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, 1999
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 27, 2000: $7,530,176
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 27, 2000
-------------------- ----------------
Common Stock, $.10 par value 2,745,233
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, 1999 is incorporated by
reference.
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<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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. In 1999 the Company entered into the environmental consulting and
engineering services business. 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.
Financial information about the Company's industry segments is disclosed
in Note 14 to the accompanying Consolidated Financial Statements in Appendix A.
FINANCIAL 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 57%, 60% and 44% of Company revenues in 1999, 1998 and 1997,
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.
1
<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 and
limit its ability to pay dividends. 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 29, 2000, 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 24%, 34% and 48% of
Company revenues in 1999, 1998 and 1997, respectively. Substantially all of the
revenue was attributable to American Physicians Insurance Exchange ("APIE"), a
reciprocal insurance exchange managed by FMI. 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 profits. The amount of these premiums can be adversely affected by
competition. Substantial underwriting losses or investment performance, which
might result in a curtailment or cessation of operations by APIE, would also
adversely affect FMI's revenue. To limit possible underwriting losses or adverse
investment performance, APIE currently reinsures its risk in excess of $250,000
per medical incident. APIE offers medical professional liability insurance for
physicians in Texas and Arkansas. FMI's assets are not subject to any insurance
claims by policyholders of APIE.
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 profits. FMI pays 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. Termination of FMI's management agreement with APIE would have a
material adverse effect on the Company.
During 1997, FPIC Insurance Group, Inc. ("FPIC"), purchased a 20% interest
in Insurance Services from the Company. In conjunction with that purchase,
FPIC's subsidiary, Florida Physicians Insurance Company, Inc. ("Florida
Physicians"), entered into agreements with Agency and APIE granting Agency the
exclusive right to market Florida Physician's policies in Texas. Agency has
sales, marketing, underwriting and claims handling authority for Florida
Physicians in Texas and receives commissions for such services. Florida
Physicians also entered into a reinsurance agreement with APIE in which APIE
reinsures substantially all of Florida Physicians' risk in Texas under medical
professional liability policies issued or renewed by Florida Physicians on
behalf of Texas health care providers after March 27, 1997. The Company had also
granted FPIC an option, exercisable at any time during 1999, to purchase an
additional 35% interest in Insurance Services from the Company. This option has
expired.
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 professional
liability 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.
3
<PAGE>
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 of coverage. APIE and Florida Physicians reinsure 100% of all Texas
and Arkansas coverage per medical incident between $250,000 and the policy limit
$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 1999, 1998, 1997, 1996, and 1995,
management fees attributable to profit sharing were $329,000, $1,750,000,
$1,961,000, $1,191,000, and $700,000, respectively. The decrease in 1999 is
primarily due to an overall increase in competition in medical professional
liability insurance in Texas as well as a continued trend of rising claims
against the insureds.
(In thousands, except for number of insureds)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Earned premiums before
<S> <C> <C> <C> <C> <C>
reinsurance premiums $24,529 $22,931 $25,899 $28,754 $30,857
Total assets 66,377 75,173 81,594 90,193 101,251
Total surplus 13,925 13,592 11,854 10,017 9,402
Management fees (including profit
sharing) and commissions to FMI
and Agency 3,645 (2) 4,835 (2) 5,854 (2) $5,281 (2) $5,010 (2)
Number of insureds 2,882 2,743 2,629 (1) 3,019 3,226
- ----------------
</TABLE>
(1) The decrease was the result of APIE's decision to raise premiums at the
risk of policy retention on certain unprofitable specialties. Included
in the totals are physicians for which APIE provides reinsurance
through a relationship with another malpractice insurance company.
(2) Includes commissions of $1,191, $835, $1,214, $860, and $676 in 1999,
1998, 1997, 1996 and 1995, respectively, from Florida Physicians and
other carriers directly related to APIE's controlled business.
4
<PAGE>
CONSULTING
On October 31, 1996, the Company invested $3,300,000 in common stock of
Exsorbet Industries, Inc. ("Exsorbet") (NASDAQ:EXSO) with a put option. Exsorbet
was a diversified environmental and technical services company. On November 26,
1996, the Company exercised its put in exchange for a note receivable from
Exsorbet. The note was secured by the shares that were subject to the put option
plus all the stock and substantially all of the assets of a wholly owned
subsidiary of Exsorbet. Subsequently, Exsorbet became known as Consolidated
Eco-Systems, Inc. ("Con-Eco").
On June 17, 1998 the Company filed suit against Con-Eco, and its directors
and officers alleging breach of contract, negligent misrepresentation and
conspiracy. In February, 1999 the Company settled this litigation with the
directors and officers of Con-Eco. The Company recovered $950,000 for the full
release of all claims against the directors of Con-Eco.
In April, 1999, the Company's wholly owned subsidiary, APS Consulting
("APS Consulting"), acquired the business of Eco-Systems, Inc. ("Eco-Systems"),
a subsidiary of Con-Eco, in connection with a debt restructuring agreement with
Con-Eco. Under the terms of the restructuring agreement, Con-Eco had the right
to purchase back the business of Eco-Systems for a nominal amount upon the
occurrence of certain conditions. Accordingly, the Company did not initially
consolidate the operations of APS Consulting. In addition, the Company dismissed
its lawsuit against Con-Eco, but retained the right to reinstitute the
litigation at a later date.
Subsequently, the Company concluded that it was not probable that Con-Eco
would exercise its option to reacquire the stock and, effective September 1,
1999, the Company began consolidating APS Consulting. The acquisition was
recorded using the purchase method of accounting. In addition, the Company wrote
off the remaining balance of the note due from Con-Eco. During the twelve months
ended December 31, 1999 the Company wrote off to bad debt expense a total of
$1,293,000 related to this note bringing the total written off related to this
note since inception to $1,685,000.
APS Consulting is an environmental consulting/engineering firm, comprised
of scientists and engineers specializing in remedial investigations, remediation
engineering, air quality, waste water, regulatory compliance, solid waste
engineering, litigation support/expert testimony, environmental resources and
industrial hygiene and safety. APS Consulting offices are located in Jackson,
Mississippi; Mobile, Alabama; and Houston, Texas.
5
<PAGE>
Because of the wide range of expertise of its consultants, APS Consulting
serves clients in a broad base of industries, including: petrochemicals;
agricultural chemicals; oil exploration, refining and marketing; gas pipelines;
pulp and paper/forest products; manufacturing; waste disposal and management;
state and local government; and law firms. Its consultants and engineers have
expertise in environmental engineering, chemical engineering, hydrogeology,
computer-aided drafting and design, civil engineering, geology, biology and
micro biology. Revenues from APS Consulting contributed 4% of Company revenues
in 1999. As revenues and expenses of APS Consulting were not consolidated into
the totals of the Company until September, 1999, this percentage reflects only
four months of revenues from APS Consulting.
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 affiliate. The remainder is leased to unaffiliated parties.
Revenues from APS Realty contributed 4%, 4% and 5% of Company revenues in 1999,
1998 and 1997, respectively.
OTHER INVESTMENTS
The Company owns 2,344,000 shares of common stock of Prime Medical
Services, Inc. ("Prime Medical"), representing at March 15, 2000 approximately
14% of Prime Medical's outstanding shares of common stock. Two of Prime
Medical's seven directors are members of the Company's four member board of
directors. In addition Mr. Hummel, executive vice president and chief operating
officer of Prime Medical, is a member of the Company's Board of Directors. The
Company records its pro-rata share of Prime Medical's results utilizing the
equity method. 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. During 1999, Prime Medical also entered into the
refractive surgery field through two acquisitions. LASIK refractive surgery, one
of the most advanced forms of laser vision correction, is designed to improve
vision and reduce dependence on glasses and contacts by correcting
nearsightedness, farsightedness and astigmatism. 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 SEC.
6
<PAGE>
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 three lines of credit totaling
$4,850,000. The loans are at interest rates varying from ten percent to twelve
percent, payable quarterly until June 30, 2005, 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.
In 1997, the Company formed APS Practice Management, Inc., later renamed
Syntera HealthCare Corporation ("Syntera") with an initial ownership of 85%.
Syntera specialized in the management of OB/GYN and related medical practices.
In a typical transaction, Syntera acquired the non-medical assets of a
physician's practice and signed 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 was paid a variable management fee that rewarded the efficient operation
and the expansion of the practice. On June 30, 1999 the Company merged Syntera
with another unaffiliated practice management company, FemPartners, Inc.,
resulting in the Company owning approximately 12% of the total equity of
FemPartners, Inc., the surviving company. Prior to June 30, 1999 the Company has
accounted for its ownership in Syntera on the equity basis. Beginning July 1,
1999, as a result of the merger with FemPartners, Inc., the Company began
recording its interest on the cost basis.
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 reflected the expected financial
impact of discontinuing this segment in the 1997 financial statements.
7
<PAGE>
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 commissions 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 service and other
services, and claims settlement philosophy.
APS Consulting operates in the environmental services industry that is
characterized by intense competition. Many companies of all sizes are engaged in
activities similar to those of the APS Consulting and many of APS Consulting's
competitors have substantially greater assets and capital resources. APS
Consulting operates primarily in the Southeastern United States, however, the
Company has projects throughout the United States. APS Consulting seeks to
distinguish its services by (i) providing timely, high quality and
cost-effective solutions to the various environmental issues facing its clients,
(ii) maintaining long-term relationships with its clients, and (iii) utilizing
technology to provide state of the art services in accordance with applicable
regulatory standards. There can be no assurance, however, that APS Consulting
can compete successfully against its competitors, given the size, resources and
marketing capabilities of many of its competitors.
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.
8
<PAGE>
The regulations to which APS Financial is subject cover all aspects of the
securities business, including sales methods, trade practices among broker
dealers, uses and safekeeping of customers' funds and securities, capital
structure of securities firms, record keeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated by
the SEC and by self regulatory organizations, or changes in the interpretation
or enforcement of existing laws and rules, may directly affect the method of
operation and profitability of APS Financial. The SEC, self regulatory
organizations and state securities commissions may conduct administrative
proceedings which can result in censure, fine, suspension or expulsion of APS
Financial, its officers or employees. The principal purpose of regulation and
discipline of broker/dealers is the protection of customers and the securities
markets, rather than protection of creditors and shareholders of broker/dealers.
APS Financial, as a registered broker dealer and NASD member organization,
is required by federal law to belong to the SIPC. When the SIPC fund falls below
a certain minimum amount, 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 of APS Financial by the SIPC 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.
APS Consulting is subject to extensive laws and regulations promulgated by
the Federal, state and local governments and regulatory authorities dealing with
the discharge of materials into the environment or otherwise relating to the
protection of the environment. The Company believes it is in compliance in all
material respects with all such laws and regulations.
EMPLOYEES
At March 1, 2000, the Company employed, on a full time basis,
approximately 128 persons, including 48 by Insurance Services, 50 by APS
Investment Services, 18 by APS Consulting and 12 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.
9
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ITEM 2. PROPERTIES
APS Realty owns approximately 53,000 square feet of condominium space in
an office project in Austin, Texas. The Company, its subsidiaries and affiliate
occupy 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 100% occupied as of March 15, 2000.
APS Investment Services also leases office space at 2550 Gray Falls Dr,
Suite 350, Houston, Texas.
APS Consulting leases offices at: 439 Katherine Drive, Suite 2A, Jackson,
Mississippi; 17171 Park Row, Suite 120, Houston, Texas; 384 Fairhope Avenue,
Suite 7, Fairhope, Alabama.
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 material adverse effect
on the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting was held June 8, 1999. 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
------- --- ------- -------
Brad A. Hummel 2,755,051 35,491 --
Robert L. Myer 2,755,051 35,491 --
William A. Searles 2,755,051 35,491 --
Kenneth S. Shifrin 2,755,051 35,491 --
10
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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, 1999 and 1998. On March 1, 2000, the Company had
approximately 422 holders of record of its common stock.
1999 1998
------------------------- ------------------------
High Low High Low
---- --- ---- ---
First Quarter $5 1/8 $1 7/8 $7 5/8 $6 7/8
Second Quarter $3 7/8 $2 1/4 $7 1/2 $6 5/8
Third Quarter $5 1/16 $3 7/32 $7 1/4 $4 7/8
Fourth Quarter $7 $3 1/2 $5 1/2 $3 1/4
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.
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ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected income statement data:
Revenues $19,115 $16,403 $13,065 $10,437 $16,124
Earnings from continuing operations before income taxes
and minority interests
1,732 2,255 5,984 3,006 3,007
Net earnings 1,413 1,545 2,538 1,924 2,024
Per share amounts - diluted:
Net earnings $.45 $.31 $.59 $.46 $.53
Diluted weighted average shares outstanding 3,168 4,692 4,241 4,219 3,798
Selected balance sheet data:
Total assets $32,924 $33,126 $30,737 $24,468 $23,740
Long-term obligations 3,298 -- -- -- 574
Total liabilities 11,647 8,471 7,458 4,086 6,146
Minority interests 48 53 175 -- --
Total equity 21,229 24,602 23,104 20,382 17,594
Book value per share 7.73 5.91 5.55 5.03 4.80
</TABLE>
12
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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.
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RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Revenues from continuing operations increased 17% in 1999 compared to
1998. Net income decreased 9% and diluted earnings per share increased 45%. The
reasons for these changes are described below.
FINANCIAL SERVICES
Financial services revenues increased 9% in 1999 compared to 1998. The
increase resulted from greater commissions earned at APS Financial, the
broker/dealer division of Investment Services, resulting from greater 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 a greater emphasis on internally generated market research and
continued success at recruiting experienced, proven producers. Internal market
research contributes to higher commissions by providing additional investment
ideas to be marketed by the brokers to a greater number of customers. Finally,
inventory losses, which lower revenues, were greater in 1998 than in 1999.
Financial services expenses increased 8% in 1999 compared to 1998. The
large increase in transaction activity at APS Financial resulted in
proportionately greater sales commission expense, support personnel expense,
transaction charges and financial information services expense. Greater profits
in 1999 also increased expenses under the incentive compensation plan. Personnel
costs also increased in 1999 primarily as a result of incurring a full year of
personnel costs at APS Asset Management, the portfolio management division of
Investment Services. Only six months of personnel costs were incurred in 1998,
as the subsidiary was formed in June, 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 in a competitive business and
was not profitable in 1999, incurring a loss of $169,000. The Company cannot
predict when or if it will achieve profitability.
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INSURANCE SERVICES
Insurance Service's revenues decreased 17% in 1999 compared to 1998. The
primary reason for the decrease in 1999 was due to lower profit sharing. The
insurance management fee contract between Insurance Services and APIE contains a
provision to share in the profits of APIE. Due to an overall increase in
competition in medical professional liability insurance in Texas as well as a
continued trend of rising claims against the insureds, profits, and
consequently, profit sharing, were lower in 1999.
Insurance Services' expenses increased 10% in 1999 compared to 1998. The
increase was primarily due to higher commission rates paid to sales agents as
well as to increased business received through agents requiring commissions to
be paid. Personnel costs also increased in 1999, primarily due to normal annual
merit raises.
Due to the profit sharing provision in Insurance Services most significant
contract, results can vary from year to year. In the last five years under the
contract, profit sharing has ranged from 7% to 31% of the segment's revenues.
CONSULTING
The Company began consolidating the earnings of APS Consulting in
September, 1999. No comparison to prior year, therefore, is possible. Unaudited
pro-forma financials show that revenues decreased 28% in 1999 due primarily to
the loss of a major client resulting from the uncertainty that arose with the
breakup of Con-Eco.
Expenses at Consulting decreased 4% in 1999 primarily as a result of fewer
personnel. The uncertainty that arose with the breakup of Con-Eco caused some
personnel to seek other employment opportunities.
REAL ESTATE
Revenue decreased less than 1% compared to 1998. The decrease reflects a
higher vacancy rate, partially offset by higher lease rates.
The 4% increase in real estate expenses resulted from increased property
taxes due to higher real estate taxable values and increased fees paid for
building maintenance and improvements.
INVESTMENT AND OTHER
The substantial rise in investment and other income was primarily due to
gains from the exchanges of Prime Medical common stock for the Company's common
stock. As part of a buy-back strategy, the Company exchanged 720,700 shares of
Prime Medical common stock for 1,441,400 shares of the Company's common stock
held by two mutual fund companies. The Company's common stock was then retired
and gains totaling $1,635,000 were recorded. In addition, interest of $349,000
was earned from line of credit loans granted by the Company to its former
physician practice management affiliate, Syntera and to Uncommon Care.
15
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 98% over 1998. The increases
resulted primarily from recognizing $1,293,000 of bad debt expense related to
the write-off of the Con-Eco note receivable and from expenses related to the
merger of Syntera with FemPartners. Partially offsetting these expense increases
was lower legal fees in 1999. Work performed in 1998 related to the Uncommon
Care preferred stock investment increased legal fees in 1998.
INTEREST
Interest expense increased 330% over 1998 as a result of an increase in
notes payable. Draws taken from the Company's line of credit with Bank of
America to fund the Company's investments in Syntera and Uncommon Care resulted
in an ending balance of $3,275,000 at December 31, 1999 compared to zero at
December 31, 1998.
AFFILIATES
The Company has one affiliate accounted for on the equity basis, Prime
Medical, as of December 31, 1999. Prime Medical's operating income increased in
1999 but the Company recognized a smaller percentage (18% in 1998 vs. 14% in
1999) as a result of its exchange of Prime Medical shares to acquire shares of
the Company's common stock. Even with this drop in ownership percentage, equity
earnings from Prime Medical increased 23% in 1999. The Company, through its
status as Prime Medical's largest shareholder and through its representation on
PrimeMedical's board, continues to have significant influence at Prime Medical
and continues to account for its investment using the equity method.
Also included in equity in earnings of unconsolidated affiliates are
losses totaling $119,000 which represents the Company's portion of losses of
Syntera. from January 1 to June 30, 1999. Subsequent to the merger with
FemPartner's, the Company began accounting for it's resulting 12% interest in
FemPartners on the cost basis.
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.
16
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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
second office, which opened in 1997. Revenues at this office in 1998 increased
approximately 90% over 1997.
Investment services' expenses increased 71% from 1997. 94% of the increase
was at APS Financial and was transaction 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.
INSURANCE SERVICES
Insurance Services' revenues decreased 10% in 1998 compared to 1997. The
loss of one significant client by APIE caused most of the variance. The client
purchased extended reporting period or "tail" coverage, which increased premiums
in 1997. 1998 revenues were lower by both the standard premium and the extra
tail premiums lost in 1997. The Company's premium-based management fee was also
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 the
result of increased 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 had two affiliates accounted for on the equity basis, Prime
Medical and Syntera. Prime Medical'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%.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $1,582,000 and $1,782,000 at December 31, 1999 and
1998, respectively. The decrease in the current year is due primarily to
payments for purchases of property and equipment. 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 1999, the Company
supplemented these traditional sources of funds with short-term bank borrowings.
Although it is uncertain that operating activities will provide positive cash
flow in the year 2000, the Company has sufficient borrowing capacity as well as
ample liquidity in its holdings of Prime Medical shares to meet its working
capital requirements for the foreseeable future.
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In 1998, the Company entered into a three year $10,000,000 revolving
credit agreement with NationsBank of Texas, N.A. (subsequently acquired by Bank
of America, 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. In May
1999, as a result of the exchange of Prime Medical shares for common stock of
the Company, the revolving credit agreement was amended to lower the total funds
available to the Company from $10,000,000 to $7,500,000. Funds totaling
$3,275,000 and $2,625,000 had been advanced as of December 31, 1999 and March
15, 2000, respectively.
Capital expenditures for equipment were $413,000, $206,000, and $312,000,
in 1999, 1998, and 1997, respectively. Capital expenditures were higher in 1999
due to purchases necessary to reach compliance with Year 2000 computer issues as
well as to higher expenditures for improved office space and leasing fees. The
Company expects capital expenditures in 2000 to be significantly less than 1999.
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.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA issued Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-Up Activities, which is effective for financial
statements for fiscal years beginning after December 15, 1998. The SOP requires
costs of start-up activities and organization costs to be expensed as incurred.
No start-up costs were incurred by the Company or its affiliate during 1999. The
Company does not have any significant capitalized start-up costs that would be
required to be expensed in 2000.
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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 1999 the
inventory balance was $635,000. Historically, the Company has turned this
inventory rapidly and has neither significant realized gains nor losses.
The Company has notes receivable, in the form of lines of credit to
related companies, which are at fixed rates ranging from 8% to 12%. Their fair
value will increase and decrease inversely with interest rates.
The Company has debt totaling $3,310,000, most of which was drawn on a
$7,500,000 revolving line of credit with a floating interest rate. For each $1
million that the Company should borrow in 2000, a 1% increase in interest rate
would result in a $10,000 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, 1999 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 2000 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, 2000, the executive officers of the Company are as
follows:
Name Age Position
- ---- --- --------
Kenneth S. Shifrin 50 Chairman of the Board, President
and Chief Executive Officer
Duane K. Boyd, Jr. 55 Senior Vice President - Insurance
William H. Hayes 52 Senior Vice President - Finance
and Secretary
George S. Conwill 43 Vice President - Investment Services
Thomas R. Solimine 41 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
a member of the Board of Directors of Uncommon Care since January 1998. Mr.
Shifrin became a member of the Board of Directors of EarthSports.com in January,
2000 and is a member of the World 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 Uncommon Care since January 1998 and a Director of Grand
Adventures Tour and Travel Publishing Corp. since July 1998. Mr. Boyd is a
Certified Public Accountant and was with KPMG LLP from 1974 until June 1991. He
was a partner specializing in the insurance industry prior to joining the
Company.
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Mr. Hayes has been 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 2000 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 2000 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 2000 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
(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)
4.2 Rights Agreement, dated as of August 15,
1999, between American Physicians Service
Group, Inc. and American Stock Transfer &
Trust Company which includes the form of
Statement of Resolutions setting forth the
terms of the Junior Participating Preferred
Stock, Series A, the form of Rights
Certificate as Exhibit B and the Summary of
Rights to Purchase Preferred Shares as
Exhibit C. (10)
*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)
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<PAGE>
*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)
*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)
*10.14 Profit Sharing Plan and 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 Industries. (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)
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10.26 Stock Purchase Agreement dated October 1, 1997 between the
Company, APS Practice Management, Inc., Michael Beck, John
Hendrick, and et al. (8)
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)
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<PAGE>
10.40 Share Exchange Agreement dated April 1, 1998 between the
Company and Antonio Cavazos, III, M.D. (9)
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)
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10.52 Participation Agreement dated March 16, 1998 between the
Company and Additional Purchasers referred to as
Participants. (9)
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, 1999 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, 1999 between
the Company and Consolidated Eco-Systems, Inc. (9)
10.59 Security Agreement dated March 25, 1999 between the Company and
Consolidated Eco-Systems, Inc. (9)
10.60 Security Agreement dated March 25, 1999 between the Company and
Eco-Acquisition, Inc. (9)
10.61 Security Agreement dated March 25, 1999 between the Company and
Exsorbet Technical Services, Inc. (9)
10.62 Security Agreement dated March 25, 1999 between the Company and
KR Industrial Service of Alabama, Inc. (9)
10.63 Agreement of Plan of Merger dated August 31, 1999 between
FemPartners, Inc. and Syntera HealthCare Corporation. (11)
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10.64 Share Exchange Agreement dated August 31, 1999 between the
Company and David L. Berry, M.D. (11)
10.65 Share Exchange Agreement dated August 31, 1999 between the
Company and Michael T. Breen, M.D. (11)
10.66 Share Exchange Agreement dated August 31, 1999 between the
Company and Jonathan B. Buten, M.D. (11)
10.67 Share Exchange Agreement dated August 31, 1999 between the
Company and Robert Casanova, M.D. (11)
10.68 Share Exchange Agreement dated August 31, 1999 between the
Company and Antonio Cavazos, III, M.D. (11)
10.69 Share Exchange Agreement dated August 31, 1999 between the
Company and Joe R. Childress, M.D. (11)
10.70 Share Exchange Agreement dated August 31, 1999 between the
Company and Donald Columbus, M.D. (11)
10.71 Share Exchange Agreement dated August 31, 1999 between the
Company and Devin Garza, M.D. (11)
10.72 Share Exchange Agreement dated August 31, 1999 between the
Company and M. Reza Jafarnia, M.D. (11)
10.73 Share Exchange Agreement dated August 31, 1999 between the
Company and Gary L. Jones, M.D. (11)
10.74 Share Exchange Agreement dated August 31, 1999 between the
Company and Shelley Nielson, M.D. (11)
10.75 Share Exchange Agreement dated August 31, 1999 between the
Company and Lawrence M. Slocki, M.D. (11)
10.76 Loan Agreement dated June 16, 1999 between APS Consulting, Inc.
and APSC, Inc. (11)
10.77 Promissory Note dated June 16, 1999 between APS Consulting,
Inc. and APSC, Inc. (11)
10.78 Security Agreement dated June 16, 1999 between APS Consulting,
Inc. and APSC, Inc. (11)
28
<PAGE>
10.79 Subordination Agreement dated June 16, 1999 between the Company
and APSC, Inc. (11)
10.80 Convertible Promissory Note dated April 27, 1999 between the
Company and Uncommon Care, Inc. (11)
10.81 Replacement Convertible Promissory Note dated September 30,
1999 between the Company and Uncommon Care, Inc. (11)
10.82 Liquidity Promissory Note dated September 30, 1999 between the
Company and Uncommon Care, Inc. (11)
10.83 Replacement Liquidity Note dated October 15, 1999 between the
Company and Uncommon Care, Inc. (11)
10.84 Co-Sale Rights Agreement dated August 31, 1999 between the
Company and FemPartners, Inc. (11)
10.85 Replacement Promissory Note dated August 31, 1999 between the
Company and FemPartners, Inc. (11)
10.86 Guaranty Agreement dated August 31, 1999 between the Company
and FemPartners, Inc. (11)
21.1 List of subsidiaries of the Company. (11)
23.1 Independent Auditors Consent of KPMG LLP. (11)
27.1 Financial Data Schedule (EDGAR filing).
(*) Executive Compensation plans and arrangements.
- -----------------
(1) The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance
therewith, files reports, proxy statements and other information with
the Commission. Reports, proxy statements and other information filed
by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's
29
<PAGE>
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 as an Exhibit to the Annual Report on Form 10-K of the Company
for the year ended December 31, 1998 and incorporated herein by
reference.
(10) Filed as an Exhibit to the Current Report on Form 8-K of the Company
dated September 22, 1999 and incorporated by reference herein.
(11) Filed herewith.
30
<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 29, 2000
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 29, 2000
By: /s/ W. H. Hayes
----------------------
W. H. Hayes
Senior Vice President - Finance, Secretary
and Chief Financial Officer
(Principal Financial Officer)
Date: March 29, 2000
<PAGE>
By: /s/ Thomas R. Solimine
-----------------------
Thomas R. Solimine
Controller
(Principal Accounting Officer)
Date: March 29, 2000
By: /s/ Robert L. Myer
-----------------------
Robert L. Myer, Director
Date: March 29, 2000
By: /s/ William A. Searles
-------------------------
William A. Searles, Director
Date: March 29, 2000
By: /s/ Brad A. Hummel
----------------------
Brad A. Hummel, Director
Date: March 29, 2000
31
<PAGE>
A-1
APPENDIX A
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report A-2
Financial Statements
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998, and 1997 A-3
Consolidated Balance Sheets at December 31, 1999
and December 31, 1998 A-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 A-7
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997 A-9
Notes to Consolidated Financial Statements A-10
A-1
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
American Physicians Service Group, Inc.:
We have audited the accompanying consolidated financial statements of
American Physicians Service Group, Inc. and subsidiaries ("Company") as
listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
American Physicians Service Group, Inc. and subsidiaries at December
31, 1999 and 1998, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.
/s/ KPMG, LLP
-------------
Austin, Texas
March 28, 2000
A-2
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
------------ --------------- ------------
<S> <C> <C> <C>
REVENUES:
Financial services $10,835 $9,914 $5,726
Insurance services (Note 2) 4,683 5,655 6,287
Consulting 768 --- ---
Real estate (Note 5) 710 713 704
Investments and other 2,119 121 348
------ ------ ------
Total revenues 19,115 16,403 13,065
EXPENSES:
Financial services 9,764 9,039 5,299
Insurance services 4,558 4,129 3,819
Consulting 712 --- ---
Real estate 548 527 503
General and administrative (Note 18) 3,663 1,851 1,352
Interest 254 59 21
------ ----- ------
Total expenses 19,499 15,605 10,994
------ ------ ------
Operating income (loss) (384) 798 2,071
Equity in earnings of unconsolidated
affiliates (Note 13) 2,116 1,457 2,014
Gain on sale of portion of subsidiary --- --- 1,899
----- ------ ------
Earnings from continuing operations before
income taxes 1,732 2,255 5,984
Income tax expense (Note 9) 621 863 2,341
Minority interest 5 (178) (175)
----- ------ ------
Earnings from continuing operations 1,116 1,214 3,468
DISCONTINUED OPERATIONS: (Note 12)
Profit/(loss) from discontinued operations of income
tax expense/(benefit) of $153, $171 and ($48) in 1999,
1998 and 1997, respectively 297 331 (94)
Loss on disposal of computer software segment,
net of income tax benefit of $431 in 1997 --- --- (836)
------ ------ ------
Net gain / (loss) from discontinued operations 297 331 (930)
------ ------ ------
NET EARNINGS $1,413 $1,545 $2,538
====== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements
A-3
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS, continued
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
-------- --------- -------------
Earnings per common share: (Note 15)
<S> <C> <C> <C>
Basic:
Earnings from continuing operations $0.36 $0.29 $0.84
Discontinued operations 0.09 0.08 (0.22)
----- ----- ------
Net earnings $0.45 $0.37 $0.62
====== ===== =====
Diluted:
Earnings from continuing operations $0.35 $0.24 $0.81
Discontinued operations 0.09 0.07 (0.22)
------ ----- -----
Net earnings $0.45 $0.31 $0.59
====== ===== =====
Basic weighted average shares outstanding 3,142 4,163 4,106
====== ===== =====
Diluted weighted average shares outstanding 3,168 4,692 4,241
====== ===== =====
</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)
December 31,
----------------------------------
1999 1998
----------- ----------
ASSETS
Current Assets:
Cash and cash investments $2,275 $3,214
Cash - restricted (Note 16) 376 --
Trading account securities 635 641
Management fees and other
receivables (Note 2) 1,344 968
Notes receivable, net - current (Note 3) 270 196
Deposit with clearing broker 1,042 1,036
Receivable from clearing broker 147 106
Prepaid expenses and other 279 339
Income taxes receivable 200 --
Deferred income tax asset (Note 9) 633 1,279
------ ------
Total current assets 7,201 7,779
Notes receivable, net - less current
portion (Note 3) 4,937 4,287
Property and equipment (Note 5) 1,820 1,653
Investment in affiliate (Note 13) 12,096 13,089
Other investments (Note 17) 6,078 6,052
Goodwill (Note 18) 573 --
Other assets 219 266
------ -------
Total Assets $32,924 $33,126
======= =======
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)
December 31,
--------------------------------
1999 1998
-------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $1,242 $910
Payable to clearing broker 624 593
Notes payable - short term (Note 7) 12 --
Income taxes payable -- 292
Accrued incentive compensation 818 823
Accrued expenses and other
liabilities (Note 6) 2,923 3,379
----- -----
Total current liabilities 5,619 5,997
Net deferred income tax liability
(Note 9) 2,730 2,474
Notes payable - long term (Note 7) 3,298 --
----- ------
Total liabilities 11,647 8,471
Minority interest 48 53
Shareholders' Equity:
Preferred stock, $1.00 par value, 1,000,000
shares authorized -- --
Common stock, $0.10 par value, 20,000,000;
issued 2,745,233 at 12/31/99 and
4,160,083 at 12/31/98 278 416
Additional paid-in capital 5,549 5,481
Retained earnings 15,402 18,705
------ ------
Total shareholders' equity 21,229 24,602
Commitments and contingencies
(Notes 5, 7, 8, 10, 11, 12,16)
Total Liabilities and Shareholders'
Equity $32,924 $33,126
======= =======
See accompanying notes to consolidated financial statements
A-6
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $17,205 $16,017 $13,080
Cash paid to suppliers and employees (16,770) (14,390) (9,247)
Change in trading account securities 6 (86) 250
Change in receivable from clearing broker 16 (447) (177)
Interest paid (254) (59) (21)
Income taxes paid (385) (439) (772)
Interest and other investment proceeds 484 234 219
-------- --------- ---------
Net cash provided by operating activities 302 830 3,332
Cash flows from investing activities:
Proceeds from the sale of property and equipment --- 13 55
Payments for purchase property and equipment (413) (206) (312)
Net change in marketable securities (100) --- 5
Proceeds from equity owners investment --- 259 ---
Investment in preferred stock --- (2,073) (5,292)
Proceeds from sale of insurance exchange --- --- 1,000
Proceeds from sale of 20% of Insurance Serv --- --- 2,000
Proceeds received in acquisition 75 --- ---
Proceeds from prior year disposition 40 --- ---
Funds loaned to others (4,992) (3,020) (834)
Collection of notes receivable 1,488 2,085 109
Discontinued Operations (578) 502 ---
Other (59) --- (82)
-------- --------- ---------
Net cash used in by investing activities (4,539) (2,440) (3,351)
Cash flows from financing activities:
Repayment of long term obligations --- --- (542)
Proceeds from long-term obligations 3,825 8 ---
Payment of long-term debt (577) --- ---
Funds held for others 376 --- ---
Purchase/retire treasury stock (25) (147) (337)
Exercise of stock options 75 75 316
Distribution to minority interest --- (300) ---
-------- --------- ---------
Net cash (used in)/ provided by financing activities 3,674 (364) (563)
-------- --------- ---------
Net change in cash and cash equivalents ($563) ($1,974) ($582)
-------- --------- ---------
Cash and cash equivalents at beginning of period 3,214 5,188 5,770
-------- --------- ---------
Cash and cash equivalents at end of period, including
restricted cash $2,651 $3,214 $5,188
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
A-7
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
Reconciliation of net earnings to net cash from operating activities:
<S> <C> <C> <C>
Net earnings $1,413 $1,545 $2,538
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation and amortization 733 618 436
(Earnings)/loss from discontinued operations (450) (502) 200
Loss on disposal of discontinued operations --- --- 1,209
Minority interest in consolidated earnings/(loss) (5) 178 175
Undistributed earnings of affiliate (2,116) (1,457) (2,014)
Provision for bad debts 2,023 361 ---
Gain on exchange of stock (1,635) --- ---
Stock warrants received (45) --- ---
Gain on sale of fixed assets --- (1) ---
Gain on sale or disposition of assets --- --- (2,032)
(Gain) loss on sale of securities --- --- 41
Change in federal income tax payable (492) 66 876
Provision for deferred taxes 826 373 56
Change in trading securities 6 (86) 250
Change in receivable from clearing broker 16 (447) 177
Change in management fees & other receivables 209 (153) (26)
Change in prepaids & other current assets 96 169 (191)
Change in long term assets --- 52 ---
Change in trade payables 202 9 90
Change in accrued expenses & other liabilities (479) 105 1,547
------ ----- -----
Net cash from operating activities $302 $830 $3,332
===== ===== ======
</TABLE>
Summary of non-cash transactions:
During 1999, the Company acquired 100% of the outstanding stock of
Eco-Systems, Inc. in a non-cash foreclosure transaction. The acquired assets
and liabilities were as follows:
Current assets increased by $ 588,000
Non-current assets increased by 149,000
Goodwill increased by 573,000
Current liabilities increased by 239,000
Non-current liabilities increased by 120,000
During 1999, 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 $20.
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.
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, 1999, 1998 and 1997
(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, 1997 4,049,195 $405 5,366 (11) 14,622 20,382
Net earnings -- -- -- -- 2,538 2,538
Unrealized loss on securities
available for sale, net of tax -- -- -- 11 -- 11
Shares issued (Note 11) 164,666 16 300 -- -- 316
Shares repurchased & cancelled (53,000) (5) (332) -- -- ( 337)
Income tax benefit of non-qualified
option exercises -- -- 194 -- -- 194
------------- ----------- -------------- --------------- ------------- --------------
Balance December 31, 1997 4,160,861 416 5,528 -- 17,160 23,104
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
Net earnings -- -- -- -- 1,413 1,413
Shares issued (Note 11) 32,950 3 72 -- -- 75
Shares repurchased & cancelled (1,447,800) (141) (24) -- (4,716) (4,881)
Income tax benefit of non-qualified
option exercises -- -- 20 -- -- 20
------------- ----------- -------------- --------------- ------------- --------------
Balance December 31, 1999 2,745,233 $278 5,549 -- 15,402 21,229
=====================================================================================
</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, 1999, 1998 and 1997
(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 57% of total revenues and
insurance services generated 24%.
American Physicians Services Group, Inc. has one affiliate; Prime
Medical Services, Inc., of which it owns approximately 14%. Prime
Medical is the country's largest provider of lithotripsy (non-invasive
kidney stone fracturing) services. 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"). Investments in affiliated companies and other
entities in which the Company's investment is less than 50% of the
common shares outstanding and where the Company exerts significant
influence are accounted for by the equity method. Investments in other
entities in which the Company's investment is less than 20% is
accounted for by the cost method.
All significant intercompany transactions and balances have been
eliminated from the accompanying consolidated financial statements.
A-10
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
Summary of Significant Accounting Policies, continued
(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.
Consulting revenues related to environmental engineering/consulting is
recognized monthly based upon billable hours.
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, 1999, 1998 and 1997
(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) Goodwill
Goodwill represents the excess of consideration paid over the net
assets acquired in purchase business combinations. It is amortized
using the straight-line method over a period of ten years.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(j) Earnings Per Share
Basic earnings per share is based on the weighted average shares
outstanding without any diluted effects considered. Diluted earnings
per share reflect dilution from all contingently issuable shares,
including options.
A-12
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies, continued
(k) Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments
with an original maturity of 90 days or less.
(l) Notes Receivable
Notes receivable are recorded at cost, less allowances for doubtful
accounts when deemed necessary. Management, considering current
information and events regarding the borrowers ability to repay their
obligations, considers a note to be impaired when it is probable that
the Company will be unable to collect all amounts due according to the
contractual terms of the note agreement. When a loan is considered to
be impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the note's
effective interest rate. Impairment losses are included in the
allowance for doubtful accounts through a charge to bad debt expense.
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.
(m) Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("Statement 123"), but applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for its stock option plans.
(n) Reclassification
Certain reclassifications have been made to amounts presented in
previous years to be consistent with the 1999 presentation.
(o) Other Comprehensive Income
For the three years ended December 31, 1999, the Company did not have
any significant other comprehensive income.
A-13
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(2) Management Fees and Other Receivables
Management fees and other receivables consist of the following:
December 31,
1999 1998
-------- -------
Management fees receivable $304,000 501,000
Trade accounts receivable 778,000 173,000
Less: allowance for doubtful
accounts (20,000) (8,000)
Accrued interest receivable 162,000 21,000
Other receivables 120,000 281,000
------- -------
$1,344,000 968,000
========== =======
The Company earns management fees by providing management services to
American Physicians Insurance Exchange ("APIE") under the direction of
APIE's 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
$4,683,000, $5,655,000 and $6,287,000 and received expense
reimbursements of $1,454,000, $1,420,000 and $664,000 for the years
ended December 31, 1999, 1998 and 1997, respectively, related to these
agreements.
A-14
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(3) Notes Receivable
Notes receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
Reagan Publishing Company
<S> <C> <C>
This unsecured note had an original rate of 7% and a maturity of December 31,
1997. The borrower defaulted in 1998 and the Company litigated. The Company
collected $41,000 as payment in full during 1999. -- $156,000
Consolidated Eco-Systems, Inc.
This note originated on November 26, 1996 in the amount of $3,300,000. The
Company declared the note in default in 1998 and negotiated multiple
restructuring agreements thereafter. In 1999, the Company foreclosed 100% of the
assets of Eco-Systems (See note 18).
-- 3,709,000
Uncommon Care, Inc.
Revolving Line of Credit: This note is unsecured with a maximum of $1,250,000. The note is
interest only at 12%, payable semi-annually. The note matures April 30, 2000, but may be
extended until November 30, 2001. Maturity may be accelerated if the borrower obtains specific 730,000 --
levels of equity financing. The borrower may at that time pay off the loan in full or convert
it into non-voting preferred stock of the borrower.
Revolving Line of Credit: This note is secured by substantially all of the assets of
Uncommon Care and is subordinated to bank loans for various real estate purchases. The
maximum allowed on this note is $2,400,000. This note is interest only at 10%, payable 2,141,000 745,000
quarterly. Any outstanding principal is due June 30, 2005.
FemPartners, Inc. (Formerly Syntera HealthCare Corporation)
Upon the merger of Syntera HealthCare Corporation with FemPartners, APS
restructured the line of credit, which now bears interest at 8%. Payments are
interest only, paid quarterly through November 30, 2001. Quarterly combined
principal and interest payments begin December 1, 2001 and continue through
September 1, 2004, at which time the total outstanding balance is due. The
maturity date of this note can be accelerated if FemPartners conducts an initial
public offering or other public sale of its common stock. If such occurs, the
note shall mature and become due and payable the latter of September 1, 2002 or the
5th business day after the date of such initial public offering or other public sale. 2,193,000 580,000
Employees
Three employees have loans from the Company as employment inducements, totaling $200,000.
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.
A fourth employee note in the amount of $50,000 was issued in December 1999 and paid in full
on March 2, 2000. In addition, loans totaling $86,000 were granted to a key employee for
advanced education fees. $20,000 is due June 30, 2000 while an additional $32,850 payment is
due at June 30, 2003 and 2004, respectively.The latter two notes are forgivable in the amount
of approximately $14,000 on each December 31st that the employee is employed by the Company 336,000 437,000
beginning in 2000 and continuing through 2004. ------- -------
5,400,000 5,627,000
Less allowance for doubtful accounts (193,000) (1,144,000)
--------- ----------
5,207,000 4,483,000
Less current portion 270,000 196,000
--------- ----------
Long term portion $4,937,000 $4,287,000
========== ==========
</TABLE>
A-15
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(3) Notes Receivable, continued
Various officers and directors of the Company participated in the
$2,400,000 line of credit to Uncommon Care. For financial purposes this
participation has been treated as the sale of a financial asset. In the
aggregate these officers and directors contributed approximately
$259,000 to fund a 10.8% interest in the loan. They participated in the
earnings from the loan on a pro-rata basis.
On October 31, 1996, the Company invested $3,300,000 in common stock of
Exsorbet Industries, Inc. ("Exsorbet") (NASDAQ:EXSO) with a put option.
Exsorbet was a diversified environmental and technical services
company. On November 26, 1996, the Company exercised its put in
exchange for a note receivable from Exsorbet. The note was secured by
the shares that were subject to the put option plus all the stock and
substantially all of the assets of a wholly owned subsidiary of
Exsorbet. Subsequently, Exsorbet became known as Consolidated
Eco-Systems, Inc. ("Con-Eco").
On June 17, 1998 the Company filed suit against Con-Eco, and its
directors and officers alleging breach of contract, negligent
misrepresentation and conspiracy. In February, 1999 the Company settled
this litigation with the directors and officers of Con-Eco. The Company
recovered $950,000 for the full release of all claims against the
directors of Con-Eco.
In April, 1999, the Company's wholly owned subsidiary, APS Consulting
("APS Consulting"), acquired the business of Eco-Systems, Inc.
("Eco-Systems"), a subsidiary of Con-Eco, in connection with a debt
restructuring agreement with Con-Eco. Under the terms of the
restructuring agreement, Con-Eco had the right to purchase back the
business of Eco-Systems for a nominal amount upon the occurrence of
certain conditions. Accordingly, the Company did not initially
consolidate the operations of APS Consulting. In addition, the Company
dismissed its lawsuit against Con-Eco, but retained the right to
reinstitute the litigation at a later date.
Subsequently, the Company concluded that it was not probable that
Con-Eco would exercise its option to reacquire the stock and, effective
September 1, 1999, the Company began consolidating APS Consulting. The
acquisition was recorded using the purchase method of accounting. In
addition, the Company wrote off the remaining balance of the note due
from Con-Eco. During the year ended December 31, 1999 the Company
wrote off to bad debt expense a total of $1,293,000 bringing the total
written off since inception to $1,685,000.
A-16
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(3) Notes Receivable, continued
At December 31, 1998, the Company's note receivable from Consolidated
Eco-Systems, Inc. was in excess of 10% of stockholder's equity and
represented a concentration of credit risk. No interest income had been
recognized by the Company as of December 31, 1998.
Following a renegotiation of the debt in November 1997, Con-Eco
defaulted on the note. Con-Eco's stock was delisted during 1998 as the
Company considered the loan to be impaired. A portion of the note
receivable was written off in 1999 prior to the acquisition of
Eco-Systems (See Note 18) and has been recorded as follows:
December 31,
1999 1998
---- ----
Recorded loan amount $ -- $3,709,000
Less allowance for impairment -- 880,000
----- ----------
$ -- $2,829,000
====== ==========
A reconciliation of the allowance for impairment of the Company's notes
receivable follows:
Year Ended December 31,
1999 1998
---- ----
Balance at the beginning of the period $1,144,000 $ 653,000
Amounts charged off (1,144,000) (100,000)
Additional provision 193,000 591,000
---------- ----------
Balance at the end of period $ 193,000 $1,144,000
========= ==========
A-17
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(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, 1999 and 1998.
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.
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.
A-18
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(4) Fair Value of Financial Instruments, continued
OTHER INVESTMENTS
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.
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,
-------------------------
1999 1998
--------- --------
Office condominium $1,574,000 1,796,000
Furniture and equipment 2,582,000 3,173,000
--------- ---------
4,156,000 4,969,000
Accumulated depreciation and amortization 2,336,000 3,316,000
--------- ---------
1,820,000 1,653,000
========= =========
A-19
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(5) Property and Equipment, continued
The Company owns approximately 53,000 square feet in the condominium
building in which its principal offices are located. The Company, its
subsidiaries and affiliate 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, 1999, 1998 and 1997
totaled approximately $255,000, $355,000 and $385,000 respectively.
Future minimum lease payments to be received under the terms of the
office condominium leases are as follows: 2000 - $369,000; 2001 -
$327,000; 2002 - $238,000; 2003 - $153,000; and 2004 - $78,000.
(6) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consists of the following:
1999 1998
--------- ----------
APS Systems disposition costs
(discontinued operations)
$10,000 $1,026,000
Taxes payable - other 160,000 115,000
Deferred income 528,000 740,000
Contractual/legal claims 1,409,000 1,202,000
Vacation payable 116,000 134,000
Funds held for others 402,000 20,000
Other 298,000 142,000
------- -------
$2,923,000 $3,379,000
========== =========
(7) Notes Payable
The Company has a $7,500,000 line of credit with Bank of America, N. A.
The Company has pledged shares of Prime Medical to the bank as funds
are advanced under the line. Funds advanced under the agreement
were $3,275,000 at December 31, 1999. 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. As of December 31, 1999, the Company is in
Compliance with all covenants of its loan agreements.
A-20
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(8) Commitments and Contingencies
In connection with the development of Syntera HealthCare Corporation,
the Company entered into Share Exchange Agreements ("Agreements") with
the physician shareholders of Syntera. The Agreements provide that the
Syntera shareholders may, at their option, exchange their shares for
a fixed dollar amount of the Company's common stock in the event that
the Syntera shares are not publicly traded by certain dates.The Company
has the option of purchasing any or all of the shares at the weighted
average dollar amount of $5.26 per share rather than exchanging for its
common stock. As a result of Syntera's merger with FemPartners, Inc. in
1999, the Syntera shares were converted to FemPartners shares, with
such shares retaining all of the conversion features. These shares
begin to become eligible to exchange in the first quarter of 2000 and
continue to become eligible into the first quarter of 2002. Should all
eligible FemPartners shares (248,000) be presented for exchange and the
Company elected to purchase the shares for cash, the amount would be
approximately $3,900,000. If the Company elected to issue its common
shares, the quantity would be determined by the market price of its
shares at the time of the exchange. For example, at the closing price
at December 31, 1999 ($3.688) approximately 1,100,000 shares would be
issued in the exchange. Since it is unknown how many, if any, of the
shares will be presented for exchange or what the value of
privately-held FemPartners shares will be in the future, the Company
has made no provision related to potential exchanges in its financial
statements. The Company will record the effect, if any, of share
exchanges in the quarter in which it is notified by FemPartners
shareholders of their intent to exchange.
The Company has extended three lines of credit to Uncommon Care, Inc.
The first is 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. The
second is to a maximum of $1,250,000 with interest at 12%, payable
semi-annually. The note matures April 30, 2000, but may be extended
until November 30, 2001. The maturity may be accelerated by Uncommon
Care securing certain equity capital. The third is to a maximum of
$1,200,000 with interest at 10%, payable semi-annually. The note
matures the earlier of September 30, 2001, or upon Uncommon Care
securing certain equity capital. Advances under the lines are subject
to Uncommon Care meeting certain qualifications at the date of each
advance request.
A-21
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(8) Commitments and Contingencies, continued
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 had guaranteed a loan in the amount of $85,000 for one of
its directors at December 31, 1999. The guarantee was collateralized by
securities the Company believed sufficient to cover its potential
liability. The loan was paid in full and the Company was released from
its guarantee on March 5, 2000.
Rent expense under all operating leases for the years ended December
31, 1999, 1998 and 1997 was $84,000, $44,000 and $89,000 respectively.
Future minimum payments for leases which extend for more than one year
were $334,000 at December 31, 1999.
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.
