, his/her removal from office by the
shareholders or his/her death.
SECTION 3. NUMBER. The number of Directors of the Corporation will be
at least one and not more than seven. The number of Directors authorized will
be fixed as the Board of Directors may from time to time designate, or if no
such designation has been made, the number of Directors will be the same as the
number of members of the initial Board of Directors as set
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<PAGE>
forth in the Articles of Incorporation. No decrease in the number of Directors
will have the effect of shortening the term of any incumbent Director.
SECTION 4. REMOVAL. Any Director may be removed either for or without
cause at any special meeting of shareholders by the affirmative vote of at least
a majority in number of shares of the shareholders present in person or
represented by proxy at such meeting and entitled to vote for the election of
such Director; provided, that notice of intention to act upon such matter has
been given in the notice calling such meeting.
SECTION 5. VACANCIES. Any vacancy occurring in the Board of Directors
by death, resignation, removal or otherwise may be filled by an affirmative vote
of at least a majority of the remaining Directors though less than a quorum of
the Board of Directors. A Director elected to fill a vacancy will be elected
for the unexpired term of his/her predecessor in office. A directorship to be
filled by reason of an increase in the number of Directors may be filled by the
Board of Directors for a term of office only until the next election of one or
more Directors by the shareholders.
SECTION 6. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held at such place within or without the State of
Texas as may be fixed from time to time by the Board of Directors.
SECTION 7. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors will be held without further notice immediately following the
annual meeting of shareholders and at the same place, unless by unanimous
consent, the Directors then elected and serving shall change such time or place.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held upon seventy-two hours notice at such time and place as is
from time to time determined by resolution of the Board of Directors.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President upon twenty-four hours oral or written
notice to each Director, given either personally, by telephone, by telegram or
by mail; special meetings will be called by the President or the Secretary in
like manner and on like notice on the written request of at least two Directors.
Except as may be otherwise expressly provided by law, the Articles of
Incorporation or these Bylaws, neither the business to be transacted at, nor the
purpose of, any special meeting need be specified in a notice or waiver of
notice.
SECTION 10. QUORUM. At all meetings of the Board of Directors, the
presence of a majority of the number of Directors then in office will be
necessary and sufficient to constitute a quorum for the transaction of business,
and the affirmative vote of at least a majority of the Directors present at any
meeting at which there is a quorum will be the act of the Board of
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<PAGE>
Directors, except as may be otherwise specifically provided by law, the Articles
of Incorporation or these Bylaws. If a quorum is not present at any meeting of
the Board of Directors, the Directors present thereat may adjourn the meeting
from time to time without notice other than announcement at the meeting, until a
quorum is present.
SECTION 11. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of the Corporation's Directors or officers are
Directors or officers or have a financial interest, will be void or voidable
solely for this reason, solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof that
authorizes the contract or transaction, or solely because his/her or their votes
are counted for such purpose, if: (i) the material facts as to his/her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum, (ii) the material facts as to
his/her relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof or the shareholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee that authorizes the contract or transaction.
SECTION 12. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board, designate committees, each committee
to consist of two or more Directors of the Corporation, which committees will
have such power and authority and will perform such functions as may be provided
in such resolution. Such committee or committees will have such name or names
as may be designated by the Board and will keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
SECTION 13. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee of the Board of
Directors may be taken without such a meeting if a consent or consents in
writing, setting forth the action so taken, is signed by all the members of the
Board of Directors or such committee, as the case may be.
SECTION 14. COMPENSATION OF DIRECTORS. Directors will receive such
compensation for their services and reimbursement for their expenses as the
Board of Directors, by resolution, may establish; provided that nothing herein
contained will be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
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<PAGE>
ARTICLE IV
NOTICE
SECTION 1. FORM OF NOTICE. Whenever by law, the Articles of
Incorporation or these Bylaws, notice is to be given to any Director or
shareholder, and no provision is made as to how such notice is to be given, such
notice may be given: (i) in writing, by mail, postage prepaid, addressed to
such director or shareholder at such address as appears on the books of the
Corporation or (ii) in any other method permitted by law. Any notice required
or permitted to be given by mail will be deemed to be given at the time the same
is deposited in the United States mail.
SECTION 2. WAIVER. Whenever any notice is required to be given to any
shareholder or Director of the Corporation as required by law, the Articles of
Incorporation or these Bylaws, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated in
such notice, will be equivalent to the giving of such notice. Attendance of a
shareholder or Director at a meeting will constitute a waiver of notice of such
meeting, except where such shareholder or Director attends for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting has not been lawfully called or
convened.
ARTICLE V
OFFICERS AND AGENTS
SECTION 1. IN GENERAL. The officers of the Corporation will be elected
by the Board of Directors and will be a President and a Secretary. The Board of
Directors may also elect a Chairman, a Vice Chairman, Vice Presidents, Assistant
Vice Presidents, a Treasurer, and Assistant Secretaries and Assistant
Treasurers. Any two or more offices may be held by the same person.
SECTION 2. ELECTION. The Board of Directors, at its first meeting
after each annual meeting of shareholders, will elect the officers, none of whom
need be a member of the Board of Directors.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors may also
elect and appoint such other officers and agents as it deems necessary, who will
be elected and appointed for such terms and will exercise such powers and
perform such duties as may be determined from time to time by the Board.
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<PAGE>
SECTION 4. COMPENSATION. The compensation of all officers and agents
of the Corporation will be fixed by the Board of Directors or any committee of
the Board, if so authorized by the Board.
SECTION 5. TERM OF OFFICE AND REMOVAL. Each officer of the Corporation
will hold office until his/her death, his/her resignation or removal from
office, or the election and qualification of his/her successor, whichever occurs
first. Any officer or agent elected or appointed by the Board of Directors may
be removed at any time, for or without cause, by the affirmative vote of a
majority of the entire Board of Directors, but such removal will not prejudice
the contract rights, if any, of the person so removed. If the office of any
officer becomes vacant for any reason, the vacancy may be filled by the Board of
Directors.
SECTION 6. EMPLOYMENT AND OTHER CONTRACTS. The Board of Directors may
authorize any officer or officers or agent or agents to enter into any contract
or execute and deliver any instrument in the name or on behalf of the
Corporation, and such authority may be general or confined to specific
instances. The Board of Directors may, when it believes the interest of the
Corporation will best be served thereby, authorize executive employment
contracts that will have terms no longer than ten years and contain such other
terms and conditions as the Board of Directors deems appropriate. Nothing
herein will limit the authority of the Board of Directors to authorize
employment contracts for shorter terms.
SECTION 7. CHAIRMAN. If the Board of Directors has elected a Chairman,
he will preside at all meetings of the shareholders and the Board of Directors.
The Chairman will be the chief executive officer of the Corporation and, subject
to the control of the Board of Directors, will supervise and control all of the
business and affairs of the Corporation. Except where by law the signature of
the President is required, the Chairman will have the same power as the
President to sign all certificates, contracts and other instruments of the
Corporation. During the absence or disability of the President, the Chairman
will exercise the powers and perform the duties of the President.
SECTION 8. PRESIDENT. The President will, in the absence of a
Chairman, be the chief executive officer of the Corporation and, subject to the
control of the Board of Directors, will supervise and control all of the
business and affairs of the Corporation. He will, in the absence of the
Chairman, preside at all meetings of the shareholders and the Board of
Directors. The President will have all powers and perform all duties incident
to the office of President and will have such other powers and perform such
other duties as the Board of Directors may from time to time prescribe.
SECTION 9. VICE PRESIDENTS. Each Vice President will have the usual
and customary powers and perform the usual and customary duties incident to the
office of Vice President, and will have such other powers and perform such other
duties as the Board of Directors or any committee thereof may from time to time
prescribe or as the President may from time to time
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<PAGE>
delegate to him. In the absence or disability of the President and the
Chairman, a Vice President designated by the Board of Directors, or in the
absence of such designation the Vice Presidents in the order of their seniority
in office, will exercise the powers and perform the duties of the President.
SECTION 10. SECRETARY. The Secretary will attend all meetings of the
shareholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose. The Secretary will perform like duties for the
Board of Directors and committees thereof when required. The Secretary will
give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the Board of Directors. The Secretary will keep in safe
custody the seal of the Corporation. The Secretary will be under the
supervision of the President. The Secretary will have such other powers and
perform such other duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to him.
SECTION 11. ASSISTANT SECRETARIES. The Assistant Secretaries in the
order of their seniority in office, unless otherwise determined by the Board of
Directors, will, in the absence or disability of the Secretary, exercise the
powers and perform the duties of the Secretary. They will have such other
powers and perform such other duties as the Board of Directors may from time to
time prescribe or as the President may from time to time delegate to them.
SECTION 12. TREASURER. The Treasurer will have responsibility for the
receipt and disbursement of all corporate funds and securities, will keep full
and accurate accounts of such receipts and disbursements, and will deposit or
cause to be deposited all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be designated by the
Board of Directors. The Treasurer will render to the Directors whenever they
may require it an account of the operating results and financial condition of
the Corporation, and will have such other powers and perform such other duties
as the Board of Directors may from time to time prescribe or as the President
may from time to time delegate to him.
SECTION 13. ASSISTANT TREASURERS. The Assistant Treasurers in the order
of their seniority in office, unless otherwise determined by the Board of
Directors, will, in the absence or disability of the Treasurer, exercise the
powers and perform the duties of the Treasurer. They will have such other
powers and perform such other duties as the Board of Directors may from time to
time prescribe or as the President may from time to time delegate to them.
SECTION 14. BONDING. The Corporation may secure a bond to protect the
Corporation from loss in the event of defalcation by any of the officers, which
bond may be in such form and amount and with such surety as the Board of
Directors may deem appropriate.
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ARTICLE VI
CERTIFICATES REPRESENTING SHARES
SECTION 1. FORM OF CERTIFICATES. Certificates, in such form as may be
determined by the Board of Directors, representing shares to which shareholders
are entitled, will be delivered to each shareholder. Such certificates will be
consecutively numbered and entered in the stock book of the Corporation as they
are issued. Each certificate will state on the face thereof the holder's name,
the number, CLASS of shares, and the par value of such shares or a statement
that such shares are without par value. They will be signed by the President or
a Vice President and the Secretary or an Assistant Secretary, and may be sealed
with the seal of the Corporation or a facsimile thereof. If any certificate is
countersigned by a transfer agent, or an assistant transfer agent or registered
by a registrar, either of which is other than the Corporation or an employee of
the Corporation, the signatures of the Corporation's officers may be facsimiles.
In case any officer or officers who have signed, or whose facsimile signature or
signatures have been used on such certificate or certificates, ceases to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates have been delivered by the
Corporation or its agents, such certificate or certificates may nevertheless be
adopted by the Corporation and be issued and delivered as though the person or
persons who signed such certificate or certificates or whose facsimile signature
or signatures have been used thereon had not ceased to be such officer or
officers of the Corporation.
SECTION 2. LOST CERTIFICATES. The Board of Directors may direct that a
new certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or his/her
legal representative, to advertise the same in such manner as it may require
and/or to give the Corporation a bond, in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed. When a certificate has been lost, apparently destroyed
or wrongfully taken, and the holder of record fails to notify the Corporation
within a reasonable time after such holder has notice of it, and the Corporation
registers a transfer of the shares represented by the certificate before
receiving such notification, the holder of record is precluded from making any
claim against the Corporation for the transfer of a new certificate.
SECTION 3. TRANSFER OF SHARES. Shares of stock will be transferable
only on the books of the Corporation by the holder thereof in person or by such
holder's duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate
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representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it will be the duty of the
Corporation or the transfer agent of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 4. REGISTERED SHAREHOLDERS. The Corporation will be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, will not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it has express or other notice thereof, except as
otherwise provided by law.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the outstanding shares of the
Corporation, subject to the provisions of the Articles of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting.
Dividends may be declared and paid in cash, in property, or in shares of the
Corporation, subject to the provisions of the Texas Business Corporation Act and
the Articles of Incorporation. The Board of Directors may fix in advance a
record date for the purpose of determining shareholders entitled to receive
payment of any dividend, such record date to be not more than sixty days prior
to the payment date of such dividend, or the Board of Directors may close the
stock transfer books for such purpose for a period of not more than sixty days
prior to the payment date of such dividend. In the absence of any action by the
Board of Directors, the date upon which the Board of Directors adopts the
resolution declaring such dividend will be the record date.
SECTION 2. RESERVES. There may be created by resolution of the Board
of Directors out of the surplus of the Corporation such reserve or reserves as
the directors from time to time, in their discretion, deem proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the Directors may deem
beneficial to the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created. Surplus of the Corporation to
the extent so reserved will not be available for the payment of dividends or
other distributions by the Corporation.
SECTION 3. TELEPHONE AND SIMILAR MEETINGS. Shareholders, directors and
committee members may participate in and hold meetings by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other. Participation in such a meeting will
constitute presence in person at the meeting, except where a person participates
in the meeting for the express purpose of objecting, at the beginning of the
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meeting, to the transaction of any business on the ground that the meeting had
not been lawfully called or convened.
SECTION 4. BOOKS AND RECORDS. The Corporation will keep correct and
complete books and records of account and minutes of the proceedings of its
shareholders and Board of Directors, and will keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and CLASS of the shares held by each.
