Exhibit 2.1
MERGER AGREEMENT AND PLAN OF MERGER
by and among
American Physicians Service Group, Inc.,
APSG ACQCO, INC.
and
American Physicians Insurance Exchange
Dated: June 1, 2006
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS........................................................2
ARTICLE 2. THE MERGER.........................................................8
2.1 The Conversion..................................................8
2.2 The Merger......................................................9
2.3 Closing.........................................................9
2.4 Actions and Deliveries at Closing...............................9
2.5 Effect of the Merger............................................9
2.6 Charter and Bylaws.............................................10
2.7 Directors and Officers.........................................10
2.8 Effect on Capital Stock........................................10
2.9 Surrender of Insurance Company Common Stock....................12
2.10 No Fractional Common Shares....................................13
2.11 Tax Treatment..................................................13
2.12 Shares of Dissenting Shareholders..............................13
2.13 Taking of Necessary Action; Further Action.....................14
ARTICLE 3. REPRESENTATIONS AND WARRANTIES CONCERNING THE APSG PARTIES........14
3.1 Entity Status..................................................14
3.2 Power and Authority; Enforceability............................14
3.3 No Violation...................................................14
3.4 Brokers' Fees..................................................15
3.5 APSG Merger Sub................................................15
3.6 Capitalization.................................................15
3.7 SEC Filings....................................................15
3.8 Representations Complete.......................................16
ARTICLE 4. REPRESENTATIONS AND WARRANTIES CONCERNING THE INSURANCE COMPANY...16
4.1 Entity Status..................................................16
4.2 Power and Authority; Enforceability............................16
4.3 No Violation...................................................17
4.4 Brokers' Fees..................................................17
4.5 Subscriber Information.........................................17
4.6 No Dividends or Distributions..................................17
4.7 Records........................................................17
4.8 Financial Statements...........................................18
4.9 Subsequent Events..............................................18
4.10 Liabilities....................................................20
4.11 Legal Compliance...............................................20
4.12 Tax Matters....................................................20
4.13 Title to and Condition of Assets...............................21
4.14 Intellectual Property..........................................21
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4.15 Contracts......................................................21
4.16 Receivables....................................................22
4.17 Powers of Attorney.............................................23
4.18 Insurance......................................................23
4.19 Litigation.....................................................23
4.20 Labor; Employees...............................................23
4.21 Employee Benefits..............................................23
4.22 Subscribers and Other Insureds.................................23
4.23 Permits........................................................23
4.24 TDI Refundable Deposit Order...................................24
4.25 Certain Business Relationships with the Insurance Company......24
4.26 Real Property..................................................24
4.27 Accuracy of Information Furnished..............................24
4.28 Representations Complete.......................................24
ARTICLE 5. PRE-CLOSING COVENANTS.............................................25
5.1 General........................................................25
5.2 Notices and Consents...........................................25
5.3 Refundable Deposit.............................................26
5.4 Operation of Business..........................................27
5.5 No Shop........................................................27
5.6 Preservation of Business.......................................27
5.7 Full Access....................................................27
5.8 Notice of Developments.........................................27
5.9 Confidentiality; Publicity.....................................28
5.10 Financial Statements...........................................28
ARTICLE 6. CLOSING CONDITIONS................................................29
6.1 Conditions Precedent to Obligation of the APSG Parties.........29
6.2 Conditions Precedent to Obligation of the Insurance Company....31
ARTICLE 7. TERMINATION.......................................................32
7.1 Termination of Agreement.......................................32
7.2 Effect of Termination..........................................33
ARTICLE 8. EFFECT OF REPRESENTATIONS AND WARRANTIES..........................34
ARTICLE 9. MISCELLANEOUS.....................................................34
9.1 Schedules......................................................34
9.2 Entire Agreement...............................................34
9.3 Successors.....................................................35
9.4 Assignments....................................................35
9.5 Notices........................................................35
9.6 Specific Performance...........................................36
9.7 Submission to Jurisdiction; No Jury Trial......................36
9.8 Time...........................................................37
9.9 Counterparts...................................................37
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9.10 Headings.......................................................37
9.11 Governing Law..................................................37
9.12 Amendments.....................................................37
9.13 Extensions; Waiver.............................................38
9.14 Severability...................................................38
9.15 Expenses.......................................................38
9.16 Construction...................................................38
9.17 Incorporation of Exhibits, Annexes, and Schedules..............39
9.18 Remedies.......................................................39
9.19 Electronic Signatures..........................................39
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ATTACHMENTS
Exhibits
Exhibit A - Plan of Conversion
Exhibit B - Form of Merger Certificate
Exhibit C - Form of the Insurance Company's Closing Certificate
Exhibit D - Form of the APSG Parties' Officers' Certificate
Exhibit E - Form of the APSG Parties' Secretary's Certificate
Exhibit F - Form of the Certificate of Formation of Insurance Company
Exhibit G - Form of Amended and Restated Bylaws of Insurance Company
Exhibit H - TDI Refundable Deposit Order
Exhibit I - Advisory Services Agreement
Schedules
Schedule 2.7(a) Surviving Corporation's Directors and Officers
Schedule 2.7(b) Director Nominees to APSG Parent
Schedule 3.3 APSG Parent Required Consents
Schedule 3.6(a) Commitments of APSG Parent Common Shares
Schedule 4.1 Insurance Company's Officers and Directors
Schedule 4.3 Insurance Company Required Consents
Schedule 4.8 Insurance Company's Financial Statements
Schedule 4.9 Subsequent Events
Schedule 4.12 Actuarial Services Taxes
Schedule 4.14 Intellectual Property
Schedule 4.15 Contracts
Schedule 4.19 Litigation
Schedule 4.23 Permits
Schedule 5.3 Refundable Deposit
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MERGER AGREEMENT AND PLAN OF MERGER
This Merger Agreement and Plan of Merger (this "Agreement") dated as of
June 1, 2006, is by and among (i) American Physicians Service Group, Inc., a
Texas corporation ("APSG Parent"), (ii) APSG ACQCO, INC., a Texas corporation
and a wholly-owned subsidiary of APSG Parent ("APSG Merger Sub", and together
with APSG Parent the "APSG Parties"), and (iii) American Physicians Insurance
Exchange, a reciprocal and inter-insurance exchange (the "Insurance Company").
The Insurance Company together with the APSG Parties are sometimes referred to
as the "Parties."
RECITALS:
A. Contemporaneously with the execution of this Agreement, the Insurance
Company adopted that certain Plan of Conversion attached as Exhibit A to this
Agreement (as subsequently amended, the "Plan of Conversion") pursuant to which,
among other things (and subject to obtaining all necessary Consents of
Governmental Bodies), (i) the Insurance Company will be converted (the
"Conversion") into a Texas stock insurance company, (ii) the Persons who are
Subscribers under the governing documents of the Insurance Company (the
"Subscribers") and certain other insureds of the Insurance Company (as more
particularly set forth in the Plan of Conversion) will receive shares of the
$1.00 par value common stock of Insurance Company (the "Insurance Company Common
Stock"), and (iii) the Persons who hold rights to repayment of Refundable
Deposits will receive shares of the $1.00 par value mandatorily redeemable
preferred stock of the Insurance Company (the "Insurance Company Preferred
Stock").
B. Each Party's Board of Directors believes it is in its and its respective
owners' best interests that immediately following the Conversion, APSG Parent
acquire the Insurance Company through the statutory merger of APSG Merger Sub
with and into the Insurance Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
C. Pursuant to the Merger, all of Insurance Company Common Stock will be
converted into the right to receive shares of APSG Parent's common stock, par
value $0.10 per share ("APSG Parent Common Shares") and all of Insurance Company
Preferred Stock will be converted into the right to receive shares of APSG
Parent's mandatorily redeemable preferred stock, par value $1.00 per share
("APSG Parent Preferred Shares").
D. The Parties desire to make certain representations and warranties and
other agreements in connection with the Conversion and the Merger.
E. As required pursuant Chapter 942 of the Texas Insurance Code,
substantially all of the Insurance Company's day-to-day operations have been,
and at all time prior to the Conversion will be, managed by an attorney-in-fact
(the "Attorney-in-Fact").
F. For federal income tax purposes, the Parties intend to adopt a plan of
reorganization within the meaning of, and to cause the Conversion and the Merger
to qualify as a reorganization under Section 368(a) of the Internal Revenue Code
of 1986 (the "Code").
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants contained herein, each APSG Party and the Insurance Company agrees
as follows: ARTICLE 1.
DEFINITIONS
"180-Day Lock Up" means the 180 day period of time commencing on the
Closing Date during which the APSG Parent Common Shares and the APSG Parent
Preferred Shares issued in the Merger will be held in escrow or subject to a
similar arrangement such that the Shares cannot be traded.
"Action" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"Affiliate" means a Person that, directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, such specified Person. For this definition, "control" (and its
derivatives) means the possession, directly or indirectly, or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting Equity Interests, as
trustee or executor, by contract or credit arrangements or otherwise.
"Agreement" is defined in the preamble to this Agreement.
"Ancillary Agreements" means the Plan of Conversion, the Amended and
Restated Bylaws of the Insurance Company, the Certificate of Formation of the
Insurance Company and the Advisory Services Agreement.
"Announcement Exchange Ratio" is defined in Section 2.8(d).
"Announcement Market Price" is defined in Section 2.8(d).
"APSG Merger Sub" is defined in the preamble to this Agreement.
"APSG Parent" is defined in the preamble to this Agreement.
"APSG Parent Common Shares" is defined in the recitals to this
Agreement.
"APSG Parent Preferred Shares" is defined in the recitals to this
Agreement.
"APSG Parties" is defined in the preamble to this Agreement.
"AID" means the Arkansas Insurance Department.
"Attorney-in-Fact" is defined in the recitals to this Agreement.
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"Basis" means any past or current fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction about which the relevant Person has
Knowledge that forms or could form the basis for any specified consequence.
"Best Efforts" means the efforts, time, and costs that a prudent Person
desirous of achieving a result would use, expend, or incur in similar
circumstances to ensure that such result is achieved as expeditiously as
possible; provided, however, that no such use, expenditure, or incurrence will
be required if it would have a Material Adverse Effect on such Person calculated
immediately prior to the Closing Date.
"Breach" means (a) any breach, inaccuracy, failure to perform, failure
to comply, conflict with, failure to notify, default, or violation or (b) any
other act, omission, event, occurrence or condition the existence of which would
(i) permit any Person to accelerate any obligation or terminate, cancel, or
modify any right or obligation or (ii) require the payment of money or other
consideration.
"Closing" is defined in Section 2.3.
"Closing Date" is defined in Section 2.3.
"Closing Exchange Ratio" is defined in Section 2.8(d).
"Closing Market Price" is defined in Section 2.8(d).
"Code" is defined in the recitals to this Agreement.
"Commitment" means (a) options, warrants, convertible securities,
exchangeable securities, subscription rights, conversion rights, exchange
rights, or other Contracts that could require a Person to issue any of its
Equity Interests or to sell any Equity Interests it owns in another Person; (b)
any other securities convertible into, exchangeable or exercisable for, or
representing the right to subscribe for any Equity Interest of a Person or owned
by a Person; (c) statutory pre-emptive rights or pre-emptive rights granted
under a Person's Organizational Documents; and (d) stock appreciation rights,
phantom stock, profit participation, or other similar rights with respect to a
Person.
