-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AxKce/9w9CHIvS6Sh6PAGo8oAb1BGe1K54/jMpxiJvKmXv+tClN25dAv2GSzFbNK wOKgYjDILw5KLfTGfHCkSA== 0000724024-01-000010.txt : 20010409 0000724024-01-000010.hdr.sgml : 20010409 ACCESSION NUMBER: 0000724024-01-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN PHYSICIANS SERVICE GROUP INC CENTRAL INDEX KEY: 0000724024 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 751458323 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11453 FILM NUMBER: 1591499 BUSINESS ADDRESS: STREET 1: 1301 CAPITAL OF TEXAS HWY STREET 2: C-300 CITY: AUSTIN STATE: TX ZIP: 78746 BUSINESS PHONE: 5123280888 MAIL ADDRESS: STREET 1: 1301 CAPITAL OF TEXAS HIGHWAY CITY: AUTIN STATE: TX ZIP: 78746 10-K 1 0001.txt 2000 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 Identification No.) incorporation or organization) 1301 Capital of Texas Highway, Austin Texas 78746 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (512) 328-0888 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.10 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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 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 20, 2001: $4,632,206 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 23, 2001 ------------------- ---------------- Common Stock, $.10 par value 2,359,233 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, 2000 is incorporated by reference. AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 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, brokerage and investment services to individuals and institutions and environmental consulting and engineering services. 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 50%, 58% and 60% of Company revenues in 2000, 1999 and 1998, 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 44 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. 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 1 net capital requirements. Since the Company is not itself a registered broker dealer, it is not subject to these rules. However, APS Financial is subject to these rules. Compliance with applicable net capital requirements could limit operations of APS Financial such as trading activities that require the use of significant amounts of capital. A significant operating loss or an extraordinary charge against net capital could adversely affect the ability of APS Financial to expand or even maintain its present levels of business. At February 28, 2001, 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 29%, 25% and 34% of Company revenues in 2000, 1999 and 1998, respectively. Substantially all of the revenue was attributable to American Physicians Insurance Exchange ("APIE"), a reciprocal insurance exchange. A reciprocal insurance exchange is an organization which sells insurance only to its subscribers, who pay, in addition to their annual insurance premiums, a contribution to the exchange's surplus. Such exchanges generally have no paid employees but instead enter into a contract with an "attorney-in-fact", that provides all management and administrative services for the exchange. As the attorney-in-fact for APIE, FMI receives a percentage of the earned premiums of APIE, as well as a portion of APIE's profits. The amount of these premiums can be adversely affected by competition. Substantial underwriting losses, which might result in a curtailment or cessation of operations by APIE, would also adversely affect FMI's revenue. To limit possible underwriting losses, APIE currently reinsures its risk in excess of $250,000 per medical incident. APIE offers medical professional liability insurance for physicians in Texas and Arkansas. FMI's assets are not subject to any insurance claims by policyholders of APIE. FMI organized APIE and has been its exclusive manager since its inception in 1975. The management agreement between FMI and APIE basically provides for full management by FMI of the affairs of APIE under the direction of APIE's physician Board of Directors. Subject to the direction of this Board, FMI sells and issues policies, investigates, settles and defends claims, and otherwise manages APIE's affairs. In consideration for performing its services, FMI receives a percentage fee based on APIE's earned premiums (before payment of reinsurance premiums), as well as a portion of APIE's 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' 2 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. 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 7,200 physicians nationwide. Florida Physicians is rated A- (Excellent) by AM Best. Generally, medical professional liability insurance is offered on either a "claims made" basis or an "occurrence" basis. "Claims made" policies insure physicians only against claims that occur and are reported during the period covered by the policy. "Occurrence" policies insure physicians against claims based on occurrences during the policy period regardless of when the claim is actually made. APIE and Florida Physicians offer only a "claims made" policy in Texas and Arkansas, but provide for an extended reporting option upon termination. APIE and Florida Physicians reinsure 100% of all Texas and Arkansas coverage per medical incident between $250,000 and $1,000,000, primarily through certain domestic and international insurance companies. The following table presents selected financial and other data for APIE. The management agreement with FMI obligates APIE to pay management fees to FMI based on APIE's earned premiums before payment of reinsurance premiums. The fee percentage is 13.5% with the provision that any profits of APIE will be shared equally with FMI so long as the total reimbursement (fees and profit sharing) do not exceed a cap based on premium levels. In 2000, 1999, 1998, 1997, and 1996, management fees attributable to profit sharing were $0, $329,000, $1,750,000, $1,961,000, and $1,191,000, respectively. The decrease in 2000 is primarily due to an overall increase in competition in medical professional liability insurance in Texas as well as 3 a continued trend of rising claims against the insureds. (In thousands, except for number of insureds)
Years Ended December 31, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Earned premiums before reinsurance premiums $29,057 $24,529 $22,931 $25,899 $28,754 Total assets 66,348 66,377 75,173 81,594 90,193 Total surplus 10,014 13,925 13,592 11,854 10,017 Management fees (including profit sharing) and commissions to FMI and Agency 4,002 (2) 3,645 (2) 4,835 (2) 5,854 (2) $5,281 (2) Number of insureds 3,178 2,882 2,743 2,629 (1) 3,019 - ----------------
(1) The decrease was the result of APIE's decision to raise premiums at the risk of losing members 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 $1,898, $1,191, $835, $1,214, and $860 in 2000, 1999, 1998, 1997 and 1996, respectively, from Florida Physicians and other carriers directly related to APIE's controlled business. CONSULTING On September 30, 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 $3,300,000 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 Eco Acquisition, Inc. ("Eco-Systems"), a wholly owned subsidiary of Exsorbet. Subsequently, Exsorbet became known as Consolidated Eco-Systems, Inc. ("Con-Eco"). Prior to the foreclosure discussed below, this note had been restructured in November, 1997 and again in March, 1999. 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 the litigation related to 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. This payment was applied against the outstanding debt. In April, 1999, the Company's wholly owned subsidiary, APS Consulting ("APS Consulting"), foreclosed on the stock of Eco-Systems. Prior to the foreclosure, the Company had entered into a settlement agreement with Con-Eco to resolve the litigation described above. In connection with this agreement, Con-Eco had the right to purchase back the business of Eco-Systems for a nominal amount if it complied with the following terms: (1) Con-Eco would pay the Company $375,000 within 18 months. 4 (2) Con-Eco could not declare bankruptcy during the 18 month period. (3) Con-Eco would pay to the Company 75% of the proceeds from any litigation recovery against an investment banking firm. (4) Con-Eco would pay the balance of the restructured $2.5 million note with interest on the due date of the note. The Company's management expected that its ownership of Eco-Systems stock would be temporary based on management's assessment of Con-Eco's net worth, cash flow, and prospects for securing additional financing. Management believed that Con-Eco would meet the revised terms and reacquire the Eco-Systems stock for a nominal payment. 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, on September 1, 1999, the Company concluded that it was not probable that Con-Eco would exercise its option to reacquire the stock and began consolidating APS Consulting. The acquisition was recorded using the purchase method of accounting. Although no charges to bad debt expense were incurred in 2000, the Company had written off to bad debt expense a total of $2,174,000 through December 31, 1999. 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. 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 12% and 4% of Company revenues in 2000 and 1999, respectively. As revenues and expenses of APS Consulting were not consolidated into the totals of the Company until September, 1999, the percentage for 1999 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 81% of this space to the Company, its subsidiaries and affiliates. The remainder is leased to unaffiliated parties. Revenues from APS Realty contributed 8%, 4% and 4% of Company revenues in 2000, 1999 and 1998, respectively. 5 OTHER INVESTMENTS The Company owns 2,344,000 shares of common stock of Prime Medical Services, Inc. ("Prime Medical"), representing at March 15, 2001 approximately 15% of the outstanding shares of common stock of Prime Medical. Two of Prime Medical's seven directors are members of the Company's four member board of directors, and Mr. Hummel, president and chief executive 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 on the equity basis. Prime Medical is the largest provider of lithotripsy services in the United States, currently servicing over 450 hospitals and surgery centers in 34 states. Lithotripsy is a non-invasive method of treating kidney stones through the use of shock waves. During 1999, Prime Medical 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. Prime Medical now operates fifteen laser vision correction facilities, which performed approximately 33,000 procedures on an annualized basis during 2000. In addition, Prime Medical is involved in providing manufacturing services and installation, upgrade, refurbishment and repair of major medical equipment for the mobile medical service providers. 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 in the accompanying consolidated financial statements regarding Prime Medical 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. On January 1, 1998 the Company invested $2,078,000 in the Convertible Preferred Stock of Uncommon Care, Inc. ("Uncommon Care"). The Company has 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 with various maturities through June 30, 2005, at which time any 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 common equity of Uncommon Care. Two of Uncommon Care's four directors are officers or directors of the Company. The Company records its investment in and advances to Uncommon Care on the equity basis. DISCONTINUED OPERATIONS In the fourth quarter of 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 6 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 August 31, 1999 Syntera was acquired by another unaffiliated practice management company, FemPartners, Inc., ("FemPartners") resulting in the Company owning approximately 8% of the total equity of FemPartners. The results of operations of Syntera have been reflected in the accompanying consolidated financial statements as discontinued operations. The merger of Syntera and FemPartners was treated as a non-monetary exchange. At this time Syntera entered into the physician practice management relationships with physicians, the Company entered into certain share exchange agreements with the physicians as an added inducement that allowed the physicians, after a certain period of time and subject to certain conditions, to exchange their Syntera shares for (at the Company's option) either cash or the Company's common stock or other securities. During 2000, the Company paid approximately $856,000 to physicians pursuant to these share exchange agreements and received approximately 51,900 additional shares of FemPartners common stock in return. 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 results of operations of APS Systems have been reflected in the accompanying financial statements as discontinued operations. 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. 7 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. 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 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. 8 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, 2001, the Company employed, on a full time basis, approximately 123 persons, including 48 by Insurance Services, 44 by APS Investment Services, 20 by APS Consulting and 11 directly by the Company. The Company considers its employee relations to be good. None of the Company's employees is represented by a labor union and the Company has experienced no work stoppages. ITEM 2. PROPERTIES APS Realty owns approximately 45,000 square feet of condominium space in an office project in Austin, Texas. The Company, its subsidiaries and affiliate use approximately 36,000 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 88% occupied as of March 15, 2001. 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. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's annual meeting was held June 13, 2000. The agenda item was the election of directors. Voting results follow: BOARD ELECTION Nominee For Against Abstain ------- --- ------- ------- Brad A. Hummel 2,535,501 55,214 -- Robert L. Myer 2,535,501 55,214 -- William A. Searles 2,535,501 55,214 -- Kenneth S. Shifrin 2,535,501 55,214 -- 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, 2000 and 1999. On March 1, 2001, the Company had approximately 407 holders of record of its common stock. 2000 1999 ------------------------- ---------------------- High Low High Low -------- --------- -------- --------- First Quarter $4 1/16 $2 15/16 $5 1/8 $1 7/8 Second Quarter $3 9/16 $ 2 1/4 $3 7/8 $ 2 1/4 Third Quarter $4 $ 2 11/16 $5 1/16 $ 3 7/32 Fourth Quarter $3 3/4 $1 $7 $3 1/2 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 10 Board of Directors based upon the Company's earnings, financial condition, capital requirements and such other factors as the Board of Directors may deem relevant. ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share data) SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Selected income statement data: Revenues $19,902 $18,751 $16,403 $13,065 $10,437 Earnings (loss) from continuing operations before income taxes and minority interests (1,962) (235) 1,764 3,814 3,006 Earnings (loss) from continuing operations (1,402) (153) 890 3,814 1,948 Net earnings (loss) (1,402) (55) 979 2,538 1,924 Per share amounts: Basic: Earnings (loss) from continuing operations $(0.56) $(0.05) $0.21 $0.93 $0.48 Net earnings (loss) (0.56) (0.02) 0.23 0.62 0.48 Diluted: Earnings (loss) from continuing operations (0.56) (0.05) 0.17 0.90 0.46 Net earnings (loss) (0.56) (0.02) 0.19 0.60 0.46 Diluted weighted average shares outstanding 2,756 3,168 4,692 4,241 4,219 Selected balance sheet data: Total assets 29,426 29,835 35,496 32,652 24,468 Long-term obligations 6,147 3,557 259 -- -- Total liabilities 12,692 10,875 8,773 7,998 4,086 Minority interests 111 48 2,687 1,550 -- Total equity 16,623 18,912 24,036 23,104 20,382 Book value per share 7.04 7.09 5.78 5.55 5.03
11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY FORWARD-LOOKING STATEMENTS The statements contained in this Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, intentions or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those in such forward-looking statements. In addition to any risks and uncertainties specifically identified in the text surrounding such forward-looking statements, the reader should consult the Company's reports on Forms 10-Q and other filings under the Securities Act of 1933 and the Securities Exchange Act of 1934, for factors that could cause actual results to differ materially from those presented. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors and legislative, judicial and other governmental authorities and officials. Assumptions relating to the foregoing involve judgements with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Any such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Report on Form 10-K will prove to be accurate. RESULTS OF OPERATIONS 2000 COMPARED TO 1999 Revenues from continuing operations increased 6% in 2000 compared to 1999. Net losses increased from $55,000 in 1999 to $1,402,000 in 2000. Diluted losses per share increased from $(0.02) in 1999 to $(0.56) in 2000. The reasons for these changes are described below. FINANCIAL SERVICES Financial services revenues decreased 8% in 2000 compared to 1999. The decrease resulted from lower commissions earned at APS Financial, the broker/dealer division of Investment Services, resulting from the uncertainty in the bond market. This uncertainty resulted from the major decline in the stock market beginning in April, 2000. Uncertainty affects the time in which investors are willing to risk their funds. Investors tend to purchase short to medium term securities during times of uncertainty while bond market dealer revenues rely on medium to long term investors. Contributing to the decline in revenues was the fact that inventory losses were $94,000 in 2000 compared to inventory gains of $8,000 in 1999. 12 Financial services expenses decreased 6% in 2000 compared to 1999. The decline in transaction activity at APS Financial was primarily responsible for a 4% decrease in sales commission expense, a 7% decrease in support personnel costs, a 30% decrease in incentive compensation, a 22% decrease in transaction charges and a 6% decrease in financial information services. Partially offsetting these decreases was a 20% increase in maintenance costs as well as an increase in allocated expenses for computer and information technology support. 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 2000 nor in 1999, incurring losses of $148,000 and $169,000, respectively. The Company cannot predict when or if it will achieve profitability. INSURANCE SERVICES Insurance Services' revenues increased 22% in 2000 compared to 1999. The increase was primarily due to greater commissions earned on a higher volume of new business as evidenced by the number of insureds increasing approximately 10% during the past twelve months. APIE also implemented a 13% rate increase in July, 2000. The increase in volume and rates at APIE raised total premiums written and consequently, management fees earned by Insurance Services. Insurance Services' expenses increased 14% in 2000 compared to 1999. The increase was primarily due to a 48% increase in commissions paid to sales agents resulting from the above-mentioned increase in commission revenues earned. Partially offsetting this increase was a 31% decrease in advertising as well as an 8% decrease in depreciation expense. Advertising declined due to decreasing use of direct mail marketing in favor of a new internet website, most of the costs of which were capitalized in 2000. Depreciation is down due to a greater amount of assets becoming fully depreciated during the year than were purchased. CONSULTING Revenues included in the consolidated earnings of the Company from APS Consulting increased 212% in 2000 compared to 1999 primarily due to the fact that earnings from this subsidiary were not consolidated until September, 1999. Taking into consideration those revenues earned during the twelve months ended December 31, 1999 regardless of ownership, there was a 2% decline in 2000. This decrease in revenues is due to the loss of a major client in early 1999 resulting from the uncertainty that arose with the dissolution of Eco-Systems' former parent, Consolidated Eco-Systems, Inc. Expenses increased 238% in 2000 for the same reason explained above, as no expenses were recorded during the first eight months of 1999. Were the twelve months of expenses in 1999 to be compared to 2000, there would be an 11% reduction in total expenses in 2000. The primary reason for this reduction is the fact that bad debt expense was 94% lower in 2000 compared to 1999. In early 1999, before the Company began consolidating the revenues and expenses of APS Consulting, a receivable from the then parent company (Consolidated Eco-Systems, Inc.) totaling 13 $224,000 was written off when it was apparent that the parent would not survive as an entity. REAL ESTATE Revenues at the Company's real estate subsidiary, APS Realty, increased 119% in 2000 compared to 1999. Gains from the sales of surplus office space formerly leased to the Company's outside tenants are the reason for the increase. These sales amounted to a total of approximately 8,000 square feet of the 53,000 total square feet owned by the Company and resulted in gains of about $770,000. Expenses decreased 6% in 2000 compared to 1999 due again to the sale of surplus office space in 2000. As a result, building management fees and depreciation expense are lower in 2000 than in 1999. INVESTMENT AND OTHER The $1.5 million decrease in current year investment and other income was primarily due to gains recorded in 1999 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 on the Prime Medical stock totaling $1.6 million were recorded. No such gains were recorded in 2000. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased 5% in 2000 compared to 1999. The increase was primarily due to normal annual merit raises. INVESTMENTS AND INTEREST Investments and interest expense increased 15% in 2000 compared to 1999. Interest expense increased 61% over 1999 as a result of an increase in notes payable. Draws taken from the Company's line of credit with Bank of America, used primarily to fund the Company's investments in Syntera and Uncommon Care, resulted in an ending balance of $5,885,000 at December 31, 2000 compared to $3,275,000 at December 31, 1999. Investment expenses increased in 2000 due to a charge to operations of $1.6 million that was taken in the fourth quarter of 2000 resulting from a valuation adjustment to the Company's investment in FemPartners, Inc. This adjustment was primarily the result of the Company's obligation under certain share exchange agreements to acquire additional FemPartners stock at a premium. Also $560,000 was charged to operations resulting from certain contingent working capital reserve requirements contained in the Company's merger agreement with FemPartners, Inc. During 1999 charges were taken to bad debt expense totaling $1,293,000 pertaining to a note receivable from Consolidated Eco-Systems. In addition, a separate charge to bad debt expense of $536,000 was taken during 1999 pertaining to receivables from Syntera HealthCare, Inc. (now FemPartners, Inc.). 14 AFFILIATES The Company has two affiliates accounted for on the equity method. Equity earnings in Prime Medical, Inc. decreased 31% in 2000 compared to 1999 as a result of lower profits generated from their lithotripter operations caused by contract renegotiations which resulted in a larger number of contracts providing for per diem pricing. In addition, there was a $1.8 million impairment charge recorded by Prime Medical resulting primarily from the sale of its Prostatherapy division. Also, Prime Medical recorded $1.1 million of non-recurring income in 1999. Lastly, the Company's ownership percentage of Prime Medical has decreased from an average of 15.0% in 1999 to an average of 14.6% in 2000 as a result of the Company's exchanges of Prime Medical stock to acquire Company stock that occurred in 1999. Partially offsetting this ownership decrease is the fact that Prime Medical continues to acquire its own treasury shares, which in turn increases the Company's ownership percentage in Prime Medical. The Company also reflects its investment in Uncommon Care on the equity method. Losses on this investment recorded by the Company in 2000 totaled approximately $2,009,000 versus approximately $1,914,000 in 1999. The increased losses in 2000 were attributable to construction of four new facilities at Uncommon Care during 2000 which results in initial low occupancy at the newly constructed facilities. Such losses were expected during Uncommon Care's growth stage. The burden of start-up activities associated with the time to bring the new facilities to full occupancy will continue to result in losses in 2001. By the end of 2001 it is expected that all facilities should be at planned occupancy levels. There are currently no new facilities planned for construction in 2001. 1999 COMPARED TO 1998 Revenues from continuing operations increased 14% in 1999 compared to 1998. Net earnings decreased by $1,034,000 and diluted earnings per share decreased by $0.21 per share. 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. Inventory losses were $329,000 in 1998 as compared to inventory gains of $8,000 in 1999. Financial services expenses increased 8% in 1999 compared to 1998. The large increase in transaction activity at APS Financial was primarily responsible for a 2% increase in sales commission expense, a 9% increase in support personnel costs, a 5% increase in transaction charges and a 16% increase in financial information services. Greater profits in 1999 also increased expenses under the incentive compensation plan by 56% over 1998. Personnel costs also increased in 1999 primarily as a result of incurring a full year of personnel costs at APS 15 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. INSURANCE SERVICES Insurance Services' 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 commission rates paid to sales agents which were 20% to 25% higher in 1999. In addition, business received through agents increased 18% in 1999 compared to 1998. Lastly, personnel costs increased 7% 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. Revenues of Eco-Systems (now APS Consulting) decreased 28% in 1999 compared to 1998 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 Revenues 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 a 4% increase in property taxes due to higher real estate taxable values and a 177% ($7,000) increase in fees paid for building maintenance. 