<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
AMERICAN BANKERS INSURANCE GROUP, INC.
11222 QUAIL ROOST DRIVE
MIAMI, FLORIDA 33157
(305) 253-2244
Commission File Number: 0-9633
State of Incorporation: Florida
I.R.S. Employer Identification Number: 59-1985922
Indicate, by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Common Stock - Par Value $1.00
43,197,036 Shares Outstanding on May 10, 1999
1
<PAGE> 2
Form 10-Q
Company or group of companies for which report is filed:
AMERICAN BANKERS INSURANCE GROUP, INC.
This quarterly report, filed pursuant to Rule 13A-13 of the General Rules and
Regulations under the Securities Exchange Act of 1934, consists of the following
information as specified in Form 10-Q.
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
1. Consolidated Balance Sheets at March 31, 1999 and December 31, 1998.
2. Consolidated Statements of Income for the three months ended
March 31, 1999 and 1998.
3. Consolidated Statements of Comprehensive Income for the three months
ended March 31, 1999 and 1998.
4. Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998.
5. Notes to Consolidated Financial Statements.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
ITEM 4 - Submission of Matters to a Vote of Security Holders
ITEM 6 - Exhibits and Reports
a. Exhibits.
The following exhibits are included herein:
(2.1) Asset Purchase Agreement between Beacon Printing & Graphics,
Inc., American Bankers Insurance Group, Inc. and H&D Graphics, Inc.
dated as of February 15, 1999.
(27) Financial Data Schedule
b. Report on Form 8-K.
Form 8-K, filed on March 10, 1999.
2
<PAGE> 3
Form 10-Q
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BANKERS
INSURANCE GROUP, INC.
May 13, 1999
Date
----------------------------
Robert Hill
Principal Accounting Officer
3
<PAGE> 4
PART I
FINANCIAL INFORMATION
4
<PAGE> 5
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Investments
Held-to-maturity securities, at amortized cost $ 745,291 $ 775,305
Available-for-sale securities, at fair value 1,260,569 1,254,876
Equity securities, at approximate market value 166,092 130,437
Mortgage loans on real estate 5,525 6,969
Policy loans 9,837 9,873
Short-term and other investments 253,817 352,764
----------- -----------
Total investments 2,441,131 2,530,224
----------- -----------
Cash 9,190 12,755
Accounts receivable, net of allowance for doubtful
accounts of $7,515 in 1999 and $7,516 in 1998 146,347 136,049
Reinsurance receivable 314,472 315,477
Accrued investment income 32,435 30,586
Deferred policy acquisition costs 475,035 482,995
Prepaid reinsurance premiums 669,895 661,665
Other assets 193,143 198,756
----------- -----------
Total assets $ 4,281,648 $ 4,368,507
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities $ 341,813 $ 336,982
Unearned premiums 1,596,467 1,611,886
Claim liabilities 607,690 608,501
----------- -----------
2,545,970 2,557,369
Other policyholders' funds 8,817 5,976
Notes payable 147,740 193,753
Deferred income taxes 31,005 32,824
Accrued commissions and other expenses 132,258 140,055
Other liabilities 350,337 377,648
----------- -----------
Total liabilities 3,216,127 3,307,625
----------- -----------
Commitments and Contingencies (Note 6)
STOCKHOLDERS' EQUITY
Preferred stock: authorized 10,000 shares
$3.125 Series B Cumulative Convertible Preferred Stock
(stated at liquidation preference of $50 per share),
issued and outstanding 1,983 shares in 1999 and 1,983 shares in 1998 99,160 99,160
Common stock of $1 par value. Authorized 100,000 shares;
issued and outstanding 43,199 shares in 1999 and 43,080 shares in 1998 43,199 43,080
Additional paid-in capital 252,507 245,389
Accumulated other comprehensive income (1,450) 2,593
Retained earnings 716,866 690,726
Less:
Treasury stock at cost - 836 shares in 1999 and 360 shares in 1998 (34,580) (11,876)
Unamortized restricted stock (10,181) (8,190)
----------- -----------
Total stockholders' equity 1,065,521 1,060,882
----------- -----------
Total liabilities and stockholders' equity $ 4,281,648 $ 4,368,507
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands except per common share data)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Gross collected premiums $ 670,213 $ 697,871
========= =========
Premiums and other revenues:
Net premiums earned $ 356,964 $ 356,847
Net investment income 39,387 35,178
Realized investment gains 3,001 2,178
Merger termination fee (100,000)
Other income 12,540 5,964
--------- ---------
Total premiums and other revenues 411,892 300,167
--------- ---------
Benefits and expenses:
Net benefits, claims, losses and settlement expenses 116,264 122,938
Commissions 163,681 153,765
Operating expense 83,550 88,903
Interest expense 2,721 4,177
--------- ---------
Total benefits and expenses 366,216 369,783
--------- ---------
Income (loss) before taxes 45,676 (69,616)
--------- ---------
Income tax expense (benefit):
Current 9,484 (19,947)
Deferred 2,186 (6,990)
--------- ---------
11,670 (26,937)
--------- ---------
Net income (loss) $ 34,006 $ (42,679)
========= =========
Per common share and common equivalent share data
Basic:
Net income (loss) $ 0.77 $ (1.06)
========= =========
Weighted average number of shares outstanding 42,400 41,959
========= =========
Diluted:
Net income $ 0.73 $ N/A
========= =========
Weighted average number of shares outstanding 46,708 46,940
========= =========
Dividends per common share $ 0.12 $ 0.11
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net income (loss) $ 34,006 $(42,679)
-------- --------
Other comprehensive income, net of tax:
Foreign currency translation adjustments 880 (395)
Unrealized gains on securities:
Unrealized holding (losses) gains arising during period (2,535) 9,305
Reclassification adjustment for gains on securities available for sale
included in net income (2,388) (231)
-------- --------
Other comprehensive (loss) income (4,043) 8,679
-------- --------
Comprehensive income (loss) $ 29,963 $(34,000)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Operating activities:
Net income (loss) $ 34,006 $ (42,679)
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in policy liabilities, unearned premiums, claim
liabilities, reinsurance receivable and prepaid reinsurance premiums (19,603) (1,030)
Change in other assets and other liabilities (24,411) (48,878)
(Increase) decrease in accounts receivable (10,298) 21,173
Increase in accrued investment income (1,849) (1,187)
Decrease in accrued commissions and expenses (7,797) (9,397)
Increase in policyholders' funds 2,841 277
Decrease (increase) in policy loans 36 (207)
Amortization of deferred policy acquisition costs 126,986 153,453
Amortization of cost of insurance acquired 264 309
Policy acquisition costs deferred (119,025) (152,117)
Provision for amortization and depreciation 4,031 3,015
Provision for deferred income taxes 2,186 (6,990)
Net gain on sale of investments (3,001) (2,178)
Compensation and tax effect on stock option shares 2,347 5,940
--------- ---------
Net cash used in operating activities (13,287) (80,496)
--------- ---------
Investing activities:
Purchase of investments
Held-to-maturity securities (3,724) (5,325)
Available-for-sale securities (183,325) (172,819)
Proceeds from sale of investments
Available-for-sale securities 64,945 92,993
Mortgage loans 1,708 201
Real Estate 1,629 1
Proceeds from maturities of investments
Held-to-maturity securities 36,812 28,126
Available-for-sale securities 69,687 28,665
Decrease (increase) in short-term investments 98,909 (11,399)
Transactions related to capital assets
Capital expenditures (3,330) (1,806)
Sales of capital assets 91 29
--------- ---------
Net cash provided by (used in) investing activities 83,402 (41,334)
--------- ---------
Financing activities:
Proceeds from issuance of debt 107,765
Repayment of debt (46,013)
Dividends paid to shareholders (7,812) (6,457)
Proceeds from issuance of stock 2,847 277
Purchase of treasury stock (22,703)
--------- ---------
Net cash (used in) provided by financing activities (73,681) 101,585
--------- ---------
Net decrease in cash (3,566) (20,245)
Cash at beginning of period 12,755 23,265
Rate change effect on cash flow 1 18
--------- ---------
Cash at end of period $ 9,190 $ 3,038
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,028 $ 2,751
Income taxes $ 42,500 $ 3,003
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
AMERICAN BANKERS INSURANCE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(1) FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period ended March
31, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Certain items have been reclassed to conform with 1999 presentation.
(2) POTENTIAL CHANGE OF CONTROL OF THE COMPANY
On March 5, 1999, the Company entered into an agreement pursuant to which
Fortis, Inc. ("Fortis") will acquire the Company through a merger. The Company,
Fortis and Greenland Acquisition Corp, a wholly owned subsidiary of Fortis,
entered into an Agreement and Plan of Merger (the "Fortis Merger Agreement")
which provides that, subject to satisfaction of specified terms and conditions,
including regulatory and common stockholder approval, Greenland will merge with
and into the Company. The Company will be the surviving corporation in the
Merger and will become a wholly owned subsidiary of Fortis. If the merger is
consummated, holders of the Company's common stock will receive $55.00 in cash
for each share of common stock. Holders of the Company's preferred stock will
receive $109.857 in cash for each share of preferred stock unless the merger is
not approved by the holders of at least 2/3 of the shares of preferred stock
voting as a class or if Fortis reasonably determines that such a vote is not
likely to be obtained. In such case, the preferred stock will continue to remain
outstanding after the merger, pursuant to the terms and conditions as are in
effect on March 5, 1999, except that the preferred stock will be convertible as
provided in the Company's Articles of Incorporation. The Company also executed a
Stock Option Agreement granting Fortis the right to purchase up to 8,406,559
shares of common stock upon the occurrence of certain events at $55 per share.
If the merger is not consummated, the total amount that Fortis may receive under
the Stock Option Agreement and the Fortis Merger Agreement is limited to $100
million plus expenses. In addition, certain stockholders have entered into a
voting agreement with Fortis pursuant to which they have generally agreed to
vote their shares in favor of the Fortis Merger Agreement and the merger.
The merger is subject to approval by regulatory authorities and the Company's
shareholders which are expected to be obtained by the end of the third quarter
of 1999. Upon merger closing, the Company will recognize certain expenses
associated with the accelerated vesting of benefits under several compensation
plans, including employee stock options and restricted stock. The Company
estimates that the pre-tax charge related to the acceleration of such benefits
will be approximately $7.4 million.
Certain officers of the Company have severance agreements which entitle them to
receive specified payments under certain circumstances following a change in
control. Upon merger closing, the maximum amount that the Company could incur
pursuant to such severance agreements is approximately $23.6 million, pre-tax.
(3) ADOPTION OF NEW FASB STATEMENTS
In 1998, the Company adopted FASB Statement 131, "Disclosures about
Segments of an Enterprise and Related Information." FASB Statement 131
supersedes FASB Statement 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. FASB Statement 131 also
requires disclosures about products and services, geographic areas, and major
customers. The adoption of FASB Statement 131 did not affect results of
operations or financial position of the Company but did affect the disclosure of
segment information. The Company has restated all previously reported segment
information to conform to the new presentation. The provisions of FASB Statement
131 were adopted for quarterly reporting in March of 1999.
9
<PAGE> 10
(4) COMPREHENSIVE INCOME
Related tax effects are allocated to each component of other comprehensive
income as follows:
<TABLE>
<CAPTION>
(in thousands)
1999 1998
-------- --------
<S> <C> <C>
Foreign currency translation adjustments
Before tax amount $ 647 $ (552)
Tax benefit 233 157
-------- --------
Net of tax amount 880 (395)
-------- --------
Unrealized gains on securities:
Unrealized holding (losses) gains arising during period
Before tax amount (3,859) 13,361
Tax benefit or (expense) 1,324 (4,056)
-------- --------
Net of tax amount (2,535) 9,305
-------- --------
Reclassification adjustment for gains on securities
available for sale included in net income
Before tax amount (3,673) (355)
Tax expense 1,285 124
-------- --------
Net of tax amount (2,388) (231)
-------- --------
Net unrealized gains/losses
Before tax amount (7,532) 13,006
Tax benefit or (expense) 2,609 (3,932)
-------- --------
Net of tax amount (4,923) 9,074
-------- --------
Other comprehensive (loss) income, net of tax $ (4,043) $ 8,679
======== ========
</TABLE>
Accumulated Other Comprehensive Income Balances at March 31, 1999:
Accumulated
Foreign Unrealized Other
Currency Gains/(Losses) Comprehensive
Items on Securities Income
-------- -------- --------
Beginning balance $(14,339) $ 16,932 $ 2,593
Current-period change 880 (4,923) (4,043)
-------- -------- --------
Ending balance $(13,459) $ 12,009 $ (1,450)
======== ======== ========
10
<PAGE> 11
(5) REINSURANCE
The Company accounts for reinsurance contracts under FASB Statement 113. The
Company recognizes the income on reinsurance contracts principally on a pro-rata
basis over the life of the policies covered under the reinsurance agreements.
Reinsurance Recoverables on Unpaid Losses are included as an asset in the
Balance Sheet under the caption "Reinsurance Receivable." Ceded Unearned
Premiums are included as an asset in the Balance Sheet under the caption
"Prepaid Reinsurance Premiums."
The effect of reinsurance on premiums earned is as follows for the three months
ended March 31, 1999 and 1998:
(in thousands)
Three Months Ended
March 31, 1999 March 31, 1998
--------- ---------
Direct premiums $ 653,892 $ 634,671
Reinsurance assumed 31,409 37,038
Reinsurance ceded (328,337) (314,862)
--------- ---------
Net premiums earned $ 356,964 $ 356,847
========= =========
(6) COMMITMENTS AND CONTINGENCIES
For a comprehensive description of the Company's litigation, see Item III of the
Company's 1998 Form 10-K.
Certain of ABIG's subsidiaries, including the Company, are presently parties to
a number of individual consumer and class action lawsuits pending in Alabama
involving premium, rate, marketing, sales practices, disclosure, and policy
coverage issues. While a number of similar suits have been filed in other
jurisdictions, the insurance and finance industries have been targeted in
Alabama by plaintiffs' lawyers who enjoy a favorable judicial climate. The
Company typically has been named as a co-defendant with one or several retailer
or finance companies who have sold the Company's product to a consumer. Other
insurers are also joined as co-defendants in some of the suits. Although the
Alabama lawsuits and similar suits pending in Mississippi and other
jurisdictions generally involve relatively small amounts of actual or
compensatory damages, they typically assert claims requesting substantial
punitive awards or purport to represent a large class of policyholders.
Two classes have recently been certified against the Company: one class
involving collateral protection insurance sold by American Bankers Insurance
Company of Florida in the state of Tennessee after March 1990 to customers of
Mercury Finance of Tennessee, Inc., and a second class involving holders of
credit card insurance in the United States after March 1990 who had claims
denied based upon eligibility restrictions nor conspicuosly displayed on the
solicitation materials. The Company and its affiliates intend to appeal these
determinations and have been advised by counsel that they have meritorious
defenses.
While none of the Company's remaining cases are necessarily significant in terms
of financial risk to the Company, the judicial climate in certain jurisdictions
is such that the outcome of these cases is extremely unpredictable. Moreover,
class action lawsuits to which the Company is a party do not lend themselves to
potential damage calculation. There are still a number of cases pending, and it
is expected that more suits alleging essentially the same causes of action are
likely to continue to be filed during 1999. The Company denies any wrongdoing in
any of these suits and believes that it has not engaged in any conduct that
would warrant an award of punitive damages or that the class allegations have
merit. The Company has been advised by legal counsel that it has meritorious
defenses to all claims being asserted against it. The Company believes, based on
information currently available, that any liabilities that could result are not
expected to have a material effect on the Company's financial position, results
of operations, or cash flows.
11
<PAGE> 12
In late January and early February 1998, Cendant Corporation ("Cendant")
commenced litigation (the "Cendant Florida Litigation") in the United States
District Court for the Southern District of Florida, Miami Division, against the
Company, members of the Company's Board, American International Group, Inc.