"Confidential Information" means any confidential information
concerning the businesses and affairs of any Party.
"Consent" means any consent, approval, notification, waiver, or other
similar action that is necessary or convenient.
"Contract" means any contract, agreement, arrangement, commitment,
letter of intent, memorandum of understanding, heads of agreement, promise,
obligation, right, instrument, document, or other similar understanding, whether
written or oral.
"Conversion" is defined in the recitals to this Agreement.
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"Conversion Record Date" means June 1, 2006.
"Corporate Laws" means Chapter 10 of the Texas Business Organizations
Code and applicable provisions of the Texas Insurance Code.
"Damages" means all damages (including incidental and consequential
damages), losses (including any diminution in value), Liabilities, payments,
amounts paid in settlement, obligations, fines, penalties, expenses, costs of
burdens associated with performing injunctive relief, and other costs (including
reasonable fees and expenses of attorneys, accountants and other professional
advisors, and of expert witnesses and other costs (including the allocable
portion of the relevant Person's internal costs) of investigation, preparation
and litigation in connection with any Action) of any kind or nature whatsoever,
whether known or unknown, contingent or vested, or matured or unmatured.
"Dissenting Shareholder" is defined in Section 2.12.
"Effective Time" is defined in Section 2.4.
"Encumbrance" means any Order, Security Interest, Contract, easement,
covenant, community property interest, equitable interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"Enforceable" - a Contract is "Enforceable" if it is the legal, valid,
and binding obligation of the applicable Person enforceable against such Person
in accordance with its terms, except as such enforceability may be subject to
the effects of bankruptcy, insolvency, reorganization, moratorium, or other Laws
relating to or affecting the rights of creditors, and general principles of
equity.
"Equity Interest" means (a) with respect to a corporation, any and all
shares of capital stock and any Commitments with respect thereto, (b) with
respect to a partnership, limited liability company, trust, or similar Person,
any and all units, interests or other partnership/limited liability company
interests, and any Commitments with respect thereto, and (c) any other direct or
indirect equity ownership or participation in a Person.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Exchange Ratio" is defined in Section 2.8(d).
"Expiration Date" means December 31, 2006.
"Financial Statements" is defined in Section 4.8.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Body" means any legislature, agency, bureau, branch,
department, division, commission, court, tribunal, magistrate, justice,
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multi-national organization, quasi-governmental body, or other similar
recognized organization or body of any federal, state, county, municipal, local,
or foreign government or other similar recognized organization or body
exercising similar powers or authority.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976.
"Insurance Company" is defined in the preamble to this Agreement.
"Insurance Company Common Stock" is defined in the recitals to this
Agreement.
"Insurance Company Common Equity" is defined in Section 2.8(d).
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"Insurance Company Preferred Stock" is defined in the recitals to this
Agreement.
"Intellectual Property" means any rights, licenses, liens, security
interests, charges, encumbrances, equities and other claims that any Person may
have to claim ownership, authorship or invention, to use, to object to or
prevent the modification of, to withdraw from circulation or control the
publication or distribution of any: (a) copyrights in both published works and
unpublished works, (b) fictitious business names, trading names, corporate
names, registered and unregistered trademarks, service marks, and applications,
(c) any (i) patents and patent applications, and (ii) business methods,
inventions, and discoveries that may be patentable, (d) computer software or
middleware, and (e) know-how, trade secrets, confidential information, customer
lists, software (source code and object code), technical information, data,
process technology, plans, drawings, and blue prints.
"Interim Financial Statements" is defined in Section 4.8(b).
"IRS" means the Internal Revenue Service.
"Knowledge" - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter. A Person other than an individual will be deemed to have
"Knowledge" of a particular fact or other matter only if any individual who is
serving as an officer of such Person or a Subsidiary of such Person (or in each
case any similar capacity) has, or at any time had, Knowledge of such fact or
other matter. The Insurance Company will be deemed to have "Knowledge" of a
particular fact or other matter only if a current Insurance Company Director
has, or at any time had, Knowledge of such fact or other matter.
"Law" means any law (statutory, common, or otherwise), constitution,
treaty, convention, ordinance, equitable principle, code, rule, regulation,
executive order, or other similar authority enacted, adopted, promulgated, or
applied by any Governmental Body, each as amended and now in effect.
"Liability" or "Liable" means any liability or obligation, whether
known or unknown, asserted or unasserted, absolute or contingent, matured or
unmatured, conditional or unconditional, latent or patent, accrued or unaccrued,
liquidated or unliquidated, or due or to become due.
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"Advisory Services Agreement" means that certain Advisory Services
Agreement between API Advisors, LLC, a Texas limited liability company and the
Surviving Corporation in the form attached hereto as Exhibit I.
"Material Adverse Change (or Effect)" means a change (or effect) in the
condition (financial or otherwise), properties, assets, Liabilities, rights,
obligations, operations, business, or prospects which change (or effect),
individually or in the aggregate, could reasonably be expected to be materially
adverse to such condition, properties, assets, Liabilities, rights, obligations,
operations, business, or prospects.
"Merger" is defined in the recitals to this Agreement.
"Merger Certificate" is defined in Section 2.4.
"Merger Consideration" is defined in Section 2.8(b).
"Most Recent Year End" is defined in Section 4.8(a).
"Order" means any order, ruling, decision, verdict, decree, writ,
subpoena, mandate, precept, command, directive, consent, approval, award,
judgment, injunction, or other similar determination or finding by, before, or
under the supervision of any Governmental Body, arbitrator, or mediator.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity,
quality, and frequency) of the relevant Person.
"Organizational Documents" means the articles of incorporation,
certificate of formation, certificate of incorporation, charter, bylaws,
articles of formation, regulations, operating agreement, certificate of limited
partnership, partnership agreement, and all other similar documents, instruments
or certificates executed, adopted, or filed in connection with the creation,
formation, or organization of a Person, including any amendments thereto.
"Parties" is defined in the preamble to this Agreement.
"Permit" means any permit, license, certificate, approval, consent,
notice, waiver, franchise, registration, filing, accreditation, or other similar
authorization required by any Law, Governmental Body, or Contract.
"Person" means any individual, partnership, limited liability company,
corporation, association, joint stock company, trust, entity, joint venture,
labor organization, unincorporated organization, or Governmental Body.
"Plan of Conversion" is defined in the recitals to this Agreement and
attached as Exhibit A.
"Present Value of the Redemption Obligation" is defined in Section
2.8(d).
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"Purchase Price" is defined in Section 2.8(d).
"Receivables" means all receivables of the Insurance Company, including
all Contracts in transit, manufacturers warranty receivables, notes receivable,
accounts receivable, trade account receivables, and insurance proceeds
receivable.
"Refundable Deposit" means the obligation of the Insurance Company to
refund those refundable surplus deposits contributed by subscribers in
accordance with all orders of TDI in effect as of the Closing.
"Schedules" means the Schedules to this Agreement.
"SEC" means the U. S. Securities and Exchange Commission.
"SEC No-Action Letter" is defined in Section 5.2(e).
"Security Interest" means any security interest, deed of trust,
mortgage, pledge, lien, charge, claim, or other similar interest or right,
except for (i) liens for taxes, assessments, governmental charges, or claims
that are being contested in good faith by appropriate Actions promptly
instituted and diligently conducted and only to the extent that a reserve or
other appropriate provision, if any, has been made on the face of the Financial
Statements in an amount equal to the Liability for which the lien is asserted,
(ii) statutory liens of landlords and warehousemen's, carriers', mechanics',
suppliers', materialmen's, repairmen's, or other like liens (including
Contractual landlords' liens) arising in the Ordinary Course of Business and
with respect to amounts not yet delinquent and being contested in good faith by
appropriate proceedings, only to the extent that a reserve or other appropriate
provision, if any, has been made on the face of the Financial Statements in an
amount equal to the Liability for which the lien is asserted; and (iii) liens
incurred or deposits made in the Ordinary Course of Business in connection with
workers' compensation, unemployment insurance and other similar types of social
security.
"Shareholders" means the record holders of the Insurance Company Common
Stock as they may be constituted from time-to-time.
"statutory accounting" is defined in Section 4.8.
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"Subscribers" is defined in the recitals to this Agreement.
"Subsidiary" means, with respect to any Person: (a) any corporation of
which more than 50% of the total voting power of all classes of the Equity
Interests entitled (without regard to the occurrence of any contingency) to vote
in the election of directors is owned by such Person directly or through one or
more other Subsidiaries of such Person and (b) any Person other than a
corporation of which at least a majority of the Equity Interest (however
designated) entitled (without regard to the occurrence of any contingency) to
vote in the election of the governing body, partners, managers or others that
will control the management of such entity is owned by such Person directly or
through one or more other Subsidiaries of such Person.
"Superior Proposal" is defined in Section 7.1(f).
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"Surviving Corporation" is defined in Section 2.2.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs, ad valorem, duties, capital stock, franchise, profits,
withholding, social security, unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"TDI" means the Texas Department of Insurance.
"TDI Refundable Deposit Order" means TDI Consent Order No. 04-0856,
effective September 3, 2004, as amended by Amended Consent Order No. 05-0874,
effective October 12, 2005.
"Termination Date" means the earlier to occur of (a) the Expiration
Date and (b) the date on which this Agreement is terminated pursuant to Section
7.1 (other than Section 7.1(b)).
"Threatened" means a demand or statement has been made (orally or in
writing) or a notice has been given (orally or in writing), or any other event
has occurred or any other circumstances exist that would lead a prudent Person
to conclude that a cause of Action or other matter is likely to be asserted,
commenced, taken, or otherwise initiated.
"Transaction Documents" means this Agreement and the Ancillary
Agreements.
"Transactions" means all of the transactions contemplated by this
Agreement, including: (a) the Conversion, the filing of the Plan of Conversion,
the issuance by the Insurance Company of Insurance Company Common Stock to the
Subscribers and certain other insureds, and the issuance of Insurance Company
Preferred Stock to Persons entitled to repayment of the Refundable Deposits; (b)
the Merger, the filing of the Merger Certificate, and APSG Parent's delivery of
the Merger Consideration hereunder; (c) the 180-Day Lock Up; (d) the execution,
delivery, and performance of all of the documents, instruments and agreements to
be executed, delivered, and performed in connection herewith, including each
Ancillary Agreement; and (e) the performance by the APSG Parties, the Insurance
Company, and the Shareholders of their respective covenants and obligations
(pre- and post-Closing) under this Agreement.
ARTICLE 2.
THE MERGER
2.1 THE CONVERSION.
Prior to the Effective Time, the Insurance Company will exercise its Best
Efforts to effect the Conversion in accordance with the Plan of Conversion.
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2.2 THE MERGER.
At the Effective Time, subject to this Agreement and the Corporate Laws,
APSG Merger Sub will be merged with and into the Insurance Company, the separate
corporate existence of APSG Merger Sub will cease, and the Insurance Company
will continue as the surviving corporation and a wholly-owned Subsidiary of APSG
Parent. The Insurance Company as the surviving corporation after the Merger is
sometimes referred to as the "Surviving Corporation."