16 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 720,000 shares of Prime Medical common stock for 1,441,000 shares of the Company's common stock held by two mutual fund companies. The Company's common stock was then retired and gains on the Prime Medical stock totaling $1,635,000 were recorded. The gain was based on the difference between the Company's carrying value of the Prime stock and the market value of Company stock on the date of the transactions. Based on an independent evaluation, the market value of the Company stock was discounted 6%, due to the large size of the transaction. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses decreased 1% from 1998. A 25% decrease in professional fees was partially offset by a 12% increase in personnel costs. Legal fees were incurred in 1998 totaling $81,000 related to the Uncommon Care preferred stock investment. INVESTMENTS AND INTEREST Investments and interest expense increased 405% over 1998 due in part to higher interest paid on a greater note payable balance. 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 two affiliates accounted for on the equity method. 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 Prime Medical's board, continues to have significant influence at Prime Medical and accounts for its investment using the equity method. The Company also reflects its investment in Uncommon Care on the equity method. Losses on this investment recorded by the Company in 1999 totaled approximately $1,914,000 versus approximately $860,000 in 1998. Such losses were expected during Uncommon Care's growth stage. The cost of developing new facilities and the time to bring them to full occupancy will continue to result in losses until the established operating base is large and profitable enough to cover the expenses of new development or until there is a slowdown in development of new facilities. The increased losses in 1999 were attributable to the ramp up of facilities construction at Uncommon Care during 1999. LIQUIDITY AND CAPITAL RESOURCES Net working capital was $(203,000) and $1,440,000 at December 31, 2000 and 1999, respectively. The decrease in the current year is due primarily to a loss from operating activities. In addition, the Company recorded a current liability for all expected share exchange agreements with the former Syntera doctors. The share exchange liability recorded at December 31, 2000 17 was $2.3 million. 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 and 2000, the Company supplemented these traditional sources of funds with short-term bank borrowings. Although it is uncertain if operating activities will provide positive cash flow in 2001, the Company believes it 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. 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 pledges 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 $5,885,000 and $6,000,000 had been advanced as of December 31, 2000 and March 15, 2001, respectively. Capital expenditures for equipment were $125,000, $413,000, and $206,000, in 2000, 1999, and 1998, respectively. Capital expenditures were higher in 1999 due to purchases necessary to remediate Year 2000 computer issues as well as to higher expenditures for improved office space and leasing fees. The Company expects capital expenditures in 2001 to be approximately equal to those of 2000. 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 and liquidity in its holdings of Prime Medical shares, 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 under the line of credit or sales of Prime Medical shares will generate sufficient cash 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. 18 NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement). The Company is required to implement this statement effective with its 2001 fiscal year (after deferral by SFAS No. 137). Statement 133 addresses the accounting for derivative instruments, including certain instruments embedded in other contracts, and for hedging activities. Under this Statement, the Company will be required to recognize all derivative instruments as either assets or liabilities in the balance sheet and measure those at fair value. If certain conditions are met a derivative may be specifically designated as a hedge, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-dominated forecasted transaction. The adoption of the Statement on January 1, 2001 had no impact on the company's financial position or results of operations. The Company did not hold any derivatives as of December 31, 2000 and 1999. ITEM 7A 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 2000 the inventory balance was $241,000. Historically, the Company has turned this inventory rapidly and has realized neither significant gains nor losses. The Company has notes receivable which are at an 8% fixed rate. Their fair value will increase and decrease inversely with interest rates. The Company has debt totaling $5,888,000, 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 2001, 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, 2000 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. 19 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 2001 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, 2001, the executive officers of the Company are as follows: Name Age Position - ---- --- ----------- Kenneth S. Shifrin 51 Chairman of the Board, President and Chief Executive Officer Duane K. Boyd, Jr. 56 Senior Vice President - Insurance William H. Hayes 53 Senior Vice President - Finance and Secretary George S. Conwill 44 Vice President - Investment Services Thomas R. Solimine 42 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 is a member of the World Presidents Organization. Mr. Boyd has been Senior Vice President - Insurance since July 1991 and has also been Chairman and Chief Executive Officer of FMI since March 1997. Prior to that, beginning in July 1991, he had been President of FMI. Mr. Boyd has been a Director of Uncommon Care since January 1998. Mr. Boyd is a Certified Public Accountant and was with KPMG LLP from 1974 until June 1991, where he a partner specializing in the insurance industry. 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 Senior Vice President - Investment Services since June 2000 and had been Vice President 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 20 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 2001 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 2001 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 2001 annual meeting of shareholders, which information is incorporated herein by reference. 21 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The information required by this item is contained in Appendix A attached hereto. 2. Financial Statement Schedules All schedules are omitted because they are not applicable or not required or because the required information is not material or is presented in the Consolidated Financial Statements and related notes. (b) Reports on Form 8-K None (c) Exhibits (1) 3.1 Restated Articles of Incorporation of the Company, as amended. (5) 3.2 Amended and Restated Bylaws of the Company. (5) 4.1 Specimen of Common Stock Certificate. (2) 4.2 Rights Agreement, dated as of August 15, 2000, 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) 22 *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) 10.26 Stock Purchase Agreement dated October 1, 1997 between the Company, APS Practice Management, Inc., Michael Beck, John Hedrick, and et al. (8) 10.27 Bylaws of APS Practice Management, Inc., (8) 23 10.28 Amended and Restated Articles of Incorporation APS Practice Management, Inc., (8) 10.29 APS Practice Management, Inc., Certificate of Designation of Rights and Preferences Series A Serial Founder's Common Stock dated September 30, 1997. (8) 10.30 Resolutions to organizational matters concerning Syntera, Inc. dated October 1, 1997. (8) 10.31 Master Refinancing Agreement dated November 6, 1997 between the Company and Consolidated Eco-Systems, Inc. (8) 10.32 Promissory Note dated November 6, 1997 executed by Consolidated Eco-Systems, Inc. and payable to the Company in the amount of $3,788,580. (8) 10.33 Assignment and Security Agreement dated November 6, 1997 between the Company and Consolidated Eco-Systems, Inc. (8) 10.34 Security Agreement dated November 6, 1997 between the Company and Consolidated Eco-Systems, Inc. (8) 10.35 Share Exchange Agreements dated October 31, 1997 between the Company and Devin Garza, M.D., Robert Casanova, M.D. and Shelley Nielsen, M.D. (8) *10.36 First Amendment to 1995 Incentive and Non-Qualified Stock Option Plan of American Physicians Service Group, Inc. Dated December 10, 1997. (8) *10.37 First Amendment to 1995 Non-Employee Director Stock Option Plan of American Physicians Service Group, Inc. Dated December 10, 1997. (8) 10.38 Share Exchange Agreement dated February 16, 1998 between the Company and Michael T. Breen, M.D. (9) 10.39 Share Exchange Agreement dated April 1, 1998 between the Company and Antonio Cavazos, Jr., M.D. (9) 10.40 Share Exchange Agreement dated April 1, 1998 between the Company and Antonio Cavazos, III, M.D. (9) 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) 24 10.43 Share Exchange Agreement dated July 31, 1998 between the Company and Joe R. Childress, M.D. (9) 10.44 Share Exchange Agreement dated August 1, 1998 between the Company and M. Reza Jafarnia, M.D. (9) 10.45 Share Exchange Agreement dated September 15, 1998 between the Company and Donald Columbus, M.D. (9) 10.46 Share Exchange Agreement dated December 31, 1998 between the Company and David L. Berry, M.D. (9) 10.47 Contribution and Stock Purchase Agreement dated January 1, 1998 between the Company, Additional Purchasers, Barton Acquisition, Inc., Barton House, Ltd., Barton House at Oakwell Farms, Ltd., Uncommon Care, Inc., George R. Bouchard, John Trevey, and Uncommon Partners, Ltd. (9) 10.48 Stock Transfer Restriction and Shareholders Agreement dated January 1, 1998 between the Company, Additional Purchasers, Barton Acquisition, Inc., Barton House, Ltd., Barton House at Oakwell Farms, Ltd., Uncommon Care, Inc., George R. Bouchard, John Trevey, and Uncommon Partners, Ltd. (9) 10.49 Loan Agreement dated January 1, 1998 between the Company and Barton Acquisition, Inc. (9) 10.50 Promissory Note (Line of Credit) dated January 1, 1998 between the Company and Barton Acquisition, Inc. in the amount of $2,400,000.(9) 10.51 Security Agreement dated January 1, 1998 between the Company and Barton Acquisition, Inc. (9) 10.52 Participation Agreement dated March 16, 1998 between the Company and Additional Purchasers referred to as Participants. (9) 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) 25 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) 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) 26 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) 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) 27 10.86 Guaranty Agreement dated August 31, 1999 between the Company and FemPartners, Inc. (11) 10.87 Amendment to Certificate of Incorporation dated August 29, 2000 of APSC, Inc. (12) 10.88 Amended Loan Agreement dated June 28, 2000 between APS Consulting and APSC, Inc. (12) 10.89 Amended Promissory Note dated June 28, 2000 between APS Consulting and APSC, Inc. (12) 10.90 Amended Promissory Note dated June 28, 2000 between APS Consulting and APSC, Inc. (12) 10.91 APSC, Inc. Stock Plan. (12) 10.92 APS Asset Management Debt to equity Conversion Agreement dated June 30, 2000. (12) 10.93 Amendment to Revolving Credit Loan Agreement with Bank of America dated April 26, 2000. (12) 10.94 2nd Amendment to Revolving Credit Loan Agreement with Bank of America dated February 9, 2001. (12) 10.95 Management Services Agreement dated January 1, 2000 between APSG and APS Consulting. (12) 10.96 Tax Sharing Agreement dated January 1, 2000 between APSG and APS Consulting. (12) 10.97 Settlement Agreement and Release dated January 5, 2000 between APS Consulting and M. J. Blankenship Woodcock. (12) 10.98 Professional Services Contract dated April 10, 2000 between APIA and White Lion Internet Agency. (12) 10.99 $1.25 million 364-Day Revolving Promissory Note dated February 9, 2001 between APSG and Bank of America. (12) 10.100 $1.25 million Promissory Note dated June 1, 2000 between APSG and Uncommon Care, Inc. (12) 10.101 $1.20 million Promissory Note dated June 1, 2000 between APSG and Uncommon Care, Inc. (12) 28 21.1 List of subsidiaries of the Company. (12) 23.1 Independent Auditors Consent of KPMG LLP. (12) (*) Executive Compensation plans and arrangements. - ----------------- (1) The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, files reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and other information concerning the Company are also available for inspection at the offices of The NASDAQ National Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at "http://www.sec.gov " and makes available the same documents through Disclosure, Inc. at 800-638-8241. (2) Filed as an Exhibit to the Registration Statement on Form S-1, Registration No. 2-85321, of the Company, and incorporated herein by reference. (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. 29 (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, 2000 and incorporated by reference herein. (11) Filed as an Exhibit to the Annual Report on Form 10-K of the Company for the year ended December 31, 1999 and incorporated herein by reference. (12) Filed herewith. 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 30, 2001 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 30, 2001 By: /s/ W. H. Hayes --------------------------------------------- W. H. Hayes Senior Vice President - Finance, Secretary and Chief Financial Officer (Principal Financial Officer) Date: March 30, 2001 31 By: /s/ Thomas R. Solimine --------------------------------- Thomas R. Solimine Controller (Principal Accounting Officer) Date: March 30, 2001 By: /s/ Robert L. Myer ---------------------------- Robert L. Myer, Director Date: March 30, 2001 By: /s/ William A. Searles ------------------------------- William A. Searles, Director Date: March 30, 2001 By: /s/ Brad A. Hummel ------------------------------- Brad A. Hummel, Director Date: March 30, 2001 32 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, 2000, 1999, and 1998 A-3 Consolidated Balance Sheets as of December 31, 2000 and December 31, 1999 A-5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 A-7 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 A-9 Notes to Consolidated Financial Statements A-10 33 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 auditing standards generally accepted in the United States of America. 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 as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG, LLP ------------------- Austin, Texas February 22, 2001 A-2 AMERICAN PHYSICIANS SERVICE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Year Ended December 31, ------------------------------------------------- 2000 1999 1998 ------------- --------------- ------------ Revenues: Financial services $9,962 $10,835 $9,914 Insurance services 5,692 4,683 5,655 Consulting 2,395 768 --- Real estate (Note 5) 1,555 710 713 Investments and other 298 1,755 121 ------------- --------------- ------------ Total revenues 19,902 18,751 16,403 Expenses: Financial services 9,147 9,764 9,039 Insurance services 5,197 4,558 4,129 Consulting 2,404 712 --- Real estate 515 548 527 General and administrative 1,524 1,447 1,459 Investments and interest (Notes 8 and 17) 2,610 2,277 451 ------------- ----------- ---------- Total expenses 21,397 19,306 15,605 ------------- ------------ ---------- Operating income (loss) (1,495) (555) 798 Equity in earnings (loss) of unconsolidated affiliates (Note 13) (467) 320 966 ------ ---- --- Earnings (loss) from continuing operations before income taxes and minority interests (1,962) (235) 1,764 Income tax expense (benefit) (Note 9) (602) (77) 696 Minority interests 42 (5) 178 ------------- ------------ ---------- Earnings (loss) from continuing operations (1,402) (153) 890 Discontinued operations: Profit/(loss) from discontinued operations net of income tax expense/(benefit) of $0, $113 and $46 in 2000, 1999 and 1998, respectively --- 98 89 ------------- ------------ ---------- Net earnings (loss) $ (1,402) $ (55) $ 979 ============ ============ ========== See accompanying notes to consolidated financial statements
A-3 AMERICAN PHYSICIANS SERVICE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS, continued (In thousands, except per share data)
Year Ended December 31, ------------------------------------------------- 2000 1999 1998 ------------- --------------- ------------- Earnings (loss) per common share: (Note 15) Basic: Earnings (loss) from continuing operations $ (0.56) $ (0.05) $ 0.21 Discontinued operations --- 0.03 0.02 -------- --------- ------- Net earnings (loss) $ (0.56) $ (0.02) $ 0.23 ======== ======= ===== Diluted: Earnings (loss) from continuing operations $ (0.56) $ (0.05) $ 0.17 Discontinued operations --- 0.03 0.02 --------- --------- ------- Net earnings (loss) $ (0.56) $ (0.02) $ 0.19 ========= ========= ======= Basic weighted average shares outstanding 2,490 3,064 4,163 ====== ====== ====== Diluted weighted average shares outstanding 2,490 3,064 4,692 ====== ====== ======
See accompanying notes to consolidated financial statements A-4 AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, ---------------------------------- 2000 1999 ----------- ---------- ASSETS Current Assets: Cash and cash investments $2,988 $2,275 Cash - restricted (Note 16) --- 376 Trading account securities 241 493 Notes receivable - current (Note 3) 282 270 Management fees and other receivables (Note 2) 682 1,344 Deposit with clearing organization 495 1,042 Receivable from clearing organization 185 147 Deferred income tax asset (Note 9) --- 633 Income taxes receivable 502 200 Prepaid expenses and other 331 279 ---------- --------- Total current assets 5,706 7,059 Notes receivable, net - less current portion (Note 3) 1,986 2,066 Property and equipment (Note 5) 1,422 1,820 Investment in affiliates (Note 13) 14,374 14,274 Other investments (Note 17) 5,290 3,824 Goodwill (Note 18) 443 573 Other assets 205 219 ---------- --------- Total Assets $29,426 $29,835 ========== ========= See accompanying notes to consolidated financial statements A-5 AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, continued (In thousands, except share data) December 31, --------------------------------- 2000 1999 ---------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade $1,033 $1,242 Payable to clearing organization 470 624 Notes payable - short term (Note 7) -- 12 Net deferred taxes liability 122 -- Accrued compensation 719 818 Accrued expenses and other liabilities (Note 6) 3,565 2,923 ----- ----- Total current liabilities 5,909 5,619 Payable under loan participation agreements (Note 13) 259 259 Net deferred income tax liability (Note 9) 636 1,699 Notes payable - long term (Note 7) 5,888 3,298 ----- ----- Total liabilities 12,692 10,875 Minority interest 111 48 Shareholders' Equity: Preferred stock, $1.00 par value, 1,000,000 shares authorized -- -- Common stock, $0.10 par value, shares authorized 20,000,000; issued and outstanding 2,359,233 in 2000 and 2,667,233 in 1999 275 278 Additional paid-in capital 5,539 5,549 Retained earnings 12,259 13,644 Accumulated other comprehensive loss (32) -- Treasury stock, at cost, 386,000 and 78,000 in 2000 and 1999, respectively (1,418) (559) ------- ------- Total shareholders' equity 16,623 18,912 Total Liabilities and Shareholders' Equity $29,426 $29,835 ======= ======= See accompanying notes to consolidated financial statements A-6 AMERICAN PHYSICIANS SERVICE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, 2000 1999 1998 ------------- ----------- ----------- Cash flows from operating activities: Cash received from customers $19,429 $17,205 $16,017 Cash paid to suppliers and employees (20,225) (16,770) (14,390) Change in trading account securities 252 6 (86) Change in deposit with and receivable from clearing organization 355 16 (447) Interest paid (408) (254) (59) Income taxes (paid) refunded 122 (385) (439) Interest and other investment proceeds 377 484 234 ------------ ----------- ----------- Net cash (used in) provided by operating activities (98) 302 830 Cash flows from investing activities: Proceeds from the sale of property and equipment 953 -- 13 Payments for purchase of property and equipment (125) (413) (206) Investment in and advances to affiliates, net (845) (4,467) (3,408) Other investments (856) -- -- Funds loaned to others (206) -- -- Collection of notes receivable 73 963 400 Discontinued operations -- (578) (3,699) Other 98 (44) 259 ---------- ----------- --------- Net cash used in investing activities (908) (4,539) (6,641) Cash flows from financing activities: Proceeds from notes payable 3,560 3,825 8 Payment of notes payable (982) (577) -- Purchase/retire treasury stock (914) (25) (147) Sale of treasury stock 55 -- -- Exercise of stock options -- 75 75 Distribution to minority interest -- -- (300) --------- ----------- ---------- Net cash (used in)/provided by financing activities 1,719 3,298 (364) Net change in cash and cash investments $713 ($939) ($6,175) --------- ----------- ---------- Cash and cash investments at beginning of period 2,275 3,214 9,389 --------- ----------- ---------- Cash and cash investments at end of period $2,988 $2,275 $3,214 ========= =========== ==========
See accompanying notes to consolidated financial statements A-7 AMERICAN PHYSICIANS SERVICE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, continued (In thousands)
Year Ended December 31, 2000 1999 1998 ----------- ---------- --------- Reconciliation of net earnings (loss) to net cash provided by (used in) operating activities: Net earnings (loss) $(1,402) $(55) $979 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 574 733 618 Earnings from discontinued operations -- (211) (135) Minority interest in consolidated earnings/(loss) 42 (5) 178 Undistributed (earnings) loss of affiliate 467 (149) (966) Provision for bad debts 7 2,023 361 Realized loss on investments 1,642 -- -- Gain on exchange of stock -- (1,635) -- Warrants received for services -- (45) -- Gain on sale of property (758) -- -- Provision for deferred taxes (308) 88 81 Change in trading securities 252 6 (86) Change in management fees & other receivables 662 209 (153) Change in receivable deposit with and receivable from clearing organization 355 16 (447) Change in federal income tax payable (285) (492) 66 Change in prepaids & other current assets (52) 96 169 Change in other long term assets 14 -- 52 Change in trade payables (209) 91 9 Change in accrued expenses $ other liabilities (1,099) (368) (155) Change in loan participations liability -- -- 259 ------ ------ ------- Net cash provided by (used in ) operating activities $ (98) $302 $830 ====== ====== =======
Summary of non-cash transactions: During 2000, the Company recorded a write-down in the amount of approximately $1,642,000 in relation to its investment in FemPartners, Inc. See Note 8. 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, the Company exchanged 721,000 shares of the Prime Medical stock, which it owned, for 1,441,000 shares of its own stock. The Company recognized a gain of $1,635,000 based on the difference between its carrying value of the Prime shares and the market value of its own shares on the exchange dates. Based on an independent evaluation, the Company shares were discounted by 6% due to the size of the transaction. The Company subsequently retired its own shares received in the exchange. 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. See accompanying notes to consolidated financial statements. A-8 AMERICAN PHYSICIANS SERVICE GROUP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended December 31, 2000, 1999, and 1998 (In thousands, except share data)
Accumulated Common Additional Other Total Stock Paid-In Treasury Comprehensive Comprehensive Retained Shareholders (Note 19) Capital Stock Income (Loss) Loss Earnings Equity ---------- ---------- --------- --------------- ------------ ---------- ------------ Balance January 1, 1998 $ 416 $ 5,528 $ -- $ -- $ 17,160 $ 23,104 Shares issued (Note 11) 3 72 -- -- -- 75 Shares repurchased & cancelled (3) (144) -- -- -- (147) Comprehensive income: Net earnings -- -- -- $ 979 -- 979 979 Other comprehensive income -- -- -- -- -- -- -- ---- Comprehensive income -- -- -- 979 -- -- -- ---- Income tax benefit of non-qualified option -- 25 -- -- -- 25 exercises ---------- ---------- --------- --------------- ------------ ---------- ----------- Balance December 31, 1998 416 5,481 -- -- 18,139 24,036 Shares issued (Note 11) 3 72 -- -- -- 75 Shares repurchased & cancelled (141) (24) -- -- (4,716) (4,881) Comprehensive income: Net loss -- -- -- (55) -- (55) (55) Other comprehensive loss -- -- -- -- -- -- -- ----- Comprehensive loss -- -- -- (55) -- -- -- ----- Income tax benefit of non-qualified option -- 20 -- -- -- 20 exercises Common stock of parent company held by subsidiary -- -- (559) -- 276 (283) ---------- ---------- -------- ------------- ------------ ---------- ------------ Balance December 31,1999 278 5,549 (559) -- 13,644 18,912 Comprehensive income: Net loss -- -- -- (1,402) -- (1,402) (1,402) Other comprehensive loss Unrealized loss on securities net of tax of $(17) -- -- -- (32) (32) -- (32) ----- Other comprehensive loss -- -- -- (32) -- -- -- ----- Comprehensive loss -- -- -- $(1,434) -- -- -- ----- Treasury stock purchases -- -- (914) -- -- (914) Treasury stock sales -- -- 55 -- -- 55 Dissolution of Subsidiary (3) (10) -- -- 17 4 ---------- ---------- --------- ------------- ------------ ---------- ----------- Balance December 31, 2000 $ 275 $ 5,539 $(1,418) $ (32) $ 12,259 $ 16,623 ========== ========== ========= ============= ============ ========== ===========