("AIG") and a wholly owned subsidiary of AIG, challenging the validity of
certain provisions in the merger agreement the Company originally entered into
with AIG on December 21, 1997, which agreement was amended in January 1998 and
again at the end of February 1998 ("AIG Merger Agreement"), with respect to
acquisition proposals by third parties. Cendant's complaint in the Cendant
Florida Litigation also challenged the terms of the stock option agreement
between the Company and AIG. Pursuant to the terms of a settlement agreement
providing for the termination of the AIG Merger Agreement and the payment to AIG
by the Company of $100 million and by Cendant of $10 million (the "Settlement
Agreement"), Cendant has taken the necessary actions to cause the dismissal of
all claims asserted in the Cendant Florida Litigation against all defendants,
including the Company and members of the Company's Board. Also pursuant to the
terms of the Settlement Agreement, AIG has taken the necessary actions to cause
the dismissal of claims against Cendant alleging violations of the federal
securities laws in connection with Cendant's bid to acquire the Company.
In late January and early February 1998, five putative class actions on behalf
of American Bankers' shareholders were filed in United States District Court for
the Southern District of Florida alleging causes of action arising out of the
then proposed merger with AIG and agreeing to pay and paying the $100 million
termination fee prior to the closing of the proposed acquisition by Cendant. The
District Court Judge ordered that these cases be consolidated and that the
plaintiffs file a consolidated complaint (the "Complaint"). That Complaint was
filed in May 1998 alleging claims against the Company, all directors, except for
Messrs. Kemp and Allen, and AIG. The Complaint alleges that directors of the
Company breached their fiduciary duties and violated their duty to act with due
care and in a disinterested manner and to maximize shareholder value by entering
into the AIG Merger Agreement and agreeing to pay the $100 million termination
fee. The Complaint also alleges that the Company and AIG violated Section 14(a)
and 14(e) of the Exchange Act by making materially false and misleading
statements in the proxy statement, as amended, for the AIG Merger Agreement. The
Complaint seeks an order requiring the directors to carry out their fiduciary
duties to the plaintiffs and other class members, damages suffered by the
results of the alleged acts, an order declaring null and void the $100 million
termination fee, an order requiring defendants to make full disclosure of all
material information, and an award of plaintiff's cost and disbursements,
including plaintiff's attorney's fees. The Company and directors filed an answer
on or about June 16, 1998. Thereafter, the Company and Cendant entered into
termination arrangements under which the Company was paid $400 million. The
Company and its directors believe that the claims asserted in these actions are
totally without merit, particularly in light of the termination of the Cendant
Merger Agreement and payment by Cendant of $400 million, and intend to continue
vigorously contest them.
The Company, in the normal course, is subject to regulatory reviews and market
conduct examinations from each of the states in which it conducts business.
During 1998, a multi-state market conduct review was initiated under the
auspices of the NAIC by several states. On November 23, 1998, the Company
entered into a Consent Order and comprehensive Compliance Plan with 39
participating states relating to compliance with the disparate state insurance
laws, regulations and administrative interpretations which have been difficult
to apply to the marketing of the Company's credit related insurance products
through financial institutions, retailers and other entities offering consumer
financing as a regular part of their business. The Company and participating
state regulators have pledged to cooperate in rationalizing existing insurance
laws and regulations to the marketing and administration of credit-related
insurance products on a more comprehensive and uniform basis. As a part of the
adoption of the Compliance Plan, the Company agreed in a Consent Order to pay
$12 million to the participating states, and through implementation of the
Compliance Plan, to provide restitution to insureds, if instances of excess
premiums or less than appropriate claims payments were discovered in that
process. No accrual has been made for any possible restitution since an estimate
of any possible restitution is not known. Since November 1998, four additional
states have executed Addenda joining in the multi-state Consent Order. The
Company also agreed to a multi-state market conduct examination commencing in
November 1999 for review of the Company's implementation of the Compliance Plan,
and to a payment of $3 million to participating states if the Compliance Plan is
not fully implemented by that time. The Company took a charge against earnings
for $15 million during the fourth quarter of 1998. As of the first quarter of
1999, the Company has paid $12 million to the participating states.
The Company is involved with a number of cases in the ordinary course of
business relating to insurance matters, or more infrequently, certain corporate
matters. Generally, the Company's liability is limited to specific amounts
relating to insurance or policy coverage for which provision has been made in
the financial statements. Other cases involve general corporate matters which
generally do not represent significant contingencies for the Company.
12
<PAGE> 13
(7) LIABILITES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company's U.K. subsidiary participated in certain personal accident programs
from other insurance companies during 1994 to 1997. The Company ceased writing
this reinsurance in 1997; however, certain risk may continue beyond 1997 due to
the nature of the reinsurance contracts written. The Company has retroceded the
majority of its personal accident liability to other insurance companies. On a
gross basis, the personal accident loss ratios are substantially higher than
that expected at the time the programs were written. However, due to the nature
of the Company's retrocessional coverage, net losses on these programs have not
been material to the Company's operating results. At March 31, 1999, the Company
had gross payables of $15.5 million, ceded recoverable of $17.7 million, gross
reserves of $46.4 million and ceded receivable of $38.3 million relating to the
personal accident business. The Company is currently actively investigating the
cause for the significant increase in the personal accident gross loss ratio.
The outcome of that investigation is currently uncertain but may result in the
Company taking legal or other action against its brokers, reinsurers or others.
The Company is currently involved in arbitration over payment of certain claims
with one of the cedants, and several of the Company's retrocessioners have
delayed payment pending further review. The March 31, 1999 loss reserves and
resinsurance recoverable are based on various estimates that are subject to
considerable uncertainty. However, it is management's opinion that due to the
direct relationship of the business written to the Company's reinsurance
coverage that future development on these programs will not have a material
adverse effect on the Company's financial condition, results of operations or
cash flows.
13
<PAGE> 14
(8) SEGMENT INFORMATION
In 1998, the Company adopted FASB Statement 131, "Disclosures about Segments of
an Enterprise and Related Information." The prior years' segment information has
been restated to present the Company's reportable segments, Financial Markets,
Personal Lines Markets and Other.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies." Segment data includes allocated
overhead costs to each of the operating segments. Asset information by
reportable segment is not reported. The Company does not produce such
information internally as it reviews its assets and liabilities at the
individual affiliated company level.
The Company is organized primarily on the basis of its distribution channels.
There are ten separate markets, six of the markets are aggregated into the
"Financial Markets." Two are combined to form the "Personal Lines." The
Financial Markets' products, consisting primarily of credit-related insurance,
are sold through retailers, financial institutions, manufactured housing, travel
trailer and equipment manufacturers, dealers and lenders, and utility companies.
The Personal Lines' business, consisting of non credit-related products and
services, is sold primarily through independent agents. All other business has
been included in "Other." "Other" includes principally foreign subsidiaries,
except Canada and corporate activity. The Company's business is generally not
concentrated, and no single customer accounted for 10% or more of the Company's
consolidated gross collected premiums in 1999 or 1998.
Gross collected premiums, net premiums earned and income (loss) before federal
income taxes are summarized as follows:
(in thousands)
Three Months Ended
March 31,
-------------------------
1999 1998
--------- ---------
GROSS COLLECTED PREMIUMS:
Financial markets $ 571,598 $ 592,042
Personal lines 80,067 76,820
Other 18,548 29,009
--------- ---------
Total $ 670,213 $ 697,871
========= =========
NET PREMIUMS EARNED:
Financial markets $ 299,262 $ 303,519
Personal lines 48,976 49,540
Other 8,726 3,788
--------- ---------
Total $ 356,964 $ 356,847
========= =========
INCOME (LOSS) BEFORE INTEREST AND INCOME TAXES:
Financial markets $ 27,716 $ 27,344
Personal lines 6,290 6,160
Other (1) 14,391 (2) (98,943)
--------- ---------
48,397 (65,439)
Interest expense 2,721 4,177
--------- ---------
Total income (loss) before income taxes $ 45,676 $ (69,616)
========= =========
(1) Includes $4.3 million pre-tax income from the sale of assets and
liabilities of one of the Company's smaller non-insurance subsidiaries.
(2) Includes $100 million merger termination fee paid to AIG and $9.3 million
in merger-related expenses.
14
<PAGE> 15
(9) ACCOUNTING FOR INVESTMENTS
The Company accounts for its investments according to the Financial Accounting
Standards Board's Statement 115 "Accounting for Certain Investments in Debt and
Equity Securities."
This Statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. Those investments are to be classified in three categories and
accounted for as follows:
HELD-TO-MATURITY - Securities for which the enterprise has the positive intent
and ability to hold to maturity. These securities are carried at amortized cost.
AVAILABLE-FOR-SALE - Securities not classified as trading or held-to-maturity.
These securities are carried at market value with the unrealized holding gain or
loss reported as a separate component of equity, net of the income tax effect.
TRADING SECURITIES - Securities that are bought and held principally for the
purpose of selling them in the near term. These securities are carried at market
value with the unrealized holding gain or loss included in earnings.
The detail of Cost and Statement Value for the Fixed Maturities and Equity
Securities held at March 31, 1999 is as follows:
(in thousands)
Amortised Market
Cost Value
---------- ----------
FIXED MATURITIES
Held-to-Maturity Securities $ 745,291 $ 759,809
Available-for-Sale Securities 1,253,321 1,260,569
---------- ----------
Total Fixed Maturities $1,998,612 $2,020,378
========== ==========
Net unrealized gain on available- $ 7,248
for-sale securities ==========
Market
Cost Value
---------- ----------
EQUITY SECURITIES
Available-for-Sale Securities 156,105 166,092
---------- ----------
Total Equity Securities $ 156,105 $ 166,092
========== ==========
Net unrealized gain on available- $ 9,987
for-sale securities ==========
An analysis of the realized gains and losses of the Company for the three months
ended March 31, 1999, is as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Gross realized gains from sales of Available-for-Sale Securities $ 6,534
Gross realized losses from sales of Available-for-Sale Securities (3,282)
-------
Net realized gain from investment activity 3,252
Net realized loss from other investment activity (251)
-------
Total realized gain $ 3,001
=======
</TABLE>
The Company uses the specific identification method to determine cost for
computing the realized gains and losses.
15
<PAGE> 16
(10) EARNINGS PER SHARE
The Company reports earnings per share according to the Financial Accounting
Standards Board's Statement 128 "Earnings per Share", which specifies the
computation, presentation, and disclosure requirements for earnings per share.
The following is the required reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
BASIC EPS:
Net income (loss) $ 34,006 $(42,679)
Less convertible preferred stock dividends 1,550 1,797
-------- --------
Income (loss) available to common stockholders $ 32,456 $(44,476)
======== ========
Weighted average shares outstanding 42,400 41,959
======== ========
Net income (loss) - per share $ 0.77 $ (1.06)
======== ========
DILUTED EPS:
Income (loss) available to common stockholders $ 32,456 $(44,476)
Convertible preferred stock dividends 1,550 1,797
Convertible debentures interest 0 (15)
-------- --------
Income available to common stockholders plus
assumed conversions $ 34,006 $ N/A
======== ========
Weighted average shares outstanding-Basic EPS 42,400 41,959
Common stock options 347 785
Convertible preferred stock 3,961 4,196
Convertible debentures
-------- --------
Weighted average shares outstanding-Diluted EPS 46,708 46,940
======== ========
Net income - per share $ 0.73 $ N/A
======== ========
</TABLE>
16
<PAGE> 17
AMERICAN BANKERS INSURANCE GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Gross collected premiums were $670.2 million for the three months ended March
31, 1999 compared to $697.9 million for the same period of 1998. This represents
a decrease of 4%.
During the three months ended March 31, 1999, total premiums and other revenues
were $ 411.9 million, an increase of $11.7 million over total premiums and other
revenues of $400.2 million for the same period in 1998, excluding the merger
termination fee. Including the merger termination fee, the Company reported
total premiums and other revenues of $300.2 million in the first quarter of
1998. Investment income increased by $4.2 million and realized gains increased
by $.8 million for the first quarter of 1999 as compared to the same period of
1998. Other income for the first quarter of 1999 includes $4.3 million from the
sale of assets and liabilities of one of the Company's smaller non-insurance
subsidiaries.
The benefits and claims ratio improved to 33% for the three months ended March
31, 1999 compared to 34% for the same period of 1998. However, this improvement
was offset by an increase in the commission ratio from 43% for the three months
ended March 31, 1998, to 46% for the same period in 1999.
Net income for the first quarter of 1999 was $34 million which includes $2.8
from the sale of assets and liabilities of one of the Company's subsidiaries.
This compares with net income of $29.4 million for the same period in 1998,
excluding the merger termination fee and other merger related expenses.
Including the merger termination fee and other merger related expenses, the
Company reported a net loss in the first of quarter of 1998 of $(42.7) million.
FINANCIAL CONDITION
Stockholders' Equity increased $5 million from $1.061 billion at December 31,
1998, to $1.066 billion at March 31, 1999. The primary cause for the increase
was net income of $34 million which was offset by $22.7 million of treasury
stock purchased during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1999, $2.4 billion of securities, short-term investments and cash
comprised 57% of the Company's total assets. The securities were principally
readily marketable and did not include any significant concentration in private
placements.
The Fortis Merger Agreement requires the Company, under certain circumstances,
to pay Fortis a fee of $100 million, if the Merger is not consummated. If such
payments were required, the Company would obtain such funds from available
credit facilities and/or operating cash flows.
The Company does not hold significant investments in equity securities;
consequently, market changes in the equity securities markets do not
significantly affect the investment portfolio.
Prior to the closing of the pending merger with Fortis, the Company expects to
continue its policy of paying regular cash dividends; however, future dividends
are dependent on the Company's future earnings, capital requirements and
financial condition. In addition, the payment of dividends is subject to the
restrictions, and conditions described in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
17
<PAGE> 18
YEAR 2000
The Year 2000 project at ABIG was developed in early 1997 to position the
Company to complete the renovation and upgrades of all mission critical
information systems by the end of 1998. The project involves the entire
enterprise and its major accounts and vendors. It has four phases, Awareness,
Assessment, Remediation, and Validation. At the end of 1998, Validation testing
was essentially complete for all ABIG's core insurance processing and accounting
systems.
In early 1997, a Corporate project team was created and included Executive
Management. At this point the Company began its Awareness phase.
In the Assessment phase, ABIG inventoried all computer hardware and software.
All specific systems that required modification or replacement were assessed to
determine the steps necessary to remediate the Year 2000 issue. The Assessment
phase was completed during the fourth quarter of 1997.
The Remediation phase began in 1997. Remediation efforts on all core insurance
and accounting information processing systems have been completed and the
systems returned to production.
In 1997, ABIG designed and configured isolated testing labs for both mainframe
and network client server technologies. The technology infrastructure, such as
operating systems, third party software, wiring, and network hardware, were all
upgraded to Year 2000 compliant releases before being used for lab testing. The
labs provide the ability to perform validation testing for systems using various
future Year 2000 date/time scenarios.
The Validation testing phase started in 1998. Validation testing is a joint
effort by the Information Systems Department and senior analysts from each
business area. Testing procedures were documented using guidelines developed by
the ABIG Internal Audit Group. These procedures are used throughout the testing
by senior analysts and will continue until all systems are tested. The
Validation testing phase is expected to be completed during the first half of
1999.
The entire project reports to an Executive Steering Committee and is being
monitored by the Internal Audit Group. The Internal Audit Group reports the
progress of the Company's Year 2000 project to the Board of Directors.
In 1999, the Year 2000 compliance effort at ABIG will be limited to the
following:
o Completion of all systems Validation testing in the Year 2000 labs.
o Auditing and testing of our remote accounts.
o PC/Server hardware and software upgrades and replacements.
Non-information technology systems such as those pertaining to the operations of
the building have been evaluated using the same four phases described above.
Currently, the Company is in the Validation testing phase. The Company expects
that all non-information systems should be compliant by mid 1999.