2.3 CLOSING.
The closing of the Merger (the "Closing") will take place at the offices of
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P. in Austin, Texas, commencing 10:00 am
local time on the second business day following the satisfaction or waiver of
all conditions to consummate the Merger (other than conditions with respect to
actions the respective Parties will take at the Closing itself) or such other
date as APSG Parent and the Insurance Company may mutually determine (the
"Closing Date").
2.4 ACTIONS AND DELIVERIES AT CLOSING.
On the Closing Date, the Parties will cause the Merger to be consummated by
filing a Certificate of Merger with the Secretary of State of Texas and, if
necessary, with TDI and AID, substantially in the form of Exhibit B (the "Merger
Certificate"), in accordance with the applicable Corporate Law. The date and
time the Merger becomes effective as specified in the Merger Certificate or as
otherwise provided in accordance with the applicable Corporate Law is referred
to as the "Effective Time." In addition, at the Closing,
(a) The Insurance Company will deliver to APSG Parent:
(i) A closing certificate certified by the secretary and chairman
of the Insurance Company, substantially in the form of Exhibit
C, duly executed on behalf of the Insurance Company, as to
whether each condition specified in Sections 6.1(a) -(d) has
been satisfied in all respects.
(b) APSG Parent will deliver to the Insurance Company:
(i) An Officers' certificate, substantially in the form of Exhibit
D, duly executed on behalf of the APSG Parties, as to whether
each condition specified in Sections 6.2(a) - (c) has been
satisfied in all respects.
(ii) A Secretary's certificate, substantially in the form of
Exhibit E, duly executed on on behalf of the APSG Parties.
2.5 EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger will be as provided in
the applicable Corporate Law. At the Effective Time all the property, rights,
privileges, powers, and franchises of APSG Merger Sub will vest in the Surviving
Corporation, and all debts, liabilities, obligations, and duties of APSG Merger
Sub, including the rights and obligations under the agreements, if any, of APSG
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Merger Sub, will become the Surviving Corporation's debts,
liabilities,obligations, and duties. Notwithstanding anything to the contrary
contained herein, the Merger will not affect the policy coverage of any policy
of insurance issued by the Insurance Company. Additionally, all policies and
obligations, if any, of APSG Merger Sub shall be assumed by the Surviving
Corporation on the same terms as if such policies and obligations were still
being carried by APSG Merger Sub.
2.6 CHARTER AND BYLAWS.
At the Effective Time, the Certificate of Formation of the Insurance
Company in the form attached to this Agreement as Exhibit F will be the
Surviving Corporation's Certificate of Formation until thereafter amended as
provided by Law and such Certificate of Formation, and the Amended and Restated
Bylaws of the Insurance Company in the form attached as Exhibit G to this
Agreement, will be the bylaws of the Surviving Corporation until thereafter
amended.
2.7 DIRECTORS AND OFFICERS.
(a) The individuals listed on Schedule 2.7(a) will be the initial
director(s) and officers of the Surviving Corporation. (b) At the Effective
Time, the individuals listed on Schedule 2.7(b) will be elected by the Board of
Directors of APSG Parent to serve on the Board of Directors of APSG Parent until
the next annual meeting of shareholders of APSG Parent.
2.8 EFFECT ON CAPITAL STOCK.
At the Effective Time, because of the Merger and without any action
on the part of APSG Parent, APSG Merger Sub or the Insurance Company:
(a) Conversion of Insurance Company Preferred Stock. Each share of
Insurance Company Preferred Stock issued pursuant to the Conversion and
outstanding immediately prior to the Effective Time will be converted into a
like number of shares of APSG Parent Preferred Shares. The APSG Parent Preferred
Shares will have the same redemption provisions as the Insurance Company
Preferred Stock. All Insurance Company Preferred Stock, when so converted, shall
automatically be cancelled and shall cease to exist. There will not be any
certificates issued to represent the outstanding Insurance Company Preferred
Stock in the Conversion, and the holders of Insurance Company Preferred Stock,
at the Effective Time of the Merger, will cease to have any rights with respect
to the Insurance Company Preferred Stock except the right to receive APSG Parent
Preferred Shares.
(b) Conversion of Insurance Company Common Stock. Subject to Sections 2.10
and 2.12, each share of Insurance Company Common Stock issued pursuant to the
Conversion and outstanding immediately prior to the Effective Time will be
converted into the number of APSG Parent Common Shares equal to the Exchange
Ratio. All Insurance Company Common Stock, when so converted, will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist. There will not be any certificates issued to represent the outstanding
Insurance Company Common Stock in the Conversion, and the holders of Insurance
Company Common Stock, at the Effective Time of the Merger, will cease to have
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any rights with respect to the Insurance Company Common Stock except the right
to receive: (i) the APSG Parent Common Shares as determined herein and (ii) cash
in lieu of fractional APSG Parent Common Shares under Section 2.10, in each case
without interest (together with the APSG Parent Preferred Shares, collectively,
the "Merger Consideration").
(c) Rights Associated with Insurance Company Common Stock and Insurance
Company Preferred Stock. Since there will not be any certificates issued to
represent the outstanding Insurance Company Common Stock or Insurance Company
Preferred Stock, the holders of Insurance Company Common Stock and Insurance
Company Preferred Stock will have only the right to receive their respective
Merger Consideration.
(d) Certain Additional Definitions. For this Agreement the following terms
will have the indicated meanings:
"Announcement Exchange Ratio" means (a) the quotient of (i) the
Purchase Price divided by (ii) the Announcement Market Price; divided by (b) the
Insurance Company Common Equity. For instance, and purely by way of example, if
the Present Value of the Redemption Obligation is $7 million (making the
Purchase Price $26 million), the Announcement Market Price is $13 per share, and
the Insurance Company Common Equity resulting from the Conversion is 10 million
shares, then the Announcement Exchange Ratio would be:
($26,000,000/$13) / 10,000,000 = 1/5
Therefore, five (5) shares of Insurance Company Common Stock issued in the
Conversion would be exchanged for one (1) APSG Parent Common Share.
"Announcement Market Price" means the average closing market prices of
APSG Parent Common Shares on the National Association of Securities Dealers
Automated Quotation System, as reported in The Wall Street Journal, for the
twenty (20) consecutive trading days immediately prior to the close of the full
business day immediately prior to the date this Agreement is fully executed by
all of the Parties and announced to the public by appropriate SEC filings and
the issuance of the mutually agreed upon press release.
"Closing Exchange Ratio" means the Announcement Exchange Ratio;
provided, however, that in the event the Closing Market Price is more than 115%
of the Announcement Market Price or is less than 85% of the Announcement Market
Price, the Closing Exchange Ratio shall equal:
(i) if the Closing Market Price is more than 115% of the Announcement
Market Price, the Closing Exchange Ratio shall equal (A) the quotient of (i) the
Purchase Price multiplied by 115% divided by (ii) the Closing Market Price;
divided by (B) the Insurance Company Common Equity. For instance, and purely by
way of example, if the Present Value of the Redemption Obligation is $7 million
(making the Purchase Price $26 million), the Announcement Market Price is $10
per share, the Closing Market Price is $12 per share and the Insurance Company
Common Equity resulting from the Conversion is 10 million shares, then the
Closing Exchange Ratio would be:
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(($26,000,000 x 115%) / $12) / 10,000,000 = 1/4
Therefore, four (4) shares of Insurance Company Common Stock issued in the
Conversion would be exchanged for one (1) APSG Parent Common Share.
(ii) if the Closing Market Price is less than 85% of the Announcement
Market Price, the Closing Exchange Ratio shall equal (A) the quotient of (i) the
Purchase Price multiplied by 85% divided by (ii) the Closing Market Price;
divided by (B) the Insurance Company Common Equity. For instance, and purely by
way of example, if the Present Value of the Redemption Obligation is $7 million
(making the Purchase Price $26 million), the Announcement Market Price is $10
per share, the Closing Market Price is $8 per share and the Insurance Company
Common Equity resulting from the Conversion is 10 million shares, then the
Closing Exchange Ratio would be:
(($26,000,000 x 85%) / $8) / 10,000,000 = 1/3.6
Therefore, slightly more than three and one-half (3 1/2) shares of Insurance
Company Common Stock issued in the Conversion would be exchanged for one (1)
APSG Parent Common Share.
"Closing Market Price" means the average closing market prices of APSG
Parent Common Shares on the National Association of Securities Dealers Automated
Quotation System, as reported in The Wall Street Journal, for the twenty (20)
consecutive trading days immediately prior to the close of the full business day
immediately prior to the Closing Date.
"Insurance Company Common Equity" means the aggregate number of shares
of Insurance Company Common Stock that the Subscribers and certain policyholders
of the Insurance Company become entitled to receive in the Conversion.
"Present Value of the Redemption Obligation" means the net present
value of the stream of payments authorized by TDI (as of the Closing) that must
be made by the Insurance Company to comply with the mandatory redemption
features of the Insurance Company Preferred Stock issued in the Conversion in
full satisfaction of the Refundable Deposit determined on the basis of a
constant discount rate of 5.35%.
"Purchase Price" means $33 million, less the Present Value of the
Redemption Obligation.
2.9 SURRENDER OF INSURANCE COMPANY COMMON STOCK.
(a) EXCHANGE PROCEDURES. As soon as practicable after Closing, (i) the
holders of Insurance Company Common Stock and Insurance Company Preferred Stock
shall be deemed to have surrendered such interests to APSG Parent (or, if
applicable, APSG Parent's designated exchange agent), (ii) upon surrender of
Insurance Company Common Stock and Insurance Company Preferred Stock the holder
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thereof will be entitled to receive, subject to the 180-Day Lock Up, the
applicable Merger Consideration, and (iii) the Insurance Company Common Stock
and Insurance Company Preferred Stock so surrendered will forthwith be canceled.
(b) TRANSFERS OF OWNERSHIP. APSG Parent will not issue any APSG Parent
Common Shares or other Merger Consideration in any name other than the name of a
holder of Insurance Company Common Stock. APSG Parent will not issue any APSG
Parent Preferred Shares or other Merger Consideration in any name other than the
name of a holder of Insurance Company Preferred Stock.
(c) NO FURTHER OWNERSHIP RIGHTS IN INSURANCE COMPANY COMMON STOCK. All
Merger Consideration will be deemed to have been issued in full satisfaction of
all rights pertaining to the Insurance Company Common Stock and Insurance
Company Preferred Stock.
2.10 NO FRACTIONAL COMMON SHARES.
No fractional APSG Parent Common Shares will be issued in the Merger
and fractional share interests will not entitle the owner thereof to vote or to
any rights of an APSG Parent shareholder. All Shareholders that would be
entitled to receive fractional APSG Parent Common Shares will be entitled to
receive, in lieu thereof, an amount in cash determined by multiplying the
fraction of an APSG Parent Common Share to which such holder would otherwise
have been entitled by the Announcement Market Price or the Closing Market Price,
as applicable.
2.11 TAX TREATMENT.
The Parties intend that the Conversion and the Merger will constitute a
tax free reorganization under Code Section 368(a).