See accompanying notes to consolidated financial statements. A-9 AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 (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, insurance services that consist of management services for malpractice insurance companies, and environmental consulting services that include air, water and solid waste engineering, litigation support and regulatory compliance. The financial services business has clients nationally. Insurance management is a service provided primarily in Texas, but is available to clients nationally. Consulting is a service provided primarily in the Southeastern United States, but is available to clients nationally. Through a subsidiary, Syntera HealthCare Corporation ("Syntera"), the Company also provided medical practice management services to various OB/GYN practices in Texas. Syntera was exchanged on August 31, 1999 for a common stock interest in FemPartners, Inc. 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 56% of total revenues and insurance services generated 29%. American Physicians Services Group, Inc. has two affiliates; Prime Medical Services, Inc., ("Prime Medical") of which it owns approximately 15%, and Uncommon Care, Inc. ("Uncommon Care") of which it owns convertible preferred stock equivalent to a 34% ownership on a fully converted basis. Prime Medical is the country's largest provider of lithotripsy (non-invasive kidney stone fracturing) services. In addition, Prime Medical operates 15 refractive surgery centers performing 33,000 LASIK procedures on annualized basis, and is also involved in the manufacturing of mobile medical and specialty equipment units. Uncommon Care develops and operates Alzheimer's care facilities. (b) Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 over operating and financial policies, are accounted for by the equity method. Investments in other entities in which the Company's investment is less than 20%, and in which it does not have the ability to exercise significant influence over operating and financial policies, are accounted for by the cost method. A-10 (1) Summary of Significant Accounting Policies, continued All significant intercompany transactions and balances have been eliminated from the accompanying consolidated financial statements. (d) Revenue Recognition Investment services revenues related to securities transactions are recognized on a trade date basis. Asset management revenues are recognized monthly based on the amount of funds under management. 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. Expense reimbursements are recorded as a reduction in expenses. Consulting revenues result from the work of scientists and engineers in the areas of remedial investigations, remediation engineering, air and water quality analysis, regulatory compliance, solid waste engineering, litigation support/expert testimony and industrial hygiene and safety. Substantially all of the projects in these areas are undertaken on a time and expenses basis. Clients are billed, and revenue is recognized, monthly based on hours worked and expenses incurred toward completing the assignments. 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. Physician practice management revenue consists of management fees which are contractually agreed upon and are paid monthly. Investment revenues are recognized as accrued on highly rated investments and as received on lesser grades. A-11 (1) Summary of Significant Accounting Policies, continued (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 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. Investments in the common stock of companies not accounted for using the equity method and for which there is no readily determinable fair value will be evaluated for impairment in the event of a material change in the underlying business. Such evaluation takes into consideration the Company's intent and time frame to hold or to dispose of the investment and takes into consideration available information, including recent transactions in the stock, expected changes in the operations or cash flows of the investee, or a combination of these and other factors. A-12 (1) Summary of Significant Accounting Policies, continued (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. Goodwill is 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. (i) Income Taxes Income taxes are accounted for under the asset and liability method. 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) Cash and Cash Investments Cash and cash investments include cash and highly liquid investments with an original maturity of 90 days or less. (k) Notes Receivable Notes receivable are recorded at cost, less allowances for doubtful accounts when deemed necessary. Management, considering current information and events regarding the borrowers ability to repay their obligations, considers a note to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the note agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the note's effective interest rate. Impairment losses are included in the allowance for doubtful accounts through a charge to bad debt expense. The present value of the impaired loan will change with the passage of time and may change because of revised estimates of cash flows or timing of cash flows. Such value changes shall be reported as bad debt expense in the same manner in which impairment initially was recognized or as a reduction in the amount of bad debt expense that would be reported. No interest income is accrued on impaired loans. Cash receipts on impaired loans are recorded as reductions of the principal amount. (l) Stock-Based Compensation The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123"), but applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock option plans. A-13 (1) Summary of Significant Accounting Policies, continued (m) Reclassification Certain reclassifications have been made to amounts presented in previous years to be consistent with the 2000 presentation. (n) New Accounting Pronouncements The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement). The Company is required to implement this statement effective with its 2001 fiscal year (after deferral by SFAS No. 137). Statement 133 addresses the accounting for derivative instruments, including certain instruments embedded in other contracts, and for hedging activities. Under this Statement, the Company will be required to recognize all derivative instruments as either assets or liabilities in the balance sheet and measure those at fair value. If certain conditions are met a derivative may be specifically designated as a hedge, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-dominated forecasted transaction. The adoption of the Statement on January 1, 2001 had no impact on the company's financial position or results of operations. The Company did not hold any derivatives as of December 31, 2000 and 1999. (2) Management Fees and Other Receivables Management fees and other receivables consist of the following: December 31, ------------------------- 2000 1999 ---- ---- Management fees receivable $3,000 $304,000 Trade accounts receivable 637,000 778,000 Less: allowance for doubtful accounts (56,000) (20,000) Accrued interest receivable 57,000 162,000 Other receivables 41,000 120,000 ------ ------- $682,000 $1,344,000 ======== ========== 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 $5,692,000, $4,683,000, and $5,655,000 and received expense reimbursements of $1,997,000, $1,454,000, and $1,420,000 for the years ended December 31, 2000, 1999 and 1998, respectively, related to these agreements. A-14 (3) Notes Receivable Notes receivable consist of the following:
December 31, 2000 1999 ---- ---- 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. $ 2,000,000 $ 2,193,000 Term note: This note is unsecured. Principal and interest, at 8 %, are payable monthly until maturity on March 31, 2004. 182,000 -- EMPLOYEES Loans are periodically made to employees, primarily as employment inducements. Employee notes receivable at December 31, 2000 consisted of a $20,000 note which was repaid in full in March 2001 and two loans totaling $66,000 to a key employee for advanced education fees. The latter two notes are forgivable in the amount of approximately $13,000 on each January 1st that the employee is employed by the Company beginning in 2001 and continuing through 2005. They are due within 90 days should the employee terminate employment. 119,000 454,000 ------- ------- 2,301,000 2,647,000 Less allowance for doubtful accounts (33,000) (311,000) --------- --------- 2,268,000 2,336,000 Less current portion 282,000 270,000 ------- --------- Long term portion $1,986,000 $2,066,000 ========== ==========
A-15 (3) Notes Receivable, continued A reconciliation of the allowance for impairment of all notes receivable follows: Year Ended December 31, --------------------------------- 2000 1999 ---- ---- Balance at the beginning of the period $ 311,000 $1,255,000 Amounts charged off (285,000) (2,609,000) Additional provision 7,000 1,665,000 --------- --------- Balance at the end of period $ 33,000 $ 311,000 ========= ========= (4) Fair Value of Financial Instruments Statements of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" (Statement 107), requires that the Company disclose estimated fair values for its financial instruments. For financial instruments the estimated 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 INVESTMENTS The carrying amounts for cash and cash investments 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 are reported at fair value. In the absence of any available market quotation, securities held by the Company are valued at estimated fair value. 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 $0 at December 31, 2000. None of the warrants have been exercised as of December 31, 2000. A-16 (4) Fair Value of Financial Instruments, continued 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 ORGANIZATION The carrying amounts approximate fair value because the funds can be withdrawn on demand and there is no unanticipated credit concern. 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. 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. A-17 (5) Property and Equipment Property and equipment consists of the following: December 31, ------------------------------------ 2000 1999 ------------ ----------- Office condominium $1,340,000 $1,574,000 Furniture and equipment 2,041,000 2,582,000 --------- --------- 3,381,000 4,156,000 Accumulated depreciation and amortization 1,959,000 2,336,000 --------- --------- $1,422,000 $1,820,000 ========== ========== The Company owns approximately 45,000 square feet in the condominium building in which its principal offices are located. The Company, its subsidiaries and affiliate occupy approximately 36,720 square feet and the remainder is leased to third parties. Rental income received from third parties during the years ended December 31, 2000, 1999 and 1998 totaled approximately $273,000, $255,000 and $355,000 respectively. Future minimum lease payments to be received under the terms of the office condominium leases are as follows: 2001 - $190,000; 2002 - $167,000; 2003 - $150,000; and 2004 - $76,000. (6) Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consists of the following as of December 31,: 2000 1999 --------- ---------- Taxes payable - other $ 71,000 $ 160,000 Deferred income 459,000 528,000 Contractual/legal claims 2,887,000 1,409,000 Vacation payable 133,000 116,000 Funds held for others 15,000 402,000 Other -- 308,000 --------- ---------- $3,565,000 $2,923,000 ========== ========== (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 $5,885,000 at December 31, 2000. Funds advanced under the agreement will bear interest at the prime rate less 1/4 %. The A-18 (7) Notes Payable continued average interest rate on amounts outstanding under this agreement as of December 31, 2000 was 9.1%. Interest expense incurred during the year ended December 31, 2000 related to the line of credit was approximately $401,000. The unused portion of the line carries a 1/4 % commitment fee. All interest is to be paid quarterly. Prior to maturity in February 2001, this note was extended to February 2003. Any outstanding principal is to be paid at maturity in February 2003. 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, 2000, the Company is in compliance with all covenants of its loan agreements. (8) Commitments and Contingencies In connection with the development of Syntera, 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 in 1999, the Syntera shares were converted to FemPartners shares, with such shares retaining all of the conversion features. These shares began to become eligible to exchange in the first quarter of 2000 and continue to become eligible through 2001. Most of the agreements were modified at the time of merger to also allow the Company's shares of Prime Medical to be used in the exchange, although the Company does not presently intend to exchange any shares of Prime Medical. The exchanges, whether for cash, or the shares of the Company will increase our investment in FemPartners by the amount of the cash or the fair value of the stock consideration, as indicated by NASDAQ Stock Market prices on the exchange dates. Exchanges for the common stock of American Physicians will be accounted for as a re-issuance of treasury stock. At December 31, 2000 the Company had been notified by physician shareholders of their intent to exchange approximately 126,000 of the 151,000 shares expected to be eligible for exchange. The Company paid approximately $856,000 in cash in 2000 related to the exchanges and recorded a liability of approximately $2,250,000 to complete all remaining expected exchanges, including the 25,000 shares for which it has yet to receive notification. A $1,642,000 charge to earnings was recorded in 2000 related to the exchanges. The Company has registered 600,000 shares of its common stock which it may use in satisfying the exchange agreements. 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. A-19 (8) Commitments and Contingencies, continued As part of the merger of Syntera with FemPartners it was agreed that Syntera would have working capital of an agreed upon amount measured at December 31, 2000. As a result of this agreement, the Company recorded a liability of approximately $870,000 at December 31, 2000. Management believes that this amount will be sufficient to satisfy its obligations to FemPartners. Satisfaction of the obligation will be made by offsetting the liability against future principal and/or interest payments due from FemPartners. No cash will be expended in satisfying the obligation. The Company has extended various lines of credit to Uncommon Care. See Note 13 to these consolidated financial statements. Rent expense under all operating leases for the years ended December 31, 2000, 1999 and 1998 was $160,000, $84,000 and $44,000 respectively. Future minimum payments for leases which extend for more than one year were $285,000 at December 31, 2000. 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 Taxes The Company files a consolidated tax return. Income tax expense (benefit) consists of the following: Year Ended December 31, -------------------------------------------- 2000 1999 1998 ---- ---- ---- Continuing Operations Federal Current $(395,000) $(245,000) $332,000 Deferred (259,000) 128,000 232,000 State 52,000 40,000 132,000 Discontinued Operations -- 113,000 46,000 ---------- ------- -------- $(602,000) $36,000 $742,000 ======== ======= ======= A reconciliation of expected income tax expense (benefit) (computed by applying the United States statutory income tax rate of 34% to earnings (loss) before income taxes to total tax expense (benefit) in the accompanying consolidated statements of earnings follows: A-20 (9) Income Taxes, continued Year Ended December 31, --------------------------------------- 2000 1999 1998 ---- ---- ---- Expected federal income tax expense (benefit) $(667,000) $(6,000) $585,000 State taxes 52,000 40,000 132,000 Other, net 13,000 2,000 25,000 -------- -------- ------- $(602,000) $36,000 $742,000 ========= ======== ======= The tax effect of temporary differences that gives rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999 are presented below: Year Ended December 31, --------------------------------- 2000 1999 ---- ---- Deferred tax assets: Net operating loss carryforwards $110,000 $172,000 Accrued expenses 50,000 537,000 Accounts receivable, principally due to allowance for doubtful accounts 28,000 96,000 Market value allowance 17,000 2,000 Other investments 1,064,000 -- Other -- 56,000 --------- -------- Total gross deferred tax assets 1,269,000 863,000 Less valuation allowance (110,000) (172,000) --------- --------- Net deferred tax assets 1,159,000 691,000 --------- --------- Deferred tax liabilities: Investment in equity investments due to use of equity method for financial reporting (1,684,000) (1,699,000) Deferred income (26,000) (26,000) Difference in basis of investment in subsidiary (163,000) -- Capitalized expenses, principally due to deductibility for tax purposes (44,000) (32,000) ---------- ---------- Total gross deferred tax liabilities (1,917,000) (1,757,000) ---------- ---------- Net deferred tax liability $(758,000) $(1,066,000) ========== ========== A-21 (9) Income Taxes, continued The net change in the total valuation allowance for the years ended December 31, 2000 and 1999 was a decrease of $62,000 and $14,000, respectively. 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 asses will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences net of existing valuation allowances at December 31, 2000 and 1999. At December 31, 2000, the company had net operating loss carryforwards which are scheduled to expire in 2014. (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 $10,500 in 2000) 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, 2000, 1999 and 1998, contributions by the Company aggregated, $122,000, $121,000 and $126,000, 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 170,000 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-22 (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 compensation expense from stock-based compensation awards was recognized in 2000, 1999 or 1998. If the Company had elected to recognize compensation expense for options granted based on the fair value at the grant dates, consistent with Statement 123, net income and earnings per share would have changed to the pro forma amounts indicated below: Year Ended December 31, ---------------------------------------- 2000 1999 1998 ---- ---- ---- Net earnings (loss) as reported $(1,402,000) $(55,000) $ 979,000 Pro forma net earnings (loss) $(1,820,000) $(609,000) $244,000 Pro forma earnings (loss) per share - basic (0.73) (0.20) 0.06 - diluted (0.73) (0.20) 0.04 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: 2000 1999 1998 ---- ---- ---- Risk-free interest rate 6.00% 5.60% 5.21% Expected holding period 3.90 years 3.90 years 3.90 years Expected volatility .653 .689 .401 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, 2000, 1999 and 1998. Remaining options outstanding from the Company's previous 1983 plans are included. A-23 (11) Stock Options, continued
Year Ended December 31, ----------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------- ------------------------ ---------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Balance at January 1 1,282,000 $6.09 1,345,000 $6.36 774,000 $6.60 Options granted 240,000 2.14 215,000 4.01 597,000 5.92 Options exercised -- -- 33,000 2.28 26,000 2.90 Options forfeited/expired 371,000 6.78 245,000 6.30 -- -- Balance at December 31 1,151,000 5.04 1,282,000 6.09 1,345,000 6.36 ========= ==== ========= ==== ========= ==== Options exercisable 719,000 5.77 668,000 $6.72 460,000 $6.44 ======= ==== ======= ===== ======= =====
The weighted average fair value of Company stock options, calculated using the Black Scholes option pricing model, granted during the years ended December 31, 2000, 1999 and 1998 is $1.15, $2.23 and $2.33 per option, respectively. The following table summarizes the Company's options outstanding and exercisable options at December 31, 2000:
Stock Options Stock Options Exercisable Outstanding ------------------------------------------------ ------------------------------------ Average Weighted Weighted Remaining Average Average Range of Contractual Exercise Exercise Exercise Prices Shares Life Price Shares Price --------------- ------ ---- ----- ------ ----- $1.25 to $3.75 230,000 4.7 years $ 2.10 9,000 $ 3.48 $3.76 to $5.75 557,000 2.5 years $ 4.79 450,000 $ 4.93 $5.76 to $8.88 364,000 2.1 years $ 7.29 260,000 $ 7.31 ------- ------- Total 1,151,000 719,000 ========= =======
(12) Discontinued Operations The Company, through its majority owned subsidiary, Syntera, had previously managed medical practices. The Company initially invested in Syntera in late 1997. Syntera was merged with FemPartners in a non-monetary exchange in August 1999. The operations of Syntera are reflected as discontinued operations in the accompanying consolidated financial statements. A-24 (12) Discontinued Operations, continued Summary operating data for Syntera is as follows: Year Ended December 31, ---------------------------- 1999 1998 ---- ---- Medical Practice Management Revenues $3,481 $2,962 Medical Practice Management Expenses (3,824) (3,581) Other Income 14 82 Minority Interest 92 170 Net Loss $ (237) $ (367) The Company, through its wholly owned subsidiary, APS Systems, Inc. ("APS Systems"), had previously developed software and marketed it to medical clinics and medical schools. This business segment became unprofitable in 1996. A joint venture with a software developer was formed in 1996 with a plan to develop new products, but was discontinued in 1997 when it was determined that the high cost of developing competitive products precluded an adequate return on investment. Subsequently, the Company ceased marketing the software and reduced the scope of APS Systems' operations to a level adequate to service existing clients through the terms of their contracts. The Company originally assumed that all clients would have migrated to other software products by the end of 1999 and reflected the expected financial impact of discontinuing this segment on that date in the 1997 financial statements. The measurement date for determining expected losses from the disposal was May 15, 1997. 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. A-25 (13) Investment in Affiliates On October 12, 1989, the Company purchased 3,540,000 shares (42%) of the common stock of Prime Medical. Prime Medical provides non-medical management services to lithotripsy centers, operates refractive surgery centers and manufactures mobile medical specialty units. 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 aggregate, have reduced the Company's ownership to approximately 15% of the outstanding common stock of Prime Medical at December 31, 2000. The Company's investment in Prime Medical is accounted for using the equity method, as the Company continues to exercise significant influence over operating and financial policies, primarily through the Board of Directors and senior officers. Two of Prime Medical's seven member board are also members of the Company's board. Mr. Shifrin is CEO of the Company and chairman of the board of both companies. Mr. Hummel is a director of the Company and is CEO and President of Prime Medical. Mr. Searles is a director of both companies. The Company continues to be Prime Medical's largest shareholder. According to information in Prime Medical's most recent Proxy statement, The Company and its two directors who are also Prime Medical directors have 18.5% beneficial ownership in Prime Medical. The 2,344,803 shares of Prime Medical common stock held by the Company had an approximate market value of $11,720,000 (carrying amount of approximately $13,638,000) at December 31, 2000 based on the market closing price of $5.00 per share. A-26 (13) Investment in Affiliates, continued The condensed balance sheet and statement of operations for Prime Medical follows (in thousands): Condensed balance sheet at December 31, 2000 and 1999: 2000 1999 ---- ---- Current assets $ 61,271 $ 58,012 Long-term assets 214,947 188,815 ------- ------- Total assets $ 276,218 $ 246,827 ======= ======= Current liabilities $ 23,154 $ 20,493 Long-term liabilities 153,273 129,651 Shareholders' equity 99,791 96,683 ------- ------ Total liabilities and equity $ 276,218 $ 246,827 ======= ======= Condensed statement of operations for the years ended December 31, 2000 and 1999 - -------------------------------------------------------------------------------- 2000 1999 ---- ---- Total revenue $130,695 $112,174 ======== ======== Net income $10,657 $15,039 ======= ======= On January 1, 1998 the Company invested approximately $2,078,000 in the Convertible Preferred Stock of 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% common stock interest in the equity of Uncommon Care on a fully converted basis. The Company's investment entitles it to vote in certain instances and to elect two of the four members of the board of directors of Uncommon Care. In addition, pursuant to a shareholders agreement between Uncommon Care and its shareholders, one of the directors elected by the holders of the preferred stock must consent to Uncommon Care's taking certain important corporate actions specified in the shareholders agreement. As a result, APSG accounts for this investment on the equity method. A-27 (13) Investment in Affiliates, continued 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 matured April 30, 2000, but was extended until November 30, 2001 as allowed by its terms. The maturity may be accelerated by Uncommon Care securing certain equity capital. These notes are subordinated to Uncommon Care's bank debt. 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. Amounts outstanding under these lines of credit and December 31, 2000 and 1999 are as follows (in thousands):
2000 1999 --------- --------- Revolving Line of Credit: This note is unsecured with a maximum of $1,200,000. The note is interest only at 10%, payable semi-annually. The note matures September 30, 2001. Maturity may be accelerated if the borrower obtains specific 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. $ 325 $ -- 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 matured April 30, 2000, but was extended until November 30, 2001. Maturity may be accelerated if the borrower obtains specific 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. $ 1,250 $ 730 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 quarterly. Any outstanding principal is due June 30, 2005. $ 2,400 $ 2,400
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 loan under the same terms as the Company. The Company has applied the guidance of EITF 99-10, specifically the percentage of ownership method, in applying the equity method to its investment in Uncommon Care. Uncommon Care's common stock equity had been eliminated by losses prior to the Company's investment and, accordingly, the Company has recognized 100% of the losses of Uncommon Care based on its ownership of 100% of Uncommon Care's preferred stock equity and subordinated debt with Uncommon Care. A-28 (13) Investment in Affiliates, continued The condensed balance sheets and statements of operations for Uncommon Care follows (in thousands): Condensed balance sheets at December 31, 2000 and 1999: ----------------------------------------------------------------- 2000 1999 ---- ---- Current assets $ 174 $ 142 Long-term assets 15,336 13,859 ------ ------ Total assets $15,510 $ 14,001 ======= ======= Current liabilities $ 922 $ 1,130 Long-term liabilities 18,114 13,189 Shareholders' equity (deficit) (3,526) (318) ------- ------- Total liabilities and equity $15,510 $14,001 ======= ======= Condensed statements of operations for the years ended December 31, 2000 and 1999 follow (in thousands): 2000 1999 ---- ---- Total revenue $ 4,222 $ 2,743 ====== ======= Net loss $(2,286) $(2,173) ====== ======= (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. 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. A-29 (14) Segment Information, continued Corporate is the parent company and derives its income from interest and investments. Discontinued operations include medical software sales and medical practice management.