In early 1997, ABIG completed an impact analysis of all major third party
vendors to determine their Year 2000 compliance. Every software and hardware
vendor was contacted and plans were executed to upgrade to the vendor's Year
2000 ready release. A few vendor software upgrades remain to be tested. During
the first half of 1999, these products will be subject to the Validation testing
described above.
ABIG surveyed its network of corporate clients and other third parties regarding
their Year 2000 readiness in our Assessment phase. The majority have responded
to the surveys and have represented that they expect to be compliant by the Year
2000. Our Validation phase includes plans to audit the readiness of our major
corporate clients and to test electronic interface data in 1999. The Company
will continue to monitor their progress and work with them as required.
While the Company is not presently aware of any significant exposure, there can
be no guarantee that the systems of ABIG's corporate clients and other third
parties will be converted in a timely manner, or that a failure to properly
convert by another company would not have a material adverse effect on the
Company. In the event the Company, clients or other third parties fail to be
converted in a timely manner, the Company intends to implement the necessary
portions of its disaster recovery plan. The Company as part of its overall
business operation, has developed a disaster recovery plan which includes
electronic as well as non-electronic processes. Additional internal resources
will be focused to address
18
<PAGE> 19
each failure on a case-by-case basis. The recovery steps necessary will vary
considerably depending on the nature of the Year 2000 issue being addressed.
The worst case scenario would be where the Company's systems do not operate as
expected and/or major clients and major service providers fail to achieve their
Year 2000 compliance. Consequently, no assurance can be given that Year 2000
compliance can be achieved without costs that might affect future financial
results or cause reported financial information to not be necessarily indicative
of future operating results or future financial condition.
Through March 31, 1999, the Company has expensed approximately $8.5 million and
estimates another $2.4 million to substantially complete the project.
REGULATIONS
ABIG's insurance subsidiaries, like other insurance companies, are subject to
regulation and supervision in the jurisdictions in which they are authorized to
engage in business. Such regulations vary from state to state, but generally
relate to standards of solvency, pricing, licensing, investment restrictions,
insurance policy forms approval, computation of reserves, assessments and
financial reporting.
As in the case of other types of insurance, state regulators, directly and
through the NAIC, have begun a greater focus on the regulatory, licensing and
disclosure issues related to market conduct of credit insurers, including the
Company. In May 1998, following market conduct examinations by several states,
the Company received notice from the Kentucky Commissioner of Insurance that a
larger group of states (the "participating states") intended to conduct a
multi-state market conduct examination. The participating states also invited
the Company to pursue a compromise resolution under which the Company would
voluntarily address certain areas of concern through implementation of a
Compliance Plan agreeable to the states. In light of the significant costs of a
multi-state examination, as well as the potential exposure for monetary
sanctions, the Company chose to voluntarily negotiate a Compliance Plan. On
November 23, 1998, the Company entered into a Consent Order and comprehensive
Compliance Plan with 39 participating states relating to compliance with the
disparate state insurance laws, regulations and administrative interpretations
relating to credit-related insurance products. As a part of the adoption of the
Compliance Plan, the Company agreed in a Consent Order to pay $12 million to
those participating states, and through implementation of the Compliance Plan,
to provide restitution to insureds, if instances of excess premiums or less than
appropriate claims payments were discovered in that process. Since November 1998
four additional states have executed Addenda joining in the multi-state Consent
Order. The Company also agreed to a multi-state market conduct examination
commencing on or after November 23, 1999 for review of the Company's
implementation of the Compliance Plan, and to a payment of $3 million to
participating states if the Compliance Plan is not fully implemented by that
time. The Company is taking steps to implement the Compliance Plan by November
23, 1999, but there can be no assurance that the Company will fully implement
the Compliance Plan by that date.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - SAFE HARBOR CAUTIONARY
STATEMENT
Except for the historical information contained herein, certain of the matters
discussed in this quarterly report are "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995, which involve certain
risks and uncertainties, including but not limited to, changes in general
economic conditions, interest rates, consumer confidence, competition,
environmental factors, and governmental regulations affecting the Company's
operations. See the Company's Annual Report Form on 10-K for the year ended
December 31, 1998, for a further discussion of these and other risks and
uncertainties applicable to the Company's business.
19
<PAGE> 20
PART II
OTHER INFORMATION
20
<PAGE> 21
ITEM 1 - LEGAL PROCEEDINGS
Commitments and Contingencies information which appears on page 11 elsewhere in
this report is incorporated by reference in this item. Additional information
regarding litigation can be found in the Company's 1998 Annual Report on Form
10-K.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6(a) - EXHIBITS
(2.1) Asset Purchase Agreement between Beacon Printing & Graphics, Inc.,
American Bankers Insurance Group, Inc. and H&D Graphics, Inc. dated as of
February 15, 1999.
(27) Financial Data Schedule (for SEC use only)
ITEM 6(b) - REPORTS ON FORM 8-K
Form 8-K, filed on March 10, 1999.
21
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BETWEEN
BEACON PRINTING & GRAPHICS, INC.
AMERICAN BANKERS INSURANCE GROUP, INC.
AND
H&D GRAPHICS, INC.
DATED AS OF FEBRUARY 15, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. Sale and Purchase of the Assets..........................................................................1
1.1 Assets Acquired.................................................................................1
1.2 Excluded Assets.................................................................................3
1.3 Consideration for the Assets....................................................................3
1.4 Assumption of Liabilities.......................................................................3
1.5 Proration.......................................................................................4
1.6 Allocation of Cash Consideration................................................................4
1.7 Closing.........................................................................................4
2. Representations and Warranties of the Company and the Stockholder........................................4
2.1 Organization and Good Standing..................................................................4
2.2 Authorization and Enforceability................................................................5
2.3 Capitalization..................................................................................5
2.4 No Violation of Law, Etc........................................................................5
2.5 Financial Statements............................................................................6
2.6 Accounts Receivable.............................................................................6
2.7 Liabilities and Obligations.....................................................................7
2.8 Inventory.......................................................................................7
2.9 Furniture, Fixtures, Machinery and Equipment....................................................8
2.10 Legal Proceedings...............................................................................8
2.11 Title to Assets.................................................................................8
2.12 Subsidiaries, Etc...............................................................................8
2.13 Condition and Sufficiency of Assets.............................................................8
2.14 Contracts.......................................................................................9
2.15 Employee Benefit Plans.........................................................................10
2.16 Transactions with Affiliated Parties...........................................................11
2.17 Tax Matters....................................................................................11
2.18 Corporate Name.................................................................................11
2.19 Absence of Certain Changes or Events...........................................................12
2.20 Real Property..................................................................................14
2.21 Environmental Disclosure.......................................................................14
2.22 Insurance......................................................................................16
2.23 Labor Matters..................................................................................16
2.24 Compliance with OSHA...........................................................................16
2.25 Intellectual Property Rights...................................................................17
2.26 Permits and Licenses...........................................................................17
2.27 Employees......................................................................................17
2.28 Certain Payments...............................................................................18
2.29 Significant Customers and Suppliers............................................................18
2.30 Government Contracts...........................................................................19
2.31 Deposit Accounts; Powers of Attorney...........................................................19
2.32 Solvency.......................................................................................19
2.33 Year 2000 Compliance...........................................................................19
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
2.34 Tax Matters....................................................................................20
2.35 Accurate Copies................................................................................20
2.36 Brokers' Fees..................................................................................20
2.37 Accuracy of Representations and Warranties.....................................................20
3. Representations and Warranties of Beacon................................................................20
3.1 Organization and Good Standing.................................................................21
3.2 Authorization and Enforceability...............................................................21
3.3 No Violation of Law, Etc.......................................................................21
3.4 Brokers' Fees..................................................................................21
3.5 No Litigation..................................................................................21
4. Deliveries at the Closing.
4.1 Deliveries by the Company or the Stockholder. ................................................22
4.2 Deliveries by Beacon...........................................................................22
5. Noncompetition..........................................................................................23
5.1 Prohibited Activities..........................................................................23
5.2 Damages........................................................................................24
5.3 Reasonable Restraint...........................................................................24
5.4 Severability; Reformation......................................................................24
5.5 Independent Covenant...........................................................................24
5.6 Materiality....................................................................................24
6. Nondisclosure of Confidential Information...............................................................24
7. Indemnification.........................................................................................25
7.1 Survival of Representations and Warranties ....................................................25
7.2 Indemnification by the Stockholder and the Company.............................................26
7.3 Indemnification by Beacon......................................................................27
7.4 Procedure for Indemnification; Third Party Claims..............................................27
7.5 Procedure for Indemnification, Other than Third Party Claims...................................28
7.6 Limitations on Liability of the Stockholder and the Company....................................28
7.7 Arbitration....................................................................................30
7.8 Compliance with Bulk Sales Law.................................................................31
7.9 Remedies.......................................................................................31
7.10 Environmental Indemnification..................................................................31
8. Post-Closing Covenants .................................................................................34
8.1 Employees......................................................................................34
8.2 Employee Benefits..............................................................................34
8.3 Payments Received..............................................................................34
8.4 Further Assurances. ...........................................................................34
8.5 Temporary Availability of Controller...........................................................35
8.6 Continued Provision of Electronic Mail.........................................................35
8.7 Transfer of Cash Balance; Negative Cash Balance ...............................................35
8.8 Books and Record...............................................................................36
8.9 Defense of Litigation..........................................................................36
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
8.10 Termination of Fictitious Name Filings.........................................................37
9. Miscellaneous...........................................................................................37
9.1 Entire Agreement ..............................................................................37
9.2 Notices .......................................................................................37
9.3 Amendment and Modification.....................................................................38
9.4 Governing Law; Venue...........................................................................38
9.5 Severability. ................................................................................39
9.6 Multiple Counterparts..........................................................................39
9.7 Expenses.......................................................................................39
9.8 Waiver of Breach...............................................................................39
9.9 Construction...................................................................................39
9.10 Public Announcements...........................................................................39
Schedules and Exhibits...........................................................................................42
</TABLE>
iii
<PAGE> 5
BEACON PRINTING & GRAPHICS, INC.
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is between Beacon
Printing & Graphics, Inc., a Texas corporation ("Beacon"), American Bankers
Insurance Group, Inc., a Florida corporation (the "Stockholder"), and H&D
Graphics, Inc., a Florida corporation doing business as Haff-Daugherty Graphics,
Inc. (the "Company"), which parties agree as follows:
RECITALS
The Stockholder owns all of the outstanding capital stock of the
Company. The Company is in the commercial printing and graphic arts business
(the "Business") and desires to sell to Beacon, and Beacon desires to purchase
from the Company, substantially all of its assets and properties used in the
Business, on the terms and subject to the conditions in this Agreement. Beacon
is the wholly-owned subsidiary of Nationwide Graphics, Inc. ("Nationwide"). In
connection with the sale and purchase of the Assets (defined below), the
Stockholder, the Company and Beacon entered into related agreements that are
attached to this Agreement as exhibits ("Exhibits").
AGREEMENT
1. SALE AND PURCHASE OF THE ASSETS.
1.1 ASSETS ACQUIRED. Subject to the terms and conditions of
this Agreement, and on the basis of the representations, warranties and
indemnities in this Agreement, on the date hereof, the Company is selling,
transferring and delivering to Beacon, and Beacon is purchasing from the
Company, all of the Company's right, title and interest in and to, as of the
date of this Agreement, all of the properties, rights and assets the Company
owns as of the date of this Agreement or in which the Company has any right or
interest (other than the Excluded Assets on SCHEDULE 1.2) that relate to or are
used in the Business (the "Assets"), including:
(a) TANGIBLE PERSONAL PROPERTY. All tangible personal
property of every kind and nature used in the Business (except items of tangible
personal property that are consumed, disposed of or inventoried in the Ordinary
Course of Business (as that term is defined in Section 2.6)), including, without
limitation, all furniture, fixtures, machinery, equipment, vehicles, computers
and computer equipment, and all items listed on SCHEDULE 2.9.
(b) INVENTORIES AND SUPPLIES. All inventories of
finished products, work-in-process, raw materials, supplies, packing and
shipping materials and office supplies used in the Business;
(c) REAL PROPERTY. Good and marketable title in fee
simple to full, undivided ownership in all real property used in the Business,
including, without limitation, the real property more particularly described in
SCHEDULE 2.20 (and
<PAGE> 6
designated as being owned by the Company), and all buildings, improvements,
other constructions, construction-in-progress and fixtures located thereon,
together with all right, title and interest of the Company in all easements,
servitudes, rights-of-way and other similar rights associated therewith;
(d) CASH AND CASH EQUIVALENTS. Subject to the
provisions of Section 8.7 of this Agreement, and excluding any consideration
paid or payable by Beacon to the Company pursuant to this Agreement, all, cash,
temporary cash investments and instruments representing the same and all other
cash equivalents (including all cash on deposit in the bank accounts identified
on SCHEDULE 2.31, minus an amount representing outstanding checks, plus all
uncleared deposits in such accounts (the "Cash Balance"));
(e) ACCOUNTS AND OTHER RECEIVABLES. All accounts,
notes, receivables, and other rights to receive money, arising out of or
relating to the Business;
(f) INTANGIBLES. All intangible property of every
kind and nature related to the Business, including, without limitation, the
following:
(i) all patents, processes, trademarks,
trade names, copyrights, service marks, logos, trade secrets and all
applications and registrations therefor that are used in the Business, and
licenses thereof under which the Company has any right to the use or benefit of,
or other rights with respect to, any of the foregoing (the "Intellectual
Property Rights"), including, without limitation, the items identified on
SCHEDULE 2.25;
(ii) the names "H&D Graphics, Inc.,"
"Haff-Daugherty Graphics, Inc.," "Supertype," and "Postmasters" and any variants
of those names;
(iii) the Company's transferable interest in
the phone number (305) 885-8707, the facsimile number (305) 888-9903, and any
other phone and facsimile numbers for the Business;
(iv) all orders, bids, quotations,
contracts, and other agreements with or related to present and prospective
customers of the Business and all amendments, updates, customer files, lists,
records, studies, surveys, reports, correspondence and other similar materials
related to the foregoing (except for Excluded Records, as that term is defined
in subparagraph (g) below);
(v) all electronic information and data
related to the Business (except for Excluded Records) wherever located;
(vi) all sales, advertising and promotional
literature and materials, advertising and advertising copy and other similar
marketing materials
1
<PAGE> 7
relating to the Business on which the name "H&D Graphics, Inc.," "Haff-Daugherty
Graphics, Inc.," "Supertype" or "Postmasters" or any form thereof appears;
(vii) to the extent transferable, all
licenses, permits, certificates, franchises, registrations, authorizations,
filings, consents, accreditations, approvals and other indicia of authority
relating to the Business including, without limitation, those listed on SCHEDULE
2.26;
(viii) all rights and claims under insurance
policies maintained by the Company with respect to destruction of, damage to or
loss of use of any of the Assets, and all causes of action, claims and demands
filed or made by the Company before the date hereof that relate to any of the
Assets;
(ix) all deposits held by the Company in
connection with future services to be rendered or products to be delivered by
the Company; and
(x) all warranties, guarantees, and
covenants not to compete with respect to any of the activities, of the Company.
(g) BOOKS AND RECORDS. All books, records, lists,
reports, forms and files relating to the Assets or the Business (except for
minute and stock record books, financial records, tax records, payroll records,
and records relating to Excluded Assets, pending lawsuits against the Company
disclosed on SCHEDULE 2.10 and the Company's employees who do not become
Beacon's employees immediately after the Closing (collectively, "Excluded
Records")), it being agreed that if the Company is required by law to retain
originals of any such books, records or other materials, it shall deliver to
Beacon only copies thereof.
1.2 EXCLUDED ASSETS. Notwithstanding any provision of this
Agreement to the contrary, the Assets shall not include the assets and rights
listed on SCHEDULE 1.2 (the "Excluded Assets"), which the Company shall retain.