SECTION 5. FISCAL YEAR. The fiscal year of the Corporation will be
fixed by resolution of the Board of Directors.
SECTION 6. SEAL. The Corporation may have a seal, and such seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. Any officer of the Corporation will have authority to
affix the seal to any document requiring it.
SECTION 7. INDEMNIFICATION. The Corporation will indemnify its
directors to the fullest extent permitted by the Texas Business Corporation Act
and may, if and to the extent authorized by the Board of Directors, so indemnify
its officers and any other person whom it has the power to indemnify against
liability, reasonable expense or other matter whatsoever.
SECTION 8. INSURANCE. The Corporation may at the discretion of the
Board of Directors purchase and maintain insurance on behalf of the Corporation
and any person whom it has the power to indemnify pursuant to law, the Articles
of Incorporation, these Bylaws or otherwise.
SECTION 9. RESIGNATION. Any director, officer or agent may resign by
giving written notice to the President or the Secretary. Such resignation will
take effect at the time specified therein or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
will not be necessary to make it effective.
SECTION 10. AMENDMENT OF BYLAWS. These Bylaws may be altered, amended
or repealed at any meeting of the Board of Directors at which a quorum is
present, by the affirmative vote of a majority of the Directors present at such
meeting.
SECTION 11. INVALID PROVISIONS. If any part of these Bylaws is held
invalid or inoperative for any reason, the remaining parts, so far as possible
and reasonable, will be valid and operative.
SECTION 12. RELATION TO ARTICLES OF INCORPORATION. These Bylaws are
subject to, and governed by, the Articles of Incorporation.
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FIRST AMENDED AND RESTATED REVOLVING
CREDIT AND TERM LOAN AGREEMENT
BY AND BETWEEN
ZIMMERMAN SIGN COMPANY
AND
COMERICA BANK-TEXAS
AS OF
OCTOBER 31, 1996
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<PAGE>
FIRST AMENDED AND RESTATED REVOLVING
CREDIT AND TERM LOAN AGREEMENT
This FIRST AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT
(this "AGREEMENT"), dated as of October 31, 1996, is between ZIMMERMAN SIGN
COMPANY, a Texas corporation ("BORROWER"), and COMERICA BANK-TEXAS, a Texas
banking association ("LENDER").
RECITALS:
The Borrower has requested that the Lender modify and increase certain
existing credit facilities so as to extend credit to the Borrower in the form of
(i) revolving credit advances in an aggregate principal amount not to exceed
$17,000,000.00, and (ii) one term loan advance in an aggregate principal amount
not to exceed $6,000,000.
The Lender has agreed, upon the terms and conditions hereinafter set forth,
to extend such credit to the Borrower, to be secured by, among other things, a
Deed of Trust on the Real Property and a Security Agreement covering the
Collateral (as such terms are hereinafter defined). Certain security documents
have been previously executed and delivered.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the Borrower and the Lender hereby agree as follows:
SECTION 1. DEFINITIONS
1.1. DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings indicated below:
"ACCOUNTS" shall have the meaning given such term in the UCC.
"ADJUSTED LIBOR RATE" shall mean, for any LIBOR Advance for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) as reasonably determined by the
Lender to be equal to the LIBOR Rate for such LIBOR Advance for such
Interest Period divided by 1 minus the Reserve Requirement for such LIBOR
Advance for such Interest Period.
"ADVANCE" shall mean a Loan or an advance of funds by the Lender to
the Borrower pursuant to this Agreement.
"ADVANCE REQUEST FORM" shall mean a certificate, in substantially
the form approved by the Lender, properly completed and signed by the
Borrower requesting an Advance.
CREDIT AGREEMENT - Page 1
<PAGE>
"AGREEMENT" shall mean this First Amended and Restated Revolving
Credit and Term Loan Agreement, which shall supersede in all respects that
certain Revolving Credit and Term Loan Agreement dated as of July 31, 1991,
as amended prior to this date.
"APPLICABLE RATE" shall mean: (a) as it relates to the Revolving
Credit Note, the Applicable Revolving Credit Note Rate; and (b) as it
relates to the Term Note, the Applicable Term Note Rate.
"APPLICABLE REVOLVING CREDIT NOTE RATE" shall mean: (a) during the
period that an Advance is a Prime Rate Advance, the Prime Rate plus
one-quarter of one percent (0.25%); and (b) during the period that an
Advance is a LIBOR Advance or a Cost of Funds Advance, the Adjusted LIBOR
Rate or the Cost of Funds Rate, as the case may be, plus two and three
quarters percent (2.75%).
"APPLICABLE TERM NOTE RATE" shall mean: (a) during the period that
an Advance is a Prime Rate Advance, the Prime Rate, plus one and one-eighth
percent (1.125%); and (b) during the period that an Advance is a LIBOR
Advance or a Cost of Funds Advance, the Adjusted LIBOR Rate or the Cost of
Funds Rate, as the case may be, plus three and five hundred seventy-five
one-thousandths percent (3.575%).
"ASSESSMENT RATE" shall mean, at any time, the rate (rounded
upwards, if necessary, to the nearest 1/100 of 1%) then charged by the
Federal Deposit Insurance Corporation (or any successor) to the Lender for
deposit insurance for Dollar time deposits with the Lender at its principal
office in Dallas, Texas as reasonably determined by the Lender.
"AUTHORIZED OFFICER" shall mean each officer of the Borrower who has
been authorized by the Borrower to request Loans hereunder and who has been
furnished by the Borrower with the Security Code. The Borrower shall
provide the Lender with a list of Authorized Officers.
"BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as
amended, or any successor act or code.
"BORROWER" shall mean Zimmerman Sign Company, a Texas corporation.
"BORROWING BASE" shall mean, at any particular time and as
determined on the basis of information furnished in the most recent
Borrowing Base Certificate, an amount equal to the sum of (a) eighty-five
percent (85%) of the aggregate principal balance of the Borrower's Eligible
Accounts, plus (b) the lesser of Eight Million Five Hundred Thousand
Dollars ($8,500,000.00) or fifty percent (50%) of the Borrower's Eligible
Inventory.
"BORROWING BASE CERTIFICATE" shall mean a certificate in a form
reasonably acceptable to the Lender, completed in all material respects and
executed by an authorized
CREDIT AGREEMENT - Page 2
<PAGE>
officer or other designee of the Borrower and setting forth Borrower's
computation of the Borrowing Base as of the date of such certificate and
such other information as may reasonably be requested by the Lender from
time to time.
"BUSINESS DAY" shall mean each day on which the Lender is open to
carry on its normal commercial lending business.
"CASH FLOW" shall mean, as of any date of determination and as
determined in accordance with GAAP, the sum of (i) the consolidated net
income of the Borrower for the preceding four calendar quarters, PLUS
(ii) the consolidated depreciation, amortization and deferred taxes of the
Borrower for such period, and PLUS (iii) the following one-time expenses
(net of Federal, state and local income taxes) relating to the
Recapitalization: (A) the fulfillment of net contractual commitments to
senior officers of the Company, (B) a refinancing fee to David E. Anderson,
and (C) attorney and accountant fees, collectively, "(A)" through "(C)"
preceding are herein referred to as the "One Time Expenses."
"CASH FLOW COVERAGE RATIO" shall mean, as of any date of
determination, the Borrower's Cash Flow for the previous four calendar
quarters divided by scheduled payments of principal made on all Senior
Indebtedness for the same period.
"COLLATERAL" shall mean all of Borrower's Accounts, Chattel Paper,
Documents, Equipment, General Intangibles, Goods, Instruments and Inventory
(including all spare parts and all attachments and accessions related to
any Inventory or Goods), wherever located and whether now owned or
hereafter acquired, together with all replacements thereof, substitutions
therefor and all proceeds and products thereof, the Real Property, and any
securities pledged under any Pledge Agreement.
"COMMITMENTS" shall mean the Term Loan Commitment and the Revolving
Credit Commitment; "COMMITMENT" shall mean any one of the Commitments.
"COMMON STOCK" shall mean the common stock, par value $0.01 per
share, of the Borrower.
"COMPLIANCE CERTIFICATE" shall mean a certificate in the form
approved by the Lender, completed and signed by the chairman, president or
a senior financial officer of the Borrower or other officer designated by
Borrower.
"CONTINUE," "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 4.3 of a LIBOR Advance as a LIBOR Advance
from one Interest Period to the next Interest Period.
"CONTRACT RATE" shall mean, as of any date of determination, the
Applicable Revolving Credit Note Rate or Applicable Term Note Rate.
CREDIT AGREEMENT - Page 3
<PAGE>
"CONVERT," "CONVERSION" and "CONVERTED" shall refer to a conversion
pursuant to Section 4.3 of one Type of Advance into another Type of
Advance.
"COST OF FUNDS ADVANCES" shall mean Advances the interest rates on
which are determined on the basis of the rates referred to in the
definition of "Cost of Funds Rate" in this Section 1.1.
"COST OF FUNDS RATE" shall mean the annual rate of interest
determined by the Lender in its reasonable discretion establishes at the
time of any Cost of Funds Rate Advance to be the cost to Lender of
obtaining time deposits of a one-year maturity or more, as requested by the
Borrower. The Lender will advise the Borrower of each determination of the
Cost of Funds Rate before the time of any such Advance.
"DEBT" shall mean, 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.
"DEED OF TRUST" shall mean, collectively, the deeds of trust
previously executed and/or to be executed by Borrower in favor of the
Lender covering certain Real Property located in Harrison County, Texas and
Cherokee County, Texas.
"DEFAULT" shall mean a condition or event which, with the giving of
notice or the passage of time, or both, would result in an Event of
Default.
"DEFAULT RATE" shall mean the lesser of the Maximum Legal Rate or
the sum of the Prime Rate in effect from day to day plus two percent (2%).
"DEFERRED DIVIDEND PAYABLE TO MANAGEMENT" shall mean the deferred
portion of the Special Dividend declared by the Borrower and to be paid to
certain members of management as a part of the Recapitalization.
"EBITDA" shall mean, 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.
"ELIGIBLE ACCOUNTS" shall mean those Accounts of the Borrower for
which each of the warranties set forth in Section 8.17 of this Agreement
shall be true (as of any applicable date of determination) and which has
been represented to be an "ELIGIBLE ACCOUNT" on a Borrowing Base
Certificate.
"ELIGIBLE INVENTORY" shall mean that inventory of the Borrower for
which each of the warranties set forth in Section 8.15 of this Agreement
shall be true (as of any
CREDIT AGREEMENT - Page 4
<PAGE>
applicable date of determination) and which has been represented by the
Borrower to be an item of "ELIGIBLE INVENTORY" on a Borrowing Base
Certificate.
"ENVIRONMENTAL LAWS" shall mean any and all federal, state, and
local laws, regulations, and requirements pertaining to the environment,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. 9601 ET SEQ.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 ET SEQ. ("RCRA"), the Occupational Safety and Health Act, as
amended, 29 U.S.C. 651 ET SEQ., the Clean Air Act, 42 U.S.C. 7401 ET SEQ.,
the Clean Water Act as amended, 33 U.S.C. 1251 ET SEQ., the Toxic
Substances Control Act, as amended, 15 U.S.C. ET SEQ., and all similar
laws, regulations, and requirements of any governmental authority or agency
having jurisdiction over Borrower or any of its properties or assets, as
such laws, regulations, and requirements may be amended or supplemented
from time to time.
"EQUIPMENT" shall mean all of the Borrower's now owned and hereafter
acquired machinery, equipment, furniture, furnishings, and other tangible
personal property (except fixtures and Inventory), including, without
limitation, data processing hardware and software, motor vehicles,
aircraft, dies, tools, jigs, and office equipment, as well as all of such
types of property leased by the Borrower and all of the Borrower's rights
and interests with respect thereto under such leases to the extent that any
such lease does not prohibit or require a consent to the creation of a Lien
in favor of the Lender (including, without limitation, options to
purchase); together with all present and future additions and accessions
thereto, replacements therefor, component and auxiliary parts and supplies
used or to be used in connection therewith, and all substitutes for any of
the foregoing, and all manuals, drawings, instructions, warranties and
rights with respect thereto wherever any of the foregoing is located.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, or any successor act or code.
"EVENT OF DEFAULT" shall mean any of those conditions or events
listed in Section 11.1 of this Agreement.
"FINANCIAL STATEMENTS" shall mean all those balance sheets, earnings
statements and other financial data which have been furnished or will be
furnished to the Lender for the purpose of, or in connection with, this
Agreement and the transactions contemplated hereby.
"FINANCING STATEMENTS" shall mean UCC financing statements
describing the Lender as secured party and the Borrower as debtor, covering
the Collateral and otherwise in such form, for filing in such jurisdictions
and with such filing offices as the Lender shall reasonably deem necessary
in order to perfect its security interest.
CREDIT AGREEMENT - Page 5
<PAGE>
"FIXED CHARGES" shall mean, as of any date of determination, the
aggregate principal amount of Indebtedness scheduled to be paid by the
Borrower during the immediately preceding four calendar quarters, PLUS
capital expenditures, for the same period, PLUS (without duplication)
payments actually paid by the Borrower on Subordinated Debt during the same
period, PLUS payments actually paid by the Borrower with respect to the
Deferred Dividend Payable to Management for the same period.
"FIXED CHARGE COVERAGE RATIO" shall mean, as of any date of
determination, an amount equal to the ratio resulting as the quotient of
the Borrower's Cash Flow divided by Fixed Charges.
