UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
MARK ONE:
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM
TO
-------------------- --------------------
COMMISSION FILE NUMBER 0-11453
AMERICAN PHYSICIANS SERVICE GROUP, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1458323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1301 CAPITAL OF TEXAS HIGHWAY AUSTIN, TEXAS 78746
(Address of principal executive offices) (Zip Code)
(512) 328-0888
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)OF THE ACT:
Common Stock, $.10 Par Value
(Title of Class)
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 reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K _____
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
Aggregate Market Value at March 18, 1998: $30,121,524
Indicate the number of shares outstanding of each of the registrant's class of
common stock, as of the latest practicable date.
NUMBER OF SHARES
OUTSTANDING AT
TITLE OF EACH CLASS MARCH 18, 1998
-------------------- ----------------
Common Stock, $.10 par value 4,154,693
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrant's definitive proxy material for the 1997
annual meeting of shareholders are incorporated by reference into Part III of
the Form 10-K. In addition, Item14(a) of Prime Medical Services, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997 is incorporated by
reference.
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<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
PART I
ITEM 1. BUSINESS
General
American Physicians Service Group, Inc. (the "Company"), through its
subsidiaries, provides financial services that include management services to
malpractice insurance companies, and brokerage and investment services to
individuals and institutions. The Company also owns space in the office building
which serves as its headquarters. Through its real estate subsidiary it leases
space that is surplus to its needs.
The Company owns 3,064,000 shares of common stock of Prime Medical
Services, Inc. ("Prime Medical"), representing at March 15, 1998 approximately
16% of the outstanding shares of common stock of Prime Medical. Two of Prime
Medical's eight directors are members of the Company's five member board of
directors. The Company records its pro-rata share of Prime Medical's results on
the equity basis. Prime Medical is the largest provider of lithotripsy services
in the United States, currently servicing over 450 hospitals and surgery centers
in 34 states. Lithotripsy is a non-invasive method of treating kidney stones
through the use of shock waves. The common stock of Prime Medical is traded on
the NASDAQ National Market under the symbol "PMSI." Prime Medical is a Delaware
corporation which is required to file annual, quarterly and other reports and
documents with the Securities and Exchange Commission (the "SEC"), which reports
and documents contain financial and other information regarding Prime Medical.
The summary information regarding Prime Medical contained herein is qualified in
its entirety by reference to such reports and documents. Such reports and
documents may be examined and copies may be obtained from the offices of the
SEC.
On October 1, 1997, the Company formed APS Practice Management, Inc.,
later renamed Syntera HealthCare Corporation ("Syntera") with an initial
ownership of 85%. Syntera specializes in the management of OB/GYN and related
medical practices. In a typical transaction, Syntera acquires the non-medical
assets of a physician's practice, signs a long-term management contract with the
physician to provide the majority of the non-medical requirements of the
practice, such as non-professional personnel, office space, billing and
collection, and other day-to-day non-medical operating functions. In turn,
Syntera is paid a variable management fee that rewards the efficient operation
and the expansion of the practice. Medical services are not provided by Syntera.
The Company expects its ownership interest in Syntera (currently 74%) to be
reduced to a minority level as Syntera exchanges its stock for assets of
additional physician practices. Due
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to the short time frame anticipated for this change in ownership to occur, the
Company has accounted for its ownership in Syntera on the equity basis in 1997.
On October 31, 1996, the Company invested $3,300,000 in the common
stock of Consolidated Eco-Systems, Inc. (formerly Exsorbet Industries, Inc.)
("Con-Eco") (NASDAQ:EXSO) with a put option. Con-Eco is a diversified
environmental and technical services company. On November 26, 1996, the Company
exercised its put in exchange for a promissory note from Con-Eco. The promissory
note was secured by the shares which were subject to the put plus all of the
stock and substantially all of the assets of a wholly-owned subsidiary of
Con-Eco and the guarantees of all operating subsidiaries of Con-Eco. The Company
renegotiated the debt with Con-Eco in November, 1997. In connection with the
renegotiation, the Company extended the debt for two years and refinanced unpaid
accrued interest, resulting in a new promissory note for $3,788,000. No interest
income has been recognized by the Company. Con-Eco provided additional
collateral to the Company in the form of stock of two additional subsidiaries,
and a second lien on all assets of one of these subsidiaries. Payments under the
new note were scheduled to begin on January 1, but were delayed until March,
1998 with the Company's consent. The March 1998 payment has been received;
however, is anticipated that Con-Eco will be required to sell certain assets in
order to meet its obligations to the Company. The Company has declared Con-Eco
in default for failure to comply with certain non-payment obligations, but
believes its collateral position is sufficient to allow ultimate repayment of
the debt.
The Company was organized in October 1974 under the laws of the State
of Texas. The Company maintains its principal executive office at 1301 Capital
of Texas Highway, Suite C-300, Austin, Texas 78746, and its telephone number is
(512) 328-0888. Unless the context otherwise requires, all references herein to
the "Company" shall mean American Physicians Service Group, Inc. and its
subsidiaries (other than affiliates Prime Medical and Syntera).
The Company, through its wholly owned subsidiary, APS Systems, Inc.
("APS Systems"), had previously developed software and marketed it to medical
clinics and medical schools. This business segment became unprofitable in 1996.
A joint venture with a software developer was formed in 1996 with a plan to
develop new products, but was discontinued in 1997 when it was determined that
the high cost of developing competitive products precluded an adequate return on
investment. Subsequently, the Company ceased marketing the software and reduced
the scope of APS Systems' operations to a level adequate to service existing
clients through the terms of their contracts. The Company has assumed that all
clients will have migrated to other software products by the end of 1999 and has
reflected the expected financial impact of discontinuing this segment on that
date in the current financial statements.
The Company had previously published Spanish language buying guides of
U.S. businesses for distribution in Mexico. This business segment had been
unprofitable and, in 1995 substantially all of the assets of this business were
sold. There was no material financial impact on the Company.
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FINANCIAL SERVICES
The Company's financial services consist of management services to
medical malpractice insurance companies by APS Insurance Services, Inc., an 80%
owned subsidiary of the Company ("Insurance Services"), and brokerage and
investment services primarily to institutional and high net worth individuals
performed by APS Financial Corporation, a wholly-owned subsidiary of the Company
("APS Financial").
MANAGEMENT SERVICES TO MEDICAL MALPRACTICE INSURANCE COMPANIES
Insurance Services, through its wholly-owned subsidiaries APS
Facilities Management, Inc. ("FMI") and American Physicians Insurance Agency,
Inc. ("Agency"), provides management services to medical malpractice insurance
companies. The primary insurance company client, American Physicians Insurance
Exchange ("APIE") is a reciprocal insurance exchange. A reciprocal insurance
exchange is an organization which sells insurance only to its subscribers, who
pay, in addition to their annual insurance premiums, a contribution to the
exchange's surplus. Such exchanges generally have no paid employees but instead
enter into a contract with an "attorney-in-fact", that provides all management
and administrative services for the exchange. As the attorney-in-fact for APIE,
FMI receives a percentage of the earned premiums of APIE, as well as a portion
of APIE's profit. The amount of these premiums can be adversely affected by
competition. Substantial underwriting losses, which might result in a
curtailment or cessation of operations by APIE, would also adversely affect
FMI's revenue. To limit possible underwriting losses, APIE currently reinsures
its risk in excess of $250,000 per medical incident. APIE offers medical
professional liability insurance for doctors in Texas and Arkansas. FMI's assets
are not subject to any insurance claims by policyholders of APIE.
FMI organized APIE and has been its exclusive manager since its
inception in 1975. The management agreement between FMI and APIE basically
provides for full management by FMI of the affairs of APIE under the direction
of APIE's physician Board of Directors. Subject to the direction of this Board,
FMI sells and issues policies, investigates, settles and defends claims, and
otherwise manages APIE's affairs. In consideration for performing its services,
FMI receives a percentage fee based on APIE's earned premiums (before payment of
reinsurance premiums), as well as a portion of APIE's profit. FMI pays all
salaries and personnel related expenses, rent and office operations costs, data
processing costs and many other operating expenses of APIE. APIE is responsible
for the payment of all claims, claims expenses, peer review expenses, directors'
fees and expenses, legal, actuarial and auditing expenses, its taxes and certain
other specific expenses. Under the management agreement, FMI's authority to act
as manager of APIE is automatically renewed each year unless a majority of the
subscribers to APIE elect to terminate the management agreement by reason of an
adjudication that FMI has been grossly negligent, has acted in bad faith or with
fraudulent intent or has committed willful misfeasance in its management
activities.
During 1997, 1996 and 1995 approximately 48%, 57% and 35%,
respectively, of the Company's revenues from continuing operations, and
substantially all of Insurance Services'
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revenues were received pursuant to the agreement with APIE discussed above.
Termination of the agreement with APIE would have a material adverse effect on
the Company.
During 1997, FPIC Insurance Group, Inc. ("FPIC"), purchased a 20%
interest in Insurance Services from the Company. In conjunction with that
purchase, FPIC's subsidiary, Florida Physicians Insurance Company, Inc.
("Florida Physicians"), entered into agreements with Agency and APIE granting
Agency the exclusive right to market Florida Physician's policies in Texas.
Agency has sales, marketing, underwriting and claims handling authority for
Florida Physicians in Texas and receives commissions for such services. Florida
Physicians also entered into a reinsurance agreement with APIE in which APIE
reinsures substantially all of Florida Physicians' risk in Texas under medical
professional liability policies issued or renewed by Florida Physicians on
behalf of Texas health care providers after March 27, 1997. The Company has also
granted FPIC an option, exercisable at any time during 1999, to purchase an
additional 35% interest in Insurance Services from the Company at a price based
on the average net earnings of Insurance Services for 1997 and 1998.
APIE is authorized to do business in the states of Texas and Arkansas.
Florida Physicians is a stock company licensed in several states. Both companies
specialize in writing medical professional liability insurance for health care
providers. The insurance written in Texas is primarily through purchasing groups
and is not subject to certain rate and policy form regulations issued by the
Texas Department of Insurance. Applicants for insurance coverage are reviewed
based on the nature of their practices, prior claims records and other
underwriting criteria. APIE is the third largest medical professional liability
insurance company in the State of Texas and is one of the largest in the State
of Arkansas. APIE is the only insurance company based in Texas that is
wholly-owned by its subscriber physicians.
Florida Physicians is one of the larger physician insurers in the
country, insuring over 5,000 physicians nationwide. Florida Physicians is rated
A- (Excellent) by AM Best.
Generally, medical professional liability insurance is offered on
either a "claims made" basis or an "occurrence" basis. "Claims made" policies
insure physicians only against claims actually made during the period covered by
the policy. "Occurrence" policies insure physicians against claims based on
occurrences during the policy period regardless of when the claim is actually
made. APIE and Florida Physicians offer only a "claims made" policy in Texas and
Arkansas, but provide for an extended reporting option upon termination. APIE
and Florida Physicians reinsure 100% of all Texas and Arkansas coverage per
medical incident between $250,000 and $1,000,000, primarily through certain
domestic and international insurance companies.
The following table presents selected financial and other data for
APIE. The management agreement with FMI obligates APIE to pay management fees to
FMI based on APIE's earned premiums before payment of reinsurance premiums. The
fee percentage is 13.5% with the provision that any profits of APIE will be
shared equally with FMI so long as the total
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reimbursement (fees and profit sharing) do not exceed a cap based on premium
levels. No profit sharing fee was received in 1993. In 1997, 1996, 1995, and
1994, management fees attributable to profit sharing were $1,961,000,
$1,191,000, $700,000, and $1,107,000, respectively.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
------ ------ ------ ---- -----
(thousands, except for
number of insureds)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earned premiums before
reinsurance premiums...... $25,899 $28,754 $30,857 $30,261 $29,205
Total assets................ 81,594 90,193 101,251 98,302 94,019
Total surplus............... 11,854 10,017 9,402 9,315 9,196
Management fees and
commissions to FMI and
Agency ................... 5,854 (4) 5,281 (4) 5,010 (4) 4,703 (2) 3,790 (1)
Number of insureds......... 2,629 (3) 3,019 3,226 3,216 (3) 3,575
- ----------------
</TABLE>
(1) Gross fee of $3,942 less tax refund of $152 attributable to
APIE's association with FMI.
(2) Gross fee of $5,193 less tax credit of $490 attributable to
APIE's association with FMI.
(3) The decrease was the result of APIE's decision to raise
premiums on certain unprofitable specialties. Included in the
totals are doctors for which APIE provides reinsurance through
a relationship with another malpractice insurance company.
(4) Includes commissions of $1,214, $860 and $676 in 1997, 1996
and 1995, respectively, from Florida Physicians and other
carriers directly related to APIE's controlled business.
BROKERAGE AND INVESTMENT SERVICES
APS Financial, a fully licensed broker/dealer, provides brokerage and
investment services primarily to institutional and high net worth individual
clients. APS Financial also provides complete portfolio accounting, analysis,
and management services, to insurance companies, banks, and public funds.
APS Financial's employees have extensive investment expertise and
knowledge. APS Financial is a member of the National Association of Securities
Dealers, Inc. ("NASD"), the Securities Investor Protection Corporation ("SIPC"),
the Securities Industry Association, and, in addition, is licensed in 44 states.
Commissions are charged on both exchange and over-the-counter ("OTC")
transactions generally in accordance with industry practice. When OTC
transactions are executed by APS Financial as a dealer, APS Financial receives,
in lieu of commissions, mark-ups or mark-downs.
Every registered broker-dealer doing business with the public is
subject to stringent rules with respect to net capital requirements promulgated
by the SEC. These rules, which are designed
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to measure the financial soundness and liquidity of broker-dealers, specify
minimum net capital requirements. Since the Company is not itself a registered
broker-dealer, it is not subject to these rules. However, APS Financial is
subject to these rules. Compliance with applicable net capital requirements
could limit operations of APS Financial such as trading activities that require
the use of significant amounts of capital. A significant operating loss or an
extraordinary charge against net capital could adversely affect the ability of
APS Financial to expand or even maintain its present levels of business. At
December 31, 1997, APS Financial was in compliance with all net capital
requirements.
APS Financial clears and executes its transactions through Southwest
Securities, Inc. ("Southwest") on a fully disclosed basis. Southwest also
processes orders and floor reports, matches trades, transmits execution reports
to APS Financial and records all data pertinent to trades. APS Financial pays
Southwest a fee based on the number and type of transactions performed by
Southwest.
REAL ESTATE
APS Realty, Inc., a wholly-owned subsidiary of the Company ("APS
Realty"), owns condominium space in an office project located in Austin, Texas.
APS Realty leases approximately 58% of this space to the Company, its
subsidiaries and Prime Medical. The remainder is leased to unaffiliated parties.
COMPETITION
APIE competes with numerous insurance companies in Texas and Arkansas,
primarily Medical Protective Insurance Company, St. Paul Fire and Marine
Insurance Company, State Volunteer Mutual Company, Frontier Insurance Group,
Insurance Company of America, Texas Medical Liability Trust and CNA Insurance
Company. Many of these firms have substantially greater resources than APIE. The
primary competitive factor in selling insurance is a combination of price, terms
of the policies offered, claims and other service and claims settlement
philosophy.
APS Financial is also engaged in a highly competitive business. Its
competitors include, with respect to one or more aspects of its business, all of
the member organizations of the New York Stock Exchange and other registered
securities exchanges, all members of the NASD, registered investment advisors,
members of the various commodity exchanges and commercial banks and thrift
institutions. Many of these organizations are national rather than regional
firms and have substantially greater personnel and financial resources than the
Company. Discount brokerage firms oriented to the retail market, including firms
affiliated with commercial banks and thrift institutions, are devoting
substantial funds to advertising and direct solicitation of customers in order
to increase their share of commission dollars and other securities-related
income. In many instances APS Financial is competing directly with such
organizations. In addition, there is competition for investment funds from the
real estate, insurance, banking and thrift industries.
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REGULATION
FMI has received certificates of authority from the Texas and Arkansas
insurance departments, licensing it on behalf of the subscribers of APIE. APIE,
as an insurance company, is subject to regulation by the insurance departments
of the States of Texas and Arkansas. These regulations strictly limit all
financial dealings of a reciprocal insurance exchange with its officers,
directors, affiliates and subsidiaries, including FMI. Premium rates,
advertising, solicitation of insurance, types of insurance issued and general
corporate activity are also subject to regulation by various state agencies.
APS Financial is subject to extensive regulation under both federal and
state laws. The SEC is the federal agency charged with administration of the
federal securities laws. Much of the regulation of broker-dealers, however, has
been delegated to self-regulatory organizations, principally the NASD and the
national securities exchanges. These self-regulatory organizations adopt rules
(subject to approval by the SEC) which govern the industry and conduct periodic
examinations of member broker-dealers. APS Financial is also subject to
regulation by state and District of Columbia securities commissions.
The regulations to which APS Financial is subject cover all aspects of
the securities business, including sales methods, trade practices among
broker-dealers, uses and safekeeping of customers' funds and securities, capital
structure of securities firms, record-keeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated by
the SEC and by self-regulatory organizations, or changes in the interpretation
or enforcement of existing laws and rules, may directly affect the method of
operation and profitability of APS Financial. The SEC, self-regulatory
organizations and state securities commissions may conduct administrative
proceedings which can result in censure, fine, suspension or expulsion of APS
Financial, its officers or employees. The principal purpose of regulation and
discipline of broker-dealers is the protection of customers and the securities
markets, rather than protection of creditors and shareholders of broker-dealers.
APS Financial, as a registered broker-dealer and NASD member
organization, is required by federal law to belong to the SIPC. When the SIPC
fund falls below a certain minimum amount (as it did in 1995), members are
required to pay annual assessments in varying amounts not to exceed .5% of their
adjusted gross revenues to restore the fund. This assessment amounted to
approximately $7,300 in 1995. The SIPC fund provides protection for customer
accounts up to $500,000 per customer, with a limitation of $100,000 on claims
for cash balances.
EMPLOYEES
At March 1, 1998, the Company employed, on a full time basis,
approximately 128 persons, including 52 by Insurance Services, 45 by APS
Financial, 18 by APS Systems and 13 directly by the Company. The Company
considers its employee relations to be good. None of the Company's employees is
represented by a labor union and the Company has experienced no work stoppages.
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ITEM 2. PROPERTIES
APS Realty owns approximately 53,000 square feet of condominium space
in an office project in Austin, Texas. The Company, its subsidiaries and Prime
Medical use approximately 31,000 square feet of this space as their principal
executive offices, and APS Realty leases the remainder to third parties. The
area available for lease to third parties is fully occupied as of March 20,
1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions that have
arisen in the ordinary course of business. The Company believes that the
liability provision in its financial statements is sufficient to cover any
unfavorable outcome related to lawsuits in which it is currently named.
Management believes that liabilities, if any, arising from these actions will
not have a significant adverse effect on the financial condition of the Company.
However, due to the uncertain nature of legal proceedings, the actual outcome of
these lawsuits may differ from the liability provision recorded in the Company's
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting was held June 19, 1997. The sole agenda
item was the election of directors. Results of the election follow:
Nominee For Against Abstain Broker Non-Vote
Richard Clark 3,598,632 22,000 -- --
Jack Murphy 3,599,631 22,001 -- --
Robert L. Myer 3,598,632 22,000 -- --
William A. Searles 3,598,632 22,000 -- --
Kenneth S. Shifrin 3,598,632 22,000 -- --
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following table represents the high and low prices of the Company's
common stock in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc., Automated Quotations System for years
ended December 31, 1997 and 1996. On March 1, 1998, the Company had
approximately 500 holders of record of its common stock.
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1997 1996
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High Low High Low
First Quarter $7 5/8 $6 3/8 $10 1/8 $5 1/4
Second Quarter 6 7/8 4 3/4 12 7/8 8
Third Quarter 8 7/8 5 7/8 10 5 7/8
Fourth Quarter 8 6 7 3/8 5 5/8
The Company has not declared any cash dividends on its common stock during the
last two years and has no present intention of paying any cash dividends in the
foreseeable future. It is the present policy of the Board of Directors to retain
all earnings to provide funds for the growth of the Company. The declaration and
payment of dividends in the future will be determined by the Board of Directors
based upon the Company's earnings, financial condition, capital requirements and
such other factors as the Board of Directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
For the Year Ended or At December 31,
1997 1996 1995 1994 1993
---- ---- ------ -------- -----
Selected income statement data:
<S> <C> <C> <C> <C> <C>
Revenues $13,065 10,437 16,124 12,333 12,541
Earnings from continuing operations before
income taxes, minority interests and accounting
changes $ 5,984 3,006 3,007 1,784 1,471
Net earnings $ 2,538 1,924 2,024 1,254 1,086
Per share amounts - diluted:
Net earnings $ .59 .46 .53 .36 .31
Diluted weighted average
shares outstanding 4,241 4,219 3,798 3,488 3,549
Selected balance sheet data:
Total assets $29,401 24,468 23,740 19,918 18,326
Long-term obligations $ -- -- 574 878 1,215
Total liabilities $ 6,122 4,086 6,146 4,927 4,562
Minority interests $ 175 -- -- -- 76
Total equity $23,104 20,382 17,594 14,991 13,688
Book value per share $ 5.59 5.03 4.80 4.47 4.15
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
FORWARD-LOOKING STATEMENTS
The statements contained in this Report on Form 10-K that are not purely
historical are forward- looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. Readers should not place undue
reliance on forward-looking statements. All forward-looking statements included
in this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those in such forward-looking statements. In addition to
any risks and uncertainties specifically identified in the text surrounding such
forward-looking statements, the reader should consult the Company's reports on
Forms 10-Q and other filings under the Securities Act of 1933 and the Securities
Exchange Act of 1934, for factors that could cause actual results to differ
materially from those presented.
The forward-looking statements included herein are necessarily based on various
assumptions and estimates and are inherently subject to various risks and
uncertainties, including risks and uncertainties relating to the possible
invalidity of the underlying assumptions and estimates and possible changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including customers, suppliers, business partners and
competitors and legislative, judicial and other governmental authorities and
officials. Assumptions relating to the foregoing involve judgements with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Any such
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Report on Form 10-K will prove
to be accurate.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Revenues from continuing operations increased 25% in 1997 compared to 1996. Net
income increased 32% and diluted earnings per share increased 28%. The reasons
for these changes are described below.
Financial Services
Financial services revenues increased 30% in 1997 compared to 1996.
Insurance management operations were up by 6% as a result of a higher contingent
fee, which was based on improved profits at the managed insurance company.
Broker dealer revenues increased 73%.
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Approximately 71% of the increase was attributable to expanding the sales force
with the opening of an additional office location. The balance of the increase
was primarily a result of lower interest rates creating more activity in the
bond market.
Financial services expenses increased 12% from 1996. The increase reflects
increased sales and expanded office operations at the broker/dealer with the
resultant higher commissions and payroll expense. Better control of legal costs
and a lower allocation of corporate overhead partially offset the increases.
Insurance mangement expenses decreased 9%, again in the areas of legal and
professional fees and allocated corporate overhead.
Results in this segment can vary from year to year. Insurance management
has a provision in its contract whereby it receives a portion of the managed
insurance company's profits. In the eight years under the contract,
profit-sharing has ranged from zero to 16% of the segment's revenues. The broker
dealer, primarily a provider of fixed income securities, is subject to general
market conditions as well as interest rates and is in an industry characterized
by competition for top producing brokers. The broker/dealer continually seeks
quality brokers and has opened an office in another city in an effort to expand
its recruiting and sales base.
REAL ESTATE
Revenue decreased 2% compared to 1996. The small decrease reflects greater
utilization of the office building by the Company and affiliates at lower rates
than outside tenants.
The 3% decrease in real estate expenses in 1997 reflects lower corporate
overhead allocations.
INVESTMENT AND OTHER
The decline in investment and other income was primarily due to lower
interest income, the result of a note receivable being on non-accrual during all
of 1997.
On October 31, 1996, the Company invested $3,300,000 in the common stock of
Con-Eco with a put option. On November 26, 1996, the Company exercised its put
in exchange for a note receivable from Con-Eco. The Company renegotiated the
debt with Con-Eco in November 1997. In connection with the renegotiation, the
Company extended the debt for two years and refinanced unpaid accrued interest,
resulting in a new promissory note for $3,788,000. No interest income has been
recognized by the Company. Payments under the new note were scheduled to begin
on January 1, but were delayed until March 1998 with the Company's consent. The
March 1998 payment has been received; however, it is anticipated that Con-Eco
will be required to sell certain assets in order to meet its obligations to the
Company. The Company has declared Con-Eco in default for failure to comply with
certain non-payment obligations, but believes its collateral position is
sufficient to allow ultimate repayment of the debt.
General and Administrative Expenses
The 800% increase in expenses was a result of changes in accounting
estimates rather than fundamental changes in
11
<PAGE>
operations. 1996's expenses reflected favorable adjustments to a contingency
provision related to a guarantee, as well as favorable adjustments to allowances
for doubtful accounts, a result of collecting the accounts. No such adjustments
were required in 1997.
Interest expense declined 61% primarily due to paying off the Company's
real estate loan early in 1997.
AFFILIATES
Earnings from affiliates increased 43% compared to 1996. Prime Medical
continued to grow and did not have the substantial offering and acquisition
expenses it incurred in 1996. As a result, the Company's equity in earnings grew
67% in 1997. Partially offsetting this increase was a loss in equity earnings of
Syntera. Syntera was established in 1997 and the loss reflects start-up and
development costs incurred in this early phase.
Prime had issued additional shares in 1996 reducing the Company's ownership
from 21% to 16%. The Company, through its status as Prime's largest shareholder
and through its representation on Prime's board, continues to have significant
influence at Prime and accounts for its investment using the equity method.
1996 COMPARED TO 1995
Revenues from continuing operations decreased 35% in 1996 compared to 1995. Net
income decreased 5% and diluted earnings per share decreased 13%. The reasons
for these changes are described below.
FINANCIAL SERVICES
Financial services revenues declined 35% in 1996 compared to 1995.
Insurance management operations were up by 5% as a result of a higher contingent
fee, which was based on improved profits at the managed insurance company.
Broker dealer revenues declined 61%. Approximately 60% of the decline was from
not being able to replace the sales of a key broker who left at the beginning of
1996. The balance of the decline was primarily attributed to higher interest
rates, which reduced activity in the bond market.
Financial services expenses declined 32% from 1995. The decline reflects
lower activity at the broker/dealer where lower commissions, payroll, legal and
office operations expenses combined for a 51% decline compared to 1995.
Insurance management expenses increased 7%, primarily in the areas of employment
taxes and benefits and state taxes.
REAL ESTATE
Revenue increased 7% over 1995. The increase reflects rising lease rates in
Austin, Texas.
12
<PAGE>
The 2% increase in real estate expenses reflects overall inflation from
1995 to 1996.
INVESTMENT AND OTHER
The decline in investment and other income was primarily in the "other"
category, where 1995 results included a favorable settlement of prior
litigation. No similar benefit was received in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
The 93% decline in expenses was primarily a result of timing rather than
fundamental changes in operations. 1995's expenses included a contingency
provision established to guarantee a future yield on an account. In 1996, this
contingency provision was adjusted downward as a result of the account's actual
performance. Approximately 72% of the change between 1996 and 1995 resulted from
this contingency provision. Additionally, the successful collection of certain
accounts receivable in 1996 caused the reversal in 1996 of an allowance for
doubtful accounts, established in 1995, and accounts for approximately 16% of
the change between 1996 and 1995. Approximately 9% of the decrease in 1996
expenses was from lower payroll costs. Costs were lower due to reduced
performance-based incentives, which are based on the Company's pretax income and
market price.
Interest expense declined 56% primarily due to reduced inventories at the
broker/dealer and the resultant reduction in margin borrowing.
AFFILIATES
Earnings from affiliates decreased 6% compared to 1995. Prime Medical grew
dramatically in 1996, but costs associated with acquisitions and a stock
offering reduced the impact of the growth in 1996. Prime Medical's issuance of
additional shares in 1996 reduced the Company's ownership from 21% to 16%.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $3,360,000 and $8,305,000 at December 31, 1997 and
1996, respectively. The decrease in working capital resulted from current notes
receivable being moved to long term, as a result of amended terms, and a
significant increase in accrued liabilities related to the estimated disposal
cost of the computer software segment. Equally significant, the Company's $4.6
million investment in Syntera was funded from working capital and current
operations. Historically, the Company has maintained a strong working capital
position and, using that base, has been able to satisfy its operational and
capital expenditure requirements with cash generated from its operating and
investing activities. These same sources of funds have also allowed the Company
to pursue investment and expansion opportunities consistent with its growth
plans.
13
<PAGE>
In February 1998, the Company entered into a three year $10,000,000
revolving credit agreement with NationsBank of Texas, N.A. Funds advanced under
the agreement will bear interest at the prime rate less 1/4%, such interest to
be payable quarterly. The Company will pledge shares of Prime Medical to the
bank as funds are advanced under the line. No funds had been advanced as of the
date of this report.
Capital expenditures for equipment were $312,000, $123,000 and $419,000, in
1997, 1996, and 1995, respectively. In addition, the Company improved or
purchased office space in 1996 and 1995 for $21,000 and $64,000, respectively.
The Company expects capital expenditures in 1998 to be within the range of the
prior three years.
The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control. Based upon the current level of
operations and anticipated revenue growth, management believes that cash flow
from operations and available cash, together with available borrowings under its
bank line of credit, will be adequate to meet the Company's future liquidity
needs for at least the next several years. However, there can be no assurance
that the Company's business will generate sufficient cash flow from operations,
that anticipated revenue growth and operating improvements will be realized or
that future borrowings will be available under the line of credit in an amount
sufficient to enable the Company to service its indebtedness or to fund its
other liquidity needs.
INFLATION
The operations of the Company are not significantly affected by inflation
because, having no manufacturing operations, the Company is not required to make
large investments in fixed assets. However, the rate of inflation will affect
certain of the Company's expenses, such as employee compensation and benefits.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize data sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The Company
anticipates that necessary actions to be year 2000 compliant will be performed
internally in the ordinary course of business at a cost not expected to exceed
$100,000. However, significant uncertainty exists concerning the potential costs
and effects associated with any year 2000 compliance. Any year 2000 compliance
problem of either the Company or its vendors, third party payors or customers
could have a material adverse effect on the Company's business, results of
operations,
14
<PAGE>
financial condition and prospects.
ITEM 7.(a) Quantitative and Qualitative Disclosures about Market Risk.
Not required for 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained in Appendix A attached
hereto.
Financial information and schedules relating to Prime Medical Services,
Inc. are contained in Item 14(a) of the Annual Report on Form 10-K for the year
ended December 31, 1997 of Prime Medical Services, Inc., which Item 14(a) is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is contained in the definitive proxy
material of the Company to be filed in connection with its 1998 annual meeting
of shareholders, except for the information regarding executive officers of the
Company which is presented below. The information required by this item
contained in such definitive proxy material is incorporated herein by reference.
As of March 1, 1998, the executive officers of the Company are as follows:
Name Age Position
Kenneth S. Shifrin 48 Chairman of the Board, President and
Chief Executive Officer
Duane K. Boyd, Jr. 53 Senior Vice President - Insurance
William H. Hayes 50 Senior Vice President - Finance and
Secretary
Thomas R. Solimine 39 Controller
All officers serve until the next annual meeting of directors and until
their successors are
15
<PAGE>
elected and qualified.
Mr. Shifrin has been Chairman of the Board since March 1990. He has
been President and Chief Executive Officer since March 1989 and was President
and Chief Operating Officer from June 1987 to February 1989. He has been a
Director of the Company since February 1987. From February 1985 until June 1987,
Mr. Shifrin served as Senior Vice President - Finance and Treasurer. He has been
Chairman of the Board of Prime Medical since October 1989. Mr. Shifrin is a
Certified Public Accountant and is a member of the Young Presidents
Organization.
Mr. Boyd has been Senior Vice President - Insurance since July 1991 and
has also been President and Chief Operating Officer of FMI since July 1991. Mr.
Boyd is a Certified Public Accountant and was with KPMG Peat Marwick from 1974
to June 1991. He was a partner specializing in the insurance industry prior to
joining the Company.
Mr. Hayes has been the Senior Vice President - Finance since June 1995.
Mr. Hayes was Vice President from June 1988 to June 1995 and was Controller from
June 1985 to June 1988. He has been Secretary of the Company since February 1987
and Chief Financial Officer since June 1987. Mr. Hayes is a Certified Public
Accountant.
Mr. Solimine has been Controller since June 1994. He has served as
Secretary for APS Financial since February 1995. From July 1989 to June 1994,
Mr. Solimine served as Manager of Accounting for the Company.
There are no family relationships, as defined, between any of the above
executive officers, and there is no arrangement or understanding between any of
the above executive officers and any other person pursuant to which he was
selected as an officer. Each of the above executive officers was elected by the
Board of Directors to hold office until the next annual election of officers and
until his successor is elected and qualified or until his earlier resignation or
removal. The Board of Directors elects the officers in conjunction with each
annual meeting of the stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in the definitive
proxy statement of the Company to be filed in connection with its 1998 annual
meeting of shareholders, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is contained in the definitive
proxy statement of the Company to be filed in connection with its 1998 annual
meeting of shareholders, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
16
<PAGE>
The information required by this item is contained in the definitive
proxy statement of the Company to be filed in connection with its 1998 annual
meeting of shareholders, which information is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
The information required by this item is contained in Appendix
A attached hereto.
2. Financial Statement Schedules
All schedules are omitted because they are not applicable or
not required or because the required information is not
material or is presented in the Consolidated Financial
Statements and related notes.
(b) Reports on Form 8-K
None.
(c) Exhibits (1)
3.1 Restated Articles of Incorporation of the
Company, as amended.(6)
3.2 Amended and Restated Bylaws of the Company.(6)
4.1 Specimen of Common Stock Certificate.(2)
*10.1 American Physicians Service Group, Inc.
Employees Stock Option Plan.(2)
*10.2 Form of Employees Incentive Stock Option
Agreement.(2)
*10.3 Form of Employees Non-Qualified Stock Option
Agreement.(2)
*10.4 American Physicians Service Group, Inc.
Directors Stock Option Plan.(2)
*10.5 Form of Directors Stock Option Agreement.(2)
*10.6 1995 Non-Employee Directors Stock Option Plan
of American Physicians Service Group, Inc.(8)
17
<PAGE>
*10.7 Form of Non-Employee Directors Stock Option
Agreement.(8)
*10.8 1995 Incentive and Non-Qualified Stock Option Plan
of American Physicians Service Group, Inc.(8)
*10.9 Form of Stock Option Agreement (ISO).(8)
*10.10 Form of Stock Option Agreement (Non-Qualified).(8)
*10.11 Management Agreement of Attorney-in-Fact, dated
August 13, 1975, between the Company and American
Physicians Insurance Exchange.(2)
10.12 Rights Agreement dated August 16, 1989
between the Company and Texas American
Bridge Bank N.A., as rights agent, and
letter to the Company stockholders, dated
August 16, 1989.(5)
10.13 Stock Purchase Agreement dated October 11,
1989 between the Company and Texas American
Energy Corporation ("TAE"), Standstill
Agreement dated October 11, 1989 among the
Company, TAE, Shamrock Associates and Paul
O. Koether, and Agreement dated October 11,
1989 among the Company, Prime Medical and
Shamrock Associates.(3)
*10.14 Profit Sharing Plan or Trust, effective December 1,
1984, of the Company.(4)
10.15 Loan Agreement dated April 7, 1992, among the
Company, APS Realty and NationsBank of Texas,
N.A.(7)
10.16 Promissory Note dated April 7, 1992,
executed by APS Realty in the principal
amount of $1,000,000 payable to NationsBank
of Texas, N.A.(7)
10.17 Stock Purchase Agreement dated September 30,
1996 between the Company and Exsorbet
Industries, Inc.(9)
10.18 Stock Put Agreement dated September 30, 1996
between the Company and Exsorbet Industries,
Inc.(9)
10.19 Shareholder Rights Agreement dated September
30, 1996 between the Company and Exsorbet
Industries, Inc.(9)
10.20 Warrant dated September 30, 1996 for shares of
common stock issued
18
<PAGE>
to the Company by Exsorbet Industries, Inc.(9)
10.21 Contingent Warrant Agreement dated September 30,
1996 for shares of common stock issued
to the Company by Exsorbet Industries,
Inc.(9)
10.22 Option Agreements dated September 30, 1996
for shares of Exsorbet common stock issued
to the Company by officers and directors of
Exsorbet Industries, Inc.(9)
10.23 Agreement dated September 30, 1996 with Exsorbet
Industries, Inc. related to options issued by
officers and directors of Exsorbet.(9)
10.24 Guaranty Agreements dated September 30, 1996
between the Company and subsidiaries of
Exsorbet Industries, Inc.(9)
10.25 Promissory Note dated November 26, 1996 executed by
Exsorbet Industries, Inc. and payable to the
Company in the amount of $3,300,000.(9)
10.26 Stock Purchase Agreement dated October 1, 1997
between the Company, APS Practice Management, Inc.,
Michael Beck, John Hendrick, et al.(10)
10.27 Bylaws of APS Practice Management, Inc.(10)
10.28 Amended and Restated Articles of Incorporation APS
Practice Management, Inc.(10)
10.29 APS Practice Management, Inc. Certificate of
Designation of Rights and Preferences Series A
Serial Founder's Common Stock dated September 30,
1997.(10)
10.30 Resolutions to organizational matters concerning
APS Practice Management, Inc. dated October 1, 1997
(10)
10.31 Master Refinancing Agreement dated November 6,
1997 between the Company and Consolidated
Eco-Systems, Inc.(10)
10.32 Promissory Note dated November 6, 1997 executed by
Consolidated Eco-Systems, Inc. and payable to the
Company in the amount of $3,788,580.(10)
10.33 Assignment and Security Agreement dated
November 6, 1997 between the Company and
Consolidated Eco-Systems, Inc.(10)
19
<PAGE>
10.34 Security Agreement dated November 6, 1997 between
the Company and Consolidated Eco-Systems, Inc.(10)
10.35 Share Exchange Agreements dated October 31, 1997
between the Company and Devin Garza,
M.D., Robert Casanova, M.D. and Shelley
Nielsen, M.D.(10)
10.36 First Amendment to 1995 Incentive and Non-Qualified
Stock Option Plan of American Physicians Service
Group, Inc. Dated December 10, 1997.(10)
10.37 First Amendment to 1995 Non-Employee Director Stock
Option Plan of American Physicians Service Group,
Inc. Dated December 10, 1997.(10)
21.1 List of subsidiaries of the Company.(10)
23.1 Independent Auditors Consent of KPMG Peat Marwick
LLP.(10)
27.1 Financial Data Schedule (EDGAR filing).
- ----------------
(*) Executive Compensation plans and arrangements.
(1) The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Reports,
proxy statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such reports, proxy statements and other information
concerning the Company are also available for inspection at the offices of The
Nasdaq National Market, Reports Section, 1735 K Street, N.W., Washington, D.C.
20006. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at "http://www.sec.gov" and makes available
the same documents through Disclosure, Inc. at 800-638-8241.
(2) Filed as an Exhibit to the Registration Statement on Form S-1,
Registration No. 2-85321, of the Company, and incorporated herein by reference.
20
<PAGE>
(3) Filed as an Exhibit to the Current Report on Form 8-K of the Company
dated October 20, 1989 and incorporated herein by reference.
(4) Filed as an Exhibit to the Annual Report on Form 10-K of the Company
for the year ended December 31, 1984 and incorporated herein by reference.
(5) Filed as an Exhibit to the Current Report on Form 8-K of the Company
dated September 5, 1989 and incorporated herein by reference.
(6) Filed as an Exhibit to the Annual Report on Form 10-K of the Company
for the year ended December 31, 1990 and incorporated herein by reference.
(7) Filed as an Exhibit to the Annual Report on Form 10-K of the Company
for the year ended December 31, 1992 and incorporated herein by reference.
(8) Filed as an Exhibit to the Annual Report on Form 10-KSB of the Company
for the year ended December 31, 1995 and incorporated herein by reference.
(9) Filed as an Exhibit to the Annual Report on Form 10-KSB of the Company
for the year ended December 31, 1996 and incorporated herein by reference.
(10) Filed herewith.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 PHYSICIANS SERVICE GROUP, INC.
By: /s/ Kenneth S. Shifrin
Kenneth S. Shifrin, Chairman of the
Board and Chief Executive Officer
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By: /s/ Kenneth S. Shifrin
Kenneth S. Shifrin
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: March 27, 1998
By: /s/ W. H. Hayes
W. H. Hayes
Senior Vice President - Finance, Secretary
and Chief Financial Officer
(Principal Financial Officer)
Date: March 27, 1998
By: /s/ Thomas R. Solimine
Thomas R. Solimine
Controller
(Principal Accounting Officer)
22
<PAGE>
Date: March 27, 1998
By: /s/ Richard J. Clark
Richard J. Clark, Director
Date: March 27, 1998
By: /s/ Jack Murphy
Jack Murphy, Director
Date: March 27, 1998
By: /s/ Robert L. Myer
Robert L. Myer, Director
Date: March 27, 1998
By: /s/ William A. Searles
William A. Searles, Director
Date: March 27, 1998
23
<PAGE>
APPENDIX A
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report A-2
Financial Statements
Consolidated Statements of Earnings for the years A-3
ended December 31, 1997, 1996 and 1995.
Consolidated Balance Sheets at December 31, 1997 A-5
and December 31, 1996.
Consolidated Statements of Cash Flows for the years A-7
ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity A-9
at December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements. A-10
A-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Physicians Service Group, Inc.:
We have audited the accompanying consolidated financial statements of American
Physicians Service Group, Inc. and subsidiaries ("Company") as listed in the
accompanying index. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Physicians
Service Group, Inc. and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Austin, Texas
March 6, 1998
A-2
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Financial services (Note 3) $12,013 9,244 14,134
Real estate (Note 6) 704 717 668
Investments and other (Note 2) 348 476 1,322
-------- ------- -------
Total revenues 13,065 10,437 16,124
------- ------- -------
Expenses:
Financial services 9,118 8,117 11,954
Real estate 503 521 510
General and administrative 1,352 150 2,037
Interest 21 54 124
------ ------ -------
Total expenses 10,994 8,842 14,625
------ ------ -------
Operating income 2,071 1,595 1,499
Equity in earnings of
unconsolidated affiliates (Note 13) 2,014 1,411 1,508
Gain on sale of interest in subsidiary 1,899 -- --
------ ------- -------
Earnings from continuing operations before
income taxes and minority interests 5,984 3,006 3,007
Income tax expense (Note 9) 2,341 1,058 946
Minority interests (175) -- --
------- -------- --------
Earnings from continuing operations 3,468 1,948 2,061
------ ------ ------
Discontinued operations:
Loss from operations of discontinued segment,
net of income tax benefit of $48, $13 and $19 in
1997, 1996 and 1995, respectively (94) (24) (37)
Estimated loss on disposal of discontinued segment,
net of income tax benefit of $431 in 1997 (836) -- --
------ -------- --------
Net loss from discontinued operations (930) (24) (37)
------- --------- --------
Net earnings $2,538 1,924 2,024
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
A-3
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS, continued
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ------
<S> <C> <C> <C>
Earnings per common share:
Basic:
Earnings from continuing operations $0.84 0.48 0.59
Discontinued operations (0.22) -- (0.01)
------ ----- ------
Net earnings $0.62 0.48 0.58
====== ===== ======
Diluted:
Earnings from continuing operations $0.81 0.46 0.54
Discontinued operations (0.22) -- (0.01)
----- ----- ------
Net earnings $0.59 0.46 0.53
===== ===== ======
Basic weighted average shares
outstanding 4,106 4,025 3,480
===== ====== =======
Diluted weighted average
shares outstanding 4,241 4,219 3,798
===== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
A-4
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $5,188 5,770
Marketable securities (Note 2) -- 29
Trading account securities 449 699
Management fees and other receivables
(Note 3) 815 512
Income tax receivable -- 650
Notes receivable - current (Note 4) 1,157 3,447
Receivable from clearing broker 543 279
Prepaid expenses and other 508 239
----- ------
Total current assets 8,660 11,625
Notes receivable, less current portion
(Note 4) 2,982 179
Property and equipment, net (Note 6) 1,830 1,781
Investment in affiliates (Note 13) 15,611 9,657
Other assets 318 1,226
------ ------
Total assets $29,401 24,468
====== ======
See accompanying notes to consolidated financial statements.
A-5
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED BALANCE SHEETS, continued
(In thousands, except share data)
December 31,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term obligations
(Note 6) $ -- 542
Accounts payable - trade 614 382
Payable to clearing broker 441 --
Accrued compensation 446 252
Accrued expenses and other liabilities
(Note 7) 3,573 2,144
Income taxes payable 226 --
----- ------
Total current liabilities 5,300 3,320
Net deferred income tax liability
(Note 9) 822 766
----- ------
Total liabilities 6,122 4,086
------ ------
Minority interest 175 --
Shareholders' equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized -- --
Common stock, $0.10 par value,
20,000,000 shares authorized; 4,160,861
issued at 12/31/97 and 4,049,195 at
12/31/96 416 405
Additional paid-in capital 5,528 5,366
Unrealized holding losses -- ( 11)
Retained earnings 17,160 14,622
------ ------
Total shareholders' equity 23,104 20,382
------ -------
Commitments and contingencies
(notes 6, 8, 10, 11 and 12)
Total liabilities and shareholders' equity $29,401 24,468
======= ======
See accompanying notes to consolidated financial statements.