1.3 CONSIDERATION FOR THE ASSETS. In consideration for the
transfer of the Assets, upon the terms and subject to the conditions set forth
in this Agreement, Beacon shall pay to the Company at the Closing, an aggregate
purchase price of $10,500,000 in cash, minus an aggregate of $34,635.65, which
represents the sales, use, transfer and other similar taxes imposed as a result
of Beacon's purchase of the Assets, and the cost of the title policy that will
insure Beacon's title in the Company's owned real property included in the
Assets (collectively, the "Transfer Taxes and Costs"), as further detailed on
the Seller's Estimated Closing Statement prepared by Stewart Title North Texas
and attached as EXHIBIT 1.3 hereto, or an adjusted purchase price of
$10,465,364.35 (the purchase price, as adjusted, the "Cash Consideration"),
$10,454,364.35 via wire transfer to a bank account of the Company or the
2
<PAGE> 8
Stockholder, as designated in writing to Beacon, and $11,000 by check made
payable to the Company or the Stockholder.
The Stockholder and the Company agree to pay and discharge, and to
indemnify Beacon against, any liability, obligation, claim, assessment or
deficiency for the Transfer Taxes and Costs (and any and all interest,
penalties, additions to tax and fines thereon or related thereto) resulting or
arising from or incurred in connection with the purchase and sale of the Assets,
except to the extent the same is incurred as a result of any act or omission of
Beacon.
1.4 ASSUMPTION OF LIABILITIES. At the Closing, Beacon is
assuming and discharging the obligations and liabilities reflected in the
Assignment and Assumption Agreement attached as EXHIBIT 1.4 or in any exhibit
thereto (the "Assignment and Assumption Agreement"). Except as provided for in
the Assignment and Assumption Agreement, Beacon shall not assume or be
responsible for any other liabilities or obligations that relate to the Company
and that arise out of events that occurred before the Closing Date.
1.5 PRORATION. The Stockholder, the Company and Beacon agree
that all rent, expenses, common area charges, and ad valorem or other taxes and
any other sums owed in connection with the Assets shall, as soon as the amount
of such payments are known, be prorated between the Company and Beacon based
upon periods of occupancy, use or ownership up to and after the Closing Date.
1.6 ALLOCATION OF CASH CONSIDERATION. The consideration Beacon
is paying and the liabilities it is assuming under Sections 1.3 and 1.4 shall be
allocated among the Assets as set forth on SCHEDULE 1.6. The Company and Beacon
each agree that neither will take a position on any income tax return, before
any governmental agency, or in any judicial proceeding that is in any way
inconsistent with the allocation set forth on SCHEDULE 1.6. Each party shall
timely file a Form 8594 with its appropriate tax returns.
1.7 CLOSING; EFFECTIVE DATE. The Closing of the purchase and
sale of the Assets (the "Closing") was held at the offices of Patton Boggs,
L.L.P., 2200 Ross Avenue, Suite 900, Dallas, Texas 75201 on February 17, 1999.
The parties agree that February 17, 1999 does not coincide with the appropriate
cut-off date that is necessary for accounting purposes to convey the Assets and
the Business from the Company to Beacon in an orderly manner. Therefore, the
Closing shall be effective and deemed to have occurred as of 12:01 a.m. on
February 15, 1999 (the "Closing Date").
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.
The Stockholder and the Company jointly and severally represent and
3
<PAGE> 9
warrant to Beacon that, as of the date hereof (except to the extent any
representation or warranty is made as of another date, which are hereby made as
of such other date):
2.1 ORGANIZATION AND GOOD STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida, has all requisite corporate power and authority and has
satisfied all material Legal Requirements (as defined below) necessary to own
its assets and to carry on the Business as now being conducted. The Company is
duly qualified and in good standing in every jurisdiction in which it is
required by the nature of the Business or its ownership or lease of its
properties to so qualify, except where the failure to be so qualified or in good
standing does not or is not reasonably expected to have a material adverse
effect on the Company or the Business. The Company's officers and directors and
its federal tax identification number are disclosed on SCHEDULE 2.1.
"LEGAL REQUIREMENT" means any law, statute,
ordinance, writ, injunction, decree, requirement, order, judgment, rule or
regulation (or interpretation of any of the foregoing) of, and the terms of any
license or permit issued by, any Governmental Authority.
2.2 AUTHORIZATION AND ENFORCEABILITY. The Company and the
Stockholder each has full legal capacity and authority to execute and deliver
this Agreement and any other agreement executed in connection with this
Agreement (such other agreements, collectively, the "Closing Agreements") by
either of them, and to perform their respective obligations under this Agreement
and the Closing Agreements. The Stockholder has duly executed and delivered this
Agreement and the Company has duly executed and delivered this Agreement and the
Closing Agreements, and each such agreement is the Company's or the
Stockholder's, as the case may be, legal, valid and binding obligation,
enforceable against the Company or the Stockholder, as the case may be, in
accordance with its terms, except as its enforcement may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally or the availability of equitable remedies
(collectively, the "Exceptions"). The Company's execution, delivery and
performance of this Agreement and the Closing Agreements have been duly
authorized by the Company and approved by the Stockholder in its capacity as the
Company's sole stockholder. Except as disclosed in SCHEDULE 2.2, neither the
Stockholder nor the Company is required to obtain any consent, approval or
authorization of, or registration, declaration or filing with any Governmental
Authority or third party to authorize its execution, delivery or performance of
its obligations under this Agreement or the Closing Agreements.
"GOVERNMENTAL AUTHORITY" means any foreign
governmental authority, the United States of America, any state of the United
States, and any
4
<PAGE> 10
political subdivision of any of the foregoing, and any agency, department,
commission, board, bureau or court of any of the foregoing, having jurisdiction
over the respective party or their assets.
2.3 CAPITALIZATION. The Stockholder owns all of the Company's
issued and outstanding shares of capital stock and there are no voting trusts,
voting agreements or proxies in effect with respect to such capital stock.
2.4 NO VIOLATION OF LAW, ETC. The Company's and the
Stockholder's execution, delivery and performance of this Agreement and the
Closing Agreements does not:
(a) conflict with, violate or constitute a material
breach of or a material default under; or
(b) result in the creation or imposition of any lien
upon any of the Assets under the terms of;
(i) the Organizational Documents (as defined
below) of the Company;
(ii) any Legal Requirement that applies to
the Company or the Stockholder; or
(iii) except with respect to the agreements
disclosed on SCHEDULE 2.2, any credit or loan agreement, mortgage, indenture,
promissory note or any other material agreement or instrument to which the
Company or the Stockholder is a party or by which either of them or the Assets
may be bound or affected.
"ORGANIZATIONAL DOCUMENTS" means articles of
incorporation and bylaws, each as amended and in effect on the date of this
Agreement. The Company's Organizational Documents are attached as EXHIBIT 2.4.
2.5 FINANCIAL STATEMENTS. Attached as EXHIBIT 2.5 are complete
and correct copies of the Company's:
(a) Unaudited Balance Sheets at December 31, 1995,
December 31, 1996 and December 31, 1997 and related Statements of Income,
Retained Earnings and Cash Flows for the years then ended (collectively, the
"1997 Financial Statements"); and
5
<PAGE> 11
<PAGE> 12
(b) Unaudited Balance Sheet at December 31, 1998 (the
"1998 Balance Sheet") and related unaudited Statement of Income, Retained
Earnings and Cash Flows for the year then ended (collectively, the "1998
Financial Statements").
The Annual Financial Statements and the 1998
Financial Statements are referred to collectively as the "Financial Statements."
The Financial Statements have been prepared from the Company's books and records
in conformity with generally accepted accounting principles consistently applied
("GAAP"), subject, in the case of the 1998 Financial Statements, to normal
recurring year-end adjustments and the absence of notes. The Financial
Statements present fairly the Company's financial position at the dates
indicated and the results of its operations for the periods then ended. For
purposes of this Agreement, December 31, 1997 is referred to as the "1997
Financial Statement Date" and December 31, 1998 is referred to as the "1998
Financial Statement Date."
2.6 ACCOUNTS RECEIVABLE. All of the Company's accounts
receivable reflected on the 1998 Balance Sheet or on the Company's accounting
records as of January 31, 1999 (the "Pre-Closing Date") represented, and as of
the Closing Date (collectively, the "Accounts Receivable") represent, valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business (as defined below). The Accounts Receivable as
of the Closing Date are collectible net of reserves (which reserves are adequate
and calculated consistent with past practice). The reserves as of the Closing
Date do not represent a greater percent of the accounts receivable as of the
Closing Date than the reserves on the 1998 Balance Sheet represented of the
accounts receivable reflected therein, and there is no material adverse change
in the composition of such accounts receivable in terms of aging.
Other than in the Ordinary Course of Business, there
is no contest, claim, or right of set-off under any contract with any obligor of
any Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Disclosed on SCHEDULE 2.6 are complete and correct lists of all
Accounts Receivable as of the 1997 Financial Statement Date and the 1998
Financial Statement Date, which show the aging of such Accounts Receivable.
Subject to reserves, the Accounts Receivable as of the Closing Date will be
collectible in full within 120 days after the Closing Date.
"ORDINARY COURSE OF BUSINESS" means actions of the
Company that are:
(a) consistent with past practices taken in the
course of its usual day-to-day operations; and
6
<PAGE> 13
(b) not required to be authorized by a resolution of
the Company's Board of Directors.
2.7 LIABILITIES AND OBLIGATIONS. Except as disclosed and
adequately provided for on the 1998 Balance Sheet or in SCHEDULE 2.7, except for
accrued vacation and sick pay, and except for liabilities and obligations that
have arisen since the 1998 Financial Statement Date in the Ordinary Course of
Business, the Company has not incurred any liabilities of a type required by
GAAP to be reflected on a balance sheet, whether accrued, absolute, secured or
unsecured, contingent or otherwise.
2.8 INVENTORY. Disclosed on SCHEDULE 2.8 is a complete and
correct list and description of the Company's inventory as of the 1997 Financial
Statement Date and the 1998 Financial Statement Date. All of the Company's
inventory is:
(a) carried on the Company's books at the lower of
cost or market under the Company's normal inventory valuation policy;
(b) salable and usable in the Ordinary Course of
Business, except for obsolete items and items of below-standard quality, both of
which have been written off or written down to net realizable value on the
Financial Statements and on the Company's accounting records as of the
Pre-Closing Date; and
(c) not excessive in kind or amount in light of the
Company's Business needs.
No inventory has been disposed of, and no additions
have been made to the inventory since the 1998 Financial Statement Date, except
in the Ordinary Course of Business. In computing the value of the inventory for
purposes of the Financial Statements and as of the Pre-Closing Date,
slow-moving, unmarketable, rejected, damaged or obsolete inventory has been
written down or written off in accordance with GAAP. Except as disclosed on
SCHEDULE 2.8, no items included in the Company's inventory are pledged as
collateral or are held by the Company on consignment from others.
2.9 FURNITURE, FIXTURES, MACHINERY AND EQUIPMENT. SCHEDULE 2.9
is a complete and correct list of the Company's owned and leased furniture,
fixtures, machinery and equipment as of the 1997 Financial Statement Date and
the 1998 Financial Statement Date, which, as of such date, constituted all
furniture, fixtures, machinery and equipment (other than as listed on Schedule
1.2), used in the conduct of the Business. SCHEDULE 2.9 also identifies any such
equipment that is leased (except any equipment leases under which the total
lease obligation is less than $5,000 individually or $20,000 in the aggregate).
No furniture, fixtures, machinery or
7
<PAGE> 14
equipment is provided to the Company by any vendors or suppliers that is
conditioned on the Company using any vendor's or supplier's goods or services.
The Company has provided to Beacon copies of all certificates of title for all
motor vehicles it owns.
2.10 LEGAL PROCEEDINGS. Except as disclosed on SCHEDULE 2.10,
there are no actions, suits or proceedings pending or known to be threatened
against the Company or any of the Assets, at law or in equity, or before or by
any Governmental Authority, and there is no outstanding judgment, order, writ,
injunction or decree against or affecting the Company or any of the Assets.
2.11 TITLE TO ASSETS. The Company has good and marketable
title to all real and tangible personal property included in the Assets and owns
all other property included in the Assets (not taking into account personal
property that the Company leases). Except as disclosed on SCHEDULE 2.11(a), the
Assets are not subject to any security interest, pledge, lien, lease,
encumbrance or charge except for: (a) liens for taxes not yet due and payable or
being contested in good faith by appropriate proceedings; and (b) statutory
liens not yet delinquent.
2.12 SUBSIDIARIES, ETC. Except as disclosed on SCHEDULE 2.12,
the Company (a) has no subsidiaries; (b) is not a co-venturer in any joint
venture or a partner in any partnership; and (c) owns no interest in any other
corporation, business enterprise or other entity. SCHEDULE 2.12 contains a
description of any corporate acquisition or merger to which the Company has been
a party and the date(s) thereof.
2.13 CONDITION AND SUFFICIENCY OF ASSETS. The furniture,
fixtures, machinery and equipment included in the Assets are in good operating
condition and repair, given their respective ages and prior usage (such as
number of impressions and the like), ordinary wear and tear excepted, and are
suitable for the uses to which they are being put. None of such furniture,
fixtures, machinery and equipment needs maintenance or repairs, except for
ordinary, routine maintenance and repairs. The Stockholder is not aware of (i)
any defects in the structural components of the buildings (including the
foundation, exterior walls and roof) and building systems (including the
heating, ventilating and air conditioning, electrical, mechanical and plumbing
systems) included in the Assets, taking into account their respective ages and
prior usage, or (ii) any present need for material repairs to the structural
components of the buildings or the buildings systems, except for ordinary,
routine maintenance and repairs.
2.14 CONTRACTS. SCHEDULE 2.14 is a true, complete and correct
list of all verbal or written material contracts, notes receivables, loans,
leases and other agreements (including any employment contracts or deferred
compensation, pension,
8
<PAGE> 15
profit-sharing or retirement plans) (collectively, the "Material Agreements")
imposing any obligation on the Company to which the Assets are subject, except
for:
(a) contracts terminable without penalty at the
Company's will upon 30 days notice
or less;
(b) purchase and sales orders, electric, gas and
water utility contracts or similar agreements the Company entered into in the
Ordinary Course of Business and not involving expenditures of $50,000 or more;
and
(c) contracts otherwise disclosed in this Agreement.
SCHEDULE 2.14 includes a summary of the material terms of all verbal Material
Agreements.
The Company is not a party to or bound by any
material contract or agreement except those disclosed on SCHEDULE 2.14. The
Material Agreements are valid, binding and in full force and effect in
accordance with their terms and conditions, except for the Exceptions. Other
than such breaches as may exist as disclosed in Section 2.4(b)(iii) hereof, the
Company is not in breach of or default under any Material Agreement and neither
the Stockholder nor the Company is aware that any other party is in breach or
default under any Material Agreement, or of any conditions that, with the
passage of time or the giving of notice, or both, will constitute such a breach
or default. Neither any of the Company's 10 largest customers nor Premier Cruise
Line has notified the Company that such customer will terminate any Material
Agreement or stop or decrease its level of business with the Company on or after
the Closing Date, and the Stockholder knows of no reason why its level of
business, and that of any Affiliated Party (as defined in Section 2.16), taken
in the aggregate, with the Company will stop or decrease after the Closing Date.
However, there can be no assurance that any customer of the Company, including
the Stockholder and its Affiliated Parties, will not stop or decrease its level
of business with the Company after the Closing. Except as disclosed on SCHEDULE
2.2, all of the Material Agreements may be assigned to Beacon without the
approval or consent of any person or entity. The Company has provided copies of
all of the Material Agreements to Beacon.
2.15 EMPLOYEE BENEFIT PLANS.
(a) For purposes of this 2.15, the term "Company
Group" shall individually and collectively refer to the Company and any trade or
business (whether
9
<PAGE> 16
or not incorporated) that is a member of a "controlled group" of which the
Company is a member or under "common control" with the Company (within the
meaning of Sections 414(b), (c) or (m) of the Internal Revenue Code of 1986, as
amended (the "Code")).