(9) Income Taxes
Income tax expense (benefit) consists of the following:
Year Ended December 31,
-----------------------------------
1999 1998 1997
---- ---- ----
Continuing Operations
Federal
Current $(245,000) $332,000 $1,394,000
Deferred 826,000 399,000 777,000
State 40,000 132,000 170,000
Discontinued Operations 153,000 171,000 (479,000)
------- ------- ---------
$774,000 $1,034,000 $1,862,000
======== ========= ==========
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:
A-22
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(9) Income Taxes, continued
Year Ended December 31,
--------------------------------------
1999 1998 1997
---- ---- ----
Expected federal income tax
expense
$744,000 $877,000 $1,556,000
State taxes 40,000 132,000 170,000
Other, net (10,000) 25,000 136,000
------ -------- ---------
$774,000 $1,034,000 $1,862,000
======== ========== ==========
The tax effect of temporary differences that gives rise to significant
portions of deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below:
Year Ended December 31,
---------------------------------
1999 1998
---- ----
Deferred tax assets:
Net operating loss carryforwards $172,000 $186,000
Accrued expenses 537,000 774,000
Accounts receivable, principally due
to allowance for doubtful accounts 96,000 94,000
Deferred income (26,000) 378,000
Market value allowance 2,000 17,000
Other 56,000 48,000
------ ------
Total gross deferred tax assets 837,000 1,497,000
Less valuation allowance (172,000) (186,000)
--------- ---------
Net deferred tax assets 665,000 1,311,000
------- ---------
Deferred tax liabilities:
Investment in Prime Medical Services,
Inc. due to use of equity method for
financial reporting
(2,730,000) (2,474,000)
Capitalized expenses, principally
due to deductibility for tax
purposes (32,000) (32,000)
-------- --------
Total gross deferred tax liabilities (2,762,000) (2,506,000)
---------- -----------
Net deferred tax liability $(2,097,000) $(1,195,000)
============ ============
A-23
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(9) Income Taxes, continued
The net change in the total valuation allowance for the years ended
December 31, 1999 and 1998 was a decrease of $14,000 and $2,000,
respectively. The Company believes that the valuation allowance at
December 31, 1999 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, 1999, net operating loss carryforwards available to
reduce future taxable income amounted to approximately $505,000 and
expire in 2011 and 2012.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realiza-
tion of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary defferences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upin the level of
historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, manage-
ment believes it is more likely than not that the Company will realize
the benefits of these deductible differences net of existing valuation
allowances at December 31, 1999 and 1998.
(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
1999) 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, 1999, 1998 and 1997,
contributions by the Company aggregated, $121,000, $126,000 and
$92,000, 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 granted. 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.
A-24
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(11) Stock Options, continued
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 1999, 1998 or 1997. 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:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $859,000 $810,000 $1,989,000
Pro forma earnings per share - basic 0.27 0.19 0.48
- diluted 0.27 0.16 0.46
</TABLE>
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:
1999 1998 1997
---- ---- ----
Risk-free interest rate 5.60% 5.21% 6.16%
Expected holding period 3.90 years 3.90 years 3.90 years
Expected volatility .689 .401 .480
Expected dividend yield -0- -0- -0-
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, 1999, 1998 and 1997. Remaining options outstanding
from the Company's previous 1983 plans are included.
A-25
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(11) Stock Options, continued
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ------------------------
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 1,345,000 6.36 774,000 $6.60 651,000 $5.64
Options granted 215,000 4.01 597,000 5.92 293,000 9.32
Options exercised 33,000 2.28 26,000 2.90 165,000 1.92
Options forfeited/expired 245,000 6.30 -- -- 5,000 7.13
Balance at December 31 1,282,000 6.09 1,345,000 6.36 774,000 6.60
========= ==== ========= ==== ======= ====
Options exercisable 668,000 6.72 460,000 $6.44 244,000 $5.84
======= ==== ======= ===== ======= =====
</TABLE>
The weighted average fair value of Company stock options, calculated
using the Black Scholes option pricing model, granted during the years
ended December 31, 1999, 1998 and 1997 is $2.23, $2.33 and $2.68 per
option, respectively.
The following table summarizes the Company's options outstanding and
exercisable options at December 31, 1999:
<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>
$3.25 to $5.00 487,000 3.7 years $ 3.93 170,000 $ 3.76
$5.01 to $7.75 617,000 2.8 years $ 6.71 322,000 $ 6.57
$7.76 to $10.50 178,000 1.5 years $ 9.85 176,000 $ 9.87
------- --------- ------ ------- ------
Total 1,282,000 668,000
========= =======
</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
A-26
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(12) Discontinued Operations, continued
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. Support for all clients was
terminated as of December 31, 1999 including two clients whose original
support contracts extended beyond 1999. These clients have successfully
migrated to other software platforms and have signed documents
releasing the Company of any support obligations beyond December 31,
1999.
Net assets/(liabilities) of the discontinued computer systems and
software segment as of December 31, 1999 consisted of the following:
Cash and cash investments $31,000
Trade accounts receivable 9,000
Intercompany receivables 1,000
Accrued expenses (16,000)
-------
Net assets $25,000
=======
Summary operating data for the year ended December 31, 1999 is as
follows:
Total revenue $266,000
Cost of sales (12,000)
Other operating expenses (296,000)
Reversal of allowance 492,000
Income taxes (153,000)
--------
Net income $297,000
========
(13) Investment in Affiliate
On October 12, 1989, the Company purchased 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, and Mr. Hummel, executive vice president
and chief operating officer of Prime Medical, is a member of the
Company's Board of Directors. 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, the repurchase by Prime Medical of its own
shares, and the exchange of Prime Medical shares for common stock of
the Company, in the
A-27
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(13) Investment in Affiliate, continued
aggregate, have reduced the Company's ownership to 14% of the
outstanding common stock of Prime Medical. The Company's investment in
Prime Medical is accounted for using the equity method. The 2,344,000
shares of Prime Medical common stock held by the Company had an
approximate market value of $21,387,000 (carrying amount of
$12,096,000) at December 31, 1999 based on the market closing price of
$9.125 per share.
At December 31, 1999 and 1998, the Company's retained earnings included
undistributed earnings, net of deferred tax, of Prime Medical totaling
$7,058,000 and $5,583,000, respectively.
The condensed balance sheet and statement of operations for Prime
Medical follows:
Condensed balance sheet at December 31, 1999 and 1998
-----------------------------------------------------
1999 1998
---- ----
Current assets $58,012,000 70,006,000
Long-term assets 188,815,000 171,320,000
----------- -----------
Total assets 246,827,000 241,326,000
=========== ===========
Current liabilities $20,493,000 28,465,000
Long-term liabilities 129,651,000 123,111,000
Shareholders' equity 96,683,000 89,750,000
---------- ----------
Total liabilities and equity $246,827,000 241,326,000
============ ===========
Condensed statement of operations for the years
-----------------------------------------------
ended December 31, 1999 and 1998
--------------------------------
1999 1998
---- ----
Total revenue $112,174,000 104,636,000
============ ===========
Net income $15,039,000 10,794,000
=========== ==========
(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 financial services segment includes brokerage and asset management
services to individuals and institutions.
A-28
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(14) Segment Information, continued
The insurance services segment includes financial management for an
insurance company that provides professional liability insurance to
doctors.
The consulting segment includes environmental consulting and
engineering services to private and public institutions.
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.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating Revenues:
Financial services $10,835,000 $9,914,000 $5,726,000
Insurance services 4,683,000 5,655,000 6,287,000
Consulting 768,000 -- --
Real estate 853,000 865,000 867,000
Corporate 4,839,000 1,721,000 982,000
--------- --------- -------
$21,978,000 18,155,000 13,862,000
=========== ========== ==========
Reconciliation to Consolidated
Statement of Earnings:
Total segment revenues $21,978,000 18,155,000 13,862,000
Less: intercompany profits (143,000) (152,000) (163,000)
intercompany dividends (2,720,000) (1,600,000) (634,000)
----------- ----------- ---------
Total Revenues $19,115,000 $16,403,000 $13,065,000
=========== =========== ===========
Operating Profit (Loss):
Financial services $998,000 $810,000 372,000
Insurance services 40,000 1,437,000 2,385,000
Consulting 58,000 -- --
Real estate 305,000 338,000 362,000
Corporate 935,000 (187,000) (389,000)
------- --------- ---------
$2,336,000 $2,398,000 $2,730,000
========== ========== ==========
Reconciliation to Consolidated
Statement of Earnings:
Total segment operating profits 2,336,000 2,398,000 2,730,000
Less: intercompany dividends (2,720,000) (1,600,000) (634,000)
other -- -- (25,000)
---------------- ---------------- --------
Operating Income $(384,000) $798,000 $2,071,000
</TABLE>
A-29
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(14) Segment Information, continued
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Equity in earnings of affiliates 2,116,000 1,457,000 2,014,000
Gain on sale of interest in subsidiary -- 1,899,000
---------------- ---------------- ---------
--
Earnings from continuing operations before income
taxes and minority interests
1,732,000 2,255,000 5,984,000
Income tax expense 621,000 863,000 2,341,000
Minority interests 5,000 (178,000) (175,000)
----- --------- ---------
Earnings from continuing operations 1,116,000 1,214,000 3,468,000
--------- --------- ---------
Net profit(loss) from discontinued operations,
net of income tax 297,000 331,000 (930,000)
------- ------- ---------
Net earnings $1,413,000 $1,545,000 $2,538,000
========== ========== ==========
Identifiable assets:
Financial Services $4,480,000 3,964,000 2,346,000
Insurance Services 1,281,000 1,640,000 2,585,000
Consulting 1,155,000 -- --
Real Estate 1,286,000 1,324,000 1,283,000
Corporate:
Investment in equity
method investees 12,096,000 17,064,000 15,606,000
Other 12,586,000 8,928,000 8,561,000
Discontinued Operations 40,000 206,000 356,000
------ ------- -------
$32,924,000 $33,126,000 $30,737,000
=========== =========== ===========
Capital expenditures:
Financial Services $47,000 55,000 154,000
Insurance Services 44,000 44,000 33,000
Consulting -- -- --
Real Estate 129,000 58,000 --
Corporate 193,000 49,000 26,000
Discontinued Operations -- -- 99,000
------------ ----------- ------
$413,000 $206,000 $312,000
======== ======= =======
</TABLE>
A-30
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(14) Segment Information, continued
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Depreciation/amortization expenses:
Financial Services $413,000 $279,000 $118,000
Insurance Services 94,000 90,000 90,000
Consulting 31,000 -- --
Real Estate 103,000 107,000 110,000
Corporate 74,000 78,000 62,000
Discontinued Operations 18,000 64,000 56,000
--------------- ------ ------
$733,000 $618,000 $436,000
======== ======== ========
Revenues attributable to customers generating greater than 10% of the
consolidated revenues of the Company:
Insurance services
Company A $2,454,000 $3,970,000 $4,659,000
</TABLE>
At December 31, 1999 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) Earnings 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:
A-31
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(15) Earnings Per Share, cont.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ----------- ---------
<S> <C> <C> <C>
Earnings from continuing operations
$1,116,000
Basic EPS
Income available to common stockholders
1,116,000 3,142,000 $.36
====
Effect of Dilutive Securities
Options -- 26,000
--------- ---------
Diluted EPS
Income available to common stockholders and
assumed conversions
$1,116,000 3,168,000 $.35
========== ========= ====
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
========== ========= ====
</TABLE>
A-32
<PAGE>
(15) Earning Per Share, continued
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ------
<S> <C> <C> <C>
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
========== ========= ====
</TABLE>
Unexercised employee stock options to purchase 815,000, 295,000 and
295,000 shares of the Company's common stock as of December 31, 1999,
1998 and 1997, respectively, were not included in the computations of
diluted EPS because the options' exercise prices were greater than the
average market price of the Company's common stock during the
respective periods.
(16) Cash - Restricted
APS Financial acted as the placement agent for a private offering of
500,000 shares of preferred stock for one of its customers during 1999.
The customer acted as its own underwriter and APS Financial placed the
securities on a best effort basis. The private offering closed December
15, 1999. In association with this transaction, APS Financial acted in
a trustee capacity and established an escrow fund that was used to
account for funds received from participating investors. These funds
were subsequently disbursed to the customer based on the satisfaction
of certain criteria. As of December 31, 1999, there was $3,494
maintained in the escrow fund related to interest earnings on escrow
fund balances that are payable to the customer. In addition to
establishing the escrow fund, the customer was required to deposit a
specified amount with APS Financial as part of the private offering
agreement. As of December 31, 1999, APS Financial was holding $372,922
as a deposit for the customer.
A-33
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(17) Other Investments
Other investments consists of the
following investments: 1999 1998
---------- -----------
Investment in Uncommon Care, Inc. $2,078,000 $2,078,000
Investment in FemPartners, Inc. 3,855,000 --
Investment in Syntera HealthCare -- 3,974,000
Investment in Probex 100,000 --
Stock warrants in Probex 45,000 --
---------- -----------
Total $6,078,000 $6,052,000
========= =========
On January 1, 1998 the Company invested approximately $2,078,000 in the
Convertible Preferred Stock of Uncommon Care, Inc. ("Uncommon Care").
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.
On June 30, 1999 the Company merged Syntera with another unaffiliated
practice management company, FemPartners, Inc., resulting in the
Company owning approximately 12% of the total equity of FemPartners,
Inc. Prior to June 30, 1999 the Company has accounted for its ownership
in Syntera on the equity basis. Beginning July 1, 1999, as a result of
the merger with FemPartners, Inc., the Company began recording its
interest on the cost basis.
In addition to acting as the placing agent for the private offering as
described in Note 16, APS Financial purchased 10,000 shares which has
been recorded as a preferred stock investment with a cost basis of
$100,000 at December 31, 1999.
In addition to receiving commission revenue for acting as the placement
agent for the private offering, APS Financial received warrants to
purchase 251,325 shares of restricted common capital stock exercisable
at a price of $1.875 per share of common stock. The warrants expire on
December 15, 2004 and have been recorded at a fair value of $45,000 at
December 31, 1999. None of the warrants have been exercised as of
December 31, 1999.
A-34
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(18) Acquisition Through Foreclosure
Effective September 1, 1999 the Company began consolidating Eco-
Systems as a wholly-owned subsidiary . The Company's basis in its
investment represents the remainder of the note due from
Eco-Systems, approximately $630,000 as of September, 1999. The Company
has accounted for the transaction using the purchase method of
accounting. Goodwill is amortized using the straight line method of
amortization over a period of ten years. At December 31, 1999 the
Company has amortized a total of $20,000.
Unaudited proforma combined income data for the years ended December
31, 1999 and 1998 of the Company, assuming the purchase was effective
January 1, 1998 is as follows:
($ in thousands, except per share data)
1999 1998
------ ----
Total revenues $20,798 $19,819
Total expenses 19,619 17,895
------ ------
Net income $1,179 $1,924
====== ======
Diluted earnings per share $.37 $.39
==== ====
A-35
Exhibit 10.63
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FEMPARTNERS, INC.,
FEMPARTNERS OF CENTRAL TEXAS, INC.
AND
SYNTERA HEALTHCARE CORPORATION
August 31, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER.........................................................1
Section 1.1. The Merger...........................................1
Section 1.2. Effective Time of the Merger.........................2
ARTICLE II THE SURVIVING CORPORATION..........................................2
Section 2.1. Certificate of Incorporation.........................2
Section 2.2. Bylaws...............................................2
Section 2.3. Directors........................ ...................2
Section 2.4. Officers.............................................2
ARTICLE III CONVERSION OF SHARES...............................................2
Section 3.1. Effect on Capital Stock..............................2
Section 3.2. Adjustments to Merger Consideration..................4
Section 3.3. Anti-Dilution........................................7
Section 3.4. Exchange of Certificates.............................7
Section 3.5. Stock Transfer Books.................................7
Section 3.6. No Further Ownership Rights in Company Common Stock..7
Section 3.7. Tax and Accounting Consequences......................8
Section 3.8. Taking of Necessary Action; Further Action...........8
Section 3.9. Closing..............................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB.........................................................8
Section 4.1. Organization and Qualification.......................8
Section 4.2. Capitalization.......................................9
Section 4.3. Subsidiaries........................................10
Section 4.4. Authority; Non-Contravention; Approvals.............10
Section 4.5. Parent Financial Information........................11
Section 4.6. Absence of Undisclosed Liabilities..................11
Section 4.7. Absence of Certain Changes or Events................11
Section 4.8. Litigation..........................................13
Section 4.9. Accounts Receivable.................................13
Section 4.10. No Violation of Law; Compliance with Agreements....13
Section 4.11. Insurance..........................................14
Section 4.12. Taxes..............................................14
Section 4.13. Employee Benefit Plans.............................15
Section 4.14. Employee and Labor Matters. .....................16
Section 4.15. Environmental Matters..............................17
Section 4.16. Non-Competition Agreements.........................18
ii
<PAGE>
Section 4.17. Title to Assets....................................18
Section 4.18. Contracts..........................................18
Section 4.19. Brokers and Finders................................18
Section 4.20. Intellectual Property..............................19
Section 4.21. Relationships......................................19
Section 4.22. Certain Payments...................................19
Section 4.23. Books and Records..................................19
Section 4.24. Condition and Sufficiency of Assets................20
Section 4.25. Offering. ........................................20
Section 4.26. Staff Privileges...................................20
Section 4.27. Fraud and Abuse....................................20
Section 4.28. Medicare, Medicaid, and Other Third-Party Payor
Payment Liabilities. ........................21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................21
Section 5.1. Organization and Qualification......................21
Section 5.2. Capitalization......................................21
Section 5.3. Subsidiaries........................................22
Section 5.4. Authority; Non-Contravention; Approvals.............22
Section 5.5. Company Financial Information.......................23
Section 5.6. Absence of Undisclosed Liabilities..................23
Section 5.7. Absence of Certain Changes or Events................24
Section 5.8. Litigation..........................................25
Section 5.9. Accounts Receivable.................................25
Section 5.10. No Violation of Law; Compliance with Agreements....26
Section 5.11. Insurance..........................................27
Section 5.12. Taxes..............................................27
Section 5.13. Employee Benefit Plans.............................28
Section 5.14. Employee and Labor Matters.........................29
Section 5.15. Environmental Matters..............................30
Section 5.16. Non-Competition Agreements.........................31
Section 5.17. Title to Assets....................................31
Section 5.18. Contracts, Agreements, Plans and Commitments.......32
Section 5.19. Section 368 Representations.......................33
Section 5.20. Brokers and Finders................................34
Section 5.21. Intellectual Property..............................34
Section 5.22. Relationships......................................34
Section 5.23. Certain Payments...................................34
Section 5.24. Books and Records..................................35
Section 5.25. Condition and Sufficiency of Assets................35
Section 5.26. Offering...........................................35
Section 5.27. Staff Privileges...................................35
Section 5.28. Fraud and Abuse....................................35
iii
<PAGE>
Section 5.29. Medicare, Medicaid, and Other Third-Party
Payor Payment Liabilities. ...................................................36
Section 5.30. Bank Accounts; Powers of Attorney..................36
Section 5.31. Year 2000 Compliance...............................36
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER............................37
Section 6.1. Conduct of Business Pending the Merger..............37
Section 6.2. Control of the Company's Operations.................39
Section 6.3. Other Offers........................................39
ARTICLE VII ADDITIONAL AGREEMENTS.............................................39
Section 7.1. Access to Information...............................39
Section 7.2. Expenses and Fees...................................39
Section 7.3. Agreement to Cooperate..............................40
Section 7.4. Public Statements...................................40
Section 7.5. Notification of Certain Matters.....................40
Section 7.6. Exclusivity.........................................40
Section 7.7. Confidentiality.....................................41
Section 7.8. Registration Rights. ..............................41
Section 7.9. Share Exchange Agreements...........................49
Section 7.10. Employee Benefits. ...............................49
Section 7.11. Filings. .........................................49
Section 7.12. Net Working Capital................................49
Section 7.13. Advances under Promissory Note; Payables. .........52
Section 7.14. Advances under Promissory Note; Event of Default...54
Section 7.15. Non-Interference. ................................55
Section 7.16. Insurance..........................................56
ARTICLE VIII CONDITIONS TO CLOSING............................................56
Section 8.1. Conditions to Each Party's Obligation to Effect
the Merger...................................56
Section 8.2. Conditions to Obligation of the Company to Effect
the Merger...................................57
Section 8.3. Conditions to Obligations of Parent and Merger Sub to
Effect the Merger............................58
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.................................60
Section 9.1. Termination.........................................60
Section 9.2. Effect of Termination...............................62
Section 9.3. Amendment...........................................62
Section 9.4. Extensions; Waiver..................................62
ARTICLE X INDEMNIFICATION...................................................62
Section 10.1. The Shareholders' Indemnity Obligations............62
iv
<PAGE>
Section 10.2. Parent's Indemnity Obligations.....................63
Section 10.3. Indemnification Procedures.........................63
Section 10.4. Determination and Payment of Indemnified Amounts...65
Section 10.5. Limitation of Shareholders' Liability..............67
Section 10.6. Limitation of Parent's Liability...................67
Section 10.7. Limitation on Indemnified Amounts. ................68
Section 10.8. Right of Subrogation................................68
ARTICLE XI GENERAL PROVISIONS................................................68
Section 11.1. Survival...........................................68
Section 11.2. Notices............................................69
Section 11.3. Interpretation.....................................70
Section 11.4. Miscellaneous......................................70
Section 11.5. Governing Law......................................70
Section 11.6. Binding Arbitration................................70
Section 11.7. Counterparts.......................................72
Section 11.8. Entire Agreement...................................72
Section 11.9. Parties in Interest................................72
Section 11.10. Enforcement of the Agreement......................73
Section 11.11. Validity..........................................73
v
<PAGE>
EXHIBITS:
- --------
Exhibit A Glossary
Exhibit B Company Existing Practices
Exhibit C Existing Management Agreements
Exhibit D Calculation of Management Fee Contribution Margin
Exhibit E Replacement Promissory Note
Exhibit F Adjustments to GAAP
Exhibit G First Payables Balance Sheet
Exhibit H Non-Competition Agreements
Exhibit I Parent Guaranty
Exhibit J Co-Sale Rights Agreement
Exhibit K Lease Agreement
Exhibit L Subordination Agreement
Exhibit M Investors' Certificate
Exhibit N Investors Rights Agreement
Exhibit O Professional Service Provider Security Agreement
Exhibit P Security Agreement
SCHEDULES:
- ---------
Schedule 2.1 Surviving Corporation's Certificate of Incorporation
Schedule 2.2 Surviving Corporation's Bylaws
Schedule 2.3 Directors of the Surviving Corporation
Schedule 2.4 Officers of the Surviving Corporation
Schedule 3.1(a) Shareholder Consideration
Schedule 3.2(a) Ancillary Services
Schedule 4.1 Merger Sub Assets
Schedule 4.2(a) Parent Capitalization
Schedule 4.2(b) Other Outstanding Capital Stock
Schedule 4.3 Subsidiaries
Schedule 4.5 Parent Financial Statements
Schedule 4.6 Absence of Undisclosed Liabilities
Schedule 4.7 Absence of Certain Changes or Events
Schedule 4.8 Parent Litigation
Schedule 4.9 Parent Accounts Receivable
Schedule 4.10 Parent Permits
Schedule 4.11 Insurance
Schedule 4.12 Parent Taxes
Schedule 4.13 Parent Employee Benefit Plans
Schedule 4.14 Parent Employment and Labor Matters
Schedule 4.16 Parent Non-Competition Agreements
Schedule 4.17 Title to Assets
Schedule 4.18 Contracts
vi
<PAGE>
Schedule 4.20 Parent Intellectual Property
Schedule 4.21 Relationships
Schedule 5.2(b) Other Outstanding Capital Stock
Schedule 5.5 Company Financial Statements
Schedule 5.6 Absence of Undisclosed Liabilities
Schedule 5.7 Absence of Certain Changes or Events
Schedule 5.8 Company Litigation
Schedule 5.9 Company Accounts Receivable
Schedule 5.10(b) No Violation of Law; Compliance with Agreements
Schedule 5.11 Company Insurance Policies
Schedule 5.12 Company Taxes
Schedule 5.13 Company Employee Benefit Plans
Schedule 5.14 Company Employee and Labor Matters
Schedule 5.16 Company Non-Competition Agreement
Schedule 5.17 Title to Assets
Schedule 5.18 Contracts, Agreements, Plans and Commitments
Schedule 5.19(a) Share Exchange Agreements
Schedule 5.19(c) Section 368 Representations
Schedule 5.27 Staff Privileges
Schedule 5.30 Bank Accounts; Powers of Attorney
Schedule 5.31 Year 2000 Noncompliance
Schedule 6.1 Conduct of Business Pending Merger
vii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated effective as of August 31,
1999 (the "Agreement"), is by and among FEMPARTNERS, INC., a Delaware
corporation ("Parent"), FEMPARTNERS OF CENTRAL TEXAS, INC., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub") and SYNTERA
HEALTHCARE CORPORATION, a Texas corporation (the "Company").
W I T N E S E T H:
WHEREAS, Parent, Merger Sub and the Company desire that the Company
merge with and into the Merger Sub (the "Merger");
WHEREAS, Parent, Merger Sub and the Company intend the Merger to
qualify as a tax-free reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder;
WHEREAS, Parent and Merger Sub are making certain representations,
warranties and indemnities as an inducement to the Company and each of its
shareholders (individually a "Shareholder" and collectively the "Shareholders")
to enter into this Agreement;
WHEREAS, the Company is making certain representations, warranties and
indemnities as an inducement to Parent and Merger Sub to enter into this
Agreement; and
WHEREAS, capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Glossary attached as Exhibit A.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2) in
accordance with the Delaware General Corporation Law ("DGCL") and the Texas
Business Corporation Act ("TBCA"), the Company shall be merged with and into the
Merger Sub and the separate existence of the Company shall thereupon cease.
Merger Sub shall be the surviving corporation in the Merger and is hereinafter
sometimes referred to as the "Surviving Corporation."
Section 1.2. Effective Time of the Merger. The Merger shall become
effective at such time (the "Effective Time") as (i) a certificate of merger is
filed with the Secretary of State of the
<PAGE>
State of Delaware in accordance with the DGCL and (ii) articles of merger are
filed with the Secretary of State of the State of Texas in accordance with the
TBCA (the "Merger Filings"). The Merger Filings shall be made simultaneously
with or as soon as practicable after the Closing (as defined in Section 3.10) in
accordance with Article III. The parties acknowledge that it is their mutual
desire and intent to consummate the Merger as soon as practicable after the date
hereof, and in any event within five (5) business days after the satisfaction,
or waiver, of all conditions to Closing set forth in Article VIII hereof,
subject to the terms and conditions hereof. Accordingly, subject to the
provisions hereof, the parties shall use all reasonable efforts to consummate,
as soon as practicable, the transactions contemplated by this Agreement in
accordance with Article VIII.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1. Certificate of Incorporation. The Certificate of
Incorporation of Merger Sub as in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation after the
Effective Time, as the same may thereafter be amended in accordance with its
terms and as provided under the DGCL. The Certificate of Incorporation of the
Merger Sub is attached hereto on Schedule 2.1.
Section 2.2. Bylaws. The Bylaws of Merger Sub as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
after the Effective Time, as the same may thereafter be amended in accordance
with their terms and as provided by the Certificate of Incorporation of the
Surviving Corporation and DGCL. The Bylaws of the Merger Sub are attached hereto
on Schedule 2.2.
Section 2.3. Directors. The directors of the Surviving Corporation
shall be as designated in Schedule 2.3, and such directors shall serve in
accordance with the Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
Section 2.4. Officers. The officers of the Surviving Corporation shall
be as designated in Schedule 2.4, and such officers shall serve in accordance
with the Bylaws of the Surviving Corporation until their respective successors
are duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
Section 3.1. Effect on Capital Stock. Subject to the terms and
conditions of this Agreement, at the Effective Time, by virtue of the Merger and
without any action on the part of the Parent, Merger Sub or the Company:
2
<PAGE>
(a) Conversion of Securities. All of the Company's common
stock, $0.001 par value per share ("Company Common Stock"), issued and
outstanding immediately prior to the Effective Time (excluding any shares of the
Company Common Stock to be canceled pursuant to Section 3.1(b)) shall be
converted into the right to receive at Closing, in the aggregate, 885,714 shares
(as such number may be adjusted pursuant to Section 3.2 and as otherwise
provided in this Agreement, the "Merger Consideration") of issued and
outstanding common stock, par value $.01 per share, of Parent ("Parent Common
Stock"). The aggregate consideration payable to each Shareholder is set forth
opposite each Shareholder's name on Schedule 3.1(a), and, subject to the
provisions of the Agreement, shall be paid in full at Closing; provided,
however, that until satisfaction of the obligations of the Company, if any,
under Sections 3.2 and 10.1 hereof, the Parent shall retain in escrow an
aggregate of thirty percent (30%) of the Share Equivalent Transaction Value (as
defined in Section 3.2) in shares of Parent Common Stock (as such number may be
adjusted pursuant to Section 3.3 and as may be subject to forfeiture pursuant to
Article X, the "Retained Shares"). A number of the Retained Shares equal to
fifteen percent (15%) of the Share Equivalent Transaction Value are specifically
withheld solely for purposes of satisfying any indemnity obligations which may
be owed by the Shareholders pursuant to Section 10.1 hereof (the "Retained
Indemnity Shares"). The Retained Shares shall reduce the Parent Common Stock
distributed to the Shareholders at Closing on a pro-rata basis according to the
percentage of the total Merger Consideration being received by each Shareholder.
The Retained Shares shall be subsequently distributed among the Shareholders and
Parent in accordance with the terms of Sections 3.2 and 10.4 hereof.
(b) Cancellation. Each share of Company Common Stock held in
the treasury of the Company and each share of Company Common Stock held by any
direct or indirect wholly owned Subsidiary of the Company, if any, immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, cease to be outstanding, be canceled
and retired without payment of any consideration therefor and cease to exist.
(c) Capital Stock of Merger Sub. Each share of common stock,
par value $.01 per share, of Merger Sub ("Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding.
(d) Adjustments to Parent Common Stock. The number of shares
of Parent Common Stock constituting the Merger Consideration shall be
appropriately adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend of securities convertible into
Parent Common Stock), reorganization, reclassification, recapitalization or
other similar change with respect to Parent Common Stock occurring (including
the record date thereof) after the date hereof and prior to the Effective Time.
Section 3.2. Adjustments to Merger Consideration.
(a) The capitalized terms used in this Section shall have
the following meanings:
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"Adjustment Amount," which may be a positive or negative
number, equals (i) the Adjustment Percentage Ratio times the Share Equivalent
Transaction Value. The Adjustment Amount, however, is limited to no more than
positive fifteen percent (15%) of the Share Equivalent Transaction Value, and to
no less than negative fifteen percent (15%) of the Share Equivalent Transaction
Value.
"Adjustment Percentage Ratio," which may be a positive or
negative number, is equal to (i) Management Fee Contribution Margin minus
$988,000, divided by (ii) $988,000.
"Company Existing Practices" means the practices of all
individual physicians which the Company managed as of the Closing Date (as
defined in Section 3.9) and listed on Exhibit B attached hereto.
"Determination Period" means the eighteen (18) month period
beginning on July 1, 1999 and ending on December 31, 2000.
"Existing Management Agreements" means all Management
Agreements relating to Company Existing Practices and listed on Exhibit C
attached hereto.
"Management Fee Contribution Margin" or "MFCM" means an amount
equal to the aggregate of all Service Fees (as such term is defined in each of
the Existing Management Agreements) earned in accordance with GAAP from the
Company Existing Practices under the Existing Management Agreements during the
Determination Period, regardless of the party to whom such Service Fees are
payable, less the Regional Expenses (as hereinafter defined). MFCM shall be
calculated in accordance with methodology set forth in the schedule attached
hereto as Exhibit D, with the revenues and expenses included in the calculation
to be calculated in accordance with GAAP. In addition, MFCM shall be calculated
and stated on an annualized basis, but only after subtracting the aggregate
Service Fees during the Determination Period that are directly related to
ancillary services added to the Company Existing Practices by Parent or Merger
Sub (excluding those ancillary services identified on Schedule 3.2(a) hereto).
The specific Regional Expenses that are directly related to such ancillary
services added to the Company Existing Practices by Parent or Merger Sub
(excluding those ancillary services identified on Schedule 3.2(a) hereto) shall
not be deducted in calculating MFCM. Notwithstanding any provision of this
Section 3.2 or any other provision of this Agreement, appropriate adjustments
shall be made in calculating MFCM to ensure that MFCM is not decreased by (i)
any adjustments to the Balance Sheet (as hereinafter defined) accounts for
events occurring prior to June 30, 1999 or after December 31, 2000 or (ii) any
adjustments which affect the calculation of Net Working Capital (as defined in
Section 7.12).
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"Regional Expenses" shall include all the actual expenses
incurred to operate or manage the Company Existing Practices that are not Clinic
and Provider Expenses (as such terms are defined in each of the Existing
Management Agreements). However, during the Determination Period, for the
purpose of calculating the Adjustment Percentage Ratio and MFCM, the Regional
Expenses shall only include salaries and wages and related benefits of the
regional controller, accountant, and regional administrator and the following
expenses related to the regional corporate office: rent, utilities, insurance,
legal, professional and consulting services, computer services, travel,
maintenance and repairs, telephone, postage, printing and other related charges,
leasing of office equipment, supplies, parking, outside contractors, bank
service charges, property taxes, professional license fees and dues and
employment fees; provided, however, that for purposes of calculating the
Adjustment Percentage Ratio and MFCM, Regional Expenses shall not exceed
$246,600 per annum. In accordance with the foregoing, Regional Expenses shall
not include (a) amortization expenses related to the acquisition of the Company
Existing Practices, (b) depreciation expenses related to the Company Existing
Practices, (c) the salaries and benefits of the Parent executive officers,
defined as President, Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer and/or Vice President of Operations and Chief Development
Officer, (d) the salaries and benefits of the Regional Vice Presidents of
Development, and Parent business development expenses of affiliating with other
established physician practices, (e) interest expense, and (f) income taxes of
Syntera, Parent or Merger Sub.
"Replacement Promissory Note" means that certain promissory
note, as hereafter amended, substituted or replaced, executed by Merger Sub at
the Closing, payable to American Physicians Service Group, Inc., a Texas
corporation ("APS"), attached hereto as Exhibit E, replacing all outstanding
amounts under that certain original promissory note (the "Original Promissory
Note") in the maximum principal amount of $3,000,000, dated November 1, 1998.
"Share Equivalent Transaction Value" is equal to (i) 885,714,
plus (ii) the outstanding amount under the Replacement Promissory Note
immediately following the Closing divided by $7.00.
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(b) On December 31, 2000 (the "Calculation Date"), Parent
shall cause the Surviving Corporation to calculate MFCM, the Adjustment
Percentage Ratio and the Adjustment Amount (collectively, the "Adjustment
Calculations"). Within ninety (90) days following the Calculation Date, Parent
shall deliver to each of the Shareholders a copy of the Adjustment Calculations,
and a clear written statement setting forth with reasonable specificity the
Adjustment Calculations and the values, procedures and any assumptions used in
obtaining the Adjustment Calculations. The Shareholders shall have 15 days to
object in writing to the Adjustment Calculations, setting forth with reasonable
specificity any objections. If Shareholders holding, in the aggregate, at least
25% of the previously distributed portion of the Merger Consideration do not
object prior to the expiration of such 15 day period, then the Adjustment
Calculations shall be binding on all parties. If Shareholders holding, in the
aggregate, at least 25% of the previously distributed portion of the Merger
Consideration object prior to the expiration of such 15 day period (the
"Objecting Shareholders"), then all the Shareholders and Parent shall negotiate
in good faith and
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attempt to resolve the disagreement. Should such negotiations not result in a
unanimous agreement within one hundred twenty (120) days following the
Calculation Date, then the matter shall be submitted to a big five independent
accounting firm (other than the auditors of Parent, the Surviving Corporation,
or APS at the time of such dispute) mutually acceptable to the Objecting
Shareholders and Parent (a "Neutral Auditor"); provided that both Parent and the
Objecting Shareholders place in escrow cash equal to one-half of the estimated
fees of the Neutral Auditor pending the outcome of the disagreement. If the
Objecting Shareholders and Parent are unable to agree on the Neutral Auditor,
then the Objecting Shareholders and Parent shall request the American
Arbitration Association to appoint the Neutral Auditor. The Neutral Auditor will
deliver to all of the Shareholders and Parent a written determination (such
determination to include a worksheet setting forth all material calculations
used in arriving at such determination) of the disputed items within sixty (60)
days of receipt of the disputed items, which determination shall be final,
binding and conclusive. If the Neutral Auditor's determination of the Adjustment
Amount multiplied by $7 (the "Dollar Adjustment Amount") is within $25,000 of
Parent's calculation of the Dollar Adjustment Amount (whether the difference is
positive or negative), all fees and expenses relating to appointment of the
Neutral Auditor and the work, if any, to be performed by the Neutral Auditor
will be borne by the Objecting Shareholders (or, if APS is one of the Objecting
Shareholders, by APS). If the difference between the Neutral Auditor's
determination of the Dollar Adjustment Amount and Parent's calculation of the
Dollar Adjustment Amount is greater than $25,000, but less than or equal to
$100,000 (whether the difference is positive or negative), all fees and expenses
relating to appointment of the Neutral Auditor and the work, if any, to be
performed by the Neutral Auditor will be borne half by the Objecting
Shareholders (or, if APS is one of the Objecting Shareholders, by APS) and half
by Parent. If the difference between the Neutral Auditor's determination of the
Dollar Adjustment Amount and Parent's calculation of the Dollar Adjustment
Amount is greater than $100,000 (whether the difference is positive or
negative), all fees and expenses relating to appointment of the Neutral Auditor
and the work, if any, to be performed by the Neutral Auditor will be borne
exclusively by Parent. The Adjustment Calculations in this Section 3.2 are made
independent of the ownership of the Surviving Corporation after Closing.
(c) Upon the later to occur of (i) June 30, 2001 or (ii) ten
(10) days following agreement on or delivery of the final, binding and
conclusive Adjustment Calculations (the "Distribution Date"), Parent shall
promptly distribute to the Shareholders from escrow that number of Retained
Shares equal to (i) the agreed upon or conclusively determined Adjustment Amount
(which may be positive or negative), plus (ii) 30% of the Share Equivalent
Transaction Value (collectively, the amounts in clauses (i) and (ii) are
referred to as the "Earnout Distribution"), minus (iii) all Final Suspended
Indemnified Amounts and Pending Indemnified Amounts (as such terms are defined
in Section 10.4) that are or may become payable by the Shareholders, in each
case divided by 7; provided, however, that in no event may the sum of clauses
(i) through (iii) be negative and; provided, further, that if any Shareholder
exchanges shares of Parent Common Stock to APS prior to the Distribution Date
pursuant to the terms of the Share Exchange Agreements (as hereinafter defined),
APS shall be entitled to receive the Shareholder's proportionate share of the
Retained Shares. Any and all of the Retained Shares that are not distributed to
the Shareholders on the Distribution Date shall be distributed to Parent, except
for that number of Retained Shares which
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may reasonably be necessary to satisfy Pending Indemnified Amounts (such shares
to be distributed to the appropriate party or parties upon final determination
of the Pending Indemnified Amounts).
(d) All share amounts and related share values referred to in
this Section shall be appropriately adjusted upon the occurrence of any of the
events described in Section 3.1(d).
Section 3.3. Anti-Dilution. If, during the Determination Period, Parent
issues any one or more voting equity securities, or any other securities
convertible into or exchangeable for any voting equity securities (the "New
Securities"), at a price (the "Dilution Price") of less than $7.00 per share,
then promptly thereafter Parent shall issue to the Shareholders the number of
additional shares of Parent Common Stock, without requiring or receiving any
consideration therefore (the "Anti-Dilution Shares"), equal to (a) the number of
shares of Merger Consideration multiplied by 7 and divided by the Dilution
Price, minus (b) the number of shares of Merger Consideration. In determining
the price at which New Securities have been issued, the per share cash amount
received by Parent in return for the New Securities shall be used, or, if the
issuance was not wholly for cash, the per share value expressly assigned in any
document or agreement governing the issuance shall be used, or, if no such
document or agreement exists, the per share value determined in good faith by
the Board of Directors of Parent shall be used. For purposes of this
calculation, if Parent issues New Securities for less than $5.00, the Dilution
Price shall be deemed to equal $5.00 per share. Seventy percent (70%) of the
Anti-Dilution Shares shall be issued to the Shareholders on a pro rata basis
according to the amount of Merger Consideration received by each Shareholder.
Thirty percent (30%) of the Anti-Dilution Shares shall be retained as part of
the Retained Shares and distributed in accordance with Sections 3.2 and 10.1
hereof. All share amounts and related share values referred to in this Section
shall be appropriately adjusted upon the occurrence of any of the events
described in Section 3.1(d).
Section 3.4. Exchange of Certificates. Immediately after the Effective
Time, Parent will deliver to each Shareholder the Merger Consideration due to
the Shareholder, upon surrender by the Shareholder of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates") for cancellation
together with such other customary documents as may be required.
Section 3.5. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
Section 3.6. No Further Ownership Rights in Company Common Stock. The
Merger Consideration delivered upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled.
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Section 3.7. Tax and Accounting Consequences. It is intended by the
parties hereto that the Merger shall constitute a reorganization within the
meaning of Section 368 of the Code. The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
Section 3.8. Taking of Necessary Action; Further Action. Each of
Parent, Merger Sub and the Company will take all such reasonable and lawful
action as may be necessary or appropriate in order to effectuate the Merger in
accordance with this Agreement as promptly as possible. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub in office immediately prior to the Effective Time
are fully authorized in the name of their respective corporations or otherwise
to take, and will take, all such lawful and necessary action.
Section 3.9. Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at a location mutually agreeable
to Parent and the Company in Houston, Texas, as promptly as practicable (but in
any event within five (5) business days) following the date on which the last of
the conditions set forth in Article VIII is fulfilled or waived, or at such
other time and place as Parent and the Company shall agree in writing. The date
on which the Closing occurs is referred to in this Agreement as the "Closing
Date."
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each represent and warrant to the Company as
follows:
Section 4.1. Organization and Qualification. Each of Parent and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation and has the requisite corporate power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted. Parent is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the properties owned, leased, or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified and in good standing would not have, or could not
reasonably be anticipated to have, individually or in the aggregate, a Material
Adverse Effect (as defined in Exhibit A). True, accurate and complete copies of
each of Parent's and Merger Sub's Certificate of Incorporation and Bylaws, each
as amended and in effect on the date hereof, have heretofore been delivered to
the Company. Merger Sub has not commenced business since its incorporation.
Merger Sub is not a party to or subject to any agreement or other instrument,
other than its Certificate of Incorporation, Bylaws, this Agreement and any
other agreements related to the Merger. Merger Sub does not own any assets
(tangible or intangible) other than the assets set
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forth on Schedule 4.1 attached hereto and Merger Sub does not have any
liabilities, accrued, contingent or otherwise (known or unknown, asserted or
unasserted).
Section 4.2. Capitalization.
(a) The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, 271,470 shares of Series A Redeemable
Common Stock, par value $.01 per share ("Redeemable Common Stock"), and
10,000,000 shares of Preferred Stock, par value $.01 per share ("Parent
Preferred Stock"). As of July 31, 1999, there were 600,897 shares of Parent
Common Stock issued and outstanding and 3,000,000 shares of Parent Preferred
Stock issued and outstanding, all of which will be free and clear of all
security interests, claims, liens or other encumbrances of any nature
whatsoever. Each issued and outstanding share of Parent Common Stock and Parent
Preferred Stock has been legally and validly issued and is fully paid and
nonassessable. As of the date hereof, except as set forth in Schedule 4.2(a), no
shares of capital stock of Parent are owned by Parent in treasury.
(b) Except as set forth in Section 4.2(a), and except as set
forth on Schedule 4.2(b), as of the date hereof, there are not outstanding (i)
any (A) shares of capital stock or other voting securities of Parent, (B)
securities of Parent convertible into or exchangeable for shares of capital
stock or other voting securities of Parent, (C) equity equivalents, interests in
the ownership or earnings, or other similar rights of or with respect to Parent,
(D) except for the obligations pursuant to this Agreement, subscriptions,
options, calls, contracts, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, debenture, instrument or other agreement,
obligating Parent to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of Parent or obligating the Parent
to grant, extend or enter into any such agreement or commitment, (ii) any
obligations of Parent to repurchase, redeem or otherwise acquire any securities
referred to in clauses (A) through (D) above, or (iii) any preemptive rights,
rights of first refusal, stock rights, co-sale or take along rights, or
registration rights with respect to any securities referred to in clauses (A)
through (D) above. Except as set forth on Schedule 4.2(b), to Parent's
knowledge, there are no voting trusts, proxies or other agreements or
understandings to which Parent or, to Parent's knowledge, any shareholder is a
party or is bound with respect to the voting of any shares of capital stock of
Parent. Parent shall have available to it at the Effective Time sufficient
shares of duly authorized Parent Common Stock to issue in exchange for the
outstanding Company Common Stock to be converted in the Merger pursuant to
Article III. Copies of the Certificate of Incorporation (certified by the
Secretary of State of Delaware) and Bylaws (certified by the Secretary of
Parent) of Parent, heretofore delivered to the Company, are true, correct and
complete and reflect all amendments thereto as of the date hereof.
(c) The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, par value $.01 per share, of which 100 shares are
outstanding. All the outstanding shares of capital stock of Merger Sub are owned
directly by Parent.
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(d) The Parent Common Stock to be issued to the Shareholders
or placed in escrow pursuant to this Agreement, when issued and delivered by
Parent or placed in escrow in accordance with the provisions of this Agreement,
will be validly issued and fully paid and nonassessable. Any and all preemptive
rights (whether arising contractually or otherwise), or similar rights to
subscribe for or acquire additional common stock, that are exercisable upon or
are triggered by the issuance of Parent Common Stock under this Agreement have
been waived in writing by the respective holders of such rights.
Section 4.3. Subsidiaries. Except as set forth on Schedule 4.3, Parent
does not have any Subsidiaries other than Merger Sub, nor does Parent hold any
equity interest in or control (directly or indirectly, through the ownership of
securities, by contract, by proxy, alone or in combination with others, or
otherwise) any corporation, limited liability company, partnership, business
organization or other Person. Schedule 4.3 sets forth the nature of Parent's
ownership interest (by number of class of securities or other interests) in each
of Parent's Subsidiaries.
Section 4.4. Authority; Non-Contravention; Approvals.
(a) Parent and Merger Sub each have full corporate power and
authority to execute and deliver this Agreement and, subject to the Parent
Required Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the Boards
of Directors of both Parent and Merger Sub and by Parent as the sole shareholder
of Merger Sub, and no other corporate proceedings on the part of Parent, Merger
Sub or either of their shareholders is necessary to authorize the execution and
delivery of this Agreement or the consummation by Parent and Merger Sub of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and Merger Sub, and, assuming the due authorization,
execution and delivery hereof by the Company, constitutes a valid and legally
binding agreement of each of Parent and Merger Sub enforceable against each of
them in accordance with its terms, except that such enforcement may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by each of
Parent and Merger Sub and the consummation by each of Parent and Merger Sub of
the transactions contemplated hereby in accordance with the terms hereof do not
and will not violate or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Parent or any of its
Subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or bylaws of Parent or any of its Subsidiaries, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or Governmental Authority applicable to
Parent or any of its Subsidiaries or any of their properties or assets (assuming
compliance with the matters referred to in Section 4.4(c)) or (iii) any note,
bond, mortgage, indenture, deed of trust,
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license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Parent or any of its Subsidiaries
is now a party or by which Parent or any of its Subsidiaries or any of their
respective properties or assets may be bound or affected except, in the case of
clauses (ii) and (iii), for matters as would not have, or could not reasonably
be anticipated to have, individually or in the aggregate, a Material Adverse
Effect or materially impair the ability of Parent and Merger Sub to consummate
the transactions contemplated by this Agreement.
(c) Except for the making of the Merger Filings in connection
with the Merger (the "Parent Required Statutory Approvals"), no declaration,
filing or registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority (including, without
limitation, federal and state securities' regulatory bodies) is necessary for
the execution and delivery of this Agreement by Parent or Merger Sub or the
consummation by Parent or Merger Sub of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, have, or could not reasonably be anticipated to have, individually or in
the aggregate, a Material Adverse Effect or materially impair the ability of
Parent or Merger Sub to consummate the transactions contemplated by this
Agreement.
Section 4.5. Parent Financial Information. Parent has furnished the
Company with copies of the unaudited balance sheet of Parent (the "Parent
Balance Sheet") as of December 31, 1998 (the "Parent's Balance Sheet Date"), and
the related statements of earnings for the two (2) years then ended
(collectively, the "Parent Financial Statements"), all of which are attached
hereto as part of Schedule 4.5. Except as described in the Parent Financial
Statements or on Schedule 4.5, the Parent Financial Statements are true and
accurate and fairly present the financial position of Parent as of the dates
thereof and the results of operations of Parent for the periods then ended, in
conformity with GAAP and on a basis consistent with prior periods. Except as
described on Schedule 4.5, all interim Parent Financial Statements provided to
the Company are true and accurate and fairly present or will present, as the
case may be, the financial position of Parent as of the dates thereof and the
results of operation of Parent for the periods then ended on a basis consistent
with prior periods.
Section 4.6. Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 4.6, Parent has not incurred any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except liabilities,
obligations or contingencies (i) which are accrued or reserved against the
Parent Financial Statements or (ii) which were incurred after December 31, 1998,
and were incurred in the ordinary course of business and consistent with past
practices.
Section 4.7. Absence of Certain Changes or Events. Other than as
contemplated by this Agreement or as set forth on Schedule 4.7, Parent has not,
since the date of the Parent's Balance Sheet Date:
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(i) incurred any material obligation or liability
(absolute, accrued, contingent, insured or otherwise), except in
connection with the performance of this Agreement, other than in the
ordinary course of business;
(ii) discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent, insured or otherwise) other than (1)
liabilities shown or reflected on the Parent Balance Sheet or (2)
liabilities incurred since the date of the Parent Balance Sheet in the
ordinary course of business;
(iii) increased or established any reserve for taxes
or any other liability on its books or otherwise provided therefor,
except as may have been required due to ordinary income or operations
of Parent since the date of the Parent Balance Sheet;
(iv) mortgaged, pledged or subjected to any lien,
charge or other encumbrance any of the assets of Parent, tangible or
intangible, other than in the ordinary course of business;
(v) sold or transferred any of the assets of Parent,
or, to Parent's knowledge cancelled any debts or claims or waived any
rights, other than in the ordinary course of business;
(vi) granted any general or uniform increase in the
rates of pay of employees or any substantial increase in salary payable
or to become payable by Parent to any officer or employee, consultant
or agent (other than normal merit increases) or, by means of any bonus
or pension plan, contract or other commitment, increased the
compensation of any officer, employee, consultant or agent, other than
in the ordinary course of business;
(vii) except for the purchase of 230 shares of Parent
Common Stock which were placed in the Treasury and the redemption of
the Redeemable Common Stock, made any declaration setting aside or
payment of dividends or other distributions on or in respect of shares
of the capital stock of Parent, or any direct or indirect redemption,
retirement, purchase or other acquisition by Parent of any such shares;
(viii) changed the accounting methods followed by
Parent;
(ix) terminated (except through performance) or,
to Parent's knowledge, received notice of termination of any material
agreement or commitment;
(x) authorized any capital expenditures other
than in the ordinary course of business;
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(xi) except for this Agreement and any other
agreement executed and delivered pursuant to this Agreement, entered
into any material transaction other than in the ordinary course of
business;
(xii) to the Parent's knowledge, experienced damage,
destruction or loss (whether or not covered by insurance) materially
and adversely affecting any of its properties, assets or business, or
experienced any other material adverse change in its financial
condition, assets, liabilities or business; or
(xiii) entered into any agreement to do or resulting
in any of the foregoing.