A-6
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 13,080 11,123 21,068
Cash paid to suppliers and employees (9,247) (11,064) (17,860)
Change in trading account securities 250 315 ( 353)
Change in receivable from clearing broker (177) 501 ( 289)
Interest paid (21) ( 54) ( 124)
Income taxes paid (772) ( 611) ( 494)
Interest, dividends and other investment proceeds 219 459 1,322
------- -------- -------
Net cash provided by operating activities 3,332 669 3,270
------- -------- -------
Cash flows from investing activities:
Payments for purchase of property and
equipment (312) ( 144) ( 483)
Net decrease (increase) in marketable
securities 5 2,045 ( 530)
Investment in affiliates (5,292) ( 244) --
Proceeds from sale of fixed assets 55 -- 47
Funds loaned to others (834) ( 3,442) --
Proceeds from the sale of discontinued operation -- -- 67
Collection of notes receivable 109 -- 1,119
Proceeds from disolution of entity 1,000 -- --
Proceeds from sale of 20% of subsidiary 2,000 -- --
Other (82) -- --
Net cash provided by (used in) investing ------- -------- ------
activities (3,351) ( 1,785) 220
------- -------- ------
Cash flows from financing activities:
Repayment of long-term obligations (542) ( 163) ( 332)
Acquisition of treasury stock (337) ( 453) ( 125)
Proceeds from exercise of stock options 316 704 499
------- ------- ------
Net cash provided by (used in) financing activities (563) 88 42
------- ------- ------
Net change in cash and cash equivalents (582) ( 1,028) 3,532
Cash and cash equivalents at beginning of period 5,770 6,798 3,266
----- ----- ------
Cash and cash equivalents at end of period 5,188 5,770 6,798
===== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
A-7
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash from
operating activities:
Net earnings $ 2,538 1,923 2,024
Adjustments to reconcile net earnings to
net cash from operating activities:
Depreciation and amortization 436 324 399
Minority interest in consolidated earnings 175 -- --
Undistributed earnings of affiliate (2,014) (1,411) (1,508)
Gain on sale or disposition of assets (2,032) -- (72)
(Gain) loss on sale of securities 41 ( 81) ( 50)
Change in federal income tax payable 876 (584) 301
Provision for deferred income tax 56 925 27
Change in trading securities 250 315 (353)
Change in receivable from clearing broker 177 501 (289)
Change in management fees and other receivable ( 26) 17 1,183
Change in prepaids and other current assets ( 191) 24 493
Change in long-term assets -- 265 --
Change in trade payable 90 53 ( 456)
Change in accrued expenses and other liabilities 1,547 (1,602) 1,571
Loss from discontinued operations 1,409 -- --
------- ------ ------
Net cash from operating activities $ 3,332 669 3,270
======== ====== ======
</TABLE>
Summary of non-cash transactions:
During 1997, non-qualified employee stock options were exercised which resulted
in a reduction of income tax payable and a corresponding addition to
paid-in-capital of $194.
During 1996, non-qualified employee stock options were exercised which resulted
in a reduction of income tax payable and a corresponding addition to paid-in
capital of $624.
During the third quarter, 1995, the investment in the Company by the Company's
affiliate, Prime Medical Services, Inc., became immaterial. Consequently,
Reciprocal Stockholdings fell to zero while the Company's investment in
affiliate increased by $543.
The Company acquired $294,000 in treasury stock by exchanging $294,000 in Prime
Medical Services, Inc. Common stock during 1995.
In 1995, the Company sold APS Communications in a non-cash transaction as
follows:
Note received $ 183
======
Fixed assets sold ( 48)
Deferred income (135)
$ (183)
See accompanying notes to consolidated financial statements.
A-8
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1997,
1996 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Stock paid-in holding Retained Reciprocal shareholders'
Shares Amount capital gains earnings stockholdings equity
-------------- --------- ------------- ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995 3,471,684 $347 4,469 44 10,647 (543) 14,991
Net earnings -- -- -- -- 2,024 -- 2,024
Unrealized gains on securities
available for sale, net of tax -- -- -- (44) -- -- (44)
Shares issued (Note 11) 314,333 31 468 -- -- -- 499
Shares repurchased &
cancelled (Note 13) (122,146) (12) (407) -- -- -- (419)
Pro rata portion of Company
common stock held by
affiliate (Note 13) -- -- -- -- -- 543 543
-------------- --------- ------------- ------------- ----------- -------------- -------------
Balance December 31, 1995 3,663,871 366 4,530 -- 12,698 -- 17,594
Net earnings -- -- -- -- 1,924 -- 1,924
Unrealized loss on securities
available for sale, net of tax -- -- -- (11) -- -- (11)
Shares issued (Note 11) 450,000 45 659 -- -- -- 704
Shares repurchased &
cancelled (64,676) (6) (447) -- -- -- (453)
Income tax benefit of non-
qualified option exercises -- -- 624 -- -- -- 624
-------------- --------- ------------- ------------- ----------- -------------- -------------
Balance December 31, 1996 4,049,195 405 5,366 (11) 14,622 -- 20,382
Net earnings -- -- -- -- 2,538 -- 2,538
Unrealized loss on securities
available for sale, net of tax -- -- -- 11 -- -- 11
Shares issued (Note 11) 164,666 16 300 -- -- -- 316
Shares repurchased &
cancelled ( 53,000) ( 5) (332) -- -- -- (337)
Income tax benefit of
non-qualified option
exercises -- -- 194 -- -- -- 194
-------------- ---------- ------------- ------------- ----------- -------------- -------------
Balance December 31, 1997 4,160,861 416 5,528 -- 17,160 -- 23,104
============== ========== ============= ============= =========== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
A-9
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) General
American Physicians Service Group, Inc. through its
subsidiaries, provides financial services that include
management of malpractice insurance companies and brokerage
and investment services to individuals and institutions. The
brokerage business has clients nationally. Insurance
management is a service provided primarily in Texas, but is
available to clients nationally. American Physicians Service
Group, Inc. also owns space in the office building which
serves as its headquarters. Through its real estate subsidiary
it leases space that is surplus to its needs. During the three
years presented in the financial statements, financial
services generated approximately 89% of total revenues. The
Company entered the physician practice management business in
the fourth quarter of 1997. Operations for 1997 are not
significant.
(b) Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles required management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of
American Physicians Service Group, Inc. and of subsidiary
companies more than 50% owned ("Company"). Investments in
affiliated companies and other entities in which the Company's
investment is less than 50% of the common shares outstanding
and where the Company exerts significant influence, are
accounted for by the equity method.
All significant intercompany transactions and balances have
been eliminated from the accompanying consolidated financial
statements.
(d) Revenue Recognition
Financial services revenues related to management fees are
recognized monthly as a percentage of the earned premiums of
the managed company. The profit sharing component of these
fees is recognized when it is reasonably certain that the
managed
A-10
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(1) Summary of Significant Accounting Policies, continued
company will have an annual profit. Revenues related to
securities transactions are recognized on a trade date basis.
Real estate rental income is recognized monthly based on lease
agreements. Costs of leasehold improvements are capitalized
and amortized monthly over the term of the lease.
Investment revenues are recognized as accrued on highly-rated
investments and as received on lesser grades.
(e) Broker, Dealer and Securities Transactions
Securities transactions are recorded in the accounts on a
trade date basis.
(f) Marketable Securities
The Company's investments in debt and equity securities are
classified in three categories and accounted for as follows:
Classification Accounting
----------------- -------------------------------
Held to maturity Amortized cost
Trading securities Fair value, unrealized gains
and losses included in earnings
Available for sale Fair value, unrealized gains and
losses excluded from earnings and
reported as a separate component
of stockholders' equity, net of
applicable income taxes
The Company has included its marketable securities in the
available for sale category.
(g) Property and Equipment
Property and equipment are stated at cost. Property and
equipment and rental property are depreciated using the
straight-line method over the estimated useful lives of the
respective assets (3 to 40 years).
(h) Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount
may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of
the asset, a loss is recognized if there is a difference
between the fair value and carrying value of the
A-11
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(1) Summary of Significant Accounting Policies, continued
asset.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
(j) Earnings Per Share
Basic earnings per share is based on the weighted average
shares outstanding without any diluted effects considered.
Diluted earnings per share reflects dilution from all
contingently issuable shares, including options.
(k) Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid
investments with an original maturity of 90 days or less.
(l) Notes Receivable
Notes receivable are recorded at cost, less allowances for
doubtful accounts when deemed necessary. Management,
considering current information and events regarding the
borrowers ability to repay their obligations, considers a note
to be impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual
terms of the note agreement. When a loan is considered to be
impaired, the amount of the impairment is measured based on
the present value of expected future cash flows discounted at
the note's effective interest rate. Impairment losses are
included in the allowance for doubtful accounts through a
charge to bad debt expense. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such
notes until the principal has been recovered and are
recognized as interest income, thereafter.
A-12
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(m) Stock-Based Compensation
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("Statement 123"), but
applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for its stock
option plans.
(n) Reclassification
Certain reclassifications have been made to amounts presented
in previous years to be consistent with the 1997 presentation.
(2) Marketable Securities
The Company holds various marketable securities as short-term
investments. At December 31, 1997 and 1996, these marketable
securities consisted of:
December 31,
1997 1996
------- -------
Equity securities, at cost $ -- 45,000
Debt securities, at cost -- --
-------- --------
Less: adjustment to fair value $ -- ( 16,000)
-------- --------
Total marketable securities at
fair value $ -- 29,000
======== ========
At December 31, 1996 there were $16,000 in gross unrealized losses.
There were no unrealized gains or losses at December 31, 1997 or 1995.
Investment income includes the following:
1997 1996 1995
--------- ---------- --------
Interest $ 219,000 367,000 243,000
Realized gains -- 81,000 50,000
Realized losses ( 41,000) -- --
--------- ---------- --------
$ 178,000 448,000 293,000
========= ======== ========
A-13
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(2) Marketable Securities, continued
No individual issuer exceeded 10% of shareholders' equity at December
31, 1997 or 1996.
(3) Management Fees and Other Receivables
Management fees and other receivables consist of the following:
December 31,
1997 1996
---- ----
Management fees receivable $ 3,000 256,000
Trade accounts receivable 200,000 16,000
Less: allowance for doubtful accounts (25,000) --
Accrued interest receivable 10,000 12,000
Other receivables 627,000 228,000
------- -------
$815,000 512,000
======== =======
The Company earns management fees by providing for the full management
of American Physicians Insurance Exchange ("APIE") under the direction
of APIE's doctor Board of Directors. Subject to the direction of this
Board, FMI sells and issues policies, investigates, settles and defends
claims, and otherwise manages APIE's affairs. The Company has
previously managed other insurance companies.
The Company earned management fees of $6,287,000, $5,942,000 and
$5,660,000 and received expense reimbursements of $664,000, $346,000
and $355,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, related to these agreements.
A-14
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(4) Notes Receivable
Notes receivable consists of the following:
December 31,
1997 1996
----- -----
Reagan Publishing Company
This unsecured note had an original
rate of 7% and a maturity of December 31,
1997. During 1997, the terms were renegotiated
with a payment schedule based on the sales
volume of the borrower, with certain annual
minimums. The note bears interest at the
prime rate (8.5% at December 31, 1997). $176,000 183,000
Consolidated Eco-Systems, Inc.
This note is secured by 1,200,000 shares
of Consolidated Eco-Systems, Inc. common
stock and stock and certain assets of Con-Eco
subsidiaries. The note bears interest at 15%.
Principal payments are monthly through
October 1, 1999 at which time all remaining
principal and accrued interest are due. 3,788,000 3,300,000
Uncommon Care, Inc.
This note is secured by land located in
Fort Bend County, Texas. The note bears
interest at 10% and is due January 31, 1998. 300,000 --
Employees
Four employees have loans from the Company
as employment inducements.The notes are non-
interest bearing and are being forgiven and
amortized monthly over three to four year
periods. The notes are due and payable should
the employees terminate employment. 528,000 143,000
---------- ---------
4,792,000 3,626,000
Less allowance for doubtful accounts (653,000) --
---------- ---------
4,139,000 3,626,000
Less current portion 1,157,000 3,447,000
--------- ---------
Long term portion $2,982,000 179,000
========== ==========
A-15
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(4) Notes Receivable, continued
The Company's note receivable from Consolidated Eco-Systems, Inc. (formerly
Exsorbet Industries, Inc.) ("Con-Eco") (NASDAQ:EXSO), a diversified
environmental and technical services company, is in excess of 10% of
stockholder's equity at December 31, 1997 and represents a concentration of
credit risk. Con-Eco's common stock sales price was $0.115 per share on the
basis of the average high and low sales price of the stock on March 17, 1998.
The Company renegotiated the debt with Con-Eco in November 1997. In connection
with the renegotiation, the Company extended the debt for two years and rolled
all accrued interest into the note, resulting in a total note for $3,788,000. No
interest income has been recognized by the Company. Con-Eco provided additional
collateral to the Company in the form of stock of two additional subsidiaries,
and a second lien on all assets of one of these subsidiaries. Payments under the
new note were scheduled to begin on January 1, but were delayed until March 1998
with the Company's consent. It is anticipated that Con-Eco will be required to
sell certain assets in order to meet its obligations to the Company. However,
the Company believes its collateral position is more than sufficient to ensure
ultimate repayment of the debt.
(5) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" (Statement 107), requires that the Company
disclose estimated fair values for its financial instruments as of December 31,
1997 and 1996:
1997 1996
--------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $5,188 5,188 5,770 5,770
Marketable securities and trading
account securities 449 449 728 728
Management fees and other
receivables 815 815 512 512
Notes receivable 4,139 4,119 3,626 3,594
Receivable from clearing broker 543 543 279 279
Debt -- -- 542 542
Accounts payable 614 614 382 382
Fair value estimates, methods, and assumptions are set forth below for
the Company's financial instruments.
A-16
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
Notes to Consolidated Financial Statements, Continued
(5) Fair Value of Financial Instruments, continued
Cash and Cash Equivalents
The carrying amounts for cash and cash equivalents approximate fair
value because they mature in less than 90 days and do not present
unanticipated credit concerns.
Marketable Securities and Trading Account
The fair value of securities owned is estimated based on bid prices
published in financial newspapers or bid quotations received from
securities dealers. The carrying values of marketable securities are
adjusted to market since such securities are in the available for sale
category.
Trading account securities are carried at market value.
Management Fees and Other Receivables
The fair value of these receivables approximates the carrying value due
to their short-term nature and historical collectibility.
Notes Receivable
The fair value of notes has been determined using discounted cash flows
based on management's estimate of current interest rates for notes of
similar credit quality.
Receivable from Clearing Broker
The carrying amounts approximate fair value because the funds can be
withdrawn on demand and there is no unanticipated credit concern.
Debt
The fair market value of debt approximates carrying value since it is
primarily floating rate debt based on current market rates.
Accounts Payable
The fair value of the payable approximates carrying value due to the
short-term nature of the obligation.
A-17
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(5) Fair Value of Financial Instruments, continued
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. Fair value estimates are based on existing on-and-off
balance sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Other
significant assets and liabilities that are not considered financial
assets or liabilities include the deferred tax assets, property and
equipment, investment in affiliates, other assets, accrued expenses and
income tax payable. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in the
aforementioned estimates.
(6) Property and Equipment
Property and equipment consists of the following:
December 31,
1997 1996
---- ----
Office condominium $1,847,000 1,870,000
Furniture and equipment 3,758,000 2,386,000
---------- ---------
5,605,000 4,256,000
Accumulated depreciation and
amortization 3,775,000 2,475,000
---------- ---------
$1,830,000 1,781,000
The Company owns approximately 53,000 square feet in the condominium
building in which its principal offices are located. The Company, its
subsidiaries and affiliates occupy approximately 31,000 square feet and
the remainder is leased to third parties. Rental income received from
third parties during the years ended December 31, 1997, 1996 and 1995
totaled approximately $385,000, $379,000 and $348,000, respectively.
Future minimum lease payments to be received under the terms of the
office condominium leases are as follows: 1998 - $314,000; 1999 -
$59,000 and none thereafter.
At December 31, 1996 the office building was security for a short term
note payable in the amount of $542,000 due April 1997 with interest at
the prime rate. The note was paid in full in January 1997.
A-18
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(7) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consists of the following:
1997 1996
---- ----
APS Systems disposition costs
(discontinued operations) $1,138,000 --
Taxes payable - other 96,000 74,000
Commissions payable 287,000 18,000
Deferred income 280,000 339,000
Health insurance and other claims
payable 59,000 87,000
Contractual/legal claims 1,461,000 1,352,000
Vacation payable 102,000 77,000
Funds held for others 58,000 63,000
Other 92,000 134,000
---------- ----------
$3,573,000 2,144,000
(8) Commitments and Contingencies
The Company has guaranteed the future yield of a customer's investment
portfolio beginning in January 1995 for up to a five and one-half year
period. Management believes that the Company's financial statements
adequately provide for any loss that might occur under this agreement;
however, as defined in AICPA Statement of Position 94-6, it is
reasonably possible that the Company's estimate of loss could change
over the remaining term of the agreement. Management is unable to
determine the range of potential adjustment since it is based on
securities markets, which are beyond its ability to control.
The Company has guaranteed a loan in the amount of $85,000 for one of
its directors. The guarantee is collateralized by securities the
Company believes sufficient to cover its potential liability.
Rent expense under all operating leases for the years ended December
31, 1997, 1996 and 1995 was $89,000, $51,000 and $103,000,
respectively. Future minimum payments for leases which extend for more
than one year were $134,000 at December 31, 1997.
The Company is involved in various claims and legal actions that have
arisen in the ordinary course of business. The Company believes that
the liability provision in its financial statements
A-19
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
is sufficient to cover any unfavorable outcome related to lawsuits in which it
is currently named. Management believes that additional liabilities, if any,
arising from these actions will not have a significant adverse effect on the
financial condition of the Company. However, due to the uncertain nature of
legal proceedings, the actual outcome of these lawsuits may differ from the
liability provision recorded in the Company's financial statements.
(9) Income Taxes
Income tax expense (benefit) consists of the following:
Year Ended
December 31,
1997 1996 1995
----- ----- ----
Continuing Operations
Federal
Current $1,394,000 47,000 795,000
Deferred 777,000 938,000 46,000
State 170,000 73,000 105,000
Discontinued Operation (479,000) (13,000) (19,000)
--------- -------- --------
$1,862,000 1,045,000 927,000
========= ========= =======
A reconciliation of expected income tax expense (computed by applying
the United States statutory income tax rate of 34% to earnings before
income taxes) to total income tax expense in the accompanying
consolidated statements of earnings follows:
Year Ended
December 31,
1997 1996 1995
----- ----- -----
Expected federal income tax
expense $ 1,556,000 972,000 1,003,000
State taxes 170,000 73,000 105,000
Other, net 136,000 -- (181,000)
---------- -------- ---------
$1,862,000 1,045,000 927,000
========== ========= ========
Deferred tax assets are primarily the result of temporary differences
related to accounting for reserves for losses, amounts expensed for
financial purposes not deductible currently for tax purposes, fixed
assets (primarily differences in methods of depreciation) and
investments (primarily related to valuation allowances) for tax and
book purposes.
The tax effect of temporary differences that gives rise to significant
portions of deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
A-20
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(9) Income Taxes, continued
1997 1996
----- -----
Deferred tax assets:
Net operating loss carryforwards $ 188,000 --
Marketable securities write downs
not taken for tax purposes -- 13,000
Accrued expenses 1,015,000 676,000
Accounts receivable, principally due
to allowance for doubtful accounts 79,000 60,000
Deferred income 228,000 30,000
Other 71,000 19,000
--------- --------
Total gross deferred tax assets 1,581,000 798,000
Less valuation allowance (188,000) --
--------- --------
Net deferred tax assets 1,393,000 798,000
--------- --------
Deferred tax liabilities:
Investment in Prime Medical Services, Inc.
due to use of equity method for books (2,158,000) (1,512,000)
Capitalized expenses, principally due to
deductibility for tax purposes ( 57,000) ( 52,000)
---------- ----------
Total gross deferred tax liabilities ( 2,215,000) (1,564,000)
---------- ----------
Net deferred tax liability ($ 822,000) ( 766,000)
========== ==========
The valuation allowance for deferred tax assets as of January 1, 1997
was $0. The net change in the total valuation allowance for the years
ended December 31, 1997 and 1996 was an increase of $188,000 and $0,
respectively. The Company believes that the valuation allowance at
December 31, 1997 is necessary due to uncertainties regarding the use
of the net operating loss carryforwards from separate return years of a
subsidiary acquired in 1997.
At December 31, 1997, net operating loss carryforwards available to
reduce future taxable income amounted to approximately $554,000 and
expire from years 2011 to 2012.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets
are deductible, management believes it is more likely
A-21
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
than not the Company will realize the benefits of these deductible
differences, net of the existing valuation allowances at December 31,
1997.
(10) Employee Benefit Plans
The Company has an employee benefit plan qualifying under Section
401(k) of the Internal Revenue Code for all eligible employees.
Employees become eligible upon meeting certain service and age
requirements. Employees may defer up to 15% (not to exceed $9,500 in
1997) of their annual compensation under the plan. The Company, at its
discretion, may contribute up to 200% of the employees' deferred
amount. For the years ended December 31, 1997, 1996 and 1995,
contributions by the Company aggregated $92,000, $104,000, and
$100,000, respectively.
(11) Stock Options
The Company has adopted, with shareholder approval, the "1995
Non-Employee Directors Stock Option Plan" ("Directors Plan") and the
"1995 Incentive and Non-Qualified Stock Option Plan" ("Incentive
Plan"). The Directors Plan provides for the issuance of up to 200,000
shares of common stock to non-employee directors who serve on the
Compensation Committee. The Incentive Plan provides for the issuance of
up to 800,000 shares of common stock to directors and key employees.
The exercise price for each non-qualified option share is determined by
the Compensation Committee of the Board of Directors ("the Committee").
The exercise price of a qualified incentive stock option had to be at
least 100% of the fair market value of such shares on the date of grant
of the option. Under the Plans, option grants are limited to a maximum
of ten year terms, however, the Committee has issued all currently
outstanding grants with five year terms. The Committee also determines
vesting for each option grant and all outstanding options vest in three
equal annual installments beginning one year from the date of grant.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("Statement 123"), but applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for its stock option plans. No cost from stock-based compensation
awards was recognized in 1997, 1996 or 1995. If the Company had elected
to recognize compensation cost of options granted based on the fair
value at the grant dates, consistent with Statement 123, net income and
earnings per share would have changed to the pro forma amounts
indicated below:
Year Ended December 31,
1997 1996 1995
----- ----- -----
Pro forma net income $1,989,000 1,634,000 1,991,000
A-22
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
Notes to Consolidated Financial Statements, Continued
(11) Stock Options, continued
Pro forma earnings per share - basic $0.48 0.41 0.57
- diluted $0.46 0.39 0.52
The fair value of the options used to compute the pro forma amounts is
estimated using the Black- Scholes option pricing model with the
following assumptions:
1997 1996 1995
---- ---- ----
Risk-free interest rate 6.16% 6.06% 6.41%
Expected holding period 3.90 years 3.75 years 3.75 years
Expected volatility .480 .692 .590
Expected dividend yield -0- -0- -0-
Statement 123 calls for a prospective application of compensation
relating to the grant of stock options and, consequently pro-forma
financial information may not be indicative of future amounts until the
new rules are applied to all outstanding nonvested awards.
Presented below is a summary of the stock options held by the Company's
employees and directors and the related transactions for the years
ended December 31, 1997, 1996 and 1995. Remaining options outstanding
from the Company's previous 1983 plans are included.
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------------------------------
1997 1996 1995
--------------------- ----------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 651,000 $5.64 837,000 $2.18 921,000 $1.57
Options granted 293,000 9.32 295,000 9.32 235,000 3.82
Options exercised 165,000 1.92 450,000 1.56 314,000 1.59
Options forfeited/expired 5,000 7.13 31,000 6.16 5,000 2.45
------- ----- ------- ------ -------- ------
Balance at December 31 774,000 6.60 651,000 5.64 837,000 2.18
======= ====== ======= ===== ======= ------
Options exercisable 244,000 $5.84 258,000 $2.22 550,000 $1.48
======= ===== ======= ===== ======= =====
</TABLE>
The weighted average fair value of Company stock options, calculated
using the Black Scholes option pricing model, granted during the years
ended December 31, 1997, 1996 and 1995 is $2.68, $5.15 and $1.75 per
option, respectively.
A-23
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(11) Stock Options, continued
The following table summarizes the Company's options outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
Stock Options Stock Options
Outstanding Exercisable
-------------------------------------------- -----------------------------
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life Price Shares Price
------ --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
$2.25 to $5.00 185,000 2.2 years 3.09 142,000 3.01
$5.01 to $7.75 356,000 4.3 years 6.19 26,000 6.73
$7.76 to $10.50 233,000 3.5 years 10.00 76,000 10.05
------- --------- ----- ------- -----
Total 774,000 244,000
======= =======
</TABLE>
(12) Discontinued Operations
The Company, through its wholly owned subsidiary, APS Systems, Inc.
("APS Systems"), had previously developed software and marketed it to
medical clinics and medical schools. This business segment became
unprofitable in 1996. A joint venture with a software developer was
formed in 1996 with a plan to develop new products, but was
discontinued in 1997 when it was determined that the high cost of
developing competitive products precluded an adequate return on
investment. Subsequently, the Company ceased marketing the software and
reduced the scope of APS Systems' operations to a level adequate to
service existing clients through the terms of their contracts. The
Company has assumed that all clients will have migrated to other
software products by the end of 1999 and has reflected the expected
financial impact of discontinuing this segment on that date in the
current financial statements. The measurement date for determining
expected losses from the disposal was May 15, 1997.
Net assets/(liabilities) of the discontinued computer systems and
software segment as of December 31, 1997 consisted of the following:
Cash and cash investments $ 25,000
Trade accounts receivable 174,000
Other receivables 2,000
Prepaid and other current assets 61,000
Fixed assets, net of depreciation 93,000
Intercompany receivables 769,000
Trade accounts payable (5,000)
Accrued expenses (1,195,000)
-----------
Net liabilities ($ 76,000)
===========
A-24
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(12) Discontinued Operations, continued
On October 23, 1995 the Company sold substantially all of the assets of
APS Communications Corporation, a publisher of Spanish language
directories of U. S. businesses. The Company received cash, a note
(see Note 4) and had certain liabilities assumed by the purchaser. The
gain on the sale, to be recognized on the installment basis as note
payments are received, will not be material to the Company's
operations. No gain has been recognized through 1997. Historical
results from the operation are presented in the Consolidated
Statements of Earnings as "Loss from discontinued operations."
(13) Investment in Affiliates
On October 12, 1989, the Company purchased for cash 3,540,000 shares
(42%) of the common stock of Prime Medical Services, Inc. ("Prime
Medical"). Members of the Company's Board currently serve as two of the
eight directors of Prime Medical. Prime Medical provides non-medical
management services to lithotripsy centers. In conjunction with the
acquisition of additional lithotripsy operations in June 1992, October
1993, and May 1996, the outstanding shares of Prime Medical increased.
These increases plus the sale of Prime Medical shares owned by the
Company under an option agreement reduced the Company's ownership to
16% of the outstanding common stock of Prime Medical. The Company's
investment in Prime Medical is accounted for using the equity method.
The 3,064,000 shares of Prime Medical common stock held by the Company
had an approximate market value of $42,328,000 (carrying amount of
$11,266,000) at December 31, 1997 based on the market closing price of
$13.8125 per share.
At December 31, 1997 and 1996, the Company's retained earnings included
undistributed earnings, net of deferred tax, of Prime Medical totaling
$4,379,000 and $2,821,000, respectively.
The condensed balance sheet and statement of operations for Prime
Medical follow:
CONDENSED BALANCE SHEET AT DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Current assets $ 47,542,000 40,073,000
Long-term assets 178,284,000 157,680,000
----------- -----------
Total assets $225,826,000 197,753,000
============ ===========
Current liabilities $ 37,383,000 31,555,000
Long-term liabilities 96,379,000 89,771,000
Shareholders' equity 92,064,000 76,427,000
---------- -----------
Total liabilities and equity $225,826,000 197,753,000
============ ===========
A-25
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(13) Investment in Affiliates, continued
CONDENSED STATEMENT OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Total revenue $ 95,979,000 72,404,000
============ ==========
Net income $ 14,856,000 8,961,000
============ ==========
The Company exchanged 575,000 shares of Prime stock for notes payable
from Prime amounting to $593,750, one half in April 1993 and the other
half in July 1995. The gain resulting from the difference between the
market value of the Prime stock and the Company's carrying basis of the
stock was not significant. The Company subsequently exchanged the notes
for 87,000 shares in 1995 and 90,000 shares in 1993 of its own common
stock (at current market value at exchange date) which was owned by
Prime.
On October 1, 1997, the Company formed Syntera HealthCare Corporation
("Syntera") with an initial ownership of 85%. Syntera specializes in
the management of OB/GYN and related medical practices. In a typical
transaction, Syntera acquires the non-medical assets of a physician's
practice, signs a long-term management contract with the physician to
provide all of the non-medical requirements of the practice, including
personnel, office space, billing and collection, and other day-to-day
operating functions. In turn, Syntera is paid a variable management fee
that rewards the efficient operation and the expansion of the practice.
The Company expects to reduce its ownership (currently 74%) to a
minority level as it exchanges stock for practice assets. Due to the
short time frame anticipated for this change in ownership to occur, the
Company has accounted for its ownership on the equity basis in 1997.
The condensed balance sheet and statement of operations for Syntera
follows:
Condensed balance sheet at December 31, 1997
Current assets $4,563,000
Long-term assets 1,664,000
----------
Total assets $6,227,000
==========
Current liabilities $ 505,000
Long-term liabilities --
Shareholders' equity 5,722,000
----------
Total liabilities and equity $6,227,000
==========
A-26
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(13) Investment in Affiliates, continued
Condensed statement of operations for the year ended December 31, 1997
Total revenue $ 297,000
=========
Net loss $ 460,000
=========
(14) Segment Information
The Company's financial services segment includes financial management
for an insurance company that provides insurance coverage to doctors
and hospitals, and brokerage and investment services to individuals and
institutions.
Real Estate income is derived from the leasing of office space.
1997 1996 1995
---- ---- ----
Operating Revenues:
Financial services $12,013,000 9,244,000 14,134,000
Real estate 704,000 717,000 668,000
---------- --------- ----------
$12,717,000 9,961,000 14,802,000
=========== ========= ==========
Operating Profit (Loss):
Financial services $2,877,000 1,122,000 2,118,000
Real estate 198,000 147,000 96,000
--------- --------- -----------
3,075,000 1,269,000 2,214,000
--------- --------- -----------
Corporate investment and other
income 348,000 476,000 1,322,000
Corporate expenses (1,352,000) (150,000) (2,037,000)
Equity in earnings of affiliates 2,014,000 1,411,000 1,508,000
Gain on sale of interest in
subsidiary 1,899,000 -- --
--------- ---------- ---------
Earnings from continuing operations
before income taxes and minority
interests 5,984,000 3,006,000 3,007,000
Income tax expense 2,341,000 1,058,000 946,000
--------- --------- ---------
Minority interests (175,000) -- --
--------- --------- ---------
Earnings from continuing
operations 3,468,000 1,948,000 2,061,000
--------- --------- ---------
A-27
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1997 1996 1995
---- ---- ----
Net loss from discontinued
operations, net of income
tax benefit (930,000) (24,000) ( 37,000)
-------- ------- --------
Net earnings $ 2,538,000 1,924,000 2,024,000
=========== ========== =========
Identifiable assets:
Financial services $20,984,000 11,667,000 11,816,000
Real estate 1,283,000 1,476,000 1,578,000
Corporate 6,778,000 11,325,000 8,614,000
Discontinued Operations 356,000 -- 1,732,000
---------- ---------- ---------
$29,401,000 24,468,000 23,740,000
=========== ========== ==========
Capital expenditures:
Financial service $ 187,000 88,000 262,000
Real estate -- 21,000 64,000
Corporate 26,000 17,000 73,000
Discontinued operations 99,000 18,000 84,000
-------- ------- -------
$ 312,000 144,000 483,000
======== ======= =======
Depreciation/amortization
expenses:
Financial services $ 150,000 164,000 164,000
Real estate 110,000 129,000 126,000
Corporate 62,000 13,000 9,000
Discontinued operations 56,000 24,000 100,000
------- ------- -------
$ 378,000 330,000 399,000
======= ======= =======
Revenues attributable to customers generating greater than 10% of the
revenues of each segment:
Financial services
Company A 49% 61% 35%
Company B -- -- 10%
Company C -- -- 11%
------ ----- ----
49% 61% 57%
=== === ===
At December 31, 1997 the Company had long-term contracts with company A
and was therefore not vulnerable to the risk of a near-term severe
impact from a reasonably possible loss of the revenue.
A-28
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(14) Segment Information, continued
Operating profit is operating revenues less related expenses and is all
derived from domestic operations. Identifiable assets are those assets
that are used in the operations of each business segment (after
elimination of investments in other segments). Corporate assets consist
primarily of cash and cash investments, marketable securities and notes
receivable.
(15) Earnings per Share
Statement of Financial Accounting Standards No. 128, "Earnings per
Share", specifies new measurement, presentation and disclosure
requirements for earnings per share and is required to be applied
retroactively upon initial adoption. The Company has adopted SFAS No.
128 effective with the release of December 31, 1997 earnings data, and
accordingly, has restatated herein all previously reported earnings per
share data. Basic earnings per share is based on the weighted average
shares outstanding without any dilutive effects considered. Diluted
earnings per share reflects dilution from all contingently issuable
shares, including options and covertible debt. A reconciliation of
income and average shares outstanding used in the calculation of basic
and diluted earnings per share from continuing operations follows:
For the Year Ended December 31, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ----------- ---------
Earnings from continuing
operations $3,468,000
Basic EPS
Income available to common
stockholders 3,468,000 4,106,000 $.84
===
Effect of Dilutive Securities
Options -- 114,000
Contingently issuable shares ( 18,000) 21,000
---------- -------
Diluted EPS
Income available to common
stockholders and assumed
conversions $3,450,000 4,241,000 $.81
========== ========= ===
A-29
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(15) Earnings per Share, continued
For the Year Ended December 31, 1996
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ----------- ---------
Earnings from continuing
operations $1,948,000
Basic EPS
Income available to common
stockholders 1,948,000 4,025,000 $.48
===
Effect of Dilutive Securities
Options -- 194,000
--------- --------
Diluted EPS
Income available to common
stockholders and assumed
conversions $1,948,000 4,219,000 $.46
========== ========== ====
For the Year Ended December 31, 1995
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
Earnings from continuing
operations $2,061,000
Basic EPS
Income available to common
stockholders 2,061,000 3,480,000 $.59
====
Effect of Dilutive Securities
Options -- 318,000
--------- ---------
Diluted EPS
Income available to common
stockholders $2,061,000 3,798,000 $.54
========= ========= ====
At December 31, 1997 the Company's affiliate Syntera had issued 166,000
shares which are convertible into 122,000 of the Company's common
shares in the event that the Syntera shares are not publicly- tradeable
by May 1, 1999.
A-30
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(15) Earnings per Share, continued
Unexercised employee stock options to purchase 304,500, 282,000 and
10,000 shares of the Company's common stock as of December 31, 1997,
1996 and 1995, respectively, were not included in the computations of
diluted EPS because the options'exercise prices were greater than the
average market price of the Company's common stock during the
respective periods.
(16) Subsequent Events
On March 20, 1998 the Company purchased non-voting convertible
preferred stock of Uncommon Care, Inc. ("Uncommon Care"). Uncommon Care
is a developer and operator of dedicated Alzheimer's care facilities.
The shares, purchased for approximately $2,000,000, are convertible
into approximately 34% of Uncommon Care's equity. The Company has also
agreed to provide a line of credit to Uncommon Care in the amount of
$2,400,000. The loan will bear interest at 10%, payable quarterly, and
is due in March 2003.
A-31
Exh. 10.26
STOCK PURCHASE AGREEMENT
With Respect to
Common Stock of
APS PRACTICE MANAGEMENT, INC.
Effective Date: October 1, 1997
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this Agreement") is entered into effective as of
the close of business on October 1, 1997 (the Effective Time), between APS
Practice Management, Inc., a Texas corporation (Seller), MichaelR. Beck (Beck),
John R. Hedrick (Hedrick) and those persons and entities listed on Exhibit-A
hereto (such persons and entities are hereinafter collectively referred to as
the Purchasers and individually as a Purchaser). Beck and Hedrick are also each
referred to herein as a Shareholder and collectively as the Shareholders.
The parties hereto agree as follows:
ARTICLE I
Agreement of Purchase and Sale and Closing TC "ARTICLE I - Agreement of Purchase
and Sale and Closing"
1.1 PURCHASE AND SALE. Upon the basis of the representations and
warranties,for the consideration, and subject to the terms and
conditions set forth in this Agreement, Seller agrees to sell to
Purchasers and Purchasers agree to purchase from Seller, in the
aggregate, two million (2,000,000) shares of common stock, $0.001 par
value per share, (collectively, the Shares) of Seller, allocated among
Purchasers as set forth on Exhibit-A.
1.2 PURCHASE PRICE. The aggregate purchase price (the Purchase Price) for
the Shares shall be five million dollars ($5,000,000) to be paid in
cash or wired funds at the Closing (the Closing Payment), by the
applicable Purchasers as described on Exhibit-A.
1.3 CLOSING.
The closing of the transactions contemplated by this Agreement (the
Closing) shall take place at the offices of Akin, Gump, Strauss, Hauer
& Feld, L.L.P., 816Congress Avenue, Suite 1900, Austin, Texas 78701,
and shall be effective as of the Effective Time. The date on which the
Closing occurs is hereinafter referred to as the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF APSG
Each Purchaser (as to themselves only and not as to any other Purchaser)
represents and warrants to the Sellers that each of the following matters is
true and correct in all respects as of the Closing Date (with the understanding
that Seller and the Shareholders are relying materially on such representations
and warranties in entering into and performing this Agreement), which
representations and warranties shall also be deemed made as of the Effective
Time and which shall survive the Closing and not be merged therein:
2.1 DUE ORGANIZATION AND AUTHORIZATION . Such Purchaser has all necessary power
and authority to carry on its business as now conducted and to enter into and
perform this Agreement and each other agreement, instrument and document
required to be executed by such Purchaser in connection herewith. This Agreement
and each other agreement, instrument, and document required herein to be
executed by such Purchaser have been duly and validly authorized, executed and
delivered by such Purchaser and constitute the valid and binding obligations of
such Purchaser enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, conservatorship, receivership and other similar laws of
general application affecting the rights and remedies of creditors.
<PAGE>
2.2 INVESTMENT INTENT. Such Purchaser (a) is acquiring the Shares for its own
account for investment and not with a view to or in connection with a
distribution, within the meaning of the Securities Act of1933, as amended (the
Act) thereof, (b) will not sell or transfer the Shares unless such Shares are
registered under the Act or such sale or transfer is exempt from such
registration requirements, (c) is able to bear the economic risk of its
acquisition of the Shares and (d) has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits of, and
protecting its interests with respect to, its acquisition of the Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and each of the Shareholders, jointly and severally, hereby represent and
warrant to each Purchaser that the following matters are true and correct in all
respects as of the Closing Date (with the understanding that each Purchaser is
relying materially on each such representation and warranty in entering into and
performing this Agreement), which representations and warranties shall also be
deemed made as of the Effective Time and which shall survive the Closing and not
be merged therein:
3.1 DUE ORGANIZATION. Seller is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Texas and has full power and
authority to carry on its business as now conducted and as proposed to be
conducted. Complete and correct copies of Sellers current Certificate and
Articles of Incorporation and Bylaws are attached hereto as Exhibit-B. Seller is
qualified to do business and is in good standing in Texas, and in no other
state.
3.2 SUBSIDIARIES
Seller does not directly or indirectly have, or possess any options or
other rights to acquire, any subsidiaries, or any direct or indirect
ownership interest, in whole or in part, in any person, business,
corporation, partnership, limited liability company, association,
joint venture, trust, or other entity.
3.3 DUE AUTHORIZATION. Each Shareholder and Seller represents and warrants that
(i)they have full power and authority to enter into and perform this Agreement
and each other agreement, instrument, and document required to be executed by
them in connection herewith; (ii)the execution, delivery, and performance of
this Agreement and such other agreements, instruments, and documents have been
duly authorized by all necessary action of Seller; (iii)this Agreement has been
duly and validly executed and delivered by the Seller and the Shareholders, and
constitutes a valid and binding obligation of Seller and the Shareholders
enforceable against them in accordance with its terms, subject to bankruptcy,
insolvency, conservatorship, receivership and other similar laws of general
application affecting the rights and remedies of creditors; (iv)the execution,
delivery, and performance of this Agreement, and each other agreement,
instrument and document required herein to be executed by Seller and/or the
Shareholders does not (a) cause any of them to violate any federal, state,
county, or local law, rule, or regulation applicable to them, (b)cause Seller or
any Shareholder to violate, or conflict with or permit the cancellation of, any
agreement to which Seller or Shareholder is a party, or by which they or any of
their respective properties are bound, or result in the creation of any lien,
security interest, charge, or encumbrance upon any of such properties, (c)
permit the acceleration of the maturity of any indebtedness of, or indebtedness
secured by the property of, any Shareholder or Seller, or (d) cause Seller or
any Shareholder to violate, or conflict with any provision of, the documents
creating or governing the Shareholder; and (v) no action, consent, waiver or
approval of, or filing with, any governmental authority is required by any
Shareholder or Seller in connection with the execution, delivery, or performance
of this Agreement (or any agreement or other document executed in connection
herewith by such Shareholder or Seller). Notwithstanding anything in this
Agreement to the contrary, each Shareholder is making the representations in
this Section 3.3 as to themselves only (and as to Seller where applicable) and
is not making any representation or warranty with respect to any of the matters
addressed in this Section 3.3 relating to any other Shareholder.
<PAGE>
3.4 CAPITAL STOCK . The authorized
shares of all classes of capital stock of Seller consist of fifty-one
million two hundred twenty-two thousand two hundred twenty-four
(51,222,224) shares, consisting of and divided into:
(i) On class of fifty million (50,000,000) shares of common stock, $0.001
par value per share;
(ii) One class of two hundred twenty-two thousand two hundred twenty-four
(222,224) shares of serial founders common stock, $0.001 par value per
share (the Serial Founders Common Stock); and
(iii) One class of one million (1,000,000) shares of serial senior preferred
stock, $0.001 par value per share.
All shares of the Serial Founders Common Stock have been validly issued to the
Shareholders, consisting of 111,112 shares of Serial Founders Common Stock
issued to Beck and 111,112 shares of Serial Founders Common Stock issued to
Hedrick. No other shares of any class of Sellers capital stock are issued or
outstanding.
All shares of Serial Founders Common Stock are duly authorized, validly issued,
outstanding, fully paid, and non-assessable, and all such shares are owned
beneficially and of record by the Shareholders, free and clear of all liens.
There are no outstanding securities, obligations, conversion or other rights,
subscriptions, warrants, options, phantom stock rights, or (except for this
Agreement) other contracts of any kind that give any person or entity the right
to (a)purchase or otherwise receive or be issued any shares of capital stock of
Seller or any security or obligation of any kind convertible into or
exchangeable for any shares of capital stock of Seller, or (b) receive any
benefits or rights that are similar to those enjoyed by or accruing to any
holder of any of the Shares or the Serial Founders Common Stock, or that entitle
the holder to participate in the equity, income or election of directors or
officers of Seller. Notwithstanding the foregoing sentence, the parties hereto
acknowledge that the rights and preferences of the holders of the Serial
Founders Common Stock, as set forth in that certain designation of rights, a
complete and correct copy of which is attached hereto as Exhibit-C (the
Designation of Rights) confers upon the holders of the Serial Founders Common
Stock certain rights and obligations as therein provided. The Designation of
Rights have been duly authorized by all necessary corporate action on the part
of the shareholders and directors of Seller and have been validly filed in the
office of the Secretary of State of Texas. There have been no amendments or
modifications to the Designation of Rights, and Exhibit-C hereto contains a
complete and accurate copy thereof.
<PAGE>
Upon the Closing, Purchasers will own one hundred percent (100%) of each and
every share of outstanding capital stock of Seller (except for the Serial
Founders Common Stock), subject to no liens, claims or encumbrances whatsoever
(other than restrictions on transfer imposed by Federal and applicable state
securities laws).
3.5 CONDUCT OF BUSINESS . Seller was incorporated in the state of Texas
on March26,1996, as Sun Valley Physician Management Corporation, and has engaged
in no business operations since the date of incorporation. There have never been
any shareholders of Seller, other than the Shareholders. A complete and correct
copy of all minutes, resolutions and consents adopted by the shareholders and
directors of Seller since its creation ar attached hereto as ExhibitD, and such
minutes, resolutions and consents are complete and correct in all respects, and
contain an accurate representation of all activities undertaken by the
shareholders and directors of Seller on behalf of Seller since Sellers creation.