2000 1999 1998 ---- ---- ---- Operating Revenues: Financial services $9,962,000 $10,835,000 $9,914,000 Insurance services 5,692,000 4,683,000 5,655,000 Consulting 2,395,000 768,000 -- Real estate 1,745,000 853,000 865,000 Corporate 2,812,000 4,475,000 1,721,000 ------------ --------- --------- $22,606,000 $21,614,000 $18,155,000 =========== =========== =========== Reconciliation to Consolidated Statements of Operations: Total segment revenues $22,606,000 $21,614,000 $18,155,000 Less: intercompany profits (189,000) (143,000) (152,000) intercompany dividends (2,515,000) (2,720,000) (1,600,000) ----------- ----------- ----------- Total Revenues $19,902,000 $18,751,000 $16,403,000 =========== =========== =========== Operating Profit (Loss): Financial services $762,000 $998,000 $810,000 Insurance services 381,000 40,000 1,437,000 Consulting (12,000) 58,000 -- Real estate 1,230,000 305,000 338,000 Corporate (1,341,000) 764,000 (187,000) ----------- ---------- ---------- $1,020,000 $2,165,000 $2,398,000 ========== ========== ========== Reconciliation to Consolidated Statements of Operations: Total segment operating profits 1,020,000 2,165,000 2,398,000 Less: intercompany dividends (2,515,000) (2,720,000) (1,600,000) ----------- ----------- ----------- Operating Income (loss) $(1,495,000) $(555,000) $798,000
A-30 (14) Segment Information, continued
2000 1999 1998 --------- ---------- --------- Equity in earnings (loss) of affiliates (467,000) 320,000 966,000 --------- ------- ------- Earnings (loss) from continuing operations before income taxes and minority interests (1,962,000) (235,000) 1,764,000 Income tax expense (benefit) (602,000) (77,000) 696,000 Minority interests 42,000 (5,000) 178,000 ----------- --------- ------- Earnings (loss) from continuing operations (1,402,000) (153,000) 890,000 Net profit (loss) from discontinued operations, net of income tax -- 98,000 89,000 ----------- --------- --------- Net earnings (loss) $(1,402,000) $ (55,000) $ 979,000 ============ ========= ========= Identifiable assets: Financial Services $2,859,000 $4,424,000 $3,964,000 Insurance Services 1,428,000 1,281,000 1,640,000 Consulting 1,039,000 1,155,000 -- Real Estate 1,009,000 1,286,000 1,324,000 Corporate: Investment in and advances to equity method investees 14,374,000 14,015,000 15,054,000 Other 7,981,000 7,602,000 5,526,000 Discontinued Operations 736,000 72,000 7,988,000 ------------ ---------- --------- $29,426,000 $29,835,000 $35,496,000 ============ =========== ========== Capital expenditures: Financial Services $23,000 $47,000 $55,000 Insurance Services 57,000 44,000 44,000 Consulting 3,000 -- -- Real Estate 12,000 129,000 58,000 Corporate 30,000 193,000 49,000 Discontinued Operations -- -- -- ------------ ----------- ---------- $125,000 $413,000 $206,000 ======== ======== ========
A-31 (14) Segment Information, continued
2000 1999 1998 ---- ---- ---- Depreciation/amortization expenses: Financial Services $267,000 $413,000 $279,000 Insurance Services 70,000 94,000 90,000 Consulting 79,000 31,000 -- Real Estate 84,000 103,000 107,000 Corporate 74,000 74,000 78,000 Discontinued Operations -- 18,000 64,000 -------- ------ ------ $574,000 $733,000 $618,000 ======== ======== ======== Revenues attributable to customers generating greater than 10% of the consolidated revenues of the Company: Insurance services Company A $2,103,000 $2,454,000 $3,370,000
At December 31, 2000 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 (loss) 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-32 (15) Earnings Per Share, continued
For the Year Ended December 31, 2000 --------------------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ------------ ------------ --------- Earnings (loss) from continuing operations $(1,402,000) Basic EPS Earnings available to common stockholders (1,402,000) 2,490,000 $(0.56) ===== Effect of Dilutive Securities Options -- -- Contingently issuable shares -- -- ----------- --------- Diluted EPS Earnings available to common stockholders and assumed conversions (1,402,000) 2,490,000 $(0.56) =========== ========= =====
For the Year Ended December 31, 1999 ---------------------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ------------ ------------ ----------- Earnings (loss) from continuing operations $(153,000) Basic EPS Earnings (loss) available to common stockholders (153,000) 3,064,000 $(.05) ===== Effect of Dilutive Securities Options -- -- Contingently issuable shares -- -- -------- ---------- Diluted EPS Earnings (loss) available to common stockholders and assumed conversions $(153,000) 3,064,000 $(.05) ======== ========= =====
A-33 (15) Earnings Per Share, continued
For the Year Ended December 31, 1998 ------------------------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ------------ -------------- ----------- Earnings from continuing operations $ 890,000 Basic EPS Earnings available to common stockholders $ 890,000 4,163,000 $.21 ==== Effect of Dilutive Securities Options -- 74,000 Contingently issuable shares (76,000) 455,000 ------- ------- Diluted EPS Earnings available to common stockholders and assumed conversions $814,000 4,692,000 $.17 ======= ========= ====
Unexercised employee stock options to purchase 1,151,000, 1,282,000 and 295,000 shares of the Company's common stock as of December 31, 2000, 1999 and 1998, respectively, and treasury shares of 386,000 and 78,000 as of December 31, 2000 and 1999, respectively, which were designated for possible use in the Share Exchange Agreements described in Note 8, were not included in the computations of diluted EPS. These were not included because the options' exercise prices were greater than the average market price of the Company's common stock during the respective periods or because the effect of including the contingently issuable options would decrease the loss per share per the respective periods. (16) Cash - Restricted APS Financial Corporation 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 Corporation placed the securities on a best effort basis. The private offering closed December 15, 1999. In association with this transaction, APS Financial Corporation 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 Corporation as part of the private offering A-34 agreement. As of December 31, 1999, APS Financial Corporation was holding $372,922 as a deposit for the customer. (17) Other Investments Other investments consists of an investment in FemPartners, Inc. totaling $5,290,000 and $3,824,000 at December 31, 2000 and 1999, respectively. Under the merger agreement with FemPartners, the Company may receive additional FemPartners shares if certain earnings targets are met and if there are no undisclosed liabilities. The Company does not believe that it will receive the shares related to the earnings targets. In the event that any contingent shares are received in the future, the Company does not plan to increase its carrying basis of the FemPartners stock due to the lack of reliable market information on this non-traded private stock. (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, which had been adjusted to its net present value of approximately $630,000 as of April, 1999 when it was acquired through foreclosure. The Company did not consolidate Eco-Systems for the period April through August, 1999 because it believed that control would be temporary. 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, 2000, the Company has amortized a total of $68,000 related to the goodwill. Unaudited proforma combined income data for the years ended December 31, 1999 and 1998 of the Company, assuming the purchase was effective January 1, 1998 is as follows ($ in thousands, except per share data): 1999 1998 ------ ---- Total revenues $20,434 $19,819 Total expenses 19,426 17,895 ------ ------ Net income (loss) $(289) $1,358 ====== ====== Diluted earnings (loss) per share $(.09) $.29 ====== ==== A-35 (19) Stockholders' Equity The following table presents changes in shares issued and outstanding for the period from January 1, 1998 to December 31, 2000: Shares Outstanding ------------ Balance January 1, 1998 4,160,861 Shares issued (Note 11) 25,833 Shares repurchased & cancelled (26,611) ----------- Balance December 31, 1998 4,160,083 Shares issued (Note 11) 32,950 Shares repurchased & cancelled (1,447,800) Common stock of parent company held by subsidiary (78,000) ----------- Balance December 31,1999 2,667,233 Treasury stock purchases (327,000) Treasury stock sales 19,000 ---------- Balance December 31, 2000 2,359,233 ========== (20) Quarterly Results (Unaudited) Quarter to quarter comparisons of results of operations have been and may be materially impacted by bond market conditions as well as whether or not there are profits at the medical malpractice insurance company which the company manages and whose profits the company shares. We believe that the historical pattern of quarterly sales and income as a percentage of the annual total may not be indicative of the pattern in future years,. The following tables set forth selected quarterly consolidated statements of operations information for the years ended December 31, 2000 and 1999: A-36 (20) Quarterly Results (Unaudited), continued (In thousands, except per share date)
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- -------- 2000 Revenues $6,502 $4,148 $4,806 $4,446 Earnings (loss) from continuing operations 178 299 (85) (1,794) Net earnings (loss) 178 299 (85) (1,794) Basic earnings (loss) per share: From continuing operations $0.07 $0.11 $(0.03) $(0.07) Net earnings (loss) 0.07 0.11 (0.03) (0.07) Diluted earnings (loss) per share: From continuing operations $0.06 $0.11 $(0.03) $(0.07) Net earnings (loss) 0.06 0.11 (0.03) (0.07) 1999 Revenues $4,297 $5,467 $4,001 $4,986 Earnings (loss) from continuing operations -- 281 (172) (262) Net earnings (loss) 58 130 21 (264) Basic earnings (loss) per share: From continuing operations -- $0.10 $(0.06) $(0.10) Net earnings (loss) 0.01 0.04 0.01 (0.08) Diluted earnings (loss) per share: From continuing operations -- $0.09 $(0.06) $(0.10) Net earnings (loss) 0.01 0.04 0.01 (0.08)
A-37 Results for the fourth quarter of 2000 include a valuation adjustment of $1.6 million to the Company's investment in FemPartners, Inc. Also $560,000 was charged to operations from certain working capital reserve requirements in the Company's merger agreement with FemPartners, Inc. Results for the fourth quarter of 1999 include a loss on the sale of land of $401,000 taken at Uncommon Care. A-38 EX-10 2 0002.txt AMEND CERTIF OF INCORPORATION OF APSC, INC. Exhibit 10-87 AMENDMENT TO CERTIFICATE OF INCORPORATION OF APSC, INC. (Pursuant to Sections 242 of the General Corporation Law of the State of Delaware) APSC, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the "General Corporation Law"), DOES HEREBY CERTIFY: FIRST: That the name of the Corporation is APSC, Inc. and that the Corporation was originally incorporated pursuant to the General Corporation Law on March 31, 1999. SECOND: That the Board of Directors duly adopted resolutions proposing to amend the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and in the best interests of the Corporation and its stockholders, and authorizing the appropriate officers of the Corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation be amended as follows: ARTICLE III The first paragraph of ARTICLE III is hereby amended and replaced with the following paragraph: The aggregate number of shares of capital stock that the Corporation is authorized to issue is one million five hundred thousand (1,500,000) shares of Common Stock, par value $0.001 per share. The holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. The Common Stock is not redeemable. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. * * * THIRD: That foregoing amendment was approved by the holders of the requisite number of shares of said corporation in accordance with Section 228 of the General Corporation Law. FOURTH: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law. [Certification follows] S-1 CERTIFICATION OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF APSC, INC. IN WITNESS WHEREOF, this Amendment to the Certificate of Incorporation has been executed by the President and the Secretary of the Corporation on this _____ day of August, 2000, in order to certify that the same has been duly adopted in accordance with applicable provisions of the General Corporation Law. /s/ Duane K. Boyd, Jr. ---------------------------------- Duane K. Boyd, Jr., President /s/ W. H. Hayes ---------------------------------- W. H. Hayes, Secretary EX-10 3 0003.txt AMEND LOAN AGMT - APSC AND APS CONSULT Exhibit 10-88 AMENDED AND RESTATED LOAN AGREEMENT This Amended and Restated Loan Agreement (this "Agreement") is entered into as of the 28th day of June, 2000, by and between APS Consulting, Inc., a Texas corporation, and APSC, Inc., a Delaware corporation. DEFINITIONS: EFFECTIVE DATE: June 28, 2000 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 LINE 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. TERM NOTE: Promissory Note in the original principal amount of $50,000 dated June 28, 2000, executed by Borrower, and payable to the order of Lender as provided therein. NOTES: The Line Note and the Term Note. COLLATERAL: The following described personal property: All of Borrower's assets, now existing or hereafter acquired, including without limitation all accounts, chattel paper, contract rights, equipment, inventory, fixtures, general intangibles, and investment property. LOAN DOCUMENTS: This Agreement, the Notes, 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. The parties previously entered into that certain Loan Agreement dated June 16, 1999, which is hereby replaced in its entirety by this Agreement in connection with certain modifications to the indebtedness. Therefore, for good and valuable consideration, the receipt and sufficiency of which Lender and Borrower acknowledge, Lender and Borrower hereby agree as follows: ARTICLE I THE LOANS 1.1 The Loans. Lender agrees to lend and Borrower agrees to borrow (i) under a revolving line of credit arrangement, an amount not to exceed the Maximum Principal Amount on the terms and conditions set forth herein, and (ii) $50,000 under a term loan on the terms and conditions set forth herein. The loans will be evidenced by the Notes. 1.2 Security. Borrower has granted, and will continue to 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. 2 ARTICLE II DESCRIPTION OF CREDIT FACILITIES; ADVANCES 2.1 Maximum Line Note Principal Amount. The maximum aggregate principal amount (the "Maximum Principal Amount") of credit extended by Lender to Borrower under the Line Note that will be outstanding at any time is the lesser of (i) $550,000, or (ii) the Borrowing Base (as defined herein). The borrowing base (the "Borrowing Base") equals (a) ninety percent (90%) of the value of Qualified Accounts, plus (b) Borrower's cash on hand, plus (c) one-half of the GAAP book value of Borrower's fixed assets, minus (d) $50,000. "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 Line 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 Line of Credit Interest and Repayment. Borrower shall pay the aggregate unpaid principal amount of all Advances in accordance with the terms of the Line Note, which shall evidence the indebtedness resulting from such Advances. Interest on the Advances shall be due and payable in the 3 manner and at the times set forth in the Line Note, with final maturity of the Line Note being on or before January 1, 2002. 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 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 the Line Note. 2.5 PAYMENTS AND COMPUTATIONS. Borrower shall make each payment hereunder and under the Line 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 Line 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. 2.6 TERM NOTE. Borrower and Lender are entering into this Agreement in connection with a restructuring of the indebtedness of Borrower to Lender under that certain revolving line of credit extended by Lender under the original loan agreement between the parties dated June 16, 1999 (the "Prior Indebtedness"). As of the Effective Date, $50,000 of the principal amount of the Prior Indebtedness is being converted into a term loan pursuant to the Term Note, with the remainder of the Prior Indebtedness outstanding on the Effective Date to be evidenced, and governed, by the Line Note. 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 4 Advance the following, each in form and substance satisfactory to Lender and properly executed by Borrower or other appropriate parties: (a) the Notes 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. 5 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 Notes 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 Notes, 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 Notes 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 Notes. 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 "A" attached to this Agreement. 6 ARTICLE V BORROWER'S AFFIRMATIVE COVENANTS So long as Borrower may borrow under this Agreement and until payment in full of the Notes 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 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. 7 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. 8 ARTICLE VI BORROWER'S NEGATIVE COVENANTS So long as Borrower may borrow under this Agreement and until payment in full of the Notes 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. 9 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. 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 evidenced by the Notes, 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 installment of principal or interest under the Notes, 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 Loan Documents; or (c) Any representation or warranty contained herein or in any financial statement, certificate, report or opinion submitted to Lender in connection with the Notes or pursuant to the requirements of this Agreement, shall prove to have been incorrect or misleading in any material respect when made; or 10 (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 Documents, 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 Notes, or to any other person. Borrower and each guarantor, surety, and endorser of the Notes, 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. 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 11 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 Notes 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 12 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 Notes. Borrower expressly waives any presentment, demand, protest, notice of default, notice of intent to accelerate, notice of acceleration, notice of intent to demand payment, or other notice of any kind. No notice to or demand on Borrower in any case shall, of itself, entitle Borrower to any other or further notice or demand in similar or other circumstances. No delay or omission by Lender in exercising any power or right hereunder shall impair any such right or power or be construed as a waiver thereof, or the exercise of any other right or power hereunder. 8.5 FORM AND SUBSTANCE. All documents, certificates, insurance policies, and other items required under this Agreement to be executed and/or delivered to Lender shall be in form and substance reasonably satisfactory to Lender. 8.6 LIMITATION ON INTEREST: MAXIMUM RATE. Lender and Borrower intend to contract in strict compliance with applicable usury law from time to time in effect. To effectuate this intention, Lender and Borrower stipulate and agree that none of the terms and provisions of the Notes 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 Notes 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 Notes expressly disavows any intention to charge or collect unearned or excessive interest or finance charges in the event the maturity of the Notes, is accelerated. If the maturity of the Notes is accelerated for any reason, whether as a result of a default under the Notes, 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 Notes shall be applied to reduce the principal balance thereof then outstanding, or if such 13 amounts exceed the unpaid balance of principal, the excess shall be refunded to Borrower. In the event Lender or any subsequent holder of the Notes 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 Notes, and, if the principal balances of the Notes 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 Notes (as it may be renewed and extended) so that the interest rate is uniform throughout the entire term of the Notes. 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. 14 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 Notes, or participation interests in the Notes 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 Notes 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 Notes 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. 15 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 Notes are paid in full as the same become due and payable and all other Indebtedness is paid and discharged, until Lender has no further obligation to advance moneys to Borrower under this Agreement, and until Lender, upon request of Borrower, has executed a written termination statement. Furthermore, the parties contemplate that there may be times when no Indebtedness is owing, but notwithstanding such occurrence, this Agreement (and all other Loan Documents) shall remain valid and shall be in full force and effect as to subsequent Indebtedness and Advances, provided that Lender has not executed a written termination statement. 8.15 Applicable Law. THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN SUCH STATE. 8.16 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. BORROWER: APS CONSULTING, INC., a Texas corporation By: /s/ Jeffrey L. Allen ------------------------- Name: Jeffrey L. Allen ------------------------- Title: Vice President ------------------------- LENDER: APSC, INC., a Delaware corporation By: /s/ Duane Boyd ------------------------- Name: Duane Boyd ------------------------- Title: President ------------------------- 16 EXHIBIT A LIST OF BORROWER'S LEASES 17171 Park Row, Suite 120 Houston, Texas 77084 Harris County 384 Fairhope Avenue, Suite 7 Fairhope, Alabama 36532 Baldwin County 439 Katherine Drive, Suite 2A Jackson, Mississippi 39208 Rankin County EX-10 4 0004.txt PROMISSORY NOTE - APS CONSULTING AND APSC Exhibit 10.89 PROMISSORY NOTE Austin, Texas (LINE OF CREDIT) June 28, 2000 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) $550,000 or (ii) the Borrowing Base (as defined in the Amended and Restated 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 January 1, 2002 (the "Maturity Date"), when the outstanding principal balance and all accrued 1 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. 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 2 allocated over the full period of time this Note is unpaid, including the period of any renewal or extension of this Note. If demand for payment of this Note is made by Lender prior to the full stated term, the total amount of interest contracted for, charged, or received to the time of such demand shall be spread, prorated, or allocated along with any interest thereafter accruing over the full period of time that this Note thereafter remains unpaid for the purpose of determining if such interest exceeds the Maximum Lawful Amount. (d) EXCESS INTEREST: At maturity (whether by acceleration or otherwise) or on earlier final payment of this Note, Lender shall compute the total amount of interest that has been contracted for, charged, or received by Lender or payable by Borrower under this Note and compare such amount to the Maximum Lawful Amount that could have been contracted for, charged, or received by Lender. If such computation reflects that the total amount of interest that has been contracted for, charged, or received by Lender or payable by Borrower exceeds the Maximum Lawful Amount, then Lender shall apply such excess to the reduction of the principal balance and not to the payment of interest; or if such excess interest exceeds the unpaid principal balance, such excess shall be refunded to Borrower. This provision concerning the crediting or refund of excess interest shall control and take precedence over all other agreements between Borrower and Lender so that under no circumstances shall the total interest contracted for, charged, or received by Lender exceed the Maximum Lawful Amount. (e) INTEREST AFTER DEFAULT: At Lender's option, the unpaid principal balance shall bear interest after maturity (whether by acceleration or otherwise) at the "Default Interest Rate." The Default Interest Rate shall be, at Lender's option, (i) the Maximum Lawful Rate, if such Maximum Lawful Rate is established by applicable law; or (ii) the Interest Rate stated on the first page of this Note plus five (5) percentage points, if no Maximum Lawful Rate is established by applicable law; or (iii) eighteen percent (18%) per annum; or (iv) such lesser rate of interest as Lender in its sole discretion may choose to charge; but never more than the Maximum Lawful Rate or at a rate that would cause the total interest contracted for, charged, or received by Lender to exceed the Maximum Lawful Amount. (f) DAILY COMPUTATION OF INTEREST: To the extent permitted by applicable law, Lender at its option will calculate the per diem interest rate or amount based on the actual number of days in the year (365 or 366, as the case may be), and charge that per diem interest rate or amount each day. In no event shall Lender compute the interest in a manner that would cause Lender to contract for, charge, or receive interest that would exceed the Maximum Lawful Rate or the Maximum Lawful Amount. 3 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, including without limitation, any default by Borrower under any other promissory note to, or any other contract or agreement with, Lender; 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. 4 (d) OTHER REMEDIES NOT REQUIRED: Lender shall not be required to first file suit, exhaust all remedies, or enforce its rights against any security in order to enforce payment of this Note. (e) JOINT AND SEVERAL LIABILITY: Each Borrower who signs this Note, and all of the other parties liable for the payment of this Note, such as guarantors, endorsers, and sureties, are jointly and severally liable for the payment of this Note. (f) ATTORNEY'S FEES: If Lender requires the services of an attorney to enforce the payment of this Note or the performance of the other Loan Documents, or if this Note is collected through any lawsuit, probate, bankruptcy, or other judicial proceeding, Borrower agrees to pay Lender an amount equal to its reasonable attorney's fees and other collection costs. This provision shall be limited by any applicable statutory restrictions relating to the collection of attorney's fees. 3. MISCELLANEOUS PROVISIONS: (a) SUBSEQUENT HOLDER: All references to Lender in this Note shall also refer to any subsequent owner or holder of this Note by transfer, assignment, endorsement, or otherwise. (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. 