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, 1998
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 25, 1999: $12,499,479
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 25, 1999
-------------------- ----------------
Common Stock, $.10 par value 4,153,683
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, 1998 is incorporated by
reference.
============================================================================
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PART I
ITEM 1. BUSINESS
GENERAL
American Physicians Service Group, Inc. (the "Company"), through its
subsidiaries, provides 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 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 Prime Medical, Syntera and Uncommon Care).
INVESTMENT SERVICES
APS Investment Services, Inc. ("Investment Services"), is a wholly-owned
subsidiary of the Company. Through its subsidiaries, APS Financial Corporation
("APS Financial"), and APS Asset Management, Inc. (Asset Management"),
Investment Services provides investment and investment advisory services to
institutions and individuals throughout the United States. Revenues from this
segment were 60%, 44% and 32% of Company revenues in 1998, 1997 and 1996,
respectively.
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 portfolio accounting, analysis, and other
services, to insurance companies, banks, and public funds. APS Financial has its
main office in Austin, with a branch office in Houston.
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 45 states.
Commissions are charged on both exchange and over-the-counter ("OTC")
transactions in accordance with industry practice. When OTC transactions are
executed by APS Financial as a dealer, APS Financial receives, in lieu of
commissions, markups or markdowns.
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<PAGE>
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 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 February 28, 1999, APS Financial was in compliance with
all net capital requirements.
APS Financial clears 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.
Asset Management, a Registered Investment Adviser, was formed and
registered with the Securities and Exchange Commission in 1998. Asset Management
was organized to manage fixed income and equity assets for institutional and
individual clients on a fee basis. Asset Management's mission is to provide
clients with investment results within specific client-determined risk
parameters.
INSURANCE SERVICES
APS Insurance Services, Inc., ("Insurance Services"), an 80% owned
subsidiary of the Company through its wholly-owned subsidiaries APS Facilities
Management, Inc. ("FMI") and American Physicians Insurance Agency, Inc.
("Agency"), provides management and agency services to medical malpractice
insurance companies. Revenues from this segment contributed 34%, 48% and 57% of
Company revenues in 1998, 1997 and 1996, respectively. Substantially all of the
revenue was attributable to American Physicians Insurance Exchange ("APIE") 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. Termination of
the agreement with APIE would have a material adverse effect on the Company.
2
<PAGE>
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, 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 for $4,146,000.
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 one of the largest medical professional liability
insurance companies in the State of Texas. APIE is the only insurance company
based in Texas that is wholly-owned by its subscriber physicians.
Florida Physicians, together with its affiliates, insures over 6,800
physicians nationwide. Florida Physicians is rated A- (Excellent) by AM Best.
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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 that occur and are reported 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 reimbursement (fees and profit sharing) do
not exceed a cap based on premium levels. In 1998, 1997, 1996, 1995, and 1994,
management fees attributable to profit sharing were $1,750,000, $1,961,000,
$1,191,000, $700,000, and $1,107,000, respectively.
(In thousands, except for number of insureds)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earned premiums before
reinsurance premiums $22,931 $25,899 $28,754 $30,857 $30,261
Total assets 75,173 81,594 90,193 101,251 98,302
Total surplus 13,592 11,854 10,017 9,402 9,315
Management fees (including profit
sharing) and commissions to FMI
and Agency 4,835 (3) 5,854 (3) $5,281 (3) $5,010 (3) $4,703 (1)
Number of insureds 2,743 2,629 (2) 3,019 3,226 3,216 (2)
- - ----------------
</TABLE>
(1) Gross fee of $5,193 less tax credit of $490 attributable to
APIE's association with FMI.
(2) The decrease was the result of APIE's decision to raise
premiums and lose members on certain unprofitable specialties.
Included in the totals are doctors for which APIE provides
reinsurance through a relationship with another malpractice
insurance company.
(3) Includes commissions of $835, $1,214, $860 and $676 in 1998,
1997, 1996 and 1995, respectively, from Florida Physicians and
other carriers directly related to APIE's controlled business.
4
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REAL ESTATE
APS Realty, Inc., ("APS Realty"), a wholly-owned subsidiary of the Company
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
affiliates. The remainder is leased to unaffiliated parties.
OTHER INVESTMENTS
The Company owns 3,064,000 shares of common stock of Prime Medical
Services, Inc. ("Prime Medical"), representing at March 15, 1999 approximately
18% of the outstanding shares of common stock of Prime Medical. Two of Prime
Medical's seven directors are members of the Company's four 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 January 1, 1998 the Company invested approximately $2,000,000 in the
Convertible Preferred Stock of Uncommon Care, Inc. ("Uncommon Care"). The
Company also made available to Uncommon Care a $2,400,000 line of credit. The
loan is at ten percent interest, payable quarterly until January 1, 2003, at
which time the outstanding principal and any accrued but unpaid interest are due
and payable. Uncommon Care is a developer and operator of dedicated Alzheimer's
care facilities. The preferred shares owned by the Company are convertible into
approximately a 34% interest in the equity of Uncommon Care. Two of Uncommon
Care's five directors are members of the Company's board of directors. The
Company records its investment at cost.
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. All of Syntera's
directors are officers of the Company. The Company expects its ownership
interest in
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Syntera (62% as of March 15, 1999) to be reduced to a minority level as Syntera
exchanges its stock for assets of additional physician practices. Due 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.
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 renegotiations,
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. The Company subsequently
declared Con-Eco in default under the new promissory note and related security
agreements. In March, 1999 the Company entered into a comprehensive
Restructuring Agreement pursuant to which the Company retained its interest in
all of its existing collateral, obtained additional collateral in the form of
stock of two more of Con-Eco's subsidiaries and obtained the highest priority
security interest available in the assets of such subsidiaries as well as the
assets of a third subsidiary. Under the Restructuring Agreement, the Company
agreed to refinance the existing obligations of Con-Eco on more favorable terms
in the future, provided the Company receives certain minimum payments from
Con-Eco or from the operations of a subsidiary of Con-Eco that may be acquired
by the Company through the enforcement of its security interest. Con-Eco also
agreed to make specified minimum payments to the Company upon the favorable
resolution by Con-Eco of certain existing litigation or upon the sale of Con-Eco
or of Con-Eco's or its subsidiaries' assets. The Company has established a
reserve of $392,000 related to the principal amount of the Con-Eco receivable
and has reserved all accrued but unpaid interest related to the note. The
Company may be required to establish additional reserves in the future depending
on the Company's ongoing evaluation of its collateral position and its estimates
of Con-Eco's future cash flows.
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 reflected the expected financial
impact of discontinuing this segment in the 1997 financial statements.
6
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COMPETITION
APS Financial and Asset Management are both engaged in a highly competitive
business. Their competitors include, with respect to one or more aspects of
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's. 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.
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,
Texas Medical Liability Trust, Medical Interinsurance Exchange Group of New
Jersey and PHICO Insurance. 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.
REGULATION
APS Financial and Asset Management are subject to extensive regulation
under both federal and state laws. The SEC is the federal agency charged with
administration of the federal securities and investment advisor 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.
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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, members are required to pay annual assessments in
varying amounts not to exceed .5% of their adjusted gross revenues to restore
the fund. The last assessment was in 1995 and amounted to approximately $7,300.
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.
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.
EMPLOYEES
At March 1, 1999, the Company employed, on a full time basis, approximately
112 persons, including 49 by Insurance Services, 46 by APS Financial, 4 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.
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 affiliates
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 approximately 90% occupied as of March
24, 1999. The lease of the largest third party tenant, (11,000 square feet),
expires in April 1999 and it is unknown how long will be required to re-let the
space.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions that have
arisen in the ordinary course of business. Management believes that any
liabilities arising from these actions will not have a significant adverse
effect on the financial condition of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting was held June 11, 1998. The agenda items were
the election of directors and approval of an amendment to the stock option plan.
Voting results follow:
BOARD ELECTION
Nominee For Against Abstain
------- --- ------- -------
Jack Murphy 3,392,847 301,516 --
Robert L. Myer 3,393,217 301,146 --
William A. Searles 3,393,217 301,146 --
Kenneth S. Shifrin 3,393,217 301,146 --
STOCK OPTION PLAN AMENDMENT
2,122,854 799,372 9,842
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, 1998 and 1997. On March 1, 1999, the Company had
approximately 500 holders of record of its common stock.
1998 1997
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High Low High Low
First Quarter $ 7 5/8 $ 6 7/8 $7 5/8 $6 3/8
Second Quarter $ 7 1/2 $ 6 5/8 $6 7/8 $ 4 3/4
Third Quarter $ 7 1/4 $ 4 7/8 $8 7/8 $5 7/8
Fourth Quarter $ 5 1/2 $ 3 1/4 $8 $6
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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
(In thousands, except per share data)
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Selected income statement data:
<S> <C> <C> <C> <C> <C>
Revenues $16,403 13,065 10,437 16,124 12,333
Earnings from continuing operations before
income taxes and minority interests $2,255 5,984 3,006 3,007 1,784
Net earnings $1,545 2,538 1,924 2,024 1,254
Per share amounts - diluted:
Net earnings $.31 .59 .46 .53 .36
Diluted weighted average shares outstanding 4,692 4,241 4,219 3,798 3,488
Selected balance sheet data:
Total assets $32,914 30,737 24,468 23,740 19,918
Long-term obligations -- -- -- 574 878
Total liabilities $8,259 7,458 4,086 6,146 4,927
Minority interests $53 175 -- -- --
Total equity $24,602 23,104 20,382 17,594 14,991
Book value per share $5.91 5.55 5.03 4.80 4.47
</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
1998 Compared to 1997
Revenues from continuing operations increased 26% in 1998 compared to 1997.
Net income decreased 39% and diluted earnings per share decreased 48%. The
reasons for these changes are described below.
Investment Services
Investment services' revenues increased 73% in 1998 compared to 1997. The
increase resulted from volatility in world bond markets which caused clients to
realign portfolios. This activity created more transactions and thus more
commissions. Also contributing to the increase was the full development of a
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second office, which opened in 1997. Revenues at this office increased
approximately 90% over 1997.
Investment services' expenses increased 71% from 1997. 94% of the increase
was at the broker/dealer and was volume-related. The large increase in revenues
resulted in proportionately greater sales commission expense, support personnel
expense, transaction charges and financial information services expense. Lower
legal fees partially offset these increases. Greater profits in 1998 also
increased expenses under the incentive compensation plan. The remainder of the
increase in expenses was the result of starting Asset Management in 1998.
Results in this segment can vary from year to year. 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. In an effort to add to the segment's
overall profitability, and to add stability from year to year, the Company
entered the asset management business in 1998. As a registered investment
advisor, Asset Management, seeks to manage the portfolios of institutions and
high net worth individuals. Asset management is a competitive business and the
Company cannot say with certainty when or if it will achieve profitability.
Insurance Services
Insurance Service's revenues decreased 10% in 1998 compared to 1997. The
loss of a large client by the managed insurance company caused most of the
variance. The client purchased extended reporting period or "tail" coverage,
which increased premiums in 1997. 1998 was lower by both the standard premium
and the extra tail premium. The Company's premium-based management fee was
proportionately lower. The remainder of the decrease was related to profit
sharing. The insurance management fee contract contains a provision to share in
the profits of the managed insurance exchange. Due to the loss of the client
mentioned above and an overall increase in competition in medical professional
liability insurance in Texas, profits, and consequently, profit sharing, were
lower in 1998.
Insurance Services' expenses increased 8% over 1997. The increase was in
the area of commission expense and was due to the greater utilization of
commissioned outside sales agents, compared to salaried internal personnel in
prior years. Lower salary expense, primarily due to lower incentive payments,
partially offset the increased commissions.
Due to the profit sharing provision in this segment's major contract,
results can vary from year to year. In the last five years under the contract,
profit sharing has ranged from 12% to 31% of the segment's revenues.
Real Estate
Revenue increased 1% compared to 1997. The increase reflects higher lease
rates, partially offset by a higher vacancy rate.
The 5% increase in real estate expenses resulted from increased property
taxes due to higher real estate values.
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Investment and Other
The decline in investment and other income was primarily due to lower
interest income, a result of available cash being fully invested in new start-up
companies, which yielded no current return.
General and Administrative Expenses
General and administrative expenses increased 37% over 1997. The increases
resulted from recognizing bad debt expense related to the impairment of the
Con-Eco note receivable and from expenses related to guaranteeing an individual
investor's investment return. The Company had agreed to the guaranteed return to
settle a dispute on the customer's account in 1995. The portfolio
under-performed in 1998 and additional funds were contributed by the Company.
Lower management incentive expenses partially offset these increases in 1998.
Interest expense increased from $21,000 in 1997 to $59,000 in 1998. The
increase reflects funds borrowed under the line of credit to fund the Company's
investments Syntera and Uncommon Care.
Affiliates
The Company has two affiliates accounted for on the equity basis, Prime
Medical Services, Inc. and Syntera HealthCare Corporation. Prime's operating
income increased in 1998 but net earnings were reduced by non-recurring
financing and development costs. This resulted in a 23% decrease in equity
earnings compared to 1997. Syntera, which was started in 1997, continued in the
development phase and reported a loss in 1998. The Company's share of Syntera's
loss increased approximately 5% in 1998.
Prime had issued additional shares in 1996 reducing the Company's ownership
from 21% to 16%. In 1998 Prime established a stock repurchase plan and reduced
its shares outstanding, increasing the Company's ownership percentage to
approximately 18%. 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.
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.
INVESTMENT SERVICES
Investment Services' revenues increased 73% in 1997 compared to 1996.
Approximately 71% of the increase was attributable to expanding the
broker/dealer 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.
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Investment Services' expenses increased 38% 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 SERVICES
Revenues increased 6% as a result of a higher contingent fee, which was
based on improved profits at the managed insurance company.
Expenses decreased 11% from 1996. Decreases in legal and professional fees
and lower allocated corporate overhead were the significant areas of expense
reduction.
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 rental
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 the Con-Eco note receivable being on non-accrual
during all of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
The 800% increase in expenses was a result of changes in accounting
estimates rather than fundamental changes in 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.
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LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $503,000 and $3,360,000 at December 31, 1998 and
1997, respectively. The decrease in working capital reflects the Company's cash
investment of approximately $2,000,000 in new business opportunities during
1998. Also reducing working capital was the reclassification of short-term notes
receivable to long-term upon the maker's default on the notes. 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.
In 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
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 December 31, 1998.
At March 25, 1999 $1,600,000 had been advanced.
Capital expenditures for equipment were $148,000, $312,000, and $123,000,
in 1998, 1997, and 1996, respectively. In addition, the Company improved office
space in 1998 and 1996 for $58,000 and $21,000, respectively. The Company
expects capital expenditures in 1999 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.
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YEAR 2000 PROJECT
The Company formed a Year 2000 Committee in mid 1998. The Committee was charged
with examining (1) internal hardware and software systems; (2) physical
facilities; and (3) outside suppliers, as these items relate to potential
problems that could be caused by the inability to process dates beyond December
31, 1999.
The Committee divided its task into four parts - assessment, remediation
planning, implementation and testing and contingency planning. Assessment and
remediation planning have been completed for all three phases of the project.
Implementation and testing and contingency planning are discussed below.
Internal hardware and software systems: The Company has completed substantially
all of the needed upgrades to its hardware and software systems. Software
testing is expected to be complete by April 30, 1999 and remaining hardware
purchases are expected to be complete by June 30, 1999.
Physical facilities: The Committee has evaluated its non-computer equipment and
has determined that, except for its telephone system, there are no devices whose
failure would materially affect the ability to carry out the business of the
Company. A compliant telephone system is expected to be installed by June 30,
1999. The outside managers of the Company's office buildings have reported that
all aspects of the physical facilities - elevators, fire and security systems,
etc. are compliant. Their further inquiry of those supplying public utilities
have produced assurances of best efforts but no guarantee of performance.
Outside suppliers: The Company has inquired about the state of Year 2000
readiness of those outside suppliers who were determined to be critical to the
Company's ability to carry out its business. One services supplier has been
identified as being behind in its readiness. The services are not of an
exclusive nature and alternative suppliers are being evaluated. A switch to an
alternative would be made on September 1, 1999 if the current supplier remains
non-compliant.
Contingency planning: The Company cannot be certain that it has identified and
will be successful in bringing into compliance all Year 2000 issues within its
control. It can be even less certain of critical services being supplied by
third parties beyond its control. Upon completion of the testing phase of the
plan, the Company will formalize plans for carrying on its business in the event
of unanticipated Year 2000-related failures. Presently, the Company believes
that the most reasonably likely worst case scenario would be a failure of
relatively short duration of basic third party services such as the power grid.
With such a failure the Company's planning will be directed toward a temporary
suspension of operations followed by plans for resumption and catch up
operations. Due to the magnitude of the uncertainties related to Year 2000
issues, the Company is unable to fully assess the consequences of Year 2000
failures and, consequently, there could be a material adverse effect on the
Company's results of operations, financial position and cash flows.
Year 2000 costs: The Company estimates that total expenditures to address Year
2000 issues will be $350,000, of which approximately 60% will be for capitalized
hardware purchases. The remainder of the expenditures are labor costs.
Approximately 40% of the expenditures have been
16
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made to date. Since the Company is in a constant state of upgrading its
technology and since all labor costs involve existing in- house staff, few of
the costs incurred are incremental. Extensive use of in-house MIS personnel for
Year 2000 issues has delayed implementation of other work designed to improve
user productivity and the value of information provided. The Company does not
believe such delays will have a material adverse effect on the results of
operations, financial position, or cash flows.
ITEM 7. (a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has some exposure to cash flow and fair value risk from changes
in interest rates, which may affect its financial position, results of operation
and cash flows. The Company does not use financial instruments for speculative
purposes, but does maintain a trading account inventory to facilitate the
business of its broker/dealer subsidiary. At the end of 1998 the inventory
balance was $535,000. Historically, the Company has turned this inventory
rapidly and has neither significant realized gains nor losses.
The Company has notes receivable, the largest of which is described in Item
1 and is currently in default. The fair value of this defaulted note is
determined by collateral and cash flows of the maker and is influenced little,
if any, by interest rate changes. The other notes receivable are in the form of
lines of credit to related companies and are at fixed 10% rates. Their fair
value will increase and decrease inversely with interest rates.
The Company had no debt at December 31, 1998, but has a $10 million line of
credit with a floating interest rate. For each $1 million that the Company
should borrow in 1999, a 1 1/2 % increase in interest rate would result in a
$15,000 annual increase in interest expense.
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, 1998 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.
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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 1999 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 15, 1999, the executive officers of the Company are as follows:
Name Age Position
Kenneth S. Shifrin 49 Chairman of the Board, President and
Chief Executive Officer
Duane K. Boyd, Jr. 54 Senior Vice President - Insurance
William H. Hayes 51 Senior Vice President - Finance and
Secretary
George S. Conwill 42 Vice President - Investment Services
Thomas R. Solimine 40 Controller
All officers serve until the next annual meeting of directors and until
their successors are 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 has been
President and a Director of Syntera since October 1997 and has been a member of
the Board of Directors of Uncommon Care since January 1998. 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 has been a Director of Syntera since October 1997 and a Director of
Uncommon Care since January 1998. Mr. Boyd is a Certified Public Accountant and
was with KPMG LLP from 1974 to June 1991. He was a partner specializing in the
insurance industry prior to joining the Company.
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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. Conwill has been Vice President - Investment Services since June 1998.
He has served as Chief Operating Officer of APS Financial since May 1995, and as
President and Chief Operating Officer since March 1998. In May 1998 he assumed
responsibility as President of APS Investment Services.
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 1999 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 1999 annual meeting
of shareholders, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the definitive proxy
statement of the Company to be filed in connection with its 1999 annual meeting
of shareholders, which information is incorporated herein by reference.
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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. (5)
3.2 Amended and Restated Bylaws of the Company. (5)
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. (6)
*10.7 Form of Non-Employee Directors Stock Option
Agreement. (6)
*10.8 1995 Incentive and Non-Qualified Stock Option Plan
of American Physicians Service Group, Inc. (6)
*10.9 Form of Stock Option Agreement (ISO). (6)
20
<PAGE>
*10.10 Form of Stock Option Agreement (Non-Qualified). (6)
10.11 Management Agreement of Attorney-in-Fact,
dated August 13, 1975, between FMI 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. (4)
*10.14 Profit Sharing Plan or Trust, effective December 1,
1984, of the Company. (3)
10.17 Stock Purchase Agreement dated September 30, 1996
between the Company and Exsorbet Industries, Inc.
(7)
10.18 Stock Put Agreement dated September 30, 1996
between the Company and Exsorbet Industries, Inc.
(7)
10.19 Shareholder Rights Agreement dated September 30,
1996 between the Company and Exsorbet Industries,
Inc. (7)
10.20 Warrant dated September 30, 1996 for shares of
common stock issued to the Company by Exsorbet
Industries, Inc. (7)
10.21 Contingent Warrant Agreement dated September 30,
1996 for shares of common stock issued to the
Company by Exsorbet Industries, Inc. (7)
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. (7)
10.23 Agreement dated September 30, 1996 with Exsorbet
Industries, Inc. related to options issued by
officers and directors of Exsorbet. (7)
10.24 Guaranty Agreements dated September 30, 1996
between the Company and subsidiaries of
Exsorbet Industries, Inc. (7)
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. (7)
10.26 Stock Purchase Agreement dated October 1, 1997
between the Company, APS Practice Management,
Inc., Michael Beck, John Hendrick, and et al. (8)
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<PAGE>
10.27 Bylaws of APS Practice Management, Inc., (8)
10.28 Amended and Restated Articles of Incorporation APS
Practice Management, Inc., (8)
10.29 APS Practice Management, Inc., Certificate of
Designation of Rights and Preferences Series A
Serial Founder's Common Stock dated September 30,
1997. (8)
10.30 Resolutions to organizational matters concerning
Syntera, Inc. dated October 1, 1997. (8)
10.31 Master Refinancing Agreement dated November 6,
1997 between the Company and Consolidated
Eco-Systems, Inc. (8)
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. (8)
10.33 Assignment and Security Agreement dated November
6, 1997 between the Company and Consolidated
Eco-Systems, Inc. (8)
10.34 Security Agreement dated November 6, 1997 between
the Company and Consolidated Eco-Systems, Inc.
(8)
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. (8)
*10.36 First Amendment to 1995 Incentive and Non-Qualified
Stock Option Plan of American Physicians Service
Group, Inc. Dated December 10, 1997. (8)
*10.37 First Amendment to 1995 Non-Employee Director
Stock Option Plan of American Physicians Service
Group, Inc. Dated December 10, 1997. (8)
10.38 Share Exchange Agreement dated February 16, 1998
between the Company and Michael T. Breen, M.D. (9)
10.39 Share Exchange Agreement dated April 1, 1998
between the Company and Antonio Cavazos, Jr., M.D.
(9)
10.40 Share Exchange Agreement dated April 1, 1998
between the Company and Antonio Cavazos, III, M.D.
(9)
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<PAGE>
10.41 Share Exchange Agreement dated May 18, 1998 between
the Company and Jonathan B. Buten, M.D. (9)
10.42 Share Exchange Agreement dated June 30, 1998
between the Company and Gary R. Jones, M.D. (9)
10.43 Share Exchange Agreement dated July 31, 1998
between the Company and Joe R. Childress, M.D. (9)
10.44 Share Exchange Agreement dated August 1, 1998
between the Company and M. Reza Jafarnia, M.D. (9)
10.45 Share Exchange Agreement dated September 15, 1998
between the Company and Donald Columbus, M.D. (9)
10.46 Share Exchange Agreement dated December 31, 1998
between the Company and David L. Berry, M.D. (9)
10.47 Contribution and Stock Purchase Agreement
dated January 1, 1998 between the Company,
Additional Purchasers, Barton Acquisition,
Inc., Barton House, Ltd., Barton House at
Oakwell Farms, Ltd., Uncommon Care, Inc.,
George R. Bouchard, John Trevey, and
Uncommon Partners, Ltd. (9)
10.48 Stock Transfer Restriction and Shareholders
Agreement dated January 1, 1998 between the
Company, Additional Purchasers, Barton
Acquisition, Inc., Barton House, Ltd.,
Barton House at Oakwell Farms, Ltd.,
Uncommon Care, Inc., George R. Bouchard,
John Trevey, and Uncommon Partners, Ltd. (9)
10.49 Loan Agreement dated January 1, 1998 between the
Company and Barton Acquisition, Inc. (9)
10.50 Promissory Note (Line of Credit) dated January 1,
1998 between the Company and Barton Acquisition,
Inc. in the amount of $2,400,000. (9)
10.51 Security Agreement dated January 1, 1998 between
the Company and Barton Acquisition, Inc. (9)
10.52 Participation Agreement dated March 16, 1998
between the Company and Additional Purchasers
referred to as Participants. (9)
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<PAGE>
10.53 Revolving Credit Loan Agreement dated February 10,
1998 between the Company and NationsBank of Texas,
N.A. in an amount not to exceed $10,000,000. (9)
10.54 Revolving Credit Note dated February 10, 1998
between the Company and NationsBank of Texas, N.A.
in the amount of $10,000,000. (9)
10.55 Pledge Agreement dated February 10, 1998 between
the Company and NationsBank of Texas, N.A. (9)
10.56 Continuing and Unconditional Guaranty dated
February 10, 1998 between the Company and
NationsBank of Texas, N.A. (9)
10.57 Restructuring Agreement dated March 25, 1998
between the Company and Consolidated
Eco-Systems, Inc., and all of the wholly or
partially owned subsidiaries of Consolidated
Eco-Systems, Inc. (except for 7-7, Inc.).
(9)
10.58 Assignment and security Agreement dated March 25,
1998 between the Company and Consolidated Eco-
Systems, Inc. (9)
10.59 Security Agreement dated March 25, 1998 between the
Company and Consolidated Eco-Systems, Inc. (9)
10.60 Security Agreement dated March 25, 1998 between the
Company and Eco-Acquisition, Inc. (9)
10.61 Security Agreement dated March 25, 1998 between the
Company and Exsorbet Technical Services, Inc. (9)
10.62 Security Agreement dated March 25, 1998 between the
Company and KR Industrial Service of Alabama, Inc.
(9)
21.1 List of subsidiaries of the Company. (9)
23.1.1 Independent Auditors Consent of KPMG LLP. (9)
27.1 Financial Data Schedule (EDGAR filing).
(*) Executive Compensation plans and arrangements.
- - -----------------
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(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.
(3) 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.
(4) Filed as an Exhibit to the Current Report on Form 8-K of the Company
dated September 5, 1989 and incorporated herein by reference.
(5) 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.
(6) 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.
(7) 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.
(8) Filed as an Exhibit to the Annual Report on Form 10-K of the Company
for the year ended December 31, 1997 and incorporated herein by
reference.
(9) Filed herewith.
25
<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 26, 1999
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 26, 1999
By: /s/ W. H. Hayes
W. H. Hayes
Senior Vice President - Finance, Secretary
and Chief Financial Officer
(Principal Financial Officer)
Date: March 26, 1999
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<PAGE>
By: /s/ Thomas R. Solimine
Thomas R. Solimine
Controller
(Principal Accounting Officer)
Date: March 26, 1999
By: /s/ Robert L. Myer
Robert L. Myer, Director
Date: March 26, 1999
By: /s/ William A. Searles
William A. Searles, Director
Date: March 26, 1999
27
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APPENDIX A
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report A-2
Financial Statements
Consolidated Statements of Earnings for the years
ended December 31, 1998, 1997, and 1996 A-3
Consolidated Balance Sheets at December 31, 1998
and December 31, 1997 A-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 A-7
Consolidated Statements of Shareholders' Equity
at December 31, 1998, 1997 and 1996 A-9
Notes to Consolidated Financial Statement 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, 1998 and 1997, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
--------------------------
Austin, Texas
March 9, 1999
A-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended
December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Investment services $9,914 5,726 3,302
Insurance services (Note 2) 5,655 6,287 5,942
Real estate (Note 5) 713 704 717
Investments and other 121 348 476
-------- ------- -------
Total revenues 16,403 13,065 10,437
------- ------- -------
Expenses:
Investment services 9,039 5,299 3,828
Insurance services 4,129 3,819 4,289
Real estate 527 503 521
General and administrative 1,851 1,352 150
Interest 59 21 54
------ ------ -------
Total expenses 15,605 10,994 8,842
------ ------ -------
Operating income 798 2,071 1,595
Equity in earnings of
unconsolidated affiliates (Note 13) 1,457 2,014 1,411
Gain on sale of interest in subsidiary -- 1,899 --
------ ------- -------
Earnings from continuing operations before
income taxes and minority interests 2,255 5,984 3,006
Income tax expense (Note 9) 863 2,341 1,058
Minority interests (178) (175) --
------- -------- --------
Earnings from continuing operations 1,214 3,468 1,948
------ ------ ------
Discontinued operations:
Profit/(loss) from discontinued operations net of
income tax expense/(benefit) of $171, (48)
and ($19) in 1998, 1997 and 1996, respectively 331 (94) (24)
Estimated loss on disposal of discontinued segment,
net of income tax benefit of $431 in 1997 -- (836) --
------ -------- --------
Net gain/(loss) from discontinued operations 331 (930) (24)
------- --------- --------
Net earnings $1,545 2,538 1,924
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
A-3
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS, continued
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------------
1998 1997 1996
---- ---- ------
<S> <C> <C> <C>
Earnings per common share:
Basic:
Earnings from continuing operations $0.29 0.84 0.48
Discontinued operations 0.08 (0.22) --
------ ----- ------
Net earnings $0.37 0.62 0.48
====== ===== ======
Diluted:
Earnings from continuing operations $0.24 0.81 0.46
Discontinued operations 0.07 (0.22) --
----- ----- ------
Net earnings $0.31 0.59 0.46
===== ===== ======
Basic weighted average shares
outstanding 4,163 4,106 4,025
===== ====== =======
Diluted weighted average
shares outstanding 4,692 4,241 4,219
===== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
A-4
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Year Ended
December 31,
-------------------------
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $3,214 5,188
Trading account securities 535 449
Management fees and other receivables
(Note 2) 968 815
Notes receivable, net - current (Note 3) 196 1,157
Receivable from clearing broker 1,036 543
Prepaid expenses and other 339 508
Deferred income tax asset 1,279 1,336
----- ------
Total current assets 7,567 9,996
Notes receivable, net less current portion
(Note 3) 4,287 2,982
Property and equipment, net (Note 5) 1,653 1,830
Investment in affiliates (Note 13) 17,063 15,611
Preerred stock investment 2,078 --
Other assets 266 318
------ ------
Total assets $32,914 30,737
====== ======
See accompanying notes to consolidated financial statements.
A-5
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
(In thousands, except share data)
Year Ended
December 31,
----------------------
1998 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 910 901
Payable to clearing broker 487 441
Income taxes payable 292 226
Accrued compensation 823 446
Accrued expenses and other liabilities
(Note 6) 3,273 3,286
----- ------
Total current liabilities 5,785 5,300
Deferred income tax liability
(Note 9) 2,474 2,158
----- ------
Total liabilities 8,259 7,458
------ ------
Minority interest 53 175
Shareholders' equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized -- --
Common stock, $0.10 par value,
20,000,000 shares authorized; 4,160,083
issued at 12/31/98 and 4,160,861 at
12/31/97 416 416
Additional paid-in capital 5,481 5,528
Retained earnings 18,705 17,160
------ ------
Total shareholders' equity 24,602 23,104
------ -------
Commitments and contingencies
(notes 5, 7, 8, 10, 11, 12)
Total liabilities and shareholders' equity $32,914 30,737
======= ======
See accompanying notes to consolidated financial statements.
A-6
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 16,017 13,080 11,123
Cash paid to suppliers and employees (14,390) (9,247) (11,064)
Change in trading account securities (86) 250 315
Change in receivable from clearing broker (447) (177) 501
Interest paid (59) ( 21) ( 54)
Income taxes paid (439) ( 772) ( 611)
Interest, dividends and other investment proceeds 234 219 459
------- -------- -------
Net cash provided by operating activities 830 3,332 669
------- -------- -------
Cash flows from investing activities:
Proceeds from the sale of property and
equipment 13 55 --
Payments for purchase of property and
equipment (206) ( 312) ( 144)
Net decrease in marketable securities -- 5 2,045
Proceeds from equity owners in investment 259 -- --
Investment in preferred stock (2,073) (5,292) (244)
Proceeds from sale of insurance exchange -- 1,000 --
Proceeds from sale of 20& of Insurance Services -- 2,000 --
Funds loaned to others (3,020) ( 834) (3,442)
Collection of notes receivable 2,085 109 --
Discontinued operations 502 -- --
Other -- (82) --
------- -------- ------
Net cash used in investing activities (2,440) ( 3,351) (1,785)
------- -------- ------
Cash flows from financing activities:
Repayment of long-term obligations -- ( 542) ( 163)
Proceeds from long-term obligations 8 -- --
Purchase/retire treasury stock (147) ( 337) ( 453)
Exercise of stock options 75 316 704
Distributions to minority interest (300) -- --
------- ------- ------
Net cash used in financing activities (364) (563) 88
------- ------- ------
Net change in cash and cash equivalents (1,974) ( 582) (1,028)
Cash and cash equivalents at beginning of period 5,188 5,770 6,798
----- ----- ------
Cash and cash equivalents at end of period 3,214 5,188 5,770
===== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
A-7
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In thousands)
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash from
operating activities:
Net earnings $ 1,545 2,538 1,924
Adjustments to reconcile net earnings to
net cash from operating activities:
Depreciation and amortization 618 436 324
(Earnings)/loss from discontinued operations (502) 200 --
Loss on disposal of discontinued operations -- 1,209 --
Minority interest in consolidated earnings 178 175 --
Undistributed earnings of affiliate (1,457) (2,014) (1,411)
Provision for bad debts 361 -- --
Gain on sale of fixed assets (1) -- --
Gain on sale or disposition of assets -- (2,032) --
(Gain) loss on sale of securities -- 41 (82)
Change in federal income tax payable 66 876 (584)
Provision for deferred taxes 373 56 925
Change in trading securities (86) 250 315
Change in receivable from clearing broker (447) 177 501
Change in management fees and other receivable (153) (26) 17
Change in prepaids and other current assets 169 (191) 24
Change in long term assets 52 -- 265
Change in trade payable 9 90 53
Change in accrued expenses and other liabilities 105 1,547 (1,602)
------- ------ ------
Net cash from operating activities $ 830 3,332 669
======= ====== ======
</TABLE>
Summary of non-cash transactions:
During 1998, 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 $25.
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.
See accompanying notes to consolidated financial statements
A-8
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1998,
1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Stock Paid-in Holding Retained Shareholders'
Shares Amount Capital Gains Earnings Equity
-------------- --------- ------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 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 gain 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
Net earnings -- -- -- -- 1,545 1,545
Shares issued (Note 11) 25,833 3 72 -- -- 75
Shares repurchased &
cancelled (26,611) (3) (144) -- -- (147)
Income tax benefit of non-
qualified option exercises -- -- 25 -- -- 25
-------------- ---------- ------------- ------------- ----------- --------------
Balance December 31, 1998 4,160,083 $416 5,481 -- 18,705 24,602
============== ========== ============= ============= =========== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
A-9
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) General
American Physicians Service Group, Inc. through its subsidiaries,
provides financial services that include brokerage and asset management
services to individuals and institutions, and insurance services that
consist of management services for malpractice insurance companies. The
financial services 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 47% of total revenues and
insurance services generated 45%.
American Physicians Services Group, Inc. has two affiliates; Prime
Medical Services, Inc., of which it owns approximately 18%, and Syntera
HealthCare Corporation, of which it owns approximately 62%. Prime
Medical is the country's largest provider of lithotripsy (non-invasive
kidney stone fracturing) services and Syntera is a physician practice
management company. The Company also has a preferred stock investment
in a company which develops and operates Alzheimer's care facilities.
(b) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(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"), except for its investment in Syntera. Syntera is
accounted for using the equity method, as the operating plan for
Syntera will result in the Company diluting its ownership to a non
controlling position as additional physician practices are acquired.
Investments in affiliated companies and other entities in which the
Company's investment is less than 50% of the common
A-10
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies, continued
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
Investment services revenues related to securities transactions are
recognized on a trade date basis.
Insurance 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 company will have an annual profit,
generally in the fourth quarter of each year.
Real estate rental income is recognized monthly over the term of the
lease. 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) 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
A-11
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies, continued
The Company has included its marketable securities, held as inventory
at its broker/dealer, in the trading securities category.
(f) 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).
(g) 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
asset.
(h) 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.
(i) Earnings Per Share
Basic earnings per share is based on the weighted average shares
outstanding without any diluted effects considered. Diluted earnings
per share reflect dilution from all contingently issuable shares,
including options.
(j) Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments
with an original maturity of 90 days or less.
A-12
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies, continued
(k) 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.
The present value of the impaired loan will change with the passage of
time and may change because of revised estimates of cash flows or
timing of cash flows. Such value changes shall be reported as bad debt
expense in the same manner in which impairment initially was recognized
or as a reduction in the amount of bad debt expense that would be
reported.
(l) 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.
(m) Reclassification
Certain reclassifications have been made to amounts presented in
previous years to be consistent with the 1998 presentation.
(n) Other Comprehensive Income
For the three years ended December 31, 1998, the Company has not had
any significant other comprehensive income
A-13
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(2) Management Fees and Other Receivables
Management fees and other receivables consist of the following:
December 31,
1998 1997
-------- -------
Management fees receivable $501,000 3,000
Trade accounts receivable 173,000 200,000
Less: allowance for doubtful accounts
(8,000) (25,000)
Accrued interest receivable 21,000 10,000
Other receivables 281,000 627,000
------- -------
$968,000 815,000
======== =======
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 and other related income of
$5,655,000, $6,287,000 and $5,942,000 and received expense
reimbursements of $1,420,000, $664,000 and $346,000 for the years ended
December 31, 1998, 1997 and 1996, respectively, related to these
agreements.
A-14
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(3) Notes Receivable
Notes receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
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, and interest at
the prime rate. The borrower defaulted in 1998 and the Company is in litigation
to
collect amounts owed. $156,000 176,000
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%. The Company declared the note in default in 1998 and
entered into a Restructuring Agreement in March 1999. Under the agreement the
Company obtained additional collateral and agreed to refinance the note on more
favorable terms in the future, provided that certain minimum payments are
received.
3,709,000 3,788,000
Uncommon Care, Inc.
Term Note: This note was secured by land located in Fort Bend County, Texas. The
note carried a 10% interest rate and was paid in full on January 31, 1998.
Revolving Line of Credit: This note is secured by substantially all of the assets -- 300,000
of Uncommon Care and is subordinated to bank loans for various real estate
purchases. The note is interest only at 10%, payable quarterly. Any outstanding
principal is due June 30, 2005. 745,000 --
Syntera HealthCare Corporation
This unsecured revolving line of credit bears interest at 10%. Payments are
interest only, paid quarterly through November 1, 2001, at which time the
outstanding principal balance is due. 580,000 --
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. 437,000 528,000
------- -------
5,627,000 4,792,000
Less allowance for doubtful accounts (1,144,000) (653,000)
----------- ---------
4,483,000 4,139,000
Less current portion 196,000 1,157,00
---------- ---------
Long term portion $4,287,000 2,982,000
========== =========
</TABLE>
A-15
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(3) 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, 1998 and represents a
concentration of credit risk. No interest income has been recognized by
the Company.
Following a renegotiation of the debt in November 1997, Con-Eco
defaulted on the note. Con-Eco's stock was delisted during 1998 and has
negligible value. The Company considers the loan to be impaired and has
recorded the loan as follows:
December 31,
1998 1997
---- ----
Recorded loan amount $3,709,000 3,788,000
Less allowance for impairment 880,000 488,000
---------- ---------
$2,829,000 3,300,000
========== =========
A reconciliation of the allowance for impairment follows:
Year Ended December 31,
1998 1997
------- ----------
Balance at beginning of the period 653,000 --
Additions charged to operations (100,000) (76,000)
Deductions charged to allowance 591,000 729,000
------- ----------
Balance at end of period $1,144,000 653,000
========== ==========
(4) Fair Value of Financial Instruments
Statements 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, 1998 and 1997.
For financial instruments the fair value equals the carrying value as
presented in the consolidated balance sheets. Fair value estimates,
methods, and assumptions are set forth below for the Company's
financial instruments.
A-16
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(4) 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.
Trading Account Securities
The fair value of securities owned is estimated based on bid prices
published in financial newspapers or bid quotations received from
securities dealers. 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. On notes determined to be impaired, the notes
have been discounted based on the original interest rate of the note.
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.
Preferred Stock Investment
The fair value has been determined using discounted cash flows based on
estimates of future earnings.
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. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(4) 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.
(5) Property and Equipment
Property and equipment consists of the following:
December 31,
------------------------------------------
1998 1997
----------------- ----------------
Office condominium $1,796,000 1,847,000
Furniture and equipment 3,173,000 3,758,000
--------- ---------
4,969,000 5,605,000
Accumulated depreciation
and amortization 3,316,000 3,775,000
--------- ---------
$1,653,000 1,830,000
========== =========
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, 1998, 1997 and 1996
totaled approximately $355,000, $385,000 and $379,000 respectively.
Future minimum lease payments to be received under the terms of the
office condominium leases are as follows: 1999 - $206,000, 2000 -
$114,000; 2001 - $92,000; 2002 - $44,000; and 2003 - $33,000.
A-18
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(6) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consists of the following:
1998 1997
------------- --------------
APS Systems disposition costs
(discontinued operations)
$1,026,000 1,138,000
Taxes payable - other 115,000 96,000
Deferred income 740,000 280,000
Health insurance and other claims
payable -- 59,000
Contractual/legal claims 1,096,000 1,461,000
Vacation payable 134,000 102,000
Funds held for others 20,000 58,000
Other 142,000 92,000
------- ------
$3,273,000 3,286,000
========== =========
(7) Notes Payable
The Company has established a $10,000,000 line of credit with
NationsBank of Texas, N. A. The Company will pledge shares of Prime
Medical to the bank as funds are advanced under the line. No funds had
been advanced at December 31, 1998. Funds advanced under the agreement
will bear interest at the prime rate less 1/4 %. The unused portion of
the line carries a 1/4 % commitment fee. All interest is to be paid
quarterly. Any outstanding principal is to be paid at maturity in
February 2001.
In order to receive advances under the line, the Company must maintain
certain levels of liquidity and net worth. In addition, the market
value of the collateral must exceed a certain multiple of the funds
advanced under the line and there must be no occurrence which would
have a material adverse effect on the Company's ability to meet its
obligations to the bank.
A-19
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(8) Commitments and Contingencies
The Company has extended a line of credit to Syntera HealthCare
Corporation to a maximum amount of $3,000,000. The note is interest
only at 10%, payable quarterly. The note matures November 1, 2001, at
which time all principal and accrued but unpaid interest are due.
Advances under the line are subject to Syntera meeting certain
qualifications at the date of each advance request.
The Company has extended a line of credit to Uncommon Care, Inc. to a
maximum amount of $2,400,000. The note is interest only at 10%, payable
quarterly. The note matures June 30, 2005, at which time all principal
and accrued but unpaid interest are due. Advances under the line are
subject to Uncommon Care meeting certain qualifications at the date of
each advance request.
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, 1998, 1997 and 1996 was $44,000, $89,000 and $51,000 respectively.
Future minimum payments for leases which extend for more than one year
were $96,000 at December 31, 1998.
The Company is involved in various claims and legal actions that have
arisen in the ordinary course of business. Management believes that any
liabilities arising from these actions will not have a significant
adverse effect on the financial condition of the Company.
A-20
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(9) Income Taxes
Income tax expense (benefit) consists of the following:
Year Ended
December 31,
------------------------------------------
1998 1997 1996
---- ---- ----
Continuing Operations
Federal
Current $332,000 1,394,000 47,000
Deferred 399,000 777,000 938,000
State 132,000 170,000 73,000
Discontinued Operations 171,000 (479,000) (13,000)
------- --------- -------
$1,034,000 1,862,000 1,045,000
========== ========= =========
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 tax expense in the accompanying consolidated
statements of earnings follows:
Year Ended
December 31,
--------------------------------------------
1998 1997 1996
---- ---- ----
Expected federal income tax
expense
$877,000 1,556,000 972,000
State taxes 132,000 170,000 73,000
Other, net 25,000 136,000 --
-------- --------- -------
$1,034,000 1,862,000 1,045,000
========== ========= =========
The tax effect of temporary differences that gives rise to significant
portions of deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
A-21
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
Year Ended
December 31,
----------------------------
(9) Income Taxes, continued
1998 1997
---- ----
Deferred tax assets:
Net operating loss carryforwards $186,000 188,000
Accrued expenses 774,000 1,015,000
Accounts receivable, principally due to
allowance for doubtful accounts 94,000 79,000
Deferred income 378,000 228,000
Market value allowance 17,000 --
Other 48,000 71,000
------- ---------
Total gross deferred tax assets 1,497,000 1,581,000
Less valuation allowance (186,000) (188,000)
--------- ---------
Net deferred tax assets 1,311,000 1,393,000
--------- ---------
Deferred tax liabilities:
Investment in Prime Medical Services, Inc.
due to use of equity method for books (2,474,000) (2,158,000)
Capitalized expenses, principally due to
deductibility for tax purposes (32,000) (57,000)
-------- --------
Total gross deferred tax liabilities (2,506,000) (2,215,000)
----------- -----------
Net deferred tax liability $(1,195,000) (822,000)
=========== =========
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, 1998 and 1997 was a (decrease)/increase of ($2,000)
and $188,000, respectively. The Company believes that the valuation
allowance at December 31, 1998 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, 1998, net operating loss carryforwards available to
reduce future taxable income amounted to approximately $548,000 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 than not the
Company will realize the benefits of these deductible differences, net
of the existing valuation allowances at December 31, 1998.
A-22
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(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 $10,000 in
1998) 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, 1998, 1997 and 1996,
contributions by the Company aggregated, $126,000, $92,000 and
$104,000, 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 Directors Plan is inactive and it is
assumed the remaining 50,000 shares will not be issued. The Incentive
Plan, as amended with shareholder approval in 1998, provides for the
issuance of up to 1,200,000 share 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 has 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
approximately 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 1998, 1997 or 1996. 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:
A-23
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(11) Stock Options, continued
Year Ended December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
Pro forma net income $810,000 1,989,000 1,634,000
Pro forma earnings per share-basic 0.19 0.48 0.41
- diluted 0.16 0.46 0.39
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:
1998 1997 1996
---- ---- ----
Risk-free interest rate 5.21% 6.16% 6.06%
Expected holding period 3.90 years 3.90 years 3.75 years
Expected volatility .401 .480 .692
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 non-vested 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, 1998, 1997 and 1996. Remaining options outstanding
from the Company's previous 1983 plans are included.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1998 1997 1996
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 1 774,000 $6.60 651,000 $5.64 837,000 $2.18
Options granted 597,000 5.92 293,000 9.32 295,000 9.32
Options exercised 26,000 2.90 165,000 1.92 450,000 1.56
Options forfeited/expired -- -- 5,000 7.13 31,000 6.16
Balance at December 31 1,345,000 6.36 774,000 6.60 651,000 5.64
========= ==== ======= ==== ======= ====
Options exercisable 460,000 $6.44 244,000 $5.84 258,000 $2.22
======= ===== ======= ===== ======= =====
</TABLE>
A-24
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(11) Stock Options, continued
The weighted average fair value of Company stock options, calculated
using the Black Scholes option pricing model, granted during the years
ended December 31, 1998, 1997 and 1996 is $2.33, $2.68 and $5.15 per
option, respectively.
The following table summarizes the Company's options outstanding and
exercisable options at December 31, 1998:
<TABLE>
<CAPTION>
Stock Options Stock Options Exercisable
Outstanding
-------------------------------------------- -----------------------------
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 $5.00 390,000 3.4 years $3.65 159,000 $3.12
$5.01 to $7.75 722,000 3.8 years $6.65 149,000 $6.95
$7.76 to $10.50 233,000 2.5 years $10.00 152,000 $10.05
--------- -------
Total 1,345,000 460,000
========= =======
</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 originally assumed that all clients would have migrated to
other software products by the end of 1999 and reflected the expected
financial impact of discontinuing this segment on that date in the 1997
financial statements. The measurement date for determining expected
losses from the disposal was May 15, 1997. Termination of support for
one client, whose contract runs until 2002, may now extend past
December 31, 1999. Consequently, the Company has adjusted its loss
allowance and believes that such allowance is adequate to cover
potential future obligations.
A-25
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(12) Discontinued Operations, continued
Net assets/(liabilities) of the discontinued computer systems and
software segment as of December 31, 1998 consisted of the following:
Cash and cash investments $31,000
Trade accounts receivable 126,000
Other receivables 14,000
Prepaid and other current assets 13,000
Fixed assets, net of depreciation 22,000
Intercompany receivables 1,118,000
Trade accounts payable (3,000)
Accrued expenses (1,066,000)
-----------
Net assets $255,000
========
Summary operating data for the year ended December 31, 1998 is as
follows:
Total revenue $2,039,000
Cost of sales (310,000)
Other operating expenses (1,038,000)
Allowance for future client support (189,000)
Income taxes (171,000)
--------
Net income $331,000
========
(13) Investments 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
seven 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, the sale of Prime Medical shares owned by the Company
under an option agreement, and the repurchase by Prime Medical of its
own shares, in the aggregate, have reduced the Company's ownership to
18% 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 $22,409,000 (carrying amount of
$13,089,000) at December 31, 1998 based on the market closing price of
$7.3125 per share.
A-26
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(13) Investments in Affiliates, continued
At December 31, 1998 and 1997, the Company's retained earnings included
undistributed earnings, net of deferred tax, of Prime Medical totaling
$5,583,000 and $4,379,000, respectively.
The condensed balance sheet and statement of operations for Prime
Medical follows:
Condensed balance sheet at December 31, 1998 and 1997
1998 1997
---- ----
Current assets $70,006,000 47,542,000
Long-term assets 171,320,000 178,284,000
----------- -----------
Total assets $241,326,000 225,826,000
============ ===========
Current liabilities $28,465,000 37,383,000
Long-term liabilities 123,111,000 96,379,000
Shareholders' equity 89,750,000 92,064,000
---------- ----------
Total liabilities and equity $241,326,000 225,826,000
============ ===========
Condensed statement of operations
for the years ended December 31, 1998
and 1997
1998 1997
---- ----
Total revenue $104,636,000 95,979,000
============ ==========
Net income $10,794,000 14,856,000
=========== ==========
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 62%) 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 1998 and
1997.
A-27
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(13) Investments in Affiliates, continued
The condensed balance sheet and statement of operations for Syntera
follows:
Condensed balance sheet at December 31, 1998 and 1997
1998 1997
---- ----
Current assets $2,350,000 4,563,000
Long-term assets 5,431,000 1,664,000
--------- ---------
Total assets $7,781,000 6,227,000
========== =========
Current liabilities $593,000 $505,000
Long-term liabilities 580,000 --
Shareholders' equity 6,608,000 5,722,000
--------- ---------
Total liabilities and equity $7,781,000 6,227,000
========== =========
Condensed statement of operations for
the years ended December 31, 1998
and 1997
1998 1997
---- ----
Total revenue $4,640,000 297,000
========== =======
Net loss $537,000 460,000
======== =======
(14) Segment Information
The Company's segments are distinct by type of service provided. Each
segment has its own management team and separate financial reporting.
The Company's Chief Executive Officer allocates resources and provides
overall management based on the segments' financial results.
The Company's investment services segment includes brokerage and asset
management services to individuals and institutions.
The insurance services segment includes financial management for an
insurance company that provides professional liability insurance to
doctors.
Real Estate income is derived from the leasing of office space.
Corporate is the parent company and derives its income from interest
and investments.
Discontinued operations include medical software sales.
A-28
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(14) Segment Information, continued
1998 1997 1996
---- ---- ----
Operating Revenues:
Investment services $9,914,000 5,726,000 3,302,000
Insurance services 5,655,000 6,287,000 5,942,000
Real estate 865,000 867,000 828,000
Corporate 1,721,000 982,000 2,376,000
--------- ------- ---------
$18,155,000 13,862,000 12,448,000
=========== ========== ==========
Reconciliation to Consolidated
Statement of Earnings:
Total segment revenues 18,155,000 13,862,000 12,448,000
Less: intercompany profits (152,000) (163,000) (111,000)
intercompany dividends (1,600,000) (634,000) (1,900,000)
---------- --------- -----------
Total Revenues $16,403,000 13,065,000 10,437.000
=========== ========== ==========
Operating Profit (Loss):
Investment services $810,000 372,000 (559,000)
Insurance services 1,437,000 2,385,000 1,591,000
Real estate 338,000 362,000 258,000
Corporate (189,000) (389,000) 2,214,000
--------- --------- ---------
$2,398,000 2,930,000 3,504,000
========= ========= =========
Reconciliation to Consolidated
Statement of Earnings:
Total segment operating profits 2,398,000 2,730,000 3,504,000
Less: intercompany dividends (1,600,000) (634,000) (1,900,000)
other -- (25,000) (10,000)
---------- ---------- ---------
Operating Income $798,000 2,091,000 1,595,000
Equity in earnings of affiliates 1,457,000 2,014,000 1,411,000
Gain on sale of interest
in subsidiary -- 1,899,000 --
--------- --------- ---------
Earnings from continuing operations
before income taxes and minority
interests
2,255,000 5,984,000 3,006,000
Income tax expense 863,000 2,341,000 1,058,000
Minority interests (178,000) (175,000) --
--------- --------- --------
Earnings from continuing
operations 1,214,000 3,468,000 1,948,000
--------- --------- ---------
Net profit(loss) from discontinued
operations, net of income tax 331,000 (930,000) (24,000)
------- --------- --------
A-29
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(14) Segment Information, continued
1998 1997 1996
---- ---- ----
Net earnings $1,545,000 2,538,000 1,924,000
========== ========= =========
Identifiable assets:
Investment Services $3,752,000 2,346,000 1,618,000
Insurance Services 1,640,000 2,585,000 1,144,000
Real Estate 1,324,000 1,283,000 1,476,000
Corporate:
Investment in equity
method investees 17,064,000 15,606,000 8,905,000
Other 8,928,000 8,561,000 12,071,000
Discontinued Operations 206,000 356,000 --
------- ------- ----------
$32,914,000 30,737,000 25,214,000
========== ========== ==========
Capital expenditures:
Investment Services $55,000 154,000 33,000
Insurance Services 44,000 33,000 55,000
Real Estate 58,000 -- 21,000
Corporate 49,000 26,000 17,000
Discontinued Operations -- 99,000 18,000
-------- ------ ------
$206,000 312,000 144,000
======== ======= =======
Depreciation/amortization
expenses:
Investment Services $279,000 118,000 33,000
Insurance Services 90,000 90,000 125,000
Real Estate 107,000 110,000 129,000
Corporate 78,000 62,000 13,000
Discontinued Operations 64,000 56,000 24,000
------ ------ ------
$618,000 436,000 324,000
======== ======= =======
Revenues attributable to customers
generating greater than 10% of the
consolidated revenues of the Company:
Insurance services
Company A 3,970,000 4,659,000 4,412,000
========= ========= =========
A-30
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(14) Segment Information, continued
At December 31, 1998 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.
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, notes receivable and
investments in affiliates and preferred stock.
(15) Earning Per Share
Basic earnings per share are 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 convertible 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, 1998
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ----------- --------
Earnings from continuing
operations $1,214,000
Basic EPS
Income available to common
stockholders 1,214,000 4,163,000 $.29
====
Effect of Dilutive Securities
Options -- 74,000
Contingently issuable shares (76,000) 456,000
-------- -------
Diluted EPS
Income available to common
stockholders and assumed
conversions $1,138,000 4,692,000 $.24
========== ========= ====
A-31
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(15) Earning Per Share, continued
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
========== ========= ====
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 $1,948,000 4,219,000 $.46
========== ========= ====
A-32
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1998, 1997 and 1996
(15) Earning Per Share, continued
At December 31, 1998 the Company's affiliate, Syntera, had issued
620,000 shares which are convertible into 724,000 of the Company's
common shares in the event that the Syntera shares are not publicly
tradable after a future date. Such conversion rights are in varying
amounts beginning in October 1999 and extending through January 2002.
Unexercised employee stock options to purchase 295,000, 295,000 and 244,000
shares of the Company's common stock as of December 31, 1998, 1997 and 1996,
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.
A-33
Exhibit 10.38
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 16th day of February, 1998, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Michael T. Breen, 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 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 has acquired or will acquire 75,000 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 are 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 two (2) years
following the date hereof (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
2
<PAGE>
PM Shares, and the PM Shares are free of any
and all liens, claims or encumbrances of any kind whatsoever; and
(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.
3
<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, 55,000 of the PM Shares shall be eligible for
conversion as provided in this Agreement; and the remaining 20,000 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 $450,000 during any twelve (12) consecutive calendar monthly period
ending on or prior to the Determination Date, then no portion of the 20,000 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 $450,000, then the
percentage of the 20,000 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 20,000 by a fraction, the
numerator of which is the amount by which Clinic PAE exceeds $400,000 (but not
greater than $100,000 in any event), and the denominator of which is $100,000.
4
<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 $450,000 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
65,000 determined as follows:
$450,000 - $400,000 x 20,000 = 10,000
-------------------
$100,000 55,000
------
65,000
(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
Practice
5
<PAGE>
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
6
<PAGE>
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.
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.
7
<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)
when personally delivered
8
<PAGE>
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: Michael T. Breen, M.D.
3100 Above Stratford Place
Austin, Texas 78746
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/ William H. Hayes
----------------------
Printed Name: William H. Hayes
----------------------
Title: Sr. VP Finance
SHAREHOLDER:
/s/ Michael T. Breen, M.D.
----------------------------
9
Exhibit 10.39
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 1st day of April, 1998, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Antonio Cavazos, Jr., 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 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 has acquired or will acquire 30,276 shares
(the "PM Shares") of the $0.001 par value per share common stock of APS Practice
Management, Inc., a Texas corporation ("Practice Management"); 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.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
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 March 31, 2000
(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
2
<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.
3. SHARE CONVERSION. Shareholder's right to exchange its PM Shares
hereunder shall apply as to all, but not less than all, of the PM Shares. 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
3
<PAGE>
Expiration Date. For purposes hereof, any additional
shares of Practice Management stock of any class which Shareholder obtains
pursuant to stock dividends, stock splits, reverse stock splits or
recapitalizations to which Practice Management or the PM Shares are subject
after the date this Agreement was originally entered into as first written above
shall also be considered to be included in the PM Shares; however, no adjustment
or modification will be made to the per share price hereunder of Practice
Management stock as a result of any such transaction. At the Closing,
Shareholder shall be entitled to receive such shares of APS Common as is
determined by dividing $5.00 per share (the "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.
At the Closing, Shareholder shall tender its share certificate(s) for
all of the 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 PM Shares and that the 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
4
<PAGE>
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.
4. NEW APS SHARES TRANSFERABILITY. APS will have registered, at its
expense, 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
5
<PAGE>
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.
5. MISCELLANEOUS.
(a) FEES AND EXPENSES. Except as otherwise herein provided,
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
6
<PAGE>
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)
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: Antonio Cavazos, Jr., M.D.
8235 Fredericksburg Road
San Antonio, Texas 78229
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
7
<PAGE>
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/ William H. Hayes
------------------------
Printed Name: William H. Hayes
------------------------
Title: Sr. VP Finance
------------------------
SHAREHOLDER:
/s/ Antonio Cavazos, Jr., M.D.
------------------------------
8
Exhibit 10.40
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 1st day of April, 1998, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Antonio Cavazos, III, M.D.
(the "Shareholder").
R E C I T A L S:
WHEREAS, pursuant to that certain Asset Purchase Agreement (the
"Purchase Agreement") entered into by Shareholder of even date herewith and the
other contracts and agreements to which Shareholder was, or was to be, a party
as contemplated in the Purchase Agreement (the Purchase Agreement and all such
other contracts and agreements are hereinafter referred to collectively as the
"Acquisition Documents"), Shareholder has acquired or will acquire 70,000 shares
(the "PM Shares") of the $0.001 par value per share common stock of APS Practice
Management, Inc., a Texas corporation ("Practice Management"); 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 are 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 March 31, 2000
(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
2
<PAGE>
PM Shares, and the PM Shares are free of any
and all liens, claims or encumbrances of any kind whatsoever; and
(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.
3
<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, 30,000 of the PM Shares shall be eligible for
conversion as provided in this Agreement; and the remaining 40,000 PM Shares, or
a portion thereof, will only be eligible for an exchange hereunder in the event
there is consummation of a transaction between Practice Management and one or
more physicians (or their professional associations) in Bexar County, Texas,
save and except for those physicians set forth on Exhibit A attached hereto and
incorporated herein for all purposes, whereby each such physician enters into
binding and enforceable agreements with Practice Management of the type and
nature ordinarily relied upon by Practice Management in its dealings with
physicians on or before the Determination Date. In the event that there is a
consummation of any such transaction on or before the Determination Date, then
the portion of the 40,000 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 5,000 by the number of
physicians in Bexar County, Texas, save and except for those physicians set
forth on Exhibit A attached hereto and incorporated herein for all purposes,
consummating such transactions.
Notwithstanding the above or any other provision in this
Agreement, (i) the Shareholder shall not benefit from, and the above provisions
shall not apply to, any such
4
<PAGE>
transaction between Practice Management and any of
the physicians set forth on Exhibit A attached hereto and (ii) any portion of
the 40,000 PM Shares which have not, as of the Determination Date, become
eligible for exchange hereunder (pursuant to the above provisions) shall no
longer be eligible for exchange under any circumstances.
(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 $5.00 per share (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 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.
5
<PAGE>
(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.
4. NEW APS SHARES TRANSFERABILITY. APS will have registered at its
expense 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).
6
<PAGE>
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.
5. MISCELLANEOUS.
(a) Fees and Expenses. Except as otherwise herein provided,
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
7
<PAGE>
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)
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: Antonio Cavazos, III, M.D.
4499 Medical Drive, Suite 102
San Antonio, Texas 78229
8
<PAGE>
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
9
<PAGE>
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/ William H. Hayes
----------------------
Printed Name: William H. Hayes
----------------------
Title: Sr. VP Finance
----------------------
SHAREHOLDER:
/s/ Antonio Cavazos, III, M.D.
-------------------------------
10
Exhibit 10.41
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and
entered into as of the 18th day of May 1998, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Jonathan B. Buten,
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 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 has acquired or will acquire 68,250 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 are 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 May 19, 2000 (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
2
<PAGE>
PM Shares, and the PM Shares are free of any
and all liens, claims or encumbrances of any kind whatsoever; and
(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.
3
<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, 47,250 of the PM Shares shall be eligible for
conversion as provided in this Agreement; and the remaining 21,000 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 $315,000 during any twelve (12) consecutive calendar monthly period
ending on or prior to the Determination Date, then no portion of the 21,000 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 $315,000, then the
percentage of the 21,000 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 21,000 by a fraction, the
numerator of which is the amount by which Clinic PAE exceeds $280,000 (but not
greater than $70,000 in any event), and the denominator of which is $70,000.
4
<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 $315,000 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
57,750 determined as follows:
$315,000- $280,000 x 21,000 = 10,500
------------------
$70,000
+ 47,250
-------
57,750
=======
(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
5
<PAGE>
given to stock
dividends, stock splits, reverse stock splits or recapitalizations to which
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
6
<PAGE>
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.
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.
7
<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)
when personally delivered
8
<PAGE>
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:
9
<PAGE>
APS: American Physicians Service Group, Inc.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746-6550
Attn: President
Shareholder: Jonathan B. Buten, M.D.
5801 Round Table Cove
Austin, Texas 78746
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/ William H Hayes
---------------------
Printed Name: William H Hayes
---------------------
Title: Sr. VP Finance
---------------------
SHAREHOLDER:
/s/ Jonathan B. Buten, M.D.
------------------------------
Exhibit 10.42
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 30th day of June, 1998, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Gary R. Jones, 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 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 has acquired or will acquire 33,934 shares
(the "PM Shares") of the $0.001 par value per share common stock of Syntera
HealthCare Corporation, a Texas corporation ("Syntera") for a consideration of
$5 per PM Share (in aggregate, 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.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
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 July 1, 2000 (the
"Determination Date"), any registered public offering of the common stock of
Syntera, or any other transaction or event pursuant to which shares of Syntera
of the same class as the PM Shares shall have become publicly traded at a per
share price of greater than $5; 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"), materially in breach of, or default under, this
Agreement, any of the Acquisition Documents or any other contract or agreement
to which Shareholder and Syntera and/or APS are parties, and Shareholder shall
not have threatened to materially 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
2
<PAGE>
(d) At or before the Closing Date, Syntera shall not be, or
have been, a party to any merger, consolidation or similar transaction, or
agreement with respect thereto, pursuant to
3
<PAGE>
which Syntera 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 his right to exchange his 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.
3. SHARE CONVERSION. Shareholder's right to exchange his PM Shares
hereunder shall apply as to all, but not less than all, of the PM Shares. 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 later of (i) the Expiration Date, or (ii) in the
event a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 4
hereof, the day on which such Lock-Up Period ends.. For purposes hereof, any
additional shares of Syntera stock of any class which Shareholder obtains
4
<PAGE>
pursuant to stock dividends, stock splits, reverse stock splits or
recapitalizations to which Syntera or the PM Shares are subject after the date
this Agreement was
5
<PAGE>
originally entered into as first written above shall also be considered to be
included in the PM Shares; however, no adjustment or modification will be made
to the Exchange Value as a result of any such transaction. At the Closing,
Shareholder shall be entitled to receive such shares of APS Common as is
determined by dividing the 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.
At the Closing, Shareholder shall tender his share certificate(s) for
all of the 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 PM Shares and that the 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
6
<PAGE>
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.
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 (the "Lock-Up Period").
7
<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 Travis County, 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.
8
<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: Gary R. Jones, M.D.
1500 W. 38th Street, Suite 25
Austin, Texas 78731
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
9
<PAGE>
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/ William H Hayes
--------------------
Printed Name: William H Hayes
--------------------
Title: Sr. VP Finance
--------------------
SHAREHOLDER:
/s/ Gary R. Jones, M.D.
-----------------------
10
Exhibit 10.43
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of July, 1998, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Joe R. Childress, 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 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 has acquired or will acquire 55,200 shares
(the "PM Shares") of the $0.001 par value per share common stock of Syntera
HealthCare Corporation, f.k.a. APS Practice Management, Inc., a Texas
corporation ("Syntera"); 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 are 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 July 31st, 2000
(the "Determination Date"), any registered public offering of the common stock
of Syntera, or any other transaction or event pursuant to which shares of
Syntera of the same class as the PM Shares shall have become publicly traded;
provided that Syntera shall not go public at a per share price of less than $5;
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 Syntera 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
2
<PAGE>
PM Shares, and the PM Shares are free of any
and all liens, claims or encumbrances of any kind whatsoever; and
(d) At or before the Closing Date, Syntera shall not be, or
have been, a party to any merger, consolidation or similar transaction, or
agreement with respect thereto, pursuant to which Syntera 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.
3. SHARE CONVERSION. Shareholder's right to exchange its PM Shares
hereunder shall apply as to all, but not less than all, of the PM Shares. In the
event Shareholder has complied with all of the conditions allowing for an
exchange pursuant to this Agreement, the closing of
3
<PAGE>
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 later of (i) the Expiration Date, or (ii) in the
event a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 4
hereof, the day on which such Lock-Up Period ends. For purposes hereof, any
additional shares of Syntera stock of any class which Shareholder obtains
pursuant to stock dividends, stock splits, reverse stock splits or
recapitalizations to which Syntera or the PM Shares are subject after the date
this Agreement was originally entered into as first written above shall also be
considered to be included in the PM Shares; however, no adjustment or
modification will be made to the per share price hereunder of Syntera stock as a
result of any such transaction. At the Closing, Shareholder shall be entitled to
receive such shares of APS Common as is determined by multiplying the number of
PM Shares referred to in the Recitals to this Agreement by $5, and dividing such
amount (the "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.
At the Closing, Shareholder shall tender its share certificate(s) for
all of the 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
4
<PAGE>
in and to the PM Shares and that the 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.
4. NEW APS SHARES TRANSFERABILITY. APS will have registered, at its
expense, 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
5
<PAGE>
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 (the "Lock-Up Period").
5. MISCELLANEOUS.
(a) FEES AND EXPENSES. Except as otherwise herein provided,
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.
6
<PAGE>
(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)
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: Joe R. Childress, M.D.
8601 Village Drive, Suite 118
San Antonio, Texas 78217
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
7
<PAGE>
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/ William H Hayes
---------------------
Printed Name: William H Hayes
---------------------
Title: Sr VP Finance
---------------------
SHAREHOLDER:
/s/ Joe R. Childress, M.D.
--------------------------
8
Exhibit 10.44
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement this "Agreement") is made and entered
into as of the 1st day of August, 1998, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and M. Reza Jafarnia, M.D.
(the "Shareholder").