(b) No employee benefit plan, program or arrangement
of whatever nature, whether or not subject to any provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), bonus, stock, or
other employee pay practice, consulting, retainer, employment, retirement,
welfare, fringe benefit, insurance, incentive, vacation, holiday, sickness,
leave of absence, or any other plan, policy, program, agreement or other
arrangement that the Company Group sponsors, maintains or contributes to with
respect to the Company's current or former employees (individually and
collectively, "Employee Plan"), shall by its terms or applicable law, become
binding upon or an obligation, liability or responsibility of Beacon in any way,
financial or otherwise. The Company Group has not engaged in any action or
omission which may result in Beacon being a party to, or bound by, any Employee
Plan. The Company warrants that no Employee Plan provides for payment of
termination, change of control or retiree benefits in any manner such that
Beacon would become liable to provide such benefits.
(c) With respect to any Employee Plan that is subject
to the continuation requirements of Sections 601-608 of ERISA and Section 4980B
of the Code ("COBRA coverage") or the continuation requirements of any
applicable state or local law, the respective members of the Company Group
sponsoring, maintaining or contributing to such Employee Plans have complied
with all such applicable laws and regulatory requirements with respect to the
Company's current or former employees. The Company shall, and shall cause each
other member of the Company Group to, provide eligible employees of the Company
(and dependents of such employees) with continuation coverage under any
applicable Employee Plans in accordance with applicable laws and regulations;
PROVIDED, HOWEVER, that the Company's obligation under this sentence with
respect to members of the Company Group other than the Company shall be null and
void except to the extent such other members of the Company Group sponsor,
maintain or contribute to such applicable Employee Plans with respect to such
eligible employees (or dependents thereof).
10
<PAGE> 17
(d) No Employee Plan is either (i) a "multiemployer
plan" (as defined in Section 3(37) of ERISA) or (ii) a defined benefit pension
plan subject to Title IV of ERISA.
(e) During the six years preceding the Closing Date,
(i) no under-funded pension plan subject to Section 412 of the Code has been
transferred out of the Company, and (ii) the Company has not participated in or
contributed to, nor had an obligation to contribute to, any multiemployer plan
(as defined in ERISA Section 3(37)) and has no withdrawal liability with respect
to any multiemployer plan.
2.16 TRANSACTIONS WITH AFFILIATED PARTIES. Except as disclosed
on SCHEDULE 2.16, the Company is not engaged in any transactions with any
Affiliated Party (as defined below) except for transactions inherent in the
normal capacities of stockholder, officers, directors, or employees. Except as
disclosed on SCHEDULE 2.16 and except for the ownership of non-controlling
interests in securities of publicly traded corporations, no Affiliated Party has
any investment or ownership interest, directly, indirectly, or beneficially, in
any competitor or any person or entity presently known by the Company or the
Stockholder to be a potential competitor, or in any major supplier or customer,
of the Company.
"AFFILIATED PARTY" means an "affiliate," as that term
is defined in Rule 144(a)(i) of the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), or any "associate" of any
such affiliate, as that term is defined in Regulation 14A of the general rules
and regulations under the Securities Exchange Act of 1934, as amended, and is
deemed to include any entity in which the relevant party has an equity interest
of more than 5%.
2.17 TAX MATTERS. After the date hereof, except for taxes
accrued and accruable by the Company in the Ordinary Course of Business,
including any deferred tax liabilities as of the Closing Date, Beacon shall not
be liable, with respect to or arising out of (a) any income, excise, corporate,
franchise, real and personal property, sales, payroll, withholding or other tax
returns and reports required by any Governmental Authority to be filed by or
with respect to the Company as of the date hereof, or (b) any taxes (including
penalties and interest) that have or may become due pursuant to such returns and
any assessments that have been received by it with respect to such returns and
reports.
11
<PAGE> 18
2.18 CORPORATE NAME. Disclosed on SCHEDULE 2.18 is a complete
and correct list of any fictitious names, trademarks or "d/b/a's" under which
the Company has ever done business. There are no actions, suits or proceedings
pending or, to the Company's and the Stockholder's knowledge, threatened against
the Company that may result in any impairment of the Company's right to use its
corporate name. To the Company's knowledge, the Company's use of its corporate
name does not infringe upon the rights of any third party in any jurisdiction in
which the Company currently conducts the Business.
2.19 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the 1998
Financial Statement Date, except as (a) expressly contemplated by this
Agreement, there has not been a material change in the Company's manner of doing
business; and (b) disclosed on SCHEDULE 2.19, the Company has not:
(i) borrowed or agreed to borrow any funds or incurred,
or become subject to, any obligation or liability (absolute or contingent),
except trade payables and other obligations or liabilities incurred in the
Ordinary Course of Business;
(ii) paid or prepaid any obligation or liability
(absolute or contingent) other than current liabilities then due and owing that
are reflected in or shown on the 1997 or 1998 Balance Sheet or that have been
incurred in the Ordinary Course of Business since the 1997 Financial Statement
Date;
(iii) made any single capital expenditure (or commitment
therefor) in excess of $10,000;
(iv) sold, transferred, or otherwise disposed of, or
agreed to sell, transfer, or otherwise dispose of, or acquired, or agreed to
acquire, any assets, properties, or rights, except in the Ordinary Course of
Business;
(v) mortgaged, pledged, or otherwise subjected, or
agreed to mortgage, pledge, or otherwise subject, any of its Assets to any lien,
charge, or other encumbrance;
(vi) entered or agreed to enter into any agreement or
arrangement (x) granting any preferential rights to purchase any of its Assets
(including
12
<PAGE> 19
management and control thereof) excluding any agreement or arrangement for
favorable pricing of printing work entered into in the Ordinary Course of
Business, or (y) requiring the consent of any party to the transfer and
assignment of any of such Assets (including management and control thereof);
(vii) changed the costing system or depreciation methods
of accounting for its Assets;
(viii) formed or acquired or disposed of any interest in
any corporation, partnership, joint venture, or other entity;
(ix) made or permitted any amendment or termination of
any Material Agreement or license to which it is a party or by which it or any
material portions of its Assets are subject, or forgiven or canceled any
material debts or claims or released or waived any material rights or claims,
except in the Ordinary Course of Business;
(x) entered into any contract or consummated any
transaction with any Affiliated Party, except in the Ordinary Course of Business
with Affiliated Parties identified on SCHEDULE 2.16;
(xi) entered into any employment, compensation,
consulting, or collective bargaining agreement with any person or group, or
modified or amended the terms of any such existing agreement;
(xii) made, directly or indirectly, any accrual or
arrangement for or payment of bonuses or special compensation of any kind or any
severance or termination pay to any present or former officer, director, or
employee of the Company, except in the Ordinary Course of Business;
(xiii) increased or agreed to increase the rate of the
compensation payable or to become payable by the Company to any of its
employees, officers or directors, or adopted any new, or made any amendment in,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan, except in the Ordinary Course of
Business;
13
<PAGE> 20
(xiv) experienced any labor trouble or lost or
terminated any employees, customers, or suppliers that does or is reasonably
expected by the Company to materially and adversely affect the Business or its
Assets;
(xv) been cited for any violations of any Legal
Requirement including, without limitation, the United States Occupational Safety
and Health Act of 1970 ("OSHA") or any rules or regulations promulgated
thereunder;
(xvi) experienced any material adverse change in or to
the Assets or the Business, or suffered any material damages, destruction, or
losses thereto (whether or not covered by insurance); or
(xvii) entered into agreement to do any of the
foregoing.
2.20 REAL PROPERTY. Disclosed on SCHEDULE 2.20 is a complete
and correct list by legal description of all real property that the Company owns
or that it leases in connection with the Business (singularly, a "Property," and
collectively, the "Properties"). SCHEDULE 2.20 also discloses the owner of any
Property that the Company does not own.
The Company has good and marketable title to all
Properties, free and clear of all encumbrances other than as shown on Schedule B
- - Section II of that certain Title Commitment No. C-98110427, effective January
4, 1999, prepared by Stewart Title of Tampa. To the Company's and the
Stockholder's knowledge, the Company is not in violation of any applicable land
use law or regulation or zoning regulation or ordinance, or similar law,
ordinance, regulation, or requirement relating to the Company's use of the
Properties and their use in connection with the Business conform with all such
applicable laws, ordinances, and regulations.
There are no parties in possession of any portion of
the Properties as lessees, tenants or trespassers. The Properties are accessible
by public roads. The Properties are served by water, sewage, gas, waste
disposal, electricity and telephone utilities sufficient for the Company's
current needs, and neither the Company nor the Stockholder is aware of any
inadequacies with respect to such utilities.
2.21 ENVIRONMENTAL DISCLOSURE. Disclosed on SCHEDULE 2.21 is a
correct and complete list of all environmental surveys, audits, reports,
memoranda,
14
<PAGE> 21
notices and correspondence generated or received by the Company at any time in
the past (a) regarding Hazardous Materials and Hazardous Materials Activities or
(b) from the Environmental Protection Agency or any similar federal, state or
local environmental regulatory agency or authority (collectively, the
"Environmental Materials"). The Company has delivered to Beacon copies of all
Environmental Materials.
Except to the extent disclosed in SCHEDULE 2.21, with
respect to the Properties:
(i) To the Company's and the Stockholder's knowledge,
the Company has not failed to comply in any respect with, and is not in default
in any respect under, any Hazardous Materials Laws, including but not limited to
those relating to soil and groundwater contamination.
(ii) The Company has not entered into or received,
and is not aware of any notice of violation or warning notice, consent decree,
compliance order, administrative order or similar action relating to
environmental protection or conservation, under the Hazardous Materials Laws or
otherwise.
(iii) To the Company's and the Stockholder's
knowledge, the Company has all permits, licenses, approvals, consents and
authorizations relating to environmental protection or conservation which are
required under federal, state or local laws, rules and regulations, including
but not limited to the Hazardous Materials Laws.
(iv) To the Company's and the Stockholder's
knowledge, there is no proceeding, suit or investigation pending or threatened
against or affecting the Properties by any federal, state or local governmental
authority relating to environmental protection or conservation or with respect
to any violation or alleged violation of the Hazardous Materials Laws, and no
notice has been received that the Company is a potentially responsible party or
persons under the Hazardous Materials Laws.
(v) To the Company's and the Stockholder's knowledge,
there have been no releases, spillage, leakage, contamination, disposal, burial
or placing of hazardous or toxic substances, pollutants, contaminants, petroleum
or gas liquids, liquified natural gas or synthetic gas, in excess of permitted
levels or reportable
15
<PAGE> 22
quantities (as defined in the Hazardous Materials Laws) into or on the
environment (as any of such terms may be defined under federal, state or local
law, rules or regulations, including but not limited to the Hazardous Materials
Laws) at the Properties.
(vi) No lien has been placed on the Company's
facilities under federal, state or local laws, rules or regulations as they
relate to environmental protection or conservation, including but not limited to
the Hazardous Materials Laws.
As used herein:
(a) "Hazardous Materials" means flammable explosives,
radioactive materials, oil, asbestos, urea formaldehyde insulation, hazardous
wastes, toxic or contaminated substances or similar materials, to the extent
regulated under laws, rules or regulations relating to pollution or protection
of the environment, including, without limitation, substances defined or
identified as "hazardous substances," "pollutants," "contaminants," "hazardous
materials," or "toxic substances" in any Hazardous Materials Laws.
(b) "Hazardous Materials Activities" means the use,
recycling, reclamation, generation, manufacture, storage, treatment, release,
discharge, handling, disposal or transportation of any Hazardous Materials.
(c) "Hazardous Materials Laws" means all applicable
laws, including without limitation, federal, state or local laws, ordinances,
rules, and regulations in effect as of or prior to the date hereof, but not
newly promulgated or enacted thereafter, and published interpretations and
orders of courts or administrative agencies or authorities having jurisdiction
over the businesses and operations of a respective entity relating in any way to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, ground water, land surface, and subsurface strata),
including without limitation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended; the Superfund Amendments and
Reauthorization Act of 1987, as amended; the Resource Conservation and Recovery
Act of 1976; as amended; the Hazardous and Solid Waste Amendments of 1984, as
amended; the Hazardous Materials Transportation Act, as amended; the Water
Pollution Control Act of 1972; the Clean Water Act; the Clean Air Act; the Solid
Waste Disposal and Toxic Substances Control Act; the Insecticide
16
<PAGE> 23
Fungicide and Rodenticide Act; the Occupational Safety and Health Act of 1970;
and other laws relating to pollution or protection of the environment, or to the
manufacture, processing, distribution, use, treatment, handling, storage,
disposal or transportation of Hazardous Materials.
2.22 INSURANCE. Disclosed on SCHEDULE 2.22 is a complete and
correct list and description of all insurance policies in force with respect to
the Company including, without limitation, those policies covering its
properties, machinery, equipment, furniture, fixtures and operations, including
a list and description of pending claims with respect to the Assets or the
Business under such policies. The Company maintains adequate and customary
insurance on any buildings, equipment or other property which are of a character
usually insured against loss or damage, and such coverage is in such amounts and
covers such hazards as are customarily insured against by businesses similar to
the Company's. The Company has provided to Beacon copies of all insurance
policies it maintains.
2.23 LABOR MATTERS. There are no discussions, negotiations,
demands or proposals pending with or by any labor union or trade association in
connection with the Company or the Business, and there are no pending or, to the
Company's or the Stockholder's knowledge, threatened, labor disputes, strikes or
work stoppages.
2.24 COMPLIANCE WITH OSHA. The Company is in compliance in all
material respects with all current rules and regulations of OSHA. The Company is
not under citation for any OSHA violation nor is it a party to any order,
judgment or decree of any tribunal under such legislation.
2.25 INTELLECTUAL PROPERTY RIGHTS. To the Company's and the
Stockholder's knowledge, no Intellectual Property Rights currently being used by
the Company in the conduct of the Business infringe upon or are in conflict with
the rights of others. SCHEDULE 2.25 is a complete and correct list and
description of all Intellectual Property Rights.
2.26 PERMITS AND LICENSES. SCHEDULE 2.26 is a complete and
correct list and description of each permit, license or similar authorization
from a Governmental Authority with respect to the Business and operations of the
Company, together with the expiration date of each, and each association of
which the Company is a member and each association or governmental agency by
which the Company is
17
<PAGE> 24
accredited. The Company has provided to Beacon copies of the permits, licenses
or similar authorizations disclosed on SCHEDULE 2.26.
2.27 EMPLOYEES. SCHEDULE 2.27(a) is a complete and correct
list of the Company's employees (individually, the "Employee" and collectively,
the "Employees") including their names, titles, current annualized base
salaries, aggregate amount of compensation paid in the 1998 calendar year,
vacation accruals as of November 1998, and EIB (extended illness bank) accruals
as of January 3, 1999. There are no current compensation disputes with any of
the Employees. The Company has not agreed to any increase in or committed to
increase the compensation disclosed on SCHEDULE 2.27(a) or made any bonus
payment to or similar arrangement with any such individual or adopted a plan or
agreement or amendment to any plan or agreement providing for additional "fringe
benefits," except for increases in the Ordinary Course of Business. To the
Company's and the Stockholder's knowledge, no Employee is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition or proprietary rights agreement, between any Employee and any
other person or entity that in any way adversely affects or will adversely
affect the performance of his duties as an Employee. Except as set forth on
SCHEDULE 2.27(a), the Company has no employment contract, written or otherwise,
with any Employee that is not terminable without material cost or liability to
the Company upon 30 days notice or less. The Company has used commercially
reasonable efforts to retain the Company's present employees.
SCHEDULE 2.27(b) is a complete and correct list of
the following information for each retired employee or retired director of the
Company, or their dependents, receiving benefits or scheduled to receive
benefits from the Company in the future: name, pension benefit, pension option
election, retiree medical insurance coverage, retiree life insurance coverage,
and other benefits.