Section 4.8. Litigation. Except as set forth on Schedule 4.8 and except
for malpractice claims that have not been disclosed to Parent but are asserted
or may be asserted against the Parent Existing Practices, there are no claims,
actions, suits, proceedings (arbitration or otherwise) or investigations pending
or, to the knowledge of Parent or Merger Sub, threatened against Parent, Merger
Sub or the Parent Existing Practices (as hereinafter defined), at law or in
equity, in any court or before or by any Governmental Authority, and, to the
knowledge of Parent or Merger Sub, there are no, and have not been any, facts,
conditions or incidents that are reasonably likely to result in any such
actions, suits, proceedings (arbitration or otherwise) or investigations. To the
knowledge of Parent and Merger Sub, neither Parent nor Merger Sub is in default
in respect of any judgment, order, writ, injunction or decree of any court or
other Governmental Authority. Except as set forth on Schedule 4.8, to the
knowledge of Parent and Merger Sub, there have been no disciplinary, revocation
or suspension proceedings or similar types of claims, actions or proceedings,
hearings or investigations against Parent, Merger Sub or the Parent Existing
Practices, and neither Parent nor Merger Sub know of any facts, conditions or
incidents that may result in any such proceedings, claims, actions, hearings or
investigations.
Section 4.9. Accounts Receivable. The Parent Balance Sheet reflects the
amount, as of the Parent Balance Sheet Date and determined in conformity with
GAAP and on a basis consistent with the past practices employed by Parent, of
Parent's current accounts receivable, net of contractual adjustments arising out
of third-party payor arrangements and allowances for bad debts ("Parent Accounts
Receivable"). Schedule 4.9 reflects the amount of Parent Accounts Receivable as
of April 30, 1999. Except as set forth on Schedule 4.9, the Parent Accounts
Receivable (i) are valid, binding and legally enforceable obligations and are
owned by Parent free and clear of all liens and encumbrances and (ii) will not,
to Parent's knowledge, be subject to any offset, counterclaim or other adverse
claim or defense, except for contractual adjustments arising out of third party
payor arrangements. The Parent Accounts Receivable arose in the ordinary course
of business consistent with past practices. Since December 31, 1998, Parent has
not change any principle or practice with respect to the recordation of accounts
receivable, or any material collection, discount or write-off policy or
procedure, and Parent has not sold or transferred any Parent Accounts
Receivable. To Parent's knowledge, Parent is in substantial compliance with the
terms and conditions of such third-party payor arrangements.
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Section 4.10. No Violation of Law; Compliance with Agreements.
(a) To the Parent's knowledge, Parent is not in violation of
and has not been given notice or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable Environmental Law, the Occupational Safety and Health
Act, the Americans with Disabilities Act and state and federal escheat laws) of
any governmental or regulatory body or authority. To the Parent's knowledge, no
investigation or review by any governmental or regulatory body or authority is
pending or threatened, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same. Parent and the Parent Existing
Practices have all permits (including without limitation Environmental Permits),
licenses, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals required or necessary to conduct its
business as presently conducted (collectively, the "Parent Permits"). To the
Parent's knowledge, Parent and the Parent Existing Practices are not in
violation of the terms of any Parent Permit. All such permits, licenses, orders
and approvals are in full force and effect, and no suspension or cancellation of
any of them is pending or, to the knowledge of Parent, threatened. Except as set
forth on Schedule 4.10, none of such permits, licenses, orders or approvals, and
no application for any of such permits, licenses, orders or approvals will be
adversely affected by the consummation of the transactions contemplated by this
Agreement. Parent and the Parent Existing Practices have not been disciplined,
sanctioned or excluded from the Medicare program and have not been subject to
any plan of correction imposed by any professional review body.
(b) To the Parent's knowledge, Parent is not in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, could result in a default under, (a) the charter, bylaws or similar
organizational instruments of Parent or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which Parent is a party or by which it is bound or to which
any of its property is subject.
Section 4.11. Insurance. Schedule 4.11 hereto sets forth a list of all
insurance policies owned by Parent or Merger Sub or by which Parent or Merger
Sub or either of their properties or assets are covered against present losses,
all of which are now in full force and effect. No insurance has been refused
with respect to any operations, properties or assets of Parent or Merger Sub nor
has coverage of any insurance been limited by any insurance carrier that has
carried, or received any application for, any such insurance during the last
three years. No insurance carrier has denied any claims made against any of the
policies listed on Schedule 4.11 hereto.
Section 4.12. Taxes.
(a) Except as set forth on Schedule 4.12, (i) Parent has (x)
duly filed (or there has been filed on its behalf) with the appropriate taxing
authorities all Tax Returns required to be filed by it on or prior to the date
hereof, and (y) duly paid in full or made adequate provision therefor on its
financial statements in accordance with GAAP (or there has been paid or adequate
provision has
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been made on its behalf) for the payment of all Taxes for all periods ending
through the date hereof; (ii) all such Tax Returns filed by or on behalf of
Parent are true, correct and complete in all material respects; (iii) Parent is
not the beneficiary of any extension of time within which to file any Tax
Return; (iv) no claim has ever been made by any authority in a jurisdiction
where Parent does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction; (v) the liabilities and reserves for Taxes reflected in
the most recent balance sheet included in Parent Financial Statements to cover
all Taxes for all periods ending at or prior to the date of such balance sheet
have been properly determined in accordance with GAAP, and there is no material
liability for Taxes for any period beginning after such date other than Taxes
arising in the ordinary course of business; (vi) there are no liens for Taxes
upon any property or assets of Parent, except for liens for Taxes not yet due;
(vii) Parent has not made any change in accounting methods since December 31,
1998; (viii) Parent has not received a ruling from any taxing authority or
signed an agreement with any taxing authority; (ix) Parent has complied in all
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441 and 1442 of the Code, as amended or similar provisions
under any foreign laws) and has, within the time and the manner prescribed by
law, withheld and paid over to the appropriate taxing authority all amounts
required to be so withheld and paid over under all applicable laws in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other third party; (x) no federal, state, local or foreign audits
or other administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns of Parent, and, as of the date of this
Agreement, Parent has not received a written notice of any pending audits or
proceedings; (xi) no shareholder or director or officer (or employee responsible
for Tax matters) of Parent expects any authority to assess any additional Taxes
for any period for which Tax Returns have been filed; (xii) the federal income
Tax Returns of Parent have not been examined by the Internal Revenue Service
("IRS"); (xiii) no adjustments or deficiencies relating to Tax Returns of Parent
have been proposed, asserted or assessed by any taxing authority, except for
such adjustments or deficiencies which have been fully paid or finally settled;
and (xiv) Parent has delivered to the Company true, correct and complete copies
of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by Parent or Merger Sub since
December 31, 1997.
(b) There are no outstanding requests, agreements, consents or
waivers to extend the statute of limitations applicable to the assessment of any
Taxes or deficiencies against Parent, and no power of attorney granted by Parent
with respect to any Taxes is currently in force. Parent is not a party to any
agreement providing for the allocation or sharing of Taxes. Parent has not, with
regard to any assets or property held, acquired or to be acquired by it, filed a
consent to the application of Section 341(f) of the Code, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by Parent.
Parent (i) has not been a member of an affiliate group filing a consolidated
federal income Tax Return (other than a group the common parent of which was
Parent) and (ii) has no liability for Taxes of any person (other than any of
Parent and its Subsidiaries) under Section 1.1502-6 of the United States
Treasury Regulations (or any similar provision of state, local or foreign law),
as a transferee or successor, by contract, or otherwise.
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Section 4.13. Employee Benefit Plans.
(a) Each Parent Plan and each Parent Benefit Program (as such
terms are defined below) is listed on Schedule 4.13 hereto. No Parent Plan or
Parent Benefit Program is or has been (i) covered by Title IV of Employer
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) subject to
the minimum funding requirements of Section 412 of the Code or (iii) a
"multi-employer plan" as defined in Section 3(37) of ERISA, nor has Parent
contributed to, or ever had any obligation to contribute to, any multi-employer
plan. Each Parent Plan and Parent Benefit Program intended to be qualified under
Section 401(a) of the Code is designated as a tax-qualified plan on Schedule
4.13 and is so qualified. No Parent Plan or Parent Benefit Program provides for
any retiree health benefits for any employees or dependents of Parent other than
as required by COBRA (as hereinafter defined). There are no claims pending with
respect to, or under, any Parent Plan or any Parent Benefit Program, other than
routine claims for benefits, and there are no disputes or litigation pending or,
to the knowledge of Parent, threatened, with respect to any such Parent Plans or
Parent Benefit Programs.
(b) Each Parent Plan and Parent Benefit Program has been
maintained and administered in compliance with its terms and in accordance with
all applicable laws, rules and regulations. Parent has no commitment or
obligation to establish or adopt any new or additional Parent Plans or Parent
Benefit Programs or to increase the benefits under any existing Parent Plan or
Parent Benefit Program.
(c) Except as set forth in Schedule 4.13, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) result in any payment to be made by
Parent, including, without limitation, severance, unemployment compensation,
golden parachute (defined in Section 280G of the Code) or otherwise, becoming
due to any employee of Parent, or (ii) increase any benefits otherwise payable
under any Parent Plan or any Parent Benefit Program.
(d) For purposes of this Agreement, "Parent Benefit Program"
means any plan, policy, contract, program, commitment or arrangement providing
for bonuses, deferred compensation, retirement payments, profit sharing,
incentive pay, commissions, hospitalization or medical expenses or insurance or
any other benefits for any officer, consultant, director, annuitant, employee or
independent contractor of the Parent as such or members of their families (other
than directors' and officers' liability policies), whether or not insured. For
purposes of this Agreement, "Company Plan" means an "employee benefit plan" (as
defined in Section 3(3) of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Parent or by
any trade or business, whether or not incorporated, which, together with the
Parent, is under common control, as described in Section 414(b) or (c) of the
Code.
Section 4.14. Employee and Labor Matters.
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(a) Except as set forth on Schedule 4.14, Parent is not a
party to or bound by any written employment agreements or commitments, other
than on an at-will basis. Parent is in compliance with all applicable laws
respecting the employment and employment practices, terms and conditions of
employment and wages and hours of its employees and is not engaged in any unfair
labor practice. All employees of Parent who work in the United States are
lawfully authorized to work in the United States according to federal
immigration laws. There is no labor strike or labor disturbance pending or, to
the knowledge of Parent, threatened against Parent with respect to the Business
and, during the past five years, Parent has not experienced a work stoppage.
(b) Except as set forth on Schedule 4.14, (i) Parent is not a
party to or bound by the terms of any collective bargaining agreement or other
union contract applicable to any employee of Parent and no such agreement or
contract has been requested by any employee or group of employees of Parent, nor
has there been any discussion with respect thereto by management of Parent with
any employees of Parent, (ii) Parent is not aware of any union organizing
activities or proceedings involving, or any pending petitions for recognition
of, a labor union or association as the exclusive bargaining agent for, or where
the purpose is to organize, any group or groups of employees of Parent, or (iii)
there is not currently pending, with regard to any of its facilities, any
proceeding before the National Labor Relations Board, wherein any labor
organization is seeking representation of any employees of Parent.
Section 4.15. Environmental Matters. Without in any manner limiting
any other representations and warranties set forth in this Agreement:
(a) Neither Parent nor any of its Business Facilities is in
violation of, or has violated, or has been or is in non-compliance with, any
Environmental Laws, including but not limited to in connection with the
ownership, use, maintenance or operation of, or conduct of the business of
Parent or any of its Business Facilities.
(b) Without in any manner limiting the generality of (a)above:
(i) Except in compliance with Environmental Laws
(including, without limitation, by obtaining necessary Environmental
Permits), no Materials of Environmental Concern (as defined in Exhibit
A) have been used, generated, stored, treated, or disposed of, or in
any other way released (and no release is threatened), on, under or
about any Business Facility (as defined in Exhibit A) or transferred or
transported to or from any Business Facility.
(ii) Parent and all of its Business Facilities have
and have timely filed applications for renewal of all Environmental
Permits and Parent and its Business Facilities are in compliance with
all terms and conditions of such Environmental Permits;
(iii) There are no Materials of Environmental Concern
on any Business Facility of Parent exceeding any standard or limitation
established, published or promulgated
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pursuant to Environmental Laws,
or which would require reporting to any Governmental Authority or
Remediation to comply with Environmental Laws (as defined in Exhibit
A);
(iv) To the knowledge of Parent, none of the off-site
locations where Materials of Environmental Concern generated from any
Business Facility of Parent or for which Parent has arranged for their
disposal, treatment or application, has been nominated or identified as
a facility which is subject to an existing or potential claim under
Environmental Laws which could be expected to result in an
Environmental Claim against Parent; and
(v) No current Business Facility of Parent contains
any asbestos containing materials which cannot be managed in place
without air monitoring, removal or encapsulation and which is not
managed under and in compliance with an operations and maintenance
program.
For purposes of this Section, "Parent" shall include any Entity which is, in
whole or in part, a predecessor of Parent and all of its former Subsidiaries and
their predecessors.
Section 4.16. Non-Competition Agreements. Except as set forth on
Schedule 4.16, neither Parent nor Merger Sub is a party to any agreement which
purports to restrict or prohibit either of them from, directly or indirectly,
engaging in any business currently engaged in by Parent. To Parent's knowledge,
none of Parent's or Merger Sub's shareholders, officers, directors, or key
employees is a party to any agreement which, by virtue of such person's
relationship with Parent, restricts Parent or any Subsidiary of Parent from,
directly or indirectly, engaging in any of the businesses described above.
Section 4.17. Title to Assets. Parent has good and marketable title in
fee simple to all its real property and good title to all its leasehold
interests and other properties, as reflected in the most recent balance sheet
included in the Parent Financial Statements, except for properties and assets
that have been disposed of in the ordinary course of business since the date of
the latest balance sheet included therein, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i)
liens for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not detract from the value, or
interfere with the present use or marketability of the property subject thereto
or affected thereby, or otherwise impair Parent's business operations (in the
manner presently carried on by Parent), or (iii) any lien securing any debt or
obligation described on Schedule 4.17 which is expressly referenced as being
secured. To the Parent's knowledge, all leases under which Parent leases any
real property have been delivered to the Company and are in good standing, valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event which with notice or lapse of
time or both would become a default by or on behalf of Parent or its
Subsidiaries, or by or on behalf of any third party.
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Section 4.18. Contracts. Except as set forth on Schedule 4.18, Parent
and Merger Sub have each performed in all material respects all of the
obligations required to be performed by it under each contract, agreement, plan
or commitment to which it is a party, including timely paying all interest on
its debt as such interest has become due and payable. Except as set forth on
Schedule 4.18, there are no counterclaims or offsets under any of such
contracts, agreements, plans or commitments.
Section 4.19. Brokers and Finders. Parent has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of Parent to pay any finder's fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby. There is no claim for payment by Parent of any investment
banking fees, finder's fees, brokerage or agent commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
Section 4.20. Intellectual Property. Parent has rights to use, whether
through ownership, licensing or otherwise, all patents, trademarks, service
marks, trade names, copyrights, software, trade secrets and other proprietary
rights and processes that are material to its business as now conducted
(collectively the "Parent Intellectual Property Rights"). Except as set forth on
Schedule 4.20, Parent does not own any patents. Parent has no knowledge of any
infringement by any other person of any of Parent Intellectual Property Rights,
and Parent has not entered into any agreement to indemnify any other party
against any charge of infringement of any of Parent Intellectual Property
Rights. Parent has not and does not violate or infringe any intellectual
property right of any other person, and Parent has not received any
communication alleging that it violates or infringes the intellectual property
right of any other person. Parent has not been sued for infringing any
intellectual property right of another person. There is no claim or demand of
any person pertaining to, or any proceeding which is pending or, to the
knowledge of Parent, threatened, that challenges the rights of Parent in respect
of any Parent Intellectual Property Rights, or that claims that any default
exists under any Parent Intellectual Property Rights. None of the Parent
Intellectual Property Rights is subject to any outstanding order, ruling,
decree, judgment or stipulation by or with any court, tribunal, arbitrator, or
other Governmental Authority.
Section 4.21. Relationships. Except as set forth on Schedule 4.21,
since January 1, 1998, Parent has not received notice from any customer,
supplier or any party to any Contract involving more than $50,000 annually with
Parent (each a "Parent Contract Party") that such customer, supplier or Parent
Contract Party intends to discontinue doing business with Parent, and since such
date, no customer, supplier or Parent Contract Party, has indicated any
intention (a) to terminate its existing business relationship with Parent or (b)
not to continue its business relationship with Parent, whether as a result of
the transactions contemplated hereby or otherwise. Except for the reorganization
of Parent on October 31, 1997, Parent has not entered into or participated in
any related party transaction during the past three years.
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Section 4.22. Certain Payments. Neither Parent nor, to the Parent's
knowledge, any shareholder, officer, director or employee of Parent has paid or
received or caused to be paid or received, directly or indirectly, in connection
with the business of Parent (a) any bribe, kickback or other similar payment to
or from any domestic or foreign government or agency thereof or any other person
or (b) any contribution to any domestic or foreign political party or candidate
(other than from personal funds of such shareholder, officer, director or
employee not reimbursed by Parent or as permitted by applicable law).
Section 4.23. Books and Records. The corporate minute books and other
corporate records of Parent are correct and complete in all material respects
and the signatures appearing on all documents contained therein are the true
signatures of the person purporting to have signed the same. All actions
reflected in said books and records were duly and validly taken in compliance
with the laws of the applicable jurisdiction and no meeting of the board of
directors of Parent or any committee thereof has been held for which minutes
have been prepared and are not contained in the minute books. To the extent that
they exist, all personnel files, reports, strategic planning documents,
financial forecasts, accounting and tax records and all other records of every
type and description that relate to the business of Parent have been prepared
and maintained in accordance with good business practices and applicable laws
and regulations. All such books and records are located in the offices of Parent
or Parent Existing Practices.
Section 4.24. Condition and Sufficiency of Assets. Except for certain
practice management software, firmware, microprocessing chips and other data
processing devices and services which are in the process of being replaced, all
buildings, improvements and equipment owned or leased by Parent are structurally
sound, are in good operating condition and repair (subject to normal wear and
tear) and are adequate for the uses to which they are being put, and none of
such buildings, improvements or equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost.
Section 4.25. Offering. Subject to the truth and accuracy of the
Investors' Certificates to be delivered by the Shareholders at Closing, the
offer and issuance of the Parent Common Stock as contemplated by this Agreement
is exempt from the registration requirements of the Securities Act and state
securities' laws, and neither Parent nor any agent acting on its behalf will
take any action hereafter that would cause the loss of such exemption.
Section 4.26. Staff Privileges. Each of the Parent Existing Practices
has staff privileges at one or more hospitals, and such staff privileges have
not been revoked, surrendered, suspended or terminated, and except for routine
recredentialing procedures, there are no disciplinary actions or other
proceedings pending or threatened that may result in any revocation, surrender,
suspension or termination of such staff privileges. In addition, to Parent's
knowledge, there are no, and have not been, any facts, conditions or incidents
that may result in any revocation, surrender, suspension or termination of such
staff privileges.
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Section 4.27. Fraud and Abuse. To the knowledge of Parent, Parent and
all individual physician practices which Parent manages as of the Closing Date
(the "Parent Existing Practices") have not engaged in any activities which are
prohibited under ss.1320a-7b of Title 42 of the United States Code or the
regulations promulgated thereunder, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including, but not limited to, the following: (i) knowingly and willfully making
or causing to be made a false statement or representation of a material fact in
any application for any benefit or payment; (ii) knowingly and willfully making
or causing to be made any false statement or representation of a material fact
for use in determining rights to any benefit or payment; (iii) any failure by a
claimant to disclose knowledge of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with the intent to fraudulently secure such benefit; and (iv)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash
or in kind, or offering to pay or receive such remuneration (A) in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (B) in return for purchasing, leasing or
ordering or arranging for, or recommending, purchasing, leasing or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
Section 4.28. Medicare, Medicaid, and Other Third-Party Payor Payment
Liabilities. To the knowledge of Parent, Parent and the Parent Existing
Practices do not have any liabilities (i) to any third party fiscal intermediary
or carrier administering any state Medicaid program or the federal Medicare
program, (ii) directly to any state Medicaid or the federal Medicare program, or
(iii) to any other third party payor for the recoupment of any amounts
previously paid to Parent or any predecessor to Parent by any such third-party
fiscal intermediary, carrier, Medicaid program, Medicare program, or third party
payor which exceed, individually or in the aggregate, $100,000. There are no
pending or, to the actual knowledge of Parent, threatened actions by any third
party fiscal intermediary or carrier administering any state Medicaid or the
federal Medicare program, by the Department of Health and Human Services, any
state Medicaid agency, or any third party payor to suspend payments to Parent.
Neither Parent nor any licensed employee of Parent (other than a physician in a
Parent Existing Practice) has been convicted of, or pled guilty or nolo
contendere to, patient abuse or negligence, or any other Medicare or Medicaid
related offense, and none of the foregoing persons has committed any offense
which is reasonably likely to serve as the basis for suspension or exclusion
from the Medicare and Medicaid programs.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as
follows:
Section 5.1. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas and has the
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requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the properties owned, leased, or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing
would not have, or could not reasonably be anticipated to have, individually or
in the aggregate, a Material Adverse Effect. True, accurate and complete copies
of the Company's Articles of Incorporation and Bylaws, each as amended and in
effect on the date hereof, have heretofore been delivered to Parent.
Section 5.2. Capitalization.
(a) The authorized capital stock of the Company consists of
51,000,000 shares of capital stock, being 50,000,000 of $0.001 par value common
stock and 1,000,000 of $0.001 par value serial senior preferred stock. As of the
date of this Agreement there are, and as of Closing there will be, 2,920,440
shares of Company Common Stock issued and outstanding and no other shares of
capital stock of the Company issued and outstanding. All of such issued and
outstanding shares of Company Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights and are free and clear of all
restrictions, liens, claims and encumbrances. No Subsidiary of the Company holds
any shares of the capital stock of the Company.
(b) Except as set forth in Section 5.2(a), and except as set
forth on Schedule 5.2(b), as of the date hereof, there are not outstanding (i)
any (A) shares of capital stock or other voting securities of the Company, (B)
securities of the Company convertible into or exchangeable for shares of capital
stock or other voting securities of the Company, (C) equity equivalents,
interests in the ownership or earnings, or other similar rights of or with
respect to the Company, (D) except for the obligations pursuant to this
Agreement, subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, debenture,
instrument or other agreement, obligating the Company or (to the knowledge of
the Company) any Shareholder to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of the Company or
obligating the Company or (to the knowledge of the Company) any Shareholder to
grant, extend or enter into any such agreement or commitment, (ii) obligations
of the Company or (to the knowledge of the Company) any Shareholder to
repurchase, redeem or otherwise acquire any securities referred to in clauses
(A) through (D) above, or (iii) any preemptive rights, rights of first refusal,
stock rights, co-sale or take along rights, or registration rights with respect
to any securities referred to in clauses (A) through (D) above. Except as set
forth on Schedule 5.2(b), there are no voting trusts, proxies or other
agreements or understandings to which the Company or (to the knowledge of the
Company) any Shareholder is a party or is bound with respect to the voting of
any shares of capital stock of the Company.
Section 5.3. Subsidiaries. Company does not have any Subsidiaries, nor
does the Company hold any equity interest in or control (directly or indirectly,
through the ownership of securities, by
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contract, by proxy, alone or in combination with others, or otherwise) any
corporation, limited liability company, partnership, business organization or
other Person.
Section 5.4. Authority; Non-Contravention; Approvals.
(a) The Company has full corporate power and authority to
execute and deliver this Agreement and, subject to the Company Required
Statutory Approvals (as defined in Section 5.4(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the Board
of Directors of the Company and the Shareholders, and no other corporate
proceedings on the part of the Company or the Shareholders are necessary to
authorize the execution and delivery of this Agreement or the consummation by
the Company of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company, and, assuming the due authorization,
execution and delivery hereof by Parent and Merger Sub, constitutes a valid and
legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby in accordance with the terms hereof do not and will not, to the Company's
knowledge, violate or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under any of the
terms, conditions or provisions of (i) the Articles of Incorporation or Bylaws
of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or Governmental
Authority applicable to the Company, or any of its respective properties or
assets (assuming compliance with the matters referred to in Section 5.4(c)), or
(iii) any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which the Company is now a party or by which the Company or any
of its respective properties or assets may be bound or affected except, in the
case of clauses (ii) and (iii), for matters as would not have, or could not
reasonably be anticipated to have, individually or in the aggregate, a Material
Adverse Effect or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
(c) Except for the Merger Filings in connection with the
Merger (the "Company Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority (including, without limitation,
federal and state securities' regulatory bodies) is necessary for the execution
and delivery of this Agreement by the Company and the Shareholders or the
consummation by the Company and the Shareholders of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made
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or obtained, as the case may be, would not have, or could not reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse Effect
or materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement.
Section 5.5. Company Financial Information. The Company has furnished
Parent with copies of the unaudited balance sheet (the "Company Balance Sheet")
of the Company as of December 31, 1998 (the "Company's Balance Sheet Date"), and
the related statements of earnings for the two (2) years then ended
(collectively, the "Company Financial Statements"), all of which are attached
hereto as part of Schedule 5.5. Except as described on Schedule 5.5, the
Company's Financial Statements are true and accurate and fairly present the
financial position of the Company as of the dates thereof and the results of
operations of the Company for the periods then ended, in conformity with GAAP
and on a basis consistent with prior periods, except as otherwise noted therein.
Except as described on Schedule 5.5, all interim Financial Statements provided
to the Parent are true and accurate and fairly present or will present, as the
case may be, the financial position of the Company as of the dates thereof and
the results of operation of the Company for the periods then ended on a basis
consistent with prior periods.
Section 5.6. Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 5.6, the Company has not incurred any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature, except
liabilities, obligations or contingencies (i) which are accrued or reserved
against the Company Financial Statements or (ii) which were incurred after
December 31, 1998, and were incurred in the ordinary course of business and
consistent with past practices.
Section 5.7. Absence of Certain Changes or Events. Other than as
contemplated by this Agreement or as set forth on Schedule 5.7, the Company has
not, since the Company Balance Sheet Date:
(i) incurred any material obligation or liability
(absolute, accrued, contingent, insured or otherwise), except in
connection with the performance of this Agreement, other than in the
ordinary course of business;
(ii) discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent, insured or otherwise) other than (1)
liabilities shown or reflected on the Company Balance Sheet or (2)
liabilities incurred since the date of the Company Balance Sheet in the
ordinary course of business;
(iii) increased or established any reserve for taxes
or any other liability on its books or otherwise provided therefor,
except as may have been required due to ordinary income or operations
of the Company since the date of the Company Balance Sheet;
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(iv) mortgaged, pledged or subjected to any lien,
charge or other encumbrance any of the assets of the Company, tangible
or intangible, other than in the ordinary course of business;
(v) sold or transferred any of the assets of the
Company or, to the Company's knowledge, cancelled any debts or claims
or waived any rights, other than in the ordinary course of business;
(vi) granted any general or uniform increase in the
rates of pay of employees or any substantial increase in salary payable
or to become payable by the Company to any officer or employee,
consultant or agent (other than normal merit increases) or, by means of
any bonus or pension plan, contract or other commitment, increased the
compensation of any officer, employee, consultant or agent, other than
in the ordinary course of business;
(vii) made any declaration, setting aside or payment
of dividends or other distributions on or in respect of shares of the
capital stock of the Company, or any direct or indirect redemption,
retirement, purchase or other acquisition by the Company of any such
shares;
(viii) changed the accounting methods followed by
the Company;
(ix) terminated (except through performance) or,
to the Company's knowledge, received notice of
termination of any material agreement or commitment;
(x) authorized any capital expenditures other
than in the ordinary course of business;
(xi) except for this Agreement and any other
agreement executed and delivered pursuant to this Agreement, entered
into any material transaction other than in the ordinary course of
business;
(xii) to the Company's knowledge, experienced damage,
destruction or loss (whether or not covered by insurance) materially
and adversely affecting any of its properties, assets or business, or
experienced any other material adverse change in its financial
condition, assets, liabilities or business; or
(xiii) entered into any agreement to do or
resulting in any of the foregoing.
Section 5.8. Litigation. Except as set forth on Schedule 5.8, and
except for malpractice claims that have not been disclosed to the Company but
are asserted or may be asserted against the Company Existing Practices, there
are no claims, actions, suits, proceedings (arbitration or otherwise) or
investigations pending or, to the Company's knowledge, threatened against the
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Company or the Company Existing Practices, at law or in equity, in any court or
before or by any Governmental Authority, and, to the Company's knowledge, there
are no, and have not been any, facts, conditions or incidents that are
reasonably likely to result in any such actions, suits, proceedings (arbitration
or otherwise) or investigations. To the Company's knowledge, the Company and the
Company Existing Practices are not in default in respect of any judgment, order,
writ, injunction or decree of any court or other Governmental Authority. Except
as set forth on Schedule 5.8, to the knowledge of Company, there have been no
disciplinary, revocation or suspension proceedings or similar types of claims,
actions or proceedings, hearings or investigations against the Company and the
Company Existing Practices, and the Company does not know of any facts,
conditions or incidents that may result in any such proceedings, claims,
actions, hearings or investigations.
Section 5.9. Accounts Receivable. The Company Balance Sheet reflects
the amount, as of the Company Balance Sheet Date and determined in conformity
with GAAP and on a basis consistent with the past practices employed by the
Company, of the Company's and the Company Existing Practices current accounts
receivable, net of contractual adjustments arising out of third-party payor
arrangements and allowances for bad debts ("Company Accounts Receivable").
Schedule 5.9 reflects the amount of Company Accounts Receivable as of June 30,
1999. For all Company Accounts Receivable reflected on the Company Balance Sheet
there is a corresponding accounts receivable owed to the Company. As of the
Closing Date, (i) the Company knows of no reason that the Company Accounts
Receivable shall not be owned solely by the Company or (ii) the Company has a
security agreement with the Company Existing Practices pursuant to which the
Company Existing Practices have granted a security interest to the Company in
the Company Accounts Receivable in the amounts indicated in the Company Balance
Sheet which represent amounts owed from the Company Existing Practices for
services previously rendered. Except as set forth on Schedule 5.9, the Company
Accounts Receivable (i) are valid, binding and legally enforceable obligations
and are, subject to the preceding sentence, owned by the Company (or, prior to
the Closing Date, the Company Existing Practices) free and clear of all liens
and encumbrances, (ii) will not, to the Company's knowledge, be subject to any
offset, counterclaim or other adverse claim or defense, except for contractual
adjustments arising out of third party payor arrangements, and (iii) may, to the
extent permitted by law, be sold and transferred to the Parent. The Company
Accounts Receivable arose in the ordinary course of business consistent with
past practices. The Company maintains its accounting records in sufficient
detail to substantiate the Company Accounts Receivable reflected on the Company
Balance Sheet and has given and will give to Parent full and complete access to
those records, including the right to make copies therefrom. Since December 31,
1998, the Company has not changed any principle or practice with respect to the
recordation of accounts receivable, or any material collection, discount or
write-off policy or procedure, and the Company has not sold or transferred any
Company Accounts Receivable. To the Company's knowledge, the Company is in
substantial compliance with the terms and conditions of such third-party payor
arrangements.
Section 5.10. No Violation of Law; Compliance with Agreements.
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(a) To the Company's knowledge, the Company is not in
violation of and has not been given notice or been charged with any violation
of, any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable Environmental Law, the Occupational Safety
and Health Act, the Americans with Disabilities Act and state and federal
escheat laws) of any governmental or regulatory body or authority. To the
Company's knowledge, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any governmental
or regulatory body or authority indicated an intention to conduct the same.
(b) Except as disclosed on Schedule 5.10(b), to the Company's
knowledge, the Company is not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with lapse of time or action by a third party, could result in a default
under, (a) the charter, bylaws or similar organizational instruments of the
Company or (b) any contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which the
Company is a party or by which it is bound or to which any of its property is
subject.
(c) The Company and the Company Existing Practices have all
permits (including without limitation Environmental Permits), licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals required or necessary to conduct its business as
presently conducted (collectively, the "Company Permits"). To the Company's
knowledge, the Company and the Company Existing Practices are not in violation
of the terms of any Company Permit. All such permits, licenses, orders and
approvals are in full force and effect, and no suspension or cancellation of any
of them is pending or, to the knowledge of the Company, threatened. None of such
permits, licenses, orders or approvals, and no application for any of such
permits, licenses, orders or approvals will be adversely affected by the
consummation of the transactions contemplated by this Agreement. The Company and
(to the knowledge of the Company) the Company Existing Practices have not been
disciplined, sanctioned or excluded from the Medicare program and have not been
subject to any plan of correction imposed by any professional review body.
Section 5.11. Insurance. Schedule 5.11 hereto sets forth a list of all
insurance policies owned by the Company or by which the Company or any of its
properties or assets is covered against present losses, all of which are now in
full force and effect. No insurance has been refused with respect to any
operations, properties or assets of the Company nor has coverage of any
insurance been limited by any insurance carrier that has carried, or received
any application for, any such insurance during the last three years. No
insurance carrier has denied any claims made against any of the policies listed
on Schedule 5.11 hereto.
Section 5.12. Taxes.
(a) Except as set forth on Schedule 5.12, (i) the Company has
(x) duly filed (or there has been filed on its behalf) with the appropriate
taxing authorities all Tax Returns, required
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to be filed by it on or prior to
the date hereof, and (y) duly paid in full or made adequate provision therefor
on its financial statements in accordance with GAAP (or, except as set forth on
Schedule 5.12, there has been paid or adequate provision has been made on its
behalf) for the payment of all Taxes) for all periods ending through the date
hereof; (ii) all such Tax Returns filed by or on behalf of the Company are true,
correct and complete in all material respects; (iii) the Company is not the
beneficiary of any extension of time within which to file any Tax Return; (iv)
no claim has ever been made by any authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction; (v) the liabilities and reserves for Taxes reflected in the most
recent balance sheet included in the Company Financial Statements to cover all
Taxes for all periods ending at or prior to the date of such balance sheet have
been properly determined in accordance with GAAP, and there is no material
liability for Taxes for any period beginning after such date other than Taxes
arising in the ordinary course of business; (vi) there are no liens for Taxes
upon any property or assets of the Company, except for liens for Taxes not yet
due; (vii) the Company has not made any change in accounting methods since
December 31, 1998; (viii) the Company has not received a ruling from any taxing
authority or signed an agreement with any taxing authority; (ix) the Company has
complied in all respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441 and 1442 of the Code, as amended
or similar provisions under any foreign laws) and has, within the time and the
manner prescribed by law, withheld and paid over to the appropriate taxing
authority all amounts required to be so withheld and paid over under all
applicable laws in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party; (x) no
federal, state, local or foreign audits or other administrative proceedings or
court proceedings are presently pending with regard to any Taxes or Tax Returns
of the Company, and, as of the date of this Agreement, the Company has not
received a written notice of any pending audits or proceedings; (xi) no
shareholder or director or officer (or employee responsible for Tax matters) of
the Company expects any authority to assess any additional Taxes for any period
for which Tax Returns have been filed; (xii) the federal income Tax Returns of
the Company have not been examined by the IRS; (xiii) no adjustments or
deficiencies relating to Tax Returns of the Company have been proposed, asserted
or assessed by any taxing authority, except for such adjustments or deficiencies
which have been fully paid or finally settled; and (xiv) the Company has
delivered to the Parent true, correct and complete copies of all federal income
Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by the Company since December 31, 1997.
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(b) There are no outstanding requests, agreements, consents or
waivers to extend the statute of limitations applicable to the assessment of any
Taxes or deficiencies against the Company, and no power of attorney granted by
the Company with respect to any Taxes is currently in force. The Company is not
a party to any agreement providing for the allocation or sharing of Taxes. The
Company has not, with regard to any assets or property held, acquired or to be
acquired by it, filed a consent to the application of Section 341(f) of the
Code, or agreed to have Section 341(f)(2) of the Code apply to any disposition
of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company. The Company (i) has not been a member of an
affiliate group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) and (ii) has no liability for
Taxes of any person (other than any of the Company and its Subsidiaries) under
Section 1.1502-6 of the United States Treasury Regulations (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
Section 5.13. Employee Benefit Plans.
(a) Each Company Plan and each Company Benefit Program (as
such terms are defined below) is listed on Schedule 5.13 hereto. Except as set
forth on Schedule 5.13, no Company Plan or Company Benefit Program is or has
been (i) covered by Title IV of ERISA, (ii) subject to the minimum funding
requirements of Section 412 of the Code or (iii) a "multi-employer plan" as
defined in Section 3(37) of ERISA, nor has the Company contributed to, or ever
had any obligation to contribute to, any multi-employer plan. Each Company Plan
and Company Benefit Program intended to be qualified under Section 401(a) of the
Code is designated as a tax-qualified plan on Schedule 5.13 and is so qualified.
No Company Plan or Company Benefit Program provides for any retiree health
benefits for any employees or dependents of the Company other than as required
by COBRA. There are no claims pending with respect to, or under, any Company
Plan or any Company Benefit Program, other than routine claims for benefits, and
there are no disputes or litigation pending or, to the knowledge of the Company,
threatened, with respect to any such Company Plans or Company Benefit Programs.
(b) The Company has heretofore delivered to Parent true
and correct copies of the following, if any:
(i) each Company Plan and each Company Benefit
Program listed on Schedule 5.13, all amendments thereto as of the date
hereof and all current summary plan descriptions provided to employees
regarding the Company Plans and Company Benefit Programs;
(ii) each trust agreement and annuity contract (or
any other funding instruments) pertaining to any of the Company Plans
or Company Benefit Programs, including all amendments to such documents
to the date hereof;
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(iii) each management or employment contract or
contract for personal services and a complete description of any
understanding or commitment between the Company and any officer,
consultant, director, employee or independent contractor of the
Company; and
(iv) a complete description of each other plan,
policy, contract, program, commitment or arrangement providing for
bonuses, deferred compensation, retirement payments, profit sharing,
incentive pay, commissions, hospitalization or medical expenses or
insurance or any other benefits for any officer, consultant, director,
annuitant, employee or independent contractor of the Company as such or
members of their families (other than directors' and officers'
liability policies), whether or not insured (a "Company Benefit
Program"). For purposes of this Agreement, "Company Plan" means an
"employee benefit plan" (as defined in Section 3(3) of ERISA) which is
or has been established or maintained, or to which contributions are or
have been made, by the Company or by any trade or business, whether or
not incorporated, which, together with the Company, is under common
control, as described in Section 414(b) or (c) of the Code.
(c) Each Company Plan and Company Benefit Program has been
maintained and administered in compliance with its terms and in accordance with
all applicable laws, rules and regulations. The Company has no commitment or
obligation to establish or adopt any new or additional Company Plans or Company
Benefit Programs or to increase the benefits under any existing Company Plan or
Company Benefit Program.
(d) Except as set forth in Schedule 5.13, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) result in any payment to be made by
the Company, including, without limitation, severance, unemployment
compensation, golden parachute (defined in Section 280G of the Code) or
otherwise, becoming due to any employee of the Company, or (ii) increase any
benefits otherwise payable under any Company Plan or any Company Benefit
Program. The Company does not have any severance arrangements with any of its
employees as of the Closing Date.
Section 5.14. Employee and Labor Matters.
(a) The Company has provided Parent with a true and complete
list dated as of June 11, 1999 (the "Employee Schedule ") of all employees of
the Company listing the title or position held, base salary or wage rate and any
bonuses, commissions, profit sharing, the Company's vehicles, club memberships
or other compensation or perquisites payable, all employee benefits received by
such employees and any other material terms of any written agreement with the
Company. Except as set forth on Schedule 5.14, as of the date of this Agreement
and as of the Closing Date, the Company has not entered into any agreement or
agreements pursuant to which the combined annual payroll of the Company,
including projected pay increases, overtime and fringe benefit costs, required
to operate its business (including all administrative and support personnel)
would be greater than as listed on the Employee Schedule.
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(b) Except as set forth on Schedule 5.14, the Company is not a
party to or bound by any written employment agreements or commitments, other
than on an at-will basis. The Company is in compliance with all applicable laws
respecting the employment and employment practices, terms and conditions of
employment and wages and hours of its employees and is not engaged in any unfair
labor practice. All employees of the Company who work in the United States are
lawfully authorized to work in the United States according to federal
immigration laws. There is no labor strike or labor disturbance pending or, to
the knowledge of the Company, threatened against the Company with respect to the
Business and, during the past five years, the Company has not experienced a work
stoppage.
(c) Except as set forth on Schedule 5.14, (i) the Company is
not a party to or bound by the terms of any collective bargaining agreement or
other union contract applicable to any employee of the Company and no such
agreement or contract has been requested by any employee or group of employees
of the Company, nor has there been any discussion with respect thereto by
management of the Company with any employees of the Company, (ii) the Company is
not aware of any union organizing activities or proceedings involving, or any
pending petitions for recognition of, a labor union or association as the
exclusive bargaining agent for, or where the purpose is to organize, any group
or groups of employees of the Company, or (iii) there is not currently pending,
with regard to any of its facilities, any proceeding before the National Labor
Relations Board, wherein any labor organization is seeking representation of any
employees of the Company.
Section 5.15. Environmental Matters. Without in any manner limiting
any other representations and warranties set forth in this Agreement:
(a) Neither the Company nor any of its Business Facilities is
in violation of, or has violated, or has been or is in non-compliance with, any
Environmental Laws, including but not limited to in connection with the
ownership, use, maintenance or operation of, or conduct of the business of the
Company or any of its Business Facilities.
(b) Without in any manner limiting the generality of (a) above:
(i) Except in compliance with Environmental Laws
(including, without limitation, by obtaining necessary Environmental
Permits), no Materials of Environmental Concern (as defined in Exhibit
A) have been used, generated, stored, treated, or disposed of, or in
any other way released (and no release is threatened), on, under or
about any Business Facility (as defined in Exhibit A) or transferred or
transported to or from any Business Facility.
(ii) The Company and all of its Business Facilities
have and have timely filed applications for renewal of all
Environmental Permits and the Company and its Business Facilities are
in compliance with all terms and conditions of such Environmental
Permits;
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(iii) There are no Materials of Environmental Concern
on any Business Facility of the Company exceeding any standard or
limitation established, published or promulgated pursuant to
Environmental Laws, or which would require reporting to any
Governmental Authority or Remediation to comply with Environmental Laws
(as defined in Exhibit A);
(iv) To the knowledge of the Company, none of the
off-site locations where Materials of Environmental Concern generated
from any Business Facility of the Company or for which the Company has
arranged for their disposal, treatment or application, has been
nominated or identified as a facility which is subject to an existing
or potential claim under Environmental Laws which could be expected to
result in an Environmental Claim against the Company; and
(v) No current Business Facility of the Company
contains any asbestos containing materials which cannot be managed in
place without air monitoring, removal or encapsulation and which is not
managed under and in compliance with an operations and maintenance
program.
For purposes of this Section, the "Company" shall include any Entity which is,
in whole or in part, a predecessor of the Company and all of its former
Subsidiaries and their predecessors.
Section 5.16. Non-Competition Agreements. Except as set forth on
Schedule 5.16, and except as required by this Agreement, neither the Company nor
(to the Company's knowledge) any Shareholder is a party to any agreement which
purports to restrict or prohibit any of them from, directly or indirectly,
engaging in any business currently engaged in by the Company. To the Company's
knowledge, none of the Company's shareholders, officers, directors, or key
employees is a party to any agreement which, by virtue of such person's
relationship with the Company, restricts the Company or any Subsidiary of the
Company from, directly or indirectly, engaging in any of the businesses
described above.
Section 5.17. Title to Assets. The Company has good and marketable
title in fee simple to all its real property and good title to all its leasehold
interests and other properties, as reflected in the most recent balance sheet
included in the Company Financial Statements, except for properties and assets
that have been disposed of in the ordinary course of business since the date of
the latest balance sheet included therein, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i)
liens for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not detract from the value, or
interfere with the present use or marketability of the property subject thereto
or affected thereby, or otherwise impair the Company's business operations (in
the manner presently carried on by the Company), or (iii) any lien securing any
debt or obligation described on Schedule 5.17 which is expressly referenced as
being secured. To the Company's knowledge, all leases under which the Company
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leases any real property have been delivered to Parent and are in good standing,
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event which with notice or
lapse of time or both would become a default by or on behalf of the Company or
its Subsidiaries, or by or on behalf of any third party.
Section 5.18. Contracts, Agreements, Plans and Commitments. Schedule
5.18 hereto sets forth a complete list of the following contracts, agreements,
plans and commitments (collectively, the "Contracts") to which the Company is a
party or by which the Company or any of its properties is bound as of the date
hereof:
(a) any contract, commitment or agreement that involves
aggregate expenditures by the Company of more than
$10,000 per year;
(b) any contract or agreement (including any such contracts or
agreements entered into with any Governmental Authority) relating to the
maintenance or operation of the business that involves aggregate expenditures by
the Company of more than $10,000;
(c) any indenture, loan agreement or note under which the
Company has outstanding indebtedness, obligations or
liabilities for borrowed money;
(d) any lease or sublease for the use or occupancy of
real property;
(e) any agreement that restricts the right of the Company
to engage in any type of business;
(f) any guarantee, direct or indirect, by any person of
any contract, lease or agreement entered into by the
Company;
(g) any partnership, joint venture or construction and
operation agreement;
(h) any agreement of surety, guarantee or indemnification
with respect to which the Company is the obligor, outside of the ordinary course
of business;
(i) any contract that requires the Company to pay for goods or
services substantially in excess of its estimated needs for such items or the
fair market value of such items;
(j) any contract, agreement, agreed order or consent agreement
that requires the Company to take any actions or incur expenses to remedy
non-compliance with any Environmental Law; and
(k) any other contract material to the Company or its
business.
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True, correct and complete copies of the Contracts have been delivered to or
made available for inspection by Parent. All the Contracts (i) were duly and
validly executed and delivered by the Company and (to the knowledge of the
Company) the other parties thereto and (ii) are valid and in full force and
effect. Except as set forth on Schedule 5.18, the Company has performed all
material obligations required under the Contracts to have been performed by it
prior to the date hereof, including timely paying all interest on its debt as
such interest has become due and payable. Except as set forth on Schedule 5.18,
there are no counterclaims or offsets under any of the Contracts. The
consummation of the Merger will vest in the Survivor Corporation all rights and
benefits under the Contracts and the right to operate the Company's business and
assets under the terms of the Contracts in the manner currently operated and
used by the Company; provided, however, that the Company makes no such
representation regarding Contracts to which the Company Existing Practices are a
party. Schedule 5.18 does not include either amendments proposed by Parent to
the Company's Existing Management Agreements or the Share Exchange Agreements
expected to be executed by the physician owners of the Company Existing
Practices in replacement of the existing Share Exchange Agreements. The Company
has provided to Parent copies of all managed care contracts in its possession to
which the Company Existing Practices are parties. Except as set forth on
Schedule 5.18, there are no other side letters (except as contemplated by this
Agreement), oral agreements or any other agreements that conflict with the terms
of the Company's Existing Management Agreements. The Company has no knowledge of
any violation of any of the terms of such contracts by the Company Existing
Practices.
Section 5.19. Section 368 Representations.
(a) Except for those share exchange agreements described on
Schedule 5.19(a) (the "Share Exchange Agreements"), the Company is not aware of
any plan or intention by any Shareholder who is anticipated to receive 1% or
more of the total number of shares of Parent Common Stock to be issued pursuant
to the Merger to dispose of such shares.
(b) Neither Parent nor Merger Sub will assume any debts or
obligations of the holders of the Company Common Stock as part of the Merger.
(c) Except as described on Schedule 5.19(c), there have not
been any sales or redemptions of the Company's capital stock in contemplation of
the Merger.
(d) The Company and (to the Company's knowledge) the
Shareholders will pay their own expenses which are incurred in connection with
the Merger.
(e) The Company has not disposed of any assets (either as a
dividend or otherwise) constituting more than 10% of the fair market value of
all of its assets (ignoring any liabilities) at any time either during the past
twelve months or in contemplation of the Merger.
(f) The Company is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
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(g) The Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
Section 5.20. Brokers and Finders. The Company has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company to pay any finder's fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby. There is no claim for payment by the Company of any
investment banking fees, finder's fees, brokerage or agent commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby.
Section 5.21. Intellectual Property. The Company has rights to use,
whether through ownership, licensing or otherwise, all patents, trademarks,
service marks, trade names, copyrights, software, trade secrets and other
proprietary rights and processes that are material to its business as now
conducted (collectively the "Company Intellectual Property Rights"). The Company
does not own any patents. The Company has no knowledge of any infringement by
any other person of any of the Company Intellectual Property Rights, and the
Company has not entered into any agreement to indemnify any other party against
any charge of infringement of any of the Company Intellectual Property Rights.
The Company has not and does not violate or infringe any intellectual property
right of any other person, and the Company has not received any communication
alleging that it violates or infringes the intellectual property right of any
other person. The Company has not been sued for infringing any intellectual
property right of another person. There is no claim or demand of any person
pertaining to, or any proceeding which is pending or, to the knowledge of the
Company, threatened, that challenges the rights of the Company in respect of any
Company Intellectual Property Rights, or that claims that any default exists
under any Company Intellectual Property Rights. To the Company's knowledge, no
Company Intellectual Property Right is subject to any outstanding order, ruling,
decree, judgment or stipulation by or with any court, tribunal, arbitrator, or
other Governmental Authority.
Section 5.22. Relationships. Since January 1, 1998, the Company has not
received notice from any customer, supplier or any party to any Contract
involving more than $15,000 annually with the Company (each a "Company Contract
Party") that such customer, supplier or Company Contract Party intends to
discontinue doing business with the Company, and since such date, no customer,
supplier or Company Contract Party, has indicated any intention (a) to terminate
its existing business relationship with the Company or (b) not to continue its
business relationship with the Company, whether as a result of the transactions
contemplated hereby or otherwise. The Company has not entered into or
participated in any related party transaction during the past three years.
Section 5.23. Certain Payments. Neither the Company nor, to the
Company's knowledge, any shareholder, officer, director or employee of the
Company has paid or received or caused to be paid or received, directly or
indirectly, in connection with the business of the Company (a) any bribe,
kickback or other similar payment to or from any domestic or foreign government
or agency thereof
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or any other person or (b) any contribution to any domestic or foreign political
party or candidate (other than from personal funds of such shareholder, officer,
director or employee not reimbursed by the Company or as permitted by applicable
law).