2.12 SHARES OF DISSENTING SHAREHOLDERS.
Any Insurance Company Common Stock or Insurance Company Preferred Stock
held by a Person properly exercising its dissent or appraisal rights under the
Corporate Law (a "Dissenting Shareholder") will be converted into the right to
receive such consideration as may be determined to be due to such Dissenting
Shareholder under the Corporate Law; except that Insurance Company Common Stock
or Insurance Company Preferred Stock outstanding at the Effective Time that a
Dissenting Shareholder holds for which, after the Effective Time, such
Dissenting Shareholder withdraws its demand to exercise dissenters or appraisal
rights or loses its right to exercise dissenters or appraisal rights as provided
in the Corporate Law, will be deemed to be converted, as of the Effective Time,
into the right to receive the Merger Consideration. The Insurance Company will
give APSG Parent (a) prompt notice of any written demands for the exercise of
dissenters or appraisal rights, withdrawals of demands for the exercise of
dissenters or appraisal rights and any other instruments served under the
Corporate Law, and (b) the opportunity to direct all negotiations and
proceedings with respect to demands for exercise of dissenters or appraisal
rights under the Corporate Law. The Insurance Company will not voluntarily make
any payment with respect to any purchase demands and will not, except with APSG
Parent's prior written consent, settle or offer to settle any such demands.
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2.13 TAKING OF NECESSARY ACTION; FURTHER ACTION.
If, at any time after the Effective Time, any such further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers, and franchises of the Insurance Company,
the officers and directors of the Insurance Company and APSG Parent are fully
authorized in the name of their respective corporations or otherwise to take,
and the Insurance Company and APSG Parent will cause them to take, all such
lawful and necessary action.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
CONCERNING THE APSG PARTIES
Each APSG Party represents and warrants to the Insurance Company that
the statements contained in this ARTICLE 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and, except as expressly provided in a representation or
warranty, as though the Closing Date were substituted for the date of this
Agreement throughout this ARTICLE 3).
3.1 ENTITY STATUS.
Each APSG Party is an entity duly created, formed or organized, validly
existing and in good standing under the Laws of the jurisdiction of its
creation, formation or organization. APSG Parent has the requisite power and
authority to own or lease its properties and to carry on its business as
currently conducted. There is no pending or Threatened Action (or Basis
therefor) for the dissolution, liquidation, insolvency, or rehabilitation of any
APSG Party.
3.2 POWER AND AUTHORITY; ENFORCEABILITY.
Each APSG Party has the relevant entity power and authority to execute
and deliver each Transaction Document to which it is party, and to perform and
consummate the Transactions. Each APSG Party has taken all action necessary to
authorize the execution and delivery of each Transaction Document to which it is
party, the performance of its obligations thereunder, and the consummation of
the Transactions, including but not limited to obtaining the necessary Consents
by the shareholders and the Board of Directors of the APSG Parent, pursuant to
Section 5.2. Each Transaction Document to which an APSG Party is party has been
duly authorized, executed and delivered by, and is Enforceable against, such
APSG Party.
3.3 NO VIOLATION.
Except as listed on Schedule 3.3, the execution and delivery of the
Transaction Documents to which an APSG Party is party by such APSG Party and the
performance and consummation of the Transactions by each APSG Party will not (i)
Breach any Law or Order to which such APSG Party is subject or any provision of
its Organizational Documents; (ii) Breach any Contract, Order, or Permit to
which such APSG Party is a party or by which it is bound or to which any of its
assets is subject; (iii) require any Consent, except (A) any applicable filings
14
required under the HSR Act, (B) any SEC, TDI, AID and other filings required to
be made by any APSG Party, and (C) any other notifications or filings to or
consent from relevant state or federal regulatory agencies.
3.4 BROKERS' FEES.
No APSG Party has Liability to pay any compensation to any broker,
finder, or agent with respect to the Transactions for which any Shareholder
could become Liable.
3.5 APSG MERGER SUB.
APSG Merger Sub has been formed for the sole purpose of effecting the
Merger and, except as contemplated by this Agreement, APSG Merger Sub has not
conducted any business activities and does not have any material Liabilities.
3.6 CAPITALIZATION.
(a) APSG Parent's authorized capital stock consists of 20,000,000 APSG
Parent Common Shares, of which 2,751,672 shares were issued and outstanding as
of May 15, 2006 and zero (0) shares were held in treasury. All of the issued and
outstanding APSG Parent Common Shares (i) have been duly authorized, are validly
issued, fully paid, and nonassessable, (ii) were issued in compliance with all
applicable state and federal securities Laws, and (iii) were not issued in
Breach of any Commitments. APSG Parent participates in a previously announced
stock repurchase plan through which the APSG Parent can repurchase APSG Parent
Common Shares from time to time. Except as otherwise set forth herein and
described in APSG Parent's Form 10-K for the year ended December 31, 2005 filed
with the SEC and as issued in the ordinary course of APSG Parent's business
since the date thereof and more particularly set forth in Schedule 3.6(a), no
Commitments exist with respect to any APSG Parent Common Shares and no such
Commitments will arise in connection with the Transactions. There are no
Contracts with respect to the voting or transfer of APSG Parent's capital stock.
APSG Parent is not obligated to redeem or otherwise acquire any of its
outstanding capital stock.
(b) The APSG Parent Common Shares and the APSG Parent Preferred Shares to
be issued pursuant to this Agreement will be duly authorized, validly issued,
fully paid, and nonassessable and will be issued in compliance with all
applicable federal and state securities Laws and in accordance with an effective
registration statement filed with the SEC such that all of such shares shall be
fully registered shares subject only to the 180-Day Lock Up.
3.7 SEC Filings.
APSG Parent has timely filed with the SEC any and all reports and other
filings required to be filed under the federal securities Laws, and all such
reports and other filings required to be filed were made in compliance with the
federal securities Laws, were complete and accurate as of the date of such
filing with the SEC and, subject to any further filings thereafter made with the
SEC, remain complete and accurate.
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3.8 REPRESENTATIONS COMPLETE.
Except as and to the extent set forth in this Agreement, no APSG Party
makes any representations or warranties whatsoever, and each of them hereby
disclaims all Liability and responsibility for any representation, warranty,
statement, or information not included herein that was made, communicated, or
furnished (orally or in writing) to the Insurance Company or any Shareholder or
their representatives (including any opinion, information, projection, or advice
that may have been or may be provided to the Insurance Company or any
Shareholder by any director, officer, employee, agent, consultant, or
representative of any APSG Party or Affiliate thereof).
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
CONCERNING THE INSURANCE COMPANY
The Insurance Company represents and warrants to APSG Parent that the
statements contained in this ARTICLE 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and, except as expressly provided in a representation or
warranty, as though the Closing Date were substituted for the date of this
Agreement throughout this ARTICLE 4), except as set forth in the Schedules the
Insurance Company has delivered to APSG Parent on the date hereof.
4.1 ENTITY STATUS.
The Insurance Company is an entity duly created, formed or organized,
validly existing, and in good standing under the Laws of the jurisdiction of its
creation, formation, or organization. The Insurance Company is duly authorized
to conduct its business and is in good standing under the laws of each
jurisdiction where such qualification is required, and has the requisite power
and authority necessary to own or lease its properties and to carry on its
businesses as currently conducted and any businesses in which it currently
proposes to engage. Schedule 4.1 lists the directors and officers of the
Insurance Company. The Insurance Company has delivered to APSG Parent correct
and complete copies of its Organizational Documents, as amended to date. The
Insurance Company is not in Breach of any provision of its Organizational
Documents. There is no pending or Threatened Action (or Basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of the Insurance
Company.
4.2 POWER AND AUTHORITY; ENFORCEABILITY.
The Insurance Company has the relevant entity power and authority
necessary to execute and deliver each Transaction Document to which it is a
party and to perform and consummate the Transactions. The Board of Directors of
the Insurance Company has taken all action necessary to authorize the execution
and delivery of each Transaction Document to which it is a party, the
performance of the Insurance Company's obligations thereunder, and the
consummation of the Transactions, and shall prior to the Closing Date undertake
Best Efforts to obtain all necessary approvals of the Transactions by TDI, ADI
and Subscribers of the Insurance Company, pursuant to Section 5.2. Each
16
Transaction Document to which the Insurance Company is a party has been duly
authorized, executed, and delivered by, and is Enforceable against, the
Insurance Company.
4.3 NO VIOLATION.
Except as listed on Schedule 4.3, the execution and the delivery of the
applicable Transaction Documents by the Insurance Company and the performance of
its obligations hereunder and thereunder, and consummation of the Transactions
by the Insurance Company will not (a) Breach any Law or Order to which the
Insurance Company is subject or any provision of the Organizational Documents of
the Insurance Company; (b) Breach any Contract, Order, or Permit to which the
Insurance Company is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Encumbrance upon any of
its assets); (c) require any Consent, except (i) any applicable filings required
under the HSR Act and (ii) any notifications to, filings with, or consent by
TDI, AID, and the SEC; or (d) trigger any rights of first refusal, preferential
purchase, or similar rights.
4.4 BROKERS' FEES.
The Insurance Company does not have any Liability to pay any
compensation to any broker, finder, or agent with respect to the Transactions
for which APSG Parent, APSG Merger Sub, or the Insurance Company could become
directly or indirectly Liable.
4.5 SUBSCRIBER INFORMATION.
No one other than the current Subscribers has any voting rights in the
Insurance Company of any type or nature whatsoever. Notwithstanding the
foregoing, the parties acknowledge that certain policyholders and former
Subscribers may obtain interests in the Insurance Company as provided in the
Plan of Conversion.
4.6 NO DIVIDENDS OR DISTRIBUTIONS.
No dividends or other distributions have been or will be declared or
made to the holders of the Insurance Company Common Stock or Insurance Company
Preferred Stock, other than payment of the applicable Merger Consideration.
4.7 RECORDS.
The copies of the Insurance Company's Organizational Documents that
were provided to APSG Parent are accurate and complete and reflect all
amendments made through the date hereof. The Insurance Company's minute books
and other records made available to APSG Parent for review were correct and
complete as of the date of such review, no further entries have been made
through the date of this Agreement, such minute books and records contain the
true signatures of the persons purporting to have signed them, and such minute
books and records contain an accurate record of all actions of the Subscribers,
directors, members, managers, or other such representatives of the Insurance
Company taken by written consent, at a meeting, or otherwise since formation.
17
4.8 FINANCIAL STATEMENTS.
Set forth on Schedule 4.8 are the following financial statements
(collectively the "Financial Statements"):
(a) audited statutory financial statements of the Insurance Company as of
and for the fiscal years ended December 31, 2005 (the "Most Recent Year End"),
2004, 2003, 2002 and 2001 prepared in accordance with the statutory accounting
principles prescribed by TDI;
(b) unaudited quarterly statutory financial statements (the "Interim
Financial Statements") filed with TDI for each quarter ended prior to the
Closing.
The Financial Statements have been prepared in conformity with
insurance accounting ("statutory accounting") practices prescribed or permitted
by TDI. Statutory accounting principles are designed primarily to reflect the
Insurance Company's ability to meet obligations to policyholders. The State of
Texas has adopted the National Association of Insurance Commissioners statutory
accounting practices as the basis of its statutory accounting practices except
that it has retained certain prescribed practices.