SCHEDULE 2.27(c) is a complete and correct list of
all of the Company's commission, bonus or other similar compensation
arrangements with any of the Employees, and the names of such Employees and
amount of commissions or bonuses accrued as of December 31, 1998.
2.28 CERTAIN PAYMENTS. No director, officer, agent, or
employee of the Company, or any person associated with or acting for or on
behalf of the Company, has directly or indirectly, in violation of any Legal
Requirement:
18
<PAGE> 25
(a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any person, private or
public, regardless of form, whether in money, property, or services:
(i) to obtain favorable treatment in
securing business;
(ii) to pay for favorable treatment for
business secured; or
(iii) to obtain special concessions or for
special concessions already obtained, for or in respect of the Company or any
Affiliated Party of the Company; or
(b) established or maintained any fund or asset that
has not been recorded in the Company's books and records.
None of the Stockholder, the Company nor any of the Employees has any personal
rights to any rebates or other payments from any of the Company's vendors or
suppliers, except for immaterial amounts that may be due to the Company in the
Ordinary Course of Business.
2.29 SIGNIFICANT CUSTOMERS AND SUPPLIERS. SCHEDULE 2.29(a) is
a complete and correct list of the Company's 10 largest customers by dollar
amount, along with the dollar amount and percentage of revenue derived from such
customers for the year ended as of the 1997 Financial Statement Date and for the
1998 period ended as of October 31, 1998. SCHEDULE 2.29(b) is a complete and
correct list of the Company's 10 largest vendors or suppliers by dollar amount,
along with dollar amount and the percentage of the Company's expenses
attributable to such vendors or suppliers for the year ended as of the 1997
Financial Statement Date and for the period ended as of October 31, 1998.
2.30 GOVERNMENT CONTRACTS. Except as disclosed on SCHEDULE
2.30, the Company is not now and has never been a party to any governmental
contract subject to price redetermination or renegotiation. The Company has
provided to Beacon copies of all contracts between the Company and the Federal
or state government or any Federal or state agency or department.
19
<PAGE> 26
2.31 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 2.31 is a
complete and correct list of:
(a) the name of the financial institution in which
the Company has accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are
held;
(c) the type of account and account number; and
(d) the name of the person authorized to draw thereon
or have access thereto.
SCHEDULE 2.31 also sets forth the name of the person,
corporation, firm or other entity holding a general or special power of attorney
from the Company and a description of the terms of such power.
2.32 SOLVENCY. The Company is not, and after giving effect to
the sale of the Assets will not be, "insolvent" or "at or near insolvency" (or
their equivalent) under applicable fraudulent conveyance, insolvency and
bankruptcy laws. The Company acknowledges that by entering into this Agreement
and consummating the sale of the Assets that (a) it has no intent to hinder,
delay or defraud its creditors, and (b) it will receive at least "fair value"
(as defined under applicable law) for the Assets. After giving effect to the
sale of the Assets, the Company will be solvent, adequately capitalized and able
to pay anticipated debts and claims.
2.33 YEAR 2000 COMPLIANCE. All of the hardware and software
(collectively, "Computer Systems") owned by or leased or licensed to the Company
(a) in the Programs Solutions management information system used in the
Company's Business and (b) used in the Company's fulfillment operations, are
Year 2000 compliant; PROVIDED, HOWEVER, that no representation or warranty is
made with respect to any interface with, or the processing of data transferred
from, any Computer System not owned by, or leased or licensed to, the Company.
For purposes of this Section 2.33, "Year 2000 compliant" means
that the Computer Systems will correctly differentiate between years, in
different centuries,
20
<PAGE> 27
that end in the same two digits, and will accurately process date/time data
from, into and between the twentieth and twenty-first centuries, including leap
year calculations.
2.34 TAX MATTERS. The Stockholder is satisfied with the tax
consequences of the transactions this Agreement provides for, based on advice
from its personal tax advisors.
2.35 ACCURATE COPIES. All photocopies of the Financial
Statements, schedules and any other document or instrument that the Stockholder
or the Company has delivered to Beacon under this Agreement are true, correct
and complete copies of the document or instrument represented thereby, unless
clearly indicated otherwise.
2.36 BROKERS' FEES. The Company is not obligated (contingently
or otherwise) under any contract or other agreement, and there are no
outstanding claims against the Company for the payment of any broker's or
finder's fee or agent's commission or other similar payment in connection with
the origin, negotiation, execution or performance of this Agreement.
2.37 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
(a) No representation or warranty made in this
Agreement by the Stockholder contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements made
herein, in light of the circumstances under which they were made, not
misleading, and no schedule or Exhibit contains any material inaccuracy; and
(b) When any representation or warranty in this
Section 2 is qualified to the Stockholder's or the Company's "knowledge," it
means the Stockholder's or the Company's knowledge if (x) any officer or
director of the Stockholder or the Company (as the case may be) is actually
aware of such fact or other matter.
3. REPRESENTATIONS AND WARRANTIES OF BEACON. Beacon represents and
warrants to the Stockholder as follows:
21
<PAGE> 28
3.1 ORGANIZATION AND GOOD STANDING. Beacon is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas and it has all requisite corporate power and authority and has
satisfied all material Legal Requirements necessary to own its assets and to
carry on its business as now being conducted. Beacon is duly qualified and in
good standing in every jurisdiction in which it is required by the nature of its
business or ownership or lease of its properties to so qualify.
3.2 AUTHORIZATION AND ENFORCEABILITY. Beacon has full
corporate power and authority to execute and deliver this Agreement and the
Closing Agreements and to perform its obligations hereunder and thereunder.
Beacon has duly authorized the execution, delivery and performance of this
Agreement and the Closing Agreements, and each such agreement is Beacon's legal,
valid and binding obligation, enforceable against it in accordance with its
terms, except for the Exceptions. Beacon is not required to obtain any consent,
approval or authorization of, or registration, declaration or filing with any
Governmental Authority or third party to authorize the execution and delivery
of, the performance of its obligations under this Agreement and the Closing
Agreements.
3.3 NO VIOLATION OF LAW, ETC. Beacon's execution, delivery and
performance of this Agreement and the Closing Agreements does not: (a) conflict
with, violate or constitute a breach of or a default under; or (b) result in the
creation or the imposition of any lien upon its assets under the terms of: (i)
the Organizational Documents of Beacon; (ii) any Legal Requirement that applies
to Beacon; or (iii) any credit or any loan agreement, mortgage, indenture,
promissory note or other material agreement or instrument to which Beacon is a
party or by which its assets may be bound or affected.
3.4 BROKERS' FEES. Except for the fee payable to Brian M.
Amell, Beacon is not obligated (contingently or otherwise) under any contract or
other agreement, and there are no outstanding claims against it for the payment
of any broker's or finder's fee or agent's commission or other similar payment
in connection with the origin, negotiation, execution or performance of this
Agreement or the Closing Agreements.
22
<PAGE> 29
3.5 NO LITIGATION. There is no action pending or, to Beacon's
knowledge, threatened, that impairs Beacon's ability to execute, deliver, or
perform its obligations under this Agreement or the Closing Agreements.
4. DELIVERIES AT THE CLOSING.
4.1 DELIVERIES BY THE COMPANY OR THE STOCKHOLDER. At the
Closing, the Company, the Stockholder or the other indicated parties executed
and delivered or provided to Beacon:
(a) the Bill of Sale and Assignment conveying the
Assets, attached as EXHIBIT 4.1(a);
(b) the Assignment and Assumption Agreement, attached
as EXHIBIT 1.4;
(c) a Warranty Deed conveying the Company's owned
Properties, attached as EXHIBIT 4.1(c);
(d) for all Assets the ownership of which is
evidenced by certificates of title, certificates of title duly endorsed for
transfer to Beacon;
(e) an opinion of counsel rendered by Jorden Burt
Boros Cicchetti Berenson & Johnson, LLP, containing opinions substantially in
the form of EXHIBIT 4.1(e);
(f) a certificate, dated as of a date no earlier than
10 days before the Closing Date, duly issued by the appropriate governmental
authority in Florida and in any state in which the Company is authorized to do
business, showing the Company is in existence and in good standing in Florida;
(g) duly executed Articles of Amendment to the
Company's Articles of Incorporation that change its name to a name other than
"H&D Graphics, Inc."; and
(h) an Acknowledgment and Consent of Collateral
Assignment of Asset Purchase Agreement, attached as EXHIBIT 4.1(h).
23
<PAGE> 30
4.2 DELIVERIES BY BEACON. At the Closing, Beacon or the other
indicated parties executed and delivered, as applicable, to the Stockholder:
(a) the Cash Consideration;
(b) the Assignment and Assumption Agreement, attached
as EXHIBIT 1.4;
(c) an opinion of counsel from Norton, Jacobs, Kuhn &
McTopy, L.L.P., containing opinions substantially in the form of EXHIBIT 4.2(c);
and
(d) certificates dated as of a date no earlier than
10 days before the Closing Date, duly issued by the appropriate governmental
authority in Texas and in any state in which Beacon is authorized to do
business, showing Beacon is in existence and in good standing in Texas.
5. NONCOMPETITION.
5.1 PROHIBITED ACTIVITIES. The Stockholder will not, for a
period of five years beginning on the Closing Date, for any reason, directly or
indirectly, for themselves or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(a) engage in, as a stockholder, owner, partner,
joint venturer or in a managerial capacity, or as a consultant or advisor to,
any commercial printing or graphic arts business within 200 miles of Hialeah,
Florida (the "Territory");
(b) call upon any person who is, at that time, within
the Territory, an employee of Beacon in a sales representative or managerial
capacity for the purpose or with the intent of enticing such employee away from
or out of the employ of Beacon;
(c) call upon any person or entity which is, at that
time, or which has been, within one year before the Closing Date, a client or
customer of the Company or Beacon, for the purpose of soliciting or selling
commercial printing or graphic arts services within the Territory; or
24
<PAGE> 31
(d) call upon any prospective acquisition candidate
in the commercial printing graphic arts business, on its behalf or on behalf of
any competitor in the commercial printing or graphic arts business, which
candidate, to the Stockholder's knowledge, Beacon or Nationwide, for the purpose
of acquiring such entity, either called upon or made an acquisition analysis of.
Notwithstanding the above, the foregoing covenants shall not
be deemed to prohibit the Stockholder from acquiring as an investment not more
than 5% of the capital stock of a competing business whose stock is traded on a
national securities exchange or in the over-the-counter market.
5.2 DAMAGES. Because of the difficulty of measuring economic
losses to Beacon as a result of a breach of any of the foregoing covenants, and
because of the immediate and irreparable damage that will result to Beacon for
which it would have no other adequate remedy, the Stockholder agrees that the
foregoing covenant may be enforced by Beacon if there is a breach by the
Stockholder, by injunctive relief, restraining orders, or other extraordinary
relief to be cumulative to, but not in limitation of, any other remedies to
which Beacon may be entitled.
5.3 REASONABLE RESTRAINT. The parties agree that the covenants
in this Section 5 impose a reasonable restraint on the Stockholder in light of
Beacon's activities and business and plans as of the date of this Agreement.
5.4 SEVERABILITY; REFORMATION. The covenants in this Section 5
are severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. If any court of competent
jurisdiction determines that the scope, time or territorial restrictions are
unreasonable, it is the intention of the parties that such restrictions be
enforced to the fullest extent the court deems reasonable, and the Agreement
shall thereby be reformed.
5.5 INDEPENDENT COVENANT. All of the covenants in this Section
5 shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the Stockholder
against Beacon, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Beacon of such covenants. The
covenants in this Section 5 shall not be affected by any party's breach of any
other provision hereof.
25
<PAGE> 32
5.6 MATERIALITY. The parties acknowledge that this covenant is
a material and substantial part of the transactions provided for in this
Agreement.
6. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Stockholder
recognizes and acknowledges that it has in the past, currently has, and in the
future may have, access to certain confidential information of the Company, such
as operational policies, customer lists and pricing and cost policies, that are
valuable, special and unique assets of the Company's Business. The Stockholder
acknowledges that the disclosure of and use of any such confidential information
will cause immediate and irreparable damage to Beacon (including its
subsidiaries). Therefore, during the five-year period beginning on the Closing
Date, the Stockholder will not disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except:
(a) to Beacon's authorized representatives; and
(b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section 6,
unless
(i) such information becomes known to the public
generally through no fault of the Stockholder;
(ii) disclosure is required by law or the order of
any court or governmental authority under color of law, provided, that before
disclosing any information under this section;
(iii) the Stockholder shall deliver to Beacon prior
written notice thereof and provide Beacon with the opportunity to contest such
disclosure; or
(iv) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party.
If the Stockholder breaches or threatens to breach the provisions of this
Section 6, Beacon shall be entitled to an injunction restraining the Stockholder
from disclosing, in whole or in part, such confidential information or other
extraordinary relief to which Beacon may be entitled as a result of the
irreparable harm caused by such
26
<PAGE> 33
disclosure. Nothing in this Agreement shall prohibit Beacon from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages.
7. INDEMNIFICATION.
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties'
representations, warranties covenants, agreements and indemnities shall survive
the Closing, the consummation of the transactions this Agreement provides for,
and any investigation with respect thereto for two years beginning on the
Closing Date (the "Expiration Date"). Notwithstanding the foregoing, any
representation, warranty, covenant, agreement or indemnity in respect to which
indemnity may be sought, shall survive the time at which it would otherwise
terminate if notice of the inaccuracy or breach thereof shall have been given to
the party against whom such indemnity may be sought before such time; PROVIDED,
HOWEVER, that the representations and warranties contained in Sections 2.15 and
2.17 shall survive the Closing Date for a period equal to the applicable statute
of limitations (giving effect to any waiver or extension thereof) beginning on
the Closing Date and the representations and warranties contained in Section
2.21 shall survive the Closing Date for a period of four years beginning on the
Closing Date (the respective dates until which the respective representations
and warranties under Section 2.15, 2.17, and 2.21 survive, the "Extended
Expiration Date"). The Beacon Indemnitees' and the Company Indemnitees' right to
indemnification hereunder shall not be affected by any investigation Beacon
conducted with respect to the Company or the Company or the Stockholder
conducted with respect to Beacon, as the case may be, or any knowledge any of
them acquired after the Closing regarding the accuracy or inaccuracy of or
compliance with, any representation, warranty or covenant with respect to which
indemnification is sought; PROVIDED, HOWEVER, that neither the Beacon
Indemnitees nor the Company Indemnitees shall have any right to indemnification
for breach of a representation, warranty or covenant if Beacon, on the one hand,
or the Company or the Stockholder, on the other hand, had actual knowledge of
such breach at the time of Closing.
27
<PAGE> 34
7.2 INDEMNIFICATION BY THE STOCKHOLDER AND THE COMPANY.
Subject to the other provisions of this Section 7, the Stockholder and the
Company agree to indemnify and hold harmless Beacon and its stockholders,
officers, directors, agents and attorneys, and their respective heirs,
beneficiaries, legal representatives, successors and assigns (the "Beacon
Indemnitees"), from and against any claim, action, cause of action, suit,
proceeding, liability, judgment, loss, damage, cost or expense (including,
without limitation, reasonable attorneys' fees) (collectively, "Damages") as
they are incurred or suffered by any of them and caused by or arising out of:
(a) the Stockholder's or the Company's breach of or
default in the performance of any covenant or agreement in this Agreement or in
any Closing Agreement;
(b) the Stockholder's or the Company's breach of any
representation or warranty in this Agreement; and
(c) all lawsuits disclosed on SCHEDULE 2.10.
Notwithstanding anything to the contrary contained
herein, the Stockholder and the Company shall have no obligations under this
Section 7.2 with respect to any matter, activity, or event described or covered
in Section 2.21 of this Agreement, or involving the release, discharge or
presence of Hazardous Materials or the conduct of Hazardous Materials Activities
on or about the Properties, or involving any violation or alleged violation of
any Hazardous Materials Laws, all of which shall be governed by and subject to
Section 7.10.