"GAAP" shall mean, as of any applicable date of determination,
generally accepted accounting principles consistently applied, as in effect
on the date hereof except as otherwise agreed by the Borrower and the
Lender.
"HAZARDOUS SUBSTANCE" shall mean any substance, product, waste,
pollutant, material, chemical, contaminant, constituent, or other material
which is or becomes regulated under any Environmental Law, including,
without limitation, asbestos, petroleum, and polychlorinated biphenyls.
"INDEBTEDNESS" shall mean (i) all indebtedness for borrowed money or
for the deferred purchase price of property or services (including without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured),
(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 Payable To
Management shall not constitute "Indebtedness."
"INTEREST PERIOD" shall mean:
(a) With respect to Prime Rate Advances, each period
commencing on the date such Advances are made or Converted from
LIBOR Advances or Cost of Funds Rate Advances and ending on the date
of payment or Conversion of such Advances.
(b) With respect to any LIBOR Advances, each period
commencing on the date such Advances are made or Converted from
Prime Rate Advances or, in the case of each subsequent, successive
Interest Period applicable to a LIBOR Advance, the last day of the
next preceding Interest Period with respect to such Advance, and
ending on the numerically corresponding day in the first, second,
third, fourth, fifth, sixth, ninth or twelfth calendar month
thereafter, as the Borrower may select as provided in this Agreement
hereof, except that each such Interest Period which commences on the
last Business Day of a calendar month (or on any day for which there
is no
CREDIT AGREEMENT - Page 6
<PAGE>
numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, in the case of an Interest Period for LIBOR
Advances if such succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); (b) any Interest
Period which would otherwise extend beyond the Termination Date shall end
on the Termination Date; (c) no more than five (5) Interest Periods shall
be in effect at the same time for any Term Loan or for any Revolving Loan;
(d) no Interest Period for any LIBOR Advances shall have a duration of less
than one (1) month; and (e) no Interest Period may extend beyond a
principal repayment date unless, after giving effect thereto, the aggregate
principal amount of the LIBOR Advances having Interest Periods that end
after such principal payment date shall be equal to or less than the
Advances to be outstanding hereunder after such principal repayment date.
"INVENTORY" shall mean all of the Borrower's now owned and hereafter
acquired inventory, goods, and merchandise, wherever located, to be
furnished under any contract of service or held for sale or lease, all raw
materials, work-in-process, finished goods, returned and repossessed goods,
and materials, and supplies of a nature or description which are or might
be used or consumed in the Borrower's business or used in connection with
the manufacture, packing, shipping, advertising, selling or finishing of
such inventory, goods, merchandise and such other personal property, and
all documents of title or other documents representing them, and all
proceeds thereof (including, but not limited to, all proceeds of insurance
with respect thereto, including the proceeds of any casualty insurance);
and any lists, information and records prepared or kept in relation to the
foregoing. Without limitation, the term "Inventory" shall include all
spare parts and all attachments and accessions relating to any property or
goods which comprises "Inventory" under this definition.
"LENDER" shall mean Comerica Bank-Texas, a Texas banking
association.
"LIBOR ADVANCES" shall mean Advances the interest rates on which are
determined on the basis of the rates referred to in the definition of
"Adjusted LIBOR Rate" in this Section 1.1.
"LIBOR RATE" shall mean, for any LIBOR Advance for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) quoted by the Lender at approximately 2:00 P.M. Dallas
time (or as soon thereafter as practicable) on the same day of such
Interest period for the offering by the Lender to leading banks in the
London interbank market of Dollar deposits in immediately available funds
having a term comparable to such Interest Period and in an amount
comparable to the principal amount of the LIBOR Advance to which such
Interest Period relates.
CREDIT AGREEMENT - Page 7
<PAGE>
"LOAN" shall mean a loan or Advance of funds by the Lender pursuant
to this Agreement.
"LOAN DOCUMENTS" shall mean this Agreement and all promissory notes,
security agreements, deeds of trust, assignments, letters of credit,
guaranties and other instruments, documents, and agreements executed in
connection with this Agreement, as such instruments, documents and
agreements may be amended, modified, renewed, extended or supplemented from
time to time. "LOAN DOCUMENT" shall mean any one of the Loan Documents.
"MAXIMUM LEGAL RATE" shall have the meaning specified in Section 4.5
of this Agreement.
"NOTES" shall mean the Term Note and the Revolving Credit Note.
"NOTE" shall mean any one of the Notes.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
Person succeeding to the present powers and functions of the Pension
Benefit Guaranty Corporation.
"PERMITTED LIENS" shall mean:
(a) Liens and encumbrances in favor of the Lender;
(b) Liens for taxes, assessments or other governmental
charges incurred in the ordinary course of business and not yet past
due or being contested in good faith by appropriate proceedings and
for which adequate reserves have been established as reflected by
the balance sheet of the Borrower at the time thereof;
(c) Liens of mechanics, materialmen, carriers, warehousemen
or other like statutory or common law liens securing obligations
incurred in good faith in the ordinary course of business that are
not yet due and payable;
(d) Encumbrances consisting of zoning restrictions,
rights-of-way, easements or other restrictions on the use of real
property, none of which materially impairs the use of such property
by the Borrower or any Subsidiary in the operation of the business
for which it is used and none of which is violated in any material
respect by any existing or proposed structure or land use;
(g) The contracts, agreements, leases, burdens,
encumbrances, and other matters described on or otherwise disclosed
in Exhibit A to the Deed of Trust; and
CREDIT AGREEMENT - Page 8
<PAGE>
(h) Existing liens described as a part of Schedule 8.6
attached hereto.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, trust, unincorporated association, joint stock
company, government, municipality, political subdivision or agency or other
entity.
"PRIME RATE" shall mean that annual rate of interest reasonably
designated by the Lender as its prime rate and which is changed by the
Lender from time to time. The Prime Rate may not necessarily be the lowest
rate charged by the Lender.
"PRIME RATE ADVANCES" shall mean Advances that bear interest at
rates based upon the Prime Rate.
"REAL PROPERTY" shall mean those parcels of real property, together
with the fixtures thereto, described in the Deed of Trust and in the new
deed of trust required by SECTION 7.11 herein.
"RECAPITALIZATION" shall mean the following: (i) the incurrence of
the Senior Indebtedness contemplated hereby, (ii) the borrowings under the
Subordinated Credit Agreement, (iii) the repayment of the Company's
existing Senior Indebtedness to the Lender, (iv) the fulfillment of net
contractual commitments to senior officers of the Company, (v) the payment
of costs incurred in connection with clauses (i)-(iv) of this sentence,
(vi) the declaration of the Special Dividend and the related Deferred
Dividend Payable To Management and (vii) the recapitalization of the
outstanding Common Stock.
"REGULATION D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as the same may be amended or supplemented from
time to time.
"REGULATORY CHANGE" shall mean, with respect to the Lender, any
change after the date of this Agreement in United States federal or state,
or foreign laws or regulations (including Regulation D) or the adoption or
making after such date of any interpretations, directives, or requests
applying to a class of banks including the Lender of or under any United
States federal or state, or any foreign, laws or regulations (whether or
not having the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"RESERVE REQUIREMENT" shall mean, for any LIBOR Advance for any
Interest Period therefor, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required
to be maintained during such Interest Period under Regulation D by member
banks of the Federal Reserve System in New York City with deposits
exceeding one billion Dollars against "Eurocurrency Liabilities" as such
term is used in Regulation D. Without limiting the effect of the
foregoing, the Reserve Requirement shall include any other reserves
required to be maintained by such member banks by reason of any Regulatory
Change against (a) any category of liabilities which
CREDIT AGREEMENT - Page 9
<PAGE>
includes deposits by reference to which the Adjusted LIBOR Rate is to be
determined or (b) any category of extensions of credit or other assets
which include LIBOR Advances.
"REVOLVING CREDIT COMMITMENT" shall mean the obligation of the
Lender to make Revolving Credit Loans to the Borrower in an aggregate
principal amount at any time outstanding up to but not to exceed the lesser
of (a) Seventeen Million Dollars ($17,000,000), or (b) the Borrowing Base.
"REVOLVING CREDIT LOAN" shall mean any Advance of funds made by the
Lender to the Borrower pursuant to Section 2.
"REVOLVING CREDIT NOTE" shall mean the promissory note of the
Borrower payable to the order of the Lender, in substantially the form of
Exhibit "D" hereto, and all extensions, renewals and modifications thereof
and substitutions therefor.
"SECURITY AGREEMENT" shall mean collectively, security agreements
previously executed in favor of the Lender pursuant to which the Borrower
grants to the Lender a security interest in all of Borrower's Accounts,
Chattel Paper, Documents, General Intangibles, Equipment, Instruments and
Inventory, wherever located and whether now owned or hereafter acquired,
together with all replacements thereof, substitutions therefor and all
proceeds and products thereof.
"SECURITY CODE" shall mean a code furnished by the Lender to the
Borrower, pursuant to Section 4.2 hereof, which an Authorized Officer of
the Borrower must deliver to the Lender upon making a telephonic Loan
request.
"SENIOR INDEBTEDNESS" shall mean all loans, advances and
indebtedness of the Borrower to the Lender under this Agreement, together
with all other indebtedness, obligations and liabilities whatsoever of the
Borrower 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.
"SENIOR INDEBTEDNESS RATIO" shall mean, at any particular time, the
ratio resulting as the quotient of (a) Senior Indebtedness divided by (b)
the Borrower's EBITDA for the immediately preceding four calendar quarters.
"SPECIAL DIVIDEND" shall mean the special dividend declared by the
board of directors of the Borrower in the amount of up to $19,700,000
payable to the Borrower's shareholders.
"SUBORDINATED CREDIT AGREEMENT" shall mean that certain Subordinated
Credit Agreement, dated as of October 31, 1996, between the Borrower and
Bank of America Illinois.
CREDIT AGREEMENT - Page 10
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"SUBORDINATED DEBT" shall mean all Debt, the payment of which (and
the security for) has been subordinated in writing in a manner satisfactory
to the Lender.
"SUBSIDIARIES" shall mean any entity of which more than fifty
percent (50%) of the outstanding voting securities shall, as of any
applicable date of determination, be owned directly, or indirectly through
one or more intermediaries, by the Borrower.
"TANGIBLE NET WORTH" shall mean, as of any applicable date of
determination, the excess of (i) the book value of all assets of Borrower
and the Subsidiaries (other than patents, patent rights, trademarks, trade
names, franchises, copyrights, goodwill, and similar intangible assets)
after all appropriate deductions (including, without limitation, reserves
for doubtful receivables, obsolescence, depreciation and amortization), all
as determined on a consolidated basis in accordance with GAAP, less (ii)
all Debt (excluding the Deferred Dividend Payable to Management), plus
(iii) all Subordinated Debt of the Borrower and its Subsidiaries which, in
accordance with GAAP, would be required to be presented on their
consolidated balance sheet at such date.
"TERMINATION DATE" shall mean July 31, 1999.
"TERM LOAN" shall mean each Advance of funds made by the Lender to
the Borrower pursuant to Section 3.
"TERM LOAN COMMITMENT" shall mean the obligation of the Lender to
make the Term Loan to the Borrower in an aggregate principal amount at any
time outstanding up to but not to exceed Six Million Dollars
($6,000,000.00).
"TERM NOTE" shall mean the promissory note of Borrower payable to
the order of the Lender, in substantially the form of Exhibit "E" hereto,
and all extensions, renewals and modifications thereof and substitutions
therefor.
"TOTAL COMMITMENT AMOUNT" shall mean, at any particular time, the
amount which is the sum of the Revolving Credit Commitment and the Term
Loan Commitment, each as then in effect.
"TYPE" shall mean any type of Advance (i.e., Prime Rate Advance or
LIBOR Advance).
"UCC" shall mean the Uniform Commercial Code as in effect in the
State of Texas and as amended from time to time.
"UNUSED FACILITY FEE" shall mean on an annualized basis, a fee equal
to one-quarter percent (0.25%) of the difference, if any, between
$17,000,000.00 and the daily outstanding principal balance of the Revolving
Credit Note for each calendar quarter. Such fee shall be payable within
ten (10) Business Days after presentment of each such computation thereof
by the Lender.
CREDIT AGREEMENT - Page 11
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1.2. ACCOUNTING TERMS. All accounting terms not specifically defined in
this Agreement shall be construed in accordance with GAAP. All accounting terms
and calculations herein with respect to the Borrower and the Subsidiaries shall
be made after elimination of all inter-company accounts and transactions among
them.
1.3. SINGULAR AND PLURAL. Where the context herein requires, the
singular number shall be deemed to include the plural, and vice versa.
SECTION 2. REVOLVING CREDIT LOANS
2.1. REVOLVING CREDIT COMMITMENT. Subject to the terms and conditions of
this Agreement, the Lender hereby agrees to make one or more Revolving Credit
Loans to the Borrower from time to time from the date hereof to and including
the Termination Date in an aggregate principal amount at any time outstanding up
to but not exceeding the amount of the Revolving Credit Commitment as then in
effect; PROVIDED, HOWEVER that the Lender shall not be obligated to make any
Revolving Credit Loan which would cause the principal balance of all outstanding
Revolving Credit Loans to exceed the amount which is the lesser of (i) the
Borrowing Base, or (ii) the Revolving Credit Commitment. Subject to the
limitations and the other terms and provisions of this Agreement, the Borrower
may from time to time borrow, repay and reborrow hereunder the amount of the
Revolving Credit Commitment by means of Prime Rate Advances and LIBOR Advances;
PROVIDED THAT the Lender shall not have an obligation to make any Revolving
Credit Loan on a day which is not a Business Day.