3.6 LIABILITIES AND OBLIGATIONS. There are no liabilities against, owed by,
relating to or affecting Seller as of the Closing Date. Except for obligations
created pursuant to this Agreement, Seller has no contractual obligations
whatsoever, and has never incurred or discharged any such obligation since its
creation.
3.7 COMPLIANCE WITH LAWS. Seller has complied in all respects, and is in
compliance in all respects, with all federal, state, county, and local laws,
rules, regulations and ordinances currently in effect and applicable to Seller.
No claim has been made or threatened by any governmental authority against
Seller.
3.8 CLAIMS AND PROCEEDINGS. There are no (and since Sellers creation, there have
been no) claims, actions, suits, proceedings, or investigations pending or
threatened against Seller, or affecting Seller, at law or in equity, or before
or by any court, municipal or other governmental department, commission, board,
agency, or instrumentality.
<PAGE>
3.9 TAXES. All federal, foreign, state, county, and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding, and
other tax (collectively, Taxes) returns, reports, and declarations of estimated
tax (collectively, Returns) which were required to be filed by Seller on or
before the Closing Date hereof have been filed within the time and in the manner
provided by law, and all such Returns are true and correct and accurately
reflect the Tax liabilities of Seller. Complete and correct copies of all such
Returns have been provided to Purchasers. All Taxes, assessments, penalties, and
interest which have become due pursuant to such Returns have been paid. Seller
does not owe any federal income Taxes for any period prior to the Closing Date
Closing Date, and has never owed or paid any federal income Taxes. Seller has
not executed any presently effective waiver or extension of any statute of
limitations against assessments and collection of Taxes. There are no pending or
threatened claims, assessments, notices, proposals to assess, deficiencies, or
audits against Seller with respect to any Taxes owed or allegedly owed by
Seller. No federal income tax return of Seller has ever been filed. There are no
tax liens applicable to Seller.
3.10 PERSONNEL. Seller has never had any employees. Seller has never designated
or appointed any person or other entity to act for it or on its behalf pursuant
to any power of attorney or any agency.
3.11 INDEBTEDNESS TO AND FROM SHAREHOLDERS . Seller does not owe any
indebtedness to any of the Shareholders and, Seller does not have any
indebtedness owed to it from any of the Shareholders.
3.12 CERTAIN CONSENTS. There are no consents, waivers, or approvals required to
be executed and/or obtained by Seller or any Shareholder in connection with the
execution, delivery , and performance of this Agreement.
3.13 BROKERS. Neither Seller nor any Shareholder has engaged, or caused any
liability to be incurred to, any finder, broker, or sales agent (or has paid, or
will pay, any finders fee or similar fee or commission to any person) in
connection with the execution, delivery, or performance of this Agreement or the
transactions contemplated hereby.
3.14 No Known Breaches. Neither of the Shareholders has knowledge of any breach
or default by the other Shareholder of their respective representations and
warranties, covenants or other agreements made in this Agreement.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 VOTING AGREEMENT. From and after the Closing Date, Shareholders agree to
exercise such voting rights as they may have as shareholders of Seller to elect
to the Board of Directors of Seller such person or persons as may be designated
by American Physicians Service Group, Inc., a Texas corporation (APSG). The
Shareholders each further agree to so vote any capital stock they own or may own
in Seller until such time as APSG (or its assignees) no longer owns at least
fifty percent (50%) of all the then issued and outstanding shares (of each and
every class) of common stock of Seller. Furthermore, each Shareholder covenants
and agrees to exercise its voting rights as a shareholder of Seller to
accomplish the consummation of the transactions contemplated by this Agreement.
<PAGE>
4.2 EMPLOYMENT OF SHAREHOLDERS. Effective immediately after the Closing, each of
the Shareholders shall become at-will employees of Seller and shall devote their
full business time and attention to the affairs of Seller pursuant to the
direction of, and at the leisure of, the Board of Directors of Seller. Seller
shall have no obligation to increase the salaries, or to grant any bonuses to
either of the Shareholders, or to employ additional persons, except as may be
determined by the Board of Directors of Seller at its sole discretion, and
without implying any obligation whatsoever with respect thereto. Each of the
Shareholders acknowledges and agrees that they shall be at-will employees of
Seller and may be terminated by Seller at any time for any or no reason, at the
discretion of the Board of Directors. APSG agrees that, promptly after the
Closing Date, APSG will vote its shares to elect Hedrick as Senior Vice
President and General Counsel of Seller and to elect Beck as Senior Vice
President of Seller.
4.3 REIMBURSEMENT OF EXPENSES. All parties hereto covenant and agree that,
promptly after the Closing Date, Seller shall reimburse APSG in full for all
expenses incurred by APSG in the negotiation, preparation and entering into of
this Agreement, and in investigating, organizing, planning and conducting
negotiations with respect to, the business to be conducted by Seller after the
Closing. Without limiting the generality of the foregoing, all parties hereto
covenant and agree that APSG shall be entitled to prompt reimbursement after the
Closing Date of any and all amounts paid by APSG or its affiliates pursuant to
that certain letter dated February19,1997, from APSG to Beck and Hedrick (the
Letter Agreement). All parties hereto further agree that the Letter Agreement is
hereby declared void in all respects, is of no further force or effect, and each
of Beck, Hedrick and Seller hereby fully release and discharge APSG and APSGs
affiliates, shareholders, directors, officers and employees, from and against
any and all obligations, claims, and causes of action which exist, or may exist,
known or unknown, with respect to the Letter Agreement.
4.4 NO IMPLIED OBLIGATIONS. The parties hereto acknowledge and agree that none
of Seller, any Purchaser, or any director of Seller designated by or elected by
any Purchaser shall be obligated in any respect to consider or approve any
transaction whatsoever that may be presented to, or come before, Seller or its
Board of Directors. At all times after the Closing, the Board of Directors of
Seller shall have sole, complete and independent discretion as to whether to
approve, disapprove,consider or not to consider any acquisition or other
transaction by Seller, and nothing contained in this Agreement or the conduct of
the parties hereto is intended, or should be construed, to indicate or imply
otherwise.
<PAGE>
ARTICLE V
CLOSING OBLIGATIONS
5.1 PURCHASERS CLOSING OBLIGATIONS. At the Closing, each Purchaser shall:
(a) pay their respective portion of the Closing Payment (as described on
Exhibit-A); and
(b) deliver such good standing certificates and similar documents and
certificates as Seller or the Shareholders may reasonably require.
5.2 SELLERS AND THE SHAREHOLDERS CLOSING OBLIGATIONS. At the Closing, Seller
and the Shareholders shall:
(a) deliver the original certificates representing the Shares to the Purchasers,
and execute and deliver such other documents as the Purchasers may request in
order to evidence the ownership of the Shares on the books of Seller;
(b) deliver such good standing certificates, officer certificates, and similar
documents and certificates as counsel for the Purchasers may reasonably require;
and
(c) cause every director and officer of Seller (including, without limitation,
the Shareholders) to tender to the Purchasers written resignations from such
positions which are effective as of the Closing Date and which contain releases
of all claims, known or unknown, which such former directors and officers have
or might have against Seller.
ARTICLE VI
INDEMNIFICATION OF PURCHASERS
Each of the Shareholders, jointly and severally, agrees to indemnify and hold
harmless each Purchaser and each officer, director, employee, and affiliate
(including without limitation, Seller) of each Purchaser (collectively, the
Purchaser Indemnified Parties) from and against any and all damages, losses,
claims, liabilities, demands, charges, suits, penalties, costs, and expenses
(including court costs and attorneys fees and expenses incurred in investigating
and preparing for any litigation or proceeding) (collectively, Indemnified
Costs) in connection with the commencement or assertion of any action,
proceeding, demand, or claim by a third party (collectively, a third-party
action) which any of the Purchaser Indemnified Parties may sustain, arising out
of or relating to (a) any breach or default by any Shareholder of any of their
representations, warranties, covenants or agreements contained in this Agreement
or in any agreement or document executed in connection herewith, or (b) any
liability, direct or contingent, known or unknown, of Seller which arises from
or is based on facts, acts or omissions occurring at or prior to the Closing
Date.
<PAGE>
ARTICLE VII
NONCOMPETITION
Each of the Shareholders hereby agrees that until the expiration of six(6)
months after any termination of such Shareholders employment with Seller,
whether terminated by either the Seller or the Shareholder, such Shareholder
will not, directly or indirectly, either through any kind of ownership (other
than ownership of securities of a publicly held corporation of which it owns
less than five percent (5%) of any class of outstanding securities), or as a
principal, agent, employer, employee, advisor, consultant, copartner or in any
individual or representative capacity whatever, either for its own benefit or
for the benefit of any other person, firm or corporation, without the prior
written consent of APSG, commit any of the following acts, which acts shall be
considered violations of this covenant not to compete:
(a) Solicit business from, divert business from, or attempt to convert to other
methods of using the same or similar products or services as provided by Seller,
APSG or their affiliates, any client, account, or location of the Seller , APSG
or their affiliates, or any potential client, account or location which Seller
or Sellers affiliates are then pursuing, considering or negotiating with; or
(b) Directly or indirectly solicit for employment or employ any employee of
APSG, Seller or any affiliate or entity related to any of them, or induce or
attempt to influence any employee of APSG, Seller or any such affiliate or
related entity to terminate his or her employment with APSG, Seller or any such
affiliate or related entity; or
(c) Provide physician practice management services, or engage in the physician
practice management business, or the business of acquiring physician practices,
with respect to any physicians or physician group, entity or organization, whose
primary specialty is obstetrics and/or gynecology (OB/GYN) anywhere within 100
miles of (i) any physician practice then managed or otherwise serviced by Seller
or Sellers affiliates, or (ii) any physician practice which Seller or Sellers
affiliates is then pursuing, considering or negotiating with for services,
acquisition or other business; or
(d) Directly or indirectly request or advise any patient or physician or any
other person, firm, corporation or other entity having a business relationship
with Seller or APSG or any affiliate or related entity, to withdraw, curtail or
cancel its business with Seller or such affiliate or related entity.
In addition to the foregoing, after the expiration of the six (6) month
post-employment termination period described above, and during the second six
(6) month period after any termination of a Shareholders employment with Seller,
whether terminated by either the Seller or the Shareholder, the terminated
Shareholder will provide Seller with a right-of-first refusal for all
transactions which such Shareholder may in any way be involved in or with,
concerning the providing of physician practice management services, the
physician practice management business, or the business of acquiring physician
practices, involving physicians or practices whose primary specialty isOB/GYN.
Pursuant to such right-of-first refusal, the applicable Shareholder shall, prior
to entering into any binding agreements with respect to the subject transaction,
provide written details concerning such transaction, and the terms thereof, to
Sellers Board of Directors, and provide Seller with at least thirty (30) days
thereafter to exercise its right of first refusal and engage in such transaction
on the same proposed terms and conditions. If Seller fails to exercise its right
of first refusal during such thirty (30) day period, same shall be deemed a
refusal to exercise its right of first refusal.
<PAGE>
Each of the Shareholders has reviewed and carefully considered the provisions of
this ARTICLE and, having done so, each agrees that the restrictions set forth
herein (a) are fair and reasonable with respect to time, geographic area and
scope, (b)are not unduly burdensome to any of the Shareholders, and (c) are
reasonably required for the protection of the interests of APSG, Seller and
their affiliates.
Each of the Shareholders agrees that a violation on its part of any covenant
contained in this ARTICLE will cause APSG and Seller irreparable damage for
which remedies at law may be insufficient, and for that reason, each of the
Sellers agrees that APSG and Seller shall be entitled as a matter of right to
equitable remedies, including specific performance and injunctive relief,
therefor. The right to specific performance and injunctive relief shall be
cumulative and in addition to whatever other remedies, at law or in equity, that
APSG or Seller may have, including, specifically, recovery of additional
damages.
ARTICLE VIII
REGISTRATION RIGHTS
8.1 Incidental Registration Rights. For purposes of this ARTICLE VIII,
the Purchasers and the Shareholders are collectively referred to as the Covered
Parties and individually as a Covered Party. Each of the Covered Parties shall
have the incidental registration rights and other rights provided under this
ARTICLEVIII. The incidental registration rights described in this ARTICLE VIII
shall only apply with respect to shares of the Sellers common stock, $0.001 par
value per share, owned by any of the Covered Parties, and shall not apply with
respect to any other form of capital stock of Seller owned by any of the Covered
Parties including, without limitation, any Serial Founders common stock or any
preferred stock; and any reference in this ARTICLE VIII to Shares shall be
deemed to refer to the Shares of the Purchasers (as defined in Section1.1 above)
and to any shares of the $0.001 par value common stock of Seller which may
hereafter become owned by either of the Shareholders.
If Seller at any time proposes to register any of its common stock under
the Act for sale to the public, whether for its own account or for the account
of other security holders or both (except with respect to registration
statements on FormsS-4 or S-8 or another form not available for registering the
Shares for sale to the public or in connection with mergers, acquisitions,
exchange offers, dividend reinvestment plans or stock option or other employee
benefit plans of the Seller), it will give written notice to the Covered Parties
of its intention so to do, which notice shall include a list of the
jurisdictions in which the Seller intends to attempt to qualify the common stock
under the applicable state securities laws. Upon the written request of one or
more Covered Parties, given within 10 days after receipt of any such notice, to
register any of their Shares, Seller will, subject to the limitations and
conditions contained herein, use its best efforts to cause the Shares as to
which registration shall have been so requested (Covered Shares), pro rata
between the Covered Parties in a ratio equal to the respective number of Shares
then owned and requested to be registered by them, or such other ratio as may
have been agreed upon among the Covered Parties, to be included in the
securities to be covered by the registration statement proposed to be filed by
the Seller, all to the extent requisite to permit the sale or other disposition
by the Covered Parties; provided, however, that:
<PAGE>
(i) Each Covered Party shall each have the right to request inclusion of
its Shares (and have such Shares included) in two registration statements that
are declared effective by the Securities and Exchange Commission (the
Commission).
(ii) If, at any time after giving such written notice of its intention
to register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Seller shall determine
for any reason not to register any securities at all (and in fact does not do
so), the Seller may, at its election, give written notice of such determination
to the Covered Parties who made a request as hereinabove provided and thereupon
the Seller shall be relieved of its obligation to register any Shares in
connection with that proposed registration.
(iii) If such registration involves an underwritten offering, the
Covered Parties requesting to be included in the Seller's registration must sell
their Covered Shares to the underwriters selected by the Seller on the same
terms and conditions as apply to the Seller and other selling parties under the
registration statement (except as otherwise set forth herein).
The number of Covered Shares to be included in such an offering may be
reduced if and to the extent that the managing underwriter, if any, shall be of
the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by Seller therein (pro rata between the Covered Parties in
a ratio equal to the respective amounts of Covered Shares held by each.)
Notwithstanding anything to the contrary contained in this Section, in the event
that there is an underwritten public offering of securities of the Seller
pursuant to a registration covering Shares and a Covered Party does not elect to
sell its Covered Shares to the underwriters of the Seller's securities in
connection with such offering, such Covered Party shall refrain from selling
such Covered Shares during the period of distribution of the Sellers securities
by such underwriters, the period in which the underwriting syndicate
participates in the after market and during any lock-up period requested by such
underwriters; provided, however, that the Covered Parties shall, in any event,
be entitled to sell their Shares commencing on the 180th day after the effective
date of such registration statement.
8.2 REGISTRATION PROCEDURES. If and whenever the Seller is required by
the provisions of this ARTICLE to effect the registration of any of the Covered
Shares under the Act, Seller will, as expeditiously as possible:
<PAGE>
(i) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering shall be on such form of
general applicability as may be satisfactory to the managing underwriter) with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus filed in
connection therewith as may be necessary to keep such registration statement
effective for the period of distribution and as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement in accordance with the Sellers intended
method of disposition set forth in such registration statement for such period;
(iii) furnish to the Covered Parties, as applicable, and each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as they may
reasonably request in order to facilitate the public sale or other disposition
of the Covered Shares covered by such registration statement;
(iv) use its best efforts to register or qualify the Covered Shares
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as the Covered Parties, as applicable, or, in the case of an
underwritten public offering, the managing underwriter, shall reasonably request
(provided that the Seller will not be required to (1) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this subsection, (2) subject itself to taxation in any such jurisdiction
or (3) consent to general service of process in any such jurisdiction);
(v) promptly notify the Covered Parties, as applicable, under such
registration statement and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Act when it becomes aware
of the happening of any event as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements contained therein not misleading in
light of the circumstances then existing;
(vi) use its best efforts (if the offering is underwritten) to furnish,
at the request of the Covered Parties, as applicable, on the date that the
Covered Shares are delivered to the underwriters for sale pursuant to such
registration: (1) an opinion dated such date of counsel representing the Seller
for the purposes of such registration, addressed to the underwriters and in
customary form and covering such matters as are customarily covered by opinions
of counsel in similar registrations and as may be required in the underwriting
agreement relating thereto, as may reasonably be requested by the underwriters
or by the Covered Parties, as applicable; and (2) a comfort letter dated such
date from the independent public accountants retained by the Seller, addressed
to the underwriters, in customary form and covering such matters as are
customarily covered by such comfort letters in similar registrations and as may
be required in the underwriting agreement relating thereto, as such underwriters
or the Covered Parties, as applicable, may reasonably request; and
<PAGE>
(vii) make available for inspection by the Covered Parties, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant, or other agent retained by the Covered
Parties, or underwriter, all financial and other records, pertinent corporate
documents, and properties of the Seller, and cause the Seller's officers,
directors, and employees to supply all information reasonably requested by any
such Covered Party, underwriter, attorney, accountant, or agent in connection
with such registration statement.
For purposes of paragraphs (i) and (ii) above, the period of
distribution of Covered Shares in an underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Covered Shares in
any other registration shall be deemed to extend until the earlier of the sale
of all Covered Shares or 180 days after the effective date thereof.
In connection with each registration hereunder, the Covered Parties, as
applicable, will furnish to the Seller in writing such information with respect
to themselves and the proposed distribution by them as shall be requested by the
Seller in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration covering an underwritten public
offering, Seller agrees to enter into a written agreement with the managing
underwriter selected in the manner herein provided in such form and containing
such provisions as are customary in the securities business for such an
arrangement between major underwriters and companies of the Sellers size and
investment stature; provided that such agreement shall not contain any such
provision applicable to the Seller that is inconsistent with the provisions
hereof and, further, provided that the time and place of the closing under such
agreement shall be as mutually agreed upon between the Seller and such managing
underwriter.
The Seller will not be obligated to include any Shares owned by the
Covered Parties requesting that a proposed registration include such Shares if
the Seller delivers to the requesting Covered Parties the opinion of the Sellers
counsel (such counsel and the form of such opinion having been approved by the
Covered Parties in their reasonable discretion) to the effect that the requested
registration is not required to permit the proposed disposition or any resale of
such Shares, without restrictions on subsequent transfer, under the Act, which
opinion may be furnished to and relied upon by any broker through which the
Covered Parties may elect to sell any Shares.
8.3 CONDITIONS TO OBLIGATION TO REGISTER SHARES. The Sellers obligations
under this ARTICLE shall be subject to the following limitations and conditions:
(a) Seller shall have received from the Covered Parties, as
applicable, all such information as the Seller may reasonably request from the
Covered Parties concerning each of them and each of their methods of
distribution of the Covered Shares to enable Seller to include in the
registration statement all material facts required to be disclosed therein.
<PAGE>
(b) Any request by the Covered Parties pursuant to this
Agreement for registration of the offering, sale and delivery of Shares shall
provide that each Covered Party, as applicable, (i)has a present intention to
sell such Shares; (ii) agrees to execute all consents, powers of attorneys and
other documents required in order to cause such registration statement to become
effective; (iii) agrees, if the offering is at the market, to give the Seller
written notice of the first bona fide offering of such Shares and to use the
prospectus forming a part of such registration statement only for a period of
180 days after the effective date of the registration statement unless the
offering is pursuant to a continuous registration pursuant to Rule 415
promulgated under the Act; (iv) subject to adverse events regarding the selling
price of the Shares, agrees to utilize its proposed method of distribution of
the registered securities; and (v) agrees to promptly notify Seller and each
underwriter, if any, with regard to any registration statement, at any time when
it becomes aware of the happening of any event as a result of which any
prospectus contained in such registration statement that has been provided to
the Covered Party includes an untrue statement of a material fact regarding the
Covered Party or omits to state a material fact regarding the Covered Party
required to be stated therein or necessary to make the statements contained
therein regarding such Covered Party not misleading in light of the
circumstances then existing.
8.4 DISTRIBUTION ARRANGEMENTS. Each Covered Party, as applicable, agrees
that, in disposing of its Shares in the registered public offering, such Covered
Party will comply with applicable rules promulgated by the Commission.
8.5 EXPENSES. All expenses incurred by the Seller in preparing and
complying with a registration covering any Shares, including, without
limitation, all registration, qualification, and filing fees, blue sky fees and
expenses, printing expenses, fees and disbursements of legal counsel and
independent public accountants for the Seller, the reasonable fees and expenses
of one law firm serving as legal counsel for the participating Covered Parties,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
escrow fees, fees of transfer agents and registrars, and costs of insurance, but
excluding any Selling Expenses, are herein called Registration Expenses. All
underwriting discounts, and selling commissions applicable to the sale of
Covered Shares are herein called Selling Expenses.
The Seller shall pay all Registration Expenses in connection with any
registration statement. All Selling Expenses in connection with any registration
statement shall be borne by each participating Covered Party in proportion to
the number of Covered Shares sold by each.
8.6 INDEMNIFICATION. In the event of a registration of any of the
Covered Shares under the Securities Act, the Seller shall indemnify and hold
harmless the Covered Party, as applicable, thereunder and each underwriter and
each associate, if any, of the Covered Parties, or underwriter, against any
losses, claims, damages, or liabilities, joint or several, to which the Covered
Parties, or underwriter or associate thereof may become subject under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Covered Shares were registered under the Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
Seller of any rule or regulation promulgated under the Act applicable to Seller
and relating to action or inaction by Seller in connection with any such
registration, and shall reimburse the Covered Parties, each underwriter and/or
associate thereof for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Seller will not be liable in
any such case if and to the extent that any such loss, claim, damage, or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in conformity with information
furnished by the Covered Parties, each underwriter and/or associate thereof in
writing specifically for use in such registration statement or prospectus.
<PAGE>
In the event of a registration of any of the Covered Shares under the
Act, each of the Covered Parties, as applicable, severally and not jointly, will
indemnify and hold harmless the Seller and its affiliates, if any, and each
underwriter and each associate of any underwriter against all losses, claims,
damages or liabilities, joint or several, to which the Seller or such
underwriter or associate may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement under which such
Covered Shares were registered under the Act, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each
underwriter and/or associate thereof for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that a Covered Party will
be liable hereunder in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to such Covered
Party, furnished in writing to the Seller by that Covered Party specifically for
use in such registration statement or prospectus; and provided further, however,
that the liability of any Covered Party hereunder shall be limited to the
proportion of any such loss, claim, damage, liability or expense that is equal
to the proportion that the public offering price of Covered Shares sold by such
Covered Party, under such registration statement bears to the total public
offering price of all securities sold thereunder, but not to exceed the proceeds
received by such Covered Party from the sale of Covered Shares covered by such
registration statement.
Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability it may have to any
indemnified party other than under this Section. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the indemnifying party
shall not be liable to such indemnified party under this Section for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so elected; provided, however that, if the defendants in any such action
include both the indemnified party and the indemnifying party and if the
interests of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have the right
to select separate counsel and to assume its defense and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. The indemnifying party will
not be subject to any settlement made without its consent, which consent shall
not be unreasonably withheld. The indemnifying party will pay to the indemnified
party all sums due hereunder within 10 days of a final non-appealable judgment
or pursuant to the terms of a settlement agreement.
<PAGE>
8.7 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Seller shall not enter into any agreement with any
holder or prospective holder of any securities of the Seller (nor shall the
Seller, in the absence of any such prior agreement, permit any such holder or
prospective holder) to include such securities in any registration contemplated
by this Agreement other than incidental (non-demand) registration rights that
are expressly subordinate to those granted the Covered Parties in this
Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 COLLATERAL AGREEMENTS, AMENDMENTS, AND WAIVERS. This Agreement (together
with the documents delivered pursuant hereto) supersedes all prior documents,
understandings, and agreements, oral or written (including without limitation,
the Letter Agreement), relating to the transactions contemplated herein and
constitutes the entire understanding among the parties with respect to the
subject matter hereof. Any modification or amendment to, or waiver of, any
provision of this Agreement (or any document delivered pursuant to this
Agreement unless otherwise expressly provided therein) may be made only by an
instrument in writing executed by each party thereto.
9.2 SUCCESSORS AND ASSIGNS. None of the parties rights or obligations under this
Agreement may be assigned without the prior written consent of all parties
hereto, except that APSG may assign its rights and obligations hereunder to any
entity, at least a majority of whose voting equity ownership interests is at the
time owned, directly or indirectly, by APSG. Any assignment in violation of the
foregoing shall be null and void. Subject to the preceding sentences of this
Section, the provisions of this Agreement (and, unless otherwise expressly
provided therein, of any document delivered pursuant to this Agreement) shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors, and permitted assigns.
<PAGE>
9.3 EXPENSES. Except as provided in Section 4.3, and regardless of whether the
transactions contemplated hereby are consummated, each party hereto shall pay
all of its costs and expenses incurred by it in connection with this Agreement,
including the fees and disbursements of its counsel.
9.4 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws, such provision
shall be fully severable, this Agreement shall be construed and enforced as if
such illegal, invalid, or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement.
9.5 INFORMATION AND CONFIDENTIALITY. Each party hereto agrees that such party
shall hold in strict confidence all information and documents received from any
other party hereto, and if the Closing does not occur, each such party shall
return to the other parties hereto all such documents then in such receiving
partys possession without retaining copies; provided, however, that each partys
obligations under this Section shall not apply to (a) any information or
document required to be disclosed by law, (b)any information or document in the
public domain, or (c)any information or document that APSG discloses to any
potential lender to or investor in APSG or any of its affiliates.
9.6 WAIVER. No failure or delay on the part of any party in exercising any
right, power, or privilege hereunder or under any of the documents delivered in
connection with this Agreement shall operate as a waiver of such right, power,
or privilege; nor shall any single or partial exercise of any such right, power,
or privilege preclude any other or future exercise thereof or the exercise of
any other right, power or privilege.
9.7 NOTICES. Any notices required or permitted to be given under this Agreement
(and, unless otherwise expressly provided therein, under any document delivered
pursuant to this Agreement) shall be given in writing and shall be deemed
received (a) when personally delivered to the relevant party at its address as
set forth below or (b) if sent by mail, on the third day following the date when
deposited in the United States mail, certified or registered mail, postage
prepaid, to the relevant party at its address indicated below:
Any Purchaser: American Physicians Service Group, Inc.
1301 Capital of Texas Highway
Austin, Texas 78746
Attention: President
<PAGE>
with a copy to: Mr. Timothy L. LaFrey
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
816 Congress Avenue, Suite 1900
Austin, Texas 78701
Seller and Michael R. Beck
Shareholders: 1450 Preston Forest Square, Suite 210
Dallas, Texas 75230-2731
John R. Hedrick
2415 Trail of the Madrones
Austin, Texas 78746-2338
Each party may change its address for purposes of this Section by proper notice
to the other parties.
9.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. Regardless of any
investigation at any time made by or on behalf of any party hereto or of any
information any party may have in respect thereof, all covenants, agreements,
representations, and warranties made hereunder or pursuant hereto or in
connection with the transactions contemplated hereby shall survive the Closing.
9.9 FURTHER ASSURANCES. At, and from time to time after, the Closing, each party
shall, at the request of another party, but without further consideration,
execute and deliver such other instruments of conveyance, assignment,
assumption, transfer and delivery and take such other action as such party may
reasonably request in order more effectively to consummate the transactions
contemplated hereby.
9.10 CONSTRUCTION. This Agreement and any documents or instruments delivered
pursuant hereto or in connection herewith shall be construed without regard to
the identity of the person who drafted the various provisions of the same. Each
and every provision of this Agreement and such other documents and instruments
shall be construed as though all of the parties participated equally in the
drafting of the same. Consequently, the parties acknowledge and agree that any
rule of construction that a document is to be construed against the drafting
party shall not be applicable either to this Agreement or such other documents
and instruments.
9.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
9.12 COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall constitute an original and all of which together shall constitute
one and the same instrument. Any party hereto may execute this Agreement by
signing any one counterpart.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
<PAGE>
SIGNATURE PAGE TO
APS PRACTICE MANAGEMENT, INC.
STOCK PURCHASE AGREEMENT
Seller: APS PRACTICE MANAGEMENT, INC.
By:
Printed Name:
Title:
Beck: /s/ Michael R. Beck
Michael R. Beck
Hedrick: /s/ John R. Hedrick
John R. Hedrick
Purchasers: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By:
Printed Name:
Title:
DUANE K. BOYD, JR. TRUST
By /s/ Duane K. Boyd, Jr. Trustee
Duane K. Boyd, Jr. Trustee
/s/ Kenneth S. Shifrin
Kenneth S. Shifrin
/s/ Robert L. Myer
Robert L. Myer
<PAGE>
SIGNATURE PAGE TO
APS PRACTICE MANAGEMENT, INC.
STOCK PURCHASE AGREEMENT
J. A. MURPHY DESCENDANTS TRUST
By /s/ Jack Murphy, Grantor
Jack Murphy, Grantor
/s/ William H. Hayes
William H. Hayes
/s/ Thomas R. Solimine
Thomas R. Solimine
/s/ Samuel R. Granett
Samuel R. Granett
/s/ Maury Magids
Maury Magids
<PAGE>
EXHIBIT-A
LIST OF PURCHASERS
Name of Purchaser
Number of Shares
Closing Payment Obligation
American Physicians Service
Group, Inc.
1,874,600
$4,686,500
Kenneth S. Shifrin
30,000
$ 75,000
Duane K. Boyd, Jr. Trust
12,000
$ 30,000
Robert L. Myer
40,000
$100,000
J. A. Murphy Descendants Trust
20,000
$50,000
Samuel R. Granett
4,000
$10,000
William H. Hayes
2,400
$6,000
Maury Magids
4,000
$10,000
Paul Schilder
10,000
$25,000
Thomas R. Solimine
3,000
$7,500
TOTALS
2,000,000
$5,000,000
<PAGE>
Exh. 10-27
BYLAWS
OF
SUN VALLEY PHYSICIAN MANAGEMENT CORPORATION
ARTICLE I
OFFICES AND AGENT
The Corporation may have such offices, either within or without the
State of Texas, as the Board of Directors may designate or as the business of
the Corporation may require from time to time.
The registered office of the Corporation required by the Texas Business
Corporation Act to be maintained in the State of Texas may be, but need not be,
identical with the principal office in the State of Texas, as designated by the
Board of Directors. The address of the registered office or the identity of the
registered agent may be changed from time to time by the Board of Directors.
The address of the initial registered office of the Corporation and the
name of the initial registered agent of the Corporation at such address are set
out in the Articles of Incorporation of the Corporation.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall
be held on such date in each year and at such time and place as may be
determined by the Board of Directors, for the purpose of electing directors and
for the transaction of such other business as may come before the meeting. If
the election of directors shall not be held on the day designated for any annual
meeting of the shareholders or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as may be convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, may be called by the President or by the Board of
Directors, and shall be called by the President at the request of the holders of
not less than 25% of the outstanding shares of the Corporation entitled to vote
at the meeting.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Texas, as the place of meeting for
any annual or special meeting called by the Board of Directors. If no
designation is made, or if a special meeting be called otherwise than by the
Board of Directors, the place of meeting shall be the registered office of the
Corporation in the State of Texas.
<PAGE>
SECTION 4. NOTICE OF MEETING. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid. Attendance by a shareholder, whether
in person or by proxy, at a shareholder's meeting shall constitute a waiver of
notice of such meeting of which he has had no notice.
SECTION 5. CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any distribution, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period no to exceed sixty (60) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may, by resolution, fix in advance a date
as the record date for any such determination of shareholders, such date in any
case to be not more than sixty (60) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action, regarding such determination of shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a distribution, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired.
SECTION 6. FIXING RECORD DATES FOR CONSENTS TO ACTION. Unless a record
date shall have previously been fixed or determined pursuant to Section 5 of
this Article II, whenever action by shareholders is proposed to be taken by
consent in writing without a meeting of shareholders, the Board of Directors may
fix a record date for the purpose of determining shareholders entitled to
consent to that action, which record date shall not precede, and shall not be
more than ten (10) days after, the date upon which the resolution fixing the
record date is adopted by the Board of Directors. If no record date has been
fixed by the Board of Directors and the prior action of the Board of Directors
is not required by the Texas Business Corporation Act, the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office, its principal place of business, or an
officer or agent of the Corporation having custody of the books in which
proceedings of meetings of shareholders are recorded. Delivery shall be by hand
or by certified or registered mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the President or
the principal executive officer of the Corporation. If no record date shall have
been fixed by the Board of Directors and prior action of the Board of Directors
is required by the Texas Business Corporation Act, the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts a resolution taking such prior action.
<PAGE>
SECTION 7. VOTING LISTS. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least ten (10) days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting, or any adjournment thereof, complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office of the Corporation, and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall also be produced and opened at the time and place of the meeting and shall
be subject to the inspection by any shareholder during the whole time of the
meeting. The original stock transfer book shall be prima facie evidence as to
who are the shareholders entitled to examine such list or transfer books or to
vote at any meeting of the shareholders.
SECTION 8. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, and represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders unless otherwise provided in
the Articles of Incorporation of the Corporation. If less than a quorum is
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjournment
meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted as originally notified. The
shareholders present at duly organized meeting may continue to transact business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. A telegram, telex, cablegram or similar transmission by the
shareholder or his duly authorized attorney in fact, or a photographic,
photostatic, facsimile or similar reproduction of a writing executed by the
shareholder or his duly authorized attorney in fact shall be treated as an
execution in writing for purposes of this section. Such proxy shall be filed
with the Secretary of the Corporation before or at the time of the meeting. Such
proxy shall be filed with the Secretary of the Corporation before or at the time
of the meeting. No proxy shall be valid after eleven (11) months from the date
of its execution, unless otherwise provided in the proxy. Each proxy shall be
revocable before it has been voted unless the proxy form conspicuously states
that the proxy is irrevocable and the proxy is coupled with an interest,
including the appointment as proxy of (a) a pledgee, (b) a person who purchased
or agreed to purchase, or owns or holds an option purchase, the shares, (c) a
creditor of the corporation who extends its credit under terms requiring the
appointment, (d) an employee of the corporation whose employment contract
requires the appointment, (d) an employee of the corporation whose employment
contract requires the appointment, or (e) a party to a voting agreement created
under the Texas Business Corporation Act. A revocable proxy shall be deemed to
have been revoked if the Secretary of the Corporation shall have received at or
before the meeting instructions of revocation or a proxy bearing a later date,
which instructions or proxy shall have been duly executed and dated in writing
by the shareholder.
<PAGE>
SECTION 10. VOTING OF SHARES. Except as otherwise provided by the Texas
Business Corporation Act, and unless otherwise expressly provided in the
Articles of Incorporation of the Corporation or in any resolution of the board
of directors adopted with regard to a class or series of preferred stock
authorized by the Articles of Incorporation of the Corporation, each outstanding
share entitled to vote shall be entitled to one (1) vote on each matter
submitted to a vote at a meeting of shareholders.
SECTION 11. ACTIONS WITHOUT A MEETING. Any action required or permitted
by the Texas Business Corporation Act to be taken at any annual or special
meeting of shareholders, may be taken without a meeting, without prior notice,
and without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holder or holders of shares having not
less than the minimum number of votes that would be necessary to take such
action at a meeting at which the holders of all shares entitled to vote on the
action were presented and voted. such writing, which may be in counterparts,
shall be manually executed if practicable; provided, however, that if
circumstances so require, effect shall be given to written consent transmitted
by telegraph, telex, telecopy or similar means of visual data transmission.
Every written consent shall bear the date of signature of each
shareholder who signs the consent. No written consent shall be effective to take
the action that is the subject of the consent unless, within sixty (60) days
after the date of the earliest dated consent delivered to the Corporation in the
manner required by this Section 11, a consent or consents signed by the holder
or holders of shares having not less than the minimum number of votes that would
be necessary to take the action that is the subject of the consent are delivered
to the Corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the Corporation having custody of the books
in which proceedings of meetings of shareholders are recorded. Delivery shall be
by hand or by certified or registered mail, return receipt requested. Delivery
to the Corporation's principal place of business shall be addressed to the
President or principal executive officer of the Corporation.
Prompt notice of the taking of any action by shareholders without a
meeting by less than unanimous written consent shall be given to those
shareholders who did not consent in writing to the action.
<PAGE>
SECTION 12. TELEPHONE MEETINGS. Subject to the provisions required by
the Texas Business Corporation Act for notice of meetings, meetings of the
shareholders of the Corporation may be conducted by means of conference
telephone or similar communications equipment whereby all persons participating
in the meeting can hear and speak to each other.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWER. The powers of the Corporation shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed by its Board of Directors except as the Board of
Directors shall delegate the power to so manage to the Executive Committee or
other committee.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of initial
directors comprising the Board of Directors shall be as set forth in the
Articles of Incorporation. Upon resolution of the Board of Directors the number
of directors may increased or decrease, but no decrease shall have the effect of
shortening the term of any incumbent director. Each director shall office until
the next annual meeting of the shareholders, unless earlier removed, and until
his successor shall have been elected and qualified. A director need not be a
resident of the State of Texas or a shareholder of the Corporation.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without notice other than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, wither within or without the State
of Texas, for the holding of additional regular meetings without notice other
than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or a majority of the elected
and acting directors from time to time. The person or persons authorized to call
special meetings of the Board of Directors may fix any place, either within or
without the State of Texas, as the place for holding any special meeting called
by them.
SECTION 5. NOTICE. Written notice of any special meeting shall be
delivered personally to each director or by mail or telegram, telecopy or
similar means of visual data transmission to each director at his business
address, in all cases at least one (1) day prior to such meeting. If mailed,
such notice shall be deemed to be delivered two (2) days after such notice has
been deposited in the United States mail so addressed, with postage thereon
prepaid. If notice is given by telegram, telex, telecopy or similar means of
visual data transmission, such notice shall be deemed to be delivered when
transmitted for delivery to the recipient at such address. Any director may
waive notice of any meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because that meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of any regular or special meeting of the Board
of Directors need be specified in the notice, or waiver of notice of such
meeting.
<PAGE>
SECTION 6. QUORUM. A majority of the number of directors fixed in
accordance with Section 2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if less
than such majority is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice.
SECTION 7. MANNER OF ACTING.
(a) ACTIONS AT A MEETING. Except as provided in Paragraph (b) of this
Section 7, the act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
(b) ACTIONS WITHOUT A MEETING. Any action required or permitted to be
taken at a meeting of the Board of Directors or any committee may be taken
without a meeting, if a consent in writing, setting forth the action so taken,
is signed by all of the members of the Board of Directors, Executive Committee
or other committee, as the case may be. Such consent shall have the same force
and effect as a unanimous vote at a meeting. Such writing, which may be in
counterparts, shall be manually executed if practicable; provided, however, that
if circumstances so require, effect shall be given to written consent
transmitted by telegraph, telex, telecopy, or other similar means of visual data
transmission.
(c) TELEPHONE MEETINGS. Subject to the provisions required by the Texas
Business Corporation Act for notice of meetings, meetings of the Board of
Directors of the Corporation or any committee may be conducted by means of
conference telephone or similar communications equipment whereby all persons
participating in the meeting can hear and speak to each other.
SECTION 8. VACANCIES. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of (a) the holders of a majority of the
outstanding shares entitled to vote thereon at an annual or special meeting of
shareholders called for that purpose, or (b) a majority of the remaining
directors though less than a quorum of the Board of Directors. A person elected
to fill a vacancy shall be elected for the unexpired term of his predecessor in
office.
A vacancy shall be deemed to exist by reason of the death or resignation
of the person elected, or upon the failure of shareholders to elect directors to
fill the unexpired term of directors removed in accordance with the provisions
of Section 9 of this Article III.
A directorship to be filled by reason of an increase in the number of
directors may be filled by (a) the affirmative vote of the holders of a majority
of the outstanding shares entitled to vote thereon at an annual or special
meeting of shareholders called for that purpose or (b) the board of directors
for a term of office continuing only until the next election of one or more
directors by the shareholders; provided, that the board of directors may not
fill more than two such directorships during the period between any two
successive annual meetings of shareholders.
<PAGE>
SECTION 9. REMOVAL. At any meeting of shareholders called expressly for
the purpose of removal, any director or the entire Board of Directors may be
removed, with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote at an election of directors. Removal of directors
with or without cause may also be accomplished by unanimous written consent of
the shareholders without a meeting. In case the entire board or any one or more
of the directors are so removed, new directors may be elected at the same
meeting, or by the same written consent, for the unexpired term of the director
or directors so removed. Failure to elect directors to fill the unexpired term
of the directors so removed shall be deemed to create a vacancy or vacancies in
the Board of Directors.
SECTION 10. COMPENSATION. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 11. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors in which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent to such action with the person acting as Secretary of the meeting
before the adjournment thereof, or shall forward such dissent by registered mail
to the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
SECTION 12. EXECUTIVE AND OTHER COMMITTEES. There may be established an
Executive Committee, and on or more other committees, composed of one or more
directors designated by resolution adopted by a majority of the full number of
directors of the Board of Directors as fixed in accordance with Section 2 of
this Article III. The Executive Committee or such other committees may met at
stated times, or on notice to all members by any one member. Vacancies in the
membership of the Executive Committee or such other committees shall be filled
by a majority vote of the full number of directors on the Board of Directors at
a regular meeting or at a special meeting called for that purpose. During the
intervals between meetings of the Board, the Executive Committee, if it shall
have been established, may advise and aid the officers of the Corporation in all
matters concerning its interest and the management of its business, and shall
generally perform such duties and exercise such powers as may be directed or
delegated by the Board of Directors from time to time. The Board of Directors
may delegate to the Executive Committee or such other committees the authority
to exercise all the powers of the Board of Directors, except the power to
declared dividends or to authorize the issuance of shares of the Corporation,
and where action of the full Board of Directors is required by the Texas
Business Corporation Act. The designation of and delegation of power to the
Executive Committee shall not operate to relieve the Board of Directors, or any
members thereof, of any responsibility imposed upon it or him by law.
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be a President,
one or more Vice-Presidents (the number and specific titles thereof to be
determined by the Board of Directors), a Secretary, and a Treasurer, each of
whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by the
Board of Directors. Any two or more offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. the officers of the Corporation
shall be elected annually by the Board of Directors at the regular meeting of
the Board of Directors held after each annual meeting of the shareholders. If
the election shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold office until his
successor shall have been duly elected or until his death, or until he shall
resign or shall have been removed in the manner hereinafter provided.
SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors
whenever in its judgment the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office, because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. PRESIDENT. The President shall be the chief executive officer
of the Corporation and, subject to the control of the Board of Directors , shall
in general supervise and control all of the day to day business and affairs of
the Corporation. He shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors from time
to time.
SECTION 6. THE VICE PRESIDENTS. In the absence of the President or in
the event of his death, inability or refusal to act, the Vice President (or
should there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the absence of any designation
then in the order of their election) shall perform the duties of President, and
when so acting, shall have all the powers of an be subject to all the
restrictions upon the President. He shall perform such other duties as from time
to time may be assigned to him by the President or the Board of Directors.
SECTION 7. THE SECRETARY. The Secretary shall: (a) keep the minutes of
the shareholders' and the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws, or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation, and see that the seal
of the Corporation is affixed to all documents as may be necessary or
appropriate; (d) keep a register of the post office address of each shareholder
which shall be furnished to the Secretary of such shareholder; (e) have general
charge of the stock transfer books of the Corporation; and (f) in general,
perform all duties incident to the office of Secretary, and such other duties as
from time to time may be designated to him by the President or the Board of
Directors.
<PAGE>
SECTION 8. THE TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
, and with such surety or sureties, as the Board of Directors shall determine.
He shall: (a) have charge and custody of, and be responsible for, all funds and
securities of the Corporation from any source whatsoever, and deposit all such
moneys in the name of the Corporation in such banks, trust companies, or other
depositories as shall be selected by the Board of Directors; and (b) in general
perform all of the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors.