The Financial Statements have been prepared in accordance with
statutory accounting principles prescribed by TDI, as specified above, applied
on a consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Insurance Company as of such dates and the results of
operations for such periods, are correct and complete, and are consistent with
the books and records of the Insurance Company; provided, however, that the
Interim Financial Statements are subject to normal year-end adjustments (which
will not be material individually or in the aggregate) and lack footnotes and
other presentation items. Since the Most Recent Year End, the Insurance Company
has not effected any change in any method of accounting or accounting practice,
except for any such change required because of a concurrent change in the
statutory accounting principles prescribed by TDI.
4.9 SUBSEQUENT EVENTS.
Except as set forth in Schedule 4.9, since the Most Recent Year End the
Insurance Company has operated in the Ordinary Course of Business and, as of the
date hereof there have been no events, series of events or the lack of
occurrence thereof which, singularly or in the aggregate could reasonably be
expected to have a Material Adverse Effect on the Insurance Company. Without
limiting the foregoing, since that date, and except as set forth on Schedule
4.9, none of the following has occurred:
(a) The Insurance Company has not sold, leased, transferred, or assigned
any assets other than for a fair consideration in the Ordinary Course of
Business and sales of assets not exceeding $10,000 singularly or $25,000 in the
aggregate.
(b) The Insurance Company has not entered into any Contract (or series of
related Contracts) either involving more than $10,000, except for Contracts for
the sale of insurance in the Ordinary Course of Business, or outside the
Ordinary Course of Business.
18
(c) No Encumbrance has been imposed upon any assets of the Insurance
Company.
(d) The Insurance Company has not made any capital expenditure (or series
of related capital expenditures) involving more than $10,000 individually,
$25,000 in the aggregate, or outside the Ordinary Course of Business.
(e) The Insurance Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person
involving more than $10,000 singularly, $25,000 in the aggregate, or outside the
Ordinary Course of Business.
(f) The Insurance Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any Liability for borrowed
money or capitalized lease Contract either involving more than $10,000
individually or $25,000 in the aggregate.
(g) The Insurance Company has not delayed or postponed the payment of
accounts payable or other Liabilities either involving more than $10,000
(individually or in the aggregate) or outside the Ordinary Course of Business.
(h) The Insurance Company has not canceled, compromised, waived, or
released any Action (or series of related Actions) either involving more than
$100,000 or outside the Ordinary Course of Business.
(i) The Insurance Company has not granted any Contracts or any rights under
or with respect to any Intellectual Property.
(j) There has been no change made or authorized to be made to the
Organizational Documents of the Insurance Company, other than as contemplated by
the Transactions.
(k) The Insurance Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its Equity Interests (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its Equity
Interests.
(l) The Insurance Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its tangible properties.
(m) The Insurance Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, or employees.
(n) The Insurance Company has not entered into any employment, collective
bargaining, or similar Contract or modified the terms of any existing such
Contract.
(o) The Insurance Company has not committed to pay any bonus or granted any
increase in the base compensation (i) of any director or officer, or an employee
who is also a Subscriber or an Affiliate of a Subscriber, or (ii) outside of the
Ordinary Course of Business, of any of its other employees.
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(p) The Insurance Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or similar Contract for the
benefit of any of its directors, officers, or employees (or taken any such
action with respect to any other Employee Benefit Plan).
(q) The Insurance Company has not made any other change in employment terms
for (i) any officer or employee thereof that is a Subscriber or an Affiliate
thereof, or (ii) outside of the Ordinary Course of Business, any of its other
directors, officers, or employees.
(r) The Insurance Company has not made or pledged to make any charitable or
other capital contribution either involving more than $10,000 (individually or
in the aggregate) or outside the Ordinary Course of Business.
(s) There has not been any other occurrence, event, incident, action,
failure to act, or transaction with respect to the Insurance Company either
involving more than $10,000 (individually or in the aggregate) or outside the
Ordinary Course of Business.
(t) The Insurance Company has not committed to any of the foregoing.
4.10 LIABILITIES.
To the Insurance Company's Knowledge, the Insurance Company does not
have any Liability (and there is no Basis for any present or future Action or
Order against it giving rise to any Liability), except for (a) Liabilities
quantified on the face of the Interim Financial Statements (rather than in any
notes thereto) and not heretofore paid or discharged, and (b) Liabilities that
have arisen after the Balance Sheet Date in the Ordinary Course of Business
which, individually or in the aggregate, are not material and are of the same
character and nature as the Liabilities quantified on the face of the Interim
Financial Statements (rather than any notes thereto) none of which results from
or relates to any Breach of Contract, Breach of warranty, tort, infringement, or
Breach of Law, or arose out of any Action or Order.
4.11 LEGAL COMPLIANCE.
The Insurance Company and its predecessors and Affiliates have complied
with all applicable Laws, and no Action is pending or Threatened (and there is
no Basis therefor) against it alleging any failure to so comply. No material
expenditures are, or based on applicable Law, will be required of the Insurance
Company for it and its business and operations to remain in compliance with
applicable Law.
4.12 TAX MATTERS.
Except as set forth in Schedule 4.12, the Insurance Company is not
subject to any Liabilities for Taxes, including Taxes relating to prior periods,
other than those set forth or adequately reserved against in the Interim
Financial Statements or those incurred since the Balance Sheet Date in the
Ordinary Course of Business. The Insurance Company has duly filed when due all
Tax reports and returns in connection with and in respect of its business,
assets, and employees, and has timely paid and discharged all amounts shown as
due thereon. The Insurance Company has made available to APSG Parent accurate
20
and complete copies of all of its Tax reports and returns for all periods,
except those periods for which returns are not yet due. The Insurance Company
has not received any notice of any Tax deficiency outstanding, proposed or
assessed against or allocable to it, and has not executed any waiver of any
statute of limitations on the assessment or collection of any Tax or executed or
filed with any Governmental Body any Contract now in effect extending the period
for assessment or collection of any Taxes against it. There are no Encumbrances
for Taxes upon, pending against or Threatened against, any asset of the
Insurance Company. The Insurance Company is not subject to any Tax allocation or
sharing Contract.
4.13 TITLE TO AND CONDITION OF ASSETS.
The Insurance Company has no tangible assets of any material amount.
4.14 INTELLECTUAL PROPERTY.
Except as set forth in Schedule 4.14, the Insurance Company owns, or
possesses adequate rights to use, all Intellectual Property used in its business
as currently, or as currently proposed to be, conducted. No Consent of any
Person is required for the Insurance Company's interest in such Intellectual
Property to continue to be Enforceable by the Insurance Company following the
Transactions. The Insurance Company's use of such Intellectual Property in its
business as currently conducted (and the operation of its business) does not and
the use of such Intellectual Property by the Insurance Company and its
Affiliates after Closing will not, infringe upon any rights any other Person
owns or holds.
4.15 CONTRACTS.
Except as otherwise disclosed in Schedule 4.14, Schedule 4.15 lists the
following Contracts to which the Insurance Company is a party, as of the date
hereof:
(a) Any Contract (or group of related Contracts) for the lease of personal
property to or from any Person providing for lease payments in excess of $10,000
per annum.
(b) Any Contract (or group of related Contracts) for the purchase or sale
of raw materials, commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than one year, result in a material loss to the
Insurance Company, or involve consideration in excess of $10,000.
(c) Any Contract concerning a limited liability company, partnership, joint
venture, or similar arrangement.
(d) Any Contract (or group of related Contracts) under which the Insurance
Company has created, incurred, assumed, or guaranteed any Liability for borrowed
money or any capitalized lease in excess of $10,000, or under which the Contract
has imposed or the Insurance Company has suffered to exist an Encumbrance on any
of its assets, except for Contracts related to the Refundable Deposit as
described under the terms of the TDI Refundable Deposit Order attached hereto as
Exhibit H.
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(e) Any Contract concerning confidentiality or noncompetition.
(f) Any Contract with any Subscriber or any Affiliates of any Subscriber,
other than the Insurance Company.
(g) Any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other similar Contract for the benefit of
its current or former directors, officers, and employees.
(h) Any Contract for the employment of any individual on a full-time,
part-time, consulting, or other basis providing annual compensation in excess of
$100,000 or providing severance benefits.
(i) Any Contract under which it has advanced or loaned any amount to any of
its directors or officers or any Subscriber or, outside the Ordinary Course of
Business, to its employees that are not Subscribers or Affiliates of any
Subscriber.
(j) Any other Contract (or group of related Contracts) the performance of
which involves receipt or payment of consideration in excess of $50,000.
The Insurance Company has delivered to APSG Parent a correct and
complete copy of each written Contract (as amended to date) listed in Schedule
4.15 and a written summary setting forth the terms and conditions of each oral
Contract referred to in Schedule 4.15. To the Insurance Company's Knowledge,
with respect to each such Contract:
(i) the Contract is Enforceable;
(ii) the Contract will continue to be Enforceable on identical terms following
the consummation of the Transactions;
(iii) Neither the Insurance Company nor, to the Insurance Company's Knowledge
any counter-party, is in Breach of such Contract, and no event has occurred that
with notice or lapse of time would constitute a Breach under the Contract; and
(iv) no party to the Contract has repudiated any provision thereof.
4.16 RECEIVABLES.
To the Insurance Company's Knowledge, all of the Receivables are
Enforceable, represent bona fide transactions, arose in the Ordinary Course of
Business of the Insurance Company, and are reflected properly in their books and
records; all of the Receivables are good and collectible receivables, are
current, and will be collected in accordance with past practice and the terms of
such Receivables (and in any event within six months following the Closing
Date), without set off or counterclaims; and no customer or supplier of the
Insurance Company has any Basis to believe that it has or would be entitled to
any payment terms other than terms in the Ordinary Course of Business, including
any prior course of conduct.
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4.17 POWERS OF ATTORNEY.
There are no outstanding powers of attorney executed on behalf of the
Insurance Company, except for the Attorney-in-Fact.
4.18 INSURANCE.
The Insurance Company has a Directors and Officers Policy with limits
of $1,000,000 with retention of $100,000 on certain types of claims. The policy
is in force for calendar year 2006. In 1990 the Insurance Company established an
Indemnification Trust which provides additional funds in the event of a claim
against a Director. Frost Bank serves as trustee and the value of the Trust as
of December 31, 2005 was $168,262.
4.19 LITIGATION.
Schedule 4.19 sets forth each instance in which the Insurance Company
(a) is subject to any outstanding Order or (b) is a party, the subject of, or is
Threatened to be made a party or the subject of any Action, except for
litigation related to professional medical liability in the Ordinary Course of
Business. No Action required to be set forth in Schedule 4.19 questions the
Enforceability of this Agreement or the Transactions, or could result in any
Material Adverse Change with respect to the Insurance Company, and the Insurance
Company has no Basis to believe that any such Action may be brought against the
Insurance Company.
4.20 LABOR; EMPLOYEES.
The Insurance Company has two (2) employees, neither of whom are a
party to or are bound by any collective bargaining Contract or employment
agreement.
4.21 EMPLOYEE BENEFITS.
There are no employee benefit plans or arrangements of any type
(including plans described in Section 3(3) of ERISA) under which the Insurance
Company has or in the future could have directly, or indirectly through a
commonly controlled entity (within the meaning of Sections 414(b), (c), (m) and
(o) of the Code), any Liability with respect to the Insurance Company's or
commonly controlled entity's current or former employees.
