-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyLiTwNMAnv4zUWJDAPD6ruTpmjXJeNujswmo/mHZz1NpzXb6PuALGxaI+sPtcE3 hrJxFr5P/P2JBK2A3UOfkg== 0000950144-99-006029.txt : 19990517 0000950144-99-006029.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950144-99-006029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BANKERS INSURANCE GROUP INC CENTRAL INDEX KEY: 0000350571 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 591985922 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13137 FILM NUMBER: 99623129 BUSINESS ADDRESS: STREET 1: 11222 QUAIL ROOST DR CITY: MIAMI STATE: FL ZIP: 33157 BUSINESS PHONE: 3052532244 MAIL ADDRESS: STREET 1: 11222 QUAIL ROOST DR CITY: MIAMI STATE: FL ZIP: 33157 10-Q 1 AMERICAN BANKERS INSURANCE GROUP 10-Q 3/31/99 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 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 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 4 PART I FINANCIAL INFORMATION 4 5 AMERICAN BANKERS INSURANCE GROUP, INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 1999 AND DECEMBER 31, 1998 (in thousands)
1999 1998 ----------- ----------- (unaudited) 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 =========== ===========
See accompanying notes to consolidated financial statements. 5 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)
1999 1998 --------- --------- 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 ========= =========
See accompanying notes to consolidated financial statements. 6 7 AMERICAN BANKERS INSURANCE GROUP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (in thousands) (unaudited)
1999 1998 -------- -------- 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) ======== ========
See accompanying notes to consolidated financial statements. 7 8 AMERICAN BANKERS INSURANCE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (in thousands) (unaudited)
1999 1998 --------- --------- 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
See accompanying notes to consolidated financial statements. 8 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 10 (4) COMPREHENSIVE INCOME Related tax effects are allocated to each component of other comprehensive income as follows:
(in thousands) 1999 1998 -------- -------- 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 ======== ========
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 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 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 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 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 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:
(in thousands) 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 =======
The Company uses the specific identification method to determine cost for computing the realized gains and losses. 15 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.
THREE MONTHS ENDED MARCH 31, ---------------------- 1999 1998 -------- -------- 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 ======== ========
16 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 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 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 20 PART II OTHER INFORMATION 20 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 EX-2.1 2 ASSET PURCHASE AGREEMENT 2/15/99 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 2 TABLE OF CONTENTS
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
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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
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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
iii 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 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 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 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 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 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 11 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-30-1999 1,260,569 745,291 745,291 166,092 5,525 0 2,441,131 9,190 314,472 475,035 4,281,648 341,813 1,596,467 607,690 8,817 147,740 0 99,160 43,199 923,162 4,281,648 356,964 39,387 3,001 12,540 116,264 0 0 45,676 11,670 34,006 0 0 0 34,006 0.77 0.73 0 0 0 0 0 0 0
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