R E C I T A L S:
WHEREAS, pursuant to that certain Asset Purchase Agreement (the "Asset
Purchase Agreement") entered into by Shareholder of even date herewith and the
other contracts and agreements to which Shareholder was, or was to be, a party
as contemplated in the Asset Purchase Agreement (the Asset Purchase Agreement
and all such other contracts and agreements are hereinafter referred to
collectively as the "Acquisition Documents"), Shareholder has acquired or will
acquire 92,557 shares (the "PM Shares") of the $0.001 par value per share common
stock of Syntera HealthCare Corporation, a Texas corporation ("Syntera") for a
consideration of $5 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 are 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 June 30, 2000 (the
"Determination Date"), any registered public offering of the common stock of
Syntera, or any other transaction or event pursuant to which shares of Syntera
of the same class as the PM Shares shall have become publicly traded, at a per
share price of greater than $5; and
(b) Shareholder shall not be, on 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 Syntera and/or APS are
parties; 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
2
<PAGE>
(d) At or before the Closing Date, Syntera shall not be, or
have been, a party to any merger, consolidation or similar transaction, or
agreement with respect thereto, pursuant to which Syntera 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.
3. SHARE CONVERSION. Shareholder's right to exchange its PM Shares
hereunder shall apply as to all, but not less than all, of the PM Shares. 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 later
3
<PAGE>
of (i) the Expiration Date, or (ii) in the
event a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 4
hereof, the day on which such Lock-Up Period ends. For purposes hereof, any
additional shares of Syntera stock of any class which Shareholder obtains
pursuant to stock dividends, stock splits, reverse stock splits or
recapitalizations to which Syntera or the PM Shares are subject after the date
this Agreement was originally entered into as first written above shall also be
considered to be included in the PM Shares; however, no adjustment or
modification will be made to the Exchange Value as a result of any such
transaction. At the Closing, Shareholder shall be entitled to receive such
shares of APS Common as is determined by dividing the 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.
At the Closing, Shareholder shall tender its share certificate(s) for
all of the 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 PM Shares and that the 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
4
<PAGE>
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.
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
5
<PAGE>
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 (the "Lock-Up Period").
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
6
<PAGE>
their respective heirs, legal representatives, successors and
permitted assigns. Except for a one-time transfer to Shareholder's estate upon
the death of Shareholder, 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)
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: M. Reza Jafarnia, M.D.
9041 Briar Forrest Drive
Houston, TX 77024
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
7
<PAGE>
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/ William H Hayes
---------------------
Printed Name: William H Hayes
---------------------
Title: Sr. VP Finance
---------------------
SHAREHOLDER:
/s/ M. Reza Jafarnia, M.D.
--------------------------
8
Exhibit 10.45
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 15th day of September, 1998, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Donald Columbus, 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 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 has acquired or will acquire Seventy Four
Thousand Four Hundred Forty Eight (74,448) shares (the "PM Shares") of the
$0.001 par value per share common stock of Syntera HealthCare Corporation, a
Texas corporation ("Syntera") for a consideration of $5 per PM Share (in
aggregate, 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 are 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 September 1, 2000
(the "Determination Date"), any registered public offering of the common stock
of Syntera, or any other transaction or event pursuant to which shares of
Syntera of the same class as the PM Shares shall have become publicly traded, at
a per share price of greater than $5; and
(b) Shareholder shall not be, on 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 Syntera and/or APS are
parties; 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
2
<PAGE>
(d) At or before the Closing Date, Syntera shall not be, or
have been, a party to any merger, consolidation or similar transaction or
agreement with respect thereto, pursuant to which (i) Syntera was not, or would
not be, the named surviving entity after such merger, consolidation or other
transaction and (ii) dissenting shareholders have a legal right of redemption or
appraisal.
2. EXCHANGE NOTICE. In the event the conditions described in
subsections (a) and (d) of 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 subsections (a) and (d) of
Section 1 above, fail to be satisfied on or prior to the Determination Date, or
(ii) any of the conditions specified in subsections (b) or (c) of Section 1 fail
to be satisfied on 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.
3. SHARE CONVERSION. Shareholder's right to exchange its PM Shares
hereunder shall apply as to all, but not less than all, of the PM Shares. 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
3
<PAGE>
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 later of (i) the Expiration Date, or (ii) in the
event a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 4
hereof, the day on which such Lock-Up Period ends. For purposes hereof, any
additional shares of Syntera stock of any class which Shareholder obtains
pursuant to stock dividends, stock splits, reverse stock splits or
recapitalizations to which Syntera or the PM Shares are subject after the date
this Agreement was originally entered into as first written above shall also be
considered to be included in the PM Shares; however, no adjustment or
modification will be made to the Exchange Value as a result of any such
transaction. At the Closing, Shareholder shall be entitled to receive such
shares of APS Common as is determined by dividing Three Hundred Seventy Two
Thousand Two Hundred Forty Dollars ($372,240) 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.
At the Closing, Shareholder shall tender its share certificate(s) for
all of the 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 PM Shares and that the PM Shares are being transferred to APS free
and clear of all liens, claims or encumbrances of any kind whatsoever.
4
<PAGE>
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.
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
5
<PAGE>
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 ( the "Lock-Up Period").
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.
6
<PAGE>
(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)
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: Donald Columbus, M.D.
2400 Highway 365, Suite 101
Nederland, Texas 77627-6268
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
7
<PAGE>
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/ William H Hayes
-------------------
Printed Name: William H Hayes
-------------------
Title: Sr. VP Finance
-------------------
SHAREHOLDER:
/s/ Donald G. Columbus, M.D.
----------------------------
8
Exhibit 10.46
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of December, 1998, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and David L.
Berry, 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 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 has acquired or will acquire 64,642 shares
(the "PM Shares") of the $0.001 par value per share common stock of Syntera
HealthCare Corporation, a Texas corporation ("Syntera") for a consideration of
$7.70 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.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are 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:
<PAGE>
(a) There shall not have been, on or before December 1, 2001
(the "Determination Date"), any registered public offering of the common stock
of Syntera, or any other transaction or event pursuant to which shares of
Syntera of the same class as the PM Shares shall have become publicly traded at
a per share price of greater than $7.70 (as adjusted for stock splits, stock
dividends, combinations and other recapitalizations); 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 Syntera 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
(d) At or before the Closing Date, Syntera shall not be, or
have been, a party to any merger, consolidation or similar transaction, or
agreement with respect thereto, pursuant to which Syntera 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
2
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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.
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, 35,422 of the PM Shares shall be eligible for
conversion as provided in this Agreement; and the remaining 29,220 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 $450,000 during any twelve (12) consecutive calendar monthly period
ending on or prior to the Determination Date, then no portion of the 29,220 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 $450,000, then the
percentage of the 29,220 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 29,220 by a fraction, the
numerator of which is the amount by which Clinic PAE exceeds $400,000 (but not
greater than $100,000 in any event), and the denominator of which is $100,000.
3
<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 $475,000 for the 12 months ended December
31, 1999, 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
determined as follows:
$475,000 - $400,000 x 29,220 = 21,915
-------------------
$100,000
+ 35,422
------
57,337
======
(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 later of (i) the Expiration Date, or
(ii) if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section
4 hereof, the day on which such Lock-Up Period ends. 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
Syntera 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
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<PAGE>
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.
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
5
<PAGE>
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 (the "Lock-Up Period").
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.
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<PAGE>
(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) 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: David L. Berry, M.D.
1111 West 34th Street, Suite 301
Austin, Texas 78705
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
[Signature page follows]
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<PAGE>
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/ William H Hayes
--------------------
Printed Name: William H Hayes
--------------------
Title: Sr VP Finance
--------------------
SHAREHOLDER:
/s/ David L. Berry, M.D.
------------------------
8
Exhibit 10.47
CONTRIBUTION
AND
STOCK PURCHASE AGREEMENT
This Contribution and Stock Purchase Agreement (this "Agreement"),
dated as of January 1, 1998 (the "Effective Time"), by and among American
Physicians Service Group, Inc., a Texas corporation ("APS"), those individuals
or entities set forth on Appendix I attached hereto (individually an "Additional
Purchaser" and collectively the "Additional Purchasers"), Barton Acquisition,
Inc., a Texas corporation ("Newco"), Barton House, Ltd., a Texas limited
partnership ("Barton House"), Barton House at Oakwell Farms, Ltd., a Texas
limited partnership ("Oakwell"), Uncommon Care, Inc., a Texas corporation (the
"General Partner"), George R. Bouchard ("Bouchard"), John H. Trevey ("Trevey")
and Uncommon Partners, Ltd., a Texas limited partnership (the "Limited
Partner"). Barton House and Oakwell are sometimes collectively referred to
herein as the "Partnerships."
PRELIMINARY STATEMENTS
The General Partner is the sole general partner of each of the
Partnerships, and the Limited Partner, Bouchard and Trevey are the only limited
partners of each of the Partnerships.
Bouchard and Trevey own one hundred percent (100%) of the issued and
outstanding capital stock of the General Partner.
<PAGE>
The parties desire for Newco to acquire substantially all of the
business and assets of the Partnerships and certain of the business and assets
of the General Partner, and to assume certain liabilities of the Partnerships
and the General Partner, on the terms and subject to the conditions contained
herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good, valuable and binding consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
AGREEMENT OF PURCHASE AND SALE
Section 1.1 CONTRIBUTION OF ASSETS OF PARTNERSHIPS. Upon the basis of
the representations and warranties, for the consideration and subject to the
terms and conditions set forth in this Agreement, (a) Barton House agrees to
contribute, as of the Effective Time, 100% of its Assets (as hereinafter
defined) to Newco in exchange for 520,000 shares of Newco's $0.001 par value per
share common stock (the "Common Stock") and $384,400 and (b) Oakwell agrees to
contribute, as of the Effective Time, 100% of its Assets to Newco in exchange
for 520,000 shares of Common Stock and $106,000.
2
<PAGE>
Section 1.2 CONTRIBUTION OF ASSETS OF THE GENERAL PARTNER. Upon the
basis of the representations and warranties, for the consideration and subject
to the terms and conditions set forth in this Agreement, the General Partner
agrees to contribute to Newco, as of the Effective Time, those assets (including
contracts and rights thereunder) listed or described on Schedule 1.2 attached
hereto in exchange for 200,000 shares of Common Stock .
Section 1.3 CONTRIBUTION OF CASH BY APS. Upon the basis of the
representations and warranties, for the consideration and subject to the terms
and conditions set forth in this Agreement, APS agrees to purchase, as of the
Effective Time, from Newco 677,920 shares of Newco's $0.001 par value per share
Convertible Preferred Stock (the "Preferred Stock") for $1,962,400 (the "APS
Cash Contribution"). The Preferred Stock shall have such rights and preferences
as provided in the organizational documents of Newco, the form of which is
attached hereto as Exhibit A (the "Organizational Documents").
Section 1.4 CONTRIBUTION OF CASH BY ADDITIONAL PURCHASERS. Upon the
basis of the representations and warranties, for the consideration and subject
to the terms and conditions set forth in this Agreement, each Additional
Purchaser agrees to purchase, as of the Effective Time, from Newco that specific
number of shares of Common Stock as set forth on Appendix I attached hereto for
that specific price as set forth on Appendix I attached hereto (the "Additional
Purchasers' Cash Contribution").
3
<PAGE>
Section 1.5 ASSETS. The term "Assets" shall include (a) those specific
assets of the General Partner listed or described on Schedule 1.2 attached
hereto and (b) except for those assets disposed of in the ordinary course of the
Partnerships' business in a transaction or series of related transactions not
exceeding $5,000 in value occurring between the Effective Time and the Closing,
all of the business and assets, tangible or intangible, wherever situated, of
the Partnerships as of the Effective Time, such assets to include, without
limitation: all real property, buildings, furniture, fixtures, equipment,
accounts receivable, inventory, work in process, prepaid expenses, supplies,
vehicles, all cash and cash equivalents, all securities or other investment
property, any cash or other property or amounts received for services rendered
on or after the Effective Time, all contract rights, all licenses, certificates
and permits, the telephone number(s), the names of Barton House, Ltd., Barton
House at Oakwell Farms, Ltd. and all patents, tradenames, registered or
unregistered trademarks and servicemarks, copyrights and other intellectual
property (and all goodwill associated with any such patents, tradenames,
trademarks, servicemarks, copyrights or other intellectual property), all rights
under or to computer software licensed, owned or used by either of the
Partnerships in their operations, all rights under or to leasehold improvements
and other fixed assets owned or leased by either of the Partnerships and all
items of personal property owned or leased by either of the Partnerships
including, without limitation, all the assets specifically set out on Schedule
1.5 attached hereto. Notwithstanding the foregoing or any other provision of
this Agreement, the following shall not be Assets and shall be retained by the
General Partner or the Partnerships, as the case may be:
4
<PAGE>
(a) the books of account and record books of the General Partner and
the Partnerships (complete and accurate copies of which shall be provided to APS
on or before the Closing Date (as hereinafter defined));
(b) their respective rights under this Agreement; and
(c) their respective consideration for the Assets as described
in Section 1.1 and Section
----------- --------
1.2.
- - ---
Section 1.6 ASSUMED LIABILITIES. At the Closing (as hereinafter
defined), Newco shall only assume (a) the obligations of the General Partner or
Partnerships specifically described on Schedule 1.6 hereto, (b) those trade
payables on open account incurred by the Partnerships in the ordinary course of
the Partnerships' business from unrelated parties and (c) that certain note
dated June 1, 1997 in the original principal amount of $100,000, including
interest thereon at the rate of 12% per annum arising out of a loan by the
Limited Partner to the General Partner (the "Limited Partners' Note). Such
limited assumption shall be pursuant to that certain general conveyance,
assignment and transfer of assets and assumption of liabilities, in the form
attached hereto as Exhibit B (the "Assignment and Assumption Agreement") to be
executed by the parties hereto at the Closing, effective as of the Effective
Time. With respect to any lease or other contract obligations reflected on
Schedule 1.6 or otherwise described in the first sentence of this Section, it is
agreed that Newco will have no responsibility whatsoever for any breaches or
defaults which occurred prior to the Effective Time. Except for (a) those
liabilities and obligations specifically assumed by Newco as provided above and
(b) the obligations of makers
5
<PAGE>
or guarantors on the notes described on Schedule
1.6, any and all debts, liabilities and obligations of the Partnerships, the
General Partner and/or any other parties hereto, whether known or unknown,
absolute, contingent or otherwise (including, but not limited to, federal, state
and local taxes, any sales taxes, use taxes and property taxes, any taxes
arising from the transactions contemplated by this Agreement and any liabilities
arising from any litigation or civil, criminal or regulatory proceeding
involving or related to the parties hereto or their business) shall remain the
sole responsibility of the party or parties responsible therefor prior to the
execution of this Agreement. At the Closing, the Limited Partners' Note
(including interest thereon) will be paid in full by Newco, or funds sufficient
in an amount to fully pay the Limited Partners' Note will be placed in escrow
with an escrow agent mutually acceptable to APS and the Limited Partner, and
such funds will be used to pay in full the Limited Partners' Note within three
(3) days from the Closing Date.
Section 1.7 CONVEYANCE OF NAME. The General Partner and each of the
Partnerships hereby transfer and convey to Newco all right, title and interest
in and to the corporate and business name of the General Partner, the name
"Uncommon Care" and the name "Barton House." Each party agrees that, after the
Closing, only Newco shall have the right to use "Uncommon Care" and/or "Barton
House," the names of the Partnerships and all other names included in the
Assets. All parties (other than Newco) covenant and agree not to use those names
(or any portion thereof) or any names similar thereto, alone or in combination
with other words or phrases. The General Partner covenants and agrees to,
promptly after Closing, change its name to a name that does not contain the
terms "Uncommon", "Care", "Barton", or "House", or
6
<PAGE>
any names similar thereto,
alone or in combination with other words or phrases or any names included in the
Assets.
Section 1.8 RELEASE OF GUARANTEES. After the Closing, Newco shall use
its reasonable best efforts to relieve Trevey and Bouchard of any and all
responsibility or liability under or pursuant to those personal guaranty
obligations and obligations as makers, listed and described on Schedule 1.8
attached hereto, which Trevey and Bouchard hereby represent and warrant (a) are
directly related to one or more specific liabilities assumed by Newco pursuant
to Section 1.6, or (b) arose out of, or in connection with, the purchase of
Assets conveyed to Newco hereunder.
Section 1.9 STOCK TRANSFER RESTRICTION AND SHAREHOLDERS AGREEMENT. All
parties hereto agree, at the Closing, to execute that certain Stock Transfer
Restriction and Shareholders Agreement in the form attached hereto as Exhibit C
(the "Shareholders Agreement").
Section 1.10 TRANSFER OF REAL PROPERTY. The Partnerships and the
General Partner will be contributing certain real property interests (the "Real
Property") which are included in the Assets. Each such contributor of Real
Property is also referred to in this Section as the "Previous Owner." With
regard to each such contribution of Real Property, and on the Closing Date of
this Agreement, the Previous Owner shall execute, acknowledge and deliver or
cause to be delivered to Newco such documents of title and conveyance relating
to the Real Property as APS may request; provided that those liens on the Real
Property securing the mortgage indebtedness reflected on Schedule 1.6 and those
title exceptions reflected on Schedule 4.6-A may remain on the Real Property
after the Closing.
7
<PAGE>
Section 1.11 CLOSING. The closing of the transactions contemplated in
this Agreement (the "Closing") shall take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1900 Frost Bank Plaza, 816 Congress Avenue,
Austin, Texas 78701, or at such other location as the parties may agree. The
date on which the Closing occurs is referred to herein as the "Closing Date."
Section 1.12 PAYMENT OF PURCHASE PRICE. The cash payments from Newco to
the Partnerships as described in Section 1.1, the APS Cash Contribution and the
Additional Purchasers Cash Contribution may be paid by regular check at the
Closing; provided that any payments due the Limited Partner hereunder will be
made by wire transfer of immediately available funds, or by cashier's check, at
the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF APS
AND ADDITIONAL PURCHASERS
APS and each Additional Purchaser (as to itself only and not as to any
other party) represents and warrants to each of the other parties hereto that
each of the following matters is true and correct in all respects as of the
Effective Time and the Closing Date (with the understanding that each of the
other parties hereto is relying materially on such representations and
warranties in entering into and performing this Agreement):
8
<PAGE>
Section 2.1 DUE ORGANIZATION AND PRINCIPAL EXECUTIVE OFFICE. APS is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. APS's principal executive offices are located at 1301
Capital of Texas Highway, Austin, Texas 78746. APS and such Additional
Purchaser, as the case may be, has all necessary power and authority to carry on
its business as now conducted and as it is proposed to be conducted in the
future
Section 2.2 DUE AUTHORIZATION. APS and such Additional Purchaser, as
the case may be, has all necessary power and authority to enter into and perform
this Agreement and each other agreement, instrument and document required to be
executed by such party in connection herewith. This Agreement and each other
agreement, instrument and document required herein to be executed by APS or such
Additional Purchaser have been duly and validly authorized, executed and
delivered by such party and constitute the valid and binding obligations of such
party 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. The
execution, delivery and performance of this Agreement and each other agreement,
instrument and document required herein to be executed by APS or such Additional
Purchaser will not (a) violate any federal, state, county or local law, rule or
regulation applicable to APS, such Additional Purchaser or their respective
properties, (b) violate or conflict with, or permit the cancellation of, any
agreement to which APS or such Additional Purchaser is a party or by which it or
its 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 any indebtedness secured
by the property of, APS or such Additional Purchaser or (d) violate or conflict
with any provision of the certificate of
9
<PAGE>
incorporation or bylaws of APS or such
Additional Purchaser. No action, consent or approval of, or filing with, any
federal, state, county or local governmental authority is required of APS or
such Additional Purchaser in connection with the execution, delivery or
performance of this Agreement (or any agreement, instrument or other document
executed in connection herewith by APS or such Additional Purchaser).
Section 2.3 BROKERS AND FINDERS. Neither APS nor such Additional
Purchaser has engaged, or caused to be incurred any liability to, any finder,
broker or sales agent in connection with the execution, delivery or performance
of this Agreement or the transactions contemplated hereby.
Section 2.4 CLAIMS AND PROCEEDINGS. Neither APS nor such Additional
Purchaser is a party to any claims, actions, suits, proceedings or
investigations, at law or in equity, before or by any court, municipal or other
governmental department, commission, board, agency or instrumentality which
seeks to restrain or prohibit the carrying out of the transactions contemplated
by this Agreement or to challenge the validity of such transactions or any part
thereof or seeking damages on account thereof; and, to the knowledge of APS and
each Additional Purchaser, no such claim, action, suit, proceeding or
investigation is threatened.
Section 2.5 INVESTMENT INTENT. APS and such Additional Purchaser (a) is
acquiring the Preferred Stock and Common Stock, as applicable, for its own
account for investment and not with a view to, or in connection with, a
distribution thereof, within the meaning of the Securities Act of 1933, as
amended (the "Act"), (b) is an "accredited investor" within the meaning of Rule
10
<PAGE>
501 under the Act, (c) will not sell or transfer such stock unless (i) such
transfer is provided for, or pursuant to, the provisions of the Shareholders
Agreement and (ii) such stock is registered under the Act or such sale or
transfer is exempt from such registration requirements, (d) is able to bear the
economic risk of its acquisition of such stock and (e) 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
such stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE LIMITED PARTNER
The Limited Partner represents and warrants to each of the other
parties hereto that each of the following matters is true and correct in all
respects as of the Effective Time and the Closing (with the understanding that
each of the other parties hereto is relying materially on such representations
and warranties in entering into and performing this Agreement):
Section 3.1 DUE ORGANIZATION AND PRINCIPAL EXECUTIVE OFFICE. The
Limited Partner is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of Texas and has all necessary power
and authority to carry on its business as now conducted and as proposed to be
conducted. The Limited Partner's principal executive offices are located at 808
W. 10th Street, Austin, Texas 78701.
Section 3.2 DUE AUTHORIZATION. The Limited Partner has all necessary
power and authority to enter into and perform this Agreement and each other
agreement, instrument and
11
<PAGE>
document required to be executed by the Limited
Partner in connection herewith. This Agreement and each other agreement,
instrument and document required herein to be executed by the Limited Partner
have been duly and validly authorized, executed and delivered by the Limited
Partner and constitute the valid and binding obligations of the Limited Partner
enforceable against it in accordance with its terms. The execution, delivery and
performance of this Agreement and each other agreement, instrument and document
required herein to be executed by the Limited Partner will not (a) violate any
federal, state, county or local law, rule or regulation applicable to the
Limited Partner or its properties, (b) violate or conflict with, or permit the
cancellation of, any agreement to which the Limited Partner is a party or by
which it or its properties are bound, (c) permit the acceleration of the
maturity of any indebtedness of, or any indebtedness secured by the property of,
the Limited Partner or (d) violate or conflict with any provision of the
certificate of incorporation or bylaws of the Limited Partner. No action,
consent or approval of, or filing with, any federal, state, county or local
governmental authority is required of the Limited Partner in connection with the
execution, delivery or performance of this Agreement (or any agreement,
instrument or other document executed in connection herewith by the Limited
Partner).
Section 3.3 BROKERS AND FINDERS. The Limited Partner has not engaged,
or caused to be incurred any liability to, any finder, broker or sales agent in
connection with the execution, delivery or performance of this Agreement or the
transactions contemplated hereby.
Section 3.4 CLAIMS AND PROCEEDINGS. The Limited Partner is not a party
to any claims, actions, suits, proceedings or investigations, at law or in
equity, before or by any court,
12
<PAGE>
municipal or other governmental department,
commission, board, agency or instrumentality which seeks to restrain or prohibit
the carrying out of the transactions contemplated by this Agreement or to
challenge the validity of such transactions or any part thereof or seeking
damages on account thereof; and, to the knowledge of the Limited Partner, no
such claim, action, suit, proceeding or investigation is threatened.
Section 3.5 INVESTMENT INTENT. With respect to any Common Stock
acquired, or to be acquired, by the Limited Partner in a distribution pursuant
to the liquidation of the Partnerships, the Limited Partner (a) is acquiring the
Common Stock for its own account for investment and not with a view to, or in
connection with, a distribution thereof (other than as permitted and
contemplated in this Agreement and the Shareholders Agreement), within the
meaning of the Act, (b) is an "accredited investor" within the meaning of Rule
501 under the Act, (c) will not sell or transfer the Common Stock unless (i)
such transfer is provided for, or pursuant to, the provisions of the
Shareholders Agreement and (ii) such Common Stock is registered under the Act or
such sale or transfer is exempt from such registration requirements, (d) is able
to bear the economic risk of its acquisition of the Common Stock and (e) 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 Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIPS,
THE GENERAL PARTNER, TREVEY AND BOUCHARD
13
<PAGE>
The Partnerships, the General Partner, Trevey and Bouchard (each of
which is sometimes referred to in this Agreement as a "Control Party" and
collectively, jointly and severally, as the "Control Parties") each hereby,
jointly and severally, represents and warrants to each of the other parties
hereto that each of the following matters is true and correct in all respects as
of the Closing (with the understanding that each of the other parties hereto is
relying materially on each such representation and warranty in entering into and
performing this Agreement); provided, however, that (i) any of the following
representations and warranties which refer specifically to the Assets will be
deemed to only be made, jointly and severally, by the General Partner, Trevey
and Bouchard, with respect to those Assets contributed by the General Partner
under Section 1.2 hereof and (ii) in no event shall any of the Control Parties
have any liability (whether based on contract or tort) to any other party hereto
for any negligent misrepresentation or breach of any warranty with respect to
any title defect to any Real Property included in the Assets, or with respect to
any claims or losses attributable to, or arising from, any contamination of any
such Real Property with any hazardous waste, hazardous substances or other
hazardous or toxic materials (whether in violation of environmental laws or
otherwise).
Section 4.1 DUE ORGANIZATION. The General Partner 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. Trevey and Bouchard are the only shareholders
of the General Partner. Barton House is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Texas and
has all necessary power and authority to carry on its business as now conducted
and as proposed to be conducted. Oakwell is a limited partnership duly
organized, validly existing and in good
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standing under the laws of the State of
Texas and (except as disclosed on Schedule 4.6-B) has all necessary power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Limited Partner, Trevey and Bouchard are the only limited
partners of each of the Partnerships, and the General Partner is the sole
general partner of each of the Partnerships. Complete and correct copies of the
Articles of Limited Partnership, Certificates of Limited Partnership and other
organizational documents of the Partnerships, and all amendments thereto, are
attached hereto as Schedule 4.1. The General Partner, Barton House and Oakwell
are each qualified to do business, and each is in good standing, in Texas, which
represents the only jurisdiction where such qualification is required for the
conduct of any of the Control Parties' business as conducted on or prior to the
Closing Date.
Section 4.2 SUBSIDIARIES. Each of the Partnerships does not directly or
indirectly have (or possess any options or other rights to acquire) any
subsidiaries or any direct or indirect ownership interests in any person,
business, corporation, partnership, association, joint venture, trust or other
entity.
Section 4.3 DUE AUTHORIZATION. Each Control Party has all necessary
power and authority to enter into and perform this Agreement and each other
agreement, instrument and document required to be executed by it in connection
herewith. This Agreement and each other agreement, instrument and document
required herein to be executed by any Control Party have been duly and validly
authorized, executed and delivered by such party and constitute the valid and
binding obligations of such party enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, conservatorship, receivership and
other similar laws of general
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application affecting the rights and remedies of
creditors. Except as disclosed on Schedule 4.21 attached hereto, the execution,
delivery and performance of this Agreement and each other agreement, instrument
and document required herein to be executed by any or all of the Control Parties
will not (a) violate any federal, state, county or local law, rule or regulation
applicable to the respective Control Party or its Assets, (b) violate or
conflict with, or permit the cancellation of, any agreement to which any Control
Party is a party, or by which any Control Party or its 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 any indebtedness secured by the property of, any Control
Party or (d) violate or conflict with any provision of the organizational
documents of any Control Party. Except as disclosed on Schedule 4.21 attached
hereto, no action, consent or approval of, or filing with, any federal, state,
county or local governmental authority is required of any Control Party in
connection with the execution, delivery or performance of this Agreement (or any
agreement or other document executed in connection herewith by such Control
Party).
Section 4.4 FINANCIAL STATEMENTS. The unaudited balance sheet and
income statement of each of the Partnerships and the General Partner as of and
for the year ended December 31, 1997, (collectively, the "Financial Statements")
are attached hereto as Schedule 4.4. The Financial Statements have been prepared
from the books and records of the Partnerships and the General Partner,
respectively, on a basis consistent with the cash basis of accounting used in
preparation of the Partnerships' and General Partner's tax returns and represent
actual, bona fide transactions. The Financial Statements reflect, on a cost
basis, all assets owned by the Partnerships and the General Partner (and do not
include any assets not owned by the Partnerships or the General
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Partner), and
reflect all liabilities for money borrowed. The representations contained in the
immediately preceding sentence are qualified in that (i) the Financial
Statements include no footnotes; (ii) the Financial Statements may exclude
accrued liabilities not yet due and amounts representing trade payables incurred
in the ordinary course of business, and (iii) no representation is made with
respect to the appropriateness or accuracy of methods of depreciation, with
respect to the existence or adequacy of any depreciation or other valuation
reserve, or with respect to the occurrence or non-occurrence of any event that
could, in accordance with generally accepted accounting principles, result in a
reduction in the carrying value of any asset. Except (a) for the obligations in
the amounts disclosed on Schedule 1.6 attached hereto, (b) to the extent
reflected in the Financial Statements, exclusive of any notes thereto and (c)
for obligations arising in the ordinary course of the Partnerships' and General
Partner's business in a transaction or related series of transactions not
exceeding $5,000 in value, the Partnerships and the General Partner had, as of
December 31, 1997, no liabilities of a type that would be required to be
reflected as such in the Financial Statements, exclusive of any notes thereto.
Except as set forth in Schedule 4.4 hereto, and except for increases in cost of
sales and expenses resulting from the operations of the Partnerships and the
General Partner in the ordinary course of its business consistent with past
practice, since December 31, 1997 there has been no material adverse change in
the financial position, assets, results of operations or business of the
Partnerships or the General Partner.
Section 4.5 CONDUCT OF BUSINESS; CERTAIN ACTIONS. Except as set forth
on Schedule 4.5-A attached hereto (or such other Schedules as are specifically
referred to below in this Section 4.5), since December 31, 1997, each of the
Partnerships has conducted its business and operations in
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the ordinary course
and consistent with its past practices and has not (a) increased the
compensation of any of its employees, or, except for wage and salary increases
made in the ordinary course of business and consistent with its past practices,
increased the compensation of any other employees, (b) made capital expenditures
exceeding $2,500 individually or $2,500 in the aggregate, except for those
expenditures made directly and solely in connection with the Austin II project,
located at 3706 Adelphi Lane, Austin, Texas 78727, (c) sold any asset (or any
group of related assets) in any transaction (or series of related transactions)
in which the purchase price for such asset (or group of related assets) exceeded
$2,500 (other than sales of inventory in the ordinary course of business), (d)
discharged or satisfied any lien or encumbrance or paid any obligation or
liability, absolute or contingent, other than current liabilities incurred and
paid in the ordinary course of business, (e) made or guaranteed any loans or
advances to any party whatsoever, (f) suffered or permitted any lien, security
interest, claim, charge or other encumbrance to arise or be granted or created
against or upon any of its assets, real or personal, tangible or intangible, (g)
canceled, waived or released any of its debts, rights or claims against third
parties, (h) except as set forth on Schedule 4.5-B attached hereto, amended the
Articles of Limited Partnership, Certificate of Limited Partnership or any other
organizational document of the Partnerships, (i) made or paid any severance or
termination payment to any employee or consultant in excess of $2,500, (j) made
any change in its method of accounting, (k) made any investment or commitment
therefor in any person, business, corporation, association, partnership, joint
venture, trust or other entity, (l) except as set forth on Schedule 4.11 and
Schedule 4.15, made, entered into, amended or terminated any written employment
contract, created, made, amended or terminated any bonus, stock option, pension,
retirement, profit sharing or other employee benefit plan or arrangement or
withdrawn from any "multi-employer plan" (as defined
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in the Internal Revenue
Code of 1986, as amended (the "Code")) so as to create any liability under ERISA
(as hereinafter defined) to any entity, (m) amended, terminated or experienced a
termination of any material contract, agreement, lease, franchise or license to
which it is a party, (n) entered into any other material transactions except in
the ordinary course of business, (o) except for such fees and expenses of the
General Partner as have been approved in advance in writing by APS and as are
reflected on Schedule 4.5-C attached hereto, distributed any cash or property of
the Partnerships, directly or indirectly, to any partner (including, without
limitation, any party hereto) in any capacity, (p) entered into any contract,
commitment, agreement or understanding to do any acts described in the foregoing
clauses (a)-(o) of this Section, (q) suffered any material damage, destruction
or loss (whether or not covered by insurance) to any assets, (r) experienced any
strike, slowdown or demand for recognition by a labor organization by or with
respect to any of its employees, or (s) experienced or effected any shutdown,
slow-down or cessation of any operations conducted by, or constituting part of,
its business.
Section 4.6 OWNERSHIP OF ASSETS: LICENSES, PERMITS, ETC. The General
Partner and each of the Partnerships, as applicable, has good and indefeasible
title to all of the Assets being contributed by it hereunder, subject only to
the liens, security interests, claims and encumbrances specifically described on
Schedule 4.6-A. Except as disclosed on Schedule 4.6-B attached hereto, each of
the Partnerships has such property and assets, real, personal and mixed,
tangible and intangible, including leases and other contracts, which are
required for, or used in connection with, the operation of its business as
currently conducted. The Assets are in good operating condition and repair,
subject to ordinary wear and tear, taking into account the respective ages of
the properties involved and are adequate for the conduct of the business of each
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of the Partnerships or, in the case of Assets contributed by the General
Partner, for their intended use. Attached hereto as Schedule 4.6-B is a list of
all material federal, state, county and local governmental licenses,
certificates and permits held or applied for by the General Partner and each of
the Partnerships. The General Partner and each of the Partnerships has complied
in all material respects, and each is in compliance in all material respects,
with the terms and conditions of any such licenses, certificates and permits.
Except as disclosed on Schedule 4.6-B attached hereto, no additional license,
certificate or permit is required from any federal, state, county or local
governmental agency or body thereof in connection with the conduct of the
business of the General Partner and each of the Partnerships. Except as
disclosed on Schedule 4.6-B attached hereto, no claim has been made by any
governmental authority (and, to the knowledge of each of the Control Parties, no
such claim has been threatened) to the effect that a license, permit,
certificate or order not possessed by either of the Partnerships or the General
Partner is necessary in respect of the business conducted by it. Except as
disclosed on Schedule 4.6-B attached hereto, all of the licenses, permits and
certificates noted on the attached Schedule 4.6-B are freely assignable to Newco
and are included in the Assets.
Section 4.7 ENVIRONMENTAL ISSUES.
(a) For purposes of this Agreement, the term "environmental laws" shall
mean all laws relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission, discharge
or release, of any pollutant, contaminant, chemical or industrial toxic or
hazardous substance or waste and any order related thereto.
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(b) Each of the Partnerships and the General Partner has complied in
all material respects with and obtained all authorizations and made all filings
required by all applicable environmental laws. The properties occupied or used
by each of the Partnerships and/or the General Partner, as the case may be, and
the Sugarland Property (as hereinafter defined) have not been contaminated with
any hazardous wastes, hazardous substances or other hazardous or toxic materials
in violation of any applicable environmental law, the violation of which could
have a material adverse impact on its business or financial position.
(c) Neither of the Partnerships nor the General Partner has received
(i) any notice, whether actual or constructive, formal or informal, official or
unofficial, from the United States Environmental Protection Agency, that it is a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund Notice"), as amended, (ii) any
citation from any federal, state or local governmental authority for
non-compliance with its requirements with respect to air, water or environmental
pollution, or the improper storage, use or discharge of any hazardous waste,
other waste or other substance or other material pertaining to its business
("Citations") or (iii) any written notice from any private party alleging any
such non-compliance; and there are no pending or unresolved Superfund Notices,
Citations or written notices from private parties alleging any such
non-compliance.
Section 4.8 INTELLECTUAL PROPERTY RIGHTS. Except for the trademarks
"Barton House" and "Uncommon Care", there are no patents, trademarks, tradenames
or copyrights, and no applications therefor, owned by or registered in the name
of either of the Partnerships or the General Partner or in which either of the
Partnerships or the General Partner has any right,
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license or interest. Schedule
4.8 lists all jurisdictions in which applications for registration of the
registered trademarks have been made by either of the Partnerships or the
General Partner, and describes the status of such applications. Except for
software licenses included in the Assets, neither of the Partnerships nor the
General Partner is a party to any license agreements, either as licensor or
licensee, with respect to any patents, trademarks, tradenames or copyrights.
Neither of the Partnerships nor the General Partner has received any notice that
it is infringing any patent, trademark, tradename or copyright of others.
Section 4.9 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 4.6-B
attached hereto, each of the Partnerships and the General Partner has complied
in all material respects, and each of such parties is in compliance in all
material respects, with all federal, state, county and local laws, rules,
regulations and ordinances currently in effect and applicable to its business.
No claim has been made by any governmental authority (and, to the knowledge of
each of the Control Parties, no such claim has been threatened) against either
of the Partnerships or the General Partner to the effect that the business
conducted by either of the Partnerships or the General Partner fails to comply
with any law, rule, regulation or ordinance.
Section 4.10 INSURANCE. Attached hereto as Schedule 4.10 is a list of
all policies of fire, liability, business interruption and other forms of
insurance and all fidelity bonds currently held by or applicable to either of
the Partnerships or the General Partner, which schedule sets forth in respect of
each such policy the policy name, policy number, carrier, term, type of
coverage, deductible amount or self-insured retention amount, limits of coverage
and annual premium. To the knowledge of each of the Control Parties, no event
directly relating to either of the
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Partnerships or the General Partner has
occurred which will result in a retroactive upward adjustment of premiums under
any such policies or which is likely to result in any prospective upward
adjustment in such premiums. There have been no material changes in the type of
insurance coverage maintained by either of the Partnerships or the General
Partner during the past three (3) years, including, without limitation, any
change which has resulted in any period during which either of the Partnerships
had no insurance coverage. Excluding insurance policies which have expired and
been replaced, no insurance policy of either of the Partnerships or the General
Partner has been canceled within the last three (3) years and, to the knowledge
of each of the Control Parties, no threat has been made to cancel any insurance
policy of either of the Partnerships or the General Partner within such period.
Section 4.11 EMPLOYEE BENEFIT MATTERS. Except as set forth on Schedule
4.11, neither of the Partnerships maintains, contributes to, nor is required to
contribute to any "employee welfare benefit plan" (as defined in section 3(1) of
the Employee Retirement Income Security Act of 1974 (and any sections of the
Code amended by it) and all regulations promulgated thereunder, as the same have
from time to time been amended ("ERISA")) or any "employee pension benefit plan"
(as defined in ERISA). Neither of the Partnerships presently maintains, has ever
maintained, or had any obligation of any nature to contribute to, a "defined
benefit plan" within the meaning of the Code.
Section 4.12 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 4.12
is a list of all written or oral contracts, commitments, leases and other
agreements (including, without limitation, promissory notes, loan agreements and
other evidences of indebtedness) to which
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each of the Partnerships is a party or
by which each of the Partnerships or their respective properties are bound,
pursuant to which the obligations thereunder of any party thereto are, or are
contemplated as being, in respect of any such individual contracts, commitments,
leases or other agreements during any year during the term thereof, $2,500 or
greater, or which are otherwise material to the business of either of the
Partnerships (including, without limitation, all mortgages, deeds of trust,
security agreements, pledge agreements, service agreements and similar
agreements and instruments and all confidentiality agreements). Neither of the
Partnerships, and to the best knowledge of each of the Control Parties, no other
party thereto, is in default (and no event has occurred which, with the passage
of time or the giving of notice, or both, would constitute a default by either
of the Partnerships or, to the best knowledge of each of the Control Parties, by
any other party thereto) under any such contracts, commitments, leases or other
agreements. Neither of the Partnerships has waived any material right under any
such contracts, commitments, leases or other agreements. Neither of the
Partnerships has guaranteed any obligations of any other person.
Section 4.13 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 4.13
is a list and description of all claims, actions, suits, proceedings and
investigations pending or, to the knowledge of each of the Control Parties,
threatened against either of the Partnerships or the General Partner or
affecting any of such respective entity's properties or assets, at law or in
equity, or before or by any court, municipal or other governmental department,
commission, board, agency or instrumentality. Except as set forth on Schedule
4.13 attached hereto, none of such claims, actions, suits, proceedings or
investigations will result in any liability or loss to either of the
Partnerships or the General Partner which (individually or in the aggregate) is
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material, and neither of the Partnerships nor the General Partner has been, and
neither of the Partnerships nor the General Partner is now, subject to any
order, judgment, decree, stipulation or consent of any court, governmental body
or agency. No inquiry, action or proceeding has been asserted, instituted or, to
the best knowledge of each of the Control Parties, threatened against any of the
Control Parties to restrain or prohibit the carrying out of the transactions
contemplated by this Agreement or to challenge the validity of such transactions
or any part thereof or seeking damages on account thereof.
Section 4.14 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 either of the Partnerships on or before the date hereof have been
filed within the time (including any applicable extensions) and in the manner
provided by law, and all such Returns are true and correct in all material
respects and accurately reflect the Tax liabilities of each of the respective
Partnerships. All Taxes, assessments, penalties and interest which have become
due pursuant to such Returns have been paid or adequately accrued in the
Financial Statements. As of the Closing Date, neither of the Partnerships will
owe any taxes for any period prior to the Closing Date which are not fully
reflected, by type and amount, on Schedule 4.14 attached hereto. As of the
Closing Date, neither of the Partnerships will owe any Taxes for any period
prior to the Closing which are not reflected on the Financial Statements or on
Schedule 4.14 attached hereto, except for Taxes attributable to the respective
operations of each of the Partnerships between the Effective Time and the
Closing Date. Neither of the Partnerships has executed any presently effective
waiver or extension of any statute of limitations against assessments and
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collection of Taxes. There are no pending or, to the best knowledge of each of
the Control Parties, threatened claims, assessments, notices, proposals to
assess, deficiencies or audits, other than those disclosed on Schedule 4.13,
(collectively, "Tax Actions") against either of the Partnerships with respect to
any Taxes owed or allegedly owed by it. Otherwise, neither of the Partnerships'
Returns have been audited. Except for any statutory liens for taxes not yet due,
there are no tax liens on any of the assets of either of the Partnerships.
Proper and accurate amounts have been withheld and remitted by each of the
Partnerships from and in respect of all persons from whom it is required by
applicable law to withhold for all periods in compliance with the tax
withholding provisions of all applicable laws and regulations. Neither of the
Partnerships is a party to any tax sharing agreement.
Section 4.15 PERSONNEL. Attached hereto as Schedule 4.15 is a list of
names and current annual rates of compensation of the employees of each of the
Partnerships whose rates of compensation, on an annualized basis, during
calendar year 1997 (including base salary, bonus, commissions and incentive pay)
are expected to exceed $25,000. Except as set forth on Schedule 4.15, there are
no bonus, profit sharing, percentage compensation, company automobile, club
membership and other like benefits, if any, paid or payable by either of the
Partnerships to such employees from December 31, 1997 through the Closing Date.
Schedule 4.15 attached hereto also contains a brief description of all material
terms of employment agreements and confidentiality agreements to which either of
the Partnerships is a party and all severance benefits which any director,
officer, employee, agent or sales representative of either of the Partnerships
is or may be entitled to receive. Each of the Partnerships has delivered to APS
accurate and complete copies of all such employment
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agreements, confidentiality
agreements and all other agreements, plans and other instruments to which it is
a party and under which its employees are entitled to receive benefits of any
nature. There is no pending or, to the best knowledge of each of the Control
Parties, threatened (a) labor dispute or union organization campaign relating to
either of the Partnerships, (b) claims against either of the Partnerships or any
of the Control Parties by any employees of either of the Partnerships (other
than Workers' Compensation claims specifically described on Schedule 4.13) or
(c) terminations, resignations or retirements of any employees of either of the
Partnerships. None of the employees of either of the Partnerships are
represented by any labor union or organization. There is no unfair labor
practice claim against either of the Partnerships before the National Labor
Relations Board or any strike, labor dispute, work slowdown or work stoppage
pending or, to the best knowledge of each of the Control Parties, threatened
against or involving either of the Partnerships.
Section 4.16 BUSINESS RELATIONS. None of Control Parties has been
notified that any supplier or customer of either of the Partnerships (other than
those listed in Schedule 4.16 attached hereto) will cease or refuse to do
business with either of the Partnerships or Newco in the same manner as
previously conducted with each of such entities as a result of or after the
consummation of the transactions contemplated hereby. Neither of the
Partnerships has received any notice of any disruption (including delayed
deliveries or allocations by suppliers) in the availability of the materials or
products used by it.
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Section 4.17 ACCOUNTS RECEIVABLE. Except as set forth on Schedule 4.17
attached hereto, all of the accounts, notes and loans receivable that have been
recorded on the books of each of the Partnerships are bona fide and represent
amounts validly due.
Section 4.18 AGENTS. Except as set forth on Schedule 4.18 attached
hereto, neither of the Partnerships has designated or appointed any person
(except for the General Partner, solely in its capacity as the general partner
of the Partnership) or other entity to act for it or on its behalf pursuant to
any power of attorney or any agency which is presently in effect.
Section 4.19 INDEBTEDNESS TO AND FROM PARTNERS AND EMPLOYEES. Except as
set forth on Schedule 4.19 attached hereto, neither of the Partnerships owes any
indebtedness to any of its partners or employees or has indebtedness owed to it
from any of its partners or employees, excluding indebtedness for travel
advances or similar advances for expenses incurred on behalf of and in its
ordinary course of business and consistent with its past practices. As of the
Effective Time and the Closing Date all amounts due either of the Partnerships
from any partner or employee of it (or any of their family members) shall have
been repaid in full.
Section 4.20 COMMISSION SALES CONTRACTS. Except as disclosed in
Schedule 4.20 attached hereto, neither of the Partnerships employs or has any
relationship with any individual, corporation, partnership or other entity whose
compensation from either of the respective Partnerships is in whole or in part
determined on a commission basis.
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Section 4.21 CERTAIN CONSENTS. Except as set forth on Schedule 4.21
attached hereto, there are no consents, waivers or approvals required to be
executed and/or obtained by any of the Control Parties from third parties
(including, without limitation, the spouse of Trevey or Bouchard) in connection
with the execution, delivery and performance of this Agreement.
Section 4.22 BROKERS. No Control Party has engaged, or caused any
liability to be incurred to, any finder, broker or sales agent in connection
with the execution, delivery or performance of this Agreement or the
transactions contemplated hereby.
Section 4.23 INTEREST IN COMPETITORS, SUPPLIERS AND CUSTOMERS. Except
as set forth on Schedule 4.23 attached hereto, no Control Party or any affiliate
of any Control Party, and to the knowledge of each of the Control Parties no
employee of either of the Partnerships or any affiliate of any employee of
either of the Partnerships, has any ownership interest in any competitor,
customer or supplier of either of the respective Partnerships or any property
used in the operation of the business of either of the respective Partnerships.
Section 4.24 WARRANTIES. Except as set forth on Schedule 4.24, neither
of the Partnerships has made any contractual warranties or guarantees (other
than warranties arising purely by operation of law), whether written or oral, to
third parties with respect to any products sold or services rendered by it.
Except as set forth on Schedule 4.24 attached hereto, no claims for breach of
product or service warranties have been made against either of the Partnerships.
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Section 4.25 NO DEFAULTS. No Control Party is aware of any breach or
default by any other Control Party of any of the representations, warranties,
covenants or agreements contained herein.
Section 4.26 INVESTMENT INTENT. Each of the Control Parties who shall
receive Common Stock of Newco pursuant to this Agreement or any other
transaction contemplated by this Agreement or the Shareholders Agreement
(whether or not such receipt occurs subsequent to execution of this Agreement or
the Shareholders Agreement) (a) is acquiring the Common Stock for its own
account for investment and not with a view to, or in connection with, a
distribution thereof, within the meaning of the Act, (b) is an "accredited
investor" within the meaning of Rule 501 under the Act, (c) will not sell or
transfer the Common Stock unless (i) such transfer is provided for, or pursuant
to, the provisions of the Shareholders Agreement and (ii) such Common Stock is
registered under the Act or such sale or transfer is exempt from such
registration requirements, (d) is able to bear the economic risk of its
acquisition of the Common Stock and (e) 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 Common
Stock.
ARTICLE V
COVENANTS
Section 5.1 EXECUTION OF DOCUMENTS. Each and every party to this
Agreement agrees that it will execute, as necessary, or cause to be executed, at
or before the Closing Date, the
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Organizational Documents, the Shareholders
Agreement, the Assignment and Assumption Agreement, and the respective
Employment Agreement, as well as all other agreements, documents or instruments
contemplated in this Agreement or relating to such agreements, documents or
instruments contemplated by this Agreement.
Section 5.2 COOPERATION RELATING TO FINANCIAL STATEMENTS. Each of the
parties hereto agrees to cooperate with APS, solely at the expense of Newco, in
the preparation of any financial statements of Newco which APS may be required
by any applicable law to prepare; provided, however, that APS shall pay, or
reimburse Newco, for any such financial statements prepared at the request of
APS or its affiliates and which Newco would not otherwise have been required to
prepare pursuant to any contractual agreements or other law. The parties agree
that the Limited Partner's obligations hereunder will be limited to providing
such information as is within its or its underlying partners' actual knowledge
without any obligation of inquiry.
Section 5.3 SHAREHOLDER AND DIRECTOR ACTION. Each of the parties hereto
(other than Newco) hereby expressly acknowledges and agrees that Newco has been
properly and lawfully formed, and that Newco possesses all necessary power and
authority to perform all of its obligations under this Agreement, the
Organizational Documents and all other agreements, documents and instruments
executed by Newco in connection herewith, including, without limitation, the
execution, acknowledgment and delivery of all agreements, documents and
instruments necessary to provide for a secured line of credit to Newco by APS in
the amount of $2.4 million and under the terms and conditions as set forth in
the documentation therefor, attached hereto as Exhibit D (the "Line of Credit").
Each party agrees, upon the request of any
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other party hereto, to execute and
deliver such resolutions, written consents, documents and instruments, and take
such other actions, as necessary or convenient in order to more fully evidence
the authority of Newco hereunder and under such other agreements and the binding
and enforceable nature of Newco's commitment as a party hereunder and under such
other agreements, notwithstanding the official date of Newco's creation.
Section 5.4 CAPITAL CONTRIBUTIONS; LINE OF CREDIT. Except as provided
in Article I, no party hereto shall be obligated to contribute or provide for
any additional debt or equity capital to Newco; provided, however, APS shall
comply with its obligations arising under the Line of Credit.
Section 5.5 PROPERTY DISTRIBUTIONS. Except for such fees and expenses
of the General Partner as have been approved in advance in writing by APS and as
are reflected on Schedule 4.5-C attached hereto, each of the parties hereto
agrees that neither of the Partnerships shall make any distributions prior to
the Closing Date, whether in cash or other property, directly or indirectly, to
any partner (including, without limitation, any of the parties hereto) in any
capacity. Each party hereto agrees that it shall not accept any such
distribution and warrants that it has no knowledge, actual or constructive, of
any such distribution, except as disclosed on Schedule 4.5-C attached hereto.
Section 5.6 CONTINUED EXISTENCE OF PARTNERSHIPS. The Partnerships, the
General Partner, the Limited Partner, Trevey and Bouchard each hereby covenants
and agrees that they will take such actions as necessary to continuously
maintain the lawful existence of each of the
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Partnerships until December 31,
1998, including, without limitation, all such actions reasonably necessary to
prevent the dissolution, liquidation or termination of either of the
Partnerships. Notwithstanding the foregoing, the Partnerships, the General
Partner, the Limited Partner, Trevey or Bouchard shall each be entitled to cause
the Partnerships and/or the General Partner to distribute the proceeds received
by the Partnerships and General Partner pursuant to Section 1.1 and Section 1.2
hereof.
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 APS'S CLOSING OBLIGATIONS. At the Closing, subject to the
terms and conditions set forth in this Agreement, APS shall execute, acknowledge
and deliver or cause to be delivered, to the other parties, where required: (a)
the APS Cash Contribution to Newco; (b) the Line of Credit, the Assignment and
Assumption Agreement, the Organizational Documents and the Shareholders
Agreement; and (c) such good standing certificates, officer certificates and
similar documents and certificates as counsel for any of the parties hereto may
reasonably require.
Section 6.2 ADDITIONAL PURCHASERS' CLOSING OBLIGATIONS. At the Closing,
subject to the terms and conditions set forth in this Agreement, each Additional
Purchaser shall execute, acknowledge and deliver or cause to be delivered, to
the other parties, where required: (a) the Additional Purchaser's Cash
Contribution; (b) the Shareholders Agreement; and (c) such good standing
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certificates, officer and/or partnership certificates and similar documents and
certificates as counsel for any of the parties may reasonably require.
Section 6.3 PARTNERSHIPS' CLOSING OBLIGATIONS. At the Closing, subject
to the terms and conditions set forth in this Agreement, each of the
Partnerships shall execute, acknowledge and deliver or cause to be delivered, to
the other parties, where required: (a) the Assignment and Assumption Agreement,
the Shareholders Agreement and the Organizational Documents; and (b) such good
standing certificates, officer and/or partnership certificates and similar
documents and certificates as counsel for any of the parties may reasonably
require.
Section 6.4 GENERAL PARTNER'S CLOSING OBLIGATIONS. At the Closing,
subject to the terms and conditions set forth in this Agreement, the General
Partner shall execute, acknowledge and deliver or cause to be delivered, to the
other parties, where required: (a) the Assignment and Assumption Agreement, the
Shareholders Agreement and the Organizational Documents; and (b) such good
standing certificates, officer and/or partnership certificates and similar
documents and certificates as counsel for any of the parties may reasonably
require.
Section 6.5 THE LIMITED PARTNER'S CLOSING OBLIGATIONS. At the Closing,
subject to the terms and conditions set forth in this Agreement, the Limited
Partner shall execute, acknowledge and deliver or cause to be delivered, to the
other parties, where required: (a) the Assignment and Assumption Agreement, the
Shareholders Agreement and the Organizational Documents; and (b) such good
standing certificates, officer and/or partnership certificates and similar
documents and certificates as counsel for any of the parties may reasonably
require.
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Section 6.6 TREVEY'S CLOSING OBLIGATIONS. At the Closing, subject to
the terms and conditions set forth in this Agreement, Trevey shall execute,
acknowledge and deliver or cause to be delivered, to the other parties, where
required: (a) the Shareholders Agreement and the Organizational Documents; and
(b) such good standing certificates, officer and/or partnership certificates and
similar documents and certificates as counsel for APS may reasonably require.
Section 6.7 BOUCHARD'S CLOSING OBLIGATIONS. At the Closing, subject to
the terms and conditions set forth in this Agreement, Bouchard shall execute,
acknowledge and deliver or cause to be delivered, to the other parties, where
required: (a) the Shareholders Agreement and the Organizational Documents; and
(b) such good standing certificates, officer and/or partnership certificates and
similar documents and certificates as counsel for any of the parties may
reasonably require.
ARTICLE VII
INDEMNIFICATION OF APS, LIMITED PARTNER AND NEWCO
Section 7.1 INDEMNIFICATION BY THE CONTROL PARTIES. The Control
Parties, each jointly and severally, agree to indemnify and hold harmless APS,
the Limited Partner and, following the Closing, Newco, and each officer,
director, partner, employee and affiliate of APS, the Limited Partner and,
following the Closing, Newco (collectively, the "APS 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
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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 APS Indemnified
Parties may sustain, arising out of (a) any breach or default by any Control
Party of any of its representations, warranties, covenants or agreements
contained in this Agreement or any agreement or document executed in connection
herewith (including, without limitation, the Organizational Documents), (b) any
obligation or liability of either of the Partnerships or any of the Control
Parties not assumed by Newco pursuant to Section 1.6 of this Agreement and/or
(c) any obligations or liabilities with respect to any claims (including,
without limitation, claims for failure to be properly licensed) asserted before
or after the Closing based on the business, acts or omissions of the General
Partner or either of the Partnerships that occurred prior to the Closing.
Notwithstanding the foregoing or any other provision of this Agreement, (i) an
obligation of the Control Parties shall arise under this Section only if and to
the extent that Indemnified Costs owed to all APS Indemnified Parties hereunder,
in the aggregate, exceed $100,000, (ii) Trevey and Bouchard shall have no
indemnity obligation hereunder with respect to any title defect to any Real
Property included in the Assets, and the Control Parties shall have no indemnity
obligation hereunder with respect to any claims or losses attributable to, or
arising from, any contamination of any such Real Property with any hazardous
waste, hazardous substances or other hazardous or toxic materials (whether in
violation of environmental laws or otherwise), and (iii) the Control Parties
shall have no indemnity obligation hereunder with respect to any claims or
causes of action which ultimately (x) are dismissed "with prejudice" without any
judgment having been entered against any of the APS Indemnified Parties or any
Control Parties, or (y) are resolved in
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a final, nonappealable judicial
determination of no liability on the part of any APS Indemnified Parties or any
Control Parties.
The combined indemnity obligation of Trevey or Bouchard arising from
the provisions of this Section for any one or more claimed losses or events of
damage, whether directly or by reason of their ownership of or receipt of
distributions from the General Partner or either Partnership, shall not exceed
an amount equal to the value, as of the time for payment of the indemnity
obligation in question and before taking into account the effect, if any, on
such value of the loss, claim or damage giving rise to the indemnity obligation
in question and any other alleged or asserted indemnity obligations then
outstanding, of an interest in Newco corresponding to an aggregate ownership
interest in Newco of 1,100,000 shares of Common Stock, reduced by the number of
shares of Common Stock previously transferred by Bouchard or Trevey to any party
hereto pursuant to the indemnity provisions hereof (as the same may be adjusted
for stock splits and stock dividends occurring after the date hereof). The
indemnity obligation of each of Trevey and Bouchard taken separately arising
from the provisions of this Section for any one or more claimed losses or events
of damage, whether directly or by reason of his ownership of or receipt of
distributions from the General Partner or either Partnership, shall not exceed
an amount equal to one-half the amount calculated pursuant to the preceding
sentence. Neither Trevey nor Bouchard shall be obligated to pay any cash or
property other than Newco Common Stock on account of any indemnity obligation
accruing hereunder unless, in violation of any term or provision of the
Shareholders Agreement, he has previously transferred (other than in connection
with the payment of an indemnity obligation) any of the shares of Common Stock
issued to him at the Closing (including shares of Common Stock transferred to
him by the General Partner or the Partnerships from the shares initially
received by the General
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Partner or the Partnerships at the Closing) or any
shares of Common Stock issued without consideration in respect of any such
shares; if either Trevey or Bouchard has made such a transfer, he shall be
liable to pay cash in respect of any indemnity obligation arising hereunder only
to the amount of the value of such shares of Common Stock so transferred
(calculated in accordance with the first sentence of this paragraph), subject to
the limits on aggregate liability set forth in this paragraph. Any indemnity
obligation owed by either Trevey or Bouchard hereunder shall be payable first,
and to the extent possible, by transfer by Trevey and/or Bouchard to the
appropriate APS Indemnified Parties of that number of shares of Common Stock of
Newco equal in value (with value determined before taking into account the
effect, if any, on such value of the loss, claim or damage giving rise to the
indemnity obligation in question and any other alleged or asserted indemnity
obligations then outstanding) to the indemnified loss. Any actual recovery by
the APS Indemnified Parties from any other Control Party shall first be deducted
in arriving at the remaining aggregate indemnity obligations of Trevey and
Bouchard. Any shares of Newco Common Stock transferred by Trevey or Bouchard
under the provisions of this Section shall be distributed pro rata to each of
the APS Indemnified Parties based upon the proportionate share of Indemnified
Costs incurred by each such party. In the event that Newco shall receive, as an
APS Indemnified Party, shares of stock forfeited by Trevey or Bouchard
hereunder, such stock shall be recorded on Newco's books and held by Newco as
treasury stock. In determining the value of Common Stock for purposes of this
Section, the methodology specified for determining "Appraised Value" under the
provisions of Section 5.2 of the Shareholders Agreement shall be utilized.
The APS Indemnified Parties and all parties claiming under the APS
Indemnified Parties waive any right of subrogation with respect to any matter
indemnified hereunder to the extent of insurance actually in force which
provides coverage with respect to such indemnified event. Furthermore, the APS
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Indemnified Parties and all parties claiming under the APS Indemnified Parties
agree not to assign or transfer (by subrogation or otherwise) to any insurance
carrier or any third-party claiming under any insurance carrier, any right of
recovery under this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement,
any obligations arising in connection with a breach, or threatened breach, by
Trevey and/or Bouchard, as the case may be, of the provisions of Section 10.3 or
Article 9 hereof shall not be subject to the foregoing limitations or manner of
payment provisions, or any other limitations or qualifications, and in the event
of any such breach, or threatened breach, of any such provisions, the parties
seeking relief related thereto shall have all remedies available to them at law,
in equity, or otherwise.
Section 7.2 DEFENSE OF THIRD-PARTY CLAIMS. An APS Indemnified Party
shall give prompt written notice to each of the Control Parties of the
commencement or assertion of any third party action in respect of which such APS
Indemnified Party shall seek indemnification hereunder. Any failure so to notify
the Control Parties shall not relieve the Control Parties from any liability
that they may have to such APS Indemnified Party under this Article unless the
failure to give such notice materially and adversely prejudices the Control
Parties. The Control Parties shall have the right to assume control of the
defense of, settle or otherwise dispose of such third-party action on such terms
as it deems appropriate; provided, however, that:
(a) The APS Indemnified Party shall be entitled, at his, her, or its
own expense, to participate in the defense of such third-party action;
(b) The Control Parties shall obtain the prior written approval of the
APS Indemnified Party, which approval shall not be unreasonably withheld, before
entering into or making any settlement,
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compromise, admission or acknowledgment
of the validity of such third-party action or any liability in respect thereof
if, pursuant to or as a result of such settlement, compromise, admission or
acknowledgment, injunctive or other equitable relief would be imposed against
the APS Indemnified Party;
(c) None of the Control Parties shall consent to the entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the execution and delivery of a release from all liability in
respect of such third-party action by each claimant or plaintiff to, and in
favor of, each APS Indemnified Party; and
(d) None of the Control Parties shall be entitled to control (but shall
be entitled to participate at their own expense in the defense of), and the APS
Indemnified Party shall be entitled to have sole control over, the defense or
settlement, compromise, admission or acknowledgment of any third-party action as
to which the Control Parties fail to assume the defense within thirty (30) days;
provided, however, that the APS Indemnified Party shall make no settlement,
compromise, admission or acknowledgment which would give rise to liability on
the part of the Control Parties, without the prior written consent of the
Control Parties.
(e) The Control Parties shall make payments of all amounts required to
be made pursuant to the foregoing provisions of this Article to or for the
account of the APS Indemnified Party from time to time promptly upon receipt of
bills or invoices relating thereto or when otherwise due and payable, provided
that the APS Indemnified Party has agreed in writing to reimburse the Control
Parties for the full amount of such payments if the APS Indemnified Party is
ultimately determined not to be entitled to such indemnification. If the Control
Parties fail to timely remit payments of amounts owed hereunder, such amounts
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shall accrue interest at the maximum rate of interest permissible under
applicable state or federal law.
(f) The parties hereto shall extend reasonable cooperation in
connection with the defense of any third-party action pursuant to this Article
and, in connection therewith, shall furnish such records, information and
testimony and attend such conferences, discovery proceedings, hearings, trials
and appeals as may be reasonably requested.
ARTICLE VIII
INDEMNIFICATION OF THE CONTROL PARTIES
Section 8.1 Indemnification by APS. APS agrees to indemnify and hold
harmless the Control Parties and the Limited Partner (collectively, the
"Indemnified Control Parties") from and against any and all Indemnified Costs in
connection with the commencement or assertion of any third party action which
any of the Indemnified Control Parties may sustain, arising out of any breach or
default by APS of any of its representations, warranties, covenants or
agreements contained in this Agreement or any agreement or document executed in
connection herewith (including, without limitation, the Organizational
Documents). Notwithstanding the foregoing or any other provision of this
Agreement, an obligation of APS shall arise under this Section only if and to
the extent that Indemnified Costs owed to all Indemnified Control Parties
hereunder, in the aggregate, exceed $100,000.
The Indemnified Control Parties and all parties claiming under the
Indemnified Control Parties waive any right of subrogation with respect to any
matter indemnified hereunder to the extent of insurance actually in force which
provides coverage with respect to such indemnified event. Furthermore, the
Indemnified Control
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Parties and all parties claiming under the Indemnified
Control Parties agree not to assign or transfer (by subrogation or otherwise) to
any insurance carrier or any third-party claiming under any insurance carrier,
any right of recovery under this Agreement.
Section 8.2 INDEMNIFICATION BY THE LIMITED PARTNER. The Limited Partner
agrees to indemnify and hold harmless the Control Parties and APS from and
against any and all Indemnified Costs in connection with the commencement or
assertion of any third party action which any Control Party or APS may sustain,
arising out of any breach or default by the Limited Partner of any of its
representations, warranties, covenants or agreements contained in this Agreement
or any agreement or document executed in connection herewith. Notwithstanding
the foregoing or any other provision of this Agreement, an obligation of the
Limited Partner shall arise under this Section only if and to the extent that
Indemnified Costs owed to all the Control Parties and APS hereunder, in the
aggregate, exceed $100,000.
Section 8.3 INDEMNIFICATION BY NEWCO. Newco agrees to indemnify and
hold harmless APS, the Control Parties and the Limited Partner from and against
any and all Indemnified Costs arising from, or in connection with, (a) any of
the liabilities specifically assumed by Newco at Closing pursuant to Section 1.6
hereof, (b) any demands made against Trevey and Bouchard under the terms of the
personal guaranty and/or maker obligations described in Section 1.8 hereof,
and/or (c) any obligations or liabilities with respect to any claims asserted
based on the business of Newco conducted after the Closing. Notwithstanding the
foregoing or any other provision of this Agreement, an obligation of Newco shall
arise under this Section only if and to the extent that Indemnified Costs owed
to all the Control Parties and the Limited Partner hereunder (other than
obligations arising pursuant to subsection (b) above), in the aggregate, exceed
$100,000.
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Section 8.4 DEFENSE OF THIRD-PARTY CLAIMS. The indemnified party or
parties (both individually and collectively, the "indemnified party") under the
foregoing provisions of this Article shall give prompt written notice to the
indemnifying party or parties (both individually and collectively, the
"indemnified party") under the foregoing provisions of this Article of the
commencement or assertion of any third party action in respect of which such
indemnified party shall seek indemnification hereunder. Any failure to so notify
the indemnifying party shall not relieve such indemnifying party from any
liability that it may have to such indemnified party under this Article unless
the failure to give such notice materially and adversely prejudices the
indemnifying party. The indemnifying party shall have the right to assume
control of the defense of, settle or otherwise dispose of such third-party
action on such terms as it deems appropriate; provided, however, that:
(a) The indemnified party shall be entitled, at his, her or its
own expense, to participate in the defense of such third-party action;
(b) The indemnifying party shall obtain the prior written approval of
the indemnified party, which approval shall not be unreasonably withheld, before
entering into or making any settlement, compromise, admission or acknowledgment
of the validity of such third-party action or any liability in respect thereof
if, pursuant to or as a result of such settlement, compromise, admission or
acknowledgment, injunctive or other equitable relief would be imposed against
the indemnified party;
(c) The indemnifying party shall not consent to the entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the execution and delivery of a release from all liability in
respect of such third-party action by each claimant or plaintiff to, and in
favor of, each indemnified party; and
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(d) The indemnifying party shall not be entitled to control (but shall
be entitled to participate at its own expense in the defense of), and the
indemnified party shall be entitled to have sole control over, the defense or
settlement, compromise, admission or acknowledgment of any third-party action as
to which the indemnifying party fails to assume the defense within thirty (30)
days; provided, however, that the indemnified party shall make no settlement,
compromise, admission or acknowledgment which would give rise to liability
(other than liability to the indemnified party under this Agreement) on the part
of the indemnifying party without the prior written consent of such indemnifying
party.
(e) The indemnifying party shall make payments of all amounts required
to be made pursuant to the foregoing provisions of this Article to or for the
account of the indemnified party from time to time promptly upon receipt of
bills or invoices relating thereto or when otherwise due and payable, provided
that the indemnified party has agreed in writing to reimburse the indemnifying
party for the full amount of such payments if the indemnified party is
ultimately determined not to be entitled to such indemnification. If the
indemnifying party fails to timely remit payments of amounts owed hereunder,
such amounts shall accrue interest at the maximum rate of interest permissible
under applicable state or federal law.
(f) The parties hereto shall extend reasonable cooperation in
connection with the defense of any third-party action pursuant to this Article
and, in connection therewith, shall furnish such records, information and
testimony and attend such conferences, discovery proceedings, hearings, trials
and appeals as may be reasonably requested.
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ARTICLE IX
RESTRICTIVE COVENANTS
Section 9.1 RELEASE OF PARTNERSHIP PROVISIONS. Each of the
Partnerships, the General Partner, the Limited Partner, Trevey and Bouchard
hereby covenant and agree that the General Partner, Trevey and Bouchard are
hereby released from any restrictive agreements, covenants, provisions or
conditions contained in the Articles of Limited Partnership, Certificate of
Limited Partnership or other organizational documents entered into with respect
to the Partnerships. Without limiting the foregoing, it is specifically
acknowledged and agreed that the provisions of ARTICLE XIII (Right of First
Refusal) of the Amended and Restated Articles of Limited Partnership of Barton
House, and the provisions of ARTICLE XIII (Right of First Refusal) of the
Articles of Limited Partnership of Oakwell, are hereby waived and released in
all respects and shall hereafter be null and void. It is expressly agreed and
understood that the provisions of this Section in no way modify, limit or
otherwise affect any obligations of the parties contained in
this Article, or elsewhere in this Agreement, or in any other contract or
agreement entered into pursuant to the transactions contemplated by this
Agreement.