SECTION 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries when authorized by the Board of Directors may sign with the
President, or a Vice President, certificates for shares of the Corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall, respectively, if required by the
Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
SECTION 10. SALARIES. The salaries, if any, of the officers shall be
fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE V
CERTIFICATES FOR SHARES, TRANSFER AND REPLACEMENT
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President, and by the Secretary or an Assistant Secretary. If such certificates
are signed or countersigned by a transfer agent or registrar, other than the
Corporation, such signature of the President or a Vice President and Secretary
or Assistant Secretary, and the seal of the Corporation, or any of them, may be
executed in facsimile, engraved or printed. If any officer who has signed or
whose facsimile signature has been place on any certificate shall have ceased to
be such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the officer has not ceased to be such at
the date of issue. All certificates for shares shall be consecutively numbered
or otherwise identified. The name and address of the person to whom the shares
represented thereby are issued with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in case
of a lost, stolen or destroyed a new one may be issued therefor provided in
Section 3 of this Article V.
<PAGE>
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation upon surrender
for cancellation of the certificate for such shares together with a request to
transfer and such other documents and opinion as counsel to the Corporation may
require. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes.
SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation shall
issue a new certificate in place of any certificate for shares previously issued
if the registered owner of the certificate: (a) makes proof in affidavit form
that it has been lost, destroyed or wrongfully taken; (b) requests the issuance
of a new certificate before the Corporation has notice that the certificate has
been acquired by a purchaser for value in good faith and without notice of an
adverse claim; (c) gives a bond in such form, and with such surety or sureties,
with fixed or open penalty, as the Corporation may direct, or indemnifies the
Corporation (and its transfer agent and registrar, if any) against any claim
that may be made on account of the alleged loss, destruction or theft of the
certificates; and (d) satisfies any other reasonable requirements imposed by the
Corporation. When a certificate has been lost, apparently destroyed or
wrongfully taken, and the holder of record fails to notify the Corporation
within a reasonable time after he has notice of it, and the Corporation
registers a transfer of the shares represented by the certificate before
receiving such notification, the holder of record is precluded from making any
claim against the Corporation for the transfer or for new certificate.
ARTICLE VI
FISCAL YEAR
The Board of Directors shall, by resolution, fix the fiscal year of the
Corporation.
ARTICLE VII
DISTRIBUTIONS
The Board of Directors may from time to time make distributions in the
manner provided by law.
ARTICLE VIII
SEAL
The Board of Directors may provide a corporate seal, which shall be
circular in form and shall have inscribed thereon the name of the Corporation,
the State of incorporation, and the five-pointed Texas star.
ARTICLE IX
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of these Bylaws, the Articles
of Incorporation or the Texas Business Corporation Act, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent of the giving of
such notice.
<PAGE>
ARTICLE X
PROCEDURE
Meetings of the shareholders and of the Board of Directors shall be
conducted in accordance with the procedure as contained in Robert's Rules of
Order, to the extent applicable.
ARTICLE XI
PARTICIPATION OF DIRECTORS AND OFFICERS IN RELATED BUSINESS
Unless otherwise provided by contract, officers and directors of this
Corporation may hold positions as officers and directors of other corporations,
in related businesses, and their efforts to advance the interest of those
corporations will not create a breach of fiduciary duty to this Corporation in
the absence of bad faith.
ARTICLE XII
AMENDMENTS
The Board of Directors shall have the exclusive power to alter, amend or
repeal these Bylaws or adopt new Bylaws, subject to amendment, repeal or
adoption of new bylaws by action of the shareholders and unless the shareholders
in amending, repealing or adopting a new Bylaw expressly provide that the Board
of Directors may not amend or repeal that Bylaw. The Board of Directors may
exercise this power at any regular or special meeting at which a quorum is
present by the affirmative vote of a majority of the Directors present at the
meeting and without any notice of the action taken with respect to the Bylaws
having been contained in the notice of waiver of notice of such meeting.
<PAGE>
Exh. 10-28
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SUN VALLEY PHYSICIAN MANAGEMENT CORPORATION
ARTICLE ONE
Pursuant to the provisions of Article 4.07 of the Texas Business
Corporation Act (the Act), Sun Valley Physician Management Corporation (the
Corporation), adopts these Amended and Restated Articles of Incorporation and
all amendments in effect to date and as further amended by such Amended and
Restated Articles of Incorporation as hereinafter set forth and which contain no
other change in any provision thereof.
ARTICLE TWO
The Articles of Incorporation of the Corporation are amended by the
Amended and Restated Articles of Incorporation as follows:
The amendments alter or change and/or renumber Articles One,
Four, Six, Eight, Nine and Twelve of the original Articles of Incorporation and
the full text of each provision altered is as follows:
ARTICLE ONE
The name of the corporation is APS Practice Management, Inc.
ARTICLE TWO
The name of the registered agent of the Corporation is CT Corporation
System. The address of the registered office of the Corporation in the State of
Texas is 811 Dallas Avenue, Houston, Texas 77002.
ARTICLE FOUR
Section 4.1 AUTHORIZED SHARES. The aggregate number of shares of all
classes of stock that the Corporation shall have authority to issue is Fifty-one
Million Two Hundred Twenty-Two Thousand Two Hundred and Twenty-four
(51,222,224), consisting of and divided into:
(i) One class of Fifty Million (50,000,000) shares of Common
, $0.001 par value per share;
<PAGE>
(ii) One class of Two Hundred Twenty-two Thousand Two Hundred
Two Hundred and Twenty-four (222,224) shares of Serial Founders Common Stock,
$0.001 par value per share, as may be divided into and issued in Series as
hereinafter provided; and
(iii) One class of One Million (1,000,000) shares of Serial
Senior Preferred Stock, $0.001 par value per share, as may be divided into and
issued in Series as hereinafter provided.
Section 4.2 SERIAL FOUNDERS COMMON STOCK: ISSUANCE IN SERIES. The Board
of Directors is authorized from time to time, acting by resolutions duly adopted
by two-thirds of the full Board of Directors to divide the Serial Founders
Common Stock into Series, to designate each Series, to fix and determine
separately for each Series any one or more of the rights and preferences
described in subsections (a) through (d) of this Section 4.2, to amend the
Certificates of Designation of Rights and Preferences, if any, setting forth the
relative rights and preferences of any such Series consistent with the authority
to fix and determine such rights and preferences as set forth in this Section
4.2 of Article Four, and to issue shares of any Series then or previously
designated, fixed and determined. Notwithstanding the foregoing, the Board of
Directors may not take any action that would serve to deny, amend or limit (i)
the voting rights, including but not limited to the right to vote as a class, of
the Serial Founders Common Stock or (ii) the right of the holders of Serial
Founders Common Stock to receive dividends or distributions, unless such changes
result in rights that are identical to that of the holders of Common Stock of
the Corporation, without the written consent of all of the holders of the Serial
Founders Common Stock. Except as provided herein, the rights of the holders of
Serial Founders Common Stock shall be the same as that of the holders of the
Common Stock.
(a) rights in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(b) sinking fund provisions for the redemption or purchase of shares
(c) the price at which, and the terms and conditions on which,
shares may be redeemed;
(d) the terms and conditions on which shares may be issued with the
privilege or obligation of conversion into shares of Common Stock, but in no
event shall the holders of the Serial Founders Common Stock receive less than
one (1) share of Common Stock for each one (1) share of Serial Founders Common
Stock so converted without the written consent of all the holders of the Serial
Founders Common Stock.
Shares of Serial Founders Common Stock of a particular series that are redeemed
or converted under a privilege or obligation to so redeem or convert, shall be
canceled and shall cease to be part of the authorized shares of the Company.
Section 4.3 SERIAL PREFERRED STOCK: ISSUANCE IN SERIES. The Board of
Directors is authorized from time to time, acting by resolutions duly adopted by
two-thirds of the full Board of Directors to divide the Serial Preferred Stock
into Series, to designate each Series, to fix and determine separately for each
Series any one or more of the rights and preferences described in subsections
(a) through (h) of this Section 4.3, to amend the Certificates of Designation of
Rights and Preferences, if any, setting forth the relative rights and
preferences of any such Series consistent with the authority to fix and
determine such rights and preferences as set forth in this Section 4.3 of
Article Four, and to issue shares of any Series then or previously designated,
fixed and determined.
<PAGE>
(a) rights to receipt of dividends (which may be cumulative or
non-cumulative) at such rate or rates, on such conditions, from such date or
dates, and at such times, and payable in preference to, or in such relation to,
the dividends payable on any other class or classes or series of stock as shall
be fixed by the Board of Directors;
(b) rights in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(c) sinking fund provisions for the redemption or purchase of
shares;
(d) the price at which, and the terms and conditions on which,
shares may be redeemed;
(e) the terms and conditions on which shares may be issued with the
privilege or obligation of conversion into or exchange for shares of any other
class or classes or of any other series of the same or any other class or
classes of stock of the Corporation at such price or prices or at such rates of
exchange and with such adjustments as shall be fixed by the Board of Directors;
(f) voting rights (including the number of votes per share, the matters
on which the shares can vote and the contingencies or events that make the
voting rights effective);
(g) conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary upon the issue of any additional stock (including
additional shares of such series or any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase, redemption
or any other acquisition by the Corporation or any subsidiary of any outstanding
stock of the Corporation; and
(h) such other preferences and relative, participating, optional and
other special rights and qualifications, limitations or restrictions thereof as
shall be fixed by the Board of Directors, so far as not inconsistent with the
provisions of this Article Four and to the full extent now or hereinafter
permitted by Texas law.
Shares of Serial Preferred Stock of a particular series that are redeemed or
converted under a privilege or obligation to so redeem or convert, shall be
canceled and shall cease to be part of the authorized shares of such Series, but
shall be restored to the status of authorized, but unissued, shares of the
Corporations Serial Preferred Stock, without designation.
<PAGE>
Section 4.4 COMMON STOCK.
(a) The Common Stock is subject and subordinate to any and all of the
rights, privileges, preferences and priorities of the Serial Preferred Stock of
the Corporation as set forth in this Article Four. All shares of Common Stock
shall be of equal rank and shall be identical in all respects. All shares of
Common Stock shall be of equal rank to the shares of the Serial Founders Common
Stock, except as expressly provided for herein.
(b) LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation and after the holders of Serial Preferred Stock shall have
received payment for any liquidation preferences therefor, or a sum sufficient
for such payment in full shall have been set aside, the remaining assets of the
Corporation shall be divided and distributed among the holders of the Common
Stock based on the ratio which the number of shares of Common Stock owned by
each such holder bears to the aggregate number of issued and outstanding shares
of Common Stock.
(c) VOTING. Subject to any voting rights of holders of Serial Preferred
Stock, the holders of shares of Common Stock shall possess full voting power in
the election of directors and for all other purposes, and each holder of Common
Stock shall at every meeting of the shareholders be entitled to one (1) vote for
each share of Common Stock held by such holder on the record date for
determining shareholders entitled to vote at such meeting.
(d) DIVIDENDS. Subject to any prior dividend rights of the holders of
the Serial Preferred Stock, the holders of Common Stock shall be entitled to
receive, on a share for share basis, such dividends as may be declared from time
to time by the Board of Directors.
(e) REDEMPTION. The shares of Common Stock shall not be subject to
redemption or repurchase by the Corporation except pursuant to a written
agreement between the Corporation and the holder.
Section 4.5 ISSUANCE AND SALE OF STOCK. The Board of Directors shall
have the power and authority at any time and from time to time to issue, sell or
otherwise dispose of any authorized and unissued shares of any class of stock of
the Corporation to such persons or parties, including the holders of any class
of stock, for such consideration (not less than the par value, if any, thereof)
and upon such terms and conditions as the Board of Directors in its discretion
may deem to be in the best interests of the Corporation.
ARTICLE SIX
Section 6.1 BALLOT. Election of directors need not be ballot unless the
Bylaws of the Corporation so provide.
Section 6.2 NO CUMULATIVE VOTING. At each election for directors of the
Corporation, each shareholder entitled to vote at such election shall have the
right to vote, in person or by proxy, only the number of shares owned by them
for as many persons as there are directors to be elected, and no shareholder
shall ever have the right or be permitted to cumulate their votes on any basis,
any and all rights of cumulative voting being hereby expressly denied.
<PAGE>
Section 6.3 VACANCY. So long as at least one of the directors of the
Corporation continues to serve as a director of the Corporation, any vacancy on
the Corporations Board of Directors, whether arising through death, resignation
or removal of a director, or through an increase in the number of directors of
any class, shall be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director, and shall not be
filled by a vote of the shareholders of the Corporation.
Section 6.4 NUMBER. The number of directors, constituting the Board of
Directors shall be fixed as specified in the Bylaws of the Corporation, but
shall not be less than one (1) nor more than nine (9). No more than forty
percent (40%) of the directors shall be physicians actively engaged
substantially full time in the practice of medicine.
Section 6.5 TERM AND ELECTION. Each director shall be elected to serve
for one (1) year and until their successors are elected and qualified or until
their earlier death, resignation, removal or retirement. Any director elected or
appointed to fill a vacancy shall hold office for the remaining term. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. The Bylaws may contain any
provisions regarding classification of the Corporations directors not
inconsistent with the terms hereof.
Section 6.6 REMOVAL. Any director or the entire Board of Directors of
the Corporation may be removed with or without cause by the affirmative vote of
the holders of a majority of the outstanding shares of stock, regardless of
class.
ARTICLE SEVEN
In furtherance and not in limitation of the powers conferred by the laws
of the State of Texas, but subject to the provisions of the Articles of
Incorporation, the Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation. The Bylaws of the Corporation may also be
amended, altered or repealed by the affirmative vote of the holders of a
majority of the outstanding shares of stock, regardless of class.
ARTICLE NINE
A former, future or current director of the Corporation shall not be
personally liable to the Corporation, any of its shareholders or any other
director or third party, for monetary damages for breach of fiduciary duty as a
director of the Corporation, except for liability for (i) any breach of the
directors duty of loyalty to the Corporation or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law or (iii) any transaction from which the director derived an
improper personal benefit. It is the intent of the Corporation to exempt the
persons referred to in this Article Nine from personal liability to the fullest
extent permitted by law.
<PAGE>
The following amendments are added to the original Articles of
Incorporation and the full text of each new provision is as follows:
ARTICLE EIGHT
Meetings of the shareholders may be held within or without the State of
Texas, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Texas at such place or places as
may be designated from time to time by the Board of Directors or in the Bylaws
of Incorporation.
ARTICLE TEN
Section 10.1 Indemnification. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, or appeals therefrom, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that they are or were a
director, officer, employee or agent of the Corporation, or are or were serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys fees) damages, judgments, fines, amounts
paid in settlement and other liabilities actually and reasonably incurred by
them in connection with such action, suit or proceeding, if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which they reasonably believed to be in or not opposed to the best
interest of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 10.2 Indemnification from Corporate Proceedings. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
they are or were a director, officer, employee or agent of the Corporation, or
are or were serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership joint venture, trust or
other enterprise, against expenses (including attorneys fees) actually and
reasonably incurred by them in connection with the defense or settlement of such
action or suit if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the Corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses such court shall
deem proper.
<PAGE>
Section 10.3 MANDATORY INDEMNIFICATION. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 10.1 and 10.2 of this Article Ten, or in defense of any claim, issue or
matter therein, they shall be indemnified against expenses (including attorneys
fees) actually and reasonably incurred by them in connection therewith. In the
event a determination is made under Section 10.4 that a director, officer,
employee or agent of the Corporation has met the applicable standard of conduct
as to some matters, but no such determination has been made as to others, the
amount to be indemnified may be reasonably prorated.
Section 10.4 DETERMINATION OF INDEMNIFICATION. Any indemnification under
Sections 10.1 and 10.2 of this Article Ten (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because they have met the applicable standard of
conduct set forth in Sections 10.1 and 10.2 of this Article Ten. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, (ii) if such a quorum is not obtainable, or, even, if obtainable, a
quorum of two or more disinterested directors so directs, by independent legal
counsel (selected in accordance with subsection (i)) in a written opinion or
(iii) by a majority vote of the shareholders.
Section 10.5 EXPENSES. Expenses incurred in defending a civil action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding within thirty (30) days of
receipt of (i) a written affirmation by such director, officer, employee or
agent of his good faith belief that he has met the standard of conduct necessary
for indemnification by the Corporation set forth in this Article Ten and (ii) a
written undertaking by or on behalf of the director, officer, employee or agent
incurring such expense to repay such amount if it shall ultimately be determined
that they are not entitled to be indemnified by the Corporation as authorized in
this Article Ten.
Article 10.6 CUMULATIVE RIGHTS. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this Article
Ten shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
Article 10.7 INSURANCE. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against them and incurred by them in any such capacity, or
arising out of their status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article Ten.
<PAGE>
Article 10.8 CONSTITUENT CORPORATIONS. For purposes of this Article Ten,
references to the Corporation shall include, in addition to the resulting
Corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article Ten with respect to the resulting or surviving corporation as
they would have with respect to such constituent corporation if its separate
existence had continued.
Section 10.9 CERTAIN DEFINITIONS. For purposes of this Article Ten,
references to other enterprises shall include employee benefit plans; references
to fines shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to serving at the request of the
Corporation shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner not opposed to the best interests of the Corporation as referred to in
this Article Ten.
Section 10.10 HEIRS, ETC. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article Ten shall unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 10.11 SEVERABILITY. The exemption from personal liability and
indemnification provided in this Article Ten shall be subject to all valid and
applicable laws, and, in the event this Article Ten or any of the provisions
hereof or the exemption from personal liability of the indemnification
contemplated hereby are found to be inconsistent with or contrary to any such
valid laws, the latter shall be deemed to control and this Article Ten shall be
regarded as modified accordingly, and, as so modified, to continue in full force
and effect.
ARTICLE ELEVEN
Except as may be otherwise provided in the Act, or other applicable
Texas law, no contract, act or transaction of the Corporation with any person,
persons, firm, trust, association or any other corporation shall be affected or
invalidated by the fact that any director, officer or shareholder of this
Corporation is a party to , or is interested in, such contract, act or
transaction, or in any way connected with any such person, persons, firm, trust
or association, or is a director, officer or shareholder of or otherwise
interested in, any such other corporation, nor shall any duty to pay damages on
account of this Corporation be imposed upon such director, officer or
shareholder of this Corporation solely by reason of such fact, regardless of
whether the vote, action or presence of any such director, officer or
shareholder may be, or may have been, necessary to obligate this Corporation on,
or in connection with such contract, act or transaction, provided that if such
vote, action or presence is, or shall have been necessary, such interest or
connection (other than an interest solely as a non-controlling shareholder of
any such other corporation) shall have been known by or disclosed to the Board
of Directors of this Corporation.
<PAGE>
ARTICLE TWELVE
The Corporation reserves the right to amend, alter, change or repeal any
provision, save and except for Sections 4.2 and 6.4 of these Articles of
Incorporation, contained in these Articles of Incorporation. The Corporation may
amend, alter, change or repeal Sections 4.2 or 6.4 of these Articles of
Incorporation with the affirmative vote or written consent of the holders of at
least two-thirds (2/3) of the outstanding shares of each class of stock, voting
on a class basis.
ARTICLE THREE
Each such amendment made by the Amended and Restated Articles of
Incorporation has been effected in conformity with the provisions of the Act
(the Act) and such Amended and Restated Articles of Incorporation and each such
amendment made by the Amended and Restated Articles of Incorporation were duly
adopted by the shareholders of the Corporation on the 1st day of August, 1997.
ARTICLE FOUR
The 1,000 shares of $1.00 par value common stock outstanding immediately
prior to this amendment will be canceled immediately after the filing of this
amendment in exchange for all 222,224 shares of the $0.001 par value per share
Serial Founders Common Stock authorized hereby. No additional consideration will
be given or received in connection with such exchange. Accordingly, a reduction
in stated capital from $1,000 to $222.22 will be necessary, which will be
effected by a transfer of $777.78 from stated capital to additional paid in
capital on the books of the Corporation.
ARTICLE FIVE
The number of shares outstanding was one thousand (1,000), and the
number of shares entitled to vote on the Amended and Restated Articles of
Incorporation as so amended was one thousand (1,000). All of the shareholders
have signed a written consent to the adoption of such Amended and Restated
Articles of Incorporation as so amended pursuant to Article 9.10 of the Act and
any written notice required by Article 9.10 of the Act has been given.
<PAGE>
ARTICLE SIX
The Articles of Incorporation and all amendments and supplements thereto
are hereby superseded by the following Amended and Restated Articles of
Incorporation which accurately copy the entire text thereof and as amended as
set forth above:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE ONE
The name of the Corporation is APS Practice Management, Inc.
ARTICLE TWO
The name of the registered agent of the Corporation is CT Corporation System.
The address of the registered office of the Corporation in the State of Texas is
811 Dallas Avenue, Houston, Texas 77002.
ARTICLE THREE
The purpose of the Corporation is to buy, sell and deal in personal property,
real property and services and any other activities for which corporations may
be organized under the Act. No shareholder or other person shall have any
preemptive rights whatsoever.
ARTICLE FOUR
Section 4.1 AUTHORIZED SHARES. The aggregate number of shares of all classes of
stock that the Corporation shall have authority to issue is Fifty-one Million
Two Hundred Twenty-Two Thousand Two Hundred and Twenty-four (51,222,224),
consisting of and divided into:
(i) One class of Fifty Million (50,000,000) shares of
Common, $0.001 par value per share;
(ii) One class of Two Hundred Twenty-two Thousand Two Hundred
Two Hundred and Twenty-four (222,224) shares of Serial Founders Common Stock,
$0.001 par value per share, as may be divided into and issued in Series as
hereinafter provided; and
(iii) One class of One Million (1,000,000) shares of Serial
Senior Preferred Stock, $0.001 par value per share, as may be divided into and
issued in Series as hereinafter provided.
Section 4.2 SERIAL FOUNDERS COMMON STOCK: Issuance in Series. The Board
of Directors is authorized from time to time, acting by resolutions duly adopted
by two-thirds of the full Board of Directors to divide the Serial Founders
Common Stock into Series, to designate each Series, to fix and determine
separately for each Series any one or more of the rights and preferences
described in subsections (a) through (d) of this Section 4.2, to amend the
Certificates of Designation of Rights and Preferences, if any, setting forth the
relative rights and preferences of any such Series consistent with the authority
to fix and determine such rights and preferences as set forth in this Section
4.2 of Article Four, and to issue shares of any Series then or previously
designated, fixed and determined. Notwithstanding the foregoing, the Board of
Directors may not take any action that would serve to deny, amend or limit (i)
the voting rights, including but not limited to the right to vote as a class, of
the Serial Founders Common Stock or (ii) the right of the holders of Serial
Founders Common Stock to receive dividends or distributions, unless such changes
result in rights that are identical to that of the holders of Common Stock of
the Corporation, without the written consent of all of the holders of the Serial
Founders Common Stock. Except as provided herein, the rights of the holders of
Serial Founders Common Stock shall be the same as that of the holders of the
Common Stock.
<PAGE>
(a) rights in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(b) sinking fund provisions for the redemption or purchase of
shares;
(c) the price at which, and the terms and conditions on which,
shares may be redeemed;
(d) the terms and conditions on which shares may be issued with the
privilege or obligation of conversion into shares of Common Stock, but in no
event shall the holders of the Serial Founders Common Stock receive less than
one (1) share of Common Stock for each one (1) share of Serial Founders Common
Stock so converted without the written consent of all the holders of the Serial
Founders Common Stock.
Shares of Serial Founders Common Stock of a particular series that are redeemed
or converted under a privilege or obligation to so redeem or convert, shall be
canceled and shall cease to be part of the authorized shares of the Company.
Section 4.3 SERIAL PREFERRED STOCK: Issuance in Series. The Board of
Directors is authorized from time to time, acting by resolutions duly adopted by
two-thirds of the full Board of Directors to divide the Serial Preferred Stock
into Series, to designate each Series, to fix and determine separately for each
Series any one or more of the rights and preferences described in subsections
(a) through (h) of this Section 4.3, to amend the Certificates of Designation of
Rights and Preferences, if any, setting forth the relative rights and
preferences of any such Series consistent with the authority to fix and
determine such rights and preferences as set forth in this Section 4.3 of
Article Four, and to issue shares of any Series then or previously designated,
fixed and determined.
(a) rights to receipt of dividends (which may be cumulative or
non-cumulative) at such rate or rates, on such conditions, from such date or
dates, and at such times, and payable in preference to, or in such relation to,
the dividends payable on any other class or classes or series of stock as shall
be fixed by the Board of Directors;
<PAGE>
(b) rights in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(c) sinking fund provisions for the redemption or purchase of
shares;
(d) the price at which, and the terms and conditions on which,
shares may be redeemed;
(e) the terms and conditions on which shares may be issued with the
privilege or obligation of conversion into or exchange for shares of any other
class or classes or of any other series of the same or any other class or
classes of stock of the Corporation at such price or prices or at such rates of
exchange and with such adjustments as shall be fixed by the Board of Directors;
(f) voting rights (including the number of votes per share, the matters
on which the shares can vote and the contingencies or events that make the
voting rights effective);
(g) conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary upon the issue of any additional stock (including
additional shares of such series or any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase, redemption
or any other acquisition by the Corporation or any subsidiary of any outstanding
stock of the Corporation; and
(h) such other preferences and relative, participating, optional and
other special rights and qualifications, limitations or restrictions thereof as
shall be fixed by the Board of Directors, so far as not inconsistent with the
provisions of this Article Four and to the full extent now or hereinafter
permitted by Texas law.
Shares of Serial Preferred Stock of a particular series that are redeemed or
converted under a privilege or obligation to so redeem or convert, shall be
canceled and shall cease to be part of the authorized shares of such Series, but
shall be restored to the status of authorized, but unissued, shares of the
Corporations Serial Preferred Stock, without designation.
Section 4.4 COMMON STOCK.
(a) The Common Stock is subject and subordinate to any and all of the
rights, privileges, preferences and priorities of the Serial Preferred Stock of
the Corporation as set forth in this Article Four. All shares of Common Stock
shall be of equal rank and shall be identical in all respects. All shares of
Common Stock shall be of equal rank to the shares of the Serial Founders Common
Stock, except as expressly provided for herein.
<PAGE>
(b) LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation and after the holders of Serial Preferred Stock shall have
received payment for any liquidation preferences therefor, or a sum sufficient
for such payment in full shall have been set aside, the remaining assets of the
Corporation shall be divided and distributed among the holders of the Common
Stock based on the ratio which the number of shares of Common Stock owned by
each such holder bears to the aggregate number of issued and outstanding shares
of Common Stock.
(c) VOTING. Subject to any voting rights of holders of Serial Preferred
Stock, the holders of shares of Common Stock shall possess full voting power in
the election of directors and for all other purposes, and each holder of Common
Stock shall at every meeting of the shareholders be entitled to one (1) vote for
each share of Common Stock held by such holder on the record date for
determining shareholders entitled to vote at such meeting.
(d) DIVIDENDS. Subject to any prior dividend rights of the holders of
the Serial Preferred Stock, the holders of Common Stock shall be entitled to
receive, on a share for share basis, such dividends as may be declared from time
to time by the Board of Directors.
(e) REDEMPTION. The shares of Common Stock shall not be subject to
redemption or repurchase by the Corporation except pursuant to a written
agreement between the Corporation and the holder.
Section 4.5 ISSUANCE AND SALE OF STOCK. The Board of Directors shall
have the power and authority at any time and from time to time to issue, sell or
otherwise dispose of any authorized and unissued shares of any class of stock of
the Corporation to such persons or parties, including the holders of any class
of stock, for such consideration (not less than the par value, if any, thereof)
and upon such terms and conditions as the Board of Directors in its discretion
may deem to be in the best interests of the Corporation.
ARTICLE FIVE
The Corporation shall have perpetual existence.
ARTICLE SIX
Section 6.1 BALLOT. Election of directors need not be ballot unless the
Bylaws of the Corporation so provide.
Section 6.2 NO CUMULATIVE VOTING. At each election for directors of the
Corporation, each shareholder entitled to vote at such election shall have the
right to vote, in person or by proxy, only the number of shares owned by them
for as many persons as there are directors to be elected, and no shareholder
shall ever have the right or be permitted to cumulate their votes on any basis,
any and all rights of cumulative voting being hereby expressly denied.
<PAGE>
Section 6.3 VACANCY. So long as at least one of the directors of the
Corporation continues to serve as a director of the Corporation, any vacancy on
the Corporations Board of Directors, whether arising through death, resignation
or removal of a director, or through an increase in the number of directors of
any class, shall be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director, and shall not be
filled by a vote of the shareholders of the Corporation.
Section 6.4 NUMBER. The number of directors, constituting the Board of
Directors shall be fixed as specified in the Bylaws of the Corporation, but
shall not be less than one (1) nor more than nine (9). No more than forty
percent (40%) of the directors shall be physicians actively engaged
substantially full time in the practice of medicine.
Section 6.5 TERM AND ELECTION. Each director shall be elected to serve
for one (1) year and until their successors are elected and qualified or until
their earlier death, resignation, removal or retirement. Any director elected or
appointed to fill a vacancy shall hold office for the remaining term. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. The Bylaws may contain any
provisions regarding classification of the Corporations directors not
inconsistent with the terms hereof.
Section 6.6 REMOVAL. Any director or the entire Board of Directors of
the Corporation may be removed with or without cause by the affirmative vote of
the holders of a majority of the outstanding shares of stock, regardless of
class.
ARTICLE SEVEN
In furtherance and not in limitation of the powers conferred by the laws
of the State of Texas, but subject to the provisions of the Articles of
Incorporation, the Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation. The Bylaws of the Corporation may also be
amended, altered or repealed by the affirmative vote of the holders of a
majority of the outstanding shares of stock, regardless of class.
ARTICLE EIGHT
Meetings of the shareholders may be held within or without the State of
Texas, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Texas at such place or places as
may be designated from time to time by the Board of Directors or in the Bylaws
of the Corporation.
ARTICLE NINE
A former, future or current director of the Corporation shall not be
personally liable to the Corporation, any of its shareholders or any other
director or third party, for monetary damages for breach of fiduciary duty as a
director of the Corporation, except for liability for (i) any breach of the
directors duty of loyalty to the Corporation or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law or (iii) any transaction from which the director derived an
improper personal benefit. It is the intent of the Corporation to exempt the
persons referred to in this Article Nine from personal liability to the fullest
extent permitted by law.
<PAGE>
ARTICLE TEN
Section 10.1 INDEMNIFICATION. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, or appeals therefrom, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that they are or were a
director, officer, employee or agent of the Corporation, or are or were serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys fees) damages, judgments, fines, amounts
paid in settlement and other liabilities actually and reasonably incurred by
them in connection with such action, suit or proceeding, if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which they reasonably believed to be in or not opposed to the best
interest of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 10.2 INDEMNIFICATION FROM CORPORATE PROCEEDINGS. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
they are or were a director, officer, employee or agent of the Corporation, or
are or were serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership joint venture, trust or
other enterprise, against expenses (including attorneys fees) actually and
reasonably incurred by them in connection with the defense or settlement of such
action or suit if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the Corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses such court shall
deem proper.
Section 10.3 MANDATORY INDEMNIFICATION. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 10.1 and 10.2 of this Article Ten, or in defense of any claim, issue or
matter therein, they shall be indemnified against expenses (including attorneys
fees) actually and reasonably incurred by them in connection therewith. In the
event a determination is made under Section 10.4 that a director, officer,
employee or agent of the Corporation has met the applicable standard of conduct
as to some matters, but no such determination has been made as to others, the
amount to be indemnified may be reasonably prorated.
<PAGE>
Section 10.4 DETERMINATION OF INDEMNIFICATION. Any indemnification under
Sections 10.1 and 10.2 of this Article Ten (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because they have met the applicable standard of
conduct set forth in Sections 10.1 and 10.2 of this Article Ten. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, (ii) if such a quorum is not obtainable, or, even, if obtainable, a
quorum of two or more disinterested directors so directs, by independent legal
counsel (selected in accordance with subsection (i)) in a written opinion or
(iii) by a majority vote of the shareholders.
Section 10.5 EXPENSES. Expenses incurred in defending a civil action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding within thirty (30) days of
receipt of (i) a written affirmation by such director, officer, employee or
agent of his good faith belief that he has met the standard of conduct necessary
for indemnification by the Corporation set forth in this Article Ten and (ii) a
written undertaking by or on behalf of the director, officer, employee or agent
incurring such expense to repay such amount if it shall ultimately be determined
that they are not entitled to be indemnified by the Corporation as authorized in
this Article Ten.
Article 10.6 CUMULATIVE RIGHTS. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this Article
Ten shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
Article 10.7 INSURANCE. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against them and incurred by them in any such capacity, or
arising out of their status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article Ten.
Article 10.8 CONSTITUENT CORPORATIONS. For purposes of this Article Ten,
references to the Corporation shall include, in addition to the resulting
Corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article Ten with respect to the resulting or surviving corporation as
they would have with respect to such constituent corporation if its separate
existence had continued.
<PAGE>
Section 10.9 CERTAIN DEFINITIONS. For purposes of this Article Ten,
references to other enterprises shall include employee benefit plans; references
to fines shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to serving at the request of the
Corporation shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner not opposed to the best interests of the Corporation as referred to in
this Article Ten.
Section 10.10 HEIRS, ETC. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article Ten shall unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 10.11 SEVERABILITY. The exemption from personal liability and
indemnification provided in this Article Ten shall be subject to all valid and
applicable laws, and, in the event this Article Ten or any of the provisions
hereof or the exemption from personal liability of the indemnification
contemplated hereby are found to be inconsistent with or contrary to any such
valid laws, the latter shall be deemed to control and this Article Ten shall be
regarded as modified accordingly, and, as so modified, to continue in full force
and effect.
ARTICLE ELEVEN
Except as may be otherwise provided in the Act, or other applicable
Texas law, no contract, act or transaction of the Corporation with any person,
persons, firm, trust, association or any other corporation shall be affected or
invalidated by the fact that any director, officer or shareholder of this
Corporation is a party to , or is interested in, such contract, act or
transaction, or in any way connected with any such person, persons, firm, trust
or association, or is a director, officer or shareholder of or otherwise
interested in, any such other corporation, nor shall any duty to pay damages on
account of this Corporation be imposed upon such director, officer or
shareholder of this Corporation solely by reason of such fact, regardless of
whether the vote, action or presence of any such director, officer or
shareholder may be, or may have been, necessary to obligate this Corporation on,
or in connection with such contract, act or transaction, provided that if such
vote, action or presence is, or shall have been necessary, such interest or
connection (other than an interest solely as a non-controlling shareholder of
any such other corporation) shall have been known by or disclosed to the Board
of Directors of this Corporation.
<PAGE>
ARTICLE TWELVE
The Corporation reserves the right to amend, alter, change or repeal any
provision, save and except for Sections 4.2 and 6.4 of these Articles of
Incorporation, contained in these Articles of Incorporation. The Corporation may
amend, alter, change or repeal Sections 4.2 or 6.4 of these Articles of
Incorporation with the affirmative vote or written consent of the holders of at
least two-thirds (2/3) of the outstanding shares of each class of stock, voting
on a class basis.
<PAGE>
IN WITNESS WHEREOF, these Amended and Restated Articles of Incorporation
have been executed effective as of the 1st day of August, 1997.
SUN VALLEY PHYSICIAN
MANAGEMENT CORPORATION
By: /s/ John R. Hedrick
-------------------
John R. Hedrick, Vice President
<PAGE>
Exh. 10-29
APS Practice Management, Inc.
Certificate of Designation of Rights and Preferences
Series A Serial Founders Common Stock
By joint unanimous written consent of the directors and shareholders
dated September 30, 1997, the directors and shareholders of APS Practice
Management, Inc., a Texas corporation (the Corporation) created a Series A of
the Corporations authorized Serial Founders Common Stock, designated the Series
A Serial Founders Common Stock (hereinafter the Series A Common), and, in
accordance with the Articles of Incorporation of the Corporation, adopted and
established the following as the rights and preferences of the Series A Common:
1. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporations affairs, the holders of the Series A Common
shall only be entitled to be paid, with respect to each Series A Common
share then held, an amount equal to the par value thereof, and to no other
payment or distribution whatsoever, regardless of the amount which may be
paid or distributable to holders of the Corporations other classes and
series of capital stock.
2. The holders of the Series A Common shares shall have no right to receive or
participate in any dividends or other distributions by the Corporation
whatsoever, whether in cash, stock, property or otherwise, regardless of
the amount of any dividends or other distributions that may be declared or
paid with respect to any other classes or series of the Corporations
capital stock.
3. Any issued and outstanding Series A Common shares may be redeemed, in whole
or in part, at the Corporations sole option, by a vote of a majority of its
board of directors, at a redemption price equal to the par value of the
Series A Common shares redeemed, and no more, upon any of the following
conditions or events:
<PAGE>
(a) In the event more than 111,111 shares of Series A Common are issued and
outstanding on or after September 1, 1999;
(b) In the event any of the Series A Common shares are issued and outstanding
on or after September 1, 2001; or
(c) In the event the employment of either John R. Hedrick (Hedrick) or Michael
R. Beck (Beck) with the Corporation ceases or terminates for any reason,
except upon a termination by the Corporation other than for cause (as
herein defined). For purposes hereof, the termination of the employment of
Hedrick or Beck by the Corporation for any of the following reasons shall
be deemed termination for cause:
(i) violation of any rule, regulation, practice or policy of the Corporation;
(ii) any violation, breach or default under any provision of that certain Stock
Purchase Agreement dated effective October 1, 1997 between the purchasers
identified therein, the Corporation, Beck and Hedrick;
(iii)conviction of an offense constituting a felony or involving moral
turpitude;
(iv) material dishonesty in the performance of employment duties or engaging in
a material conflict of interest with the Corporation that is not fully
disclosed to and approved by the board of directors of the Corporation;
(v) failure to follow reasonable instructions or directions from the board of
directors of the Corporation, or any other person authorized by the board
of directors of the Corporation to give such instructions or directions, or
other failure to perform his duties as an employee or officer (if elected)
of the Corporation; or
<PAGE>
(vi) the commission of any other act or the existence of any state of facts
which would legally justify an employer in terminating a contract of
employment (regardless of whether, in fact, there is a contract of
employment at such time).
The Corporation will mail notice of any proposed redemption, not fewer than
five(5) days before the date fixed for redemption, to each record holder of
the Series A Common shares to be redeemed at the shareholders address as it
appears on the Corporations stock records. Such redemption notice will
indicate the shares to be redeemed, the date fixed for redemption and the
place where shareholders may obtain payment of their redemption price upon
surrendering their share certificates. The board of directors shall be
authorized, by majority vote, to establish such other procedures to
consummate the redemption of Series A Common shares as it deems reasonable,
necessary or convenient. On and after the date fixed for redemption, any
holder of SeriesA Common shares to be redeemed shall have no further rights
with respect to, or by virtue of, such Series A Common shares, except the
right to be paid the redemption price therefor upon compliance with the
procedures for redemption.
4. The holders of the Series A Common shares shall be entitled to convert, on
a share-for-share basis, up to that percentage (as reflected in the table
below) of their shares of Series A Common into shares of common stock of
the Corporation, based on the aggregate dollar volume of acquisitions of
businesses or practices by the Corporation, as set forth in the following
table:
<PAGE>
Percentage of Amount of Aggregate
Series A share holdings Acquisition Purchase Price of
that may be converted Business or Practices
----------------------- -----------------------------
up to 50% at least $20,000,000
an additional 25% at least $30,000,000
the remaining 25% At least $40,000,000
The conversion rights, and any convertibility features, of the Series A
Common, shall automatically and completely expire on September 1, 2001,
regardless of whether there were ever sufficient acquisitions to allow any
conversion rights to become exercisable. Thereafter, there shall be no right to
convert any shares of Series A Common into common stock or any other class or
series of the Corporations capital stock.
The Corporation will at all times reserve out of its authorized but
unissued common stock, the full number of common stock shares that would be
deliverable on converting all SeriesA Common shares from time to time
outstanding that have remaining conversion rights. In the event a holder of
Series A Common shares that are then eligible for conversion elects to exercise
such conversion right, such shareholder shall submit share certificates
evidencing the SeriesA Common shares to be converted to the Corporation, and
shall provide such other documentation and comply with such other procedural
requirements for conversion as shall be reasonably required by the board of
directors of the Corporation. Upon any such conversion, any holder of Series A
Common shares being converted shall be entitled to receive one (1) share of the
Corporations common stock in exchange for each share of Series A Common being
converted, and no more. No additional payments or consideration whatsoever shall
be paid upon the conversion of any Series A Common shares.
<PAGE>
5. Except for such rights and preferences as are expressly provided
herein or expressly provided in the Articles of Incorporation of the
Corporation, the holders of the SeriesA Common shares shall be entitled to no
rights or preferences whatsoever with respect to the shares of Series A Common
held by them. In the event of any conflict between the rights and preferences
provided for in the Articles of Incorporation and those provided for in this
Certificate of Designation of Rights and Preferences, those provided for herein
shall control in all respects. In no event shall the sale, conveyance or other
transfer of any Series A Common shares that, at any time, may be owned by
Hedrick or Beck, operate to limit, modify, suspend or otherwise affect any of
the rights, preferences or obligations of any of the holders of the Series A
Common shares as provided herein.
The foregoing constitutes a true and correct copy of the Certificate of
Designation of Rights and Preferences of the Series A Serial Founders Common
Stock, the filing of which has been duly authorized by the Board of Directors
and Shareholders of the Corporation on September 30, 1997.
/s/ John R. Hedrick
------------------------------------
John R. Hedrick, Senior Vice President
<PAGE>
Exh. 10-30
JOINT UNANIMOUS CONSENT OF
SHAREHOLDERS AND DIRECTORS
OF
SUN VALLEY PHYSICIAN MANAGEMENT CORPORATION
Pursuant to Article 9.10 of the Texas Business Corporation Act, the
undersigned, being all of the Shareholders and Directors of Sun Valley Physician
Management Corporation (hereinafter referred to as the Corporation), do hereby
adopt the following resolutions by execution of this Consent, and such Consent
shall have the same force and effect as a vote by the undersigned at a properly
called meeting of the Shareholders and Directors of the Corporation:
AMENDMENT OF ARTICLES OF INCORPORATION
WHEREAS, the Articles of Incorporation of the Corporation were duly
filed with the Secretary of State of the State of Texas on March 26, 1996, and
the Certificate of Incorporation issued on the same date; and
WHEREAS, the Board of Directors has determined that it is in the best
interests of the Corporation to amend and restate the Articles of Incorporation
of the Corporation and does hereby recommend that such Restated Articles of
Incorporation be adopted by the shareholders of the Corporation;
NOW THEREFORE BE IT RESOLVED, that the Articles of Incorporation are
hereby superseded and amended in their entirety to read as set forth on Restated
Articles of Incorporation, which are attached hereto, marked as Exhibit A and
incorporated herein for all purposes as though fully recited;
RESOLVED FURTHER, that the President (or any Vice President) and the
Secretary (or any Assistant Secretary) of the Corporation be, and they hereby
are, authorized, empowered and directed to execute the Restated Articles of
Incorporation and to file the same in the office of the Secretary of State of
the State of Texas and to do any and all acts and things necessary or
appropriate to effectuate such amendments and to carry out, perform and
consummate such action.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Joint Unanimous
Written Consent effective as of the 29th day of September, 1997.
/s/ Michael R. Beck
--------------------------------
Michael R. Beck
Director and Shareholder
/s/ John R. Hedrick
--------------------------------
John R. Hedrick
Director and Shareholder
<PAGE>
JOINT UNANIMOUS WRITTEN CONSENT OF
SHAREHOLDERS AND DIRECTORS
OF
APS PRACTICE MANAGEMENT, INC.
The undersigned, being all of the shareholders and all of the directors
of APS Practice Management, Inc., a Texas corporation (the Corporation) hereby
adopt the following resolutions on behalf of the Corporation:
RESOLVED, that pursuant to the Articles of Incorporation of the
Corporation, all shares of the Corporations serial founders common stock, $0.001
par value per share, which the Corporation is hereby authorized to issue shall
be designated as a single series to be designated the Series A Serial Founders
Common Stock (hereinafter the Series A Stock), and that the rights and
preferences of each shares of the Series A Stock shall be as set forth on the
Certificate of Designation of Rights and Preferences, attached as ExhibitA
hereto and incorporated by reference herein for all purposes, which is hereby
adopted in all respects. Hereafter, there shall be no shares of the serial
founders common stock of the Corporation that is not contained within the Series
A Stock, or which does not have the rights and preferences described on ExhibitA
hereto. The officers of the Corporation are authorized and directed to file the
Certificate of Designation of Rights and Preferences, in the form attached
hereto as ExhibitA, with the Secretary of State of the State of Texas and to
take such other action as may be required by law, or which they may deem
necessary, to fully establish such designation of rights and preferences, to be
fully binding and enforceable on all holders of any shares of the Series A
Stock.
RESOLVED FURTHER, that each share of the Corporations common stock
outstanding as of the date hereof held by Michael R. Beck (Beck) and John R.