2.2. REVOLVING CREDIT NOTE. The obligation of the Borrower to repay the
Revolving Credit Loans and interest thereon shall be evidenced by the Revolving
Credit Note executed by the Borrower, payable to the order of the Lender in the
principal amount of the Revolving Credit Commitment as originally in effect and
dated of even date herewith. The Revolving Credit Note shall in any event,
subject to prior acceleration, be payable in full on the Termination Date.
2.3. REPAYMENT OF REVOLVING CREDIT LOANS. The Borrower shall repay the
unpaid principal amount of all Revolving Credit Loans on the Termination Date.
Interest on the Revolving Credit Loans shall be payable in accordance with
Section 4.1.
2.4. USE OF PROCEEDS. Proceeds of the Revolving Credit Loans shall be
used by the Borrower for working capital and general corporate purposes, to
refinance the existing revolving credit facility which has been provided by the
Lender, and to assist in the financing of the Recapitalization.
SECTION 3. TERM LOAN AND DEED OF TRUST LOAN
3.1. TERM COMMITMENT. Subject to the terms and conditions of this
Agreement, the Lender hereby agrees to make the Term Loan to the Borrower on the
date hereof in the principal amount of the Term Loan Commitment. The Term Loan
Commitment shall terminate upon the making of the Term Loan.
CREDIT AGREEMENT - Page 12
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3.2. TERM NOTE. The obligation of the Borrower to repay the Term Loan
and interest thereon shall be evidenced by the Term Note executed by the
Borrower, payable to the order of the Lender in the principal amount of such
Term Loan dated the date hereof.
3.3. REPAYMENT OF TERM LOAN. Unless sooner accelerated pursuant to the
terms of the Term Note (and subject to the call provisions set forth in the Term
Note), the Borrower shall repay the principal indebtedness evidenced by the Term
Note in consecutive monthly principal installments, plus accrued interest
thereon as follows:
(a) Commencing January 1, 1997, and continuing on the same day of
each month through June 1, 1997, the Borrower shall pay principal
installments of $79,000 each, plus all accrued and unpaid interest;
(b) Commencing July 1, 1997, and continuing on the same day of
each month until December 1, 1997, the Borrower shall pay principal
installments of $116,000 each, plus all accrued and unpaid interest;
(c) Commencing January 1, 1998, and on the same day of each
successive month thereafter through September 1, 2004, the Borrower shall
pay principal installments of $137,000 each, plus all accrued and unpaid
interest;
(d) Notwithstanding that portion of the foregoing payment
schedule set forth in subparagraph "(c)" above, whenever the outstanding
principal balance of the Term Note is equal to or less than $2,000,000, the
Borrower shall (commencing on the first day of the month next following the
month in which the principal balance of the Term Note becomes equal to or
less than $2,000,000) pay on the Term Note equal monthly principal payments
of $33,333.33 each, plus all accrued and unpaid interest.
Interest on the Term Loan shall be computed in accordance with Section 4.
A final installment of all outstanding principal PLUS accrued interest shall be
due and payable at maturity, whether by acceleration, or otherwise.
3.4. USE OF PROCEEDS. Proceeds of the Term Loan shall be used by
Borrower to refinance certain indebtedness currently owed by Borrower to Lender
and to assist in the financing of the Recapitalization.
SECTION 4. GENERAL - ALL LOANS
4.1. INTEREST. The unpaid principal amount of the Advances shall bear
interest prior to maturity at a varying rate per annum equal from day to day to
the lesser of (a) the Maximum Rate, or (b) as the case may be, the Applicable
Revolving Credit Note Rate or Applicable Term Note Rate. If at any time the
Applicable Revolving Credit Note Rate or Applicable Term Note Rate for any
Advance shall exceed the Maximum Legal Rate, thereby causing the interest
accruing on such Advance to be limited to the Maximum Legal Rate, then any
subsequent reduction in the Applicable Revolving Credit Note Rate or Applicable
Term Note Rate for such
CREDIT AGREEMENT - Page 13
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Advance shall not reduce the rate of interest on such Advance below the
Maximum Legal Rate until the aggregate amount of interest accrued on such
Advance equals the aggregate amount of interest which would have accrued on
such Advance if the Applicable Revolving Credit Note Rate or Applicable Term
Note Rate had at all times been in effect. Accrued and unpaid interest on
the Advances shall be due and payable as follows:
(a) in the case of all Revolving Credit Note Advances, on the
first day of each month commencing December 1, 1996 and continuing on the
same day of each successive month thereafter up to and including the
Termination Date; and
(b) for the Term Note Advance on the same dates as payments of
principal are due, pursuant to Section 3.3 hereof, or until maturity
whether by acceleration or otherwise (whichever first occurs).
Notwithstanding the foregoing, any outstanding principal of any Advance and (to
the fullest extent permitted by law) any other amount payable by the Borrower
under this Agreement or any other Loan Document that is not paid in full when
due (whether at stated maturity, by acceleration, or otherwise) shall bear
interest at the Default Rate for the period from and including the due date
thereof to but excluding the date the same is paid in full. Interest payable at
the Default Rate shall be payable from time to time on demand.
4.2. BORROWING PROCEDURE. The Borrower shall give the Lender notice by
means of an Advance Request Form of each requested Advance on the same day of
each LIBOR Advance or Cost of Funds Advance, no later than the date of any
requested Prime Rate Advance, in each case specifying: (a) the requested date of
such Advance (which shall be a Business Day), (b) the amount of such Advance,
(c) the Type of the Advance, and (d) in the case of a LIBOR Advance or Cost of
Funds Advance, the duration of the Interest Period for such Advance. The Lender
at its option may accept telephonic Advance requests by an Authorized Officer.
A telephonic request for an Advance by the Borrower shall be promptly confirmed
in writing if so requested by the Lender. Each LIBOR or Cost of Funds Advance
shall be in a minimum principal amount of $1,000,000. Subject to the terms and
conditions of this Agreement, each Advance shall be made available to the
Borrower by depositing the same, in immediately available funds, in an account
of the Borrower maintained with the Lender at the principal office designated by
the Borrower. All notices under this Section shall be irrevocable and shall be
given not later than 2:00 P.M. Dallas, Texas time on the day which is not less
than the number of Business Days specified above for such notice.
4.3. CONVERSIONS AND CONTINUATIONS. The Borrower shall have the right
from time to time to Convert all or part of one Type of Advance outstanding
under any Note into another Type of Advance or to Continue all or part of any
LIBOR Advance or Cost of Funds Advance by giving the Lender telephonic notice
(confirmed in writing, if so requested by the Lender) no later than 2:00 P.M.
(Dallas time) on the day of Conversion or Continuation of a LIBOR Advance or
Cost of Funds Advance, specifying: (a) the Conversion or Continuation date, (b)
the amount of the Advance to be Converted or Continued, (c) in the case of
Conversions, the Type of Advance to be Converted into, and (d) in the case of a
Continuation of or Conversion into a
CREDIT AGREEMENT - Page 14
<PAGE>
LIBOR Advance or Cost of Funds Advance, the duration of the Interest Period
applicable thereto; provided, that (a) LIBOR Advances or Cost of Funds
Advance may only be Converted on the last day of the Interest Period, and (b)
except for Conversions to Prime Rate Advances, no Conversions shall be made
while an Event of Default has occurred and is continuing. If the Borrower
shall fail to give the Lender the notice as specified above for Continuation
or Conversion of a LIBOR Advance or Cost of Funds Advance prior to the end of
the Interest Period with respect thereto, such LIBOR Advance or Cost of Funds
Advance shall automatically be Converted into a Prime Rate Advance on the
last day of the Interest Period for such LIBOR Advance or Cost of Funds
Advance.
4.4. PAYMENT. All payments of principal, interest, and other amounts to
be paid by the Borrower under this Agreement or any other Loan Document shall be
paid to the Lender at the address set forth herein for the delivery of notices
to the Lender, in immediately available funds, without setoff or counterclaims,
at or before 2:00 p.m. Dallas, Texas time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). The Borrower
shall, at the time of making each such payment, specify to the Lender the sums
payable by the Borrower under this Agreement and the other Loan Documents to
which such payment is to be applied (and in the event the Borrower fails to so
specify, or if an Event of Default has occurred and is continuing, the Lender
may apply such payment to the Senior Indebtedness in such order and manner as it
may elect in its sole discretion). Whenever any payment under this Agreement or
any other Loan Document shall be stated to be due on a day that is not a
Business Day, such payment shall be deemed due on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the payment of interest.
4.5. MAXIMUM LEGAL RATE. The following provisions shall control this
Agreement and each Note:
(a) No agreements, conditions, provision or stipulations
contained in this Agreement or in any other Loan Document, or the
occurrence of an Event of Default, or the exercise by the Lender of the
right to accelerate the payment or the maturity of principal and interest
on any Note, or to exercise any option whatsoever contained in this
Agreement or any other Loan Document, or the arising of any contingency
whatsoever, shall entitle the Lender to collect, in any event, interest
exceeding the maximum rate of nonusurious interest allowed from time to
time by applicable state or federal laws as now or as may hereinafter be in
effect (the "MAXIMUM LEGAL RATE") and in no event shall the Borrower be
obligated to pay interest exceeding such Maximum Legal Rate, and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel the Borrower to
pay a rate of interest exceeding the Maximum Legal Rate shall be without
binding force or effect, at law or in equity, to the extent only of the
excess of interest over such Maximum Legal Rate. In the event any interest
is charged in excess of the Maximum Legal Rate (the "EXCESS"), the Borrower
acknowledges and stipulates that any such charge shall be the result of an
accidental and bona fide error, and such Excess shall be, first, applied to
reduce the principal of any obligations due, and, second, returned to the
Borrower, it being the
CREDIT AGREEMENT - Page 15
<PAGE>
intention of the parties hereto not to enter at any time into an
usurious or otherwise illegal relationship. The parties hereto
recognize that with fluctuations in the Contract Rate from time to time
announced by the Lender such an unintentional result could
inadvertently occur. By the execution of this Agreement, the Borrower
covenants that (a) the credit or return of any Excess shall constitute
the acceptance by the Borrower of such Excess, and (b) the Borrower
shall not seek or pursue any other remedy, legal or equitable, against
the Lender based, in whole or in part, upon the charging or receiving
of any interest in excess of the Maximum Legal Rate. For the purpose
of determining whether or not any Excess has been contracted for,
charged or received by the Lender, all interest at any time contracted
for, charged or received by the Lender in connection with the
Borrower's obligations shall be amortized, prorated, allocated and
spread during the entire term of this Agreement. If at any time the
rate of interest payable hereunder shall be computed on the basis of
the Maximum Legal Rate, any subsequent reduction in the Contract Rate
shall not reduce such interest thereafter payable hereunder below the
amount computed on the basis of the Maximum Legal Rate until the
aggregate amount of such interest accrued and payable under this
Agreement equals the total amount of interest which would have accrued
if such interest had been at all times computed solely on the basis of
the Contract Rate.
(b) Unless preempted by federal law, the rate of interest from
time to time in effect hereunder shall not exceed the "indicated rate
ceiling" from time to time in effect under Chapter 1 of the Texas Credit
Code (Vernon's Texas Civil Statutes), Section (a)(1), Article 5069-1.04, as
amended.
(c) The provisions of this Section shall be deemed to be
incorporated into every document or communication relating to the Senior
Indebtedness which sets forth or prescribes any account, right or claims or
alleged account, right or claim of the Lender with respect to the Borrower
(or any other obligor in respect of the Senior Indebtedness), whether or
not any provision of this Section is referred to therein. All such
documents and communications and all figures set forth therein shall, for
the sole purpose of computing the extent of the obligations asserted by the
Lender thereunder, be automatically recomputed by the Borrower or any other
obligor, and by any court considering the same, to give effect to the
adjustments or credits required by this Section.
(d) If the applicable state or federal law is amended in the
future to allow a greater rate of interest to be charged under this
Agreement than is presently allowed by applicable state or federal law,
then the limitation of interest hereunder shall be increased to the maximum
rate of interest allowed by applicable state or federal law, as amended,
which increase shall be effective hereunder on the effective date of such
amendment, and all interest charges owing to the Lender by reason thereof
shall be payable upon demand.
(e) The provisions of Chapter 15 of the Texas Credit Code
(Vernon's Texas Civil Statutes), Article 5069-15, as amended, are
specifically declared by the parties hereto not to be applicable to this
Agreement or any other Loan Document or to the transactions contemplated
hereby or thereby.
CREDIT AGREEMENT - Page 16
<PAGE>
4.6. BASIS OF COMPUTATION. Subject to Section 4.5 hereof, the amount of
all interest payable hereunder shall be computed for the actual number of days
elapsed on the basis of a year consisting of 360 days.
4.7. PREPAYMENTS.
4.7.1. MANDATORY PREPAYMENTS. The Borrower shall, within one
(1) day after notice thereof from the Lender, pay to the Lender as a
payment on the Revolving Credit Note the amount, if any, by which the
principal balance of the Revolving Credit Note outstanding from time to
time exceeds the Borrowing Base, together with all interest accrued and
unpaid on the amount of such excess.