Section 9.2 NON-DISCLOSURE OF PROPRIETARY INFORMATION. Each party
hereto agrees that through its relationship and dealings with Newco, it will be
exposed to confidential information and trade secrets ("Proprietary
Information") pertaining to, or arising from, the business of Newco or Newco's
affiliates, that such Proprietary Information is unique and valuable and that
Newco or Newco's affiliates would suffer irreparable injury if this information
were divulged to those in
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competition with Newco or Newco's affiliates.
Therefore, each party agrees to keep in strict secrecy and confidence, both
during and after the period of its relationship or business dealings with Newco,
any and all information which it acquires, or to which it has access during such
relationship or through such dealings, that has not been publicly disclosed by
Newco or Newco's affiliates or that is not a matter of common knowledge by their
respective competitors. The Proprietary Information covered by this Agreement
shall include, but shall not be limited to, information relating to any
inventions, processes, software, formulae, plans, devices, compilations of
information, technical data, mailing lists, management strategies, business
distribution methods, names of suppliers (of both goods and services) and
customers, names of employees and terms of employment, arrangements entered into
with suppliers and customers, including, but not limited to, proposed expansion
plans of Newco, marketing and other business and pricing strategies and trade
secrets of Newco and Newco's affiliates; provided, however, that Proprietary
Information shall not include any such information which has become generally
known to the public or in the relevant trade or industry by means other than as
a result of unauthorized disclosure by or at the direction of the party relying
on this exception.
At all times after the Closing, except with prior written approval by
the Board of Directors of Newco (pursuant to Article VIII, subsection (t) of the
Shareholders Agreement and Article 3, Section 8(t) of Newco's Bylaws), in each
instance, no party shall: (a) directly or indirectly, disclose any Proprietary
Information to any person except authorized personnel of Newco, or (b) use
Proprietary Information in any way not related solely to the business of Newco.
If such party is an employee of Newco or Newco's affiliates, upon termination of
employment, whether voluntary or involuntary, within forty-eight (48) hours of
termination, such employee will deliver to Newco
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(without retaining copies
thereof) all documents, records or other memorializations including copies of
documents and any notes which such employee has prepared, that contain
Proprietary Information or relate to Newco's or Newco's affiliates' business,
all other tangible Proprietary Information in such party's possession or control
and all of Newco's and Newco's affiliate's credit cards, keys, equipment,
vehicles, supplies and other materials that are in possession or under such
employee's control.
Notwithstanding the foregoing or any other provision of this Agreement,
any party shall be entitled to divulge or disclose Proprietary Information (x)
to its accountants, attorneys, bankers or financial advisors (its
"Representatives") for the sole purpose of representing it in connection with
the business of Newco, (y) in the event that it or its Representatives are
requested or required during or through legal proceedings by oral questions,
interrogatories, requests for information or documents, subpoenas, or other
similar legal process to disclose any of the Proprietary Information, but only
after such party provides the other parties hereto ten (10) days, following
written notice of any such request or requirement, to seek a protective order or
other appropriate remedy, or waive compliance with the provisions of this
subsection, (z) it or its Representatives are, in the written opinion of
qualified legal counsel addressed and delivered to the other parties hereto not
less than ten (10) days prior to any disclosure, legally compelled to disclose
Proprietary Information to any tribunal, agency or governmental regulatory body
or else stand liable for contempt or suffer other censure or penalty, but only
to the extent required under the circumstances.
Section 9.3 NON-COMPETITION. Each party to this Agreement (other than
Newco) hereby agrees that, such party will not directly or indirectly, either
through any kind of ownership
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(other than ownership of securities of a publicly
held corporation, or other entity, of which it owns less than five percent (5%)
of any class of outstanding securities), or as a principal, shareholder, agent,
employer, advisor, consultant, co-partner or in any individual or representative
capacity whatever, either for its own benefit or for the benefit of any other
person, corporation or other entity, without the prior written consent of all
other parties hereto, commit any of the following acts, which acts shall be
considered violations of this covenant not to compete:
(a) Directly or indirectly (other than through Newco), anywhere within
any state of the United States in which, at the time such party's employment
relationship with Newco, if applicable, terminates, Newco owns, operates, or has
specific plans to acquire, develop or operate, a business location providing, or
to provide, any Covered Services (as herein defined), engage in, or provide any
services related to the provision of assisted living services to senior citizens
with dementia, or any related services. For purposes of this Agreement, "Covered
Services" means any services related to the provision of assisted living
services to senior citizens with dementia or any related services.
Notwithstanding the foregoing or any other provision of this Agreement,
(A) the restrictions contained in this subsection (a) shall lapse with respect
to Trevey on the later of (x) the fifth anniversary of the Closing Date and (y)
the second anniversary of the date that Trevey voluntarily terminates his
employment with Newco, (B) the restrictions contained in this subsection (a)
shall lapse with respect to Bouchard on the later of (x) the fifth anniversary
of the Closing Date and (y) the second anniversary of the date that Bouchard
voluntarily terminates his employment with Newco, and (C) if Newco terminates
the employment of either Bouchard or
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Trevey, the restrictions contained in this
subsection (a) shall lapse with respect to the terminated party on the first
anniversary of such termination. The restrictions contained in this subsection
(a) shall cease to be effective with respect to all parties hereto at any time
that both Bouchard and Trevey are not longer bound by such restrictions.
Furthermore, in no event shall any party be bound by the provisions of this
subsection (a) after the earlier to occur of (i) the expiration of five years
from the date the common stock of Newco becomes publicly traded pursuant to an
underwritten registered public offering, or (ii) the expiration of ten years
after the Closing Date.
(b) Directly or indirectly, for such party's own account or otherwise,
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 Newco
or Newco's affiliates, any client, account or location of Newco or Newco's
affiliates with which such party has had any contact as a result of its
relationship and business dealings with Newco hereunder.
(c) Directly or indirectly request or advise any person, firm,
physician, corporation or other entity having a business relationship with Newco
or any affiliate of Newco, to withdraw, curtail or cancel its business with
Newco or such affiliate.
(d) Directly or indirectly hire any employee of Newco or any affiliate
of Newco, or induce or attempt to influence any employee or independent
contractor of Newco or any such affiliate to terminate or modify his or her
employment or contractual arrangement with Newco or any such affiliate.
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Section 9.4 AGREEMENT OF THE PARTIES. Each party hereto has reviewed
and carefully considered the provisions of this Article and, having done so,
agrees that the restrictions applicable to them as set forth herein (a) are fair
and reasonable with respect to time, geographic area and scope, (b) are not
unduly burdensome to them and (c) are reasonably required for the protection of
the interests of the other parties hereto for whose benefit such restrictions
were agreed upon.
Section 9.5 REMEDIES. Each party hereto understands, acknowledges and
agrees that a violation on its part of any applicable covenant contained in this
Article will cause the other parties hereto for whose benefit such restrictions
were agreed upon irreparable damage for which remedies at law alone will be
insufficient, and for that reason, each party hereto agrees that the other
parties shall be entitled as a matter of right, upon application to a court of
competent jurisdiction, to equitable remedies in the event of any such
violation, 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 the other parties
may have, including, specifically, recovery of additional damages.
ARTICLE X
POST CLOSING AGREEMENTS
Section 10.1 Transition of Business. Each of the Control Parties agrees
to cooperate fully with Newco in transitioning the business conducted, and
business relationships maintained
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by each of the Partnerships (and by the
General Partner as to the Assets contributed to Newco by the General Partner)
prior to the Closing, to Newco after the Closing (including, without limitation,
the re-registration in all applicable jurisdictions, under the name of Newco, of
all registered trademarks or servicemarks included in the Assets); APS and each
Control Party agree not to take any action or make any disclosure, including
disclosures related to the transactions contemplated by this Agreement, which
might alter or impair any relationship with any customer, or other service
recipient, person or entity which did business with either of the Partnerships
prior to the Closing. Each Control Party agrees to promptly remit to Newco any
payments received by any Control Party for services provided by either of the
Partnerships after the Effective Time and before the Closing, or by Newco after
the Closing. Furthermore, each of the Control Parties agrees to deposit any such
payments received directly to a deposit account designated and controlled by
Newco or to take such other action as may be requested by APS to implement and
maintain a system for remitting payments due Newco which come into the
possession or control of any Control Party. The provisions of this Section shall
not require any party hereto to incur out-of-pocket costs unless Newco pays for,
or agrees to reimburse, such costs.
Section 10.2 RATIFICATION BY NEWCO. Each and every party to this
Agreement hereby expressly agrees that it will not challenge or contest, on
legal grounds or otherwise, Newco's execution of, and power and authority to
perform its obligations under, this Agreement, notwithstanding the official date
of Newco's creation.
51
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Section 10.3 EMPLOYMENT WITH NEWCO. Trevey and Bouchard each agree to
enter into an Employment Agreement in the form attached hereto as Exhibit E
(collectively, the "Employment Agreements") at the Closing. Trevey and Bouchard
each agree (a) to comply with the terms of his respective Employment Agreement
and (b) not to terminate his employment with Newco for so long as Newco complies
with the terms of the Employment Agreement.
Section 10.4 DISPOSITION OF SUGARLAND PROPERTY. After Closing, upon
maturity of that certain promissory note dated December 2, 1997 in the original
principal amount of $300,000, arising out of a loan by APS to the General
Partner, (the "Sugarland Note"), and secured by that certain real property
located at 3050 and 3060 Edgewater Boulevard, Sugarland, Texas 77479 (the
"Sugarland Property"), Newco agrees to purchase, and the General Partner agrees
to sell, the Sugarland Property to Newco (free of all liens, claims and
encumbrances) in exchange for Newco's paying to the General Partner, in
immediately available funds, an amount of money equal to all amounts due under
the Sugarland Note. The General Partner shall execute, acknowledge and deliver
or cause to be delivered to Newco and APS such documents of title and conveyance
relating to the Sugarland Property as Newco, APS or their counsel may request.
All such documents must be reasonably acceptable in both form and substance to
Newco and APS and their counsel, and Newco agrees to reimburse the General
Partner for reasonable and necessary out-of-pocket costs incurred in obtaining
or providing such documents.
Section 10.5 FORM D FILING. Following the Closing, Newco shall properly
and timely file with the Securities and Exchange Commission a Form D, and all
parties agree to cooperate, as necessary, to facilitate such filing.
52
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ARTICLE XI
MISCELLANEOUS
Section 11.1 COLLATERAL AGREEMENTS, AMENDMENTS AND WAIVERS. This
Agreement (together with all documents delivered pursuant hereto, executed in
connection herewith, or contemplated herein) supersedes all other documents,
understandings and agreements, oral or written 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 or contemplated herein, unless
otherwise expressly provided therein) may be made only by an instrument in
writing executed by each party thereto.
Section 11.2 SUCCESSORS AND ASSIGNS. No party's rights or obligations
under this Agreement may be assigned, transferred, conveyed or otherwise
disposed of except pursuant to that certain Shareholders Agreement executed in
connection with this Agreement. Upon any such permitted assignment, the assignee
shall execute the Shareholders Agreement, or a counterpart thereof, and the
assignor and the assignee shall thereafter be jointly and severally responsible
for the obligations of assignor hereunder. Furthermore, no assignment, of any
type, of rights or obligations under this Agreement shall in any way limit,
modify or otherwise affect the obligations of the remaining parties to this
Agreement. 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
53
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delivered pursuant to this Agreement or contemplated herein) shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns.
Notwithstanding the foregoing or any other provision of this Agreement,
the parties hereto acknowledge and agree that APS shall have unrestricted
rights, upon written notice to the other parties hereto, to freely assign its
rights under this Agreement and the other contracts or agreements entered into
by APS pursuant hereto, to any entity, the majority of whose voting equity
securities is then owned directly or indirectly by APS; provided, however, that
APS shall remain fully liable for all its obligations hereunder or under such
other contracts or agreements after any such assignment.
Section 11.3 EXPENSES. Except as set forth in the following sentence,
regardless of whether the transactions contemplated hereby are consummated, each
party hereto shall pay all of the costs and expenses incurred by it in
connection with this Agreement, including the fees and disbursements of its
legal counsel and accountants. In the event the transactions contemplated herein
are consummated, Newco will pay, or promptly reimburse, all parties hereto for
the reasonable fees and disbursements of its legal counsel incurred in
connection with the negotiation and entering into of this Agreement and the
other contracts and agreements entered into in connection with the Closing.
Furthermore, Newco agrees to reimburse the General Partner for the ordinary and
necessary out-of-pocket costs incurred in preparing the 1997 and 1998 federal
income tax return of the Partnerships and the General Partner.
54
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Section 11.4 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 as if there was substituted in place
thereof a provision which parallels as closely as allowed by law the severed
provision, 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.
Section 11.5 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.
Section 11.6 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 delivered personally or by courier service 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:
55
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APS, NEWCO OR American Physicians Service Group, Inc.
THE ADDITIONAL 1301 Capital of Texas Highway, Suite C-300
PURCHASERS: Austin, Texas 78746
Attention: President
Fax: (512) 314-4301
with a copy to: Timothy L. LaFrey
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
816 Congress Avenue, Suite 1900
Austin, Texas 78701
Fax: (512) 499-6290
LIMITED PARTNER: Uncommon Partners, Ltd.
808 West 10th Street
Austin, Texas 78701
Attn: Matt Mathias
Fax: (512) 469-0928
with a copy to: J. Bradley Greenblum
Jenkens & Gilchrist
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
Fax: (512) 404-3520
56
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CONTROL PARTIES: Uncommon Care
101 W. 6th Street, Suite 330
Austin, Texas 78701
with a copy to: Bret Van Earp
100 Congress Avenue, Suite 1800
Austin, Texas 78701
Fax: (512) 469-3724
Each party may change its address for purposes of this Section by
proper notice to the other parties.
Section 11.7 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, indemnity obligations, representations and warranties
made or agreed to hereunder, pursuant hereto or in connection with the
transactions contemplated hereby, shall survive the Closing.
Section 11.8 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 to more effectively to consummate the
transactions contemplated hereby, consistent with the terms hereof.
57
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Section 11.9 CONSTRUCTION AND KNOWLEDGE. 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.
Section 11.10 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas.
Section 11.11 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.
Section 11.12 POST EFFECTIVE TIME ADJUSTMENTS. The parties acknowledge
and agree that each of the Partnerships has, prior to the Closing Date, been
receiving revenues, making disbursements and incurring payables and receivables
pursuant to its operations in the ordinary course since the Effective Time,
including, without limitation, paying payroll, payroll taxes, trade vendors and
other expenses. Each of the Partnerships will promptly account for all such
activity and will remit to Newco any net profits made and other amounts, if any,
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due Newco with respect to such post-Effective Time activity. Furthermore, Newco
shall reimburse the General Partner, the Limited Partner, Trevey and Bouchard
for any cash contributions made by them to the Partnerships between the
Effective Time and the Closing Date made on account of any cash basis net
operating losses incurred by the Partnerships in the ordinary course of business
between the Effective Time and the Closing Date.
[Signature pages follow]
59
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SIGNATURE PAGES
CONTRIBUTION
AND
STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the day and year first above written.
APS: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ Duane K. Boyd, Jr.
Print Name: Duane K. Boyd, Jr.
Print Title: Senior VP
NEWCO: BARTON ACQUISITION, INC.
By: _____________________________________
Print Name: ___________________________
Print Title: ___________________________
S-1
<PAGE>
BARTON HOUSE: BARTON HOUSE, LTD.
By: Uncommon Care, Inc., its General Partner
By: /s/ George R. Bouchard
Print Name: George R. Bouchard
Print Title: President
OAKWELL: BARTON HOUSE AT OAKWELL FARMS, LTD.
By: Uncommon Care, Inc., its General Partner
By: /s/ George R. Bouchard
Print Name: George R. Bouchard
Print Title: President
S-2
<PAGE>
GENERAL PARTNER: UNCOMMON CARE, INC.
By: Uncommon Care, Inc., its General Partner
By: /s/ George R. Bouchard
Print Name: George R. Bouchard
Print Title: President
BOUCHARD: /s/ George R. Bouchard
-----------------------
George R. Bouchard
TREVEY: /s/ John H. Trevey
-----------------------
John H. Trevey
S-3
<PAGE>
LIMITED PARTNER: UNCOMMON PARTNERS, LTD.
By: LTZ, Inc., its General Partner
By: /s/ Matt Mathias
Matt Mathias, President
[Signature pages for Additional Purchasers follow]
S-4
<PAGE>
SIGNATURE PAGES
CONTRIBUTION
AND
STOCK PURCHASE AGREEMENT
ADDITIONAL
PURCHASERS:
/s/ Richard J. Clark
----------------------
Richard J. Clark
DUANE K. BOYD, JR. TRUST
By /s/ Duane K. Boyd, Jr. Trustee
-------------------------------
Duane K. Boyd, Jr., Trustee
/s/ Robert L. Myer
---------------------------
Robert L. Myer
J. A. MURPHY DESCENDANTS' TRUST
By BANK OF BERMUDA, TRUSTEE
By /s/ R.H. Masters
Name Robert H. Masters
Title Trust Manager
/s/ William A. Searles
------------------------
William A. Searles
/s/ Kenneth S. Shifrin
------------------------
Kenneth S. Shifrin
/s/ Samuel Granett
-----------------------
Samuel Granett
S-5
<PAGE>
/s/ W. H. Hayes
--------------------------
W. H. Hayes
/s/ H.J. Howard. III
--------------------------
H. J. Howard, III
S-6
<PAGE>
APPENDIX I
ADDITIONAL PURCHASERS
Name Number of Shares Purchase Price
Richard J. Clark 3,800 $11,000
Duane K. Boyd, Jr. Trust 19,000 55,000
Robert L. Myer 17,100 49,500
J. A. Murphy Descendants' Trust 7,600 22,000
William A. Searles 9,880 28,600
Kenneth S. Shifrin 11,400 33,000
Samuel Granett 3,800 11,000
W. H. Hayes 7,600 22,000
H. J. Howard, III 1,900 5,500
------- --------
Totals 82,080 $237,600
====== =======
Exhibit 10.48
STOCK TRANSFER RESTRICTION
AND
SHAREHOLDERS AGREEMENT
This Stock Transfer Restriction and Shareholders Agreement (this
"Agreement") dated as of January 1, 1998, by and among American Physicians
Service Group, Inc., a Texas corporation ("APS"), Barton Acquisition, Inc., a
Texas corporation (the "Corporation"), Barton House, Ltd., a Texas limited
partnership ("Barton House"), Barton House at Oakwell Farms, Ltd., a Texas
limited partnership ("Oakwell"), Uncommon Care, Inc., a Texas corporation (the
"General Partner"), George R. Bouchard ("Bouchard"), John H. Trevey ("Trevey"),
Uncommon Partners, Ltd., a Texas limited partnership (the "Limited Partner") and
the additional parties listed on Appendix I hereto (each an "Additional
Purchaser" and collectively the "Additional Purchasers"). Barton House and
Oakwell are sometimes collectively referred to herein as the "Partnerships."
PRELIMINARY STATEMENT
The parties hereto desire to enter into this Agreement to control the
distribution of ownership interests in the Corporation and to promote the
harmonious management of the Corporation's affairs.
<PAGE>
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good, valuable and binding consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS; PERMISSIBLE TRANSFERS
For purposes of this Agreement, each party hereto, other than the
Corporation, is hereinafter sometimes referred to as a "Shareholder" and
collectively as the "Shareholders." For purposes of this Agreement all issued
and outstanding capital stock of the Corporation, together with any hereafter
acquired, whether common, preferred or otherwise, is hereinafter referred to as
the "Shares."
The parties hereto acknowledge and agree that, as of the date this
Agreement is initially entered into, the General Partner, Bouchard, Trevey and
the Limited Partner do not own any Shares of the Corporation. However, all
parties hereto agree that any and all Shares which either of the Partnerships
obtains, either directly or indirectly, pursuant to the transactions consummated
in connection with the execution of this Agreement, that certain Contribution
and Stock Purchase Agreement dated effective January 1, 1998 (the "Contribution
Agreement") or any other document, agreement or instrument executed in
connection with or contemplated
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by the Contribution Agreement, shall be promptly
transferred to the General Partner, Bouchard, Trevey and/or the Limited Partner,
as the case may be, and that neither of the Partnerships shall continue to own
any Shares as a result of this Agreement, the Contribution Agreement or such
other agreements. All parties hereto agree that such transfer of Shares by
either of the Partnerships to the General Partner, Bouchard, Trevey and/or the
Limited Partner, in a single transaction, shall be a permissible transfer for
purposes of this Agreement. However, except for the transfer of Shares by Trevey
or Bouchard to any of the APS Indemnified Parties (as defined in the
Contribution Agreement) in payment of an indemnity obligation under the
Contribution Agreement (which shall also be a permissible transfer for purposes
hereof), any other or further transfer, assignment, pledge, hypothecation or
other alienation of any Shares or any interest therein, shall in every respect
be subject to the terms and conditions of this Agreement. The parties hereto
further acknowledge and agree that if, upon the permissible transfer of all
Shares owned by the Partnerships to the other parties hereto as described above,
so that neither of the Partnerships own any Shares or any interest therein, each
of the Partnerships shall no longer be bound by the terms of this Agreement and
shall no longer have any rights hereunder.
The parties hereto further acknowledge and agree that APS shall have
unrestricted rights to freely assign or transfer any of its Shares to any
entity, the majority of whose voting equity securities is then owned directly or
indirectly by APS (an "APS Entity"); provided, however, that such entity must
sign a counterpart of this Agreement, and provided further such entity must
transfer any Shares transferred to it (and may do so without any consent or
option arising hereunder) back to APS or another APS Entity (who must then sign
a counterpart hereof) in the event, but prior to, such entity no longer being
majority owned, directly or indirectly, by APS.
3
<PAGE>
ARTICLE II
RESTRICTIONS AGAINST TRANSFER
Except as otherwise provided in this Agreement, a Shareholder shall not
transfer, assign, pledge, hypothecate or in any way alienate any Shares, or any
interest therein, whether voluntarily or by operation of law, or by gift or
otherwise, without (a) the prior unanimous written consent of APS, Bouchard and
Trevey or (b) in the case of a pledge or hypothecation, the written
acknowledgment of the lender, in form and substance reasonably acceptable to
APS, Bouchard and Trevey, that the lender will hold such Shares (or interest
therein) subject to all of the terms and provisions of this Agreement, and will
not foreclose upon or otherwise transfer any such Shares, or interest therein,
without complying with the provisions hereof, including those relating to
options to purchase the Shares by the other parties hereto. Any purported
transfer in violation of any provision of this Agreement shall be void and
ineffectual, shall not operate to transfer any interest or title to the
purported transferee and shall give the Corporation and the other Shareholders
options to purchase such Shares in the manner and on the conditions hereinafter
provided.
4
<PAGE>
ARTICLE III
OPTIONS
Section 3.1 Option Upon Voluntary Transfer.
(a) Notice of Intention to Transfer. Subject to (e) below and except
for a transfer of Shares by APS pursuant to Article I hereof, no voluntary
transfer of any Shares or any interest therein, shall, without the prior
unanimous written consent of APS, Trevey and Bouchard in each instance, be
allowed for a period of two (2) years after the date of this Agreement.
Thereafter, if a Shareholder intends to voluntarily transfer any of its Shares
to any person other than the Corporation and does not obtain the written
consents required in Article II hereof, the Shareholder shall give written
notice to the Corporation and the other Shareholders stating (i) the intention
to transfer Shares, (ii) the number of Shares to be transferred, (iii) the name,
business and residence address of the proposed transferee, (iv) the nature and
amount of the consideration and (v) the other terms of the proposed sale.
(b) Option to Purchase. The Corporation shall have, and may exercise
within 60 days after receipt of the notice of intent to transfer, an option to
purchase all or any portion of the Shares owned by the transferring Shareholder
for the price and upon the other terms stated in the notice of intent to
transfer. If the Corporation elects not to purchase all or any portion of such
Shares, it shall, prior to the expiration of said 60-day period, notify the
other Shareholders in writing of its election, and the other Shareholders shall
have, and may exercise within 30 days of
5
<PAGE>
receipt of the Corporation's notice of
election, an option to purchase such unpurchased Shares upon the same terms and
conditions.
(c) Death Before Closing. If a Shareholder who proposed to transfer
Shares dies prior to the closing of the sale and purchase contemplated by this
Section, the Shares of such deceased Shareholder shall be the subject of sale
and purchase under Section 3.3 hereof.
(d) Allowable Consideration. All parties hereto acknowledge and agree
that it would be impractical to exercise an option to purchase arising pursuant
to this Section whenever the proposed consideration to be received by the
transferring Shareholder is other than cash, cash equivalents or an obligation
to pay cash by a person whose credit worthiness and financial status is such
that performance of the payment obligation would be reasonably assured.
Therefore, the parties agree that no transfer shall be permitted and no option
shall arise pursuant to this Section whenever the consideration to be received
from the proposed transferee is other than cash, cash equivalents or an
obligation to pay cash by a person whose credit worthiness and financial status
is such that performance of the payment obligation would be reasonably assured.
(e) Certain Exempted Voluntary Transfers. Notwithstanding the foregoing
or any other provision of this Agreement, upon providing written notice (and
without any requirement of consent), as provided for herein, to the Corporation
and all other Shareholders: (i) any Shareholder may transfer Shares to any other
Shareholder, at any time, without obtaining the written consent hereunder and
without giving rise to any Options provided for hereunder; (ii) Bouchard, Trevey
and the Limited Partner Permitted Assigns (as hereinafter defined) may transfer
6
<PAGE>
their Shares to their spouse, children, siblings, parents or trust(s) created
exclusively for the benefit of their spouse, children, siblings or parents, but
only to the extent of, and subject to, the provisions described below; and (iii)
the Limited Partner may transfer its Shares to the following parties (but only
to the extent of, and subject to, the provisions described below): LTZ, Inc.,
Lebermann Investment, J.V., Roger Minard, William Greehey, Stan McLelland, and
Matt Mathias (the "Limited Partner Permitted Assigns"). For purposes of this
subsection (e), "trust" shall be deemed to include a family limited partnership,
joint venture or other entity, as long as all of the equity interests of such
family limited partnership, joint venture or other entity are owned by the
transferring Shareholder's spouse, children, siblings or parents.
The transfer rights of Trevey and Bouchard described in clause (ii)
above may only be made as follows: (A) prior to January 1, 2000, no such
transfer shall be allowed and (B) during each calendar year beginning January 1,
2000, Trevey and Bouchard shall each be entitled to transfer the number of
Shares, whether received directly or indirectly, representing up to twenty five
percent (25%) of his initial proportionate ownership interest in the Corporation
as determined immediately following the consummation of all transactions
contemplated in connection with this Agreement (including the permissible
transfers from the Partnerships under Article I hereof) and the Contribution
Agreement, on a cumulative basis.
Furthermore, the transferee receiving such Shares as described in
clause (ii) of the first sentence of this Section, whether an individual or
trust, (X) shall grant (and maintain in place thereafter) an irrevocable proxy
to the transferring Shareholder in form and substance reasonably acceptable to
APS, (Y) shall execute and deliver a counterpart of this Agreement, and (Z)
shall not receive by reason of such transfer any rights to benefits from, or
under, the provisions for registration rights contained in Article X of this
Agreement; provided, however, that the original transferring Shareholder (either
Trevey, Bouchard or any of the Limited Partner Permitted
7
<PAGE>
Assigns, as the case
may be), in their sole discretion, may elect (by notifying the Corporation to
that effect in writing during the 10-day period for giving notice of intent to
include Covered Shares in a registration as contemplated in Section 10.1) to
allow the transferee hereunder to assume such registration rights, but only with
respect to such Shares described in clause (ii) above and only as, and to the
extent, otherwise provided in Article X.
Each of the Limited Partner Permitted Assigns which may receive Shares
described in clause (iii) above, whether an individual or other entity, shall
execute and deliver a counterpart of this Agreement and shall receive, by reason
of such transfer, registration rights pursuant to Article X of this Agreement.
Section 3.2 Option Upon Certain Involuntary Transfers.
(a) Exercise Event and Notice. The filing of a voluntary or involuntary
petition of bankruptcy by or on behalf of a Shareholder, an assignment by a
Shareholder of any of its Shares, or of any right or interest therein, for the
benefit of creditors, or the voluntary transfer, transfer by law or any other
transfer, of any Shares, or of any right or interest therein (other than
transfers governed by Article I, Article II, Section 3.1, Section 3.3 or Section
3.4 hereof), shall give the Corporation and the other Shareholders the option to
purchase the Shares of such bankrupt Shareholder or such transferred Shares as
provided herein. Upon the filing of a voluntary or involuntary petition of
bankruptcy by or on behalf of a Shareholder or an assignment by Shareholder of
any of its Shares, or of any right or interest therein, for the benefit of
creditors, the Shareholder or its personal representative shall promptly give
written notice of
8
<PAGE>
such occurrence to the Corporation and to the other
Shareholders. In the event of a transfer of Shares, as described above, the
Shareholder transferring such Shares shall promptly give written notice of such
transfer to the Corporation and to the other Shareholders.
(b) Option to Purchase. The Corporation shall have, and may exercise
within 60 days after receipt of the notice of the applicable exercise event, an
option to purchase all or any portion of the Shares owned by the bankrupt or
transferring Shareholder for the price and upon the other terms hereinafter
provided. If the Corporation elects not to purchase all or any portion of such
Shares, it shall, prior to the expiration of said 60-day period, notify the
other Shareholders in writing of its election. The other Shareholders shall
have, and may exercise within thirty (30) days of receipt of the notice of
election, an option to purchase such unpurchased Shares for the price and upon
the other terms hereinafter provided.
Section 3.3 Transfer of Shares Upon Death. Upon the death of a
Shareholder, any transfer of Shares of the deceased Shareholder pursuant to the
Shareholder's last will or the laws of descent and distribution shall be a
permitted transfer for purposes of this Agreement and shall not give rise to any
option to purchase or require the acquiror to execute a counterpart of this
Agreement.
Section 3.4 Option Upon Death of a Shareholder's Spouse, Termination of
Marital Relationship or Partition of Community Property.
(a) Death of Shareholder's Spouse. Each Shareholder and each
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<PAGE>
Shareholder's spouse agree that in the event the spouse of a Shareholder
predeceases such Shareholder and such Shareholder does not succeed by the
spouse's last will and testament or by operation of law to any interest
(including, without limitation, a community property interest) of the spouse in
the Shares, such Shareholder shall have, and may exercise within 60 days after
the death of the spouse, an option to purchase all or any portion of the
spouse's interest for the price and upon the other terms hereinafter provided.
If the Shareholder spouse elects not to purchase all or any portion of the
deceased spouse's interest, it shall, prior to expiration of said 60-day period,
notify the Corporation and the other Shareholders in writing of its election.
The Corporation shall then have, and may exercise within 30 days of receipt of
the election, an option to purchase the unpurchased, deceased spouse's interest
for the price and upon the other terms hereinafter provided. If the Corporation
elects not to purchase all or any portion of the deceased spouse's interest, it
shall, prior to expiration of said 30-day period, notify the other Shareholders
in writing of its election and the other Shareholders shall have, and may
exercise within 30 days of receipt of election, an option to purchase the
unpurchased, deceased spouse's interest for the price and upon the other terms
hereinafter provided.
(b) Termination of Marital Relationship or Partition of Community
Property. In the event a divorce, annulment or other proceeding for termination
of the marital relationship is filed by or against a Shareholder, or upon the
initiation of any voluntary or involuntary attempt to partition the community
property estate between a Shareholder and such Shareholder's spouse for any
reason, the Shareholder shall promptly give written notice to the Corporation
and the other Shareholders of such event. The Shareholder shall have, and may
exercise within sixty (60) days of giving of such notice, an option to purchase
all or any portion of the spouse's right to or
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interest in such Shares
(including without limitation any community property interest), for the price
and upon the other terms hereinafter provided. If the Shareholder elects not to
purchase all or any portion of the spouse's interest, it shall, prior to
expiration of said 60-day period, notify the Corporation in writing of its
election and the Corporation shall have, and may exercise within thirty (30)
days of receipt of such election, an option to purchase the unpurchased spouse's
interest for the price and upon the other terms hereinafter provided. If the
Corporation elects not to purchase all or any portion of the spouse's interest,
it shall, prior to expiration of said 30-day period, notify the other
Shareholders in writing of its election and the other Shareholders shall have,
and may exercise within thirty (30) days of receipt of such election, an option
to purchase the unpurchased spouse's interest for the price and upon the other
terms hereinafter provided.
Section 3.5 Alternate Notices. The failure of any person, whether a
party to this Agreement or otherwise, to give notice of the occurrence of an
Exercise Event (as defined in Section 5.3 hereof) as contemplated herein shall
not operate to prevent the creation of any option which would otherwise arise
pursuant to this Article. Any party to this Agreement who has actual knowledge
of the occurrence of an Exercise Event may give the required written notice of
the occurrence of an Exercise Event, and upon the giving of such written notice
the options shall be created and become exercisable to the same extent as if
such notice was given by the party initially contemplated above.
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ARTICLE IV
EXERCISE OF OPTIONS; EFFECT OF NON-EXERCISE;
CO-SALE RIGHTS
Section 4.1 Manner of Exercise of Options. All options granted in, or
arising pursuant to, Article III hereof shall be exercised by a written notice
to that effect delivered within the time provided for the exercise of the
option.
Section 4.2 Complete Exercise of Options. The holders of options
granted in, or arising pursuant to, Article III hereof must, either alone or in
the aggregate, exercise the options in such a manner as to purchase all of the
Shares (or interest therein) subject to such options, and failure to do so shall
cause a forfeiture of the options. Where one or more Shareholders elect not to
exercise such options, the other Shareholders shall be entitled to assume the
options not exercised on a pro rata basis pursuant to Section 4.3.
Section 4.3 Multiple Option Holders. In cases where an option is held
by more than one Shareholder, each purchasing Shareholder shall be entitled to
purchase his or her proportionate share of the Shares subject to the option. A
Shareholder's proportionate share shall equal the total number of Shares subject
to the option multiplied by a fraction the numerator of which is the number of
Shares held by such Shareholder and the denominator of which shall be the number
of Shares held by all Shareholders electing to exercise the option.
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Section 4.4 Effect of Non-Exercise of Options. If the holders of
options granted or arising pursuant to this Agreement do not exercise their
options, or such options are forfeited, as provided herein, the person or
persons acquiring the Shares (or interest therein) that were the subject of the
options shall execute a counterpart of this Agreement and become a party hereto
and shall hold such Shares subject to all the terms and conditions provided
herein, and any transfer of such Shares (or interest therein) shall only be made
in accordance with the terms and conditions provided herein. In the event the
person or persons acquiring the Shares (or interest therein) fail to execute a
counterpart of this Agreement and become a party hereto, such transfer shall be
void and ineffectual and shall not operate to transfer any interest or title to
the purported transferee, and such Shares shall thereafter be subject to
cancellation and extinguishment by the Corporation, without consideration
therefor. In addition, in the event of a transfer subject to the provisions of
Article III hereof, upon the lapse or forfeiture of all the options arising
pursuant to that Article, the transferor shall have the right to effectuate the
transfer of Shares in accordance with the terms stated in the notice of intent
to transfer or notice of Exercise Event (as applicable), and the transferee of
such Shares shall execute and become a party to this Agreement and shall hold
such Shares subject to all of its terms and conditions. Provided further,
however, any such transfer of Shares shall be void and ineffectual and shall not
operate to transfer any interest or title to the purported transferee, if (a)
for voluntary transfers under Section 3.1 hereof, the transfer is not upon the
terms or is not to the transferee stated in the notice of intent to transfer or
(b) for all transfers giving rise to options pursuant hereto, the transfer is
not closed within thirty (30) days of receipt of written notice of the election
not to exercise, or the forfeiture of, all applicable options; and upon the
occurrence of events or conditions described in (a) or (b) the transferor
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desiring to effect such transfer must again comply with the notice, option and
other requirements of this Agreement prior to any transfer of any Shares or
interest therein.
Section 4.5 Co-Sale Rights. In the event of a voluntary transfer
pursuant to the provisions of Section 3.1 (except for transfers pursuant to
subsection (e) of Section 3.1) by Bouchard, Trevey, APS or the Limited Partner,
the holders not exercising their options granted pursuant to Section 3.1 shall
be entitled to include, upon the same terms and conditions as provided in the
notice required by Section 3.1(a), their Shares in such voluntary transfer, on a
pro rata basis based on the ratio of total Shares owned by those having these
co-sale rights and the Shareholder receiving the voluntary transfer offer.
ARTICLE V
PURCHASE PRICE
Section 5.1 Purchase Price. The purchase price of Shares to be
purchased pursuant to options granted, held or exercised pursuant to Section 3.2
and Section 3.4 hereof, shall be the amount calculated in accordance with
Section 5.2 hereof.
Section 5.2 Calculation of Purchase Price. When determined in
accordance with this Section, the purchase price for Shares or any portion
thereof or spouse's interest therein shall be equal to an amount agreed upon by
the seller and the buyer or buyers electing to purchase such Shares hereunder.
In the event that no such agreement is reached within thirty (30) days prior to
the closing of such purchase and sale, the purchase price per Share shall equal
the Book Value
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(as hereinafter defined) of the Shares to be transferred
determined as of the Valuation Date (as hereinafter defined). However, at the
written request of either the seller or any of the proposed purchasers, the
purchase price shall equal the Appraised Value (as hereinafter defined) of the
Shares as of the Valuation Date, reduced when necessary to reflect the purchase
of less than a one hundred percent (100%) interest in each of the Shares to be
transferred (for example: reduced by one-half when a spouse's interest is only
an undivided one-half community property interest in each of the Shares of a
Shareholder spouse). For purposes of this Agreement, the "Book Value" per Share
shall be determined by subtracting the total liabilities of the Corporation as
of the Valuation Date from the total assets of the Corporation as of the
Valuation Date, and dividing such amount by the aggregate number of Shares
issued and outstanding as of the Valuation Date. Book Value per Share shall be
determined using the Corporation's unaudited, internally generated financial
statements prepared on the accrual basis of accounting consistent with past
practices. The Book Value per Share so computed shall be reduced when necessary
to reflect the purchase of less than a one hundred percent (100%) interest in
each of the Shares to be transferred. For purposes of this Agreement, the
"Appraised Value" per Share shall be the fair market value per Share which a
willing buyer would pay a willing seller for all issued and outstanding shares
of capital stock of the Corporation where neither is under any compunction to
act (without any premium or discount for controlling interests, or lack thereof,
or lack of established market for such capital stock). The Appraised Value shall
be determined by a certified business appraiser, selected by the Corporation,
that is a member of either the American Society of Appraisers or the Institute
of Business Appraisers; but if a Shareholder disagrees with such determination
that Shareholder may, at its expense, have another certified business appraiser
that is a member of one or both of the above named professional organizations
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determine the value, and if the two appraisers cannot agree upon a value, they
shall mutually select a third certified business appraiser (that meets the above
described membership requirements) who shall, together with the first two
appraisers, determine the value of the Shares by majority vote. The combined
expenses of all appraisals shall be paid solely by the party or parties
requesting to utilize such method of determining the purchase price.
Section 5.3 Certain Definitions. As used herein, the term "Valuation
Date" shall mean and refer to the end of the calendar quarter preceding the
Exercise Event. As used herein, the term "Exercise Event" shall mean and refer
to the event or circumstance described in Article III hereof, as a result of
which the Corporation or a Shareholder, as the case may be in the first
instance, become entitled to exercise a purchase option hereunder.
ARTICLE VI
PAYMENT OF THE PURCHASE PRICE
Section 6.1 Payment. Except as otherwise provided in this Agreement,
including Section 3.1 hereof, the purchase price for Shares to be purchased from
a selling party shall either: (a) be paid in cash at the closing; or (b) at the
option of the purchasing party, up to seventy percent (70%) of the purchase
price may be deferred with the remainder paid in cash at the closing. However,
option (b) of the foregoing sentence shall not be available if the selling
Shareholder is the Limited Partner or any of the Limited Partner Permitted
Assigns.
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Section 6.2 Promissory Note. If the purchasing party elects to defer
part of the purchase price by the execution and delivery of a promissory note,
the deferred portion of the price shall be evidenced by the promissory note of
the purchasing party to the order of the selling party payable in sixty (60)
equal monthly installments of principal and interest on or before the first day
of each month beginning the month next following the date of closing. The
interest rate for such installment promissory note shall be equal to the prime
or base rate on corporate loans at large U.S. money center commercial banks as
published in the "Money Rates" column of the Wall Street Journal on the date of
exercise of the option to purchase (or, if such option is not exercised on a
date on which such rate is published, the next following date on which such rate
is published). In no event shall the interest rate exceed the maximum legal
interest rate then prevailing for such obligations in the state of Texas. The
note shall be secured by a first lien security interest in the Shares
transferred and the purchasing party shall deliver certificates evidencing the
Shares to the selling party and take such further action as is reasonably
necessary to perfect the security interest.
ARTICLE VII
THE CLOSING
Unless otherwise agreed by the parties, the closing of the sale and
purchase of Shares shall take place at the principal offices of the Corporation
within sixty (60) days after the exercise of any option provided by this
Agreement. Each party hereto (including the spouses of the Shareholders) shall
bear its own transaction costs, including legal and accounting fees, if any,
attributable to any transfer of Shares, or any interest therein, pursuant to
this Agreement. Upon
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the closing, the selling party shall deliver its Shares to
the purchaser free and clear of all liens and encumbrances, and shall deliver to
the Corporation its resignation and that of all of its nominees, if any, as
officers and directors of the Corporation and any of the Corporation's
subsidiaries. The selling party shall deliver to the purchasing party at
closing, all appropriate documents of transfer, including without limitation
bills of sale, assignments or other instruments of conveyance. As a condition to
any closing of the sale and purchase of Shares (or any interest therein)
pursuant to this Agreement: (a) the selling party shall be indemnified by the
purchasing party (in a form reasonably satisfactory to the selling party) for
all the Corporation's liabilities, whether fixed or contingent, to lenders and
others, incurred prior to the closing of the transaction, (b) the purchasing
party and/or the Corporation shall cause the release of any personal guaranties,
either directly incurred or assumed, (i) which may have been granted by the
selling party to the Corporation's lenders or other creditors or the lenders or
other creditors of the Partnerships or the General Partner whose obligations
where assumed by the Corporation or (ii) which may have otherwise been provided
by the selling party for the benefit of the Corporation, and (c) if the selling
party is a creditor of the Corporation, the purchasing party shall
unconditionally guarantee the debt of the Corporation to the selling party and
execute such documents and instruments of guarantee as may be necessary in
connection therewith. Furthermore, and as a condition to closing, in the event
the selling party owes any amounts to the Corporation at the time of closing,
such indebtedness shall be paid in full by the selling party at or prior to the
closing, or may be deducted from and offset against the purchase price by the
purchasing party, in the purchasing party's sole discretion. In the event of a
failure to close as a result of the non-satisfaction of the conditions to
closing set forth herein, this Agreement shall remain in full force and effect
and all Shares shall remain subject to the restrictions contained herein and, in
addition, the parties hereto
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shall be entitled to such other remedies as may be
available in the event the failure to close constitutes a breach hereof.
ARTICLE VIII
STRUCTURE OF BOARD OF DIRECTORS; MAJOR DECISIONS
Each of the parties hereto agrees to vote their Shares as necessary to
provide for the following. The number of directors of the corporation shall be
no fewer than four (4) and no more than seven (7), two (2) of which (the "BT
Designees") shall be designated by George R. Bouchard ("Bouchard") and John H.
Trevey ("Trevey"), and two (2) of which (the "APS Designees") shall be
designated, subject to the provisions contained in the Corporation's Bylaws
regarding the rights of the holders of Preferred Stock, by APS. The initial
directors shall be four (4), comprised of the initial BT Designees and the
initial APS Designees. Any increase in the number of directors shall require the
unanimous consent of all directors, and shall be effected only be means of an
increase in the number of directors from four to seven. The additional three
directors (the "Group Designees") shall initially be unanimously agreed upon by
Bouchard, Trevey and APS. Upon written notice from both Bouchard and Trevey
(acting jointly) to the Corporation and other Shareholders, Bouchard and Trevey
shall be entitled to replace any two (2) members of the Group Designees with
persons mutually acceptable to both Bouchard and Trevey, as indicated in the
written notice (but who may not be officers or employees of the Corporation),
and the Shareholders agree to vote their Shares to accomplish such replacement.
The parties all agree to vote their Shares, and to take such other and further
action (including, without limitation, the removal of Board members they may
designate pursuant hereto and replacement thereof) as
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necessary to amend the
Bylaws to increase the size of the Board of Directors to allow the addition of
the Group Designees, and to elect (or remove) the Group Designees as provided
herein. Until February 1, 2001, and upon written notice from APS to the
Corporation and other Shareholders, APS shall be entitled to designate any
member of the Board of Directors as Chairman of the Board, and the Shareholders
agree to vote their Shares and to take such other actions as necessary
(including, without limitation, the removal and replacement of any other
existing Chairman of the Board and any directors they may designate pursuant
hereto) to cause the election and retention in office of such designee of APS.
The following acts or transactions by the Corporation will require, in addition
to the approval of a majority of the Board of Directors of the Corporation, the
approval of at least three (3) members from among the BT Designees and the APS
Designees:
(a) amending the Corporation's Articles of Incorporation or the
Corporation's Bylaws;
(b) causing a merger, consolidation or combination of the Corporation
with another corporation or entity, or engaging in any stock splits, reverse
stock splits or recapitalizations;
(c) purchase by the Corporation of any interest in the Corporation
irrespective of the source of such interest;
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(d) disposition, sale, assignment or other transfer by the Corporation
of any interest it owns in the Corporation, except that such interest may be
extinguished without the approval required under this Article;
(e) sale or issuance of any additional equity ownership interests of
the Corporation, including any instrument or security convertible into, or
exchangeable or exercisable for, any equity ownership interest of the
Corporation;
(f) dissolving, liquidating or filing bankruptcy or seeking relief
under any debtor relief law;
(g) election or removal of officers and establishing or changing the
compensation for officers;
(h) making any distributions, whether in cash or property, including
dividends, to any of the directors or Shareholders with respect to the their
ownership interests;
(i) selling, leasing or otherwise transferring all or substantially all
of the Corporation's assets, or any asset(s) with a fair market value exceeding
$10,000 in a single transaction or series of related transactions;
(j) initiating or settling any litigation or regulatory proceeding
, or confessing any judgment;
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(k) hiring or changing the Corporation's auditors, accountants or
primary legal counsel;
(l) hiring, contracting with, terminating (with or without cause) and
setting and/or modifying the compensation of any employees or consultants of the
Corporation whose annualized rate of compensation would exceed $65,000,
including without limitation, Bouchard and Trevey (provided that Bouchard and
Trevey may vote in their capacity as director, if applicable, in any such
employment related decision, only with respect to one another, whether or not
such decision affects or relates to either or both of Bouchard or Trevey);
(m) borrowing or incurring any indebtedness or granting any collateral
or security (by way of guaranty or otherwise) for any indebtedness or
obligation, other than (i) open accounts payable to unaffiliated third parties
in the ordinary course of the Corporation's business, (ii) in connection with
that certain Line of Credit, as defined in the Contribution Agreement and (iii)
any first-lien mortgages to unaffiliated third parties, or purchase money
security interests in favor of unaffiliated vendors or unaffiliated lenders, for
(x) the acquisition and/or construction of real property or fixtures purchased
as a site for the operation of residences to provide assisted living services to
senior citizens with dementia, and directly related services, or (y) fixed
assets or personal property to be located at, and used in connection with the
operation of, such residences;
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(n) engaging in any transaction or line of business other than
investments in the ownership and/or operation of residences to provide assisted
living services to senior citizens with dementia, and directly related services;
(o) purchasing or leasing assets or property, or entering into any
contract or obligation, which obligates the Corporation to pay in excess of
$10,000 in the aggregate in one or any series of related installments, except
for the purchase of real property, acquired as a site for the operation of
residences to provide assisted living services to senior citizens with dementia,
and directly related services and fixed assets or personal property to be
located at, and used in connection with the operation of, such residences;
(p) causing a change in the nature of the business or the legal name
of the Corporation;
(q) engaging in any transaction with any relative, affiliate or related
party of any equity owner, director, officer or other member of the
Corporation's management body, including without limitation the employment of
any such party;
(r) except as otherwise expressly provided in the Contribution
Agreement, paying or reimbursing the legal fees and costs incurred by any of the
parties hereto or to the Contribution Agreement (and any of the transactions
contemplated by, or consummated pursuant to, the Contribution Agreement),
including any such costs associated with any dissolution, liquidation or
distribution of shares of capital stock of the Corporation, by the Partnerships;
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(s) acting (or failing or refusing to act) in contravention of,
amending or waiving any rights granted to any party pursuant to this Agreement,
the Corporation's Bylaws, the Contribution Agreement (and any agreement executed
by the Corporation in connection therewith), or any other governance document of
the Corporation, and any rights under such documents;
(t) authorizing any party to disclose, divulge, reveal or use, pursuant
to the provisions of Section 9.2 of the Contribution Agreement, any Proprietary
Information (as defined therein);
(u) altering, changing or amending, or not renewing, any directors and
officers insurance policy of the Corporation; and
(v) adopting, creating, altering or amending any stock option plan or
issuing stock options or other rights under any such plan, in each instance.
Each director may, with respect to any vote, consent, or approval that
it is entitled to grant pursuant to this Agreement, grant or withhold such vote,
consent, or approval in its sole discretion. Notwithstanding the foregoing or
any other provision of this Agreement, the conversion of Preferred Stock by any
holder thereof pursuant to the Articles of Incorporation of the Corporation
shall not require action by the Board of Directors or other shareholders or
consents by any party, in any capacity, and the Corporation shall be, and hereby
is, fully authorized to take any and all action required to effect such a
conversion.
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ARTICLE IX
PREFERRED RETURN
For purposes hereof, the parties acknowledge and agree that APS and the
Additional Purchasers, in the aggregate, initially acquired their Shares for
$2,200,000 (the "Initial Capital Contribution"), allocated amongst them as
provided in the Contribution Agreement. All parties hereto acknowledge and agree
that upon any dissolution or liquidation of the Corporation, APS and the
Additional Purchasers (or their successors in interest or assigns pursuant to
any transfers permitted pursuant to this Agreement), in the aggregate, will
receive from the Corporation in respect of the 760,000 shares of Preferred Stock
and Common Stock issued to them at the Closing and any shares of Common Stock
issued without consideration in respect of any such shares, to the extent the
Corporation has funds legally available therefor, an amount equal to the greater
of (a) that percentage (the "Applicable Percentage") of the cash and fair market
value of property and other assets owned by the Corporation at that time
determined by dividing the sum of (i) 760,000 plus the number of shares of
Preferred Stock and Common Stock issued without consideration in respect of any
of the 760,000 shares of Preferred Stock and Common Stock issued to APS and the
Additional Purchasers at the Closing by (ii) the total number of shares of
Preferred Stock and Common Stock outstanding, with the amount of assets and
property so determined reduced by the amount of all liquidated liabilities of
the Corporation and all reasonable amounts (the "Contingency Funds") held back
to make provision for unliquidated liabilities (excluding the amount of any
indebtedness assumed by, or assigned to, APS and the Additional Purchasers in
connection with such dissolution or liquidation) or (b) an amount equal to the
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Initial Capital Contribution plus interest on the weighted average unreturned
balance of their Initial Capital Contribution at the rate of twelve percent
(12%) per annum, compounded annually, from the Closing Date; provided, however,
that all distributions made to APS, the Additional Purchasers and their
successors in interest, with respect to their ownership interests in the
Corporation, shall be deducted in calculating the amount of dissolution and
liquidation proceeds due such parties under the preferred return provisions
described above and shall be considered in calculating the weighted average
unreturned balance of their Initial Capital Contribution. Upon satisfaction of
all liabilities for which the Contingency Funds were reserved, or upon any other
release of the Contingency Funds no longer reserved for unliquidated
liabilities, APS and the Additional Purchasers shall receive the Applicable
Percentage of the Contingency Funds not expended, if any, in satisfaction of
liabilities that were unliquidated when the Contingency Funds were originally
reserved, but only if all such payments from the Contingency Funds would cause
the aggregate amount due under clause (a) above to exceed the aggregate amount
due under clause (b) above.
All proceeds payable under this Article shall be allocated amongst APS
and Additional Purchasers, and their successors and assigns, pro rata, based on
their respective percentage ownership of Shares originally acquired under the
Contribution Agreement. All parties hereto agree to vote their Shares and
execute and deliver such additional documents and instruments as may be
necessary to cause the foregoing preferred return to be paid by the Corporation
to APS and the Additional Purchasers as contemplated above. Provided, nothing
contained in this Section shall require that any party make any payment to the
Corporation, or execute any note, to enable the Corporation to make any payments
required under this Section.
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All parties hereto acknowledge and agree that the Corporation shall not
make any distributions, whether in cash or property, including dividends, to any
of the directors, shareholders or parties hereto unless such distributions are
made in strict compliance with the terms of this Agreement, the Bylaws and the
Contribution Agreement.
ARTICLE X
REGISTRATION RIGHTS
Section 10.1 Incidental Registration Rights. Only the original parties
to this Agreement (other than the Corporation) shall have the registration
rights granted pursuant to this Article, and it is expressly understood and
agreed that no Shareholder who subsequently executes this Agreement, and no
permitted transferee of any Shareholder (other than (i) transferees of transfers
expressly provided for pursuant to Article I hereof, (ii) transferees permitted
pursuant to the prior written consent contemplated in Article II hereof wherein
such written consent also extends expressly to the registration rights included
in this Article X hereof, (iii) transferees of Trevey, Bouchard and the Limited
Partner Permitted Assigns permitted pursuant to clause (ii) of the first
sentence of Section 3.1(e) hereof, if Trevey, Bouchard or the Limited Partner
Permitted Assigns, as applicable, give the written authorization to extend
registration rights as contemplated in Section 3.1(e), and (iv) the Limited
Partner Permitted Assigns expressly named in Section 3.1(e) hereof) shall have
any of the registration rights provided by this Article, regardless of whether
they execute and become bound by a counterpart of this Agreement. For purposes
of this Article X hereof, the above described
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persons and entities having the
registration rights described herein 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 Article. The incidental registration rights described in this Article
shall apply with respect to any and all shares owned by any of the Covered
Parties; and any reference in this Article to "Shares" shall be deemed to refer
to the Shares of the Covered Parties only (including any Shares subsequently
acquired by any Covered Parties).
If the Corporation 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 Forms S-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 Corporation), 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 Corporation 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, the Corporation 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 Corporation, all to the
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extent requisite to permit
the sale or other disposition by the Covered Parties; provided, however, that:
(a) Each Covered Party shall each have the right to request inclusion
of its Shares (and have such Shares included) in two (2) registration statements
that are declared effective by the Securities and Exchange Commission (the
"Commission").
(b) 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 Corporation shall
determine for any reason not to register any securities at all (and in fact does
not do so), the Corporation may, at its election, give written notice of such
determination to the Covered Parties who made a request as hereinabove provided
and thereupon the Corporation shall be relieved of its obligation to register
any Shares in connection with that proposed registration; provided, however,
that any election by the Corporation and the exercise of its rights pursuant to
this subsection shall not otherwise affect the rights granted herein as to
future registrations.
(c) If such registration involves an underwritten offering, the Covered
Parties requesting to be included in the Corporation's registration must sell
their Covered Shares to the underwriters selected by the Corporation on the same
terms and conditions as apply to the Corporation and other selling parties under
the registration statement (except as otherwise set forth herein).
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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 the Corporation 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
Corporation pursuant to a registration covering Shares, and a Covered Party does
not elect to sell its Covered Shares to the underwriters of the Corporation's
securities in connection with such offering, such Covered Party shall refrain
from selling such Covered Shares during the period of distribution of the
Corporation's 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.
Section 10.2 Registration Procedures. If and whenever the Corporation
is required by the provisions of this Article to effect the registration of any
of the Covered Shares under the Act, the Corporation will, as expeditiously as
possible:
(a) 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);
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(b) 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 Corporation's
intended method of disposition set forth in such registration statement for such
period;
(c) 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;
(d) 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 Corporation will not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) 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
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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;
(f) 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: (i) an opinion dated such date of counsel representing the
Corporation 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 (ii) a comfort letter
dated such date from the independent public accountants retained by the
Corporation, 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
(g) 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 Corporation, and cause the Corporation's
32
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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 (a) and (b) 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 Corporation in writing such information with
respect to themselves and the proposed distribution by them as shall be
requested by the Corporation in order to assure compliance with federal and
applicable state securities laws.
In connection with each registration covering an underwritten public
offering, the Corporation 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 Corporation's
size and investment stature; provided that such agreement shall not contain any
such provision applicable to the Corporation 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 Corporation
and such managing underwriter.
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The Corporation will not be obligated to include any Shares owned by
the Covered Parties requesting that a proposed registration include such Shares
if the Corporation delivers to the requesting Covered Parties the opinion of the
Corporation's 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.
Section 10.3 Conditions to Obligation to Register Shares. The
Corporation's obligations under this Article shall be subject to the following
limitations and conditions:
(a) The Corporation shall have received from the Covered Parties, as
applicable, all such information as the Corporation may reasonably request from
the Covered Parties concerning each of them and each of their methods of
distribution of the Covered Shares to enable the Corporation to include in the
registration statement all material facts required to be disclosed therein.
(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
34
<PAGE>
effective; (iii) agrees, if the offering is at the market, to give the
Corporation 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 the Corporation 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.
Section 10.4 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.
Section 10.5 Expenses. All expenses incurred by the Corporation 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 Corporation, the reasonable fees and
expenses of one law firm serving as legal counsel for the participating Covered
36
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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 Corporation 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.
Section 10.6 Indemnification. In the event of a registration of any of
the Covered Shares under the Securities Act, the Corporation 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 the Corporation of
any rule or regulation promulgated under the Act applicable to the Corporation
and relating to action or inaction by
36
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the Corporation 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 Corporation 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.
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 Corporation 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 Corporation 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 Corporation, 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
37
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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 Corporation 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
38
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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.
Section 10.7 Limitation on Subsequent Registration Rights. From and
after the date of this Agreement, the Corporation shall not, without the
unanimous written consent of APS, Trevey and Bouchard in each instance, enter
into any agreement with any holder or prospective holder of any securities of
the Corporation (nor shall the Corporation, 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.
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ARTICLE XI
LEGEND ON CERTIFICATES
All Shares now or hereafter owned by the Shareholders shall be subject
to the provisions of this Agreement, and the certificates representing same
shall bear the following legend:
"THE SHARES REPRESENTED HEREBY AND THE VOTING, SALE, ASSIGNMENT,
TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF ARE SUBJECT TO
CERTAIN RESTRICTIONS CONTAINED IN A STOCK TRANSFER RESTRICTION AND
SHAREHOLDERS AGREEMENT AMONG THE CORPORATION AND ITS SHAREHOLDERS,
AND ANY AMENDMENT THERETO. THE AGREEMENT LIMITS THE USE OF THIS
STOCK AS COLLATERAL FOR ANY LOAN WHETHER BY PLEDGE, HYPOTHECATION
OR OTHERWISE. A COPY OF THE STOCK TRANSFER RESTRICTION AGREEMENT
AND ALL APPLICABLE AMENDMENTS THERETO WILL BE FURNISHED BY THE
CORPORATION TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN
REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE."
40
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ARTICLE XII
TERMINATION OF AGREEMENT
This Agreement and all restrictions on stock transfer created hereby
shall terminate on the occurrence of any of the following events:
(a) The bankruptcy or dissolution of the Corporation.
(b) The ownership by one person of all of the Shares of the Corporation
which are then subject to this Agreement.
(c) The execution of a written instrument by APS, Bouchard and Trevey
which terminates the same.
(d) The date twenty-one (21) years after the death of the last
survivor of all individuals who are parties to this Agreement.
(e) The occurrence of an underwritten, registered public offering of
the common stock of the Corporation.
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ARTICLE XIII
FUTURE EQUITY FINANCINGS
Section 13.1 Right of First Refusal. Each party to this Agreement shall
be entitled to a right of first refusal in the event that APS, Trevey or
Bouchard participate in any future equity financing by the Corporation,
including any instrument or security convertible into, or exchangeable or
exercisable for, any equity ownership interest of the Corporation. The
Corporation shall, not less than 30 days prior to the consummation of such
equity financing, notify the Shareholders in writing of the contemplated
transaction, including the terms and conditions of the issuance of capital stock
contemplated thereunder. Each Shareholder shall have, and may exercise within 15
days of receipt of such notice, a right to purchase, upon the same terms and
conditions, that proportion of such capital stock equal to its proportionate
ownership of the Corporation as determined on the date of dispatch of notice of
such transaction. Each Shareholder choosing to participate in such equity
financing must exercise to the fullest extent the rights granted pursuant to
this Section. The exercise or non-exercise of any rights arising pursuant to
this Section shall be governed by (and treated in a like manner to options
under) the provisions of Article IV hereof. Payment for any shares of capital
stock purchased pursuant to this Section shall be in cash at the closing.
Section 13.2 Limitations on Right of First Refusal. The provisions of
this Article shall not apply to (a) any issuance of stock or options pursuant to
any stock option or stock purchase plan properly adopted and administered by the
Corporation pursuant to this Agreement and the Corporation's Bylaws, (b) any
issuance of stock, stock purchase rights, options, stock warrants or similar
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rights validly issued by the Corporation to any party hereto as compensation for
services, for providing guarantees of Corporation obligations, or otherwise not
in connection with the Corporation raising additional cash through the sale of
equity interests, or (c) any transaction by the Corporation entirely with
unrelated third parties.
ARTICLE XIV
BOARD MEETING ATTENDANCE RIGHTS
Section 14.1 Observer. According to the terms of and subject to the
conditions contained in this Article, the Limited Partner shall be entitled to
designate not more than one individual (the "Observer") who shall be allowed to
attend meetings of the Board of Directors of the Corporation (or listen in the
case of telephonic meetings). The Limited Partner must select the Observer from
the following individuals: Lowell Lebermann, Roger Minard, William Greehey, Stan
McLelland or Matt Mathias.
Section 14.2 Conditions, Terms and Limitations. The Limited Partner's
and the Observer's rights under this Article shall be conditional upon,
qualified by, or subject to the following:
(a) the Observer shall not, on account of being the Observer or
attending any meeting of the Board of Directors, be entitled to compensation,
reimbursement, or indemnification of any kind from the Corporation or any party;
43
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(b) the Observer shall use his best efforts to comply with any
reasonable demand or directive of the Chairman of the Board or other officer who
shall preside at and govern meetings of the Board of Directors;
(c) the Observer shall not be entitled to any vote on any matter and
shall comply with the rules of order and decorum as established by the presiding
officer, which may be Robert's Rules of Order, and which are generally
applicable to all parties at such meeting;
(d) the Observer shall not be entitled to delay any meeting regardless
of circumstances, and the presiding officer shall have no obligation to
accommodate or consider any such request; and
(e) in the event the Observer fails to comply with all of the
conditions, terms and qualifications hereunder, the Observer may be required,
upon request from the presiding officer, to leave or not attend the meeting.
Section 14.3 Confidentiality. Prior to attending any meeting of the
Board of Directors, the Observer must execute, in his or her individual
capacity, a confidentiality agreement in form and substance reasonably
acceptable to Corporation and its counsel. Pursuant to such agreement, the
Observer shall be prohibited from disclosing, divulging, revealing or using any
Proprietary Information (as defined in the Contribution Agreement) except for
the sole purpose of informing the Limited Partner and the Limited Partner
Permitted Assigns of the Corporation's affairs and of the activities occurring
during the meetings observed or pursuant to one of the exceptions set forth in
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the Contribution Agreement. All of the rights granted pursuant to this Article
XIV shall be forever forfeited in the event that (a) any Observer breaches any
of the conditions of this Article XIV, or (b) any Observer breaches any
provision of the confidentiality agreement entered into pursuant to this
Section. Any breach by any Observer of the confidentiality agreement required
under this Section shall also constitute a breach by the Limited Partner of its
obligations with respect to confidentiality arising under the Contribution
Agreement.
Section 14.4 Notice. On or before January 1 of each year, the
Corporation will, in writing, provide the Limited Partner with the anticipated
dates (subject to change) of the regular meetings, if any, of the Board of
Directors for the following year (the "Annual Meeting Notice"). Within thirty
(30) days after receipt of the Annual Meeting Notice, the Limited Partner must
notify the Corporation of the name, address, facsimile number and phone number
of the designated Observer, and only such designated Observer shall be permitted
to attend any meeting of the Board of Directors during such following year,
without exception. For all meetings not set forth in the Annual Meeting Notice,
the Limited Partner shall be given notice at the same time and manner as notice
is provided generally to the members of the Board of Directors, but in no event
less than one (1) hour preceding such meeting.
Section 14.5 Exception Upon Opinion of Counsel. Upon obtaining a
reasoned opinion of counsel for the Corporation (or any Shareholder) which
advises that only members of the Board of Directors should attend a specified
meeting or meetings or portion of a meeting, the Chairman of the Board, at his
sole discretion, may notify the Observer that the Observer shall be excluded
45
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from such meeting or meetings whereupon the attendance rights under this Article
with respect thereto shall not apply and the Observer shall not be allowed to
attend.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Financial Statements. Each of the parties hereto hereby
agrees that the Corporation, at its sole cost and expense, shall (a) be audited
every calendar year-end by a national CPA firm and (b) prepare unaudited
quarterly financial statements. In addition, the audited annual financial
statements shall be due not later than ninety (90) days following year-end, and
the unaudited quarterly financial statements shall be due not later than
forty-five (45) days following quarter-end. All financial statements required by
this Section shall be prepared in accordance with generally accepted accounting
principles consistently applied. The Corporation shall, promptly upon receipt,
deliver to each party hereto full and complete copies of such annual and
quarterly financial statements. Each of the parties hereto hereby agrees that
KPMG shall serve as the auditor of the Corporation until such time as a
successor auditor has been elected pursuant to Article VIII hereof and the
Corporation's Bylaws.
Section 15.2 Directors and Officers Insurance. During the term of this
Agreement, the Corporation shall purchase and maintain directors and officers
liability insurance providing coverage of at least Three Million Dollars
($3,000,000) for each director and officer of the Corporation.
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Section 15.3 Remedies for Breach. The Shares are unique chattels, and
each party to this Agreement shall have the remedies which are available to him,
her or it for the violation of any of the terms of this Agreement, including,
but not limited to, the equitable remedy of specific performance.
Section 15.4 Binding Effect. This Agreement is binding upon and inures
to the benefit of the Corporation, its successors and permitted assigns and to
the Shareholders and their respective heirs, personal representatives,
successors and permitted assigns. This Agreement may not be assigned, in whole
or in part, by any party hereto without the express written consent of all
parties hereto.
Section 15.5 Collateral Agreements and Waivers. This Agreement
(together with all documents delivered pursuant hereto, executed in connection
herewith, or contemplated herein) supersedes all other documents, understandings
and agreements, oral or written and constitutes the entire understanding among
the parties with respect to the subject matter hereof.
Section 15.6 Governing Laws. This Agreement is executed under, and in
conformity with, the laws of the State of Texas and shall be governed thereby.
If any provision of this Agreement shall be determined to be invalid or
unenforceable or prohibited by the laws of the State of Texas, this Agreement
shall be considered divisible as to such provisions and such provisions shall be
inoperative and shall not be a part of the consideration moving from any party
to another party and there shall be substituted in place thereof a provision
which parallels, as closely as allowed by law, the invalid, unenforceable or
prohibited provision, and the remaining
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provisions shall be valid and binding
upon the parties and be of like effect as though such invalid, unenforceable or
prohibited provisions were not included herein.
Section 15.7 Amendment. This Agreement may be amended in whole or in
part only by the written consent of all the parties. Such amendment shall be
effective as of the date then determined by the parties and shall supersede any
provisions herein contained which are in conflict.
Section 15.8 Captions and Gender. The captions and titles herein are
for convenience only and are not intended to include or conclusively define the
subject matter of the text. All pronouns and references thereto shall refer to
the masculine, feminine and neuter genders, singular or plural, as the
identification of the persons, entities and corporations may require. The term
"person" as used in this Agreement shall include natural persons, corporations,
partnerships, trusts, estates and any other form of entity.
Section 15.9 Notices. All notices required to be given hereunder shall
be deemed to be duly given by personally delivering such notice or by mailing it
by certified mail, to the Corporation and to the Shareholders at the following
addresses (which may be changed by giving written notice of such change to all
other parties hereto):
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To the Corporation, APS or American Physicians Service Group, Inc.
the Additional Purchasers: 1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746
Attention: President
Fax: (512) 314-4301
with a copy to: Timothy L. LaFrey
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
816 Congress Avenue, Suite 1900
Austin, Texas 78701
Fax: (512) 499-6290
To the Partnerships, Uncommon Care
the General Partner, 101 W. 6th Street, Suite 330
Bouchard or Trevey: Austin, Texas 78701
with a copy to: Bret Van Earp
100 Congress Avenue, Suite 1800
Austin, Texas 78701
Fax: (512) 469-3724
49
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To Limited Partner: Uncommon Partners, Ltd.