4.22 SUBSCRIBERS AND OTHER INSUREDS.
The APSG Parties have been provided a complete list of all Subscribers
and the other Persons covered by insurance policies issued by the Insurance
Company as of April 30, 2006.
4.23 PERMITS.
The Insurance Company possesses all Permits required to be obtained for
its businesses and operations. Schedule 4.23 sets forth a list of all such
Permits. Except as set forth in Schedule 4.23, with respect to each such Permit:
(a) it is valid, subsisting and in full force and effect;
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(b) there are no violations of such Permit that would result in a
termination of such Permit; and
(c) the Insurance Company has not received notice that such Permit will not
be renewed; and
(d) the Transactions will not adversely affect the validity of such Permit
or cause a cancellation of or otherwise adversely affect such Permit.
4.24 TDI REFUNDABLE DEPOSIT ORDER.
The TDI Refundable Deposit Order, attached hereto as Exhibit I, is in
full force and effect and has not been changed or modified from the form
attached and will not be changed or modified prior to Closing except pursuant to
the Conversion.. The Insurance Company is in full compliance with the TDI
Refundable Deposit Order.
4.25 CERTAIN BUSINESS RELATIONSHIPS WITH THE INSURANCE COMPANY.
Except insurance policies issued by the Insurance Company in the
Ordinary Course of Business, any Subscriber's Agreement and Power of Attorney
(or similar agreements), service as a member of the Board of Directors or
Medical Director of the Insurance Company, or as provided on the list provided
to the APSG Parties referred to in Section 4.22, no Subscriber or any of its
Affiliates has been involved in any business arrangement or relationship with
the Insurance Company within the past 12 months, and no Subscriber or any of its
Affiliates owns any asset that is used in the Insurance Company's business.
4.26 REAL PROPERTY.
The Insurance Company does not own or lease any real property.
4.27 ACCURACY OF INFORMATION FURNISHED.
No representation, statement, or information contained in this
Agreement (including the Schedules) or any Contract or document executed in
connection herewith or delivered pursuant hereto or thereto or made available or
furnished to APSG Parent or its representatives by the Insurance Company
contains or will contain any untrue statement of a material fact or omits or
will omit any material fact necessary to make the information contained therein
not misleading. The Insurance Company has provided APSG Parent with correct and
complete copies of all documents listed or described in the Schedules.
4.28 REPRESENTATIONS COMPLETE.
Except as and to the extent expressly set forth in this Agreement,
neither the Insurance Company nor any Subscriber or other insureds makes any
representations or warranties whatsoever (INCLUDING, ANY IMPLIED OR EXPRESS
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS) to any APSG Party and each of them hereby
disclaims all Liability and responsibility for any representation, warranty,
24
statement, or information not included herein that was made, communicated, or
furnished (orally or in writing) to any APSG Party or its representatives
(including any opinion, information, projection, or advice that may have been or
may be provided to any APSG Party by any director, officer, employee, agent,
consultant, or representative of the Insurance Company or Subscriber).
ARTICLE 5.
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the earlier of the Closing and the Termination
Date:
5.1 GENERAL.
Each Party will use its Best Efforts to take all actions and to do all
things necessary, proper, or advisable to consummate, make effective, and comply
with all of the terms of this Agreement and the Transactions applicable to it
(including satisfaction, but not waiver, of the Closing conditions for which it
is responsible or otherwise in control, as set forth in ARTICLE 6).
5.2 NOTICES AND CONSENTS.
(a) The Insurance Company will obtain a written Consent or certified
resolutions by the Board of Directors of the Insurance Company approving of the
Merger and the Transactions as set forth herein.
(b) The APSG Parent will obtain a Consent by the Board of Directors of the
APSG Parent approving of the Merger and the Transactions as set forth herein.
(c) The Insurance Company will (subject to SEC approval of any proxy or
joint proxy information that may be used in connection with such a meeting or
submission to a vote) call and hold a meeting of its Subscribers as soon as
practicable after the date hereof, at which meeting the Board of Directors of
the Insurance Company will submit and recommend the Agreement and the
Transactions described herein to its Subscribers, and, if the requisite approval
is obtained, will undertake promptly to consummate the Merger and the
Transactions as set forth herein.
(d) The APSG Parent will (subject to SEC approval of any proxy or joint
proxy information that may be used in connection with such a meeting or
submission to a vote) call and hold a meeting of its shareholders as soon as
practicable after the date hereof, at which meeting the Board of Directors of
such APSG Party will, subject to its fiduciary obligations to shareholders,
submit and recommend the Agreement and the Transactions described herein to its
shareholders, and, if the requisite approval is obtained, will undertake
promptly to consummate the Merger and the Transactions as set forth herein.
(e) The Insurance Company will make the necessary notifications
to or filings with TDI, AID, the SEC and any other relevant state or federal
regulatory agencies, including but not limited to obtaining a No-Action Letter
from the SEC stating that the Insurance Company Common Stock and Insurance
Company Preferred Stock, issued pursuant to the Conversion, are exempt from
25
registration with the SEC (the "SEC No-Action Letter") and will use its Best
Efforts to provide the APSG Parties with all the information needed to make the
necessary notifications and filings with the SEC.
(f) Each APSG Party will make notifications to or filings with TDI, AID, the
SEC, and any other relevant state or federal regulatory agencies, which are
required to be made by any APSG Party in order to consummate the Merger and the
Transactions as set forth herein.
(g) The Insurance Company will give any notices to third parties, and will use
its Best Efforts to obtain any third party Consents listed on Schedule 4.3, or
that APSG Parent reasonably may otherwise request in connection with the
matters referred to in Section 4.3.
(h) Each APSG Party will give any notices to third parties, and will use its
Best Efforts to obtain any third party Consents listed on Schedule 3.3, or
that the Insurance Company reasonably may otherwise request in connection with
the matters referred to in Section 3.3.
(i) Each Party will cooperate and use its Best Efforts to agree jointly on a
method to overcome any objections by any Governmental Body to the
Transactions. Without limiting the foregoing, each Party (i) will file any
notification and report forms and related material that such Party may be
required to file under the HSR Act, (ii) if requested by APSG Parent, will use
their Best Efforts to obtain an early termination of the applicable waiting
period, and (iii) will make any further filings pursuant thereto that may be
necessary, proper, or advisable in connection therewith. APSG Parent and the
Insurance Company will bear the cost of the HSR Act filing fee equally. No
Party shall be obligated to file a suit or to appeal from any adverse ruling
by the Commissioner of TDI or the Commissioner of AID, and neither the APSG
Parent nor the Insurance Company shall be obligated to make any material
changes in any lawful, good faith management policy in order to gain such
approval.
(j) Nothing in this Section 5.2 will require that (i) APSG Parent or its
Affiliates divest, sell, or hold separately any of its assets or properties,
or (ii) APSG Parent, its Affiliates, or the Insurance Company (the
determination with respect to which APSG Parent will make) take any actions
that could affect the normal and regular operations of APSG Parent, its
Affiliates, or the Insurance Company after the Closing.
5.3 REFUNDABLE DEPOSIT.
The Insurance Company's Refundable Deposit that remains an obligation
of the Insurance Company as of April 30, 2006 is equal to the amount set forth
on Schedule 5.3. To the Insurance Company's Knowledge, the annual partial pro
rata distributions of the Refundable Deposit are not to exceed $200,000, in
accordance with the TDI Refundable Deposit Order, and there has been no further
approval by the Commissioner of TDI to change this amount. The Insurance Company
has met and will continue to meet the conditions set out in the Exhibit A
attached to the TDI Refundable Deposit Order regarding the Insurance Company's
plan to make annual partial pro rata distributions of the Refundable Deposit
until the TDI Refundable Deposit Order is eliminated or modified in the
Conversion.
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5.4 OPERATION OF BUSINESS.
Except as necessary to consummate the Transactions, the Insurance
Company will not engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business or engage in any practice,
take any action, or enter into any transaction of the sort described in Section
4.9. Subject to compliance with applicable Law, from the date hereof until the
earlier to occur of the Closing or the Termination Date, the Insurance Company
will confer on a regular and frequent basis with one or more representatives of
APSG Parent to report on operational matters and the general status of the
Insurance Company's ongoing business, operations and finances and will promptly
provide to APSG Parent or its representatives copies of all material filings
they make with any Governmental Body during such period.
5.5 NO SHOP.
The Insurance Company agrees that it has not and will not, directly or
indirectly, enter into any agreements, understandings or negotiations with, or
solicit, initiate or encourage any inquiries, proposals or offers from, any
Person other than the APSG Parties relating to (a) any acquisition or purchase
of any assets of the Insurance Company (other than in the ordinary course) or
(b) any merger, consolidation or business combination involving the Insurance
Company. The Insurance Company will notify the APSG Parent immediately if any
Person makes any written proposal, offer, inquiry, or contact with respect to
any of the foregoing and the terms of any such proposal, offer, inquiry, or
contact.
5.6 PRESERVATION OF BUSINESS.
The Insurance Company will keep its business and properties
substantially intact, including its present operations, physical facilities, and
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
5.7 FULL ACCESS.
The Insurance Company will permit representatives of APSG Parent
(including financing providers) to have full access to all premises, properties,
personnel, books, records, Contracts, and documents pertaining to the Insurance
Company and will furnish copies of all such books, records, Contracts, and
documents and all financial, operating and other data, and other information as
APSG Parent may reasonably request; provided, however, that no investigation
pursuant to this Section 5.7 will effect any representations or warranties made
herein or the conditions of the Parties' obligations to consummate the
Transactions.
5.8 NOTICE OF DEVELOPMENTS.
The Insurance Company will give prompt written notice to APSG Parent of
any development occurring after the date of this Agreement, or any item about
which the Insurance Company did not have Knowledge on the date of this
Agreement, which causes or reasonably could be expected to cause a Breach of any
of the representations and warranties in ARTICLE 4. The Parties acknowledge that
the Insurance Company intends to amend its bylaws shortly after the execution of
this Agreement and the Insurance Company agrees to promptly deliver such amended
27
bylaws to APSG Parent. APSG Parent will give prompt written notice to the
Insurance Company of any development occurring after the date of this Agreement,
or any item about which such APSG Party did not have Knowledge on the date of
this Agreement, which causes or reasonably could be expected to cause a Breach
of any of the representations and warranties in ARTICLE 3. No disclosure by any
Party pursuant to this Section 5.8 will be deemed to amend or supplement the
Schedules or to prevent or cure any misrepresentation or Breach of any
representation, warranty, or covenant.