Hedrick (Hedrick), which is acknowledged as being 500 shares each, shall be, and
<PAGE>
is hereby, converted to Series A Stock at the rate of 222.224 shares of SeriesA
Stock for each share of common stock held by Beck and Hedrick, such conversion
to be deemed for all purposes to have occurred as of the effective date of this
Joint Unanimous Written Consent reflected below. No other payment or
consideration shall be paid or payable to Beck or Hedrick with respect to such
conversion. The undersigned agree to such conversion and all other matters
contained herein in their individual capacities, and acknowledge and agree that
as a result of the conversion of the shares of Beck and Hedrick as provided
herein, upon execution of this Joint Unanimous Written Consent, the holdings of
all issued and outstanding shares of all classes of the Corporations capital
stock are as follows:
Hedrick - 111,112 shares of Series A Stock
Beck - 111,112 shares of Series A Stock
RESOLVED FURTHER, that for all purposes of the Corporations Articles of
Incorporation, any requirements of law and any applicable contract or agreement,
wherein the written approval, consent or authorization of Hedrick or Beck (in
any capacity), or of all holders of the Series A Stock, are required to approve
any of the matters contemplated herein, including without limitation the
establishment of the rights and preferences of the SeriesA Stock as provided in
ExhibitA hereto, the execution of Hedrick and Beck hereof in their capacities as
directors and shareholders of the Corporation shall also be deemed sufficient
for purposes of giving such written approval, consent or authorization.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Joint Unanimous
Written Consent to be effective for all purposes on and after the 30th day of
September, 1997.
/s/ Michael R. Beck
-----------------------
Michael R. Beck
Director and Shareholder
/s/ John R. Hedrick
-----------------------
John R. Hedrick
Director and Shareholder
<PAGE>
JOINT UNANIMOUS WRITTEN CONSENT OF
SHAREHOLDERS AND DIRECTORS
OF
APS PRACTICE MANAGEMENT, INC.
The undersigned, being all of the shareholders and all of the directors
of APS Practice Management, Inc., a Texas corporation (the Corporation) hereby
adopt the following resolutions on behalf of the Corporation:
RESOLVED, that the Corporation is authorized to enter into and perform
that certain Stock Purchase Agreement (the Stock Purchase Agreement) dated
effective October 1, 1997 between the Corporation, American Physicians Service
Group, Inc., a Texas corporation (APSG), MichaelR. Beck (Beck) and John R.
Hedrick (Hedrick), the form of which has been reviewed and approved by the
directors and shareholders, pursuant to which APSG will purchase from the
Corporation two million (2,000,000) shares of the Corporations common stock,
$0.001 par value per share, for an aggregate purchase price of $5,000,000. The
officers of the Corporation are authorized and directed to execute and deliver
the Stock Purchase Agreement, as a valid and binding obligation of the
Corporation, enforceable in accordance with its terms, and to take such further
action and to execute and deliver such further documents and instruments as may
be necessary to consummate the transactions contemplated by the Stock Purchase
Agreement.
RESOLVED FURTHER, that the undersigned acknowledge and agree that
immediately upon consummation of the transactions contemplated by the Stock
Purchase Agreement, the holdings of all issued and outstanding shares of all
classes of the Corporations capital stock will be as follows:
<PAGE>
Hedrick - 111,112 shares of Series A Serial Founders Common Stock
Beck - 111,112 shares of Series A Serial Founders Common Stock
The following holders of the following shares of $0.001 par value common stock:
American Physicians Service Group, Inc.
1,874,600
Kenneth S. Shifrin
30,000
Duane K. Boyd, Jr. Trust
12,000
Robert L. Myer
40,000
J. A. Murphy Descendants Trust
20,000
Samuel R. Granett
4,000
William H. Hayes
2,400
Maury Magids
4,000
Paul Schilder
10,000
Thomas R. Solimine
3,000
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Joint Unanimous
Written Consent to be effective for all purposes on and after the 1st day of
October, 1997.
/s/ Michael R. Beck
-----------------------
Michael R. Beck
Director and Shareholder
/s/ John R. Hedrick
-----------------------
John R. Hedrick
Director and Shareholder
<PAGE>
JOINT UNANIMOUS WRITTEN CONSENT OF
SHAREHOLDERS AND DIRECTORS
OF
APS PRACTICE MANAGEMENT, INC.
The undersigned, being all of the shareholders and all of the directors of APS
Practice Management, Inc., a Texas corporation (the Corporation) hereby
adopt the following resolutions on behalf of the Corporation:
RESOLVED, that Kenneth S. Shifrin is hereby elected as a member of the
Corporations board of directors, such election to be effective immediately
upon execution of this Joint Unanimous Written Consent by all signatories
hereto.
RESOLVED FURTHER, that effective for all purposes immediately upon the execution
of this Joint Unanimous Written Consent by all signatories hereto, John R.
Hedrick and Michael R. Beck resign as directors of the Corporation with the
affect that, hereafter, Kenneth S. Shifrin shall be the only director of
the Corporation until such time as additional directors may be elected by
the shareholders pursuant to the Articles of Incorporation and Bylaws of
the Corporation.
RESOLVED FURTHER, that effective for all purposes immediately upon the execution
of this Joint Unanimous Written Consent by all signatories hereto, all
officers of the Corporation are hereby removed from office and the
following persons are elected as the officers of the Corporation, with
their titles shown opposite their names, to serve until their successors
have been duly elected and qualified or their earlier resignation, removal
or death:
<PAGE>
Name Title
Kenneth S. Shifrin President
William H. Hayes Secretary and Treasurer
John R. Hedrick Senior Vice President and General Counsel
Michael R. Beck Senior Vice President
Paul Schilder Senior Vice President of Operations
RESOLVED FURTHER, that all acts of the Corporation and its representatives in
opening that certain account in the name of the Corporation with NationsBank,
and a brokerage account through APS Financial Corporation, and establishing
signature withdrawal and other authority in connection therewith are hereby
ratified in all respects.
IN WITNESS WHEREOF, the undersigned have executed this Joint Unanimous
Written Consent to be effective for all purposes on and after the 3rd day of
October, 1997.
<PAGE>
SIGNATURE PAGE TO JOINT UNANIMOUS
WRITTEN CONSENT OF SHAREHOLDERS AND DIRECTORS
/s/ Michael R. Beck
- -----------------------
Michael R. Beck
Shareholder and Director
/s/ John R. Hedrick
- -----------------------
John R. Hedrick
Shareholder and Director
AMERICAN PHYSICIANS SERVICE
GROUP, INC., Shareholder
By
Name_______________________________
Title________________________________
J. A. MURPHY DESCENDANTS TRUST,
Shareholder
By /s/ Jack Murphy, Grantor
-------------------------------
Jack Murphy, Grantor
DUANE K. BOYD, JR. TRUST,
Shareholder
By /s/ Duane K. Boyd, Jr., Trustee
--------------------------------
Duane K. Boyd, Jr., Trustee
/s/ Robert L. Myer
- ------------------------------------
Robert L. Myer, Shareholder
/s/ Kenneth S. Shifrin
- ------------------------------------
Kenneth S. Shifrin, Shareholder
<PAGE>
SIGNATURE PAGE TO JOINT UNANIMOUS
WRITTEN CONSENT OF SHAREHOLDERS AND DIRECTORS
/s/ William H. Hayes
- ------------------------------------
William H. Hayes, Shareholder
/s/ Maury Magids
- ------------------------------------
Maury Magids, Shareholder
/s/ Thomas R. Solimine
- ------------------------------------
Thomas R. Solimine, Shareholder
/s/ Samuel R. Granett
- ------------------------------------
Samuel R. Granett, Shareholder
<PAGE>
Exh. 10-31
MASTER REFINANCING AGREEMENT
This Master Refinancing Agreement (this "Agreement") is made and
entered into as of the 6th day of November, 1997 (the "Effective Date") between
and among Consolidated Eco-Systems, Inc., an Idaho corporation formerly known as
Exsorbet Industries, Inc. ("Consolidated"), all of the wholly or partially owned
subsidiaries of Consolidated, and American Physicians Service Group, Inc., a
Texas corporation ("APS").
R E C I T A L S:
WHEREAS, Consolidated executed and delivered that certain Promissory
Note dated November 26, 1996 (the "Original Note") in the original principal
amount of Three Million Three Hundred Thousand Dollars ($3,300,000) payable to
the order of APS; and
WHEREAS, the Original Note was secured pursuant to the following
agreements, all for the benefit of APS: (i) that certain Security Agreement
dated December 12, 1996 entered into by 7-7, Inc., an Arkansas corporation
("7-7"), formerly known as 7-7 Merger, Inc.; (ii) that certain Security
Agreement dated September 30, 1996 entered into by 7-7; (iii) that certain
Assignment and Security Agreement dated September 30, 1996 entered into by
Consolidated; and (iv) those certain Guaranty Agreements dated September 30,
1996 entered into by each of the following entities:
a. Consolidated Environmental Services, Inc., an Arkansas corporation ("CES");
<PAGE>
b. Cierra, Inc., an Arkansas corporation ("Cierra");
c. Larco Environmental Services, Inc., a Louisiana corporation ("Larco");
d. KR Industrial Services of Alabama, Inc., an Alabama corporation ("KR
Industrial");
e. Exsorbet Technical Services, Inc., an Arkansas corporation
("Exsorbet Technical") doing business as SpilTech Services, Inc.;
f. Eco Acquisition, Inc. ("Acquisition"), an Arkansas corporation also known
as Eco-Systems, Inc.; and
g. 7-7
(all of the agreements described in (i) through (iv) above are collectively
referred to herein as the "Original Security Documents"); and
WHEREAS, Consolidated has executed and delivered a new note of even
date herewith in the original principal amount of $3,788,580 (the "New Note") in
renewal, replacement and extension of the Original Note, which New Note is
secured pursuant to the Original Security Documents and the additional Security
Documents described below; and
<PAGE>
WHEREAS, in addition to the Original Security Documents, the New Note
and the indebtedness and obligations evidenced thereby are further secured
pursuant to (i) that certain Security Agreement of even date herewith entered
into for the benefit of APS by Larco; and (ii) that certain Assignment and
Security Agreement of even date herewith entered into for the benefit of APS by
Consolidated (both of which agreements described in (i) and (ii) of this
sentence, together with the Original Security Documents, are collectively
referred to herein as the "Security Documents"); and
WHEREAS, for purposes hereof, 7-7, CES, Cierra, Larco, KR Industrial,
Exsorbet Technical, and Acquisition, together with any future corporations or
other entities, wholly or partially, directly or indirectly, owned or controlled
by Consolidated, are collectively referred to herein as the "Subsidiaries" and
individually as a "Subsidiary"; and
WHEREAS, in addition to the covenants and agreements contained in the
New Note and the Security Documents, Consolidated, the Subsidiaries and APS
desire to memorialize certain other understandings and agreements between them
as provided herein.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
<PAGE>
1. REGISTRATION OF COLLATERAL SHARES. Consolidated agrees to, within
thirty (30) days after the execution and delivery of this Agreement, file for,
and use its best efforts to effect, the registration under the Securities Act of
1933, as amended (the "Securities Act"), and the qualification under applicable
state securities laws (the "State Laws"), of all of the shares of common stock
of Consolidated in which APS has a security interest under the Security
Documents, including without limitation those certain One Million Two Hundred
Thousand (1,200,000) shares of common stock of Consolidated, and such additional
shares as may be executed or issuable upon any stock dividend, stock split,
reverse stock split, reclassification or other similar act or transaction (all
of which shares of Consolidated common stock in which APS has a security
interest are hereinafter referred to as the "Collateral Shares"). Consolidated
agrees that, in addition to such other obligations and restrictions as may be
set forth in the Security Documents, Consolidated will not engage in any stock
split, stock dividend, reclassification or other similar act or transaction
regarding its capital stock unless the Collateral Shares are included in such
act or transaction and effected thereby in all respects the same as any other
class or share of Consolidated's capital stock.
Consolidated will use its best efforts to effect the registration under
the Securities Act and the qualification under the State Laws of the Collateral
Shares, to the extent required to permit the disposition thereof in any manner,
or combinations of manners, which APS may select, at APS' sole discretion. APS
agrees that Consolidated may utilize Form S-3 to register the Collateral Shares
unless APS determines, in good faith, that Form S-3 would not accomplish the
best disposition of the Collateral Shares for APS' benefit (or another form is
required by applicable regulations or regulatory authorities). Consolidated
agrees to maintain such registration statement under the Securities Act and the
<PAGE>
qualification under the State Laws to be maintained in effect until such time as
all Collateral Shares have been sold at the direction and under the control of
APS, and the gross proceeds from such sales have been remitted directly to APS
for repayment of Consolidated's indebtedness under the New Note, or until all
indebtedness due APS under and pursuant to the New Note has been repaid in full,
whichever occurs first. Alternatively, but only upon the written request of APS
and in APS' sole discretion, Consolidated will promptly take such steps (at
Consolidated's sole cost) as necessary to allow APS to cause a sale of some or
all of the Collateral Shares pursuant to an exception to the registration
requirements of the Securities Act and the State Laws. However, if APS does not,
in writing, elect the alternative described in the preceding sentence as to all
Collateral Shares, Consolidated shall be deemed to be in default hereunder and
under the New Note and the Security Documents in the event Consolidated has
failed or refused, for any or no reason, to effect the registration under the
Securities Act and the qualification under the State Laws of all the Collateral
Shares in accordance with this Section 1 on or before May 1, 1998.
Consolidated agrees to cooperate fully with APS, and to take such steps
and execute and deliver such documents and instruments, as APS may request or as
may otherwise be necessary, in order to allow APS, from time-to-time, to sell,
or cause the sale of, the Collateral Shares, or any portion thereof. Any and all
proceeds from any sale of the Collateral Shares shall be retained by, or
remitted directly to, APS and shall be applied to the indebtedness of
Consolidated to APS in the order provided in the New Note and the Security
Documents pursuant to which APS acquired its security interest in the Collateral
Shares. APS shall be entitled to cause a sale of the Collateral Shares and
remittance of the proceeds therefrom to APS regardless of whether any particular
<PAGE>
installment of principal and/or interest is then due under the New Note, and any
such payments accomplished through the sale of Collateral Shares shall not
affect Consolidated's monthly or final payment obligations under the New Note,
except to the extent the application of the sales proceeds from Collateral
Shares causes an early pay-off, in full, of all amounts due under and pursuant
to the New Note in compliance with the terms of the New Note and the Security
Documents. Consolidated will bear all costs and expenses (including without
limitation brokerage costs, legal fees and expenses and printing fees and
expenses) incurred in connection with, or related to, the registration and sale
of the Collateral Shares and the remittance of, or retention by, APS of the
proceeds from such sales.
In connection with the registration, qualification and/or sale of
Collateral Shares pursuant to this Agreement, APS shall provide such information
to Consolidated concerning APS as may be required by law, but APS shall not be
required to undertake any indemnity obligation or other contractual obligations,
and Consolidated covenants and agrees to comply fully and continually with all
applicable federal and state laws. Consolidated hereby agrees to indemnify and
hold APS, and all of APS' affiliates, subsidiaries, employees, officers,
directors, shareholders and representatives (collectively, the "APS Indemnified
Parties"), harmless from and against all losses, claims, damages, liabilities
and expenses (including but not limited to expenses incurred in the
investigation of, preparing for, and defending against, any claim) to which APS
or any of the other APS Indemnified Parties may become subject under the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the State Laws, or otherwise, insofar as (i) any such losses, claims,
damages, liabilities or expenses arise out of or are based upon or caused by, in
whole or in part, any untrue statement or alleged untrue statement of fact
<PAGE>
contained in any registration statement or prospectus (or any amended or
supplemented registration statement or prospectus), or (ii) the same arise out
of or are based upon or are caused by any omission or alleged omission to state
therein a fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) the same arise out of or are based upon any
violation by Consolidated or Consolidated's employees, officers, directors,
Subsidiaries or representatives, of the Securities Act or the Exchange Act, any
rule or regulation thereunder, or any State Laws.
2. POTENTIAL GLOBAL REFINANCING. The parties acknowledge and agree that
Consolidated is considering a global refinancing of all the secured indebtedness
of the Subsidiaries (other than 7-7) to banks, which would require the approval
of APS pursuant to the Security Documents. For purposes of this Agreement, such
refinancing is hereby referred to as the "Global Refinancing"). If all of the
following terms and conditions are satisfied at the time of any such Global
Refinancing, APS agrees that it will give its written consent to the Global
Refinancing at such time:
a. Neither Consolidated nor any of the Subsidiaries shall be in
default, and no event of default shall have occurred, under any of the Security
Documents or the New Note; and
b. As a result of any Global Refinancing or otherwise, (i) there shall
be no increase in the gross amount of indebtedness (as of the Effective Date)
secured by liens on the assets of 7-7 which are superior or equal (as of the
Effective Date) to the liens of APS, and (ii) there shall be no increase greater
than $1,000,000 in the gross amount of indebtedness (as of the Effective Date)
secured by liens on the assets of Larco which are superior or equal (as of the
Effective Date) to the liens of APS. Consolidated and the Subsidiaries represent
and warrant that the amount of their gross aggregate indebtedness (as of the
Effective Date) that are secured by liens on the assets of Larco which are
superior or equal (as of the Effective Date) to the liens of APS is $3,181,562;
and
<PAGE>
c. The aggregate amount of indebtedness of Consolidated and the
Subsidiaries incurred as a result of the Global Refinancing may not exceed
$21,613,000; and
d. APS must receive at least thirty percent (30%) of the proceeds (the
"APS Payment") received or receivable by Consolidated as a result of the Global
Refinancing, after deduction of only the amount, if any, distributed to other
unrelated, secured creditors of Consolidated or the Subsidiaries at or
immediately after the closing of any Global Refinancing. The APS Payment must be
received by APS in immediately available funds directly from the lender(s) at
the closing of the Global Refinancing as payment on the indebtedness evidenced
by the New Note. All parties hereto acknowledge and agree that such payment
shall not in any respect affect Consolidated's monthly or final payment
obligations under the New Note, except to the extent the final payment
obligation amount is reduced as a result of the special payment received
pursuant to this provision. The APS Payment is to be applied first to any
interest accrued and unpaid under the New Note, with any balance to be applied
to principal; and
e. APS shall have been given at least ten (10) days opportunity prior
to the closing of any Global Refinancing and after receipt by APS of all
documents, instruments and agreements, to review all documents, instruments and
<PAGE>
agreements entered into, or to be entered into at any such closing, in
connection with such Global Refinancing, and as may otherwise be necessary for
APS to ensure compliance with the conditions for any APS consent to a Global
Refinancing as contained herein. Furthermore, Consolidated agrees to cooperate
with APS and to provide APS access to, and participation in, the closing of any
such Global Refinancing and the interaction with the lenders involved therein,
as APS shall request in order for APS to ensure compliance with the conditions
to any APS consent to a Global Refinancing as contained herein. APS shall not be
required to provide its written consent to any Global Refinancing until the
closing of any Global Refinancing, and any such consent may be conditioned
expressly upon compliance with the terms and conditions provided herein.
3. IMPLEMENTATION OF CONVERSION FEATURE. Consolidated agrees to use its
best efforts to obtain the approval of Consolidated's shareholders (the
"Shareholder Approval") for an increase in the authorized number of shares of
common stock of Consolidated as necessary to provide APS with the right to
convert any or all indebtedness of Consolidated to APS into common stock of
Consolidated at a conversion rate to be mutually agreed upon in writing by APS
and Consolidated (the "Conversion Price Agreement"). Consolidated's shareholder
proxy solicitation will designate a specific item, which will have been approved
by, and will be expressly recommended for approval by, the Board of Directors of
Consolidated, seeking approval of an increase in the number of authorized shares
of common stock of Consolidated solely as security for the New Note and other
indebtedness secured by the Security Documents, or to satisfy the obligations
owed by Consolidated and the Subsidiaries to APS, or in such other form as APS
may require, provided that Consolidated or its management can lawfully solicit
<PAGE>
such proxy item. If Shareholder Approval is obtained, Consolidated agrees to
reserve such shares of its common stock for issuance as may be necessary in
order for APS to have the right to convert any or all of the outstanding
principal amount and accrued interest due under the New Note into common stock
of Consolidated at any time thereafter at the price agreed in the Conversion
Price Agreement. APS shall be required to obtain the prior written consent of
Consolidated, which shall not unreasonably be withheld, prior to any such
conversion, provided that upon any default, or event of default, under the New
Note or any of the Security Documents, the consent of Consolidated shall no
longer be necessary to effect any conversions.
Consolidated agrees to, promptly after obtaining Shareholder Approval,
effect the registration under the Securities Act, and the registration and/or
qualification under the State Laws, of such shares of common stock of
Consolidated as may be obtainable, from time-to-time, by APS through any
conversions as contemplated in this Section (the "Conversion Shares").
Consolidated will effect the registration under the Securities Act and the
registration and/or qualification under the State Laws, if the Conversion
Shares, to the extent required to permit the disposition thereof by APS,
immediately upon acquisition by APS (if APS were to so choose), in any manner,
or combination of manners, which APS may select, at APS' sole discretion.
Consolidated agrees to maintain such registration in effect for so long as
necessary for APS to sell any or all of the shares of Consolidated acquired
pursuant to such conversion without restriction. Consolidated agrees that
Consolidated will have all of the obligations with respect to the registration
<PAGE>
and sale of Conversion Shares as Consolidated has pursuant to the registration
and sale of Collateral Shares under Section 1 of this Agreement. Furthermore,
APS shall have all rights related to the registration and sale of Conversion
Shares as APS has with respect to the registration and sale of Collateral Shares
pursuant to Section 1 of this Agreement. The parties hereto acknowledge and
agree that failure to reach a Conversion Price Agreement prior to December 15,
1997, or to obtain Shareholder Approval on or before April 1, 1998 will result
in an acceleration of certain payment obligations under and pursuant to the New
Note as provided in Section 5 below.
4. MATTERS CONCERNING ACQUISITION. The parties acknowledge and agree
that Consolidated is considering the sale of the Houston division (the "Houston
Division") of Acquisition, and possibly also the other divisions of Acquisition
(the "Other Divisions"), which sales would require the prior written consent of
APS pursuant to the Security Documents. APS will give its written consent for a
reorganization of Acquisition into two (2) separate corporations to facilitate a
sale of each, one (1) owning all the assets of the Houston Division (the
"Houston Sub") and one (1) owning all the assets of the Other Divisions (the
"Other Sub") provided (i) each of the Houston Sub and the Other Sub execute and
deliver to APS a payment and performance guaranty agreement for the benefit of
APS covering all payment and performance obligations of Consolidated, in
substantially the same form of the guaranty agreements executed by the
Subsidiaries that are included in the Security Documents, (ii) Consolidated
grants APS a first lien, perfected security interest in and to all of the
capital stock of the Houston Sub and the Other Sub, and (iii) APS is reasonably
satisfied, after a full opportunity to engage in sufficient due diligence, that
the division of assets between the Houston Sub and the Other Sub reflects a
commercially reasonable division to each new Subsidiary of assets applicable to
that Subsidiary's operations as previously conducted.
<PAGE>
If all of the following terms and conditions are satisfied, APS agrees
that at the time of any sale of the Houston Division or the Houston Sub, APS
will give its written consent to the sale at such time:
a. Neither Consolidated nor any of the Subsidiaries shall be in
default, and no event of default shall have occurred, under any of the Security
Documents or the New Note; and
b. APS must receive at least Seven Hundred Fifty Thousand Dollars
($750,000) in immediately available funds, from the funds received directly from
the purchaser of the Houston Division at any closing of the sale thereof, as
payment on the indebtedness evidenced by the New Note. All parties hereto
acknowledge and agree that such payment shall not in any respect affect
Consolidated's monthly or final payment obligations under the New Note, except
to the extent the final payment obligation amount is reduced as a result of the
special payment received pursuant to this provision. The Seven Hundred Fifty
Thousand Dollars ($750,000), or more if more is paid, is to be applied first to
any interest accrued and unpaid under the New Note, with any balance to be
applied to principal; and
c. The Houston Division or Houston Sub must be sold to a purchaser who
is not related to, or affiliated with, Consolidated or any of the Subsidiaries
or any of the shareholders, directors or officers of Consolidated or any of the
Subsidiaries; and
d. APS shall have been given at least ten (10) days opportunity prior
to the closing of any sale of the Houston Division or Houston Sub and after
receipt by APS of all documents, instruments and agreements, to review all
<PAGE>
documents, instruments and agreements entered into, or to be entered into at any
such closing, in connection with such sale and as may otherwise be necessary for
APS to ensure compliance with the conditions for any APS consent to the sale as
contained herein. Furthermore, Consolidated agrees to cooperate with APS and to
provide APS access to, and participation in, the closing of any such sale, as
APS shall request in order for APS to ensure compliance with the conditions to
any APS consent as provided herein. APS shall not be required to provide its
written consent to any sale of the Houston Division or Houston Sub until the
closing of any such sale, and any such consent may be conditioned expressly upon
compliance with the terms and conditions provided herein.
Upon a sale of the Houston Division or Houston Sub on the terms and
conditions provided herein, and upon APS receiving at least the Seven Hundred
Fifty Thousand Dollars ($750,000) minimum payment required as a condition to it
giving its consent to such sale, APS will release its security interest in the
stock of Acquisition and the Houston Sub (if applicable) and return the
certificates evidencing such stock to Consolidated and will release the Houston
Sub from its guaranty agreement. However, Acquisition and any Other Sub will
continue to be bound by their guaranty agreements and such guaranty agreements
shall remain binding and enforceable in accordance with their terms.
APS will give its written consent to a sale of the Other Divisions or
the Other Sub in the event each of the conditions for a sale of the Houston
Division or the Houston Sub described in paragraphs a., c. and d. are satisfied
as to the sale of the Other Divisions or Other Sub, and provided APS receives a
payment directly from the purchaser of an amount, in immediately available
<PAGE>
funds, equal to at least thirty percent (30%) of the cash and fair market value
of other property or assets received or receivable by Consolidated as a result
of any such sale, after deducting only the amount, if any, paid to secured
creditors of Acquisition or the Other Sub. Upon any such sale of the Other
Divisions or the Other Sub, and upon APS receiving the minimum thirty percent
(30%) payment described above, APS will release any security interest it has in
the capital stock of the Other Sub, and will release the guaranty agreements of
Acquisition and the Other Sub (if applicable).
5. New Note Modifications. The parties hereto agree that,
notwithstanding the terms of the New Note, in the event (i) APS and Consolidated
are unable to enter into a mutually agreeable written Conversion Price Agreement
as described in Section 3 above on or prior to December 15, 1997, or (ii)
Shareholder Approval of the necessary increase in the authorized number of
shares of common stock of Consolidated as contemplated pursuant to Section 3
above is not obtained on or prior to April 1, 1998, then, in either event, the
monthly installments of $85,000 that would otherwise be due beginning October 1,
1998 will, instead, be required to begin April 1, 1998 (or on December 15, 1997,
in the event of failure to enter into a written Conversion Price Agreement on or
prior to December 15, 1997), and Consolidated shall be in default
(notwithstanding any terms of the New Note to the contrary) under the New Note
and the Security Documents if Consolidated thereafter fails to make any such
$85,000 monthly payment.
The parties hereto agree that notwithstanding any terms of the New Note
to the contrary, in the event APS gives its written consent to the Global
Refinancing pursuant to Section 2 hereof, and receives the APS Payment, and the
Global Refinancing is closed prior to January 1, 1998, then the $40,000 monthly
payments due under the New Note which would otherwise begin January 1, 1998
<PAGE>
pursuant to the terms of the New Note, will, instead, begin on the earlier of
(i) the first day of the calendar month following the month in which the Global
Refinancing is closed, or (ii) January 1, 1998, and Consolidated shall be in
default (notwithstanding any terms of the New Note to the contrary) under the
New Note and the Security Documents if Consolidated fails thereafter to make a
payment of at least $40,000 on or before the first day of each month through and
including September 1, 1998.
The parties hereto agree that, in the event, on October 1, 1999
Consolidated tenders to APS all outstanding principal and accrued interest due
under and pursuant to the New Note, and there has not theretofor been any
default, or event of default, under the New Note or any of the Security
Documents, then APS will agree to accept, in lieu of the fifteen percent (15%)
per annum interest due from and after the Effective Date under the terms of the
New Note, interest after the Effective Date on the principal amount due under
the New Note calculated at the rate of twelve percent (12%) per annum.
Notwithstanding the foregoing, nothing contained in this paragraph, or otherwise
in this Agreement, is intended to modify, limit or otherwise affect any of
Consolidated's obligations with respect to the repayment of (i) any principal
amount of the New Note, or (ii) any principal or interest accrued under the
Original Note that was refinanced into the principal of the New Note.
6. No Additional Financings. The parties acknowledge and agree that
certain of the Security Documents provide that, without the prior consent of
APS, neither Consolidated nor any of the Subsidiaries will create, incur, assume
<PAGE>
or become liable in any manner for any indebtedness (for borrowed money,
deferred payment for the purchase of assets, lease payments, as surety or
guaranty of the debt of another, or otherwise) other than to APS, except trade
debts incurred in the ordinary course of business. The parties hereto covenant
and agree that such provisions of the Security Documents remaining binding and
enforceable in all respects, are to be broadly construed for the benefit of APS,
and that the prohibitions on creating, incurring, assuming or becoming liable
for, any indebtedness, etc., shall be deemed to preclude, without limitation,
not only traditional methods of financing, but also financings in the form of
factoring, assets securitizations, sale and lease backs, financings through the
issuance of equity securities, debt securities or convertible securities,
debenture or bond financings and all other forms of financing and borrowing,
except for open account trade payables incurred in the ordinary course of
business; provided, however that factoring transactions that occurred prior to
October 15, 1997, will not be deemed to constitute a violation of the foregoing
so long as there is no increase after October 15, 1997, in the amounts due or
involved in such factoring relationships.
7. Financial Reporting Requirements. In additional to such financial
and other reporting requirements as may be provided pursuant to the Security
Documents, Consolidated covenants and agrees that it will provide to APS, within
thirty (30) days of the end of each month, beginning with the month of
September, 1997, consolidated financial statements for Consolidated and all of
the Subsidiaries, together with separate supporting Subsidiary financial
statements and statements of consolidation, as of and for the month and year to
date period ended on the last day of each calendar month. Each such set of
financial statements shall be presented on a comparative basis for the periods
<PAGE>
and dates in the preceding year and shall include detailed narrative analysis by
the management of Consolidated, addressed to the attention of the board of
directors of APS, of the financial position and results of operations reflected
therein as of and for the periods covered by the financial statements, together
with an assessment of future operating results (on a consolidated basis, and for
each Subsidiary). Furthermore, each set of monthly financial statements and
associated management analysis shall contain a written statement signed by the
Chief Financial Officer of Consolidated to the effect that (i) the financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, and are a fair and accurate presentation of
the financial position and results of operations of Consolidated, each of the
Subsidiaries, and the consolidated group as of the date and for the periods
covered by the financial statements, and (ii) the Chief Financial Officer has no
reason to believe that the narrative management analysis accompanying such
financial statements contains any misleading facts or statements, or omits any
fact or statement, the omission of which would make the statements contained
therein materially misleading.
8. Prohibition on Sale of Assets. Consolidated and each of the
Subsidiaries covenants and agrees with APS that neither Consolidated nor any of
the Subsidiaries shall sell, transfer, assign or otherwise convey any of their
assets, properties or rights or enter into any agreement with respect to any of
the foregoing, in any one transaction or a series of related transactions,
involving an aggregate consideration, in cash or the fair market value of other
property or consideration, in excess of Fifty Thousand Dollars ($50,000) without
the express prior written consent of APS in each instance; provided such consent
shall not be withheld if there has been no default, or event of default, under
the New Note or any of the Security Documents, and APS receives, directly from
the purchaser at the closing of any such sale, a payment in immediately
<PAGE>
available funds, equal to at least thirty percent (30%) of the net cash and fair
market value of other property or assets received or receivable by Consolidated
or the applicable selling Subsidiary as a result of such sale, after deducting
only the amount, if any, paid to secured creditors having liens on the assets
sold. APS must receive the ten (10) day opportunity, as described in paragraph
d. of Section 4, with respect to each such sale and any payments received by APS
upon any asset sale shall be treated as described in paragraph b. of Section 4.
The parties further acknowledge and agree, that once the total accrued interest
and principal remaining due under and pursuant to the New Note is, in the
aggregate, less than Nine Hundred Thousand Dollars ($900,000), then no consent
shall be required from APS for purposes of any of the asset sale transactions
described in this Section 8 provided APS receives the minimum thirty percent
(30%) payment described above and Consolidated and the Subsidiaries complies
with the other provisions of this Section 8 with respect to any such asset sale,
transfer, assignment or conveyance. Notwithstanding the foregoing (but subject
to the provisions of Section 4 regarding Acquisition), the provisions for APS
granting consent (or not needing to grant consent) for the transactions
described in this Section 8 shall not apply to sales of divisions, operating
units, business lines, departments or other businesses, and APS' prior written
consent for any sale, transfer, assignment or other conveyance thereof shall be
required in each instance (which consent APS shall be under no obligation to
grant or not withhold).
9. INSURANCE COVERAGE. Consolidated and the Subsidiaries each covenant
and agree that APS has received, prior to or simultaneously upon the execution
of this Agreement, written agreements from all of Consolidated's and the
Subsidiaries' current insurance carriers or insurance brokers (i) acknowledging
the existence and terms of coverage of all policies of insurance owned or
<PAGE>
maintained by Consolidated or any of the Subsidiaries, and (ii) expressly
agreeing with APS that each carrier or broker will notify APS in writing
simultaneously whenever a cancellation notice is sent to Consolidated or any of
the Subsidiaries with respect to any of the policies of insurance. Furthermore,
Consolidated and each of the Subsidiaries covenants and agrees that, as a
condition to obtaining or renewing any policies of insurance, they will obtain
from the applicable insurance carriers or brokers written agreements
acknowledging the existence and terms of coverage of the subject policies of
insurance and expressly agreeing with APS that each carrier or broker will
notify APS in writing simultaneously whenever a cancellation notice is sent to
Consolidated or any of the Subsidiaries with respect to any of the policies of
insurance.
10. INTERCOMPANY INDEBTEDNESS. Consolidated and each of the
Subsidiaries agrees that for so long as any indebtedness from Consolidated or
any of the Subsidiaries, to APS remains unpaid, neither Larco nor 7-7 shall have
any payment obligation, shall make any payments, or shall forego, waive or
release any amount due to Larco or 7-7, with respect to any intercompany or
affiliate indebtedness, and neither Consolidated nor any of the Subsidiaries
shall (i) fail to pay any amounts due Larco or 7-7, or (ii) demand, receive or
accept any payments from either Larco or 7-7 except for (X) charges to Larco
used solely to satisfy payroll, administrative, debt or other legitimate and
commercially reasonable obligations of Larco arising in the ordinary course of
business consistent with past practices, or (Y) short term advances repaid to
Larco within ten (10) days after being made by Larco. Furthermore, Consolidated
and each of the Subsidiaries agrees that upon any default, or event of default,
under the New Note or any of the Security Documents, Consolidated and each of
<PAGE>
the Subsidiaries will be deemed, automatically and without the requirement of
any further action on their part, to have forgiven, waived and released any
indebtedness or obligations owed to them by Larco or by 7-7, and will not
thereafter demand, receive or accept any payments, properties or other amounts
from Larco or 7-7, and Larco and 7-7 will not thereafter pay or tender any
amounts to any Subsidiary. Consolidated and each of the Subsidiaries agrees
that, upon request of APS, they will execute such acknowledgments, documents and
other instruments or agreements as APS shall request to evidence the matters
described in this Section 10.
11. REPRESENTATIONS AND WARRANTIES. Consolidated and each of the
Subsidiaries hereby, jointly and severally, represents and warrants to APS, and
covenants with APS, as follows:
(a) Consolidated and each of the Subsidiaries is a corporation
duly organized, validly existing, and in good standing under the laws of the
state of their incorporation, and has full corporate power and authority to
carry on its business as now conducted, to enter into and perform this
Agreement, and to perform all of its obligations under and pursuant to each and
every of the Security Documents to which it is a party. This Agreement has been
duly and validly authorized, executed and delivered by Consolidated and each of
the Subsidiaries, and constitutes the valid and binding obligation of
Consolidated and each of the Subsidiaries, enforceable against them in
accordance with its terms.
(b) There is only one class of common stock of Consolidated
outstanding.
<PAGE>
(c) Consolidated has made available to APS copies of
Consolidated's annual report on Form 10-K for the year ended December 31, 1996,
and its quarterly reports on Form 10-Q for the quarters ended March 31, 1997 and
June 30, 1997, (collectively, the "Periodic Reports"), in the form filed with
the Commission pursuant to the requirements of the Exchange Act. The Periodic
Reports were appropriately responsive to the requirements of the Exchange Act,
were complete and proper in form and did not contain an untrue statement of a
fact or omit to state a fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Since June 30, 1997, and through the Effective Date, no
event has occurred as a consequence of which Consolidated would be required to
file, on or before the Effective Date, a current report on Form 8-K pursuant to
the requirements of the Exchange Act, except for the Form 8-K filed prior to the
Effective Date to report that Consolidated's stock is no longer traded on the
Nasdaq Stock Market, Inc. SmallCap Market.
(d) No default, or event of default, has occurred under any of the
Security Documents, and each of the parties to the Security Documents is in
compliance with its obligations thereunder.
(e) Consolidated's and each of the Subsidiaries' representations and
warranties under each of the Security Documents to which they are parties was
true and correct when made, and remains true and correct as of the Effective
Date of this Agreement.
<PAGE>
(f) The entering into and performance of their obligations under the
Security Documents, and the execution and delivery by Consolidated of the New
Note (and the performance of Consolidated's and the Subsidiaries' obligations
thereunder), does not conflict with or constitute a breach of, or default under,
any organizational document, bylaw, contract, agreement or obligation applicable
to Consolidated or any of the Subsidiaries.
12. EFFECT OF AGREEMENT. The parties hereto acknowledge and agree that
this Agreement does not constitute an amendment, modification, replacement or
limitation on any of APS' rights under and pursuant to any of the Security
Documents, and all of the Security Documents are intended to be, and remain,
binding and enforceable in accordance with their terms. The Security Documents
are intended to be construed consistently with this Agreement. However, in the
event of a direct conflict between the terms of any of the Security Documents
and this Agreement, the terms of this Agreement shall control. Consolidated and
each of the Subsidiaries represents, warrants, covenants and agrees that (i) APS
has not breached or defaulted under any contractual obligations to any of them,
and (ii) there are no defenses available to Consolidated or any of the
Subsidiaries against the enforceability of each and every of their obligations
under the Security Documents. Consolidated and each of the Subsidiaries does
hereby forever release and discharge APS and APS' shareholders, directors,
officers, affiliates, agents, attorneys and employees, from any and all claims,
demands, causes of action, obligations, debts or other rights, whether arising
from the law of contract, tort, property, common law, constitutional law or
statutory law, known or unknown, which it may have or could assert, including
<PAGE>
but not limited to any claims or causes of action relating to the Original Note,
the Security Documents, the New Note or any transactions with APS (including
without limitation the purchase by APS, and sale back to Consolidated, of the
stock of Consolidated pursuant to which the Original Note was executed and
delivered by Consolidated to APS). The foregoing is not intended to release APS
from any of its executory obligations under this Agreement.
Without limiting the foregoing, Consolidated and each of the
Subsidiaries expressly acknowledge and agree that APS is not relinquishing,
waiving or otherwise modifying any right, claim or cause of action it has or may
have, against Consolidated or any of the Subsidiaries or any of their
affiliates, directors, officers, shareholders or employees, including without
limitation, any such claims, rights or causes of action related to (i) the
negotiation and entering into the various agreements and transactions which give
rise to the Original Note and Security Documents, or any misrepresentation made
in connection therewith, or any breach or default thereunder, or (ii) the
Original Note, the New Note, or any of the Security Documents, or any breach or
default thereunder.
13. REIMBURSEMENT OF EXPENSES. Consolidated agrees to reimburse APS for
all legal fees and associated expenses incurred by APS in negotiating, preparing
and entering into this Agreement, the New Note and the Security Documents, and
perfecting the various security interests granted pursuant thereto. APS
acknowledges that Consolidated has prepaid Ten Thousand Dollars ($10,000) of
such fees and expenses. Consolidated agrees to promptly reimburse any of the
reimbursable fees and expenses described above in excess of Ten Thousand Dollars
($10,000) upon written request by APS, which request shall include reasonable
supporting documentation for the reimbursement requested. In the event the
reimbursable fees and expenses described above do not exceed Ten Thousand
Dollars ($10,000), APS will reimburse any unutilized amount of the prepayment to
Consolidated after a final accounting of the costs incurred by APS.
<PAGE>
14. REMEDIES. This Agreement may be enforced at law or in equity,
including, but not limited to, injunctive relief. In case any one or more of the
provisions of this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, any other provision hereof in this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein. Such invalid, illegal or
unenforceable provisions shall be given effect to the maximum extent then
permitted by law. Consolidated and the Subsidiaries shall be deemed to be in
joint and several default under this Agreement if there is any default (which is
not cured after any required notices of default and opportunity to cure) under
the New Note or any of the Security Documents.
15. GOVERNING LAW AND VENUE. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas
(except the laws of Texas that would render such choice of law ineffective).
Venue for any action relating to this Agreement shall be proper only in Texas.
16. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
<PAGE>
17. INUREMENT. This Agreement shall be binding upon the parties hereto
and their respective heirs, legal representatives, successors and permitted
assigns. This Agreement shall not be assignable by any party hereto (other than
APS) without the express prior written consent of APS in each instance. Upon
written notice to Consolidated, APS may assign its rights and obligations under
this Agreement. Upon the creation or acquisition of any new Subsidiary,
Consolidated and the Subsidiaries shall cause such new Subsidiary to promptly
execute and be bound by, a counterpart of this Agreement.
18. NOTICES. Any notices required or permitted to be given under this
Agreement shall be given in writing and shall be deemed received (a) when
personally delivered to the relevant party at its address as set forth below or
(b) if sent by mail, on the third day following the date when deposited in the
United States mail, certified or registered mail, postage pre-paid to the
relevant party at its address indicated below:
APS: American Physicians Service Group, Inc.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746-6550
Attn: President
Consolidated
or
the Subsidiaries: Consolidated Eco-Systems, Inc.
6807 West 12th Street
Little Rock, AR 72204
Attn: President
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
<PAGE>
[Remainder of this page left intentionally blank.]
<PAGE>
043860.0002 Austin 32504 v04
SIGNATURE PAGES TO
MASTER REFINANCING AGREEMENT
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the 6th day of November, 1997.
CONSOLIDATED: Consolidated Eco-Systems, Inc.
By: /s/ James J. Connors, Jr.
Name: James J. Connors
Title: President/CEO
APS: American Physicians Service Group,
Inc.
By: /s/ Duane Boyd
Name: Duane Boyd
Title: Senior VP
LARCO: Larco Environmental Services, Inc.
By: /s/ James J. Connors, Jr.
Name: James J. Connors, Jr.
Title: President/CEO
<PAGE>
SIGNATURE PAGES TO
MASTER REFINANCING AGREEMENT
(continued)
7-7: 7-7, Inc.
By: /s/ Sam M. Williams
Name: Sam M. Williams
Title: President
CES: Consolidated Environmental
Services, Inc.
By: /s/ James J. Connors, Jr.
Name: James J. Connors, Jr.
Title: President/CEO
CIERRA: Cierra, Inc.
By: /s/ James J. Connors, Jr.
Name: James J. Connors, Jr.
Title: President/CEO
KR INDUSTRIAL: KR Industrial Services of Alabama,
Inc.
By: /s/ James J. Connors, Jr.
Name: James J. Connors, Jr.
Title: President/CEO
<PAGE>
SIGNATURE PAGES TO
MASTER REFINANCING AGREEMENT
(continued)
EXSORBET TECHNICAL: Exsorbet Technical Services, Inc.
By: /s/ James J. Connors, Jr.
Name: James J. Connors, Jr.
Title: President/CEO
ACQUISITION: Eco Acquisition, Inc.
By: /s/ James J. Connors, Jr.
Name: James J. Connors, Jr.
Title: President/CEO
<PAGE>
Exh. 10-32
PROMISSORY NOTE
Austin, Texas November 6, 1997
For Value Received, the undersigned, CONSOLIDATED ECO-SYSTEMS, Inc., an
Idaho corporation formerly known as Exsorbet Industries, Inc. (the Maker)
promises to pay to the order of American Physicians Service Group, Inc., a Texas
corporation (the Payee), at1301Capital of Texas Hwy., Suite C-300, Austin,
Texas, 78746 (Payees Address), the principal amount of Three Million Seven
Hundred Eighty Eight Thousand Five Hundred Eighty and 00/100 Dollars
($3,788,580) (the Principal Amount), together with interest on the unpaid
balance of such amount as provided herein, in lawful money of the United States
of America, in accordance with all the terms, conditions, and covenants of this
Note and the Security Documents identified below.
1. PAYMENTS. Beginning on January 1, 1998, and continuing through
September1,1998, a payment of$40,000 shall be due each month on or before the
1st day of the month; beginning October1,1998, a payment of $85,000 shall be due
each month on or before the 1st day of the month, until October 1, 1999, when
the principal balance of this Note and all accrued and unpaid interest shall be
due and payable in full. All payments shall be applied first to interest accrued
under this Note, then to principal. Until such time as all amounts due and
payable under and pursuant to this Note have been paid in full, the foregoing
monthly payments required in each of the months beginning January 1, 1998
through the payment due on September1, 1999, will be due and payable,
notwithstanding that prepayments of principal or interest may have been made in
the interim. Any and all amounts due under and pursuant to this Note may be
prepaid at any time prior to the Maturity Date without penalty.