4.7.2. OPTIONAL PREPAYMENTS. The Borrower may, at any time,
prepay the Advances in whole at any time or from time to time in part
without premium or penalty but with accrued interest to the date of
prepayment on the amount so prepaid, provided that compensation under
Section 5 hereof shall be due if LIBOR Advances or Cost of Funds Advances
are prepaid prior to the last day of the Interest Period for such Advances.
4.8. UPON TERMINATION. The Lender, at its sole discretion, may upon
thirty (30) days prior written notice to the Borrower declare any or all of the
Term Note due and payable in full at any time after the Termination Date or
(without prior notice) at any time upon or after an acceleration of the
Revolving Credit Note.
SECTION 5. YIELD PROTECTION AND ILLEGALITY
5.1. ADDITIONAL COSTS.
(a) The Borrower shall pay to the Lender from time to time such
amounts as the Lender may reasonably determine to be necessary to
compensate it for any costs incurred by the Lender which the Lender
determines are attributable to its making or maintaining of any LIBOR
Advances or Cost of Funds Advances hereunder or its obligation to make any
of such Advances hereunder, or any reduction in any amount receivable by
the Lender hereunder in respect of any such Advances or such obligation
(such increases in costs and reductions in amounts receivable being herein
called "ADDITIONAL COSTS"), resulting from any generally applicable
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
the Lender under this Agreement or the Note in respect of any of
such Advances (other than taxes imposed on the overall net income of
the Lender or its lending office for any of such Advances by the
jurisdiction in which the Lender has its principal office or such
lending office);
(ii) imposes or modifies any reserve, special deposit,
minimum capital, capital ratio, or similar requirement relating to
any extensions of credit or other assets of, or any deposits with or
other liabilities or commitments of,
CREDIT AGREEMENT - Page 17
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the Lender (including any of such Advances or any deposits referred
to in the definition of "LIBOR Rate" in Section 1.1 hereof); or
(iii) imposes any other condition affecting this Agreement or
such Advances or any of such extensions of credit or liabilities or
commitments.
The Lender will notify the Borrower of any event occurring after the date
of this Agreement which will entitle the Lender to compensation pursuant to
this Section as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation. The Lender will furnish the
Borrower with a certificate setting forth the basis and the amount of each
request of the Lender for compensation under this Section. If the Lender
requests compensation from the Borrower under this Section, the Borrower
may, by notice to the Lender suspend the obligation of the Lender to make
or Continue making, or Convert Advances into, Advances of the Type with
respect to which such compensation is requested until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the
provisions of Section 5 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of
this Section, in the event that, by reason of any generally applicable
Regulatory Change, the Lender either (a) incurs Additional Costs based on
or measured by the excess above a specified level of the amount of a
category of deposits or other liabilities of the Lender which includes
deposits by reference to which the interest rate on LIBOR Advances or Cost
of Funds Advances is determined as provided in this Agreement or a category
of extensions of credit or other assets of the Lender which includes LIBOR
Advances or Cost of Funds Advances, or (b) becomes subject to restrictions
on the amount of such a category of liabilities or assets which it may
hold, then, if the Lender so elects by notice to the Borrower the
obligation of the Lender to make or Continue making, or Convert Advances
into, Advances of such Type hereunder shall be suspended until such
Regulatory Change ceases to be in effect (in which case the provisions of
Section 5 hereof shall be applicable).
(c) Determinations and allocations by the Lender for purposes of
this Section of the effect of any generally applicable Regulatory Change on
its costs of maintaining its obligations to make Advances or of making or
maintaining Advances or on amounts receivable by it in respect of Advances,
and of the additional amounts required to compensate the Lender in respect
of any Additional Costs, shall be conclusive, provided that such
determinations and allocations are made on a reasonable basis.
(d) The Lender will not seek the benefits of this Section 5.1
unless it is, at the time of any attempts to collect amounts under this
Section 5.1 from the Borrower, applying similar reimbursement standards to
other borrowers of the Lender who have loans with similar pricing options.
CREDIT AGREEMENT - Page 18
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5.2. LIMITATION ON TYPES OF ADVANCES. Anything herein to the contrary
notwithstanding, if with respect to any LIBOR Advances or Cost of Funds Advances
for any Interest Period therefor:
(a) The Lender reasonably determines (which determination shall
be conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBOR Rate" in Section 1.1 hereof are not
being provided in the relative amounts or for the relative maturities for
purposes of determining the rate of interest for such Advances as provided
in this Agreement; or
(b) The Lender determines (which determination shall be
conclusive) that the relevant rates of interest referred to in the
definition of "LIBOR Rate" in Section 1.1 hereof on the basis of which the
rate of interest for such Advances for such Interest Period is to be
determined do not accurately reflect the cost to the Lender of making or
maintaining such Advances for such Interest Period;
then the Lender shall give the Borrower prompt notice thereof specifying the
relevant Type of Advances and the relevant amounts or periods, and so long as
such condition remains in effect, the Lender shall be under no obligation to
make additional Advances of such Type or to Convert Advances of any other Type
into Advances of such Type and the Borrower shall, on the last day(s) of the
then current Interest Period(s) for the outstanding Advances of the affected
Type, either prepay such Advances or Convert such Advances into another Type of
Advance in accordance with the terms of this Agreement.
5.3. ILLEGALITY. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for the Lender to (a) honor its obligation
to make LIBOR Advances hereunder or (b) maintain LIBOR Advances hereunder, then
the Lender shall promptly notify the Borrower thereof and the Lender's
obligation to make or maintain LIBOR Advances and to Convert other types of
Advances into LIBOR Advances hereunder shall be suspended until such time as the
Lender may again make and maintain LIBOR Advances (in which case the provisions
of Section 5.4 hereof shall be applicable).
5.4. SUBSTITUTE PRIME RATE ADVANCES. If the obligation of the Lender to
make a LIBOR Advance or a Cost of Funds Advance shall be suspended pursuant to
Section 5.1, 5.2 or 5.3 hereof (Advances of such Type being herein called
"AFFECTED ADVANCES" and such Type being herein called the "AFFECTED TYPE"), all
Advances which would be otherwise made by the Lender as Advances of the Affected
Type shall be made instead as Prime Rate Advances and all Advances which would
otherwise be Converted into Advances of the Affected Type shall be converted
instead into (or shall remain as) Prime Rate Advances (and, if an event referred
to in Section 5.1, 5.2 or 5.3 hereof has occurred and the Lender so requests by
notice to the Borrower, all Affected Advances of the Lender then outstanding
shall be automatically Converted into Prime Rate Advances on the date specified
by the Lender in such notice) and, to the extent that Affected Advances are so
made as (or Converted into) Prime Rate Advances, all payments and prepayments of
principal which would otherwise be applied to the Lender's Affected Advances
shall be applied instead to its Prime Rate Advances.
CREDIT AGREEMENT - Page 19
<PAGE>
5.5. COMPENSATION. The Borrower shall pay to the Lender, upon the
request of the Lender, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Lender) to compensate it for any loss, cost, or
expense incurred by it as a result of:
(a) Any payment, prepayment or conversion of a LIBOR Advance or
Cost of Funds Advance for any reason (including, without limitation, the
acceleration of outstanding Advances pursuant to this Agreement) on a date
other than the last day of an Interest Period for such Advance; or
(b) Any failure by the Borrower for any reason (including,
without limitation, the failure of any conditions precedent specified in
this Agreement to be satisfied) to borrow, Convert, or prepay a LIBOR
Advance or Cost of Funds Advances on the date for such borrowing,
Conversion, or prepayment, specified in the relevant notice of borrowing,
prepayment, or Conversion under this Agreement.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or Converted
or not borrowed for the period from the date of such payment, Conversion, or
failure to borrow to the last day of the Interest Period for such Advance (or,
in the case of a failure to borrow, the Interest Period for such Advance which
would have commenced on the date specified for such borrowing) at the applicable
rate of interest for such Advance provided for herein, less the applicable
margin, over (ii) the interest component of the amount the Lender would have bid
in the London interbank market (if such Advance is a LIBOR Advance) for Dollar
deposits of leading banks and amounts comparable to such principal amount and
with maturities comparable to such period.
SECTION 6. SECURITY
6.1. COLLATERAL. To secure the full and timely performance of the
Borrower's covenants set out in this Agreement and the other Loan Documents and
to secure the repayment of each of the Notes and all other Senior Indebtedness
whatsoever of the Borrower to the Lender, the Borrower agrees to grant and
assign a lien upon and security interest in the Collateral pursuant to the
Security Agreement, the Financing Statements and other instruments and
agreements required by and satisfactory to the Lender.
6.2. SETOFF. If an Event of Default shall have occurred and be
continuing, the Lender shall have the right to set off and apply against any
Senior Indebtedness then due in such manner as the Lender may determine, at any
time and without notice to the Borrower, any and all deposits (general or
special, time or demand, provisional or final) or other sums at any time
credited by or owing from the Lender to the Borrower. As further security for
the Senior Indebtedness, the Borrower hereby grants to the Lender a security
interest in all money, instruments, and other property of the Borrower now or
hereafter held by the Lender, including, without limitation, property held in
safekeeping. In addition to the Lender's right of setoff and as further
security for the Senior Indebtedness, the Borrower hereby grants to the Lender a
security interest in all deposits (general or special, time or demand,
provisional or final) and other
CREDIT AGREEMENT - Page 20
<PAGE>
accounts of the Borrower now or hereafter on deposit with or held by the
Lender and all other sums at any time credited by or owing from the Lender to
the Borrower. The rights and remedies of the Lender hereunder are in
addition to other rights and remedies (including, without limitation, other
rights or setoff) which the Lender may have.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF LENDER
7.1. CONDITIONS TO FIRST LOAN. The obligations of the Lender under this
Agreement are subject to the occurrence, prior to or on the date of the initial
Loan hereunder, of each of the following conditions, any or all of which may be
waived in whole or in part by the Lender in writing:
7.1.1. DOCUMENTS EXECUTED AND FILED. The Borrower shall have
executed (or caused to be executed) and delivered to the Lender and, as
appropriate, there shall have been signed for filing with such filing
offices as the Lender shall deem appropriate, the following:
(a) The Revolving Credit Note;
(b) The Term Note; and
(c) A deed of trust in a form substantially the same as the
Deed of Trust which has already been executed by the Borrower,
covering the Real Property and securing all Senior Indebtedness.
7.1.2. CERTIFIED RESOLUTIONS. The Borrower shall have
furnished to the Lender a copy of resolutions of the Board of Directors of
the Borrower authorizing the execution, delivery and performance of this
Agreement, the borrowings hereunder, the Notes and all other Loan
Documents, which shall have been certified by the Secretary or Assistant
Secretary of the Borrower as of the date hereof.
7.1.3. CERTIFICATE OF GOOD STANDING. The Borrower shall have
furnished to the Lender a certificate of good standing of Borrower, which
shall have been certified by the state agency issuing the same as of a date
reasonably near the date hereof.
7.1.4. CERTIFICATE OF INCUMBENCY. The Borrower shall have
furnished to the Lender a certificate of the Secretary or Assistant
Secretary of each of the Borrower, certified as of the date hereof, as to
the incumbency and signatures of such officers signing this Agreement, the
Notes and the other Loan Documents.
7.1.5. PAYMENT OF FEES. Evidence that all costs and expenses
(including reasonable attorneys' fees) incurred by the Lender and known to
date in connection with the preparation of this Agreement and the other
Loan Documents shall have been paid in full by the Borrower.
CREDIT AGREEMENT - Page 21
<PAGE>
7.1.6. APPROVAL OF LENDER COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other related
legal matters shall have been satisfactory to and approved by legal counsel
for the Lender, and said counsel shall have been furnished with such
certified copies of actions and proceedings and such other instruments and
documents as they shall have reasonably requested.
7.1.7. OTHER INFORMATION AND DOCUMENTATION. The Lender shall
have received such other information, certificates and executed documents
as it shall have reasonably requested.
7.2. CONDITIONS TO ALL LOANS. The obligation of the Lender to make any
Loan (including any initial Advance) is subject to the occurrence, prior to or
on the requested date of each such Loan, of each of the following conditions,
any or all of which may be waived in whole or in part by the Lender in writing:
7.2.1. LOAN REQUEST. The Lender shall have received a written
Advance Request Form, executed by the appropriate officer of the Borrower
and timely delivered as required by this Agreement.
7.2.2. NO DEFAULT. As of such date:
(a) No Default or Event of Default shall have then occurred
and be continuing; and
(b) Each warranty or representation referenced in
Section 8.16 of this Agreement shall be true and correct.
SECTION 8. WARRANTIES AND REPRESENTATIONS
The Borrower represents and warrants to the Lender:
8.1. CORPORATE EXISTENCE AND POWER. (a) The Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of organization, (ii) has the corporate power and authority to own
its properties and assets and to carry out its business as now being conducted
and is qualified to do business and in good standing in every jurisdiction
wherein such qualification is necessary except where the failure to be so
qualified would not result in a material adverse effect on the business or
financial condition of the Borrower and (iii) has the corporate power and
authority to execute and perform this Agreement, to borrow money in accordance
with its terms, to execute and deliver each of the Notes and the other Loan
Documents to be executed by it and to grant to the Lender liens and security
interest in the Collateral as hereby contemplated and to do any and all other
things required of it hereunder.