5 (e) NO DUTY OR SPECIAL RELATIONSHIP: Borrower acknowledges that Lender has no duty of good faith to Borrower, and Borrower acknowledges that no fiduciary, trust, or other special relationship exists between Lender and Borrower. (f) MODIFICATIONS: Any modifications agreed to by Lender relating to the release of liability of any of the parties primarily or secondarily liable for the payment of this Note, or relating to the release, substitution, or subordination of all or part of the security for this Note, shall in no way constitute a release of liability with respect to the other parties or security not covered by such modification. (g) ENTIRE AGREEMENT. Borrower warrants and represents that the Loan Documents constitute the entire agreement between Borrower and Lender with respect to the loan evidenced by this Note and agrees that no modification, amendment, or additional agreement with respect to such loan or the advancement of funds thereunder will be valid and enforceable unless made in writing signed by both Borrower and Lender. (h) BORROWER'S ADDRESS FOR NOTICE: All notices required to be sent by Lender to Borrower shall be sent by U.S. Mail, postage prepaid, to Borrower's Address for Notice stated on the first page of this Note, until Lender shall receive written notification from Borrower of a new address for notice. (i) LENDER'S ADDRESS FOR PAYMENT: All sums payable by Borrower to Lender shall be paid at Lender's Address for Payment stated on the first page of this Note, or at such other address as Lender shall designate from time to time. (j) BUSINESS USE: Borrower warrants and represents to Lender that the proceeds of this Note will be used solely for business or commercial purposes, and in no way will the proceeds be used for personal, family, or household purposes. (k) CHAPTER 15 NOT APPLICABLE: It is understood that Chapter 15 of the Texas Credit Code relating to certain revolving credit loan accounts and tri-party accounts is not applicable to this Note. (l) APPLICABLE LAW: THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN TEXAS AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO TRANSACTIONS IN TEXAS. 6 4. LOAN DOCUMENTS: (a) This Note. (b) The Amended and Restated Loan Agreement of even date. (c) The Security Agreement securing this Note. (d) All other promissory notes or documents signed in connection with the transactions contemplated by the Amended and Restated Loan Agreement or the Security Agreement. Borrower: -------- APS CONSULTING, INC., a Texas corporation By: /s/ Jeffrey L. Allen ---------------------- Name: Jeffrey L. Allen ---------------------- Title: Vice President ---------------------- EX-10 5 0005.txt PROMISSORY NOTE NO. 2-APS CONSULTING AND APSC Exhibit 10.90 PROMISSORY NOTE Austin, Texas June 28, 2000 PROMISE TO PAY: For value received, the undersigned Borrower (whether one or more) promises to pay to the order of Lender the Principal Amount, 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: $50,000. INTEREST RATE: Twelve Percent (12.0%) PAYMENT TERMS: Interest only on the unpaid balance of this Note is due and payable monthly, beginning August 1, 2000, and continuing regularly and monthly thereafter on or before the first day of each month of each year, until January 1, 2002 (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. 1 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 2 interest exceeds the unpaid principal balance, such excess shall be refunded to Borrower. This provision concerning the crediting or refund of excess interest shall control and take precedence over all other agreements between Borrower and Lender so that under no circumstances shall the total interest contracted for, charged, or received by Lender exceed the Maximum Lawful Amount. (e) Interest After Default: At Lender's option, the unpaid principal balance shall bear interest after maturity (whether by acceleration or otherwise) at the "Default Interest Rate." The Default Interest Rate shall be, at Lender's option, (i) the Maximum Lawful Rate, if such Maximum Lawful Rate is established by applicable law; or (ii) the Interest Rate stated on the first page of this Note plus five (5) percentage points, if no Maximum Lawful Rate is established by applicable law; or (iii) eighteen percent (18%) per annum; or (iv) such lesser rate of interest as Lender in its sole discretion may choose to charge; but never more than the Maximum Lawful Rate or at a rate that would cause the total interest contracted for, charged, or received by Lender to exceed the Maximum Lawful Amount. (f) Daily Computation of Interest: To the extent permitted by applicable law, Lender at its option will calculate the per diem interest rate or amount based on the actual number of days in the year (365 or 366, as the case may be), and charge that per diem interest rate or amount each day. In no event shall Lender compute the interest in a manner that would cause Lender to contract for, charge, or receive interest that would exceed the Maximum Lawful Rate or the Maximum Lawful Amount. 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, including without limitation, any default by Borrower under any other promissory note to, or any other contract or agreement with, Lender; or 3 (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. 4 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. 5 (h) Borrower's Address for Notice: All notices required to be sent by Lender to Borrower shall be sent by U.S. Mail, postage prepaid, to Borrower's Address for Notice stated on the first page of this Note, until Lender shall receive written notification from Borrower of a new address for notice. (i) Lender's Address for Payment: All sums payable by Borrower to Lender shall be paid at Lender's Address for Payment stated on the first page of this Note, or at such other address as Lender shall designate from time to time. (j) Business Use: Borrower warrants and represents to Lender that the proceeds of this Note will be used solely for business or commercial purposes, and in no way will the proceeds be used for personal, family, or household purposes. (k) Chapter 15 Not Applicable: It is understood that Chapter 15 of the Texas Credit Code relating to certain revolving credit loan accounts and tri-party accounts is not applicable to this Note. (l) APPLICABLE LAW: THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN TEXAS AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO TRANSACTIONS IN TEXAS. 4. LOAN DOCUMENTS: (a) This Note. (b) The Amended and Restated Loan Agreement of even date. (c) The Security Agreement securing this Note. (d) All other promissory notes or documents signed in connection with the transactions contemplated by the Amended and Restated Loan Agreement or the Security Agreement. 6 Borrower: -------- APS CONSULTING, INC., a Texas corporation By: /s/ Jeffrey L. Allen ------------------------ Name: Jeffrey L. Allen ------------------------ Title: Vice President ------------------------ 7 EX-10 6 0006.txt APSC, INC. STOCK PLAN Exhibit 10.91 APSC, INC. 2000 STOCK PLAN 1. Purposes of the Plan. The purposes of this 2000 Stock Plan are to (a) attract and retain the best available personnel for positions of substantial responsibility, (b) provide additional incentive to Employees, Directors and Consultants, and (c) promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the common stock of the Company. (g) "Company" means APSC, Inc., a Delaware corporation. (h) "Consultant" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "Director" means a member of the Board. (j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "Inside Director" means a Director who is an Employee. (p) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (q) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option grant. The Notice of Grant is part of the Option Agreement. (r) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. 2 (s) "Option" means a stock option granted pursuant to the Plan. (t) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (u) "Option Exchange Program" means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price. (v) "Optioned Stock" means the Common Stock subject to an Option. (w) "Optionee" means the holder of an outstanding Option granted under the Plan. (x) "Outside Director" means a Director who is not an Employee. (y) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (z) "Plan" means this 2000 Stock Plan. (aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (bb) "Section 16(b)" means Section 16(b) of the Exchange Act. (cc) "Service Provider" means an Employee, Director or Consultant. (dd) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan. (ee) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 900,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option, shall not be returned to the Plan and shall not become available for future distribution under the Plan. 3 4. Administration of the Plan. -------------------------- (a) Procedure. --------- (i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered by different Committees with respect to different groups of Service Providers. (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) OTHER ADMINISTRATION. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; 4 (vii) to institute an Option Exchange Program; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option (subject to Section 14(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator; (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options. 5. ELIGIBILITY. Nonstatutory Stock Options may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. LIMITATIONS. (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The 5 Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. 7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 14 of the Plan. 8. TERM OF OPTION. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. --------------------------------------- (a) EXERCISE PRICE. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. 6 (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. 7 An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the 8 absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Non-Transferability of Options. Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. 12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide 9 that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. 13. Date of Grant. The date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. ------------------------------------- (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan. (b) STOCKHOLDER APPROVAL. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 15. Conditions Upon Issuance of Shares. ---------------------------------- (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 10 17. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 18. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws. IN WITNESS WHEREOF, the Plan has been duly adopted and approved by the directors and stockholders of the Company pursuant to applicable law. /s/ Duane K. Boyd, Jr. ------------------------------- Duane K. Boyd, Jr., President EX-10 7 0007.txt APS ASSET MGMT DEBT TO EQUITY CONVERSION AGREEMENT Exhibit 10.92 CONVERSION AGREEMENT This Conversion Agreement (this "Agreement") is made and executed as of the close of business on the 30th day of June, 2000 (the "Effective Date") by and among APS Asset Management, Inc., a Delaware corporation ("Asset Management"), APS Investment Services, Inc., a Delaware corporation ("Investment Services"), George S. Conwill ("Conwill"), Christopher M. Caputo ("Caputo"), William A. Searles ("Searles") and Jay Abbes ("Abbes"). Conwill, Caputo, Searles and Abbes are sometimes individually and collectively referred to in this Agreement as the "Participants." Each of the Participants and Investment Services are sometimes individually and collectively referred to in this Agreement as the "Noteholders." Preliminary Statements: Investment Services and Asset Management have previously entered into a certain loan agreement, dated as of September 23, 1998, pursuant to which Investment Services agreed to loan up to $400,000 to Asset Management, subject to the terms and conditions stated therein (as supplemented by Supplement 1 to Loan Agreement dated effective December 31, 1999, the "Loan Agreement"). In order to evidence amounts that may from time to time be outstanding under the Loan Agreement, Asset Management executed and delivered to Investment Services a certain Promissory Note (Line of Credit) dated as of September 23, 1998 (as amended by Amendment 1 to Promissory Note dated effective December 31, 1999, the "Promissory Note"). Concurrently with its execution of the Loan Agreement, Investment Services sold participation rights in the Promissory Note to each of the Participants pursuant to a certain Participation Agreement dated as of September 23, 1998 (the "Participation Agreement"), pursuant to which each Participant acquired rights to a certain interest in the Promissory Note, and Investment Services agreed to act as agent and trustee for each Participant in certain respects. Asset Management and each Noteholder have agreed to convert all amounts outstanding under the Promissory Note and Loan Agreement (whether principal, interest or otherwise) into that number of shares of Asset Management set forth on Exhibit A attached hereto, allocated among the Noteholders as shown on Exhibit A attached hereto. Asset Management and each Noteholder have further agreed that, on the Effective Date, the Promissory Note, the Loan Agreement and the Participation Agreement will each be terminated and no party shall thereafter have any rights or obligations thereunder. Statement of Agreement In consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and on the terms and subject to the conditions herein set forth, the parties hereto agree as follows: ARTICLE I Conversion Section 1.1 Conversion. Each Noteholder hereby agrees and elects to convert (the "Conversion") any and all principal, accrued interest and other amounts that it may be owed pursuant to the Loan Agreement, Promissory Note and/or Participation Agreement, into that number of shares of common stock of Asset Management that is set forth opposite its name on Exhibit A attached hereto. Section 1.2 Effect of Conversion. Each Noteholder hereby agrees that its election to convert hereunder is irrevocable and binding on all of Noteholder's successors, heirs and assigns. Each Noteholder hereby represents that it is the sole holder of all interests it acquired pursuant to the Loan Agreement, Promissory Note and/or Participation Agreement, and that, except for the Participation Agreement, it has not transferred any interest therein or thereto to any other person. Each Noteholder acknowledges and agrees that the issuance by Asset Management, and its acceptance, of the common stock of Asset Management pursuant to this Agreement will constitute full and complete satisfaction of all amounts it may be owed, whether principal, interest or otherwise, under the Loan Agreement, Promissory Note and/or Participation Agreement. Each Noteholder hereby agrees that on the Effective Date, the Loan Agreement, Promissory Note and Participation Agreement are each terminated and that no party will thereafter have any rights or obligations thereunder. Each Noteholder hereby directs Asset Management to extinguish the Promissory Note on its corporate books and agrees to promptly return the Promissory Note instrument or the Participation Agreement (whichever applicable) to Asset Management, marked "paid in full." 2 Section 1.3 Indemnification Agreement. Each Noteholder agrees to indemnify and hold harmless Asset Management from and against any claim, debt, action, liability or obligation of any nature arising out of any interest it held in the Promissory Note, regardless of when asserted. Section 1.4 Applicability of Shareholders Agreement to Common Stock. Each Participant hereby acknowledges and agrees that shares of Asset Management's common stock that it acquires pursuant to this Agreement will be subject to the stock transfer restriction and shareholders agreement to which Asset Management and such Participant is a party. Section 1.5 Issuance of Common Stock. Upon the Conversion, Asset Management agrees to issue to each Noteholder, without payment of any further consideration by such Noteholder, that number of shares of Asset Management's common stock set forth next to such Noteholder's name on Exhibit A attached hereto. ARTICLE II Miscellaneous Section 2.1 Notice. Whenever this Agreement requires or permits any notice, request, or demand from one party to another, the notice, request, or demand must be in writing to be effective and shall be deemed to be delivered and received (a) if personally delivered or if delivered by facsimile or courier service, when actually received by the party to whom notice is sent or (b) if delivered by mail (whether actually received or not), at the close of business on the third business day next following the day when placed in the mail, postage prepaid, certified or registered, addressed to the appropriate party or parties, at the address of such party set forth below (or at such other address as such party may designate by written notice to all other parties in accordance herewith): If to Asset Management: APS Asset Management, Inc. 1301 Capital of Texas Hwy., Suite C-300 Austin, TX 78746 Attn: President 3 If to Any Noteholder: [Name of Noteholder] 1301 Capital of Texas Hwy., Suite C-300 Austin, TX 78746 Section 2.2 Assignment. No party to this Agreement may assign this Agreement or any or all of its rights or obligations hereunder without first obtaining the written consent of all other parties hereto. Any assignment in violation of the foregoing shall be null and void. Subject to the preceding sentences of this Section, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. Section 2.3 Amendments; Waivers. This Agreement cannot be modified or amended except by a written document executed by all parties hereto. Any waiver of any term or condition of this Agreement must be in writing, and signed by all of the parties hereto. Section 2.4 Further Assurances. At and from time to time after the Closing, each party shall, at the request of another party hereto, but without further consideration, execute and deliver such other instruments and take such other actions as the requesting party may reasonably request in order to more effectively evidence or consummate the transactions or activities contemplated hereunder. Section 2.5 Entire Agreement. This Agreement and the agreements contemplated hereby or executed in connection herewith (a) constitute the entire agreement of the parties hereto regarding the subject matter hereof, and (b) supersede all prior agreements and understandings, both written and oral, among the parties hereto, or any of them, with respect to the subject matter hereof. Section 2.6 Language Construction. This Agreement shall be construed, in all cases, according to its fair meaning, and without regard to the identity of the person who drafted the various provisions contained herein. The captions in this Agreement are for convenience of reference only and shall not limit or otherwise affect any of the terms or provisions hereof. When the context requires, the gender of all words used herein shall include the masculine, feminine and neuter and the number of all words shall include the singular and plural. Use of the words "herein", "hereof", "hereto", "hereunder" and the like in this Agreement shall be construed as references to this Agreement as a whole and not to any particular Article, Section or provision of this Agreement, unless otherwise expressly noted. 4 Section 2.7 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. [Signature page follows] 5 SIGNATURE PAGE TO CONVERSION AGREEMENT IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Asset Management: APS Asset Management, Inc., a Delaware corporation /s/ Christopher M. Caputo ------------------------------------- Christopher M. Caputo, President Investment Services: APS Investment Services, Inc., a Delaware corporation /s/ George S. Conwill ----------------------------------- George S. Conwill, President /s/ George S. Conwill - ----------------------------------- George S. Conwill, individually /s/ Christopher M. Caputo - ----------------------------------- Christopher M. Caputo, individually /s/ William A. Searles - ----------------------------------- William A. Searles, individually /s/ Jay Abbes - ----------------------------------- Jay Abbes, individually S-1 A-1 EXHIBIT A TO CONVERSION AGREEMENT % Interest In Shares Received Name Promissory Note Upon Conversion Investment Services 95% 950 George S. Conwill 1% 10 Christopher M. Caputo 2% 20 William A. Searles 1% 10 Jay Abbes 1% 10 EX-10 8 0008.txt AMEND REVOLVING CREDIT AGREEMENT-BANK OF AMERICA Exhibit 10.93 Bank of America, N.A. (formerly NationsBank, N.A., formerly NationsBank of Texas, N.A.) 515 Congress Avenue 11th Floor Austin, TX 78702 Re: Request for Amendment to and Waiver of Certain Provisions of the Revolving Credit Loan Agreement. American Physicians Service Group, Inc., a Texas corporation ("Company"), and Bank of America, N.A. (formerly NationsBank, N.A., formerly NationsBank of Texas, N.A.) ("Lender"), have entered into that certain Revolving Credit Loan Agreement (as renewed, extended, restated, and amended from time to time, the "Loan Agreement") dated as of February 10, 1998. Under the terms of certain Guaranties (for each Guarantor defined below, the "Guaranty"), certain of the "Subsidiaries" (as defined in the Loan Agreement) of Company (collectively, the "Guarantors") have guaranteed payment of the "Liabilities" and "Obligations" (each defined in the Guaranty). Unless otherwise specified (i) capitalized terms used herein shall have the same meanings as set forth in the Loan Agreement and (ii) references to "Sections" are to sections of the Loan Agreement. Company hereby requests an amendment of certain terms and provisions of the Loan Agreement, subject to the terms and conditions contained herein. Section 1. COMPANY REQUEST. Company has advised Lender that pursuant to the terms of the Settlement Agreement and Mutual Release between Company, the George Weissfisch A-1 Living Trust, Dr. George Weissfisch, and APS Financial Corporation dated November 1, 1994, Company plans to purchase stock from the George Weissfisch A-1 Living Trust, including, among other securities, no more than 200,000 shares of stock issued by the Company. Section 2. AMENDMENT TO LOAN AGREEMENT. The second sentence of Section 6.07 is hereby amended in its entirety to read as follows: "Borrower agrees that it shall not repurchase stock having a fair market value in excess of $1,000,000 other than (i) up to 1,199,400 shares purchased from 3rd Avenue Value Fund and related companies in exchange for 599,700 Prime shares, and (ii) pursuant to the terms of the Settlement Agreement and Mutual Release between Borrower, APS Financial Corporation, the George Weissfisch A-1 Living Trust ("Trust"), and Dr. George Weissfisch, dated November 1, 1994, Borrower may purchase securities, which shall include, among other securities, no more than 200,000 shares of stock issued by the Borrower (collectively, all of the securities are the "Weissfisch Securities") from the Trust for a purchase price not exceeding $2,700,000 for all of the Weissfisch Securities; and Section 3. REPRESENTATIONS. The Company and each Guarantor hereby represent and warrant to Lender that: (i) the representations and warranties contained in the Loan Agreement and the other Loan Documents are true and correct on and as of the date hereof as though made on and as of such date; April 26, 2000 Page 4 (ii) neither the Company nor any of the Guarantors is in default in the due performance of any covenant or agreement contained in the Loan Agreement or any other Loan Document; and (iii) no Default has occurred and is continuing. Section 4. Confirmations. Each of the Company and the Guarantors ratifies and confirms that the Loan Agreement, the Guaranties, the Pledge Agreements, and the other Loan Documents are and remain in full force and effect in accordance with their respective terms, as amended hereby. In addition, each of the Guarantors acknowledges, agrees, accepts and consents to the terms and provisions hereof and each other Loan Document as amended hereby, and each agrees that of the definitions "Liabilities", "Obligation", and "Obligations" set forth in the Loan Documents shall include the Loan Agreement and Note as amended hereby. Except as expressly provided herein, this letter does not constitute a waiver or modification of any of the terms or provisions set forth in the Loan Agreement or any other Loan Document and shall not impair any right that the Lender may now or hereafter have under or in connection with the Loan Agreement or any other Loan Document. Borrower also agrees to cause APS Realty, Inc, a Delaware corporation, (successor by merger to APS Realty, Inc., a Texas corporation), to execute an amended and restated guaranty of the Obligation. Section 5. No Impairment. The waivers and amendments hereby granted by the Lender: (i) does not impair the Lender's rights to insist upon strict compliance with the Loan Agreement or the other Loan Documents, and (ii) does not extend to any other Loan Document. The Loan Documents, as amended hereby continue to bind and inure the Lender, Company, the Guarantors, and their respective successors and permitted assigns. Section 6. Counterparts. This agreement, when countersigned by Company, Guarantors, and Lender shall be a "Loan Document" as defined and referred to in the Loan Agreement and the other Loan Documents and may be signed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This agreement shall be governed by and construed in accordance with the laws of the State of Texas. Section 7. Entire Agreement. THIS AGREEMENT, THE LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. [REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGES FOLLOW.] Signature Page Page One of Three If the foregoing is agreeable to you, please signify your acceptance of the terms and conditions set forth herein by placing your signature in the space provided below. Very truly yours, AMERICAN PHYSICIANS SERVICE GROUP, INC. as Borrower By: /s/ Ken Shifrin --------------------------- Name: Ken Shifrin --------------------------- Title: President --------------------------- Signature Page Page Two of Three GUARANTORS: SYNTERA TECHNOLOGIES, INC. APS REALTY, INC. APSC, INC. APS CONSULTING, INC. each as a Guarantor By: /s/ W. H. Hayes -------------------- Name: W. H. Hayes -------------------- Title: Secretary -------------------- Signature Page Page Three of Three AGREED AND ACCEPTED as of the date first stated above. BANK OF AMERICA, N.A. (formerly NationsBank, N.A., formerly NationsBank of Texas, N.A.) By: /s/ Daniel H. Penkar --------------------- Daniel H. Penkar --------------------- Senior Vice President --------------------- EX-10 9 0009.txt 2ND AMEND TO LINE OF CREDIT-BANK OF AMERICA Exhibit 10.94 February 9, 2001 Page 1 Bank of America, N.A. (formerly NationsBank, N.A., formerly NationsBank of Texas, N.A.) 515 Congress Avenue 11th Floor Austin, TX 78702 Re: Request for Amendment to and Waiver of Certain Provisions of the Revolving Credit Loan Agreement. American Physicians Service Group, Inc., a Texas corporation ("Company"), and Bank of America, N.A. (formerly NationsBank, N.A., formerly NationsBank of Texas, N.A.) ("Lender"), have entered into that certain Revolving Credit Loan Agreement (as renewed, extended, restated, and amended from time to time, the "Credit Agreement") dated as of February 10, 1998. Under the terms of certain Guaranties (for each Guarantor defined below, the "Guaranty"), certain of the "Subsidiaries" (as defined in the Credit Agreement) of Company (collectively, the "Guarantors") have guaranteed payment of the "Liabilities" and "Obligations" (each defined in the Guaranty). Unless otherwise specified (i) capitalized terms used herein shall have the same meanings as set forth in the Credit Agreement and (ii) references to "Sections" are to sections of the Credit Agreement. Company hereby requests an amendment of certain terms and provisions of the Credit Agreement, subject to the terms and conditions contained herein. Section 1. Amendment to Credit Agreement. (i) The following additional definition shall be alphabetically inserted in Section 1.1 of each Credit Agreement to read as follows: "364-Day Note" means the $1,250,000 364-Day Revolving Promissory Note executed on February 9, 2001, by Borrower in favor of Lender, as renewed, extended, amended, supplemented, increased, modified, or replaced from time to time. "364-Day Loan" means the "364-Day Loan" as such term is defined in the 364-Day Note. "Additional Debt" means debt, in the form a loan to Borrower, incurred by Borrower in a principal amount not to exceed $3,200,000.00, provided that, (a) such debt