7.3 INDEMNIFICATION BY BEACON. Beacon agrees to indemnify and
hold harmless the Stockholder and the Company and their agents and attorneys and
respective heirs, beneficiaries, legal representatives, successors and assigns
(the "Company Indemnitees") from and against any Damages as they are incurred or
suffered by any of them and caused by or arising out of:
(a) Beacon's breach of or default in the performance
of any covenant or agreement in this Agreement or in any Closing Agreement; and
(b) Beacon's breach of any representation or warranty
in this Agreement.
28
<PAGE> 35
7.4 PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS.
(a) Any party claiming indemnification under this
Section 7 is referred to in this Agreement as an "Indemnified Person" and any
party against whom such claims are asserted under this Section 7 is referred to
in this Agreement as an "Indemnifying Person."
(b) Within 15 days after receipt of notice of
commencement of any action by any third party evidenced by service of process or
other legal pleading, or with reasonable promptness after the assertion in
writing of any claim by a third party, the Indemnified Person shall give the
Indemnifying Person written notice thereof, together with a copy of such claim,
process or other legal pleading. The failure to so notify the Indemnifying
Person within the above time frame will not relieve the Indemnifying Person of
any liability it may have to the Indemnified Person, except to the extent the
Indemnifying Person demonstrates that the defense of such action is unduly
prejudiced by the Indemnified Person's failure to give such notice, or except if
such notice is not delivered before the time specified in Section 7.6(f). The
Indemnifying Person shall have the right to undertake and control the defense,
settlement, compromise or other disposition thereof at its own expense and
through a legal representative of its own choosing. The Indemnified Person and
its counsel shall have the right to be present at the negotiation, defense and
settlement of such action or claim, and any settlement or compromise of any such
action or claim shall be subject to the approval of the Indemnified Person,
which approval shall not be unreasonably withheld.
(c) If the Indemnifying Person, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day immediately
preceding the day on which an answer or other pleading must be served in order
to prevent judgment by default in favor of the person asserting such claim), has
not notified the Indemnified Person of its election to defend against such
claim, the Indemnified Person shall have the right to undertake the defense,
compromise or settlement of such claim through counsel of its choice on behalf
of and for the account and risk of the Indemnifying Person, at the cost and
expense of the Indemnifying Person. In such event, the Indemnifying Party and
its counsel shall have the right to be present at the negotiation, defense and
settlement of such action or claim, and any settlement or compromise of any such
action or claim shall be subject to the approval of the Indemnifying Party,
which approval shall not be unreasonably withheld.
29
<PAGE> 36
7.5 PROCEDURE FOR INDEMNIFICATION; OTHER THAN THIRD PARTY
CLAIMS. Any claim for indemnification for a matter not involving a third-party
claim shall be asserted by written notice, which specifies in reasonable detail
the factual basis of such claim, and delivered to the party or parties from
which indemnification is sought.
7.6 LIMITATIONS ON LIABILITY OF THE STOCKHOLDER AND THE
COMPANY.
(a) No claim for indemnification shall be made by any
Beacon Indemnitee or any Company Indemnitee with respect to any matter unless
and until the total amount of Damages exceeds $250,000 in the aggregate (not per
incident) (the "Threshold"), and then only for the amount by which the Damages
exceed the Threshold; PROVIDED, HOWEVER, that the Threshold shall not apply to
claims for indemnification for (x) Environmental Damages (as defined in Section
7.10), or (y) Damages that resulted from or arose in connection with the breach
of any representations and warranties of which the breaching party had actual
knowledge at any time before the date on which such representation and warranty
is made or any intentional breach by the breaching party of any agreement,
covenant or obligation; PROVIDED, HOWEVER, if there is a breach of the
representation in Section 2.6 regarding the collectibility of the Company's
Accounts Receivable by 120 days after the Closing (the "Post-Closing Collection
Period"), the amount of damages attributable to such breach shall be reduced by
any collections of the Company's Accounts Receivable after the Post Closing
Collection Period and through the date of the indemnification notice, and only
such reduced amount of damages shall be counted toward the Threshold (the
"Uncollected Accounts Receivable").
(b) Notwithstanding anything to the contrary
contained herein, Damages attributable to the breach of any representation or
warranty in Section 2.33 hereof shall be limited to the cost of repair or
replacing (at the Company's or the Stockholder's option) any Computer System or
component thereof that is not Year 2000 Compliant and shall not include any
special or consequential damages.
(c) No claim for indemnification shall be made
hereunder unless asserted by a written notice given to the Indemnifying Party,
on or before the Expiration Date.
30
<PAGE> 37
(d) The Indemnified Person shall act in good faith
and in a commercially reasonable manner to mitigate any Damages for which it may
seek indemnification under this Section 7.
(e) An indemnity payment for Damages otherwise due
and payable under this Section 7 shall be decreased to the extent of any (i) net
reduction of tax liability the Indemnified Party or any Affiliated Party thereof
actually realizes as a result of such indemnifiable loss, and (ii) insurance
proceeds the Indemnified Party or any Affiliated Party thereof actually collects
in connection with the indemnifiable loss.
(f) Neither the Stockholder nor the Company shall
have any liability (for indemnification or otherwise) under Section 7.2 or 7.10,
and Beacon shall have no liability (for indemnification or otherwise) under
Section 7.3, unless the notices required under Sections 7.4 and 7.5 are
delivered on or before the Expiration Date, the Extended Expiration Date, or the
termination of the Environmental Indemnity Period, as the case may be.
(g) Notwithstanding anything to the contrary
contained herein, the maximum amount of Damages (including Environmental Damages
and Remediation Costs, each as defined below), for which the Company and the
Stockholder shall, in the aggregate, be liable under this Section 7 shall not
exceed $10.5 million (the "Company Damages Cap"); PROVIDED, HOWEVER, that on
each anniversary date of the Closing Date for the period during which
indemnities for Damages remain in effect, the Company Damages Cap shall be
reduced by $500,000, as follows (assuming no claims for Damages are made), based
on the date the written notice of indemnity is received, irrespective of when
the event occurred that gives rise to the claim for indemnification:
Company Damagess
Indemnity Year Cap
-------------- ----------------
February 15, 1999 - February 14, 2000 $10,500,000
February 15, 2000 - February 14, 2001 $10,000,000
February 15, 2001 - February 14, 2002 $ 9,500,000
31
<PAGE> 38
February 15, 2002 - February 14, 2003 $ 9,000,000
February 15, 2003 - February 14, 2004 $ 8,500,000
February 15, 2004 - February 14, 2005 $ 8,000,000
February 15, 2005 - February 14, 2006 $ 7,500,000
February 15, 2006 - February 14, 2007 $ 7,000,000
February 15, 2007 - February 14, 2008 $ 6,500,000
February 15, 2008 - February 14, 2009 $ 6,000,000
, and so on.
For example, if Beacon incurs $2,000,000 of Damages (after deducting the
Threshold) for which it claims indemnification under Section 7.2 at any time in
the first year after the Closing Date and before the first anniversary thereof
(the "First Indemnity Year"), then Beacon shall be entitled to recover all of
such $2,000,000 of Damages. If Beacon then incurs an additional $6,000,000 of
Damages for which it claims indemnification under Section 7.2 at any time in the
second year after the Closing Date and before the second anniversary thereof
(the "Second Indemnity Year"), then Beacon shall likewise be entitled to recover
all of such $6,000,000 of Damages. If Beacon incurs an additional $3,000,000 of
Damages for which it claims indemnity at any time in the fourth year after the
Closing Date and before the fourth anniversary thereof (for the breach of
representations and warranties in Section 2.15 or 2.17) (the "Fourth Indemnity
Year"), then Beacon shall be entitled to recover only $1,000,000 of such Damages
($10,500,000 - [$2,000,000 + $6,000,000 + $500,000 (Second Indemnity Year) +
$500,000 (Third Indemnity Year) + $500,000 (Fourth Indemnity Year)].
32
<PAGE> 39
7.7 ARBITRATION. Any dispute between Beacon and either or both
of the Stockholder and the Company arising out of or related to this Agreement
or the breach hereof, shall be settled by arbitration in accordance with the
rules of the American Arbitration Association. The arbitration shall be
conducted by three neutral arbitrators who sit in Dade County, Florida, one of
which shall be selected by the Company and the Stockholder, one of which shall
be selected by Beacon, and one of which shall be selected by the two arbitrators
selected by parties hereto. Any award made by such arbitrators shall be binding
and conclusive for all purposes and may be entered as a final judgment in any
court of competent jurisdiction. No arbitration arising out of or relating to
this Agreement shall include, by consolidation or joinder or in any other
manner, parties other than the Stockholder, the Company and Beacon and other
persons substantially involved in a common question of fact or law whose
presence is required if complete relief is to be afforded in arbitration. The
parties shall bear the cost and expenses of such arbitration in accordance with
the arbitrators' determination and the expenses may include reasonable
attorneys' fees. Each party further agrees that service of process may be made
upon the party by registered or certified mail or personal service at the
address provided for in this Agreement.
7.8 COMPLIANCE WITH BULK SALES LAW. Beacon, the Company and
Stockholder acknowledge that the Company's principal business is not the sale of
inventory from stock, and hereby waive compliance with the bulk sales law in any
applicable jurisdiction for the transactions this Agreement provides for. The
Stockholder and the Company shall indemnify Beacon from any Damages resulting
from (i) the failure to comply with any of such laws in the transactions
provided for by this Agreement and (ii) any action brought or levy made as a
result of such non-compliance.
7.9 REMEDIES. Except for the equitable remedies provided for
in Section 5.2 and Section 6, the remedies of Beacon and the Beacon Indemnitees
set forth in this Section 7 shall be the exclusive post-Closing remedies
available to them with respect to the actual or alleged breach by the
Stockholder and/or the Company of any provision of this Agreement or the Closing
Agreements.
7.10 ENVIRONMENTAL INDEMNIFICATION.
(a) Subject to the other provisions of this Section
7, for a period of four years commencing on the Closing Date (the "Environmental
33
<PAGE> 40
Indemnification Period"), the Company and the Stockholder agree to indemnify and
hold harmless the Beacon Indemnitees from and against any Environmental Damages
(as defined below) as they are incurred or suffered by any of them that are (i)
caused by any breach of any representation, warranty, covenant or agreement
contained in Section 2.21 of this Agreement, (ii) arise out of any release,
discharge or the presence of Hazardous Materials or the conduct of Hazardous
Materials Activities on or about the Properties, or (iii) arise out of any
violations or alleged violations by the Company of any Hazardous Materials Laws
on or about the Properties. Environmental Damages shall consist of (i) Damages
(other than any diminution in value) caused by or arising out of the matters
described in subclauses (i), (ii) and (iii) of the immediately preceding
sentence, including, without limitation, all claims, actions, suits, and
proceedings asserted or brought and judgments obtained by unrelated third
parties, as well as all fines, all costs and expenses relating to any
inspection, study, monitoring, assessment, audit, sampling, testing and
laboratory analysis associated with any environmental remediation as the result
of an order of, or a written agreement entered into with, a Governmental
Authority, after the issuance of a notice of violation or order for a corrective
action (such order or agreement, a "Governmental Mandate") (all of such
environmental remediation referred to as "Remediation" and all costs of
Remediation referred to as "Remediation Costs"); and (ii) any Diminution in
Value, as defined in Section 7.10(f) below.
(b) If any of the Properties requires Remediation
under a Governmental Mandate, the Stockholder and/or the Company shall bear the
Remediation Costs sufficient to obtain issuance by the relevant Governmental
Authority of a site rehabilitation order or its equivalent (including approval
of a no further action or monitoring only proposal), as the case may be (the
"Remediation Standards"), subject to the Environmental Damages Cap (as defined
below), and the Stockholder shall provide Beacon with written evidence of the
same. The Stockholder and the Company shall have no obligation to pay the
Remediation Costs unless (i) the Remediation is performed by a remediation
provider selected by the Stockholder and/or the Company, which provider shall be
reasonably acceptable to Beacon and (ii) the Governmental Mandate is issued
during the Environmental Indemnification Period.
(c) Notwithstanding anything to the contrary
contained in this Agreement, in no event shall the aggregate liability of the
Stockholder and the Company for Environmental Damages and Remediation Costs
(including the cost of
34
<PAGE> 41
any environmental remediation under Section 7.10(d), under Section 7.10(e) and
any Diminution In Value) exceed (i) $500,000.00 MINUS (ii) any payments by the
Stockholder and/or the Company to any Governmental Authority in respect of any
violations or alleged violations of any Hazardous Materials Laws by the Company
or with respect to any of the Properties (the "Environmental Damages Cap").
(d) In addition to the foregoing indemnification, the
Stockholder and the Company shall, at their sole cost and within 60 days after
the Closing Date, cause the contaminated soils (the "Contaminated Soil") with
concentrations of Florida Petroleum Recoverable Organics ("PRO") in excess of
the applicable Florida Industrial Soil Cleanup Criteria, located (i) in the area
of the drum storage pad and (ii) near the air compressor area (estimated to
consist in the aggregate of 75 to 100 cubic yards of soil), to be removed and
disposed of and replaced with clean fill dirt. The parties acknowledge that the
Contaminated Soil is more specifically described in the "Limited Phase II Site
Investigation Results" report dated February 1999, (Project No. 02-7434B),
concerning the Properties, prepared by ENVIRON Corporation, Princeton, New
Jersey. Any additional testing and/or sampling required to further delineate the
extent of the Contaminated Soil incident to its excavation and removal shall be
performed by the Stockholder and the Company at their sole cost. The removal and
disposal of the Contaminated Soil shall be performed by a licensed contractor,
and in accordance with any and all applicable city rules and ordinances and all
applicable environmental rules, regulations and statutes governing the removal,
transportation and disposal of contaminated soils. Upon completion of the
removal and disposal of the Contaminated Soil, the Stockholder and the Company
shall furnish to Beacon written certification of no further action required from
the Miami-Dade County Department of Environmental Resources Management ("DERM")
respecting the PRO soil contamination at the Properties.
(e) The Company and the Stockholder acknowledge that
Beacon intends, promptly following its acquisition of the Properties hereunder,
to proceed with further environmental testing of the Properties substantially in
accordance with the proposed "Supplemental Limited Phase II Site Investigation"
dated January 29, 1999, submitted by ENVIRON Corporation, Princeton, New Jersey,
a copy of which is attached as EXHIBIT 7.10(e) (the "Supplemental Testing").
Beacon shall bear the cost of the Supplemental Testing. Should the results of
the Supplemental Testing indicate, at one or more test sites, contamination of
the ground water of the Properties by Volatile Organic Compounds ("VOCs") in
35
<PAGE> 42
excess of the applicable Florida Ground Water Quality Criterion, then (i) Beacon
shall disclose the results of the Supplemental Testing to DERM in accordance
with the provisions of this subsection (e), (ii) the Stockholder and the Company
shall have the option, at their sole discretion, to have Beacon's disclosure to
DERM of the Supplemental Testing results be made by an environmental consultant
selected by the Stockholder and/or the Company (the "Company Consultant"), which
Company Consultant shall be reasonably acceptable to Beacon, and to have the
Company Consultant propose a plan to address such contamination ("Plan"), (iii)
Beacon's (or its lender's) environmental consultant ("Beacon Consultant") shall
be provided the reasonable opportunity to attend and participate in all
conferences (face-to-face or telephonic) between DERM and the Company Consultant
regarding the Properties, (iv) the Beacon Consultant shall be furnished on a
timely basis copies of all correspondence between the Company Consultant and
DERM, and (v) the Stockholder and/or the Company shall bear the costs, subject
to the Environmental Damages Cap, of implementing the Plan as finally approved
by DERM addressing the VOC ground water contamination of the Properties so
detected.