CREDIT AGREEMENT - Page 22
<PAGE>
8.2. AUTHORIZATION AND APPROVALS. As to the Borrower, the execution,
delivery and performance of this Agreement, the borrowing hereunder and the
execution and delivery of each of the other Loan Documents contemplated hereby
(a) have been duly authorized by all requisite corporate action, (b) do not
require registration with or consent or approval of, or other action by, any
federal, state or other governmental authority or regulatory body, or, if such
registration, consent or approval is required, the same has been obtained and
disclosed in writing to the Lender, (c) will not violate any provision of law,
any order of any court or other agency of government, the articles of
incorporation or bylaws of the Borrower, any provision of any indenture,
agreement or other instrument to which the Borrower is a party, or by which it
or any of its properties or assets are bound except where such violation would
not result in a material adverse effect on the business or financial condition
of the Borrower, (d) will not be in conflict with, result in a breach of or
constitute (with or without notice or passage of time) a default under any
indenture, agreement or other instrument except where such conflict, breach or
default would not result in a material adverse effect on the business or
financial condition of the Borrower, and (e) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of its properties or assets other than in favor of the Lender and as
contemplated hereby.
8.3. VALID AND BINDING AGREEMENT. This Agreement is, and each of the
other Loan Documents will be, when delivered, valid and binding obligations of
the Borrower, in each case enforceable in accordance with their respective terms
except as limited by insolvency, bankruptcy or similar laws and equitable
principles affecting the enforcement of creditors' rights generally.
8.4. ACTIONS, SUITS OR PROCEEDINGS. Except as disclosed on Schedule 8.4
or otherwise disclosed in writing to the Lender, there are no actions, suits or
proceedings, at law or in equity, and no proceedings before any arbitrator or by
or before any governmental commission, board, bureau or other administrative
agency, pending, or, to the best knowledge of the Borrower, threatened against
or affecting the Borrower, or any properties or rights of the Borrower, which,
if adversely determined, would materially impair the right of the Borrower to
carry on business substantially as now conducted or could have a material
adverse effect upon the financial condition of the Borrower.
8.5. NO LIENS, PLEDGES, MORTGAGES OR SECURITY INTERESTS. Except for
Permitted Liens, none of the Borrower's assets and properties, including the
Collateral and the Real Property, is subject to any mortgage, pledge, lien,
security interest or other encumbrance of any kind or character.
8.6. ACCOUNTING PRINCIPLES. The Financial Statements have been prepared
on a consolidated basis in accordance with GAAP and fairly present the financial
condition of the Borrower as of the dates, and the results of its operations for
the periods, for which the same are furnished to the Lender. To the best of
Borrower's knowledge and belief, the Borrower has no material contingent
obligations, liabilities for taxes, long-term leases or unusual forward or
long-term commitments not disclosed by, or reserved against in, the Financial
Statements or otherwise disclosed in writing to the Lender.
CREDIT AGREEMENT - Page 23
<PAGE>
8.7. NO ADVERSE CHANGES. There has been no material adverse change in
the business, properties or condition (financial or otherwise) of the Borrower
since the date of the latest of the Financial Statements or otherwise disclosed
in writing to the Lender.
8.8. CONDITIONS PRECEDENT. As of the date of each Loan hereunder, all
appropriate conditions precedent referred to in this Agreement shall have been
satisfied (or waived in writing by the Lender).
8.9. TAXES. The Borrower has filed (or in the case of any consolidated,
unitary or combined return, the Borrower has been included in a return filed) by
the extended due date therefor all federal, state and local tax returns and
other reports required by law to be filed and which are material to the conduct
of its business, has paid or caused to be paid all material taxes, assessments
and other governmental charges that are shown to be due and payable by Borrower
under such returns, and has made adequate provision for the payment of such
taxes, assessments or other governmental charges which have accrued but are not
yet payable. The Borrower has no knowledge of any asserted deficiency or
assessment in a material amount in connection with any taxes, assessments or
other governmental charges not adequately disclosed in the Financial Statements
or otherwise disclosed in writing to the Lender.
8.10. COMPLIANCE WITH LAWS. The Borrower has complied with all applicable
laws, to the extent that failure to comply would materially interfere with the
conduct of its respective business.
8.11. INDEBTEDNESS; MATERIAL AGREEMENTS.
(a) Except as disclosed on Schedule 8.11, the Borrower has no
Indebtedness.
(b) To the best knowledge of the Borrower, it has complied with
the provisions of all material contracts or commitments; and to the best
knowledge of Borrower, no party to such agreements is in default
thereunder, nor has there occurred any event which with notice or the
passage of time, or both, would constitute such a default.
8.12. MARGIN STOCK. The Borrower is not engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying any "margin stock" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System, and no part of the
proceeds of any Loan hereunder will be used, directly or indirectly, to purchase
or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock or for any other purpose which might
violate the provisions of Regulation G, T, U or X of the said Board of
Governors. The Borrower does not own any margin stock.
8.13. PENSION FUNDING. The Borrower has not incurred any material
accumulated funding deficiency within the meaning of ERISA or any material
liability to the PBGC in connection with any employee benefit plan established
or maintained by the Borrower and no
CREDIT AGREEMENT - Page 24
<PAGE>
presently existing reportable event or presently existing prohibited
transaction, as defined in ERISA, has occurred with respect to such plans
which would result in a material adverse effect on the business or financial
condition of Borrower.
8.14. MISREPRESENTATION. To the best knowledge of the officer signing the
same, after reasonable inquiry, no warranty or representation by the Borrower
contained herein or in any certificate or other document furnished by the
Borrower contemporaneously herewith contains any untrue statement of material
fact or omits to state a material fact necessary to make such warranty or
representation not misleading in light of the circumstances under which it was
made.
8.15. ELIGIBLE INVENTORY. As to each item of Inventory represented by the
Borrower to be "Eligible Inventory" on a Borrowing Base Certificate, as of the
date of each such Borrowing Base Certificate:
(a) Such item of Inventory is of good and merchantable quality
and is usable or salable by Borrower in the ordinary course of its
business, and is not obsolete (except that as to work in process, such item
need not meet the Standard of "merchantable").
(b) The Borrower has granted to the Lender a perfected security
interest in such item of Inventory (as an item of the Collateral) prior in
right to all other Persons (other than Permitted Liens), and such item of
Inventory has not been sold, transferred or otherwise assigned by the
Borrower, to any Person, other than the Lender and other than sales in the
ordinary course of business occurring after the date of such Borrowing Base
Certificate.
(c) Such item of Inventory is located within the United States at
locations identified in the Security Agreement.
8.16. LOANS AND REPRESENTATIONS. As of the date of each Advance Request,
the Borrower, unless otherwise disclosed to the Lender in writing, shall be
deemed to represent and warrant to the Lender, as an inducement to having the
Lender make the requested Loan, that as of the date of such Loan request (a) the
representations and warranties contained in Sections 8.1, 8.4, 8.7, 8.15 and
8.17 of this Agreement are true and correct in all material respects, (b) the
requirements of Section 7.2.2 have been complied with and (c) the Lender will
have a first priority security interest and lien on the Collateral covered by
the invoice or bill of sale (or similar document), if any, to which the Loan
request relates.
8.17. ELIGIBLE ACCOUNTS. As to each Account represented by the Borrower
to be an "Eligible Account" on a Borrowing Base Certificate, as of the date of
each such Borrowing Base Certificate:
(a) Such Account arose in the ordinary course of the business of
the Borrower out of either (i) a bona fide sale of Inventory by the
Borrower, in accordance with the terms of the Contract under which the
Account arose, or (ii) services performed
CREDIT AGREEMENT - Page 25
<PAGE>
by the Borrower under an enforceable contract, and in such case such
services have in fact been performed for the appropriate account debtor
in accordance with such contract.
(b) Unless otherwise approved in writing by the Lender on a
case-by-case basis, such Account represents a legally valid and enforceable
claim which is due and owing to the Borrower by such account debtor in at
least such amount as is represented by the Borrower to the Bank on such
Borrowing Base Certificate, such Account is due and payable not more than
thirty (30) days from the delivery of the related Inventory, or the
performance of the related services, giving rise to such Account and,
unless the Bank otherwise allows, such Account has not been due for more
than ninety (90) days (from the date of invoice).
(c) To Borrower's knowledge, the unpaid balance of such Account
as represented by the Borrower to the Lender on such Borrowing Base
Certificate is not subject to any defense, counterclaim, set-off, credit,
allowance or adjustment by the account debtor because of returned, inferior
or damaged Inventory or services, or for any other valid reason, except for
customary discounts allowed by Borrower in the ordinary course of business
for prompt payment or as otherwise indicated by credit memos disclosed in
such Borrowing Base Certificate, and there is no agreement between
Borrower, the related account debtor and any other person for any rebate,
discount, concession or release of liability, in whole or in part.
(d) To Borrower's knowledge, the transactions leading to the
creation of such Account comply with all applicable state and federal laws
and regulations.
(e) The Borrower has granted to the Bank a perfected security
interest in such Account (as an item of the Collateral) prior in right to
all other persons (other than Permitted Liens), and such Account has not
been sold, transferred or otherwise assigned by the Borrower to any Person,
other than the Bank.
(f) Such Account is not represented by any note, trade
acceptance, draft or other negotiable instrument or by any chattel paper,
except any such as constitute an item of Collateral on or prior to such
Account's inclusion on such Borrowing Base Certificate.
(g) The Borrower has not received, with respect to such Account,
any actual notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence, insolvency, business
failure, appointment of a receiver for any part of the property of,
assignment for the benefit of creditors by, or the filing of a petition in
bankruptcy or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against, such account debtor.
CREDIT AGREEMENT - Page 26
<PAGE>
(h) The account debtor on such Account is not:
(i) an affiliate of the Borrower,
(ii) the United States of America or any department, agency
or instrumentality thereof (to the extent the same exceeds $5,000
for any single invoice) unless the grant of a security interest
therein has been made to the Lender in compliance with applicable
federal assignment of claims laws and regulations,
(iii) a citizen or resident of any jurisdiction other than
one of the United States (unless covered by satisfactory letter of
credit, foreign receivable insurance, or otherwise acceptable to the
Lender), or
(iv) an account debtor whom the Bank has, in the reasonable
exercise of such Bank's sole reasonable discretion, determined to be
(based on such factors relating to such account debtor as the Bank
deems appropriate) an ineligible account debtor and as to which the
Bank has notified the Borrower, PROVIDED, HOWEVER, that any such
notice shall not apply retroactively as to any particular Account if
such Account was included on a prior Borrowing Base Certificate by
the Borrower prior to the giving of such notice by the Bank and
which otherwise complied with each and every other requirement under
this Agreement for the denomination of such Account as an "Eligible
Account."
SECTION 9. AFFIRMATIVE COVENANTS
From the date hereof until the Senior Indebtedness is paid in full, the
Borrower covenants and agrees that it will:
9.1. FINANCIAL AND OTHER INFORMATION.
9.1.1. ANNUAL FINANCIAL REPORTS. Furnish to the Lender in
form satisfactory to the Lender not later than ninety (90) days after the
close of each fiscal year of Borrower, beginning with the fiscal year
ending December 31, 1996, on a consolidated and consolidating basis, a
balance sheet as at the close of each such fiscal year, statements of
income and statements of cash flow for each such fiscal year of Borrower
and the Subsidiaries, and such other comments and financial details as are
usually included in similar reports. Such consolidated reports shall be
audited in accordance with GAAP by independent certified public accountants
of recognized standing selected by Borrower and reasonably acceptable to
the Lender and shall contain unqualified opinions as to the fairness of the
statements therein contained.
9.1.2. MONTHLY FINANCIAL STATEMENTS. Furnish to the Lender
not later than thirty (30) days after the close of each month, beginning
with reports for the month ending November 30, 1996, financial statements
containing the consolidated and
CREDIT AGREEMENT - Page 27
<PAGE>
consolidating balance sheet of Borrower as of the end of each month,
consolidated and consolidating statements of income of Borrower up to
the end of each month. These statements shall be prepared on
substantially the same accounting basis as the statements required in
Section 9.1.1 of this Agreement and shall be in such detail as the
Lender may reasonably require, and the accuracy of the statements
(subject to year-end adjustments) shall be certified by the chief
executive or financial officer of Borrower.
9.1.3. BORROWING BASE CERTIFICATE AND OTHER MONTHLY REPORTS.
Furnish to the Lender monthly (i) by the 20th day of each month a Borrowing
Base Certificate for the last day of the prior month, on behalf of the
Borrower, confirming that the outstanding principal balance of the
Revolving Credit Note does not exceed the lesser of the Revolving Credit
Commitment Amount or the Borrowing Base, as then in effect (or, if such is
not the case, accompanied by a mandatory prepayment in accordance with this
Agreement), and (ii) by the 20th day of each month, a detailed listing of
the Borrower's Inventory and Accounts aging (in such detail as the Lender
may require) for the immediately preceding month.
9.1.4. QUARTERLY COMPLIANCE CERTIFICATE. Furnish to the
Lender not later than the 30th day of the month following the end of each
calendar quarter (beginning with the quarter ending December 31, 1996) a
Compliance Certificate dated as of the end of the month immediately prior
to the due date for such Compliance Certificate.