Section 5.24. Books and Records. The corporate minute books, and other
corporate records of the Company are correct and complete in all material
respects and the signatures appearing on all documents contained therein are the
true signatures of the person purporting to have signed the same. All actions
reflected in said books and records were duly and validly taken in compliance
with the laws of the applicable jurisdiction and no meeting of the board of
directors of the Company or any committee thereof has been held for which
minutes have not been prepared and are not contained in the minute books. To the
extent that they exist, all personnel files, reports, strategic planning
documents, financial forecasts, accounting and tax records and all other records
of every type and description that relate to the business of the Company have
been prepared and maintained in accordance with good business practices and
applicable laws and regulations. All such books and records are located in the
offices of the Company or of the Company Existing Practices.
Section 5.25. Condition and Sufficiency of Assets. Except as described
in Section 5.31, all buildings, improvements and equipment owned or leased by
the Company are structurally sound, are in good operating condition and repair
(subject to normal wear and tear) and are adequate for the uses to which they
are being put, and none of such buildings, improvements or equipment is in need
of maintenance or repairs except for ordinary, routine maintenance and repairs
that are not material in nature or cost.
Section 5.26. Offering. Subject to the truth and accuracy of the
Investors' Certificates to be delivered by the Shareholders at Closing, the
offer and issuance of Parent Common Stock as contemplated by this Agreement is
exempt from the registration requirements of the Securities Act, and neither the
Company nor any agent acting on its behalf will take any action hereafter that
will cause the loss of such exemption.
Section 5.27. Staff Privileges. Schedule 5.27 lists all hospitals at
which each Company Existing Practice has staff privileges and the extent of such
privileges. Such staff privileges have not been revoked, surrendered, suspended
or terminated, and except for routine recredentialing procedures, there are no
disciplinary actions or other proceedings pending or threatened that may result
in any revocation, surrender, suspension or termination of such staff
privileges. In addition, to Company's knowledge, there are no, and have not
been, any facts, conditions or incidents that may result in any revocation,
surrender, suspension or termination of such staff privileges.
Section 5.28. Fraud and Abuse. To the Company's knowledge, the Company
and the Company Existing Practices have not engaged in any activities which are
prohibited under ss.1320a-7b of Title 42 of the United States Code or the
regulations promulgated thereunder, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including, but not limited to, the following: (i) knowingly and willfully making
or causing to be made a false statement or representation of a material fact in
any application for any benefit or payment; (ii) knowingly and willfully making
or causing to be made any false statement or representation of a material fact
for use in determining rights to any benefit or payment;
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(iii) any failure by a
claimant to disclose knowledge of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with the intent to fraudulently secure such benefit; and (iv)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash
or in kind, or offering to pay or receive such remuneration (A) in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (B) in return for purchasing, leasing or
ordering or arranging for, or recommending, purchasing, leasing or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
Section 5.29. Medicare, Medicaid, and Other Third-Party Payor Payment
Liabilities. To the Company's knowledge, the Company and the Company Existing
Practices do not have any liabilities (i) to any third party fiscal intermediary
or carrier administering any state Medicaid program or the federal Medicare
program, (ii) directly to any state Medicaid or the federal Medicare program, or
(iii) to any other third party payor for the recoupment of any amounts
previously paid to Company or any predecessor to Company by any such third-party
fiscal intermediary, carrier, Medicaid program, Medicare program, or third party
payor which exceed, individually or in the aggregate, $30,000. There are no
pending or, to the Company's knowledge, threatened actions by any third party
fiscal intermediary or carrier administering any state Medicaid or the federal
Medicare program, by the Department of Health and Human Services, any state
Medicaid agency, or any third party payor to suspend payments to the Company.
Neither the Company nor any licensed employee of the Company (other than a
physician in a Company Existing Practice) has been convicted of, or pled guilty
or nolo contendere to, patient abuse or negligence, or any other Medicare or
Medicaid related offense, and none of the foregoing persons has committed any
offense which is reasonably likely to serve as the basis for suspension or
exclusion from the Medicare and Medicaid programs.
Section 5.30. Bank Accounts; Powers of Attorney. The Company has set
forth on Schedule 5.30 (i) the name of each bank, savings and loan or other
financial institution in which the Company has any account or safe deposit box,
the style and number of each such account or safe deposit box and the names of
all persons authorized to draw thereon or have access thereto, and (ii) the name
of each person holding a general or special power of attorney from the Company
and a summary of the terms thereof.
Section 5.31. Year 2000 Compliance. The Company has not completed an
analysis to determine the extent to which its business and operations are Year
2000 Compliant (as hereinafter defined). The Company has determined, however,
that it is not, to the best of its knowledge, Year 2000 Compliant with respect
to the items disclosed on Schedule 5.31 hereto which items do not represent an
exhaustive list of instances in which the Company is not or may not be Year 2000
Compliant. "Year 2000 Compliant" means as to any person or entity that all
software, firmware, microprocessing chips and other data processing devices and
services (both as a recipient and as a
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provider), capabilities and facilities utilized by, and material to the business
operations or financial condition of, that person or entity will be able to
record all calendar dates (whether before, in and after the year 2000) correctly
with four-digit year processing and will be able to communicate with other
applicable systems to accept any two-digit year data in a manner that resolves
any ambiguities as to century in a properly defined manner.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. Conduct of Business Pending the Merger. Except as set
forth on Schedule 6.1, after the date hereof and prior to the Closing Date, each
of Parent and the Company agrees that it shall (unless otherwise permitted by
Parent or Company as applicable, in writing):
(a) conduct its businesses in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) amend or propose to amend its charter or bylaws,
(ii) split, combine, reorganize, reclassify, recapitalize or take any similar
action with respect to its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property or
otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional share of, or any options, warrants or
rights of any kind to acquire any share of, its capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock;
(d) not (i) incur or become contingently liable with respect
to any indebtedness for borrowed money, (ii) redeem, purchase, acquire or offer
to redeem, purchase or acquire any shares of its capital stock or any options,
warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock, (iii) make any
acquisition of any assets or businesses other than expenditures at fair market
value for fixed or capital assets in the ordinary course of business not
exceeding $10,000 in any instance or $50,000 in the aggregate, (iv) sell,
pledge, dispose of or encumber any assets or businesses other than sales in the
ordinary course of business, and in all cases such sale must be for fair market
value at the time of sale or (v) enter into any contract, agreement, commitment
or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of their respective
present officers and key employees, and preserve the goodwill and business
relationships with customers and others having business relationships with them
and not engage in any action, directly or indirectly, with the intent to
adversely impact the transactions contemplated by this Agreement;
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(f) not enter into or amend any employment, severance, special
pay arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees;
(g) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law;
(h) use commercially reasonable efforts to maintain with
financially responsible insurance companies insurance on its tangible assets and
its businesses in such amounts and against such risks and losses as are
consistent with past practice;
(i) not make, change or revoke any material Tax election
or make any material agreement or settlement regarding
Taxes with any taxing authority;
(j) not make any change in the Company's financial, Tax
or accounting methods, practices or policies, or in any
assumption underlying such a method, practice or policy;
(k) give prompt written notice to Parent of the commencement
of any Environmental Claim, or non-routine inspection by any Governmental
Authority with responsibility for enforcing or implementing any applicable
Environmental Laws, and provide to Parent such information as Parent may
reasonably request regarding such Environmental Claim, any developments in
connection therewith, and, as applicable, the Company's anticipated or actual
response thereto;
(l) use its commercially reasonable efforts to cause the
transfer of Environmental Permits (on the same terms and conditions), and any
financial assurance required thereunder to Parent or Merger Sub as may be
necessary under applicable Environmental Laws in connection with the
consummation of the transactions under this Agreement to allow Parent or Merger
Sub to conduct the business of the Company, as currently conducted;
(m) not enter into or assume any contracts or agreements
having a value or imposing an obligation upon the Company in excess of $10,000
annually and all contracts or agreements having a value to or imposing an
obligation on the Company that have remaining obligations of $50,000 or more,
regardless of the annual payment;
(n) maintain its books of account and records in the
usual, regular and ordinary manner consistent with past policies and practice;
(o) not compromise, settle, grant any waiver or release
relating to or otherwise adjust any litigation or claims of any nature
whatsoever pending against the Company;
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(p) not take any action or omit to take any action, which
action or omission would result in a breach of any of
the representations and warranties set forth in this Agreement; and
(q) not make or commit to make any capital expenditures,
except for capital expenditures in the ordinary course of business not in excess
of $50,000 in the aggregate.
Section 6.2. Control of the Company's Operations. Nothing contained in
this Agreement shall give to Parent or the Company, directly or indirectly,
rights to control or direct the other party's operations prior to the Effective
Time. Prior to the Effective Time, Parent and the Company shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision of its operations.
Section 6.3. Other Offers. Except in connection with the transactions
contemplated by this Agreement, from and after the date hereof, the Company
shall not, and shall not permit any of the Company's officers, directors,
employees, Affiliates, representatives or agents to, directly or indirectly, (i)
solicit, initiate or knowingly encourage any offer or proposal for, or any
indication of interest in, a merger or business combination involving the
Company or the acquisition of an equity interest in, or any substantial portion
of the assets of, the Company or (ii) engage in negotiations with or disclose
any nonpublic information relating to the Company or Parent, or afford access to
the properties, books or records of the Company, to any Person. The Company
shall promptly notify and provide copies to Parent of any offer, proposal or
indication of interest, or communication with respect thereto, delivered to or
received from any third party.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. Access to Information. The Company shall afford to Parent
and Merger Sub and their respective accountants, counsel, financial advisors and
other representatives (the "Parent Representatives") full access during normal
business hours throughout the period prior to the Effective Time to all of its
respective properties (including without limitation to conduct soil,
groundwater, ambient air or other environmental testing or analyses), books,
contracts, personnel, representatives of or contacts with governmental or
regulatory authorities, agencies or bodies, commitments, and records (including,
but not limited to, Tax Returns and any and all records or documents which are
within the possession of governmental or regulatory authorities, agencies or
bodies, and the disclosure of which the Company can facilitate or control) and,
during such period, shall furnish promptly to Parent and Merger Sub all such
information concerning its respective businesses, properties and personnel as
Parent or Merger Sub, as the case may be, shall request. No investigation
pursuant to this Section shall affect any representation or warranty made by any
party.
Section 7.2. Expenses and Fees. Except when, and to the extent that,
Parent has expressly agreed otherwise in writing, APS has undertaken an
obligation, enforceable by Parent, to pay when due all costs and expenses
incurred by the Company in connection with the negotiation and entering into of
this Agreement and the consummation of the transactions contemplated hereby,
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including, without limitation, any and all broker's commissions and the fees and
expenses of the Company's attorneys and accountants. Each of the Shareholders
has undertaken an obligation to pay when due all costs and expenses incurred by
that Shareholder in connection with the negotiation and entering into of this
Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, the fees and expenses of its personal attorneys
and accountants (in each case, except to the extent Parent has expressly agreed
in writing to pay or reimburse the legal costs of the Shareholders). Except as
expressly provided above, the Company, at or prior to Closing, shall have made
all necessary arrangements so that the Company, Parent or Merger Sub will not be
charged with any such cost or expense, including expenses of the Shareholders
not paid by Parent; provided, however, that the Company Required Statutory
Approvals shall be paid by Parent. Parent shall pay all costs and expenses
incurred by Parent and Merger Sub in connection with the negotiation and
entering into of this Agreement and the consummation of transactions
contemplated hereby, including, without limitation, the fees and expenses of
their attorneys and accountants. In furtherance of the foregoing, Parent has
sole responsibility for all costs related to layoffs or terminations of
employees following the Effective Time.
Section 7.3. Agreement to Cooperate. Subject to the terms and
conditions herein provided, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its reasonable efforts to obtain all necessary,
proper or advisable waivers, consents and approvals under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its reasonable efforts to obtain all necessary
or appropriate waivers, consents or approvals of third parties required in order
to preserve material contractual relationships of the Company.
Section 7.4. Public Statements. Except as required by law, the parties
shall obtain the written consent of the other prior to issuing any press release
or any written public statement with respect to this Agreement or the
transactions contemplated hereby and shall not issue any such press release or
written public statement prior to such consent, which shall not be unreasonably
withheld.
Section 7.5. Notification of Certain Matters. Each of the Company,
Parent and Merger Sub agrees to give prompt notice to each other of, and to use
their respective reasonable best efforts to prevent or promptly remedy, (i) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect (or in all respects in the case of
any representation or warranty containing any materiality qualification) at any
time from the date hereof to the Effective Time and (ii) any material failure
(or any failure in the case of any covenant, condition or agreement containing
any materiality qualification) on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
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Section 7.6. Exclusivity. The Company acknowledges that the due
diligence and other investigations permitted herein will involve the
expenditures of substantial time and expense by Parent. In consideration
thereof, the Company, on its own behalf and on behalf of its Affiliates, agrees
that for a period of up to and including August 15, 1999, it will not make or
encourage any offer or obtain any offer or otherwise provide any assistance in
aid of any offer for the sale, lease or transfer of all or any part of the
business of the Company or of the stock or assets of the business of the
Company, to any Person other than Parent. Immediately upon receipt of any
unsolicited offer, the Company will communicate to Parent the terms of any
proposal or request for information and the identity of the parties involved.
Section 7.7. Confidentiality. Without the express written consent of
all of the parties hereto, each of the parties hereto agrees to maintain in
confidence and not disclose to any other Person the terms of the transactions
contemplated herein or the information delivered in connection with the proposed
due diligence investigation, other than disclosures required to obtain the
approvals for the transactions contemplated hereby, disclosures to those
professionals and advisors who have a need to know, disclosures of information
already available to the public or any other disclosures required by applicable
law. In the event that either Parent or Merger Sub are at any time requested or
required (by oral questions, interrogatories, request for information or
documents, subpoena or other similar process) to disclose any information
supplied to it in connection with this transaction, such party agrees to provide
the other parties hereto prompt notice of such request so that an appropriate
protective order may be sought and/or such other party may waive the first
party's compliance with the terms of this Section 7.7.
Section 7.8. Registration Rights. Parent covenants and agrees as
follows:
(a) Definitions. For purposes of this Section, the
following terms shall have the following meanings:
"Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the SEC that permits inclusion or
incorporation of substantial information by reference to other
documents filed by Parent with the SEC.
"Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance
with subsection (i) of this Section.
"Initial Offering" means Parent's first firm commitment
underwritten public offering of its Parent Common Stock under the
Securities Act.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
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"register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement
or document.
"Registrable Securities" means the Parent Common Stock issued
to the Shareholders pursuant to this Agreement and any additional
shares of Parent Common Stock issued to the Shareholders pursuant to a
stock split, reverse split, stock dividend (including any dividend of
securities convertible into Parent Common Stock), reorganization,
reclassification, recapitalization or other similar change with respect
to Registrable Securities, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his
rights under this Section are not assigned.
"SEC" shall mean the Securities and Exchange Commission.
(b) Parent Registration. Except as otherwise provided in this
Section (but without any obligation under this Agreement to do so), if Parent
proposes to register (including for this purpose a registration effected by
Parent for stockholders other than the Holders, whether or not required under
another agreement) any of the Parent Common Stock under the Securities Act in
connection with the public offering of such securities (other than a
registration relating solely to the sale of securities to participants in a
Parent stock plan, a registration relating to a corporate reorganization or
other transaction under Rule 145 of the Securities Act, a registration on any
form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Parent Common Stock
being registered is Parent Common Stock issuable upon conversion of debt
securities that are also being registered), Parent shall, within ten (10) days
thereafter, give each Holder written notice of such registration. Upon the
written request of each Holder, provided said request is given within twenty
(20) days after mailing of the notice required of Parent under this subsection,
Parent shall, subject to the limits set forth in this Section, use commercially
reasonable efforts to cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered;
provided that:
(i) Parent shall have the right to terminate or
withdraw any registration initiated by it under this subsection prior
to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by Parent in accordance with
subsection (e) of this Section; and
(ii) In connection with any offering involving an
underwriting of shares of Parent Common Stock, Parent shall not be
required under this subsection to include any of the Holders'
securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between Parent and the underwriters
selected by it (or by other persons entitled to select the
underwriters) and enter into an underwriting agreement in customary
form with an underwriter or underwriters selected by Parent, and then
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only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by Parent.
If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering exceeds the
amount of securities that the underwriters determine in their sole
discretion is compatible with the success of the offering, then Parent
shall be required to include in the offering only the number of such
securities, including Registrable Securities, that the underwriters
determine in their sole discretion will not jeopardize the success of
the offering (the securities so included to be apportioned pro rata
among the selling Holders according to the total amount of securities
entitled to be included therein owned by each selling Holder or in such
other proportions as shall mutually be agreed to by such selling
Holders); provided, however, in no event shall Registrable Securities
held by a Holder be included in such registration statement (i) if such
offering is the initial public offering of Parent's securities, in
which case the selling Holders' securities may be excluded if the
underwriters make the determination described above or (ii) unless all
of the following securities are included in such Registration
Statement: (x) all shares of capital stock of Parent which are subject
to registration rights as of the Closing Date; (y) all shares of
capital stock of Parent which are held by officers of Parent that hold
an office on the Closing Date; and (z) all shares of capital stock of
Parent that are issued with registration rights after the date hereof
in connection with a cash financing transaction (or any other type of
transaction approved in writing by a majority of the Shareholders) with
Parent or any Subsidiary of Parent. For purposes of the immediately
preceding parenthetical concerning apportionment, for any selling
stockholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and
stockholders of such Holder, or the estates and family members of any
such partners and retired partners and any trusts for the benefit of
any of the foregoing persons shall be deemed to be a single "selling
Holder," and any pro rata reduction with respect to such selling Holder
shall be based upon the aggregate amount of Registrable Securities
owned by all such related entities and individuals.
(iii) With respect to any underwriting of shares,
Parent shall have the right to designate the managing underwriter or
underwriters.
(c) Obligations of Parent. Whenever required under this
Section 7.8 to effect the registration of any Registrable Securities, Parent
shall, as expeditiously as reasonably possible:
(i) prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its
commercially reasonably efforts to cause such registration statement to
become effective; provided, however, that in connection with any
proposed registration intended to permit an offering of any securities
from time to time (i.e., a "Shelf Registration"), Parent shall in no
event be obligated to cause any such registration to remain effective
for more than one-hundred twenty (120) days;
(ii) prepare and file with the SEC such amendments
and supplements to such registration
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statement and the prospectus used
in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement;
(iii) furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as
they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them;
(iv) use commercially reasonable efforts to register
and qualify the securities covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions as shall
be necessary for the distribution of the securities covered by the
registration statement, provided that Parent shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing
of expenses) if any jurisdiction in which the securities shall be
qualified shall require that expenses incurred in connection with the
qualification of the securities in that jurisdiction be borne by
selling stockholders, then such expenses shall be payable by selling
stockholders pro rata, to the extent required by such jurisdiction;
(v) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter of such
offering;
(vi) notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
or the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(vii) use reasonable efforts to cause all such
Registrable Securities registered pursuant hereunder to be listed on
each securities exchange on which similar securities issued by Parent
are then listed; and
(viii) provide a transfer agent and registrar for all
Registrable Securities registered hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective
date of such registration.
(d) Information from Holder. It shall be a condition precedent
to the obligations of Parent to take any action pursuant to this Section with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to Parent such information regarding itself, the Registrable
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Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
(e) Expenses of Registration. All reasonable expenses
(excluding underwriting discounts and brokerage commissions) incurred in
connection with registrations, filings or qualifications pursuant to subsection
(b) of this Section, including without limitation, all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for Parent and the reasonable fees and disbursements of one counsel for
the selling Holders shall be borne by Parent.
(f) Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section.
(g) Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section:
(i) To the extent permitted by law, Parent will
indemnify and hold harmless each Holder, the partners or officers,
directors and stockholders of each Holder, legal counsel and
accountants for each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Securities Act or
the 1934 Act, against any losses, claims, damages or liabilities (joint
or several) to which they may become subject under the Securities Act,
the 1934 Act or any state securities laws, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (A) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
(B) the omission or alleged omission of a material fact required to be
stated therein, or necessary to make the statements therein not
misleading, or (C) any violation or alleged violation by Parent of the
Securities Act, the 1934 Act, any state securities laws or any rule or
regulation promulgated under the Securities Act, the 1934 Act or any
state securities laws; and Parent will reimburse each such Holder,
underwriter or controlling person 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 indemnity agreement contained in this subsection
(g)(i) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected
without the consent of Parent (which consent shall not be unreasonably
withheld), nor shall Parent be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by any such Holder, underwriter or
controlling person; provided further, however, that the foregoing
indemnity agreement with respect to any
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preliminary prospectus shall
not inure to the benefit of any Holder or underwriter, or any person
controlling such Holder or underwriter, from whom the person asserting
any such losses, claims, damages or liabilities purchased shares in the
offering, if a copy of the prospectus (as then amended or supplemented
if Parent shall have furnished any amendments or supplements thereto)
was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered, at or prior
to the written confirmation of the sale of the shares to such person,
and if the prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability.
(ii) To the extent permitted by law, each selling
Holder will indemnify and hold harmless Parent, each of its directors,
each of its officers who has signed the registration statement, each
person, if any, who controls Parent within the meaning of the
Securities Act, legal counsel and accountants for Parent, any
underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other
Holder, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject,
under the Securities Act, the 1934 Act or any state securities laws,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any person intended to be
indemnified pursuant to this subsection (g)(ii), for any legal or other
expenses reasonably incurred by such person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this subsection (g)(ii) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement
is effected without the consent of the Holder (which consent shall not
be unreasonably withheld), provided that in no event shall any
indemnity under this subsection (g)(ii) exceed the net proceeds from
the offering received by such Holder.
(iii) Promptly after receipt by an indemnified party
under this subsection (g) of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this subsection (g), deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by
the indemnifying party, if representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified
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party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
subsection (g), but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this subsection (g).
(iv) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in
the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.
(v) The obligations of Parent and Holders under this
subsection (g) shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section
7.8, and otherwise.
(h) Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of Parent to the public without
registration or pursuant to a registration on Form S-3, Parent agrees that while
it has a class of equity securities registered under the 1934 Act, it will use
its commercially reasonable efforts to:
(i) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times
after the effective date of the Initial Offering;
(ii) file with the SEC in a timely manner all
reports and other documents required of Parent under the Securities Act
and the 1934 Act; and
(iii) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (A) a written
statement by Parent that it has complied with the reporting
requirements of SEC Rule 144 (at any time after ninety (90) days after
the effective date of the first registration statement filed by
Parent), the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), or that it qualifies as
a registrant whose securities may be resold pursuant to Form S-3 (at
any time after it so qualifies), (B) a copy of the most recent annual
or quarterly report of Parent and such other reports and documents so
filed by Parent, and (C) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC
that permits the selling of any such securities without registration or
pursuant to such form.
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(i) Assignment of Registration Rights. The rights to cause
Parent to register Registrable Securities pursuant to this Section 7.8 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a subsidiary, parent, partner, limited
partner, retired partner or stockholder of a Holder, (ii) is a Holder's family
member or trust for the benefit of an individual Holder, or (iii) after such
assignment or transfer, holds at least 25,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (x) Parent is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (y) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of the Investor Rights Agreement and this Agreement, including
without limitation, the provisions of subsection (l) of this Section; and (z)
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
(j) Limitations on Subsequent Registration Rights. Except as
provided in the following sentence, from and after the date of this Agreement,
Parent shall not, without the prior written consent of the Holders of two-thirds
of the Registrable Securities, which will not be unreasonably withheld, enter
into any agreement with any holder or prospective holder of any securities of
Parent that would allow such holder or prospective holder (i) to include such
securities in any registration filed under subsection (b) of this Section,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of such securities will not reduce the amount of the Registrable
Securities of the Holders that are included or (ii) to demand registration of
their securities. Notwithstanding the foregoing, the parties agree and
acknowledge that the above-referenced restriction shall not affect any
registration rights granted prior to the Closing Date, and shall not prohibit
Parent from granting registration rights after the Closing Date (including
rights that may have priority over those granted pursuant to this Section 7.8)
with respect to the following securities: (y) shares of capital stock of Parent
which are held by officers of Parent that hold an office on the Closing Date;
and (z) shares of capital stock of Parent that are issued in connection with a
cash financing transaction with Parent or any Subsidiary of Parent.
(k) "Market Stand-Off" Agreement. Each Holder hereby agrees
that it will not, without the prior written consent of the managing underwriter,
during the period commencing on the date of the final prospectus relating to
Parent's initial public offering and ending on the date specified by Parent and
the managing underwriter (such period not to exceed one hundred eighty (180)
days) (i) lend, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Parent Common Stock or any securities convertible into
or exercisable or exchangeable for Parent Common Stock (whether such shares or
any such securities are then owned by the Holder or are thereafter acquired), or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Parent
Common Stock, whether any such transaction described
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in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing provisions of this subsection shall apply only to
Parent's initial public offering of equity securities, shall not apply to the
sale of any shares to an underwriter pursuant to an underwriting agreement, and
shall only be applicable to the Holders if all officers and directors and
greater than five percent (5%) stockholders of Parent enter into similar
agreements. The underwriters in connection with Parent's initial public offering
are intended third party beneficiaries of this subsection and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto. In order to enforce the foregoing covenant, Parent may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. _
(l) Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 7.8 after three (3)
years following the consummation of the Initial Offering or, as to any Holder,
such earlier time at which all Registrable Securities held by such Holder (and
any affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144) can be sold in any three (3)-month period without registration in
compliance with Rule 144 of the Securities Act.
Section 7.9. Share Exchange Agreements. Parent and Merger Sub
acknowledge the existence and binding and enforceable nature of the Share
Exchange Agreements and that counsel to Parent and Merger Sub has carefully
reviewed each Share Exchange Agreement. Each of Parent and Merger Sub agrees
that (i) it has no rights to enforce any of the provisions of, and is not an
intended third party beneficiary under, any of the Share Exchange Agreements and
(ii) that it will take no action which jeopardizes the binding and enforceable
nature of the Share Exchange Agreements and/or interfere with any of the rights
of any person or entity that is a party to any of the Share Exchange Agreements.
Section 7.10. Employee Benefits. Effective as of the Closing, all
welfare plans (as defined in ERISA Section 3(1)) provided, sponsored, or offered
by APS and made available to the Company and its employees immediately prior to
the Closing ("APS Welfare Plans") will continue to be made available by APS to
the Surviving Corporation and its employees in the same manner and to the same
extent that such APS Welfare Plans were made available by APS to the Company
immediately prior to the Closing (except that the Surviving Corporation may add
newly hired employees for coverage under such APS Welfare Plans). For these
purposes, APS shall continue to make available all such APS Welfare Plans to the
Surviving Corporation through December 31, 1999, or, if earlier, such date that
the Surviving Corporation provides written notice to APS to modify or terminate
coverage under one or more such APS Welfare Plans. All fees and expenses
relating to the APS Welfare Plans shall be consistent with the fees and expenses
incurred by the Company prior to Closing on a per participant basis, and will be
paid by the Surviving Corporation to APS. Notwithstanding the foregoing, APS
shall not be liable for any liability arising under COBRA with respect to
employees of the Surviving Corporation who are terminated by the Surviving
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Corporation after the Closing Date, and the Surviving Corporation shall
reimburse APS to the extent that APS incurs any such liability.
Section 7.11. Filings. Parent or Merger Sub shall timely file all
forms, notices, or other filings required by any state or federal securities'
regulator.
Section 7.12. Net Working Capital.
(a) Initial Principal Amount. Merger Sub hereby agrees to
execute the Replacement Promissory Note at the Closing. Immediately following
the Closing, the principal amount outstanding under the Replacement Promissory
Note shall equal all outstanding amounts (including principal and interest)
under the Original Promissory Note at the time of Closing plus the First Advance
(as defined under Section 7.13(a)), if any; provided, however, that if the
principal amount of the Replacement Promissory Note as of the Closing Date
exceeds $2,000,000 (the "Cap"), there shall be either (i) a reduction in the
principal amount of the Replacement Promissory Note by an amount equal to the
difference between the Replacement Promissory Note and the Cap (the "Closing
Credit Amount"), or (ii) an offset against interest due under the Replacement
Promissory Note in an amount equal to the Closing Credit Amount, which offset
shall be taken against each payment of accrued and unpaid interest due
thereunder until the Closing Credit Amount shall be paid in full and; provided,
further, that any offset or reduction under subsection (a)(i) and (a)(ii) above,
plus any offset or reduction under Section 7.13(b)(ii)(y) and (z), shall be
deemed to have occurred prior to June 30, 1999 for purposes of calculating Net
Working Capital under this Section 7.12. APS shall have the right to select one
of the above-referenced methodologies with respect to such Closing Credit
Amount, which amount must be disclosed in writing to Parent on or before the
Closing Date. If APS does not make a selection within thirty (30) days, Parent
shall then have the right to select one of the above-referenced methodologies
with respect to such Closing Credit Amount, which must be disclosed in writing
to APS on or before the date on which first interest payment is due under the
Replacement Promissory Note. The payment terms of the Replacement Promissory
Note shall include interest only payments for a period of twenty four (24)
months immediately following the Closing Date, payable quarterly.
(b) Net Working Capital. For purposes of this Section 7.12,
"Net Working Capital" means an amount equal to the actual current assets less
actual current liabilities of the Company existing on June 30, 1999,
(irrespective of when such amount is calculated), determined in accordance with
GAAP (except as adjusted on Exhibit F hereto), and may be a positive or negative
number.
(c) First Actual Net Working Capital Calculation. Within 90
days after the Closing Date, Parent shall cause the Surviving Corporation to
prepare a balance sheet (the "First Net Working Capital Closing Date Balance
Sheet") of the Company as of June 30, 1999, including a computation of the
actual Net Working Capital (the "First Actual Net Working Capital"). The First
Net Working Capital Closing Date Balance Sheet shall be prepared in accordance
with GAAP (except as adjusted on Exhibit F hereto) and agreed upon by APS and
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Parent. Any disagreements involving the First Actual Net Working Capital Closing
Date Balance Sheet or the calculation of the First Actual Net Working Capital
shall be resolved in accordance with the procedure set forth in Section 7.12(e)
below. If the First Actual Net Working Capital is greater than $700,000 (the
"Threshold"), then no adjustment shall be made or other action taken pursuant to
this subsection (c). If the First Actual Net Working Capital is less than the
Threshold, there shall be either (i) a reduction in the principal amount of the
Replacement Promissory Note by an amount equal to the difference between the
First Actual Net Working Capital and the Threshold (the "First Credit Amount"),
or (ii) an offset against interest due under the Replacement Promissory Note in
an amount equal to the First Credit Amount, which offset shall be taken against
each payment of accrued and unpaid interest due thereunder until the First
Credit Amount shall be paid in full. APS shall have the right to select one of
the above-referenced methodologies with respect to such First Credit Amount,
which must be disclosed in writing to Parent within ten (10) business days after
such amount is agreed upon or finally determined under subsection (e) below. If
APS does not make a selection within such ten (10) business day period, Parent
shall then have the right to select one of the above-referenced methodologies
with respect to such First Credit Amount, which must be disclosed in writing to
APS on or before the date on which the next interest payment is due under the
Replacement Promissory Note. Any reduction or offset pursuant to this subsection
(c) shall be effective contemporaneously with such determination.
(d) Second Actual Net Working Capital Calculation. On the
Calculation Date, Parent shall cause the Surviving Corporation to prepare a
second balance sheet (the "Second Net Working Capital Closing Date Balance
Sheet") of the Company as of June 30, 1999, including a computation of the
actual Net Working Capital (the "Second Actual Net Working Capital"). The Second
Net Working Capital Closing Date Balance Sheet shall be prepared in accordance
with GAAP (except as adjusted on Exhibit F hereto). Any objections to the
calculation of the Second Actual Net Working Capital shall be resolved in
accordance with the procedure set forth in Section 7.12(e) below.
(i) If the Second Net Working Capital is greater
than the First Net Working Capital (such difference hereinafter
referred to as the "Surplus"), there shall be either (A) an increase in
the principal amount of the Replacement Promissory Note by an amount
equal to the lesser of the Surplus or the First Credit Amount, or (B)
an increase in the interest due under the Replacement Promissory Note
(but not in excess of the maximum non-usurious rate of interest that
may be charged under applicable law), beginning with the next interest
payment due thereunder and continuing until the First Credit Amount has
been paid in full, in an amount equal to the lesser of the Surplus or
the First Credit Amount; provided, however, that there shall be no such
increase if both the First Net Working Capital and the Second Net
Working Capital exceed the Threshold. The methodology used in effecting
any increase pursuant to this subsection shall be consistent with the
methodology actually applied by the parties pursuant to Section 7.12(a)
(but only to the extent not prohibited by the immediately preceding
parenthetical). Any increase pursuant to this subsection (d)(i) shall
be effective contemporaneously with such determination.
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(ii) If the Second Net Working Capital is less than
the First Net Working Capital, there shall be either (A) a reduction in
the principal amount of the Replacement Promissory Note by an amount
equal to the lesser of the Threshold and the First Actual Net Working
Capital, minus the Second Net Working Capital (the "Second Credit
Amount"), or (B) an offset against interest due under the Replacement
Promissory Note in an amount equal to the Second Credit Amount, which
offset shall be taken against each payment of accrued and unpaid
interest due thereunder until the Second Credit Amount shall be paid in
full; provided, however, that there shall be no such reduction or
offset if both the First Net Working Capital and the Second Net Working
Capital exceed the threshold. APS shall have the right to select one of
the above-referenced methodologies with respect to such Second Credit
Amount, which must be disclosed in writing to Parent within ten (10)
business days after such amount is agreed upon or finally determined
under subsection (e) below. If APS does not make a selection within
such ten (10) business day period, Parent shall then have the right to
select one of the above-referenced methodologies with respect to such
Second Credit Amount, which must be disclosed in writing to APS on or
before the date on which next interest payment is due under the
Replacement Promissory Note. Any reduction or offset pursuant to this
subsection (d)(ii) shall be effective contemporaneously with such
determination.
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(e) Net Working Capital Dispute Resolution. If, within 15 days
following APS' receipt of the First Net Working Capital Closing Date Balance
Sheet, APS shall not have objected in writing thereto, then the First Actual Net
Working Capital shall be computed using such First Net Working Capital Closing
Date Balance Sheet. If, within 15 days following APS' receipt of the Second Net
Working Capital Closing Date Balance Sheet, APS shall not have objected in
writing thereto, then the Second Actual Net Working Capital shall be computed
using such Second Net Working Capital Closing Date Balance Sheet. If APS objects
in writing to either computation, then APS and the Parent shall negotiate in
good faith and attempt to resolve their disagreement. Should such negotiations
not result in an agreement within 20 days of Parent's receipt of the objection,
then the matter shall be submitted to a Neutral Auditor. If APS and Parent are
unable to agree on the Neutral Auditor, then APS and Parent shall request the
American Arbitration Association to appoint the Neutral Auditor. The Neutral
Auditor will deliver to APS and Parent a written determination (such
determination to include a worksheet setting forth all material calculations
used in arriving at such determination and to be based solely on information
provided to the Neutral Auditors by APS and Parent, or their respective
affiliates) of the disputed items within 30 days of receipt of the disputed
items, which determination will be final, binding and conclusive on the parties.
If the Neutral Auditor's determination of Net Working Capital is within $25,000
of Parent's calculation of the Net Working Capital (whether the difference is
positive or negative), all fees and expenses relating to appointment of the
Neutral Auditor and the work, if any, to be performed by the Neutral Auditor
will be borne by APS. If the difference between the Neutral Auditor's
determination of Net Working Capital and Parent's calculation of Net Working
Capital is greater than $25,000, but less than or equal to $100,000 (whether the
difference is positive or negative), all fees and expenses relating to
appointment of the Neutral Auditor and the work, if any, to be performed by the
Neutral Auditor will be borne half by APS and half by Parent. If the difference
between the Neutral Auditor's determination of Net Working Capital and Parent's
calculation of the Net Working Capital is greater than $100,000 (whether the
difference is positive or negative), all fees and expenses relating to
appointment of the Neutral Auditor and the work, if any, to be performed by the
Neutral Auditor will be borne exclusively by Parent.
(f) Calculations Independent of Ownership. The calculations
of Net Working Capital in this Section 7.12 are made independent of the
ownership of the Surviving Corporation after Closing.
(g) No Other Offsets. Except as expressly provided in this
Section or in Section 7.13 below, Parent and Merger Sub each agree that it is
not under any circumstances entitled to offset any amounts owed under or with
respect to the Replacement Promissory Note.
Section 7.13. Advances under Promissory Note; Payables.
(a) First Payables Estimate. Prior to the Closing Date, the
Company shall deliver to Parent a June 30, 1999 balance sheet of the Company, in
the form attached as Exhibit G hereto, setting forth an estimate of the accounts
payable and accrued expenses of the Company in accordance with GAAP (except as
adjusted on Exhibit F hereto) as of such date (the "First Payables Estimate").
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If the First Payables Estimate is greater than $200,000 (the "Allowable
Amount"), then APS shall, on the Closing Date, make an advance to the Surviving
Corporation (the "First Advance") under the Replacement Promissory Note in an
amount equal to the difference between the First Payables Estimate minus the
Allowable Amount. The First Advance shall have the effect on the Replacement
Promissory Note as set forth in Section 7.12(a) hereof. APS shall deposit the
First Advance directly into a bank account controlled by Parent (the "Deposit
Account"), which shall be maintained separately from other funds of the Parent
and shall be used exclusively for the payment of accounts payable and accrued
expenses of the Surviving Corporation arising on or prior to June 30, 1999 and
determined in accordance with GAAP (except as adjusted on Exhibit F hereto).
Parent shall maintain such Deposit Account for a period of one (1) year from the
Closing Date, and shall provide APS copies of monthly statements of the Deposit
Account and supporting invoices or other expense documentation for all payments
over $5,000 during such period. If any balance remains outstanding at the end of
such one (1) year period, the amount in excess of accrued vacation, property
taxes, escheat liabilities and profit sharing amounts outstanding as of June 30,
1999 shall be returned to APS.
(b) Second Payables Estimate. Immediately following agreement
upon or final determination of the First Net Working Capital Closing Date
Balance Sheet pursuant to Section 7.12(c) and, if applicable, Section 7.12(e),
Parent and APS shall add the accounts payable and accrued expenses of the
Company set forth in the First Net Working Capital Closing Date Balance Sheet
(the "Second Payables Estimate").
(i) If the Second Payables Estimate is less than the
First Payables Estimate (such difference being referred to herein as
the "Refund"), Parent shall distribute to APS cash in an amount equal
to the lesser of (A) the Refund or (B) the First Advance; provided,
however, that there shall be no such payment under subsection (i)
hereof and subsection (ii) below if both the First Payables Estimate
and the Second Payables Estimate are less than the Allowable Amount.
The aggregate distribution pursuant to the preceding sentence shall
decrease the principal outstanding under the Replacement Promissory
Note, in an identical amount, as of the date the funds are paid to APS.
(ii) If the Second Payables Estimate is greater than
both the First Payables Estimate and the Allowable Amount, then APS
shall make an advance under the Replacement Promissory Note (the
"Second Advance") to Surviving Corporation equal to the Second Payables
Estimate minus the greater of (A) the Allowable Amount and (B) the
First Payables Estimate. APS shall deposit the Second Advance directly
into the Deposit Account. The Second Advance shall increase the
principal outstanding under the Replacement Promissory Note in an
identical amount as of the date the funds are disbursed by APS;
provided, however, that if all or any portion of the Second Advance,
when added to the outstanding principal under the Replacement
Promissory Note, exceeds the Cap (such amount being referred to herein
as the "Excess Advance"), there shall be either (y) a reduction in the
principal amount of the Replacement Promissory Note by an amount equal
to the Excess Advance, or (z) an offset against interest due under the
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Replacement Promissory Note in an amount equal to the Excess Advance,
which offset shall be taken against each payment of accrued and unpaid
interest due thereunder until the Excess Advance shall be paid in full.
APS shall have the right to select one of the above-referenced
methodologies with respect to such Excess Advance, which must be
disclosed in writing to Parent within ten (10) business days after such
amount is agreed upon or finally determined as set forth herein. If APS
does not make a selection within such ten (10) business day period,
Parent shall then have the right to select one of the above-referenced
methodologies with respect to such Excess Advance, which must be
disclosed in writing to APS on or before the date on which next
interest payment is due under the Replacement Promissory Note. Except
for purposes of calculating Net Working Capital under Section 7.12, any
reduction or offset pursuant to this subsection (b)(ii) shall be
effective contemporaneously with such determination.
Section 7.14. Advances under Promissory Note; Event of Default. The
Company is guarantor of the following notes in connection with the merger of APA
Transition, Inc., a Texas corporation ("APA"), with and into the Company in
accordance with the terms of that certain Agreement and Plan of Reorganization,
dated December 31, 1998, by and among the Company, APA and David L. Berry, M.D.
(the "Berry Merger"): (i) Promissory Note, dated March 11, 1997, in the original
principal amount of $170,000, by and between Horizon Bank & Trust, SSB and
Austin Perinatal Associates, P.A. (this Promissory Note was later acquired by
Compass Bank); (ii) Promissory Note, dated March 20, 1998, in the original
principal amount of $59,000, by and between Norwest Bank Texas, N.A. and Austin
Perinatal Associates, P.A.; (iii) Fixed Rate Commercial Promissory Note, dated
February 27, 1998, in the original principal amount of $20,000, by and between
Compass Bank and Austin Perinatal Associates, P.A.; and (iv) Promissory Note,
dated November 6, 1998, in the original principal amount of $114,500, by and
between Norwest Bank Texas, N.A. and Austin Perinatal Associates, P.A.
(collectively, the "Notes"). If, as a result of the Berry Merger, an event of
default occurs (or has already occurred) under the terms of any of the Notes,
and the event of default results in all or any portion of the outstanding
principal plus unpaid interest and any other indebtedness under any of the Notes
(the "Default Amount") to be due and payable immediately, then APS shall, upon
the earlier of (i) the final date payment is demanded by the note holder;
provided, that the Surviving Corporation shall use its good faith efforts to
extend the deadline for the demand for payment, or (ii) twenty-five (25) days
after a written demand for payment has been made by the note holder (the
"Payment Period"), make an advance to the Surviving Corporation under the
Replacement Promissory Note in an amount equal to the Default Amount; provided,
however, that the Surviving Corporation shall use its commercially reasonable
efforts during the Payment Period to cure the event of default under any of the
Notes on equally favorable terms to the Surviving Corporation. For purposes of
this Section 7.14 only, the principal amount of the Replacement Promissory Note
(including the Default Amount) may exceed the Cap; provided, however, that the
principal amount of the Replacement Promissory Note that exceeds the Cap shall
be excluded from the Net Working Capital calculation for purposes of Section
7.12 of this Agreement.
Section 7.15. Non-Interference.
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(a) At all times during the Determination Period, Parent shall
use its commercially reasonable efforts to ensure that (i) Parent and Merger Sub
(or other FemPartners' subsidiary) operate the Company Existing Practices under
the terms of the Existing Management Agreements, (ii) neither Parent nor Merger
Sub (or other FemPartners' subsidiary) take (or fail to take) any action, if
such action or omission is done with the primary intent of causing (A) a
decrease in the amount of Retained Shares that would otherwise be distributed to
the Shareholders on the Distribution Date or (B) a decrease in the balance of
the Replacement Promissory Note pursuant to the operation of Section 7.12 or
Section 7.13, and (iii) neither Parent nor Merger Sub (or any other FemPartners'
subsidiary) take (or fail to take) any action, if such action or omission causes
Parent or Merger Sub to be in material breach of the Existing Management
Agreements. Notwithstanding anything in this Section 7.15 to the contrary, in
the event Parent or Merger Sub take (or fail to take) any action because such
action or omission is (i) required pursuant to any statute, rule, regulation or
other legal requirement or (ii) approved by the Joint Planning Board pursuant to
the terms of the Existing Management Agreement of any Existing Practice,
including, without limitation, approval of the budget of any Existing Practice,
then neither Parent nor Merger Sub will be in breach of any Existing Agreement
or this Agreement (regardless of whether such action or inaction causes a
decrease in the number of Retained Shares that would otherwise be distributed to
the Shareholders on the Distribution Date or a decrease in the balance of the
Replacement Promissory Note pursuant to the operation of Section 7.12 or Section
7.13).
(b) Parent and Merger Sub each agree that if either of them
materially violates any provision of this Agreement during the Determination
Period, or changes the terms of the Existing Management Agreements during the
Determination Period, and such violation or change has the direct effect of
reducing the number of Retained Shares that would otherwise be distributed to
the Shareholders on the Distribution Date or decreasing the amount payable under
the Replacement Promissory Note pursuant to the operation of Section 7.12 or
Section 7.13, then the Adjustment Calculations and the amounts calculated under
Section 7.12 and Section 7.13 shall be calculated as if such breach or change
had not occurred.
(c) Parent and Merger Sub acknowledge that certain of the
physicians in the Company Existing Practices owe the Company money because the
Company has advanced sums under the respective Existing Management Agreements in
excess of the difference between the monthly Practice Accrual Earnings and the
Service Fee (as defined in the respective Existing Management Agreements) (as
reflected on the Company's books as of June 30, 1999, and in the Side Letter
Agreements relating to the excess payments executed by certain physicians, the
"Advances"). Parent, Merger Sub and the Company each acknowledge that each
Advance may be increased, after the Closing, in order to correct any inaccurate
estimates of Adjustments (as defined in the respective Existing Management
Agreement) with respect to accounts receivable existing on June 30, 1999 (the
amount of such increase, if any, the "Excess Advances"). Solely for purposes of
construing Parent's and Merger Sub's obligations under this Section 7.15, if
Parent or Merger Sub (or any other FemPartners' subsidiary) fails or refuses to
collect that portion of the Excess Advances which exceed the lesser of (i)
$12,000 (per physician) or (ii) ten percent (10%) of the net book value of the
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accounts receivable of the respective Company Existing Practice as of June 30,
1999, then, except for the practices of M.R. Jafarnia, M.D. & Associates, Donald
Columbus, M.D., P.A. and Lawrence M. Slocki, M.D., P.A. (which are governed by
the Side Letter Agreements between the Company and such physicians), such
failure or refusal will not be considered a material breach of, or change to,
the respective Existing Management Agreements or this Agreement (regardless of
whether such action or inaction causes a decrease in the number of Retained
Shares that would otherwise be distributed to the Shareholders on the
Distribution Date or a decrease in the balance of the Replacement Promissory
Note pursuant to the operation of Section 7.12 or 7.13). Subject to the terms of
the Existing Management Agreements and the applicable Side Letter Agreements
entered into with the physicians with respect to the Advances and Excess
Advances, Parent and Merger Sub agree that they shall use their commercially
reasonable efforts (as though Parent and Merger Sub were not affiliated with the
physicians) to collect (y) the total amount of each Advance (subject to any
decrease, after the Closing, based solely on higher-than-estimated actual
collections of accounts receivable existing on June 30, 1999), and (z) the total
amount of any Excess Advance subject to the limitations above; provided,
however, that Parent and Merger Sub shall not be required to collect any amounts
that Lawrence M. Slocki, M.D. would have received from Medicaid billings, but
that are no longer collectible solely because of the delay by the Company in
billing such Medicaid amounts. Any failure to use commercially reasonable
efforts (as though Parent and Merger Sub were not affiliated with the
physicians) to collect the amounts described in the immediately preceding
sentence will be considered a breach solely for the purposes of construing
Parent's and Merger Sub's obligations under this Section 7.15.
Section 7.16. Insurance. Parent and Merger Sub agree to maintain at all
times after the Closing Date and until July 1, 2001, a prior acts insurance
policy providing insurance coverage of the same scope, in the same amounts and
subject to the same deductibles as the Company's insurance in effect immediately
prior to the Closing Date.
ARTICLE VIII
CONDITIONS TO CLOSING
Section 8.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver, if permissible, at or prior to the
Effective Time of the following conditions:
(a) no preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the
Merger shall have been issued and remain in effect (each party agreeing to use
its reasonable efforts to have any such injunction, order or decree lifted); and
(b) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the Merger or make the consummation of the Merger illegal.
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Section 8.2. Conditions to Obligation of the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following additional conditions:
(a) Parent and Merger Sub shall have performed in all material
respects (or in all respects in the case of any agreement containing any
materiality qualification) their agreements contained in this Agreement required
to be performed on or prior to the Closing Date;
(b) the representations and warranties of Parent and Merger
Sub contained in this Agreement shall be true and correct in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) on and as of the date made and on and
as of the Closing Date as if made at and as of such date;
(c) since the date of this agreement, there shall have been no
changes that constitute, and no event or events shall have occurred which have
resulted in or constitute, a Material Adverse Effect;
(d) all governmental waivers, consents, orders, permit
transfers (including without limitation Environmental Permits) and approvals
legally required for the consummation of the Merger and transactions
contemplated hereby or to permit Parent to carry on the business of the Company
after Closing in accordance with past customs and practice shall have been
obtained and be in effect at the Closing Date, and no Governmental Authority
shall have promulgated any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair the value of the
Company to Parent;
(e) all waivers, consents and approvals from third parties
necessary for the transfer of any material contracts, financial assurances and
any other rights and benefits in connection with the Merger, or necessary for
the consummation of the Merger and the transactions contemplated hereby shall
have been obtained and be in effect at the Closing Date;
(f) the boards of directors of Parent and Merger Sub shall
have authorized the execution, delivery and performance of the Agreement and all
related documents and agreements contemplated herein;
(g) Parent shall execute and deliver to each of Kenneth
Shifrin, Duane Boyd and John Hedrick a Non-Competition Agreement, in the form
attached hereto as Exhibit H (collectively, the "Noncompetition Agreements");
(h) Merger Sub shall execute the Replacement Promissory
Note;
(i) Parent shall execute and deliver to APS a Guaranty of
performance under the Replacement Promissory Note, in the form attached hereto
as Exhibit I;
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(j) Parent and Merger Sub shall deliver executed
Certificate and Articles of Merger necessary to effect the Merger referred to
in Section 1.1;
(k) Parent shall have delivered to the Company written
documentation, satisfactory to the Company, that evidences the waiver by
Parent's preferred stock holders of any rights related to or arising from
Parent's execution of this Agreement and the consummation of the transactions
contemplated herein, if such right would not otherwise have arisen or existed,
including without limitation, any mandatory redemption rights, rights to receive
additional shares of capital stock of Parent upon conversion of preferred stock
or any other similar rights;
(l) the Company shall have completed its due diligence review
regarding the Parent and its business, operations, assets, liabilities, taxes,
insurance, contracts, prospects and environmental and other matters as the
Company deems relevant and the Company shall be satisfied, in its sole
discretion, with the results of such review;
(m) The Company shall have received a Co-Sale Rights
Agreement, in the form attached hereto as Exhibit J, executed by each holder of
Series A Preferred Stock of Parent;
(n) the Company shall have received a certificate executed on
behalf of Parent by the Chief Executive Officer or a Vice President of Parent
and on behalf of Merger Sub by the President or a Vice President of Merger Sub
with respect to (a) through (g) above;
(o) the Company shall have obtained approval of the Merger by
each of its shareholders in the form required under the Texas Business
Corporation Act; and
(p) the Company shall have received an Investors' Certificate
from each Shareholder, in the form attached hereto as Exhibit M.