808 West 10th Street
Austin, Texas 78701
Attn: Matt Mathias
Fax: (512) 469-0928
With a copy to: J. Bradley Greenblum
Jenkens & Gilchrist
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
Fax: (512) 404-3520
Section 15.10 Binding Effect of this Agreement on Additional Shares
Acquired By a Shareholder. In the event a Shareholder acquires, contracts to
acquire or receives any Shares of the Corporation's capital stock which are not
subject to this Agreement at the time of acquisition, such additional Shares of
the Shareholder shall be automatically subject to this Agreement and the
certificates representing such Shares shall bear the legend prescribed herein
and this Agreement shall be amended, if necessary, to reflect the acquisition of
such Shares by the Shareholder.
Section 15.11 Execution of Documents. Whenever Shares are to be
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purchased by the Corporation or a Shareholder pursuant to this Agreement, the
transferor shall do all things and execute and deliver all documents and make
all transfers as may be necessary to consummate such purchase. In the event that
the transferor refuses to abide by the terms and conditions specified herein,
the purchaser(s) may tender payment for such Shares by mailing payment to the
transferor's attention at the address of the Corporation's registered office on
file at the office of the Texas Secretary of State. After payment is tendered
accordingly, the Corporation shall be entitled to cancel such Shares on its
books, and reissue such Shares to the purchaser(s) or, if the purchaser is the
Corporation, the Corporation may hold such Shares as treasury stock or cancel
such Shares.
[Signature pages follow]
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SIGNATURE PAGES
STOCK TRANSFER RESTRICTION
AND
SHAREHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the day and year first written above.
CORPORATION: BARTON ACQUISITION, INC.
By: /s/ John H Trevey
Print Name: John H Trevey
Print Title: CEO
APS: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ Duane K. Boyd, Jr.
Print Name: Duane K. Boyd, Jr.
Print Title: Senior VP
S-1
<PAGE>
BARTON HOUSE: BARTON HOUSE, LTD.
By: Uncommon Care, Inc., its General Partner
By: /s/ George R. Bouchard
Print Name: George R. Bouchard
Print Title: President
OAKWELL: BARTON HOUSE AT OAKWELL FARMS, LTD.
By: Uncommon Care, Inc., its General Partner
By: /s/ George R. Bouchard
Print Name: George R. Bouchard
Print Title: President
S-2
<PAGE>
GENERAL PARTNER: UNCOMMON CARE, INC.
By: /s/ George R. Bouchard
Print Name: George R. Bouchard
Print Title: President
BOUCHARD:
/s/ George R. Bouchard
TREVEY:
/s/ John H. Trevey
S-3
<PAGE>
LIMITED PARTNER: UNCOMMON PARTNERS, LTD.
By: LTZ, Inc., its General Partner
By: /s/ Matt Mathias
-------------------------------
Matt Mathias, President
[Signature pages for Additional Purchasers follow]
S-4
<PAGE>
ADDITIONAL
PURCHASERS:
Richard J. Clark
DUANE K. BOYD, JR. TRUST
By /s/ Duane K. Boyd., Jr. Trustee
-------------------------------
Duane K. Boyd, Jr., Trustee
/s/ Robert L. Myer
----------------------
Robert L. Myer
J. A. MURPHY DESCENDANTS' TRUST
By BANK OF BERMUDA, TRUSTEE
By /s/ Robert CH Masters
Name Robert C. H. Masters
Title Trust Manager
/s/ William A. Searles
-------------------------
William A. Searles
/s/ Kenneth S. Shifrin
-------------------------
Kenneth S. Shifrin
/s/ Samuel Granett
-------------------------
Samuel Granett
S-5
<PAGE>
/s/ W. H. Hayes
-------------------------
H. J. Howard, III
[Signature pages for spouses of Additional Purchasers follow]
S-6
<PAGE>
SIGNATURE PAGES
STOCK TRANSFER RESTRICTION
AND
SHAREHOLDERS AGREEMENT
SPOUSES:
The undersigned spouse of Richard J. Clark hereunto subscribes her
name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Barton Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Janey E. Clark
--------------------
Janet E. Clark
The undersigned spouse of Robert L. Myer hereunto subscribes her
name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Barton Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Sharon K. Myer
------------------
Sharon K. Myer
The undersigned spouse of Kenneth S. Shifrin hereunto subscribes
her name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Barton Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Yvonne Shifrin
-------------------
Yvonne Shifrin
The undersigned spouse of Samuel Granett hereunto subscribes her
name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Barton Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Barbara A. Granett
---------------------
Barbara A. Granett
S-8
<PAGE>
The undersigned spouse of W. H. Hayes hereunto subscribes her name
in evidence of her agreement and consent to the disposition made of any interest
she may have, including any community property interests, in the capital stock
of Barton Acquisition, Inc., referred to in the foregoing Agreement, and to all
other provisions of such Agreement.
/s/ Tiffany J. Hayes
--------------------
Tiffany J. Hayes
The undersigned spouse of H. J. Howard, III hereunto subscribes her
name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Barton Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Cynthia Howard
--------------------
Cynthia Howard
S-8
APPENDIX I
ADDITIONAL PURCHASERS
Richard J. Clark
Duane K. Boyd, Jr. Trust
Robert L. Myer
J. A. Murphy Descendants' Trust
William A. Searles
Kenneth S. Shifrin
Samuel Granett
W. H. Hayes
H. J. Howard, III
A-1
Exhibit 10.49
LOAN AGREEMENT
This Loan Agreement (this "Agreement") is entered into as of the day of
January, 1998, by and between Barton Acquisition, Inc., a Texas corporation, and
American Physicians Service Group, Inc., a Texas corporation.
DEFINITIONS:
EFFECTIVE DATE: January 1, 1998
BORROWER: Barton Acquisition, Inc., a Texas corporation
BORROWER'S ADDRESS: 1301 Capital of Texas Highway, Suite C-300, Austin, Texas
78746; Fax: (512) 314-4559
LENDER: American Physicians Service Group, Inc., a Texas corporation
LENDER'S ADDRESS: 1301 Capital of Texas Highway, Suite C-300, Austin, Texas
78746, Fax: (512) 314-4398
NOTE:
Promissory Note (Line of Credit) in the maximum principal amount of
$2,400,000, (the "Maximum Principal Amount") dated January 1, 1998,
executed by Borrower, and payable to the order of Lender as provided
therein (the "Note")
COLLATERAL: The following described Land and personal property:
1. Tract 1: A 0.8800 acre tract now known as Lot 4, Block B, New
City Block 17305, OAKWELL FARMS, UNIT 7B, PLANNED UNIT
DEVELOPMENT, City of San Antonio, Bexar County, Texas,
according to plat thereof recorded in Volume 9535, Page 203,
Deed and Plat Records of Bexar County, Texas.
Tract 2: All that certain tract or parcel of land, containing
1.6756 acres, more or less, being out of the Elijah Alcorn
Survey, Abstract No. l, situated in Fort Bend County, Texas.
Said 1.6756 acres being all of Commercial Reserve "F" and part
of Commercial Reserve "D" of the Replat of the Amending Plat
for Edgewater, Section Two (2), according to the map or plat
thereof recorded in Slide No. 1353/A of the Plat Records of
Fort Bend County, Texas. Said 1.6756 acres being more
particularly described by metes and bounds in Exhibit "A"
attached hereto and made a part hereof; together with those
nonexclusive easement rights described in that Ingress and
Egress Easement, recorded in Volume 2364, Page 1480 of the
County Clerk Official Records of Fort Bend County, Texas, and
those easement rights reserved in that deed recorded in Volume
2364, Page 1452 of the County Clerk Official Records of Fort
Bend County, Texas.
Tract 3: A tract or parcel of land being 0.2008 acres, more or
less, located in the Elijah Alcorn League Survey, Abstract No.
l, being out of Commercial Reserve "D" of the Replat of the
Amending Plat for Edgewater, Section Two (2), according to the
map or plat thereof recorded in Slide No. 1353/A of the Plat
<PAGE>
Records of Fort Bend County, Texas. Said 0.2008 acres being
more particularly described by metes and bounds in Exhibit "B"
attached hereto and made a part hereof.
Tract 4: Lot 2A, Block "B", of RESUBDIVISION OF LOT 2, BLOCK
"B" MILWOOD SECTION SIX, a subdivision in Travis County,
Texas, according to the map or plat, of record in Volume 95,
Page 231, of the Plat Records of Travis County, Texas.
Tract 5: Lot 2B, Block "B", of RESUBDIVISION OF LOT 2, BLOCK
"B" MILWOOD SECTION SIX, a subdivision in Travis County,
Texas, according to the map or plat, of record in Volume 95,
Page 231, of the Plat Records of Travis County, Texas.
All other real property and improvements now owned or
hereafter acquired by Borrower.
2. All of Borrower's assets, including without limitation all
accounts, chattel paper, contract rights, equipment,
inventory, fixtures, general intangibles, and investment
property, as more particularly described in Exhibit "C"
attached to and incorporated herein by reference.
LOAN DOCUMENTS: This Agreement, the Note, the Security Agreement, the Deeds of
Trust (Security Agreement, Assignment of Leases and Rents and Financing
Statement) ("Deeds of Trust"), and all other documents, agreements, and
instruments now or hereafter existing, evidencing, securing, or otherwise
relating to this Agreement and any transactions contemplated by this Agreement,
as any of the foregoing items may be modified or supplemented from time to time.
INDEBTEDNESS: All present and future indebtedness, obligations and liabilities
of Borrower to Lender, and all renewals, extensions and modifications thereof,
arising pursuant to any of the Loan Documents and all interest accruing thereon,
and all other fees, costs, expenses, charges and attorneys' fees payable, and
covenants performable, under any of the Loan Documents (including without
limitation this Agreement).
Agreement:
Borrower has requested from Lender the credit accommodations described
below, and Lender has agreed to provide such credit accommodations to Borrower
on the terms and conditions contained herein. Therefore, for good and valuable
consideration, the receipt and sufficiency of which Lender and Borrower
acknowledge, Lender and Borrower hereby agree as follows:
ARTICLE I
THE LOANS
1.1 THE LOANS. Lender agrees to lend and Borrower agrees to borrow an
amount not to exceed the Maximum Principal Amount (the "Loans") on the terms and
conditions set forth herein. The Loans will be evidenced by the Note.
1.2 SECURITY. Borrower will grant to Lender a lien and security
interest in the Collateral and agrees to do all things necessary to perfect the
liens and security interests of Lender in such Collateral.
ARTICLE II
DESCRIPTION OF CREDIT FACILITIES; ADVANCES
2.1 REVOLVING LINE OF CREDIT. Subject to and in reliance upon the
terms, conditions, representations and warranties hereinafter set forth, Lender
agrees to make advances (an "Advance") to
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Borrower from time to time during the
period from the date hereof to and including January 1, 2003 ("Maturity Date")
in an aggregate amount not to exceed the Maximum Principal Amount of the Note.
Each Advance must be either $1,000.00 or a higher integral multiple of
$1,000.00. Funds borrowed and repaid may be reborrowed, so long as all
conditions precedent to Advances are met. The purpose of the Advances is to
provide funds to Borrower for working capital and for other general business
purposes of Borrower.
2.2 INTEREST AND REPAYMENT. Borrower shall pay the aggregate unpaid
principal amount of all Advances in accordance with the terms of the Note,
evidencing the indebtedness resulting from such Advances. Interest on the
Advances shall be due and payable in the manner and at the times set forth in
the Note, with final maturity of the Note being on or before January 1, 2003.
2.3 MAKING ADVANCES. Each Advance shall be made within two business
days of written notice (or telephonic notice confirmed in writing) given by noon
(Austin, Texas time) on a business day of Lender by Borrower to Lender
specifying the amount and date thereof (which may be the same business day) and
if sent by wired funds, at Lender's option, the wiring instructions of the
deposit account of Borrower to which such Advance is to be deposited.
2.4 PAYMENTS AND COMPUTATIONS. Borrower shall make each payment
hereunder and under the Note on the day when due in lawful money of the United
States of America to Lender at Lender's Address for Payment in same day funds.
All repayments of principal on the Note shall be in a minimum amount of
$1,000.00, or a higher integral multiple of $1,000.00. All computations of
interest shall be made by Lender on the basis of the actual number of days
(including the first day but excluding the last day) in the year (365 or 366, as
the case may be) elapsed, but in no event shall any such computation result in
an amount of interest that would cause the interest contracted for, charged or
received by Lender to be in excess of the amount that would be payable at the
Highest Lawful Rate, as herein defined.
ARTICLE III
CONDITIONS TO ADVANCES
3.1 CONDITION PRECEDENT TO INITIAL ADVANCE. The obligation of Lender to
make its initial Advance is subject to the condition precedent that Lender shall
have received on or before the day of such Advance the following, each in form
and substance satisfactory to Lender and properly executed by Borrower or other
appropriate parties: (a) the Note duly executed by Borrower; (b) a copy of
Borrower's articles of incorporation, together with all amendments, certified by
the secretary of Borrower; (c) a corporate resolution executed by the Secretary
of Borrower authorizing execution of the Loan Documents and the borrowing of
funds hereunder; (d) the Security Agreement covering the Collateral is executed
and all necessary financing statements covering the Collateral in favor of
Lender have been filed with the Texas Secretary of State; (e) the Deeds of Trust
(Security Agreement, Assignment of Rents and Leases and Financing Statements)
are executed and recorded in the appropriate counties; and (f) such other
documents, opinions, certificates and evidences as Lender may reasonably
request.
3.2 CONDITIONS PRECEDENT TO EACH ADVANCE. In addition to the conditions
precedent stated elsewhere herein, Lender shall not be obligated to make any
Advance unless: (a) the representations and warranties contained in Article IV
are true and correct in all material respects on and as of the date of such
Advance as though made on and as of such date with such changes therein as have
occurred without breach of that certain Contribution and Stock Purchase
Agreement (the "Contribution Agreement") dated as of January 1, 1998, by and
among Lender, Borrower, Barton House, Ltd., a Texas limited partnership, Barton
House at Oakwell Farms, Ltd., a Texas limited partnership, Uncommon Care, Inc.,
a Texas corporation, George R. Bouchard, John H. Trevey, Uncommon Partners,
Ltd., a Texas limited partnership and the additional parties listed on Appendix
I thereto, Stock Transfer Restriction and Shareholders Agreement dated as of
January 1, 1998, by and among Lender, Borrower, Barton House, Ltd., a Texas
limited partnership, Barton House at Oakwell Farms, Ltd., a Texas limited
partnership, Uncommon Care, Inc., a Texas corporation, George R. Bouchard, John
H. Trevey, Uncommon Partners, Ltd., a Texas limited partnership and the
additional parties listed on Appendix I thereto, or this Agreement; (b) on the
3
<PAGE>
date of the Advance, no Event of Default, and no event which, with the lapse of
time or notice or both, could become an Event of Default, has occurred and is
continuing; (c) there shall have been no material adverse change, as determined
by Lender in its reasonable judgment, in the financial condition or business of
Borrower; and (d) Lender shall have received such other approvals, opinions,
documents, certificates or evidences as Lender may reasonably request (in form
and substance reasonably satisfactory to Lender). Each request for an Advance
shall be deemed a representation by Borrower that the conditions of this Section
3.2 have been met.
ARTICLE IV
BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
4.1 GOOD STANDING. Borrower is a duly formed corporation, duly
organized and in good standing, under the laws of Texas and has the power to own
its property and to carry on its business in each jurisdiction in which Borrower
operates.
4.2 AUTHORITY AND COMPLIANCE. Borrower has full power and authority to
enter into this Agreement, to make the borrowing hereunder, to execute and
deliver the Note and to incur the indebtedness described in this Agreement, all
of which has been duly authorized by all proper and necessary corporate action.
No further consent or approval of any public authority is required as a
condition to the validity of this Agreement or the Note, and Borrower is in
compliance with all laws and regulatory requirements to which it is subject.
4.3 BINDING AGREEMENT. This Agreement constitutes, and the Note and
other Loan Documents when issued and delivered pursuant hereto for value
received will constitute, valid and legally binding obligations of Borrower in
accordance with their terms.
4.4 LITIGATION. There are no proceedings pending or, to the knowledge
of Borrower, threatened before any court or administrative agency which will or
may have a material adverse effect on the financial condition or operations of
Borrower or any subsidiary, except as disclosed to Lender in writing prior to
the date of this Agreement.
4.5 NO CONFLICTING AGREEMENTS. There are no charter, bylaw or stock
provisions of Borrower and no provisions of any existing agreement, mortgage,
indenture or contract binding on Borrower or affecting its property, which would
conflict with or in any way prevent the execution, delivery, or carrying out of
the terms of this Agreement and the Note.
4.6 OWNERSHIP OF ASSETS. Borrower has good title to the Collateral, and
the Collateral is owned free and clear of liens except as provided in the Deeds
of Trust and Security Agreement and as permitted by the Shareholders Agreement,
Contribution Agreement and this Agreement. Borrower will at all times maintain
its tangible property, real and personal, in good order and repair taking into
consideration reasonable wear and tear.
4.7 TAXES. All income taxes and other taxes due and payable through the
date of this Agreement have been paid prior to becoming delinquent.
4.8 PLACE OF BUSINESS. Borrower's principal place of business is in
Austin, Travis County, Texas.
4.9 LEASES. Borrower is not the lessee of any real or personal property
except as has been disclosed in writing to Lender in Exhibit "D" attached to
this Agreement.
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ARTICLE V
BORROWER'S AFFIRMATIVE COVENANTS
So long as Borrower may borrow under this Agreement and until payment
in full of the Note and performance of all other obligations of Borrower
hereunder, Borrower will:
5.1 FINANCIAL STATEMENTS. Maintain a system of accounting satisfactory
to Lender and in accordance with generally accepted accounting principles
consistently applied, and will permit Lender's officers or authorized
representatives to visit and inspect Borrower's books of account and other
records at such reasonable times and as often as Lender may desire during office
hours and after reasonable notice to Borrower, and will pay the reasonable fees
and disbursements of any accountants or other agents of Lender selected by
Lender for the foregoing purposes. Unless written notice of another location is
given to Lender, Borrower's books and records will be located at Borrower's
Address.
(a) Furnish to Lender year end financial statements to include
balance sheet, operating statement and surplus reconciliation, together
with an officer's certificate of compliance with this Agreement
including computations of all quantitative covenants, within 90 days
after the end of each annual accounting period.
(b) Furnish to Lender quarterly financial statements, to
include balance sheet and profit and loss statement, together with an
officer's certificate of compliance with this Agreement including
computations of all quantitative covenants, within 45 days of the end
of each such accounting period.
(c) With each balance sheet delivered under subsections (a) or
(b) of this Section 5.1, an aging of all Accounts Receivable.
(d) Promptly provide Lender with such additional information,
reports or statements respecting its business operations and financial
condition as Lender may reasonably request from time to time.
5.2 INSURANCE. 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 Lender and to contain a mortgage clause naming
Lender as its interest may appear. Evidence of such insurance will be supplied
to Lender.
5.3 EXISTENCE AND COMPLIANCE. Maintain its corporate existence in good
standing and comply with all laws, regulations and governmental requirements
applicable to it or to any of its property, business operations and
transactions. Borrower further agrees to provide Lender with copies of all
instruments filed with the Texas Secretary of State amending and/or renewing its
articles of incorporation.
5.4 ADVERSE CONDITIONS OR EVENTS. Promptly advise Lender in writing of
any condition, event or act which comes to its attention that would or might
materially affect Borrower's financial condition, Lender's rights in or to the
Collateral under this Agreement or the loan documents, and of any litigation
filed against Borrower.
5.5 TAXES. Pay all taxes as they become due and payable.
5.6 MAINTENANCE. 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 its
business.
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ARTICLE VI
BORROWER'S NEGATIVE COVENANTS
So long as Borrower may borrow under this Agreement and until payment
in full of the Note and performance of all other obligations of Borrower
hereunder, Borrower will not, without the prior written consent of Lender:
6.1 TRANSFER OF ASSETS. Enter into any merger or consolidation, or
sell, lease, assign, or otherwise dispose of or transfer any assets 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. From and after the date hereof and except as permitted by
the Shareholders Agreement and Contribution Agreement, knowingly grant, suffer,
or permit liens on or security interests in Borrower's 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.
6.4 LOANS. Make any loans, advances or investments to or in any joint
venture, corporation or other entity, except for the purchase of obligations of
Lender or U.S. Government obligations or the purchase of federally-insured
certificates of deposit.
6.5 BORROWINGS. Except as reflected in the Deeds of Trust, Security
Agreement and herein and except for borrowing or incurring any indebtedness or
granting any collateral or security (by way of guaranty or otherwise) for any
indebtedness or obligation, with respect to (i) open accounts payable to
unaffiliated third parties in the ordinary course of Borrower's business, (ii)
any first lien mortgages to unaffiliated third parties, or purchase money
security interests in favor of unaffiliated vendors or unaffiliated lenders, for
(x) the acquisition and/or construction of real property or fixtures purchased
as a site for the operation of residences to provide assisted living services to
senior citizens with dementia, and directly related services, or (y) fixed
assets or personal property to be located at, and used in connection with the
operation of, such residences; 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 Lender in excess of $25,000 without
Lender's prior written consent.
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 DIVIDENDS. Declare any dividends (other than dividends payable in
capital stock of Borrower) 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 of Borrower or in any way
amend its capital structure.
6.8 EXECUTIVE PERSONNEL. Substantially change its present executive
or management personnel.
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.
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ARTICLE VII
EVENTS OF DEFAULT; NOTICE; ACCELERATION
7.1 EVENTS OF DEFAULT. If one or more of the following events of
default shall occur and continue after thirty (30) days' written notice to
Borrower, all outstanding principal plus unpaid interest of the Loans and any
other indebtedness of Borrower to Lender shall automatically be due and payable
immediately and Lender shall have no further obligation to fund under this
Agreement unless and until all events of default have been cured but so long as
Lender has not begun any legal proceedings to enforce its remedies hereunder or
has foreclosed the Property:
(a) Default shall be made in the payment of any installment of
principal or interest upon the Note, when due and payable, whether at
maturity or otherwise; or
(b) Default shall be made in the performance of any term,
covenant or agreement contained herein or in any of the Deeds of Trust
or the Security Agreement; or
(c) Any representation or warranty herein contained or in any
financial statement, certificate, report or opinion submitted to Lender
in connection with the Loans or pursuant to the requirements of this
Agreement excluding, however, any representation or warranty in the
Contribution Agreement and Shareholders Agreement, shall prove to have
been incorrect or misleading in any material respect when made; or
(d) Any judgment against Borrower or any attachment or other
levy against the property of Borrower with respect to a claim
materially affecting Borrower's financial status remains unpaid,
unstayed on appeal, undischarged, not bonded or not dismissed for a
period of 30 days; or
(e) The bankruptcy, death, or dissolution of any guarantor
of the Indebtedness; or
(f) Borrower makes an assignment for the benefit of creditors,
admits in writing its inability to pay its debts generally as they
become due, files a petition in bankruptcy, is adjudicated insolvent or
bankrupt, petitions or applies to any tribunal for any receiver or any
trustee of Borrower or any substantial part of its property, commences
any action relating to Borrower under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or if there is
commenced against Borrower any such action, or Borrower by any act
indicates its consent to or approval of any trustee for Borrower or any
substantial part of its property, or suffers any such receivership or
trustee to continue undischarged.
7.2 LENDER'S REMEDIES. Upon the occurrence of an Event of Default and
while it may continue uncured, Lender, without notice of any kind, except for
any notice required under this Agreement or any other Loan Document, may, at
Lender's option: (i) by notice to Borrower, terminate its obligation to fund
Advances hereunder; (ii) declare the Indebtedness, in whole or in part,
immediately due and payable; and/or (iii) exercise any other rights and remedies
available to Lender under this Agreement, any other Loan Document, or applicable
laws; except that upon the occurrence of an Event of Default described in
subsection 7.1(f), all the Indebtedness shall automatically be immediately due
and payable, and Lender's obligation to fund Advances hereunder shall
automatically terminate, without notice of any kind (including without
limitation notice of intent to accelerate and notice of acceleration) to
Borrower or to any guarantor, or to any surety or endorser of the Note, or to
any other person. Borrower and each guarantor, surety, and endorser of the Note,
and any and all other parties liable for the Indebtedness or any part thereof,
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.
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7.3 RIGHT OF SET-OFF. Borrower hereby authorizes Lender, to the maximum
extent permitted under and in accordance with applicable laws, at any time after
the occurrence of an Event of Default which continues uncured, to set-off and
apply any and all deposits, funds or assets at any time held and any and all
other indebtedness at any time owing by Lender to or for the credit or the
account of Borrower against any and all Indebtedness, whether or not Lender
exercises any other right or remedy hereunder and whether or not such
Indebtedness are then matured.
ARTICLE VIII
GENERAL TERMS AND CONDITIONS
8.1 NOTICES. All notices, demands, requests, approvals and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given when (a) presented personally, or (b) three (3) days
after deposited in a regularly maintained mail receptacle of the United States
Postal Service, postage prepaid, certified, return receipt requested, or (c)
upon receipt of confirmation after sending by facsimile transmission, addressed
to Borrower or Lender, as the case may be, at the respective addresses or
facsimile number for notice set forth on the first page of this Agreement, or
such other address or facsimile number as Borrower or Lender may from time to
time designate by written notice to the other.
8.2 ENTIRE AGREEMENT AND MODIFICATIONS. The Loan Documents constitute
the entire understanding and agreement between the undersigned with respect to
the transactions arising in connection with the Loans and supersede all prior
written or oral understandings and agreements between the undersigned in
connection therewith. No provision of this Agreement or the other Loan Documents
may be modified, waived, or terminated except by instrument in writing executed
by the party against whom a modification, waiver, or termination is sought to be
enforced, and, in the case of Lender, executed by a Vice President or higher
level officer of Lender.
8.3 SEVERABILITY. In case any of the provisions of this Agreement shall
for any reason be held to be invalid, illegal, or unenforceable, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
8.4 CUMULATIVE RIGHTS AND NO WAIVER. Lender shall have all of the
rights and remedies granted in the Loan Documents and available at law or in
equity, and these same rights and remedies shall be cumulative and may be
pursued separately, successively, or concurrently against Borrower, or the
Collateral or any part thereof, at the sole discretion of Lender. Lender's delay
in exercising any right shall not operate as a waiver thereof, nor shall any
single or partial exercise by Lender of any right preclude any other or future
exercise thereof or the exercise of any other right. Any of Borrower's covenants
and agreements may be waived by Lender but only in writing signed by an
authorized officer of Vice President level or higher of Lender or any subsequent
owner or holder of the Note. Except as otherwise expressly provided in this
Agreement and in the Note, Deed of Trust and Security Agreement, Borrower
expressly waives any presentment, demand, protest, notice of default, notice of
intent to accelerate, notice of acceleration, notice of intent to demand
payment, or other notice of any kind. No notice to or demand on Borrower in any
case shall, of itself, entitle Borrower to any other or further notice or demand
in similar or other circumstances. No delay or omission by Lender in exercising
any power or right hereunder shall impair any such right or power or be
construed as a waiver thereof, or the exercise of any other right or power
hereunder.
8.5 FORM AND SUBSTANCE. All documents, certificates, insurance
policies, and other items required under this Agreement to be executed and/or
delivered to Lender shall be in form and substance reasonably satisfactory to
Lender.
8.6 LIMITATION ON INTEREST: MAXIMUM RATE. Lender and Borrower intend to
contract in strict compliance with applicable usury law from time to time in
effect. To effectuate this intention, Lender and
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Borrower stipulate and agree
that none of the terms and provisions of the Note and any other agreement among
such parties, whether now existing or arising hereafter, shall ever be construed
as a contract to pay interest for the use, forbearance or detention of money in
excess of the Maximum Rate. If, from any possible construction of any document,
interest would otherwise be payable to Lender in excess of the Maximum Rate, any
such construction shall be subject to the provisions of this Section and such
document shall be automatically reformed and the interest payable to Lender
shall be automatically reduced to the Maximum Rate permitted under applicable
law, without the necessity of the execution of any amendment or new document.
Neither Borrower, endorsers or other persons now or hereafter becoming liable
for payment of any portion of the principal or interest of the Note shall ever
be liable for any unearned interest on the principal amount or shall ever be
required to pay interest thereon in excess of the Maximum Rate that may be
lawfully charged under applicable law from time to time in effect. Lender and
any subsequent holder of the Note expressly disavows any intention to charge or
collect unearned or excessive interest or finance charges in the event the
maturity of the Note, is accelerated. If the maturity of the Note is accelerated
for any reason, whether as a result of a default under the Note, or by voluntary
prepayment, or otherwise, any amounts constituting interest, or adjudicated as
constituting interest, which are then unearned and have previously been
collected by Lender or any subsequent holder of the Note shall be applied to
reduce the principal balance thereof then outstanding, or if such amounts exceed
the unpaid balance of principal, the excess shall be refunded to Borrower. In
the event Lender or any subsequent holder of the Note ever receives, collects or
applies as interest any amounts constituting interest or adjudicated as
constituting interest which would otherwise increase the interest to an amount
in excess of the amount permitted under applicable law, such amount which would
be excessive interest shall be applied to the reduction of the unpaid principal
balance of the Note, and, if the principal balances of the Note is paid in full,
any remaining excess shall be paid to Borrower. In determining whether or not
the interest paid or payable under the specific contingencies exceeds the
Maximum Rate allowed by applicable law, Borrower and Lender shall, to the
maximum extent permitted under applicable law, (i) characterize any
non-principal payment as an expense, fee or premium, rather than as interest;
(ii) exclude voluntary prepayments and the effect thereof; (iii) amortize,
prorate, allocate and spread, in equal parts, the total amount of interest
throughout the entire contemplated term of the applicable Note (as it may be
renewed and extended) so that the interest rate is uniform throughout the entire
term of the Note. The terms and provisions of this section shall control and
supersede every other provision of all existing and future agreements between
Lender and Borrower. As used in this Agreement, "Maximum Rate" means the maximum
non-usurious interest rate that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the unpaid principal or
accrued past due interest under applicable law and may be greater than the
applicable rate, the parties hereby stipulating and agreeing that Lender may
contract for, take, reserve, charge or receive interest up to the Maximum Rate
without penalty under any applicable law; and "applicable law" means the laws of
the State of Texas or the laws of the United States of America, whichever laws
allow the greater interest, as such laws now exist or may be changed or amended
or come into effect in the future. In the event applicable law provides for an
interest ceiling under Chapter One of Title 79, Texas Revised Civil Statutes
Annotated, as amended, that ceiling shall be the indicated rate ceiling, subject
to any right Lender may have in the future to change the method of determining
the Maximum Rate.
8.7 NO THIRD PARTY BENEFICIARY. This Agreement is for the sole
benefit of Lender and Borrower and is not for the benefit of any third party.
8.8 BORROWER IN CONTROL. In no event shall Lender's rights and
interests under the Loan Documents be construed to give Lender the right to, or
be deemed to indicate that Lender is in control of the business, management or
properties of Borrower or has power over the daily management functions and
operating decisions made by Borrower.
8.9 USE OF FINANCIAL AND OTHER INFORMATION. Borrower agrees that Lender
shall be permitted to investigate and verify the accuracy of any and all
information furnished to Lender in connection with the Loan Documents, including
without limitation financial statements, and to disclose such information, or
provide copies of such information, to representatives appointed by Lender,
including independent
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accountants, agents, attorneys, asset investigators,
appraisers and any other persons deemed necessary by Lender to such
investigation.
8.10 PARTICIPATION OR SALE OF LOAN. Lender shall have the right to sell
the Note, or participation interests in the Note to any entity, the majority of
whose voting equity securities is then owned directly or indirectly by Lender,
or by Lender and any of the parties listed on Appendix I to the Shareholders
Agreement ("Lender Parties") or to any Lender Parties. Borrower shall execute,
acknowledge and deliver any and all instruments requested by Lender to satisfy
such purchasers or participants that the unpaid indebtedness evidenced by the
Note is outstanding upon the terms of the provisions set out in the Loan
Documents. Lender shall have the right to disclose in confidence such financial
information regarding Borrower or the Collateral as may be necessary to complete
any sale or attempted sale of the Note or participations or attempted
participations in the Loans, including without limitation all Loan Documents,
financial statements, projections, internal memoranda, audits, reports, payment
history, appraisals and any and all other information and documentation in
Lender's files relating to Borrower and the Collateral. This authorization shall
be irrevocable in favor of Lender, and Borrower waives any claims that they may
have against Lender or the party receiving information from Lender regarding
disclosure of information in Lender's files, and further waive any alleged
damages which they may suffer as a result of such disclosure.
8.11 FURTHER ASSURANCES. Borrower agrees to execute and deliver to
Lender, promptly upon request from Lender, such other and further documents as
may be reasonably necessary or appropriate to consummate the transactions
contemplated herein or to perfect the liens and security interests covering the
Collateral.
8.12 NUMBER AND GENDER. Whenever used herein, the singular number shall
include the plural and the plural the singular, and the use of any gender shall
be applicable to all genders. The duties, covenants, obligations, and warranties
of Borrower in this Agreement shall be joint and several obligations of Borrower
and of each Borrower if more than one.
8.13 CAPTIONS. The captions, headings, and arrangements used in this
Agreement are for convenience only and do not in any way affect, limit, amplify,
or modify the terms and provisions hereof.
8.14 CONTINUING AGREEMENT. This is a continuing agreement and all
rights, powers, and remedies of Lender under this Agreement and the other Loan
Documents shall continue in full force and effect until the Note is paid in full
as the same becomes due and payable and all other Indebtedness is paid and
discharged, until Lender has no further obligation to advance moneys to Borrower
under this Agreement, and until Lender, upon request of Borrower, has executed a
written termination statement. Furthermore, the parties contemplate that there
may be times when no Indebtedness is owing, but notwithstanding such occurrence,
this Agreement (and all other Loan Documents) shall remain valid and shall be in
full force and effect as to subsequent Indebtedness and Advances, provided that
Lender has not executed a written termination statement.
8.15 Applicable Law. THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND
THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN SUCH STATE.
8.16 REQUIRED CONSENTS AND APPROVALS. Any consent or approval of Lender
required hereunder or under any other Loan Document executed in connection
herewith shall not be required, or shall be deemed satisfied, in the event (a)
approval is required of at least one of the APS Designees (as defined in the
Shareholders Agreement) under the Shareholders Agreement, and such approval,
together with the overall approval of the Board of Directors of Borrower, has
been so obtained, or (b) such action, inaction or request by Borrower is
expressly permitted, without any requirement of approval of Lender or any APS
Designee, under the Shareholders Agreement.
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8.17 NO ORAL AGREEMENTS. THE WRITTEN LOAN AGREEMENT REPRESENTS
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 16th day of March, 1998, to be effective January 1, 1998.
BORROWER:
BARTON ACQUISITION, INC., a Texas corporation
By: /s/ John H. Trevey
Name: John H. Trevey
Title: CEO
LENDER:
AMERICAN PHYSICIANS SERVICE GROUP, INC., a Texas
corporation
By: /s/ Duane K. Boyd, Jr.
Name: Duane K. Boyd, Jr.
Title: Senior VP
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EXHIBIT C
Borrower's Personal Property
(a) all equipment, fixtures, furnishings, inventory, building
materials, and articles of personal property (the "Personalty") now or hereafter
owned by Borrower, including, but not limited to the Personalty attached to or
used in or on the Land or in or about the Improvements or that are necessary or
useful for the complete and comfortable use and occupancy of the Improvements
for the purposes for which they were or are to be attached, placed, erected,
constructed or developed, or which Personalty is or may be used in or related to
the planning, development, financing or operation of the Improvements, and all
renewals of or replacements or substitutions for any of the foregoing, whether
or not the same are or shall be attached to the Land or Improvements;
(b) all water and water rights, timber, crops, and mineral interests
pertaining to the Land;
(c) all plans and specifications for the Improvements and
for any future development of or construction on the Land;
(d) all accounts, deposits (including tenant or resident security
deposits), patient records, personnel files, provider agreements, records of
inspections by governmental agencies, receivables from Medicare, Medicaid, the
State of Texas, any health insurance carrier, or any governmental agency, bank
accounts, funds, instruments, notes or chattel paper arising from or by virtue
of any transactions or operations related to the Land, the Improvements, the
Personalty, the Leases, or the Rents;
(e) all Borrower's rights (but not Borrower's obligations) under any
documents, contracts, contract rights, accounts, commitments, construction
contracts (and all payment and performance bonds, statutory or otherwise, issued
by any surety in connection with any such construction contracts, and the
proceeds of such bonds), architectural contracts, engineering contracts, and
general intangibles (including without limitation trademarks, trade names, and
symbols) arising from or by virtue of any transactions related to the Land, the
Improvements, or the Personalty;
(f) all permits, licenses, franchises, certificates, accreditation,
registrations and authorizations of all federal, state and local governmental or
regulatory authority, and other rights and privileges obtained in connection
with the Land, the Improvements, or the Personalty and the operation thereof;
(g) all development rights, utility commitments, water and wastewater
taps, living unit equivalents, capital improvement project contracts, letters of
credit, and utility construction agreements with any governmental authority,
including municipal utility districts, or with any utility companies (and all
refunds and reimbursements thereunder) relating to the Land or the Improvements;
(h) all proceeds arising from or by virtue of the sale, lease or other
disposition of the Land, the Improvements, or the Personalty;
(i) all proceeds (including premium refunds) of each policy of
insurance relating to the Land, the Improvements, or the Personalty;
(j) all proceeds from the taking of any of the Land, the Improvements,
the Personalty, or any rights appurtenant thereto by right of eminent domain or
by private or other purchase in lieu thereof, including change of grade of
streets, curb cuts or other rights of access, for any public or quasi-public use
under any law;
(k) all right, title, and interest of Borrower in and to all streets,
roads, public places, easements, and rights-of-way, existing or proposed, public
or private, adjacent to or used in connection with, belonging, or pertaining to
the Land;
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(l) all of Borrower's rights (but not Borrower's obligations) under
existing and future residency or occupancy agreements, licenses, leases,
including subleases, concession agreements, management agreements and any and
all extensions, renewals, modifications, and replacements of such agreements,
upon or of any part of the Land or Improvements, including cash or securities
deposited and guaranties to secure performance by the tenants of their
obligations thereunder (the "Leases");
(m) all of the rents, receipts, royalties, bonuses, issues, profits,
revenues, or other benefits of the Land, the Improvements, the Leases, or the
Personalty, including those now due or to become due by virtue of any Lease or
other agreement for the occupancy or use of all or any part of the Land or
Improvements (the "Rents");
(n) all consumer goods located in, on, or about the Land or the
Improvements or used in connection with the use or operation thereof; however,
neither the term "consumer goods" nor the term "Personalty" includes clothing,
furniture, appliances, linens, china, crockery, kitchenware, inventory,
medicines, drugs or personal effects used primarily for the operation of the
Property;
(o) all other interests of every kind and character that Borrower now
has or at any time hereafter acquires in and to the Land, Improvements,
Personalty, Leases, and Rents and all property that is used or useful in
connection therewith, including rights of ingress and egress and all
reversionary rights or interests of Borrower with respect to such property and
all of Borrower's rights (but not Borrower's obligations) under any covenants,
conditions, and restrictions for the Land, as the same may be amended from time
to time, including Borrower's rights, title, and interests thereunder as
declarant or developer, if applicable; and
(p) all products and proceeds of the Personalty.
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EXHIBIT D
LIST OF BORROWER'S LEASES
Exhibit 10.50
PROMISSORY NOTE
Austin, Texas (LINE OF CREDIT) January 1, 1998
PROMISE TO PAY: For value received, the undersigned Borrower (whether one or
more) promises to pay to the order of Lender the Principal Amount, to the extent
advanced by Lender, together with interest on the unpaid balance of such amount,
in lawful money of the United States of America, in accordance with all the
terms, conditions, and covenants of this Note and the Loan Documents identified
below.
BORROWER: Barton Acquisition, Inc., a Texas corporation
BORROWER'S ADDRESS FOR NOTICE: 1301 Capital of Texas Highway, Suite C-300,
Austin, Texas 78746, Attention:
John H. Trevey
LENDER: American Physicians Service Group, Inc., a Texas corporation
LENDER'S ADDRESS FOR PAYMENT: 1301 Capital of Texas Highway, Suite C-300,
Austin, Texas 78746
PRINCIPAL AMOUNT: Two Million Four Hundred Thousand Dollars and No/100 Dollars
($2,400,000.00)
INTEREST RATE: Ten Percent (10.0%)
PAYMENT TERMS: Interest only on the unpaid balance of this Note is due and
payable quarterly, beginning June 1, 1998, and continuing regularly and
quarterly thereafter on or before the first day of March, June, September and
December of each year, until January 1, 2003 (the "Maturity Date"), when the
outstanding principal balance and all accrued interest shall be due and payable
in full. Interest will be calculated on the unpaid principal balance. Each
payment will be credited first to the accrued interest and then to the reduction
of principal.
REVOLVING LINE OF CREDIT: This Note evidences a revolving line of credit.
Subject to the terms of the Loan Agreement between Borrower and Lender of even
date herewith, all or any portion of the Principal Amount of this Note may be
borrowed, paid, prepaid, repaid, and reborrowed, from time to time prior to the
Maturity Date and in accordance with the Loan Documents. Each borrowing and
repayment hereunder will be (i) endorsed on an attachment to this Note, or (ii)
entered in the books and records of Lender. The books and records of Lender
shall be prima facie evidence of all sums due Lender. If an event of default
exists under this Note or any Loan Document, then Lender shall be under no
obligation to make any advance under this Note.
LOAN AGREEMENT: This Note is executed pursuant to and is governed by the terms
of the Loan Agreement of even date herewith, executed by Borrower and Lender, as
amended (collectively, the "Loan Agreement").
1. INTEREST PROVISIONS:
(a) RATE: The principal balance of this Note from time to time
remaining unpaid prior to maturity shall bear interest at the Interest Rate per
annum stated above. Interest shall be calculated on the amount of each advance
of the Principal Amount of this Note from the date of each such advance.
<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 is permissible under applicable state or federal law for
the type of loan evidenced by this Note and the other Loan Documents. 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 or premature payment, the total interest that
will accrue under this Note cannot be determined in advance. Lender 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 Lender and Borrower agree that all amounts of
interest, whenever contracted for, charged, or received by Lender, 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 Lender 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.
(d) EXCESS INTEREST: At maturity (whether by acceleration or otherwise)
or on earlier final payment of this Note, Lender shall compute the total amount
of interest that has been contracted for, charged, or received by Lender or
payable by Borrower under this Note and compare such amount to the Maximum
Lawful Amount that could have been contracted for, charged, or received by
Lender. If such computation reflects that the total amount of interest that has
been contracted for, charged, or received by Lender or payable by Borrower
exceeds the Maximum Lawful Amount, then Lender 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 Borrower. This provision concerning the crediting or refund of
excess interest shall control and take precedence over all other agreements
between Borrower and Lender so that under no circumstances shall the total
interest contracted for, charged, or received by Lender exceed the Maximum
Lawful Amount.
(e) INTEREST AFTER DEFAULT: At Lender'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 Lender's option, (i) the Maximum Lawful Rate, if such Maximum Lawful Rate is
established by applicable law; or (ii) the Interest Rate stated on the first
page of this Note plus five (5) percentage points, if no Maximum Lawful Rate is
established by applicable law; or (iii) eighteen percent (18%) per annum; or
(iv) such lesser rate of interest as Lender 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 Lender to
exceed the Maximum Lawful Amount.
(f) DAILY COMPUTATION OF INTEREST: To the extent permitted by
applicable law, Lender at its option will 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. In no
event shall Lender compute the interest in a manner that would cause Lender to
contract for, charge, or receive interest that would exceed the Maximum Lawful
Rate or the Maximum Lawful Amount.
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2. DEFAULT PROVISIONS:
(a) EVENTS OF DEFAULT AND ACCELERATION OF MATURITY: LENDER MAY, AFTER
THIRTY (30) DAYS' WRITTEN NOTICE TO BORROWER AND BORROWER'S FAILURE TO CURE
WITHIN SUCH 30-DAY PERIOD AND WITHOUT FURTHER NOTICE OR DEMAND, (except as
otherwise required by statute), ACCELERATE THE MATURITY OF THIS NOTE AND DECLARE
THE ENTIRE UNPAID PRINCIPAL BALANCE AND ALL ACCRUED INTEREST AT ONCE DUE AND
PAYABLE IF:
(i) There is default in the payment of any installment of
principal, interest, or any other sum required to be paid under the
terms of this Note or any of the Loan Documents; or
(ii) There is default in the performance of any covenant,
condition, or agreement contained in this Note or any of the Loan
Documents, including any instrument securing the payment of this Note
or any loan agreement relating to the advance of loan proceeds.
(b) WAIVER BY BORROWER: EXCEPT AS PROVIDED IN PARAGRAPH 2(a) HEREOF AND
IN ANY OTHER LOAN DOCUMENT, BORROWER 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 OR 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.
(c) NON-WAIVER BY LENDER: Any previous extension of time, forbearance,
failure to pursue some remedy, acceptance of late payments, or acceptance of
partial payment by Lender, before or after maturity, does not constitute a
waiver by Lender of its subsequent right to strictly enforce the collection of
this Note according to its terms.
(d) OTHER REMEDIES NOT REQUIRED: Lender 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.
(e) JOINT AND SEVERAL LIABILITY: Each Borrower 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 Lender requires the services of an attorney to
enforce the payment of this Note or the performance of the other Loan Documents,
or if this Note is collected through any lawsuit, probate, bankruptcy, or other
judicial proceeding, Borrower agrees to pay Lender 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.
3. MISCELLANEOUS PROVISIONS:
(a) SUBSEQUENT HOLDER: All references to Lender in this Note shall also
refer to any subsequent owner or holder of this Note by transfer, assignment,
endorsement, or otherwise.
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(b) TRANSFER: Borrower acknowledges and agrees that Lender may transfer
this Note or partial interests in the Note to one or more transferees or
participants. Borrower authorizes Lender to disseminate any information it has
pertaining to the loan evidenced by this Note, including, without limitation,
credit information on Borrower 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 Borrower 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) 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 Lender and Borrower.
(e) NO DUTY OR SPECIAL RELATIONSHIP: Borrower acknowledges that Lender
has no duty of good faith to Borrower, and Borrower acknowledges that no
fiduciary, trust, or other special relationship exists between Lender and
Borrower.
(f) MODIFICATIONS: Any modifications agreed to by Lender 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.
(g) ENTIRE AGREEMENT. Borrower warrants and represents that the Loan
Documents constitute the entire agreement between Borrower and Lender with
respect to the loan evidenced by this Note and agrees that no modification,
amendment, or additional agreement with respect to such loan or the advancement
of funds thereunder will be valid and enforceable unless made in writing signed
by both Borrower and Lender.
(h) BORROWER'S ADDRESS FOR NOTICE: All notices required to be sent by
Lender to Borrower shall be sent by U.S. Mail, postage prepaid, to Borrower's
Address for Notice stated on the first page of this Note, until Lender shall
receive written notification from Borrower of a new address for notice.
(i) LENDER'S ADDRESS FOR PAYMENT: All sums payable by Borrower to
Lender shall be paid at Lender's Address for Payment stated on the first page of
this Note, or at such other address as Lender shall designate from time to time.
(j) BUSINESS USE: Borrower warrants and represents to Lender that the
proceeds of this Note will be used solely for business or commercial purposes,
and in no way will the proceeds be used for personal, family, or household
purposes.
(k) CHAPTER 15 NOT APPLICABLE: It is understood that Chapter 15 of the
Texas Credit Code relating to certain revolving credit loan accounts and
tri-party accounts is not applicable to this Note.
(l) APPLICABLE LAW: THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN TEXAS
AND 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.
4
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4. LOAN DOCUMENTS:
(a) This Note consisting of this page and the preceding 4 pages.
(b) The Loan Agreement of even date.
(c) The Deed of Trust (Security Agreement, Assignment of Leases and
Rents and Financing Statement) securing this Note.
(d) The Security Agreement securing this Note.
(e) All other documents signed in connection with the loan evidenced
by this Note.
EXECUTED this 16th day of March, 1998.
BORROWER:
BARTON ACQUISITION, INC., a Texas corporation
By: /s/ John H. Trevey
Name: John H. Trevey
Title: CEO
5
Exhibit 10.51
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is entered into this 1st day
of January, 1998, by and between Barton Acquisition, Inc., a Texas corporation
("Debtor"), whose address is 1301 Capital of Texas Highway, Suite C-300, Austin,
Texas 78746, and American Physicians Service Group, Inc., a Texas corporation
("Secured Party"), whose address is 1301 Capital of Texas Highway, Suite C-300,
Austin, Texas 78746, who, for good and valuable consideration, 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:
(a) All debt, obligations, liabilities, and agreements of
Debtor to Secured Party, (excluding, however, any preferred rights under that
certain Stock Transfer Restriction and Shareholders Agreement (the "Shareholders
Agreement") dated as of January 1, 1998, by and among Secured Party, Debtor,
Barton House, Ltd., a Texas limited partnership, Barton House at Oakwell Farms,
Ltd., a Texas limited partnership, Uncommon Care, Inc., a Texas corporation,
George R. Bouchard, John H. Trevey, Uncommon Partners, Ltd., a Texas limited
partnership and the additional parties listed on Appendix I thereto) now or
hereafter existing, arising directly between Debtor 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 the Promissory Note
(Line of Credit) in the maximum original principal amount of $2,400,000,
executed by Barton Acquisition, Inc., a Texas corporation, and payable to the
order of Secured Party, and all renewals, extensions, modifications, or
rearrangements of any of the foregoing.
(b) 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 attorney's fees and legal expenses, feed, rent, storage costs, and
expenses of sale.
(c) 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 Debtor's 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.
<PAGE>
(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, manufacturer's 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.
(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 property described above and
any other collateral fitting within any of the foregoing classifications
hereafter acquired by Debtor.
(f) All products and proceeds of the items described in
subsections (a) through (e) of this Section 2.1.
2.2 After Acquired Consumer Goods. The Security Interest shall attach
to after acquired consumer goods only to the extent permitted by Section
9.204(b) of the Texas Business and Commerce Code (Texas UCC).
ARTICLE III
DEBTOR'S WARRANTIES
Debtor represents and warrants to Secured Party as follows:
3.1 Financing Statements. No financing statement covering the
Collateral is or will be on file in any public office, except the financing
statements relating to this Security Interest, those described in Exhibit "C",
those expressly permitted under the Shareholders Agreement and that certain
Contribution and Stock Purchase Agreement (the "Contribution Agreement) dated as
of January 1, 1998, by and among Secured Party, Debtor, Barton House, Ltd., a
Texas limited partnership, Barton House at Oakwell Farms, Ltd., a Texas limited
partnership, Uncommon Care, Inc., a Texas corporation, George R. Bouchard, John
H. Trevey, Uncommon Partners, Ltd., a Texas limited partnership and the
additional parties listed on Appendix I thereto. In the past five (5) years,
Debtor has not used or done business under any name other than its legal name
set forth on the first page of this Agreement.
3.2 Ownership. Debtor owns the Collateral free from any setoff, claim,
restriction, lien, security interest, or encumbrance except liens for taxes not
yet due, the Security Interest and those described in Exhibit "C".
3.3 Fixtures and Accessions. 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. In such case of the Collateral's being or
becoming affixed, the Deed of Trust (Security Agreement, Assignment of Leases
and Rents, and Financing Statement) executed by Debtor shall cover such
fixtures.
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 Accuracy of Financial Statements. All representations and warrants
made by Debtor in the Contribution Agreement with respect to its financial data
are true in all material respects.
3.6 Power and Authority. Debtor has full power and authority to make
this Agreement.
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3.7 Principal Place of Business. Debtor's principal place of business
and chief executive office is at Debtor's address stated above in Austin, Travis
County, Texas, and such address is also where Debtor keeps its books and
records.
3.8 Location of Collateral. All of Debtor's inventory and equipment is
located at the real properties described in Exhibit "B" attached hereto and
incorporated herein by reference or at its principal place of business. Debtor
has exclusive possession and control of its inventory and equipment. None of
Debtor's inventory or equipment is evidenced by a document (as defined in the
Texas UCC). All instruments, chattel paper, securities, and certificates of
title comprising any part of the Collateral have been delivered to Secured
Party. Before Debtor shall acquire additional inventory and equipment subject to
this Agreement and store or use such property at a location other than the real
properties described in Exhibit "B" or remove existing inventory and equipment
to a location other than the real properties described in Exhibit "B", Debtor
shall first notify Lender of such location and comply with Section 4.7 hereof.
3.9 Perfection. Upon the filing of the UCC financing statements with
the Office of the Texas Secretary of State and in the offices of the County
Clerks of Bexar, Fort Bend and Travis Counties, Texas, and upon Secured Party's
obtaining possession of all Debtor's documents, instruments, chattel paper,
securities, and certificates of title, and upon Secured Party's obtaining
control of Debtor's Investment Property, the Security Interest will constitute a
valid and perfected lien upon and security interest in the Collateral, subject
only to those liens and security interests expressly permitted under the
Shareholders Agreement or Contribution Agreement ("Permitted Security
Interests"). In the event another secured party has possession of Debtor's
assets for perfection purposes, such secured party's possession shall be deemed
possession on behalf of Secured Party to the extent of Secured Party's
subordinate security interest, and when possession is no longer required for any
Permitted Security Interest, then possession shall be transferred to Secured
Party.
3.10 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, 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.
ARTICLE IV
DEBTOR'S COVENANTS
Debtor covenants and agrees that:
4.1 Indebtedness and This Agreement. Debtor shall pay 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 and shall have the right to grant such security interest. Debtor shall
defend the Collateral against all claims and demands of all persons, other than
persons holding a Permitted Security Interest, 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, Security
Interest and the Permitted Security Interests.
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
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Secured Party. All policies of insurance shall
provide for written notice to Secured Party at least 10 days prior to
cancellation. Risk of loss or damage is Debtor's to the extent of any deficiency
in any effective insurance coverage. Secured Party is appointed Debtor's
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 Party's 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 attorney's fees and legal expenses, feed, rent, storage costs, and
expenses of sales. Whether Collateral is or is not in Secured Party's
possession, and without any obligation to do so and without waiving Debtor's
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.
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 Debtor's business as soon as available, and any information with
respect to the Collateral reasonably requested by Secured Party; (ii) allow
Secured Party to inspect the Collateral, at any reasonable 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 reasonably 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. Secured Party's rights hereunder shall be subordinate to and not
interfere with persons holding a Permitted Security Interest.
4.7 Additional Documents. Debtor shall sign any papers furnished by
Secured Party which are necessary in the reasonable 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 Party's 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, will preserve the priority of all security
therefor, and will deliver to Secured Party the original certificates of title
on all motor vehicles included in the Collateral. Secured Party shall have no
duty to preserve such liability or security, but may do so at the expense of
Debtor, without waiving Debtor's 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. During the continuance
of an Event of 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. During the
continuance of an Event of Default under this Agreement, 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
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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:
(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 paper.
4.13 Disposition of Collateral. 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. No Collateral may be sold, leased, manufactured,
processed, or otherwise disposed of by Debtor in any manner without the prior
written consent of Secured Party, except inventory sold, leased manufactured,
processed, or consumed in the ordinary course of business.
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. Debtor will not permit any of the Collateral to be removed from the
locations specified herein or between locations without the written consent of
Secured Party.
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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.
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
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 or any change in its corporate structure. 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. Except as otherwise provided in this Agreement
or by law, 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, 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
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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.
ARTICLE V
RIGHTS AND POWERS OF SECURED PARTY
5.1 General. Secured Party before 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;
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; release Collateral in its
possession to any Debtor temporarily or otherwise; 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; and at any time
transfer any of the Collateral or evidence thereof into its own name of that of
its nominee. Secured Party, during the continuance of an Event of Default
without liability to Debtor, may:
(a) require Debtor to give possession or control of any
Collateral to Secured Party;
(b) take control of proceeds;
(c) require additional collateral;
(d) 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; and
(e) 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 after thirty (30) days' written notice to Debtor ("Events of
Default"):
(a) default in the timely payment of any part of the
Indebtedness or in performance or observance of the terms and conditions herein
or the Loan Agreement between Debtor and Secured Party;
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(b) any warranty, representation, or statement made or
furnished to Secured Party by Debtor proves to have been false in any material
respect when made or furnished;
(c) acceleration of the maturity of debt of Debtor to any
other person;
(d) sale, encumbrance, or transfer which is not permitted by
the Contribution Agreement or the Shareholders Agreeement; or loss, theft,
destruction which is not covered by Debtor's insurance, of any Collateral in
violation hereof, or substantial damage to any Collateral;
(e) 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;
(f) levy on, seizure, or attachment of any property of
Debtor in excess of $50,000; or
(g) a judgment against Debtor in excess of $250,000
becomes final and is not covered by Debtor's
insurance.
6.2 Remedies of Secured Party Upon Default. When an Event of Default
occurs, and at any time thereafter so long as the Event of Default is not cured,
Secured Party without notice or demand, except as otherwise provided herein, 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
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
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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.
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.
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 Texas Uniform Commercial Code [Texas Business and Commerce
Code ' 1.01, et seq. ("Texas UCC"). This Agreement is performable by Debtor in
the county of Secured Party's address set out above.
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.
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EXECUTED this 16th day of March, 1998.
DEBTOR:
BARTON ACQUISITION, INC., a Texas corporation
By: /s/ John Trevey
Name: John Trevey
Title: CEO
SECURED PARTY:
AMERICAN PHYSICIANS SERVICE GROUP, INC., a Texas
corporation
By: /s/ Duane K. Boyd, Jr.
Name: Duane K. Boyd, Jr.
Title: Senior VP
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EXHIBIT "A"
List of Debtor's Assets
(a) all equipment, fixtures, furnishings, inventory, building
materials, and articles of personal property (the "Personalty") now or hereafter
owned by Debtor, including but not limited to the Personalty attached to or used
in or on the Land or in or about the Improvements more fully described in the
Exhibit B hereafter or that are necessary or useful for the complete and
comfortable use and occupancy of the Improvements for the purposes for which
they were or are to be attached, placed, erected, constructed or developed, or
which Personalty is or may be used in or related to the planning, development,
financing or operation of the Improvements, and all renewals of or replacements
or substitutions for any of the foregoing, whether or not the same are or shall
be attached to the Land or Improvements;
(b) all water and water rights, timber, crops, and mineral interests
pertaining to the Land;
(c) all plans and specifications for the Improvements and for any
future development of or construction on the Land;
(d) all accounts, deposits (including tenant or resident security
deposits), patient records, personnel files, provider agreements, records of
inspections by governmental agencies, receivables from Medicare, Medicaid, the
State of Texas, any health insurance carrier, or any governmental agency, bank
accounts, funds, instruments, notes or chattel paper arising from or by virtue
of any transactions or operations related to the Land, the Improvements, the
Personalty, the Leases, or the Rents;
(e) all Debtor's rights (but not Debtor's obligations) under any
documents, contracts, contract rights, accounts, commitments, construction
contracts (and all payment and performance bonds, statutory or otherwise, issued
by any surety in connection with any such construction contracts, and the
proceeds of such bonds), architectural contracts, engineering contracts, and
general intangibles (including without limitation trademarks, trade names, and
symbols) arising from or by virtue of any transactions related to the Land, the
Improvements, or the Personalty;
(f) all permits, licenses, franchises, certificates, accreditation,
registrations and authorizations of all federal, state and local governmental or
regulatory authority, and other rights and privileges obtained in connection
with the Land, the Improvements, or the Personalty and the operation thereof;
(g) all development rights, utility commitments, water and wastewater
taps, living unit equivalents, capital improvement project contracts, letters of
credit, and utility construction agreements with any governmental authority,
including municipal utility districts, or with any utility companies (and all
refunds and reimbursements thereunder) relating to the Land or the Improvements;
(h) all proceeds arising from or by virtue of the sale, lease or other
disposition of the Land, the Improvements, or the Personalty;
(i) all proceeds (including premium refunds) of each policy of
insurance relating to the Land, the Improvements, or the Personalty;
(j) all proceeds from the taking of any of the Land, the Improvements,
the Personalty, or any rights appurtenant thereto by right of eminent domain or
by private or other purchase in lieu thereof, including change of grade of
streets, curb cuts or other rights of access, for any public or quasi-public use
under any law;
(k) all right, title, and interest of Debtor in and to all streets,
roads, public places, easements, and rights-of-way, existing or proposed, public
or private, adjacent to or used in connection with, belonging, or pertaining to
the Land;
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(l) all of Debtor's rights (but not Debtor's obligations) under
existing and future residency or occupancy agreements, licenses, leases,
including subleases, concession agreements, management agreements and any and
all extensions, renewals, modifications, and replacements of such agreements,
upon or of any part of the Land or Improvements, including cash or securities
deposited and guaranties to secure performance by the tenants of their
obligations thereunder (the "Leases");
(m) all of the rents, receipts, royalties, bonuses, issues, profits,
revenues, or other benefits of the Land, the Improvements, the Leases, or the
Personalty, including those now due or to become due by virtue of any Lease or
other agreement for the occupancy or use of all or any part of the Land or
Improvements (the "Rents");
(n) all consumer goods located in, on, or about the Land or the
Improvements or used in connection with the use or operation thereof; however,
neither the term "consumer goods" nor the term "Personalty" includes clothing,
furniture, appliances, linens, china, crockery, kitchenware, inventory,
medicines, drugs or personal effects used primarily for the operation of the
Property;
(o) all other interests of every kind and character that Debtor now has
or at any time hereafter acquires in and to the Land, Improvements, Personalty,
Leases, and Rents and all property that is used or useful in connection
therewith, including rights of ingress and egress and all reversionary rights or
interests of Debtor with respect to such property and all of Debtor's rights
(but not Debtor's obligations) under any covenants, conditions, and restrictions
for the Land, as the same may be amended from time to time, including Debtor's
rights, title, and interests thereunder as declarant or developer, if
applicable; and
(p) all products and proceeds of the Personalty.
<PAGE>
EXHIBIT "B"
Description of the Land and Improvements
Tract 1: A 0.8800 acre tract now known as Lot 4, Block B, New City Block 17305,
OAKWELL FARMS, UNIT 7B, PLANNED UNIT DEVELOPMENT, City of San Antonio, Bexar
County, Texas, according to plat thereof recorded in Volume 9535, Page 203, Deed
and Plat Records of Bexar County, Texas.
Tract 2: All that certain tract or parcel of land, containing 1.6756 acres, more
or less, being out of the Elijah Alcorn Survey, Abstract No. l, situated in Fort
Bend County, Texas. Said 1.6756 acres being all of Commercial Reserve "F" and
part of Commercial Reserve "D" of the Replat of the Amending Plat for Edgewater,
Section Two (2), according to the map or plat thereof recorded in Slide No.
1353/A of the Plat Records of Fort Bend County, Texas. Said 1.6756 acres being
more particularly described by metes and bounds in Exhibit "A-1" attached hereto
and made a part hereof; together with those nonexclusive easement rights
described in that Ingress and Egress Easement, recorded in Volume 2364, Page
1480 of the County Clerk Official Records of Fort Bend County, Texas, and those
easement rights reserved in that deed recorded in Volume 2364, Page 1452 of the
County Clerk Official Records of Fort Bend County, Texas.
Tract 3: A tract or parcel of land being 0.2008 acres, more or less, located in
the Elijah Alcorn League Survey, Abstract No. l, being out of Commercial Reserve
"D" of the Replat of the Amending Plat for Edgewater, Section Two (2), according
to the map or plat thereof recorded in Slide No. 1353/A of the Plat Records of
Fort Bend County, Texas. Said 0.2008 acres being more particularly described by
metes and bounds in Exhibit "B-1" attached hereto and made a part hereof.
Tract 4: Lot 2A, Block "B", of RESUBDIVISION OF LOT 2, BLOCK "B" MILWOOD SECTION
SIX, a subdivision in Travis County, Texas, according to the map or plat, of
record in Volume 95, Page 231, of the Plat Records of Travis County, Texas.
Tract 5: Lot 2B, Block "B", of RESUBDIVISION OF LOT 2, BLOCK "B" MILWOOD SECTION
SIX, a subdivision in Travis County, Texas, according to the map or plat, of
record in Volume 95, Page 231, of the Plat Records of Travis County, Texas.
All other real property and improvements now owned or hereafter acquired by
Debtor.
<PAGE>
EXHIBIT "C"
List of Prior Security Interests
1. Financing Statement No. 96-00239701 filed on December 4, 1996 with the
Texas Secretary of State with Barton House At Oakwell Farms, Ltd. as Debtor and
Bank One, Texas, N.A. as Secured Party.
2. Financing Statement No. 95-00212294 filed on November 1, 1995 with the Texas
Secretary of State with Barton House, LTD as Debtor and Bank One, Texas, N.A. as
Secured Party.
3. Financing Statement No. 96-00135820 filed on July 12, 1996 with the Texas
Secretary of State with Barton House, LTD as Debtor and Small Business
Administration as Secured Party.
4. Financing Statement No. 97-00192192 filed on September 15, 1997 with the
Texas Secretary of State with Barton House, LTD as Debtor and Bank One, Texas,
N.A. as Secured Party.
5. Financing Statement No. 1737 filed on September 12, 1997 in the UCC Records
of Travis County, Texas with Barton House, LTD as Debtor and Bank One Texas, NA
as Secured Party.
6. All financing statements filed with any county with respect to any of the
promissory notes identified on Schedule 1.6 to the Contribution Agreement.
Exhibit 10.52
PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT (this "Agreement") is made as of this
16th day of March, 1998, by and between American Physicians Service Group, Inc.
, a Texas corporation ("Seller"), and the undersigned under the heading,
"Purchaser" ("Purchaser"), (Seller and each Purchaser are referred to herein
separately as a "Participant" and collectively, as "Participants").
W I T N E S S E T H :
WHEREAS, Seller has made or will make a line of credit loan in the
maximum principal amount of Two Million Four Hundred Thousand and No/100 DOLLARS
($2,400,000) to Barton Acquisition, Inc., a Texas corporation (the "Borrower"),
which loan shall be secured by a lien on all Borrower's assets including certain
real property located in Bexar, Fort Bend and Travis Counties, Texas, as more
fully set forth on Exhibit "A" attached hereto, together with all equipment,
fixtures and personal property located thereon (the "Property"); and
WHEREAS, in connection with the making of the line of credit loan,
Borrower has executed or will execute and deliver the loan documents set forth
in the schedule attached hereto, marked Exhibit "B", and hereby made a part
hereof (the "Loan Documents"); and
WHEREAS, Seller is duly authorized to sell participation shares in
loans originated by it and the participation created hereby is eligible for such
sale; and
WHEREAS, Purchaser further desires to participate in owning the
evidences of the Loan and the security therefor, with Seller serving as agent
and trustee for Purchaser in certain respects as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. AGREEMENT FOR PURCHASE OF THE PARTICIPATION.
a. By its execution of this Agreement and in consideration of
the mutual covenants herein set forth, Purchaser does hereby purchase an
undivided interest (the "Participation"), the percentage of which (the
"Percentage Interest") shall be calculated as set forth in Section 2 hereof, in
(i) all of Seller's loans and other extensions of credit to or for the benefit
of Borrower under the Loan Documents (all loans and other extensions of credit
are hereinafter referred to as the "Loan"), (ii) all existing and future real
and personal property and interests therein securing the Loan, including the
Property ("Collateral"), (iii) all existing and future claims against persons
liable for the Loan ("Guaranty Claims"). The Participation includes a Percentage
Interest in all amounts, other than those amounts, if any, which are to be
retained by Seller or otherwise allocated to Purchaser or Seller pursuant to
Sections 4, 5 and 13 hereof, which are received by Seller on account of the Loan
("Payments"), whether from (i) Borrower, (ii) the Collateral, (iii) guarantors
or others obligated to Seller with respect to the Loan (an "Obligor"), or (iv)
any other source, including, without limitation, recovery from litigation
without limitation, recovery from any setoff of Borrower's accounts deposited
with Seller, proceeds of title insurance claims, other insurance claims,
condemnation awards or recovery from litigation. Purchaser acknowledges and
understands the liens and security interests against the Collateral are
secondary and inferior to other substantial loans to third party lenders.
<PAGE>
b. PARTICIPATION. Purchaser has advanced to Seller its
respective Contribution Percentage, as defined in Section 2 hereof, of funds
advanced, or to be advanced, by Seller to Borrower pursuant to the Loan. Seller
shall deposit all Contribution Percentages, to the extent not initially advanced
under the Loan, into an escrow account with Seller ("Escrow Account"). Seller
shall invest the funds in the Escrow Account at its discretion and any interest
earned thereon shall be held on each Purchaser's behalf in their respective
Contribution Interest. Seller shall, from time to time, pay to Purchaser all
amounts in which Purchaser has an interest in the manner herein provided.
c. NATURE OF RELATIONSHIP. The relationship between Purchaser
and Seller is and shall be that of a purchaser and seller of a property
interest, respectively, (i.e., an outright purchase and sale of assets being an
assignment of a partial interest in the Loan, the Collateral and the Guaranty
Claims) and not a creditor-debtor, partner, or joint venture relationship
provided that any documents, monies or other property received, retained or held
by Seller for Purchaser shall be held by Seller in trust for Purchaser.
d. SERVICING COMPENSATION. Seller shall receive no
compensation for servicing the Loan.