(f) If Beacon sells all or any portion of the real
property identified on SCHEDULE 2.20, (any real property so sold, the "Sold
Property") within the 10-year period beginning on the Closing Date, the
Stockholder and/or the Company shall pay to Beacon the Diminution in Value of
the Sold Property (subject to the Environmental Damages Cap). For purposes of
this Agreement, "Diminution in Value" means the actual loss to Beacon on the
sale of the Sold Property directly attributable to the environmental conditions
identified in the Phase I and Phase II reviews conducted by ENVIRON Corporation
before the Closing Date, to the extent such environmental conditions existed on
or about the Sold Property before the Closing Date and were not corrected by the
Stockholder and/or the Company before Beacon's sale of the Sold Property.
8. POST-CLOSING COVENANTS.
8.1 EMPLOYEES. Beacon is offering employment to all existing
employees of the Company engaged in the Business. The parties intend that all
employees of the Company that Beacon hires ("Transferred Employees") will be new
employees of Beacon as of the Closing Date or the date of hire, whichever is
later.
36
<PAGE> 43
8.2 EMPLOYEE BENEFITS. Beacon shall have no obligation after the
Closing to continue any employee benefit plans or programs currently offered by
the Company to its employees, and no liability for such benefit plans or
programs. However, Beacon agrees to credit all Transferred Employees for past
years or hours of service for purposes of their qualifying for or being eligible
to participate in any employee benefit plans that Beacon establishes after the
Closing Date.
8.3 PAYMENTS RECEIVED. After the Closing, Beacon will have the
right and authority to endorse, without recourse, the Company's name on any
check or other evidence of indebtedness that Beacon receives on account of any
Accounts Receivable transferred under this Agreement. Beacon will take all
commercially reasonable actions, consistent with its past practices and
procedures for collecting its own receivables, to collect the Accounts
Receivable transferred under this Agreement. The Stockholder and Beacon each
agree that after the Closing, they will hold and will promptly transfer and
deliver to each other, any cash, checks with appropriate endorsements, or other
property (including any insurance proceeds) that they may receive on or after
the Closing Date that belongs to the other, and will account to the other party
for all such receipts.
8.4 FURTHER ASSURANCES. From time to time after the Closing Date,
each party hereto will, at any other party's request, execute, acknowledge and
deliver to such requesting party such other instruments and take such other
actions and deliver such other documents as may be reasonably required to carry
out the intent of this Agreement and the Closing Agreements.
8.5 TEMPORARY AVAILABILITY OF CONTROLLER. The Stockholder shall
use its commercially reasonable efforts to make the Company's current controller
available to work for Beacon for up to at least three months after the Closing
Date. The Stockholder shall pay, and Beacon shall reimburse the Stockholder for,
one-half of the controller's current base salary during such time. Beacon shall
give the controller and the Stockholder at least one week's notice that Beacon
no longer requires the controller's services.
8.6 CONTINUED PROVISION OF ELECTRONIC MAIL. In order to facilitate
an orderly transition of the Business from the Company to Beacon, for up to one
year beginning on the Closing Date, the Stockholder agrees to allow Beacon's
employees at the Hialeah, Florida location to continue accessing the current
electronic mail system;
37
<PAGE> 44
PROVIDED, HOWEVER, that the Stockholder shall not be obligated to do the
foregoing if it would cause any security issues for the Stockholder, cause the
Stockholder to incur any direct costs in excess of its current direct costs of
providing such access, or cause the Stockholder to violate its license
agreements with Lotus Notes or any other manufacturer or service provider.
8.7 TRANSFER OF CASH BALANCE; NEGATIVE CASH BALANCE.
(a) The parties agree that the Cash Balance (as defined in
Section 1.1(d)) shall not be transferred to Beacon on the Closing Date; instead,
the Company shall calculate the Cash Balance as of the Closing Date (but prior
to giving effect to the Closing) reduced by any payroll and payroll taxes
payables with respect to the Final Payroll (as defined below) (the Cash Balance,
as reduced, the "Net Cash Balance") on the fifth business day after the Closing
Date (the "Reconciliation Date"), and shall notify Beacon of the Net Cash
Balance on the Reconciliation Date. Within two business days after the
Reconciliation Date, the Company shall transfer the Net Cash Balance, if any, to
Beacon's bank account designated in writing to the Company.
(b) In order to facilitate the orderly transfer of accounting
and payroll functions, the Company shall pay and maintain control of and
administer the payroll of the Company for the two-week pay period ended February
15, 1999 (the "Final Payroll"), in accordance with the Company's customary
payroll practices. If, as a result of the Company paying the Final Payroll or
otherwise, the Net Cash Balance, as calculated on the Reconciliation Date, is a
credit balance ("Negative Cash Balance"), the Company shall notify Beacon of the
amount of the Negative Cash Balance. Beacon shall then have two business days
after it receives notice of the Negative Cash Balance to request written
documentation of same and otherwise confirm the Negative Cash Balance. Upon
confirming the Negative Cash Balance, Beacon shall transfer an amount equal to
the Negative Cash Balance to the Stockholder's or the Company's bank account
designated in writing to Beacon.
(c) On the 30th day after the Reconciliation Date, the Company
shall calculate any further credits to the Net Cash Balance to arrive at a final
negative cash balance ("Final Negative Cash Balance"), and shall notify Beacon
of the amount of the Final Negative Cash Balance. Beacon shall then have two
business days after it receives notice of the Final Negative Cash Balance to
request written documentation of same and otherwise confirm the Final Negative
Cash Balance. Upon confirming
38
<PAGE> 45
the Final Negative Cash Balance, Beacon shall transfer an amount equal to the
Final Negative Cash Balance to the Stockholder's or the Company's bank account
designated in writing to Beacon.
8.8 BOOKS AND RECORDS. Insofar as the Company or the Stockholder
determines that any books and records may be needed or useful in connection with
federal, state or local regulatory or tax matters, resolution of third party
disputes or contract compliance issues, or other bona fide business purposes,
Beacon, for a period of 10 years after the Closing Date (and with respect to all
other books and records included in the Assets, for a period of seven years
commencing on the Closing Date), will use its best efforts to preserve and make
available to the Company or the Stockholder, at the location of such books and
records in Beacon's organization, access to and the right to copy such of the
books and records as Beacon may then have in its possession or to which it may
have access upon written request of the Company or the Stockholder during normal
business hours. Beacon agrees to make such of its employees and of the books and
records as the Company or the Stockholder may request, available at Beacon's
cost to assist in the preparation of financial reports and tax returns for the
Company's or the Stockholder's fiscal year ending in 1998, up to a maximum of 50
hours. If the Company or the Stockholder requires more than 50 hours of Beacon's
employees' assistance, the Company or the Stockholder, as the case may be, shall
reimburse Beacon for each hour over 50 hours, at a rate per hour based upon the
employee's base salary received from Beacon (based on a 40-hour work week).
8.9 DEFENSE OF LITIGATION. After the Closing Date, Beacon shall,
as the Company or the Stockholder may reasonably request and at the Company's or
the Stockholder's expense, make available upon reasonable advance notice
personnel and business records in connection with the Company's or the
Stockholder's defense of any actions and claims relating to the Company's or the
Stockholder's ownership of the Assets and operation of the Business.
8.10 TERMINATION OF FICTITIOUS NAME FILINGS. The Stockholder
shall, within 10 business days after the Closing Date, file or cause to be filed
termination statements of the Company's fictitious name filings with Florida
Secretary of State's office of the names "Haff-Daughtery Graphics, Inc.,"
"Supertype," and "Postmasters."
39
<PAGE> 46
8.11 SALES TAX PAYMENT. The Company or the Stockholder shall,
within five business days after the Closing Date, request a refund of all
prepaid sales tax amounts on deposit with the Florida Department of Revenue.
Promptly after receiving a refund of such amounts, the Company or the
Stockholder shall remit such amounts to Beacon, either by wire transfer to an
account designated in writing to the Company or the Stockholder, or by a company
check.
8.12 MOTOR VEHICLE SALES TAX. Within five business days after the
Closing Date, the Company or the Stockholder shall determine the amount of the
transfer tax as required by law on the transfer of the vehicles identified in
Schedule 2.26 hereto, and shall remit such amounts to Beacon, either by wire
transfer to an account designated in writing to the Company or the Stockholder,
or by a company check.
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This Agreement, including the Exhibits and
schedules hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof. Therefore, no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth in this Agreement. This Agreement
supersedes all letters, memoranda and term sheets previously prepared in
connection with the negotiations surrounding the subject matter hereof. This
Agreement and the rights of the parties hereunder may not be assigned by any
party without the express prior written consent of all other parties hereto. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties' respective successors and permitted assigns. Nothing
in this Agreement is intended to confer upon any third party any rights,
remedies, obligations or liabilities under this Agreement, except as expressly
provided in this Agreement.
9.2 NOTICES. Any notices permitted or required to be given under
the this Agreement shall be in writing and shall be deemed given if delivered to
the party to be notified at the address specified below, by first class mail,
overnight courier or fax with hard copy being sent by first class mail or
overnight courier. Such notice shall be deemed received 24 hours after it is
sent via fax (with receipt confirmed) or overnight courier. Any notice given in
any other manner shall be effective only if and when received.
40
<PAGE> 47
(a) if to Beacon, at:
Beacon Printing & Graphics, Inc.
1111 Bagby, Suite 2450
Houston, Texas 77002-2546
Attn: Carl L. Norton or Jerry Hyde
Telecopier No.: (713) 659-7341
With a copy (which shall not constitute notice) to:
Norton, Jacobs, Kuhn & McTopy, L.L.P.
Texaco Heritage Plaza
1111 Bagby, Suite 2450
Houston, Texas 77002-2546
Attn: Sabrina A. McTopy or Michael K. Kuhn
Telecopier No.: (713) 659-7341
(b) if to the Stockholder or the Company, to its address on
the signature page of this Agreement:
With a copy (which shall not constitute notice) to:
Jorden Burt Boros Cicchetti Berenson & Johnson, LLP
777 Brickell Avenue, Suite 500
Miami, Florida 33131
Attn: Steven Kass
Telecopier No.: (305) 372-9928
The address of any party may be changed by notice given in the
manner provided in this Section 9.2.
9.3 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written instrument designated as an
"amendment" to this Agreement and signed by the parties hereto, and the
observance of any term of this Agreement may be waived only by a written
instrument signed by the party specifically waiving such observance.
41
<PAGE> 48
9.4 GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED UNDER, ENFORCED AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL
SUBSTANTIVE LAWS OF THE STATE OF FLORIDA APPLICABLE TO AGREEMENTS TO BE MADE AND
PERFORMED SOLELY WITHIN SUCH STATE, WITHOUT GIVING EFFECT TO ANY CONFLICTS OR
CHOICE OF LAWS PRINCIPLES WHICH MIGHT OTHERWISE APPLY. THE PARTIES HERETO AGREE
THAT ANY DISPUTE ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE RESOLVED BY
ARBITRATION UNDER SECTION 7.7; PROVIDED, HOWEVER TO THE EXTENT BEACON EXERCISES
ITS RIGHTS UNDER SECTIONS 5 OR 6 HEREOF, VENUE SHALL LIE WITH A COURT OF
COMPETENT JURISDICTION IN DADE COUNTY, FLORIDA.
9.5 SEVERABILITY. If any provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
9.6 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
9.7 EXPENSES. The Stockholder, the Company and Beacon are each
solely responsible for and will bear all of their own respective expenses,
including, without limitation, expenses of legal counsel, investment bankers,
brokers, consultants, accountants and other advisors, incurred at any time in
connection with this Agreement, the Closing Agreements and the transactions
contemplated hereby and thereby.
9.8 WAIVER OF BREACH. No waiver of any provision of this Agreement
shall constitute a waiver of any other provision of this Agreement, and no
waiver shall constitute a waiver of any later breach of such provision.
9.9 CONSTRUCTION. The headings in this Agreement are for reference
purposes only. Wherever required by the context, any gender shall include any
other gender, the singular shall include the plural, and the plural shall
include the singular.
42
<PAGE> 49
9.10 PUBLIC ANNOUNCEMENTS. The parties agree that they will confer
with each other prior to the issuance of any statements or releases pertaining
to this Agreement, except that each party will have the right to issue any such
statements or releases upon advice of its counsel that such issuance is required
in order to comply with the requirements of the federal securities laws or any
national securities exchange.
43
<PAGE> 50
DATED to be effective February 15, 1999.
THE STOCKHOLDER:
ADDRESS FOR NOTICE: AMERICAN BANKERS INSURANCE
GROUP, INC.
11222 Quail Roost Drive By:______________________________________
Miami, Florida 33157-6596
Attn: Arthur W. Heggen -----------------------------------------
Telecopier: (305) 256-7151 (Name), (Title)
THE COMPANY:
H&D GRAPHICS, INC.
11222 Quail Roost Drive By:_______________________________________
Miami, Florida 33157-6596
Attn: Arthur W. Heggen ------------------------------------------
Telecopier: (305) 256-7151 (Name), (Title)
BEACON:
BEACON PRINTING & GRAPHICS,
INC.
1111 Bagby, Suite 2450 By:_______________________________________
Houston, Texas 77002-2546 Carl L. Norton, Chief Executive Officer
Telecopier: (713) 659-7341
44
<PAGE> 51
STATE OF FLORIDA
COUNTY OF_____________
BEFORE ME, the undersigned authority, personally appeared
______________, _________________, of American Bankers Insurance Group, Inc.,
known to me to be the person whose name is subscribed to the foregoing
instrument, and being by me first duly sworn, declared and acknowledged to me
that he executed the same for the purposes and consideration therein expressed
and that the statements contained therein are true and correct.
GIVEN under my hand and seal of office this _____ day of February,
1999.
-----------------------------------
Notary Public in and for
the State of FLORIDA
-----------------------------------
Printed Name of Notary Public
STATE OF FLORIDA
COUNTY OF__________
BEFORE ME, the undersigned authority, personally appeared
______________, _________________, of H&D Graphics, Inc., known to me to be the
person whose name is subscribed to the foregoing instrument, and being by me
first duly sworn, declared and acknowledged to me that he executed the same for
the purposes and consideration therein expressed and that the statements
contained therein are true and correct.
GIVEN under my hand and seal of office this _____ day of February,
1999.
-----------------------------------
Notary Public in and for
the State of FLORIDA
-----------------------------------
Printed Name of Notary Public
45
<PAGE> 52
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned authority, personally appeared Carl L.
Norton, Chief Executive Officer and President of Beacon Printing & Graphics,
Inc., known to me to be the person whose name is subscribed to the foregoing
instrument, and being by me first duly sworn, declared and acknowledged to me
that he executed the same for the purposes and consideration therein expressed
and that the statements contained therein are true and correct.
GIVEN under my hand and seal of office this _____ day of February,
1999.
-----------------------------------
Notary Public in and for
the State of TEXAS
-----------------------------------
Printed Name of Notary Public
46
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-30-1999
<DEBT-HELD-FOR-SALE> 1,260,569
<DEBT-CARRYING-VALUE> 745,291
<DEBT-MARKET-VALUE> 745,291
<EQUITIES> 166,092
<MORTGAGE> 5,525
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,441,131
<CASH> 9,190
<RECOVER-REINSURE> 314,472
<DEFERRED-ACQUISITION> 475,035
<TOTAL-ASSETS> 4,281,648
<POLICY-LOSSES> 341,813
<UNEARNED-PREMIUMS> 1,596,467
<POLICY-OTHER> 607,690
<POLICY-HOLDER-FUNDS> 8,817
<NOTES-PAYABLE> 147,740
0
99,160
<COMMON> 43,199
<OTHER-SE> 923,162
<TOTAL-LIABILITY-AND-EQUITY> 4,281,648
356,964
<INVESTMENT-INCOME> 39,387
<INVESTMENT-GAINS> 3,001
<OTHER-INCOME> 12,540
<BENEFITS> 116,264
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 45,676
<INCOME-TAX> 11,670
<INCOME-CONTINUING> 34,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,006
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.73
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