Section 8.3. Conditions to Obligations of Parent and Merger Sub to
Effect the Merger. Unless waived by Parent and Merger Sub, the obligations of
Parent and Merger Sub to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the additional following conditions:
(a) the Company shall have performed in all material respects
(or in all respects in the case of any agreement containing any materiality
qualification) its agreements contained in this Agreement required to be
performed on or prior to the Closing Date;
(b) the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(or in all respects in the case of any representation or warranty containing any
materiality qualification) on and as of the date made and on and as of the
Closing Date as if made at and as of such date;
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(c) since the date hereof, there shall have been no changes
that constitute, and no event or events shall have occurred which have resulted
in or constitute, a Material Adverse Effect;
(d) all governmental waivers, consents, orders, permit
transfers (including without limitation Environmental Permits) and approvals
legally required for the consummation of the Merger and the transactions
contemplated hereby or to permit Parent to carry on the business of the Company
after Closing in accordance with past customs and practice shall have been
obtained and be in effect at the Closing Date, and no Governmental Authority
shall have promulgated any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair the value of the
Company to Parent;
(e) all waivers, consents and approvals from third parties
necessary for the transfer of any material contracts, financial assurances and
any other rights and benefits in connection with the Merger, or necessary for
the consummation of the Merger and the transactions contemplated hereby shall
have been obtained and be in effect at the Closing Date;
(f) all transactions, contracts, agreements and guarantees
between the Company and any Shareholder or any Affiliate of the Company or any
Shareholder shall have been terminated and all amounts owed by the Shareholders
and their Affiliates to the Company shall have been paid in full, and the Parent
shall have received releases in form and substance satisfactory to Parent with
respect to same;
(g) all outstanding subscriptions, options, calls, share
purchase rights or voting trusts, proxies or other arrangements relating to the
capital stock of the Company shall be extinguished by the Closing Date, and the
Parent shall have received releases in form and substance satisfactory to Parent
with respect to same;
(h) the board of directors and shareholders of the Company
shall approve this Agreement and the closing of the transactions contemplated
herein;
(i) the officers and directors of the Company shall deliver to
Parent an instrument dated the Closing Date releasing the Company from any and
all claims of such officers and directors (except as to accrued compensation
prior to the Closing Date in accordance with the terms of the Agreement);
(j) Parent shall have completed its due diligence review
regarding the Company and its business, operations, assets, liabilities, taxes,
insurance, contracts, prospects and environmental and other matters as Parent
deems relevant and Parent shall be satisfied, in its sole discretion, with the
results of such review;
(k) Parent shall have received a lease agreement executed
by APS in the form attached hereto as Exhibit K;
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(l) Parent shall have received a Subordination Agreement
executed by APS in the form attached hereto as Exhibit L;
(m) Kenneth Shifrin, Duane Boyd and John Hedrick shall
execute and deliver to Parent the Noncompetition Agreements;
(n) Parent shall have received an Investors' Certificate
from each Shareholder, in the form attached hereto as Exhibit M;
(o) Parent shall have received an Investor Rights
Agreement, as amended, executed by the Shareholders in the form attached
hereto as Exhibit N;
(p) Parent shall have received an executed Professional
Service Provider Security Agreement (including the Deposit Account Agreement,
the Closing Certificate of Managed Practice, the Secretary's Certificate with
the attached Board of Director Resolutions and the UCC-7 Financing Statement)
from each of the Company Existing Practices in the form attached hereto as
Exhibit O;
(q) Parent shall have received an executed Security Agreement
from each of the Company Existing Practices in the form attached hereto as
Exhibit P;
(r) the Company shall deliver executed Certificate and
Articles of Merger necessary to effect the Merger referred to in Section 1.1;
(s) Parent shall have received a certificate, dated within ten
(10) days of the Closing Date, of the Secretary of the State of Texas
establishing that the Company is in existence and is in good standing to
transact business in the state of incorporation;
(t) Parent shall have received the resignations of the
directors and officers of the Company; and
(u) Parent shall have received a certificate executed on
behalf of the Company by the President or Chief Executive Officer of the Company
and each of the Shareholders with respect to (a) through (i) above.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time as follows:
(a) The Company shall have the right to terminate this
Agreement:
(i) if the representations and warranties of Parent
and Merger Sub shall fail to be true and correct in all material
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respects (or in all respects in the case of any representation or
warranty containing any materiality qualification) on and as of the
date made or, except in the case of any such representations and
warranties made as of a specified date, on and as of any subsequent
date as if made at and as of subsequent date and such failure shall not
have been cured in all material respects (or in all respects in the
case of any representation or warranty containing any materiality
qualification) within 30 days after written notice of such failure is
given to Parent by the Company;
(ii) if the Merger is not completed by August 31,
1999 (provided that the right to terminate this Agreement under this
Section 9.1(a)(ii) shall not be available to the Company if the failure
of the Company to fulfill any obligation to Parent under or in
connection with this Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date);
(iii) if the Merger is enjoined by a final,
unappealable court order; or
(iv) if Parent or Merger Sub (A) fails to perform in
any material respect any of its covenants (or in all respects in the
case of any covenant containing any materiality qualification) in this
Agreement and (B) does not cure such default in all material respects
(or in all respects in the case of any covenant containing any
materiality qualification) within 30 days after notice of such default
is given to Parent by the Company.
(b) Parent shall have the right to terminate this Agreement;
(i) if the representations and warranties of the
Company shall fail to be true and correct in all material respects (or
in all respects in the case of any representation or warranty
containing any materiality qualification) on and as of the date made
or, except in the case of any such representations and warranties made
as of a specified date, on and as of any subsequent date as if made at
and as of such subsequent date and such failure shall not have been
cured in all material respects (or in all respects in the case of any
representation or warranty containing any materiality qualification)
within 30 days after written notice of such failure is given to the
Company by Parent;
(ii) if the Merger is not completed by August 31,
1999 (provided that the right to terminate this Agreement under this
Section 9.1(b)(ii) shall not be available to Parent if the failure of
Parent to fulfill any obligation to the Company under or in connection
with this Agreement has been the cause of or resulted in the failure of
the Merger to occur on or before such date);
(iii) if the Merger is enjoined by a final,
unappealable court order; or
(iv) if the Company (A) fails to perform in any
material respect (or in all respects in the case of any covenant
containing any materiality qualification) any of its covenants in this
Agreement and (B) does not cure such default in all material respects
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(or in all respects in the case of any covenant containing any
materiality qualification) within 30 days after notice of such default
is given to the Company by Parent.
(c) The Company and Parent mutually agree.
Section 9.2. Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company pursuant to the provisions of Section
9.1, this Agreement shall forthwith become void and there shall be no further
obligations on the part of the Company, Parent, Merger Sub or their respective
officers or directors (except as set forth in Sections 11.5 and 11.6, each of
which shall survive termination); provided, however, that nothing in this
Section 9.2 shall relieve either party from liability for any breach of this
Agreement.
Section 9.3. Amendment. This Agreement may not be amended except by
an instrument in writing signed on behalf of all of the parties.
Section 9.4. Extensions; Waiver. At any time prior to the Effective
Time, the parties hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
INDEMNIFICATION
Section 10.1. The Shareholders' Indemnity Obligations. The Shareholders
shall, severally and not jointly, indemnify and hold harmless the Company,
Parent and the Company's and Parent's respective officers, directors,
stockholders, employees, agents, representatives and Affiliates (each a "Parent
Indemnified Party") from and against any and all claims (including without
limitation, Environmental Claims malpractice claims, escheat laws and claims
pursuant to Sections 5.28 and 5.29), actions, causes of action, arbitrations,
proceedings, losses, damages, remediations, liabilities, strict liabilities,
judgments, fines, penalties and expenses (including, without limitation,
reasonable attorneys' fees) (collectively, the "Indemnified Amounts") paid,
imposed on or incurred by a Parent Indemnified Party, directly or indirectly,
relating to, resulting from or arising out of, or any allegation of a third
party of (a) any breach or misrepresentation in any of the representations and
warranties made by the Company in this Agreement, including without limitation
with respect to environmental matters, or any certificate or instrument
delivered in connection with this Agreement, (b) any violation or breach by the
Company of or default by the Company under the terms of this Agreement or any
certificate or instrument delivered in connection with this Agreement, (c) any
act or omission by the Company or any shareholder, officer, director, employee,
agent or representative of the Company, occurring on or prior to the Closing
Date (including any claim by a third party, including employees and customers,
arising out of or related to any act or omission by the Company or any
shareholder, officer, director, employee, agent or representative of the Company
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occurring on or prior to the Closing Date) or (d) any Environmental Claim and/or
any violation of any Environmental Law if such Environmental Claim or violation
relates, directly or indirectly, to events, conditions, operations, facts or
circumstances which occurred or commenced on or prior to the Closing Date. The
obligation of Shareholders to provide indemnification to a Parent Indemnified
Party hereunder based on a breach of representation or warranty shall arise
without regard to any materiality or knowledge qualifier set forth in such
representation or warranty, except for any claim based on fraud. For purposes of
this Section 10.1, Indemnified Amounts shall include without limitation those
Indemnified Amounts ARISING OUT OF THE STRICT LIABILITY (INCLUDING BUT NOT
LIMITED TO STRICT LIABILITY ARISING PURSUANT TO ENVIRONMENTAL LAWS) OR
NEGLIGENCE OF ANY PARTY, INCLUDING ANY PARENT INDEMNIFIED PARTY, WHETHER SUCH
NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE.
Section 10.2. Parent's Indemnity Obligations. Parent and Merger Sub
shall indemnify and hold harmless the Shareholders and the Shareholders' agents,
representatives and Affiliates (each a "Shareholders' Indemnified Party") from
and against any and all Indemnified Amounts incurred by a Shareholders'
Indemnified Party as a result of (a) any breach or misrepresentation in any of
the representations and warranties made by or on behalf of Parent or Merger Sub
in this Agreement or any certificate or instrument delivered in connection with
this Agreement, (b) any violation or breach by Parent or Merger Sub of or
default by Parent under the terms of this Agreement or any certificate or
instrument delivered in connection with this Agreement, (c) any act or omission
by the Parent or any Parent Indemnified Party, occurring after the Closing Date
(including any claim by a third party, including employees and customers,
arising out of or related to any act or omission by the Parent or any Parent
Indemnified Party occurring after the Closing Date) or (d) any Environmental
Claim and/or any violation of any Environmental Law if such Environmental Claim
or violation relates, directly or indirectly, to events, conditions, operations,
facts or circumstances which occurred or commenced after the Closing Date. The
obligation of Parent to provide indemnification to a Shareholders' Indemnified
Party hereunder based on a breach of representation or warranty shall arise
without regard to any materiality or knowledge qualifier set forth in such
representation or warranty, except for any claim based on fraud. For purposes of
this Section 10.2, Indemnified Amounts shall include without limitation those
Indemnified Amounts ARISING OUT OF THE STRICT LIABILITY (INCLUDING BUT NOT
LIMITED TO STRICT LIABILITY ARISING PURSUANT TO ENVIRONMENTAL LAWS) OR
NEGLIGENCE OF ANY PARTY, INCLUDING ANY SHAREHOLDERS' INDEMNIFIED PARTY, WHETHER
SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE. Notwithstanding
the foregoing, neither Parent nor Merger Sub shall indemnify the Shareholders or
Shareholders' Indemnified Parties under subsections (c) or (d) above for any
reduction in the value of the Parent Common Stock issued as Merger Consideration
pursuant to this Agreement based on an event or circumstance which occurs after
the Closing Date.
Section 10.3. Indemnification Procedures. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
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(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall with reasonable promptness (i) notify the party from
whom indemnification is sought (the "Indemnifying Party") of any third-party
claim or claims asserted against the Indemnified Party ("Third Party Claim") for
which indemnification is sought and (ii) transmit to the Indemnifying Party a
copy of all papers served with respect to such claim (if any) and a written
notice ("Claim Notice") containing a description in reasonable detail of the
nature of the Third Party Claim, an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis of the
Indemnified Party's request for indemnification under this Agreement.
Within 15 days after receipt of any Claim Notice (the "Election
Period"), the Indemnifying Party shall notify the Indemnified Party (i) whether
the Indemnifying Party disputes its potential liability to the Indemnified Party
with respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
If the Indemnifying Party notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 10.3(a). The Indemnifying
Party shall have full control of such
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defense and proceedings. The Indemnified
Party is hereby authorized, at the sole cost and expense of the Indemnifying
Party, to file, during the Election Period, any motion, answer or other
pleadings that the Indemnified Party shall reasonably deem necessary or
appropriate to protect its interests. If requested by the Indemnifying Party,
the Indemnified Party reasonably agrees to cooperate with the Indemnifying Party
and its counsel in contesting any Third Party Claim that the Indemnifying Party
elects to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. Except as otherwise provided herein, the
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party claim controlled by the Indemnifying Party pursuant to this
Section 10.3 and shall bear its own costs and expenses with respect to such
participation.
If the Indemnifying Party fails to notify the Indemnified Party within
the Election Period that the Indemnifying Party elects to defend the Indemnified
Party pursuant to the preceding paragraph, or if the Indemnifying Party elects
to defend the Indemnified Party but fails to prosecute or settle the Third Party
Claim as herein provided or if the Indemnified Party reasonably objects to such
election on the grounds that counsel for such Indemnified Party cannot represent
both the Indemnified Party and the Indemnifying Parties because such
representation would be reasonably likely to result in a conflict of interest,
then the Indemnified Party shall have the right to defend, at the sole cost and
expense of the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. In such a situation, the
Indemnified Party shall have full control of such defense and proceedings and
the Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section 10.3,
and the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.
The Indemnifying Party shall not settle or compromise any Third Party
Claim unless (i) the terms of such compromise or settlement require no more than
the payment of money (i.e., such compromise or settlement does not require the
Indemnified Party to admit any wrongdoing or take or refrain from taking any
action), (ii) the full amount of such monetary compromise or settlement will be
paid by the Indemnifying Party, and (iii) the Indemnified Party receives as part
of such settlement a legal, binding and enforceable unconditional satisfaction
and/or release, in form and substance reasonably satisfactory to it, providing
that such Third Party Claim and any claimed lability of the Indemnified Party
with respect thereto is being fully satisfied by reason of such compromise or
settlement and that the Indemnified Party is being released from any and all
obligations or liabilities it may have with respect thereto. The Indemnified
Party shall not settle or admit liability to any Third Party Claim without the
prior written consent of the Indemnifying Party unless (x) the Indemnifying
Party has disputed its potential liability to the Indemnified Party, and such
dispute either has not been resolved or has been resolved in favor of the
Indemnifying Party or (y) the Indemnifying Party has failed to respond to the
Indemnified Party's Claim Notice.
(b) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim to
the extent feasible (which estimate shall not be conclusive of the final amount
of such claim) and the basis of the Indemnified Party's request for
indemnification under this Agreement.
Section 10.4. Determination and Payment of Indemnified Amounts.
(a) Determination of Indemnified Amounts. Subject to the
limitations on Indemnified Amounts set forth in Section 10.7, the Indemnified
Amounts payable by an Indemnifying Party hereunder shall be determined (i) by
binding arbitration pursuant to Section 11.6 hereof or (ii) if no party requests
such arbitration, then by (A) the written agreement of the parties, (B)
mediation, (C) final judgment or decree of any court of competent jurisdiction,
or (D) by any other means agreed to in writing by the parties. A judgment or
decree of a court shall be deemed final when the time for appeal, if any, shall
have expired and no appeal shall have been taken or when all appeals taken have
been fully determined.
(b) Payment of Indemnified Amounts. For the purpose of
satisfying any Indemnified Amounts under this Article X, the Parent Common Stock
shall be conclusively valued at a per share price of $7.00 per share. Subject in
all cases to the limitations on liability set forth in Sections 10.5 and 10.6,
the Indemnifying Party shall pay to the Indemnified Party the Indemnified Amount
to which the Indemnified Party may become entitled by reason of this Agreement,
payable in the following manner:
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(i) Indemnified Amounts Payable by Parent. Parent
may, in its sole discretion, pay an Indemnified Amount by issuing
additional shares of Parent Common Stock or by making a cash payment to
the Shareholders' Indemnified Parties, such payment to be made within
fifteen (15) days after such Indemnified Amount is finally determined
pursuant to this Section 10.4.
(ii) Indemnified Amounts Payable by the Shareholders
Prior to the Distribution Date. With respect to the aggregate of all
Indemnified Amounts owed by the Shareholders that are determined prior
to the Distribution Date, Shareholders shall (subject to subsection
(iv) below) fully satisfy such Indemnified Amounts by immediately
forfeiting their right to receive on the Distribution Date that number
of Retained Indemnity Shares which fully satisfies such Indemnified
Amount; provided, however, that the Shareholders shall not be required
to satisfy or pay prior to the Distribution Date such finally
determined Indemnified Amounts to the extent that such amounts exceed
the value of the Retained Indemnity Shares; provided further, that any
portion of such finally determined Indemnified Amounts which exceeds
the value of the Retained Indemnity Shares (the "Final Suspended
Indemnified Amounts") shall be held in abeyance pending final
calculation of the Earnout Distribution on the Distribution Date.
Subject to subsection (iv), on the Distribution Date, the Shareholders
shall satisfy any Final Suspended Indemnified Amounts by forfeiting the
right to receive all or any portion of shares of Parent Common Stock
constituting the Earnout Distribution as provided in Section 3.2.
(iii) Indemnified Amounts Asserted by Parent
Indemnified Parties Prior to the Distribution Date, but Not Finally
Determined Prior to the Distribution Date. With respect to the
aggregate of all Indemnified Amounts first asserted prior to the
Distribution Date, but that are not finally determined on or before the
Distribution Date (the "Pending Indemnified Amounts"), a sufficient
number of shares of Parent Common Stock, otherwise distributable to the
Shareholders on the Distribution Date (including the Retained Shares),
shall not be distributed to the Shareholders but shall instead be held
by Parent in escrow pending (and shall be distributed only upon) final
determination of such Pending Indemnified Amounts. Shares held by
Parent in escrow after the Distribution Date pursuant to this
subsection (iii) shall first be comprised of any Retained Indemnity
Shares not forfeited pursuant to subsection (ii) above and next be
comprised of any shares of Parent Common Stock constituting the Earnout
Distribution, if any, that were not forfeited pursuant to subsection
(ii) above.
(iv) Indemnified Amounts Payable to Parent
Indemnified Parties Which Cannot be Satisfied by the Retained Indemnity
Shares and the Shares of Parent Common Stock Constituting the Earnout
Distribution. With respect to the aggregate of all Indemnified Amounts
payable to Parent Indemnified Parties which (A) exceed the Retained
Indemnity Shares and the shares of Parent Common Stock constituting the
Earnout Distribution and/or (B) are asserted after such shares have
been distributed to the Shareholders, APS shall,
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subject to APS'
limitation on liability set forth in Section 10.5, solely be
responsible for paying 64% of such Indemnified Amounts when finally
determined (except for Indemnified Amounts exclusively arising directly
out of a breach or misrepresentation under Sections 5.2 and 5.4 of this
Agreement, which shall be 100% of such Indemnified Amounts when finally
determined). In the event that APS no longer owns a sufficient number
of shares of Parent Common Stock to fully satisfy its maximum
obligation under this subsection (iv), then (and only then) shall APS
be required to pay cash to satisfy such Indemnified Amounts (up to its
maximum liability provided in Section 10.5 and as further limited in
this subsection (iv)).
Section 10.5. Limitation of Shareholders' Liability.
(a) Notwithstanding anything to the contrary contained in
Article X, the aggregate liability of each Shareholder (other than APS) for any
event or occurrence giving rise to an Indemnified Amount payable by that
Shareholder under Section 10.1 shall be limited to that Shareholders'
proportionate share of the Retained Shares plus any other shares of Parent
Common Stock constituting the Earnout Distribution, multiplied by $7, payable as
set forth in Section 10.4. The shares of Parent Common Stock transferred to the
Parent Indemnified Parties hereunder shall be free and clear of all liens,
claims, options, pledges, encumbrances, restrictions and adverse interest of any
kind or nature whatsoever. The Shareholders shall each have the option of
satisfying their respective indemnification obligations under Section 10.1 by
using cash instead of Parent Common Stock.
(b) Notwithstanding anything to the contrary contained in
Article X, the aggregate liability of APS for any event or occurrence giving
rise to an Indemnified Amount payable by APS under Section 10.1 shall be limited
to the number of shares of Parent Common Stock issued to APS as part of the
Merger Consideration, multiplied by $7, payable as set forth in Section 10.4.
The shares of Parent Common Stock transferred to the Parent Indemnified Parties
hereunder shall be free and clear of all liens, claims, options, pledges,
encumbrances, restrictions and adverse interest of any kind or nature
whatsoever. In accordance with Section 10.4(b)(iv) APS shall have the option of
satisfying its respective indemnification obligations under Section 10.1 by
using cash instead of Parent Common Stock. Notwithstanding anything to the
contrary contained in Article X, APS shall never be required to pay cash
pursuant to this Article X, except in instances where, and only to the extent
that (i) APS is obligated to pay an Indemnified Amount under this Article X
after the Distribution Date, (ii) the aggregate amount of APS' prior payments
under this Article X is less than the maximum aggregate liability of APS
determined pursuant to the first sentence of this subsection (b), (iii) APS has
sold, transferred or otherwise disposed of any of its Parent Common Stock, and
(iv) as a result of such disposition(s), APS does not have a sufficient number
of shares of Parent Common Stock to satisfy such Indemnified Amount.
(c) Parent Indemnified Parties are entitled to indemnification
pursuant to Section 10.1 only to the extent that the amount of any Indemnified
Amount, individually or in the aggregate, exceeds $100,000, and then to the full
amount of such Indemnified Amount, including the first $100,000.
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Section 10.6. Limitation of Parent's Liability.
(a) Notwithstanding anything to the contrary contained in
Article X, the aggregate liability of Parent for any event or occurrence giving
rise to an Indemnified Amount payable by Parent under Section 10.2 shall be
limited to the number of shares of parent Common Stock issued to APS as part of
the Merger Consideration, multiplied by $7, payable as set forth in Section
10.4.
(b) Company Indemnified Parties are entitled to
indemnification pursuant to Section 10.2 only to the extent that the amount of
any Indemnified Amount, individually or in the aggregate, exceeds $100,000 and
then to the full amount of such Indemnified Amount, including the first
$100,000.
Section 10.7. Limitation on Indemnified Amounts. Notwithstanding any
provision of this Article X to the contrary, Indemnified Amounts owed by an
Indemnifying Party to an Indemnified Party shall be reduced by the amount of any
mitigating recovery or benefit (net of reasonable expenses and tax and other
costs incurred in obtaining such recovery or benefit) an Indemnified Party shall
have received or otherwise enjoyed with respect thereto from any recovery under
any insurance policies, without regard to whether the Indemnified Party or
another person paid the premiums therefor. If such a mitigating recovery is
received by an Indemnified Party after it receives payment under this Agreement
with respect to Indemnified Amounts, then a refund equal in aggregate amount to
the mitigating recovery, net of reasonable expenses and tax or other costs
incurred in obtaining recovery, shall be made promptly to the Indemnifying
Party. Notwithstanding the foregoing or any other provision of this Agreement,
no Parent Indemnified Person shall be entitled to indemnification hereunder with
respect to an indemnifiable claim to the extent such claim directly causes (i) a
reduction to the principal amount of the Replacement Promissory Note or an
offset against interest otherwise due and payable thereunder as a result of the
operation of Section 7.12 of this Agreement, or (ii) a reduction in the Earnout
Distribution pursuant to Section 3.2 of this Agreement.
Section 10.8. Right of Subrogation. Upon payment by an Indemnifying
Party of an Indemnified Amount, the Indemnifying Party shall, with respect to
the amount paid, be subrogated to all causes of action, rights of recovery
and/or enforcement rights that the Indemnified Party may have under any
contract, agreement, instrument or understanding (other than this Agreement and
the other agreements entered into in connection herewith) to which an
Indemnified Party is a party or otherwise receives benefits.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1. Survival. The representations and warranties set forth in
this Agreement and in any certificate or instrument delivered in connection
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herewith shall be continuing and shall survive the Closing for a period of two
(2) years following the Closing Date; provided, however, that in the case of all
representations and warranties, there shall be no such termination with respect
to any such representation or warranty as to which a bona fide claim has been
asserted by written notice of such claim delivered to the party or parties
making such representation or warranty prior to the expiration of the survival
period; provided, further, that the representations and warranties set forth in
Sections 4.2, 4.8, 4.12, 4.13, 4.15, 4.22, 5.2, 5.8, 5.12, 5.13, 5.15, and 5.23
hereof shall survive the Closing for four (4) years (provided, however, that
with respect to Section 4.8 and 5.8, the representations contained therein do
not extend past two years after the Closing Date with respect to malpractice
claims against or related to the Parent Existing Practices or the Company
Existing Practices). The covenants and agreements, including but not limited to,
indemnification obligations, set forth in this Agreement and in any certificate
or instrument delivered in connection herewith shall be continuing and survive
Closing; provided, however, that the indemnification obligations of the parties
hereto (i) set forth in Sections 10.1(a) and 10.2(a) with respect to a breach of
a representation or warranty shall terminate at the time such particular
representation or warranty shall terminate, and (ii) set forth in Sections
10.1(b), (c), and (d) and 10.2(b), (c) and (d) shall terminate three years
following the Closing Date.
Section 11.2. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to Parent or Merger Sub to:
FemPartners, Inc.
1300 Post Oak Boulevard, Suite 600
Houston, Texas 77056
Attention: William C. Altman
Telecopy: 713/512-8080
with a copy to:
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis
Houston, Texas 77002
Attention: H. William Swanstrom
Telecopy: 713/223-3717
(b) if to the Company (prior to Closing) or the Shareholders, to:
Syntera HealthCare Corporation
1301 S. Capital of Texas Highway, Suite C-300
Austin, Texas 78746
Attention: President
Telecopy: 512/314-4398
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with a copy, in the case of notice to the Company, to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
816 Congress Avenue, Suite 1900
Austin, Texas 78701
Attention: Tim LaFrey
Telecopy: 512/703-1111
Section 11.3. Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision. When used herein, the
phrases "Company's knowledge," "knowledge of the Company" or similar words or
phrases shall exclusively refer to the current actual knowledge of the following
persons: Ken Shifrin, Duane Boyd, John Hedrick, Bill Hayes and Colleen Webb.
Furthermore, when used herein, the phrases "Parent's knowledge," "knowledge of
Parent" or similar words or phrases shall exclusively refer to the current
actual knowledge of the following persons: William Altman, Danguole Spakevicius,
Jack Thompson and John Watson.
Section 11.4. Miscellaneous. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
(including, without limitation, that certain Letter of Intent dated March 24,
1999, and any amendments thereto or replacements thereof), and (b) shall not be
assigned by operation of law or otherwise except that Merger Sub may assign this
Agreement to any other wholly-owned Subsidiary of Parent, but no such assignment
shall relieve the Parent or the Merger Sub, as the case may be, of its
obligations hereunder.
Section 11.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE.
Section 11.6. Binding Arbitration.
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(a) General. Notwithstanding any provision of this Agreement
to the contrary, upon the request of any party (defined for the purpose of this
provision to include affiliates, principles and agents of any such party), any
dispute, controversy or claim (under any theory of law, equity or otherwise,
except only for claims exclusively for injunctive relief) arising out of,
relating to, or in connection with, this Agreement or any agreement executed in
connection herewith or contemplated hereby, or the breach, termination,
interpretation, or validity hereof or thereof (hereinafter referred to as a
"Dispute"), shall be finally resolved by mandatory and binding arbitration in
accordance with the terms hereof; provided, however, that any dispute relating
to the non-payment of the Replacement Promissory Note or the provisions of
Section 3.2 or the provisions of Section 7.12 shall not be subject to the
provisions of this Section. Any party to this Agreement may bring an action in
court to compel arbitration of any Dispute. Any party who fails or refuses to
submit any Dispute to binding arbitration following a lawful demand by the
opposing party shall bear all costs and expenses incurred by the opposing party
in compelling arbitration of such Dispute.
(b) Governing Rules. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association in effect at the time of the arbitration, except as they may be
modified herein or by mutual agreement of the parties. The seat of the
arbitration shall be Dallas, Texas. Notwithstanding Section 11.5, the
arbitration and this clause shall be governed by the Federal Arbitration Act, 9
U.S.C. ss.ss. 1 et seq. (the "Federal Arbitration Act"). The arbitrator shall
award all reasonable and necessary costs (including the reasonable fees and
expenses of counsel) incurred in conducting the arbitration to the prevailing
party in any such Dispute. The parties expressly waive all rights whatsoever to
file an appeal against or otherwise to challenge any award by the arbitrators
hereunder; provided, that the foregoing shall not limit the rights of either
party to bring a proceeding in any applicable jurisdiction to confirm, enforce
or enter judgment upon such award (and the rights of the other party, if such
proceeding is brought to contest such confirmation, enforcement or entry of
judgment, but only to the extent permitted by the Federal Arbitration Act).
(c) No Waiver; Preservation of Remedies. No provision of, nor
the exercise of any rights under this Agreement shall limit the right of any
party to apply for injunctive relief or similar equitable relief with respect to
the enforcement of this Agreement or any agreement executed in connection
herewith or contemplated hereby, and any such action shall not be deemed an
election of remedies. Such rights can be exercised at any time except to the
extent such action is contrary to a final award or decision in any arbitration
proceeding. The institution and maintenance of an action for injunctive relief
or similar equitable relief shall not constitute a waiver of the right of any
party, including without limitation the plaintiff, to submit any Dispute to
arbitration nor render inapplicable the compulsory arbitration provisions of
this Agreement.
(d) Arbitration Proceeding. In addition to the authority
conferred on the arbitration tribunal by the rules specified above, the
arbitration tribunal shall have the authority to order reasonable discovery,
including the deposition of party witnesses and production of documents. The
arbitral award shall be in writing, state the reasons for the award, and be
final and binding on the parties. All statutes of limitations that would
otherwise be applicable shall apply to
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any arbitration proceeding. Any
attorney-client privilege and other protection against disclosure of
confidential information, including without limitation any protection afforded
the work-product of any attorney, that could otherwise be claimed by any party
shall be available to and may be claimed by any such party in any arbitration
proceeding. No party waives any attorney-client privilege or any other
protection against disclosure of confidential information by reason of anything
contained in or done pursuant to or in connection with this Agreement. Each
party agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information to the parties' legal
counsel or auditors or those required by applicable law. The arbitrators shall
determine the matters in dispute in accordance with the substantive law of
Texas, without regard to conflict of law rules.
(e) Appointment of Arbitrators. The arbitration shall be
conducted by three (3) arbitrators. The party initiating arbitration (the
"Claimant") shall appoint its arbitrator in its request for arbitration (the
"Request"). The other party (the "Respondent") shall appoint its arbitrator
within thirty (30) days after receipt of the Request and shall notify the
Claimant of such appointment in writing. If the Respondent fails to appoint an
arbitrator within such thirty (30) day period, the arbitrator named in the
Request shall decide the controversy or claim as sole arbitrator. Otherwise, the
two (2) arbitrators appointed by the parties shall appoint a third (3rd)
arbitrator within thirty (30) days after the Respondent has notified Claimant of
the appointment of the Respondent's arbitrator. When the third (3rd) arbitrator
has accepted the appointment, the two (2) party-appointed arbitrators shall
promptly notify the parties of the appointment. If the two (2) arbitrators
appointed by the parties fail to appoint a third (3rd) arbitrator or so to
notify the parties within the time period prescribed above, then the appointment
of the third (3rd) arbitrator shall be made by the American Arbitration
Association, which shall promptly notify the parties of the appointment. The
third (3rd) arbitrator shall act as Chair of the panel.
(f) Other Matters. This arbitration provision constitutes the
entire agreement of the parties with respect to its subject matter and
supersedes all prior discussions, arrangements, negotiations and other
communications on dispute resolution. This arbitration provision shall survive
any termination, amendment, renewal, extension or expiration of this Agreement
or any agreement executed in connection herewith or contemplated hereby unless
the parties otherwise expressly agree in writing. The obligation to arbitrate
any dispute shall be binding upon the successors and assigns of each of the
parties.
Section 11.7. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 11.8. Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
<PAGE>
Section 11.9. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement; provided, however, that the parties hereto agree that the
Shareholders (including, without limitation, APS) are intended third-party
beneficiaries under this Agreement and, accordingly, Shareholders holding, in
the aggregate, greater than twenty five percent (25%) of the previously
distributed portion of the Merger Consideration shall be entitled to enforce the
rights conferred upon the Shareholders under this Agreement.
Section 11.10. Enforcement of the Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof.
Section 11.11. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
[Signature Page Follows]
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IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have executed
and delivered this Agreement effective as of the date first written above.
FEMPARTNERS, INC.
By: /s/ William C. Altman
-----------------------------------
William C. Altman, Executive Vice President
FEMPARTNERS OF CENTRAL TEXAS, INC.
By: /s/ William C. Altman
-----------------------------------
William C. Altman, Executive Vice President
SYNTERA HEALTHCARE CORPORATION
By: /s/ John A. Hedrick
-------------------------
Name: John A. Hedrick
-------------------------
Title: Senior Vice President
-------------------------
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EXHIBIT A
Glossary
For purposes of this Agreement, the following terms shall have the
meaning specified or referred to below when capitalized (or if not capitalized,
unless the context clearly requires otherwise) when used in this Agreement.
"Business Facility" includes any property (whether real or personal)
which Parent, the Company or any of their Subsidiaries currently leases,
operates, or owns or manages in any manner or which the Company or any of their
Subsidiaries or any of their respective organizational predecessors formerly
leased, operated, owned or managed in any manner.
"Company Intellectual Property" includes all fictitious business names,
trade names, brand names, registered and unregistered trademarks, service marks
and applications, all patents and patent applications, all copyrights in both
published works and unpublished works, and all inventions, processes, formulas,
patterns, designs, know-how, trade secrets, confidential information, software,
technical information, process technology, plans, drawings and blue prints
owned, used or licensed by the Company or its Subsidiaries as licensee or
licensor.
"Environmental Claim" means any claim; litigation; demand; action;
cause of action; suit; loss; cost, including, but not limited to, attorneys'
fees, diminution in value, and expert's fees; damage; punitive damage; fine,
penalty, expense, liability, criminal liability, strict liability, judgment,
governmental or private investigation and testing; notification of status of
being potentially responsible for clean-up of any facility or for being in
violation or in potential violation of any Requirement of Environmental Law;
proceeding; consent or administrative orders, agreements or decrees; lien;
personal injury or death of any person; or property damage, whether threatened,
sought, brought or imposed, that is related to or that seeks to recover losses,
damages, costs, expenses and/or liabilities related to, or seeks to impose
liability for: (i) improper use or treatment of wetlands, pinelands or other
protected land or wildlife; (ii) noise; (iii) radioactive materials (including
naturally occurring radioactive materials ["NORM"]; (iv) explosives; (v)
pollution, contamination, preservation, protection, decontamination, remediation
or clean-up of the air, surface water, groundwater, soil or protected lands;
(vi) solid, gaseous or liquid waste generation, handling, discharge, release,
threatened release, treatment, storage, disposal or transportation; (vii)
exposure of persons or property to Materials of Environmental Concern and the
effects thereof; (viii) the release or threatened release (into the indoor or
outdoor environment), generation, extraction, mining, beneficiating,
manufacture, processing, distribution in commerce, use, application, transfer,
transportation, treatment, storage, disposal or Remediation of Materials of
Environmental Concern; (ix) injury to, death of or threat to the health or
safety of any person or persons caused directly or indirectly by Materials of
Environmental Concern; (x) destruction caused directly or indirectly by
Materials of Environmental Concern or the release or threatened release of any
Materials of Environmental Concern or any property (whether real or personal);
(xi) the implementation of spill prevention and/or disaster plans relating to
Material of Environmental Concern; (xiii) community right-to-know and other
disclosure laws; or (xiii) maintaining, disclosing or reporting information to
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Governmental Authorities of any other third person under any Environmental Law.
The term, "Environmental Claim," also includes, without limitation, any losses,
damages, costs, expenses and/or liabilities incurred in testing.
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, guidance document, order, consent agreement,
order or consent judgment, decree, injunction, requirement or agreement with any
governmental entity or any judicial or administrative decision relating to (x)
the protection, preservation or restoration of the environment (including,
without limitation, air, water, vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety, (y) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, application, production, release or disposal of Materials of
Environmental Concern, in each case as amended from time to time, or (z) health,
worker protection or community's right to know. The term "Environmental Law"
includes, without limitation, (i) the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal Act and the Federal Toxic
Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act,
and the Federal Occupational Safety and Health Act of 1970, each as amended from
time to time, and (ii) any common law or equitable doctrine (including, without
limitation, injunctive relief and tort doctrines such as negligence, nuisance,
trespass and strict liability) that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of,
effects of or exposure to any Materials of Environmental Concern.
"Entity" means any corporation (including any non-profit corporation),
general partnership, limited partnership, joint venture, estate, trust,
cooperative, union, committee, company or other enterprise, association,
organization or entity of any nature, other than a Governmental Authority.
"Environmental Permits" means all permits, licenses, certificates,
registrations, identification numbers, applications, consents, approvals,
variances, notices of intent, and exemptions necessary for the ownership, use
and/or operation of any current Business Facility or to conduct the Company's
business as currently conducted in compliance with Requirements of Environmental
Laws.
"GAAP" means generally accepted accounting principals applied on a
consistent basis.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any State of the United States, any local authority
and any political subdivision of any of the foregoing, any multi-national
organization or body, any agency, department, commission, board, bureau, court
or other authority thereof, or any quasi-governmental or private body
exercising, or purporting to exercise, any executive, legislative, judicial,
administrative, police, regulatory or taxing authority or power of any nature.
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"Investor Rights Agreement" means the Agreement dated effective as of
October 31, 1997 between Parent and all the outstanding shareholders of Parent,
as amended from time to time.
"Material Adverse Effect" means any event, occurrence, fact, condition,
change, development or effect that is or could reasonably be anticipated to be
materially adverse to the business, assets (including intangible assets),
liabilities, financial condition, results of operations, properties (including
intangible properties) or business prospects of the Company or Parent and all of
their Subsidiaries taken as a whole.
"Materials of Environmental Concern" means: (i) those substances
included within the statutory and/or regulatory definitions or listings of
"hazardous substance," "solid waste," "medical waste," "special waste,"
"hazardous waste," "extremely hazardous substance," "regulated substance,"
"hazardous materials," or "toxic substances," under any Environmental Law; (ii)
any material, waste or substance which is or contains: (A) petroleum, oil or a
fraction thereof, (B) explosives, or (C) radioactive materials (including
naturally occurring radioactive materials); and (iii) such other substances,
materials, or wastes that are or become classified or regulated as hazardous or
toxic under any applicable federal, state or local law or regulation. To the
extent that the laws or regulations of any applicable state or local
jurisdiction establish a meaning for any term defined herein through reference
to federal Environmental Laws which is broader than the meaning under such
federal Environmental Laws, such broader meaning shall apply.
"Person" means any individual, Entity or Governmental Authority.
"Remediation" means any action necessary to: (i) comply with and ensure
compliance with the Requirements of Environmental Laws and (ii) the taking of
all reasonably necessary precautions to protect against and/or respond to,
remove or remediate or monitor the release or threatened release of Materials of
Environmental Concern at, on, in, about, under, within or near the air, soil,
surface water, groundwater or soil vapor at any Business Facility of the Company
or any of its Subsidiaries or of any property affected by the business
operations, acts, omissions or Materials of Environmental Concern of the Company
or any of its Subsidiaries.
"Requirement(s) of Environmental Law(s)"means all requirements,
conditions, restrictions or stipulations of Environmental Laws imposed upon or
related to the Company or any of its Subsidiaries or the assets, Business
Facilities and/or the business of the Company or any of its Subsidiaries.
"Subsidiary" shall mean, when used with reference to an entity, any
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions, or a majority of the outstanding voting securities
of which, are owned directly or indirectly by such entity.
"Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise, real
or personal property, sales, withholding, social security, occupation, use,
severance, environmental, license, net worth, payroll, employment, franchise,
3
<PAGE>
transfer and recording taxes, fees and charges, imposed by the IRS or any other
taxing authority (whether domestic or foreign including, without limitation, any
state, county, local or foreign government or any subdivision or taxing agency
thereof (including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments.
"Tax Return" shall mean any report, return, document, declaration or
other information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns and documents (i) with respect to or
accompanying payments of estimated Taxes or (ii) with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information, including any schedule or attachment
thereto and any amendment thereof.
4
Exhibit 10.64
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of August, 1999, 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") dated December 31, 1998, entered into by Shareholder
and Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the
other contracts and agreements to which Shareholder is a party as contemplated
in the Merger Agreement (the Merger Agreement and all such other contracts and
agreements are hereinafter referred to collectively as the "Acquisition
Documents"), Shareholder acquired 64,642 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Merger Agreement, APS
and Shareholder entered into that certain Share Exchange Agreement dated
December 31, 1998 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous
with and contingent only upon the execution of this Agreement, the Original
Agreement is hereby terminated and revoked, and all rights and privileges
of the parties thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all
<PAGE>
purposes hereunder. As used herein, "Subject Shares" shall refer exclusively to
the Syntera Shares, unless the Merger occurs on or before December 31, 1999, in
which event "Subject Shares" shall, after the Merger, refer exclusively to the
FemPartners Shares. As used herein, "Gross Exchange Value" shall mean the amount
of $497,744, and such amount shall not be (a) adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement or (b) affected by
any forfeiture or loss of FemPartners Shares withheld at the closing of the
Merger to be conditionally distributed to Shareholder pursuant to the Merger.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other
terms and conditions contained in this Agreement, Shareholder shall only be
entitled to exchange the Subject Shares if each of the following conditions has
been satisfied:
(a) There shall not have been, on or before December 1, 2001
(the "Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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
<PAGE>
contract or agreement to which Shareholder and Syntera, FemPartners, APS and/or
any of their affiliates 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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) 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
<PAGE>
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.
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, 54.8% of the Subject Shares shall be eligible for exchange as
provided in this Agreement; and the remaining 45.2% of the Subject 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 December 1,
2001 (the "Vesting Cutoff 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 Vesting Cutoff 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 Vesting Cutoff Date, then no portion of the
45.2% of the Subject 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 Vesting Cutoff Date, the Clinic PAE
exceeds $450,000, then the percentage of the 45.2% of the Subject 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 45.2% by a fraction, the numerator of which is the amount by which
<PAGE>
Clinic PAE exceeds $400,000 (but not greater than $100,000 in any event), and
the denominator of which is $100,000.
EXAMPLE: The following is provided purely by way of example only, and
illustrates the calculation of the number of Subject 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
Vesting Cutoff Date.
Total Subject Shares eligible for exchange hereunder would be
88.7% of the Subject Shares determined as follows:
$475,000 - $400,000 x 45.2% = 33.9%
-------------------
$100,000
+ 54.8%
-----
88.7%
=====
(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 (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
<PAGE>
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
(i) 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; or
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of
the Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common or Prime common stock, APS shall have the right to delay the issuance of
such shares of APS Common or Prime common stock for up to ninety (90) calendar
days (the "Market Delay"), if, in APS' sole discretion, an <PAGE>
issuance of shares of APS Common or Prime common stock pursuant to this
Agreement, or in combination with any similar agreement or agreements, would
depreciate the market value of the APS Common or Prime common stock, as
applicable.
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(e) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that Shareholder shall receive a whole number of shares of
New Shares only, and that any fractional share amounts resulting from the
foregoing exchange calculation shall be rounded up or down, as the case may be,
to the next whole number of shares. At the Closing, Shareholder shall either
receive a share certificate or certificates for all its New Shares or, if APS is
unable to produce (or caused to be produced) such certificate or certificates 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 or
certificates in the name of Shareholder directly to Shareholder or Shareholder's
designee.
<PAGE>
6. NEW SHARES TRANSFERABILITY. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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 its shares of
APS Common 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"). Any Prime
Stock exchanged hereunder will be registered with the Commission and will be
free of any and all liens, encumbrances and security interests, so that
Shareholder may immediately sell or otherwise convey such Prime Stock without
restriction.
<PAGE>
7. 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.
<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: 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.
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/ W. H. Hayes
-----------------------------
Printed Name: W. H. Hayes
-----------------------------
Title: Sr. VP - Finance
-----------------------------
SHAREHOLDER:
/s/ David L. Berry,
-----------------------------
David L. Berry, M.D.
Exhibit 10.65
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and
entered into as of the 31st day of August, 1999, 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") dated December 2, 1997, entered into by Shareholder and
Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the other
contracts and agreements to which Shareholder is a party as contemplated in the
Merger Agreement (the Merger Agreement and all such other contracts and
agreements are hereinafter referred to collectively as the "Acquisition
Documents"), Shareholder acquired 75,000 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Merger Agreement, APS
and Shareholder entered into that certain Share Exchange Agreement dated
February 16, 1998 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original Agreement
is hereby terminated and revoked, and all rights and privileges of the parties
thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all
<PAGE>
purposes hereunder. As used herein, "Subject Shares" shall refer exclusively to
the Syntera Shares, unless the Merger occurs on or before December 31, 1999, in
which event "Subject Shares" shall, after the Merger, refer exclusively to the
FemPartners Shares. As used herein, "Gross Exchange Value" shall mean the amount
of $375,000, and such amount shall not be (a) adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement or (b) affected by
any forfeiture or loss of FemPartners Shares withheld at the closing of the
Merger to be conditionally distributed to Shareholder pursuant to the Merger.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the Subject Shares if each of the following conditions has been
satisfied:
(a) There shall not have been, on or before February 16, 2000
(the "Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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
<PAGE>
contract or agreement to which Shareholder and Syntera, FemPartners, APS and/or
any of their affiliates 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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) 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
<PAGE>
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.
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
<PAGE>
(i) 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; or
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of
the Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common or Prime common stock, APS shall have the right to delay the issuance of
such shares of APS Common or Prime common stock for up to ninety (90) calendar
days (the "Market Delay"), if, in APS' sole discretion, an issuance of shares of
APS Common or Prime common stock pursuant to this Agreement, or in combination
with any similar agreement or agreements, would depreciate the market value of
the APS Common or Prime common stock, as applicable.
<PAGE>
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(e) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that Shareholder shall receive a whole number of shares of
New Shares only, and that any fractional share amounts resulting from the
foregoing exchange calculation shall be rounded up or down, as the case may be,
to the next whole number of shares. At the Closing, Shareholder shall either
receive a share certificate or certificates for all its New Shares or, if APS is
unable to produce (or caused to be produced) such certificate or certificates 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 or
certificates in the name of Shareholder directly to Shareholder or Shareholder's
designee.
6. New Shares Transferability. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
<PAGE>
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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 its shares of
APS Common 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"). Any Prime
Stock exchanged hereunder will be registered with the Commission and will be
free of any and all liens, encumbrances and security interests, so that
Shareholder may immediately sell or otherwise convey such Prime Stock without
restriction.
7. MISCELLANEOUS.
<PAGE>
(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.
(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
<PAGE>
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/ W.H. Hayes
-----------------------
Printed Name: W.H. Hayes
-----------------------
Title: Sr. V.P.- Finance
-----------------------
SHAREHOLDER: /s/ Michael T. Breen
------------------------
Michael T. Breen, M.D.
Exhibit 10.66
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of August, 1999, 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") dated February 19, 1998, entered into by Shareholder
and Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the
other contracts and agreements to which Shareholder is a party as contemplated
in the Merger Agreement (the Merger Agreement and all such other contracts and
agreements are hereinafter referred to collectively as the "Acquisition
Documents"), Shareholder acquired 68,250 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Merger Agreement, APS
and Shareholder entered into that certain Share Exchange Agreement dated May 18,
1998 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original
Agreement is hereby terminated and revoked, and all rights and privileges
of the parties thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all
<PAGE>
purposes hereunder. As used herein, "Subject Shares" shall refer exclusively to
the Syntera Shares, unless the Merger occurs on or before December 31, 1999, in
which event "Subject Shares" shall, after the Merger, refer exclusively to the
FemPartners Shares. As used herein, "Gross Exchange Value" shall mean the amount
of $341,250, and such amount shall not be (a) adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement or (b) affected by
any forfeiture or loss of FemPartners Shares withheld at the closing of the
Merger to be conditionally distributed to Shareholder pursuant the terms of the
Merger.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other
terms and conditions contained in this Agreement, Shareholder shall only be
entitled to exchange the Subject Shares if each of the following conditions has
been satisfied:
(a) There shall not have been, on or before May 19, 2001 (the
"Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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
<PAGE>
contract or agreement to which Shareholder and Syntera, FemPartners, APS and/
or any of their affiliates 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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) 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
<PAGE>
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.
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
<PAGE>
(i) 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; or
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of
the Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common or Prime common stock, APS shall have the right to delay the issuance of
such shares of APS Common or Prime common stock for up to ninety (90) calendar
days (the "Market Delay"), if, in APS' sole discretion, an issuance of shares of
APS Common or Prime common stock pursuant to this Agreement, or in combination
with any similar agreement or agreements, would depreciate the market value of
the APS Common or Prime common stock, as applicable.
<PAGE>
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(e) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that Shareholder shall receive a whole number of shares of
New Shares only, and that any fractional share amounts resulting from the
foregoing exchange calculation shall be rounded up or down, as the case may be,
to the next whole number of shares. At the Closing, Shareholder shall either
receive a share certificate or certificates for all its New Shares or, if APS is
unable to produce (or caused to be produced) such certificate or certificates 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 or
certificates in the name of Shareholder directly to Shareholder or Shareholder's
designee.
6. NEW SHARES TRANSFERABILITY. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
<PAGE>
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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 its shares of
APS Common 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"). Any Prime
Stock exchanged hereunder will be registered with the Commission and will be
free of any and all liens, encumbrances and security interests, so that
Shareholder may immediately sell or otherwise convey such Prime Stock without
restriction.
7. 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.
(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
<PAGE>
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: 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.