9.1.5. ADVERSE EVENTS. Promptly inform the Lender of the
occurrence of any Event of Default or Default, or of any occurrence which
has or would reasonably be expected to have a materially adverse effect
upon the Borrower's business, properties, financial condition or ability to
comply with their respective obligations hereunder.
9.1.6. PUBLIC FILINGS. Furnish to the Lender, promptly, upon
filing the same, all securities agency filings, both state and federal.
9.1.7. OTHER INFORMATION AS REQUESTED. Promptly furnish to
the Lender such other information regarding the operations, business
affairs and financial condition of the Borrower as the Lender may
reasonably request from time to time and permit the Lender, its employees,
attorneys and agents, to inspect all of the books, records and properties
of the Borrower during normal business hours, except that upon any Event of
Default, the Lender may perform such actions at any reasonable time.
9.2. INSURANCE. Keep its insurable properties (including, but not
limited to, the Collateral and the Real Property) adequately insured and
maintain (a) insurance against fire and other risks customarily insured against
by companies engaged in the same or a similar business to that of the Borrower,
(b) necessary worker's compensation insurance, (c) public liability and product
liability insurance, and (d) such other insurance as may be required by law or
as may be reasonably required in writing by the Lender, all of which insurance
shall be in such amounts, containing such terms, in such form, for such purposes
and written by such companies as may be satisfactory to the Lender in the
reasonable exercise of its judgment. All such policies shall
CREDIT AGREEMENT - Page 28
<PAGE>
contain a provision whereby they may not be canceled except upon thirty days'
prior written notice to the Lender. The Borrower will deliver to the Lender,
at the Lender's request, evidence satisfactory to the Lender that such
insurance has been so procured and, with respect to casualty insurance
covering the Collateral, names the Lender as "mortgagee". If the Borrower
fails to maintain satisfactory insurance as herein provided, the Lender shall
have the option to do so, and the Borrower agrees to repay the Lender, with
interest at three percent (3%) per annum plus the Prime Rate, all amounts so
expended by the Lender.
9.3. TAXES. Pay within the time that they can be paid without interest
or penalty all taxes, assessments and similar imposts and charges of every kind
and nature lawfully levied, assessed or imposed upon it and its property, except
to the extent being contested in good faith and for which adequate reserves have
been established on the balance sheet of the Borrower. If the Borrower shall
fail to pay or contest such taxes and assessments by their due date, the Lender
shall have the option to do so, and the Borrower agrees to repay the Lender,
with interest at three percent (3%) per annum plus the Prime Rate, all amounts
so expended by the Lender.
9.4. MAINTAIN LEGAL EXISTENCE AND BUSINESS. Do or cause to be done all
things necessary to preserve and keep in full force and effect their legal
existence, rights and franchise and comply, in all material respects, with all
applicable laws; continue to conduct and operate its business substantially as
conducted and operated during the present and preceding calendar year.
9.5. TANGIBLE NET WORTH. Maintain Tangible Net Worth (plus Subordinated
Debt) in an amount not less than the following amounts at the end of each
calendar quarter during each of the following respective periods:
PERIODS AMOUNT
------- ------
(a) From the date of this Agreement $1,250,000
through September 30, 1997
(b) From December 31, 1997 through $3,000,000
September 30, 1998
(c) From December 31, 1998, and at all $5,000,000
times thereafter
CREDIT AGREEMENT - Page 29
<PAGE>
9.6. SENIOR INDEBTEDNESS RATIO. Maintain as of the end of each calendar
quarter a Senior Indebtedness Ratio of not more than the following respective
ratios:
PERIODS MAXIMUM RATIOS
------- --------------
(a) From the date of this Agreement 3.75:1.0
through March 31, 1997
(b) June 30, 1997 through 3.50:1.0
September 30, 1997
(c) From December 31, 1997 3.25:1.0
through September 30, 1998
(d) At December 31, 1998 and at all 3.0:1.0
times thereafter
9.7. CASH FLOW COVERAGE RATIO. Maintain as of the end of each calendar
quarter a Cash Flow Coverage Ratio of not less than the following respective
ratios:
PERIODS MINIMUM RATIOS
------- --------------
(a) From the date of this Agreement 1.75:1.0
and at all times thereafter
9.8. FIXED CHARGE COVERAGE RATIO. Maintain as of the end of each
calendar quarter a Fixed Charge Coverage Ratio (computed on the basis of the
previous twelve-month period) of not less than 1.0:1.0.
9.9. ERISA. (a) Subject to the exceptions set forth in Section 11.1.7,
at all times meet the minimum funding requirements of ERISA with respect to the
Borrower's employee benefit plans subject to such minimum funding requirements;
(b) promptly after the Borrower knows or has reason to know (i) of the
occurrence of any event, which would constitute a reportable event or prohibited
transaction under ERISA that would result in a material adverse effect on the
business or financial condition of the Borrower, or (ii) that the PBGC or the
Borrower has instituted or will institute proceedings to terminate an employee
pension plan, deliver to the Lender a certificate of the chief financial officer
of the Borrower setting forth details as to such event or proceedings and the
action which the Borrower proposes to take with respect thereto, together with a
copy of any notice of such event which may be required to be filed with the
PBGC; and (c) a copy of the annual return (including all schedules and
attachments) for each plan covered by ERISA, and filed with the Internal Revenue
Service by the Borrower, not later than ten (10) days after receipt of a written
request from the Lender for such report.
CREDIT AGREEMENT - Page 30
<PAGE>
9.10. USE OF LOAN PROCEEDS. Use the proceeds of the Loans hereunder for
the purposes set forth herein.
9.11. UNUSED FACILITY FEE. Pay the Unused Facility Fee when due.
SECTION 10. NEGATIVE COVENANTS
From the date hereof until the Senior Indebtedness is paid in full, the
Borrower covenants and agrees it will not:
10.1. DIVIDENDS. Except for (a) the Special Dividend and
(b) distributions to a shareholder made when no Event of Default exists or would
exist giving effect to any such distribution), declare or pay any dividend
(other than dividends payable solely in shares of its capital stock) on, or make
any other distribution with respect to (whether by reduction of capital or
otherwise), any shares of its capital stock.
10.2. STOCK ACQUISITION. Purchase, redeem, retire or otherwise acquire
any of the shares of its capital stock, or make any commitment to do so.
10.3. LIENS AND ENCUMBRANCES. Create, incur, assume or suffer to exist
any mortgage, pledge, encumbrance, security interest, lien or charge of any kind
(including any charge upon property purchased or acquired under a conditional
sales or other title-retaining agreement or lease required to be capitalized
under GAAP) upon any of its property or assets, whether now owned or hereafter
acquired, other than Permitted Liens.
10.4. INDEBTEDNESS. Incur, create, assume or permit to exist any
Indebtedness, except for (a) the Senior Indebtedness, (b) indebtedness
subordinated to the prior payment in full of the Senior Indebtedness upon terms
and conditions approved in writing by the Lender, (c) existing indebtedness to
the extent set forth on schedules to this Agreement, (d) indebtedness secured by
Permitted Liens, and (e) capitalized lease obligations in excess of $200,000 in
the aggregate at any time.
10.5. EXTENSION OF CREDIT. Make loans, advances or extensions of credit
to any Person other than loans and advances to employees which in the aggregate
do not exceed $50,000 at any time.
10.6. GUARANTEE OBLIGATIONS. Guarantee or otherwise, directly or
indirectly, in any way be or become responsible for obligations of any other
Person, whether by agreement to purchase the indebtedness of any other Person,
agreement for the furnishing of funds to any other Person through the furnishing
of goods, supplies or services, by way of stock purchase, capital contribution,
advance or loan, for the purpose of paying or discharging (or causing the
payment or discharge of) the indebtedness of any other Person, or otherwise,
except for the endorsement of negotiable instruments by the Borrower in the
ordinary course of business for deposit or collection.
CREDIT AGREEMENT - Page 31
<PAGE>
10.7. SUBORDINATE INDEBTEDNESS. Subordinate any indebtedness due to it
from a Person to indebtedness of other creditors of such Person.
10.8. PROPERTY TRANSFER, MERGER OR LEASE-BACK. (a) Sell, lease, transfer
or otherwise dispose of all or, except as to the sale of Inventory or unneeded
Equipment in the ordinary course of business, any material part of its
properties and assets (whether in one transaction or in a series of
transactions), (b) change its name, consolidate with or merge into any other
corporation, permit another corporation to merge into it, acquire all or
substantially all the properties or assets of any other Person, enter into any
reorganization or recapitalization or reclassify its capital stock, or (c) enter
into any sale-leaseback transaction, provided that Borrower and its Subsidiaries
may make transfers of assets among themselves so long as the liens and security
interests of the Lender in the Collateral at all times remain perfected and in
full force and effect.
10.9. ACQUIRE SECURITIES. Purchase or hold beneficially any stock or
other securities of, or make any investment or acquire any interest whatsoever
in, any other Person except for investments:
(a) in commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit rating
given by either Standard & Poor's Corporation or Moody's Investors Service,
Inc.;
(b) in obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of
America or an instrumentality or agency thereof and entitled to the full
faith and credit of the United States of America;
(c) in demand deposits, and time deposits (including certificates
of deposit) maturing within 12 months from the date of deposit thereof,
with any office of the Lender, any of the Lender's affiliates, or any
national or state bank or trust company which is organized under the laws
of the United States of America or any state therein and which has capital,
surplus and undivided profits of at least $100,000,000; and
(d) in repurchase obligations of any bank or trust company
described in the above subsection (c) which relate to the repurchase of
obligations described in the above subsection (b).
10.10. PENSION PLANS. (a) Allow any fact, condition or event to
occur or exist with respect to an employee pension plan which would constitute
grounds for termination by the PBGC of any such plan or for the appointment by a
United States District Court of a trustee to administer any such plan, or
(b) permit any such plan to be the subject of termination proceedings (whether
voluntary or involuntary) from which termination proceedings there results a
liability of the Borrower to the PBGC which will have a materially adverse
effect upon the operations, business, property, assets, financial condition or
credit of the Borrower.
CREDIT AGREEMENT - Page 32
<PAGE>
10.11. MARGIN STOCK. Apply any of the proceeds of the Notes to the
purchase or carrying of any "margin stock" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System, or any regulations,
interpretations or rulings thereunder.
10.12. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will not
(i) use (and will use commercially reasonable efforts to prevent any tenant from
using) any of its real property for the handling, processing, storage,
transportation, or disposal of any Hazardous Substance except in all respects in
compliance with Environmental Laws, (ii) generate (as such term is defined in
RCRA) any Hazardous Substance except in all respects in compliance with
Environmental Laws, (iii) conduct any activity which causes a release (as such
term is defined in CERCLA) of any Hazardous Substance in violation of
Environmental Law, or (iv) otherwise conduct any activity or use any of its real
property or assets in any manner that violates any Environmental Law except
that, in each of cases (i)-(iv) above, in such a manner as would not result in a
material adverse effect on the business or financial condition of the Borrower.
10.13. SUBORDINATED CREDIT PAYMENTS. Make any payments of principal
to the subordinated lender under the Subordinated Credit Agreement until the
Term Note principal balance is less than or equal to $2,000,000.
SECTION 11. EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF PROCEEDS
11.1. EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an Event of Default hereunder:
11.1.1. FAILURE TO PAY MONIES DUE. If any principal of or
interest on any of the Senior Indebtedness shall not be paid within one
Business Day after becoming due.
11.1.2. MISREPRESENTATION. If any warranty or representation
of the Borrower in connection with or contained in this Agreement, or if
any financial data or other information now or hereafter furnished to the
Lender by or on behalf of the Borrower, shall prove to be false or
misleading in any material respect.
11.1.3. NONCOMPLIANCE WITH LENDER AGREEMENT. If the Borrower
shall fail to perform any of its obligations and covenants under, or shall
fail to comply with any of the provisions of, this Agreement or any other
Loan Document or any other agreement with the Lender to which it may be a
party, and such failure is not remedied within thirty (30) days after the
Lender gives written notice thereof to the Borrower.
11.1.4. OTHER DEFAULTS.
(a) If the Borrower shall default in the due payment of any
of its Senior Indebtedness (other than under the Loan Documents) or
in the observance or performance of any term, covenant or condition
in any agreement or instrument evidencing, securing or relating to
such Senior Indebtedness, and
CREDIT AGREEMENT - Page 33
<PAGE>
such default shall be continued for a period sufficient to permit
acceleration thereof;
(b) If the Borrower shall default under the Deed of Trust
or in the due payment of any of its Debt (other than the Senior
Indebtedness) or in the observance or performance of any term,
covenant or condition in any agreement or instrument evidencing,
securing or relating to such Debt, and such default shall be
continued for a period sufficient to permit acceleration of the
indebtedness; or
(c) If the Borrower should default under the Subordinated
Credit Agreement.
11.1.5. JUDGMENTS. If there shall be rendered against the
Borrower, one or more judgments or decrees involving an aggregate liability
of $100,000 or more, which has or have become final and nonappealable and
shall remain undischarged, unsatisfied by insurance and unstayed for more
than 30 days; or of a writ of attachment or garnishment against the
property of the Borrower shall be issued and levied in an action claiming
$100,000 or more, and within the time allowed under applicable law is
neither released nor stayed nor appealed and bonded in a manner
satisfactory to the Lender.