is secured by [certain real estate of Borrower], (b) the proceeds of such loan are exclusively applied to the Obligation in the following order and manner: (i) first, to the outstanding 364-Day Loan, in the amount of any such 364- Day Loan, together with all accrued and unpaid interest, and in extinguishment of Lender's commitment to lend thereunder, and (ii) second, to the remaining Obligation, and (c) all terms, provisions and documents evidencing such Additional Debt shall be in form and substance acceptable to Lender. "Deed of Trust" means that certain Deed of Trust, Assignment, Security Agreement, and Financing Statement executed by Borrower in favor of Lender, on February 9, 2001, and any renewals, extensions, amendments, modifications, amendments or restatements thereof. "Permitted Sales"means the sale of all or a portion of the real property described in the Deed of Trust, provided that, (a) the proceeds of such sale are applied to the Obligation in the following order and manner: (i) first, to the outstanding 364-Day Loan, in the amount of any such 364-Day Loan, together with all accrued and unpaid interest, and in extinguishment of Lender's commitment to lend thereunder, and (ii) second, to the remaining Obligation, and (c) all documents evidencing such Permitted Sale shall be in form and substance acceptable to Lender. (ii) The definition of "Collateral Documents" set forth in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "Collateral Documents" means the Pledge Agreement, the Deed of Trust, the guaranties executed by the Guarantors from time to time, and all other security agreements, guaranties, pledge agreements, and other agreements or documents executed or delivered to secure repayment of all or any part of the Obligation. (iii) The definition of "Guarantors" set forth in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "Guarantors" means APS Realty, Inc., a Delaware corporation, APSC, Inc., a Delaware corporation, and APS Consulting, Inc., a Texas corporation, together with their respective successors and assigns, and any other Person who may from time to time guarantee the Obligation, or any part thereof. (iv) The definition of "Loan Documents" set forth in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "Loan Documents" means this Agreement, the Note, 364-Day Note, the Collateral Documents, and any agreements, documents (and with respect to this Agreement, and such other agreements and documents, any renewals, extensions, amendments or supplements thereto) or certificates at any time executed or delivered pursuant to the terms of this Agreement. (v) The definition of "Maximum Rate" set forth in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "Maximum Rate" means, with respect to the holder hereof, the maximum non-usurious rate of interest which, under all legal requirements, such holder is permitted to contract for, charge, take, reserve, or receive on the Obligation. If the Governmental Requirements of the State of Texas are applicable for purposes of determining the "Maximum Rate," then such term means the "weekly ceiling" from time to time in effect under Texas Finance Code ss. 303.001, as amended, as limited by Texas Finance Code ss. 303.009. Borrower agrees that Chapter 346 of the Texas Finance Code, as amended (which regulates certain revolving credit loan accounts and revolving tri-party accounts), does not apply to the Obligation, as amended. (vi) The definition of "Permitted Debt" set forth in Section 1.01 of the Loan Agreement is hereby amended by adding the following subsection (e) thereto: "(f) The obligations under the 364-Day Note and any guaranties of it delivered pursuant to the 364-Day Note." (vii) The definition of "Permitted Liens" set forth in Section 1.01 of the Loan Agreement is hereby amended by adding the following subsection (l) thereto: "(l) Liens that secure any Additional Debt and any renewal, extension, amendment, or modification of those Liens so long as those Liens, renewals, extensions, amendments, and modifications are never secured by any of the Collateral." (viii) The following definition of "Termination Date" in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Termination Date" means the earlier of (i) February 10, 2003 or (ii) the date Lender's commitment to fund Borrowings is terminated pursuant to Section 7.02. (ix) Section 4.16 of the Credit Agreement is hereby amended in its entirety to read as follows: "4.16. DEBT. No Company has any Debt (a) on the date of this agreement, except the existing Debt described on Schedule 4.16, and (b) at anytime after the date of this agreement, except Permitted Debt and Additional Debt." (x) Section 6.02 of the Credit Agreement is hereby amended in its entirety to read as follows: "6.02. Limitation on Indebtedness. Borrower shall not and shall not permit the Companies to incur, permit or suffer to exist any Debt, other than Permitted Debt and Additional Debt, which causes the aggregate amount of all such Debt of the Companies to exceed $500,000." (xi) Section 6.03 of the Credit Agreement is hereby amended in its entirety to read as follows: "6.03. Limitation on Disposition of Assets. Except for Permitted Sales, Borrower shall not and shall not permit any Company to sell, transfer, lease or otherwise dispose of any of its assets having a fair market value of more than $1,000 for less than fair market , or sell, transfer, lease, or otherwise dispose of up to 750,000 shares of Prime not subject to the Pledge Agreement." (xii) Section 6.06 of the Credit Agreement is hereby amended in its entirety to read as follows: "6.06. NET WORTH. Borrower shall not permit the Companies' Net Worth, determined as of the end of each fiscal quarter of Borrower, to be less than $16,000,000." (xiii) Section 6.07 of the Credit Agreement is hereby amended in its entirety to read as follows: "6.07. Repurchase of Borrower Stock. All repurchases of its stock by Borrower shall be done in compliance with all applicable laws, including, without limitation, Regulation U. Borrower agrees that it shall not repurchase stock having a fair market value in excess of $1,500,000 other than (i) up to 1,199,400 shares purchased from 3rd Avenue Value Fund and related companies in exchange for 599,700 Prime shares, and (ii) pursuant to the terms of the Settlement Agreement and Mutual Release between Borrower, APS Financial Corporation, the George Weissfisch A-1 Living Trust ("Trust"), and Dr. George Weissfisch, dated November 1, 1994, Borrower may purchase securities, which shall include, among other securities, no more than 200,000 shares of stock issued by the Borrower (collectively, all of the securities are the "Weissfisch Securities") from the Trust for a purchase price not exceeding $2,700,000 for all of the Weissfisch Securities." (xiv) Section 7.01(c) of the Credit Agreement is hereby amended in its entirety to read as follows: "(e) any of the Loan Documents, without the express written consent of Lender, shall cease to be legal, valid and binding agreements enforceable against the Person executing the same in accordance with its terms, shall be terminated, become or be declared ineffective or inoperative or cease to provide the respective liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be provided thereby;" (xv) Section 7.01 of the Credit Agreement is hereby amended by adding to the end thereof the following subsection (i): "(i) Any default or event of default shall have occurred and be continuing under any loan documents evidencing any indebtedness now or hereafter owed by Uncommon Care, Inc. to Borrower or Borrower shall breach any commitment to lend thereunder." Section 2. Representations. The Company and each Guarantor hereby represent and warrant to Lender that: (i) the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date hereof as though made on and as of such date; (ii) neither the Company nor any of the Guarantors is in default in the due performance of any covenant or agreement contained in the Credit Agreement or any other Loan Document; and (iii) no Default has occurred and is continuing. Section 3. Confirmations. Each of the Company and the Guarantors ratifies and confirms that the Credit Agreement, the Guaranties, the Pledge Agreements, and the other Loan Documents are and remain in full force and effect in accordance with their respective terms, as amended hereby. In addition, each of the Guarantors acknowledges, agrees, accepts and consents to the terms and provisions hereof and each other Loan Document as amended hereby, and each agrees that of the definitions "Liabilities", "Obligation", and "Obligations" set forth in the Loan Documents shall include the Credit Agreement and Note as amended hereby and the 364-Day Note. Each Guarantor acknowledges and agrees that it has guaranteed payment of, among other things, the 364-Day Note pursuant to guaranties from time to time delivered by the Guarantors to Lender. Borrower and Guarantors acknowledge and agree that the 364-Day Note and the Note are also secured by all the Collateral described in all pledge agreements from time to time delivered by the Company to Lender, and by the Deed of Trust. Except as expressly provided herein, this letter does not constitute a waiver or modification of any of the terms or provisions set forth in the Credit Agreement or any other Loan Document and shall not impair any right that the Lender may now or hereafter have under or in connection with the Credit Agreement or any other Loan Document. Section 4. No Impairment. The waivers and amendments hereby granted by the Lender: (i) does not impair the Lender's rights to insist upon strict compliance with the Credit Agreement or the other Loan Documents, and (ii) does not extend to any other Loan Document. The Loan Documents, as amended hereby continue to bind and inure the Lender, Company, the Guarantors, and their respective successors and permitted assigns. Section 5. Counterparts. This agreement, when countersigned by Company, Guarantors, and Lender shall be a "Loan Document" as defined and referred to in the Credit Agreement and the other Loan Documents and may be signed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This agreement shall be governed by and construed in accordance with the laws of the State of Texas. Section 6. Entire Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT, THE NOTE 364- DAY NOTE, AND THE OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. [REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGES FOLLOW.] February 9, 2001 Page 6 Signature Page Page One of Three If the foregoing is agreeable to you, please signify your acceptance of the terms and conditions set forth herein by placing your signature in the space provided below. Very truly yours, AMERICAN PHYSICIANS SERVICE GROUP, INC. as Borrower By: /s/ W.H. Hayes ------------------- Name: W.H. Hayes ------------------- Title: VP and Secretary ------------------- February 9, 2001 Page 7 Signature Page Page Two of Three GUARANTORS: APS REALTY, INC. APSC, INC. APS CONSULTING, INC. each as a Guarantor By: /s/ W.H. Hayes ---------------- Name: W.H. Hayes ---------------- Title: VP and Secretary ------------------- Signature Page Page Three of Three AGREED AND ACCEPTED as of the date first stated above. BANK OF AMERICA, N.A. (formerly NationsBank, N.A., formerly NationsBank of Texas, N.A.) By: /s/ John M. Curtin ------------------ John M. Curtin Vice President EX-10 10 0010.txt MANAGEMENT SERVICES AGMT-APS CONSULT AND APSG Exhibit 10.95 MANAGEMENT SERVICES AGREEMENT This Management Services Agreement (this "Agreement") dated as of January 1, 2000, is by and between APS Consulting, Inc., a Texas corporation (the "Company"), and American Physicians Service Group, Inc., a Texas corporation ("APSG"). RECITALS Certain employees of APSG have experience and knowledge in providing management, oversight, accounting, and consulting advisory services, and the Company desires to obtain the services of APSG, and certain employees of APSG, including, without limitation, in their roles as directors, in managing and overseeing the accounting and other related operations of the Company, and serving as members of the board of directors of the Company. STATEMENT OF AGREEMENT NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good, valuable and binding consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 DEFINITIONS. For purposes of this Agreement, the following definitions shall have the meaning set forth below: "Affiliate" with respect to any named person shall mean a person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, such named person. A "person" is any natural person, corporation, partnership, trust or other entity. Notwithstanding the foregoing, or any other provision of this agreement, the Company shall not be considered an Affiliate of APSG and vice versa. "Company" shall mean the Company as defined in the first paragraph of this Agreement. "Company Employees" shall mean those individuals who are employed by or otherwise under contract or associated with the Company. "Company Expenses" shall mean, commencing on the date of this Agreement, all direct, indirect, operating and non-operating actual costs, expenses, obligations, liabilities, disbursements or other outlays incurred by APSG in providing management and any other services to the Company pursuant to this Agreement, including, without limitation: (a) Travel and lodging costs and expenses of all employees or other representatives of APSG incurred pursuant to this Agreement; (b) Direct and indirect costs of all consultants or independent contractors of APSG and its Affiliates engaged to provide services for the Company; provided, however, only the portion of APSG's expenses related to such consultant or independent contractor that is allocable to work performed at or for the benefit of the Company shall be included in Company Expenses; (c) The allocable portion of any personal and property taxes assessed against APSG or its Affiliates' assets which are leased or utilized for the benefit of the Company; 2 (d) The allocable portion of all direct and indirect expenses related to accounting, audit and legal expenses, and transactional and operating costs; (e) The costs of third-party preparation of tax returns and similar matters for the Company; and (f) All expenses specifically included in the "Company Expenses" in this Agreement. "APSG" shall mean APSG as defined in the first paragraph of this Agreement. "APSG Employees" shall mean those individuals who are employed by or otherwise under contract or associated with APSG, whether or not such individuals participate in providing services to the Company pursuant to this Agreement. "APSG Expenses" shall mean: (a) any corporate overhead expenses of, and other costs incurred by, APSG that are not directly related to, identifiable with or attributable to services provided to the Company, as reasonably determined by APSG; (b) State and federal income taxes and any franchise or similar taxes of APSG; and (c) Any other expenses specifically included in "APSG Expenses" in this Agreement. Provided, however, that notwithstanding anything contained herein to the contrary, the Company Expenses shall not be included in APSG Expenses. 3 ARTICLE 2 RELATIONSHIP OF THE PARTIES The Company and APSG intend to act and perform as independent contractors, and the provisions hereof are not intended to create any partnership, joint venture, agency or employment relationship between the parties. ARTICLE 3 SERVICES TO BE PROVIDED BY APSG Section 3.1 Overall Function. APSG shall provide or arrange for the services set forth in this Article III, and the costs, fees, expenses and other disbursements incurred by APSG in connection therewith shall be included in the Company Expenses, except to the extent such costs, fees or expenses are expressly included in APSG Expenses. APSG shall, and shall use its best efforts to cause its employees to, comply with all applicable federal, state and local laws, rules and regulations in its provision of services hereunder. Section 3.2 Management Services. The Company hereby engages APSG to provide management, accounting and data processing services, including without limitation, clerical, accounting, bookkeeping and computer services, information management, printing, postage and duplication services. Any audits to be conducted shall be an the Company Expense. Section 3.3 Contractual Relationships. APSG shall not, on behalf of the Company, negotiate, establish, enter into, materially amend or terminate any contract (collectively, the "Contracts") without the prior approval of the Company. 4 Section 3.4 Other Consulting and Advisory Services. APSG may provide such other consulting and advisory services as requested by the Company and agreed to by APSG. Such services may relate to any area of the Company's business functions, including, without limitation, financial planning, acquisition and expansion strategies, development of long-term business objectives and other related matters. ARTICLE 4 FINANCIAL AND SECURITY ARRANGEMENTS Section 4.1 General Terms. The Company and APSG agree that the compensation set forth in this Article is being paid to APSG in consideration of the services provided and the substantial commitment and effort made by APSG hereunder and that such fees have been negotiated at arms' length and are fair, reasonable and consistent with fair market value. Section 4.2 Compensation. APSG shall be entitled to compensation from the Company in the amount of Five Thousand Dollars ($5,000) each month during the Term (as hereinafter defined) of this Agreement (the "Management Fee"). The Management Fee shall be payable in advance, on the first day of each month. Section 4.3 Reimbursement of the Company Expenses. In addition to the Management Fee, APSG shall be entitled to reimbursement from the Company for all the Company Expenses incurred, directly or indirectly, by APSG. Notwithstanding the foregoing, APSG shall not be entitled to any reimbursement for APSG Expenses incurred, directly or indirectly, by APSG. 5 Section 4.4 Allocation of Expenses. In the event APSG incurs a direct or indirect expense which partially constitutes a Company Expense (a "Shared Expense"), APSG shall allocate as a Company Expense that portion of each Shared Expense which, in its reasonable discretion, is identifiable with or related to services provided hereunder. ARTICLE 5 INDEMNITY The Company shall indemnify, defend and hold APSG, APSG's Affiliates and their respective officers, partners, directors, shareholders, managers, members, employees, agents and consultants harmless, from and against any and all liabilities, losses, damages, claims, causes of action and expenses (including reasonable attorneys' fees), whether or not covered by insurance (including self-insured insurance and reserves), whenever arising or incurred, that are caused or asserted to have been caused, directly or indirectly, by or as a result of (i) the gross negligence, recklessness or willful misconduct of the Company and/or its officers, employees and/or subcontractors (other than APSG, APSG's Affiliates or their employees) during the term of this Agreement or (ii) any act or omission by the Company that constituted a breach or default under this Agreement. APSG shall indemnify, defend and hold the Company, the Company's Affiliates and their respective officers, partners, directors, shareholders, managers, members, employees, agents and consultants (other than such persons who are also officers, partners, employees, agents or consultants of APSG), harmless from and against any and all liabilities, losses, damages, claims, causes of action and expenses (including reasonable attorneys' fees), whether or not covered by insurance (including self-insured insurance and reserves), whenever arising or incurred, that are caused or asserted to have been caused, directly or indirectly, by or as a result of (i) the gross negligence, recklessness or willful misconduct of APSG and or its 6 officers, employees and/or subcontractors (other than the Company or its employees) during the term of this Agreement or (ii) any act or omission by APSG that constituted a breach or default under this Agreement. ARTICLE 6 TERM AND TERMINATION Section 6.1 Term of Agreement. The initial term of this Agreement shall commence on the date hereof and shall expire on the first anniversary hereof (the "Initial Term"); upon the expiration of the Initial Term, and any renewal thereof, this Agreement shall automatically renew itself for successive one-year terms (the Initial Term together with all successive renewals thereof shall be referred to herein as the "Term"), unless terminated earlier pursuant to this Article. Section 6.2 EARLY TERMINATION. APSG may terminate this Agreement immediately, for any or no reason, by giving written notice thereof to the Company. Section 6.3 EFFECT UPON TERMINATION. Upon termination, this Agreement shall terminate and shall be of no further force and effect; provided, however: (a) APSG shall use its best efforts to cooperate with the Company for the appropriate transfer of management services. (b) Each party hereto shall provide the other party with reasonable access to books and records owned by it to permit such requesting party to satisfy reporting and contractual obligations which may be required of it. 7 (c) Any and all covenants and obligations of either party hereto which by their terms or by reasonable implication are to be performed, in whole or in part, after the termination of this Agreement, shall survive such termination. ARTICLE 7 GENERAL PROVISIONS Section 7.1 Assignment. APSG shall have the right to assign its rights hereunder to any Affiliate of APSG. The Company shall not have the right to assign their rights or obligations hereunder without the prior written consent of APSG. Section 7.2 AMENDMENTS. This Agreement shall not be modified or amended except by a written document executed by both parties to this Agreement, and such written modification(s) or amendment(s) shall be attached hereto Section 7.3 Waiver of Provisions. Any waiver of any terms and conditions hereof must be in writing, and signed by the parties hereto. The waiver of any of the terms and conditions of this Agreement shall not be construed as a waiver of any other terms and conditions hereof. Section 7.4 Additional Documents. Each of the parties hereto agrees to execute any document or documents that may be requested from time to time by the other party to implement or complete such party's obligations pursuant to this Agreement. Section 7.5 Attorneys' Fees. If legal action is commenced by either party to enforce or defend its rights under this Agreement, the prevailing party in such action shall be entitled to recover its costs and reasonable attorneys' fees in addition to any other relief granted. 8 Section 7.6 Offset. Any and all amounts owing or to be paid by the Company to APSG hereunder or otherwise shall be subject to offset and reduction pro tanto by any amounts that may be owing at any time by APSG to the Company in connection with this Agreement or any other agreement between APSG and the Company or any transaction contemplated hereby or thereby, as reasonably determined by APSG. APSG need not give notice of such offset to the Company. Section 7.7 Parties In Interest; No Third Party Beneficiaries. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective heirs, legal representatives, successors and permitted assigns of the parties hereto. Neither this Agreement nor any other agreement contemplated hereby shall be deemed to confer upon any person not a party hereto or thereto any rights or remedies hereunder or thereunder. Section 7.8 Entire Agreement. This Agreement and the agreements contemplated hereby constitute the entire agreement of the parties regarding the subject matter hereof, and supersede all prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. Section 7.9 Governing Law. This Agreement and the rights and obligations of the parties hereto shall be governed by and construed and enforced in accordance with the substantive laws (but not the rules governing conflicts of laws) of the State of Texas. Section 7.10 Choice of Forum. The parties hereto agree that any suit, action or proceeding arising from or related to this Agreement shall be instituted only in a state or federal court in Travis County, Texas. Each of the parties hereto consents to the in personam 9 jurisdiction of any state or federal court in Travis County, Texas and waives any objection to the venue of any such suit, action or proceeding. The parties hereto recognize that courts outside Travis County, Texas may also have jurisdiction over such suits, actions or proceedings, and in the event that any party hereto shall institute such a proceeding in a jurisdiction outside Travis County, Texas, the party instituting such proceeding shall indemnify any other party hereto for any losses and expenses that may result from the breach of the foregoing covenant to institute such proceeding only in a state or federal court in Travis County, Texas, including without limitation any additional expenses incurred as a result of litigating in another jurisdiction, such as fees and expenses of local counsel and travel and lodging expenses for parties, witnesses, experts and support personnel. Section 7.11 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Signature Page Follows 10 SIGNATURE PAGE TO MANAGEMENT SERVICES AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. APS CONSULTING, INC. By: /s/ James J. Connors, Jr. ---------------------- Printed Name: James J. Connors, Jr. ---------------------- Title: President ---------------------- AMERICAN PHYSICIANS SERVICE GROUP, INC. By: /s/ W. H. Hayes ---------------------- Printed Name: W. H. Hayes ---------------------- Title: Sr. VP ---------------------- EX-10 11 0011.txt TAX SHARING AGMT-APSG AND APS CONSULTING Exhibit 10.96 TAX-SHARING AGREEMENT THIS AGREEMENT is entered into effective this 1st day of January 2000 (the "Effective Date"), by and between APS Consulting, Inc., a Texas corporation ("Consulting") and American Physicians Service Group, Inc., a Texas corporation ("APSG") (collectively the "Companies," and separately the "Company"). W I T N E S S E T H: WHEREAS, APSG is subject to certain tax liabilities as a result of Consulting's operations; and WHEREAS, Consulting desires to compensate APSG for such tax liabilities. NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein and intending to be legally bound, the parties hereby agree as follows. ARTICLE 1 TAX-SHARING ARRANGEMENT Section 1.1 Taxes. Consulting will compensate and reimburse APSG for all state, federal and local tax liabilities to which APSG is subject as a result of, or attributable to, the business or operations of Consulting (collectively, the "Consulting Taxes"). For purposes of this Agreement, the portion of Consulting Taxes allocable to federal tax liabilities shall equal thirty four percent (34%) of the sum of (i) Consulting's pretax income, (ii) any goodwill amortized by Consulting, and (iii) any management or other fees paid by Consulting to APSG or its subsidiaries. Section 1.2 Tax-Sharing. APSG will calculate the Consulting Taxes and invoice Consulting on a monthly basis, the payment of which shall be due upon receipt. All invoiced Consulting Taxes not paid within ten (10) business days of the date when due will bear interest at the rate of fourteen percent (14%) per annum. Section 1.3 Access to Data. Consulting will promptly provide APSG with copies of all accounting, financial, and other information as requested by APSG. ARTICLE 2 TERM AND TERMINATION Section 2.1 Term of Agreement. The term of this Agreement shall commence on the date hereof and shall expire when APSG is no longer legally entitled to file a consolidated state or federal tax return of any kind which includes any component of tax or refund attributable to Consulting or Consulting's operations, existence or capital, unless terminated earlier pursuant to this Article. Section 2.2 EARLY TERMINATION. APSG may terminate this Agreement immediately, for any or no reason, by giving written notice thereof to Consulting. ARTICLE 3 MISCELLANEOUS Section 3.1 Notices. Any and all notices permitted or required to be made under this Agreement shall be in writing, signed by the person giving such notice and shall be delivered personally, or sent by registered or certified mail, to the party, at its address on file with the other 2 party or at such other address as may be supplied in writing. The date of personal delivery or the date of mailing, as the case may be, shall be the date of such notice. Section 3.2 Binding Effect, Assignment. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their permitted assigns and successors-in-interest. Neither party may assign any right, or delegate any obligation hereunder without the express prior written consent of the other, which consent shall be strictly at the discretion of such other party and may be contingent, if given, upon such terms and conditions as it sees fit. Section 3.3 Amendment. No change, modification, or amendment of this Agreement shall be valid or binding on the parties unless such change or modification shall be in writing signed by the party or parties against whom the same is sought to be enforced. Section 3.4 Remedies Cumulative. The remedies of the parties under this Agreement are cumulative and shall not exclude any other remedies to which the party may be lawfully entitled. Section 3.5 Further Assurances. Each party hereby covenants and agrees that it shall execute and deliver such other documents as may be required to implement any of the provisions of this Agreement. Section 3.6 No Waiver. The failure of any party to insist on strict performance of a covenant hereunder or of any obligation hereunder shall not be a waiver of such party's right to demand strict compliance therewith in the future, nor shall the same be construed as a novation of this Agreement. 3 Section 3.7 Counterparts. This Agreement may be executed in multiple copies, each of which shall for all purposes constitute an Agreement, binding on the parties, and each partner hereby covenants and agrees to execute all duplicates or replacement counterparts of this Agreement as may be required. Section 3.8 Costs and Expenses. Unless otherwise provided in this Agreement, each party shall bear all fees and expenses incurred in performing its obligations under this Agreement. Section 3.9 Governing Law, Jurisdiction, Etc. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas applicable to contracts performed wholly within Texas. Any dispute arising in connection with the present Agreement shall be finally settled under the Rules of the American Arbitration Association. The arbitral proceedings shall be held in Travis County, Texas. Any award so entered shall be final and binding upon the Companies and may be entered by any court of competent jurisdiction. 4 [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first written above by their duly authorized officers. APS CONSULTING, INC. By: /s/ James J. Connors, Jr. ------------------------- Printed Name: James J. Connors, Jr. -------------------------- Title: President -------------------------- AMERICAN PHYSICIANS SERVICE GROUP, INC. By: /s/ W. H. Hayes ------------------------ Printed Name: W. H. Hayes ------------------------ Title: Sr VP ------------------------ S-1 EX-10 12 0012.txt SETTLEMENT AGMT-APS CONSULTING AND MJ WOODCOCK Exhibit 10.97 SETTLEMENT AGREEMENT AND RELEASE This Settlement Agreement and Release (the "Agreement"), dated as of January 5, 2001, is made and entered into by and among the following Parties: Marilyn Jo Blankenship Woodcock ("Woodcock"), and APS Consulting, Inc. d/b/a Eco Systems, Inc. The purpose of this Agreement is to settle and release any and all claims rising out of, related to, or connected with, whether asserted or unasserted, Cause No. 2:98CV1823, pending in the United States District Court for the Western District of Louisiana, Lake Charles Division, styled Marilyn Jo Blankenship Woodcock v. Consolidated Eco Systems, Inc. f/k/a Exsorbet Industries, Inc., et al. (the "Lawsuit"). NOW THEREFORE, in consideration of the terms and conditions set forth in this Agreement, the parties agree as follows: 1. NO ADMISSION OF LIABILITY. The Parties recognize and acknowledge that APS Consulting, Inc. d/b/a Eco Systems, Inc., a defendant in the Lawsuit has strenuously denied and vigorously contested the allegations and claims in the Lawsuit. Woodcock agrees and acknowledges that the payment and promises described herein are to compromise and settle disputed claims, are in no way an admission of liability or wrongdoing, and shall not be construed or used as an admission or evidence of any liability or wrongdoing in any proceeding and that APS Consulting, Inc. d/b/a Eco Systems, Inc. and its affiliates and parent companies do not admit, and in fact continue to adamantly deny, any wrongdoing, liability, or culpability arising out of, connected with, concerning or relating to LARCO Environmental Services, Inc., Consolidated Eco Systems, Inc. f/k/a Exsorbet Industries, Inc., or any of their current or former subsidiaries, directors, officers or agents. Additionally, APS Consulting, Inc. d/b/a Eco Systems, Inc. and its affiliates and parent companies adamantly disavow any liability, culpability or 1 responsibility for any obligation or wrongdoing of Consolidated Eco Systems, Inc. f/k/a Exsorbet Industries, Inc. or any of its current or former subsidiaries, directors, officers or agents. The Parties enter into this Agreement to avoid the risk and expense of continued, protracted litigation. Woodcock and her counsel further agree that they will not publicly assert, directly or indirectly, that the settlement or this Agreement in any way constitutes an admission of wrongdoing, liability, or culpability by any of the Parties hereto. 2. PAYMENT. In exchange for the agreements, covenants, and releases contained herein, APS Consulting, Inc. d/b/a Eco Systems, Inc. shall pay TEN THOUSAND DOLLARS ($10,000.00) to Woodcock and her attorney, J. Michael Veron, by check within five (5) business days after the date of execution of this Agreement by the Parties (the "Effective Date"). 3. DEPOSITION OF DUANE BOYD. In exchange for the agreements, covenants, and releases contained herein, APS Consulting, Inc. d/b/a Eco Systems, Inc. agrees to make Duane Boyd available for deposition without the necessity of a subpoena at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 816 Congress Ave., Suite 1900, Austin, Texas 78701. The deposition of Duane Boyd will occur after the execution of this Agreement, the payment of the settlement funds described in Paragraph 2 above and the entry of a dismissal with prejudice as described in Paragraph 6 below at a date and time mutually agreeable to the Parties. 4. RELEASE BY WOODCOCK. In exchange for the agreements, covenants, and releases contained herein, as of the Effective Date, Woodcock, on her own behalf and on behalf of her attorneys, agents, assigns, spouses or former spouses, representatives, or any person, party or entity claiming by or through her, hereby releases, acquits, and forever discharges APS Consulting, Inc. d/b/a Eco Systems, Inc., Eco Acquisition, Inc., APSC, Inc., American Physicians Service Group, Inc., (these four entities are collectively referred to as the "APS 2 Parties") and each of their officers, directors, stockholders, employees, attorneys, agents, predecessors, successors, subsidiaries, affiliates, parent companies, assigns, representatives, or any other person, party, or entity claiming by or through any of them, from any and all claims, demands, rights, actions, and causes of action, of any kind or character, whether known or unknown, accrued or unaccrued, direct or derivative, which Woodcock may have had, or has now, for relief of any nature at law or in equity, arising out of, related to, connected with or which are based on any action or inaction occurring prior to the Effective Date that are based on or arise out of or are otherwise related to the Lawsuit, the APS Parties or any of their affiliates or subsidiaries. This release includes, but is not limited to, claims or causes of action for punitive or exemplary damages, damages for personal injuries, damages for violations of any federal or state law, damages arising from mental anguish, pecuniary losses, loss of wages or earning capacity or capability, attorneys' fees, or any other kind of expense, loss or damage of any kind or character, of whatever description. This release includes, but is not limited to, James J. Connors, Jr. and any of the other defendants in this Lawsuit, but ONLY for claims arising from their acts or omissions as officers, directors, shareholders, agents or representatives of the APS Parties and their successors and assigns. It is expressly understood that no consideration has been paid or given for the release of any claims against any defendant from any acts or omissions in their capacities as officers, directors, shareholders, agents or representatives of Consolidated Eco Systems, Inc. f/k/a Exsorbet Industries, Inc., that nothing contained herein constitutes a release by Woodcock of any such claims, and that Woodcock fully reserves all her rights to pursue such claims in this litigation. 5. RELEASE BY APS CONSULTING, INC. D/B/A ECO SYSTEMS, INC. In exchange for the agreements, covenants, and releases contained herein, as of the Effective Date, APS Consulting, 3 Inc. d/b/a Eco Systems, Inc., on its own behalf and on behalf of its officers, directors, employees, stockholders, representatives, attorneys, agents, predecessors, successors, subsidiaries, affiliates, parent companies, assigns, or any person, party, or entity claiming by or through it, hereby releases, acquits, and forever discharges Woodcock, and her officers, directors, stockholders, employees, attorneys, agents, predecessors, successors, assigns, representatives or any other person, party or entity claiming by or through any of them from any and all claims, demands, rights, actions, and causes of action, of any kind or character, whether known or unknown, accrued or unaccrued, direct or derivative, which APS Consulting, Inc. d/b/a Eco Systems, Inc. may have had, or has now, for relief of any nature at law or in equity, arising out of, related to, connected with or which are based on any action or inaction occurring prior to the Effective Date that are based on or arise out of or otherwise related to the Lawsuit, Woodcock or LARCO Environmental Services, Inc. This release includes, but is not limited to, claims or causes of action for punitive or exemplary damages, damages for personal injuries, damages for violations of any federal or state law, attorneys' fees, or any other kind of expense, loss or damage of any kind or character, of whatever description. 6. DISMISSAL WITH PREJUDICE. Within one (1) business day from receipt of the payment described in Paragraph 2 above, counsel for Woodcock shall file an agreed motion and order for dismissal with prejudice on her claims against APS Consulting, Inc. d/b/a Eco Systems, Inc. in the form attached hereto as Exhibit A, and shall take other necessary action to cause the dismissal with prejudice on her claims against APS Consulting, Inc. d/b/a Eco Systems, Inc. to be signed as soon as possible by United States Magistrate Judge Wilson of the United States District Court for the Western District of Louisiana, Lake Charles Division. 4 7. AUTHORITY. Each Party to this Agreement represents and warrants to the other Parties that (a) she/it has been advised of her/its legal rights by attorneys of their own choosing; (b) she/it has carefully read this Agreement and understands it and its legal meaning; (c) she/it is executing this Agreement under her/its own free will and without being coerced, unduly influenced, or induced to do so by anything done or not done by the Parties, other than what is contained in this Agreement; and (d) she/it recognizes this Agreement to be a full, final, and complete settlement of the claims between the Parties in the Lawsuit; and (e) she/it is the exclusive owner of the claims and causes of action released herein, and that she/it has not assigned, transferred, conveyed or otherwise disposed of any of the claims which are settled and released herein, and that she/it has full authority to execute this Agreement without the necessity of obtaining the consent of another party. 8. CONFIDENTIALITY. All Parties to this Agreement and their counsel acknowledge and understand that the settlement of the Lawsuit and the terms and conditions of this Agreement are to be held strictly confidential and not revealed to any other person or entity, unless otherwise required by law, with the exception of personal tax advisors and legal counsel who have been advised of the confidential nature of such information. The parties further agree that if inquiries are made regarding the status of the lawsuit, the only response that will be made is that "the lawsuit has been dismissed with prejudice." If any party seeks to enforce the terms of this Agreement, it may disclose the terms of this Agreement but only to the extent necessary to enforce the terms of this Agreement. 9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which, taken together, shall constitute one in the same agreement. 5 10. APPLICABLE LAW. This Agreement shall be governed by, and construed in accordance with, Texas law, without regard to Texas choice of law principles. 11. ENTIRE AGREEMENT. Each of the Parties represents and warrants to each of the other Parties that this Agreement embodies the entire understanding and agreement among the Parties, supercedes all prior agreements and understandings, and that no other representations, agreements, arrangements, or understandings, oral or written, concerning the subject matter of this settlement, which are not expressed in this Agreement, exist between the Parties. 12. AMENDMENTS. This Agreement may not be amended except by a signed writing duly executed by the Parties. 13. JOINTLY DRAFTED. The Parties and their respective legal counsel mutually contributed to the preparation of, and have had the opportunity to review and revise, this Agreement. Accordingly, this Agreement and all of its terms shall be construed equally as to all Parties. IN WITNESS HEREOF, each of the parties has executed and delivered this Agreement, as of January 5, 2001. /s/ Marilyn Jo Blankenship Woodcock ----------------------------------- Marilyn Jo Blankenship Woodcock STATE OF LOUISIANA PARISH OF Calcasieu BEFORE ME, the undersigned Notary Public, on this day personally appeared Marilyn Jo Blankenship Woodcock, who stated to me that he has executed the foregoing Settlement Agreement and Release for the purposes and consideration therein expressed. ACKNOWLEDGED before me on this 23rd day of January, 2001. /s/ J. Michael Veron ----------------------------------- NOTARY PUBLIC, STATE OF LOUISIANA 6 APS Consulting, Inc. d/b/a Eco Systems, Inc. /s/ William H. Hayes ------------------------------------- By: William H. Hayes Title: Secretary STATE OF TEXAS COUNTY OF TRAVIS BEFORE ME, the undersigned Notary Public, on this day personally appeared William H. Hayes, who stated that he has executed the foregoing Settlement Agreement and Release for purposes and consideration therein expressed, in his capacity as Secretary of APS Consulting, Inc. d/b/a Eco Systems, Inc., and that he is duly authorized to execute the foregoing Settlement Agreement and Release in that capacity. ACKNOWLEDGED BEFORE ME on this 17th day of January, 2001. /s/ Nancy M. Nelson ----------------------------------- NOTARY PUBLIC, STATE OF TEXAS 8 SETTLEMENT AGREEMENT AND RELEASE AND PAYMENT ACKNOWLEDGED: /s/ J. Michael Veron 1-23-01 - --------------------------------- ------------- J. Michael Veron, Counsel for Woodcock Date 9 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF LOUISIANA LAKE CHARLES DIVISION MARILYN JO BLANKENSHIP CIVIL ACTION NO. 2:98CV1823 WOODCOCK VERSUS CONSOLIDATED ECO SYSTEMS, INC. f/k/a EXSORBET INDUSTRIES, INC.; CHARLES E. CHUNN, JR.; JAMES J. CONNORS; EDWARD L. SCHRADER; SAM SEXTON, III; EDWARD M. JUDGE TRIMBLE PENICK; APS CONSULTING, INC. d/b/a ECO SYSTEMS, INC.; KR INDUSTRIAL SERVICES OF ALABAMA, INC.; EXSORBET TECHNICAL SERVICES, INC.; KENNETH McDONALD; CAROLYN McDONALD; GREAT AMERICAN DYNASTY SURPLUS LINES INSURANCE COMPANY; and TIG SPECIALTY INSURANCE COMPANY MAGISTRATE JUDGE WILSON AGREED MOTION TO DISMISS WITH PREJUDICE Plaintiff Marilyn Jo Blankenship Woodcock and Defendant APS Consulting, Inc. d/b/a Eco Systems, Inc., hereby jointly move for an Order Dismissing with Prejudice all claims by Plaintiff against APS Consulting, Inc. d/b/a Eco Systems, Inc. in the above referenced civil action. As grounds for the present motion, Plaintiff and APS Consulting, Inc. d/b/a Eco Systems, Inc. state that the above-referenced lawsuit has been resolved and settled as between these two parties. WHEREFORE, PREMISES CONSIDERED, Plaintiff and Defendant APS Consulting, Inc. d/b/a Eco Systems, Inc. respectfully request entry of an Order dismissing with prejudice any and all claims, counterclaims, cross-claims or other causes of action which were made or which 10 could have been made by or between Plaintiff and APS Consulting, Inc. d/b/a Eco Systems, Inc. in the above-referenced lawsuit, and the parties hereto bearing their own costs and attorneys fees. Respectfully submitted, /s/ Christopher H. Taylor ------------------------------------------ JAMES J. SCHESKE Texas State Bar No. 17745443 CHRISTOPHER H. TAYLOR Texas State Bar No. 24013606 AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. 1900 Frost Bank Plaza 816 Congress Avenue Austin, Texas 78701 Telephone: (512) 499-6200 Facsimile: (512) 499-6290 ATTORNEYS FOR APS Consulting, Inc. d/b/a Eco Systems, Inc. /s/ J. Michael Veron --------------------------------------------- J. Michael Veron BR # 7570 Scofield, Gerard, Veron, Singletary & Pohorelsky P.O. Drawer 3028 Lake Charles, Louisiana 70602 Telephone: (337) 433-9436 Facsimile: (337) 436-0306 ATTORNEY FOR PLAINTIFF MARILYN JO BLANKENSHIP WOODCOCK 11 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF LOUISIANA LAKE CHARLES DIVISION MARILYN JO BLANKENSHIP CIVIL ACTION NO. 2:98CV1823 WOODCOCK VERSUS CONSOLIDATED ECO SYSTEMS, INC. f/k/a EXSORBET INDUSTRIES, INC.; CHARLES E. CHUNN, JR.; JAMES J. CONNORS; EDWARD L. SCHRADER; SAM SEXTON, III; EDWARD M. JUDGE TRIMBLE PENICK; APS CONSULTING, INC. d/b/a ECO SYSTEMS, INC.; KR INDUSTRIAL SERVICES OF ALABAMA, INC.; EXSORBET TECHNICAL SERVICES, INC.; KENNETH McDONALD; CAROLYN McDONALD; GREAT AMERICAN DYNASTY SURPLUS LINES INSURANCE COMPANY; and TIG SPECIALTY INSURANCE COMPANY MAGISTRATE JUDGE WILSON ORDER OF DISMISSAL WITH PREJUDICE Having come on to be considered the Agreed Motion to Dismiss with Prejudice filed by Plaintiff Marilyn Jo Blankenship Woodcock and Defendant APS Consulting, Inc. d/b/a Eco Systems, Inc., the Court is of the opinion that said Motion should be GRANTED. IT IS THEREFORE ORDERED that Plaintiff's claims against APS Consulting, Inc. d/b/a Eco Systems, Inc. are hereby DISMISSED with prejudice to refiling, and that the parties hereto shall bear their own costs and attorneys fees. /s/ Alonzo P. Wilson ----------------------- ALONZO P. WILSON UNITED STATES MAGISTRATE JUDGE 12 EX-10 13 0013.txt PROFESSIONAL SERVICES AGMT-APIA AND WHITE LION Exhibit 10.98 State of Texas County of Travis WEB SITE AGREEMENT This AGREEMENT is made this 10th day of April, 2000, by and between White Lion Internet Agency, 1707 Nueces Street, Austin, TX. 78701 ("Contractor") and API, of Austin, TX ("Client") for the project of engineering, designing, and creating a web site for Client. Client and Contractor agree as follows: I. PURPOSE OF AGREEMENT 1.01 This Agreement provides the terms and conditions under which Contractor will engineer, design and create Client's web site to be made available to Internet users on the Worldwide Web. II. CHARGES AND PAYMENT SCHEDULE 2.01 Client agrees to pay Contractor the charges set forth on Exhibit A attached, according to the schedule set forth herein. 2.02 Client will pay Contractor an Initial Payment equal to one-third (1/3) of the total charges for the engineering, design and creation of Client's web site, as set forth on Exhibit A attached, upon execution of this Agreement. 2.03 Client will pay Contractor an additional one-third (1/3) of the total charges for the engineering, design and creation of Client's web site, as set forth on Exhibit A attached, upon completion and acceptance of a prototype web site by Client. 2.04 Client will pay Contractor the balance of the total charges for the design and creation of Client's web site as set forth on Exhibit A attached, within 5 days of delivery of project. Delivery of the project means delivery of the fully functional web site to the web site host selected by Client, at which time the web site must be accessible to Internet Users. 2.05 Client shall also pay Contractor applicable sales tax on the amounts due as provided above, at the time such payments are due. 2.06 Amounts due but not paid within thirty (30) days of the due date shall be subject to an interest charge of five percent (5%) per annum until paid in full. Payment is due upon receipt for all installment payments. III. MUTUAL COVENANTS AND AGREEMENTS 3.01 Contractor is an independent contractor in the performance of services for Client under the terms and conditions of this Agreement. Contractor shall not be considered an employee of Client. Client will have no control, direction or dominion over Contractor or the way in which Contractor performs the work. Contractor shall be responsible solely for the end product. 3.02 Contractor will be responsible for payment of all state, federal, foreign and/or local taxes, including income tax, withholding tax, Social Security tax, and pension contributions, if any. Client is not responsible for the payment of any taxes, except as provided in this Agreement, or penalties applicable to the nonpayment or underpayment of the taxes. Contractor is also responsible for payment of any and all insurance premiums, including, but not limited, to errors and omissions policies, and medical, life or Worker's Compensation policies that Contractor may need or desire. 3.03 Contractor has no independent authority to act for or on behalf of Client except as provided in this Agreement. No other power, authority, or use is granted or implied. 3.04 Project Specifications, Schematic, Estimate and Data Model are attached as Exhibit A and made a part of this Agreement. 3.05 Client or Client's representative will deliver all material (text, graphics, etc.) in digital or camera ready format to Contractor. Client will be allowed five hours of changes to the material provided. Any changes exceeding the above amount will be billed at the rate of $85 per hour for html and graphics and $95 per hour for other programming. 3.06 Unless otherwise specified in writing, Contractor will begin work on the prototype web site as soon as both parties execute this Agreement, the initial payment is made, the engineering is complete, and all content has been received. Contractor cannot be held responsible for any alteration in the project timeline due to insufficient or delayed content from Client. 3.07 If Contractor and Client have not agreed on a final design after three (3) separate rounds of prototypes have been developed and presented to Client, Contractor reserves the right to release the Client. Please see 4.01 for payment reference. 3.08 Except as provided herein, Client shall own all works created under this Agreement, shall retain all copyrights in the work and shall have the exclusive rights to use, publish or assign the work. Client shall have no right to layered and/or unfinished work including but not limited to sketches, drawings, or drafts used to create final work. 3.09 Contractor warrants and represents that the preparation of the work under this Agreement is original. 3.10 Contractor cannot be held responsible for any copyright or trademark issues that may arise from ever-changing Internet laws. 3.11 Contractor shall in no event be liable for any of the content provided by Client. By signing this Agreement, Contractor makes no representation or warranties with respect to the accuracy or completeness of the content of any document provided by Client. 3.11 Contractor shall not be liable for any loss of profit or any commercial damage, including but not limited to special, incidental, consequential, or other damages. 3.12 Web work will remain on a remote server and stay propriety of contractor until the last payment has been received. IV. TERMINATION OF AGREEMENT 4.01 Either party may terminate the Agreement by giving the other party fifteen (15) days written notice. If the Agreement is terminated as provided herein, Contractor shall promptly refund the balance of any payments made by Client that have not been earned based on Contractor's usual and customary hourly charge for each person who has performed work on Client's web site. If client is not satisfied with creative direction and engineering, Client reserves the right to cancel the agreement while paying 10% of the project's value. V. GENERAL AND ADMINISTRATIVE PROVISIONS 5.01 Parties Bound. This Agreement shall be binding upon and insure to the benefit of the parties and their legal representatives, successors and assigns. 5.02 Assignment. Contractor shall have no right to transfer or assign Contractor's interest in this Agreement without the prior written consent of Client. 5.03 Authority. Each party represents to the other that it has the legal authority to enter into this Agreement. 5.04 Time Limits. Time is of the essence in this Agreement. 5.05 No Waiver. The failure or delay in the enforcement of the rights detailed in this Agreement by Client shall not constitute a waiver of those rights or be deemed a basis for estoppel. Client may exercise its rights under this Agreement despite the delay or failure to enforce the rights. 5.06 Dispute or Contest. In the unlikely event that a dispute occurs or an action in law or equity arises out of the operation, construction or interpretation of this Agreement, the prevailing party shall be entitled to recover from the losing party, reasonable attorney's fees and expenses incurred in the action. Before the case is presented in court, a non-binding arbitrator, that is mutually agreeable to both parties, will be used to settle the dispute at hand. 5.07 Section and Paragraph Headings. The section and paragraph headings used in this Agreement are descriptive only and shall have no legal force or effect whatever. 5.08 Use of Pronouns. The use of the neuter singular pronoun to refer to a Party described in this Agreement shall be deemed a proper reference whether the Party is an individual, a partnership, a corporation, or a group of two or more individuals, partnerships or corporations. The grammatical changes required to make the provisions of this Agreement applicable to corporations, partnerships, individuals, or groups of individuals, or to females as well as males, shall in all instances be assumed as though in each case fully expressed. 5.09 Texas Law. This Agreement shall be subject to and governed by the laws of the State of Texas. Any and all obligations or payments are due and payable in Travis County, Texas. 5.10 Severability. If any provision of this Agreement shall, for any reason, be held violative of any applicable law, and so much of the Agreement is held to be unenforceable, then the invalidity of such a specific provision shall not be deemed to invalidate any other provisions in this Agreement, which other provisions shall remain in full force and effect unless removal of the invalid provision destroys the legitimate purposes of this Agreement, in which event this Agreement shall be canceled. 