2. PERCENTAGE INTEREST; CONTRIBUTION PERCENTAGE; MAXIMUM AMOUNT OF
PURCHASER'S COMMITMENT. As used herein, the term "Percentage Interest", when
used with respect to any Purchaser, shall mean the percentage by each
Purchaser's name as set forth and described in Exhibit "D" attached hereto
multiplied by the aggregate amount of principal advanced and outstanding at any
particular time. As used herein, the term "Percentage Interest", when used with
respect to Seller, shall mean the remaining percentage of eighty-nine and 20/100
percent (89.20%) of the aggregate amount of outstanding principal advanced and
outstanding, and from time to time as each such respective Percentage Interest
bears at such time to the aggregate principal balance of the Loan then
outstanding. As used herein, the term "Contribution Percentage" of Purchaser
shall mean the same as the Percentage Interest.
3. FUNDING CRITERIA.
a. ESTABLISHMENT OF PARTICIPATION. Upon execution of the Loan
Documents, Seller shall deliver to Purchaser a Participation Certificate
executed by Seller evidencing Purchaser's contribution to the Loan, in the form
attached hereto as Exhibit "C" and hereby made a part hereof.
b. DEFAULT BY PURCHASER. Any failure by Purchaser to make any
required advance when requested by Seller, shall constitute a default hereunder
as of the day on which the payment was to be made by Purchaser.
4. ALLOCATION OF PAYMENTS. Distributions of principal and interest to
Purchaser or to the Escrow Account on behalf of Purchaser with respect to its
Participation Interest shall be made and payable only out of Payments. Payments
shall be applied by Seller to the indebtedness owing by Borrower and distributed
to the Participants in the following order: (i) to all Extraordinary Expenses,
as hereinafter defined, to the extent thereof; (ii) to liquidated damages and
late fees or charges (other than interest and loan fees) owing under the Loan
Documents, to the extent thereof; (iii) to loan fees owing under the Loan
Documents, to the extent thereof; (iv) to accrued interest, to the extent
thereof; and (v) to unpaid principal of the Loan. Such Payments shall be
allocated among the Participants on the basis of Sections 5 and 13 hereof.
5. PAYMENTS TO PARTICIPANTS.
a. ALLOCATIONS. Subject to Sections 5(b), 5(c) and 13
hereof, each Participant shall be entitled to share in the following payments
to the extent and in the manner hereinafter set forth:
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<PAGE>
(i) Extraordinary Expenses, to the extent advanced
by the Participants, shall be reimbursed to the Participants on the basis which
the amount of Extraordinary Expenses advanced by each Participant bears to the
total Extraordinary Expenses advanced by all Participants.
(ii) All liquidated damages, late fees or charges and
other ancillary income (other than as provided
herein) shall be paid solely to Seller;
(iii) All loan, extension, prepayment charges and
reconveyance fees received from Borrower shall be
distributed to the Participants in accordance with their respective Percentage
Interests;
(iv) All interest payments received from Borrower,
excluding interest paid at the "Default Interest
Rate," as defined in the Note, shall be paid first to each Participant, or the
Escrow Account at Seller's election, on the basis of such Participant's
respective Percentage Interest, to the extent the interest accrued at the rate
set forth in the Note on amounts advanced by such Participant from the date that
such amounts were disbursed to Borrower; and interest payments received by
Seller from Borrower at the Default Interest Rate shall be paid to the
Participants, or the Escrow Account at Seller's election, on the basis of their
Percentage Interests, net of a 25 basis point servicing override to be allocated
to Seller and paid to Seller after the Participants have received their
respective allocations of Default Interest Rate interest payment due and payable
under the Note in accordance with the foregoing Default Interest Rate
distribution; and
(v) All Payments in respect of and applied to
principal of the Loan received by Seller from Borrower
shall be paid to the Escrow Account on behalf of each Participant in accordance
with their respective Percentage Interests.
b. RIGHTS TO FUNDS IN THE EVENT OF DEFAULT BY PURCHASER.
Notwithstanding the provisions of Section 5(a) hereof, following any default by
Purchaser and in the event Payments are insufficient to pay the Participant's
their respective Percentage Interests under both Sections 5(a)(iv) and 5(a)(v),
each Participant, or the Escrow Account on behalf of each Participant, shall
receive its prorata share, and only to the extent Seller accepts, in its sole
discretion, partial Payments.
c. EFFECTIVE DATE; RETURNED FUNDS. For purposes of the
calculations of amounts due to or from Purchaser, Payments allocated to
principal and interest of the Loan shall be apportioned between the Participants
as of the time such Payments are received by Seller. If any Payment received by
Seller and distributed or credited to Purchaser is later returned or repaid by
Seller to Borrower or its representative or successor in interest because of the
legal obligation of Seller to do so, Purchaser shall, upon notice by Seller,
immediately pay to Seller Purchaser's pro rata share of such Payment so returned
or repaid. All funds held in the Escrow Account shall be distributed in a time
and manner as reasonably determined by Seller, but in no event will Payments in
respect of interest or principal payments be held in the Escrow Account for more
than sixty (60) days after the Termination Date. All interest or dividends
earned on the Escrow Account shall be distributed sixty (60) days after each
quarterly Payment under the Loan by Seller to Purchaser in accordance with their
respective Percentage Interest.
d. FORM OF PAYMENTS TO PURCHASER. Amounts payable to Purchaser
hereunder shall be made by Seller to the account of Purchaser. Payments or
credits in accordance with Sections 5(a), 5(b) and 13 hereof shall be made by
check, and, made on or before the 60th calendar day after Seller receives such
amounts.
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<PAGE>
6. ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION. Seller shall make
its files relating to Borrower available for review by Purchaser. Purchaser
acknowledges that prior to its execution hereof it will have independently, and
without reliance upon any representations of Seller, and based on (i) the
financial information referred to or set forth in the Loan Documents, (ii)
various information provided to Purchaser by Borrower, (iii) its prior
experience and communications with Borrower and the Collateral, and (iv) such
other financial statements, documents and information as Purchaser deemed
appropriate, made and relied upon its own credit analysis and judgment to
execute this Agreement. Seller shall use its best efforts to give prompt notice
to Purchaser as to any default of which it has actual knowledge under the terms
of any Loan Document, or of any other matter which materially affects the
interest of Purchaser in the Loan.
7. DOCUMENTS AND OTHER AGREEMENTS REGARDING ADMINISTRATION OF THE LOAN.
To facilitate Seller's administration and enforcement of the Loan on its own
behalf, and as agent and as applicable, trustee for Purchaser, and to induce
Seller to enter into this Agreement, Purchaser acknowledges and agrees that it
is in Purchaser's best interest that (i) Seller hold for itself, and as trustee
for Purchaser, all executed original copies of the Loan Documents, at its office
at 1301 Capital of Texas Highway, Suite C-300, Austin, Texas 78746; and (ii)
Seller shall not be required to segregate from its own funds Payments allocable
to Purchaser hereunder. Upon written notice from Purchaser, Seller will permit
Purchaser's agents, at any reasonable time during business hours, to examine the
originals and/or copies of the Loan Documents which are in Seller's possession
and Seller's books and records relating to the Loan; Seller will, upon
Purchaser's request, and at Purchaser's expense, furnish to Purchaser copies of
such documents and agreements relating to the Loan as Seller may have in its
possession; and Seller will use its best efforts, at no expense to Seller, to
obtain such other documents and information from or concerning Borrower as
Purchaser may reasonably request.
8. SELLER'S REPRESENTATIONS, DUTY OF CARE AND RESPONSIBILITY TO
PURCHASER.
a. LIMITED WARRANTIES AND REPRESENTATIONS. Seller hereby
represents and warrants to Purchaser that, at the time of closing the Loan, (i)
to the best of Seller's knowledge, information and belief, no condition or fact
exists which would permit Seller to accelerate the Loan under the Loan Documents
and (ii) the Loan conforms in all respects to the requirements of the Loan
Documents. Notwithstanding the foregoing, to the extent of its Contribution
Interest, each party accepts the full risk of non-payment of the Loan by
Borrower. Seller shall not be responsible for the performance or observance by
Borrower or any Obligor of any of the terms, covenants or conditions of the Loan
Documents or for the inspection or policing of the Collateral. Purchaser
specifically acknowledges that Seller has made no warranty or representation to
Purchaser with respect to the collectibility of the Loan or with respect to the
solvency, financial condition or future financial condition of Borrower or any
Obligor or the genuineness, existence or value of the Collateral.
b. DUTY OF CARE. Seller shall manage and service the Loan and
Escrow Account in accordance with prudent practices, modified from time to time
as it deems appropriate under the circumstances on its behalf and as independent
contractor and trustee on behalf of Purchaser, and, except as expressly set
forth in Section 10 hereof, Seller shall be entitled to take all actions with
respect to the Loan as if there were no other Participant and as if Seller were
solely involved in making the Loan. Seller may act upon any notice, consent,
certificate, cable, telex or other instrument or writing believed by Seller to
be genuine, and Seller may consult with legal counsel, independent accountants,
appraisers and other experts selected by Seller, and provided that Seller has
not breached any duty of care as set forth in this Section 8(b), Seller shall
not be liable for any action taken or omitted to be taken in good faith by
Seller in accordance with the advice of such counsel, accountants, appraisers or
experts. Seller shall not be liable to Purchaser under any circumstances except
for actual losses, if any, suffered by Purchaser hereunder which are proximately
caused either by Seller's negligence, gross negligence, willful misconduct or
bad faith or by Seller's violation of the provisions of Section 10 hereof.
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<PAGE>
9. WAIVERS AND RELEASE OF RIGHTS UNDER LOAN DOCUMENTS. Subject to the
affirmative obligations imposed on Seller in Section 10 hereof, Seller reserves
the right, in its sole discretion, at any time or times hereafter, upon
reasonable prior notice to Purchaser, (i) to release any of the Collateral in a
manner which would not materially and adversely impair the value of the Loan,
(ii) to modify, waive or release any of the terms of the Loan Documents, but
only if such modification, waiver or release does not materially and adversely
increase risks relating to the Loan, (iii) to exercise or refrain from
exercising any powers or rights which Seller may have as a matter of law, or
under, or in respect of the Loan Documents, including, without limitation, the
right to enforce the obligations of Borrower or any Obligor, and (v) to take any
other action allowed under the Loan Documents or applicable law; provided,
however, that Seller shall not have the power or authority hereunder, without
the prior written consent of Purchaser, to waive any rights against or release
the Obligors. Seller shall not settle any judicial proceeding between it and any
Borrower without obtaining the prior consent of Purchaser, which consent shall
not be unreasonably withheld or delayed.
10. RESTRICTIONS ON CHANGES IN FUNDAMENTAL TERMS OF LOAN DOCUMENTS.
Unless previously accomplished, Seller shall at closing on the Loan execute and
deliver and cause Borrower and each Obligor to execute and deliver those Loan
Documents required to be filed, recorded or otherwise perfected in such manner
as shall be necessary and appropriate to fully secure the real and personal
property securing the Loan, the rights, privileges, powers and benefits which
such Loan Documents are intended to confer upon Seller and Purchaser. In
addition, Seller shall not, without the written consent of Purchaser, which
consent shall not be unreasonably withheld or delayed, take any of the following
actions: (i) waive any default by Borrower involving the payment of money to
Seller pursuant to the Loan Documents; (ii) extend the time of payment of any of
Borrower's obligations with respect to the Loan for more than 60 days after any
due date; (iii) agree to any change in the rate of interest payable by Borrower
with respect to the Loan (except for reductions which are contemplated by the
Loan Documents); (iv) release any liens or security interests which secure the
Loan and relate to equipment, fixtures or real estate if such release will have
a materially adverse impact on the Collateral; or (v) terminate any financing
statements filed with respect to any of the Collateral.
11. EXPENSES. Except as set forth herein, all normal costs and expenses
of monitoring and collecting the Loan shall be borne by Seller. Upon demand by
Seller, Purchaser shall pay its share of all Extraordinary Expenses, as
hereinafter defined, incurred by Seller in connection with the Loan based on its
Percentage Interest. The term "Extraordinary Expenses" means all costs, expenses
(including, without limitation, attorneys' fees and legal expenses), taxes,
costs and expenses of appeals, and out-of-pocket advances (not including
ordinary overhead expenses or salary expenses for Seller's clerical or
supervisory personnel) which are incurred by Seller at any time or times
hereafter, in connection with (i) the collection or enforcement of the Loan;
(ii) the acquisition and preservation of the Collateral; (iii) the collection or
enforcement of Borrower's liabilities to Seller, or the liabilities of any
Obligor liable with respect to the Loan; (iv) the operation, sale, disposition
or other realization upon or the recovery of possession of the Collateral
(including the collection of loss proceeds for destruction thereof and
collection of awards for the condemnation thereof); (v) the filing and
prosecution of a complaint with respect to any of the above matters; or (vi) the
defense of any claim, actual or threatened by Borrower, a receiver or trustee in
bankruptcy for Borrower, any Obligor or third party, for, or on account of, or
with respect to the Loan, or the Loan Documents, whether to recover damages for
business interference, for liabilities for debts of Borrower, including, but not
limited to, taxes, for alleged preferences or fraudulent conveyances or
transfers received or alleged to have been received from Borrower or any such
Obligor as a result of the Loan or in connection with any Payments, otherwise,
and shall include the amount of any recovery from Seller in such litigation or
proceeding, whether by settlement or pursuant to a judgment (except for any such
recovery resulting from the gross negligence or willful misconduct of Seller
about which Purchaser had no actual knowledge or, if known by Purchaser, about
which Purchaser objected by giving written notice to Seller).
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<PAGE>
12. SELLER'S BOOKS AND RECORDS CORRECT. Seller's books and records and
all entries thereon, and statement received by Purchaser from Seller with
respect to the Loan, will at all times (i) evidence both Purchaser's interest
and Seller's interest in the Loan; and, (ii) identify the same as such.
13. DEFAULT BY BORROWER.
a. In the event default occurs in the payment to Seller of
principal or interest on the Loan, Seller at its option, but without obligation
to do so, may re-purchase any or all Purchasers' interests in the Loan.
b. In the event Seller is unable to collect any sums when due
on the Loan, after exercising reasonable efforts to do so, Seller shall give
notice thereof to Purchaser, and, Seller may, if it determines it is in the best
interest of the Participants, proceed to foreclose upon the Collateral securing
the Loan by appropriate proceedings, or sale in lieu of foreclosure. Seller
shall in no way be required to take title to the Collateral in its own name. If
Seller determines necessary, Seller may create a separate entity as an
Extraordinary Expense to take title to the Collateral.
c. If Seller or another designated entity shall acquire title
to any of the Property or Collateral covered by the Loan Documents after, or in
lieu of, foreclosure, all monies received or collected by it (including, but not
limited to, proceeds of title insurance claims) from the operation of or sale of
such property shall be applied in the following order of priority:
(i) First, to the reimbursement of Extraordinary
Expenses to the extent advanced by the Participants on the basis of their
respective Percentage Interests;
(ii) Second, to the payment of any reconveyance fees,
prepayment penalties on the basis set forth in
clause (iii) of Section 5(a) hereof;
(iii) Third, to the payment of the entire amount then
due and payable under the Loan Documents for
accrued interest in accordance with the terms thereof, on the basis and in the
manner required by clause (iv) of Section 5(a) hereof (subject to the provisions
of Section 5(b) hereof);
(iv) Fourth, to the payment of the outstanding
principal balance of the Loan in the manner required by
clause (v) of Section 5(a) hereof (subject to the provisions of Section 5(b)
hereof);
(v) Fifth, to the payment of all accrued but unpaid
liquidated damages and late fees or charges (other
than interest and loan fees) which shall be paid solely to Seller; and
(vi) Sixth, any surplus shall be paid to Seller and
Purchaser in accordance with their respective
Percentage Interests provided that no Participant which is then in default of
its obligations hereunder shall in any event receive more than the unpaid
principal balance it has advanced in respect of the Loan.
d. In the event any or all of the Collateral encumbered by the
Loan Documents, including the Property, are acquired by foreclosure, or by deed
in lieu of foreclosure, at a time when both Seller and Purchaser have an
interest in the Loan, they shall have an undivided interest in such Collateral
equal to the amount of their then respective Percentage Interests as tenants in
common.
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<PAGE>
e. In the event Seller shall purchase the interest of
Purchaser pursuant to the provisions of this Section 13, the purchase price
shall be equal to the sum of: (i) all accrued but unpaid interest in respect of
principal advanced by the selling party to which such party is entitled and such
other amounts accrued but unpaid to the selling party pursuant to Section 5
hereof through the date of such purchase, and, (ii) all principal advanced by
the selling party and subtracting from the foregoing sum unreimbursed
Extraordinary Expenses advanced by the purchasing party.
14. SHARING OF SETOFFS AND COLLATERAL. Neither Seller nor Purchaser
shall set-off against the amount of its Percentage Interest or other claims
against Borrower, any of Borrower's accounts or funds now or hereafter received.
If Purchaser shall receive possession of any of the Collateral for any reason
whatsoever, such Collateral shall be held by Purchaser as Seller's agent and
shall, on demand, be delivered to Seller. Any security interest granted by
Borrower to Purchaser, or Seller at any time or times hereafter in all or any
part of the Collateral described in the Loan Documents shall be subordinate in
all respects to the interest of Purchaser and Seller created by this Agreement
or the Loan Documents, regardless of the actual date or order of filing of any
financing statements or other means of perfection under applicable law, or the
date of any loan or advance by Seller under the Loan Documents, and if Seller or
Purchaser shall at any time hereafter hold any lien or security interest other
than the Collateral, then neither shall not commence or take any action to
enforce that lien or security interest without giving the other thirty (30) days
prior written notice. Seller and Purchaser each hereby appoints the other as
their agent for the purpose of perfecting a security interest in any of the
Collateral which may at any time come into the possession of Seller or
Purchaser.
15. PURCHASER'S COMPLIANCE WITH LAW; RESALE OR ASSIGNMENT OF
PARTICIPATION; SALE OF ADDITIONAL PARTICIPATIONS. Purchaser hereby warrants and
represents to Seller that (i) Purchaser's execution and delivery of this
Agreement and purchase of the Participation does not constitute a violation by
Purchaser of any agreement, law, statute, decree or decisions (including any
legal lending limits) which is binding on Purchaser; and (ii) Purchaser is
acquiring the Participation for its own account and will not sell, pledge,
encumber or assign its Participation, or any part thereof, to any person without
Seller's prior written consent. Purchaser may, without further consent of
Seller, and without releasing Purchaser from liability hereunder, assign its
Participation to a parent or a wholly owned subsidiary of Purchaser. Any
prohibited transfer of an interest in the Participation shall be void if
attempted without Seller's written consent. Purchaser may at any time, and from
time to time, enter into one or more agreements with other financial
institutions to reparticipate its Participation; provided, however, that (i) any
such reparticipation shall not be deemed to be an assignment or transfer of
Purchaser's Participation to such financial institution, (ii) any such financial
institution shall not be and shall not be deemed to be a party hereto or a third
party beneficiary hereof and Seller shall have no duty or liability to such
financial institution whatsoever, (iii) neither Seller's nor Purchaser's duties
hereunder may be assigned or transferred hereunder, (iv) such reparticipation
shall not in any manner whatsoever relieve Purchaser from any of its obligations
or liabilities hereunder, (v) such reparticipation shall not involved more than
one financial institution, which shall have previously engaged in the purchase
or sale of participations and to all of which full, true and complete
information concerning the Loan and Borrower shall have been provided, and (vi)
Purchaser and each of its participants shall each have equal shares with one
another. Seller may participate, reparticipate, sell, pledge or assign its
interest in the Loan or its Participation to any other person without
Purchaser's consent. A Participation shall not be, and shall not be construed to
be, a "security" under any federal or state securities law.
16. CERTAIN REPRESENTATIONS AND WARRANTIES.
a. By Seller. Seller represents and warrants that it is duly
organized and validly existing as a Texas corporation; that it has all power and
authority and has taken all actions necessary to execute and deliver this
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<PAGE>
Agreement, the Loan Documents, and each document required hereunder; and that
this Agreement, the Loan Documents and each document required hereunder; and
that this Agreement, the Loan Documents and each document required hereunder,
when executed and delivered by it, shall constitute the legal, valid and binding
act of Seller, enforceable, each in accordance with its respective terms, except
as limited by bankruptcy, insolvency, moratorium, reorganization and other
similar laws affecting the rights of creditors or depositors of Seller
generally, and by the exercise of judicial discretion in accordance with general
principles of equity.
b. BY PURCHASER. Purchaser represents and warrants that is has
all power and authority and has taken all actions necessary to execute and
deliver this Agreement and each document required hereunder, when executed and
delivered by it, shall constitute the legal, valid and binding act of Purchaser,
enforceable, each in accordance with its respective terms, except as limited by
bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting the rights of creditors or depositors of Purchaser generally, and by
the exercise of judicial discretion in accordance with general principles of
equity.
17. DEFAULTS.
a. BY SELLER. It shall be an event of default on the part of
Seller if: (i) Seller has failed to observe and perform each and every one of
the terms, covenants, promises and agreements on its part to be observed and
performed under this Agreement; or (ii) any representation or warranty made by
Seller shall prove untrue in any material respect; or (iii) there shall be a
filing by or against Seller of a petition in bankruptcy or insolvency or
reorganization or the appointment of a receiver or trustee due to insolvency, or
the making by Seller of any assignment for the benefit of creditors, or the
filing of a petition or arrangement by Seller, or in the event of any similar
act or occurrence, Seller admits in writing its inability to pay its debts as
they mature; or (iv) Seller shall fail to promptly remit pursuant to Sections 4,
5 and 13 all sums payable hereunder.
b. BY PURCHASER. It shall be an event of default on the part
of Purchaser if: (i) Purchaser shall have failed to observe and perform each and
every one of the terms, covenants, promises and agreements on its part to be
observed and performed under this Agreement; or (ii) any representation or
warranty made by Purchaser shall prove untrue in any material respect; or (iii)
there shall be a filing by or against Purchaser of a petition in bankruptcy or
insolvency or reorganization or the appointment of a receiver or trustee due to
insolvency, or the making by Purchaser of an assignment for the benefit of
creditors, or the filing of a petition or arrangement by Purchaser, or in the
event of any similar act or occurrence, Purchaser admits in writing its
inability to pay its debts as they mature; or (iv) Purchaser shall fail to
promptly remit pursuant to Sections 3(a) or 11 all sums payable hereunder.
18. REMEDIES.
a. BY PURCHASER. Upon the occurrence of any event of default
by Seller, Purchaser shall give Seller notice thereof and Seller shall have (A)
with respect to a default arising under clause (i) or (ii) of Section 17(a)
hereof thirty (30) days within which to cure such default or within which to
commence such judicial or other appropriate action as will efficiently and
effectively remedy such default; and (B) with respect to a default arising under
clause (iv) of Section 17(a) hereof ten (10) days within which to cure such
default; and (C) with respect to a default arising under clause (iii) of Section
17(a) hereof, sixty (60) days within which to obtain the dismissal or discharge
of any such proceeding. Upon failure by Seller to timely cure any event of
default by it, any and all Purchasers shall have the option to: (i) purchase the
interest of Seller at the purchase price set forth in Section 13(e) in their
prorata share; (ii) with respect to (C) of this Section 18(a) above, after
expiration of the sixty day period, any and all Purchasers shall automatically
succeed to all rights, titles, status and responsibilities which Seller may have
regarding the holding and servicing of the Loan, may exercise all of the powers
8
<PAGE>
hereinabove granted to Seller, have the option to designate any one Purchaser on
behalf of all Purchasers or any person or firm in its discretion to exercise
such powers on behalf of all Purchasers and, in such event, the Loan and all
books and records thereof shall be delivered to a Purchaser or its designee, as
applicable, together with necessary or proper assignments, transfers and
documents of authority; and/or (iii) exercise any and all of the remedies to
which Purchaser may be entitled at law or equity. Seller hereby indemnifies
Purchaser from any and all loss, damage or expenses (including, but not limited
to reasonable attorneys' fees) which Purchaser may sustain or incur by reason of
or in consequence of the exercise of its remedies upon any event of default by
Seller pursuant to this Section 18(a) other than direct costs incurred in
connection with any purchase of Seller's interest.
b. BY SELLER. Upon the occurrence of any event of default by
Purchaser, Seller shall give Purchaser notice thereof and Purchaser shall have
(A) with respect to a default arising under clause (i) or (ii) of Section 17(b)
hereof thirty (30) days within which to cure such default or within which to
commence such judicial or other appropriate action as will efficiently and
effectively remedy such default; and (B) with respect to a default arising under
clause (iv) of Section 17(b) hereof ten (10) days within which to cure such
default; and (C) with respect to a default arising under clause (iii) of Section
17(b) hereof, sixty (60) days within which to obtain the dismissal or discharge
of any such proceeding. Upon failure by Purchaser to timely cure any event of
default by it, Seller shall have the option to: (i) purchase the interest of
Purchaser at the purchase price set forth in Section 13(e); (ii) with respect to
(C) of this Section 18(b) above, after expiration of the sixty day period,
Seller shall automatically succeed to all rights, titles, status and
responsibilities which Purchaser may have regarding the holding and servicing of
the Loan, may exercise all of the powers hereinabove granted to Purchaser, have
the option to designate itself or any person or firm in its discretion to
exercise such powers and, in such event, the Loan and all books and records
thereof shall be delivered to Seller or its designee, as applicable, together
with necessary or proper assignments, transfers and documents of authority;
and/or (iii) exercise any and all of the remedies to which Seller may be
entitled at law or equity. Purchaser hereby indemnifies Seller from any and all
loss, damage or expenses (including, but not limited to reasonable attorneys'
fees) which Seller may sustain or incur by reason of or in consequence of the
exercise of its remedies upon any event of default by Purchaser pursuant to this
Section 18(b) other than direct costs incurred in connection with any purchase
of Purchaser's interest.
19. NO WAIVER OR AMENDMENT UNLESS IN WRITING. No waiver or modification
of any provision of this Agreement nor any termination of this Agreement shall
be effective unless in writing and signed by the party against which the waiver,
modification or termination is sought to be enforced, nor shall any waiver be
applicable except in the specific instance for which it is given.
20. NOTICE. All notices, demands, requests, consents, approvals or
other communications (collectively, "Notices") desired or required to be given
under this Agreement shall be in writing, and, any law or statute to the
contrary notwithstanding, shall be effective for any purpose if given or served
by prepaid certified or registered mail, return receipt requested, addressed as
follows. If to Purchaser to: to the address shown on the signature page hereto.
If to Seller, to: American Physicians Service Group, Inc., 1301 Capital of Texas
Highway, Suite C-300, Austin, Texas 78746, Attention: Duane Boyd. All Notices
shall be deemed given or served on the earlier to occur of actual receipt or the
second business day after being deposited in the United States mail, postage
prepaid in the manner previously specified. Any party to this Agreement may
change the address to which Notice shall be delivered to him or it and his or
its representatives by notice in accordance with this Section 20. As used in
this Agreement, the term "business day" shall mean any day on which Seller is
open for business with the general public.
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<PAGE>
21. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
22. EXPENSES OF ENFORCEMENT. In the event this Agreement is placed in
the hands of an attorney for enforcement, the prevailing party shall reimburse
the non-prevailing party for all reasonable expenses incurred thereby, including
reasonable costs and attorneys' fees.
23. ENTIRE UNDERSTANDING; COUNTERPARTS. This Agreement constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and may be executed by one or more of the parties in several counterparts, each
of which shall be deemed an original with respect to the party so signing, but
all of which together shall constitute one and the same instrument.
24. SUCCESSORS; GOVERNING LAW. This Agreement shall be binding upon and
shall inure to the benefit of the legal representatives, successors and assigns
of the respective parties hereto and shall be governed by and interpreted in
accordance with the law of the State of Texas.
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<PAGE>
SIGNATURE PAGES
PARTICIPATION AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Participation
Agreement as of the date first set forth herein.
"Seller"
AMERICAN PHYSICIANS SERVICE GROUP, INC.,
a Texas corporation
By:
Name:
Title:
"Purchaser"
Address for Notice
c/o American Physicians Service Group, Inc. /s/ Richard J. Clark
1301 Capital of Texas Hwy. ---------------------
Suite C-300 Richard J. Clark
Austin, Texas 78746
Address for Notice: DUANE K. BOYD, JR. TRUST
c/o American Physicians Service Group, Inc.
1301 Capital of Texas Hwy.
Suite C-300 By /s/ Dunane K. Boyd, Jr.
---------------------------
Austin, Texas 78746 Duane K. Boyd, Jr., Trustee
Address for Notice:
c/o American Physicians Service Group, Inc. /s/ Robert L. Myer
1301 Capital of Texas Hwy. -------------------
Suite C-300 Robert L. Myer
Austin, Texas 78746
Address: J. A. MURPHY DESCENDANTS' TRUST
c/o American Physicians Service Group, Inc.
1301 Capital of Texas Hwy. By: Bank of Bermuda, Trustee
Suite C-300
Austin, Texas 78746 By: /s/ Robert C H Masters
Name: Robert C.H. Masters
Title: Trust Manager
S-1
<PAGE>
Address:
c/o American Physicians Service Group, Inc. /s/ William A. Searles
1301 Capital of Texas Hwy. -----------------------
Suite C-300 William A. Searles
Austin, Texas 78746
Address:
c/o American Physicians Service Group, Inc. /s/ Kenneth S. Shifrin
1301 Capital of Texas Hwy. -----------------------
Suite C-300 Kenneth S. Shifrin
Austin, Texas 78746
Address:
c/o American Physicians Service Group, Inc. /s/ Samuel Granett
1301 Capital of Texas Hwy. -------------------
Suite C-300 Saumel Granett
Austin, Texas 78746
Address:
c/o American Physicians Service Group, Inc. /s/ William H. Hayes
1301 Capital of Texas Hwy. ---------------------
Suite C-300 William H. Hayes
Austin, Texas 78746
Address:
c/o American Physicians Service Group, Inc. /s/ H. J. Howard III
1301 Capital of Texas Hwy. ---------------------
Suite C-300 H. J. Howard III
Austin, Texas 78746
S-2
<PAGE>
EXHIBIT A
REAL PROPERTY
Tract 1: A 0.8800 acre tract now known as Lot 4, Block B, New City Block 17305,
OAKWELL FARMS, UNIT 7B, PLANNED UNIT DEVELOPMENT, City of San Antonio, Bexar
County, Texas, according to plat thereof recorded in Volume 9535, Page 203, Deed
and Plat Records of Bexar County, Texas.
Tract 2: All that certain tract or parcel of land, containing 1.6756 acres, more
or less, being out of the Elijah Alcorn Survey, Abstract No. l, situated in Fort
Bend County, Texas. Said 1.6756 acres being all of Commercial Reserve "F" and
part of Commercial Reserve "D" of the Replat of the Amending Plat for Edgewater,
Section Two (2), according to the map or plat thereof recorded in Slide No.
1353/A of the Plat Records of Fort Bend County, Texas. Said 1.6756 acres being
more particularly described by metes and bounds in Exhibit "A-1" attached hereto
and made a part hereof; together with those nonexclusive easement rights
described in that Ingress and Egress Easement, recorded in Volume 2364, Page
1480 of the County Clerk Official Records of Fort Bend County, Texas, and those
easement rights reserved in that deed recorded in Volume 2364, Page 1452 of the
County Clerk Official Records of Fort Bend County, Texas.
Tract 3: A tract or parcel of land being 0.2008 acres, more or less, located in
the Elijah Alcorn League Survey, Abstract No. l, being out of Commercial Reserve
"D" of the Replat of the Amending Plat for Edgewater, Section Two (2), according
to the map or plat thereof recorded in Slide No. 1353/A of the Plat Records of
Fort Bend County, Texas. Said 0.2008 acres being more particularly described by
metes and bounds in Exhibit "B-1" attached hereto and made a part hereof.
Tract 4: Lot 2A, Block "B", of RESUBDIVISION OF LOT 2, BLOCK "B" MILWOOD SECTION
SIX, a subdivision in Travis County, Texas, according to the map or plat, of
record in Volume 95, Page 231, of the Plat Records of Travis County, Texas.
Tract 5: Lot 2B, Block "B", of RESUBDIVISION OF LOT 2, BLOCK "B" MILWOOD SECTION
SIX, a subdivision in Travis County, Texas, according to the map or plat, of
record in Volume 95, Page 231, of the Plat Records of Travis County, Texas.
<PAGE>
EXHIBIT B
1. Promissory Note (Line of Credit)
2. Deed of Trust (Security Agreement, Assignment of Leases and Rents and
Financing Statement)
3. Security Agreement
4. Financing Statement
<PAGE>
EXHIBIT C
PARTICIPATION CERTIFICATE
This Participation Certificate certifies that ("Participant") has an
interest of the following percentage and equal to the given amount in the
subject loan which has a principal balance as shown, made by American Physicians
Service Group, Inc., a Texas corporation ("Seller") which is described in a
certain Participation Agreement between Participant and Seller dated March ,
1998 ("Agreement").
Percentage Interest Participant's Loan Amount Current Principal Balance
The Participant shall receive for its Percentage Interest in the Loan,
the Percentage Amount listed above of any principal paid or prepaid pursuant to
the Agreement.
Dated: American Physicians Service Group, Inc.,
a Texas corporation
By:
Name:
Title:
<PAGE>
EXHIBIT D
PURCHASER PERCENTAGE SCHEDULE
Purchaser's Name Percentage Interest
Richard J. Clark .50%
Duane K. Boyd, Jr. Trust 2.50%
Robert L. Myer 2.25%
J. A. Murphy Descendants' Trust 1.00%
William A. Searles 1.30%
Kenneth S. Shifrin 1.50%
Samuel Granett .50%
William H. Hayes 1.00%
H. J. Howard III .25%
Exhibit 10.53
REVOLVING CREDIT LOAN AGREEMENT
between
AMERICAN PHYSICIANS SERVICE GROUP, INC.,
as Borrower
and
NATIONSBANK OF TEXAS, N.A.,
as Lender
February 10, 1998
<PAGE>
REVOLVING CREDIT LOAN AGREEMENT
Table of Contents
Page
SECTION 1 DEFINITION OF TERMS 1
1.01. Definitions 1
1.02 Time References 7
1.03 Other References 7
1.04 Accounting Principles 7
SECTION 2 THE REVOLVING CREDIT LOAN 7
2.01. The Revolving Credit Loan and Revolving Credit Commitment 7
2.02. Manner of Borrowing 8
2.03. Fees 8
2.04. Notes and Note Payments 8
2.05. Interest 9
2.06. Taxes 10
2.07. Capital Adequacy 10
SECTION 3 CONDITIONS PRECEDENT 10
3.01. Initial Borrowing 10
3.02. All Borrowings 11
SECTION 4 REPRESENTATIONS AND WARRANTIES 11
4.01. Corporate Existence, Good Standing, and Authority 11
4.02 Subsidiaries and Names 11
4.03. Authorization and Contravention 11
4.04. Enforceable Obligations 11
4.05. Financial Condition 12
4.06. No Default 12
4.07. Material Agreements 12
4.08. No Litigation 12
4.09. Use of Proceeds; Margin Stock 12
4.10. Taxes 12
4.11. Environmental Matters 12
4.12. Employee Plans 12
4.13. Properties; Liens 13
4.14. Government Regulations 13
4.15. Transactions with Affiliates 13
4.16. Debt 13
4.17. Leases 13
4.18. Insurance 13
4.19. Labor Matters 13
4.20. Intellectual Property 14
4.21. Pledged Shares 14
4.22. Full Disclosure 14
4.23. Representations and Warranties 14
SECTION 5 AFFIRMATIVE COVENANTS 14
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5.01. Financial Statements, Reports and Documents 14
5.02. Use of Credit 16
5.03. Payment of Taxes and Other Indebtedness 16
5.04. Books and Records; Access 16
5.05. Compliance with Law 16
5.06. Payment of Obligations 16
5.07. Expenses 16
5.08. Maintenance of Existence, Assets, and Business 16
5.09. Insurance 17
5.10. Environmental Matters 17
5.11. Further Assurances 17
5.12. INDEMNITY BY BORROWER 17
SECTION 6 NEGATIVE COVENANTS 18
6.01. Limitation on Sale; Negative Pledge18
6.02. Limitation on Indebtedness18
6.03. Limitation on Disposition of Assets18
6.04. Liquidity Maintenance 19
6.05. Distributions 19
6.06. Net Worth 19
6.07. Repurchase of Borrower Stock 19
6.08. Transaction with Affiliates 20
6.09 Mergers, Consolidations, and Dissolutions 20
SECTION 7 EVENTS OF DEFAULT 20
7.01. Events of Default 20
7.02. Remedies Upon Event of Default 21
7.03. Performance by Lender 22
SECTION 8 MISCELLANEOUS 22
8.01. Accounting Reports 22
8.02. Waiver 22 8.03. Notices 22
8.04. Governing Law 22
8.05. Invalid Provisions 22
8.06. Maximum Interest Rate 23
8.07. Nonliability of Lender 23
8.08. Offset 23
8.09. Successors and Assigns 23
8.11. Headings 23
8.12. Survival 23
8.13. Participations 23
8.14. No Third Party Beneficiary24
8.15. Waiver of Jury Trial 24
8.16. Multiple Counterparts 24
8.17. Arbitration 24
8.18 Limitation on Damages 25
ii
<PAGE>
Schedules
Schedule 3.01 Closing Conditions
Schedule 4.01 Jurisdiction Where Doing Business
Schedule 4.02 Subsidiaries
Schedule 4.11 Environmental Matters
Schedule 4.12 Employee Plans
Schedule 4.13 Liens
Schedule 4.15 Transactions With Affiliates
Schedule 4.16 Debt
Schedule 4.17 Leases
Schedule 4.20 Intellectual Property
Exhibits
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Pledge Agreement
Exhibit C Notice of Borrowing
iii
<PAGE>
REVOLVING CREDIT LOAN AGREEMENT
This Revolving Credit Loan Agreement is entered into as of the day of
February, 1998 by and between AMERICAN PHYSICIANS SERVICE GROUP, INC., a Texas
corporation ("Borrower"), and NATIONSBANK OF TEXAS, N.A., a national banking
association ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender provide Borrower with a
revolving credit loan facility to fund potential acquisitions, investments, and
stock repurchases and Lender is willing to provide such a facility to Borrower
upon the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other valuable consideration, the parties hereto agree as
follows:
SECTION 1
DEFINITION OF TERMS
1.01. DEFINITIONS . As used in this Agreement, all exhibits and
schedules attached and in any note, certificate, report or other Loan Documents
made or delivered pursuant to this Agreement, the following terms shall have the
respective meanings assigned to them in this Section 1 or in the section or
recital referred to below (unless otherwise specifically defined in such Loan
Document):
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, such Person.
"Agreement" means this Revolving Credit Loan Agreement, including the
schedules and exhibits hereto, as the same may be renewed, extended, amended,
restated, or modified from time to time.
"Base Rate" means the variable rate of interest established from time
to time by Lender as its general reference rate of interest (which rate of
interest may not be the lowest rate charged by Lender on similar loans). Each
change in the Base Rate shall become effective without prior notice to Borrower
automatically as of the opening of business on the date of such change in the
Base Rate.
"Borrower" is defined in the preamble of this Agreement and includes
any successor or assign consented to by Lender.
"Borrowing" means any amount disbursed under the Loan Documents by
Lender to or on behalf of Borrower.
"Borrowing Date" means the date on which a Borrowing is to be disbursed
under Sections 2.01.
"Business Day" means any day other than a Saturday, Sunday or day on
which national banks are authorized to be closed under the laws of the State of
Texas.
"Capital Lease" means any lease or sublease that is required by GAAP to
be capitalized on a balance sheet.
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"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. ss.ss.9601 et seq.
" Code" means the Internal Revenue Code of 1986, as amended, and all
regulations promulgated and rulings issued thereunder.
"Collateral" is defined in the Pledge Agreement.
"Company" means Borrower and each of its Subsidiaries.
"Collateral Documents" means all security agreements, guaranties,
pledge agreements, and other agreements or documents executed or delivered to
secure repayment of all or any part of the Obligation.
"Consolidated Net Worth" means, at any time and for any Person, the sum
of its stockholder's equity.
"Current Financials" means, unless otherwise specified, either:
(a) Except as provided in clause (b) below, the (i) Companies'
consolidated Financials for the year ended December 31, 1996, and (ii)
Companies' consolidated Financials for the nine months ended September
30, 1997; or
(b) At any time after annual Financials are first delivered
under Section 5.01, the (i) Companies' annual Financials then most
recently delivered to Lender under Section 5.01(a) and (ii) Companies'
quarterly Financials then most recently delivered to Lender under
Section 5.01(b).
"Debt" means, for any Person, at any time, and without duplication, the
sum of (a) all obligations for borrowed money, (b) all obligations evidenced by
bonds, debentures, notes, or similar instruments, (c) all obligations to pay the
deferred purchase price of property or services except trade accounts payable
arising in the ordinary course of business, (d) all obligations arising under
acceptance facilities or facilities for the discount or sale of accounts
receivable, (e) all direct or contingent obligations in respect of letters of
credit, (f) liabilities secured (or for which the holder of the Debt has an
existing Right, contingent or otherwise, to be so secured) by any Lien existing
on property owned or acquired by that Person, (g) Capital Leases, plus (h) all
guaranties, endorsements, and other contingent obligations for Debt of others.
"Debtor Laws" means all applicable liquidation, conservatorship,
bankruptcy, arrangement, receivership, insolvency, reorganization or similar
laws from time to time in effect affecting the rights of creditors generally.
"Default" means the occurrence of any event set forth in Section 7.01
which, upon expiration of the applicable grace period set forth therein, would
constitute an Event of Default.
"Distribution" means, with respect to any shares of any capital stock
or other equity securities issued by a Person (a) the retirement, redemption,
purchase, or other acquisition for value of those securities, (b) the
declaration or payment of any dividend on or with respect to those securities,
(c) any loan or advance by that Person to, or other investment by that Person
in, the holder of any of those securities, and (d) any other payment by that
Person with respect to those securities.
2
<PAGE>
"Environmental Investigation" means any environmental site assessment,
investigation, audit, compliance audit, or compliance review conducted at any
time or from time to time whether at the request of Lender, upon the order or
request of any Governmental Authority, or at the voluntary instigation of any
Company concerning any Real Property or the business operations or activities of
any Company, including, without limitation (a) air, soil, groundwater, or
surface-water sampling and monitoring, and (b) preparation and implementation of
any closure or remedial plans.
"Environmental Law" means any applicable Governmental Requirement that
relates to protection of the environment or to the regulation of any Hazardous
Substances, including, without limitation, CERCLA, the Hazardous Materials
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. ss. 6901 et seq.), the Clean Water Act (33 U.S.C. ss.
1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), the Emergency
Planning and Community Right-to-Know Act (42 U.S.C. ss. 11001 et seq.), the Safe
Drinking Water Act (42 U.S.C. ss. 201 and ss. 300f et seq.), the Rivers and
Harbors Act (33 U.S.C. ss. 401 et seq.), the Oil Pollution Act (33 U.S.C. ss.
2701 et seq.), analogous state, local, and foreign Governmental Requirements,
and any analogous future enacted or adopted Governmental Requirement.
"Environmental Liability" means any liability, loss, fine, penalty,
charge, lien, damage, cost, or expense of any kind to the extent that it results
(a) from the violation of any Environmental Law, (b) from the Release or
threatened Release of any Hazardous Substance, or (c) from actual or threatened
damages to natural resources.
"Environmental Permit" means any permit, or license, from any
Governmental Authority that is required under any Environmental Law for the
lawful conduct of any business, process, or other activity.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" means any Person that, for purposes of Title IV of
ERISA, is a member of either Borrower's controlled group or is under common
control with that Borrower within the meaning of Section 414 of the Code (which
provisions are deemed by this agreement to apply to Foreign Persons).
"Event of Default" is defined in Section 7.01.
"Excess Interest Amount" is defined in Section 2.05(d).
"Financials" of a Person means balance sheets, profit and loss
statements, reconciliations of capital and surplus, and statements of cash flow
prepared (a) according to GAAP (subject to year-end audit adjustments with
respect to interim Financials) and (b) in comparative form to prior year-end
figures or corresponding periods of the preceding fiscal year or other relevant
period, as applicable.
"GAAP" means those generally accepted accounting principles and
practices, applied on a consistent basis, which are recognized as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board and the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as of the
date the applicable Financials were prepared.
3
<PAGE>
"Governmental Authority" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over any Company or any of its
business, operations or properties.
"Governmental Requirements" means all applicable statutes, laws,
treaties, ordinances, rules, regulations, orders, writs, injunctions, decrees,
and judgments and legally binding opinions and interpretations of any
Governmental Authority.
"Guarantors" means APS Realty, Inc., a Texas corporation and Syntera
Technologies, Inc., a Delaware corporation, together with their respective
successors and assigns, and any other Person who may from time to time guarantee
the Obligation, or any part thereof.
"Hazardous Substance" means any substance that is designated, defined,
classified, or regulated as a hazardous waste, hazardous material, pollutant,
contaminant, explosive, corrosive, flammable, infectious, carcinogenic,
mutagenic, radioactive, or toxic or hazardous substance under any Environmental
Law, including, without limitation, any hazardous substance within the meaning
of ss. 101(14) of CERCLA.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance or title retention arrangement, or any other interest in property
designed to secure the repayment of Debt, whether arising by agreement or under
any statute or law.
"Loan Documents" means this Agreement, the Note, the Collateral
Documents, and any agreements, documents (and with respect to this Agreement,
and such other agreements and documents, any renewals, extensions, amendments or
supplements thereto) or certificates at any time executed or delivered pursuant
to the terms of this Agreement.
"Material Adverse Event" means any circumstance or event that,
individually or collectively, is reasonably expected to result in any (a)
material impairment of (i) the ability of any Company to perform its payment or
other obligations under any Loan Document, or (ii) the ability of Lender to
enforce any of those obligations or any of its Rights under the Loan Documents,
(b) material and adverse effect on the business, assets, operations, financial
or other condition, or prospects of any Company (individually) or of the
Companies (as a whole), or (c) Event of Default or Potential Default; provided
that any default by Consolidated Eco-Systems, Inc. (formerly known as Exsorbet
Industries, Inc. or its subsidiaries) under any of their agreements with
Borrower shall not be a Material Adverse Event.
"Maximum Rate" means the highest nonusurious rate of interest (if any)
permitted from day to day by applicable law. Lender hereby notifies and
discloses to Borrower that, for purposes of Tex. Rev. Civ. Stat. Ann. art. 5069,
as it may from time to time be amended, the "applicable rate ceiling" shall be
the "weekly" ceiling from time to time in effect as limited by article 5069(b);
provided, however, that to the extent permitted by applicable law, Lender
reserves the right to change the "applicable rate ceiling" from time to time by
further notice and disclosure to Borrower.
"Multiemployer Plan" means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code (or any similar type
of plan established or regulated under the laws of any foreign country) to which
any Company or any ERISA Affiliate is making, or has made, or is accruing, or
has accrued, an obligation to make contributions.
"Note" means the Revolving Credit Note, substantially in the form of
Exhibit A attached, executed by Borrower and delivered pursuant to the terms of
this Agreement, together with any renewals, extensions or modifications.
"Notice of Borrowing" is defined in Section 2.02.
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"Obligation" means all present and future indebtedness, obligations,
and liabilities and all renewals and extensions thereof, or any part thereof,
now or hereafter owed to Lender by Borrower, whether arising pursuant to any of
the Loan Documents, or otherwise, and all renewals and extensions thereof,
together with all interest accruing thereon and costs, expenses and attorneys'
fees incurred in the enforcement or collection thereof.
"OSHA" means the Occupational Safety and Health Act of 1970, 29 U.S.C.
ss. 651 et seq.
"Permitted Debt" means each of the following;:
(a) The existing Debt that is described on Schedule 4.17 and
all renewals, extensions, amendments, modifications, and refinancings of (but
not any principal increases after the date of this agreement to) any of that
Debt.
(b) The Obligation and any guaranties of it delivered under
this agreement.
(c) Debt and Capital Lease obligations incurred by any Company
to acquire, construct, or improve assets that never exceed $500,000 total
principal amount outstanding for all of the Companies together with any
guaranties of such obligations given by any Company, and renewals, extensions,
amendments, modifications, and refinancings of that Debt and those obligations
or guaranties subject to the foregoing limitations of this clause (c).
(d) Trade payables, accrued taxes, and other liabilities that
do not constitute Debt; and endorsements of negotiable instruments in the
ordinary course of business.
"Permitted Liens" means, at any time, the following:
(a) The existing Liens that are described on Schedule 4.14 (to
the extent that such schedule does not indicate they are to be
extinguished as a condition precedent to extensions of credit under
this agreement) and all renewals, extensions, amendments, and
modifications of any of them to the extent that the total principal
amount each individually secures never exceeds the total principal
amount secured by it on the date of this agreement.
(b) Liens in favor of Lender.
(c) Any interest or title of a lessor in assets being leased
under an operating lease that does not constitute Debt.
(d) Rights of setoff or recoupment and banker's Liens.
(e) Pledges or deposits (that shall not cover any Collateral)
made to secure payment of workers' compensation, unemployment
insurance, or other forms of governmental insurance or benefits or to
participate in any fund in connection with workers' compensation,
unemployment insurance, pensions, or other social security programs.
(f) Good-faith pledges or deposits (that shall not cover any
Collateral) (i) for 10% or less of the amounts due under (and made to
secure) any Company's performance of bids, tenders, contracts (except
for the repayment of borrowed money), or leases, or (ii) made to secure
statutory obligations, surety or appeal bonds, indemnity, performance,
or other similar bonds, or customs or brokers liens benefitting any
Company in the ordinary course of its business.
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(g) Zoning and similar restrictions on the use of (and
easements, restrictions, covenants, title defects, and similar
encumbrances on) real property that do not materially impair the use of
the real property and that are not violated by existing or proposed
structures or land use.
(h) If no Lien has been filed in any jurisdiction or agreed to
(i) claims and Liens for Taxes not yet due and payable, (ii) mechanic's
Liens and materialman's Liens for services or materials (real or
personal) and similar Liens incident to construction and maintenance of
real property, in each case for which payments is not yet due and
payable, (iii) landlord's Liens for rental not yet due and payable, and
(iv) Liens of warehousemen, carriers, and vendors and similar Liens
securing obligations that are not yet due and payable.
(i) Any of the following to the extent that the validity or
amount is being properly contested in good faith, reserve or other
appropriate provision (if any) required by GAAP has been made, levy and
execution has not issued or continues to be stayed, they do not
individually or collectively detract materially from the value of the
property of the Person in question or materially impair the use of that
property in the operation of its business, and (other than any such
Liens given statutory priority) they do not cover any Collateral: (i)
claims and Liens for Taxes; (ii) claims and Liens upon, and defects of
title to, real or personal property, including any attachment of
personal or real property or other legal process before adjudication of
a dispute on the merits; (iii) claims and Liens of mechanics,
materialmen, warehousemen, carriers, landlords, vendors, or other like
Liens; (iv) Liens incident to construction and maintenance of real
property; and (v) adverse judgments, attachments, or orders on appeal
for the payment of money.
(j) Liens that secure any of the Debt described in Schedule
4.16 and any renewal, extension, amendment, or modification of those
Liens so long as those Liens, renewals, extensions, amendments, and
modifications never cover any Collateral.
"Person" means any individual, entity, or Governmental Authority.
"Pledge Agreement" means that certain Pledge Agreement, substantially
in the form of Exhibit B attached hereto, executed by Borrower in favor of
Lender, and any renewals, extensions, amendments, modifications or restatements
thereof.
"Pledged Shares" is defined in the Pledge Agreement.
"Prime" means Prime Medical Services, Inc., a Delaware corporation.
"Principal Debt" means, at any time, the unpaid principal balance of
Borrowings.
"Real Property" means any land, buildings, fixtures, and other
improvements to land now or in the future directly or indirectly owned by any
Company, leased to or otherwise operated by any Company, or subleased by any
Company to any other Person.
"Revolving Credit Commitment" is defined in Section 2.01.
"Rights" mans rights, remedies, powers, privileges, and benefits.
"Solvent" means, as to any Person, that (a) the total fair market value
of its assets exceeds its liabilities, (b) it has sufficient cash flow to enable
it to pay its Debts as they mature, and (c) it does not have unreasonably small
capital to conduct its businesses.
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"Subsidiary" of any Person means any corporation, partnership, or other
entity of which 50% or more (in number of votes) of the stock (or equivalent
interests) is owned of record or beneficially, directly or indirectly, by that
Person.
"Taxes" means all present and future taxes (including, without
limitation, gross receipts, sales, use, consumption, property, income,
franchise, capital, occupational, value added and excise taxes), withholdings,
assessments, levies, imposts, customs, and other duties, fees or charges, of any
nature whatsoever, together with any penalties, fines or interest thereon or
other additions thereto imposed, withheld, levied or assessed by any taxing
authority or Governmental Authority or by any international authority, and
"Tax," "Taxation," and cognate expressions shall be construed accordingly.
"Termination Date" means the earlier of (i) February , 2001 or (ii) the
date Lender's commitment to fund Borrowings is terminated pursuant to Section
7.02.
1.02 TIME REFERENCES . Time references (e.g., 9:30 a.m.) are to time in
Austin, Texas. In calculating a period from one date to another, the word "from"
means "from and including" and the word "to" or "until" means "to but
excluding."
1.03 OTHER REFERENCES . Where appropriate, the singular includes the
plural and vice versa, and words of any gender include each other gender.
Heading and caption references may not be construed in interpreting provisions.
Monetary references are to currency of the United States of America. Section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used. References to "telecopy,"
"facsimile," "fax," or similar terms are to facsimile or telecopy transmissions.
References to any Person include that Person's heirs, personal representatives,
successors, trustees, receivers, and permitted assigns. References to any law
include every amendment or supplement to it, rule and regulation adopted under
it, and successor or replacement for it. References to any Loan Document or
other document include every renewal and extension of it, amendment and
supplement to it, and replacement or substitution for it.
1.04 ACCOUNTING PRINCIPLES . GAAP determines all accounting and
financial terms and compliance with financial reporting covenants. GAAP in
effect on the date of this agreement determines compliance with financial
covenants. Otherwise, all accounting principles applied in a current period must
be comparable in all material respects to those applied during the preceding
comparable period other than changes concurred in by the Companies' independent
public accountants.
SECTION 2
THE REVOLVING CREDIT LOAN
2.01. THE REVOLVING CREDIT LOAN AND REVOLVING CREDIT COMMITMENT .
(a) COMMITMENT AND BORROWINGS. Subject to the terms and
conditions of this Agreement, including the conditions precedent in Sections
2.01(b), 3.01 and 3.02, Lender agrees to extend to Borrower, from the date
hereof through the Termination Date, a revolving line of credit which shall not
exceed at any one time outstanding the sum of $10,000,000 (the "Revolving Credit
Commitment"). Within the limits of this Section 2.01, during such period,
Borrower may borrow, repay and reborrow in accordance with this Agreement. Each
advance hereunder is called a "Borrowing" and all borrowings hereunder are
collectively referred to as the "Loan." Borrower shall have the right, upon
three (3) Business Days' prior written notice to Lender, to permanently reduce
the unutilized portion of the Revolving Credit Commitment.
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(b) LIQUIDITY REQUIREMENTS. As a condition to Lender's
obligation to advance any Borrowing hereunder, Borrower must be in compliance
with the requirements of Section 6.04 hereof related to maintenance of liquidity
and the Collateral Maintenance provisions of the Pledge Agreement.
(c) USE OF PROCEEDS. Borrower shall use the proceeds of the
Loan to fund potential acquisitions and investments, to repurchase up to
$1,000,000 market value of its stock, for general corporate purposes, and to
guarantee a loan from Lender to William A. Searles, not to exceed $85,000
outstanding principal amount. Borrower shall not use proceeds of any Borrowing
(i) to purchase or carry any "margin securities" (as such term is defined in
Regulation U of the Board of Governors of the Federal Reserve System), (ii) for
any unlawful purpose, or (iii) for the purpose of making any hostile tender
offer to acquire shares of stock or other equity interests in another Person.
2.02. MANNER OF BORROWING . Borrower shall give Lender prior written
notice on or before 10:00 a.m. (Austin, Texas time) on any day a Borrowing is
requested (a "Notice of Borrowing") of each requested Borrowing in the form
attached as Exhibit C and shall specify the aggregate amount and requested date
of such Borrowing. Each Borrowing shall be in an amount of $100,000.00 or an
integral multiple thereof. Not later than 2:00 p.m. on the date specified,
subject to the terms and conditions of this Agreement, Lender shall make
available to Borrower, at Lender's offices in Austin, Texas, the amount of such
requested Borrowing in immediately available funds.
2.03. FEES . In connection with Lender's agreement to enter into this
Agreement and fund the Loan hereunder, Borrower has committed to pay to Lender
an up-front commitment fee in the amount of $37,500 which would be due and
payable upon the execution of this Agreement. In addition, from and after the
Closing Date, Borrower shall pay to Lender an unused fee, payable as it accrues
on the last day of each March, June, September, and December (commencing on
March 31, 1998) and on the Termination Date. Each payment of the unused fee is
equal to the following, determined for the calendar quarter (or portion of the
calendar quarters commencing on the date of this Agreement or ending on the
Termination Date) preceding and including the date it is due: the product of (i)
1/4 of 1% per annum, times (ii) the amount by which the average daily Revolving
Credit Commitment exceeds the sum of the average daily Principal Debt, times
(iii) a fraction with the number of days in the applicable quarter or portion of
it as the numerator and 360, as the denominator. Borrower acknowledges that the
commitment fee payable hereunder is a bona fide commitment fee and is intended
as reasonable compensation to Lender for committing to make funds available to
Borrower as described herein and for no other purposes.
2.04. NOTES AND NOTE PAYMENTS .
(a) NOTE. The Borrowings made under Section 2.01 by Lender
shall be evidenced by the Note in form and substance satisfactory to
Lender executed by Borrower, which Note shall (i) be dated the date
hereof, (ii) be in the maximum amount of $10,000,000.00, (iii) be
payable to the order of Lender, and (iv) bear interest in accordance
with Section 2.05.
(b) PAYMENTS.
(1) PRINCIPAL AND INTEREST. The unpaid principal of
the Note, and all accrued but unpaid interest thereon, shall be due and
payable on the Termination Date. Interest shall also be due and payable
quarterly on the last day of each March, June, September, and December,
commencing March 31, 1998.
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(2) OPTIONAL PREPAYMENTS. Borrower shall have the
right, from time to time upon three (3) Business Days' written notice
to Lender, and without penalty, to prepay the Note, in whole or in part
upon the payment of accrued interest on the amount prepaid to and
including the date of payment.
(3) MANNER AND APPLICATION OF PAYMENTS. All payments
and prepayments by Borrower on account of principal, interest, and fees
hereunder shall be made in immediately available funds. All such
payments shall be made to Lender at its office in Austin, Texas, not
later than 12:00 noon, Austin, Texas time, on the date due and funds
received after that hour shall be deemed to have been received by
Lender on the next following Business Day. If any payment is scheduled
to become due and payable on a day which is not a Business Day, such
payment shall instead become due and payable on the immediately
following Business Day and interest on the principal portion of such
payment shall be payable at the then applicable rate during such
extension. All payments made on the Note shall be credited, to the
extent of the amount thereof, in the following manner: (i) first,
against the amount of interest accrued and unpaid on the Note as of the
date of such payment; and (ii) second, against all principal due and
owing on the Note as of the date of such payment.
2.05. INTEREST .
(a) INTEREST RATE. Subject to Section 2.05(b), the unpaid principal of
each Borrowing shall bear interest from the date of advance until paid at a rate
per annum that from day-to-day equals the lesser of (a) the Base Rate in effect
from day-to-day minus 1/4 of 1% (the "Contract Rate"), or (b) the Maximum Rate.
(b) DEFAULT RATE. All past due principal of, and to the extent
permitted by applicable law, interest on, the Note shall bear interest until
paid at the lesser of (i) the Base Rate from time-to-time in effect plus three
percent (3%), or (ii) the Maximum Rate.
(c) COMPUTATION OF INTEREST RATES. Subject to applicable usury laws,
interest shall be computed at a daily rate equal to 1/360 of the applicable rate
of interest per annum for all Borrowings, unless the Maximum Rate or Base Rate
shall be in effect, in which case interest shall be computed at a daily rate
equal to 1/365 or 1/366, as appropriate, of the applicable rate of interest per
annum.
(d) RECAPTURE RATE. If, on any interest payment date, Lender does not
receive interest on the Note computed (as if no Maximum Rate limitations were
applicable) at the Contract Rate pursuant to Section 2.05(a) because the
Contract Rate exceeds or has exceeded the Maximum Rate, then Borrower shall,
upon the written demand of Lender, pay to Lender, in addition to interest
otherwise required hereunder, on each interest payment date thereafter, the
Excess Interest Amount (hereinafter defined) calculated as of such later
interest payment date; provided, however, that in no event shall Borrower be
required to pay, for any appropriate computation period, interest at a rate
exceeding the Maximum Rate effective during such period. The term "Excess
Interest Amount" means, on any date, the amount by which (a) the amount of all
interest that would have accrued before that date on the principal of the Note
(had the applicable Contract Rate at all times been in effect, without
limitation by the Maximum Rate) exceeds (b) the aggregate amount of interest
actually paid to Lender on the Note on or before that date.
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2.06. TAXES . Any and all payments by Borrower hereunder or under the
Note shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto (hereinafter referred to as "Taxes"),
excluding taxes imposed on Lender's income, and franchise taxes imposed on
Lender, by the jurisdiction under the laws of which Lender is organized or is or
should be qualified to do business or any political subdivision thereof and,
taxes imposed on Lender's income, and franchise taxes imposed on Lender by the
jurisdiction of Lender's lending office or any political subdivision thereof. If
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under the Note to Lender, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.06) Lender receives an amount equal to the sum it would have received had no
such deductions been made, (ii) Borrower shall make such deductions and (iii)
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law. Borrower will indemnify
Lender for the full amount of Taxes (including, without limitation, any Taxes
imposed by any jurisdiction on amounts payable under this Section 2.06) paid by
Lender or any liability (including penalties and interest) arising therefrom or
with respect thereto, whether or not such Taxes were correctly or legally
asserted. This indemnification shall be payable upon Lender making written
demand therefor.
2.07. CAPITAL ADEQUACY . If, after the date hereof, Lender shall have
reasonably determined that either (i) the adoption (after the date hereof) of
any applicable law, rule, regulation or guideline regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or (ii) compliance by Lender
(or any lending office of Lender) with any request or directive (issued after
the date hereof) regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency, and having
general application to lenders such as Lender, has or would have the effect of
reducing the rate of return on Lender's capital as a consequence of its or
Borrower's obligations hereunder to a level below that which Lender could have
achieved but for such adoption, change or compliance by an amount reasonably
deemed by Lender to be material, then from time to time, within five (5) days
after demand by Lender, Borrower shall pay to Lender such additional amount as
will adequately compensate Lender for such reduction, provided that Borrower
will not be required to pay any more than similarly situated customers of
Lender. Lender will notify Borrower of any event of which it has actual
knowledge, occurring after the date thereof, which will entitle Lender to
compensation pursuant to this Section 2.07. No failure by Lender to immediately
demand payment of any additional amounts payable hereunder shall constitute a
waiver of Lender's right to demand payment of such amounts at any subsequent
time.
SECTION 3
CONDITIONS PRECEDENT
3.01. INITIAL BORROWING . The obligation of Lender to advance its
initial Borrowing is subject to the conditions precedent that, on or before the
date of such Borrowing, (a) Borrower shall have paid to Lender all fees to be
received by Lender pursuant to this Agreement or any other Loan Document and (b)
Lender shall have received duly executed copies of each of the documents listed
on Schedule 3.01, each dated as of the date of such Borrowing, and each in form
and substance satisfactory to Lender.
3.02. ALL BORROWINGS . The obligation of Lender to advance any
Borrowing under this Agreement (including the initial Borrowing) shall be
subject to the conditions precedent that, as of the date of such Borrowing and
after giving effect thereto: (a) there exists no Default or Event of Default;
(b) no change that would cause a Material Adverse Effect has occurred since the
date of the Current
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Financials referenced in Section 4.05; (c) Lender shall have
received from Borrower a Notice of Borrowing dated as of the date of such
Borrowing and all of the statements contained in such Notice of Borrowing shall
be true and correct; (d) the representations and warranties contained in each of
the Loan Documents shall be true in all respects as though made on the date of
such Borrowing; (e) the Maximum Rate exceeds the Contract Rate; and (f) Borrower
has satisfied the condition precedent contained in Section 2.01(b).
SECTION 4
REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loan hereunder, Borrower represents and
warrants to Lender that:
4.01. CORPORATE EXISTENCE, GOOD STANDING, AND AUTHORITY . Each Company
is duly organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation. Except where not a Material Adverse Event, each
Company is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction where the nature and extent of its
business and properties require due qualification and good standing (each of
which jurisdictions is identified on Schedule 4.01, as supplemented from time to
time, by a supplement to that schedule that is dated, executed, and delivered by
Borrower to Lender to reflect changes in that schedule as a result of
transactions permitted by the Loan Documents). Each Company possesses all
requisite authority and power to conduct its business as is now being conducted
and as proposed under the Loan Documents to be conducted and to own and operate
its assets as now owned and operated and as proposed to be owned and operated
under the Loan Documents.
4.02 SUBSIDIARIES AND NAMES . Schedule 4.02 (as supplemented from time
to time by a supplement to that schedule that is dated, executed, and delivered
by Borrower to Lender to reflect changes in that schedule as a result of
transactions permitted by the Loan Documents), describes (a) all of the
Companies, (b) every name or trade name used by each Company during the
five-year period before the date of this agreement, and (c) every change of each
Company's name during the four month period before the date of this agreement.
All of the outstanding shares of capital stock (or similar voting interests) of
Borrower's Subsidiaries are duly authorized, validly issued, fully paid, and
nonassessable, owned of record and beneficially as described in Schedule 4.02,
free and clear of any Liens except Permitted Liens, and not subject to any
warrant, option, or other acquisition Right of any Person or subject to any
transfer restriction except restrictions described on Schedule 4.02 and those
imposed by the Loan Documents and by securities and general corporate laws.
4.03. AUTHORIZATION AND CONTRAVENTION . The execution and delivery by
each Company of each Loan Document to which it is a party and the performance by
it of its obligations under those Loan Documents (a) are within its corporate
power, (b) have been duly authorized by all necessary corporate action, (c)
require no action by or filing with any Governmental Authority (except any
action or filing that has been taken or made on or before the applicable Closing
Date), (d) do not violate any provision of its charter or bylaws, and (e) do not
violate any provision of law applicable to it or any material agreement to which
it is a party except violations that individually or collectively are not a
Material Adverse Event.
4.04. ENFORCEABLE OBLIGATIONS . The Loan Documents have been duly
executed and delivered by each Company, as appropriate, and are the legal and
binding obligations of each Company which is a party thereto, as appropriate,
enforceable in accordance with their respective terms, except as limited by
Debtor Laws.
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4.05. FINANCIAL CONDITION . Borrower has delivered to Lender copies of
the Current Financials of the Companies. The Current Financials of the Companies
are true and correct, fairly represent the consolidated financial condition of
Borrower and its Subsidiaries as of such date and have been prepared in
accordance with GAAP. The Financials of the Companies contain no material
inaccuracies. As of the date hereof, there are no obligations, liabilities or
indebtedness (including contingent and indirect liabilities) of the Companies
which are material and are not reflected in the Companies' Current Financials.
No Material Adverse Effect has occurred since the date of such Current
Financials.
4.06. NO DEFAULT . No event has occurred and is continuing which
constitutes a Default or an Event of Default.
4.07. MATERIAL AGREEMENTS . No Company is in default in any material
respect under any contract or agreement to which such Company is a party or by
which any of its properties are bound.
4.08. NO LITIGATION . Except as disclosed in writing to Lender, there
are no actions, suits or legal, equitable, arbitration or administrative
proceedings pending, or to the knowledge of Borrower threatened, against any
Company that could, if adversely determined, have a Material Adverse Effect.
4.09. USE OF PROCEEDS; MARGIN STOCK . The proceeds of the Loan will be
used by Borrower solely for the purposes specified in Section 2.01(c). Borrower
will furnish to Lender a statement in conformity with the requirements of the
Federal Reserve Form U-1 referred to in Regulation U of the Board of Governors
of the Federal Reserve System. No part of the proceeds of the Loan will be used
for any purpose which violates, or is inconsistent with, the provisions of
Regulations U or X of the Board of Governors of the Federal Reserve System.
4.10. TAXES . All tax returns required to be filed by any Company in
any jurisdiction have been filed and all taxes (including mortgage recording
taxes), assessments, fees and other governmental charges upon any Company or
upon any of its properties, income or franchises have been paid except for taxes
being contested in good faith by appropriate proceedings diligently projected.
4.11. ENVIRONMENTAL MATTERS . Except as disclosed on Schedule 4.11, as
supplemented from time to time by a supplement to that schedule that is dated,
executed, and delivered by Borrower to Lender to reflect changes in that
schedule, and is acceptable to Lender, (a) no Company has received notice from
any Governmental Authority that it has actual or potential Environmental
Liability and no Company has knowledge that it has any Environmental Liability,
which actual or potential Environmental Liability in either case constitutes a
Material Adverse Event, and (b) no Company has received notice from any
Governmental Authority that any Real Property is affected by, and no Company has
knowledge that any Real Property is affected by, any Release of any Hazardous
Substance which constitutes a Material Adverse Event.