<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/ W.H. Hayes
-----------------------------
Printed Name: W.H. Hayes
-----------------------------
Title: Sr. VP - Finance
-----------------------------
SHAREHOLDER:
/s/ Jonathan B. Buten, M.D.
-----------------------------
Exhibit 10.67
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of August, 1999, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Robert Casanova, M.D. (the
"Shareholder").
R E C I T A L S:
- - - - - - - -
WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
(the "Merger Agreement") dated October 31, 1997, entered into by Shareholder and
Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the other
contracts and agreements to which Shareholder is a party as contemplated in the
Merger Agreement (the Merger Agreement and all such other contracts and
agreements are hereinafter referred to collectively as the "Acquisition
Documents"), Shareholder acquired 78,750 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Merger Agreement, APS
and Shareholder entered into that certain Share Exchange Agreement dated October
31, 1997 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original Agreement
is hereby terminated and revoked, and all rights and privileges of the parties
thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all
<PAGE>
purposes hereunder. As used herein, "Subject Shares" shall refer exclusively to
the Syntera Shares, unless the Merger occurs on or before December 31, 1999, in
which event "Subject Shares" shall, after the Merger, refer exclusively to the
FemPartners Shares. As used herein, "Gross Exchange Value" shall mean the amount
of $393,750, and such amount shall not be (a) adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement or (b) affected by
any forfeiture or loss of FemPartners Shares withheld at the closing of the
Merger to be conditionally distributed to Shareholder pursuant to the Merger.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the Subject Shares if each of the following conditions has been
satisfied:
(a) There shall not have been, on or before May 1, 2000 (the
"Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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
<PAGE>
contract or agreement to which Shareholder and Syntera, FemPartners, APS and/or
any of their affiliates 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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) 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
<PAGE>
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.
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
<PAGE>
(i) 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; or
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of
the Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common or Prime common stock, APS shall have the right to delay the issuance of
such shares of APS Common or Prime common stock for up to ninety (90) calendar
days (the "Market Delay"), if, in APS' sole discretion, an issuance of shares of
APS Common or Prime common stock pursuant to this Agreement, or in combination
<PAGE>
with any similar agreement or agreements, would depreciate the market value of
the APS Common or Prime common stock, as applicable.
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(e) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that Shareholder shall receive a whole number of shares of
New Shares only, and that any fractional share amounts resulting from the
foregoing exchange calculation shall be rounded up or down, as the case may be,
to the next whole number of shares. At the Closing, Shareholder shall either
receive a share certificate or certificates for all its New Shares or, if APS is
unable to produce (or caused to be produced) such certificate or certificates 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 or
certificates in the name of Shareholder directly to Shareholder or Shareholder's
designee.
<PAGE>
6. NEW SHARES TRANSFERABILITY. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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 its shares of
APS Common 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"). Any Prime
Stock exchanged hereunder will be registered with the Commission and will be
free of any and all liens, encumbrances and security interests, so that
Shareholder may immediately sell or otherwise convey such Prime Stock without
restriction.
<PAGE>
7. 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.
(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
<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: Robert Casanova, M.D.
11111 Research Blvd., Suite 450
Austin, Texas 78759
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
intending to be legally bound hereby, as of the date first above written.
APS: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ W.H. Hayes
----------------------------
Printed Name: W.H. Hayes
----------------------------
Title: Sr. VP - Finance
----------------------------
SHAREHOLDER:
/s/ Robert Casanova, M.D.
----------------------------
Exhibit 10.68
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of August, 1999, 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") dated April 1, 1998, entered into by Shareholder and
Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the other
contracts and agreements to which Shareholder is 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 acquired 70,000 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Purchase Agreement,
APS and Shareholder entered into that certain Share Exchange Agreement dated
April 1, 1998 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), or a combination thereof,
as determined by APS, for the Subject Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original
Agreement is hereby terminated and revoked, and all rights and privileges
of the parties thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all purposes hereunder. As used herein, "Subject
Shares" shall refer exclusively to the Syntera
<PAGE>
Shares, unless the Merger occurs on or before December 31, 1999, in which event
"Subject Shares" shall, after the Merger, refer exclusively to the FemPartners
Shares. As used herein, "Gross Exchange Value" shall mean the amount of
$350,000, and such amount shall not be adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the Subject Shares if each of the following conditions has been
satisfied:
(a) There shall not have been, on or before September 30, 2000
(the "Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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, FemPartners, APS and/or any of their affiliates are
parties; and
<PAGE>
(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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) calendar days
after the Determination Date. In the event (i) any of the conditions required
for an exchange to be permissible, as described in Section 1 above, fail to be
satisfied on or prior to the Determination Date, or (ii) any of the conditions
specified in subsections (b), (c) and (d) of Section 1 fail to be satisfied on
or prior to the Closing Date, or (iii) APS fails to receive an Exchange Notice
from Shareholder on or prior to the Expiration Date; then, in any such case, all
of Shareholder's rights under this Agreement shall automatically terminate and
be of no further force or effect whatsoever.
<PAGE>
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, 42.9% of the Subject Shares shall be eligible for exchange as
provided in this Agreement; and the remaining 57.1% of the Subject Shares, or a
portion thereof, will only be eligible for an exchange hereunder in the event
there is consummation of a transaction between Syntera or its successor in
interest 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 not set forth on Exhibit A enters into, on or before March 31, 2000
(the "Vesting Cutoff Date"), a binding and enforceable agreement with Syntera
(or its successor in interest) of the type and nature ordinarily relied upon by
Syntera (or its successor in interest) in its dealings with physicians. In the
event that there is a consummation of any such transaction on or before the
Vesting Cutoff Date, then the portion of the 57.1% of the Subject 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 7.14% by the number of physicians in Bexar County, Texas
consummating such transactions, save and except for those physicians set forth
on Exhibit A.
<PAGE>
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 transaction between Syntera or its successor in
interest and any of the physicians set forth on Exhibit A and (ii) any portion
of the 51.7% of the Subject Shares which has not, as of the Vesting Cutoff 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 later of (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
(i) 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; or
<PAGE>
(ii) cash or immediately available funds in the amount of
the Gross Exchange Value; or
(iii) any combination thereof (as determined by APS in its
sole discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common, APS shall have the right, as long as a Lock-Up Period has not been
imposed pursuant to Section 6 hereof, to delay the issuance of such shares of
APS Common for up to ninety (90) calendar days (the "Market Delay"), if, in APS'
sole discretion, an issuance of shares of APS Common pursuant to this Agreement,
or in combination with any similar agreement or agreements, would depreciate the
market value of the APS Common.
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
<PAGE>
(e) 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 exchange calculation shall be rounded up or down,
as the case may be, to the next whole number of shares. At the Closing,
Shareholder shall receive a share certificate or certificates for all its shares
of APS Common.
6. TRANSFERABILITY. APS will have registered any shares of APS Common
exchanged hereunder with the Securities and Exchange Commission (the
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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
<PAGE>
offers to sell or otherwise convey, any of its shares of APS Common 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. MISCELLANEOUS.
(a) FEES AND EXPENSES. Except as otherwise provided herein,
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
<PAGE>
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
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
[Signature page follows]
<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/ W.H. Hayes
------------------------
Printed Name: W.H. Hayes
------------------------
Title: Sr. VP - Finance
------------------------
SHAREHOLDER:
/s/ Antonio Cavazos, III, M.D.
------------------------------
Exhibit 10.69
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and
entered into as of the 31st day of August, 1999, 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") dated July 31, 1998, entered into by Shareholder and
Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the other
contracts and agreements to which Shareholder is a party as contemplated in the
Merger Agreement (the Merger Agreement and all such other contracts and
agreements are hereinafter referred to collectively as the "Acquisition
Documents"), Shareholder acquired 55,200 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Merger Agreement, APS
and Shareholder entered into that certain Share Exchange Agreement dated July
31, 1998 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), or a combination thereof,
as determined by APS, for the Subject Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original Agreement
is hereby terminated and revoked, and all rights and privileges of the parties
thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all purposes hereunder. As used herein, "Subject
Shares" shall refer exclusively to the Syntera
<PAGE>
Shares, unless the Merger occurs on or before December 31, 1999, in which event
"Subject Shares" shall, after the Merger, refer exclusively to the FemPartners
Shares. As used herein, "Gross Exchange Value" shall mean the amount of
$276,000, and such amount shall not be adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the Subject Shares if each of the following conditions has been
satisfied:
(a) There shall not have been, on or before January 31, 2001
(the "Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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, FemPartners, APS and/or any of their affiliates are
parties; and
<PAGE>
(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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) calendar days
after the Determination Date. In the event (i) any of the conditions required
for an exchange to be permissible, as described in Section 1 above, fail to be
satisfied on or prior to the Determination Date, or (ii) any of the conditions
specified in subsections (b), (c) and (d) of Section 1 fail to be satisfied on
or prior to the Closing Date, or (iii) APS fails to receive an Exchange Notice
from Shareholder on or prior to the Expiration Date; then, in any such case, all
of Shareholder's rights under this Agreement shall automatically terminate and
be of no further force or effect whatsoever.
<PAGE>
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
(i) 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
<PAGE>
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; or
(ii) cash or immediately available funds in the amount of
the Gross Exchange Value; or
(iii) any combination thereof (as determined by APS in its
sole discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common, APS shall have the right, as long as a Lock-Up Period has not been
imposed pursuant to Section 6 hereof, to delay the issuance of such shares of
APS Common for up to ninety (90) calendar days (the "Market Delay"), if, in APS'
sole discretion, an issuance of shares of APS Common pursuant to this Agreement,
or in combination with any similar agreement or agreements, would depreciate the
market value of the APS Common.
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject
<PAGE>
Shares are being transferred to APS free and clear of all liens, claims or
encumbrances of any kind whatsoever.
(e) 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 exchange calculation shall be rounded up or down,
as the case may be, to the next whole number of shares. At the Closing,
Shareholder shall receive a share certificate or certificates for all its shares
of APS Common.
6. TRANSFERABILITY. APS will have registered any shares of APS Common
exchanged hereunder with the Securities and Exchange Commission (the
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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
<PAGE>
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 its
shares of APS Common 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. MISCELLANEOUS.
(a) FEES AND EXPENSES. Except as otherwise provided herein,
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
<PAGE>
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.
[Signature page follows]
<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/ W.H. Hayes
---------------------------
Printed Name: W.H. Hayes
---------------------------
Title: Sr. VP - Finance
---------------------------
SHAREHOLDER:
/s/ Joe R. Childress, M.D.
---------------------------
Exhibit 10.70
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of August, 1999, 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") dated September 14, 1998, entered into by Shareholder
and Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the
other contracts and agreements to which Shareholder is a party as contemplated
in the Merger Agreement (the Merger Agreement and all such other contracts and
agreements are hereinafter referred to collectively as the "Acquisition
Documents"), Shareholder acquired 74,448 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Merger Agreement, APS
and Shareholder entered into that certain Share Exchange Agreement dated
September 15, 1998 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original Agreement
is hereby terminated and revoked, and all rights and privileges of the parties
thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all
<PAGE>
purposes hereunder. As used herein, "Subject Shares" shall refer exclusively to
the Syntera Shares, unless the Merger occurs on or before December 31, 1999, in
which event "Subject Shares" shall, after the Merger, refer exclusively to the
FemPartners Shares. As used herein, "Gross Exchange Value" shall mean the amount
of $372,240, and such amount shall not be adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the Subject Shares 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 shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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, FemPartners, APS and/or
any of their affiliates are parties; and
<PAGE>
(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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), Shareholder shall provide written notice thereof (the "Exchange
Notice") to APS, which Exchange Notice must be received by APS not later than
the date (the "Expiration Date") which is ninety (90) calendar days after the
Determination Date. In the event (i) any of the conditions required for an
exchange to be permissible, as described in Section 1 above, fail to be
satisfied on or prior to the Determination Date, or (ii) any of the conditions
specified in subsections (b), (c) and (d) of Section 1 fail to be satisfied on
or prior to the Closing Date, or (iii) APS fails to receive an Exchange Notice
from Shareholder on or prior to the Expiration Date; then, in any such case, all
of Shareholder's rights under this Agreement shall automatically terminate and
be of no further force or effect whatsoever.
<PAGE>
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (y) the Expiration Date or
(z) if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section
6 hereof, the day on which such Lock-Up Period ends. The maximum number of
Subject Shares which Shareholder has the right to exchange pursuant to
subparagraph (a) of this Section are hereinafter referred to as the
"Exchangeable Subject Shares." At the Closing, Shareholder shall be entitled to
receive either:
(i) 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; or
<PAGE>
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of
the Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(d) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that
<PAGE>
Shareholder shall receive a whole number of shares of New Shares only, and that
any fractional share amounts resulting from the foregoing exchange calculation
shall be rounded up or down, as the case may be, to the next whole number of
shares. At the Closing, Shareholder shall either receive a share certificate or
certificates for all its New Shares or, if APS is unable to produce (or caused
to be produced) such certificate or certificates 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 or certificates in
the name of Shareholder directly to Shareholder or Shareholder's designee.
6. NEW SHARES TRANSFERABILITY. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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
<PAGE>
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 delay the Closing Date 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"). Any Prime Stock exchanged hereunder will be registered with
the Commission and will be free of any and all liens, encumbrances and security
interests, so that Shareholder may immediately sell or otherwise convey such
Prime Stock without restriction.
7. 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.
<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.
[Signature page follows]
<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/ W.H. Hayes
----------------------------
Printed Name: W.H. Hayes
----------------------------
Title: Sr. VP - Finance
----------------------------
SHAREHOLDER:
/s/ Donald G. Columbus, M.D.
----------------------------
Exhibit 10.71
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of August, 1999, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Devin Garza, M.D. (the
"Shareholder").
R E C I T A L S:
- - - - - - - -
WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
(the "Merger Agreement") dated October 31, 1997, entered into by Shareholder and
Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the other
contracts and agreements to which Shareholder is a party as contemplated in the
Merger Agreement (the Merger Agreement and all such other contracts and
agreements are hereinafter referred to collectively as the "Acquisition
Documents"), Shareholder acquired 78,750 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Merger Agreement, APS
and Shareholder entered into that certain Share Exchange Agreement dated October
31, 1997 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original Agreement
is hereby terminated and revoked, and all rights and privileges of the parties
thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all
<PAGE>
purposes hereunder. As used herein, "Subject Shares" shall refer exclusively to
the Syntera Shares, unless the Merger occurs on or before December 31, 1999, in
which event "Subject Shares" shall, after the Merger, refer exclusively to the
FemPartners Shares. As used herein, "Gross Exchange Value" shall mean the amount
of $393,750, and such amount shall not be (a) adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement or (b) affected by
any forfeiture or loss of FemPartners Shares withheld at the closing of the
Merger to be conditionally distributed to Shareholder pursuant to the Merger.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms
and conditions contained in this Agreement, Shareholder shall only be
entitled to exchange the Subject Shares if each of the following conditions has
been satisfied:
(a) There shall not have been, on or before May 1, 2000 (the
"Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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
<PAGE>
contract or agreement to which Shareholder and Syntera, FemPartners, APS and/
or any of their affiliates 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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) 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
<PAGE>
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.
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
<PAGE>
(i) 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; or
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of the
Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common or Prime common stock, APS shall have the right to delay the issuance of
such shares of APS Common or Prime common stock for up to ninety (90) calendar
days (the "Market Delay"), if, in APS' sole discretion, an issuance of shares of
APS Common or Prime common stock pursuant to this Agreement, or in combination
with any similar agreement or agreements, would depreciate the market value of
the APS Common or Prime common stock, as applicable.
<PAGE>
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(e) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that Shareholder shall receive a whole number of shares of
New Shares only, and that any fractional share amounts resulting from the
foregoing exchange calculation shall be rounded up or down, as the case may be,
to the next whole number of shares. At the Closing, Shareholder shall either
receive a share certificate or certificates for all its New Shares or, if APS is
unable to produce (or caused to be produced) such certificate or certificates 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 or
certificates in the name of Shareholder directly to Shareholder or Shareholder's
designee.
6. NEW SHARES TRANSFERABILITY. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
<PAGE>
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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 its shares of
APS Common 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"). Any Prime
Stock exchanged hereunder will be registered with the Commission and will be
free of any and all liens, encumbrances and security interests, so that
Shareholder may immediately sell or otherwise convey such Prime Stock without
restriction.
<PAGE>
7. 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.
(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
<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: Devin Garza, M.D.
11111 Research Blvd., Suite 450
Austin, Texas 78759
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
intending to be legally bound hereby, as of the date first above written.
APS: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ W.H. Hayes
---------------------------
Printed Name: W.H.Hayes
---------------------------
Title: Sr. VP - Finance
---------------------------
SHAREHOLDER:
/s/ Devin Garza, M.D.
---------------------------
Exhibit 10.72
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and
entered into as of the 31st day of August, 1999, 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") dated August 1, 1998, entered into by Shareholder and
Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the other
contracts and agreements to which Shareholder is 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 acquired 92,557 shares (the "Syntera
Shares") of the $0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Asset Purchase
Agreement, APS and Shareholder entered into that certain Share Exchange
Agreement dated August 1, 1998 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original
Agreement is hereby terminated and revoked, and all rights and privileges
of the parties thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all purposes
<PAGE>
hereunder. As used herein, "Subject Shares" shall refer exclusively to the
Syntera Shares, unless the Merger occurs on or before December 31, 1999, in
which event "Subject Shares" shall, after the Merger, refer exclusively to the
FemPartners Shares. As used herein, "Gross Exchange Value" shall mean the amount
of $462,785, and such amount shall not be adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the Subject Shares if each of the following conditions has been
satisfied:
(a) There shall not have been, on or before December 31, 2000
(the "Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; and
(b) Shareholder shall not have remained, at any time 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, FemPartners, APS and/or any of their affiliates are parties,
following delivery by APS of ten (10) days written notice of such breach or
<PAGE>
default, and Shareholder shall not, on the Closing Date, be in breach of or
default under this Agreement, any of the Acquisition Documents or any such other
contract or agreement (provided, that in such event, Shareholder shall have a
period of ten (10) days following delivery by APS of written notice thereof to
cure such breach or default and close the share exchange hereunder); 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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) 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
<PAGE>
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.
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (y) the Expiration Date, (z)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
<PAGE>
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
(i) 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; or
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of the
Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common or Prime common stock, APS shall have the right to delay the Closing for
up to ninety (90) calendar days after the Expiration Date (the "Market Delay"),
if, in APS' sole discretion, an issuance of shares of APS Common or Prime common
<PAGE>
stock pursuant to this Agreement, or in combination with any similar agreement
or agreements, would depreciate the market value of the APS Common or Prime
common stock, as applicable.
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(e) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that Shareholder shall receive a whole number of shares of
New Shares only, and that any fractional share amounts resulting from the
foregoing exchange calculation shall be rounded up or down, as the case may be,
to the next whole number of shares. At the Closing, Shareholder shall either
receive a share certificate or certificates for all its New Shares or, if APS is
unable to produce (or caused to be produced) such certificate or certificates 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 or
certificates in the name of Shareholder directly to Shareholder or Shareholder's
<PAGE>
designee (and APS shall ensure that Shareholder subsequently receives such
certificate or certificates).
6. NEW SHARES TRANSFERABILITY. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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
to be received hereunder, 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 right
to receive stock under this Agreement that is registered with the Commission.
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 its shares of
APS Common 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"). Any Prime
Stock exchanged hereunder will be registered with
<PAGE>
the Commission and will be free of any and all liens, encumbrances and security
interests, so that Shareholder may immediately sell or otherwise convey such
Prime Stock without restriction.
7. 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; provided, however, that
APS shall bear all costs and expenses associated with registering any APS Common
shares to be registered hereunder (excluding the fees and expenses of any
personal counsel or accountants of Shareholder, and any broker's commissions
incurred upon any subsequent sale of such APS Common shares by Shareholder).
(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). This Agreement shall be performable in, and venue for any action
relating to this Agreement shall be proper only in, Montgomery 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.
<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: 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.
<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/ W.H. Hayes
------------------------
Printed Name: W.H. Hayes
------------------------
Title: Sr. VP - Finance
------------------------
SHAREHOLDER:
/s/ M. Reza Jafarnia, M.D.
----------------------------
Exhibit 10.73
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of August, 1999, 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") dated June 30, 1998, entered into by Shareholder and
Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the other
contracts and agreements to which Shareholder is a party as contemplated in the
Merger Agreement (the Merger Agreement and all such other contracts and
agreements are hereinafter referred to collectively as the "Acquisition
Documents"), Shareholder acquired 33,934 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Merger Agreement, APS
and Shareholder entered into that certain Share Exchange Agreement dated June
30, 1998 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original
Agreement is hereby terminated and revoked, and all rights and privileges
of the parties thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all
<PAGE>
purposes hereunder. As used herein, "Subject Shares" shall refer exclusively to
the Syntera Shares, unless the Merger occurs on or before December 31, 1999, in
which event "Subject Shares" shall, after the Merger, refer exclusively to the
FemPartners Shares. As used herein, "Gross Exchange Value" shall mean the amount
of $169,670, and such amount shall not be adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms and
conditions contained in this Agreement, Shareholder shall only be entitled to
exchange the Subject Shares if each of the following conditions has been
satisfied:
(a) There shall not have been, on or before July 1, 2001 (the
"Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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, FemPartners, APS and/or any of their affiliates are
parties; and
<PAGE>
(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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) 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
<PAGE>
under this Agreement shall automatically terminate and be of no further force or
effect whatsoever.
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
<PAGE>
(i) 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; or
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of the
Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common or Prime common stock, APS shall have the right to delay the issuance of
such shares of APS Common or Prime common stock for up to ninety (90) calendar
days after the Closing Date (the "Market Delay"), if, in APS' sole discretion,
an issuance of shares of APS Common or Prime common stock pursuant to this
Agreement, or in combination with any similar agreement or agreements, would
depreciate the market value of the APS Common or Prime common stock, as
applicable.
<PAGE>
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(e) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that Shareholder shall receive a whole number of shares of
New Shares only, and that any fractional share amounts resulting from the
foregoing exchange calculation shall be rounded up or down, as the case may be,
to the next whole number of shares. At the Closing, Shareholder shall either
receive a share certificate or certificates for all its New Shares or, if APS is
unable to produce (or caused to be produced) such certificate or certificates 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 or
certificates in the name of Shareholder directly to Shareholder or Shareholder's
designee.
6. NEW SHARES TRANSFERABILITY. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
<PAGE>
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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 its shares of
APS Common 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"). Any Prime
Stock exchanged hereunder will be registered with the Commission and will be
free of any and all liens, encumbrances and security interests, so that
Shareholder may immediately sell or otherwise convey such Prime Stock without
restriction.
<PAGE>
7. 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
<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: 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.
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/ W.H. Hayes
------------------------
Printed Name: W.H. Hayes
------------------------
Title: Sr. VP - Finance
------------------------
SHAREHOLDER:
/s/ Gary R. Jones, M.D.
------------------------
Exhibit 10.74
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of the 31st day of August, 1999, by and between American Physicians
Service Group, Inc., a Texas corporation ("APS") and Shelley Nielson, M.D. (the
"Shareholder").
R E C I T A L S:
- - - - - - - -
WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
(the "Merger Agreement") dated October 31, 1997, entered into by Shareholder and
Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the other
contracts and agreements to which Shareholder is a party as contemplated in the
Merger Agreement (the Merger Agreement and all such other contracts and
agreements are hereinafter referred to collectively as the "Acquisition
Documents"), Shareholder acquired 78,750 shares (the "Syntera Shares") of the
$0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Merger Agreement, APS
and Shareholder entered into that certain Share Exchange Agreement dated October
31, 1997 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original
Agreement is hereby terminated and revoked, and all rights and privileges
of the parties thereto are nullified.
2. Effect of Merger. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all
<PAGE>
purposes hereunder. As used herein, "Subject Shares" shall refer exclusively to
the Syntera Shares, unless the Merger occurs on or before December 31, 1999, in
which event "Subject Shares" shall, after the Merger, refer exclusively to the
FemPartners Shares. As used herein, "Gross Exchange Value" shall mean the amount
of $393,750, and such amount shall not be (a) adjusted in the event of any stock
dividends, stock splits, reverse stock splits or recapitalizations to which the
Subject Shares are subject after the date of this Agreement or (b) affected by
any forfeiture or loss of FemPartners Shares withheld at the closing of the
Merger to be conditionally distributed to Shareholder pursuant to the Merger.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms
and conditions contained in this Agreement, Shareholder shall only be entitled
to exchange the Subject Shares if each of the following conditions has been
satisfied:
(a) There shall not have been, on or before May 1, 2000 (the
"Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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
<PAGE>
contract or agreement to which Shareholder and Syntera, FemPartners, APS and/or
any of their affiliates 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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), 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 one hundred eighty (180) 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
<PAGE>
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.
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
<PAGE>
(i) 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; or
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of
the Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common or Prime common stock, APS shall have the right to delay the issuance of
such shares of APS Common or Prime common stock for up to ninety (90) calendar
days (the "Market Delay"), if, in APS' sole discretion, an issuance of shares of
APS Common or Prime common stock pursuant to this Agreement, or in combination
with any similar agreement or agreements, would depreciate the market value of
the APS Common or Prime common stock, as applicable.
<PAGE>
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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 Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(e) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that Shareholder shall receive a whole number of shares of
New Shares only, and that any fractional share amounts resulting from the
foregoing exchange calculation shall be rounded up or down, as the case may be,
to the next whole number of shares. At the Closing, Shareholder shall either
receive a share certificate or certificates for all its New Shares or, if APS is
unable to produce (or caused to be produced) such certificate or certificates 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 or
certificates in the name of Shareholder directly to Shareholder or Shareholder's
designee.
6. NEW SHARES TRANSFERABILITY. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
<PAGE>
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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 its shares of
APS Common 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"). Any Prime
Stock exchanged hereunder will be registered with the Commission and will be
free of any and all liens, encumbrances and security interests, so that
Shareholder may immediately sell or otherwise convey such Prime Stock without
restriction.
<PAGE>
7. 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.
(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
<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: Shelley Nielson, M.D.
11111 Research Blvd., Suite 450
Austin, Texas 78759
Any party may change its address for purposes of this Agreement by proper notice
to the other party.
<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/ W.H. Hayes
--------------------------
Printed Name: W.H. Hayes
--------------------------
Title: Sr. VP - Finance
--------------------------
SHAREHOLDER:
/s/ Shelley Nielson, M.D.
--------------------------
Exhibit 10.75
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and
entered into as of the 31st day of August, 1999, by and between American
Physicians Service Group, Inc., a Texas corporation ("APS") and Lawrence M.
Slocki, M.D. (the "Shareholder").
R E C I T A L S:
- - - - - - - -
WHEREAS, pursuant to that certain Asset Purchase Agreement (the "Asset
Purchase Agreement") dated January 25, 1999, entered into by Shareholder and
Syntera HealthCare Corporation, a Texas corporation ("Syntera"), and the other
contracts and agreements to which Shareholder is 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 acquired 18,771 shares (the "Syntera
Shares") of the $0.001 par value per share common stock of Syntera; and
WHEREAS, in connection with the execution of the Asset Purchase
Agreement, APS and Shareholder entered into that certain Share Exchange
Agreement dated January 25, 1999 (the "Original Agreement"); and
WHEREAS, APS and Shareholder have agreed to terminate the Original
Agreement upon the execution of this Agreement; and
<PAGE>
WHEREAS, at the time of execution of this Agreement, Syntera and
Shareholder (in his capacity as a shareholder of Syntera) are contemplating a
proposed merger (the "Merger") between Syntera and a subsidiary of FemPartners,
Inc., a Delaware corporation ("FemPartners"), pursuant to which Syntera may or
may not be the surviving corporation; and
WHEREAS, notwithstanding the Merger and any effect it might have on
Shareholder's rights under the Original Agreement, APS has agreed, on the terms
and subject to the conditions hereof, to exchange cash, certain shares of its
$0.10 par value per share common stock ("APS Common"), shares of common stock,
par value $0.01, of Prime Medical Services, Inc., a Delaware corporation (the
"Prime Stock"), or a combination thereof, as determined by APS, for the Subject
Shares (as hereinafter defined).
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. TERMINATION OF SHARE EXCHANGE AGREEMENT. Contemporaneous with
and contingent only upon the execution of this Agreement, the Original
Agreement is hereby terminated and revoked, and all rights and privileges
of the parties thereto are nullified.
2. EFFECT OF MERGER. In the event the Merger occurs on or before
December 31, 1999, the shares of FemPartners received by Shareholder in the
Merger, in return for the Syntera shares (the "FemPartners Shares"), shall be
treated as Syntera Shares for all purposes hereunder. As used herein, "Subject
Shares" shall refer exclusively to the Syntera Shares, unless the Merger occurs
<PAGE>
on or before December 31, 1999, in which event "Subject Shares" shall, after the
Merger, refer exclusively to the FemPartners Shares. As used herein, "Gross
Exchange Value" shall mean the amount of $131,397, and such amount shall not be
adjusted in the event of any stock dividends, stock splits, reverse stock splits
or recapitalizations to which the Subject Shares are subject after the date of
this Agreement.
3. CONDITIONS TO EXCHANGE RIGHT. In addition to the other terms
and conditions contained in this Agreement, Shareholder shall only be entitled
to exchange the Subject Shares if each of the following conditions has been
satisfied:
(a) There shall not have been, on or before January 22, 2002
(the "Determination Date"), any registered public offering of shares of the same
class as the Subject Shares, or any other transaction or event pursuant to which
shares of the same class as the Subject Shares shall have become publicly traded
at a per share price (existing immediately after such public offering or other
transaction or event) which would yield an amount equal to or greater than the
Gross Exchange Value upon a sale of all of the Subject Shares at such price; 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, FemPartners, APS and/or any of their affiliates are
parties; and
<PAGE>
(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 Subject Shares, and the Subject Shares are
free of any and all liens, claims or encumbrances of any kind whatsoever; and
(d) If the Merger has not occurred on or prior to December 31,
1999, then on 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.
4. 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 Exchangeable Subject Shares (as hereinafter
defined), Shareholder shall provide written notice thereof (the "Exchange
Notice") to APS, which Exchange Notice must be received by APS not later than
the date (the "Expiration Date") which is ninety (90) calendar days after the
Determination Date. In the event (i) any of the conditions required for an
exchange to be permissible, as described in Section 1 above, fail to be
satisfied on or prior to the Determination Date, or (ii) any of the conditions
specified in subsections (b), (c) and (d) of Section 1 fail to be satisfied on
or prior to the Closing Date, or (iii) APS fails to receive an Exchange Notice
from Shareholder on or prior to the Expiration Date; then, in any such case, all
of Shareholder's rights under this Agreement shall automatically terminate and
be of no further force or effect whatsoever.
<PAGE>
5. SHARE EXCHANGE.
(a) Shareholder's right to exchange its Subject Shares hereunder shall
apply as to all, but not less than all, of the Subject Shares which are eligible
for exchange as described in this subparagraph (a). Assuming Shareholder has
complied with all of the conditions allowing for an exchange pursuant to this
Agreement, all of the Subject Shares are eligible for exchange.
(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 (x) the Expiration Date, (y)
if a Lock-Up Period (as hereinafter defined) is imposed pursuant to Section 6
hereof, the day on which such Lock-Up Period ends, or (z) if a Market Delay (as
hereinafter defined) is imposed pursuant to Section 5(c) hereof, the day on
which such Market Delay ends. The maximum number of Subject Shares which
Shareholder has the right to exchange pursuant to subparagraph (a) of this
Section are hereinafter referred to as the "Exchangeable Subject Shares." At the
Closing, Shareholder shall be entitled to receive either:
(i) 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; or
<PAGE>
(ii) such shares of Prime Stock as is determined by dividing
the Gross Exchange Value by the average of the "bid" and "ask" prices for the
Prime Stock 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; or
(iii) cash or immediately available funds in the amount of
the Gross Exchange Value; or
(iv) any combination thereof (as determined by APS in its sole
discretion), equal in aggregate value to the Gross Exchange Value.
(c) In the event APS elects to satisfy its obligations under this
Section 5 in whole or in part with the issuance to Shareholder of shares of APS
Common or Prime common stock, APS shall have the right to delay the issuance of
such shares of APS Common or Prime common stock for up to ninety (90) calendar
days (the "Market Delay"), if, in APS' sole discretion, an issuance of shares of
APS Common or Prime common stock pursuant to this Agreement, or in combination
with any similar agreement or agreements, would depreciate the market value of
the APS Common or Prime common stock, as applicable.
(d) At the Closing, Shareholder shall tender its share certificate(s)
for all of the Exchangeable Subject 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
<PAGE>
all interests in and to the Exchangeable Subject Shares and that the
Exchangeable Subject Shares are being transferred to APS free and clear of all
liens, claims or encumbrances of any kind whatsoever.
(e) Any shares of APS Common or Prime Stock that Shareholder receives
in the exchange are hereinafter referred to as the "New Shares." The parties
acknowledge and agree that Shareholder shall receive a whole number of shares of
New Shares only, and that any fractional share amounts resulting from the
foregoing exchange calculation shall be rounded up or down, as the case may be,
to the next whole number of shares. At the Closing, Shareholder shall either
receive a share certificate or certificates for all its New Shares or, if APS is
unable to produce (or caused to be produced) such certificate or certificates 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 or
certificates in the name of Shareholder directly to Shareholder or Shareholder's
designee.
6. NEW SHARES TRANSFERABILITY. APS will have registered any shares of
APS Common exchanged hereunder with the Securities and Exchange Commission (the
"Commission"), and made such other filings and taken such other steps as
necessary, so that Shareholder may immediately sell, or otherwise convey, such
shares of APS Common 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
<PAGE>
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 its shares of
APS Common 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"). Any Prime
Stock exchanged hereunder will be registered with the Commission and will be
free of any and all liens, encumbrances and security interests, so that
Shareholder may immediately sell or otherwise convey such Prime Stock without
restriction.
7. 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
<PAGE>
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: Lawrence M. Slocki, M.D.
4301 Garth Road, Suite 212
Baytown, Texas 77521
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/ W.H. Hayes
--------------------------
Printed Name: W.H. Hayes
--------------------------
Title: Sr. VP - Finance
--------------------------
SHAREHOLDER:
/s/ Lawrence M. Slocki, M.D.
-----------------------------
Exhibit 10.76
LOAN AGREEMENT
This Loan Agreement (this "Agreement") is entered into as of the 16th
day of June, 1999, by and between APS Consulting, Inc., a Texas corporation,
and APSC, Inc., a Delaware corporation.
DEFINITIONS:
-----------
EFFECTIVE DATE: June 16, 1999
BORROWER: APS Consulting, Inc., a Texas corporation
BORROWER'S ADDRESS: 1301 Capital of Texas Highway, Suite C-100,
Austin, Texas 78746, Fax: (512) 314-4559
LENDER: APSC, Inc., a Delaware 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) extending the Maximum Principal Amount
(as defined herein), dated June 16, 1999, executed by Borrower, and payable to
the order of Lender as provided therein (the "Note")
COLLATERAL: The following described personal property: 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 "A" attached to and incorporated herein
by reference.
LOAN DOCUMENTS: This Agreement, the Note, the Security Agreement 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:
<PAGE>
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 MAXIMUM PRINCIPAL AMOUNT. The maximum aggregate principal amount
(the "Maximum Principal Amount") of credit extended by Lender to Borrower
hereunder that will be outstanding at any time is the lesser of (i) $500,000, or
(ii) the Borrowing Base (as defined herein). The borrowing base (the "Borrowing
Base") equals ninety percent (90%) of the value of Qualified Accounts.
"Qualified Account" means any right of Borrower to receive payment for goods
sold or leased or services rendered in the ordinary course of Borrower's
business, but only if such right (i) is less than 90 days old, (ii) has not been
sold to any other person or entity and Borrower has not agreed to any such sale
and (iii) has not previously been deemed by Lender (in its sole discretion) to
be ineligible for consideration as a Qualified Account.
2.2 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 Borrower from time to time during the
period from the date hereof to and including July 1, 2000 ("Maturity Date") in
an aggregate amount not to exceed the Maximum Principal Amount of the Note. Each
Advance must be either $10,000 or a higher integral multiple of $10,000. Funds
borrowed and repaid may be reborrowed, so long as all conditions precedent to
Advances are met. In addition to providing funds to Borrower for working capital
and for other general business purposes of Borrower, one of the purposes of the
Loans is to enable Borrower to fully pay, and obtain (in form and substance
satisfactory to Lender) a release and discharge of (the "Access Capital
Release"), any and all liabilities, obligations, debts, claims and liens
(collectively, the "Access Capital Claims") owed by Borrower to Access Capital,
Inc., a New York corporation ("Access Capital"), including, without limitation,
all obligations under that certain factoring agreement, as amended, dated as of
February 11, 1998, by and between Access Capital and Borrower (formerly Eco
Acquisition, Inc. d/b/a Eco-Systems, Inc.), and any replacements thereof (the
"Factoring Agreement"). Accordingly, and notwithstanding anything herein to the
contrary, Lender may, in its sole discretion, refuse to make one or more
Advances hereunder unless and until all Access Capital Claims are fully paid and
Borrower has delivered to Lender the Access Capital Release.
2.3 Interest and Repayment. Borrower shall pay the aggregate unpaid
principal amount of all Advances in accordance with the terms of the Note, which
shall evidence 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 July 1, 2000.
2.4 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. All or a
<PAGE>
portion of the legal and accounting costs and expenses incurred by Lender or its
affiliates in connection with the preparation, negotiation and entering into of
the Loan Documents may, at the sole election of Lender, be considered an advance
by Lender under this Note.
2.5 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 or
other payment method acceptable to Lender. All repayments of principal on the
Note shall be in a minimum amount of $10,000, or a higher integral multiple of
$10,000. 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) the Security
Agreement covering the Collateral and all necessary financing statements
covering the Collateral; and (c) 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; (b) on the 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; (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; (d) the sum of (i) the
aggregate principal amount outstanding under this Agreement plus (ii) the
requested Advance, does not exceed the Maximum Principal Amount; (e) Lender
shall have received an aged accounts receivable report of all accounts
receivable of the Borrower; (f) if requested by Lender, all Access Capital
Claims shall have been fully paid, and (if requested by Lender) Lender shall
have received, the Access Capital Release, (g) Lender has been fully reimbursed
for all of its legal and accounting costs and expenses incurred in connection
with the preparation, negotiation and entering into of the Loan Documents (or
has elected, in its sole discretion, to consider any unpaid portion of such
amounts an Advance under this Agreement) and (h) 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.
<PAGE>
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
Security 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 "B" attached to
this Agreement.
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 SPECIFIED USE OF ADVANCE. If requested by Lender prior to Lender's
making any Advance, promptly use the proceeds of such Advance for full payment
of all Access Capital Claims, and promptly following such payment obtain and
deliver to Lender the Access Capital Release.
5.2 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
<PAGE>
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
a balance sheet and statement of profit and loss, within 60 days after
the end of each annual accounting period.
(b) Furnish to Lender monthly financial statements prepared in
the ordinary course of Borrower's business, to include a balance sheet
and profit and loss statement, within 30 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.
5.3 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.
5.4 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.
5.5 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.
5.6 TAXES. Pay all taxes as they become due and payable.
5.7 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.
5.8 BILLING OF QUALIFIED ACCOUNTS. Take all necessary steps to
have printed on each invoice including or reflecting amounts that are or have
been included in a Qualified Account a clear statement that payment of the
invoiced amount is to be sent directly to Lender's address set forth herein,
Attention: Chief Accounting Officer.
<PAGE>
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, 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 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 open accounts payable to unaffiliated third parties
in the ordinary course of Borrower's business; 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.
<PAGE>
ARTICLE VII
EVENTS OF DEFAULT; NOTICE; ACCELERATION
7.1 EVENTS OF DEFAULT. If one or more of the following events of
default shall occur, 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:
(a) Default shall be made in the payment of any installmen 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 contained herein 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, 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, in each case of greater than
$10,000, that 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,
Lender, without notice of any kind to Borrower or any other person or entity
(except as otherwise required by statute), may, at Lender's option: (i)
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, including foreclosure rights, 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.
<PAGE>
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, 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. 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.
<PAGE>
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 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.
<PAGE>
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 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 other person or entity.
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.
<PAGE>
8.16 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 June, 1999.
BORROWER:
APS CONSULTING, INC., a Texas corporation
By: /s/ James J. Connors, Jr.
---------------------------------
Name: James J. Connors, Jr.
---------------------------------
Title: President
---------------------------------
LENDER:
APSC, INC., a Delaware corporation
By: /s/ Duane Boyd
--------------------------------
Name: Duane Boyd
--------------------------------
Title: President
--------------------------------
<PAGE>
EXHIBIT A
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, more fully described in
the Exhibit "B" attached, 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) (i) all accounts, deposits, 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 or (ii) any investment property, as defined by the Texas UCC,
("Investment Property");
(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,
<PAGE>
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;
(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.
<PAGE>
EXHIBIT B
LIST OF BORROWER'S LEASES
17171 Park Row, Suite 120
Houston, Texas 77084
Harris County
318 Magnolia Avenue, Suite 3
Fairhope, Alabama 36532
Baldwin County
4294 Lakeland Drive, Suite 200
Jackson, Mississippi 39208
Rankin County
Exhibit 10.77
PROMISSORY NOTE
Austin, Texas (LINE OF CREDIT) June 16, 1999
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: APS Consulting, Inc., a Texas corporation
BORROWER'S ADDRESS FOR NOTICE: 1301 Capital of Texas Highway, Suite C-100
Austin, Texas 78746
LENDER: APSC, Inc., a Delaware corporation
LENDER'S ADDRESS FOR PAYMENT: 1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746
PRINCIPAL AMOUNT: The maximum aggregate
principal amount (the "Principal
Amount") of credit extended by
Lender to Borrower hereunder that
will be outstanding at any time is
the lesser of (i) $500,000 or the
(ii) Borrowing Base (as defined in
the Loan Agreement of even date
herewith, executed by Borrower and
Lender (as amended, the "Loan
Agreement")).
INTEREST RATE: Twelve Percent (12.0%)
PAYMENT TERMS: This Note is due and payable on demand, but if no demand is made,
then interest only on the unpaid balance of this Note is due and payable
monthly, beginning July 1, 1999, and continuing regularly and monthly thereafter
on or before the first day of each month of each year, until July 1, 2000 (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, 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. Pursuant to the Loan Agreement, all or a portion of the legal and
accounting costs and expenses incurred by Lender or its affiliates in connection
with the preparation, negotiation and entering into of the Loan Documents may,
at the sole election of Lender, be considered an advance by Lender under this
Note. 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.
<PAGE>
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.
(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
<PAGE>
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.
2. DEFAULT PROVISIONS:
(a) EVENTS OF DEFAULT AND ACCELERATION OF MATURITY: LENDER MAY, WITHOUT
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: 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.
<PAGE>
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.
(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.
<PAGE>
(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. LOAN DOCUMENTS:
(a) This Note consisting of this page and the preceding 4 pages.
(b) The Loan Agreement of even date.
(c) The Security Agreement securing this Note.
(d) All other documents signed in connection with the loan evidenced by
this Note.
EXECUTED this 16th day of June, 1999.
Borrower:
--------
APS CONSULTING, INC., a Texas corporation
By: /s/ James J. Connors, Jr.
----------------------------
Name: James J. Connors, Jr.
----------------------------
Title: President
----------------------------
Exhibit 10.78
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is entered into this 16th
day of June, 1999, by and between APS Consulting, Inc., a Texas corporation
("Debtor"), whose address is 1301 Capital of Texas Highway, Suite C-100, Austin,
Texas 78746, and APSC, Inc., a Delaware 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, 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), dated June 16, 1999, in the maximum
original principal amount of $500,000 (subject to other ceilings
provided therein), executed by Debtor, 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, and those described in Exhibit
"B". In the past five (5) years, Debtor has not used or done business under any
name other than "Eco-Acquisition, Inc.," "Eco-Systems" or 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 "B".
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.
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
warranties made by Debtor 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.
<PAGE>
3.7 PRINCIPAL PLACE OF BUSINESS. Debtor's principal place of business
is located at 4294 Lakeland Drive, Suite 200, Jackson, Mississippi 39208.
Debtor's 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 "C" 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 "C" or remove existing inventory and equipment
to a location other than the real properties described in Exhibit "C", 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 (i) Office of the Texas Secretary of State; (ii) Office of the Arkansas
Secretary of State; (iii) Office of the Alabama Secretary of State; (iv) Office
of the Mississippi Secretary of State; (v) the Office of the County Clerk of
Harris County, Texas; (vi) the Office of the County Clerk of Pulaski County
Arkansas; (vii) the Office of the County Clerk of Baldwin County Alabama; (viii)
the Office of the County Clerk of Rankin County, Mississippi; 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. 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 other 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 at any time
claiming any interest therein adverse to Secured Party. Debtor shall keep the
Collateral free from all liens and security interests.
<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 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.
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.
<PAGE>
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
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.
<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.
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.
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
<PAGE>
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
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.
4.26 RELEASE OF FILINGS. On or before July 15, 1999, Debtor shall
ensure that a release of all filings (in any public office) which purport to
provide notice of liens and/or obligations of or against Debtor or Debtor's
assets, other than those listed on Exhibit "B", is filed in the appropriate
public office.
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 or 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
<PAGE>
(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(c) above.
ARTICLE VI
DEFAULT
6.1 Events of Default. The following are events of default
under this Agreement ("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;
(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) 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; or
(f) levy on, seizure, or attachment of any property
of Debtor, or a judgment against Debtor, in each case in excess of
$10,000.
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 required by
statute), 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. Expenses of
retaking, holding, preparing for sale, selling, leasing, or the like shall
<PAGE>
include Secured Party's reasonable attorney's fees and legal expenses. Secured
Party shall be entitled to immediate possession of all books and records
evidencing any accounts or general intangibles or pertaining to chattel paper
covered by this Agreement and shall have the authority to enter upon any
premises upon which any of the same, or any Collateral, may be situated and
remove the same therefrom without liability. Secured Party may surrender any
insurance policies in Collateral and receive the unearned premium thereon.
Debtor shall be entitled to any surplus after payment of the Indebtedness and
shall be liable to Secured Party for any deficiency. The process of any
disposition after default available to satisfy the Indebtedness shall be applied
to the Indebtedness in such order and in such manner as Secured Party in its
discretion shall decide. If, in the opinion of Secured Party, there is any
question that a public sale or distribution of any Collateral will violate any
state or federal securities law, Secured Party (i) may offer and sell securities
privately to purchasers who will agree to take them for investment purposes and
not with a view to distribution and who will agree to imposition of restrictive
legends on the certificates representing the security, or (ii) may sell such
securities in an intrastate offering under Section 3(a)(11) of the Securities
Act of 1933, and no sale so made in good faith by Secured Party shall be deemed
to be not "commercially reasonable" because so made.
ARTICLE VII
GENERAL
7.1 PARTIES BOUND. Secured Party's rights under this Agreement and the
Security Interest shall inure to the benefits of its successors and assigns, and
in the event of any assignment or transfer of any of the Indebtedness or the
Collateral, Secured Party thereafter shall be fully discharged from any
responsibility with respect to the Collateral so assigned or transferred, but
Secured Party shall retain all rights and powers hereby given with respect to
any of the Indebtedness or Collateral not so assigned or transferred. All
representations, warranties, and agreements of Debtor if more than one are joint
and several, and all shall be binding upon the personal representatives, heirs,
successors, and assigns of Debtor.
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. Notices required herein or under applicable law 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 the 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
<PAGE>
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 Sec. 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.
EXECUTED this 16th day of June, 1999.
DEBTOR:
------
APS CONSULTING, INC., a Texas corporation
By: /s/ James J. Connors, Jr.
---------------------------
Name: James J. Connors, Jr.
Title: President
SECURED PARTY:
-------------
APSC, INC., a Delaware corporation
By: /s/ Duane Boyd
------------------------------
Name: Duane Boyd
------------------------------
Title: President
------------------------------
<PAGE>
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 "C" 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) (i) all accounts, deposits, 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 and (ii) any investment property, as defined in the Texas UCC
("Investment Property");
(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,
<PAGE>
including change of grade of streets, curb cuts or other rights of access, for
any public or quasipublic 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;
(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"
Encumbrances
American Physicians Service Group, Inc., a Texas corporation ("APS"), has
certain liens and security interests in the assets and property of Debtor
existing on the date of this Agreement, which liens and security interests are
junior to the liens and security interests granted by virtue of this Agreement
pursuant to that certain Subordination Agreement between APS and Secured Party
dated as of the date of this Agreement.
Access Capital, Inc., a New York corporation, has certain liens and security
interests in the assets and property of Debtor existing on the date of this
Agreement, which liens and security interests are senior to the liens and
security interests granted by virtue of this Agreement pursuant to that certain
Interparty Agreement between Secured Party and Access Capital dated as of the
date of this Agreement..
<PAGE>
EXHIBIT "C"
Real Property
17171 Park Row, Suite 120
Houston, Texas 77084
Harris County
318 Magnolia Avenue, Suite 3
Fairhope, Alabama 36532
Baldwin County
4294 Lakeland Drive, Suite 200
Jackson, Mississippi 39208
Rankin County
Exhibit 10.79
SUBORDINATION AGREEMENT
THIS SUBORINATION AGREEMENT is made as of the 16th day of June, 1999,
by and between American Physicians Service Group, Inc., a Texas corporation
(the "Creditor"), and APSC, INC., a Delaware corporation ("APSC").
W I T N E S S E T H:
WHEREAS, the Creditor has extended certain loans and financial accommodations to
APS Consulting, Inc., a Texas corporation (the "Company") pursuant to certain
refinancing agreements, loan agreements and instruments executed in connection
therewith (collectively, the "Creditor Agreements"); and
WHEREAS, the Company is indebted to the Creditor, which indebtedness is
secured by certain security interests in the assets of the Company (the
"Creditor Collateral") pursuant to the Creditor Agreements; and
WHEREAS, pursuant to the terms of that certain Loan Agreement by and
between the Company and APSC, and that certain Promissory Note by and between
the Company and APSC, both dated as of June 16, 1999, (collectively, the "Loan
Agreement"), APSC may, from time to time, advance funds to the Company; and
WHEREAS, pursuant to the terms of that certain Security Agreement by
and between the Company and APSC, of even date with the Loan Agreement (the
"APSC Security Agreement"), APSC desires to obtain a security interest in all of
the assets of the Company (the "APSC Collateral") that is senior to the security
interests held by Creditor; and
WHEREAS, the Creditor and APSC wish to enter into certain agreements
with respect to the administration of their respective security interests in the
Creditor Collateral and the APSC Collateral;
NOW, THEREFORE, the parties hereto agree as follows:
1. The Creditor consents to the execution and delivery by the
Company of the Loan Agreement and the APSC Security Agreement.