5.9 CONFIDENTIALITY; PUBLICITY.
Except as may be required by Law, stock exchange or regulation or as
otherwise expressly contemplated herein, no Party or their respective
Affiliates, employees, agents and representatives will disclose to any Person
the existence of this Agreement, the subject matter or terms hereof or any
Confidential Information concerning the business or affairs of any other Party
that it may have acquired from such Party in the course of pursuing the
Transactions without the prior written consent of the Insurance Company or APSG
Parent, as the case may be; provided, however, any Party may disclose any such
Confidential Information as follows: (a) to such Party's Affiliates and its or
its Affiliates' employees, lenders, counsel, or accountants, the actions for
which the applicable Party will be responsible; (b) to comply with any
applicable Law or Order, provided that prior to making any such disclosure the
Party making the disclosure notifies the other Party of any Action of which it
is aware which may result in disclosure and uses its Best Efforts to limit or
prevent such disclosure; (c) to the extent that the Confidential Information is
or becomes generally available to the public through no fault of the Party or
its Affiliates making such disclosure; (d) to the extent that the same
information is in the possession (on a non-confidential basis) of the Party
making such disclosure prior to receipt of such Confidential Information; (e) to
the extent that the Party that received the Confidential Information
independently develops the same information without in any way relying on any
Confidential Information; or (f) to the extent that the same information becomes
available to the Party making such disclosure on a nonconfidential basis from a
source other than a Party or its Affiliates, which source, to the disclosing
Party's Knowledge, is not prohibited from disclosing such information by a
legal, Contractual, or fiduciary obligation to the other Party. Notwithstanding
the foregoing, APSG Parent may make such public disclosure of the existence of
this Agreement, the principal economic terms thereof, and the status with
respect to achieving the Closing as it desires; provided, that APSG Parent will
consult with the Insurance Company prior to releasing any such public disclosure
so that the Insurance Company may notify the Insurance Company's employees of
the Transactions. Neither the Insurance Company nor any of its Affiliates will
issue any press release or other public announcement related to this Agreement
or the Transactions without APSG Parent's prior written approval.
5.10 FINANCIAL STATEMENTS.
On or before June 30, 2006, the Insurance Company will deliver to APSG
Parent the following financial statements:
(a) audited balance sheets as of December 31, 2005 and 2004 and the related
statements of operations, changes in members' equity, and cash flows of the
Insurance Company for the each of the three year periods ending 2005, 2004
and 2003, prepared in accordance with GAAP;
28
(b) unaudited balance sheets as of December 31, 2003, 2002 and 2001 and the
related statements of operations, changes in member's equity, and cash
flows of the Insurance Company for the each of the periods ending 2002 and
2001, prepared in accordance with GAAP; and
(c) unaudited balance sheets and statements of operations, changes in member's
equity, and cash flows of the Insurance Company for each quarter ended
prior to the Closing Date with comparative preceding year financial
statements, prepared in accordance with GAAP.
Each of the above have been prepared in accordance with GAAP, applied
on a consistent basis throughout the periods covered thereby, present fairly
the financial condition of the Insurance Company as of such dates and the
results of operations for such periods, are correct and complete, and are
consistent with the books and records of the Insurance Company; provided,
however, that the Section 5.10(c) financial statements are subject to normal
year-end adjustments (which will not be material individually or in the
aggregate) and lack footnotes and other presentation items. Since the Most
Recent Year End, the Insurance Company has not effected any change in any
method of accounting or accounting practice, except for any such change
required because of a concurrent change in the statutory accounting principles
prescribed by TDI.
ARTICLE 6.
CLOSING CONDITIONS
6.1 CONDITIONS PRECEDENT TO OBLIGATION OF THE APSG PARTIES.
The APSG Parties' obligation to effect the Merger and consummate the
other Transactions contemplated to occur in connection with the Closing and
thereafter is subject to the satisfaction of each condition precedent listed
below. Unless expressly waived pursuant to this Agreement, no representation,
warranty, covenant, right, or remedy available to an APSG Party in connection
with the Transactions will be deemed waived by any of the following actions or
inactions by or on behalf of an APSG Party (regardless of whether the Insurance
Company is given notice of any such matter): (i) consummation by the APSG
Parties of the Transactions, (ii) any inspection or investigation, if any, of
the Insurance Company, (iii) the awareness of any fact or matter acquired (or
capable or reasonably capable of being acquired) with respect to the Insurance
Company, or (iv) any other action, in each case at any time, whether before, on,
or after the Closing Date.
(a) Accuracy of Representations and Warranties. Each representation and
warranty set forth in ARTICLE 4 and Section 5.10 must have been accurate
and complete in all material respects (except with respect to any
provisions including the word "material" or words of similar import, and
except with respect to materiality, as reflected under statutory accounting
principles, for purposes of Section 4.8, and under GAAP, with respect to
Section 5.10, with respect to which such representations and warranties
must have been accurate and complete) as of the date of this Agreement, and
must be accurate and complete in all material respects (except with respect
29
to any provisions including the word "material" or words of similar import
and except with respect to materiality, as reflected under statutory
accounting principles, for purposes of Section 4.8, and under GAAP, with
respect to Section 5.10, with respect to which such representations and
warranties must have been accurate and complete) as of the Closing Date, as
if made on the Closing Date, without giving effect to any supplements to
the Schedules.
(b) Compliance with Obligations. The Insurance Company must have performed and
complied with all of its covenants to be performed or complied with at or
prior to Closing (singularly and in the aggregate) in all material
respects.
(c) No Material Adverse Change or Destruction of Property. Since the date
hereof there must have been no event, series of events or the lack of
occurrence thereof which, singularly or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on the Insurance Company.
Without limiting the foregoing, (i) there must have been no Material
Adverse Change to the Insurance Company, (ii) there must not have been any
action or inaction by a Governmental Body, arbitrator, or mediator which
could reasonably be expected to cause a Material Adverse Change to the
Insurance Company, and (iii) there must not have been any fire, flood,
casualty, act of God or the public enemy or other cause (regardless of
insurance coverage for such damage) which event could reasonably be
expected to have a Material Adverse Effect on the Insurance Company.
(d) No Adverse Litigation. There must not be pending or Threatened any Action
by or before any Governmental Body, arbitrator, or mediator which will seek
to restrain, prohibit, invalidate, or collect Damages arising out of the
Transactions, or which, in the judgment of APSG Parent, makes it
inadvisable to proceed with the Transactions.
(e) Consents. The Insurance Company and APSG Parent must have received Consents
to the Transactions and waivers of rights to terminate or modify any rights
or obligations of the Insurance Company from any Person (i) from whom such
Consent is required, including under any Contract listed or required to be
listed in Schedules 4.14 and 4.15, under the HSR Act or other Law, from AID
and TDI, including obtaining all necessary approvals of the Plan of
Conversion and from the SEC, including obtaining the SEC No-Action Letter,
and obtaining all necessary shareholder approvals, as applicable, or (ii)
who as a result of the Transactions, would have such rights to terminate or
modify such Contracts, either by their terms or as a matter of Law.
(f) Dissenting Shares. The holders of no more than two percent (2%) of either
the Insurance Company Common Stock or the Insurance Company Preferred
Shares may have exercised their right to dissent from the Merger under the
applicable Corporate Law.
(g) Advisory Services Agreement. The Advisory Services Agreement must have been
fully executed as of the Closing Date and be in full force and effect.
(h) Tax Assurances. The Insurance Company and APSG Parent must have received
reasonable assurances from their tax advisors that, for federal income tax
30
purposes, the Conversion and the Merger qualify as a tax-free
reorganization under Section 368(a) of the Code.
6.2 CONDITIONS PRECEDENT TO OBLIGATION OF THE INSURANCE COMPANY.
The Insurance Company's obligation to effect the Merger and consummate
the other Transactions contemplated to occur in connection with the Closing and
thereafter is subject to the satisfaction of each condition precedent listed
below. Unless expressly waived pursuant to this Agreement, no representation,
warranty, covenant, right, or remedy available to any Shareholder in connection
with the Transactions will be deemed waived by any of the following actions or
inactions by or on behalf of any Shareholder or the Insurance Company
(regardless of whether APSG Parent is given notice of any such matter): (i)
consummation by the Insurance Company of the Transactions, (ii) any inspection
or investigation, if any, of APSG Parent, (iii) the awareness of any fact or
matter acquired (or capable or reasonably capable of being acquired) with
respect to APSG Parent, or (iv) any other action, in each case at any time,
whether before, on, or after the Closing Date.
(a) Accuracy of Representations and Warranties. Each representation and
warranty set forth in ARTICLE 3 must have been accurate and complete in all
material respects (except with respect to any provisions including the word
"material" or words of similar import, with respect to which such
representations and warranties must have been accurate and complete) as of
the date of this Agreement, and must be accurate and complete in all
material respects (except with respect to any provisions including the word
"material" or words of similar import, with respect to which such
representations and warranties must have been accurate and complete) as of
the Closing Date, as if made on the Closing Date.
(b) Compliance with Obligations. Each APSG Party must have performed and
complied with all its covenants and obligations required by this Agreement
to be performed or complied with at or prior to Closing (singularly and in
the aggregate) in all material respects.
(c) No Order or Injunction. There must not be issued and in effect any Order
restraining or prohibiting the Transactions.
(d) Consents; HSR Act Waiting Period. The Insurance Company must have received
Consents to the Transactions and waivers of rights to terminate or modify
any rights or obligations of the Insurance Company from any Person (i) from
whom such Consent is required under the HSR Act or other Law, from AID and
TDI, including obtaining all necessary approvals of the Plan of Conversion
and from the SEC, including obtaining the SEC No-Action Letter, and
obtaining all necessary Subscriber approvals or (ii) who as a result of the
Transactions, would have such rights to terminate or modify such Contracts,
either by their terms or as a matter of Law.
(e) The Insurance Company must have received the required Consents to the
Transactions from TDI, AID, and the SEC, and any applicable waiting period
under the HSR Act must have expired or been terminated.
(f) Advisory Services Agreement. The Advisory Services Agreement must have been
fully executed as of the Closing Date and be in full force and effect.
31
(g) Organizational Documents. The Organizational Documents of APSG Merger Sub
must be in place and have been completed, executed and filed as applicable.
(h) Elections of Directors. APSG Parent must have elected the directors to the
Board of Directors of the APSG Parent as set forth in Section 2.7.
(i) Tax Assurances. The Insurance Company and APSG Parent must have received
reasonable assurances from their tax advisors that, for federal income tax
purposes, the Conversion and the Merger qualify as a tax-free
reorganization under Section 368(a) of the Code.
ARTICLE 7.
TERMINATION
7.1 TERMINATION OF AGREEMENT.
The Parties may terminate this Agreement as provided below:
(a) APSG Parent and the Insurance Company may terminate this Agreement as to
all Parties by mutual written consent at any time prior to the Closing.
(b) APSG Parent or the Insurance Company may terminate this Agreement upon
delivery of notice if the Closing has not occurred prior to the Expiration
Date, provided that the Party delivering such notice will not have caused
such failure to close.
(c) APSG Parent may terminate this Agreement by giving written notice to the
Insurance Company at any time prior to the Closing if the Insurance Company
has Breached any representation, warranty, or covenant contained in this
Agreement in any material respect (except with respect to materiality for
any provisions including the word "material" or words of similar import and
Section 4.8, in which case such termination rights will arise upon any
Breach), which breach has not been cured by the Insurance Company within
ten (10) days following written notice to the Insurance Company.
(d) The Insurance Company may terminate this Agreement by giving notice to APSG
Parent at any time prior to the Closing if any APSG Party has Breached any
representation, warranty, or covenant contained in this Agreement in any
material respect (except with respect to materiality for any provisions
including the word "material" or words of similar import, in which case
such termination rights will arise upon any Breach), which breach has not
been cured by APSG Parent within ten (10) days following written notice to
APSG Parent.