4.12. EMPLOYEE PLANS . Except as disclosed on Schedule 4.12 or where
not a Material Adverse Event (a) no Employee Plan subject to ERISA has incurred
an "accumulated funding deficiency" (as defined in Section 302 of ERISA or
Section 512 of the Code), (b) neither any Company nor any ERISA Affiliate has
incurred liability, except for liabilities for premiums that have been paid or
that are not past due, under ERISA to the PBGC in connection with any Employee
Plan, (c) neither any Company nor any ERISA Affiliate have withdrawn in whole or
in part from participation in a Multiemployer Plan in a manner that has given
rise to a withdrawal liability under Title IV of ERISA, (d) neither Any Company
nor any ERISA Affiliate have engaged in any "prohibited transaction" (as defined
in Section 406 of ERISA or Section 4975 of the Code), (e) no "reportable event"
(as defined in Section 4043 of ERISA) has occurred excluding events for which
the notice requirement is waived under applicable
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PBGC regulations, (f) neither
any Company nor any ERISA Affiliate has any liability, or are subject to any
Lien, under ERISA or the Code to or on account of any Employee Plan, (g) each
Employee Plan subject to ERISA and the Code complies in all material respects,
both in form and operation, with ERISA and the Code, and (h) no Multiemployer
Plan subject to the Code is in reorganization within the meaning of Section 418
of the Code. None of the matters disclosed on Schedule 4.12 give rise to any
other "reportable events," as defined above.
4.13. PROPERTIES; LIENS . Each Company has good and marketable title to
all its property reflected on the Current Financials as being owned by it except
for encumbrances described on Schedule 4.13 and property that is obsolete or
that has been disposed of in the ordinary course of business between the date of
the Current Financials and the date of this agreement or, after the date of this
agreement, as permitted by Section 6.09 and otherwise as disclosed on Schedule
4.13. Except as described on Schedule 4.13 no Company owns any Real Property. No
Lien exists on any property of any Company (a) on the date of this agreement
except the existing Liens described on Schedule 4.13 and (b) at anytime after
the date of this agreement except Permitted Liens. Except as otherwise disclosed
on Schedule 4.13, no Company is party or subject to any agreement, instrument,
or order which in any way restricts its ability to allow Liens to exist upon any
of its assets except the Loan Documents.
4.14. GOVERNMENT REGULATIONS . No Company is subject to regulation
under the Investment Company Act of 1940 or the Public Utility Holding Company
Act of 1935.
4.15. TRANSACTIONS WITH AFFILIATES . Except as otherwise disclosed on
Schedule 4.15 or permitted by Section 6.08, no Company is a party to a material
transaction with any of its Affiliates, which could reasonably be expected to
have a Material Adverse Effect.
4.16. DEBT . No Company has any Debt (a) on the date of this agreement,
except the existing Debt described on Schedule 4.16, and (b) at anytime after
the date of this agreement, except Permitted Debt.
4.17. LEASES . Except where not a Material Adverse Event (a) each
Company enjoys peaceful and undisturbed possession under all leases necessary
for the operation of its properties and assets, none of which contains any
unusual or burdensome provisions which might materially affect or impair the
operation of those properties and assets, and (b) all material leases under
which any Company is a lessee are in full force and effect. All leases of Real
Property under which any Company is a lessee and where any of its inventory,
equipment, or fixtures is located are described on Schedule 4.17 as supplemented
from time to time by a supplement to that schedule that is dated, executed, and
delivered by Borrower to Lender to reflect in that schedule.
4.18. INSURANCE . Each Company maintains with financially sound,
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by
self-insurance authorized by the jurisdictions in which it operates) insurance
concerning its properties and businesses against casualties and contingencies
and of types and in amounts (and with co-insurance and deductibles) as is
customary in the case of similar businesses.
4.19. LABOR MATTERS . Except where not a Material Adverse Event (a) no
actual or, to the knowledge of either Borrower, threatened strikes, labor
disputes, slow downs, walkouts, work stoppages, or other concerted interruptions
of operations that involve any employees employed at any time in connection with
the business activities or operations at the Real Property exist, (b) hours
worked by and payment made to the employees of any Company or any predecessor
have not been in violation of the Fair Labor Standards Act or any other
applicable Governmental Requirements pertaining to labor matters, (c) all
payments due from any Company for employee health and welfare insurance,
including, without
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limitation, workers compensation insurance, have been paid or
accrued as a liability on its books, (d) the business activities and operations
of each Company are in compliance with OSHA and other applicable health and
safety laws.
4.20. INTELLECTUAL PROPERTY . Except as disclosed on Schedule 4.20
(none of which matters constitute a Material Adverse Event) (a) each Company
owns or has the right to use all material licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications and
trade names necessary to continue to conduct its businesses as presently
conducted by it and proposed to be conducted by it immediately after the date of
this agreement, (b) to the best of Borrowers' knowledge, each Company is
conducting its business without infringement or claim of infringement of any
license, patent, copyright, service mark, trademark, trade name, trade secret or
other intellectual property right of others, and (c) no infringement or claim of
infringement by others of any material license, patent, copyright, service mark,
trademark, trade name, trade secret or other intellectual property of any
Company exists.
4.21. PLEDGED SHARES . Borrower owns 3,064,503 total shares of Common
Stock, $.01 par value of Prime, which represent approximately 15.9% of all of
the issued and outstanding common shares of Prime. On the date hereof, Borrower
has pledged to Lender 500,000 of those shares, which represent approximately
2.6% of all of the issued and outstanding common shares of Prime.
4.22. FULL DISCLOSURE . All written information previously furnished to
Lender by or at the direction of the respective Company in connection with the
Loan Documents was true and accurate in all material respects or based on
reasonable estimates on the date the information is stated or certified.
4.23. REPRESENTATIONS AND WARRANTIES . Each Notice of Borrowing shall
constitute, without the necessity of specifically containing a written
statement, a representation and warranty by Borrower that no Default or Event of
Default exists and that all representations and warranties contained in this
Section 4 or elsewhere in this Agreement or in any other Loan Document are true
and correct on and as of the date the requested Borrowing is to be made.
SECTION 5
AFFIRMATIVE COVENANTS
So long as Lender has any commitment to make Borrowings, hereunder, and
until payment in full of the Obligation, Borrower agrees that (unless Lender
shall otherwise consent in writing):
5.01. FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS . Borrower shall
deliver or cause to be delivered to Lender each of the following:
(a) ANNUAL FINANCIALS. Promptly after preparation, but no
later than 120 days after the last day of each fiscal year of the
Companies, Financials showing the Companies' consolidated financial
condition and results of operations as of, and for the year ended on,
that last day, accompanied by (i) the opinion, without material
qualification, of KMPG Peat Marwick, L.L.P. or other firm of nationally
recognized independent certified public accountants reasonably
acceptable to Lender, based on an audit using generally accepted
auditing standards, that the consolidated portion of those Financials
were prepared in accordance with GAAP and present fairly, in all
material respects, the Companies' consolidated financial condition and
results of operations, and (ii) a Compliance Certificate.
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(b) QUARTERLY FINANCIALS. Promptly after preparation but no
later than 45 days after the last day of each of the first three fiscal
quarters of the Companies each year, unaudited Financials showing the
Companies' consolidated financial condition and results of operations
for that fiscal quarter and for the period from the beginning of the
current fiscal year to the last day of that fiscal quarter, accompanied
by a Compliance Certificate.
(c) MANAGEMENT LETTERS. Promptly upon receipt thereof, a copy
of any management letter or written report submitted to any Company by
independent certified public accountants with respect to the business, condition
(financial or otherwise), operations, or properties of any Company.
(d) NOTICE OF LITIGATION. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any Governmental
Authority or arbitrator affecting any Company which, if determined adversely to
such Company, could have be a Material Adverse Event.
(e) NOTICE OF DEFAULT. As soon as possible and in any event
within five (5) days after Borrower knows of the occurrence of each Default, a
written notice setting forth the details of such Default and the action that
Borrower has taken and proposes to take with respect thereto.
(f) ERISA REPORTS. Promptly after the filing or receipt
thereof, copies of all reports, including annual reports, and notices which any
Company files with or receives from the PBGC or the U.S. Department of Labor
under ERISA; and as soon as possible and in any event within five (5) days after
any Company knows or has reason to know that any reportable event or prohibited
transaction has occurred with respect to any Plan or that the PBGC, or any
Company has instituted or will institute proceedings under Title IV of ERISA to
terminate any Plan, a certificate of the chief financial officer of Borrower
setting forth the details as to such reportable event or prohibited transaction
or Plan termination and the action that Borrower proposes to take with respect
thereto.
(g) REPORTS TO OTHER CREDITORS. Promptly after the furnishing
thereof, copies of any statement or report furnished by any Company to any other
creditor to which any Company owes $100,000.00 or more pursuant to the terms of
any indenture, loan, or credit or similar agreement and not otherwise required
to be furnished to the Lender pursuant to any other clause of this Section 5.01.
(h) PROXY STATEMENTS, Etc. As soon as available, one (1) copy
of each financial statement, report, notice or proxy statement sent by Borrower
to its stockholders generally and one (1) copy of each regular, periodic or
special report, registration statement, or prospectus filed by Borrower with any
securities exchange or the Securities and Exchange Commission or any successor
agency including, without limitation, all Forms 10-K, 10-Q and 8-K and all other
periodic reports required to be filed under the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder.
(i) GOVERNMENTAL AUTHORIZATIONS. Upon the request of Lender,
but not more often than one (1) time during each fiscal year of Borrower, a
complete and accurate list of each Governmental Authorization held by each of
Companies or that otherwise relate to the business of, or to any of the assets
owned or used by, each of the Companies.
(j) QUARTERLY LIQUIDITY STATEMENTS. As soon as available and
in any event, within twenty (20) days after the last day of each calendar
quarter, a statement of Borrower's Unencumbered Liquid Assets (as defined in
Section 6.04) in detail reasonably satisfactory to Lender.
(k) GENERAL INFORMATION. Promptly, such other information
concerning Borrower or any of its Subsidiaries as the Lender may from time to
time reasonably request.
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5.02. USE OF CREDIT . Borrower shall use proceeds of Borrowings only
for the purposes represented in this agreement.
5.03. PAYMENT OF TAXES AND OTHER INDEBTEDNESS . Borrower shall and
shall cause each Company to pay and discharge (i) all taxes, assessments and
governmental charges or levies imposed upon it or upon its income, or upon any
property belonging to it, before delinquent, (ii) all lawful claims (including
claims for labor, materials and supplies), which, if unpaid, might give rise to
a Lien upon any of its property, and (iii) all of its other indebtedness, except
as prohibited under the Loan Documents; provided, however, that no Company shall
be required to pay any such tax, assessment, charge or levy if and so long as
the amount, applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings and appropriate accruals and cash reserves
have been established in accordance with GAAP.
5.04. BOOKS AND RECORDS; ACCESS . Upon five (5) days notice from
Lender, Borrower shall give any representative of Lender access during all
business hours to, and permit such representative to examine, copy or make
excerpts from, any and all books, records and documents in the possession of
Borrower and relating to its affairs, and to inspect any of the properties of
Borrower. Borrower shall maintain complete and accurate books and records of its
transactions in accordance with good accounting practices.
5.05. COMPLIANCE WITH LAW . Borrower shall and shall cause each Company
to comply with all applicable laws, rules, regulations, and all orders of any
Governmental Authority.
5.06. PAYMENT OF OBLIGATIONS . Borrower shall and shall cause each
Company to promptly pay (or renew and extend) all of its material obligations as
they become due (unless the obligations are being properly contested in good
faith).
5.07. EXPENSES . Within five Business Days after demand accompanied by
an invoice describing the costs, fees, and expenses in reasonable detail,
Borrowers shall, subject to the last sentence in this Section 5.07, pay (a) all
reasonable costs, fees, and expenses paid or incurred by Lender incident to any
Loan Document (including, without limitation, the reasonable fees and expenses
of Lender's counsel in connection with the negotiation, preparation, delivery,
and execution of the Loan Documents and any related amendment, waiver, or
consent) and (b) all reasonable costs and expenses incurred by Lender in
connection with the enforcement of the obligations of any Company under the Loan
Documents or the exercise of any Rights under the Loan Documents, all of which
are part of the Obligation, bearing interest, (if not paid within five Business
Days after demand accompanied by an invoice describing the costs, fees, and
expenses in reasonable detail) at the Default Rate until paid.
5.08. MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS . Borrower agrees
that it shall and shall cause each Company to (a) except in connection with
dispositions permitted under Section 6.09 and mergers, consolidations, and
dissolutions permitted under Section 6.09, maintain its corporate existence and
good standing in its jurisdiction of incorporation, and (b) except where not a
Material Adverse Event (i) maintain its authority to transact business and good
standing in all other states where required, (ii) maintain all licenses,
permits, and franchises (including, without limitation, Environmental Permits)
necessary for its business, and (iii) keep all of its material assets that are
useful in and necessary to its business in good working order and condition
(ordinary wear and tear excepted) and make all necessary repairs and
replacements.
5.09. INSURANCE . In addition to any other requirements set forth in
other Loan Documents, Borrower shall and shall cause each Company at its cost
and expense, to maintain with financially sound,
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responsible, and reputable
insurance companies or associations (or, as to workers' compensation or similar
insurance, with an insurance fund or by self-insurance authorized by the
jurisdictions in which it operates) insurance concerning its properties and
businesses against casualties and contingencies and of types and in amounts (and
with co-insurance and deductibles) as is customary in the case of similar
businesses.
5.10. ENVIRONMENTAL MATTERS . Borrower shall and shall cause each
Company to (a) operate and manage its businesses and otherwise conduct its
affairs in compliance with all Environmental Laws and Environmental Permits
except to the extent noncompliance does not constitute a Material Adverse Event,
(b) promptly deliver to Lender a copy of any notice received from any
Governmental Authority alleging that any Company is not in compliance with any
Environmental Law or Environmental Permit if the allegation (if determined
adversely) would constitute a Material Adverse Event, and (c) promptly deliver
to Lender a copy of any notice received from any Governmental Authority alleging
that any Company has any potential Environmental Liability if the allegation (if
determined adversely) would constitute a Material Adverse Event.
5.11. FURTHER ASSURANCES . Borrower shall and shall cause each Company
to make, execute and deliver or file or cause the same to be done, all such
notices, additional agreements, mortgages, assignments, financing statements or
other assurances, and take any and all such other action, as Lender may, from
time to time, deem necessary or proper in connection with any of the Loan
Documents, including actions necessary or proper to preserve or perfect Lender's
security interest in Pledged Shares and other Collateral.
5.12. INDEMNITY BY BORROWER .
(a) AS USED IN THIS SECTION: (i) "INDEMNITOR" MEANS (SUBJECT
TO CLAUSE (C) BELOW) BORROWER; (ii) "INDEMNITEE" MEANS LENDER, EACH
PRESENT AND FUTURE AFFILIATE OF LENDER, EACH PRESENT AND FUTURE
REPRESENTATIVE OF LENDER, OR ANY OF THOSE AFFILIATES, AND EACH PRESENT
AND FUTURE SUCCESSOR AND ASSIGN OF LENDER, OR ANY OF THOSE AFFILIATES
OR REPRESENTATIVES; AND (iii) "INDEMNIFIED LIABILITIES" MEANS ALL
PRESENT AND FUTURE, KNOWN AND UNKNOWN, FIXED AND CONTINGENT,
ADMINISTRATIVE, INVESTIGATIVE, JUDICIAL, AND OTHER CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, INVESTIGATIONS, SUITS, PROCEEDINGS, AMOUNTS
PAID IN SETTLEMENT, DAMAGES, JUDGMENTS, PENALTIES, COURT COSTS,
LIABILITIES, AND OBLIGATIONS, AND ALL PRESENT AND FUTURE COSTS,
EXPENSES, AND DISBURSEMENTS (INCLUDING, WITHOUT LIMITATION, ALL
REASONABLE ATTORNEYS' FEES AND EXPENSES WHETHER OR NOT ANY SUIT OR
OTHER PROCEEDING EXISTS OR ANY INDEMNITEE IS PARTY TO ANY SUIT OR OTHER
PROCEEDING) IN ANY WAY RELATED TO ANY OF THE FOREGOING, THAT MAY AT ANY
TIME BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY INDEMNITEE AND
IN ANY WAY RELATING TO OR ARISING OUT OF ANY (A) LOAN DOCUMENT,
TRANSACTION CONTEMPLATED BY ANY LOAN DOCUMENT, COLLATERAL UNDER ANY
LOAN DOCUMENT, OR REAL PROPERTY, (B) ENVIRONMENTAL LIABILITY IN ANY WAY
RELATED TO ANY COMPANY, PREDECESSOR, COLLATERAL UNDER ANY LOAN
DOCUMENT, REAL PROPERTY, OR ACT, OMISSION, STATUS, OWNERSHIP, OR OTHER
RELATIONSHIP, CONDITION, OR CIRCUMSTANCE CONTEMPLATED BY, CREATED
UNDER, OR ARISING PURSUANT TO OR IN CONNECTION WITH ANY LOAN DOCUMENT,
OR (C) INDEMNITEE'S SOLE OR CONCURRENT ORDINARY NEGLIGENCE.
(b) EACH INDEMNITOR SHALL INDEMNIFY EACH INDEMNITEE FROM AND
AGAINST, PROTECT AND DEFEND EACH INDEMNITEE FROM AND AGAINST, HOLD EACH
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INDEMNITEE HARMLESS FROM AND AGAINST, AND ON DEMAND PAY OR REIMBURSE
EACH INDEMNITEE FOR, ALL INDEMNIFIED LIABILITIES.
(c) THE FOREGOING PROVISIONS (i) ARE NOT LIMITED IN AMOUNT
EVEN IF THAT AMOUNT EXCEEDS THE OBLIGATION, (ii) INCLUDE, WITHOUT
LIMITATION, REASONABLE FEES AND EXPENSES OF ATTORNEYS AND OTHER COSTS
AND EXPENSES OF LITIGATION OR PREPARING FOR LITIGATION AND DAMAGES OR
INJURY TO PERSONS, PROPERTY, OR NATURAL RESOURCES ARISING UNDER ANY
STATUTORY OR COMMON LAW, PUNITIVE DAMAGES, FINES, AND OTHER PENALTIES,
AND (iii) ARE NOT AFFECTED BY THE SOURCE OR ORIGIN OF ANY HAZARDOUS
SUBSTANCE, AND (iv) ARE NOT AFFECTED BY ANY INDEMNITEE'S INVESTIGATION,
ACTUAL OR CONSTRUCTIVE KNOWLEDGE, COURSE OF DEALING, OR WAIVER.
(d) NOTWITHSTANDING ANYTHING TO THE CONTRARY, NO INDEMNITEE IS
ENTITLED TO BE INDEMNIFIED UNDER THE LOAN DOCUMENTS FOR ITS OWN FRAUD,
GROSS NEGLIGENCE, OR WILFUL MISCONDUCT.
(e) THE PROVISIONS OF AND INDEMNIFICATION AND OTHER
UNDERTAKINGS UNDER THIS SECTION SURVIVE THE FORECLOSURE OF ANY LENDER
LIEN OR ANY TRANSFER IN LIEU OF THAT FORECLOSURE, THE SALE OR OTHER
TRANSFER OF ANY COLLATERAL UNDER ANY LOAN DOCUMENT OR REAL PROPERTY TO
ANY PERSON, THE SATISFACTION OF THE OBLIGATION, THE TERMINATION OF THE
LOAN DOCUMENTS, AND THE RELEASE OF ANY OR ALL LIENS IN FAVOR OF LENDER.
SECTION 6
NEGATIVE COVENANTS
So long as Lender has any commitment to make Borrowings hereunder, and
until payment in full of the Obligation, Borrower agrees that (unless Lender
shall otherwise consent in writing):
6.01. LIMITATION ON SALE; NEGATIVE PLEDGE . Borrower shall not sell,
assign or transfer, or create, incur, permit or suffer to exist any Lien upon,
or grant options, warrants or rights in, any stock of Prime owned by Borrower,
except for the (a) security interest in favor of Lender; and (b) up to 500,000
shares of Prime not subject to the Pledge Agreement.
6.02. LIMITATION ON INDEBTEDNESS . Borrower shall not and shall not
permit the Companies to incur, permit or suffer to exist any Debt which causes
the aggregate amount of all such Debt of the Companies to exceed $500,000.
6.03. LIMITATION ON DISPOSITION OF ASSETS . Borrower shall not and
shall not permit any Company to sell, transfer, lease or otherwise dispose of
any of its assets having a fair market value of more than $1,000 for less than
fair market.
6.04. LIQUIDITY MAINTENANCE . Borrower shall not permit the aggregate
market value of Borrower's Unencumbered Liquid Assets (as defined below),
determined as of the end of each March, June, September, and December, to be
less than the Interest Expense scheduled to be due and payable in the two
succeeding fiscal quarters of Borrower.
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As used in this Section 6.04, the term "Unencumbered Liquid Assets"
means the following assets and rights owned or held by any Company to the extent
that they are unrestricted, are not subject to any Lien, and may be converted to
cash by sale or other means within ten days:
(a) Cash;
(b) Demand deposits or interest-bearing time and eurodollar
deposits, certificates of deposit, or similar banking arrangements with
banks that have capital and surplus of not less than $750,000,000;
(c) Direct obligations of either the United States of America,
in the form of United States Treasury obligations, or any governmental
agency or instrumentality whose obligations constitute full faith and
credit obligations of the United States of America, with maturities of
ten years or less;
(d) Commercial paper rated P-1 by Moody's Investors Services,
Inc., or A-1 by Standard & Poor's Corporation;
(e) Bonds and other fixed income instruments (including
tax-exempt bonds) from companies or public entities rated investment
grade, and mutual funds that invest substantially all of their assets
in such bonds and other fixed income instruments, either owned directly
by Borrower or managed on Borrower's behalf by any nationally
recognized investment advisor with assets under management in excess of
$250,000,000;
(f) Common stocks and preferred stocks listed on the New York
Stock Exchange or any other national exchange or sold over the counter,
and which are subject to no legal or contractual restrictions on
trading, either owned directly by Borrower or managed on Borrower's
behalf by any nationally recognized investment advisor with assets
under management in excess of $250,000,000; and
(g) Mutual funds or money market funds that invest
substantially all of their assets in instruments described in clauses
(a), (b), (c), (d), (e), or (f) preceding.
6.05. DISTRIBUTIONS . Borrower shall not and shall not permit any
Company to declare, make, or pay any Distribution except (i) Distributions paid
in the form of additional equity that is not mandatorily redeemable, (ii)
Distributions by any Company to Borrower and any other shareholder of such
Company pro rata with Borrower, and (iii) payment of expenses to directors,
officers, and employees of the Companies in the ordinary course of business.
6.06. NET WORTH . Borrower shall not permit the Companies' Net Worth,
determined as of the end of each fiscal quarter of Borrower, to be less than
$20,000,000.
6.07. REPURCHASE OF BORROWER STOCK . All repurchases of its stock by
Borrower shall be done in compliance with all applicable laws, including,
without limitation, Regulation U. Borrower agrees that it shall not repurchase
stock having a fair market value exceeding $1,000,000 in the aggregate. All
shares of Borrower's stock repurchased by Borrower shall be immediately
cancelled and retired.
6.08. TRANSACTION WITH AFFILIATES . Borrower shall not and shall not
permit any Company to enter into any material transaction with any of its
Affiliates except (a) those described on Schedule 4.15, and (b) transactions in
the ordinary course of business and upon fair and reasonable terms not
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materially less favorable than it could obtain or could become entitle to in an
arm's-length transaction with a Person that were not its Affiliate.
6.09 MERGERS, CONSOLIDATIONS, AND DISSOLUTIONS . Borrower shall not and
shall not permit any Company to merge or consolidate with any other Person or
dissolve or sell, transfer, or pledge all or substantially all of its assets,
except, (i) if there is no related Default (a) any merger between Borrower and
any other Company, so long as the Borrower is the survivor, and (b) between any
Company (other than Borrower) and any other Company, provided that if any
Guarantor merges with a Company which is not a Guarantor, the Guarantor must be
the survivor; (ii) upon ten (10) Business Day's prior written notice, Syntera
Technologies, Inc. may be dissolved; (iii) Borrower may transfer stock of APS
Practice Management, Inc. ("Practice Management") or cause additional stock of
Practice Management to be issued which would cause Practice Management to cease
being a Subsidiary; and (iv) Borrower may transfer stock of APS Insurance
Services, Inc. ("APS Insurance") to FPIC Insurance Group, Inc. pursuant to and
in accordance with the Stock Purchase and Stock Option Agreement dated as of
April 1, 1997 between Borrower and Florida Physicians Insurance Group, Inc. and
the Shareholders Agreement dated as of June 30, 1997 between Borrower and
Florida Physicians Insurance Group, Inc., as in effect on the date hereof.
SECTION 7
EVENTS OF DEFAULT
7.01. EVENTS OF DEFAULT . An "Event of Default" shall exist if any one
or more of the following events shall occur and be continuing:
(a) Borrower fails to pay any principal or interest payment
when due and such failure continues for five (5) days or Borrower fails
to pay when due all or any part of any other portion of the Obligation;
(b) any representation or warranty made under this Agreement
or any of the other Loan Documents proves to be untrue or inaccurate in
any material respect as of the date on which such representation or
warranty is made;
(c) default occurs in the performance of any of the covenants
or agreements of any Company contained in this Agreement, or in any of
the other Loan Documents, which default is not remedied within ten (10)
days after written notice to Borrower from Lender; provided, that such
ten (10) day grace period shall not apply to the obligations to make
scheduled payments contained in Section 2 of this Agreement, or in
Section 6 of the Pledge Agreement;
(d) default shall occur in the payment of the unpaid balance
of, or any installment of principal or interest of, indebtedness (other
than the Obligation) having an aggregate principal balance exceeding
the sum of $100,000 of any Company or default shall occur in respect of
any note or credit agreement relating to any such indebtedness and such
default shall continue for more than the period of grace, if any,
specified therein;
(e) any of the Loan Documents shall cease to be legal, valid
and binding agreements enforceable against the Person executing the
same in accordance with its terms, shall be terminated, become or be
declared ineffective or inoperative or cease to provide the respective
liens, security interests, rights, titles, interests, remedies, powers
or privileges intended to be provided thereby;
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(f) Any Company or Prime shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian, intervenor or liquidator
of itself or of all or a substantial part of the Company's or Prime's
assets, (ii) file a voluntary petition in bankruptcy, admit in writing
the Company or Prime, as the case may be, is unable to pay its debts as
they become due or generally not pay its debts as they become due,
(iii) make a general assignment for the benefit of creditors, (iv) file
a petition or answer seeking reorganization of an arrangement with
creditors or to take advantage of any bankruptcy or insolvency laws, or
(v) file an answer admitting the material allegations of, or consent
to, or default in answering, a petition filed against the Company or
Prime in any bankruptcy, reorganization or insolvency proceeding; or
(g) An involuntary proceeding shall be commenced against any
Company or Prime seeking bankruptcy or reorganization of any Company or
Prime or the appointment of a receiver, custodian, trustee, liquidator
or other similar official of any Company or Prime, or all or
substantially all of the Company's or Prime's assets, and such
proceeding shall not have been dismissed within ninety (90) days of the
filing thereof; or an order, order for relief, judgment or decree shall
be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of
any Company or Prime, or appointing a receiver, custodian, trustee,
liquidator or other similar official of any Company or Prime, or of all
or substantially all of any Company's or Prime's assets;
(h) any final judgment(s) for the payment of money in excess
of the sum of $1,000,000 in the aggregate shall be rendered against any
Company and such judgment(s) shall not be satisfied or discharged at
least ten (10) days prior to the date on which any of such Company's
assets could be lawfully sold to satisfy such judgment;
7.02. REMEDIES UPON EVENT OF DEFAULT . If any Event of Default shall
occur Lender may, without notice, except as otherwise provided for herein,
exercise any one or more of the following rights and remedies, and any other
remedies provided in any of the Loan Documents, as Lender in its sole discretion
may deem necessary or appropriate: (i) terminate Lender's commitment to lend,
(ii) declare the Obligation or any part thereof to be forthwith due and payable,
whereupon the same shall forthwith become due and payable without presentment,
demand, protest, notice of default, notice of acceleration or of intention to
accelerate or other notice of any kind, all of which Borrower hereby expressly
waives, anything contained herein or in the Note to the contrary
notwithstanding, (iii) reduce any claim to judgment, or (iv) pursue and enforce
any of Lender's rights and remedies under the Loan Documents, or otherwise
provided under or pursuant to any applicable law or agreement; provided,
however, that if any specified in Sections 7.01(f) or (g) shall occur, the
Obligation shall thereupon become due and payable concurrently therewith, and
Lender's obligation to lend shall immediately terminate hereunder, without any
further action by Lender and without presentment, demand, protest, notice of
default, notice of acceleration or of intention to accelerate or other notice of
any kind, all of which Borrower hereby expressly waives.
7.03. PERFORMANCE BY LENDER . Should Borrower fail to perform any
covenant, duty or agreement contained in any of the Loan Documents, Lender may,
after five (5) days written notice to Borrower, perform or attempt to perform
such covenant, duty or agreement on behalf of Borrower. In such event, Borrower
shall, at the request of Lender, promptly pay any amount expended by Lender in
such performance or attempted performance to Lender at its office in Austin,
Texas, together with interest thereon at the default rate of interest provided
herein, from the date of such expenditure until paid. Notwithstanding the
foregoing, it is expressly understood that Lender shall not assume any liability
or responsibility for the performance of any duties of Borrower hereunder or
under any of the Loan Documents and none of the covenants or other provisions
contained in this Agreement shall, or shall be
21
<PAGE>
deemed to, give Lender the right
or power to exercise control over the management and affairs of Borrower.
SECTION 8
MISCELLANEOUS
8.01. ACCOUNTING REPORTS . All financial reports or projections,
furnished by any Person to Lender pursuant to this Agreement shall be prepared
in such form and such detail as shall be satisfactory to Lender, shall be
prepared on the same basis as those prepared by such Person in prior years.
8.02. WAIVER . No failure to exercise, and no delay in exercising, on
the part of Lender, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights of Lender under
the Loan Documents shall be in addition to all other rights provided by law. No
modification or waiver of any provision of any Loan Document, nor consent to
departure therefrom, shall be effective unless in writing and no such consent or
waiver shall extend beyond the particular case and purpose involved. No notice
or demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand.
8.03. NOTICES . Any communications required or permitted to be given by
any of the Loan Documents must be (i) in writing and personally delivered or
mailed by prepaid certified or registered mail, or (ii) made by facsimile
transmission delivered or transmitted, to the party to whom such notice of
communication is directed, to the address of such party shown opposite its name
on the signature pages hereof. Any such communication shall be deemed to have
been given (whether actually received or not) on the day it is personally
delivered or, if transmitted by facsimile transmission, on the day that such
communication is transmitted as aforesaid subject to telephone confirmation of
receipt; provided, however, that any notice received by Lender after 10:00 a.m.
Austin, Texas time on any day from Borrower pursuant to Section 2.02 (with
respect to a Notice of Borrowing) shall be deemed for the purposes of such
Section to have been given by Borrower on the next succeeding day, or if mailed,
on the third day after it is marked as aforesaid. Any party may change its
address for purposes of this Agreement by giving notice of such change to the
other parties pursuant to this Section 8.03.
8.04. GOVERNING LAW . This Agreement has been prepared, is being
executed and delivered, and is intended to be performed in the State of Texas
and the substantive laws of such state and the applicable federal laws of the
United States of America shall govern the validity, construction, enforcement
and interpretation of this Agreement and all of the other Loan Documents.
8.05. INVALID PROVISIONS . Any provision of any Loan Document held by a
court of competent jurisdiction to be illegal, invalid or unenforceable shall
not invalidate the remaining provisions of such Loan Document which shall remain
in full force and effect the effect thereof shall be confined to the provision
held invalid or illegal.
8.06. MAXIMUM INTEREST RATE . Regardless of any provision contained in
any of the Loan Documents, Lender shall never be entitled to receive, collect or
apply as interest on the Note any amount in excess of interest calculated at the
Maximum Rate, and, in the event that any Lender ever receives, collects or
applies as interest any such excess, the amount which would be excessive
interest shall be deemed to be a partial prepayment of principal and treated
hereunder as such; and, if the principal amount of the Obligation is paid in
full, any remaining excess shall forthwith be paid to Borrower. In determining
whether or not the interest paid or payable under any specific contingency
22
<PAGE>
exceeds interest calculated at the Maximum Rate, Borrower and Lender shall, to
the maximum extent permitted under applicable law, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest; (ii)
exclude voluntary prepayments and the effects thereof; and (iii) amortize,
prorate, allocate and spread, in equal parts, the total amount of interest
throughout the entire contemplated term of the Note; provided that, if the Note
is paid and performed in full prior to the end of the full contemplated term
thereof, and if the interest received for the actual period of existence thereof
exceeds interest calculated at the Maximum Rate, Lender shall refund to Borrower
the amount of such excess or credit the amount of such excess against the
principal amount of the Note and, in such event, Lender shall not be subject to
any penalties provided by any laws for contracting for, charging, taking,
reserving or receiving interest in excess of interest calculated at the Maximum
Rate.
8.07. NONLIABILITY OF LENDER . The relationship between Borrower and
Lender is, and shall at all times remain, solely that of Borrower and Lender and
Lender has no fiduciary or other special relationship with Borrower.
8.08. OFFSET . Borrower hereby grants to Lender the right of offset, to
secure repayment of the Obligation, upon any and all moneys, securities or other
property of Borrower and the proceeds therefrom, now or hereafter held or
received by or in transit to Lender or its agents, from or for the account of
Borrower, whether for safe keeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or special) and credits
of Borrower, and any and all claims of Borrower against Lender at any time
existing.
8.09. SUCCESSORS AND ASSIGNS . The Loan Documents shall be binding upon
and inure to the benefit of Borrower and Lender and their respective successors,
assigns and legal representatives; provided, however, that Borrower may not,
without the prior written consent of Lender, assign any rights, powers, duties
or obligations thereunder.
8.10. CHAPTER 346. The Borrower and Lender hereby agree that the
provisions of Chapter 346 of the Finance Code of the State of Texas (regulating
certain revolving credit loans and revolving triparty accounts) shall not apply
to the Loan Documents.
8.11. HEADINGS . Section headings are for convenience of reference only
and shall in no way affect the interpretation of this Agreement.
8.12. SURVIVAL . All representations and warranties made by Borrower
herein shall survive delivery of the Note and the making of the Loan.
8.13. PARTICIPATIONS . Lender shall have the right to enter into
participation agreements with other banks with respect to the Note, and grant
participations in Loan Documents but such participation shall not affect the
rights and duties of such Lender hereunder vis-a-vis Borrower. Each actual or
proposed participant shall be entitled to receive from Lender all information
received by Lender regarding the creditworthiness of Borrower, including,
without limitation, information required to be disclosed to a participant
pursuant to Banking Circular 181 (Rev., August 2, 1984), issued by the
Comptroller of the Currency (whether the actual or proposed participant is
subject to the circular or not).
8.14. NO THIRD PARTY BENEFICIARY . The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall any Loan
Document or any course of conduct by any party hereto be construed to make or
render Lender or any of its officers, directors, agents or employees liable (i)
to any materialman, supplier, contractor, subcontractor, purchaser or lessee of
any property owned by Borrower, or (ii) for debts or claims accruing to any such
Persons against Borrower.
23
<PAGE>
8.15. Waiver of Jury Trial . TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF LENDER IN
THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
8.16. MULTIPLE COUNTERPARTS . This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same agreement, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
8.17. Arbitration . ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY LOAN DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.), AND
THE "SPECIAL RULES" SET FORTH IN SECTION 8.17A BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE
BORROWER'S DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED
BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN NINETY
(90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY,
UPON SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING
FOR UP TO AN ADDITIONAL SIXTY (60) DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY
LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C.SS. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF LENDER HERETO (A) TO EXERCISE
SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE
AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT
PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF
OR THE APPOINTMENT OF A RECEIVER. LENDER MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS AGREEMENT. AT LENDER'S OPTION, FORECLOSURE UNDER A DEED OF
TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING: THE EXERCISE OF A
POWER OF SALE UNDER A DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE,
PROVIDED THAT IF LENDER SHALL PETITION A COURT FOR SUCH RELIEF OR REMEDIES, THEN
BORROWER SHALL BE ENTITLED TO ASSERT IN SUCH COURT ANY CLAIMS OR DEFENSES
RELATED TO THE SUBJECT MATTER OF LENDER'S PETITION. NEITHER THIS EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY
24
<PAGE>
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OF CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
8.18 LIMITATION ON DAMAGES . NEITHER PARTY SHALL BE RESPONSIBLE FOR
PUNITIVE, SPECIAL OR EXEMPLARY DAMAGES BY REASON OF CONTRACT OR TORT CLAIMS
ARISING OUT OF THE TRANSACTION GOVERNED BY THIS AGREEMENT, EXCEPT FOR WILLFUL OR
OUTRAGEOUS CONDUCT.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
25
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
Address for Notice: BORROWER:
American Physicians Service Group, Inc. AMERICAN PHYSICIANS SERVICE
1301 Capital of Texas Highway GROUP, INC.
C-300
Austin, Texas 78746
Telecopy #: (512) 314-4333
By: /s/ William H Hayes
Name: William H Hayes
Title: Sr VP Finance
Address for Notice: LENDER:
NationsBank of Texas, N.A. NATIONSBANK OF TEXAS, N.A.
515 Congress Avenue
11th Floor
Austin, Texas 78702
Telecopy #: (512) 397-2052 By:
/s/ Teena Belcik
Vice President
Copy to:
Haynes and Boone, L.L.P.
3100 NationsBank Plaza
901 Main Street
Dallas, TX 75202-3789
Attn: Sue P. Murphy
Telecopy #: (214) 200-0565
26
<PAGE>
SCHEDULE 3.01
CLOSING CONDITIONS
Unless otherwise specified, all dated as of
February 10, 1998, or a date (a "Current Date")
within 30 days before the Closing Date.
<PAGE>
H&B [1.] REVOLVING CREDIT LOAN AGREEMENT (the "Loan Agreement") dated as of
February , 1998, between AMERICAN PHYSICIANS SERVICE GROUP, INC. ("Borrower")
and NATIONSBANK OF TEXAS, N.A. ("Lender"), all the terms of which or
incorporated in which have the same meanings when used in this schedule, to
which all schedules and exhibits must be attached.
H&B [2.] REVOLVING CREDIT NOTE in the total stated principal
amount of $10,000,000 executed by Borrower, payable to Lender,
in substantially the form of Exhibit A to the Loan Agreement.
H&B [3.] PLEDGE AGREEMENT executed by Borrower, substantially in
the form of Exhibit B to the Loan Agreement, together with
Stock Certificates and Blank Stock Powers.
H&B [4.] GUARANTY executed by each of the Syntera Technologies, Inc.
and APS Realty, Inc.
(collectively, "Guarantors").
H&B [5.] NOTICE OF BORROWING executed by Borrower substantially in the
form of Exhibit C to the Loan Agreement. [Only applicable if
initial advance concurrent with closing]
Borrower's [6.] OPINION OF COUNSEL for Borrower and Guarantors, in a form
satisfactory to Lender, Counsel including Rule 144 opinion.
H&B [7.] FINANCING STATEMENTS for Borrower, as debtor, to be filed
in the Office of the Secretary of State of Texas.
H&B [8.] NOTICE OF NO ORAL AGREEMENTS pursuant to Section 26.02 of Texas law.
[9.] For Borrower and each Guarantor
(a) Charter;
(b) Bylaws;
(c) Board of Directors Resolutions;
(d) Incumbency Certificate;
(e) Closing Certificate;
[10.] Uniform Commercial Code Search in Texas for Borrower.
[11.] CERTIFICATE regarding Pledge of APS Insurance Services, Inc.
shares.
1
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Borrower's [12.] For each of Borrower and the Guarantors Counsel
(a) Certificate of Existence;
(b) Certificate of Good Standing.
[13.] Regulation U-1 Certificate.
H&B [14.] Such other documents and items as Lender may reasonably request.
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
$10,000,000.00 Austin, Texas February 10, 1998
1. FOR VALUE RECEIVED, AMERICAN PHYSICIANS SERVICE GROUP, INC., a Texas
corporation ("Maker"), hereby unconditionally promises to pay to the order of
NationsBank of Texas, N.A. ("Payee"), at the address, severally reflected on the
signature page of the Loan Agreement (as defined below), the sum of TEN MILLION
AND NO/100 Dollars ($10,000,000.00) (or, if less, so much thereof as may be
advanced and is outstanding), in lawful money of the United States of America.
Capitalized terms not defined herein shall have the meaning assigned to those
terms in the Loan Agreement.
2. The unpaid principal amount of, and accrued unpaid interest on, this
Revolving Credit Note (this "Note") is payable in accordance with the Loan
Agreement, but not later than the Termination Date.
3. The unpaid principal balance advanced and outstanding hereunder
shall bear interest from the date of advance until maturity at the rate per
annum provided in the Loan Agreement. The interest rate specified in this
section is subject to adjustment under the circumstances described in the Loan
Agreement.
Interest shall be computed in the manner provided in the Loan Agreement.
4. Notwithstanding any provision contained in this Note or any other
document executed or delivered in connection with this Note or in connection
with the Loan Agreement, Payee shall never be deemed to have contracted for or
be entitled to receive, collect or apply as interest on this Note, any amount in
excess of the maximum rate of interest permitted to be charged by applicable
law, and, if Payee ever receives, collects or applies as interest any such
excess, then the amount that would be excessive interest shall be applied to
reduce the unpaid principal balance of this Note, and, if the principal balance
of this Note is paid in full by that application, then any remaining excess
shall promptly be paid to Maker. In determining whether the interest paid or
payable under any specific contingency exceeds the highest lawful rate, Maker
and Payee shall, to the maximum extent permitted under applicable law, (i)
characterize any non-principal payment (other than payments expressly designated
as interest payments hereunder) as an expense or fee rather than as interest,
(ii) exclude voluntary prepayments and the effect thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of this Note so
that the interest rate is uniform throughout that term.
5. This Note has been executed and delivered pursuant to a Revolving
Credit Loan Agreement (as modified, amended, or supplemented from time to time,
the "Loan Agreement"), dated the date hereof, executed by and between Maker and
Payee, and is the "Note" referred to therein, and the holder of this Note is
entitled to the benefits provided in the Loan Agreement. Reference is hereby
made to the Loan Agreement for a statement of (i) the obligation of Payee to
advance funds hereunder, (ii) the prepayment rights and obligations of Maker and
(iii) the events on which the maturity of this Note may be accelerated.
6. If the principal of, or any installment of interest on, this Note
becomes due and payable on a day other than a Business Day, then the maturity
thereof shall be extended to the next succeeding Business Day. If this Note, or
any installment or payment due hereunder, is not paid when due, whether at
maturity or by acceleration, or if it is collected through a bankruptcy, probate
or other court, whether before or after maturity, then Maker shall pay all costs
of collection, including, but not limited to,
1
<PAGE>
attorney's fees incurred by the
holder of this Note. All past due principal of, and to the extent permitted by
applicable law, interest on this Note shall bear interest until paid at the rate
provided in the Loan Agreement.
7. Maker and all sureties, endorsers, guarantors and other parties ever
liable for payment of any sums payable pursuant to the terms of this Note,
jointly and severally waive demand, presentment for payment, protest, notice of
protest, notice of acceleration, notice of intent to accelerate, diligence in
collection, the bringing of any suit against any party and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any trustee or any holder hereof, whether before or after maturity.
8. All Borrowings made by Payee, the respective Interest Periods
thereof (if applicable), and all repayments of the principal thereof may be
recorded by Payee and, before any transfer hereof, endorsed by Payee on the
schedule attached hereto, or on a continuation of the schedule attached to and a
part hereof, provided that the failure of Payee to record any endorsement shall
not affect the obligation of Maker hereunder or under the Loan Agreement.
9. This Note is being executed and delivered, and is intended to be
performed in the State of Texas. Except to the extent that the laws of the
United States may apply to the terms hereof, the substantive laws of the State
of Texas shall govern the validity, construction, enforcement and interpretation
of this Note.
MAKER:
AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ William H Hayes
Name: William H Hayes
Title: Sr VP Finance
2
- - --------
[ ] indicates items not complete at time of this draft of this schedule,
together with names of individuals of parties or counsel with
responsibility for each.
Exhibit 10.54
REVOLVING CREDIT NOTE
$10,000,000.00 Austin, Texas February 10, 1998
1. FOR VALUE RECEIVED, AMERICAN PHYSICIANS SERVICE GROUP, INC., a Texas
corporation ("Maker"), hereby unconditionally promises to pay to the order of
NationsBank of Texas, N.A. ("Payee"), at the address, severally reflected on the
signature page of the Loan Agreement (as defined below), the sum of TEN MILLION
AND NO/100 Dollars ($10,000,000.00) (or, if less, so much thereof as may be
advanced and is outstanding), in lawful money of the United States of America.
Capitalized terms not defined herein shall have the meaning assigned to those
terms in the Loan Agreement.
2. The unpaid principal amount of, and accrued unpaid interest on, this
Revolving Credit Note (this "Note") is payable in accordance with the Loan
Agreement, but not later than the Termination Date.
3. The unpaid principal balance advanced and outstanding hereunder
shall bear interest from the date of advance until maturity at the rate per
annum provided in the Loan Agreement. The interest rate specified in this
section is subject to adjustment under the circumstances described in the Loan
Agreement. Interest shall be computed in the manner provided in the Loan
Agreement.
4. Notwithstanding any provision contained in this Note or any other
document executed or delivered in connection with this Note or in connection
with the Loan Agreement, Payee shall never be deemed to have contracted for or
be entitled to receive, collect or apply as interest on this Note, any amount in
excess of the maximum rate of interest permitted to be charged by applicable
law, and, if Payee ever receives, collects or applies as interest any such
excess, then the amount that would be excessive interest shall be applied to
reduce the unpaid principal balance of this Note, and, if the principal balance
of this Note is paid in full by that application, then any remaining excess
shall promptly be paid to Maker. In determining whether the interest paid or
payable under any specific contingency exceeds the highest lawful rate, Maker
and Payee shall, to the maximum extent permitted under applicable law, (i)
characterize any non-principal payment (other than payments expressly designated
as interest payments hereunder) as an expense or fee rather than as interest,
(ii) exclude voluntary prepayments and the effect thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of this Note so
that the interest rate is uniform throughout that term.
5. This Note has been executed and delivered pursuant to a Revolving
Credit Loan Agreement (as modified, amended, or supplemented from time to time,
the "Loan Agreement"), dated the date hereof, executed by and between Maker and
Payee, and is the "Note" referred to therein, and the holder of this Note is
entitled to the benefits provided in the Loan Agreement. Reference is hereby
made to the Loan Agreement for a statement of (i) the obligation of Payee to
advance funds hereunder, (ii) the prepayment rights and obligations of Maker and
(iii) the events on which the maturity of this Note may be accelerated.
<PAGE>
6. If the principal of, or any installment of interest on, this Note
becomes due and payable on a day other than a Business Day, then the maturity
thereof shall be extended to the next succeeding Business Day. If this Note, or
any installment or payment due hereunder, is not paid when due, whether at
maturity or by acceleration, or if it is collected through a bankruptcy, probate
or other court, whether before or after maturity, then Maker shall pay all costs
of collection, including, but not limited to, attorney's fees incurred by the
holder of this Note. All past due principal of, and to the extent permitted by
applicable law, interest on this Note shall bear interest until paid at the rate
provided in the Loan Agreement.
7. Maker and all sureties, endorsers, guarantors and other parties ever
liable for payment of any sums payable pursuant to the terms of this Note,
jointly and severally waive demand, presentment for payment, protest, notice of
protest, notice of acceleration, notice of intent to accelerate, diligence in
collection, the bringing of any suit against any party and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any trustee or any holder hereof, whether before or after maturity.
8. All Borrowings made by Payee, the respective Interest Periods
thereof (if applicable), and all repayments of the principal thereof may be
recorded by Payee and, before any transfer hereof, endorsed by Payee on the
schedule attached hereto, or on a continuation of the schedule attached to and a
part hereof, provided that the failure of Payee to record any endorsement shall
not affect the obligation of Maker hereunder or under the Loan Agreement.
9. This Note is being executed and delivered, and is intended to be
performed in the State of Texas. Except to the extent that the laws of the
United States may apply to the terms hereof, the substantive laws of the State
of Texas shall govern the validity, construction, enforcement and interpretation
of this Note.
MAKER:
AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ William H Hayes
Name: William H Hayes
Title: Sr VP Finance
2
Exhibit 10.55
NationsBank of Texas, N.A. Pledge Agreement
=========================================================== ====================
BANK/SECURED PARTY: PLEDGOR(S)/DEBTOR(S):
NationsBank of Texas, N.A., American Physicians Service Group, Inc.,
a national banking association a Texas corporation
515 Congress Avenue 1301 Capital of Texas Highway
11th Floor C-300
Austin, Texas 78701 Austin, Texas 78746
Travis County, Texas
(Street address including county) (Name and street address including county)
================================================================================
Pledgor/Debtor is: [ ] Individual [X] Corporation [ ] Partnership [ ] Other
Address is Pledgor's/Debtor's: [ ] Residence [ ] Place of Business
[X] Chief Executive Office if more than one place of business
================================================================================
Capitalized terms not otherwise defined in this Pledge Agreement (this
"Agreement") have the same meaning as assigned in the Loan Agreement
(hereinafter defined).
1. SECURITY INTEREST. For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Pledgor/Debtor (hereinafter referred
to as "Pledgor") pledges, assigns and grants to Bank a security interest and
lien in the Collateral (hereinafter defined) to secure the payment and the
performance of the Obligation (hereinafter defined).
2.
3. COLLATERAL. The
security interest is granted in the following collateral (the "Collateral"):
4.
A. DESCRIPTION OF COLLATERAL.
B.
C. SPECIFIC INVESTMENT PROPERTY/SECURITIES: The
following investment property and/or securities, together with all investment
property and/ or securities hereafter delivered to Bank in substitution therefor
or in addition thereto:
D. i. 500,000 shares of Common Stock, $.01 par value
(together with any other shares of Common Stock of Prime pledged hereunder from
time to time, the "Prime Pledged Shares") of Prime Medical Services, Inc., a
Delaware corporation ("Prime"). ii. iii. a. 1,000 shares of Common Stock, $.10
par value of APS Financial Corporation, a Colorado corporation; iv. v. b. 800
shares of Common Stock, $.10 par value, APS Insurance Services, Inc., a Delaware
corporation; vi. vii. c. 1,874,600 shares of Common Stock, $.001 par value of
APS Practice Management, Inc., a Texas corporation; viii. ix. x. d. 1,000 shares
of Common Stock, $.10 par value of Syntera Technologies, Inc., a Delaware
corporation; and
<PAGE>
xi.
xii. e. 1,000 shares of Common Stock, $1.00 par value of
APS Realty, Inc., a Texas corporation (the Prime Pledged Shares and the shares
described in this Subsection 2.A.ii are collectively referred to herein as the
"Pledged Shares").
xiii.
xiv. all cash, securities, dividends, increases,
distributions and profits received from or on the Pledged Shares, including
distributions or payments in partial or complete liquidation or redemption, or
as a result of reclassifications, readjustments, reorganizations or changes in
the capital structure of the Issuer and any other property at any time and from
time to time received, receivable or otherwise distributed or delivered to Bank,
and all rights and privileges pertaining thereto.
xv.
xvi. It is contemplated by
the parties that Pledgor may provide additional collateral from time to time
hereunder as additional security for the Obligation, and may from time to time
with the prior written consent of Bank sell or otherwise dispose of any
Collateral provided that Pledgor provides Bank with substitute collateral. At
the time of each addition or substitution of Collateral, the securities added or
substituted shall be identified on a Pledge Certificate, substantially in the
form of Schedule II attached hereto (the "Pledge Certificate"), and delivered to
Bank. Bank has no obligation to make any advances requested in connection
therewith unless (i) such additional and/or substituted Collateral is
satisfactory to Bank and (ii) the perfected security interest granted to Bank
therein is completed to the satisfaction of Bank. All such additional and/or
substituted Collateral shall be Collateral for purposes of this Agreement, and
shall secure the Obligation in the same manner as the Collateral for which it is
added to and/or substituted.
xvii.
E. PROCEEDS. All additions, substitutes and
replacements for and proceeds of the above Collateral (including all income and
benefits resulting from any of the above, such as dividends payable or
distributable in cash, property or stock; interest, premium and principal
payments; redemption proceeds and subscription rights; and shares or other
proceeds of conversions or splits of any securities in the Collateral). Any
investment property and/or securities received by Pledgor, which shall comprise
such additions, substitutes and replacements for, or proceeds of, the
Collateral, shall be held in trust for Bank and shall be delivered immediately
to Bank. Any cash proceeds shall be held in trust for Bank and upon request
shall be delivered immediately to Bank.
F.
G. DEPOSIT ACCOUNTS. The balance of
every deposit account of Pledgor maintained with Bank and any other claim of
Pledgor against Bank, now or hereafter existing, liquidated or unliquidated, and
all money, instruments, investment property, securities, documents, chattel
paper, credits, claims, demands, income, and any other property, rights and
interests of Pledgor which at any time shall come into the possession or custody
or under the control of Bank or any of its agents or affiliates, for any
purpose, and the proceeds of any thereof. Bank shall be deemed to have
possession of any of the Collateral in transit to or set apart for it or any of
its agents or affiliates.
1. OBLIGATION.
2.
A. DESCRIPTION OF OBLIGATION. The following obligations ("Obligation") are
secured by this Agreement:
i. ALL DEBT: All debts, obligations, liabilities and agreements of Pledgor to
Bank, now or hereafter existing, arising directly or indirectly between Pledgor
and Bank whether absolute or contingent, joint and several, joint or several,
secured or unsecured, due or not due, liquidated or unliquidated, arising by
operation of law or otherwise, and all renewals, extensions and rearrangements
of any of the above; including, without limitation, all debts, obligations,
liabilities and agreements of Pledgor now or hereafter arising under, or
governed by, that certain Revolving Credit Loan Agreement dated as of the date
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hereof, by and between Pledgor and Bank, and any renewal, extension,
modification or restatement thereof or therefor (the "Loan Agreement").
ii.
iii. PROMISSORY NOTE: All debt arising under that certain promissory note dated
as of the date hereof in the principal face amount of $10,000,000 executed by
Pledgor payable to the order of Bank, and any and all renewals, extensions,
modifications and rearrangements thereof; iv. v. All costs and expenses incurred
by Bank, including attorney's fees, to obtain, preserve, perfect, enforce and
defend this Agreement and maintain, preserve, collect and realize upon the
Collateral, together with interest thereon at the default rate provided in the
Loan Agreement; and vi. vii. All amounts which may be owed to Bank pursuant to
all other loan documents executed in connection with the indebtedness described
in subpart i. above. viii. In the event any amount paid to Bank on any
Obligation is subsequently recovered from Bank in or as a result of any
bankruptcy, insolvency or fraudulent conveyance proceeding involving an obligor
of the Obligation other than Pledgor, Pledgor shall be liable to Bank for the
amounts so recovered up to the fair market value of the Collateral whether or
not the Collateral has been released or the security interest terminated. In the
event the Collateral has been released or the security interest terminated, the
fair market value of the Collateral shall be determined, at Bank's option, as of
the date the Collateral was released, the security interest terminated, or said
amounts were recovered.
A. USE OF PROCEEDS. The proceeds of any indebtedness or obligation secured by
the Collateral will not be used directly or indirectly to purchase or carry any
"margin stock" as that term is defined in Regulation U of the Board of Governors
of the Federal Reserve System, or extend credit to or invest in other parties
for the purpose of purchasing or carrying any such "margin stock," or to reduce
or retire any indebtedness incurred for such purpose or otherwise in a manner
which would violate Regulations G, T or U.
1. PLEDGOR'S WARRANTIES. Pledgor hereby represents and warrants to Bank as
follows: 2. A. Financing Statements. Except as may be noted by schedule attached
hereto and incorporated herein by reference, no financing statement covering the
Collateral is or will be on file in any public office, except the financing
statements relating to this security interest, and no security interest, other
than the one herein created, has attached or been perfected in the Collateral or
any part thereof.
B.
C. OWNERSHIP. Pledgor owns the Collateral free from any setoff, claim,
restriction, lien, security interest or encumbrance except liens for taxes not
yet due and payable and the security interest hereunder, the applicability of
certain federal and state securities laws, including Rule 144 of the General
Regulations under the Securities Act of l933, and as to the common stock of APS
Insurance Services, Inc., the agreements described in Section 6.E. below, and
Pledgor represents and warrants that Pledgor has held the Prime Pledged Shares
and any other Prime Shares which may from time to time be pledged hereunder free
and clear of all liens (except for liens, encumbrances and debt held by Bank or
described above), encumbrances and debt, and borne the full economic risk
thereof since October 12, 1989.
D.
E. POWER AND AUTHORITY. Pledgor has full
power and authority to make this Agreement, and all necessary consents and
approvals of any persons, entities, governmental or regulatory authorities and
securities exchanges have been obtained to effectuate the validity of this
Agreement.
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F.
G. PLEDGED SHARE CHARACTERISTICS. The Pledged Shares which have
been pledged by Pledgor to Bank under this Agreement, or may hereafter be
pledged under this Agreement, satisfy and shall satisfy each of the requirements
and characteristics set forth on Schedule I hereto.
H.
I. The delivery at any
time by Pledgor to Bank of additional Pledged Shares shall constitute a
representation and warranty by Pledgor that, with respect to such Pledged
Shares, in each item thereof, the matters heretofore warranted in Clauses (A)
through (D) immediately above are true and correct at, and as if they were made
at, the date of such delivery.
J.
3. PLEDGOR'S COVENANTS. Until full payment and
performance of all of the Obligation and termination or expiration of any
obligation or commitment of Bank to make advances or loans to Pledgor, unless
Bank otherwise consents in writing:
4.
A. OBLIGATION AND THIS AGREEMENT. Pledgor
shall perform all of its agreements herein and in any other agreements between
it and Bank.
B.
C. OWNERSHIP OF COLLATERAL. Pledgor shall defend the Collateral
against all claims and demands of all persons at any time claiming any interest
therein adverse to Bank. Pledgor shall keep the Collateral free from all liens
and security interests except those for taxes not yet due and payable and the
security interest hereby created.
D.
E. BANK'S COSTS. Pledgor shall pay all
costs necessary to obtain, preserve, perfect, defend and enforce the security
interest created by this Agreement, collect the Obligation, and preserve,
defend, enforce and collect the Collateral, including but not limited to taxes,
assessments, reasonable attorney's fees, legal expenses and expenses of sales.
Whether the Collateral is or is not in Bank's possession, and without any
obligation to do so and without waiving Pledgor's default for failure to make
any such payment, Bank at its option may pay any such costs and expenses and
discharge encumbrances on the Collateral, and such payments shall be a part of
the Obligation and bear interest at the rate set out in the Obligation. Pledgor
agrees to reimburse Bank on demand for any costs so incurred.
F.
G. INFORMATION AND INSPECTION. Pledgor shall (i) promptly furnish Bank any
information with
respect to the Collateral requested by Bank; (ii) allow Bank or its
representatives to inspect and copy, or furnish Bank or its representatives with
copies of, all records relating to the Collateral and the Obligation; and (iii)
promptly furnish Bank or its representatives with any other information Bank may
reasonably request.
H.
I. ADDITIONAL DOCUMENTS. Pledgor shall sign and deliver
any papers furnished by Bank which are necessary or desirable in the judgment of
Bank to obtain, maintain and perfect the security interest hereunder and to
enable Bank to comply with any federal or state law in order to obtain or
perfect Bank's interest in the Collateral or to obtain proceeds of the
Collateral.
J.
K. NOTICE OF CHANGES. Pledgor shall notify Bank immediately of
(i) any material change in the Collateral, (ii) a change in Pledgor's residence
or location, (iii) a change in any matter warranted or represented by Pledgor in
this Agreement, or in any of the Loan Documents relating to the Obligation or
furnished to Bank pursuant to this Agreement, and (iv) the occurrence of an
Event of Default under this Agreement or any other Loan Document.
L.
M.POSSESSION OF COLLATERAL. Pledgor shall deliver a copy of this Agreement (or
other notice acceptable to Bank) to any Broker, financial intermediary, or any
other person in possession of any of the Collateral or on whose books the
interest of Pledgor in the Collateral appears, and such delivery shall
constitute notice to such person of Bank's security interest in the Collateral
and shall constitute Pledgor's
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instruction to such person to note Bank's
security interest on their books and records, or deliver to Bank certificates or
other evidence of the Collateral promptly upon Bank's request. Pledgor shall
deliver all investment securities and other instruments and documents which are
a part of the Collateral and in Pledgor's possession to Bank immediately, or if
hereafter acquired, immediately following acquisition, in a form suitable for
transfer by delivery or accompanied by duly executed instruments of transfer or
assignment in blank with signatures appropriately guaranteed in form and
substance suitable to Bank.
N.
O. POWER OF ATTORNEY. Pledgor appoints Bank and
any officer thereof as Pledgor's special attorney-in-fact with limited power in
Pledgor's name and on Pledgor's behalf, to perform only those acts that Pledgor
is obligated to do or may be required to do hereunder. Nothing in this paragraph
shall be construed to obligate Bank to take any action hereunder nor shall Bank
be liable to Pledgor for failure to take any action hereunder. This appointment
shall be deemed a power coupled with an interest and shall not be terminable as
long as the Obligation is outstanding and shall not terminate on the disability
or incompetence of Pledgor. Without limiting the ability to perform any acts
authorized by the foregoing, Bank shall have the right and power to receive,
endorse and collect all checks and other orders for the payment of money made
payable to Pledgor but only to the extent that such checks or payments represent
any dividend, interest payment or other distribution payable in respect of the
Collateral or any part thereof. Bank will notify Pledgor after Bank has
exercised the power, and Bank shall deliver to Pledgor copies of any documents
executed by Bank pursuant to the power. Upon payment of the entire Obligation,
the power described in this Section shall be deemed to be terminated.
P.
Q. OTHER PARTIES AND OTHER COLLATERAL. No renewal or extensions of or any other
indulgence with respect to the Obligation or any part thereof, no modification
of the document(s) evidencing the Obligation, no release of any security, no
release of any person (including any maker, indorser, guarantor or surety)
liable on the Obligation, no delay in enforcement of payment, and no delay or
omission or lack of diligence or care in exercising any right or power with
respect to the Obligation or any security therefor or guaranty thereof or under
this Agreement shall in any manner impair or affect the rights of Bank under any
law, hereunder, or under any other agreement pertaining to the Collateral. Bank
need not file suit or assert a claim for personal judgment against any person
for any part of the Obligation or seek to realize upon any other security for
the Obligation, before foreclosing or otherwise realizing upon the Collateral.
Pledgor waives any right that can be waived to the benefit of or to require or
control application of any other security or proceeds thereof, and agrees that
Bank shall have no duty or obligation to Pledgor to apply to the Obligation any
such other security or proceeds thereof.
R.
S. WAIVERS BY PLEDGOR. Pledgor
waives notice of the creation, advance, increase, existence, extension or
renewal of, and of any indulgence with respect to, the Obligation; waives
presentment, demand, notice of dishonor, and protest; waives notice of the
amount of the Obligation outstanding at any time, notice of any change in
financial condition of any person liable for the Obligation or any part thereof,
notice of any Event of Default, and all other notices respecting the Obligation;
and agrees that maturity of the Obligation and any part thereof may be
accelerated, extended or renewed one or more times by Bank in its discretion,
without notice to Pledgor. Pledgor waives any right to require that any action
be brought against any other person or to require that resort be had to any
other security or to any balance of any deposit account. Pledgor further waives
any right of subrogation or to enforce any right of action against any other
pledgor until the Obligation is paid in full.
T.
U. RULE 144 RIDER. Pledgor
acknowledges that the Collateral is, or may be in the future, comprised in whole
or in part of control or restricted securities, which shall be subject to the
additional terms and provisions described on the Rule 144 Rider attached hereto
and made a part hereof for all purposes.
V.
5. MAINTENANCE OF COLLATERAL.
6.
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A.
MAINTENANCE OF COLLATERAL. At all times during the term of this Agreement,
Pledgor agrees to maintain as security for the Obligation, Prime Pledged Shares
with an Adjusted Collateral Value (as determined herein) in excess of 182% of
the unpaid principal balance of the Obligation (the "Maintenance Margin"). The
Adjusted Collateral Value shall be determined by multiplying the number of Prime
Pledged Shares (including any Additional Shares) by the per share price of such
Prime stock at the most recent close of trading on a trading exchange for the
Prime stock. In the event that Prime Pledged Shares are not traded on an
exchange, the Adjusted Collateral Value of the Prime Pledged Shares shall be
determined by obtaining the quoted value of such Prime Pledged Shares from a
reputable brokerage firm selected by Bank. If no such quote is available, the
value will be determined by Bank in its sole discretion.
B.
C. No Borrowing (as
defined in the Loan Agreement) requested by Pledgor shall be made to Pledgor if
the sum of (i) the outstanding principal balance of the Obligation plus (ii) the
amount of the Borrowing requested, equals or exceeds 50% of the Adjusted
Collateral Value (the "Original Advance Percentage").
D.
E. BREACH OF COLLATERAL MAINTENANCE. Pledgor agrees that the failure to maintain
Collateral with an Adjusted Collateral Value as set forth above shall constitute
an Event of Default under this Agreement. In such event, the Pledgor shall have
five Business Days (as defined in the Loan Agreement) from the date Pledgor is
notified by Bank (in writing or orally) of such noncompliance, to either pledge
additional shares of Prime stock satisfactory to Bank, in its sole discretion,
or reduce the unpaid principal balance of the Obligation such that, in either
case, the Adjusted Collateral Value shall be not less than the Maintenance
Margin. In the event Pledgor fails to comply with the terms hereof, Bank may,
without any further notice of any kind, exercise any of the following rights and
remedies, at Bank's option:
F.
(a) The rights and remedies set out in Section 8.B. of this
Agreement, including without limitation the right to
accelerate the Obligation and liquidate the Collateral.
(b) Sell all or any part of the Collateral and apply the proceeds
of such sale to the Obligation to bring the Obligation back
into compliance (that is, to reduce the unpaid principal of
the Obligation such that the unpaid principal of the
Obligation is less than Original Advance Percentage of the
Prime Pledged Shares.
If an Event of Default exists hereunder and the Collateral is declining in value
or threatens to decline speedily in value, Bank shall have no obligation to
notify Pledgor of the failure to maintain Prime Pledged Shares with an Adjusted
Collateral Value as set forth in subparagraph A above or to provide Pledgor with
an opportunity to cure such noncompliance, and in such case Pledgor agrees that
Bank may immediately at Bank's sole option (i) declare amounts due under the
Obligation to be immediately due and payable, and/or (ii) sell all or any part
of the Collateral and apply the proceeds of such Collateral to the Obligation.
A. ADDITIONAL PLEDGE PROVISION. Notwithstanding the provisions of 6A and 6B, in
the event the per share price of the Prime Pledged Shares on any day is less
than $8.25, than all shares of Prime owned by Pledgor (other than 500,000 shares
of common stock of Prime which shall be excluded) (the "Prime Stock") shall
become Additional Collateral hereunder, and Pledgor shall, immediately, upon
demand of Bank, execute and deliver a Pledge Certificate covering such Prime
Stock shares to Bank, together with the original stock certificates and blank
stock powers.
B.
C. RELEASE OF PRIME PLEDGED SHARES.
D.
i. In the event the
price per share of the Prime Pledged Shares increases so that the Adjusted
Collateral Value is in excess of 250% of the Obligation, then upon receipt of
Pledgor's written
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request to Bank requesting release of certain Prime Pledged
Shares, and provided no Default or Event of Default has occurred and is
continuing under the Loan Agreement, Bank shall as soon as reasonably possible
(but in any event no earlier than ten Business Days following receipt of the
request) release certain Prime Pledged Shares, so long as the Adjusted
Collateral Value of the remaining Prime Pledged Shares is not less than 200% of
the Obligation.
ii.
iii. In the event Pledgor has pledged all of its Prime Stock
shares to Bank as required pursuant to Section 6C above, then if the per share
price of the Prime Pledged Shares exceeds $8.50 during any ninety (90)
consecutive days, and Pledgor delivers a written request to Bank requesting
release of certain Prime Pledged Shares, provided no Default or Event of Default
has occurred and is continuing under the Loan Agreement, then Bank shall as soon
as reasonably possible (but in any event no earlier than ten Business Days
following receipt of the request) release certain Prime Pledged Shares, so long
as the Adjusted Collateral Value of the remaining Prime Pledged Shares is not
less than 200% of the Obligation.
iv.
v. Nothing in this Section 6D. shall
relieve Pledgor of its continuing obligations under Sections 6A, 6B and 6D. vi.
E. RELEASE OF OTHER COLLATERAL.
F.
i. In the event that FPIC Insurance Group,
Inc. ("FPIC") exercises its option to purchase additional shares of common stock
of APS Insurance Services, Inc., a Delaware corporation ("APS Insurance") as set
forth in the Stock Purchase and Stock Option Agreement entered into as of April
6, 1997 and in the Shareholders Agreement entered into on June 30, 1997 among
APS Insurance, Pledgor and FPIC, Bank shall release its lien and security
interest in the Collateral consisting of the pledged shares of APS Insurance
upon receipt by Bank of the purchase price therefor.
ii.
iii. The Bank also
agrees that provided no Event of Default (hereinafter defined) has occurred and
is continuing, shares of common stock of APS Practice Management, Inc.