5.11 Entire Agreement. This Agreement, including Exhibit A attached, represents the entire agreement by and between the parties except as otherwise provided in this Agreement, and it may not be changed except by written amendment duly executed by all parties. CONFIDENTIALITY "Confidential Information" shall mean all written or oral information disclosed by either party to the other party in briefings, documents, personnel records or reports, or otherwise obtained by the other party in connection with this Agreement, including, without limitation, information concerning the past, present or future research or development of business activities of the disclosing party, except such information which (i) was previously known; (ii) is generally available to the public; (iii) is subsequently disclosed by a third party who is not under any obligations to the party to whom such information belongs. For purposes of this agreement, all New Work shall be deemed to be Confidential Information of API. Both parties agree that all Confidential Information shall be the disclosing party's proprietary right and property, and that each party shall keep all Confidential Information of the other in trust and confidence and not reproduce, transmit or disclose such Confidential Information to any other person, without first obtaining the express prior written consent of the disclosing party. As a condition to any payment by API under any Work Statement, API may require White Lion and/or any Consultant to sign further agreements required by the API relating to maintaining confidentiality of information, ownership of rights to work produced, non-interference with API employees and non-solicitation of API employees. In any event, White Lion shall be obligated to enforce all obligations of White Lion against Consultants. Neither party shall use any trademark, service mark, trade name, or other name or logo of the other party in any advertising or publicity without the prior written consent of the other. In the event of a breach by either party for the foregoing provisions of this Section, the non-breaching party shall be entitled, in addition to any and all other remedies available to it, to injunctive relief. SIGNED, ACCEPTED AND AGREED to this 17th day of April, 2000, by the undersigned parties who hereby acknowledge that they have read and understand this Agreement and Exhibit A attached. API White Lion - Internet Agency Client: Contractor: By: /s/ Maury Magids By: /s/ Steve C. Kahle ------------------ -------------------- Maury Magids [Name] Steve C. Kahle [Name] President [Title] Partner [Title] EX-10 14 0014.txt REVOLVING PROMIS NOTE-APSG AND BANK OF AMERICA Exhibit 10.99 364-DAY REVOLVING PROMISSORY NOTE $1,250,000.00Austin, Texas February 9, 2001 FOR VALUE RECEIVED, the undersigned, AMERICAN PHYSICIANS SERVICE GROUP, INC., a Texas corporation ("Maker"), hereby unconditionally promises to pay to the order of BANK OF AMERICA, N.A. ("Payee"), at 515 Congress Avenue, 11th Floor, Austin, Texas 78702 or such other address given to Maker by Payee, the principal sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($1,250,000.00), or so much thereof as may be advanced prior to maturity, in lawful money of the United States of America, together with interest (calculated on the basis of a 360-day year) on the unpaid principal balance from day-to-day outstanding, computed from the date of advance until maturity at the rates per annum provided below. 1. Definitions. Capitalized terms not defined herein shall have the meanings assigned to such terms in the Revolving Credit Agreement (defined below). When used in this 364-Day Note, the following terms shall have the respective meanings specified herein or in the Section referred to: BORROWER means Maker. Collateral Documents means all the Pledge Agreement, the Deed of Trust, the guaranties executed by the Guarantors, and all other security agreements, guaranties, pledge agreements, and other agreements or documents executed or delivered to secure repayment of all or any part of the Obligation. DEFAULT has the meaning ascribed to it in Section 9 hereof. GOVERNMENTAL AUTHORITY means any government (or any political subdivision or jurisdiction thereof), court, bureau, agency or other governmental authority having jurisdiction over any Company or any of its business, operations or properties. LENDER means Payee. MAXIMUM RATE means, with respect to the holder hereof, the maximum non-usurious rate of interest which, under all legal requirements, such holder is permitted to contract for, charge, take, reserve, or receive on the Obligation. If the Legal Requirements of the State of Texas are applicable for purposes of determining the "Maximum Rate," then such term means the "weekly ceiling" from time to time in effect under Texas Finance Code ss. 303.001, as amended, as limited by Texas Finance Code ss. 303.009. Maker agrees that Chapter 346 of the Texas Finance Code, as amended (which regulates certain revolving credit loan accounts and revolving tri-party accounts), does not apply to the Obligation, as amended. REVOLVING CREDIT AGREEMENT means that certain Revolving Credit Loan Agreement dated February 10, 1998, between Maker and Payee, as the same may be renewed, extended, amended, supplemented, restructured, restated, refunded, replaced, or refinanced from time to time on one or more occasions. TERMINATION DATE means the earliest of (i) February 8, 2002, (ii) the date Payee's commitment to fund Borrowings is terminated pursuant to Section 9(b), or (iii) the date Payee's commitment to fund Borrowings is terminated pursuant to Section 3(c). 2. The Revolving Credit Loan. (a) COMMITMENT AND BORROWINGS. Subject to the terms and conditions of this 364-Day Note, including the conditions precedent in Sections 2 and 4 of this 364-Day Note, Payee agrees to extend to Maker, from the date hereof through the Termination Date, a revolving line of credit which shall not exceed at any one time outstanding the sum of $1,250,000.00 (the "Revolving Credit Commitment"). Within the limits of this Section 2(a), during such period, Maker may borrow, repay and reborrow in accordance with this 364-Day Note. Each advance hereunder is called a "Borrowing" and all borrowings hereunder are collectively referred to as the "364-Day Loan." Maker shall have the right, upon three (3) Business Days' prior written notice to Payee, to permanently reduce the unutilized portion of the Revolving Credit Commitment. (b) LIQUIDITY REQUIREMENTS. As a condition to Payee's obligation to advance any Borrowing hereunder, Maker must be in compliance with the requirements of Section 6.04 of the Revolving Credit Agreement related to maintenance of liquidity and the Collateral Maintenance provisions of the Pledge Agreement. (c) USE OF PROCEEDS. Maker shall use the proceeds of the 364-Day Loan for general working capital purposes. Maker shall not use proceeds of any Borrowing (i) to purchase or carry any "margin securities" (as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System), (ii) for any unlawful purpose, or (iii) for the purpose of making any hostile tender offer to acquire shares of stock or other equity interests in another Person. In addition, Maker will furnish to Payee a statement in conformity with the requirements of the Federal Reserve Form U-1 referred to in Regulation U of the Board of Governors of the Federal Reserve System. No part of the proceeds of the Loan will be used for any purpose which violates, or is inconsistent with, the provisions of Regulations U or X of the Board of Governors of the Federal Reserve System. (d) MANNER OF BORROWING. Maker shall give Payee prior written notice on or before 10:00 a.m. (Austin, Texas time) on any day a Borrowing is requested (a "Notice of Borrowing") of each requested Borrowing in the form attached as Exhibit A and shall specify the aggregate amount and requested date of such Borrowing. Each Borrowing shall be in an amount of $100,000.00 or an integral multiple thereof. Not later than 2:00 p.m. on the date specified, subject to the terms and conditions of this 364-Day Note, Payee shall make available to Maker, at Payee's offices in Austin, Texas, the amount of such requested Borrowing in immediately available funds. (e) FEES. In connection with Payee's agreement to enter into this 364-Day Note and fund the 364-Day Loan hereunder, Maker has committed to pay to Payee an up-front commitment fee in the amount of $12,500 which would be due and payable upon the execution of this 364-Day Note. 3. PAYMENTS AND INTEREST. (a) PRINCIPAL AND INTEREST. The unpaid principal of this 364-Day Note, and all accrued but unpaid interest thereon, shall be due and payable on the Termination Date. Interest shall also be due and payable quarterly on the last day of each March, June, September, and December, commencing March 31, 2001. (b) OPTIONAL PREPAYMENTS. Maker shall have the right, from time to time upon three (3) Business Days' written notice to Payee, and without penalty, to prepay this 364-Day Note, in whole or in part upon the payment of accrued interest on the amount prepaid to and including the date of payment. (c) MANDATORY PREPAYMENT. Upon the incurrence of Additional Debt by Maker, or the consummation of any Permitted Sale, the unpaid principal of this 364-Day Note, and all accrued but unpaid interest thereon, shall be due and payable. The Revolving Credit Commitment shall terminate. (d) MANNER AND APPLICATION OF PAYMENTs. All payments and prepayments by Maker on account of principal, interest, and fees hereunder shall be made in immediately available funds. All such payments shall be made to Payee at its office in Austin, Texas, not later than 12:00 noon, Austin, Texas time, on the date due and funds received after that hour shall be deemed to have been received by Payee on the next following Business Day. If any payment is scheduled to become due and payable on a day which is not a Business Day, such payment shall instead become due and payable on the immediately following Business Day and interest on the principal portion of such payment shall be payable at the then applicable rate during such extension. All payments made on this 364-Day Note shall be credited, to the extent of the amount thereof, in the following manner: (i) first, against the amount of interest accrued and unpaid on this 364-Day Note as of the date of such payment; and (ii) second, against all principal due and owing on this 364-Day Note as of the date of such payment. 4. INTEREST. (a) Interest Rate. Subject to Section 4(b), the unpaid principal of each Borrowing shall bear interest from the date of advance until paid at a rate per annum that from day-to-day equals the lesser of (a) the Base Rate in effect from day-to-day plus 1/4 of 1% (the "Contract Rate"), or (b) the Maximum Rate. (b) DEFAULT RATE. All past due principal of, and to the extent permitted by applicable law, interest on, the Note shall bear interest until paid at the lesser of (i) the Base Rate from time-to-time in effect plus three percent (3%), or (ii) the Maximum Rate. (c) COMPUTATION OF INTEREST RATES. Subject to applicable usury laws, interest shall be computed at a daily rate equal to 1/360 of the applicable rate of interest per annum for all Borrowings, unless the Maximum Rate or Base Rate shall be in effect, in which case interest shall be computed at a daily rate equal to 1/365 or 1/366, as appropriate, of the applicable rate of interest per annum. (d) RECAPTURE RATE. If, on any interest payment date, Payee does not receive interest on the Note computed (as if no Maximum Rate limitations were applicable) at the Contract Rate pursuant to Section 4(a) because the Contract Rate exceeds or has exceeded the Maximum Rate, then Maker shall, upon the written demand of Payee, pay to Payee, in addition to interest otherwise required hereunder, on each interest payment date thereafter, the Excess Interest Amount (hereinafter defined) calculated as of such later interest payment date; provided, however, that in no event shall Maker be required to pay, for any appropriate computation period, interest at a rate exceeding the Maximum Rate effective during such period. The term "Excess Interest Amount" means, on any date, the amount by which (a) the amount of all interest that would have accrued before that date on the principal of the Note (had the applicable Contract Rate at all times been in effect, without limitation by the Maximum Rate) exceeds (b) the aggregate amount of interest actually paid to Payee on the Note on or before that date. (e) TAXES. Any and all payments by Maker hereunder shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (hereinafter referred to as "Taxes"), excluding taxes imposed on Payee's income, and franchise taxes imposed on Payee, by the jurisdiction under the laws of which Payee is organized or is or should be qualified to do business or any political subdivision thereof and, taxes imposed on Payee's income, and franchise taxes imposed on Payee by the jurisdiction of Payee's lending office or any political subdivision thereof. If Maker shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the Note to Payee, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4(e) Payee receives an amount equal to the sum it would have received had no such deductions been made, (ii) Maker shall make such deductions and (iii) Maker shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Maker will indemnify Payee for the full amount of Taxes (including, without limitation, any Taxes imposed by any jurisdiction on amounts payable under this Section 4(e)) paid by Payee or any liability (including penalties and interest) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. This indemnification shall be payable upon Payee making written demand therefor. (f) CAPITAL ADEQUACY. If, after the date hereof, Payee shall have reasonably determined that either (i) the adoption (after the date hereof) of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or (ii) compliance by Payee (or any lending office of Payee) with any request or directive (issued after the date hereof) regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, and having general application to Payees such as Payee, has or would have the effect of reducing the rate of return on Payee's capital as a consequence of its or Maker's obligations hereunder to a level below that which Payee could have achieved but for such adoption, change or compliance by an amount reasonably deemed by Payee to be material, then from time to time, within five (5) days after demand by Payee, Maker shall pay to Payee such additional amount as will adequately compensate Payee for such reduction, provided that Maker will not be required to pay any more than similarly situated customers of Payee. Payee will notify Maker of any event of which it has actual knowledge, occurring after the date thereof, which will entitle Payee to compensation pursuant to this Section 4(f). No failure by Payee to immediately demand payment of any additional amounts payable hereunder shall constitute a waiver of Payee's right to demand payment of such amounts at any subsequent time. 5. CONDITIONS PRECEDENT. (a) INITIAL BORROWING. The obligation of Payee to advance its initial Borrowing is subject to the conditions precedent that, on or before the date of such Borrowing, (a) Maker shall have paid to Payee all fees to be received by Payee pursuant to this 364-Day Note or any other Loan Document and (b) Payee shall have received duly executed copies of each of the documents listed on Schedule 1, each dated as of the date of such Borrowing, and each in form and substance satisfactory to Payee. (b) ALL BORROWINGS. The obligation of Payee to advance any Borrowing under this 364-Day Note (including the initial Borrowing) shall be subject to the conditions precedent that, as of the date of such Borrowing and after giving effect thereto: (a) there exists no Default or Event of Default under, and as defined in, the Revolving Credit Agreement; (b) no change that would cause a Material Adverse Effect has occurred since the date of the Current Financials referenced in Section 4.05 of the Revolving Credit Agreement; (c) Payee shall have received from Maker a Notice of Borrowing dated as of the date of such Borrowing and all of the statements contained in such Notice of Borrowing shall be true and correct; (d) the representations and warranties contained in the Loan Documents shall be true in all respects as though made on the date of such Borrowing; (e) the Maximum Rate exceeds the Contract Rate; and (f) Maker has satisfied the condition precedent contained in Section 2 of this 364-Day Note. 6. RIGHTS UNDER THE REVOLVING CREDIT AGREEMENT. This 364-Day Note is subject to certain terms and conditions set forth in the Revolving Credit Agreement. The Holder of this 364-Day Note shall be entitled to the benefits provided in the Revolving Credit Agreement. This 364-Day Note is one of the "Loan Documents" referred to in the Revolving Credit Agreement, and all provisions relating to Loan Documents set forth in Section 8 of the Revolving Credit Agreement, other than the provisions set forth in Sections 8.02, 8.04, 8.06 of Revolving Credit Agreement, are incorporated herein by reference, the same as if set forth herein verbatim. 7. WAIVERS. No failure to exercise, and no delay in exercising, on the part of Payee, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Payee under the Loan Documents shall be in addition to all other rights provided by law. No modification or waiver of any provision of any Loan Document, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. 8. SECURITY. This 364-Day Note is secured by, among other collateral, each of the Collateral Documents. 9. DEFAULT AND REMEDIES. (a) A "Default" shall exist hereunder if any one or more of the following events shall occur and be continuing: (i) Maker shall fail to pay when due any principal of, or interest upon, this 364-Day Note or the Obligation and such failure continues for five (5) days, or (ii) a Default shall occur under, and as defined in, the Revolving Credit Agreement. (b) If any Default shall occur Payee may, without notice, except as otherwise provided for herein, exercise any one or more of the following rights and remedies, and any other remedies provided in any of the Loan Documents, as Payee in its sole discretion may deem necessary or appropriate: (i) terminate Payee's commitment to lend hereunder, (ii) declare the Obligation or any part thereof to be forthwith due and payable, whereupon the same shall forthwith become due and payable without presentment, demand, protest, notice of default, notice of acceleration or of intention to accelerate or other notice of any kind, all of which Maker hereby expressly waives, anything contained herein or in this 364-Day Note to the contrary notwithstanding, (iii) reduce any claim to judgment, or (iv) pursue and enforce any of Payee's rights and remedies under the Loan Documents, or otherwise provided under or pursuant to any applicable law or agreement; provided, however, that if any event specified in Sections 7.01(f) or (g) of the Revolving Credit Agreement shall occur, the Obligation shall thereupon become due and payable concurrently therewith, and Payee's obligation to lend shall immediately terminate hereunder, without any further action by Payee and without presentment, demand, protest, notice of default, notice of acceleration or of intention to accelerate or other notice of any kind, all of which Maker hereby expressly waives. (c) Should Maker fail to perform any covenant, duty or agreement contained in any of the Loan Documents, Payee may, after five (5) days written notice to Maker, perform or attempt to perform such covenant, duty or agreement on behalf of Maker. In such event, Maker shall, at the request of Payee, promptly pay any amount expended by Payee in such performance or attempted performance to Payee at its office in Austin, Texas, together with interest thereon at the default rate of interest provided herein, from the date of such expenditure until paid. Notwithstanding the foregoing, it is expressly understood that Payee shall not assume any liability or responsibility for the performance of any duties of Maker hereunder or under any of the Loan Documents and none of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Payee the right or power to exercise control over the management and affairs of Maker. 10. MANDATORY PREPAYMENT. Upon the receipt by Payee of the proceeds from any Additional Debt or any Permitted Sales, Maker shall immediately pay to Payee the amount of such proceeds in the following order: (i) first, to the outstanding 364-Day Loan, in the amount of any such 364-Day Loan, together with all accrued and unpaid interest, and (ii) second, to the remaining Obligation. 11. USURY LAWS. Regardless of any provisions contained in this 364-Day Note, the Payee shall never be deemed to have contracted for or be entitled to receive, collect, or apply as interest on this 364-Day Note, any amount in excess of the Maximum Rate, and, in the event Payee ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of this 364-Day Note, and, if the principal balance of this 364-Day Note is paid in full, then any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable under any specific contingency exceeds the highest lawful rate, Maker and Payee shall, to the maximum extent permitted under applicable law, (a) characterize any non-principal payment (other than payments which are expressly designated as interest payments hereunder) as an expense, fee, or premium, rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) spread the total amount of interest throughout the entire contemplated term of this 364-Day Note so that the interest rate is uniform throughout such term. 12. GOVERNING LAW. This 364-Day Note has been prepared, is being executed and delivered, and is intended to be performed in the State of Texas and the substantive laws of such state and the applicable federal laws of the United States of America shall govern the validity, construction, enforcement and interpretation of this 364-Day Note and all of the other Loan Documents. 13. ENTIRETY. THE PROVISIONS OF THIS 364-DAY NOTE AND THE LOAN DOCUMENTS MAY BE AMENDED OR REVISED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY MAKER AND PAYEE. THIS 364-DAY NOTE AND ALL THE OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT OF MAKER AND PAYEE AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF MAKER AND PAYEE. THERE ARE NO ORAL AGREEMENTS BETWEEN MAKER AND PAYEE. [Remainder of Page Intentionally Left Blank; Signature Page Follows.] MAKER: AMERICAN PHYSICIANS SERVICE GROUP, INC., a Texas corporation By: /s/ W.H. Hayes ------------------------------------- Name: W. H. Hayes ----------------------------------------- Title: VP and Secretary ---------------------------------------- EX-10 15 0015.txt $1.25 MILLION PROMISSORY-APSG AND UNCOMMON CARE Exhibit 10.100 SECOND REPLACEMENT CONVERTIBLE PROMISSORY NOTE Austin, Texas (LINE OF CREDIT) October 3, 2000 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 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, 2000. Any payment will be credited first to expense reimbursements due hereunder, then to accrued interest and then to the reduction of principal. 2 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. 3 (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. 4 (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. 5 (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, 6 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 7 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 convertible preferred 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 8 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. 9 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) 10 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 (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, 11 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. (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, 12 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. 13 (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. 14 (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 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. 15 (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 Replacement Convertible Promissory Note dated as of September 30, 1999, between Borrower and Lender, in the original principal amount of $1,250,000. 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 $775,000 plus all accrued interest thereon and all fees due and payable hereunder. EXECUTED this 16th day of October, 2000. Borrower: UNCOMMON CARE, INC., a Texas corporation By: /s/ John Trevey ---------------------------------------------------- Name: John Trevey ---------------------------------------------------- Title: CEO of Uncommon Care ---------------------------------------------------- LENDER: AMERICAN PHYSICIANS SERVICE GROUP, INC., a Texas corporation By: /s/ W.H. Hayes ---------------------------------------------------- Name: W.H. Hayes ---------------------------------------------------- Title: Senior VP - Finance ---------------------------------------------------- 16 EX-10 16 0016.txt $1.20 MILLION PROMISSORY-APSG AND UNCOMMON CARE Exhibit 10.101 SECOND REPLACEMENT CONVERTIBLE PROMISSORY NOTE Austin, Texas (LINE OF CREDIT) October 3, 2000 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 1 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. 2 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 be determined in 3 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 4 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 5 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 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 6 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 convertible preferred 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 7 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 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 8 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. 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 ligation of Borrower in accordance with its terms. (d) LITIGATION. There are no proceedings pending or, to the knowledge of Borrower, 9 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 10 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. (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 11 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, 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. 12 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 13 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. (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. 14 (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. 15 (o) Outstanding Principal Balance: This Note replaces and supersedes that certain Replacement Convertible Promissory Note dated as of October 1, 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 16th day of October, 2000. Borrower: UNCOMMON CARE, INC., a Texas corporation By: /s/ John Trevey ----------------------------------------------------------- Name: John Trevey --------------------------------------------------------- Title: CEO of Uncommon Care -------------------------------------------------------- LENDER: AMERICAN PHYSICIANS SERVICE GROUP, INC., a Texas corporation By: /s/ W.H. Hayes ----------------------------------------------------------- Name: W.H. Hayes --------------------------------------------------------- Title: Senior VP - Finance -------------------------------------------------------- 16 EX-21 17 0017.txt SUBSIDIARIES OF APS GROUP, INC. EXHIBIT 21.1 SUBSIDIARIES OF AMERICAN PHYSICIANS SERVICE GROUP, INC. AS OF MARCH 30, 2001 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. Delaware APSC, Inc. Delaware APS Consulting, Inc. Texas EX-23 18 0018.txt INDEPENDENT AUDITORS CONSENT OF KPMG, LLP 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 February 22, 2001, relating to the consolidated balance sheets of American Physicians Service Group Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000 which report appears in the annual report on Form 10-K of American Physicians Service Group, Inc. for the year ended December 31, 2000. /s/ KPMG, LLP - ----------------------- Austin, Texas February 22, 2001 -----END PRIVACY-ENHANCED MESSAGE-----