11.1.6. BUSINESS SUSPENSION, BANKRUPTCY, ETC. If the Borrower
shall voluntarily suspend transaction of its business for a period in
excess of five (5) Business Days (unless covered by business interruption
insurance); or if the Borrower generally shall not pay its debts as they
become due, subject to applicable grace periods, or shall make a general
assignment for the benefit of creditors; or proceedings in bankruptcy, or
for reorganization or liquidation of the Borrower, under the Bankruptcy
Code or under any other state or federal law for the relief of debtors
shall be commenced by the Borrower or shall be commenced against the
Borrower and shall not be discharged within sixty (60) days of
commencement; or a receiver, trustee or custodian shall be appointed for
the Borrower or for any substantial portion of its respective properties or
assets.
11.1.7. INADEQUATE FUNDING OR TERMINATION OF EMPLOYEE/BENEFIT
PLAN(S). If the Borrower shall fail by $50,000 or more to meets its
minimum funding requirements under ERISA (after giving effect to any valid
waiver of such requirements) with respect to any employee benefit plan
established or maintained by the Borrower, or if any such plan shall be the
subject of termination proceedings (whether voluntary or involuntary) and
there shall result from such termination proceedings a liability of the
Borrower (or any subsidiary) to the PBGC of $50,000 or more.
11.1.8. OCCURRENCE OF CERTAIN REPORTABLE EVENTS. If there
shall occur, with respect to any pension plan maintained by the Borrower,
any reportable event (within the meaning of section 4043(b) of ERISA) which
the Lender shall determine in good faith constitutes a ground for the
termination by the PBGC of any such plan, and if such event continues for
60 days after the Lender gives written notice to the Borrower, provided
that
CREDIT AGREEMENT - Page 34
<PAGE>
termination of such plan or appointment of such trustee would, in the
opinion of the Lender, have a materially adverse effect upon the
operations, business, property, assets, financial condition or credit of
the Borrower.
11.2. ACCELERATION OF SENIOR INDEBTEDNESS. Upon the occurrence of any of
the Events of Default described in Section 11.1, all Senior Indebtedness may be
declared due and payable in full forthwith at the option of the Lender without
presentation, demand, protest, notice of dishonor or other notice of any kind,
all of which are hereby expressly waived. Unless all of the Senior Indebtedness
is then fully paid, the Lender shall have and may exercise any one or more of
the rights and remedies for which provision is made for a secured party under
the UCC, under the Security Agreement, the Deed of Trust or under any other
document contemplated hereby, including, without limitation, the right to take
possession and sell, lease or otherwise dispose of any or all of the Collateral
and to setoff against the Senior Indebtedness any amount owing by the Lender to
the Borrower. The Borrower agrees, upon request of the Lender, to assemble the
Collateral and make it available to the Lender at any place designated by the
Lender which is reasonably convenient to the Lender and the Borrower.
11.3. APPLICATION OF PROCEEDS. The proceeds of any sale or other
disposition of the Collateral authorized by this Agreement shall be applied by
the Lender, first upon all expenses authorized by the UCC and all reasonable
attorneys' fees and legal expenses incurred by the Lender; the balance of the
proceeds of such sale or other disposition shall be applied in the payment of
the Senior Indebtedness, first to interest, then to principal; and the surplus,
if any, shall be paid over to the Borrower or to such other Person or Persons as
may be entitled thereto under applicable law. The Borrower shall remain liable
for any deficiency, which the Borrower shall pay to the Lender immediately upon
demand.
11.4. CUMULATIVE REMEDIES. The remedies provided for herein are
cumulative to the remedies for collection of the Senior Indebtedness as provided
by law or by any mortgage, security agreement or other document contemplated
hereby. Nothing herein contained is intended, nor should it be construed, to
preclude the Lender from pursuing any other remedy for the recovery of any other
sum to which the Lender may be or become entitled for the breach of this
Agreement by the Borrower.
SECTION 12. MISCELLANEOUS
12.1. INDEPENDENT RIGHTS. No single or partial exercise of any right,
power or privilege hereunder, or any delay in the exercise thereof, shall
preclude other or further exercise of the rights of the parties to this
Agreement.
12.2. COVENANT INDEPENDENCE. Each covenant in this Agreement shall be
deemed to be independent of any other covenant, and an exception in one covenant
shall not create an exception in another covenant.
12.3. WAIVERS AND AMENDMENTS. No forbearance on the part of the Lender in
enforcing any of its rights under this Agreement, nor any renewal, extension or
rearrangement
CREDIT AGREEMENT - Page 35
<PAGE>
of any payment or covenant to be made or performed by the Borrower
hereunder, shall constitute a waiver of any of the terms of this Agreement or of
any such right. No Default or Event of Default shall be waived by the Lender
except in writing signed and delivered by an officer of the Lender, and no
waiver of any Default or Event of Default shall operate as a waiver of any other
Default or Event of Default or of the same Default or Event of Default on a
future occasion. No other amendment, modification or waiver of, or consent with
respect to, any provision of this Agreement or the Note or other documents
contemplated hereby shall be effective unless the same shall be in writing and
signed and delivered by an officer of the Lender.
12.4. GOVERNING LAW. THIS AGREEMENT, AND EACH AND EVERY TERM AND
PROVISION HEREOF, SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE
STATE OF TEXAS. IF ANY PROVISIONS OF THIS AGREEMENT SHALL FOR ANY REASON BE
HELD INVALID OR UNENFORCEABLE, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT
AFFECT ANY OTHER PROVISION HEREOF, BUT THIS AGREEMENT SHALL BE CONSTRUED AS IF
SUCH INVALID OR UNENFORCEABLE PROVISION HAD NEVER BEEN CONTAINED HEREIN.
12.5. SURVIVAL OF WARRANTIES, ETC. All of the Borrower's covenants,
agreements, representations and warranties made in connection with this
Agreement and any document contemplated hereby shall survive the making of
Advances and the delivery of the Notes hereunder and shall be deemed to have
been relied upon by the Lender, notwithstanding any investigation heretofore or
hereafter made by the Lender. All statements contained in any certificate or
other document delivered to the Lender at any time by or on behalf of the
Borrower pursuant hereto or in connection with the transactions contemplated
hereby shall constitute representations and warranties by the Borrower in
connection with this Agreement.
12.6. ATTORNEYS' FEES. The Borrower agrees that it will pay all
reasonable costs and expenses of the Lender in connection with the enforcement
of the Lender's rights and remedies under this Agreement and in connection with
the preparation or making of any amendments, modifications, waivers or consents
with respect to this Agreement.
12.7. PAYMENTS ON SATURDAYS, ETC. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a Saturday, Sunday or
any other day which is not a Business Day, such payment shall be due on the next
succeeding Business Day, and such extension, if any, shall be included in
computing interest in connection with such payment.
12.8. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon the parties hereto and their respective successors and
assigns; provided, however, the Borrower may not assign or transfer any rights
or obligations hereunder without the prior written consent of the Lender.
12.9. MAINTENANCE OF RECORDS. The Borrower will keep all of its
respective records concerning the Collateral and the Equipment at its principal
place of business. The Borrower will
CREDIT AGREEMENT - Page 36
<PAGE>
give the Lender prompt written notice of any change in its respective
principal place of business, or in the location of said records.
12.10. NOTICES. All notices and communications provided for herein
or in any document contemplated hereby or required by law to be given shall be
effective when received or, upon sending by registered or certified mail,
postage prepaid, addressed as follows: (a) If to the Borrower, to: Jeffrey P.
Johnson, Chief Financial Officer, 9846 Hwy. 31 East, Tyler, Texas 75705, and
(b) If to the Lender, to: 8828 Stemmons Freeway, Suite 441, Dallas, Texas
75247, Attention: David Terry, or to such other address as a party shall have
designated to the other in writing.
12.11. COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures were upon the same
instrument.
12.12. HEADINGS. Article and section headings in this Agreement are
included for the convenience of reference only and shall not constitute a part
of this Agreement for any purpose.
12.13. INDEMNIFICATION. THE BORROWER HEREBY COVENANTS AND AGREES TO
INDEMNIFY, DEFEND AND HOLD HARMLESS THE LENDER AND ITS OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS ("INDEMNIFIED PERSONS") FROM AND AGAINST ANY AND ALL
CLAIMS, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION,
THE FEES AND OUT-OF-POCKET EXPENSES OF COUNSEL) WHICH MAY BE INCURRED BY OR
ASSERTED AGAINST THE LENDER OR ANY SUCH OTHER INDIVIDUAL OR ENTITY IN CONNECTION
WITH:
(a) ANY INVESTIGATION, ACTION OR PROCEEDING ARISING OUT OF OR IN
ANY WAY RELATING TO THIS AGREEMENT, THE NOTES, OR ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THE LOANS OR ANY COLLATERAL, OR ANY ACT OR OMISSION
RELATING TO ANY OF THE FOREGOING;
(b) ANY TAXES (OTHER THAN FEDERAL OR STATE INCOME TAXES),
LIABILITIES, CLAIMS OR DAMAGES RELATING TO THE COLLATERAL OR THE LENDER'S
LIENS THEREON; OR
(c) THE CORRECTNESS, VALIDITY OR GENUINENESS OF ANY INSTRUMENTS
OR DOCUMENTS THAT MAY BE RELEASED OR ENDORSED TO BORROWER BY THE LENDER
(WHICH SHALL AUTOMATICALLY BE DEEMED TO BE WITHOUT RECOURSE TO THE LENDER
IN ANY EVENT), OR THE EXISTENCE, CHARACTER, QUANTITY, QUALITY, CONDITION,
VALUE OR DELIVERY OF ANY GOODS PURPORTING TO BE REPRESENTED BY ANY SUCH
DOCUMENTS.
CREDIT AGREEMENT - Page 37
<PAGE>
NOTWITHSTANDING THE FOREGOING, THE BORROWER SHALL NOT BE REQUIRED TO INDEMNIFY
ANY SUCH INDEMNIFIED PERSON FROM OR AGAINST ANY PORTION OF SUCH CLAIMS, DAMAGES,
LIABILITIES OR EXPENSES ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH INDEMNIFIED PERSON.
12.14. NO ORAL AGREEMENTS. THIS AGREEMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN THE LENDER AND
THE BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE LENDER AND THE BORROWER.
12.15. GENDER. Throughout this Agreement, the masculine shall
include the feminine and vice versa and the singular shall include the plural
and vice versa, unless the context of this Agreement indicates otherwise.
12.16. CROSS COLLATERAL. The Borrower hereby agrees that the
Collateral under this Agreement secures the obligations now or hereafter
outstanding under all other agreements between Borrower and the Lender or any of
their affiliates and the collateral pledged under any other agreement with the
Lender or any of its affiliates secures the obligations under this Agreement.
12.17. SEVERABILITY OF PROVISIONS. Any provision of this Agreement,
the Notes or any other documents relating thereto that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, such Notes or such other documents or
affecting the validity or enforceability of such provision in any other
jurisdiction.
12.18. ASSIGNMENT. The Lender shall have the absolute and
unrestricted right to sell, assign, transfer, or grant participation in, all or
any portion of the Loans and any Collateral, guaranties or other security
relating thereto without the consent of the Borrower to any federal or state
agency, or to any bank affiliate of the Bank, or, with the Borrower's consent
(which shall not be unreasonably withheld and shall not be required during the
existence of an Event of Default), to any commercial bank or to any other
financial institution or holding company of any of the foregoing; provided,
however, no such action on the part of the Lender shall have the effect of
changing any of the Borrower's obligations hereunder without the respective
written consent or the Borrower.
12.19. WAIVER OF JURY TRIAL. The Borrower and the Lender hereby
irrevocably waive the right to trial by jury with respect to any and all actions
or proceedings at any time in which Borrower and Lender are parties arising out
of this Agreement.
CREDIT AGREEMENT - Page 38
<PAGE>
12.20. SURVIVAL OF AGREEMENT. Notwithstanding anything to the
contrary contained in this Agreement, the provisions of this Agreement shall
remain in full force and effect until such time as all Senior Indebtedness is
paid in full.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
written above.
BORROWER:
ZIMMERMAN SIGN COMPANY
By: /s/ JEFFREY JOHNSON
---------------------------------
Name: Jeffrey Johnson
---------------------------
Title: VP, CFO
---------------------------
LENDER:
COMERICA BANK-TEXAS
By: /s/ DAVID TERRY
---------------------------------
Name: David Terry
---------------------------
Title: AVP
---------------------------
CREDIT AGREEMENT - Page 39
<PAGE>
SCHEDULE OF EXHIBITS
Exhibit A Revolving Credit Note
Exhibit B Term Note
LIST OF SCHEDULES
Schedule 8.4 Actions, Suits or Proceedings
Schedule 8.6 Liens
Schedule 8.12 Debt
<PAGE>
Exhibit "A"
to
Credit Agreement
REVOLVING CREDIT NOTE
<PAGE>
Exhibit "B"
to
Credit Agreement
TERM NOTE
<PAGE>
SCHEDULE 8.4
ACTIONS, SUITS, PROCEEDINGS
No material pending litigation or proceedings.
<PAGE>
SCHEDULE 8.6
LIENS
NONE
<PAGE>
SCHEDULE 8.12
DEBT
As reflected on 2-29-96 Financial Statements