("Practice Management") will be released from the lien and security interest of
this Agreement upon not less than ten (10) Business Days written notice to the
Bank, setting forth the number of shares to be released, the name of the
purchaser to whom the shares are to be transferred and the reason therefor.
iv.
2. RIGHTS AND POWERS OF BANK.
3.
A. GENERAL. Bank, before or after default,
without liability to Pledgor may: take control of proceeds, including stock
received as dividends or by reason of stock splits; release the Collateral in
its possession to any Pledgor, temporarily or otherwise; require additional
Collateral; reject as unsatisfactory any property hereafter offered by Pledgor
as Collateral; take control of funds generated by the Collateral, such as cash
dividends, interest and proceeds, and use same to reduce any part of the
Obligation and exercise all other rights which an owner of such Collateral may
exercise, except the right to vote or dispose of the Collateral before an Event
of Default; and at any time transfer any of the Collateral or evidence thereof
into its own name or that of its nominee. Other than the exercise of reasonable
care to ensure the safe custody of the Collateral in Bank's possession, Bank
shall have no obligation, duty or responsibility for the Collateral and
specifically, without limiting the foregoing, shall have no obligation, duty or
responsibility to collect any amounts payable, or exercise any right or option,
in respect of the Collateral or to sell all or any portion of the Collateral to
avoid market loss. Bank shall not be liable for failure to collect any account
or instruments, or for any act or omission on the part of Bank, its officers,
agents or employees, except for its or their own willful misconduct or gross
negligence. The foregoing rights and powers of Bank will be in addition to, and
not a limitation upon, any rights and powers of Bank given by law, elsewhere in
this Agreement, or otherwise.
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B.
C. CONVERTIBLE COLLATERAL. Bank may present for
conversion any Collateral which is convertible into any other instrument or
investment security or a combination thereof with cash, but Bank shall not have
any duty to present for conversion any Collateral unless it shall have received
from Pledgor detailed written instructions to that effect at a time reasonably
far in advance of the final conversion date to make such conversion possible.
D.
E. VOTING RIGHTS. Subject to the following sentence, the Pledgor shall be
entitled to exercise any and all voting and/or consensual rights and powers
relating or pertaining to the Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement. Upon (i) the occurrence after the
date hereof of an Event of Default and (ii) the giving of written notice by Bank
to Pledgor of its intention to (A) foreclose upon or otherwise dispose of the
Collateral or (B) exercise its voting rights pertaining to the Collateral, all
rights of the Pledgor to exercise the voting and/or consensual rights and powers
which it is entitled to exercise hereunder shall cease, at the option of Bank,
and all such rights shall thereupon become vested in Bank who shall have the
sole and exclusive right and authority to exercise such voting and/or consensual
rights and powers.
F.
4. DEFAULT.
5.
A. EVENT OF DEFAULT. An event of default
("Event of Default") shall occur (a) if Pledgor or any other obligor on all or
part of the Obligation shall fail to timely and properly pay or observe, keep or
perform any term, covenant, agreement or condition in this Agreement or in any
other agreement between Pledgor and Bank or between Bank and any other obligor
on the Obligation, including but not limited to any other note or instrument,
loan agreement, security agreement, deed of trust, mortgage, promissory note,
assignment or other agreement or instrument concerning the Obligation; or (b) an
Event of Default shall occur under the Loan Agreement or any other Loan
Document.
A. RIGHTS AND REMEDIES. If any Event of Default shall occur, then, in each and
every such case, Bank may, without (a) presentment, demand, or protest, (b)
notice of default, dishonor, demand, non-payment, or protest, (c) notice of
intent to accelerate all or any part of the Obligation, (d) notice of
acceleration of all or any part of the Obligation, or (e) notice of any other
kind, all of which Pledgor hereby expressly waives (except for any notice
required under this Agreement, any other Loan Document or which may not be
waived under applicable law), at any time thereafter exercise and/or enforce any
of the following rights and remedies, at Bank's option:
B.
i. ACCELERATION. The
Obligation shall, at Bank's option, become immediately due and payable, and the
obligation, if any, of Bank to permit further borrowings under the Obligation
shall at Bank's option immediately cease and terminate.
ii.
iii. LIQUIDATION OF
COLLATERAL. Sell, or instruct any agent or broker to sell, all or any part of
the Collateral in a public or private sale, direct any agent or broker to
liquidate all or any part of any account and deliver all proceeds thereof to
Bank, and apply all proceeds to the payment of any or all of the Obligation in
such order and manner as Bank shall, in its discretion, choose. Bank is
authorized, at any sale of the Collateral, if it deems it advisable, to restrict
the prospective bidders of Purchasers to those persons who will represent and
agree that they are purchasing for their own account, for investment, and not
with a view to distribution or sale of any of the Collateral. Pledgor agrees
that, because of the Securities Act of 1933, as amended, or any other laws or
regulations, and for other reasons, there may be legal and/or practical
restrictions or limitations affecting Bank in any attempts to dispose of certain
portions of the Collateral and for the enforcement of their rights. For these
reasons, Bank is hereby authorized by Pledgor, but not obligated, upon the
occurrence and during the continuation of an Event of Default, to sell all or
any part of the Collateral at private sale, subject to investment letter or in
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any other manner which will not require the Collateral, or any part thereof, to
be registered in accordance with the Securities Act of 1933, as amended, or the
rules and regulations promulgated thereunder, or any other laws or regulations,
at a reasonable price at such private sale or other distribution in the manner
mentioned above. Pledgor understands that Bank may in its discretion approach a
limited number of potential purchasers and that a sale under such circumstances
may yield a lower price for the Collateral, or any part or party thereof, than
would otherwise be obtainable if such collateral were either afforded to a
larger number or potential purchasers, or registered or sold in the open market.
Pledgor agrees that such private sale shall be deemed to have been made in a
commercially reasonable manner, and that Bank has no obligation to delay sale of
any Collateral to permit the issuer thereof to register it for public sale under
any applicable federal or state securities laws. Bank is authorized, in
connection with any such sale (i) to restrict the prospective bidders on or
purchasers of any of the Collateral to a limited number of sophisticated
investors who will represent and agree that they are purchasing for their own
account for investment and not with a view to the distribution or sale of any of
such Collateral and (ii) to impose such other limitations or conditions in
connection with any such sale as Bank reasonably deems necessary in order to
comply with applicable law. Pledgor covenants and agrees that he will execute
and deliver such documents and take such other action as Bank reasonably deems
necessary in order that any such sale may be made in compliance with applicable
law. Upon any such sale, Bank shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral so sold. Each purchaser at any
such sale shall hold the Collateral so sold absolutely, free from any claim or
right of Pledgor of whatsoever kind, including any equity or right of redemption
of Pledgor. Pledgor, to the extent permitted by applicable law, hereby
specifically waives all rights of redemption, stay or appraisal which he has or
may have under any law now existing or hereafter enacted.
iv.
v. In addition,
and without limiting the foregoing, Pledgor agrees that Bank may, in its
discretion, advertise, prepare for, and conduct a foreclosure sale of the
Collateral pursuant to newspaper advertisements or other public advertisements,
in accordance with (and subject to conditions set forth in) no action letters,
pronouncements and requirements of the Securities and Exchange Commission, in
order to comply with the Securities Act of 1933, as amended, or any other laws
or regulations.
vi.
vii. UNIFORM COMMERCIAL CODE. All of the rights, powers and
remedies of a secured creditor under the Uniform Commercial Code ("UCC") as
adopted in the jurisdiction to which Bank is subject under this Agreement.
viii.
ix. RIGHT OF SET OFF. Without notice or demand to Pledgor, set off and apply
against any and all of the Obligation any and all deposits (general or special,
time or demand, provisional or final) and any other indebtedness, at any time
held or owing by Bank or by any of Bank's affiliates or correspondents to or for
the credit of the account of Pledgor or any guarantor or indorser of Pledgor's
Obligation.
x.
xi. Pledgor specifically understands and agrees that any sale by
Bank of all or part of the Collateral pursuant to the terms of this Agreement
may be effected by Bank at times and in manners which could result in the
proceeds of such sale as being significantly and materially less than might have
been received if such sale had occurred at different times or in different
manners, and Pledgor hereby releases Bank and its officers and representatives
from and against any and all obligations and liabilities arising out of or
related to the timing or manner of any such sale.
xii.
xiii. If, in the opinion
of Bank, there is any question that a public sale or distribution of any
Collateral will violate any state or federal securities law, Bank may offer and
sell such Collateral in a transaction exempt from registration under federal
securities law, and any such sale made in good faith by Bank shall be deemed
"commercially reasonable."
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1. GENERAL.
2.
A. PARTIES BOUND. Bank's rights hereunder shall inure to the benefit of its
successors and assigns, and in the event of any assignment or transfer of any of
the Obligation or the Collateral, Bank thereafter shall be fully discharged from
any responsibility with respect to the Collateral so assigned or transferred,
but Bank shall retain all rights and powers hereby given with respect to any of
the Obligation or the Collateral not so assigned or transferred. All
representations, warranties and agreements of Pledgor if more than one are joint
and several and all shall be binding upon the personal representatives, heirs,
successors and assigns of Pledgor.
A. WAIVER. No delay of Bank 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 Bank of any right hereunder or of any default by Pledgor
shall be binding upon Bank unless in writing, and no failure by Bank to exercise
any power or right hereunder or waiver of any default by Pledgor shall operate
as a waiver of any other or further exercise of such right or power or of any
further default. Each right, power and remedy of Bank as provided for herein or
in any of the loan documents related to the Obligation, or which shall now or
hereafter exist at law or in equity or by statute or otherwise, shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by Bank of any one or
more of such rights, powers or remedies shall not preclude the simultaneous or
later exercise by Bank of any or all other such rights, powers or remedies.
B.
C. 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 Bank and Pledgor 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. Time is of the essence of this Agreement.
D.
E. DEFINITIONS. Unless the context indicates otherwise, definitions in the UCC
apply to words and phrases in this Agreement; if UCC definitions conflict,
Article 8 and/or 9 definitions apply.
F.
G. NOTICE. Notice shall be deemed reasonable if it is made (i) in writing and
personally delivered or mailed by prepaid certified or registered mail, or (ii)
made by facsimile transmission delivered or transmitted, to the party to whom
such notice of communication is directed, to the address of such party shown
opposite its name on the signature pages hereof. Any such communication shall be
deemed to have been given (whether actually received or not) on the day it is
personally delivered or, if transmitted by facsimile transmission, on the day
that such communication is transmitted.
H.
I. 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 Pledgor and
Bank. The provisions of this Agreement shall not be modified or limited by
course of conduct or usage of trade.
J.
K. PARTIAL INVALIDITY. The
unenforceability or invalidity of any provision of this Agreement shall not
affect the enforceability or validity of any other provision herein, and the
invalidity or unenforceability of any provision of any Loan Document to any
person or circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
L.
M. APPLICABLE
LAW AND VENUE. This Agreement has been delivered in the State of Texas and shall
be construed in accordance with the laws of that State. It is performable by
Pledgor in the county or city
10
<PAGE>
of Bank's address set out above and Pledgor
expressly waives any objection as to venue in any such location. Wherever
possible each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Agreement.
N.
O. Financing Statement. To the extent permitted by applicable
law, a carbon, photographic or other reproduction of this Agreement or any
financing statement covering the Collateral shall be sufficient as a financing
statement.
P.
Q. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
R.
i. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
ii.
iii. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH
11
<PAGE>
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT, PROVIDED THAT IF BANK SHALL PETITION A COURT
FOR SUCH RELIEF OR REMEDIES, THEN PLEDGOR SHALL BE ENTITLED TO ASSERT IN SUCH
COURT ANY CLAIMS OR DEFENSES RELATED TO THE SUBJECT MATTER OF BANK'S PETITION.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
iv.
S. Controlling Document. To the extent that this Agreement conflicts with or
is in any way incompatible with any other loan document concerning the
Obligation, any promissory note shall control over any other document, and if
such promissory note does not address an issue, then each other loan document
shall control to the extent that it deals most specifically with an issue.
T.
U. Notice of Final Agreement. THIS WRITTEN AGREEMENT AND ANY OTHER DOCUMENTS
EXECUTED IN CONNECTION HEREWITH 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.
V.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized representatives as of February 10, 1998.
Bank/Secured Party: Pledgor(s)/Debtor(s):
NATIONSBANK OF TEXAS, N.A. AMERICAN PHYSICIANS SERVICE
GROUP, INC.,
By: /s/ Teena Belcik
-----------------
Teena Belcik, Name: /s/ William H Hayes
Vice President Title: Sr VP Finance
<PAGE>
SCHEDULE I
TO
PLEDGE AGREEMENT
Type of Collateral:
Shares of common stock, described in Section 2.A. of the Agreement, and
which
(1) are validly issued, fully paid and non-assessable;
(2) are owned of record and beneficially by Pledgor, and
represented by stock certificates issued in the name of Pledgor
properly endorsed to Bank;
(3) may be sold by Bank, pursuant to the terms of the
Pledge Agreement; and
(4) have been delivered and pledged to Bank pursuant to the
Pledge Agreement.
i
<PAGE>
SCHEDULE II
PLEDGE CERTIFICATE
Reference is hereby made to that certain Pledge Agreement dated as of
February , 1998 ("Pledge Agreement"), between American Physicians Service Group,
Inc., a Texas corporation ("Pledgor") and NationsBank of Texas, N.A., a national
banking association ("Bank"). This Pledge Certificate is delivered pursuant to
Section 2 of the Pledge Agreement. All capitalized terms used and not otherwise
defined herein shall have their respective meanings as set forth in the Pledge
Agreement.
Pledgor hereby certifies that concurrently with the delivery of this
Pledge Certificate,
[X] Pledgor is delivering to Bank the following items of Collateral as
additional Collateral for the Obligation (collectively, the "Additional
Collateral"): ______ shares of Common Stock, $.01 par value of Prime
Medical Services, Inc., a Delaware corporation.
Pledgor hereby acknowledges that Pledgor has granted to Bank a security
interest in the Additional Collateral pursuant to the Pledge Agreement to secure
the Obligation and that the Collateral covered by the Pledge Agreement includes,
without limitation, Additional Collateral. Pledgor hereby represents and
warrants that all of the representations and warranties contained in the Pledge
Agreement are true and correct in all material respects, including with respect
to the Additional Collateral, on the date hereof as though made as of the date
hereof.
EXECUTED this 10th day of February, 1998.
Pledgor(s)/Debtor(s):
AMERICAN PHYSICIANS SERVICE GROUP, INC.,
By: /s/ William H Hayes
Name: William H Hayes
Title: Sr VP Finance
i
<PAGE>
<PAGE>
RULE 144 RIDER
This Rule 144 Rider is made this 10th day of February, 1998, and is
incorporated into and shall be deemed to supplement the Pledge Agreement
("Agreement") of the same date given by Pledgor to secure the Obligation to
Bank. Terms used and not otherwise defined in this Rider which are defined in
the Agreement have the meanings given them in the Agreement.
1. The securities listed on Exhibit A hereto, which Exhibit is made a
part of this Rider and the Agreement for all purposes, are or may be
deemed (check one or more boxes):
[X] Restricted securities
[X] Control securities
for purposes of Rule 144 of the General Regulations under the
Securities Act of 1933 ("Rule 144") promulgated by the Securities and
Exchange Commission. These securities ("Rule 144 Securities") comprise
all or part of the Collateral held by Bank presently subject to the
terms and conditions of the Agreement and this Rider.
2. Pledgor represents and warrants that Pledgor has held the Rule 144
Securities free and clear of all liens (except for liens, encumbrances
and debt held by Bank) encumbrances and debt, and borne the full
economic risk thereof since October 12, 1989.
3. Pledgor covenants and agrees that:
a. After an Event of Default, Pledgor will cooperate fully
with Bank with respect to any sale by Bank of any of the Rule
144 Securities, including full and complete compliance with
all requirements of Rule 144, and will give to Bank all
information and will do all things necessary, including the
execution of all documents, forms, instruments and other
items, to comply with Rule 144 for the complete and
unrestricted sale and/or transfer of the Rule 144 Securities
and will exercise its best efforts to have the issuer of such
securities, upon the request of Bank, take all such action as
may be required to satisfy the public information requirements
of Rule 144(c).
b. Pledgor will not approve or consent to any amendment of the
articles of incorporation or charter of any issuer of the Rule
144 Securities that may materially adversely affect the value
of the Rule 144 Securities, or that permit any issuer of the
Rule 144 Securities to merge or consolidate with or into any
corporation or other person, without the prior written consent
of Bank.
c. Pledgor will use all reasonable efforts, upon Bank's
written request, to have issuer publish all information
necessary to satisfy Rule 144 in the event any issuer of the
Rule 144 Securities is not current in its filings under the
Securities Exchange Act of 1934 at the time of a foreclosure
sale by Bank.
<PAGE>
By signing below, Pledgor accepts and agrees to the terms and covenants
contained in this Rider.
Pledgor(s)/Debtor(s):
AMERICAN PHYSICIANS SERVICE
GROUP, INC.,
/s/ William H Hayes
Name: William H Hayes
Title: Sr VP Finance
Exhibit 10.56
NationsBank of Texas, N.A. CONTINUING AND UNCONDITIONAL GUARANTY
1. Guaranty. For Value Received, and to induce NationsBank of Texas, N.A.
Austin Commercial Banking
-------------------------
Banking Center
515 Congress Avenue, 11th Flor, Austin, Texas 78701
- - ----------------------------------------------- -------------------------------
Bank Street Address City State Zip Code
(Attn: Teena Belcik ) (herein called "Bank"), to make loans or advances or to
extend credit or other financial accommodations or benefits, with or without
security, to or for the account of
American Physicians Service Group, Inc., a Texas corporation
- - ------------------------------------------------------------
Borrower's Name
1301 Capital of Texas, Suite 300, Austin, Texas, 78746
- - -------------------------------------------------- ----------------------------
Street Address City State Zip Code
(herein called "Borrower"), the undersigned (herein called "Guarantor"), if more
than one, then each of them jointly and severally, hereby becomes surety for and
irrevocably and unconditionally guarantees to Bank the full and prompt payment
when due, whether by acceleration or otherwise, of any and all Liabilities (as
hereinafter defined) of Borrower to Bank, together with reasonable attorney's
fees, costs and expenses incurred by Bank in enforcing any and all of such
indebtedness. This Guaranty is continuing and unlimited as to the amount.
Guarantor further unconditionally guarantees the faithful, prompt and complete
compliance by Borrower with all terms, conditions, covenants, agreements and
undertakings of Borrower (herein collectively referred to as the "Obligations")
under all notes and other documents evidencing the Liabilities, as hereinafter
defined, and under all security agreements and other agreements, documents and
instruments executed in connection with the Liabilities or related thereto
including, without limitation, all obligations of Borrower pursuant to that
certain Revolving Credit Loan Agreement dated as of February , 1998, executed by
Bank and Borrower (the "Loan Agreement") (all such security agreements and other
documents securing payment of the Liabilities and all notes and other
agreements, documents, and instruments evidencing or relating to the Liabilities
and Obligations being herein collectively called the "Loan Documents"). The
undertakings of Guarantor hereunder are independent of the Liabilities and
Obligations of the Borrower and a separate action or actions for payment,
damages or performance may be brought or prosecuted against Guarantor, whether
or not an action is brought against the Borrower or to realize upon the security
for the Liabilities and/or Obligations and whether or not Borrower is joined in
any such action or actions, and whether or not notice is given or demand is made
upon the Borrower.
Bank shall not be required to proceed first against Borrower, or any other
person, firm or corporation, whether primarily or secondarily liable, or against
any Collateral held by it, before resorting to Guarantor for payment, and
Guarantor shall not be entitled to assert as a defense to the enforceability of
the Guaranty any defense of Borrower with respect to any Liabilities or
Obligations.
1. PARAGRAPH HEADINGS AND GOVERNING LAW. Guarantor agrees that the paragraph
headings in this Guaranty are for convenience only and that they will not limit
any of the provisions of this Guaranty. Guarantor further agrees that this
Guaranty shall be governed by and construed in accordance with the laws of the
State of Texas and applicable United States federal law. Guarantor further
agrees that this Guaranty shall be deemed to have been made in the State of
Texas at Bank's address indicated herein, and shall be governed by, and
construed in accordance with, the laws of the State of Texas, or the United
States courts located within the State of Texas, and is performable in Austin,
Travis County, Texas.
1. DEFINITIONS.
2.
A. "Liability" or "Liabilities" as used herein shall include without limitation,
all liabilities, overdrafts, indebtedness, and obligations of Borrower to Bank,
whether direct or indirect, 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, now or hereafter existing, or held or
to be held by the Bank for its own account or as agent for another or others,
whether created directly, indirectly, or acquired by assignment or otherwise,
including but not limited to all extensions or renewals thereof, and all sums
payable under or by virtue thereof, including without limitation, all amounts of
principal and interest, all expenses (including attorney's fees and cost of
collection as specified) incurred in the collection thereof or the enforcement
of rights thereunder or in enforcing this Guaranty (including without
limitation, any liability arising from failure to comply with state or federal
laws, rules and regulations concerning the control of hazardous wastes or
substances), whether arising in the ordinary course of business or otherwise,
and whether held or to be held by Bank for its own account or as agent for
another or others. If Borrower is a partnership, corporation or other entity the
term "Liability" or "Liabilities" as used herein shall include all Liabilities
to Bank of any successor entity or entities.
A. "Guarantor" as used herein shall mean Guarantor or any one or more of them.
Anyone executing this Guaranty shall be bound by the terms hereof without regard
to execution by anyone else. This Guaranty is binding upon Guarantor, his, their
or its executors, administrators, successors or assigns, and shall inure to the
benefit of Bank, its successors, endorsees or assigns.
B.
C. "Guarantor" as used in this instrument shall be construed as singular or
plural to correspond with the number of persons executing this instrument as
Guarantor. The pronouns used in this Agreement are in the masculine gender but
shall be construed as female or neuter as an occasion may require.
D.
E.
"Collateral" means the property subject to a security interest, and includes
accounts and chattel paper which have been sold, including but not limited to
all additions and accessions thereto, all replacements or substitutes therefor,
and all immediate and remote proceeds of the sale or other disposition thereof.
<PAGE>
1. WAIVERS BY GUARANTOR. Guarantor waives notice of acceptance of this Guaranty,
notice of any Liability or Obligations to which it may apply, and waives
presentment, demand for payment, protest, notice of dishonor or nonpayment of
any Liabilities, waiver of notice of intent to accelerate, waiver of notice of
acceleration and notice of any suit or the taking of other action by Bank
against Borrower, Guarantor or any other person and any other notice to any
party liable thereon (including Guarantor) and any applicable statute of
limitations.
Until payment in full of the Liabilities and the Obligations, each Guarantor
also hereby waives any claim, right or remedy which such Guarantor may now have
or hereafter acquire against the Borrower that arises hereunder and/or from the
performance by any Guarantor hereunder including, without limitation, any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right or remedy of the Bank
against the Borrower or any security which the Bank now has or hereafter
acquires, whether or not such claim, right or remedy arises in equity, under
contract, by statute, under common law or otherwise.
Guarantor hereby agrees to waive the benefits of any provision of law requiring
that the Bank exhaust any right or remedy, or take any action, against the
Borrower, any Guarantor, any other person and/or property including but not
limited to the provisions of the Texas Civil Practice and Remedies Code ss.
17.001, Texas Rules of Civil Procedure Rule 31 and the Texas Business and
Commerce Code ss. 34.03, as amended, or otherwise.
Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as required
by law), without incurring responsibility to Guarantor, without impairing,
releasing, or otherwise affecting the obligations of Guarantor, in whole or in
part, and without the endorsement or execution by Guarantor of any additional
consent, waiver or guaranty: (a) change the manner, place or terms of payment;
(b) change or extend the time of or renew or alter, any Liability or Obligation
or installment thereof, or any security therefor; (c) loan additional monies or
extend additional credit to Borrower, with or without security, thereby creating
new Liabilities or Obligations the payment or performance of which shall be
guaranteed hereunder, and the Guaranty herein made shall apply to the
Liabilities and Obligations as so changed, extended, surrendered, realized upon
or otherwise altered; (d) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property at any time
pledged or mortgaged to secure the Liabilities or Obligations and any offset
there against; (e) exercise or refrain from exercising any rights against
Borrower or others (including Guarantor) or act or refrain from acting in any
other manner; (f) settle or compromise any Liability or Obligation or any
security therefor and subordinate the payment of all or any part thereof to the
payment of any Liability or Obligation of any other parties primarily or
secondarily liable on any of the Liabilities or Obligations; (g) release or
compromise any liability of Guarantor hereunder or any Liability or Obligation
of any other parties primarily or secondarily liable on any of the Liabilities
or Obligations; or (h) apply any sums from any sources to any Liability without
regard to any Liabilities remaining unpaid.
1. SUBORDINATION. Upon demand of Bank, Guarantor agrees that it will not demand,
take or receive from the Borrower, by set-off or in any other manner, payment of
any liabilities and/or obligations, now and at any time or times hereafter owing
by the Borrower to Guarantor unless and until all the Liabilities shall have
been fully paid, and any security interest, liens or encumbrances which
Guarantor now has and from time to time hereafter may have upon any of the
assets of the Borrower shall be made subordinate, junior and inferior and
postponed in priority, operation and effect to any security interest of Bank in
such assets.
2.
3. WAIVERS BY BANK. No delay on the part of Bank in exercising any of its
options, powers or rights, or any partial or single exercise thereof, shall
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Guarantor to Bank in any other respect at any other time.
4.
5. TERMINATION.
This Guaranty shall continue until written notice of revocation signed by each
respective Guarantor or until written notice of the death of such Guarantor
shall actually have been received by Bank, notwithstanding change in name,
location, composition or structure of, or the dissolution, termination or
increase, decrease or change in personnel, owners or partners of Borrower, or
any one or more of Guarantors, provided, however, that no notice of revocation
or termination hereof shall affect in any manner rights arising under this
Guaranty with respect to Liabilities or Obligations that shall have been
created, contracted, assumed or incurred prior to receipt of such written notice
pursuant to any agreement entered into by Bank prior to receipt of such notice,
and the sole effect of such notice of revocation or termination hereof shall be
to exclude from this Guaranty, Liabilities or Obligations thereafter arising
that are unconnected with Liabilities or Obligations theretofore arising or
transactions entered into theretofore.
6.
7. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The unenforceability or
invalidity of any provision of this Guaranty shall not affect the enforceability
or validity of any other provision herein and the invalidity or unenforceability
of any provision of any Loan Document as it may apply to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
8.
9. In the event Bank is required to relinquish or return the
payments, the Collateral or the proceeds thereof, in whole or in part, which had
been previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by the Bank.
10.
11. OBLIGATIONS OF GUARANTOR. Upon the occurrence of an event of default,
Guarantor shall upon demand by Bank, promptly and with due diligence pay all
Liabilities and perform and satisfy for the benefit of Bank all Obligations.
12.
13. Guarantor will not become a party to a merger or consolidation with any
other company, except as provided in the Loan Agreement. Guarantor further
agrees that this Guaranty Agreement shall be binding, legal and enforceable
against Guarantor in the event Borrower changes its name, status or type of
entity.
14.
15. FINANCIAL AND OTHER INFORMATION. In entering into this Guaranty,
the Guarantor has not relied upon any representation of the Bank as to the
financial condition, operation or creditworthiness of the Borrower. The
Guarantor further agrees that the Bank shall have no duty or responsibility now
or hereafter to make any investigation or appraisal of the Borrower on behalf of
the Guarantor or to provide the Guarantor with any credit or other information
which may come to its attention now or hereafter.
16.
17. NOTICES. All notices
required or permitted to be given to Bank herein shall be sent by registered or
certified mail, return receipt requested to the Bank at the address shown in the
preamble to this agreement. Guarantor agrees that all notices required or
permitted to be given to Guarantor shall be sent by first class mail, postage
2
<PAGE>
prepaid United States mail. The parties agree that the notice shall be
considered received by Guarantor five (5) days after being placed in the United
States mail.
18.
19. EVENTS OF DEFAULT. The following are events of default
hereunder: (a) an Event of Default as defined in the Loan Agreement shall occur
and be continuing; or (b) termination of Guaranty by Guarantor.
20.
21.
REMEDIES. Upon the occurrence of any event of default hereunder, Bank shall have
all of the remedies of a creditor and, to the extent applicable, of a secured
party, under all applicable law, and without limiting the generality of the
foregoing, Bank may, at its option and without notice of demand: (a) declare any
Liability accelerated and due and payable at once; and (b) take possession of
any Collateral wherever located, and sell, resell, assign, transfer and deliver
all or any part of said Collateral of Borrower or Guarantor at any public or
private sale or otherwise dispose of any or all of the Collateral in its then
condition, for cash or on credit or for future delivery, and in connection
therewith Bank may impose reasonable conditions upon any such sale. Bank, unless
prohibited by law the provisions of which cannot be waived, may purchase all or
any part of said Collateral to be sold, free from and discharged of all trusts,
claims, rights or redemption and equities of the Borrower or Guarantor
whatsoever; Guarantor acknowledges and agrees that the sale of any Collateral
through any nationally recognized broker-dealer, investment banker or any other
method common in the securities industry shall be deemed a commercially
reasonable sale under the Uniform Commercial Code or any other equivalent
statute or federal law, and expressly waives notice thereof except as provided
herein; and (c) set-off against any or all liabilities of Guarantor all money
owed by Bank in any capacity to Guarantor whether or not due, and also set-off
against all other Liabilities of Borrower or Guarantor to Bank all money owed by
Bank in any capacity to any Borrower or Guarantor, and if exercised by Bank,
Bank shall be deemed to have exercised such right of set-off and to have made a
charge against any such money immediately upon the occurrence of such default
although made or entered on the books subsequent thereto.
22.
23. ATTORNEY FEES,
Cost and Expenses. Guarantor shall pay all costs of collection and reasonable
attorney's fees, including reasonable attorney's fees in connection with any
suit, mediation or arbitration proceeding, out of court payment agreement,
trial, appeal, bankruptcy proceedings or otherwise, incurred or paid by Bank in
enforcing the payment of any Liability or enforcing or preserving any right or
interest of Bank hereunder, including the collection, preservation, sale or
delivery of any Collateral from time to time pledged to Bank, and after
deducting such fees, costs and expenses from the proceeds of sale or collection,
Bank may apply any residue to pay any of the Liabilities and Guarantor shall
continue to be liable for any deficiency with interest at the rate specified in
any instrument evidencing the Liability or, at the Bank's option, equal to the
highest lawful rate, which shall remain a liability.
24.
25. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any of the property of Guarantor pledged to
Bank to secure Guarantor's obligations against prior parties who may be liable
in connection therewith, and Guarantor hereby agrees to take any such steps.
Bank, nevertheless, at any time, may (a) take any action it deems appropriate
for the care or preservation of such property or of any rights of Guarantor or
Bank therein, (b) demand, sue for, collect or receive any money or property at
any time due, payable or receivable on account of or in exchange for any
property of Guarantor, (c) compromise and settle with any person liable on such
property, or (d) extend the time of payment or otherwise change the terms of the
Loan Documents as to any party liable on the Loan Documents, all without notice
to, without incurring responsibility to, and without affecting any of the
obligations or liabilities of Guarantor.
26.
27. Collateral. Bank shall have a properly perfected security
interest in all of Guarantor's funds on deposit with Bank to secure the balance
of any liabilities and/or obligations that Guarantor may now or in the future
owe the Bank. Bank is granted a contractual right of set-off and will not be
liable for dishonoring checks or withdrawals where the exercise of Bank's
contractual right of set-off or security interest results in insufficient funds
in Guarantor's account. As authorized by law, Guarantor grants to Bank this
contractual right of set-off and security interest in all property of Guarantor
now or at anytime hereafter in the possession of Bank, including but not limited
to any joint account, special account, account by the entireties, tenancy in
common, and all dividends and distributions now or hereafter in the possession
or control of Bank.
28.
29. LIMITATION. It is the intention of Guarantor and the
Bank that the amount of the Liabilities and Obligations guaranteed by Guarantor
by this Guaranty shall be in, but not in excess of, the maximum amount permitted
by fraudulent conveyance, fraudulent transfer or similar laws applicable as to
Guarantor. Accordingly, notwithstanding anything to the contrary contained in
this Guaranty or any other agreement or instrument executed in connection with
the payment of any of the Limitations and the Obligations, the amount of the
Liabilities and the Obligations guaranteed by Guarantor by this Guaranty shall
be limited to that amount which after giving effect thereto would not (i) render
Guarantor insolvent, (ii) result in the fair saleable value of the assets of
Guarantor being less than the amount required to pay its debts and other
liabilities (including contingent liabilities) as they mature, or (iii) leave
Guarantor with unreasonably small capital to carry out its business as now
conducted and as proposed to be conducted, including its capital needs, as such
concepts described in (i), (ii) and (iii) herein are determined under applicable
law, if the obligations of Guarantor hereunder would otherwise be set aside,
terminated, annulled or avoided for such reason by a court of competent
jurisdiction in a proceeding actually pending before such court. For purposes of
this Guaranty, the term "applicable law" means as to Guarantor each statute,
law, ordinance, regulation, order, judgment, injunction or decree of the United
States or any state or commonwealth, any municipality, any foreign country, or
any territory, possession or tribunal applicable to Guarantor.
30.
31.
ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
32.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE
BORROWER'S DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED
BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
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ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B.
C. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY
THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SET-OFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK
MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. AT BANK'S OPTION,
FORECLOSURE UNDER A DEED OF TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE
FOLLOWING: THE EXERCISE OF A POWER OF SALE UNDER THE DEED OF TRUST OR MORTGAGE,
OR BY JUDICIAL SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL
FORECLOSURE. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
D.
33. NOTICE OF FINAL AGREEMENT. THIS WRITTEN
CONTINUING AND UNCONDITIONAL GUARANTY REPRESENTS 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.
34.
35.
36. Dated: February 10, 1998
37.
38.
NATIONSBANK OF TEXAS, N.A.
By:
/s/ Teena Belcik
----------------------------
Teena Belcik, Vice President
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Guarantors:
SYNTERA TECHNOLOGIES, INC., a Delaware corporation
By: /s/ Jackie Fife
Name: J.L Fife
Title: President
APS REALTY, INC., a Texas corporation
By: /s/ William H Hayes
Name: W.H. Hayes
Title: VP
Exhibit 10.57
RESTRUCTURING AGREEMENT
This Restructuring Agreement (this "Agreement") is made and entered
into as of the 25th day of March, 1999 (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 (the "Subsidiaries") listed on Schedule I attached
hereto (except for 7-7, Inc., an Arkansas corporation), 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 secured by various security agreements, assignments and
guarantees executed and granted by Consolidated and the Subsidiaries
(collectively, the "Original Security Documents"), including, without
limitation, those listed on Schedule II attached hereto; and
WHEREAS, APS, Consolidated and the Subsidiaries of Consolidated
executed and delivered that certain Master Refinancing Agreement dated November
6, 1997 (the "Refinancing Agreement"), pursuant to which (i) Consolidated
executed and delivered to APS a renewal and replacement promissory note in the
amount of $3,788,580 (the "Existing Note") in lieu of the Original Note, (ii)
Consolidated and the Subsidiaries affirmed the existence and enforceability of
<PAGE>
the Original Security Documents as security for, among other things, payment of
the Existing Note and (iii) Consolidated and certain of the Subsidiaries
executed and delivered new security agreements and guarantees securing, among
other things, payment of the Existing Note, including, without limitation, those
listed on Schedule II attached hereto (all such new security agreements and
guarantees, together with the Refinancing Agreement, the Original Security
Documents, and all other contracts, or agreements entered into by Consolidated
and/or its current or former subsidiaries and/or affiliates, with or for the
benefit of APS and/or APS subsidiaries and/or affiliates, are hereinafter
collectively referred to as the "Existing Security Documents");
WHEREAS, Consolidated is in default under the Existing Note and some or
all of the Subsidiaries are in default under the terms of one or more of the
Existing Security Documents, and, in connection therewith, Consolidated and
certain of the Subsidiaries have agreed to execute and deliver additional
security documents (the "Additional Security Documents") securing, among other
things, full satisfaction of all amounts owing APS under the Existing Note and
Existing Security Documents; and
WHEREAS, Consolidated has agreed to execute and deliver, and APS has
conditionally agreed to accept, but only upon the terms and the prior
satisfaction of certain conditions set forth herein, a new note in the original
principal amount of $2,500,000, substantially in the form attached hereto as
Exhibit A (the "New Note"), in renewal, replacement and extension of the
Existing Note, which New Note is also to be secured pursuant to the Existing
Security Documents and the Additional Security Documents; and
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WHEREAS, in addition to the covenants and agreements contained in the
New Note, the Existing Security Documents and the Additional Security Documents
(together, the "Security Documents"), Consolidated, the Subsidiaries and APS
desire to memorialize certain other understandings and binding 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:
Section 1. Acknowledgement of Existing Debt. Consolidated and each of
the Subsidiaries hereby acknowledge the existence and enforceability of the
Existing Note, that all the original principal amount remains due thereunder and
has been accelerated and is now fully due and owing, and that accrued and unpaid
interest owed thereunder to APS through February 1, 1999, is approximately
$731,800. The principal and interest due APS under the Existing Note, together
with any and all expenses, fees (including attorneys' fees), costs of
collection, and other amounts owed under the Existing Note and any Transaction
Document, as defined in Section 7 hereof is collectively referred to herein as
the "Existing Debt." Consolidated and each of the Subsidiaries acknowledges and
agrees that Consolidated is currently in default under the Existing Note and one
or more of the Transaction Documents, that such default is material, and that
APS has not previously waived, and does not hereby waive, any breach or default,
or any of its rights, under any of the Transaction Documents.
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Section 2. Acceptance of New Note and Deficiency Obligation. APS agrees
to, upon the expiration of at least eighteen (18) months immediately following
the Effective Date, accept in full satisfaction of the Existing Debt (i) the New
Note and (ii) the obligation of Consolidated and the Subsidiaries to pay, upon
the terms and conditions hereinafter provided, the deficiency, (the "Deficiency
Obligation") between the amount of the New Note and the amount of the Existing
Debt (as increased by any additional indebtedness arising hereafter under any of
the Transaction Documents). Once APS accepts the New Note under the terms of
this Agreement, APS agrees that its sole remedy and recourse with respect to the
Deficiency Obligation will be payment by Consolidated and the Subsidiaries of
the Contingent Payments (as defined in Section 4 hereof) upon the terms and
conditions provided in Section 4 hereof. APS's obligation under this Section to
accept the New Note and the Deficiency Obligation in replacement of the Existing
Debt is further qualified by each of the following conditions (subject to waiver
by APS in its sole discretion):
(a) Compliance with Existing Agreements. At the time of APS's
acceptance of the New Note and the Deficiency Obligation (the "Exchange Date"),
neither Consolidated nor any of the Subsidiaries shall be in default, and no
event of default shall have previously occurred since the Effective Date, under
any of the Transaction Documents, except only for: (i) default in making the
scheduled payments described in the Existing Note, (ii) default under the
provisions of the Refinancing Agreement (but not this Agreement) requiring
submission of financial information and (iii) the provisions of Section 1 of the
Refinancing Agreement requiring registration of securities of Consolidated; and
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<PAGE>
(b) Bankruptcy/Insolvency. At no time prior to and including
the Exchange Date has Consolidated or any Subsidiary: (i) taken any action that
could impair any collateral securing the obligations of Consolidated and/or the
Subsidiaries under any of the Transaction Documents (the "Collateral"); (ii) had
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; (iii) filed 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 had an involuntary petition for relief filed against it
under any Applicable Bankruptcy Law, or had an order for relief naming it
entered under any Applicable Bankruptcy Law, or had any composition,
rearrangement, extension, reorganization or other relief of debtors now or
hereafter existing requested or consented to by it; or (iv) failed to have
discharged within a period of ten (10) days any attachment, sequestration or
similar writ levied upon, or any claim against or affecting, any property of
such party; and
(c) Minimum Receipts. APS must have been paid a minimum of (i)
all Additional Reimbursable Costs (as defined in Section 11), plus (ii) $375,000
from Consolidated and the Subsidiaries, which $375,000 shall be applied first to
any penalties and interest accrued and unpaid under the Existing Debt, with any
balance to be applied to principal; provided, that amounts retained by APS
pursuant to Section 3(g) shall count toward the minimum receipts requirement set
forth in this subsection; and
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(d) Acquisition of Eco-Systems. APS and/or its affiliates must
have acquired, through the Foreclosure or otherwise, all of the issued and
outstanding capital stock or other equity ownership interests of Eco-Systems (as
hereinafter defined), and there shall not be outstanding any right on the part
of any person or entity to acquire any interest in the capital stock of, or
other equity ownership interest in, Eco-Systems.
Section 3. Acquisition of Eco-Systems.
(a) Foreclosure. Consolidated and each Subsidiary hereby
agrees that APS is entitled to foreclose (the "Foreclosure") on the issued and
outstanding capital stock of Eco Acquisition, Inc. d/b/a Eco-Systems
("Eco-Systems"), an Arkansas corporation, pursuant to that certain Assignment
and Security Agreement dated November 6, 1997, by and between APS and
Consolidated (the "Eco-Systems Security Agreement"). Consolidated and each
Subsidiary (including, without limitation, Eco-Systems) acknowledges and agrees
that there exists under the Eco-Systems Security Agreement an Event of Default
(as defined therein), and as of the date of this Agreement, such Event of
Default has not been cured. Consolidated and each Subsidiary, including, without
limitation, Eco-Systems, further agrees to cooperate fully with APS in the
Foreclosure, and to not take any action which could adversely impact the value
of Eco-Systems up to, and/or after, the Foreclosure. Accordingly, Consolidated
and each Subsidiary acknowledges and agrees that any sale conducted by APS or
one of its affiliates under the Eco-Systems Security Agreement and this
Agreement is hereby accepted by Consolidated and each Subsidiary as a
commercially reasonable sale. APS or one of its affiliates may bid on the
collateral under the Eco-Systems Security Agreement at the sale, whether public
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<PAGE>
or private, and in the event it is the successful bidder, all parties hereby
agree that such purchase shall not be a discharge or satisfaction of
Consolidated's or any Subsidiary's obligations under Section 9.505 of the Texas
UCC (Texas Business and Commerce Code). Furthermore, Consolidated and each
Subsidiary hereby renounces any right to notification of the Foreclosure. Any
amount of value or credit arising from the Foreclosure will be applied to the
Existing Debt pursuant to the terms of the applicable Existing Security
Documents and will, in no event, reduce the original amount of, or any amounts
due under, the New Note.
(b) Limitation on Foreclosure. Notwithstanding the foregoing
provisions of subsection (a), APS agrees that it will not consummate the
Foreclosure prior to April 1, 1999 as long as the following conditions are met:
(i)Compliance with Existing Agreements. Consolidated
and each of the Subsidiaries complies in all respects with its respective
obligations under each of the Transaction Documents to which it is a party
(except for obligations to make the scheduled payments called for in the
Existing Note); and
(ii) Distributions. Without the prior written
approval of APS in each instance, Eco-Systems does not
distribute any cash or other assets to Consolidated, another Subsidiary or
(except to pay the obligations and expenses of Eco-Systems incurred in the
ordinary course of business) any third party.
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(iii) Access. APS and its representatives is allowed
free and complete access to books, records,
employees, officers, directors and assets of Eco-Systems for purposes of
evaluating the business, prospects, financial condition, continued viability and
value of Eco-Systems.
(c) Indemnification. Consolidated and each Subsidiary, jointly
and severally, hereby agrees to indemnify and hold harmless (i) APS, and all of
APS's affiliates, subsidiaries, employees, officers, directors, shareholders and
representatives (collectively, the "APS Indemnified Parties"), from and against
any and all damages, losses, claims, liabilities, demands, charges, suits,
penalties, costs and expenses (including, without limitation, any and all taxes,
court costs and attorneys' fees and expenses incurred in investigating and
preparing for any litigation or proceeding) (collectively, "Indemnified Costs")
which any APS Indemnified Party may sustain or become subject to in connection
with the commencement or assertion of any action, proceeding, demand or claim
arising out of the Foreclosure or the ownership of any interest in Eco-Systems
upon and after the Foreclosure and that is related to or arises, directly or
indirectly, in whole or in part, out of matters occurring or circumstances
existing on or prior to the date of the Foreclosure and (ii) APS, each APS
Indemnified Party and Eco-Systems from and against any and all Indemnified Costs
that are (A) incurred by, or asserted against, Eco-Systems, (B) related to any
act or omission by or on behalf of Eco-Systems, Consolidated or any Subsidiary
occurring on or prior to the date of Foreclosure, and (C) that are not reflected
by amount, or included within an amount, shown as a liability on the balance
sheet of Eco-Systems dated January 31, 1999 and provided to APS by Consolidated,
a copy of which is attached hereto as Exhibit B. Furthermore, any Indemnified
Cost incurred by APS or Eco-Systems that is not
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<PAGE>
promptly paid or reimbursed by
Consolidated pursuant to this Section shall bear interest at an annual rate of
ten percent (10%).
(d) Issuance of Employee Stock Options. All parties hereto
acknowledge and agree that, after the Foreclosure, Eco-Systems may, from
time-to-time, issue employee stock options to its directors, officers and/or
employees on such terms and conditions as may be approved by the Board of
Directors of Eco-Systems. APS agrees that it will, during the six (6)
consecutive month period beginning on the Effective Date, and only to the extent
allowed under applicable law, take all actions necessary to prevent the grant of
any and all employee stock options by Eco-Systems without the prior approval of
Jim Connors in each instance.
(e) Allocation of Expenses and Corporate Overhead.
Consolidated and each of the Subsidiaries acknowledges and agrees that, for any
period during which APS owns a controlling interest in Eco-Systems, APS is
entitled to allocate to and charge Eco-Systems for, and receive the
corresponding payment for (i) direct and indirect costs for services and
products provided to Eco-Systems by APS or one of its affiliates, (ii) corporate
overhead associated with accounting costs, employee benefit administration costs
and executive or manager salaries, incurred by APS and attributable to
Eco-Systems, together with such other corporate overhead allocation as is
consistent with the past practices of APS and its subsidiaries and (iii) the
amount of any and all other costs, expenses, fees, liabilities or other
obligations that are incurred by APS or one of its affiliates, to the extent
that such amounts benefit Eco-Systems, directly or indirectly. The parties agree
that no allocation to or payment by Eco-Systems pursuant to this Section will
constitute payment of any of their obligations under any of the Transaction
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Documents (including, without limitation, obligations under the Existing Debt or
the New Note, as the case may be).
(f) Restricted Payments. Consolidated, Eco-Systems and APS
each agree that any payments made by Eco-Systems to Sam Sexton after the
Foreclosure, regardless of whether such payments are compensatory in nature,
shall be restricted for all purposes to no greater than $10,000 per month and
shall count toward the payment obligations of APS set forth in the second
paragraph of Section 3(g). Consolidated, Eco-Systems and APS each further agree
that after October 15, 1999, Eco-Systems will not be obligated in any manner to
pay any amounts to Sam Sexton, as compensation or otherwise, except for such
salary and benefits as have been approved in writing by the then current
officers of Eco-Systems.
(g) Application of Post-Foreclosure Proceeds. APS agrees that,
after the Foreclosure, APS will apply any cash dividends distributed from
Eco-Systems to APS, or such subsidiaries of APS who then own equity interests in
Eco-Systems, first to satisfaction of all Additional Reimbursable Costs and then
to satisfaction of interest and principal under the Existing Debt, or, once the
New Note has been accepted by APS pursuant hereto, to interest and principal
owed under the New Note. But in the event that, prior to APS's acceptance of the
New Note, APS receives cash dividends paid pursuant to this Section by
Eco-Systems (excluding any portion of such amounts paid over to Consolidated
pursuant to this Section) in excess of the sum of (i) all Additional
Reimbursable Costs, plus (ii) $375,000, then any such excess amount will not be
applied to the Existing Debt, but will rather be applied by APS as a contingent
prepayment of the New Note (contingent only upon APS's acceptance of the New
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Note); provided, however, that such excess amount will be applied to the
Existing Debt in the event that APS does not accept the New Note.
APS further agrees that it will pay to Consolidated (or its
designee) one-half of all cash dividends received on or before October 14, 1999
in respect of APS's or APS's subsidiaries' ownership of Eco-Systems.
Notwithstanding the foregoing or any other provision of this Agreement,
Consolidated acknowledges and agrees that amounts paid to Consolidated (or its
designee) pursuant to the immediately preceding sentence will not be applied
against the Existing Debt or the New Note, as the case may be. In the event APS
acquires, directly or indirectly, all ownership interests in Eco-Systems through
the Foreclosure, APS agrees that it will use reasonable efforts to cause
Eco-Systems to distribute as dividends all excess cash that is reasonably
available for distribution (using commercially prudent business judgment) after
payment of Eco-Systems' obligations and expenses and establishment of reasonable
reserves.
(h) Repurchase Option. Consolidated is hereby granted a right
to purchase from APS or its affiliates all (but only all) of the capital stock
of Eco-Systems that may have been acquired by APS or its affiliates through the
Foreclosure (the "Repurchase Option"). But the Repurchase Option is subject to
the following terms and conditions: (i) APS must have accepted the New Note upon
satisfaction of the terms and conditions set forth in this Agreement, (ii) all
amounts outstanding under the New Note, including all interest thereon shall
have been paid, (iii) Consolidated and each of the Subsidiaries must have fully
complied with all of the terms of this Agreement and the Additional Security
Documents, including, without limitation, the payment of all amounts due to any
APS Indemnified Parties and Eco-Systems pursuant to the indemnity obligations
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under Section 3(c) (including any interest provided for therein), (iv) the
Repurchase Option, if available, must be exercised prior to the expiration of
six (6) months immediately following the full satisfaction of all amounts owed
under the New Note, (v) the purchase price of $1,000 in immediately available
funds must be tendered at the closing of the conveyance allowed under the
Repurchase Option, and (vi) Consolidated and each Subsidiary must execute and
deliver at the closing a general release of liability in favor of all APS
Indemnified Parties, and such other documents and instruments as APS may
request.
Section 4. Contingent Payments. Consolidated and the Subsidiaries each
agree that the payments set forth in this Section (each a "Contingent Payment")
will be made upon the occurrence of the events triggering such payments, all as
more fully described in subsections (a) through (c) below. Any Contingent
Payment received by APS or one of its affiliates is to be applied as set forth
in the applicable subsection which describes the Contingent Payment obligation.
(a) Payment Upon Disposition of Interests in Subsidiaries.
Consolidated agrees that it must have APS's prior written approval for any sale
or disposition of either the stock or the assets (or any portion thereof) of
Exsorbet Technical Services, Inc., an Arkansas corporation doing business as
SpilTech Services, Inc. ("SpilTech"), KR Industrial Service of Alabama, Inc., an
Alabama corporation ("KR") or any other Subsidiary. Assuming any such sale is
negotiated on arms-length terms, APS will agree to give such approval provided
Consolidated first notifies APS in writing of the possibility of such
disposition and provides APS (prior to execution) with copies of the documents
governing such disposition. Consolidated
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acknowledges and agrees that,
notwithstanding the foregoing or any other provision of this Agreement, any such
disposition is, and remains after the Effective Date, prohibited under the
Transaction Documents, absent the express prior written consent of APS in each
instance.
Consolidated further agrees that, with respect to any sale of
the stock or assets of either SpilTech or KR, such documents must provide that
seventy-five percent (75%) of the net proceeds from such disposition (after
payment of only perfected secured indebtedness which is senior to the liens of
APS) will be paid directly to APS at the closing of the disposition, limited in
amount, however, to the aggregate of all amounts then owing to APS by
Consolidated and the Subsidiaries. APS agrees that it will apply any Contingent
Payment received pursuant to this subsection first to satisfaction of all
Additional Reimbursable Costs and then to satisfaction of interest and principal
under the Existing Debt, or, once the New Note has been accepted by APS pursuant
hereto, to interest and principal owed under the New Note. But in the event
that, prior to APS's acceptance of the New Note, APS receives combined
Contingent Payments pursuant to this subsection and dividends from Eco-Systems
that it may retain pursuant to Section 3(g), in excess of the sum of (i) all
Additional Reimbursable Costs, plus (ii) $375,000, then any such excess amount
will not be applied to the Existing Debt, but will rather be applied by APS as a
contingent prepayment of the New Note (contingent only upon APS's acceptance of
the New Note); provided, however, that such excess amount will be applied to the
Existing Debt in the event that APS does not accept the New Note.
(b) Payment Upon Disposition of Interests in Consolidated.
Consolidated agrees that prior to any sale, change of control transaction, or
other disposition (by merger,
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consolidation or otherwise) of either its stock or
its assets (or any portion thereof), Consolidated will notify APS in writing of
the possibility of such disposition and provide APS (prior to execution) with
copies of the documents governing such disposition. Consolidated acknowledges
and agrees that, notwithstanding the foregoing or any other provision of this
Agreement, any such disposition is, and remains after the Effective Date,
prohibited under the Transaction Documents, absent the express prior written
consent of APS in each instance.
Consolidated agrees that the documents governing such
disposition must provide that seventy-five percent (75%) of the net proceeds
from such disposition (prior to any payment or other consideration being
received by any direct or indirect shareholders or controlling persons of
Consolidated) will be paid to APS at the closing of the disposition, limited in
amount, however, to $600,000. APS agrees that it will apply any Contingent
Payment received pursuant to this subsection to satisfaction of interest and
principal under the Existing Debt, or, once the New Note has been accepted by
APS pursuant hereto, to the Deficiency Obligation. In no event will amounts paid
under this subsection be applied to the New Note.
Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, this subsection (b) shall not apply to any sale of
stock of either KR or SpilTech as long as the Contingent Payment obligations in
Section 4(a) have been fully satisfied with respect to such sale of stock.
(c) Payment Upon Settlement of Everen Securities Lawsuit.
Consolidated and the Subsidiaries agree to pay to APS seventy-five percent (75%)
of the total cash proceeds
14
<PAGE>
payable to them (after deduction of only legal fees
and up to $75,000 payable to American Dynasty Insurance Company), by way of
settlement, judgment or otherwise, out of or in relation to any litigation and
claims (whether or not asserted as of the Effective Date, but including, without
limitation, the litigation pending on the Effective Date) between Everen
Securities and/or any of its affiliates or insurers on the one hand and
Consolidated and/or any of its affiliates on the other hand, limited in amount,
however, to $600,000. Consolidated and the Subsidiaries agree that they will
promptly pay such amounts to APS upon receipt and will not dispose of, settle or
agree to the entry of any judgment without the prior written consent of APS;
provided, however, that such consent may not be withheld if such disposition,
settlement or judgment explicitly provides for immediate payment of $600,000 to
APS pursuant to this Section. APS agrees that it will apply any Contingent
Payment received pursuant to this subsection to satisfaction of interest and
principal under the Existing Debt, or, once the New Note has been accepted by
APS pursuant hereto, to the Deficiency Obligation. In no event will amounts paid
under this subsection be applied to the New Note.
Consolidated agrees that it must provide APS with at least ten (10)
days opportunity, prior to the closing of any disposition described in the
foregoing subsections (a) or (b), or prior to finalizing any settlement or
judgment described in subsection (c), and after receipt by APS of all documents,
instruments and agreements related to such disposition, settlement or judgment,
to review the terms and conditions of such and to ensure compliance with the
conditions imposed under this Agreement and under any of the other Transaction
Documents. Furthermore, Consolidated agrees to cooperate with APS and to provide
APS access to, and participation in, the closing of any such disposition,
settlement or judgment all as requested by APS in order to ensure compliance
15
<PAGE>
with the terms and conditions of the Transaction Documents. Upon any breach by
Consolidated of the terms and provisions of this Section, the entire Deficiency
Obligation shall automatically become immediately due and payable without any
limitation on the source of repayment as otherwise provided herein.
Section 5. Additional Covenants.
(a) Future Subsidiaries. Consolidated and each Subsidiary
agrees that it will take any and all actions that may be necessary to cause any
future corporations or other entities that become owned or controlled, wholly or
partially, directly or indirectly, by Consolidated or that Subsidiary after the
Effective Date to execute and deliver to APS (i) a counterpart to this
Agreement, and (ii) a payment and performance guaranty agreement and a first
lien security agreement on all of its assets, each for the benefit of APS
covering all payment and performance obligations of Consolidated, in
substantially the same form of the guaranty agreements and security agreements
executed by the Subsidiaries that are included in the Security Documents.
Consolidated and each Subsidiary further agrees that, with respect to each such
newly owned or controlled corporation or entity, it will (i) execute and deliver
to APS a first lien, perfected security interest in and to all of the capital
stock or other equity interests held by Consolidated or the Subsidiary in that
entity and (ii) take any and all other actions as may be necessary to ensure
that such entity is considered a Subsidiary hereunder for all purposes.
(b) Dismissal of Lawsuit. APS agrees to dismiss, within 10
business days of the Effective Date, the existing lawsuit by APS against
Consolidated. Such dismissal, however,
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<PAGE>
will be without prejudice and without any
limitation on the refiling of the same or other lawsuits by APS or its
affiliates against Consolidated, any Subsidiary or any of their respective
affiliates.
(c) Existing Covenants Under Transaction Documents.
Consolidated and each of the Subsidiaries covenants and agrees that it will
continue to comply with all of the covenants set forth in the Transaction
Documents to which it is a party.
(d) Other Agreements. Consolidated agrees to execute and
deliver, concurrently with its execution and delivery of this Agreement, the
Assignment and Security Agreement attached hereto as Exhibit C and the Security
Agreement attached hereto as Exhibit D, both of which, for all purposes hereof,
shall be deemed to be included within the Additional Security Documents.
Furthermore, each of Eco-Systems, SpilTech and KR agrees to execute and deliver,
concurrently with its execution and delivery of this Agreement, a Security
Agreement in a form attached hereto as Exhibit E, which shall, for all purposes
of this Agreement, be considered included in the Additional Security Documents.
(e) Financial Reporting Requirements. In addition to such
financial and other reporting requirements as may be provided pursuant to the
Transaction Documents, Consolidated covenants and agrees that it will, after the
date of this Agreement, provide to APS true and correct copies of all financial
statements, reports or summaries concerning the business, financial condition or
operations of Consolidated or any of the Subsidiaries (or Consolidated and the
Subsidiaries on a consolidated basis), within ten (10) days after such
statements, reports or summaries become available to Consolidated. Furthermore,
any such statements, reports or
17
<PAGE>
summaries shall contain a written statement
signed by the Chief Financial Officer of Consolidated to the effect that the
financial information contained therein has been prepared in accordance with
generally accepted accounting principles, consistently applied, and is fairly
and accurately presented.
(f) Consolidated and Eco-Systems each agree that they will (i)
vigorously contest any lawsuit, claim or action filed against either
Consolidated or Eco-Systems by former accountants of Consolidated and (ii) allow
APS full participation in the defense of any such lawsuit, claim or action.
Section 6. No Additional Financings. The parties acknowledge and agree
that certain of the Transaction Documents provide that, without the prior
consent of APS, neither Consolidated nor any of the Subsidiaries will 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
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 Transaction 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
18
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course of business; provided, however that the following will not be deemed to
constitute a violation of the foregoing prohibition: (i) factoring transactions
that occurred prior to October 15, 1997, so long as there has not since October
15, 1997 been, and there is not after the date of this Agreement, any increase
in the amounts due or involved in such factoring relationships and (ii)
refinancing of existing obligations (but only those existing obligations which
are themselves not in violation of any of the Transaction Documents), so long as
there is not any increase in amounts due under such existing obligations.
Section 7. Representations and Warranties. Consolidated and each of
the Subsidiaries hereby, jointly and severally, represents and warrants to APS
(as of the Effective Date), 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 this
Agreement, the Existing Note, the Refinancing Agreement, each Security Document,
and each other document, agreement, contract, instrument or certificate
contemplated by or executed and delivered in connection with any of the
foregoing, including, without limitation, the New Note (if issued and accepted)
and those certain agreements referred to in Section 5(d) above and in Section
7(g) below (collectively, including this Agreement, the "Transaction
Documents"), to which it is a party.
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(b) 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.
Furthermore, each of the Transaction Documents is, or will be when executed and
delivered, the valid and binding obligation of the parties thereto (other than
APS), enforceable against the parties thereto (other than APS) in accordance
with its respective terms.
(c) There is only one class of capital stock of Consolidated,
Eco-Systems, SpilTech and KR outstanding.
(d) Consolidated's and each of the Subsidiaries'
representations and warranties under each of the Transaction 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.
(e) The entering into, and delivery and performance of their
obligations under, the Transaction Documents does not, and will not, (i)
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 or (ii) require any notice to, declaration, filing or
registration with, or permit or consent from, any domestic or foreign
governmental or regulatory body or authority, or any other person or entity,
including, without limitation, any party to any contract or agreement by which
Consolidated or any Subsidiary is bound or any approval by the shareholders of
Consolidated or any Subsidiary.
20
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(f) Following the Foreclosure described in Section 3(a)
hereof, APS will, directly or indirectly, enjoy sole and exclusive ownership,
free and clear of any liens or encumbrances, of any and all of the capital
stock, of all classes, of Eco-Systems. Furthermore, APS will enjoy all of the
rights and benefits of stock ownership with respect to any shares of capital
stock of Eco-Systems acquired through the Foreclosure, including, without
limitation, the sole and exclusive right to elect new directors and to amend or
replace existing (or adopt new) stock option plans.
(g) Consolidated and Eco-Systems, jointly and severally,
represent and warrant that Jim Connors has been fully and unconditionally
released from his employment with Consolidated and that he is free of any
contract, agreement, understanding or other restraint that could be construed as
prohibiting his full time employment with Eco-Systems after the date of this
Agreement. Consolidated and Eco-Systems, jointly and severally, represent and
warrant that, except as set forth and described in detail on (or attached to)
Schedule III, there are no contracts or agreements relating to the employment
(as an employee, independent contractor, consultant or otherwise) of any
individual by Eco-Systems, and each of them covenants and agrees not to allow
any such contract or agreement to be entered into hereafter without APS's prior
written consent.
(h) Consolidated and each Subsidiary acknowledges and agrees
that execution and delivery of each of the Transaction Documents required to be
executed by it under this Agreement (or any other Transaction Document) is a
condition to each and every obligation of APS under this Agreement.
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(i) Consolidated and each Subsidiary has supplied APS with all
information necessary for APS to conduct appropriate lien searches with respect
to any and all property owned by Consolidated and each Subsidiary, and Schedule
IV attached hereto contains the location of both the principal place of business
(by city) and all property (by county and state) of Consolidated and each
Subsidiary.
Section 8. Release. The parties being released by Consolidated and each
of the Subsidiaries by virtue of this Section, all of whom are collectively
referred to herein as the "Released Parties", are APS, Eco-Systems, Jim Connors,
their principals, shareholders, partners, members, directors, officers, agents,
employees, spouses, children, servants, insurers, employee welfare benefit
plans, pension and/or deferred compensation plans, administrators and other
fiduciaries, parent companies, affiliated entities, subsidiaries, successors and
assigns, and each of them, individually and collectively (in each case
excluding, however, Consolidated and the Subsidiaries other than Eco-Systems).
(a) Release by Consolidated and the Subsidiaries. Each of
Consolidated and the Subsidiaries hereby releases and discharges the Released
Parties (the "Release"), individually and collectively, of and from any and all
claims, causes of action, suits, debts, contracts, agreements (including, with
respect to Jim Connors, and without limitation, any existing employment
agreement between Jim Connors and Consolidated), promises, liability, demands,
damages, and other expenses of any nature whatsoever, at law or in equity, known
or unknown, fixed or contingent, contemplated or uncontemplated, whether
asserted or assertable, arising out
22
<PAGE>
of any matter whatsoever which has occurred
from the beginning of time up through and including the date hereof. Without
limiting the generality of the foregoing, each of Consolidated and the
Subsidiaries hereby acknowledges and agrees that the Release is intended to
waive and discharge any and all actions, claims, demands and causes of action
arising out of or in any way related to its prior relationship with the Released
Parties. But the foregoing provisions do not, and should not be construed so as
to, alter, amend or negate the enforceability of this Agreement or any other
Transaction Document.
(b) Construction. The Release is intended to be and should be
construed as a general, complete and final waiver and release of all claims. The
Release is being made and executed by each of Consolidated and the Subsidiaries
individually and on behalf of its successors, assigns, agents, all persons
subrogated to its rights or to whom its rights are secondary or derivative, and
all other persons on behalf of whom it is authorized to act.
(c) No Admissions. It is expressly understood and agreed that
neither this Agreement, the Release, nor the furnishing of consideration for
this Agreement or the Release, shall be deemed or construed at any time for any
purpose as an admission by anyone of wrongdoing or liability of any kind, all
such wrongdoing and liability being expressly denied.
(d) Knowledge of Claims. Each of Consolidated and the
Subsidiaries expressly warrants and stipulates that it intends for the Release
to release any and all claims that it may now have against the Released Parties,
regardless of whether such claims have been
23
<PAGE>
asserted and regardless of whether
such claims arise out of or are related in any way to any facts in existence on
or before the date of this Agreement.
Section 9. Further Assurances. Consolidated and each Subsidiary agrees
to cooperate fully with APS, and to take such steps and execute and deliver such
documents, instruments or certificates as may be necessary to carry out, or
further evidence, its obligations under this Agreement.
Section 10. 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
Transaction Documents, and all of the Transaction Documents are intended to be,
and remain, binding and enforceable in accordance with their terms. The
Transaction 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 Transaction 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 Transaction Documents.
Without limiting the foregoing, and except as expressly provided in any
release arising out of that certain action filed in the United States District
Court for the Western District of Texas, Austin Division, Case No. A98CA375-SS,
Consolidated and each of the Subsidiaries
24
<PAGE>
expressly acknowledges and agrees 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 the negotiation and entering into the various agreements and
transactions which gave rise to any of the Transaction Documents, or any
misrepresentation made in connection therewith, or any breach or default
thereunder.
Consolidated and the Subsidiaries agree to an extension or tolling of
all defenses based on the passage of time, including but not limited to statutes
of limitation and principles of laches, applicable or relating to any possible
claims, demand, and/or cause of action which APS may have that arises out of or
in connection with any of the Transaction Documents any of the transactions
giving rise to the Original Note or any other transaction, act or omission
involving APS or any of the APS Indemnified Parties, or the promises,
warranties, inducements, or representations in connection therewith. Such
tolling and extension of the time in which APS may bring any such claim, demand,
and/or cause of action shall extend until the Existing Debt, or all amounts due
under the New Note and Deficiency Obligation (if the New Note is issued) have
been paid in full.
Section 11. Reimbursement of Expenses. Without in any way reducing or
otherwise limiting any of Consolidated's or the Subsidiaries' other obligations
to reimburse expenses pursuant to any of the Transaction Documents or otherwise,
Consolidated agrees to reimburse APS for (i) $45,000 previously advanced by APS
or its affiliates on behalf of Consolidated,
25
<PAGE>
(ii) all legal, accounting and
other costs, fees and expenses incurred by APS in negotiating, preparing and
entering into this Agreement and the other Transaction Documents, and perfecting
the various security interests granted pursuant thereto and (iii) all legal,
accounting and other costs, fees and expenses incurred by APS or one of its
affiliates at any time after March 1, 1999 and arising out of or related to the
transactions contemplated in this Agreement. All amounts for which reimbursement
is due under this Section are collectively referred to herein as the "Additional
Reimbursable Costs."
Section 12. 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 under any
of the Transaction Documents.
Section 13. 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.
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Section 14. 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.
Section 15. 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.
Section 16. Limitation on Interest: Maximum Rate. The parties agree
that, with respect to any and all lending provisions contained in any of the
Transaction Documents, they intend to contract in strict compliance with
applicable usury law from time to time in effect. To effectuate this intention,
the parties acknowledge and agree that none of the terms and provisions of any
of the Transaction Documents, whether now existing or arising hereafter, shall
ever be construed as a contract to pay interest for the use, forbearance or
detention of money in excess of the Maximum Rate (as hereinafter defined). If,
from any possible construction of any Transaction Document, interest would
otherwise be payable to the lender thereunder in excess of the Maximum Rate, any
such construction shall be subject to the provisions of this Section and such
document shall be automatically reformed and the interest payable to the lender
thereunder shall be automatically reduced to the Maximum Rate permitted under
applicable law, without the necessity of the execution of any amendment or new
document. Neither the borrower, endorsers or other persons that now or hereafter
become liable for payment of any obligation referred to
27
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herein shall ever be
liable for any unearned interest on the principal amount or shall ever be
required to pay interest thereon in excess of the Maximum Rate. Any party that
is a lender under any Transaction Document and any subsequent holder of the
related loan expressly disavows any intention to charge or collect unearned or
excessive interest or finance charges in the event the maturity of such loan, is
accelerated. If the maturity of such loan is accelerated for any reason, whether
as a result of a default under the loan, or by voluntary prepayment, or
otherwise, any amounts constituting interest, or adjudicated as constituting
interest, which are then unearned and have previously been collected by such
lender or any subsequent holder of the loan shall be applied to reduce the
principal balance thereof then outstanding, or if such amounts exceed the unpaid
balance of principal, the excess shall be refunded to the borrower thereunder.