<PAGE>
2. REFINANCING TRANSACTION. This Note is given in renewal, extension and
replacement of that certain promissory note dated November 26, 1996, executed by
Maker to the order of Payee in the original principal amount of Three Million
Three Hundred Thousand Dollars ($3,300,000). Maker and Makers subsidiaries have
executed a Master Refinancing Agreement of even date herewith (the Master
Agreement), and this Note and the obligations of Maker hereunder are secured by
the Security Documents described in the Master Agreement. This Note, the
Security Documents (as defined in the Master Agreement) and the Master
Agreement, and all the documents evidencing, securing, governing, guaranteeing
and/or pertaining to this Note, are sometimes collectively referred to as the
Transaction Documents. Payee and any subsequent owner or holder of this Note is
entitled to the benefits and security provided in the Transaction Documents.
3. INTEREST PROVISIONS.
(a) RATE. The principal balance of this Note from time to time
remaining unpaid prior to maturity shall bear interest at a fixed rate per annum
equal to fifteen percent(15%) (the Note Rate), but never greater than the
Maximum Lawful Rate, as that term is defined in this Note.
<PAGE>
(b) MAXIMUM LAWFUL INTEREST. The term Maximum Lawful Rate means
the maximum rate of interest, and the term Maximum Lawful Amount means the
maximum amount of interest that are permissible under applicable state or
federal law for the type of loan evidenced by this Note and the other
Transaction Documents. If Article 1.04 of the Texas Credit Code is applicable to
this Note, and applicable state or federal law does not permit a higher interest
rate, the Indicated (Weekly) Ceiling (as defined in Article 1.04(a)(1) of the
Texas Credit Code) shall be the Interest Rate Ceiling applicable to this Note
and shall be the basis for determining the Maximum Lawful Rate in effect from
time to time during the term of this Note, unless a different Interest Rate
Ceiling is designated on the first page of this Note. If applicable state or
federal law allows a higher interest rate or federal law preempts the state law
limiting the rate of interest, then the foregoing Interest Rate Ceiling shall
not be applicable to this Note. If the Maximum Lawful Rate is increased by
statute or other governmental action subsequent to the date of this Note, then
the new Maximum Lawful Rate shall be applicable to this Note from the effective
date thereof, unless otherwise prohibited by applicable law.
(c) SPREADING OF INTEREST. Because of the possibility of
irregular periodic balances of principal and premature payment, the total
interest that will accrue under this Note cannot be determined in advance. Payee
does not intend to contract for, charge, or receive more than the Maximum Lawful
Rate or Maximum Lawful Amount permitted by applicable state or federal law, and
to prevent such an occurrence Payee and Maker agree that all amounts of
interest, whenever contracted for, charged, received by Payee, with respect to
the loan of money evidenced by this Note, shall be spread, prorated, or
allocated over the full period of time this Note is unpaid, including the period
of any renewal or extension of this Note. If demand for payment of this Note is
made by Payee prior to the full stated term, the total amount of interest
contracted for, charged, or received to the time of such demand shall be spread,
prorated, or allocated along with any interest thereafter accruing over the full
period of time that this Note thereafter remains unpaid for the purpose of
determining if such interest exceeds the Maximum Lawful Amount.
<PAGE>
(d) EXCESS INTEREST. At maturity (whether by acceleration or
otherwise) or on earlier final payment of this Note, Payee shall compute the
total amount of interest that has been contracted for, charged, or received by
Payee or payable by Maker under this Note and compare such amount to the Maximum
Lawful Amount that could have been contracted for, charged, or received by
Payee. If such computation reflects that the total amount of interest that has
been contracted for, charged, or rece by Payee or payable by Maker exceeds the
Maximum Lawful Amount, then Payee shall apply such excess to the reduction of
the principal balance and not to the payment of interest; or if such excess
interest exceeds the unpaid principal balance, such excess shall be refunded to
Maker. This provision concerning the crediting or refund or excess interest
shall control and take precedence over all other agreements between Maker and
Payee so that under no circumstances shall the total interest contracted for,
charged, or received by Payee exceed the Maximum Lawful Amount.
(e) INTEREST AFTER DEFAULT. At Payee's option, the unpaid
principal balance shall bear interest after maturity (whether by acceleration or
otherwise) at the Default Interest Rate. The Default Interest Rate shall be, at
Payee's option, (i) the Maximum Lawful Rate, if such Maximum Lawful Rate is
established by applicable law; or (ii) the Note Rate plus five (5) percentage
points, if no Maximum Lawful Rate is established by applicable law; or (iii)
eighteen percent (18%) per annum; or (i such lesser rate of interest as Payee in
its sole discretion may choose to charge; but never more than the Maximum Lawful
Rate or at a rate that would cause the total interest contracted for, charged,
or received by Payee to exceed the Maximum Lawful Amount.
<PAGE>
(f) DAILY COMPUTATION OF INTEREST. To the extent permitted by
applicable law, Payee at its option may either (i) calculate the per diem
interest rate or amount based on the actual number of days in the year (365 or
366, as the case may be), and charge that per diem interest rate or amount each
day, or (ii) calculate the per diem interest rate or amount as if each year has
only 360 days, and charge that per diem interest rate or amount each day for the
actual number of days of the year or 366 as the case may be). If this Note calls
for monthly payments, Payee at its option may determine the payment amount based
on the assumption that each year has only 360 days and each month has 30 days.
In no event shall Payee compute the interest in a manner that would cause Payee
to contract for, charge, or receive interest that would exceed the Maximum
Lawful Rate or the Maximum Lawful Amount.
4. DEFAULT PROVISIONS.
(a) EVENTS OF DEFAULT AND ACCELERATION OF MATURITY. Maker agrees
that an event of default shall exist under this Note and the other Transaction
Documents if: (i) Maker fails to fully pay any installment of principal,
interest, or any other sum required to be paid under the terms of this Note or
any of the Transaction Documents within fifteen(15) calendar days after such
<PAGE>
installment or other sum is due; or (ii) there is a default, which exists for
fifteen (15) calendar days, in the performance of any covenant, condition, or
agreement contained in this Note or any of the Transaction Documents, or an
event of default or default otherwise exists, for fifteen (15) calendar days,
under any of the other Transaction Documents; or (iii) the bankruptcy or
insolvency of, the assignment for the benefit of creditors by, or the
appointment of a receiver for any of the property of, or the liquidation,
termination, dissolution or death or legal incapacity of, any party liable for
the payment of this Note, whether as maker, endorser, guarantor, surety or
otherwise. Maker agrees that if an event of default occurs, Payee may, without
notice or demand, except as otherwise required by statute or otherwise
specifically provided in this Note or any of the other Transaction Documents,
accelerate the maturity of this Note and declare the entire unpaid principal
balance and all accrued interest at once due and payable, foreclose all liens
and security interests securing this Note, and exercise all other rights and
remedies Payee may have under this Note and the other Transaction Documents,
including any one or more of the foregoing remedies.
(b) WAIVER BY MAKER. Maker And All Other Parties Liable For This
Note Waive Demand, Notice Of Intent To Demand, Presentment For Payment, Notice
Of Nonpayment, Protest, Notice Of Protest, Grace, Notice Of Dishonor, Notice Of
Intent To Accelerate Maturity, Notice of Acceleration Of Maturity, And Diligence
In Collection. Each Maker, Surety, Endorser, And Guarantor Of This Note Waives
And Agrees To One Or More Extensions For Any Period Or Periods Of Time, And Any
Partial Payments, Before After Maturity, Without Prejudice To The Holder Of This
Note. Each Maker, Surety, Endorser, And Guarantor Waives Notice Of Any And All
Renewals, Extensions, Rearrangements, And Modifications Of This Note.
<PAGE>
(c) NONWAIVER BY PAYEE. Any previous extension of time,
forbearance, failure to pursue some remedy, acceptance of late payments, or
acceptance of partial payment by Payee, before or after maturity, does not
constitute a waiver by Payee of its subsequent right to strictly enforce the
collection of this Note according to its terms.
(d) REMEDIES. Payee shall not be required to first file suit,
exhaust all remedies, or enforce its rights against any security in order to
enforce payment of this Note. The rights, remedies, and recourses of Payee, as
provided in this Note and in any of the other Transaction Documents, shall be
cumulative and concurrent and may be pursued separately, successively or
together as often as occasion therefore shall arise, at the sole discretion of
Payee.
(e) JOINT AND SEVERAL LIABILITY. Each Maker who signs this Note,
and all of the other parties liable for the payment of this Note, such as
guarantors, endorsers, and sureties, are jointly and severally liable for the
payment of this Note.
(f) ATTORNEY'S FEES. If Payee requires the services of an
attorney to enforce the payment of this Note or the performance of the other
Transaction Documents, or if this Note is collected through any lawsuit,
probate, bankruptcy, or other judicial proceeding, Maker agrees to pay Payee an
amount equal to its reasonable attorney's fees and other collection costs. This
provision shall be limited by any applicable statutory restrictions relating to
the collection of attorney's fees.
<PAGE>
5. MISCELLANEOUS PROVISIONS.
(a) SUBSEQUENT HOLDER. All references to Payee in this Note
shall also refer to any subsequent owner or holder of this Note by transfer,
assignment, endorsement, or otherwise.
(b) TRANSFER. Maker acknowledges and agrees that Payee may
transfer this Note or partial interests in the Note to one or more transferees
or participants. Maker authorizes Payee to disseminate any information it has
pertaining to the indebtedness evidenced by this Note, including, without
limitation, credit information on Maker and any guarantor of this Note, to any
such transferee or participant or prospective transferee or participant.
(c) OTHER PARTIES LIABLE. All promises, waivers, agreements, and
conditions applicable to Maker shall likewise be applicable to and binding upon
any other parties primarily or secondarily liable for the payment of this Note,
including all guarantors, endorsers, and sureties.
(d) PAYMENT IN U.S. DOLLARS. All payments and prepayments of
principal of or interest on this Note shall be made in lawful money of the
United States of America in immediately available funds, at the address of Payee
indicated above, or such other place as the holder of this Note shall designate
in writing to Maker. The books and records of Payee shall be prima facie
evidence of all outstanding principal of and accrued and unpaid interest on this
Note.
<PAGE>
(e) PAYMENT ON BUSINESS DAYS. The term Business Day shall mean
any day other than a Saturday, Sunday or any other day on which national banking
associations are authorized to be closed. If any payment of principal of or
interest on this Note shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and any such
extension of time shall be included in computing interest in connection with
such payment.
(f) SUCCESSORS AND ASSIGNS. The provisions of this Note shall be
binding upon and for the benefit of the successors, assigns, heirs, executors,
and administrators of Payee and Maker.
(g) NO DUTY OR SPECIAL RELATIONSHIP. Maker acknowledges that
Payee has no duty of good faith to Maker, and Maker acknowledges that no
fiduciary, trust, or other special relationship exists between Payee and Maker.
If Payee and Maker are now engaged in or in the future engage in other business
transactions, such other business transactions are independent of this Note and
the indebtedness evidenced hereby and of the promises and covenants made by
Maker in this Note, and vice versa.
(h) MODIFICATIONS. Any modifications agreed to by Payee relating
to the release of liability of any of the parties primarily or secondarily
liable for the payment of this Note, or relating to the release, substitution,
or subordination of all or part of the security for this Note, shall in no way
constitute a release of liability with respect to the other parties or security
not covered by such modification.
<PAGE>
(i) ENTIRE AGREEMENT. Maker warrants and represents that the
Transaction Documents constitute the entire agreement between Maker and Payee
with respect to the indebtedness evidenced by this Note and agrees that no
modification, amendment, or additional agreement with respect to such
indebtedness will be valid and enforceable unless made in writing signed by both
Maker and Payee.
(j) MAKER'S ADDRESS FOR NOTICE. All notices required to be sent
by Payee to Maker shall be sent by U.S. Mail, postage prepaid, to Maker's
Address stated next to Makers signature below, until Payee shall receive written
notification from Maker of a new address for notice.
(k) PAYEE'S ADDRESS FOR PAYMENT. All sums payable by Maker to
Payee shall be paid at Payee's Address stated on the first page of this Note, or
at such other address as Payee shall designate from time to time.
(l) CHAPTER 15 NOT APPLICABLE. It is understood that Chapter 15
of the Texas Credit Code relating to certain revolving credit loan accounts and
triparty accounts is not applicable to this Note.
<PAGE>
(m) STATUTORY REFERENCES. References herein to the Texas
Credit Code mean and refer to such Code, as amended by the 75th Legislature,
House Bill 1971 (1997).
(n) APPLICABLE LAW. This Note Shall Be Construed In Accordance
With The Applicable Laws Of The State Of Texas And The Laws Of The United States
Of America Applicable To Transactions In Texas.
EXECUTED this 6th day of November, 1997.
Maker:
Consolidated Eco-Systems, Inc.
By: /s/ James J. Connors, Jr.
Name: James J. Connors
Title: President/CEO
<PAGE>
Exh. 10-33
ASSIGNMENT AND SECURITY AGREEMENT
THIS ASSIGNMENT AND SECURITY AGREEMENT (this Agreement) is made and
entered into as of the 6th day of November, 1997, by and between American
Physicians Service Group, Inc., a Texas corporation (the Secured Party) and
Consolidated Eco-Systems, Inc., an Idaho corporation formerly known as Exsorbet
Industries, Inc. (the Debtor).
RECITALS:
A. Debtor executed and delivered that certain Promissory Note dated November 26,
1996 (the Original Note) in the original principal amount of Three Million Three
Hundred Thousand Dollars ($3,300,000) payable to the order of Secured Party.
B. The Original Note was secured pursuant to the following agreements, all for
the benefit of Secured Party: (i) that certain Security Agreement dated December
12, 1996, entered into by7-7, Inc., an Arkansas corporation (7-7), formerly
known as 7-7 Merger, Inc.; (ii) that certain Security Agreement dated September
30, 1996, entered into by 77; (iii) that certain Assignment and Security
Agreement dated September 30, 1996, entered into by Debtor; and (iv) those
certain Guaranty Agreements dated September 30, 1996, entered into by each of
the following entities:
a. Consolidated Environmental Services, Inc., an Arkansas
corporation (CES);
b. Cierra, Inc., an Arkansas corporation (Cierra);
c. Larco Environmental Services, Inc., a Louisiana corporation
(Larco);
d. KR Industrial Services of Alabama, Inc., an Alabama corporation
(KR Industrial);
e. Exsorbet Technical Services, Inc., an Arkansas corporation
(Exsorbet Technical) doing business as SpilTech Services,
Inc.;
f. Eco Acquisition, Inc., an Arkansas corporation (Acquisition),
also known as Eco-Systems, Inc.; and
g. 7-7
(all of the agreements described in (i) through (iv) above are collectively
referred to herein as the Original Security Documents).
<PAGE>
C. Debtor has executed and delivered a new note of even date herewith, payable
to the order of Secured Party, in the original principal amount of $3,788,580
(the New Note) in renewal and extension of the Original Note, which New Note is
also secured pursuant to (i) the Original Security Documents, and (ii) that
certain Security Agreement of even date herewith entered into for the benefit of
Secured Party by Larco (the Larco Security Agreement) (the agreements described
in (i) and (ii) of this sentence, together with the Refinancing Agreement
described below and this Agreement, are collectively referred to herein as the
Security Documents).
D. Secured Party has requested that Debtor pledge the Collateral (as defined
below) to secure certain obligations and liabilities, including without
limitation (i) Debtors obligation to pay to Secured Party the New Note, (ii)
Debtors performance of the covenants set forth in the Security Documents, (iii)
Debtors and Debtors Subsidiaries (as hereinafter defined) performance of the
covenants set forth in that certain Master Refinancing Agreement of even date
herewith entered into for the benefit of Secured Party by Debtor and Debtors
Subsidiaries (as hereinafter defined) (the Refinancing Agreement), and (iv)
Debtors performance of the covenants more fully set forth herein.
E. Reference is hereby made to Schedule I, attached hereto and
incorporated herein by reference, for certain defined terms used in this
Agreement.
AGREEMENT:
Now, Therefore, in consideration of the foregoing and the covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which Debtor acknowledges, Debtor and Secured Party
agree as follows:
ARTICLE I
COLLATERAL AND SECURED OBLIGATIONS
1.1 GRANT OF SECURITY INTEREST. Debtor hereby assigns, transfers, and pledges to
Secured Party, and Debtor hereby grants to Secured Party a security interest in,
the following described collateral (collectively, the Collateral):
(a) SHARES OF ACQUISITION AND LARCO. All issued and outstanding shares
of common stock of Acquisition and Larco, including without limitation those
shares evidenced by the certificates described in Schedule II attached hereto
and incorporated herein, and any replacements, substitutions, or exchanges of
such certificates; and any additional shares of common stock of Acquisition or
Larco subsequently delivered or issued to Secured Party (the above described
stock is sometimes collectively referred to as the Subsidiary Shares); and any
options, rescission rights, registration rights, conversion rights, subscription
rights, contractual or quasicontractual rights, warrants, redemption rights,
redemption proceeds, calls, preemptive rights and all other rights and benefits
pertaining to the Subsidiary Shares;
<PAGE>
(b) SHARES OF DEBTOR. 1,200,000 shares of the $.001 par value
per share common stock of Consolidated (the Consolidated Shares), such
Consolidated Shares being those certain shares of common stock of Consolidated
purchased by Consolidated from Secured Party in November, 1996, for $3,300,000,
and any replacements, substitutions, or exchanges of such certificates; and any
options, rescission rights, registration rights, conversion rights, subscription
rights, contractual or quasicontrac rights, warrants, redemption rights,
redemption rights, redemption proceeds, calls, preemptive rights and all other
rights and benefits pertaining to the Consolidated Shares (the Subsidiary Shares
and the Consolidated Shares are sometimes collectively referred to as the
Shares);
(c) ACCOUNTS. All accounts and rights now or hereafter attributable to
any of the Collateral described in (a) or (b) above, and all rights of Debtor
now or hereafter arising under any agreement pertaining to the Collateral
described in (a) or (b) above, including without limitation all distributions,
proceeds, fees, dividends, preferences, payments or other benefits of whatever
nature which Debtor are now or may hereafter become entitled to receive with
respect to any Collateral described in (a) or (b) above; and
(d) ADDITIONAL PROPERTY. Collateral shall also include the
following property (collectively, the Additional Property) which Debtor becomes
entitled to receive or shall receive in connection with any other Collateral:
(i) any stock certificate, including without limitation, any certificate
representing a stock dividend or any certificate in connection with any
recapitalization, reclassification, merger, consolidation, conversion, sale of
assets, combination of shares, stock split, reverse stock split or spinoff; (ii)
any option, warrant, subscription or right, whether as an addition to or in
substitution of any other Collateral; (iii) any dividends or distributions of
any kind whatsoever, whether distributable in cash, stock or other property;
(iv) any interest, premium or principal payments; and (v) any conversion or
redemption proceeds.
(e) PROCEEDS. All proceeds (cash and noncash) arising out of the
sale, exchange, collection or other disposition of all or any portion of the
Collateral described in (a), (b), (c), or (d) above, including without
limitation proceeds in the form of stock, accounts, chattel paper, instruments,
documents, goods, inventory and equipment.
The security interest in the Collateral hereby granted by Debtor to Secured
Party may sometimes be referred to in this Agreement as the Security Interest.
1.2 OBLIGATIONS. This Agreement and the Security Interest shall secure
full and punctual payment and performance of the following indebtedness, duties
and obligations (the Obligations):
(a) All covenants, obligations, and liabilities of Debtor
and Debtors Subsidiaries to Secured Party under the Security Documents;
(b) All principal, interest, fees and other amounts payable to
the Secured Party pursuant to the New Note, including all future advances,
extensions, renewals, modifications, increases, or substitutions thereof;
<PAGE>
(c) All liabilities and obligations of Debtor to Secured Party
under and pursuant to this Agreement and/or any other contract or agreement
between Secured Party and Debtor or between Secured Party and any Subsidiary or
affiliate of Debtor; and
(d) (i)all indebtedness, obligations and liabilities of Debtor
and/or Debtors Subsidiaries and affiliates to Secured Party of any kind or
character, now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint
and several, arising from, connected with, or related to the Security Documents,
the New Note, or any other document, agreement, or instrument executed in
connection therewith, (ii)all accr but unpaid interest on any of the
indebtedness described in (i)above, (iii)all obligations of Debtor and/or
Debtors Subsidiaries and affiliates to Secured Party under any documents
evidencing, securing, governing and/or pertaining to all or any part of the
indebtedness described in (i) and (ii) above, (iv)all costs and expenses
incurred by Secured Party in connection with the collection and administration
of all or any part of the indebtedness and obligations described in (i), (ii)
and (iii) above or the protection or preservation of, or realization upon, the
collateral securing all or any part of such indebtedness and obligations,
including without limitation all reasonable attorneys fees, and (v)all renewals,
extensions, modifications and rearrangements of the indebtedness and obligations
described in (i), (ii), (iii) and (iv) above.
(e) All sums expended or advanced by Secured Party pursuant to
any term or provision of this Agreement (i) to collect and/or enforce the
Obligations, (ii) to maintain, protect and preserve the Collateral, and (iii)
all other sums now or hereafter loaned or advanced by Secured Party to Debtor,
or expended by Secured Party for the account of Debtor or otherwise owing by
Debtor to Secured Party, in respect to the Obligations.
1.3 VOTING RIGHTS. As long as no Event of Default shall have occurred
hereunder, any voting rights incident to any stock or other securities pledged
as Collateral may be exercised by Debtor; provided, however, that Debtor will
not exercise, or cause to be exercised, any such voting rights, without the
prior written consent of Secured Party, if the direct or indirect effect of such
vote will result in an Event of Default hereunder
ARTICLE II
DEBTORS REPRESENTATIONS AND WARRANTIES WITH RESPECT TO COLLATERAL
Debtor hereby represents and warrants to Secured Party as follows:
2.1 OWNERSHIP OF COLLATERAL. Debtor has good and marketable title to the
Collateral free and clear of any liens, security interests, shareholders
agreement, calls, charge, or encumbrance, except for this Security Interest. No
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any recording office, except as may have
been filed in favor of Secured Party relating to this Agreement.
2.2 POWER & AUTHORITY.Debtor has the lawful right, power, and authority to grant
the Security Interest in the Collateral. This Agreement, together with all
filings and other actions necessary or desirable to perfect and protect such
security interest, which have been duly taken, create a valid and perfected
first priority security interest in the Collateral securing the payment and
performance of the Obligations.
<PAGE>
2.3 NO AGREEMENTS. The Shares are not subject to any right of redemption by
Acquisition, Larco, or Consolidated, as applicable, or any call or put options,
voting trust, proxy, shareholders agreement, right of first refusal or any
provision of the articles of incorporation or bylaws of Acquisition, Larco, or
Debtor, as applicable, or any other document or agreement which would in any way
impair or adversely affect this Security Interest or the rights of Secured Party
under this Agreement.
2.4 LOCATION. Debtors principal place of business and chief executive office are
located at 6807 West 12th Street, Little Rock, Arkansas, 72204. The office where
the records concerning the Collateral are kept is located at Debtors principal
place of business.
2.5 SOLVENCY OF DEBTOR AND THE SUBSIDIARIES. As of the date hereof, and after
giving effect to this Agreement, the Security Documents and the New Note, and
the completion of all other transactions contemplated by Debtor and the
Subsidiaries at the time of the execution of this Agreement and the New Note,
(i) Debtor and each Subsidiary (other than Cierra, CES and 77) is and will be
solvent, (ii) the fair saleable value of Debtors assets exceeds and will
continue to exceed Debtor's liabilities (both fixed and contingent), and (iii)
Debtor has and will have sufficient capital to carry on Debtors businesses and
all businesses in which Debtor is about to engage.
2.6 SECURITIES. Any certificates evidencing securities pledged as Collateral are
valid and genuine and have not been altered. All securities pledged as
Collateral have been duly authorized and validly issued, are fully paid and
nonassessable, and were not issued in violation of the preemptive rights of any
party or of any agreement by which Debtor or the issuer thereof is bound. No
restrictions or conditions exist with respect to the transfer or voting of any
securities pledged as Collateral. Debtor owns all of the issued and outstanding
stock, of all classes, of Acquisition and Larco, and there are no outstanding
stock rights, rights to subscribe, options, warrants or convertible securities
outstanding or any other rights outstanding entitling any party, including
Debtor, to obtain (through conversion or otherwise) any capital stock, of any
class, of Acquisition or Larco. All issued and outstanding shares of common
stock of Acquisition and Larco are evidenced by the certificates described in
Schedule II attached hereto.
2.7 OWNERSHIP OF SHARES. Debtor is, as of the date hereof, the legal and
beneficial owner of the Shares, and Debtor has paid the full purchase price or
other consideration for the Shares on the date hereof.
2.8 SUBSIDIARY SHARES ISSUED AND PAID. All of the Subsidiary Shares are validly
issued and outstanding shares of capital stock of Acquisition and Larco, as
applicable, and are fully paid and nonassessable.
2.9 CONSOLIDATED SHARES ISSUED. All of the Consolidated Shares are validly
issued to Debtor, and since being purchased by Debtor, have been held by Debtor
and reflected on its books and in all filings with the Securities Exchange
Commission and other regulatory bodies, as treasury shares, and have not been
retired or otherwise transferred to the status of unissued shares.
<PAGE>
ARTICLE III
DEBTORS OTHER REPRESENTATIONS AND WARRANTIES
3.1 GOODSTANDING - DEBTOR. Debtor is a duly formed Idaho corporation,
duly organized and in good standing under the laws of Idaho, qualified to do
business in and in good standing in each state or country in which such
qualification is necessary for the conduct of its business, and has the power to
own its property and to carry on its business in each jurisdiction in which
Debtor operates.
3.2 GOODSTANDING - SUBSIDIARIES. Each Subsidiary (as more fully
described below) is a duly formed corporation under the laws of the state of its
incorporation, duly organized and in good standing under the laws of the state
of its incorporation, qualified to do business in and in good standing in each
state or country in which such qualification is necessary for the conduct of its
business, and has the power to own its property and to carry on its business in
each jurisdiction in which it operates. As of the date hereof, the Subsidiaries
constitute all the subsidiaries of Debtor which generate revenue and/or own any
assets and/or engage in any business activities.
3.3 AUTHORITY AND COMPLIANCE.Debtor has full power and authority toenter
into this Agreement. Debtor and Debtors Subsidiaries, where applicable, have
full power and authority to enter into and perform their obligations under the
New Note, the Refinancing Agreement, and all other Security Documents governed
by this Agreement and the Refinancing Agreement, all of which have been duly
authorized by all proper and necessary corporate action. No further consent or
approval is required as a condition to the validity of this Agreement, the New
Note, or any other Security Documents. Debtor and each Subsidiary is in
compliance with all Laws to which it is subject.
3.4 BINDING AGREEMENT. This Agreement, the Security Documents, and the New Note
constitute valid and legally binding obligations of Debtor and, where
applicable, the Subsidiaries, in accordance with their terms, subject to the
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally.
3.5 LITIGATION. There are no proceedings pending or, to the knowledge of Debtor,
threatened before any court or administrative agency which will or may have a
material adverse effect on the financial condition or operations of Debtor or
any Subsidiary or upon Debtors or any Subsidiarys ability to perform its
obligations under the New Note, this Agreement, or the Security Documents.
3.6 NO CONFLICTING AGREEMENTS.There are no charter, bylaw or stock provisions of
Debtor and no provisions of any existing agreement, mortgage, indenture or
contract binding on Debtor or affecting its property, which would conflict with
or in any way prevent the execution, delivery, or carrying out of the terms of
the New Note, this Agreement or the Security Documents. There are no charter,
bylaw or stock provisions of any Subsidiary and no provisions of any existing
agreement, mortgage, indenture or contract binding on any Subsidiary or
affecting its property, which would conflict with or in any way prevent the
execution, delivery, or carrying out of the terms of any of the Security
Documents to which such Subsidiary is a party.
<PAGE>
3.7 OWNERSHIP OF ASSETS.Debtor has good and full title to the Collateral,and the
Collateral is owned free and clear of liens, charges, claims, security
interests, and other encumbrances. Debtor will at all times maintain its
tangible property, real and personal, in good order and repair taking into
consideration reasonable wear and tear.
3.8 TAXES. Debtor and each Subsidiary has filed all tax returns required to be
filed and has paid taxes shown thereon to be due, including interest and
penalties, except such taxes, if any, as are being contested in good faith and
as to which adequate reserves have been provided. The charges, accruals, and
reserves on the books of Debtor or the Subsidiary in respect of any taxes or
other governmental charges are, in the opinion of Debtor and such Subsidiary,
adequate.
3.9 FINANCIAL STATEMENTS. The books and records of Debtor properly reflect
Debtor's financial condition, and the financial statements of Debtor submitted
to Secured Party properly reflect Debtor's financial condition as of such date
and were prepared in accordance with generally accepted accounting principles,
consistently applied.
3.10 ERISA PLAN. No Reportable Event or Prohibited
Transaction (as those terms are defined by erisa) has occurred with respect to
any employee benefit plan of Debtor or any Subsidiary which is subject to erisa.
Neither Debtor nor any Subsidiary has incurred any material accumulated unfunded
deficiency within the meaning of erisa, and neither Debtor nor any Subsidiary
has incurred any material liability to the Pension Benefit Guaranty Corporation
established under erisa (or any successor thereto under erisa) in connection
with any such benefit plan.
ARTICLE IV
DEBTOR'S COVENANTS WITH RESPECT TO COLLATERAL
Debtor covenants and agrees that from the date hereof and until the
payment and performance in full of the Obligations unless Secured Party
otherwise consents in writing:
4.1 DELIVERY OF INSTRUMENTS AND/OR CERTIFICATES. Contemporaneously
herewith, Debtor covenants and agrees to deliver to Secured Party any
certificates, documents, or instruments representing or evidencing the
Collateral, with Debtors endorsement thereon and/or accompanied by property
instruments of transfer and assignment duly executed in blank with, if requested
by Secured Party, signatures guaranteed by a member or member organization in
good standing of an authorized Securities Transfer Agents Medallion Program, all
in form and substance satisfactory to Secured Party.
4.2 FURTHER ASSURANCES - All Shares. Debtor will contemporaneously with
the execution hereof and from time to time thereafter at its expense promptly
execute and deliver all further instruments and documents and take all further
<PAGE>
action necessary or appropriate or that Secured Party may request in order (i)
to perfect and protect the security interest created or purported to be created
hereby and the first priority of such security interest, (ii) to enable Secured
Party to exercise and enforce its rights and remedies hereunder in respect of
the Collateral, and (iii) to otherwise effect the purposes of this Agreement,
including without limitation: (A) executing and filing any financing or
continuation statements, or any amendments thereto; (B) obtaining written
confirmation from the issuer of any securities pledged as Collateral of the
pledge of such securities, in form and substance satisfactory to Secured Party;
(C) cooperating with Secured Party in registering the pledge of any securities
pledged as Collateral with the issuer of such securities; (D) delivering notice
of Secured Partys security interest in any securities pledged as Collateral to
any securities or financial intermediary, clearing corporation or other party
required by Secured Party, in form and substance satisfactory to Secured Party;
and (E) obtaining written confirmation of the pledge of any securities
constituting Collateral from any securities or financial intermediary, clearing
corporation or other party required by Secured Party, in form and substance
satisfactory to Secured Party. If all or any part of the Collateral is
securities issued by an agency or department of the United States, Debtor
covenants and agrees, at Secured Partys request, to cooperate in registering
such securities in Secured Partys name or with Secured Partys account maintained
with a Federal Reserve Bank.
4.3 FURTHER ASSURANCES - CONSOLIDATED SHARES. Contemporaneously
herewith, Debtor covenants and agrees to issue and deliver (unless already
issued and delivered) to Secured Party a stock certificate evidencing the
Consolidated Shares, with Debtors endorsement thereon, in form and substance
satisfactory to Secured Party. Debtor further covenants and agrees that it will,
at all times, except as may be consented to otherwise in writing by Secured
Party in connection with any registration and sale of the Consolidated Shares
for the benefit of Secured Party, maintain the Consolidated Shares as issued
treasury shares, and will not retire or otherwise transfer the Consolidated
Shares, on its books or to any third party.
4.4 ADDITIONAL PROPERTY. All Additional Property received by Debtor
shall be received in trust for the benefit of Secured Party. All Additional
Property and all certificates or other written instruments or documents
evidencing and/or representing the Additional Property that is received by
Debtor, together with such instruments of transfer as Secured Party may request,
shall immediately be delivered to or deposited with Secured Party and held by
Secured Party as Collateral under the terms of this Agreement. If the Additional
Property received by Debtor shall be shares of stock or other securities, such
shares of stock or other securities shall be duly endorsed in blank or
accompanied by proper instruments of transfer and assignment duly executed in
blank with, if requested by Secured Party, signatures guaranteed by a member or
member organization in good standing of an authorized Securities Transfer Agents
Medallion Program, all in form and substance satisfactory to Secured Party.
Secured Party shall be deemed to have possession of any Collateral in transit to
Secured Party or its agent.
4.5 SALE, TRANSFER, ENCUMBRANCE. Debtor will not sell, transfer,
mortgage, or otherwise encumber any Collateral or impair the value thereof in
any manner without Secured Partys prior written consent, including without
limitation by purchase, lease, barter, trade, payment deferral, or the creation,
assumption or guarantee of indebtedness or other lending of credit. Secured
Partys written consent to any sale, mortgage, transfer, or encumbrance shall not
be construed to be a waiver of this provision in respect to any subsequent
proposed sale, mortgage, transfer, or encumbrance.
<PAGE>
4.6 LIENS. Neither Debtor nor any person acting on Debtors behalf has,
or shall have any right, power, or authority to and shall not create, incur, or
permit to be placed or imposed, upon the Collateral, any lien of any type or
nature whatsoever, other than the liens in favor of Secured Party.
4.7 MATTERS OR OCCURRENCES AFFECTING COLLATERAL OR THIS AGREEMENT.
Debtor will promptly notify Secured Party of any and all matters or occurrences
that may have a material adverse effect on the status or value of the Collateral
or this Agreement, including without limitation the occurrence of an Event of
Default, or an event which, with giving of notice or lapse of time, or both,
would constitute an Event of Default.
4.8 AGREEMENTS PERTAINING TO COLLATERAL. Debtor will not enter into any
type of contract or agreement pertaining to any of the Collateral or in any way
transfer any voting rights pertaining to the Collateral to any person.
4.9 CHANGE OF NAME. Debtor shall not change its name (or any assumed
name or other name under which Debtor does business) unless at least thirty (30)
days prior to the effective date of any such name change, Debtor gives Secured
Party written notice of such intended name change and the new name. Debtor shall
execute all such documents and agreements (including without limitation security
agreements, financing statements, and amendments to financing statements) as
Secured Party may reasonably request in connection with any such name change.
4.10 DILUTION OF OWNERSHIP. As to any securities pledged as Collateral,
Debtor will not consent to or approve of the issuance of (i) any additional
shares of any class of securities of such issuer, (ii) any instrument
convertible voluntarily by the holder thereof or automatically upon the
occurrence or non-occurrence of any event or condition into, or exchangeable
for, any such securities, or (iii) any warrants, options, contracts or other
commitments entitling any third party to purchase or otherwise acquire any such
securities.
4.11 RESTRICTIONS ON SECURITIES. Debtor will not enter into any
agreement creating, or otherwise permit to exist, any restriction or condition
upon the transfer, voting or control of any securities pledged as Collateral,
except as consented to in writing by Secured Party. Debtor will not engage in
any stock split, reverse stock split, stock dividend, reclassification, or other
similar act or transaction regarding its capital stock unless the Consolidated
Shares are included in such act or transaction and effected thereby in all
respects the same as any other shares, or class of shares, of Debtors capital
stock.
ARTICLE V
DEBTORS AFFIRMATIVE COVENANTS
Until payment and performance of all Obligations, Debtor covenants and
agrees as follows:
<PAGE>
5.1 FINANCIAL STATEMENTS. Debtor and each Subsidiary shall maintain a
system of accounting reasonably satisfactory to Secured Party and in accordance
with generally accepted accounting principles consistently applied, and will
permit Secured Party's officers or authorized representatives to visit and
inspect Debtor's and Subsidiarys books of account and other records at such
reasonable times and as often as Secured Party may desire during office hours
and after reasonable notice to Debtor and the applicable Subsidiary. Unless
written notice of another location is given to Secured Party, Debtor's books and
records will be located at Debtor's address set forth above. Debtor and each
Subsidiary further agree that Debtor and the Subsidiaries will promptly provide
Secured Party with such additional information, reports or statements respecting
their business operations and financial condition as Secured Party may
reasonably request from time to time. Debtor shall deliver to Lender, within
three (3) days after filing same, all annual, periodic, and other filings made
by Debtor with the Securities and Exchange Commission.
5.2 INSURANCE. Debtor and each Subsidiary shall maintain insurance with
responsible insurance companies on such of its properties, in such amounts and
against such risks as is customarily maintained by similar businesses operating
in the same vicinity, specifically to include a policy of fire and extended
coverage insurance covering all assets, and liability insurance, all to be with
such companies and in such amounts satisfactory to Secured Party and to contain
a mortgage clause naming Secured Party as its interest may appear. Evidence of
such insurance will be supplied to Secured Party.
5.3 EXISTENCE AND COMPLIANCE. Debtor and each Subsidiary shall maintain
its corporate existence in good standing and comply with all Laws applicable to
it or to any of its property, business operations and transactions. Debtor and
each Subsidiary shall qualify as a foreign corporation in all jurisdictions
wherein any property now or hereafter owned or any business now or hereafter
transacted by Debtor or such Subsidiary makes such qualifications necessary.
5.4 ADVERSE CONDITIONS OR EVENTS. Debtor and the Subsidiaries shall
promptly advise Secured Party in writing of any litigation filed against Debtor
or any Subsidiary and of any condition, event or act which comes to its
attention that would or might have a material adverse effect on Debtors or any
Subsidiarys financial condition or on Debtors ability to perform the Obligations
or any Subsidiarys ability to perform under its guaranty agreement executed in
favor of Secured Party with respect to the Obligations, including without
limitation any Environmental Condition that might have such a material adverse
effect the financial condition of Debtor or any Subsidiary, any Reportable
Event, or any event that could be the basis for institution of proceedings by
the Pension Benefit Guaranty Corporation to terminate a plan subject to erisa.
5.5 TAXES. Debtor and each Subsidiary shall pay all taxes as they become
due and payable.
5.6 MAINTENANCE. Debtor and each Subsidiary shall maintain all of its
tangible property in good condition and repair, reasonable wear and tear
excepted, and make all necessary replacements thereof, and preserve and maintain
all licenses, privileges, franchises, certificates and the like necessary for
the operation of their respective business.
<PAGE>
5.7 ENVIRONMENTAL. Debtor and each Subsidiary shall promptly give
Secured Party written notice of any investigation, claim, demand, lawsuit or
other action by any governmental or regulatory agency or private party involving
any property owned or leased by Debtor or any Subsidiary and any Hazardous
Substance or Environmental Law of which Debtor or any Subsidiary has knowledge.
If Debtor or any Subsidiary learns, or is notified by any governmental or
regulatory authority, that any removal or other remediation of any Hazardous
Substance affecting any property owned by Debtor or any Subsidiary is necessary,
Debtor or such Subsidiary shall promptly take all necessary remedial actions in
accordance with Environmental Law.
5.8 SUBSIDIARIES. Subsidiary means (a) CES; (b) Cierra; (c) Larco; (d)
KR Industrial; (e) Exsorbet Technical; (f) Acquisition; and (g) 7-7. Debtor and
Secured Party contemplate that, from time to time, additional subsidiaries,
either directly or indirectly wholly-owned by Debtor, may be formed. Upon such
formation, each such new subsidiary shall sign a Guaranty Agreement in the form
substantially the same as those executed in connection with the Security
Documents, and shall execute and be bound by the Refinancing Agreement. Each
such new subsidiary shall be deemed a Subsidiary as defined in and used in this
Agreement and shall be subject to the terms, conditions, and covenants of this
Agreement.
5.9 DIVIDEND RIGHTS. Secured Party shall have the sole right to receive,
hold and apply as Collateral any dividends or other distributions with respect
to the Collateral, or any part thereof, in cash or in kind. All dividend and
other distributions which are received by Debtor contrary to the provisions the
preceding sentence shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of Debtor, and shall be forthwith paid over
to Secured Party in the exact form received (properly endorsed or assigned if
requested by Secured Party), to be held by Secured Party as Collateral, or, in
Secured Partys sole discretion, to be applied against payment of any Obligation.
ARTICLE VI
NEGATIVE COVENANTS
Until payment and performance of all Obligations, Debtor covenants and
agrees that Debtor and each of its Subsidiaries will not, without the prior
written consent of Secured Party:
6.1 TRANSFE OF ASSETS. Enter into any merger or consolidation, or sell,
lease, assign, or otherwise dispose of or transfer any assets having a book
value or fair market value of greater than $50,000 except in the normal course
of its business.
6.2 CHANGE IN OWNERSHIP OR STRUCTURE. Dissolve or liquidate; become a party
to any merger or consolidation; reorganize as a professional corporation;
acquire by purchase, lease or otherwise all or substantially all of the assets
or capital stock of any corporation or other entity; or sell, transfer, lease,
or otherwise dispose of all or any substantial part of its property or assets or
business.
6.3 LIENS. Knowingly grant, suffer, or permit liens on or security
interests in Debtor's or such Subsidiarys assets, or fail to promptly pay all
lawful claims, whether for labor, materials, or otherwise, except for purchase
money security interests arising in the ordinary course of business.
<PAGE>
6.4 LOANS. Make any loans, advances or investments to or in any joint
venture, corporation or other entity, except for the purchase of U.S. Government
obligations or the purchase of Federally-insured certificates of deposit.
6.5 BORROWINGS. Create, incur, assume, or become liable in any manner for
any indebtedness (for borrowed money, deferred payment for the purchase of
assets, lease payments, as surety or guarantor of the debt of another, or
otherwise) other than to Secured Party without Secured Party's prior written
consent, except trade debts incurred in the ordinary course of business.
6.6 VIOLATE OTHER COVENANTS.Violate or fail to comply with any covenants or
agreements regarding other debt which will or would with the passage of time or
upon demand cause the maturity of any other debt to be accelerated.
6.7 ENVIRONMENTAL. Cause or permit the presence, use, disposal, storage, or
release of any Hazardous Materials on or in any property owned by, leased by, or
managed or operated by Debtor or any Subsidiary. Debtor and each Subsidiary
shall not do, nor allow anyone else to do, any act that is in violation of any
Environmental Law.
6.8 DIVIDENDS. Declare any dividends on any shares of any class of its
capital stock, or apply any of its property or assets to the purchase,
redemption or other retirement of any shares of any class of capital stock or in
any way amend its capital structure.
6.9 CHARACTER OF BUSINESS. Change the general character of business as
conducted at the date hereof, or engage in any type of business not reasonably
related to its business as presently and normally conducted.
ARTICLE VII
DEFAULT AND REMEDIES
7.1 EVENTS OF DEFAULT. An Event of Default (herein so called) shall exist
if any one or more of the following events shall occur:
(a) The failure of Debtor to pay any amount of principal under
and/or interest on the New Note, or any other amounts due under the New Note
within fifteen (15) calendar days after such principal, interest or other amount
is due;
(b) Debtors breach of a covenant in this Agreement or any other
failure to perform its obligations under this Agreement or any other Security
Documents;
<PAGE>
(c) Any representation or warranty made in this Agreement or any
other Security Documents shall be false or materially misleading, as determined
in the reasonable discretion of Secured Party;
(d) The occurrence of an Event of Default of any other
Security Documents;
(e) If Debtor or any other party obligated to pay any portion of
the Obligations: (i) becomes insolvent (except for any insolvency, as of the
date hereof, of CES, Cierra or 77), or makes a transfer in fraud of creditors,
or makes an assignment for the benefit of creditors, or admits in writing its
inability to pay its debts as they become due; (ii) generally is not paying its
debts as such debts become due and Secured Party, in good faith, determines that
such event or condition could l to a material impairment of the Collateral, or
any part thereof, or of any other payment security for any of the Obligations;
(iii) has a receiver, trustee or custodian appointed for, or take possession of,
all or substantially all of the assets of such party or any of the Collateral,
either in a proceeding brought by such party or in a proceeding brought against
such party and such appointment is not discharged or such possession is not
terminated within sixty (60) days after the effective date thereof or such party
consents to or acquiesces in such appointment or possession; (iv) files a
petition for relief under the United States Bankruptcy Code or any other present
or future federal or state insolvency, bankruptcy or similar laws (all of the
foregoing hereinafter collectively called Applicable Bankruptcy Law) or an
involuntary petition for relief is filed against such party under any Applicable
Bankruptcy Law and such involuntary petition is not dismissed within sixty (60)
days after the filing thereof, or an order for relief naming such party is
entered under any Applicable Bankruptcy Law, or any composition, rearrangement,
extension, reorganization or other relief of debtors now or hereafter existing
is requested or consented to by such party; (v) fails to have discharged within
a period of sixty (60) days any attachment, sequestration or similar writ levied
upon any property of such party; or (vi) fails to pay within ninety(90) days any
final money judgment against such party; or
(f) The issuer of any securities constituting Collateral files a
petition for relief under any Applicable Bankruptcy Law, an involuntary petition
for relief is filed against any such issuer under any Applicable Bankruptcy Law
and such involuntary petition is not dismissed within thirty (30) days after the
filing thereof, or an order for relief naming any such issuer is entered under
any Applicable Bankruptcy Law.