2. Notwithstanding any provisions to the contrary in the Creditor
Agreements or the APSC Security Agreement, the respective orders or priorities
which would ordinarily result from the time of granting and the time and place
of perfection of the respective security interests of the Creditor and APSC
under the Uniform Commercial Code as in effect in any jurisdiction or otherwise:
(a) the security interest of APSC in all the assets of
the Company shall be superior to and have priority over the security
interest of the Creditor in the APSC Collateral; and
<PAGE>
(b) the security interest of the Creditor in the
Creditor Collateral shall be junior to and be subordinate to the
security interest of APSC.
3. APSC agrees to give the Creditor notice of any default, acceleration
or enforcement of its security interest under the Loan Agreement, and the
Creditor agrees to give to APSC notice of any default, acceleration or
enforcement of its security interest under the Creditor Agreements, in each case
prior to or concurrently with the giving of such notice to the Company.
4. At such time as the Company's obligations to the Creditor pursuant
to the Creditor Agreements shall have been paid and discharged in full, the
Creditor will assign its security interest in all of the Creditor Collateral to
APSC and deliver to APSC all instruments and documents included in the Creditor
Collateral and in the possession of the Creditor. The Company consents and
agrees to such transfer and agrees that any such instruments and documents shall
thereafter be held by APSC subject to the provisions of the APSC Security
Agreement. The cost and expense of effectuating such assignment shall be borne
by the Company.
5. The Creditor shall not assign or transfer any claim against or
interest of any kind in the Creditor Collateral to any person while this
Agreement remains in effect unless such person shall execute an agreement
reasonably satisfactory to APSC to be bound by this Agreement.
6. APSC shall not assign or transfer any claim against or interest of
any kind in the APSC Collateral to any person while this Agreement remains in
effect unless such person shall execute an agreement reasonably satisfactory to
the Creditor to be bound by this Agreement.
7. In the event of commencement of foreclosure or other exercise of
remedies under the Creditor Agreements and under the Loan Agreement and Security
Agreement, the Creditor and APSC will cooperate in the exercise of their
respective remedies.
8. (a) All notices and reports required to be given hereunder shall be
hand delivered or sent by prepaid certified mail, return receipt requested
(confirmed by telefax if possible) and shall be deemed to have been given when
received. Notices and reports to the Creditor shall be addressed to the Creditor
at:
AMERICAN PHYSICIANS SERVICE GROUP, INC.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746
Telephone No.: 512-314-4301
Telefax No.: 512-314-4398
<PAGE>
and notices and reports to APSC shall be addressed to APSC at:
APSC, Inc.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746
Telephone No.: 512-314-4301
Telefax No.: 512-314-4398
or such other person or at such other address as either the Creditor or APSC may
from time to time specify.
(b) APSC will give the Creditor prompt notice of any amendment
to or extension or termination of the Loan Agreement or the Security Agreement,
and of any other agreement, document or instrument relating to or affecting the
APSC Collateral or providing for the extension to the Company of additional
credit. The Creditor will give APSC prompt notice of any amendment to or
extension or termination of the Creditor Agreements, and of any other agreement,
document or instrument relating to or affecting the Creditor Collateral or
providing for the extension to the Company of additional credit. In each case,
the notifying party shall provide the other party with a copy of an agreement,
document or instrument referred to in its notice.
9. If any dispute shall arise between the parties hereto with respect
to this Agreement or with respect to the rights or obligations hereunder of
either party, the parties agree to submit to arbitration in Austin, Texas in
accordance with the rules of the American Arbitration Association then
obtaining.
10. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
11. THE PARTIES HERETO DO HEREBY WAIVE ANY AND ALL RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ W.H. Hayes
----------------------------
Print Name: W.H. Hayes
----------------------------
Title: Sr. V.P. - Finance
----------------------------
APSC, INC.
By: /s/ Duane Boyd
---------------------------
Print Name: Duane Boyd
---------------------------
Title: President
---------------------------
The undersigned acknowledges receipt of a copy of the foregoing Agreement and
consent to the provision thereof:
APS CONSULTING, INC.
By: /s/ James J. Connors
----------------------------
Print Name: James J. Connors
----------------------------
Title: President
----------------------------
Exhibit 10.80
CONVERTIBLE PROMISSORY NOTE
Austin, Texas (LINE OF CREDIT) April 27, 1999
PROMISE TO PAY: For value received, the undersigned Borrower (whether one or
more) promises to pay to the order of Lender the Maximum 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 (as hereafter amended, and
together with such documents, instruments or certificates which may hereafter be
executed by Borrower and Lender pertaining to or evidencing this note, this
"Note").
BORROWER: Uncommon Care, Inc., a Texas corporation
BORROWER'S ADDRESS FOR NOTICE: 1301 Capital of Texas Highway, Suite C-100,
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
SUBORDINATION: THIS NOTE IS SUBORDINATED TO THE BORROWER'S PRESENT OR FUTURE
DEBT TO NATIONSBANK, N.A. DBA BANK OF AMERICA, N.A. (THE "BANK") AND ITS
SUCCESSOR AND ASSIGNS. IT IS SUBJECT TO THAT CERTAIN FOURTH AMENDMENT OF LOAN
AGREEMENT AND SUBORDINATION AGREEMENT DATED AS OF ____________, 1999, BETWEEN
THE BANK, BORROWER AND LENDER, AS FURTHER AMENDED, RESTATED, MODIFIED, AND
EXTENDED FROM TIME TO TIME.
<PAGE>
MAXIMUM PRINCIPAL AMOUNT: One Million Dollars and No/100 Dollars ($1,000,000)
INTEREST RATE: Twelve Percent (12.0%)
PAYMENT TERMS: Interest under this Note is due and payable semi-annually,
beginning October 1, 1999, and continuing regularly and semi-annually thereafter
on or before the first day of October and April of each year, until the Maturity
Date (as hereinafter defined), when the outstanding principal balance and all
accrued interest shall be due and payable in full (or converted into capital
stock of Borrower pursuant to Section 3). The Maturity Date shall be the earlier
to occur of April 30, 2000 or the date of closing of any Qualifying Equity
Financing (as hereinafter defined); provided that if no Qualified Equity
Financing has previously occurred, and if Borrower is not in default hereunder,
Borrower shall be entitled to extend the Maturity Date to the earlier to occur
of October 30, 2000 or the date of closing of any Qualifying Equity Financing,
but only by giving Lender written notice and paying Lender a $10,000
non-refundable extension fee prior to April 1, 2000. Any payment will be
credited first to expense reimbursements due hereunder, then to 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 and conditions contained herein, all or any portion of the
Maximum Principal Amount of this Note may be borrowed, paid, repaid, and
reborrowed, from time to time prior to the Maturity Date. 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, or
breach or threatened breach by Borrower, exists or has occurred under this Note
or any other contract, agreement, document, instrument or certificate executed,
<PAGE>
alone or together with third parties, by Borrower and Lender (or by Borrower for
the benefit of Lender), then Lender shall be under no obligation to make any
advance under this Note.
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. On each interest payment date and on the Maturity Date,
interest shall be calculated on the amount of each advance of the Maximum
Principal Amount of this Note, from the date of each such advance.
(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. 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,
<PAGE>
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 three (3) 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.
<PAGE>
(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.
2. ADVANCES:
(a) 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 Borrower from time to time during the
period from the date hereof to and including the Maturity Date in an aggregate
amount not to exceed the Maximum Principal Amount. Each Advance must be in the
minimum amount of $10,000 or in a higher integral multiple of $10,000. 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.
(b) 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.
(c) PAYMENTS AND COMPUTATIONS. Borrower shall make each payment under
this Note on the day when due in lawful money of the United States of America to
Lender at Lender's Address for
<PAGE>
payment in same day funds or other payment method
acceptable to Lender. All repayments of principal on the Note shall be in a
minimum amount of $10,000, or a higher integral multiple of $10,000.
(d) 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: (i) the Note duly executed by Borrower; (ii) such other
documents, opinions, certificates and evidences as Lender may reasonably
request; and (iii) reimbursement in full for all costs and expenses (including,
without limitation, legal fees and expenses) incurred by Lender in entering into
this lending arrangement.
(e) CONDITIONS PRECEDENT TO EACH ADVANCE. In addition to the conditions
precedent stated elsewhere herein, Lender shall not be obligated to make any
Advance unless: (i) the representations and warranties contained in paragraph 3
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; (ii) on the 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, and no breach or threatened breach by
Borrower, has occurred under this Note or any other contract, agreement,
document, instrument or certificate executed by Borrower and Lender (or by
Borrower for the benefit of Lender); (iii) there shall have been no material
adverse change, as determined by Lender in its reasonable judgment, in the
financial condition or business of Borrower; (iv) Borrower shall not have
previously provided notice to Lender of a Qualifying Equity Financing pursuant
to subsection 3(c); and (v) 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
subsection have been met.
<PAGE>
3. CONVERSION:
(a) QUALIFYING EQUITY FINANCING. A "Qualifying Equity Financing" shall
mean any equity financing or series of related equity financings, occurring on
or before the Maturity Date, in which Borrower sells equity securities to any
one or more parties (including, without limitation, Lender and any of Lender's
affiliates) and obtains net proceeds (excluding conversion of this Note) in an
amount not less than One Million Two Hundred Fifty Thousand Dollars
($1,250,000).
(b) CONVERSION. At the closing of any Qualifying Equity Financing, the
entire outstanding balance of this Note (including principal, interest and any
other amounts due hereunder, the "Outstanding Balance") shall, at the sole
discretion of Borrower, be either (i) paid in full by wire transfer of
immediately available funds or (ii) converted into capital stock of Borrower
using a conversion price of $2.00 per share (the "Conversion Price"). If, at the
maturity date, including extensions thereof, the Outstanding Balance has not
been paid in full, the Borrower shall have 90 days in which to make payment. If,
at the end of the 90-day period, the Lender has not received full payment of the
Outstanding Balance, then the Lender has the option of converting the
Outstanding Balance into capital stock of Borrower at the Conversion Price.
(c) NOTICE. Borrower shall provide the Bank and Lender with at least 30
days prior written notice of the closing of any Qualifying Equity Financing,
delivered to the address for such party last shown on the records of Borrower or
given by such party to Borrower for the purpose of notice.
(d) ISSUANCE OF SHARES. If this Note is converted into capital stock of
Borrower pursuant to this subsection, Borrower shall prior to or concurrently
with such conversion, deliver to Lender a written
<PAGE>
statement specifying the amount of the Outstanding Balance, the number and a
description of shares of capital stock issuable upon such conversion and the
date of such conversion. As promptly as practicable after such conversion,
Borrower will, at its expense, issue and deliver to Lender, upon surrender of
this Note, a certificate or certificates for the number of full shares of
capital stock issuable upon such conversion.
(e) NO FURTHER ADVANCES. After the occurrence of a Qualifying
Equity Financing, Lender shall have no obligation to make any advance of any
kind to Borrower under this Note.
(f) ADJUSTMENTS UPON DILUTION. The number of shares of capital stock of
Borrower to be received upon conversion of the Outstanding Balance hereunder by
Lender (the "Stock") shall be subject to adjustment as follows: (i) in the event
there is a subdivision or combination of the outstanding shares of Stock into a
larger or smaller number of shares, the number of shares of Stock receivable
upon conversion of the Outstanding Balance shall be increased or reduced in the
same proportion as the increase or decrease in the outstanding shares of Stock;
(ii) if the Company declares a dividend on Stock payable in Stock or securities
convertible into Stock, the number of shares of Stock receivable upon conversion
of the Outstanding Balance shall be increased, as of the record date for
determining which holders of Stock shall be entitled to receive such dividend,
in proportion to the increase in the number of outstanding shares of Stock as a
result of such dividend. Whenever the number of shares of Stock receivable upon
conversion is adjusted as herein provided, the Conversion Price shall be
adjusted by multiplying the applicable Conversion Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
shares of Stock receivable upon conversion immediately prior to such adjustment
and the denominator of which shall be the number of shares of Stock receivable
immediately after such adjustment.
<PAGE>
4. BORROWER'S REPRESENTATIONS AND WARRANTIES: Borrower represents and
warrants to Lender as follows:
(a) 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.
(b) 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.
(c) BINDING AGREEMENT. This Note when issued and delivered pursuant
hereto for value received will constitute the valid and legally binding
obligation of Borrower in accordance with its terms.
(d) 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.
(e) 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,
<PAGE>
delivery, or carrying out of the terms of this Agreement and the Note.
(f) TAXES. All income taxes and other taxes due and payable through the
date of this Agreement have been paid prior to becoming delinquent.
5. DEFAULT PROVISIONS:
(a) EVENTS OF DEFAULT AND ACCELERATION OF MATURITY: LENDER MAY, WITHOUT
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 (EACH OF SUCH EVENTS OR CONDITIONS
DESCRIBED IN CLAUSES (I) THROUGH (IV) BELOW BEING REFERRED TO HEREIN AS AN
"EVENT OF DEFAULT"):
(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, and Borrower has failed to cure such default after
ten (10) days' written notice to Borrower; or
(ii) There is default in the performance of any covenant,
condition, or agreement contained in, or any breach or threatened
breach by Borrower under, this Note, and Borrower has failed to cure
such default after twenty (20) days' written notice to Borrower; or
(iii) There is a default, breach or threatened breach by
Borrower under any contract, agreement, document, instrument or
certificate executed, alone or together with third parties, by Borrower
and Lender (or by Borrower for the benefit of Lender), subject to the
lapse of any cure period expressly set forth in such contract,
agreement, instrument or certificate; or
<PAGE>
(iv) Borrower or any guarantor files for bankruptcy, becomes
insolvent, or dissolves.
(b) WAIVER BY BORROWER: 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 the Maturity Date, 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) ATTORNEY'S FEES: If Lender requires the services of an attorney to
enforce the payment of this Note, 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.
<PAGE>
(f) 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, 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 amounts due under this Note, whether or not Lender exercises any
other right or remedy hereunder and whether or not such amounts due under this
Note are then matured.
6. LENDER'S REMEDIES: Upon the occurrence of an Event of Default and while it
may continue uncured, Lender, without notice of any kind, may, at Lender's
option: (i) by notice to Borrower, terminate its obligation to fund Advances
hereunder; (ii) declare the principal and accrued interest outstanding under
this Note, in whole or in part, immediately due and payable; and/or (iii)
exercise any other rights and remedies available to Lender under this Note, or
applicable laws; except that upon the occurrence of an Event of Default
described in subsection 5(a)(iv), all the principal and accrued interest
outstanding under this Note 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 this Note, or to any other person.
Notwithstanding any other provision of this Note, Borrower and Lender
each agree that neither this Note nor any amount owed under this Note (whether
principal, interest or otherwise) is subject to that certain Security Agreement
between Borrower and Lender, dated January 1, 1998 (the "Security Agreement").
Except as expressly stated in the foregoing sentence, neither this Note nor any
of the provisions of this Note shall modify, amend, supplement or limit the
terms or enforceability of the Security Agreement.
<PAGE>
7. 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.
(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. Lender may freely assign its rights
and obligations, in whole or in part, under this Note. Borrower may not assign
any of its rights and obligations, in whole or in part, under this Note.
(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.
<PAGE>
(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 this Note
constitutes 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
<PAGE>
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.
(m) NO ORAL AGREEMENTS: THIS NOTE 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.
<PAGE>
EXECUTED this 27th day of April, 1999.
Borrower: UNCOMMON CARE, INC., a Texas corporation
By: /s/ George R. Bouchard
---------------------------
Name: George R. Bouchard
---------------------------
Title: President
---------------------------
LENDER: AMERICAN PHYSICIANS SERVICE GROUP, INC.,
a Texas corporation
By: Duane Boyd
---------------------------
Name: Duane Boyd
---------------------------
Title: Senior VP
---------------------------
Exhibit 10.81
REPLACEMENT CONVERTIBLE PROMISSORY NOTE
Austin, Texas (LINE OF CREDIT) September 30, 1999
PROMISE TO PAY: For value received, the undersigned Borrower (whether one or
more) promises to pay to the order of Lender the Maximum 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 (as hereafter amended, and
together with such documents, instruments or certificates which may hereafter be
executed by Borrower and Lender pertaining to or evidencing this note, this
"Note").
BORROWER: Uncommon Care, Inc., a Texas corporation
BORROWER'S ADDRESS FOR NOTICE: 1301 Capital of Texas Highway, Suite C-100,
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
SUBORDINATION: THIS NOTE IS SUBORDINATED TO THE BORROWER'S PRESENT OR FUTURE
DEBT TO BANK OF AMERICA, N.A., FORMERLY KNOWN AS NATIONSBANK, N.A., SUCCESSOR
- -IN-INTEREST BY MERGER TO NATIONSBANK OF TEXAS, N.A. (THE "BANK") AND ITS
SUCCESSOR AND ASSIGNS. IT IS SUBJECT TO THAT CERTAIN SIXTH AMENDMENT OF LOAN
AGREEMENT AND SUBORDINATION
<PAGE>
AGREEMENT DATED AS OF SEPTEMBER 30, 1999, BETWEEN THE BANK, BORROWER AND LENDER,
AS FURTHER AMENDED, RESTATED, MODIFIED, AND EXTENDED FROM TIME TO TIME.
MAXIMUM PRINCIPAL AMOUNT: One Million Two Hundred Fifty Thousand Dollars and
No/100 Dollars ($1,250,000).
INTEREST RATE: Twelve Percent (12.0%)
PAYMENT TERMS: Interest under this Note is due and payable semi-annually,
beginning October 1, 1999, and continuing regularly and semi-annually thereafter
on or before the first day of October and April of each year, until the Maturity
Date (as hereinafter defined), when the outstanding principal balance and all
accrued interest shall be due and payable in full (or converted into capital
stock of Borrower pursuant to Section 3). The Maturity Date shall be the earlier
to occur of April 30, 2000 or the date of closing of any Qualifying Equity
Financing (as hereinafter defined); provided that if no Qualified Equity
Financing has previously occurred, and if Borrower is not in default hereunder,
Borrower shall be entitled to extend the Maturity Date to the earlier to occur
of October 30, 2000 or the date of closing of any Qualifying Equity Financing
(the "First Extension"), but only by giving Lender written notice and paying
Lender a $10,000 non-refundable extension fee prior to April 1, 2000. If
Borrower has extended the Maturity Date pursuant to the First Extension, no
Qualified Equity Financing has previously occurred, and if Borrower is not in
default hereunder, Borrower shall be entitled to extend the Maturity Date to the
earlier to occur of November 30, 2001 or the date of Closing of any Qualifying
Equity Financing (the "Second Extension"), but only by giving Lender written
notice and paying Lender a non-refundable extension fee equal to 3 percent (3%)
of the Maximum Principal Amount prior to November 1, 2001. Any payment will be
credited first to expense reimbursements due hereunder, then to accrued interest
and then to the reduction of principal.
<PAGE>
REVOLVING LINE OF CREDIT: This Note evidences a revolving line of credit.
Subject to the terms and conditions contained herein, all or any portion of the
Maximum Principal Amount of this Note may be borrowed, paid, repaid, and
reborrowed, from time to time prior to the Maturity Date. 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, or
breach or threatened breach by Borrower, exists or has occurred under this Note
or any other contract, agreement, document, instrument or certificate executed,
alone or together with third parties, by Borrower and Lender (or by Borrower for
the benefit of Lender), then Lender shall be under no obligation to make any
advance under this Note.
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. On each interest payment date and on the Maturity Date,
interest shall be calculated on the amount of each advance of the Maximum
Principal Amount of this Note, from the date of each such advance.
(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. 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.
<PAGE>
(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.
<PAGE>
(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 three (3) 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.
2. ADVANCES:
(a) 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 Borrower from time to time during the
period from the date hereof to and including the Maturity Date in an aggregate
amount not to exceed the Maximum Principal Amount. Each Advance must be in the
minimum amount of $10,000 or in a higher integral multiple of $10,000. 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.
<PAGE>
(b) 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.
(c) Payments and Computations. Borrower shall make each payment under
this 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 or other payment method
acceptable to Lender. All repayments of principal on the Note shall be in a
minimum amount of $10,000, or a higher integral multiple of $10,000.
(d) 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: (i) the Note duly executed by Borrower; (ii) such other
documents, opinions, certificates and evidences as Lender may reasonably
request; and (iii) reimbursement in full for all costs and expenses (including,
without limitation, legal fees and expenses) incurred by Lender in entering into
this lending arrangement.
(e) Conditions Precedent to Each Advance. In addition to the conditions
precedent stated elsewhere herein, Lender shall not be obligated to make any
Advance unless: (i) the representations and warranties contained in paragraph 4
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; (ii) on the 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, and no breach or threatened breach by
Borrower, has occurred under this Note or any other contract, agreement,
<PAGE>
document, instrument or certificate executed by Borrower and Lender (or by
Borrower for the benefit of Lender); (iii) there shall have been no material
adverse change, as determined by Lender in its reasonable judgment, in the
financial condition or business of Borrower; (iv) Borrower shall not have
previously provided notice to Lender of a Qualifying Equity Financing pursuant
to subsection 3(c); (v) 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); and (vi)
reimbursement in full for all costs and expenses (including, without limitation,
legal fees and expenses) incurred by Lender in entering into this lending
arrangement or making any additional advances hereunder. Each request for an
Advance shall be deemed a representation by Borrower that the conditions of this
subsection have been met.
(f) Outstanding Balance in Excess of One Million Dollars. If, at any
time, the Outstanding Balance (as hereinafter defined) is equal to or exceeds
One Million Dollars ($1,000,000), the Borrower, on the first such occurrence,
shall pay to Lender a non-refundable fee equal to one percent (1%) of the
Maximum Principal Amount.
3. CONVERSION:
(a) Qualifying Equity Financing. A "Qualifying Equity Financing" shall
mean any equity financing or series of related equity financings, occurring on
or before the Maturity Date, in which Borrower sells equity securities to any
one or more parties (including, without limitation, Lender and any of Lender's
affiliates) and obtains net proceeds (excluding conversion of this Note) in an
amount not less than Two Million Five Hundred Thousand Dollars ($2,500,000).
(b) Conversion. At the closing of any Qualifying Equity Financing, the
entire outstanding balance of this Note (including principal, interest and any
other amounts due hereunder, the "Outstanding Balance")
<PAGE>
shall, at the sole discretion of Borrower, be either (i) paid in full by wire
transfer of immediately available funds or (ii) converted into common stock of
Borrower using a conversion price of $2.00 per share (the "Conversion Price").
If, at the maturity date, including extensions thereof, the Outstanding Balance
has not been paid in full, the Borrower shall have 90 days in which to make
payment. If, at the end of the 90-day period, the Lender has not received full
payment of the Outstanding Balance, then the Lender has the option of converting
the Outstanding Balance into capital stock of Borrower at the Conversion Price.
(c) Notice. Borrower shall provide the Bank and Lender with at least 30
days prior written notice of the closing of any Qualifying Equity Financing,
delivered to the address for such party last shown on the records of Borrower or
given by such party to Borrower for the purpose of notice.
(d) Issuance of Shares. If this Note is converted into capital stock of
Borrower pursuant to this subsection, Borrower shall prior to or concurrently
with such conversion, deliver to Lender a written statement specifying the
amount of the Outstanding Balance, the number and a description of shares of
capital stock issuable upon such conversion and the date of such conversion. As
promptly as practicable after such conversion, Borrower will, at its expense,
issue and deliver to Lender, upon surrender of this Note, a certificate or
certificates for the number of full shares of capital stock issuable upon such
conversion.
(e) No Further Advances. After the occurrence of a Qualifying
Equity Financing, Lender shall have no obligation to make any advance of any
kind to Borrower under this Note.
(f) Adjustments Upon Dilution. The number of shares of capital stock of
Borrower to be received upon conversion of the Outstanding Balance hereunder by
Lender (the "Stock") shall be subject
<PAGE>
to adjustment as follows: (i) in the event there is a subdivision or combination
of the outstanding shares of Stock into a larger or smaller number of shares,
the number of shares of Stock receivable upon conversion of the Outstanding
Balance shall be increased or reduced in the same proportion as the increase or
decrease in the outstanding shares of Stock; (ii) if the Company declares a
dividend on Stock payable in Stock or securities convertible into Stock, the
number of shares of Stock receivable upon conversion of the Outstanding Balance
shall be increased, as of the record date for determining which holders of Stock
shall be entitled to receive such dividend, in proportion to the increase in the
number of outstanding shares of Stock as a result of such dividend. Whenever the
number of shares of Stock receivable upon conversion is adjusted as herein
provided, the Conversion Price shall be adjusted by multiplying the applicable
Conversion Price immediately prior to such adjustment by a fraction, the
numerator of which shall be the number of shares of Stock receivable upon
conversion immediately prior to such adjustment and the denominator of which
shall be the number of shares of Stock receivable immediately after such
adjustment.
4. BORROWER'S REPRESENTATIONS AND WARRANTIES: Borrower represents and
warrants to Lender as follows:
(a) 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.
(b) Authority and Compliance. Borrower has full power and authority to
enter into this Note, to make the borrowing hereunder, to execute and deliver
the Note and to incur the indebtedness described in this Note, all of which has
been duly authorized by all proper and necessary corporate action.
<PAGE>
No further consent or approval of any public authority is required as a
condition to the validity of this Note, and Borrower is in compliance with all
laws and regulatory requirements to which it is subject.
(c) Binding Agreement. This Note when issued and delivered
pursuant hereto for value received will constitute the valid and legally binding
obligation of Borrower in accordance with its terms.
(d) 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 Note.
(e) 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 Note.
(f) Taxes. All income taxes and other taxes due and payable through the
date of this Note have been paid prior to becoming delinquent.
5. DEFAULT PROVISIONS:
(a) EVENTS OF DEFAULT AND ACCELERATION OF MATURITY: LENDER MAY, WITHOUT
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 (EACH OF SUCH EVENTS OR CONDITIONS
DESCRIBED IN CLAUSES (I) THROUGH (IV) BELOW BEING REFERRED TO HEREIN AS AN
"EVENT OF DEFAULT"):
<PAGE>
(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, and Borrower has failed to cure such default after
ten (10) days' written notice to Borrower; or
(ii) There is default in the performance of any covenant,
condition, or agreement contained in, or any breach or threatened
breach by Borrower under, this Note, and Borrower has failed to cure
such default after twenty (20) days' written notice to Borrower; or
(iii) There is a default, breach or threatened breach by
Borrower under any contract, agreement, document, instrument or
certificate executed, alone or together with third parties, by Borrower
and Lender (or by Borrower for the benefit of Lender), subject to the
lapse of any cure period expressly set forth in such contract,
agreement, instrument or certificate; or
(iv) Borrower or any guarantor files for bankruptcy, becomes
insolvent, or dissolves.
(b) WAIVER BY BORROWER: 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.
<PAGE>
(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 the Maturity Date, 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) Attorney's Fees: If Lender requires the services of an attorney to
enforce the payment of this Note, 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.
(f) 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, 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 amounts due under this Note, whether or not Lender exercises any
other right or remedy hereunder and whether or not such amounts due under this
Note are then matured.
6. LENDER'S REMEDIES: Upon the occurrence of an Event of Default and while it
may continue uncured, Lender, without notice of any kind, may, at Lender's
option: (i) by notice to Borrower,
<PAGE>
terminate its obligation to fund Advances hereunder; (ii) declare the principal
and accrued interest outstanding under this Note, in whole or in part,
immediately due and payable; and/or (iii) exercise any other rights and remedies
available to Lender under this Note, or applicable laws; except that upon the
occurrence of an Event of Default described in subsection 5(a)(iv), all the
principal and accrued interest outstanding under this Note 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 this Note, or to
any other person.
Notwithstanding any other provision of this Note, Borrower and Lender
each agree that neither this Note nor any amount owed under this Note (whether
principal, interest or otherwise) is subject to that certain Security Agreement
between Borrower and Lender, dated January 1, 1998 (the "Security Agreement").
Except as expressly stated in the foregoing sentence, neither this Note nor any
of the provisions of this Note shall modify, amend, supplement or limit the
terms or enforceability of the Security Agreement.
7. 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.
(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.
<PAGE>
(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. Lender may freely assign its rights
and obligations, in whole or in part, under this Note. Borrower may not assign
any of its rights and obligations, in whole or in part, under this Note.
(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 this Note
constitutes 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.
<PAGE>
(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 346 Not Applicable: It is understood that Chapter 346 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.
(m) NO ORAL AGREEMENTS: THIS NOTE REPRESENTS THE FINAL AGREEMEN
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.
<PAGE>
(n) LENDER'S COSTS AND EXPENSES: Borrower shall reimburse Lender in
full for all costs and expenses (including, without limitation, legal fees and
expenses) incurred by Lender in entering into this lending arrangement, making
any additional advances hereunder, and negotiating, making and entering into any
modification, extension, or amendment of this lending arrangement.
(o) OUTSTANDING PRINCIPAL BALANCE: This Note replaces and supercedes
that certain Convertible Promissory Note dated as of April 27, 1999, between
Borrower and Lender, in the original principal amount of $1,000,000. Borrower
acknowledges and agrees that, as of the date of execution of this Note, the
amount of principal outstanding under previous advances pursuant to this Note is
$715,000, plus all accrued interest thereon and all fees due and payable
hereunder.
EXECUTED this 30th day of September, 1999.
Borrower: UNCOMMON CARE, 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 Boyd
-----------------------
Name: Duane Boyd
-----------------------
Title: Senior VP
-----------------------
Exhibit 10.82
CONVERTIBLE PROMISSORY NOTE
Austin, Texas (LINE OF CREDIT) September 30, 1999
PROMISE TO PAY: For value received, the undersigned Borrower (whether one or
more) promises to pay to the order of Lender the Maximum 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 (as hereafter amended, and
together with such documents, instruments or certificates which may hereafter be
executed by Borrower and Lender pertaining to or evidencing this note, this
"Note").
BORROWER: Uncommon Care, Inc., a Texas corporation
BORROWER'S ADDRESS FOR NOTICE: 1301 Capital of Texas Highway, Suite C-100,
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
SUBORDINATION: THIS NOTE IS SUBORDINATED TO THE BORROWER'S PRESENT OR FUTURE
DEBT TO BANK OF AMERICA, N.A., FORMERLY KNOWN AS NATIONSBANK, N.A.,
SUCCESSOR-IN-INTEREST BY MERGER TO NATIONSBANK OF TEXAS, N.A. (THE "BANK") AND
ITS SUCCESSOR AND ASSIGNS. IT IS SUBJECT TO THAT CERTAIN SIXTH AMENDMENT OF LOAN
AGREEMENT AND SUBORDINATION
<PAGE>
AGREEMENT DATED AS OF SEPTEMBER 30, 1999, BETWEEN THE BANK, BORROWER AND LENDER,
AS FURTHER AMENDED, RESTATED, MODIFIED, AND EXTENDED FROM TIME TO TIME.
MAXIMUM PRINCIPAL AMOUNT: The maximum aggregate principal amount (the "Maximum
Principal Amount") of credit extended by Lender to Borrower hereunder that will
be outstanding at any time is the lesser of (i) One Million Two Hundred Thousand
Dollars and No/100 Dollars ($1,200,000), or (ii) the Borrowing Base (as
hereinafter defined).
INTEREST RATE: Ten Percent (10.0%)
BORROWING BASE: The "Borrowing Base" shall be one half of the appraised value of
the Collateral (as hereinafter defined), from time to time, subject to Lender's
approval. In the event any Collateral is sold, quitclaimed, transferred,
assigned or otherwise alienated, the Borrowing Base and the Maximum Principal
Amount shall be adjusted accordingly. If, after the Maximum Principal Amount is
adjusted pursuant to the preceding sentence, and after all other payments
required to be made upon the sale or alienation of Collateral have been made,
the outstanding principal balance and all accrued interest exceeds the adjusted
Maximum Principal Amount, the Borrower will immediately pay to Lender an amount
equal to such excess.
COLLATERAL: As security for this Note, Borrower shall execute that certain Deed
of Trust of even date herewith (the "Deed of Trust"), granting Lender a first
lien security interest in those parcels of real property located in Houston,
Texas (the "Houston Collateral"), Louisville, Kentucky (the "Louisville
Collateral"), Nashville, Tennessee (the "Nashville Collateral") and South Lake,
Texas (the "South Lake Collateral"), all as more particularly described in the
Deed of Trust (collectively, the "Collateral").
<PAGE>
PAYMENT TERMS: Interest under this Note is due and payable semi-annually,
beginning October 1, 1999, and continuing regularly and semi-annually thereafter
on or before the first day of October and April of each year, until the Maturity
Date (as hereinafter defined), when the outstanding principal balance and all
accrued interest shall be due and payable in full or converted into capital
stock of Borrower pursuant to Section 3. The Maturity Date shall be the earlier
to occur of (i) September 30, 2001, (ii) sixty (60) days after the date of
closing of any Qualifying Equity Financing (as hereinafter defined) or, (iii)
sixty (60) days after the date of closing of the sale of the Houston Collateral.
Any payment will be credited first to expense reimbursements due hereunder, then
to 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 and conditions contained herein, all or any portion of the
Maximum Principal Amount of this Note may be borrowed, paid, repaid, and
reborrowed, from time to time prior to the Maturity Date. 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, or
breach or threatened breach by Borrower, exists or has occurred under this Note
or any other contract, agreement, document, instrument or certificate executed,
alone or together with third parties, by Borrower and Lender (or by Borrower for
the benefit of Lender), then Lender shall be under no obligation to make any
advance under this Note.
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. On each interest payment date and on the Maturity Date,
<PAGE>
interest shall be calculated on the amount of each advance of the Maximum
Principal Amount of this Note, from the date of each such advance.
(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. 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,
<PAGE>
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 three (3) 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.
<PAGE>
2. ADVANCES:
(a) 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 Borrower from time to time during the
period from the date hereof to and including the Maturity Date in an aggregate
amount not to exceed the Maximum Principal Amount. Each Advance must be in the
minimum amount of $10,000 or in a higher integral multiple of $10,000. 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.
(b) 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.
(c) Payments and Computations. Borrower shall make each payment under
this 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 or other payment method
acceptable to Lender. All repayments of principal on the Note shall be in a
minimum amount of $10,000, or a higher integral multiple of $10,000.
(d) 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: (i) the Note duly executed by Borrower; (ii) an advance fee
<PAGE>
equal to three percent (3%) of the Maximum Principal Amount; (iii) such other
documents, opinions, certificates and evidences as Lender may reasonably
request; and (iv) reimbursement in full for all costs and expenses (including,
without limitation, legal fees and expenses) incurred by Lender in entering into
this lending arrangement.
(e) Conditions Precedent to Each Advance. In addition to the conditions
precedent stated elsewhere herein, Lender shall not be obligated to make any
Advance unless: (i) the representations and warranties contained in paragraph 4
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; (ii) on the 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, and no breach or threatened breach by
Borrower, has occurred under this Note or any other contract, agreement,
document, instrument or certificate executed by Borrower and Lender (or by
Borrower for the benefit of Lender); (iii) there shall have been no material
adverse change, as determined by Lender in its reasonable judgment, in the
financial condition or business of Borrower; (iv) Borrower shall not have
previously provided notice to Lender of a Qualifying Equity Financing pursuant
to subsection 3(c); (v) 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); and (vi)
reimbursement in full for all costs and expenses (including, without limitation,
legal fees and expenses) incurred by Lender in entering into this lending
arrangement or making any additional advances hereunder. Each request for an
Advance shall be deemed a representation by Borrower that the conditions of this
subsection have been met.
<PAGE>
3. CONVERSION AND SALES OF COLLATERAL:
(a) Qualifying Equity Financing. A "Qualifying Equity Financing" shall
mean any equity financing or series of related equity financings, occurring on
or before the Maturity Date, in which Borrower sells equity securities to any
one or more parties (including, without limitation, Lender and any of Lender's
affiliates) and obtains net proceeds (excluding conversion of this Note) in an
amount not less than Two Million Five Hundred Thousand Dollars ($2,500,000).
(b) Conversion. At the closing of any Qualifying Equity Financing, the
entire outstanding balance of this Note (including principal, interest and any
other amounts due hereunder, the "Outstanding Balance") shall, at the sole
discretion of Borrower, be either (i) paid in full by wire transfer of
immediately available funds or (ii) converted into common stock of Borrower
using a conversion price of $2.00 per share (the "Conversion Price"). If, at the
maturity date, including extensions thereof, the Outstanding Balance has not
been paid in full, the Borrower shall have 90 days in which to make payment. If,
at the end of the 90-day period, the Lender has not received full payment of the
Outstanding Balance, then the Lender has the option of converting the
Outstanding Balance into capital stock of Borrower at the Conversion Price.
(c) Notice. Borrower shall provide the Bank and Lender with at least 30
days prior written notice of the closing of any Qualifying Equity Financing,
delivered to the address for such party last shown on the records of Borrower or
given by such party to Borrower for the purpose of notice.
(d) Issuance of Shares. If this Note is converted into capital stock of
Borrower pursuant to this subsection, Borrower shall prior to or concurrently
with such conversion, deliver to Lender a written statement specifying the
amount of the Outstanding Balance, the number and a description of shares of
<PAGE>
capital stock issuable upon such conversion and the date of such conversion. As
promptly as practicable after such conversion, Borrower will, at its expense,
issue and deliver to Lender, upon surrender of this Note, a certificate or
certificates for the number of full shares of capital stock issuable upon such
conversion.
(e) No Further Advances. After the occurrence of a Qualifying
Equity Financing, Lender shall have no obligation to make any advance of any
kind to Borrower under this Note.
(f) Adjustments Upon Dilution. The number of shares of capital stock of
Borrower to be received upon conversion of the Outstanding Balance hereunder by
Lender (the "Stock") shall be subject to adjustment as follows: (i) in the event
there is a subdivision or combination of the outstanding shares of Stock into a
larger or smaller number of shares, the number of shares of Stock receivable
upon conversion of the Outstanding Balance shall be increased or reduced in the
same proportion as the increase or decrease in the outstanding shares of Stock;
(ii) if the Company declares a dividend on Stock payable in Stock or securities
convertible into Stock, the number of shares of Stock receivable upon conversion
of the Outstanding Balance shall be increased, as of the record date for
determining which holders of Stock shall be entitled to receive such dividend,
in proportion to the increase in the number of outstanding shares of Stock as a
result of such dividend. Whenever the number of shares of Stock receivable upon
conversion is adjusted as herein provided, the Conversion Price shall be
adjusted by multiplying the applicable Conversion Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
shares of Stock receivable upon conversion immediately prior to such adjustment
and the denominator of which shall be the number of shares of Stock receivable
immediately after such adjustment.
<PAGE>
(g) Sale of Collateral. In the event any Collateral is sold,
quitclaimed, transferred or otherwise alienated, Borrower shall immediately
apply one half of the proceeds received at the closing of such transaction to
the outstanding principal balance and all accrued interest under this Note.
4. BORROWER'S REPRESENTATIONS AND WARRANTIES: Borrower represents and
warrants to Lender as follows:
(a) 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.
(b) Authority and Compliance. Borrower has full power and authority to
enter into this Note, to make the borrowing hereunder, to execute and deliver
the Note and to incur the indebtedness described in this Note, 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 Note, and Borrower is in compliance with all laws and
regulatory requirements to which it is subject.
(c) Binding Agreement. This Note when issued and delivered
pursuant hereto for value received will constitute the valid and legally binding
obligation of Borrower in accordance with its terms.
(d) 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 Note.
<PAGE>
(e) 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 Note.
(f) Taxes. All income taxes and other taxes due and payable through the
date of this Note have been paid prior to becoming delinquent.
5. DEFAULT PROVISIONS:
(a) EVENTS OF DEFAULT AND ACCELERATION OF MATURITY: LENDER MAY, WITHOUT
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 (EACH OF SUCH EVENTS OR CONDITIONS
DESCRIBED IN CLAUSES (I) THROUGH (IV) BELOW BEING REFERRED TO HEREIN AS AN
"EVENT OF DEFAULT"):
(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, and Borrower has failed to cure such default after
ten (10) days' written notice to Borrower; or
(ii) There is default in the performance of any covenant,
condition, or agreement contained in, or any breach or threatened
breach by Borrower under, this Note, and Borrower has failed to cure
such default after twenty (20) days' written notice to Borrower; or
(iii) There is a default, breach or threatened breach by
Borrower under any contract,
<PAGE>
agreement, document, instrument or
certificate executed, alone or together with third parties, by Borrower
and Lender (or by Borrower for the benefit of Lender), subject to the
lapse of any cure period expressly set forth in such contract,
agreement, instrument or certificate; or
(iv) Borrower or any guarantor files for bankruptcy,
becomes insolvent, or dissolves.
(b) WAIVER BY BORROWER: 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 the Maturity Date, 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) Attorney's Fees: If Lender requires the services of an attorney to
<PAGE>
enforce the payment of this Note, 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.
(f) 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, 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 amounts due under this Note, whether or not Lender exercises any
other right or remedy hereunder and whether or not such amounts due under this
Note are then matured.
6. LENDER'S REMEDIES: Upon the occurrence of an Event of Default and while it
may continue uncured, Lender, without notice of any kind, may, at Lender's
option: (i) by notice to Borrower, terminate its obligation to fund Advances
hereunder; (ii) declare the principal and accrued interest outstanding under
this Note, in whole or in part, immediately due and payable; and/or (iii)
exercise any other rights and remedies available to Lender under this Note, or
applicable laws; except that upon the occurrence of an Event of Default
described in subsection 5(a)(iv), all the principal and accrued interest
outstanding under this Note 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 this Note, or to any other person.
Notwithstanding any other provision of this Note, Borrower and Lender
each agree that neither this Note nor any amount owed under this Note (whether
principal, interest or otherwise) is subject to that certain Security Agreement
<PAGE>
between Borrower and Lender, dated January 1, 1998 (the "Security Agreement").
Except as expressly stated in the foregoing sentence, neither this Note nor any
of the provisions of this Note shall modify, amend, supplement or limit the
terms or enforceability of the Security Agreement.
7. 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.
(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. Lender may freely assign its rights
and obligations, in whole or in part, under this Note. Borrower may not assign
any of its rights and obligations, in whole or in part, under this Note.
<PAGE>
(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 this Note
constitutes 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.
<PAGE>
(k) Chapter 346 Not Applicable: It is understood that Chapter 346 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.
(m) NO ORAL AGREEMENTS: THIS NOTE 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.
(n) LENDER'S COSTS AND EXPENSES: Borrower shall reimburse Lender in
full for all costs and expenses (including, without limitation, legal fees and
expenses) incurred by Lender in entering into this lending arrangement, making
any additional advances hereunder, and negotiating, making and entering into any
modification, extension, or amendment of this lending arrangement.
EXECUTED this 30th day of September, 1999.
Borrower: UNCOMMON CARE, 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 Boyd
-----------------------
Name: Duane Boyd
-----------------------
Title: Senior VP
-----------------------
Exhibit 10.83
REPLACEMENT CONVERTIBLE PROMISSORY NOTE
Austin, Texas (LINE OF CREDIT) October 15, 1999
PROMISE TO PAY: For value received, the undersigned Borrower (whether one or
more) promises to pay to the order of Lender the Maximum 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 (as hereafter amended, and
together with such documents, instruments or certificates which may hereafter be
executed by Borrower and Lender pertaining to or evidencing this note, this
"Note").
BORROWER: Uncommon Care, Inc., a Texas corporation
BORROWER'S ADDRESS FOR NOTICE: 1301 Capital of Texas Highway, Suite C-100,
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
SUBORDINATION: THIS NOTE IS SUBORDINATED TO THE BORROWER'S PRESENT OR FUTURE
DEBT TO BANK OF AMERICA, N.A., FORMERLY KNOWN AS NATIONSBANK, N.A.,
SUCCESSOR-IN-INTEREST BY MERGER TO NATIONSBANK OF TEXAS, N.A. (THE "BANK") AND
ITS SUCCESSOR AND ASSIGNS. IT IS SUBJECT TO THAT CERTAIN SIXTH AMENDMENT OF LOAN
<PAGE>
AGREEMENT AND SUBORDINATION AGREEMENT DATED AS OF SEPTEMBER 30, 1999, BETWEEN
THE BANK, BORROWER AND LENDER, AS FURTHER AMENDED, RESTATED, MODIFIED, AND
EXTENDED FROM TIME TO TIME.
MAXIMUM PRINCIPAL AMOUNT: The maximum aggregate principal amount (the "Maximum
Principal Amount") of credit extended by Lender to Borrower hereunder that will
be outstanding at any time is One Million Two Hundred Thousand Dollars and
No/100 Dollars ($1,200,000).
INTEREST RATE: Ten Percent (10.0%)
COLLATERAL: As security for this Note, Borrower shall execute that certain Deed
of Trust of even date herewith (the "Deed of Trust"), granting Lender a first
lien security interest in those parcels of real property located in Houston,
Texas (the "Houston Collateral"), Louisville, Kentucky (the "Louisville
Collateral"), Nashville, Tennessee (the "Nashville Collateral") and South Lake,
Texas (the "South Lake Collateral"), all as more particularly described in the
Deed of Trust (collectively, the "Collateral").
PAYMENT TERMS: Interest under this Note is due and payable semi-annually,
beginning October 1, 1999, and continuing regularly and semi-annually thereafter
on or before the first day of October and April of each year, until the Maturity
Date (as hereinafter defined), when the outstanding principal balance and all
accrued interest shall be due and payable in full or converted into capital
stock of Borrower pursuant to Section 3. The Maturity Date shall be the earlier
to occur of (i) September 30, 2001 or (ii) sixty (60) days after the date of
closing of any Qualifying Equity Financing (as hereinafter defined). Any payment
will be credited first to expense reimbursements due hereunder, then to accrued
interest and then to the reduction of principal.
<PAGE>
REVOLVING LINE OF CREDIT: This Note evidences a revolving line of credit.
Subject to the terms and conditions contained herein, all or any portion of the
Maximum Principal Amount of this Note may be borrowed, paid, repaid, and
reborrowed, from time to time prior to the Maturity Date. 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, or
breach or threatened breach by Borrower, exists or has occurred under this Note
or any other contract, agreement, document, instrument or certificate executed,
alone or together with third parties, by Borrower and Lender (or by Borrower for
the benefit of Lender), then Lender shall be under no obligation to make any
advance under this Note.
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. On each interest payment date and on the Maturity Date,
interest shall be calculated on the amount of each advance of the Maximum
Principal Amount of this Note, from the date of each such advance.
(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. 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
<PAGE>
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
<PAGE>
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 three (3) 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.
2. ADVANCES:
(a) 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 Borrower from time to time during the
period from the date hereof to and including the Maturity Date in an aggregate
amount not to exceed the Maximum Principal Amount. Each Advance must be in the
minimum amount of $10,000 or in a higher integral multiple of $10,000. 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.
(b) 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
<PAGE>
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.
(c) Payments and Computations. Borrower shall make each payment under
this 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 or other payment method
acceptable to Lender. All repayments of principal on the Note shall be in a
minimum amount of $10,000, or a higher integral multiple of $10,000.
(d) 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: (i) the Note duly executed by Borrower; (ii) an advance fee
equal to three percent (3%) of the Maximum Principal Amount; (iii) such other
documents, opinions, certificates and evidences as Lender may reasonably
request; and (iv) reimbursement in full for all costs and expenses (including,
without limitation, legal fees and expenses) incurred by Lender in entering into
this lending arrangement.
(e) Conditions Precedent to Each Advance. In addition to the conditions
precedent stated elsewhere herein, Lender shall not be obligated to make any
Advance unless: (i) the representations and warranties contained in paragraph 4
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; (ii) on the 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, and no breach or threatened breach by
Borrower, has occurred under this Note or any other contract, agreement,
document, instrument or certificate executed by Borrower and Lender (or by
Borrower for the benefit of Lender); (iii) there shall have been no material
<PAGE>
adverse change, as determined by Lender in its reasonable judgment, in the
financial condition or business of Borrower; (iv) Borrower shall not have
previously provided notice to Lender of a Qualifying Equity Financing pursuant
to subsection 3(c); (v) 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); and (vi)
reimbursement in full for all costs and expenses (including, without limitation,
legal fees and expenses) incurred by Lender in entering into this lending
arrangement or making any additional advances hereunder. Each request for an
Advance shall be deemed a representation by Borrower that the conditions of this
subsection have been met.
3. CONVERSION AND SALES OF COLLATERAL:
(a) Qualifying Equity Financing. A "Qualifying Equity Financing" shall
mean any (i) equity financing or series of related equity financings, or (ii)
subordinated debt financing or series of related debt financings treated or
characterized by the Bank as equity financing or (iii) any combination of (i)
and (ii), occurring on or before the Maturity Date, in which Borrower sells
equity securities to any one or more parties (including, without limitation,
Lender and any of Lender's affiliates), or issues debt, and obtains net proceeds
(excluding conversion of this Note) in an amount not less than Two Million Five
Hundred Thousand Dollars ($2,500,000).
(b) Conversion. At the closing of any Qualifying Equity Financing, the
entire outstanding balance of this Note (including principal, interest and any
other amounts due hereunder, the "Outstanding Balance") shall, at the sole
discretion of Borrower, be either (i) paid in full by wire transfer of
immediately available funds or (ii) converted into common stock of Borrower
using a conversion price of $2.00 per share (the "Conversion Price"). If, at the
maturity date, including extensions thereof, the Outstanding Balance has not
been paid in full, the Borrower shall have 90 days in which to make payment. If,
at the end of the 90-day period, the Lender has not received full payment of the
<PAGE>
Outstanding Balance, then the Lender has the option of converting the
Outstanding Balance into capital stock of Borrower at the Conversion Price.
(c) Notice. Borrower shall provide the Bank and Lender with at least 30
days prior written notice of the closing of any Qualifying Equity Financing,
delivered to the address for such party last shown on the records of Borrower or
given by such party to Borrower for the purpose of notice.
(d) Issuance of Shares. If this Note is converted into capital stock of
Borrower pursuant to this subsection, Borrower shall prior to or concurrently
with such conversion, deliver to Lender a written statement specifying the
amount of the Outstanding Balance, the number and a description of shares of
capital stock issuable upon such conversion and the date of such conversion. As
promptly as practicable after such conversion, Borrower will, at its expense,
issue and deliver to Lender, upon surrender of this Note, a certificate or
certificates for the number of full shares of capital stock issuable upon such
conversion.
(e) No Further Advances. After the occurrence of a Qualifying
Equity Financing, Lender shall have no obligation to make any advance of any
kind to Borrower under this Note.