In the event such lender or any subsequent holder of the loan ever receives,
collects or applies as interest any amounts constituting interest or adjudicated
as constituting interest which would otherwise increase the interest to an
amount in excess of the amount permitted under applicable law, such amount which
would be excessive interest shall be applied to the reduction of the unpaid
principal balance of the loan, and, if the principal balances of the loan is
paid in full, any remaining excess shall be paid to the borrower thereunder. In
determining whether or not the interest paid or payable under the specific
contingencies exceeds the Maximum Rate allowed by applicable law, the borrower
and the lender thereunder shall, to the maximum extent permitted under
applicable law, (i) characterize any non-principal payment as an expense, fee or
premium, rather than as interest; (ii) exclude voluntary prepayments and the
effect thereof; (iii) amortize, prorate, allocate and spread, in equal parts,
the total amount of interest throughout the entire contemplated term of the
applicable loan (as it may be renewed and extended) so that the interest rate is
uniform throughout the entire term of the loan. The terms and provisions of this
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section shall control and supersede every other provision of all existing and
future agreements between each such lender and each such borrower. As used in
this Agreement, "Maximum Rate" means the maximum non-usurious interest rate that
at any time or from time to time may be contracted for, taken, reserved, charged
or received on the unpaid principal or accrued past due interest under
applicable law and may be greater than the applicable rate, the parties hereby
stipulating and agreeing that the lender may contract for, take, reserve, charge
or receive interest up to the Maximum Rate without penalty under any applicable
law; and "applicable law" means the laws of the State of Texas or the laws of
the United States of America, whichever laws allow the greater interest, as such
laws now exist or may be changed or amended or come into effect in the future.
In the event applicable law provides for an interest ceiling under Chapter One
of Title 79, Texas Revised Civil Statutes Annotated, as amended, that ceiling
shall be the indicated rate ceiling, subject to any right the lender may have in
the future to change the method of determining the Maximum Rate.
Section 17. Treatment of 7-7. The parties hereby acknowledge and agree
that 7-7, Inc., an Arkansas corporation ("7-7"), is a subsidiary of Consolidated
and is a party to various of the Security Documents. Although not a signatory to
this Agreement, references in this Agreement to "Subsidiary" shall include 7-7,
and nothing in this Section 17 may be construed as a waiver or other
relinquishment of rights by APS under any Security Document to which 7-7 is a
party.
Section 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
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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 Consolidated Eco-Systems, Inc.
or 3201 W. 65th Street
the Subsidiaries: Little Rock, Arkansas 72209
Attn: President
Any party may change its address for purposes of this Agreement by
proper notice to the other party.
[Signature pages to follow]
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SIGNATURE PAGES TO
RESTRUCTURING AGREEMENT
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the 25 th day of March, 1999.
CONSOLIDATED: Consolidated Eco-Systems, Inc.
By /s/ Larry Woodcock
Name Larry Woodcock
Title President
APS: American Physicians Service Group,
Inc.
By /s/ Duane K. Boyd, Jr.
Name Duane K. Boyd, Jr.
Title VP
LARCO: Larco Environmental Services, Inc.
By /s/ Larry Woodcock
Name Larry Woodcock
Title President
1
<PAGE>
SIGNATURE PAGES TO
RESTRUCTURING AGREEMENT
(continued)
CES: Consolidated Environmental
Services, Inc.
By /s/ Larry Woodcock
Name Larry Woodcock
Title President
CIERRA: Cierra, Inc.
By /s/ Larry Woodcock
Name Larry Woodcock
Title President
KR INDUSTRIAL: KR Industrial Service of Alabama,
Inc.
By /s/ Larry Woodcock
Name Larry Woodcock
Title President
2
<PAGE>
SIGNATURE PAGES TO
RESTRUCTURING AGREEMENT
(continued)
EXSORBET TECHNICAL: Exsorbet Technical Services, Inc.
By /s/ Larry Woodcock
Name Larry Woodcock
Title President
ECO-SYSTEMS: Eco Acquisition, Inc.
By /s/ Larry Woodcock
Name Larry Woodcock
Title President
3
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SCHEDULE I
SUBSIDIARIES
1. Consolidated Environmental Services, Inc., an Arkansas
corporation
2. Cierra, Inc., an Arkansas corporation
3. Larco Environmental Services, Inc., a Louisiana corporation
4. KR Industrial Service of Alabama, Inc., an Alabama corporation
5. Exsorbet Technical Services, Inc., an Arkansas corporation doing
business as SpilTech Services, Inc.
6. Eco Acquisition, Inc., an Arkansas corporation also known as
Eco-Systems, Inc.
7. 7-7, Inc., an Arkansas corporation
1
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SCHEDULE II
EXISTING SECURITY DOCUMENTS
1. Guaranty Agreement dated September 30, 1996 in favor of
American Physicians Service Group, Inc. from Consolidated
Environmental Services, Inc.
2. Guaranty Agreement dated September 30, 1996 in favor of
American Physicians Service Group, Inc. from Cierra, Inc.
3. Guaranty Agreement dated September 30, 1996 in favor of
American Physicians Service Group, Inc. from Larco
Environmental Services, Inc.
4. Guaranty Agreement dated September 30, 1996 in favor of
American Physicians Service Group, Inc. from KR Industrial
Service of Alabama, Inc.
5. Guaranty Agreement dated September 30, 1996 in favor of
American Physicians Service Group, Inc. from Exsorbet
Technical Services, Inc.
6. Guaranty Agreement dated September 30, 1996 in favor
of American Physicians Service Group, Inc. from Eco
Acquisition, Inc.
7. Guaranty Agreement dated September 30, 1996 in favor of
American Physicians Service Group, Inc. from 7-7 Merger, Inc.
8. Security Agreement dated September 30, 1996 by and between
7-7 Merger, Inc. and American Physicians Service Group, Inc.
9. Assignment and Security Agreement dated September 30, 1996 by
and between American Physicians Service Group, Inc. and
Exsorbet Industries, Inc.
10. Security Agreement dated December 12, 1996 by and between 7-7
Merger, Inc. and American Physicians Service Group, Inc.
11. Master Refinancing Agreement dated November 6, 1997 by and
among Consolidated Eco-Systems, Inc. ("Consolidated") and all
of the wholly or partially owned subsidiaries of Consolidated
and American Physicians Service Group, Inc.
12. Promissory Note dated November 6, 1997 executed by
Consolidated Eco-Systems, Inc. and payable to American
Physicians Service Group, Inc. in the original principal
amount of $3,788,580.
13. Security Agreement dated November 6, 1997 by and between Larco
Environmental Services, Inc. and American Physicians Service
Group, Inc.
2
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14. Assignment and Security Agreement dated November 6, 1997 by
and between Consolidated Eco-Systems, Inc. and American
Physicians Service Group, Inc.
3
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SCHEDULE III
EMPLOYMENT AGREEMENTS
[TO BE PREPARED BY CHIP SEXTON]
1
<PAGE>
SCHEDULE IV
BUSINESS AND ASSET LOCATIONS
1
<PAGE>
EXHIBIT A
2
<PAGE>
EXHIBIT B
3
<PAGE>
EXHIBIT C
4
<PAGE>
EXHIBIT D
5
<PAGE>
EXHIBIT E
6
Exhibit 10.58
ASSIGNMENT AND SECURITY AGREEMENT
THIS ASSIGNMENT AND SECURITY AGREEMENT (this "Agreement") is entered
into effective the 25 th day of March, 1999, 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 6, 1997 (as amended, supplemented, or modified, and including any
replacement thereof or substitution therefore, the "Note") in the original
principal amount of Three Million Seven Hundred Eighty-Eight Thousand Five
Hundred Eighty Dollars ($3,788,580) payable to the order of Secured Party.
B. The Note was issued pursuant to a Master Refinancing Agreement (the
"Loan Agreement"), between Debtor, its subsidiaries and Secured Party. The
obligations of Debtor under the Note and the Loan Agreement are guaranteed by
certain guaranty agreements executed by the subsidiaries of Debtor, and are
secured pursuant to the terms of certain security agreements, pledges and other
agreements and instruments entered into by Debtor and certain subsidiaries of
Debtor. The Loan Agreement and all such guarantees, security agreements, pledges
and other agreements and instruments are collectively referred to herein as the
"Original Security Documents."
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C. Debtor will, concurrently with its execution of this Agreement,
execute and deliver that certain Restructuring Agreement (the "Second Loan
Agreement"), of even date herewith, by and between Debtor, all of Debtor's
wholly or partially owned subsidiaries, and Secured Party, along with other
guarantees, security agreements, pledges, documents, agreements, contracts,
instruments and certificates contemplated therein or executed and delivered in
connection therewith (collectively, including the Second Loan Agreement and this
Agreement, the "New Security Documents").
D. Debtor has received, and will continue to receive, valuable
consideration as a result of the transactions evidenced by, or related to, the
Note, the Original Security Documents, the New Security Documents and this
Agreement.
E. Debtor has agreed to pledge the Collateral (as defined below) to
secure certain obligations and liabilities, including without limitation (i)
Debtor's obligations under the Note, (ii) Debtor's and Debtor's subsidiaries'
performance of the covenants and agreements set forth in the Original Security
Documents, (iii) Debtor's and Debtor's subsidiaries' performance of the
covenants and agreements set forth in the New Security Documents, and (iv)
Debtor's performance of the covenants more fully set forth herein.
F. Reference is hereby made to Schedule I, attached hereto and
incorporated herein by reference, for certain defined terms used in this
Agreement.
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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 continuing
first priority security interest in and lien (the "Security Interest") upon, the
following described collateral, whether now owned or hereafter acquired, and
wherever located (collectively, the "Collateral"):
(a) Shares of SpilTech. All issued and outstanding shares of
capital stock (of all classes) of Exsorbet Technical Services, Inc.
("SpilTech"), an Arkansas corporation doing business as SpilTech Services, Inc.
and a subsidiary of Debtor, 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 SpilTech subsequently delivered or
issued to Debtor (the above described stock is sometimes collectively referred
to as the "SpilTech Shares"); and any options, rescission rights, registration
rights, conversion rights, subscription rights, contractual or quasi-contractual
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rights, warrants, redemption rights, redemption proceeds, calls, preemptive
rights and all other rights and benefits pertaining to the SpilTech Shares;
(b) Shares of Industrial. All issued and outstanding shares of
capital stock (of all classes) of KR Industrial Service of Alabama, Inc.
("Industrial"), an Alabama corporation and a subsidiary of Debtor, 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 Industrial subsequently delivered or issued to Debtor (the above
described stock is sometimes collectively referred to as the "Industrial
Shares"); and any options, rescission rights, registration rights, conversion
rights, subscription rights, contractual or quasi-contractual rights, warrants,
redemption rights, redemption proceeds, calls, preemptive rights and all other
rights and benefits pertaining to the Industrial 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 is now or may hereafter become entitled
to receive with respect to any Collateral described in (a) or (b) above;
(d) Additional Property. "Collateral" shall also include the
following property (collectively, the "Additional Property") which Debtor
becomes entitled to receive
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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 spin-off;
(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; and
(e) Proceeds. All proceeds (cash and non-cash) 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.
1.2 Obligations. This Agreement and the Security Interest shall secure
full and punctual payment and performance of the following indebtedness, duties
and obligations (collectively, the "Obligations"):
(a) All covenants, obligations, and liabilities of Debtor and
Debtor's subsidiaries to Secured Party under the Original Security Documents and
the New Security Documents;
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(b) All principal, interest, fees and other amounts payable to
the Secured Party pursuant to the Note, including all future advances,
extensions, renewals, modifications, increases, or substitutions thereof whether
or not provided for in the New Security Documents;
(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 Debtor's 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 Note, the
Original Security Documents, the New Security Documents, this Agreement, or any
other document, agreement, or instrument executed in connection therewith, (ii)
all accrued but unpaid interest on any of the indebtedness described in (i)
above, (iii) all obligations of Debtor and/or Debtor's 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 attorneys'
fees, and (v) all renewals, extensions, modifications and rearrangements of the
indebtedness and obligations described in (i), (ii), (iii) and (iv) above.
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(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 (as defined in
Section 7.1 hereof) 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
DEBTOR'S 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
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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.
2.3 No Agreements. Neither the SpilTech Shares nor the Industrial
Shares are subject to any right of redemption by SpilTech, Industrial or Debtor,
or any call or put options, voting trust, proxy, shareholders agreement, right
of first refusal or any provision of the respective articles of incorporation or
bylaws of either SpilTech or Industrial, 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. Debtor's principal place of business and chief executive
office are located at 3201 West 65th Street, Little Rock, Arkansas, 72209. The
office where the records concerning the Collateral are kept is located at
Debtor's principal place of business.
2.5 Solvency of Debtor and the Subsidiaries. As of the date hereof, and
after giving effect to the Note, the Original Security Documents, the New
Security Documents and this Agreement, and the completion of all other
transactions contemplated by Debtor and the
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subsidiaries at the time of the
execution of the New Security Documents and this Agreement, (i) Debtor and each
subsidiary 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), and (iii) Debtor has and will have sufficient capital to carry on
Debtor's 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 non-assessable, 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 both SpilTech and Industrial, and
there are no outstanding stock rights, rights to subscribe, options, warrants or
convertible securities outstanding or any other rights outstanding entitling any
person or entity, including Debtor, to obtain (through conversion or otherwise)
any capital stock, of any class, of either SpilTech or Industrial. All issued
and outstanding shares of common stock of both SpilTech and Industrial are
evidenced by the certificates described in Schedule II attached hereto.
2.7 Ownership of the SpilTech Shares and the Industrial Shares. Debtor
is, as of the date hereof, the legal and beneficial owner of both the SpilTech
Shares and the Industrial Shares, and Debtor has paid the full purchase price or
other consideration for the SpilTech Shares and the Industrial Shares on the
date hereof.
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2.8 SpilTech Share and Industrial Shares Issued and Paid. All of the
SpilTech Shares and the Industrial Shares are validly issued and outstanding
shares of capital stock of SpilTech and Industrial, respectively, and are fully
paid and nonassessable.
ARTICLE III
DEBTOR'S OTHER REPRESENTATIONS AND WARRANTIES
3.1 Good Standing - 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 Good Standing - Subsidiaries. Each subsidiary of Debtor 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.
3.3 Authority and Compliance. Debtor has full power and authority to
enter into this Agreement. Debtor and Debtor's subsidiaries, where applicable,
have full power and authority to enter into and perform their obligations under
the Note, the Original Security Documents, the New Security Documents, this
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Agreement, and any other documents, agreements, or instruments executed in
connection therewith, 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 the Note, the Original Security Documents, the New
Security Documents, this Agreement, or any other documents, agreements, or
instruments executed in connection therewith. Debtor and each subsidiary is in
compliance with all Laws to which it is subject.
3.4 Binding Agreement. The Note, the Original Security Documents, the
New Security Documents, this Agreement, and any other documents, agreements, or
instruments executed in connection therewith, 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 Debtor's or any subsidiary's ability to perform
its obligations under the Note, the Original Security Documents, the New
Security Documents, this Agreement, or any other documents, agreements, or
instruments executed in connection therewith.
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 Note, the Original Security Documents, the New Security
Documents, this Agreement, and any other documents, agreements, or instruments
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executed in connection therewith. 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 such documents, agreements, or
instruments to which such subsidiary is a party.
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.
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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 Debtor's 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.
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4.2 Further Assurances. 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
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 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 Party's 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 Party's request, to cooperate in registering
such securities in Secured Party's name or with Secured Party's account
maintained with a Federal Reserve Bank.
4.3 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
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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 and delivered to Secured Party pursuant to this
Section 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.
4.4 Sale, Transfer, Encumbrance. 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, including without
limitation by purchase, lease, barter, trade, payment deferral, or the creation,
assumption or guarantee of indebtedness or other lending of credit. 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.
4.5 Liens. Neither Debtor nor any person acting on Debtor's 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.
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4.6 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.
4.7 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 or entity.
4.8 Change of Name. Debtor shall not change its name, or allow any
subsidiary to change its name (or any assumed name or other name under which
Debtor or any subsidiary 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, and cause each applicable subsidiary to 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.
4.9 Dilution of Ownership. As to any securities pledged as Collateral,
Debtor will not consent to or approve of, and will prohibit, 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
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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.
4.10 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. As to any securities pledged
as collateral, Debtor will not consent to or approve of any stock split, reverse
stock split, stock dividend, reclassification, or other similar act or
transaction regarding such capital stock unless all other shares of such capital
stock which constitute Collateral hereunder are included in such act or
transaction and effected thereby in all respects the same as any other shares,
or class of shares, of such capital stock.
ARTICLE V
DEBTOR'S AFFIRMATIVE COVENANTS
Until payment and performance of all Obligations, Debtor covenants and
agrees as follows:
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 subsidiary's books of account and other records at such
reasonable times and as often as Secured Party may desire during office hours
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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.
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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 Debtor's or any
subsidiary's financial condition or on Debtor's ability to perform the
Obligations or any subsidiary's 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.
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
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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 Additional Subsidiaries. Debtor and Secured Party contemplate that,
from time to time, additional subsidiaries, either directly or indirectly owned,
in whole or in part, 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 Original Security Documents, and
shall execute and be bound by the Loan Agreement and the Second Loan Agreement.
Each such new subsidiary shall be deemed a "subsidiary" as used in this
Agreement and shall be subject to the terms, conditions, and covenants of this
Agreement. Notwithstanding the foregoing, Debtor covenants and agrees not to
create any new subsidiary by transfer of, or otherwise convey or transfer to any
subsidiary, any assets, rights or properties belonging to any of its other
subsidiaries. For purposes of this Agreement, the term "subsidiary" means any
corporation, limited liability company, partnership or other entity that,
directly or indirectly, is owned or controlled by Debtor; it being agreed that,
without limitation, Debtor shall conclusively be deemed to have control for
purposes of this definition if it, directly or indirectly, owns or has the right
to vote twenty percent (20%) or more of the voting ownership interests, however
designated, of any corporation, limited liability company, partnership or other
entity.
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
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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 Party's 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 Transfer 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 One Thousand Dollars ($1,000)
except in the normal course of its business.
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6.2 Change in Ownership or Structure. Dissolve or liquidate; become a
party to any merger or consolidation; reorganize; 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 subsidiary's 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.
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 unsecured 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.
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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 or any subsidiary to pay any
Obligation within fifteen (15) calendar days after such payment is due,
including, without limitation, principal and/or interest payments on the Note;
(b) Any breach by Debtor or any subsidiary of any covenant,
term or condition in this Agreement or the Second Loan Agreement, or any other
failure to perform any of their obligations under this Agreement, the Second
Loan Agreement or any of the Original Security Documents or the New Security
Documents;
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(c) Any representation or warranty made in this Agreement, the
Second Loan Agreement or any of the Original Security Documents or New Security
Documents shall be false or misleading, as determined in the reasonable
discretion of Secured Party;
(d) The occurrence of an Event of Default under any of the
Original Security Documents or any of the New Security Documents;
(e) If Debtor or any other party obligated to pay any portion
of the Obligations: (i) becomes insolvent, 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 lead 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 any substantial portion 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 thirty (e0) 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 thirty (30) days after the filing thereof, or an order for
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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 ten (10) days any attachment,
sequestration or similar writ levied upon, any claim against or affecting, 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 Party's 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
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rights, remedies and privileges of Debtor arising from the Collateral, or any
part thereof, including without limitation compromising, waiving, excusing, or
in any manner releasing or discharging any obligation of any party to or arising
from the Collateral; (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 Debtor's
attorney-in-fact 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
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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 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.
(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 or any of the Original Security Documents or
New Security Documents; (d) then, to or among the amounts of fees, interest and
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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 Note, the Original Security Documents, the
New Security Documents, this Agreement, and any other documents, agreements, or
instruments executed in connection therewith, for the deficiency, together with
interest thereon at the maximum non-usurious rate per annum.
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 Note or other governing document,
agreement, or instrument.
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 Debtor's
attorney-in-fact (such power of attorney being coupled with an interest) and
proxy to exercise any voting rights with respect to Debtor's securities pledged
as Collateral upon the occurrence of an Event of Default.
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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 Attorney-in-Fact. Debtor hereby appoints
Secured Party as attorney-in-fact 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.
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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.
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; (c) collect any amounts
payable in respect of the Collateral; (d) sell all or any portion of the
Collateral to avoid market loss; (e) sell all or any portion of the Collateral;
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
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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 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.
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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 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 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 Set-Off. 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, set-off any indebtedness owing
by Secured Party to Debtor against any of the Obligations without first
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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
enforcement of payment, and no delay or admission or lack of diligence or care
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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.
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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: 3201 West 65th Street
Little Rock, Arkansas 72209
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.
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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,
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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.
9.10 ENTIRE AGREEMENT. THE NOTE, THE ORIGINAL SECURITY DOCUMENTS, THE
NEW SECURITY DOCUMENTS, THIS AGREEMENT, AND ANY OTHER DOCUMENTS, AGREEMENTS OR
INSTRUMENTS EXECUTED IN CONNECTION THEREWITH, 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.
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EXECUTED this 25 th day of March, 1999.
DEBTOR: Consolidated Eco-Systems, Inc.
By: /s/ Larry Woodcock
Name: Larry Woodcock
Title: President
SECURED PARTY: American Physicians Service Group, Inc.
By: /s/ Duane K. Boyd, Jr.
Name: Duane K. Boyd, Jr.
Title: VP
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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.
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"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.
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Schedule II
1. Certificate No. 2, dated March 22, 1999, for 1,000 shares of
Exsorbet Technical Services, Inc. common stock, issued to Consolidated
Eco-Systems, Inc.
2. Certificate, dated March 17, 1999, for 1,000 shares of KR Industrial
Services of Alabama, Inc. common stock, issued to Consolidated Eco-Systems, Inc.
1
Exhibit 10.59
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered into effective
the 25th day of March, 1999, by and between Consolidated Eco-Systems, Inc., an
Idaho corporation (the "Debtor") formerly known as Exsorbet Industries, Inc.,
and American Physicians Service Group, Inc., a Texas corporation (the "Secured
Party").
R E C I T A L S:
A. Debtor executed and delivered that certain Promissory Note dated
November 6, 1997 (as amended, supplemented, or modified, and including any
replacement thereof or substitution therefore, the "Note") in the original
principal amount of Three Million Seven Hundred Eighty-Eight Thousand Five
Hundred Eighty Dollars ($3,788,580) payable to the order of Secured Party.
B. The Note was issued pursuant to a Master Refinancing Agreement of
even date with the Note (the "Loan Agreement") between Debtor, its subsidiaries
and Secured Party. The obligations of Debtor under the Note and the Loan
Agreement are guaranteed by certain guaranty agreements executed by the
subsidiaries of Debtor, and are secured pursuant to the terms of certain
security agreements, pledges and other agreements and instruments entered into
by Debtor and certain subsidiaries of Debtor. The Loan Agreement and all such
guarantees, security agreements, pledges and other agreements and instruments
are collectively referred to herein as the "Original Security Documents."
<PAGE>
C. Debtor will, concurrently with its execution of this Agreement,
execute and deliver that certain Master Restructuring Agreement (the "Second
Loan Agreement"), of even date herewith, by and between Debtor, all of Debtor's
wholly or partially owned subsidiaries, and Secured Party, along with other
guarantees, security agreements, pledges, documents, agreements, contracts,
instruments and certificates contemplated therein or executed and delivered in
connection therewith (collectively, including the Second Loan Agreement and this
Agreement, the "New Security Documents").
D. Debtor has received, and will continue to receive, valuable
consideration as a result of the transactions evidenced by, or related to, the
Note, the Original Security Documents, the New Security Documents and this
Agreement.
E. Debtor has agreed to pledge the Collateral (as defined below) to
secure certain obligations and liabilities, including without limitation (i)
Debtor's obligations under the Note, (ii) Debtor's and Debtor's subsidiaries'
performance of the covenants and agreements set forth in the Original Security
Documents, (iii) Debtor's and Debtor's subsidiaries' performance of the
covenants and agreements set forth in the New Security Documents, and (iv)
Debtor's performance of the covenants more fully set forth herein.
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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. Debtor assigns and transfers to Secured Party,
and grants to Secured Party a continuing security interest in and lien upon (the
"Security Interest"), the Collateral (as defined in Article II below) to secure
the payment and the performance of the Indebtedness (as hereinafter defined).
1.2 Indebtedness. The following indebtedness and obligations
(collectively, the "Indebtedness") are secured by this Agreement and the
Security Interest:
(a) All debt, obligations, liabilities, and agreements of
Debtor and/or any of Debtor's subsidiaries, to Secured Party, now or
hereafter existing, arising directly between Debtor and Secured Party
and/or any of Debtor's subsidiaries 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,
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contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, including,
without limitation, all obligations and amounts due under the Note and
the Original Security Documents, the New Security Documents, and all
renewals, extensions, modifications, or rearrangements of any of the
foregoing.
(b) Secured Party's 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 attorney's fees
and legal expenses, 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
The Security Interest is granted in the following, whether now owned or
hereafter acquired, and wherever located (the "Collateral"):
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(a) All accounts (whether or not earned by performance),
letters of credit, contract rights, chattel paper, instruments,
securities, documents, securities accounts, security entitlements,
commodity contracts, commodity accounts, investment property and all
other forms of obligations at any time owing to such borrower, all
guaranties and other security therefor, all merchandise returned or
repossessed by Debtor, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party
(collectively referred to herein as "Accounts").
(b) All goods, merchandise or other personal property, to be
furnished under any contract of service or held for sale or lease
(including without limitation all raw materials, work in process,
finished goods and goods in transit, and including without limitation
all farm products), and all materials and supplies of every kind and
description used in Debtor's operations or owned by Debtor and any
interests in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to
any of the foregoing, wherever located (collectively referred to herein
as "Inventory").
(c) All machinery, molds, machine tools, motors, furniture,
equipment, furnishings, fixtures, trade fixtures, motor vehicles,
tools, parts, dies, jigs, goods and other goods (other than Inventory)
of every kind and description used in Debtor's operations or owned by
Debtor and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, or
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improvements, to any of the foregoing, wherever located (collectively
referred to herein as "Equipment").
(d) Investment Property, as defined in Chapter 9 of the Texas
UCC (as hereinafter defined).
(e) All choses in action, contract rights, documents or
certificates of title, causes of action, corporate or other business
records, Deposit Accounts, Investment Property, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the
goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation
presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter
arising therefrom, all claims of such Debtor against the Secured Party,
rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance policies
and claims (including without limitation life insurance, key man
insurance, credit insurance, liability insurance, property insurance
and other insurance), tax refunds and claims, computer programs, discs,
tapes and tape files, claims under guarantees security interests or
other security held by or granted to such Debtor, all rights to
indemnification and all other intangible property of every kind and
nature (other than Accounts) (collectively referred to herein as
"General Intangibles"), including without limitation, all of such
Debtor deposit accounts, as defined in Chapter 9 of the Texas UCC, and
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all money and all property now or at any time in the future in the
Secured Party's possession (including claims and credit balances)
(f) All security for the payment of any of the foregoing, and
all goods which gave or will give rise to any of the foregoing or are
evidenced, identified, or represented therein or thereby.
(g) All real estate or other real property now or hereafter
acquired by Debtor.
(h) All assets or other property similar to any of the
foregoing hereafter acquired by Debtor.
(i) All other assets or property of Debtor not otherwise
described above, whether now owned or hereafter acquired.
(j) All proceeds of any of the foregoing (including proceeds
of any insurance policies, proceeds of proceeds, and claims against
third parties), all products of any of the foregoing, and all books and
records related to any of the foregoing.
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ARTICLE III
DEBTOR'S 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 the financing statements relating to the Permitted
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 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 Permitted 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. All real property owned by Debtor is described, by legal description and
street address, on Schedule I hereto, all of which shall be deemed included in
the Collateral.
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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 Debtor's 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; provided those certain liens described on Schedule II hereof in
existence on the date hereof (the "Permitted Liens") may remain in existence
subject to the terms and conditions of this Agreement.
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 enter
into and perform this Agreement.
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3.8 Principal Place of Business. Debtor's chief executive office is at
Debtor's address stated above in Little Rock, Pulaski County, Arkansas, and such
address is also where Debtor keeps its books and records.
3.9 Location of Collateral. All of Debtor's Inventory and Equipment is
located at Debtor's principal place of business located at 3201 West 65th
Street, Little Rock, Arkansas 72209. 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 Alabama Secretary of State, the Office of the Arkansas
Secretary of State, the Office of the Louisiana Secretary of State, the Office
of the Mississippi Secretary of State and the Office of the Texas 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 the Permitted 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.
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ARTICLE IV
DEBTOR'S COVENANTS
Debtor covenants and agrees that:
4.1 Indebtedness and This Agreement. Debtor shall pay, or cause the
payment of, the Indebtedness, and any indebtedness secured by the Permitted
Liens, in accordance with its terms and shall promptly perform all of its
agreements herein and in any other agreements between it and Secured Party or
between it and the holder of any Permitted Liens.
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 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 Permitted Liens. Debtor shall not allow
any of the Permitted Liens to secure any indebtedness or obligations other than
the specific indebtedness or obligations outstanding, and only to the extent
outstanding, on the date this Agreement is entered into that are expressly
secured by the applicable Permitted Liens as of such date. Debtor will not incur
or permit any increase in any indebtedness or obligation secured by any of the
Permitted Liens and will not enter into, consent to, grant, agree to or permit
any amendment modification or waiver of any right of Debtor or of any security
agreement contract, understanding or other agreement of any kind which creates,
grants or otherwise gives risk to any of the Permitted Liens.
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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 Debtor's to the extent of any deficiency in any effective insurance coverage.
Secured Party is appointed Debtor's 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 Party's Costs. Debtor shall pay all costs necessary to
obtain, preserve, perfect, defend, and enforce the Security Interest, collect
the Indebtedness, and preserve, defend, enforce, and collect the Collateral,
including but not limited to taxes, assessments, insurance premiums, repairs,
reasonable attorney's fees and legal expenses, feed, rent, storage costs, and
expenses of sales. Whether Collateral is or is not in Secured Party's
possession, and without any obligation to do so and without waiving Debtor's
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
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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.
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 Debtor's 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 Further Assurances. Debtor shall execute and deliver any documents
or instruments (including without limitation any financing statements or deeds
of trust) furnished by Secured Party, and take such further action, at Debtor's
sole cost and expense, 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 Party's interest in Collateral
or to obtain proceeds of Collateral.
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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 Debtor's
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
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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:
(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
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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 Secured Party 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. Secured Party's written consent to
any sale, mortgage, transfer, or encumbrance shall not be construed to be a
waiver of this provision with 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.
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.
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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 (as defined
in Section 6.1 hereof).
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.
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
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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.
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
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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 and deliver such certificates
to Secured Party.
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.
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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.
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
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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.
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ARTICLE VI
DEFAULT
6.1 Events of Default. The following are events of default under this
Agreement ("Events of Default"):
(a) default, by Debtor or any subsidiary of Debtor, in the
timely payment of any part of the Note or other Indebtedness or any
breach or default in performance or observance of the terms and
conditions herein, in any of the Original Security Documents, in any of
the New Security Documents, or in any other agreement between Debtor or
any of Debtor's subsidiaries on the one hand and Secured Party on the
other hand;
(b) any warranty, representation, or statement made or
furnished to Secured Party by Debtor or any of Debtor's subsidiaries
proves to have been false in any material respect when made or
furnished;
(c) acceleration of the maturity of debt of Debtor or
any of Debtor'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;
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(e) sale, loss, theft, destruction, incurrence of an
encumbrance upon, 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) 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 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 or any of Debtor's subsidiaries;
(i) a judgment against Debtor in excess of $1,000 becomes
final and remains unsatisfied and unappealed for thirty (30) calendar
days;
(j) any liability or agreement of third parties to or with
Debtor on or relating to the Collateral shall not be paid or performed
in accordance with the terms thereof; or
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(k) any breach or default by Debtor under any agreement giving
rise to any of the Permitted Liens or under any indebtedness or
obligation secured thereby, or any action by any holder of any of the
Permitted Liens is taken or instituted to enforce the rights of such
holder with respect to any such Permitted Liens.
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
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
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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; No Liability of Secured Party. Secured Party's
rights under this Agreement and the Security Interest shall inure to the
benefits of its successors and assigns. 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. 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
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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.
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.
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.
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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; Terms Commercially Reasonable. 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. The terms of this Agreement shall be deemed
commercially reasonable within the meaning of the Texas UCC.
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.
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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.
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.
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<PAGE>
EXECUTED this 25th day of March, 1999.
DEBTOR:
CONSOLIDATED ECO-SYSTEMS, INC.
By: /s/ Larry Woodcock
Name: Larry Woodcock
Title: President
SECURED PARTY: AMERICAN PHYSICIANS SERVICE
GROUP, INC.
By: /s/ Duane K. Boyd, Jr.
Name: Duane K. Boyd, Jr.
Title: VP
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<PAGE>
1
SCHEDULE I
DESCRIPTION OF REAL PROPERTY
1
<PAGE>
SCHEDULE II
DESCRIPTION OF PERMITTED LIENS
- - ---------------------------- ------------------------------------------- -------
Description, Outstanding Balance
Name and Address of and Maturity Date of Secured
Secured Party Description of Collateral Obligation
- - --------------------------------------------------------------------------------
Exhibit 10.60
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered into effective
the 25th day of March, 1999, by and between Eco Acquisition, Inc., an Arkansas
corporation (the "Debtor"), and American Physicians Service Group, Inc., a Texas
corporation (the "Secured Party").
R E C I T A L S:
A. Consolidated Eco-Systems, Inc., an Idaho corporation formerly known
as Exsorbet Industries, Inc. ("Consolidated"), the parent company of Debtor,
executed and delivered that certain Promissory Note dated November 6, 1997 (as
amended, supplemented, or modified, and including any replacement thereof or
substitution therefore, the "Note") in the original principal amount of Three
Million Seven Hundred Eighty-Eight Thousand Five Hundred Eighty Dollars
($3,788,580) payable to the order of Secured Party.
B. The Note was issued pursuant to a Master Refinancing Agreement of
even date with the Note (the "Loan Agreement") between Consolidated, its
subsidiaries and Secured Party. The obligations of Consolidated under the Note
and the Loan Agreement are guaranteed by certain guaranty agreements executed by
Debtor and the other subsidiaries of Consolidated, and are secured pursuant to
the terms of certain security agreements, pledges and other agreements and
instruments entered into by Consolidated and certain subsidiaries of
Consolidated. The Loan Agreement and all such guarantees, security agreements,
pledges and other agreements and instruments are collectively referred to herein
as the "Original Security Documents."
<PAGE>
C. Debtor will, concurrently with its execution of this Agreement,
execute and deliver that certain Master Restructuring Agreement (the "Second
Loan Agreement"), of even date herewith, by and between Consolidated, Debtor,
all of Consolidated's other wholly or partially owned subsidiaries, and Secured
Party, along with other guarantees, security agreements, pledges, documents,
agreements, contracts, instruments and certificates contemplated therein or
executed and delivered in connection therewith (collectively, including the
Second Loan Agreement and this Agreement, the "New Security Documents").
D. Debtor has received, and will continue to receive, valuable
consideration as a result of the transactions evidenced by, or related to, the
Note, the Original Security Documents, the New Security Documents and this
Agreement.
E. Debtor has agreed to pledge the Collateral (as defined below) to
secure certain obligations and liabilities, including without limitation (i)
Consolidated's obligations under the Note, (ii) Debtor's, Consolidated's and
Consolidated's other subsidiaries' performance of the covenants and agreements
set forth in the Original Security Documents, (iii) Debtor's, Consolidated's and
Consolidated's other subsidiaries' performance of the covenants and agreements
set forth in the New Security Documents, and (iv) Debtor's performance of the
covenants more fully set forth herein.
2
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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. Debtor assigns and transfers to Secured Party,
and grants to Secured Party a continuing security interest in and lien upon (the
"Security Interest"), the Collateral (as defined in Article II below) to secure
the payment and the performance of the Indebtedness (as hereinafter defined).
1.2 Indebtedness. The following indebtedness and obligations
(collectively, the "Indebtedness") are secured by this Agreement and the
Security Interest:
(a) All debt, obligations, liabilities, and agreements of
Debtor, Consolidated and/or any of Consolidated's subsidiaries, to
Secured Party, now or hereafter existing, arising directly between
Debtor and Secured Party, Consolidated and Secured Party and/or any of
Consolidated's subsidiaries and Secured Party, or acquired outright,
conditionally, or as collateral security from another by Secured Party,
<PAGE>
3
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 Note and the Original Security
Documents, the New Security Documents, and all renewals, extensions,
modifications, or rearrangements of any of the foregoing.
(b) Secured Party's 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 attorney's fees
and legal expenses, 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
The Security Interest is granted in the following, whether now owned or
hereafter acquired, and wherever located (the "Collateral"):
4
<PAGE>
(a) All accounts (whether or not earned by performance),
letters of credit, contract rights, chattel paper, instruments,
securities, documents, securities accounts, security entitlements,
commodity contracts, commodity accounts, investment property and all
other forms of obligations at any time owing to such borrower, all
guaranties and other security therefor, all merchandise returned or
repossessed by Debtor, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party
(collectively referred to herein as "Accounts").
(b) All goods, merchandise or other personal property, to be
furnished under any contract of service or held for sale or lease
(including without limitation all raw materials, work in process,
finished goods and goods in transit, and including without limitation
all farm products), and all materials and supplies of every kind and
description used in Debtor's operations or owned by Debtor and any
interests in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to
any of the foregoing, wherever located (collectively referred to herein
as "Inventory").
(c) All machinery, molds, machine tools, motors, furniture,
equipment, furnishings, fixtures, trade fixtures, motor vehicles,
tools, parts, dies, jigs, goods and other goods (other than Inventory)
of every kind and description used in Debtor's operations or owned by
Debtor and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, or
5
<PAGE>
improvements, to any of the foregoing, wherever located (collectively
referred to herein as "Equipment").
(d) Investment Property, as defined in Chapter 9 of the Texas
UCC (as hereinafter defined).
(e) All choses in action, contract rights, documents or
certificates of title, causes of action, corporate or other business
records, Deposit Accounts, Investment Property, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the
goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation
presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter
arising therefrom, all claims of such Debtor against the Secured Party,
rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance policies
and claims (including without limitation life insurance, key man
insurance, credit insurance, liability insurance, property insurance
and other insurance), tax refunds and claims, computer programs, discs,
tapes and tape files, claims under guarantees security interests or
other security held by or granted to such Debtor, all rights to
indemnification and all other intangible property of every kind and
nature (other than Accounts) (collectively referred to herein as
"General Intangibles"), including without limitation, all of such
Debtor deposit accounts, as defined in Chapter 9 of the Texas UCC, and
6
<PAGE>
all money and all property now or at any time in the future in the
Secured Party's possession (including claims and credit balances)
(f) All security for the payment of any of the foregoing, and
all goods which gave or will give rise to any of the foregoing or are
evidenced, identified, or represented therein or thereby.
(g) All real estate or other real property now or hereafter
acquired by Debtor.
(h) All assets or other property similar to any of the
foregoing hereafter acquired by Debtor.
(i) All other assets or property of Debtor not otherwise
described above, whether now owned or hereafter acquired.
(j) All proceeds of any of the foregoing (including proceeds
of any insurance policies, proceeds of proceeds, and claims against
third parties), all products of any of the foregoing, and all books and
records related to any of the foregoing.
7
<PAGE>
ARTICLE III
DEBTOR'S 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 the financing statements relating to the Permitted
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 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 Permitted 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. All real property owned by Debtor is described, by legal description and
street address, on Schedule I hereto, all of which shall be deemed included in
the Collateral.
8
<PAGE>
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 Debtor's 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; provided those certain liens described on Schedule II hereof in
existence on the date hereof (the "Permitted Liens") may remain in existence
subject to the terms and conditions of this Agreement.
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 enter
into and perform this Agreement.
9
<PAGE>
3.8 Principal Place of Business. Debtor's chief executive office is at
Debtor's address stated above in Little Rock, Pulaski County, Arkansas, and such
address is also where Debtor keeps its books and records.
3.9 Location of Collateral. All of Debtor's Inventory and Equipment is
located at Debtor's principal place of business located at 1225 Breckenridge
Drive, Suite 200, Little Rock, Arkansas 72205. 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 Arkansas Secretary of State, the Office of the Alabama
Secretary of State, the Office of the Mississippi Secretary of State and the
Office of the Texas 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 the Permitted 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.
10
<PAGE>
ARTICLE IV
DEBTOR'S COVENANTS
Debtor covenants and agrees that:
4.1 Indebtedness and This Agreement. Debtor shall pay, or cause the
payment of, the Indebtedness, and any indebtedness secured by the Permitted
Liens, in accordance with its terms and shall promptly perform all of its
agreements herein and in any other agreements between it and Secured Party or
between it and the holder of any Permitted Liens.
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 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 Permitted Liens. Debtor shall not allow
any of the Permitted Liens to secure any indebtedness or obligations other than
the specific indebtedness or obligations outstanding, and only to the extent
outstanding, on the date this Agreement is entered into that are expressly
secured by the applicable Permitted Liens as of such date. Debtor will not incur
or permit any increase in any indebtedness or obligation secured by any of the
Permitted Liens and will not enter into, consent to, grant, agree to or permit
any amendment modification or waiver of any right of Debtor or of any security
agreement contract, understanding or other agreement of any kind which creates,
grants or otherwise gives risk to any of the Permitted Liens.
11
<PAGE>
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 Debtor's to the extent of any deficiency in any effective insurance coverage.
Secured Party is appointed Debtor's 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 Party's Costs. Debtor shall pay all costs necessary to
obtain, preserve, perfect, defend, and enforce the Security Interest, collect
the Indebtedness, and preserve, defend, enforce, and collect the Collateral,
including but not limited to taxes, assessments, insurance premiums, repairs,
reasonable attorney's fees and legal expenses, feed, rent, storage costs, and
expenses of sales. Whether Collateral is or is not in Secured Party's
possession, and without any obligation to do so and without waiving Debtor's
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
12
<PAGE>
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.
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 Debtor's 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 Further Assurances. Debtor shall execute and deliver any documents
or instruments (including without limitation any financing statements or deeds
of trust) furnished by Secured Party, and take such further action, at Debtor's
sole cost and expense, 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 Party's interest in Collateral
or to obtain proceeds of Collateral.
13
<PAGE>
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 Debtor's
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
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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:
(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
15
<PAGE>
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 Secured Party 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. Secured Party's written consent to
any sale, mortgage, transfer, or encumbrance shall not be construed to be a
waiver of this provision with 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.
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.
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<PAGE>
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 (as defined
in Section 6.1 hereof).
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.
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
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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.
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
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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 and deliver such certificates
to Secured Party.
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.
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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.
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
20
<PAGE>
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.
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<PAGE>
ARTICLE VI
DEFAULT
6.1 Events of Default. The following are events of default under this
Agreement ("Events of Default"):
(a) default, by Consolidated, Debtor or any other subsidiary
of Consolidated, in the timely payment of any part of the Note or other
Indebtedness or any breach or default in performance or observance of
the terms and conditions herein, in any of the Original Security
Documents, in any of the New Security Documents, or in any other
agreement between Consolidated, Debtor or any of Consolidated's other
subsidiaries on the one hand and Secured Party on the other hand;
(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;
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(e) sale, loss, theft, destruction, incurrence of an
encumbrance upon, 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) 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 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;
(j) any liability or agreement of third parties to or with
Debtor on or relating to the Collateral shall not be paid or performed
in accordance with the terms thereof; or
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(k) any breach or default by Debtor under any agreement giving
rise to any of the Permitted Liens or under any indebtedness or
obligation secured thereby, or any action by any holder of any of the
Permitted Liens is taken or instituted to enforce the rights of such
holder with respect to any such Permitted Liens.
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
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
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<PAGE>
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; No Liability of Secured Party. Secured Party's
rights under this Agreement and the Security Interest shall inure to the
benefits of its successors and assigns. 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. 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
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<PAGE>
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.
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.
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.
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<PAGE>
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; Terms Commercially Reasonable. 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. The terms of this Agreement shall be deemed
commercially reasonable within the meaning of the Texas UCC.
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.
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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.
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.
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EXECUTED this 25th day of March, 1999.
DEBTOR:
ECO ACQUISITION, INC.
By: /s/ Larry Woodcock
Name: Larry Woodcock
Title: President
SECURED PARTY: AMERICAN PHYSICIANS SERVICE
GROUP, INC.
By: /s/ Duane K. Boyd, Jr.
Name: Duane K. Boyd, Jr.
Title: VP
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SCHEDULE I
DESCRIPTION OF REAL PROPERTY
<PAGE>
SCHEDULE II
DESCRIPTION OF PERMITTED LIENS
- - ---------------------------- ------------------------------------------- -------
Description, Outstanding Balance
and Maturity
Name and Address of Date of Secured Obligation
of Secured Party Description of Collateral
Exhibit 10.61
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered into effective
the 25th day of March, 1999, by and between Exsorbet Technical Services Inc., an
Arkansas corporation (the "Debtor"), and American Physicians Service Group,
Inc., a Texas corporation (the "Secured Party").
R E C I T A L S:
A. Consolidated Eco-Systems, Inc., an Idaho corporation formerly known
as Exsorbet Industries, Inc. ("Consolidated"), the parent company of Debtor,
executed and delivered that certain Promissory Note dated November 6, 1997 (as
amended, supplemented, or modified, and including any replacement thereof or
substitution therefore, the "Note") in the original principal amount of Three
Million Seven Hundred Eighty-Eight Thousand Five Hundred Eighty Dollars
($3,788,580) payable to the order of Secured Party.
B. The Note was issued pursuant to a Master Refinancing Agreement of
even date with the Note (the "Loan Agreement") between Consolidated, its
subsidiaries and Secured Party. The obligations of Consolidated under the Note
and the Loan Agreement are guaranteed by certain guaranty agreements executed by
Debtor and the other subsidiaries of Consolidated, and are secured pursuant to
the terms of certain security agreements, pledges and other agreements and
instruments entered into by Consolidated and certain subsidiaries of
Consolidated. The Loan Agreement and all such guarantees, security agreements,
pledges and other agreements and instruments are collectively referred to herein
as the "Original Security Documents."
<PAGE>
C. Debtor will, concurrently with its execution of this Agreement,
execute and deliver that certain Master Restructuring Agreement (the "Second
Loan Agreement"), of even date herewith, by and between Consolidated, Debtor,
all of Consolidated's other wholly or partially owned subsidiaries, and Secured
Party, along with other guarantees, security agreements, pledges, documents,
agreements, contracts, instruments and certificates contemplated therein or
executed and delivered in connection therewith (collectively, including the
Second Loan Agreement and this Agreement, the "New Security Documents").
D. Debtor has received, and will continue to receive, valuable
consideration as a result of the transactions evidenced by, or related to, the
Note, the Original Security Documents, the New Security Documents and this
Agreement.
E. Debtor has agreed to pledge the Collateral (as defined below) to
secure certain obligations and liabilities, including without limitation (i)
Consolidated's obligations under the Note, (ii) Debtor's, Consolidated's and
Consolidated's other subsidiaries' performance of the covenants and agreements
set forth in the Original Security Documents, (iii) Debtor's, Consolidated's and
Consolidated's other subsidiaries' performance of the covenants and agreements
set forth in the New Security Documents, and (iv) Debtor's performance of the
covenants more fully set forth herein.
2
<PAGE>
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. Debtor assigns and transfers to Secured Party,
and grants to Secured Party a continuing security interest in and lien upon (the
"Security Interest"), the Collateral (as defined in Article II below) to secure
the payment and the performance of the Indebtedness (as hereinafter defined).
1.2 Indebtedness. The following indebtedness and obligations
(collectively, the "Indebtedness") are secured by this Agreement and the
Security Interest:
(a) All debt, obligations, liabilities, and agreements of
Debtor, Consolidated and/or any of Consolidated's subsidiaries, to
Secured Party, now or hereafter existing, arising directly between
Debtor and Secured Party, Consolidated and Secured Party and/or any of
Consolidated's subsidiaries and Secured Party, or acquired outright,
conditionally, or as collateral security from another by Secured Party,
<PAGE>
3
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 Note and the Original Security
Documents, the New Security Documents, and all renewals, extensions,
modifications, or rearrangements of any of the foregoing.
(b) Secured Party's 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 attorney's fees
and legal expenses, 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
The Security Interest is granted in the following, whether now owned or
hereafter acquired, and wherever located (the "Collateral"):
4
<PAGE>
(a) All accounts (whether or not earned by performance),
letters of credit, contract rights, chattel paper, instruments,
securities, documents, securities accounts, security entitlements,
commodity contracts, commodity accounts, investment property and all
other forms of obligations at any time owing to such borrower, all
guaranties and other security therefor, all merchandise returned or
repossessed by Debtor, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party
(collectively referred to herein as "Accounts").
(b) All goods, merchandise or other personal property, to be
furnished under any contract of service or held for sale or lease
(including without limitation all raw materials, work in process,
finished goods and goods in transit, and including without limitation
all farm products), and all materials and supplies of every kind and
description used in Debtor's operations or owned by Debtor and any
interests in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to
any of the foregoing, wherever located (collectively referred to herein
as "Inventory").
(c) All machinery, molds, machine tools, motors, furniture,
equipment, furnishings, fixtures, trade fixtures, motor vehicles,
tools, parts, dies, jigs, goods and other goods (other than Inventory)
of every kind and description used in Debtor's operations or owned by
Debtor and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, or
5
<PAGE>
improvements, to any of the foregoing, wherever located (collectively
referred to herein as "Equipment").
(d) Investment Property, as defined in Chapter 9 of the Texas
UCC (as hereinafter defined).
(e) All choses in action, contract rights, documents or
certificates of title, causes of action, corporate or other business
records, Deposit Accounts, Investment Property, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the
goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation
presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter
arising therefrom, all claims of such Debtor against the Secured Party,
rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance policies
and claims (including without limitation life insurance, key man
insurance, credit insurance, liability insurance, property insurance
and other insurance), tax refunds and claims, computer programs, discs,
tapes and tape files, claims under guarantees security interests or
other security held by or granted to such Debtor, all rights to
indemnification and all other intangible property of every kind and
nature (other than Accounts) (collectively referred to herein as
"General Intangibles"), including without limitation, all of such
Debtor deposit accounts, as defined in Chapter 9 of the Texas UCC, and
6
<PAGE>
all money and all property now or at any time in the future in the
Secured Party's possession (including claims and credit balances)
(f) All security for the payment of any of the foregoing, and
all goods which gave or will give rise to any of the foregoing or are
evidenced, identified, or represented therein or thereby.
(g) All real estate or other real property now or hereafter
acquired by Debtor.
(h) All assets or other property similar to any of the
foregoing hereafter acquired by Debtor.
(i) All other assets or property of Debtor not otherwise
described above, whether now owned or hereafter acquired.
(j) All proceeds of any of the foregoing (including proceeds
of any insurance policies, proceeds of proceeds, and claims against
third parties), all products of any of the foregoing, and all books and
records related to any of the foregoing.
7
<PAGE>
ARTICLE III
DEBTOR'S 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 the financing statements relating to the Permitted
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 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 Permitted 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. All real property owned by Debtor is described, by legal description and
street address, on Schedule I hereto, all of which shall be deemed included in
the Collateral.
8
<PAGE>
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 Debtor's 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; provided those certain liens described on Schedule II hereof in
existence on the date hereof (the "Permitted Liens") may remain in existence
subject to the terms and conditions of this Agreement.
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 enter
into and perform this Agreement.
9
<PAGE>
3.8 Principal Place of Business. Debtor's chief executive office is at
Debtor's address stated above in Little Rock, Pulaski County, Arkansas, and
such address is also where Debtor keeps its books and records.
3.9 Location of Collateral. All of Debtor's Inventory and Equipment is
located at Debtor's principal place of business located at 3201 West 65th
Street, Little Rock, Arkansas 72209. 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 Arkansas Secretary of State and the Office of the Texas
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 the Permitted 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.
10
<PAGE>
ARTICLE IV
DEBTOR'S COVENANTS
Debtor covenants and agrees that:
4.1 Indebtedness and This Agreement. Debtor shall pay, or cause the
payment of, the Indebtedness, and any indebtedness secured by the Permitted
Liens, in accordance with its terms and shall promptly perform all of its
agreements herein and in any other agreements between it and Secured Party or
between it and the holder of any Permitted Liens.
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 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 Permitted Liens. Debtor shall not allow
any of the Permitted Liens to secure any indebtedness or obligations other than
the specific indebtedness or obligations outstanding, and only to the extent
outstanding, on the date this Agreement is entered into that are expressly
secured by the applicable Permitted Liens as of such date. Debtor will not incur
or permit any increase in any indebtedness or obligation secured by any of the
Permitted Liens and will not enter into, consent to, grant, agree to or permit
any amendment modification or waiver of any right of Debtor or of any security
agreement contract, understanding or other agreement of any kind which creates,
grants or otherwise gives risk to any of the Permitted Liens.
11
<PAGE>
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 Debtor's to the extent of any deficiency in any effective insurance coverage.
Secured Party is appointed Debtor's 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 Party's Costs. Debtor shall pay all costs necessary to
obtain, preserve, perfect, defend, and enforce the Security Interest, collect
the Indebtedness, and preserve, defend, enforce, and collect the Collateral,
including but not limited to taxes, assessments, insurance premiums, repairs,
reasonable attorney's fees and legal expenses, feed, rent, storage costs, and
expenses of sales. Whether Collateral is or is not in Secured Party's
possession, and without any obligation to do so and without waiving Debtor's
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
12
<PAGE>
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.
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 Debtor's 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 Further Assurances. Debtor shall execute and deliver any documents
or instruments (including without limitation any financing statements or deeds
of trust) furnished by Secured Party, and take such further action, at Debtor's
sole cost and expense, 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 Party's interest in Collateral
or to obtain proceeds of Collateral.
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<PAGE>
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 Debtor's
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
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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:
(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
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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 Secured Party 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. Secured Party's written consent to
any sale, mortgage, transfer, or encumbrance shall not be construed to be a
waiver of this provision with 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.
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.
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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 (as defined
in Section 6.1 hereof).
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.
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
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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.
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
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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 and deliver such certificates
to Secured Party.
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.
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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.
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
20
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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.
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ARTICLE VI
DEFAULT
6.1 Events of Default. The following are events of default under this
Agreement ("Events of Default"):
(a) default, by Consolidated, Debtor or any other subsidiary
of Consolidated, in the timely payment of any part of the Note or other
Indebtedness or any breach or default in performance or observance of
the terms and conditions herein, in any of the Original Security
Documents, in any of the New Security Documents, or in any other
agreement between Consolidated, Debtor or any of Consolidated's other
subsidiaries on the one hand and Secured Party on the other hand;
(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;
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(e) sale, loss, theft, destruction, incurrence of an
encumbrance upon, 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) 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 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;
(j) any liability or agreement of third parties to or with
Debtor on or relating to the Collateral shall not be paid or performed
in accordance with the terms thereof; or
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(k) any breach or default by Debtor under any agreement giving
rise to any of the Permitted Liens or under any indebtedness or
obligation secured thereby, or any action by any holder of any of the
Permitted Liens is taken or instituted to enforce the rights of such
holder with respect to any such Permitted Liens.
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
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
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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; No Liability of Secured Party. Secured Party's
rights under this Agreement and the Security Interest shall inure to the
benefits of its successors and assigns. 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. 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
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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.
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.
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.
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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; Terms Commercially Reasonable. 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. The terms of this Agreement shall be deemed
commercially reasonable within the meaning of the Texas UCC.
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.
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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.
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.
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EXECUTED this 25th day of March, 1999.
DEBTOR:
EXSORBET TECHNICAL SERVICES, INC.
By: /s/ Larry Woodcock
Name: Larry Woodcock
Title: President
SECURED PARTY: AMERICAN PHYSICIANS SERVICE
GROUP, INC.
By: /s/ Duane K. Boyd, Jr.
Name: Duane K. Boyd, Jr.
Title: VP
29
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SCHEDULE I
DESCRIPTION OF REAL PROPERTY
<PAGE>
SCHEDULE II
DESCRIPTION OF PERMITTED LIENS
- - ---------------------------- ------------------------------------------- -------
Description, Outstanding Balance
and Maturity
Name and Address of Date of Secured Obligation
of Secured Party Description of Collateral
Exhibit 10.62
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered into effective
the 25th day of March, 1999, by and between KR Industrial of Alabama, Inc., an
Alabama corporation (the "Debtor"), and American Physicians Service Group, Inc.,
a Texas corporation (the "Secured Party").
R E C I T A L S:
A. Consolidated Eco-Systems, Inc., an Idaho corporation formerly known
as Exsorbet Industries, Inc. ("Consolidated"), the parent company of Debtor,
executed and delivered that certain Promissory Note dated November 6, 1997 (as
amended, supplemented, or modified, and including any replacement thereof or
substitution therefore, the "Note") in the original principal amount of Three
Million Seven Hundred Eighty-Eight Thousand Five Hundred Eighty Dollars
($3,788,580) payable to the order of Secured Party.
B. The Note was issued pursuant to a Master Refinancing Agreement of
even date with the Note (the "Loan Agreement") between Consolidated, its
subsidiaries and Secured Party. The obligations of Consolidated under the Note
and the Loan Agreement are guaranteed by certain guaranty agreements executed by
Debtor and the other subsidiaries of Consolidated, and are secured pursuant to
the terms of certain security agreements, pledges and other agreements and
instruments entered into by Consolidated and certain subsidiaries of
Consolidated. The Loan Agreement and all such guarantees, security agreements,
pledges and other agreements and instruments are collectively referred to herein
as the "Original Security Documents."
<PAGE>
C. Debtor will, concurrently with its execution of this Agreement,
execute and deliver that certain Master Restructuring Agreement (the "Second
Loan Agreement"), of even date herewith, by and between Consolidated, Debtor,
all of Consolidated's other wholly or partially owned subsidiaries, and Secured
Party, along with other guarantees, security agreements, pledges, documents,
agreements, contracts, instruments and certificates contemplated therein or
executed and delivered in connection therewith (collectively, including the
Second Loan Agreement and this Agreement, the "New Security Documents").
D. Debtor has received, and will continue to receive, valuable
consideration as a result of the transactions evidenced by, or related to, the
Note, the Original Security Documents, the New Security Documents and this
Agreement.
E. Debtor has agreed to pledge the Collateral (as defined below) to
secure certain obligations and liabilities, including without limitation (i)
Consolidated's obligations under the Note, (ii) Debtor's, Consolidated's and
Consolidated's other subsidiaries' performance of the covenants and agreements
set forth in the Original Security Documents, (iii) Debtor's, Consolidated's and
Consolidated's other subsidiaries' performance of the covenants and agreements
set forth in the New Security Documents, and (iv) Debtor's performance of the
covenants more fully set forth herein.
2
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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. Debtor assigns and transfers to Secured Party,
and grants to Secured Party a continuing security interest in and lien upon (the
"Security Interest"), the Collateral (as defined in Article II below) to secure
the payment and the performance of the Indebtedness (as hereinafter defined).
1.2 Indebtedness. The following indebtedness and obligations
(collectively, the "Indebtedness") are secured by this Agreement and the
Security Interest:
(a) All debt, obligations, liabilities, and agreements of
Debtor, Consolidated and/or any of Consolidated's subsidiaries, to
Secured Party, now or hereafter existing, arising directly between
Debtor and Secured Party, Consolidated and Secured Party and/or any of
Consolidated's subsidiaries and Secured Party, or acquired outright,
conditionally, or as collateral security from another by Secured Party,
<PAGE>
3
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 Note and the Original Security
Documents, the New Security Documents, and all renewals, extensions,
modifications, or rearrangements of any of the foregoing.
(b) Secured Party's 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 attorney's fees
and legal expenses, 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
The Security Interest is granted in the following, whether now owned or
hereafter acquired, and wherever located (the "Collateral"):
4
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(a) All accounts (whether or not earned by performance),
letters of credit, contract rights, chattel paper, instruments,
securities, documents, securities accounts, security entitlements,
commodity contracts, commodity accounts, investment property and all
other forms of obligations at any time owing to such borrower, all
guaranties and other security therefor, all merchandise returned or
repossessed by Debtor, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party
(collectively referred to herein as "Accounts").
(b) All goods, merchandise or other personal property, to be
furnished under any contract of service or held for sale or lease
(including without limitation all raw materials, work in process,
finished goods and goods in transit, and including without limitation
all farm products), and all materials and supplies of every kind and
description used in Debtor's operations or owned by Debtor and any
interests in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to
any of the foregoing, wherever located (collectively referred to herein
as "Inventory").
(c) All machinery, molds, machine tools, motors, furniture,
equipment, furnishings, fixtures, trade fixtures, motor vehicles,
tools, parts, dies, jigs, goods and other goods (other than Inventory)
of every kind and description used in Debtor's operations or owned by
Debtor and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, or
5
<PAGE>
improvements, to any of the foregoing, wherever located (collectively
referred to herein as "Equipment").
(d) Investment Property, as defined in Chapter 9 of the Texas
UCC (as hereinafter defined).
(e) All choses in action, contract rights, documents or
certificates of title, causes of action, corporate or other business
records, Deposit Accounts, Investment Property, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the
goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation
presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter
arising therefrom, all claims of such Debtor against the Secured Party,
rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance policies
and claims (including without limitation life insurance, key man
insurance, credit insurance, liability insurance, property insurance
and other insurance), tax refunds and claims, computer programs, discs,
tapes and tape files, claims under guarantees security interests or
other security held by or granted to such Debtor, all rights to
indemnification and all other intangible property of every kind and
nature (other than Accounts) (collectively referred to herein as
"General Intangibles"), including without limitation, all of such
Debtor deposit accounts, as defined in Chapter 9 of the Texas UCC, and
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all money and all property now or at any time in the future in the
Secured Party's possession (including claims and credit balances)
(f) All security for the payment of any of the foregoing, and
all goods which gave or will give rise to any of the foregoing or are
evidenced, identified, or represented therein or thereby.
(g) All real estate or other real property now or hereafter
acquired by Debtor.
(h) All assets or other property similar to any of the
foregoing hereafter acquired by Debtor.
(i) All other assets or property of Debtor not otherwise
described above, whether now owned or hereafter acquired.
(j) All proceeds of any of the foregoing (including proceeds
of any insurance policies, proceeds of proceeds, and claims against
third parties), all products of any of the foregoing, and all books and
records related to any of the foregoing.
7
<PAGE>
ARTICLE III
DEBTOR'S 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 the financing statements relating to the Permitted
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 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 Permitted 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. All real property owned by Debtor is described, by legal description and
street address, on Schedule I hereto, all of which shall be deemed included in
the Collateral.
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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 Debtor's 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; provided those certain liens described on Schedule II hereof in
existence on the date hereof (the "Permitted Liens") may remain in existence
subject to the terms and conditions of this Agreement.
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 enter
into and perform this Agreement.
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3.8 Principal Place of Business. Debtor's chief executive office is at
Debtor's address stated above in Childersburg, Talladega County, Alabama, and
such address is also where Debtor keeps its books and records.
3.9 Location of Collateral. All of Debtor's Inventory and Equipment is
located at Debtor's principal place of business located at 15 Industrial Park
Drive, Childersburg, Alabama 35044. 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 Alabama 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 the
Permitted 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.
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ARTICLE IV
DEBTOR'S COVENANTS
Debtor covenants and agrees that:
4.1 Indebtedness and This Agreement. Debtor shall pay, or cause the
payment of, the Indebtedness, and any indebtedness secured by the Permitted
Liens, in accordance with its terms and shall promptly perform all of its
agreements herein and in any other agreements between it and Secured Party or
between it and the holder of any Permitted Liens.
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 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 Permitted Liens. Debtor shall not allow
any of the Permitted Liens to secure any indebtedness or obligations other than
the specific indebtedness or obligations outstanding, and only to the extent
outstanding, on the date this Agreement is entered into that are expressly
secured by the applicable Permitted Liens as of such date. Debtor will not incur
or permit any increase in any indebtedness or obligation secured by any of the
Permitted Liens and will not enter into, consent to, grant, agree to or permit
any amendment modification or waiver of any right of Debtor or of any security
agreement contract, understanding or other agreement of any kind which creates,
grants or otherwise gives risk to any of the Permitted Liens.
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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 Debtor's to the extent of any deficiency in any effective insurance coverage.
Secured Party is appointed Debtor's 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 Party's Costs. Debtor shall pay all costs necessary to
obtain, preserve, perfect, defend, and enforce the Security Interest, collect
the Indebtedness, and preserve, defend, enforce, and collect the Collateral,
including but not limited to taxes, assessments, insurance premiums, repairs,
reasonable attorney's fees and legal expenses, feed, rent, storage costs, and
expenses of sales. Whether Collateral is or is not in Secured Party's
possession, and without any obligation to do so and without waiving Debtor's
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
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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.
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 Debtor's 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 Further Assurances. Debtor shall execute and deliver any documents
or instruments (including without limitation any financing statements or deeds
of trust) furnished by Secured Party, and take such further action, at Debtor's
sole cost and expense, 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 Party's interest in Collateral
or to obtain proceeds of Collateral.
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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 Debtor's
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
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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:
(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
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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 Secured Party 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. Secured Party's written consent to
any sale, mortgage, transfer, or encumbrance shall not be construed to be a
waiver of this provision with 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.
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.
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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 (as defined
in Section 6.1 hereof).
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.
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
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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.
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
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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 and deliver such certificates
to Secured Party.
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.
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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.
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
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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.
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ARTICLE VI
DEFAULT
6.1 Events of Default. The following are events of default under this
Agreement ("Events of Default"):
(a) default, by Consolidated, Debtor or any other subsidiary
of Consolidated, in the timely payment of any part of the Note or other
Indebtedness or any breach or default in performance or observance of
the terms and conditions herein, in any of the Original Security
Documents, in any of the New Security Documents, or in any other
agreement between Consolidated, Debtor or any of Consolidated's other
subsidiaries on the one hand and Secured Party on the other hand;
(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;
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(e) sale, loss, theft, destruction, incurrence of an
encumbrance upon, 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) 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 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;
(j) any liability or agreement of third parties to or with
Debtor on or relating to the Collateral shall not be paid or performed
in accordance with the terms thereof; or
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(k) any breach or default by Debtor under any agreement giving
rise to any of the Permitted Liens or under any indebtedness or
obligation secured thereby, or any action by any holder of any of the
Permitted Liens is taken or instituted to enforce the rights of such
holder with respect to any such Permitted Liens.
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
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
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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; No Liability of Secured Party. Secured Party's
rights under this Agreement and the Security Interest shall inure to the
benefits of its successors and assigns. 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. 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
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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.
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.
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.
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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; Terms Commercially Reasonable. 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. The terms of this Agreement shall be deemed
commercially reasonable within the meaning of the Texas UCC.
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.
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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.
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.
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EXECUTED this 25th day of March, 1999.
DEBTOR:
KR INDUSTRIAL SERVICE OF ALABAMA, INC.
By: /s/ Larry Woodcock
Name: Larry Woodcock
Title: President
SECURED PARTY: AMERICAN PHYSICIANS SERVICE
GROUP, INC.
By: /s/ Duane K. Boyd, Jr.
Name: Duane K. Boyd, Jr.
Title: VP
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SCHEDULE I
DESCRIPTION OF REAL PROPERTY
<PAGE>
SCHEDULE II
DESCRIPTION OF PERMITTED LIENS
- - ---------------------------- ------------------------------------------- -------
Description, Outstanding Balance
and Maturity
Name and Address of Date of Secured Obligation
of Secured Party Description of Collateral
EXHIBIT 21.1
SUBSIDIARIES OF AMERICAN PHYSICIANS SERVICE GROUP, INC.
AS OF MARCH 25, 1999
Name of Subsidiary State of Incorporation
- - --------------------------- ------------------------
APS Investment Services, Inc. Delaware
APS Financial Corporation Colorado
APS Asset Management, Inc. Delaware
APS Insurance Services, Inc. Delaware
APS Facilities Management, Inc. Texas
American Physicians Insurance Agency, Inc. Texas
APSFM, Inc. Delaware
APS Realty, Inc. Texas
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
- - --------------------------------------------------------------------------------
We consent to incorporation by reference in the registration statements (No.
33-66308, No. 333-07427, and No. 333-62233) on Form S-8 and (No.33-62213) on
Form S-3 of American Physicians Service Group, Inc. of our report dated March 9,
1999, relating to the consolidated balance sheets of American Physicians Service
Group Inc. and subsidiaries as of December 31, 1998 and 1997, 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, 1998 which report
appears in the annual report on Form 10-K of American Physicians Service Group,
Inc. for the year ended December 31, 1998.
/s/ KPMG LLP
-----------------------
Austin, Texas
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1998 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,214
<SECURITIES> 0
<RECEIVABLES> 234
<ALLOWANCES> 38
<INVENTORY> 1
<CURRENT-ASSETS> 7,567
<PP&E> 4,969
<DEPRECIATION> 3,316
<TOTAL-ASSETS> 32,914
<CURRENT-LIABILITIES> 5,785
<BONDS> 0
0
0
<COMMON> 416
<OTHER-SE> 24,186
<TOTAL-LIABILITY-AND-EQUITY> 32,914
<SALES> 0
<TOTAL-REVENUES> 16,403
<CGS> 0
<TOTAL-COSTS> 14,709
<OTHER-EXPENSES> 454
<LOSS-PROVISION> 383
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> 2,255
<INCOME-TAX> 863
<INCOME-CONTINUING> 1,214
<DISCONTINUED> 331
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,545
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.31
<FN>
THE VALUE FOR EPS-PRIMARY NOW REPRESENTS EPS-BASIC AND THE VALUE FOR EPS-DILUTED
REPRESENTS THE VALUE PREVIOUSLY REPORTED AS EPS-FULLY DILUTED.
</FN>
</TABLE>