7.2 SECURED PARTYS REMEDIES. Upon the occurrence of an Event of
Default:
(a) Secured Party may declare the Obligations in whole or part
immediately due and may enforce payment and performance of the same and exercise
any rights under the Texas ucc, rights and remedies of Secured Party under this
Agreement, or otherwise.
(b) Secured Party may, at Secured Party's option and at the
expense of Debtor, either in Secured Party's own right or in the name of Debtor
and in the same manner and to the same extent that Debtor might reasonably so
act if this Agreement had not been made: (i) do all things requisite,
convenient, or necessary to enforce the performance and observance of all
rights, remedies and privileges of Debtor arising from the Collateral, or any
part thereof, including without limitation compromi waiving, excusing, or in any
manner releasing or discharging any obligation of any party to or arising from
the Collateral;
<PAGE>
(ii) take possession of the books, papers, chattel paper, documents of title,
and accounts of Debtor, wherever located, relating to the Collateral; (iii) sue
or otherwise collect and receive money attributable to the Collateral; and (iv)
exercise any other lawfully available powers or remedies, and do all other
things which Secured Party deems requisite, convenient or necessary or which the
Secured Party deems proper to protect the Security Interest.
(b) Secured Party may foreclose this Agreement in the manner now
or hereafter provided or permitted by law and may upon such reasonable
notification prior thereto as may be required by applicable law (Debtor hereby
agreeing that ten days' notice is commercially reasonable), sell, assign,
transfer, or otherwise dispose of the Collateral at public or private sale, in
whole or in part, and Secured Party may, in its own name or as Debtors
attorneyinfact effectively assign and transfer the Collateral, or any part
thereof, absolutely, and execute and deliver all necessary assignments,
conveyances, bills of sale, and other instruments with power to substitute one
or more persons or corporations with like power. Any such foreclosure sale,
assignment, transfer, or other disposition shall, to the extent permitted by
law, be a perpetual bar, both at law and in equity, against Debtor and all
persons and corporations lawfully claiming by or through or under Debtor. Any
such foreclosure sale may be adjourned from time to time. Upon any sale, Secured
Party may bid for and purchase the Collateral, or any part thereof, and upon
compliance with the terms of sale may hold, retain, possess and dispose of the
Collateral, in its absolute right without further accountability. Secured Party
shall have the right to be credited on the amount of its bid a corresponding
amount of the Obligations as of the date of such sale.
(c) If, in the opinion of Secured Party, there is any question
that a public sale or distribution of any Collateral will violate any state or
federal securities law, Secured Party (i) may offer and sell securities
privately to purchasers who will agree to take them for investment purposes and
not with a view to distribution and who will agree to imposition of restrictive
legends on the certificates representing the security, or (ii) may sell such
securities in an intrastate offering und Section 3(a)(11) of the Securities Act
of 1933, and no sale so made in good faith by Secured Party shall be deemed to
be not commercially reasonable because so made.
(d) Not in limitation of any other provision of this Agreement,
Secured Party shall have all rights and remedies of a secured party under the
Texas UCC.
7.3 APPLICATION OF PROCEEDS. Secured Party may apply the proceeds of any
foreclosure sale hereunder or from any other permitted disposition of the
Collateral or any part thereof as follows: (a)first, to the payment of all
reasonable costs and expenses of any foreclosure and collection hereunder and
all proceedings in connection therewith, including reasonable attorneys' fees;
(b)then, to the reimbursement of Secured Party for all disbursements made by
Secured Party for taxes, assessments or liens superior to the Security Interest
and which Secured Party shall deem expedient to pay; (c)then, to the
reimbursement of Secured Party of any other disbursements made by Secured Party
in accordance with the terms hereof; (d) then, to or among the amounts of fees,
interest and principal then owing and unpaid in respect of the Obligations, in
such priority as Secured Party may determine in its discretion; and (e)the
remainder of such proceeds, if any, shall be paid to Debtor. If such proceeds
shall be insufficient to discharge the entire Obligations, Secured Party shall
have any other available legal recourse against Debtor and all other persons
obligated under, or for the performance of, the Security Documents and
Refinancing Agreement, or on the New Note, for the deficiency, together with
interest thereon at fifteen percent (15%) per annum.
<PAGE>
7.4 ENFORCEMENT OF OBLIGATIONS. Nothing in this Agreement or in any
other agreement shall affect or impair the unconditional and absolute right of
the Secured Party to enforce the Obligations as and when the same shall become
due in accordance with the terms of the New Note.
7.5 VOTING RIGHTS. Upon the occurrence of an Event of Default, Debtor
will not exercise any voting rights with respect to securities pledged as
Collateral. Debtor hereby irrevocably appoints Secured Party as Debtors
attorneyinfact (such power of attorney being coupled with an interest) and proxy
to exercise any voting rights with respect to Debtors securities pledged as
Collateral upon the occurrence of an Event of Default.
ARTICLE VIII
RIGHTS OF SECURED PARTY
8.1 SUBROGATION. Upon the occurrence of an Event of Default, Secured
Party, at its election, may subrogate to all of the interest, rights and
remedies of the Debtor, in respect to any of the Collateral or agreements
pertaining thereto.
8.2 SECURED PARTY APPOINTED ATTORNEYINFACT. Debtor hereby appoints
Secured Party as attorneyinfact of Debtor, with full authority in the place and
stead of Debtor and in the name of Debtor, Secured Party or otherwise, from time
to time on Secured Party's discretion and upon the occurrence of an Event of
Default, to take any action and to execute any instrument which Secured Party
may deem necessary or advisable to accomplish the purposes of this Agreement,
including without limitation: (a) to ask, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral; (b) to receive, endorse, and
collect any drafts or other instruments, documents and chattel paper, in
connection with clause (a) of this Section 8.2; (c) to file any claims or take
any action or institute any proceeding which Secured Party may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce
the rights of Secured Party against any of the Collateral; and (d) to assign and
transfer the Collateral, or any part thereof, absolutely and to execute and
deliver endorsements, assignments, conveyances, bills of sale and other
instruments with power to substitute one or more persons or corporation with
like power.
8.3 PERFORMANCE BY SECURED PARTY. If Debtor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause the
performance of, such agreement, and the reasonable expenses of Secured Party
incurred in connection therewith shall be payable by Debtor under Section 8.8.
In no event, however, shall Secured Party have any obligation or duties
whatsoever to perform any covenant or agreement of Debtor contained herein, and
any such performance by Secured Party shall be wholly discretionary with Secured
Party.
<PAGE>
8.4 DUTIES OF SECURED PARTY. The powers conferred upon Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for money actually
received by it hereunder, Secured Party shall have no duty as to any Collateral
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. Without limiting the
generality of the foregoing, Secured Party shall not have any obligation, duty
or responsibility to do any of the following: (a) ascertain any maturities,
calls, conversions, exchanges, offers, tenders or similar matters relating to
the Collateral or informing Debtor with respect to any such matters; (b) fix,
preserve or exercise any right, privilege or option (whether conversion,
redemption or otherwise) with respect to the Collateral unless (i) Debtor makes
written demand to Secured Party to do so, (ii) such written demand is received
by Secured Party in sufficient time to permit Secured Party to take the action
demanded in the ordinary course of its business, and (iii) Debtor provides
additional collateral, acceptable to Secured Party in its sole discretion; (c)
collect any amounts payable in respect of the Collateral (Secured Party being
liable to account to Debtor only for what Secured Party may actually receive or
collect thereon); (d) sell all or any portion of the Collateral to avoid market
loss; (e) sell all or any portion of the Collateral unless and until (i) Debtor
makes written demand upon Secured Party to sell the Collateral, and (ii) Debtor
provides additional collateral, acceptable to Secured Party in its sole
discretion; or (f) hold the Collateral for or on behalf of any party other than
Debtor.
8.5 NO LIABILITY OF SECURED PARTY. Neither the acceptance of this
Agreement by Secured Party, nor the exercise of any rights hereunder by Secured
Party, shall be construed in any way as an assumption by Secured Party of any
obligations, responsibilities, or duties of Debtor arising in connection with
the Collateral assigned hereunder or otherwise bind Secured Party to the
performance of any obligations respecting the Collateral, it being expressly
understood that Secured Party shall not be obligated to perform, observe, or
discharge any obligation, responsibility, duty, or liability of Debtor in
respect of any of the Collateral, including without limitation appearing in or
defending any action, expending any money or incurring any expense in connection
therewith.
8.6 RIGHT OF SECURED PARTY TO DEFEND ACTION AFFECTING SECURITY. Secured
Party may, at the expense of Debtor, appear in and defend any action or
proceeding at law or in equity purporting to affect Secured Party's Security
Interest under this Agreement.
8.7 RIGHT OF SECURED PARTY TO PREVENT OR REMEDY DEFAULT. If Debtor shall
fail to perform any of the covenants, conditions and agreements required to be
performed and observed by Debtor under the New Note, or any other instruments
secured hereby, or in respect of the Collateral (subject to any applicable
default cure period), Secured Party (a) may but shall not be obligated to take
any action Secured Party deems necessary or desirable to prevent or remedy any
such default by Debtor or otherwise to protect the Security Interest, and (b)
shall have the absolute and immediate right to take possession of the Collateral
or any part thereof (to the extent Secured Party has not previously taken
possession) to such extent and as often as the Secured Party, in its sole
discretion, deems necessary or desirable in order to prevent or to cure any such
default by Debtor, or otherwise to protect the security of this Agreement.
Secured Party may advance or expend such sums of money for the account of Debtor
as Secured Party in its sole discretion deems necessary for any such purpose.
<PAGE>
8.8 SECURED PARTY'S EXPENSES. All reasonable advances, costs, expenses,
charges and attorneys' fees which Secured Party may make, pay or incur under any
provision of this Agreement for the protection of its security or for the
enforcement of any of its rights hereunder, or in foreclosure proceedings
commenced and subsequently abandoned, or in any dispute or litigation in which
Secured Party or the holder of any of the Obligations may become involved by
reason of or arising out of the New Note, or the Collateral shall be a part of
the Obligations and shall be paid by Debtor to Secured Party, upon demand, and
shall bear interest until paid at the rate otherwise chargeable on the New Note,
but not to exceed the maximum rate of interest permitted by applicable law, from
the date of such payment until repaid by Debtor.
8.9. CONVERTIBLE COLLATERAL. Secured Party may present for conversion
any Collateral which is convertible into any other instrument or investment
security or a combination thereof with cash, but Secured Party shall not have
any duty to present for conversion any Collateral unless it shall have received
from Debtor detailed written instructions to that effect at a time reasonably
far in advance of the final conversion date to make such conversion possible.
8.10 SECURED PARTY'S RIGHT OF SETOFF. Upon the happening of any event
entitling Secured Party to pursue any remedy provided herein, or if Secured
Party shall be served with garnishment process in which Debtor shall be named as
defendant, whether or not Debtor shall be in default hereunder at the time,
Secured Party may, but shall not be required to, setoff any indebtedness owing
by Secured Party to Debtor against any of the Obligations without first
resorting to the security hereunder and without prejudice to any other rights or
remedies of Secured Party or its Security Interest.
8.11 REMEDIES. No right or remedy herein reserved to Secured Party is
intended to be exclusive of any other right or remedy, but each and every such
remedy shall be cumulative, not in lieu of, but in addition to any other rights
or remedies given under this Agreement and all other security documents. Any and
all of Secured Party's rights and remedies may be exercised from time to time
and as often as such exercise as deemed necessary or desirable by Secured Party.
8.12 DEBTOR'S WAIVERS. Debtor waives notice of the creation, advance,
increase, existence, extension, or renewal of, and of any indulgence with
respect to, the Obligations; waives notice of intent to accelerate, notice of
acceleration, notice of intent to demand, presentment, demand, notice of
dishonor, and protest; waives notice of the amount of the Obligations
outstanding at any time, notice of any change in financial condition of any
person liable for the Obligations or any part thereof, notice of any Event of
Default, and all other notices respecting the Obligations; and agrees that
maturity of the Obligations and any part thereof may be accelerated, extended,
or renewed one or more times by Secured Party in its discretion, without notice
to Debtor.
8.13 OTHER PARTIES AND OTHER COLLATERAL. No renewal or extension of or
any other indulgence with respect to the Obligations or any part thereof, no
release of any security, no release of any person (including any maker,
endorser, guarantor, or surety) liable on the Obligations, no delay in
<PAGE>
enforcement of payment, and no delay or admission or lack of diligence or care
in exercising any right or power with respect to the Obligations or any security
therefor or guaranty thereof or under this Agreement shall in other manner
impair or affect the rights of Secured Party under the law, under this
Agreement, or under any other agreement pertaining to the other security for the
Obligations, before foreclosing upon the Collateral for the purpose of paying
the Obligations. Debtor waives any right to the benefit of or to require or
control application of any other security or proceeds thereof, and Debtor agrees
that Secured Party shall have no duty or obligation to Debtor to apply to the
Obligations any such other security or proceeds thereof.
ARTICLE IX
MISCELLANEOUS
9.1 TERMS COMMERCIALLY REASONABLE. The terms of this Agreement shall be
deemed commercially reasonable within the meaning of the Texas ucc.
9.2 NOTICES. Any notices or demands required or permitted to be given
hereunder shall be deemed sufficiently given if in writing and personally
delivered or mailed (with all postage and charges prepaid), addressed to Secured
Party or to Debtor their respective addresses set forth below, or at such other
address as the above parties may from time to time designate by written notice
to the other given in accordance with this Section 9.2. Any such notice, if
personally delivered or transmitted by telex or telegram, shall be deemed to
have been given on the date so delivered or transmitted or, if mailed, be deemed
to have been given on the day after such notice is placed in the United States
mail in accordance with this Section 9.2.
Secured Party: 1301 Capital of Texas Hwy., Suite C-300
Austin, Travis County, Texas 78746
Attn: Mr. Duane K. Boyd, Jr.
with copy to: Timothy L. LaFrey, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Frost Bank Plaza
816 Congress Avenue
Austin, Texas 78701
Debtor: 6807 West 12th Street
Little Rock, Arkansas 72204
9.3 PARTIES BOUND. Secured Party's rights under this Agreement and the
Security Interest shall inure to the benefits of its successors and assigns, and
in the event of any assignment or transfer of any of the Obligations or the
Collateral, Secured Party thereafter shall be fully discharged from any
responsibility with respect to the Collateral so assigned or transferred, but
Secured Party shall retain all rights and powers hereby given with respect to
any of the Obligations or Collateral not so assigned or transferred. All
representations, warranties, and agreements of Debtor if more than one are joint
and several, and all shall be binding upon the personal representatives, heirs,
successors, and assigns of Debtor.
<PAGE>
9.4 WAIVER. No delay of Secured Party in exercising any power or right
shall operate as a waiver thereof; nor shall any single or partial exercise of
any power or right preclude other or further exercise thereof or the exercise of
any other power or right. No waiver by Secured Party of any right hereunder of
any default by Debtor shall be binding upon Secured Party unless in writing, and
no failure by Secured Party to exercise any power or right hereunder or waiver
of any default by Debtor shall operate as a waiver of any other or further
exercise of such right or power of any further default.
9.5 AGREEMENT CONTINUING. This Agreement shall constitute a
continuing agreement, applying to all future as well as existing transactions,
whether or not of the character contemplated at the date of this Agreement, and
if all transactions between Secured Party and Debtor shall be closed at any
time, shall be equally applicable to any new transactions thereafter. Provisions
of this Agreement, unless by their terms exclusive, shall be in addition to
other agreements between the parties.
9.6 DEFINITIONS. Unless the context indicated otherwise, definitions in
the Texas Business and Commerce Code (Texas ucc) apply to words and phrases in
this Agreement; if Texas ucc definitions conflict, Chapter 9 definitions apply.
9.7 MISCELLANEOUS. In this Agreement, whenever the context so requires,
the neuter gender includes the masculine and feminine, and the singular number
includes the plural and vice versa. The headings of paragraphs herein are
inserted only for convenience and shall in no way define, describe or limit the
scope of intent of any provisions of this Agreement. No change, amendment,
modification, cancellation, or discharge of any provision of this Agreement
shall be valid unless consented to in writing by Secured Party.
9.8 ASSIGNMENT OF SECURED PARTY'S INTEREST. Secured Party shall have the
right to assign all or any portion of its rights in this Agreement without
approval or consent. Debtor may not assign this Agreement or any of its rights
or obligations hereunder without the express prior written consent of Secured
Party in each instance.
9.9 APPLICABLE LAWS. This Agreement Shall Be Governed By And
Construed In Accordance With The Laws Of The State Of Texas And The Applicable
Laws Of The United States Of America.
<PAGE>
9.10 ENTIRE AGREEMENT. This Agreement, the Security documents and the
New Note Represent The Final Agreement Between The Parties And May Not Be
Contradicted By Evidence Of Prior, Contemporaneous, Or Subsequent Oral
Agreements Of The Parties. There Are No Unwritten Oral Agreements Between The
Parties.
Executed this 6th day of November, 1997.
Debtor: Consolidated Eco-Systems, Inc.
By: /s/ James J. Connors, Jr.
Name: James J. Connors, Jr.
Title: President/CEO
Secured Party: American Physicians Service Group, Inc.
By: /s/ Duane Boyd
Name: Duane Boyd
Title: Senior VP
<PAGE>
SCHEDULE I
TO ASSIGNMENT AND SECURITY AGREEMENT
Environmental Laws means all Laws that relate to health, safety or
environmental protection, including without limitation the (i) Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous and
Solid Waste Amendments of 1984; (ii) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986; (iii) the Toxic Substances Control Act; (iv)
the Americans with Disabilities Act of 1990, and (iv) the Clean Air Act; all as
amended from time to time and including all regulations promulgated pursuant to
any one or more of them.
erisa means the Employment Retirement Income Security Act of 1974, as
amended, together with all rules and regulations issued pursuant thereto and all
rulings or interpretations adopted by any Governmental Entity thereunder.
Governmental Entity means any government (or any political subdivision
or jurisdiction thereof), court, bureau, agency, or other governmental authority
having jurisdiction over Debtor, any Subsidiary, or any of its or their
respective businesses, operations, assets, or properties.
Hazardous Material means those substances defined as toxic or hazardous
substances by or under any Environmental Laws.
Laws shall mean all applicable laws, ordinances, statutes, orders,
regulations, judgments, writs, or decrees of any Governmental Entity.
<PAGE>
Schedule II
1. Certificate No. 1, dated January 24, 1997, for 1,000 shares of Eco
Acquisition, Inc. $0.001 par value common stock, issued to Consolidated
Eco-Systems, Inc.
2. Certificate No. 1, dated January 24, 1997, for 1,000 shares of Larco
Environmental Services, Inc. common stock, issued to Consolidated Eco-Systems,
Inc.
<PAGE>
Exh. 10-34
SECURITY AGREEMENT
This Security Agreement (this Agreement) is entered into this 6th day of
November,1997, by and between Larco Environmental Services, Inc., a Louisiana
corporation (the Debtor), whose address is 2208 Industrial Boulevard, Sulphur,
Louisiana 70663, and American Physicians Service Group, Inc., a Texas
corporation (the Secured Party), whose address is 1301 Capital of Texas Highway,
Suite C-300, Austin, Texas 78746.
RECITALS:
A. Consolidated Eco-Systems, Inc., an Idaho corporation formerly known as
Exsorbet Industries, Inc. (Consolidated) executed and delivered that certain
Promissory Note dated November 26, 1996 (the Original Note) in the original
principal amount of Three Million Three Hundred Thousand Dollars ($3,300,000)
payable to the order of Secured Party.
B. The Original Note was secured pursuant to the following agreements, all for
the benefit of Secured Party: (i) that certain Security Agreement dated December
12, 1996, entered into by7-7, Inc., an Arkansas corporation (7-7), formerly
known as 7-7 Merger, Inc.; (ii) that certain Security Agreement dated September
30, 1996, entered into by 77; (iii) that certain Assignment and Security
Agreement dated September 30, 1996, entered into by Consolidated; and (iv) those
certain Guaranty Agreements dated September 30, 1996, entered into by each of
the following entities:
a. Consolidated Environmental Services, Inc., an Arkansas
corporation (CES);
b. Cierra, Inc., an Arkansas corporation (Cierra);
c. Debtor;
d. KR Industrial Services of Alabama, Inc., an Alabama corporation
(KR Industrial);
e. Exsorbet Technical Services, Inc., an Arkansas corporation
(Exsorbet Technical) doing business as SpilTech Services,
Inc.;
f. Eco Acquisition, Inc., an Arkansas corporation (Acquisition),
also known as Eco-Systems, Inc.; and
g. 7-7
(all of the agreements described in (i) through (iv) above are collectively
referred to herein as the Original Security Documents).
<PAGE>
C. Consolidated has executed and delivered a new note of even date herewith,
payable to the order of Secured Party, in the original principal amount of
$3,788,580 (the New Note), in renewal and extension of the Original Note, which
New Note is also secured pursuant to (i) the Original Security Documents, and
(ii) that certain Assignment and Security Agreement of even date herewith
entered into for the benefit of Secured Party by Consolidated (the Consolidated
Security Agreement).
D. Debtor has received, and will continue to receive, valuable consideration as
a result of the transactions evidenced by, or related to, the Original Note, the
New Note, and the Security Documents (as hereinafter defined). Accordingly,
Secured Party has requested that Debtor pledge the Collateral (as defined below)
to secure certain obligations and liabilities, including without limitation (i)
Consolidateds obligations to Secured Party under the New Note, (ii) Debtors,
Consolidateds and all of Consolidateds subsidiaries, obligations under, and
performance of the covenants set forth in, the Original Security Documents,
(iii) Consolidateds obligations under, and performance of the covenants set
forth in, the Consolidated Security Agreement, (iv) Consolidateds, Debtors and
all of Consolidateds subsidiaries, obligations under, and performance of the
covenants set forth in, that certain Master Refinancing Agreement of even date
herewith entered into for the benefit of Secured Party by Debtor, Consolidated
and all of Consolidateds subsidiaries (the Refinancing Agreement), and (v)
Debtors performance of the covenants more fully set forth herein. The Original
Security Documents, the Refinancing Agreement, the Consolidated Security
Agreement, and this Agreement are collectively referred to herein as the
Security Documents.
AGREEMENTS:
Now, Therefore, in consideration of the foregoing and the covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which Debtor acknowledges, Debtor and Secured Party
agree as follows:
ARTICLE I
AGREEMENT; INDEBTEDNESS
1.1 SECURITY INTEREST. Subject to the applicable terms of this Agreement, for
good and valuable consideration, the receipt and sufficiency of which Debtor
acknowledges, Debtor assigns and transfers to Secured Party, and grants to
Secured Party a continuing security interest in and lien upon, the Collateral
(as defined in Article II below) to secure the payment and the performance of
the Indebtedness (the Security Interest).
1.2 INDEBTEDNESS. The following indebtedness and obligations (the Indebtedness)
are secured by this Agreement:
<PAGE>
(a) All debt, obligations, liabilities, and agreements of Debtor and/or
Consolidated to Secured Party, now or hereafter existing, arising directly
between Debtor and Secured Party and/or Consolidated and Secured Party or
acquired outright, conditionally, or as collateral security from another by
Secured Party, absolute or contingent, joint or several, secured or unsecured,
due or not due, contractual or tortious, liquidated or unliquidated, arising by
operation of law or otherwise, including, without limitation, all obligations
and amounts due under the New Note, the Security Documents, and all renewals,
extensions, modifications, or rearrangements of any of the foregoing.
(b) Secured Partys participation in any debt of Debtor to another person.
(c) All costs incurred by Secured Party to obtain, preserve, perfect, and
enforce this Agreement and the Security Interest, to collect the Indebtedness,
and to maintain, preserve, collect, and enforce the Collateral, including but
not limited to taxes, assessments, insurance premiums, repairs, reasonable
attorneys fees and legal expenses, feed, rent, storage costs, and expenses of
sale.
(d) Interest on the above amounts as agreed between Secured Party and Debtor, or
if there is no agreement, at the highest lawful rate.
ARTICLE II
COLLATERAL
2.1 DESCRIPTION OF COLLATERAL. The Security Interest is granted in the following
(the Collateral):
(a) All of Debtors assets, including without limitation all accounts, chattel
paper, contract rights, equipment, inventory, fixtures, general intangibles, and
investment property, as more particularly described in Exhibit-A attached to and
incorporated herein by reference.
(b) All substitutes and replacements for, accessions, attachments and other
additions to, tools, parts and equipment used in connection with, and proceeds
and products of, the above Collateral (including all income and benefits
resulting from any of the above), all certificates of title, manufacturers
statements of origin, other documents, accounts, and chattel paper arising from
or related to the above Collateral, and returned or repossessed Collateral, any
of which, if received by Debtor, shall be delivered immediately to Secured
Party.
(c) All policies of insurance covering the Collateral and proceeds thereof.
<PAGE>
(d) All security for the payment of any of the Collateral, and all goods which
gave or will give rise to any of the Collateral or are evidenced, identified, or
represented therein or thereby.
(e) All property similar to the above hereafter acquired by Debtor.
(f) All proceeds of the items described in subsections (a) through (e) of this
Section 2.1.
ARTICLE III
DEBTORS WARRANTIES
Debtor represents and warrants to Secured Party as follows:
3.1 FINANCING STATEMENTS. No statement covering the Collateral is or will be on
file in any public office, except the financing statements relating to this
Security Interest and those relating to the Prior Liens (as hereinafter
defined). In the past five (5) years, Debtor has not used or done business under
any name other than its legal name which is set forth on the first page of this
Agreement.
3.2 OWNERSHIP. Debtor owns, or will use the proceeds of any loans by Secured
Party to become the owner of, the Collateral free from any setoff, claim,
restriction, lien, security interest, or encumbrance except liens for taxes not
yet due, the Security Interest, and the Prior Liens.
3.3 FIXTURES AND ACCESSIONS. Except for Collateral of nominal value, none of the
Collateral is affixed to real estate or is an accession to any goods, or will
become a fixture or accession, except as expressly set out herein.
3.4 CLAIMS OF DEBTORS ON COLLATERAL. No account debtors and other obligors whose
debts or obligations are part of the Collateral have any right to setoffs,
counterclaims, or adjustments, or any defenses in connection therewith.
3.5 LIENS. Neither Debtor nor any person acting on Debtors behalf has,
or shall have any right, power, or authority to and shall not create, incur, or
permit to be placed or imposed upon the Collateral, any lien of any type or
nature whatsoever superior to the liens in favor of Secured Party provided
herein, except only the liens in favor of Dimmitt & Owens Financial, Inc. (the
Prior Liens). As to the Prior Liens, neither Debtor nor any person acting on
Debtors behalf shall have any right, power, or authority to and shall not
increase the amount of indebtedness secured by the Prior Liens or the
Collateral. No item of Collateral is subject to more than one(1) of the Prior
Liens.
<PAGE>
3.6 ACCURACY OF FINANCIAL STATEMENTS. All balance sheets, earnings statements,
and other financial data which have been or hereafter may be furnished to
Secured Party to induce it to permit the Indebtedness or to make this Agreement
or in conjunction herewith truly represent or shall truly represent the
financial condition and operations of Debtor as of the dates and for the periods
shown thereon; and all other information, reports, papers, and data furnished to
Secured Party are or shall be, at the time furnished, accurate and correct in
all respects and complete insofar as necessary to give Secured Party a true and
accurate knowledge of the subject matter.
3.7 POWER AND AUTHORITY. Debtor has full power and authority to make this
Agreement.
3.8 PRINCIPAL PLACE OF BUSINESS. Debtors chief executive office is at Debtors
address stated above in Sulphur, Calcasieu Parish, Louisiana, and such address
is also where Debtor keeps its books and records.
3.9 LOCATION OF COLLATERAL. All of Debtors Inventory and Equipment is located at
Debtors principal place of business located at 2208 Industrial Boulevard,
Sulphur, Louisiana. Debtor has exclusive possession and control of its Inventory
and Equipment.
3.10 PERFECTION. Upon the filing of the UCC financing statements with the Office
of the Louisiana Secretary of State and the Office of the Arkansas Secretary of
State, the Security Interest will constitute a valid and perfected lien upon and
security interest in the Collateral superior to all other liens, claims or
encumbrances except only the Prior Liens.
3.11 SOLVENCY. As of the date hereof, and after giving effect to this Agreement
and the completion of all other transactions contemplated by Debtor at the time
of the execution of this Agreement, (i) Debtor is and will be solvent, (ii) the
fair saleable value of Debtor's assets exceeds and will continue to exceed
Debtor's liabilities (both fixed and contingent), (iii) Debtor is paying and
will continue to be able to pay its debts as they mature or within
forty-five(45) days thereafter, and (iv) if Debtor is not an individual, Debtor
has and will have sufficient capital to carry on Debtor's businesses and all
businesses in which Debtor is about to engage.
<PAGE>
ARTICLE IV
DEBTORS COVENANTS
Debtor covenants and agrees that:
4.1 INDEBTEDNESS AND THIS AGREEMENT. Debtor shall pay, or cause the payment of,
the Indebtedness in accordance with its terms and shall promptly perform all of
his (or its) agreements herein and in any other agreements between him (or it)
and Secured Party.
4.2 OWNERSHIP OF COLLATERAL. At the time Debtor grants to Secured Party a
security interest in any Collateral, Debtor shall be the absolute owner thereof
(subject only to the Prior Liens) and shall have the right to grant such
security interest. Debtor shall defend the Collateral against all claims and
demands of all persons at any time claiming any interest therein adverse to
Secured Party. Debtor shall keep the Collateral free from all liens and security
interests except those for taxes not yet due, the Security Interest, and the
Prior Liens.
4.3 INSURANCE. Debtor shall insure the Collateral with companies acceptable to
Secured Party against such casualties and in such amounts as Secured Party shall
require. All insurance policies shall be written for the benefit of Debtor and
Secured Party as their interests may appear, or in other form satisfactory to
Secured Party, and such policies or certificates evidencing the same shall be
furnished to Secured Party. All policies of insurance shall provide for written
notice to Secured Party simultaneously with any notice of cancellation or other
termination being given to Debtor, and in any event at least 10 days prior to
cancellation or other termination. Risk of loss or damage is Debtors to the
extent of any deficiency in any effective insurance coverage. Secured Party is
appointed Debtors attorney-in-fact to collect any return or unearned premiums or
the proceeds of such insurance and to endorse any draft or check payable to
Debtor therefor.
4.4 MAINTENANCE. Debtor shall keep and maintain the Collateral in good
condition, reasonable wear and tear excepted.
4.5 SECURED PARTYS COSTS. Debtor shall pay all costs necessary to obtain,
preserve, perfect, defend, and enforce this Security Interest, collect the
Indebtedness, and preserve, defend, enforce, and collect the Collateral,
including but not limited to taxes, assessments, insurance premiums, repairs,
reasonable attorneys fees and legal expenses, feed, rent, storage costs, and
expenses of sales. Whether Collateral is or is not in Secured Partys possession,
and without any obligation to do so and without waiving Debtors default for
failure to make any such payment, Secured Party at its option may pay any such
costs and expenses, discharge encumbrances on the Collateral, and pay for
insurance of Collateral, and such payment shall be a part of the Indebtedness.
Debtor agrees to reimburse Secured Party on demand for any costs so incurred.
<PAGE>
4.6 INFORMATION AND INSPECTION. Debtor shall (i) furnish Secured Party any
financial statements of Debtor or reports to Debtor by accountants or others
pertaining to Debtors business as soon as available, and any information with
respect to the Collateral requested by Secured Party; (ii) allow Secured Party
to inspect the Collateral, at any time and wherever located, and to inspect and
copy, or furnish Secured Party with copies of, all records relating to the
Collateral and the Indebtedness; (iii) furnish Secured Party such information as
Secured Party may request to identify inventory, accounts, and general
intangibles in Collateral, at the time and in the form requested by Secured
Party; and (iv) deliver upon request to Secured Party shipping and delivery
receipts evidencing the shipment of goods and invoices evidencing the receipt
of, and the payment for, inventory in Collateral.
4.7 ADDITIONAL DOCUMENTS. Debtor shall sign any papers furnished by Secured
Party which are necessary in the judgment of Secured Party to obtain, maintain,
and perfect the Security Interest and to enable Secured Party to comply with the
Federal Assignment of Claims Act or any other federal or state law in order to
obtain or perfect Secured Partys interest in collateral or to obtain proceeds of
collateral.
4.8 PARTIES LIABLE ON COLLATERAL. Debtor will preserve the liability of all
obligors on any Collateral and will preserve the priority of all security
therefor. Secured Party shall have no duty to preserve such liability or
security, but may do so at the expense of Debtor, without waiving Debtors
default.
4.9 MODIFICATION OF COLLATERAL. Without the written consent of Secured Party,
which consent shall not be unreasonably withheld, Debtor shall not agree to any
modification of any of the terms of any accounts, contracts, chattel paper,
general intangibles, or instruments constituting part of the Collateral.
4.10 RIGHT OF SECURED PARTY TO NOTIFY DEBTORS. At any time, whether
Debtor is or is not in default under this Agreement, Secured Party may notify
persons obligated on any Collateral to make payments directly to Secured Party
and Secured Party may take control of all proceeds of any Collateral. Until
Secured Party elects to exercise such rights, Debtor, as agent of Secured Party,
shall collect and enforce all payments owed on Collateral.
4.11 DELIVERY OF RECEIPTS OF SECURED PARTY; REJECTED GOODS. Upon
Secured Party's demand, Debtor shall deposit, upon receipt and in the form
received, with any necessary endorsement, all payments received as proceeds of
Collateral, in a special bank account in a bank of Secured Party's choice over
which Secured Party alone shall have power of withdrawal. The funds in said
account shall secure the Indebtedness. Secured Party is authorized to make any
endorsement in Debtor's name and behalf. Pending such deposit, Debtor shall not
mingle any such payments with any of Debtor's other funds or property, but will
hold them separate and upon an express trust for Secured Party. Secured Party
may from time to time apply the whole or any part of the funds in the special
account against the Indebtedness. Unless Secured Party notifies Debtor in
writing that it dispenses with any one or more of the following requirements,
Debtor shall:
<PAGE>
(a) inform Secured Party immediately of the rejection of
goods, delay in delivery or performance, or claim made, in regard to
any Collateral;
(b) keep returned goods segregated from Debtor's other
property, and hold the goods as trustee for Secured Party until it has
paid Secured Party the amount loaned against the related account or
chattel paper and deliver the goods on demand to Secured Party; and
(c) pay Secured Party the unpaid amount of any account in
Collateral (i) if the account is not paid when due; (ii) if purchaser
rejects the goods or services covered by the account; or (iii) if
Secured Party shall at any time reject the account as unsatisfactory.
Secured Party may retain the account in Collateral. Secured Party may
charge any deposit amount of Debtor with any such amounts.
4.12 RECORDS OF COLLATERAL. Debtor at all times will maintain accurate
books and records covering the Collateral. Debtor immediately will mark all
books and records with an entry showing the absolute assignment of all accounts
in Collateral to Secured Party and Secured Party is hereby given the right to
audit the books and records of Debtor relating to Collateral at any time and
from time to time. The amounts shown as owed to Debtor on Debtor's books and on
any assignment schedule will be the undisputed amounts owing and unpaid. Debtor
shall disclose to Secured Party all agreements modifying any account,
instrument, or chattel pater.
4.13 DISPOSITION OF COLLATERAL. Debtor will not sell, transfer,
mortgage, or otherwise encumber any Collateral or impair the value thereof in
any manner without Secured Party's prior written consent, which Debtor is under
no obligation whatsoever to give, including without limitation by purchase,
lease, barter, trade, payment deferral, or the creation, assumption or guarantee
of indebtedness or other lending of credit; provided, however, the foregoing
shall not be applicable to Debtor with respect to (i) inventory sold, leased,
manufactured, processed, or consumed in the ordinary course of business, and
(ii) unsecured open account trade debts to unrelated parties incurred by Debtor
in the ordinary course of business, not to exceed, cumulatively, $50,000 over
the aggregate amount of such debts as of October 15, 1997. Secured Party's
written consent to any sale, mortgage, transfer, or encumbrance shall not be
construed to be a waiver of this provision in respect to any subsequent proposed
sale, mortgage, transfer, or encumbrance. If disposition of any Collateral gives
rise to an account, chattel paper, or instrument, Debtor immediately shall
notify Secured Party, and upon request of Secured Party shall assign or endorse
the same to Secured Party.
<PAGE>
4.14 ACCOUNTS RECEIVABLE. Each account receivable constituting
Collateral will represent the valid and legally enforceable obligation of third
parties and shall not be evidenced by any instrument or chattel paper. In the
event any account shall give rise to any instrument or chattel paper, Debtor
shall immediately endorse the same to Secured Party and deliver all original
such instruments and chattel paper to Secured Party.
4.15 LOCATION OF ACCOUNTS AND INVENTORY. Debtor shall give Secured
Party written notice of each office of Debtor in which records of Debtor
pertaining to accounts in Collateral are kept, and each location at which
inventory in Collateral is or will be kept, and of any change of any such
location. If no such notice is given, all records of Debtor pertaining to
accounts and all inventory are and shall be kept at Debtor's address shown
above.
4.16 NOTICE OF CHANGES. Debtor will notify Secured Party immediately of
any material change in the Collateral, of a change in Debtor's residence or
location, of a change in any matter warranted or represented by Debtor in this
Agreement or furnished to Secured Party, and of any Event of Default.
4.17 USE AND REMOVAL OF COLLATERAL. Debtor will not use the Collateral
illegally nor, except for Collateral of nominal value, permit the Collateral to
be affixed to real or personal property without the prior written consent of
Secured Party. Debtor will not permit any of the Collateral to be removed from
the locations specified herein without the written consent of Secured Party,
except for equipment used in Texas, Louisiana or Alabama in the ordinary course
of Debtor's business as previously conducted.
4.18 POSSESSION OF COLLATERAL. If the Collateral is chattel paper,
documents, instruments, or investment securities or other instruments, Secured
Party may deliver a copy of this Agreement to the broker or seller thereof, or
any person in possession thereof, and such delivery shall constitute notice to
such person of Secured Party's security interest therein and shall constitute
Debtor's instruction to such person to deliver to Secured Party certificates or
other evidence of the same as soon as available. Debtor will deliver all
investment securities, other instruments, documents, and chattel paper which are
part of the Collateral and in Debtor's possession to the Secured Party
immediately, or if hereafter acquired, immediately following acquisition,
appropriately endorsed to Secured Party's order, or with appropriate, executed
powers. Debtor waives presentment, demand, notice of dishonor, protest, and all
other notices with respect thereto.
4.19 CHATTEL PAPER. Debtor has perfected or will perfect a security
interest by means satisfactory to Secured Party in goods covered by chattel
paper in Collateral.
4.20 CONSUMER CREDIT. If any Collateral or proceeds includes
obligations of third parties to Debtor, the transactions giving rise to the
Collateral shall conform in all respects to the applicable state or federal
consumer credit law. DEBTOR SHALL HOLD HARMLESS AND INDEMNIFY SECURED PARTY
AGAINST ANY COST, LOSS, OR EXPENSE INCLUDING ATTORNEY'S FEES, ARISING FROM
DEBTOR'S BREACH OF THIS COVENANT.
<PAGE>
4.21 CHANGE OF NAME. Debtor shall not change its name (or any assumed
name or other name under which Debtor does business) or its corporate structure
without Secured Party's prior written consent, which shall not be unreasonably
withheld. Debtor will not change its principal place of business, chief
executive office, or the place where it keeps its books and records unless
Debtor (i) shall have given Secured Party thirty (30) days prior written notice
thereof, and (ii) shall have taken all action deemed necessary or desirable by
Secured Party to cause the Security Interest to be and remain perfected with the
priority required by this Agreement. Debtor shall execute all such documents and
agreements (including without limitation security agreements, financing
statements, and amendments to financing statements) as Secured Party may
reasonably request in connection with any such name change.
4.22 NOTATION ON TITLE CERTIFICATES. If certificates of title are
issued or outstanding with respect to any of the Collateral, Debtor will cause
the Security Interest to be properly noted therein.
4.23 POWER OF ATTORNEY. Debtor appoints Secured Party as Debtor's
attorney-in-fact with full power in Debtor's name and behalf to do every act
which Debtor is obligated to do or may be required to do hereunder; however,
nothing in this section shall be construed to obligate Secured Party to take any
action hereunder.
4.24 DEBTOR'S WAIVERS. Debtor waives notice of the creation, advance,
increase, existence, extension, or renewal of, and of any indulgence with
respect to, the Indebtedness; waives notice of intent to accelerate, notice of
acceleration, notice of intent to demand, presentment, demand, notice of
dishonor, and protest; waives notice of the amount of the Indebtedness
outstanding at any time, notice of any change in financial condition of any
person liable for the Indebtedness or any part thereof, notice of any Event of
Default, and all other notices respecting the Indebtedness; and agrees that
maturity of the Indebtedness and any part thereof may be accelerated, extended,
or renewed one or more times by Secured Party in its discretion, without notice
to Debtor.
4.25 OTHER PARTIES AND OTHER COLLATERAL. No renewal or extension of or
any other indulgence with respect to the Indebtedness or any part thereof, no
release of any security, no release of any person (including any maker,
endorser, guarantor, or surety) liable on the Indebtedness, no delay in
enforcement of payment, and no delay or admission or lack of diligence or care
in exercising any right or power with respect to the Indebtedness or any
security therefor or guaranty thereof or under this Agreement shall in other
manner impair or affect the rights of Secured Party under the law, under this
Agreement, or under any other agreement pertaining to the other security for the
Indebtedness, before foreclosing upon the Collateral for the purpose of paying
the Indebtedness. Debtor waives any right to the benefit of or to require or
control application of any other security or proceeds thereof, and Debtor agrees
that Secured Party shall have no duty or obligation to Debtor to apply to the
Indebtedness any such other security or proceeds thereof.
<PAGE>
ARTICLE V
RIGHTS AND POWERS OF SECURED PARTY
Secured Party, after default, without liability to Debtor, may: obtain
from any person information regarding Debtor or Debtor's business, which
information any such person also may furnish without liability to Debtor;
require Debtor to give possession or control of any Collateral to Secured Party;
endorse as Debtor's agent any instruments, documents, or chattel paper in
Collateral or representing proceeds of Collateral; contact account debtors
directly to verify information furnished by Debtor; take control of proceeds;
release Collateral in its possession to any Debtor temporarily or otherwise;
require additional collateral; reject as unsatisfactory any property hereafter
offered by Debtor as Collateral; set standards from time to time to govern what
may be used as after-acquired collateral; designate, from time to time, a
certain percent of the Collateral as the loan value and require Debtor to
maintain the Indebtedness at or below such figure; take control of funds
generated by the Collateral, such as cash dividends, interest, and proceeds or
refunds from insurance, and use same to reduce any part of the Indebtedness and
exercise all other rights which an owner of such Collateral may exercise, except
the right to vote or dispose of Collateral before an Event of Default; at any
time transfer any of the Collateral or evidence thereof into its own name of
that of its nominee; and demand, collect, convert, redeem, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize upon Collateral, in its own
name or in the name of Debtor, as Secured Party may determine in its sole and
absolute discretion. Secured Party shall not be liable for failure to collect
any account or instrument, or for any act or omission on the part of the Secured
Party, its officers, agents, or employees, except willful misconduct. The
foregoing rights and powers of Secured Party will be in addition to, and not a
limitation upon, any rights and powers of Secured Party given by law, elsewhere
in this Agreement, or otherwise. If Debtor fails to maintain any required
insurance, to the extent permitted by applicable law Secured Party may (but is
not obligated to) purchase single interest insurance coverage for the Collateral
which insurance may at Secured Party's option (i) protect only Secured Party and
not provide any remuneration or protection for Debtor directly and (ii) provide
coverage only after the Indebtedness has been declared due as herein provided.
The premiums for any such insurance purchased by Secured Party shall be a part
of the Indebtedness and shall bear interest as provided in Section 1.2(d) above.