(f) Adjustments Upon Dilution. The number of shares of capital stock of
Borrower to be received upon conversion of the Outstanding Balance hereunder by
Lender (the "Stock") shall be subject to adjustment as follows: (i) in the event
there is a subdivision or combination of the outstanding shares of Stock into a
larger or smaller number of shares, the number of shares of Stock receivable
upon conversion of the Outstanding Balance shall be increased or reduced in the
same proportion as the increase or decrease in the outstanding shares of Stock;
(ii) if the Company declares a dividend on Stock payable in Stock or securities
convertible into Stock, the number of shares of Stock receivable upon conversion
<PAGE>
of the Outstanding Balance shall be increased, as of the record date for
determining which holders of Stock shall be entitled to receive such dividend,
in proportion to the increase in the number of outstanding shares of Stock as a
result of such dividend. Whenever the number of shares of Stock receivable upon
conversion is adjusted as herein provided, the Conversion Price shall be
adjusted by multiplying the applicable Conversion Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
shares of Stock receivable upon conversion immediately prior to such adjustment
and the denominator of which shall be the number of shares of Stock receivable
immediately after such adjustment.
4. BORROWER'S REPRESENTATIONS AND WARRANTIES: Borrower represents and
warrants to Lender as follows:
(a) 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.
(b) Authority and Compliance. Borrower has full power and authority to
enter into this Note, to make the borrowing hereunder, to execute and deliver
the Note and to incur the indebtedness described in this Note, 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 Note, and Borrower is in compliance with all laws and
regulatory requirements to which it is subject.
(c) Binding Agreement. This Note when issued and delivered
pursuant hereto for value received will constitute the valid and legally binding
obligation of Borrower in accordance with its terms.
(d) Litigation. There are no proceedings pending or, to the knowledge
<PAGE>
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 Note.
(e) 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 Note.
(f) Taxes. All income taxes and other taxes due and payable through the
date of this Note have been paid prior to becoming delinquent.
5. DEFAULT PROVISIONS:
(a) EVENTS OF DEFAULT AND ACCELERATION OF MATURITY: LENDER MAY, WITHOUT
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 (EACH OF SUCH EVENTS OR CONDITIONS
DESCRIBED IN CLAUSES (I) THROUGH (IV) BELOW BEING REFERRED TO HEREIN AS AN
"EVENT OF DEFAULT"):
(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, and Borrower has failed to cure such default after
ten (10) days' written notice to Borrower; or
(ii) There is default in the performance of any covenant,
condition, or agreement contained in, or any breach or threatened
breach by Borrower under, this Note, and Borrower has failed to cure
such default after twenty (20) days' written notice to Borrower; or
<PAGE>
(iii) There is a default, breach or threatened breach by
Borrower under any contract, agreement, document, instrument or
certificate executed, alone or together with third parties, by Borrower
and Lender (or by Borrower for the benefit of Lender), subject to the
lapse of any cure period expressly set forth in such contract,
agreement, instrument or certificate; or
(iv) Borrower or any guarantor files for bankruptcy, becomes
insolvent, or dissolves.
(b) WAIVER BY BORROWER: 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 the Maturity Date, 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.
<PAGE>
(e) Attorney's Fees: If Lender requires the services of an attorney to
enforce the payment of this Note, 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.
(f) 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, 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 amounts due under this Note, whether or not Lender exercises any
other right or remedy hereunder and whether or not such amounts due under this
Note are then matured.
6. LENDER'S REMEDIES: Upon the occurrence of an Event of Default and while it
may continue uncured, Lender, without notice of any kind, may, at Lender's
option: (i) by notice to Borrower, terminate its obligation to fund Advances
hereunder; (ii) declare the principal and accrued interest outstanding under
this Note, in whole or in part, immediately due and payable; and/or (iii)
exercise any other rights and remedies available to Lender under this Note, or
applicable laws; except that upon the occurrence of an Event of Default
described in subsection 5(a)(iv), all the principal and accrued interest
outstanding under this Note 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 this Note, or to any other person.
<PAGE>
Notwithstanding any other provision of this Note, Borrower and Lender
each agree that neither this Note nor any amount owed under this Note (whether
principal, interest or otherwise) is subject to that certain Security Agreement
between Borrower and Lender, dated January 1, 1998 (the "Security Agreement").
Except as expressly stated in the foregoing sentence, neither this Note nor any
of the provisions of this Note shall modify, amend, supplement or limit the
terms or enforceability of the Security Agreement.
7. 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.
(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. Lender may freely assign its rights
and obligations, in whole or in part, under this Note. Borrower may not assign
any of its rights and obligations, in whole or in part, under this Note.
<PAGE>
(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 this Note
constitutes 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.
<PAGE>
(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 346 Not Applicable: It is understood that Chapter 346 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.
(m) NO ORAL AGREEMENTS: THIS NOTE 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.
(n) Lender's Costs and Expenses: Borrower shall reimburse Lender in
full for all costs and expenses (including, without limitation, legal fees and
expenses) incurred by Lender in entering into this lending arrangement, making
any additional advances hereunder, and negotiating, making and entering into any
modification, extension, or amendment of this lending arrangement.
<PAGE>
(o) Outstanding Principal Balance: This Note replaces and supersedes
that certain Convertible Promissory Note dated as of September 30, 1999, between
Borrower and Lender, in the original principal amount of $1,200,000. Borrower
acknowledges and agrees that, as of the date of execution of this Note, the
amount of principal outstanding under previous advances pursuant to this Note is
$ -0- plus all accrued interest thereon and all fees due and payable hereunder.
EXECUTED this 15th day of October, 1999.
Borrower: UNCOMMON CARE, 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 Boyd
---------------------
Name: Duane Boyd
---------------------
Title: Senior VP
---------------------
Exhibit 10.84
CO-SALE AGREEMENT
This CO-SALE AGREEMENT (this "Agreement") is entered into as
of the 31st day of August, 1999 by and among American Physicians Service Group,
Inc. ("APS"), FemPartners, Inc., a Delaware corporation (the "Company") and the
undersigned Preferred Holders (as hereinafter defined).
W I T N E S S E T H :
WHEREAS, the Company, FemPartners of Central Texas, Inc., a
Delaware corporation ("Merger Sub") and Syntera HealthCare Corporation, a Texas
corporation ("Syntera") are parties to that certain Agreement and Plan of Merger
of even date herewith (the "Merger Agreement"), whereby Syntera was merged into
Merger Sub, and pursuant to which APS received certain shares of Common Stock
(as hereinafter defined) in exchange for all of its respective interest in and
to its shares of Syntera's capital stock (the "Merger");
NOW, THEREFORE, in consideration of the premises and the
mutual promises set forth in this Agreement;
THE PARTIES AGREE AS FOLLOWS:
1. Definitions. For purposes of this Agreement, the following
terms will have the meanings given in this Section 1:
1.1 Common Stock. "Common Stock" shall mean the $0.01
par value per share common stock of the Company.
1.2 Equity Securities. "Equity Securities" shall mean any
securities having voting rights in the election of the Board of Directors of the
Company, or any securities convertible into or exercisable for any shares of the
foregoing, or any agreement or commitment to issue any of the foregoing.
1.3 Preferred Holders. "Preferred Holders" shall mean
the holders of Preferred Stock, or any Equity Securities pursuant to a
conversion, redemption, exchange, or other such transfer of Preferred Stock.
1.4 Preferred Stock. "Preferred Stock" shall mean the par
value $0.01 per share Series A Convertible Preferred Stock of the Company, and
any Equity Securities received upon conversion, redemption, exchange or other
such transfer thereof.
2. Restriction on Transfer of Equity Securities by Preferred Holders.
Except as otherwise provided in this Agreement, each Preferred Holder will not
sell, assign, transfer, pledge, hypothecate, or otherwise encumber or dispose of
in any way, all or any part of or any interest in the Equity Securities now or
hereafter owned or held by the Preferred Holder. The Company and each Preferred
<PAGE>
Holder agree that any sale, assignment, transfer, pledge, hypothecation or other
encumbrance or disposition of Equity Securities not made in conformance with
this Agreement will be null and void, will not be recorded on the books of the
Company and will not be recognized by the Company.
3. Agreement Among the Preferred Holders and APS.
---------------------------------------------
3.1 Transfer Notice. If at any time a Preferred Holder or
Preferred Holders propose to transfer Equity Securities to one or more third
parties (the "Selling Preferred Holders") pursuant to an understanding with such
third parties (a "Transfer"), then the Selling Preferred Holders shall give the
Company and APS written notice of the Selling Preferred Holders' intention to
make the Transfer (the "Transfer Notice"), which Transfer Notice shall include
(i) a description of the Equity Securities to be transferred ("Offered Shares"),
(ii) the identity of the prospective transferee(s) and (iii) the consideration
and the material terms and conditions upon which the proposed Transfer is to be
made. The Transfer Notice shall certify that the Selling Preferred Holders have
received a bona fide offer from the prospective transferee(s) and in good faith
believes a binding agreement for the Transfer is obtainable on the terms set
forth in the Transfer Notice. The Transfer Notice shall also include a copy of
any written proposal, term sheet or letter of intent or other agreement relating
to the proposed Transfer, and shall state that APS has ten (10) business days
following its receipt of the Transfer Notice within which to notify the Selling
Preferred Holders of any exercise of APS's rights under this Agreement.
3.2 Right of Co-Sale.
----------------
(a) APS, upon notifying in writing the Selling
Preferred Holders identified in the Transfer Notice within ten (10) business
days after receipt of the Transfer Notice, shall have the right to participate
in such sale of Equity Securities on the same terms and conditions as specified
in the Transfer Notice. APS's notice to the Selling Preferred Holders shall
indicate the number of shares of Equity Securities that APS wishes to sell
(subject to subsection (b) below) under its right to participate. To the extent
APS exercises its right of participation in accordance with the terms and
conditions set forth below, the number of shares of Equity Securities that the
Selling Preferred Holders may sell in the Transfer shall be correspondingly
reduced.
(b) APS may sell all or any part of that number
of shares of Equity Securities equal to the product obtained by multiplying (i)
the aggregate number of shares of Equity Securities covered by the Transfer
Notice by (ii) a fraction, the numerator of which is the number of shares of
Common Stock owned by APS on the date of the Transfer Notice and the denominator
of which is the total number of shares of Common Stock (including shares of
Common Stock issuable upon conversion of Preferred Stock) owned by the Selling
Preferred Holders and APS on the date of the Transfer Notice.
<PAGE>
(c) APS shall effect its participation in the
sale by promptly delivering to the Selling Preferred Holders for transfer to the
prospective purchaser one or more certificates, properly endorsed for transfer,
which represent the Common Stock which APS elects to sell.
(d) The stock certificate or certificates
that APS delivers to the Selling Preferred Holders pursuant to Section 3.2(c)
shall be transferred to the prospective purchaser upon the consummation of the
sale of the Equity Securities pursuant to the terms and conditions specified in
the Transfer Notice, and the Selling Preferred Holders shall concurrently
therewith cause to be remitted to APS that portion of the sale proceeds to which
APS is entitled by reason of its participation in such sale. To the extent that
any prospective purchaser prohibits such assignment or otherwise refuses to
purchase shares or other securities from APS, the Selling Preferred Holders
shall not sell to such prospective purchaser any Equity Securities unless and
until, simultaneously with such sale, the Selling Preferred Holders shall
purchase such shares or other securities from APS for the same consideration and
on the same terms and conditions as the proposed transfer described in the
Transfer Notice.
3.3 Non-Exercise of Rights. To the extent that APS has not
exercised its rights to participate in the sale of the Offered Shares within the
time periods specified in Section 3.2, the Selling Preferred Holders shall have
a period of thirty (30) business days from the expiration of such rights in
which to sell the Offered Shares upon terms and conditions (including the
purchase price) no more favorable than those specified in the Transfer Notice to
the third-party transferee(s) identified in the Transfer Notice. The third-party
transferee(s) shall acquire the Offered Shares free and clear of subsequent
co-sale rights under this Agreement. In the event the Selling Preferred Holders
do not consummate the sale or disposition of the Offered Shares within the
thirty (30) business day period from the expiration of these rights, the co-sale
rights shall continue to be applicable to any subsequent disposition of the
Offered Shares by the Selling Preferred Holders until such right lapses in
accordance with the terms of this Agreement. Furthermore, the exercise or
non-exercise of APS's rights under this Section 3 to participate in sales of
Equity Securities by the Selling Preferred Holders shall not adversely affect
APS's rights to subsequently participate in sales of Equity Securities by a
Preferred Holder.
3.4 Limitations to Co-Sale Rights. Notwithstanding the
provisions of Sections 3.1 and 3.2 of this Agreement, a Preferred Holder may
sell or otherwise assign, with or without consideration, Equity Securities to
(i) any person or entity controlling, controlled by or under common control with
the Preferred Holder or (ii) partners, members or stockholders of such Preferred
Holder (in each case, except where such person(s) were admitted as, or became,
partners, members or stockholders for the primary purpose of effecting a
transfer of Equity Securities exempt under this Section 3.4), or in the case of
individuals, to members of such Preferred Holder's immediate family or a trust
for the benefit of such immediate family members; provided that each such
transferee or assignee, prior to the completion of the sale, transfer, or
assignment shall have executed documents assuming the obligations of the
Preferred Holder under this Agreement with respect to the transferred
securities. The Preferred Holders acknowledge and agree that the co-sale rights
granted in Sections 3.1 and 3.2 of this Agreement apply to any sale of Equity
Securities by any Preferred Holder pursuant to Section 2.6 of that certain
Investors Rights Agreement, dated as of October 31, 1997, among the Company and
<PAGE>
the other parties thereto, unless APS is the party that triggered the Preferred
Holders' rights to sale Equity Securities under Section 2.6 of the Investors
Rights Agreement. This Agreement shall not apply, however, to any transaction
described in Section 8 hereof.
3.5 Prohibited Transfers.
--------------------
(a) In the event a Preferred Holder should
sell any Equity Securities in contravention of the co-sale rights of APS under
Section 3.2 (a "Prohibited Transfer"), APS, in addition to such other remedies
as may be available at law, in equity or hereunder, shall have the put option
provided below, and the Preferred Holder shall be bound by the applicable
provisions of such option.
(b) In the event of a Prohibited Transfer, APS
shall have the right to sell to the Preferred Holder the number of shares of
Common Stock equal to the number of shares APS would have been entitled to
transfer to the third-party transferee(s) under Section 3.2 hereof had the
Prohibited Transfer been effected pursuant to and in compliance with the terms
hereof. Such sale shall be made on the following terms and conditions:
(i) The price per share at which the shares
are to be sold to a Preferred Holder under this subsection (b) shall be equal to
the effective price per share of Common Stock (on an as converted basis) paid by
the third-party transferee(s) to the Preferred Holder in the Prohibited
Transfer. The Preferred Holder shall also reimburse APS for any and all fees and
expense, including legal fees and expenses, incurred pursuant to the exercise or
the attempted exercise of APS's rights under Section 3.
(ii) Within ninety (90) days after the
later of the dates on which APS (A) received notice of the Prohibited Transfer
or (B) otherwise became aware of the Prohibited Transfer, APS shall, if
exercising the option created hereby, deliver to the Preferred Holder the
certificate or certificates representing shares to be sold, each certificate to
be properly endorsed for transfer.
(iii) The Preferred Holder shall, upon
receipt of the certificate or certificates for the shares to be sold by APS,
pursuant to this subsection (b), pay the aggregate purchase price therefor and
the amount of reimbursable fees and expenses, as specified in subsection (b)(i)
above, in cash or by other means acceptable to APS.
(iv) Unless and until the Preferred Holder
has fully satisfied its payment and other obligations under this Section3.5(b),
(A) any attempt by a Preferred Holder to transfer Equity Securities in violation
of Section 3 hereof shall be void, and (B) the Company agrees it will not effect
such a transfer nor will it treat any alleged transferee(s) as the holder of
such shares without the written consent of APS.
4. Assignments and Transfers; No Third Party Beneficiaries.
This Agreement and the rights and obligations of the parties hereunder shall
inure to the benefit of, and be binding upon, their respective successors,
assigns and legal representatives, but shall not otherwise be for the benefit of
any third party.
<PAGE>
5. Legend. Each existing or replacement certificate for shares
now owned or hereafter acquired by the Preferred Holder shall bear the following
legend upon its face:
"THE SALE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR TRANSFER OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
THE TERMS AND CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND
BETWEEN THE STOCKHOLDER, THE CORPORATION AND AMERICAN
PHYSICIANS SERVICE GROUP, INC. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
6. Notices. Any notice required or permitted by any provision of this
Agreement shall be given in writing and shall be delivered by facsimile,
personally or by courier, or by registered or certified mail, postage prepaid,
addressed (i) in the case of a Preferred Holder to the Preferred Holder's
address as set forth in the signature pages hereto or such other address as the
Preferred Holder may designate in writing from time to time, (ii) in the case of
the Company, to its principal office, (iii) in the case of APS, to APS's address
as set forth in the signature pages hereto or such other address as shall be
designated in writing from time to time by APS; and, (iv) in the case of any
permitted transferee of a party to this Agreement or its transferee, to such
transferee at its address as designated in writing by such transferee to the
Company from time to time. Notices that are mailed shall be deemed received five
(5) days after deposit in the United States mail. Notices sent by courier or
overnight delivery shall be deemed received two (2) days after they have been so
sent. Notices sent by facsimile shall be deemed received only upon receipt
mechanically confirmed by the sender's facsimile machine.
7. Further Instruments and Actions. The parties agree to execute such
further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement. Each Preferred Holder
agrees to cooperate affirmatively with the Company and APS, to the extent
reasonably requested by the Company or APS, to enforce rights and obligations
pursuant hereto.
8. Term. This Agreement shall terminate immediately prior to the
earlier of (i) the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of the Company's Common Stock at a
price per share of not less than $7.00 (as adjusted for stock splits, reverse
stock splits and the like effected after the date of this Agreement) and an
aggregate offering price to the Company of not less than $20,000,000, or any
other underwritten public offering in which the holders of 75% of the
outstanding shares of Preferred Stock elect to cause the automatic conversion of
all the outstanding shares of Preferred Stock, and (ii) the closing of the
Company's sale of all or substantially all of its assets or the acquisition of
the Company by another entity by means of merger, consolidation or other
transaction or series of related transactions resulting in the exchange of the
outstanding shares of the Company's capital stock such that the stockholders of
<PAGE>
the Company prior to any such transaction referred to in this clause (ii) own,
directly or indirectly, less than two-thirds of the voting power of the
surviving entity.
9. Entire Agreement. This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter hereof, supersedes all
other agreements between or among any of the parties with respect to the subject
matter hereof and cannot be altered or otherwise amended except pursuant to an
instrument in writing signed by each of the parties to this Agreement. This
Agreement shall be interpreted under the laws of the State of Texas.
10. Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company, the written consent of each affected
Preferred Holder and the written consent of APS. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Preferred
Holder and APS and their respective successors and assigns.
11. Separability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
12. Attorney's Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
SIGNATURE PAGE TO
CO-SALE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
COMPANY: FEMPARTNERS, INC.
By: /s/ William C. Altman
-------------------------------------
President and Chief Executive Officer
Address: 1300 Post Oak Blvd., Suite 600
Houston, Texas 77056
Attn: Danguole Spakevicius
APS: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ William H. Hayes
----------------------------
Address: 1301 Capital of Texas Hwy., Suite C-300
Austin, Texas 78746
Attn: Ken Shifrin
PREFERRED HOLDER:
By: /s/ Other Parties Named Therein
---------------------------------
Exhibit 10.85
REPLACEMENT PROMISSORY NOTE
Austin, Texas August 31, 1999
PROMISE TO PAY: For value received, FEMPARTNERS OF CENTRAL TEXAS, INC., a
Delaware corporation ("Borrower"), promises to pay to the order of AMERICAN
PHYSICIANS SERVICE GROUP, INC., a Texas corporation ("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 Replacement
Promissory Note (as may be amended or otherwise modified from time to time,
together with the terms and provisions set forth in Exhibit A attached hereto
(which are incorporated herein as though fully recited for all purposes), this
"Note") set forth below.
Subject to and in reliance upon the terms, conditions, representations and
warranties set forth herein, Lender agrees to make advances (collectively, an
"Advance") hereunder to the fullest extent, but only as, required by the express
terms of the Agreement and Plan of Merger dated as of August 31, 1999 ("Merger
Agreement") among Lender, Borrower and FemPartners, Inc., a Delaware corporation
("FemPartners"). The obligation of Lender to make any Advance is subject to the
condition precedent that Lender shall have received (i) this Note executed by
Borrower, (ii) a guaranty executed by FemPartners for the benefit of Lender, and
(iii) a letter agreement substantially in the form attached as Exhibit B hereto
executed by FemPartners. At any time that an event of default exists under this
Note, Lender shall be under no obligation to make an advance under this Note.
BORROWER: FemPartners of Central Texas, Inc., a Delaware corporation
BORROWER'S ADDRESS FOR NOTICE: c/o FemPartners, Inc.
1300 Post Oak Blvd., Suite 600
Houston, Texas 77056
Attention: Jack Thompson
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 and No/100 Dollars (U.S. $2,000,000).
INTEREST RATE: Eight Percent per annum (8% p.a.)
PAYMENT TERMS: Interest only on the unpaid balance of this Note is due and
payable quarterly, beginning on December 1, 1999, and continuing regularly
thereafter on the first day of March, June, September and December of each year
(each a "Quarterly Payment Date"), through November 30, 2001. Quarterly combined
principal and interest payments, each such quarterly payment being in the amount
of the Quarterly Amortization Amount, shall be due on eleven (11) Quarterly
Payment Dates commencing on December 1, 2001 and running through September 1,
2004, where the "Quarterly Amortization Amount" is determined as equal to the
<PAGE>
constant periodic payment amount of the principal balance outstanding on
November 30, 2001 fully amortized over twelve quarterly (three month) periods at
the constant interest rate of eight percent per annum. The twelfth and final
combined principal and interest payment shall be due on the Quarterly Payment
Date of September 1, 2004 and shall include the remaining outstanding balance on
this Note plus all accrued and unpaid interest hereunder. Notwithstanding the
foregoing, if FemPartners conducts an initial public offering or other public
sale of its common stock, this Note shall mature and shall become due and
payable upon the latter of (i) September 1, 2002 or (ii) the fifth business day
after the date of such initial public offering or other public sale.
1. INTEREST PROVISIONS:
(a) Rate: The principal balance of this Note form 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.
(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. 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.
<PAGE>
(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
<PAGE>
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 per annum, 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.
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
(ii) There is default in the performance of any covenant,
condition, or agreement contained in this Note, including any
instrument securing the payment of this Note.
(b) WAIVER BY BORROWER: EXCEPT AS PROVIDED IN PARAGRAPH 2(a) HEREOF,
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,
<PAGE>
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 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. SUBORDINATION: All indebtedness, obligations and liabilities of any
kind of the Borrower from time to time owing with respect to this
Note, including without limitation, principal and interest thereon
(such indebtedness, obligations and liabilities are collectively
referred to as "Subordinated Debt") is subordinate and junior in right
of payment and collection in full of all amounts owing (including
without limitation, interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law with respect
to the Borrower as debtor) (i) under the primary senior loan agreement
or credit agreement (as such loan agreement or credit agreement may be
amended, renewed, extended, increased, substituted, refinanced,
restructured, replaced, supplemented or otherwise modified from time
to time (the "Senior Credit Agreement"), of FemPartners, designated by
FemPartners in accordance with Section 3(j) upon written notice to
Borrower and Lender with the financial institution or financial
institutions party thereto (together with their respective successors
and assigns, collectively the "Senior Creditor"), and the other credit
documents or loan documents referred to in such Senior Credit
Agreement (the "Loan Documents"), and (ii) under any other
indebtedness of FemPartners or Borrower now or hereafter outstanding
in favor of any such Senior Creditor unless, in the case of any
particular indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding expressly provides
that such indebtedness shall not be senior in right of payment to the
Subordinated Debt (foregoing clauses (i) through (ii) constituting,
collectively, the "Senior Obligations") on the following terms and
conditions:
<PAGE>
(a) No payment by the Borrower on the Subordinated Debt (whether pursuant
to the terms of the Subordinated Debt or upon acceleration or
otherwise) shall be made if, at the time of any such payment, there
exists a material default, as determined by the holders of the Senior
Obligations in their sole discretion, in the payment of any Senior
Obligations (a "Senior Payment Default"), and such Senior Payment
Default shall not have been cured or waived by or on behalf of the
holders of such Senior Obligations. In addition, during the
continuance of
<PAGE>
any other material event of default, as determined by the holders of the
Senior Obligations in their sole discretion, with respect to any
Senior Obligations pursuant to which the maturity thereof may be
accelerated, upon the giving by any holder of the Senior Obligations
(or any agent, trustee, or representative thereof) of written notice
to the Lender, no such payment may be made by the Borrower upon the
Subordinated Debt for a period (the "Payment Blockage Period")
commencing on the date of the giving of such notice and ending on the
earlier of (x) 180 days after the date of the giving of such notice
and (y) if a Remedy Blockage period referred to in Section 3(b)(X) is
in effect, on the date of expiration of such Remedy Blockage Period.
No event of default which existed or was continuing on the date of
commencement of any Payment Blockage Period with respect to the Senior
Obligations shall be, or be made, the basis for commencement of a
second Payment Blockage Period whether within or without a period of
180 consecutive days unless such event of default shall have been
cured for a period of not less than 30 consecutive days. During any
period in which payments on the Subordinated Debt are not restricted
pursuant to this Section 3(a), the holders of the Subordinated Debt
shall be entitled to receive all payments due and owing in accordance
with the terms of the Subordinated Debt, including any payments that
were previously restricted in accordance with this Section 3(a).
(b) During certain periods specified below (each a "Remedy Blockage
Period"), the holders of the Subordinated Debt will not have any of
the following rights (a "Remedy Blockage"): (i) to demand, sue for or
take from or on behalf of the Borrower, by set-off or in any other
manner, any moneys which may then or thereafter be owing by the
Borrower on the Subordinated Debt, (ii) to commence, or to join with
any person or entity in commencing, any suit, action or proceeding
against the Borrower (A) to enforce payment of or to collect all or
any portion of the Subordinated Debt or (B) to commence judicial
enforcement of any of the rights and remedies under the documents or
instruments governing the Subordinated Debt or applicable law, (iii)
to accelerate the principal of or interest on or any other amount
under the Subordinated Debt, or (iv) to commence, or to join with any
person or entity in commencing, against Borrower or any of its
property a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding (except that the holders of the Subordinated
Debt may (1) charge interest at a default rate, (2) accelerate the
Subordinated Debt after the Senior Obligations are accelerated or
otherwise take such actions in respect of the Subordinated Debt as are
taken by the holders of the Senior Obligations in respect of the
Senior Obligations after such actions are taken by the holders of the
Senior Obligations, (3) sue for specific performance, but not for
damages or other sums of money, or obtain injunctive relief, in either
case, in respect of the covenants of the Subordinated Debt which do
not require, directly or indirectly, the payment by the Borrower of
money, and (4) give notices and file law suits to prevent the running
of the relevant statute of limitations, pursue rights in bankruptcy,
reorganization, insolvency, receivership, or other similar
proceedings, and otherwise protect legal rights).
The Remedy Blockage Periods shall be as follows:
(X) if there shall exist a default in the payment of
any amounts owing under the Subordinated Debt (a "Payment
Default"; provided that the failure of Borrower to make any
payment, prepayment, reimbursement or deposit with respect to
an obligation accelerated as a result of the occurrence of any
default of this Note which was a Non-monetary Default (defined
below) shall not be a Payment Default), the Remedy Blockage
<PAGE>
shall remain in effect for a Remedy Blockage Period ending 365
days after agent for the Senior Indebtedness receives written
notice from any holder of the Subordinated Debt (or any
designed representative thereof) of the occurrence of the
Payment Default, unless extended as provided in clause (Y)
below and
(Y) if there shall exist any default with respect to
the Subordinated Debt other than a Payment Default (such debt
being a "Non-monetary Default"), the Remedy Blockage Period
shall remain in effect until such default is cured or waived
by the holders of the Subordinated Debt or the first date the
Senior Obligations are no longer outstanding; provided,
however, that all Remedy Blockage Periods pursuant to this
Section 3(b)(Y) shall terminate and no further such Remedy
Blockage Periods shall commence upon the expiration of any
Remedy Blockage Period which has expired pursuant to Section
3(b)(X) hereof.
(c) Upon any distribution to creditors of the Borrower in a liquidation or
dissolution of the Borrower or in a bankruptcy, reorganization,
insolvency, receivership, or other similar proceeding with respect to
the Borrower or any of its property, (i) the holders of the Senior
Obligations will be entitled to receive payment in full in cash, of
all amounts payable under or in respect of the Senor Obligations
(including interest accrued after the commencement of such proceeding)
before the holders of the Subordinated Debt will be entitled to
receive from the Borrower or its assets any payment under or in
respect of the Subordinated Debt and (ii) until the holders of the
Senior Obligations have received such payment in full in cash, any
distribution from the Borrower or its assets to which the holders of
the Subordinated Debt would otherwise be entitled is to be made to the
holders of the Senior Obligations (or one or more trustees or
representatives acting on their behalf). Subject to the prior payment
in full in cash of all Senior Obligations (or provision made for
payment in full in cash of all Senior Obligations), the holders of the
Subordinated Debt shall be subrogated to the rights of the holders of
the Senior Obligations to receive payments or distribution of assets
of the Borrower applicable to the Senior Obligations until all amounts
owing on the Subordinated Debt shall be paid in full.
(d) The Lender (or a trustee, representative, or agent acting on its
behalf) will be obligated to hold in trust for the benefit of, and to
directly and immediately pay over or deliver to, with any necessary
endorsement, the holders of the Senior Obligations (or one or more
trustees, representatives, or agents acting on their behalf) all
payments and distributions received by the Lender (i) in contravention
of the restrictions contained in the preceding clauses (a) through (c)
or (ii) as a result of any lien in violation of clause (e) below;
provided, however, that notwithstanding such restrictions, the Lender
shall be entitled to receive and to retain any and all payments (i)
made in securities of the Borrower provided the same are subordinated
to the Senior Obligations at least to the same extent as the
Subordinated Debt or (ii) made in accordance with any relevant court
order respecting the subordination provided for herein.
(e) The Lender will not create, assume, or suffer to exist any lien,
security interest, or assignment of collateral securing the repayment
of the Subordinated Debt unless the foregoing shall be fully
subordinate to any lien, security interest, or assignment in favor of
<PAGE>
the Senior Creditor which secures any of the Senior Debt. The Lender
hereby subordinates any and all of its liens, security interests and
assignments of collateral to all such security rights from time to
time existing in favor of the Senior Creditor.
(f) The Lender and the Borrower agree to execute any and all other
instruments reasonably requested by the Senior Creditor to further
evidence the subordination of the Subordinated Debt to the Senior Debt
as herein provided.
(g) This provisions of this Section 3 are irrevocable and the Senior
Creditor may, without notice to any of the parties hereto and without
impairing or releasing the obligations of the Borrower and the Lender
hereunder, (i) create Senior Debt by extending credit under the Credit
Agreement; (ii) change the terms of or increase the amount of the
Senior Debt by increasing, extending, rearranging, amending,
supplementing, or otherwise modifying any instrument or agreement
creating Senior Debt; (iii) sell, exchange, release, or otherwise deal
with any collateral securing any Senior Debt; (iv) release anyone,
including the Borrower or any guarantor, liable in any manner for the
payment or collection of any Senior Debt; (v) exercise or refrain from
exercising any rights against the Borrower or any other person or
entity; and (vi) apply any sums received by any Senior Creditor, from
whatever source, to the payment of the Senior Debt.
(h) (i) The Lender will cause all Subordinated Debt to be
evidenced by a note, debenture, instrument, or other writing
evidencing the Subordinated Debt and will inscribe a statement
or legend thereon to the effect that such note, debenture,
instrument, or other writing is subordinated to the Senior
Debt in favor of the Senior Creditor in the manner and to the
extent set forth in this Note.
(ii) The Lender shall not assign or otherwise transfer to any other
Person or entity any interest in the Subordinated Debt unless
the Lender causes the assignee or other transferee to
acknowledge to the reasonable satisfaction of the Senior
Creditor the subordination of the Subordinated Debt in
accordance with this Note.
(i) The foregoing provisions will be enforceable against the Lender,
by or on behalf of the holders of the Senior Obligations.
(j) The designation by FemPartners of the Senior Creditor and the Senior
Credit Agreement are binding on FemPartners, the Borrower and the
Lender for the benefit of the Senior Creditor until such time as
FemPartners and the Senior Creditor (or in the instance of multiple
financial institutions in the same credit facility, the lead bank or
agent lender, as the case may be of the Senior Creditor) furnishes
Borrower and Lender with written revocation of the then current
designations of the Senior Creditor and the Senior Credit Agreement.
Without such written revocation of FemPartners and Senior Creditor, or
its lead bank or agent lender, no revocation of the then existing
designations shall be effective. From the date hereof until revoked or
modified pursuant to this clause (j), FemPartners designates, and each
of the Borrower and the Lender acknowledges, that (A) the "Senior
Credit Agreement" is the Credit Agreement dated as of June 30, 1999
among FemPartners, certain subsidiaries of FemPartners and the Senior
Creditor identified below, as may be amended or otherwise modified
from time to time, and (B) the "Senior Creditor" is General Electric
<PAGE>
Capital Corporation, a New York corporation and the other lenders, if
any, from time to time party to the Senior Credit Agreement. No new or
replacement Senior Credit Agreement or Senior Creditor thereunder
designated by FemPartners shall be effective until all then current
designations have been revoked in accordance with this Section 3(j)
4. 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.
(b) Transfer: Borrower acknowledges and agrees that Lender may transfer
this Note or partial interests in this 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 this Note
constitutes 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.
<PAGE>
(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.
(m) Replacement of Prior Note: This Note is given in substitution for and
replacement and modification of, and not as payment of, the Promissory
Note dated November 1, 1998 in the original principal amount of
$3,000,000 executed by Syntera HealthCare Corporation, a Texas
corporation, payable to the order of Lender.
EXECUTED as of the date first above written.
BORROWER: FEMPARTNERS OF CENTRAL TEXAS, INC.,
a Delaware corporation
By: /s/ William C. Altman
--------------------------
William C. Altman
Executive Vice President
<PAGE>
EXHIBIT A
Supplemental Terms and Provisions
S-1.1 Until payment in full of the Note and performance of all other
obligations of Borrower hereunder, unless Lender provides its written consent to
the contrary:
(a) Existence and Compliance. Borrower will maintain its
corporate existence in good standing, will substantially comply with
all material laws, regulations and governmental requirements applicable
to it or to any of its property, business operations and transactions,
and will provide Lender with copies of all instruments filed with the
Delaware Secretary of State amending and/or renewing its certificate of
incorporation.
(b) Adverse Conditions or Events. Borrower will promptly
advise Lender in writing of any condition, event or act which comes to
its attention that would reasonably be expected to materially and
adversely affect Borrower's financial condition or Lender's rights
under the Note or the Guaranty.
(c) Taxes. Borrower will pay all federal and state taxes
relating to the employees, payroll, income or gross receipts of
Borrower prior to the date on which any fine, penalty, interest or late
charge may be added thereto for nonpayment thereof excluding taxes
being contested in good faith by appropriate proceedings and for which,
if required by generally accepted accounting practices consistently
applied, adequate reserves have been established.
(d) Transfer of Assets. Except in the normal course of
its business, Borrower will not sell, lease, assign, or otherwise
dispose of or transfer all or substantially all of its assets.
(e) Change in Ownership or Structure. Borrower will not
dissolve or liquidate, become a party to any merger or consolidation
other than with an affiliate of Borrower or reorganize as a
professional corporation.
(f) Violate Other Covenants. Borrower will not violate or fail
to comply with any covenants or agreements regarding other debt which
would, with the passage of time or upon demand or both, cause the
maturity of any debt arising under the Senior Credit Agreement to be
accelerated.
S-1.2 Events of Default. If one or more of the following events shall
occur and continue after thirty (30) days' written notice to Borrower (each an
"Event of Default"), all outstanding principal plus unpaid interest of the
Advance 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 the Note unless and until all events of default have been cured or waived:
(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
<PAGE>
(b) Default shall be made in the performance of any
material term, covenant or agreement contained herein; or
(c) Any representation or warranty herein contained in this
Note or the Guaranty shall prove to have been untrue or incorrect in
any material respect when made; or
(d) Any final judgment or judgments for the payment of money
in excess of $500,000 in the aggregate at any time outstanding shall be
rendered against Borrower and the same shall not, within thirty (30)
days after the entry thereof, have been discharged or execution thereof
stayed or bonded pending appeal, or shall not have been discharged
prior to the expiration of any such stay.
(e) Any bankruptcy case or dissolution proceeding shall have
been commenced against FemPartners and such case or proceeding shall
remain undismissed or unstayed for sixty (60) days or more; 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 any bankruptcy
case or dissolution proceeding shall have been commenced against
Borrower and such case or proceeding shall remain undismissed or
unstayed for sixty (60) days or more.
S-1.3 Lender's Remedies. Upon the occurrence and during the continuance
of an Event of Default, Lender, without notice of any kind, except for any
notice required under this Note or the Guaranty, may, at Lender's option: (i) by
notice to Borrower, terminate its obligation to fund any unfunded Advance
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 the Note or the Guaranty or applicable law; except that upon the
occurrence of an Event of Default described in subsection S-1.2(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 to Borrower or to FemPartners, or to any other person.
Borrower, FemPartners 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. Notwithstanding anything to the contrary herein or in the
Guaranty, in the event of any Event of Default that is occasioned solely by a
default or breach under the Merger Agreement, Lender's remedy hereunder shall be
limited to the remedy set forth in clause (i) of the first sentence in this
Section S-1.3.
S-1.4 Participation or Sale of Loan. Lender shall have the right to
sell the Note, or participation interests in the Note to any direct or indirect
wholly owned subsidiary of Lender. Borrower shall execute, acknowledge and
deliver all instruments reasonably necessary to document the unpaid indebtedness
evidenced by the Note. Lender shall have the right to disclose in confidence to
such subsidiary purchaser such financial information regarding Borrower as may
be necessary to complete any sale or attempted sale of the Note or
participations or attempted participations in the Advance.
<PAGE>
EXHIBIT B
[Form of Side Letter Agreement]
August 31, 1999
American Physicians Service Group, Inc.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746-6550
Re: Syntera HealthCare Corporation ("Syntera")
Ladies and Gentlemen:
Reference is made to the Replacement Promissory Note dated August 31, 1999 (as
may be amended or otherwise modified from time to time, the "Note") of
FemPartners of Central Texas, Inc., a Delaware corporation ("Borrower"), payable
to the order of American Physicians Service Group, Inc. ("Lender"), which Note
is issued to amend, restate and replace the Promissory Note dated November 1,
1998 of Syntera HealthCare Corporation, a Texas corporation, payable to the
order of Lender. So long as Borrower owes any monies to Lender under the Note,
FemPartners, Inc., a Delaware corporation ("FemPartners"), agrees that it:
A. shall provide Lender with audited financial statements on an
annual basis within one hundred twenty (120) to one hundred
fifty (150) days after the close of a fiscal year; but in no
event beyond five (5) days after such audited financial
statements have been prepared and are to be delivered to any
other lender of FemPartners;
B. shall NOT declare any dividend (i) without the prior consent
of the Lender which consent shall
not be unreasonably withheld, or (ii) unless required by an
existing agreement with the holders of the preferred stock of
FemPartners;
C. shall NOT redeem its stock for cash in an amount in excess of
$250,000 during any calendar year, except (i)upon the prior consent of
Lender, which consent shall not be unreasonably withheld, (ii) as may
be required by an existing agreement with the holders of preferred
stock of FemPartners, (iii) as may be required to settle contractual
or other disputes with any physician or physician group under a
management agreement directly or indirectly affecting FemPartners or
any of its subsidiaries, or (iv) in connection with the purchase of
FemPartners stock from any departing or retiring physician whose had a
physician practice prior to such departure or retirement under a
management agreement directly or indirectly involving FemPartners or
any of its subsidiaries.
Lender shall be entitled to rely on the covenants made by FemPartners hereunder
for all purposes in connection with the Note.
Exhibit 10.86
GUARANTY AGREEMENT
This Guaranty Agreement dated as of August 31, 1999 (as amended or
otherwise modified from time to time, this "Guaranty") is by FemPartners, Inc.,
a Delaware corporation ("Guarantor") in favor of American Physicians Service
Group, Inc., a Texas corporation ("Lender").
WHEREAS, (i) Lender, Syntera HealthCare Corporation, a Texas
corporation ("Syntera"), Guarantor and FemPartners of Central Texas, Inc., a
Delaware corporation and wholly-owned subsidiary of Guarantor ("Obligor") have
entered into an Agreement and Plan of Merger of even date herewith whereby
Syntera is merging with and into Obligor with Obligor being the surviving
corporation, (ii) certain debt owing to Lender from Syntera is evidenced by the
Promissory Note dated November 1, 1998, and is being contemporaneously amended,
restated and replaced in its entirety by the Replacement Promissory Note dated
of even date herewith (as may be amended and or otherwise modified from time to
time, the "Note"), (iii) Guarantor will directly and indirectly benefit from the
Note, and (iv) as a condition precedent to the consummation of the merger of
Syntera into Obligor, Lender has required that Guarantor guarantee to Lender all
payment obligations of Obligor under the Note.
NOW THEREFORE, Guarantor agrees with Lender as follows:
1. PAYMENT GUARANTY. Guarantor absolutely, irrevocably and
unconditionally guarantees to Lender, and to its successors, endorsees,
transferees and assigns, the prompt and complete payment when due, whether at
the stated maturity, by acceleration or otherwise, of the obligations of Obligor
set forth in the Note (collectively, the "Obligations"). No termination of the
Note shall affect any obligations incurred by Guarantor under this Guaranty at
the time of termination. No notice of the Obligations need be given in any form
to Guarantor at any time and Guarantor waives any such notice and the right to
consent to the Obligations. Guarantor waives any right to require as a condition
to its obligations hereunder that collateral be applied to the Obligations, that
presentment or demand be made upon Obligor or that action be brought against
Obligor or any other person or entity except Guarantor, should Lender seek to
enforce the obligations of Guarantor. Specifically, without limitation,
Guarantor waives any right to require that a judgment previously be rendered
against Obligor or any other person or entity except Guarantor, that Obligor or
any other person or entity be joined in any action against Guarantor or that an
action separate from one against Guarantor be brought against Obligor or any
other person or entity. The obligations of Guarantor are several from those of
Obligor or any other person or entity, and are primary payment obligations
concerning which Guarantor is the principal obligor. If all or any part of the
Obligations are not paid when due, Guarantor hereby guarantees that it will pay
the same to Lender, upon demand, without set-off or counterclaim and without
reduction by reason of any taxes, levies, imposts, charges and withholdings,
restrictions or conditions of any nature that are now or may hereafter be
imposed, levied or assessed by any country, political subdivision or taxing
authority, all of which will be for the account of and paid by Guarantor, and
Lender need not first proceed to preserve, utilize or exhaust any other right or
remedy against Obligor, any other guarantor, any collateral or any other
security that Lender may have in order to obtain payment hereunder. The
obligations of Guarantor hereunder shall in no way be affected or impaired by
reason of the happening from time to time of any of the following: (i)
extensions (whether or not material) of the time for payment of all or any
<PAGE>
portion of the Obligations, (ii) the modification or amendment in any manner
(whether or not material) of the Note or the Obligations, (iii) except for
applicable statutes of limitations, any failure, delay or lack of diligence on
the part of Lender, or any other person or entity to enforce, assert or exercise
any right, privilege, power or remedy conferred on Lender or any other person or
entity in the Note or at law, or any action on the part of Lender or such other
person or entity granting indulgence or extension of any kind, (iv) the
settlement or compromise of any Obligations and (v) the status, composition,
structure or name of Obligor change, including, without limitation, by reason of
merger, dissolution, consolidation or reorganization. NOTWITHSTANDING THE
FOREGOING, THE LIABILITY OF GUARANTOR HEREUNDER SHALL BE LIMITED TO DIRECT,
ACTUAL DAMAGES AND GUARANTOR SHALL NOT BE LIABLE UNDER THIS GUARANTY FOR
CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS
OR OTHER BUSINESS INTERRUPTION DAMAGES, IN TORT, CONTRACT OR OTHERWISE. Upon 30
Days written notice and with the prior written consent of Lender, which consent
shall not be unreasonably withheld, this Guaranty may be replaced by (x) a
guaranty in substantially similar form made by a guarantor of equal or better
creditworthiness or (y) a letter of credit in favor of Lender in the amount of
the maximum Limit (below defined), issued by a bank and in a form, each of which
shall be reasonably satisfactory to Lender.
2. COSTS AND EXPENSES. In addition to its guarantee of Obligor's
payment of the Obligations, Guarantor shall pay all actual costs and expenses
(including reasonable attorney's fees) paid or incurred by Lender in connection
with the enforcement of this Guaranty.
3. CONTINUING GUARANTY. This is intended to be and shall be construed
as a continuing guarantee and shall remain in full force and effect and shall be
binding in accordance with and to the extent of its terms upon Guarantor and its
successors and assigns, and shall inure to the benefit of Lender, and its
successors, endorsees, transferees and assigns. The obligations of Guarantor
under this Guaranty shall continue in full force and effect and shall remain in
operation until all of the Obligations shall have been paid in full or otherwise
fully satisfied, and continue to be effective or be reinstated, as the case may
be, if at any time payment or other satisfaction of any of the Obligations is
rescinded or must otherwise be restored or returned upon the bankruptcy,
insolvency, or reorganization of Obligor, or otherwise, as though such payment
had not been made or other satisfaction occurred. No invalidity, irregularity or
unenforceability by reason of applicable bankruptcy laws or any other similar
law, or any law or order of any government or government agency purporting to
reduce, amend or otherwise affect, the Obligations, shall impair, affect, be a
defense to or claim against the obligations of Guarantor under this Guaranty.
4. SUBROGATION. Notwithstanding any payment or payments made by
Guarantor under this Guaranty or any setoff or application of funds of Guarantor
by Lender, Guarantor shall not be entitled to be subrogated to any of the rights
of Lender against Obligor or any collateral or other security or guarantee or
right of offset held by Lender for the payment or performance of the
Obligations, nor shall Guarantor seek any reimbursement from Obligor in respect
of payments made by Guarantor under this Guaranty, until all amounts then owing
and any other performance then due to Lender by Obligor for or on account of the
<PAGE>
Obligations are paid and satisfied in full. Upon such payment and satisfaction
in full, Guarantor shall be subrogated to all rights of Lender against Obligor
or any collateral or other security or guarantee or right of offset held by
Lender for the payment and performance of the Obligations.
5. SUBORDINATION. Any and all indebtedness of Obligor now or hereafter
owed to or held by Guarantor is hereby subordinated to the Obligations and all
other indebtedness of Obligor to Lender; and such indebtedness of Obligor to
Guarantor, if Lender so requests, shall be collected, enforced and received by
Guarantor as trustee for Lender and be paid over to Lender on account of the
indebtedness of Obligor to Lender but without reducing or affecting in any
manner the liability of Guarantor under the other provisions of this Guaranty.
6. DEFAULT. If Obligor fails or refuses to timely pay any Obligations,
Lender may at its option exercise any or all of its rights, powers and remedies
afforded hereunder and may declare the unpaid amounts of all Obligations then
owing under the Note to be immediately due and payable, and thereupon such
amounts shall be immediately due and payable without presentation and demand for
payment, protest, notice of protest or dishonor, notice of default, notice of
intent to accelerate or notice of acceleration to Guarantor or any other person
or entity, all of which Guarantor waives.
7. NO WAIVER. No failure to exercise and no delay in exercising, on the
part of Lender, any right, power or privilege under this Guaranty shall operate
as a waiver of the right, power or privilege, nor shall any single or partial
exercise of any right, power or privilege preclude any other or further exercise
of the right, power or privilege, or the exercise of any other power or right.
The rights and remedies provided in this Guaranty are cumulative and not
exclusive of any rights or remedies provided by law.
8. NOTICE. All notices and communications made pursuant to this
Guaranty shall be in writing and delivered personally or mailed by certified
mail, postage prepaid and return receipt requested, or sent by facsimile, as
follows:
To Guarantor:
------------
FemPartners, Inc.
1300 Post Oak Blvd., Suite 600
Houston, Texas 77056
Attn.: Jack Thompson
Facsimile: (713) 512-8080
To Lender:
---------
American Physicians Service Group, Inc.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746-6550
Attn: Colleen Webb
Facsimile: (512) 314-4333
<PAGE>
Notice given by person, delivery or mail shall be effective upon actual receipt.
Notice given by facsimile shall be effective upon actual receipt if received
during recipient's normal business hours or at the beginning of recipient's next
business day after receipt if not received during recipient's normal business
hours. Any party may change its address to which notice is to be given hereunder
by providing notice of same in accordance with this Section 8.
9. MISCELLANEOUS. THIS GUARANTY SHALL IN ALL RESPECTS BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. Guarantor waives notice of acceptance of
this Guaranty. No term or provision of this Guaranty shall be amended, modified,
altered, waived, supplemented or terminated except in a writing signed by the
parties hereto. This Guaranty shall be binding upon and inure to the benefit of
an be enforceable by the respective successors and assigns of Guarantor and
Lender. This Guaranty embodies the entire agreement and understanding between
Guarantor and Lender and supersedes all prior agreements and understandings
relating to the subject matter hereof. The headings in this Guaranty are for
purposes of reference only, and shall not affect the meaning hereof. This
Guaranty may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one document.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty Agreement
on the date first above written.
FEMPARTNERS, INC.
By: /s/ William C. Altman
-----------------------
William C. Altman
Executive Vice President
EXHIBIT 21.1
SUBSIDIARIES OF AMERICAN PHYSICIANS SERVICE GROUP, INC.
AS OF MARCH 28, 2000
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
APSC, Inc. Delaware
APS Consulting, 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
28, 2000, relating to the consolidated balance sheets of American Physicians
Service Group Inc. and subsidiaries as of December 31, 1999 and 1998, 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, 1999
which report appears in the annual report on Form 10-K of American Physicians
Service Group, Inc. for the year ended December 31, 1999.
/s/ KPMG LLP
-----------------------
Austin, Texas
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1999 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,651
<SECURITIES> 0
<RECEIVABLES> 824
<ALLOWANCES> 20
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<CURRENT-ASSETS> 7,201
<PP&E> 4,156
<DEPRECIATION> 2,336
<TOTAL-ASSETS> 32,924
<CURRENT-LIABILITIES> 5,619
<BONDS> 0
0
0
<COMMON> 278
<OTHER-SE> 20,951
<TOTAL-LIABILITY-AND-EQUITY> 32,924
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<TOTAL-REVENUES> 19,115
<CGS> 158
<TOTAL-COSTS> 19,499
<OTHER-EXPENSES> 617
<LOSS-PROVISION> 2,023
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