ARTICLE VI
DEFAULT
6.1 Events of Default. The following are events of default under this
Agreement ("Events of Default"):
<PAGE>
(a) default, which exists for longer than fifteen (15)
calendar days, in the timely payment of any part of the New Note or
other Indebtedness or in performance or observance of the terms and
conditions herein, in any of the other Security Documents, or in any
other agreement between Debtor and Secured Party;
(b) any warranty, representation, or statement made or
furnished to Secured Party by Debtor, Consolidated, or any of
Consolidated's subsidiaries proves to have been false in any material
respect when made or furnished;
(c) acceleration of the maturity of debt of Debtor,
Consolidated, or any of Consolidated's subsidiaries to any other
person;
(d) substantial change in any fact warranted or represented in
this Agreement or in any other agreement between Debtor and Secured
Party or in any statement, schedule, or other writing furnished in
connection therewith;
(e) sale, loss, theft, destruction, encumbrance, or transfer
of any Collateral in violation hereof, or substantial damage to any
Collateral;
(f) belief by Secured Party that the prospect of payment of
the Indebtedness or performance of this Agreement is impaired;
(g) death, incapacity, dissolution, merger, or consolidation,
termination of existence, insolvency or business failure of Debtor or
any person liable on the Indebtedness; commencement of proceedings for
the appointment of a receiver for any property of Debtor; commencement
of any proceeding under any bankruptcy or insolvency law by or against
Debtor (or any corporate action shall be taken to effect same), or any
partnership of which Debtor is a partner, or by or against any person
liable upon the Indebtedness or any part thereof, or liable upon
Collateral;
(h) levy on, seizure, or attachment of any property
of Debtor, Consolidated, or any of Consolidated's subsidiaries;
(i) a judgment against Debtor in excess of $1,000 becomes
final and remains unsatisfied and unappealed for thirty (30) calendar
days; or
(j) any liability or agreement of third parties to Debtor or
on the Collateral shall not be paid or performed in accordance with the
terms thereof.
6.2 REMEDIES OF SECURED PARTY UPON DEFAULT. When an Event of Default
occurs, and at any time thereafter, Secured Party without notice or demand may
declare the Indebtedness in whole or part immediately due and may enforce
payment of the same and exercise any rights under the Texas UCC, rights and
remedies of Secured Party under this Agreement, or otherwise. Secured Party may
<PAGE>
require Debtor to assemble the Collateral and make it available to Secured Party
at a place which is reasonably convenient to both parties. Unless the Collateral
is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Secured Party will give Debtor
reasonable notice of the time and place of any public sale thereof or of the
time after which any private sale or other intended disposition thereof is to be
made. Expenses of retaking, holding, preparing for sale, selling, leasing, or
the like shall include Secured Party's reasonable attorney's fees and legal
expenses. Secured Party shall be entitled to immediate possession of all books
and records evidencing any accounts or general intangibles or pertaining to
chattel paper covered by this Agreement and shall have the authority to enter
upon any premises upon which any of the same, or any Collateral, may be situated
and remove the same therefrom without liability. Secured Party may surrender any
insurance policies in Collateral and receive the unearned premium thereon.
Debtor shall be entitled to any surplus after payment of the Indebtedness and
shall be liable to Secured Party for any deficiency. The process of any
disposition after default available to satisfy the Indebtedness shall be applied
to the Indebtedness in such order and in such manner as Secured Party in its
discretion shall decide. If, in the opinion of Secured Party, there is any
question that a public sale or distribution of any Collateral will violate any
state or federal securities law, Secured Party (i) may offer and sell securities
privately to purchasers who will agree to take them for investment purposes and
not with a view to distribution and who will agree to imposition of restrictive
legends on the certificates representing the security, or (ii) may sell such
securities in an intrastate offering under Section 3(a)(11) of the Securities
Act of 1933, and no sale so made in good faith by Secured Party shall be deemed
to be not "commercially reasonable" because so made.
ARTICLE VII
GENERAL
7.1 PARTIES BOUND. Secured Party's rights under this Agreement and the
Security Interest shall inure to the benefits of its successors and assigns, and
in the event of any assignment or transfer of any of the Indebtedness or the
Collateral, Secured Party thereafter shall be fully discharged from any
responsibility with respect to the Collateral so assigned or transferred, but
Secured Party shall retain all rights and powers hereby given with respect to
any of the Indebtedness or Collateral not so assigned or transferred. All
representations, warranties, and agreements of Debtor if more than one are joint
and several, and all shall be binding upon the personal representatives, heirs,
successors, and assigns of Debtor. Debtor may not assign this Agreement or any
of its rights or obligations hereunder without the express prior written consent
of Secured Party in each instance.
7.2 WAIVER. No delay of Secured Party in exercising any power or right
shall operate as a waiver thereof; nor shall any single or partial exercise of
any power or right preclude other or further exercise thereof or the exercise of
any other power or right. No waiver by Secured Party of any right hereunder of
any default by Debtor shall be binding upon Secured Party unless in writing, and
no failure by Secured Party to exercise any power or right hereunder or waiver
of any default by Debtor shall operate as a waiver of any other or further
exercise of such right or power of any further default.
<PAGE>
7.3 AGREEMENT CONTINUING. This Agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this Agreement, and if all
transactions between Secured Party and Debtor shall be closed at any time, shall
be equally applicable to any new transactions thereafter. Provisions of this
Agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties.
7.4 DEFINITIONS. Unless the context indicates otherwise, definitions in
the Texas UCC apply to words and phrases in this Agreement; if Texas UCC
definitions conflict, Chapter 9 definitions apply.
7.5 NOTICE. Notice shall be deemed reasonable if mailed postage prepaid
at least 5 days before the related action (or if the Texas UCC elsewhere
specifies a longer period, such longer period) to Debtor's address shown above.
7.6 INTEREST. No agreement relating to the Indebtedness shall be
construed to be a contract for or to authorize charging or receiving, or require
the payment or permit the collection of, interest at a rate or in an amount
above that authorized by law. Interest payable under any agreement above that
authorized by law shall be reduced automatically to the highest amount permitted
by law.
7.7 MODIFICATIONS. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provisions
so modified or limited and signed by Debtor and Secured Party, nor by course of
conduct, usage of trade, or by the law merchant.
7.8 SEVERABILITY. The unenforceability of any provision of this
Agreement shall not affect the enforceability or validity of any other
provision.
7.9 GENDER AND NUMBER. Where appropriate, the use of one gender shall
be construed to include the others or any of them; and the singular number shall
be construed to include the plural, and vice versa.
7.10 APPLICABLE LAW AND VENUE. THIS AGREEMENT SHALL BE CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF
AMERICA APPLICABLE TO TRANSACTIONS IN THE STATE OF TEXAS. Except at otherwise
stated, this Agreement and the Security Interest shall be construed in
accordance with the Uniform Commercial Code as in effect in the State of Texas
("Texas UCC"). This Agreement is performable by Debtor in the county of Secured
Party's address set out above.
<PAGE>
7.11 FINANCING STATEMENT. A carbon, photographic, or other reproduction
of this security agreement or any financing statement covering the Collateral
shall be sufficient as a financing statement.
7.12 LIMITATIONS OF LAW. If any law prohibits or limits any charge or
expense provided for in this Agreement in connection with any loan secured
hereby, such charge or expense will not be made or incurred in connection with
such loan beyond the limits permitted by such law.
EXECUTED this 6th day of November, 1997.
DEBTOR:
LARCO ENVIRONMENTAL SERVICES, INC.
By: /s/ James J. Connors, Jr.
Name: James J. Connors, Jr.
Title: President/CEO
SECURED PARTY:
AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ Duane Boyd
Name: Duane Boyd
Title: Senior VP
<PAGE>
EXHIBIT-A
LIST OF ASSETS OF DEBTOR
<PAGE>
Exh. 10-35
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the ____ day of November, 1997, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Robert Casanova, M.D. (the
"Shareholder").
R E C I T A L S:
WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
(the "Merger Agreement") entered into by Shareholder more or less of even date
herewith and the other contracts and agreements to which Shareholder was, or was
to be, a party as contemplated in the Merger Agreement (the Merger Agreement and
all such other contracts and agreements are hereinafter referred to collectively
as the "Acquisition Documents"), Shareholder acquired 78,750 shares (the "PM
Shares") of the $0.001 par value per share common stock of APS Practice
Management, Inc., a Texas corporation ("Practice Management") for a
consideration of $5.00 per PM Share (the "Exchange Value"); and
WHEREAS, APS has agreed, on the terms and subject to the conditions
hereof, to exchange certain shares of its $0.10 par value per share common stock
("APS Common") for the PM Shares.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the PM Shares for shares of APS Common if each of the following
conditions has been satisfied:
(a) There shall not have been, on or before November 1, 1999
(the "Determination Date"), any registered public offering of the common stock
of Practice Management, or any other transaction or event pursuant to which
shares of Practice Management of the same class as the PM Shares shall have
become publicly traded.; and
(b) Shareholder shall not be, or have been, at any time on or
prior to the date of the closing of any exchange of stock pursuant to this
Agreement (the "Closing Date"), in breach of, or default under, this Agreement,
any of the Acquisition Documents or any other contract or agreement to which
Shareholder and Practice Management and/or APS are parties, and Shareholder
shall not have threatened to breach or default under this Agreement, any of the
Acquisition Documents or any such other contract or agreement; and
(c) At the Closing Date, Shareholder has all requisite legal
capacity and authority to engage in the transactions contemplated by this
Agreement, is the owner of all the PM Shares, and the PM Shares are free of any
and all liens, claims or encumbrances of any kind whatsoever; and
<PAGE>
(d) At or before the Closing Date, Practice Management shall
not be, or have been, a party to any merger consolidation or similar
transaction, or agreement with respect thereto, pursuant to which Practice
Management was not or would not be, the named surviving entity after such
merger, consolidation or other transaction.
2. EXCHANGE NOTICE. In the event all of the conditions described in
Section 1 are satisfied as of the Determination Date and Shareholder elects to
exercise its right to exchange its PM Shares for shares of APS Common,
Shareholder shall provide written notice thereof (the "Exchange Notice") to APS,
which Exchange Notice must be received by APS not later than the date (the
"Expiration Date") which is ninety (90) calendar days after the Determination
Date. In the event (i) any of the conditions required for an exchange to be
permissible, as described in Section 1 above, fail to be satisfied on or prior
to the Determination Date, or (ii) any of the conditions specified in
subsections (b), (c) and (d) of Section 1 fail to be satisfied on or prior to
the Closing Date, or (iii) APS fails to receive an Exchange Notice from
Shareholder on or prior to the Expiration Date; then, in any such case, all of
Shareholder's rights under this Agreement shall automatically terminate and be
of no further force or effect whatsoever.
<PAGE>
3. SHARE CONVERSION.
(a) Shareholder's right to exchange its PM Shares hereunder
shall apply as to all, but not less than all, of the PM Shares which are
eligible for exchange as described in this paragraph (a) of Section 3. Assuming
Shareholder has complied with all of the conditions allowing for an exchange
pursuant to this Agreement, 55,417 of the PM Shares shall be eligible for
conversion as provided in this Agreement; and the remaining 23,333 PM Shares, or
a portion thereof, will only be eligible for an exchange hereunder in the event,
and only to the extent, the Clinic (as hereinafter defined) achieves certain
Practice Accrual Earnings (as hereinafter defined) levels prior to the
Determination Date. For purposes of this Agreement, the terms "Clinic" and
"Practice Accrual Earnings" shall have the meanings set forth in that certain
Management Agreement which is one of the Acquisition Documents. The Practice
Accrual Earnings of Clinic for any twelve (12) consecutive monthly period ending
on or prior to the Determination Date is hereinafter referred to as the "Clinic
PAE." The parties acknowledge and agree that in the event Clinic PAE does not
exceed $933,333 during any twelve (12) consecutive calendar monthly period
ending on or prior to the Determination Date, then no portion of the 23,333 PM
Shares shall be subject to exchange pursuant to this Agreement. In the event
that, during any twelve (12) consecutive calendar monthly period ending on or
prior to the Determination Date, the Clinic PAE exceeds $933,333, then the
percentage of the 23,333 PM Shares which will be eligible for exchange pursuant
to this Agreement (assuming compliance with all other conditions provided for in
this Agreement) will be determined by multiplying 23,333 by a fraction, the
numerator of which is the amount by which Clinic PAE exceeds $816,666 (but not
greater than $233,333 in any event), and the denominator of which is $233,333.
<PAGE>
EXAMPLE: The following is provided purely by way of example only, and
illustrates the calculation of the number of PM Shares eligible for exchange
under this Agreement, assuming satisfaction of all other conditions allowing for
an exchange pursuant to this Agreement.
Assume Clinic PAE is $933,333 for the 12 months ended December
31, 1998, which is the largest twelve (12) month level of
Clinic PAE achieved in any period ended on or prior to the
Determination Date.
Total PM Shares eligible for exchange hereunder would be
67,084 determined as follows:
$933,333 - $816,666 x 23,333 = 11,667
-------------------
$233,333 55,417
------
67,084
(b) In the event Shareholder has complied with all of the conditions
allowing for an exchange pursuant to this Agreement, the closing of any such
exchange (the "Closing") shall occur at the offices of APS in Austin, Texas, on
such day and at such time as the parties hereto may mutually agree upon, or in
the failure to so agree, at 10:00 a.m. Austin, Texas time on the first business
day that falls thirty (30) days after the Expiration Date. The maximum number of
PM Shares which Shareholder has the right to exchange pursuant to paragraph (a)
of this Section are hereinafter referred to as the "Exchangeable PM Shares"; and
the "Gross Exchange Value" for purposes of this Agreement is the gross dollar
amount determined by multiplying the Exchangeable PM Shares by the Exchange
Value. For purposes of determining the number of shares of APS Common which may
be received upon any exchange, no consideration will be given to stock
dividends, stock splits, reverse stock splits or recapitalizations to which
<PAGE>
Practice Management or the PM Shares are subject after the date this Agreement
was originally entered into as first above written. At the Closing, Shareholder
shall be entitled to receive such shares of APS Common as is determined by
dividing the Gross Exchange Value by the average of the "bid" and "ask" prices
for APS Common as quoted by the National Association of Securities Dealers
Automated Quotation System at the close of trading on each of the last five (5)
business days immediately preceding the Closing Date.
(c) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable PM Shares, duly endorsed in blank, to APS, and shall
also provide APS with an executed blank stock power, in form and substance
reasonably acceptable to APS, wherein Shareholder represents and warrants to APS
(i) that Shareholder has all necessary legal capacity, power and authority to
engage in the transactions contemplated hereby, and (ii) that Shareholder owns
all interests in and to the Exchangeable PM Shares and that the Exchangeable PM
Shares are being transferred to APS free and clear of all liens, claims or
encumbrances of any kind whatsoever. The shares of APS Common that Shareholder
receives in the exchange are hereinafter referred to as the "New APS Shares."
The parties acknowledge and agree that Shareholder shall receive a whole number
of shares of APS Common only, and that any fractional share amounts resulting
from the foregoing conversion calculation shall be rounded up or down, as the
case may be, to the next whole number of shares. APS shall be under no
obligation to pay any cash or other amounts with respect to any fractional share
amounts, or to issue any fractional share amounts to Shareholder. At the
Closing, Shareholder shall either receive a share certificate for all its New
APS Shares or, if APS' transfer agent is unable to produce such certificate by
the Closing Date, will receive a copy of a registered letter sent from APS to
the transfer agent instructing the transfer agent to deliver such certificate in
the name of Shareholder directly to Shareholder or Shareholder's designee.
<PAGE>
4. NEW APS SHARES TRANSFERABILITY. APS will have registered the New APS
Shares with the Securities and Exchange Commission, and made such other filings
and taken such other steps as necessary, so that Shareholder may immediately
sell, or otherwise convey, the New APS Shares without restriction (except as
otherwise provided below). Shareholder agrees to cooperate fully and in all
respects with APS in connection with any such registration, whether such
cooperation is requested before or after the Determination Date. Failure of
Shareholder to cooperate fully, including without limitation, promptly providing
complete and accurate information to APS, in connection with the registration of
any APS Common shares, whether such cooperation and/or information is requested
before or after the Determination Date or before or after Shareholder delivers
any Exchange Notice, shall automatically terminate Shareholder's rights under
this Agreement. Notwithstanding anything contained herein to the contrary, in
the event that APS is in the process, either at the Closing Date or at the
Determination Date, of registering and/or selling any of its capital stock in or
pursuant to any underwritten public offering, upon the written request of the
lead underwriter involved therein, Shareholder agrees, and shall then agree in
writing in form and substance reasonably acceptable to APS, to not sell, attempt
to sell, or solicit or accept any offers to sell or otherwise convey, any of the
New APS Shares for such period of time (not to exceed one hundred eighty (180)
days) as may be requested by such lead underwriter.
<PAGE>
5. MISCELLANEOUS.
(a) Fees and Expenses. Each party hereto agrees to bear all
fees and expenses (including without limitation all fees and expenses for its
legal counsel and any accountants or other professional advisors) incurred in
connection with the transactions contemplated hereby.
(b) Governing Law and Venue. This Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
Texas (except the laws of Texas that would render such choice of law
ineffective). Venue for any action relating to this Agreement shall be proper
only in Texas.
(c) Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument.
(d) Inurement. This Agreement shall be binding upon the
parties hereto and their respective heirs, legal representatives, successors and
permitted assigns. No party hereto may assign this Agreement, or any of their
rights or obligations hereunder, without the express prior written consent of
all parties hereto in each instance.
<PAGE>
(e) Notices. Any notices required or permitted to be given
under this Agreement shall be given in writing and shall be deemed received (a)
when personally delivered to the relevant party at its address as set forth
below or (b) if sent by mail, on the third day following the date when deposited
in the United States mail, certified or registered mail, postage pre-paid to the
relevant party at its address indicated below:
APS: American Physicians Service Group, Inc.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746-6550
Attn: President
Shareholder: Robert Casanova, M.D.
11111 Research Blvd., Suite 450
Austin, Texas 78759
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
intending to be legally bound hereby, as of the date first above written.
APS: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ Ken Shifrin
Printed Name: Kenneth S. Shifrin
Title:
SHAREHOLDER:
/s/ Robert Casanova, M.D.
Robert Casanova, M.D.
<PAGE>
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the ____ day of November, 1997, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Devin Garza, M.D. (the
"Shareholder").
R E C I T A L S:
WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
(the "Merger Agreement") entered into by Shareholder more or less of even date
herewith and the other contracts and agreements to which Shareholder was, or was
to be, a party as contemplated in the Merger Agreement (the Merger Agreement and
all such other contracts and agreements are hereinafter referred to collectively
as the "Acquisition Documents"), Shareholder acquired 78,750 shares (the "PM
Shares") of the $0.001 par value per share common stock of APS Practice
Management, Inc., a Texas corporation ("Practice Management") for a
consideration of $5.00 per PM Share (the "Exchange Value"); and
WHEREAS, APS has agreed, on the terms and subject to the conditions
hereof, to exchange certain shares of its $0.10 par value per share common stock
("APS Common") for the PM Shares.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the PM Shares for shares of APS Common if each of the following
conditions has been satisfied:
(a) There shall not have been, on or before November 1, 1999
(the "Determination Date"), any registered public offering of the common stock
of Practice Management, or any other transaction or event pursuant to which
shares of Practice Management of the same class as the PM Shares shall have
become publicly traded.; and
(b) Shareholder shall not be, or have been, at any time on or
prior to the date of the closing of any exchange of stock pursuant to this
Agreement (the "Closing Date"), in breach of, or default under, this Agreement,
any of the Acquisition Documents or any other contract or agreement to which
Shareholder and Practice Management and/or APS are parties, and Shareholder
shall not have threatened to breach or default under this Agreement, any of the
Acquisition Documents or any such other contract or agreement; and
(c) At the Closing Date, Shareholder has all requisite legal
capacity and authority to engage in the transactions contemplated by this
Agreement, is the owner of all the PM Shares, and the PM Shares are free of any
and all liens, claims or encumbrances of any kind whatsoever; and
<PAGE>
(d) At or before the Closing Date, Practice Management shall
not be, or have been, a party to any merger consolidation or similar
transaction, or agreement with respect thereto, pursuant to which Practice
Management was not or would not be, the named surviving entity after such
merger, consolidation or other transaction.
2. EXCHANGE NOTICE. In the event all of the conditions described in
Section 1 are satisfied as of the Determination Date and Shareholder elects to
exercise its right to exchange its PM Shares for shares of APS Common,
Shareholder shall provide written notice thereof (the "Exchange Notice") to APS,
which Exchange Notice must be received by APS not later than the date (the
"Expiration Date") which is ninety (90) calendar days after the Determination
Date. In the event (i) any of the conditions required for an exchange to be
permissible, as described in Section 1 above, fail to be satisfied on or prior
to the Determination Date, or (ii) any of the conditions specified in
subsections (b), (c) and (d) of Section 1 fail to be satisfied on or prior to
the Closing Date, or (iii) APS fails to receive an Exchange Notice from
Shareholder on or prior to the Expiration Date; then, in any such case, all of
Shareholder's rights under this Agreement shall automatically terminate and be
of no further force or effect whatsoever.
<PAGE>
3. SHARE CONVERSION.
(a) Shareholder's right to exchange its PM Shares hereunder
shall apply as to all, but not less than all, of the PM Shares which are
eligible for exchange as described in this paragraph (a) of Section 3. Assuming
Shareholder has complied with all of the conditions allowing for an exchange
pursuant to this Agreement, 55,417 of the PM Shares shall be eligible for
conversion as provided in this Agreement; and the remaining 23,333 PM Shares, or
a portion thereof, will only be eligible for an exchange hereunder in the event,
and only to the extent, the Clinic (as hereinafter defined) achieves certain
Practice Accrual Earnings (as hereinafter defined) levels prior to the
Determination Date. For purposes of this Agreement, the terms "Clinic" and
"Practice Accrual Earnings" shall have the meanings set forth in that certain
Management Agreement which is one of the Acquisition Documents. The Practice
Accrual Earnings of Clinic for any twelve (12) consecutive monthly period ending
on or prior to the Determination Date is hereinafter referred to as the "Clinic
PAE." The parties acknowledge and agree that in the event Clinic PAE does not
exceed $933,333 during any twelve (12) consecutive calendar monthly period
ending on or prior to the Determination Date, then no portion of the 23,333 PM
Shares shall be subject to exchange pursuant to this Agreement. In the event
that, during any twelve (12) consecutive calendar monthly period ending on or
prior to the Determination Date, the Clinic PAE exceeds $933,333, then the
percentage of the 23,333 PM Shares which will be eligible for exchange pursuant
to this Agreement (assuming compliance with all other conditions provided for in
this Agreement) will be determined by multiplying 23,333 by a fraction, the
numerator of which is the amount by which Clinic PAE exceeds $816,666 (but not
greater than $233,333 in any event), and the denominator of which is $233,333.
<PAGE>
EXAMPLE: The following is provided purely by way of example only, and
illustrates the calculation of the number of PM Shares eligible for exchange
under this Agreement, assuming satisfaction of all other conditions allowing for
an exchange pursuant to this Agreement.
Assume Clinic PAE is $933,333 for the 12 months ended December
31, 1998, which is the largest twelve (12) month level of
Clinic PAE achieved in any period ended on or prior to the
Determination Date.
Total PM Shares eligible for exchange hereunder would be
67,084 determined as follows:
$933,333 - $816,666 x 23,333 = 11,667
-------------------
$233,333 55,417
------
67,084
(b) In the event Shareholder has complied with all of the conditions
allowing for an exchange pursuant to this Agreement, the closing of any such
exchange (the "Closing") shall occur at the offices of APS in Austin, Texas, on
such day and at such time as the parties hereto may mutually agree upon, or in
the failure to so agree, at 10:00 a.m. Austin, Texas time on the first business
day that falls thirty (30) days after the Expiration Date. The maximum number of
PM Shares which Shareholder has the right to exchange pursuant to paragraph (a)
of this Section are hereinafter referred to as the "Exchangeable PM Shares"; and
the "Gross Exchange Value" for purposes of this Agreement is the gross dollar
amount determined by multiplying the Exchangeable PM Shares by the Exchange
Value. For purposes of determining the number of shares of APS Common which may
be received upon any exchange, no consideration will be given to stock
dividends, stock splits, reverse stock splits or recapitalizations to which
<PAGE>
Practice Management or the PM Shares are subject after the date this Agreement
was originally entered into as first above written. At the Closing, Shareholder
shall be entitled to receive such shares of APS Common as is determined by
dividing the Gross Exchange Value by the average of the "bid" and "ask" prices
for APS Common as quoted by the National Association of Securities Dealers
Automated Quotation System at the close of trading on each of the last five (5)
business days immediately preceding the Closing Date.
(c) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable PM Shares, duly endorsed in blank, to APS, and shall
also provide APS with an executed blank stock power, in form and substance
reasonably acceptable to APS, wherein Shareholder represents and warrants to APS
(i) that Shareholder has all necessary legal capacity, power and authority to
engage in the transactions contemplated hereby, and (ii) that Shareholder owns
all interests in and to the Exchangeable PM Shares and that the Exchangeable PM
Shares are being transferred to APS free and clear of all liens, claims or
encumbrances of any kind whatsoever. The shares of APS Common that Shareholder
receives in the exchange are hereinafter referred to as the "New APS Shares."
The parties acknowledge and agree that Shareholder shall receive a whole number
of shares of APS Common only, and that any fractional share amounts resulting
from the foregoing conversion calculation shall be rounded up or down, as the
case may be, to the next whole number of shares. APS shall be under no
obligation to pay any cash or other amounts with respect to any fractional share
amounts, or to issue any fractional share amounts to Shareholder. At the
Closing, Shareholder shall either receive a share certificate for all its New
APS Shares or, if APS' transfer agent is unable to produce such certificate by
the Closing Date, will receive a copy of a registered letter sent from APS to
the transfer agent instructing the transfer agent to deliver such certificate in
the name of Shareholder directly to Shareholder or Shareholder's designee.
<PAGE>
4. NEW APS SHARES TRANSFERABILITY. APS will have registered the New APS
Shares with the Securities and Exchange Commission, and made such other filings
and taken such other steps as necessary, so that Shareholder may immediately
sell, or otherwise convey, the New APS Shares without restriction (except as
otherwise provided below). Shareholder agrees to cooperate fully and in all
respects with APS in connection with any such registration, whether such
cooperation is requested before or after the Determination Date. Failure of
Shareholder to cooperate fully, including without limitation, promptly providing
complete and accurate information to APS, in connection with the registration of
any APS Common shares, whether such cooperation and/or information is requested
before or after the Determination Date or before or after Shareholder delivers
any Exchange Notice, shall automatically terminate Shareholder's rights under
this Agreement. Notwithstanding anything contained herein to the contrary, in
the event that APS is in the process, either at the Closing Date or at the
Determination Date, of registering and/or selling any of its capital stock in or
pursuant to any underwritten public offering, upon the written request of the
lead underwriter involved therein, Shareholder agrees, and shall then agree in
writing in form and substance reasonably acceptable to APS, to not sell, attempt
to sell, or solicit or accept any offers to sell or otherwise convey, any of the
New APS Shares for such period of time (not to exceed one hundred eighty (180)
days) as may be requested by such lead underwriter.
<PAGE>
5. MISCELLANEOUS.
(a) Fees and Expenses. Each party hereto agrees to bear all
fees and expenses (including without limitation all fees and expenses for its
legal counsel and any accountants or other professional advisors) incurred in
connection with the transactions contemplated hereby.
(b) Governing Law and Venue. This Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
Texas (except the laws of Texas that would render such choice of law
ineffective). Venue for any action relating to this Agreement shall be proper
only in Texas.
(c) Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument.
(d) Inurement. This Agreement shall be binding upon the
parties hereto and their respective heirs, legal representatives, successors and
permitted assigns. No party hereto may assign this Agreement, or any of their
rights or obligations hereunder, without the express prior written consent of
all parties hereto in each instance.
(e) Notices. Any notices required or permitted to be given
under this Agreement shall be given in writing and shall be deemed received (a)
<PAGE>
when personally delivered to the relevant party at its address as set forth
below or (b) if sent by mail, on the third day following the date when deposited
in the United States mail, certified or registered mail, postage pre-paid to the
relevant party at its address indicated below:
APS: American Physicians Service Group, Inc.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746-6550
Attn: President
Shareholder: Devin Garza, M.D.
11111 Research Blvd., Suite 450
Austin, Texas 78759
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
intending to be legally bound hereby, as of the date first above written.
APS: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ Ken Shifrin
Printed Name: Kenneth S. Shifrin
Title:
SHAREHOLDER:
/s/ Devin Garza, M.D.
Devin Garza, M.D.
<PAGE>
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the ____ day of November, 1997, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Shelley Nielson, M.D. (the
"Shareholder").
R E C I T A L S:
WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
(the "Merger Agreement") entered into by Shareholder more or less of even date
herewith and the other contracts and agreements to which Shareholder was, or was
to be, a party as contemplated in the Merger Agreement (the Merger Agreement and
all such other contracts and agreements are hereinafter referred to collectively
as the "Acquisition Documents"), Shareholder acquired 78,750 shares (the "PM
Shares") of the $0.001 par value per share common stock of APS Practice
Management, Inc., a Texas corporation ("Practice Management") for a
consideration of $5.00 per PM Share (the "Exchange Value"); and
WHEREAS, APS has agreed, on the terms and subject to the conditions
hereof, to exchange certain shares of its $0.10 par value per share common stock
("APS Common") for the PM Shares.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the PM Shares for shares of APS Common if each of the following
conditions has been satisfied:
(a) There shall not have been, on or before November 1, 1999
(the "Determination Date"), any registered public offering of the common stock
of Practice Management, or any other transaction or event pursuant to which
shares of Practice Management of the same class as the PM Shares shall have
become publicly traded.; and
(b) Shareholder shall not be, or have been, at any time on or
prior to the date of the closing of any exchange of stock pursuant to this
Agreement (the "Closing Date"), in breach of, or default under, this Agreement,
any of the Acquisition Documents or any other contract or agreement to which
Shareholder and Practice Management and/or APS are parties, and Shareholder
shall not have threatened to breach or default under this Agreement, any of the
Acquisition Documents or any such other contract or agreement; and
(c) At the Closing Date, Shareholder has all requisite legal
capacity and authority to engage in the transactions contemplated by this
Agreement, is the owner of all the PM Shares, and the PM Shares are free of any
and all liens, claims or encumbrances of any kind whatsoever; and
<PAGE>
(d) At or before the Closing Date, Practice Management shall
not be, or have been, a party to any merger consolidation or similar
transaction, or agreement with respect thereto, pursuant to which Practice
Management was not or would not be, the named surviving entity after such
merger, consolidation or other transaction.
2. EXCHANGE NOTICE. In the event all of the conditions described in
Section 1 are satisfied as of the Determination Date and Shareholder elects to
exercise its right to exchange its PM Shares for shares of APS Common,
Shareholder shall provide written notice thereof (the "Exchange Notice") to APS,
which Exchange Notice must be received by APS not later than the date (the
"Expiration Date") which is ninety (90) calendar days after the Determination
Date. In the event (i) any of the conditions required for an exchange to be
permissible, as described in Section 1 above, fail to be satisfied on or prior
to the Determination Date, or (ii) any of the conditions specified in
subsections (b), (c) and (d) of Section 1 fail to be satisfied on or prior to
the Closing Date, or (iii) APS fails to receive an Exchange Notice from
Shareholder on or prior to the Expiration Date; then, in any such case, all of
Shareholder's rights under this Agreement shall automatically terminate and be
of no further force or effect whatsoever.
<PAGE>
3. SHARE CONVERSION.
(a) Shareholder's right to exchange its PM Shares hereunder
shall apply as to all, but not less than all, of the PM Shares which are
eligible for exchange as described in this paragraph (a) of Section 3. Assuming
Shareholder has complied with all of the conditions allowing for an exchange
pursuant to this Agreement, 55,417 of the PM Shares shall be eligible for
conversion as provided in this Agreement; and the remaining 23,333 PM Shares, or
a portion thereof, will only be eligible for an exchange hereunder in the event,
and only to the extent, the Clinic (as hereinafter defined) achieves certain
Practice Accrual Earnings (as hereinafter defined) levels prior to the
Determination Date. For purposes of this Agreement, the terms "Clinic" and
"Practice Accrual Earnings" shall have the meanings set forth in that certain
Management Agreement which is one of the Acquisition Documents. The Practice
Accrual Earnings of Clinic for any twelve (12) consecutive monthly period ending
on or prior to the Determination Date is hereinafter referred to as the "Clinic
PAE." The parties acknowledge and agree that in the event Clinic PAE does not
exceed $933,333 during any twelve (12) consecutive calendar monthly period
ending on or prior to the Determination Date, then no portion of the 23,333 PM
Shares shall be subject to exchange pursuant to this Agreement. In the event
that, during any twelve (12) consecutive calendar monthly period ending on or
prior to the Determination Date, the Clinic PAE exceeds $933,333, then the
percentage of the 23,333 PM Shares which will be eligible for exchange pursuant
to this Agreement (assuming compliance with all other conditions provided for in
this Agreement) will be determined by multiplying 23,333 by a fraction, the
numerator of which is the amount by which Clinic PAE exceeds $816,666 (but not
greater than $233,333 in any event), and the denominator of which is $233,333.
<PAGE>
EXAMPLE: The following is provided purely by way of example only, and
illustrates the calculation of the number of PM Shares eligible for exchange
under this Agreement, assuming satisfaction of all other conditions allowing for
an exchange pursuant to this Agreement.
Assume Clinic PAE is $933,333 for the 12 months ended December
31, 1998, which is the largest twelve (12) month level of
Clinic PAE achieved in any period ended on or prior to the
Determination Date.
Total PM Shares eligible for exchange hereunder would be
67,084 determined as follows:
$933,333 - $816,666 x 23,333 = 11,667
-------------------
$233,333 55,417
------
67,084
(b) In the event Shareholder has complied with all of the conditions
allowing for an exchange pursuant to this Agreement, the closing of any such
exchange (the "Closing") shall occur at the offices of APS in Austin, Texas, on
such day and at such time as the parties hereto may mutually agree upon, or in
the failure to so agree, at 10:00 a.m. Austin, Texas time on the first business
day that falls thirty (30) days after the Expiration Date. The maximum number of
PM Shares which Shareholder has the right to exchange pursuant to paragraph (a)
of this Section are hereinafter referred to as the "Exchangeable PM Shares"; and
the "Gross Exchange Value" for purposes of this Agreement is the gross dollar
amount determined by multiplying the Exchangeable PM Shares by the Exchange
Value. For purposes of determining the number of shares of APS Common which may
be received upon any exchange, no consideration will be given to stock
dividends, stock splits, reverse stock splits or recapitalizations to which
<PAGE>
Practice Management or the PM Shares are subject after the date this Agreement
was originally entered into as first above written. At the Closing, Shareholder
shall be entitled to receive such shares of APS Common as is determined by
dividing the Gross Exchange Value by the average of the "bid" and "ask" prices
for APS Common as quoted by the National Association of Securities Dealers
Automated Quotation System at the close of trading on each of the last five (5)
business days immediately preceding the Closing Date.
(c) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable PM Shares, duly endorsed in blank, to APS, and shall
also provide APS with an executed blank stock power, in form and substance
reasonably acceptable to APS, wherein Shareholder represents and warrants to APS
(i) that Shareholder has all necessary legal capacity, power and authority to
engage in the transactions contemplated hereby, and (ii) that Shareholder owns
all interests in and to the Exchangeable PM Shares and that the Exchangeable PM
Shares are being transferred to APS free and clear of all liens, claims or
encumbrances of any kind whatsoever. The shares of APS Common that Shareholder
receives in the exchange are hereinafter referred to as the "New APS Shares."
The parties acknowledge and agree that Shareholder shall receive a whole number
of shares of APS Common only, and that any fractional share amounts resulting
from the foregoing conversion calculation shall be rounded up or down, as the
case may be, to the next whole number of shares. APS shall be under no
obligation to pay any cash or other amounts with respect to any fractional share
amounts, or to issue any fractional share amounts to Shareholder. At the
Closing, Shareholder shall either receive a share certificate for all its New
APS Shares or, if APS' transfer agent is unable to produce such certificate by
the Closing Date, will receive a copy of a registered letter sent from APS to
the transfer agent instructing the transfer agent to deliver such certificate in
the name of Shareholder directly to Shareholder or Shareholder's designee.
<PAGE>
4. New APS Shares Transferability. APS will have registered the New APS
Shares with the Securities and Exchange Commission, and made such other filings
and taken such other steps as necessary, so that Shareholder may immediately
sell, or otherwise convey, the New APS Shares without restriction (except as
otherwise provided below). Shareholder agrees to cooperate fully and in all
respects with APS in connection with any such registration, whether such
cooperation is requested before or after the Determination Date. Failure of
Shareholder to cooperate fully, including without limitation, promptly providing
complete and accurate information to APS, in connection with the registration of
any APS Common shares, whether such cooperation and/or information is requested
before or after the Determination Date or before or after Shareholder delivers
any Exchange Notice, shall automatically terminate Shareholder's rights under
this Agreement. Notwithstanding anything contained herein to the contrary, in
the event that APS is in the process, either at the Closing Date or at the
Determination Date, of registering and/or selling any of its capital stock in or
pursuant to any underwritten public offering, upon the written request of the
lead underwriter involved therein, Shareholder agrees, and shall then agree in
writing in form and substance reasonably acceptable to APS, to not sell, attempt
to sell, or solicit or accept any offers to sell or otherwise convey, any of the
New APS Shares for such period of time (not to exceed one hundred eighty (180)
days) as may be requested by such lead underwriter.
<PAGE>
5. MISCELLANEOUS.
(a) Fees and Expenses. Each party hereto agrees to bear all
fees and expenses (including without limitation all fees and expenses for its
legal counsel and any accountants or other professional advisors) incurred in
connection with the transactions contemplated hereby.
(b) Governing Law and Venue. This Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
Texas (except the laws of Texas that would render such choice of law
ineffective). Venue for any action relating to this Agreement shall be proper
only in Texas.
(c) Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument.
(d) Inurement. This Agreement shall be binding upon the
parties hereto and their respective heirs, legal representatives, successors and
permitted assigns. No party hereto may assign this Agreement, or any of their
rights or obligations hereunder, without the express prior written consent of
all parties hereto in each instance.
<PAGE>
(e) Notices. Any notices required or permitted to be given
under this Agreement shall be given in writing and shall be deemed received (a)
when personally delivered to the relevant party at its address as set forth
below or (b) if sent by mail, on the third day following the date when deposited
in the United States mail, certified or registered mail, postage pre-paid to the
relevant party at its address indicated below:
APS: American Physicians Service Group, Inc.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746-6550
Attn: President
Shareholder: Shelley Nielson, M.D.
11111 Research Blvd., Suite 450
Austin, Texas 78759
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
intending to be legally bound hereby, as of the date first above written.
APS: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ Ken Shifrin
Printed Name: Kenneth S. Shifrin
Title:
SHAREHOLDER:
/s/ Shelley Nielson, M.D.
Shelley Nielson, M.D.
<PAGE>
Exh. 10-36
FIRST AMENDMENT
TO
1995 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
OF
AMERICAN PHYSICIANS SERVICE GROUP, INC.
American Physicians Service Group, Inc., a Texas corporation (the
"Corporation"), hereby adopts this first amendment (this "Amendment") to its
1995 Incentive and Non-qualified Stock Option Plan, a copy of which is attached
hereto as Exhibit A, (the "Plan") effective for all purposes as of December 10,
1997 (the "Effective Date").
R E C I T A L S
WHEREAS, on June 13, 1996 the Corporation adopted the Plan; and
WHEREAS, the Corporation's Board of Directors have approved an
amendment to the Plan, as contained herein, pursuant to which (i) the Plan may
be administered by either the Board of Directors or a committee of the Board
duly appointed under the terms of the Plan and comprised solely of non-employee
directors, and (ii) the holders of Non-Qualified Stock Options (as defined in
the Plan) may, upon approval, assign or transfer such Options or their rights
thereunder; and
WHEREAS, the Corporation desires to amend the Plan to reflect the
incorporation of this Amendment.
<PAGE>
NOW, THEREFORE, in consideration of, and pursuant to, the foregoing,
the Corporation hereby adopts this Amendment to the Plan as follows:
1. Article II of the Plan is hereby amended to delete the first
sentence which reads:
This Plan shall be administered by a committee (the
"Committee") composed of members selected by, and serving at
the pleasure of, the Board of Directors of the Company (the
"Board").
and to replace such sentence with the following text:
This Plan shall be administered by an administrative
body (the "Committee") designated by the Board of Directors of
the Company (the "Board"). The Board may designate itself as
the Committee or appoint two or more non-employee directors to
a committee which shall serve as the Committee.
Article II of the Plan is further amended to delete the sentence which
reads:
Consistent with Rule 16b-3 each committee member
shall be a disinterested person, i.e., a person who has not
been granted any equity security pursuant to a plan of the
corporation or any of its affiliates during the one year prior
to his becoming a committee member or during the period he
serves as a committee member.
<PAGE>
2. Article VII of the Plan is hereby amended to read in its entirety as
follows:
Incentive Stock Options and all rights granted
thereunder shall not be transferable other than by will or the
laws of descent and distribution. Non-Qualified Stock Options
and all rights granted thereunder shall not be transferable
other than by will or the laws or descent and distribution, or
upon the express prior written consent of the Committee in
each instance. All Incentive Stock Options shall be
exercisable during the Optionee's lifetime, only by the
Optionee or the Optionee's guardian or legal representative.
3. Except as specifically amended hereby, the Plan shall remain in full
force and effect in accordance with its terms. The Corporation shall be entitled
to amend and restate the Plan document to incorporate the foregoing and Exhibit
A into a single document.
<PAGE>
IN WITNESS WHEREOF, the Board of Directors, acting pursuant to Article XI of the
Plan, has approved and adopted this Amendment as of the Effective Date.
AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ William Hayes
-----------------
William Hayes
Secretary
<PAGE>
Exh. 10-37
FIRST AMENDMENT
TO
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
OF
AMERICAN PHYSICIANS SERVICE GROUP, INC.
American Physicians Service Group, Inc., a Texas corporation (the
"Corporation"), hereby adopts this first amendment (this "Amendment") to its
1995 Non-Employee Director Stock Option Plan, a copy of which is attached hereto
as Exhibit A, (the "Plan") effective for all purposes as of December 10, 1997
(the "Effective Date").
R E C I T A L S
WHEREAS, on June 13, 1996 the Corporation adopted the Plan; and
WHEREAS, the Corporation's Board of Directors have approved an
amendment to the Plan, as contained herein, pursuant to which the holders of
Options (as defined in the Plan) may, upon approval, assign or transfer such
Options or their rights thereunder; and
WHEREAS, the Corporation desires to amend the Plan to reflect the
incorporation of this Amendment.
NOW, THEREFORE, in consideration of, and pursuant to, the foregoing,
the Corporation hereby adopts this Amendment to the Plan as follows:
<PAGE>
1. Article VI of the Plan is hereby amended to read in its entirety as
follows:
Each Option and all rights granted thereunder shall
not be transferable other than by will or the laws of descent
and distribution, or upon the express prior written consent of
the Committee in each instance.
2. Except as specifically amended hereby, the Plan shall remain in full
force and effect in accordance with its terms. The Corporation shall be entitled
to amend and restate the Plan document to incorporate the foregoing and Exhibit
A into a single document.
IN WITNESS WHEREOF, the Board of Directors, acting pursuant to Article
X of the Plan, has approved and adopted this Amendment as of the Effective Date.
AMERICAN PHYSICIANS SERVICE GROUP, INC.
By:/s/ William Hayes
-----------------
William Hayes
Secretary
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF AMERICAN PHYSICIANS SERVICE GROUP, INC.
AS OF MARCH 20, 1998
Name of Subsidiary State of Incorporation
APS Communications Corporation Texas
APS Facilities Management, Inc. Texas
APS Financial Corporation Colorado
APS Insurance Services, Inc. Delaware
APS Realty, Inc. Texas
American Physicians Insurance Agency, Inc. Texas
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
- --------------------------------------------------------------------------------
We consent to incorporation by reference in the registration statements (Nos.
33-66308, 333-07425, 333-07427) on Form S-8 of American Physicians Service
Group, Inc. of our report dated March 6, 1998, relating to the consolidated
balance sheets of American Physicians Service Group, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997 which report appears in the Annual Report on Form
10-K of American Physicians Service Group, Inc. for the year ended December 31,
1997.
Austin, Texas
March 28, 1998 BY: /s/ KPMG Peat Marwick, LLP
--------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1997 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 5,188 5,770
<SECURITIES> 0 728
<RECEIVABLES> 2,194 4,249
<ALLOWANCES> 222 290
<INVENTORY> 15 0
<CURRENT-ASSETS> 8,660 11,625
<PP&E> 5,605 4,256
<DEPRECIATION> 3,775 2,475
<TOTAL-ASSETS> 29,401 24,468
<CURRENT-LIABILITIES> 5,300 3,320
<BONDS> 0 0
0 0
0 0
<COMMON> 416 405
<OTHER-SE> 22,688 19,977
<TOTAL-LIABILITY-AND-EQUITY> 29,401 24,468
<SALES> 0 0
<TOTAL-REVENUES> 13,065 11,646
<CGS> 0 365
<TOTAL-COSTS> 10,467 9,908
<OTHER-EXPENSES> 506 198
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 21 54
<INCOME-PRETAX> 5,984 2,969
<INCOME-TAX> 2,341 1,045
<INCOME-CONTINUING> 3,468 1,924
<DISCONTINUED> 930 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,538 1,924
<EPS-PRIMARY> 0.62 0.48
<EPS-DILUTED> 0.59 0.46
</TABLE>