(e) Either APSG Parent or the Insurance Company may terminate if the Closing
Market Price is more than 25% greater than or less than the Announcement
Market Price.
(f) Either APSG Parent or, in the event the Insurance Company has not breached
Section 5.5 of this Agreement, the Insurance Company, may terminate this
Agreement prior to the approval of this Agreement by the shareholders of
32
APSG Parent if (1) the Board of Directors of such Party authorizes such
Party to enter into a binding written agreement concerning a transaction
that constitutes a Superior Proposal and such Party notifies the other
Party in writing that it intends to enter into such an agreement, attaching
the most current version of such agreement to such notice, (2) the other
Party does not make, within three business days of receipt of such written
notification of the intention to enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal, an offer
that the Board of Directors of such Party determines, in its good faith
judgment is at least as favorable to the Party's shareholders (or in the
case of the Insurance Company, the Subscribers) from a financial point of
view as the Superior Proposal, and (3) the terminating Party prior to such
termination pays to the other Party in immediately available funds (A) a
termination fee of $1,500,000 and (B) an amount equal to all actual
out-of-pocket fees and expenses incurred by the non-terminating Party
(including, without limitation, the fees and expenses of its counsel,
financial advisor, accountants, and financing sources) in connection with
this Agreement and the transactions contemplated hereby. The term "Superior
Proposal" means any bona fide written proposal to effect a merger,
consolidation, reorganization, share exchange, recapitalization,
acquisition, liquidation, direct or indirect business combination, or other
similar transaction as a result of which the shareholders of the Party (or
in the case of the Insurance Company, the Subscribers) cease to own at
least 50% of the voting ownership interests of the ultimate parent entity
resulting from such transaction or sale of all or substantially all of the
assets of such Party, which in any such case, is on terms that the Board of
Directors of such Party determines in its good faith judgment, taking into
account all relevant factors, including any conditions to such proposal,
the timing of the closing thereof, the risk of non-consummation, the
ability of the Person making the proposal to finance the transaction
contemplated thereby, any required governmental or other consents, filings
and approvals, (A) would, if consummated, result in a transaction that is
more favorable to such Party's shareholders (or in the case of the
Insurance Company, the Subscribers) from a financial point of view than the
transactions contemplated by this Agreement (including the terms of any
proposal by the other Party to modify the terms of the transactions
contemplated by this Agreement) and (B) is reasonably likely to be financed
and otherwise completed without undue delay.
(g) This Agreement will automatically terminate on the Expiration Date.
7.2 EFFECT OF TERMINATION.
Except for the obligations under Section 5.9, this ARTICLE 7, and
ARTICLE 9, if this Agreement is terminated under Section 7.1, then, except as
provided in this Section 7.2, all further obligations (excluding specifically
any remaining obligation to pay any termination fee and reimburse expenses as
provided in Section 7.1(f) above) of the Parties under this Agreement will
terminate. Notwithstanding any provision of this Agreement to the contrary, the
Parties acknowledge and agree that the rights of termination pursuant to
Sections 7.1(c) or 7.1(d) shall be the sole and exclusive remedies of any Party
in the event of a Breach of any representation, warranty, or covenant contained
in this Agreement, and no Party shall pursue any legal remedies for Damages in
such an event.
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ARTICLE 8.
EFFECT OF REPRESENTATIONS AND WARRANTIES
APSG Parent and the Insurance Company acknowledge and agree that the
only right resulting from a breach of any of the representations and warranties
contained in ARTICLE 3 or ARTICLE 4 is the right of the non-breaching party not
to close, as set forth in Sections 6.1(a) and 6.2(a). Without limiting the
foregoing, APSG Parent and the Insurance Company acknowledge and agree that no
Party to this Agreement and no party by or through any Party to this Agreement
shall have the right to assert any Action whatsoever as a result of a breach of
any of the representations and warranties contained in this Agreement, whether
arising at law or equity. All of the representations and warranties will expire
at the time of the Closing and have no further force or effect.
ARTICLE 9.
MISCELLANEOUS
9.1 SCHEDULES.
(a) The disclosures in the Schedules, and those in any supplement thereto,
relate only to the representations and warranties in the Section or
paragraph of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
(b) If there is any inconsistency between the statements in the body of this
Agreement and those in the Schedules (other than an exception expressly set
forth in the Schedules with respect to a specifically identified
representation or warranty), the statements in the body of this Agreement
will control.
(c) Nothing in the Schedules will be deemed adequate to disclose an exception
to a representation or warranty made herein, unless the Schedules identify
the exception with reasonable particularity and describes the relevant
facts in reasonable detail.
(d) The mere listing (or inclusion of a copy) of a document or other item in a
Schedule will not be deemed adequate to disclose an exception to a
representation or warranty made in this Agreement (unless the
representation or warranty pertains to the existence of the document or
other item itself).
9.2 ENTIRE AGREEMENT.
This Agreement, together with the Exhibits and Schedules hereto and the
certificates, documents, instruments and writings that are delivered pursuant
hereto, constitutes the entire agreement and understanding of the Parties in
respect of its subject matter and supersedes all prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they relate in any way to the subject matter hereof or the Transactions.
There are no third party beneficiaries having rights under or with respect to
this Agreement.
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9.3 SUCCESSORS.
All of the terms, agreements, covenants, representations, warranties,
and conditions of this Agreement are binding upon, and inure to the benefit of
and are enforceable by, the Parties and their respective successors. No person
or entity not a signatory hereto shall have any rights or claim to any cause of
action except as contemplated by this Agreement or the Transactions hereby.
9.4 ASSIGNMENTS.
No Party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of APSG
Parent and (i) before the Closing, the Insurance Company, and (ii) after the
Closing, a majority in interest of the Shareholders; provided, however, that
APSG Parent may (a) assign any or all of its rights and interests hereunder to
one or more of its Affiliates and (b) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases APSG Parent
nonetheless will remain responsible for the performance of all of its
obligations hereunder).
9.5 NOTICES.
All notices, requests, demands, claims and other communications
hereunder will be in writing. Any notice, request, demand, claim or other
communication hereunder will be deemed duly given if (and then three business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to APSG Parent and after Closing to the Insurance
Company:
Attn: Xx. Xxxxxxx Xxxxxxx
0000 Xxxxxxx xx Xxxxx Xxxxxxx
Xxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Copy to (which will not constitute notice):
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
Attn: Xxx XxXxxx
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
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If to the Subscribers and before Closing to the
Insurance Company:
Attn: Xxxxxx Xxxxxxxxx
00000 Xxxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (210) 000- 0000
Copy to (which will not constitute notice):
Graves, Dougherty, Xxxxxx & Xxxxx, P.C.
Attn: Xxxxxx Xxxxxxxx
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication will be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
9.6 SPECIFIC PERFORMANCE.
Each Party acknowledges and agrees that the other Parties would be
damaged irreparably if any provision of this Agreement is not performed in
accordance with its specific terms or is otherwise Breached. Accordingly, each
Party agrees that the other Parties will be entitled to an injunction or
injunctions to prevent Beaches of the provisions of this Agreement and to
enforce specifically this Agreement and its terms and provisions in any Action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, subject to Sections 9.7 and 9.11,
in addition to any other remedy to which they may be entitled, at Law or in
equity.
9.7 SUBMISSION TO JURISDICTION; NO JURY TRIAL.
(a) Submission to Jurisdiction. Each Party submits to the jurisdiction of any
state or federal court sitting in Austin, Texas, in any Action arising out
of or relating to this Agreement and agrees that all claims in respect of
the Action may be heard and determined in any such court. Each Party also
agrees not to bring any Action arising out of or relating to this Agreement
in any other court. Each Party agrees that a final judgment in any Action
so brought will be conclusive and may be enforced by Action on the judgment
or in any other manner provided at Law or in equity. Each Party waives any
defense of inconvenient forum to the maintenance of any Action so brought
and waives any bond, surety, or other security that might be required of
any other Party with respect thereto.
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(b) Waiver of Jury Trial. THE PARTIES EACH HEREBY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO JURY TRIAL OF ANY DISPUTE BASED UPON OR ARISING
OUT OF THIS AGREEMENT OR ANY OTHER AGREEMENTS RELATING HERETO OR ANY
DEALINGS AMONG THEM RELATING TO THE TRANSACTIONS. The scope of this
waiver is intended to be all encompassing of any and all Actions that
may be filed in any court and that relate to the subject matter of the
Transactions, including, Contract claims, tort claims, breach of duty
claims, and all other common Law and statutory claims. The Parties
each acknowledge that this waiver is a material inducement to enter
into a business relationship and that they will continue to rely on
the waiver in their related future dealings. Each Party further
represents and warrants that it has reviewed this waiver with its
legal counsel, and that each knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED ORALLY OR IN WRITING,
AND THE WAIVER WILL APPLY TO ANY AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING HERETO. In the event of an Action, this Agreement
may be filed as a written consent to trial by a court.
9.8 TIME.
Time is of the essence in the performance of this Agreement.
9.9 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which will be deemed an original but all of which together will constitute one
and the same instrument.
9.10 HEADINGS.
The article and section headings contained in this Agreement are
inserted for convenience only and will not affect in any way the meaning or
interpretation of this Agreement.
9.11 GOVERNING LAW.
This Agreement and the performance of the Transactions and obligations
of the Parties hereunder will be governed by and construed in accordance with
the laws of the State of Texas, without giving effect to any choice of Law
principles.
9.12 AMENDMENTS.
The Parties may amend this Agreement by action taken by or on behalf of
the respective Boards of Directors of APSG Parent and the Insurance Company at
any time prior to the Effective Time. Notwithstanding the foregoing, after the
Subscribers approve and adopt this Agreement and the Transactions, no amendment
to this Agreement may be made that would reduce the amount of or change the
Merger Consideration or otherwise would require the Subscribers to approve such
amendment under the Corporate Law, unless the Subscribers approve such amendment
37
in accordance with the applicable Corporate Law. Amendments to this Agreement
must be in writing that the Insurance Company and APSG Parties have signed.
9.13 EXTENSIONS; WAIVER.
(a) At any time prior to the Effective Time, the APSG Parties, on the one
hand, and the Insurance Company, on the other, to the extent legally
allowed, may (i) extend the time for the performance of any of the
obligations of the other Party, (ii) waive any inaccuracies in the
representations and warranties made to such Party contained herein or
in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such Party
contained herein. Any agreement on the part of a Party to any such
extension or waiver will be valid only if set forth in an instrument
in writing signed on behalf of such Party.
(b) No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, may be
deemed to extend to any prior or subsequent default,
misrepresentation, or Breach of warranty or covenant hereunder or
affect in any way any rights arising because of any prior or
subsequent such occurrence.
9.14 SEVERABILITY.
The provisions of this Agreement will be deemed severable and the
invalidity or unenforceability of any provision will not affect the validity or
enforceability of the other provisions hereof; provided that if any provision of
this Agreement, as applied to any Party or to any circumstance, is adjudged by a
Governmental Body, arbitrator, or mediator not to be enforceable in accordance
with its terms, the Parties agree that the Governmental Body, arbitrator, or
mediator making such determination will have the power to modify the provision
in a manner consistent with its objectives such that it is enforceable, and/or
to delete specific words or phrases, and in its reduced form, such provision
will then be enforceable and will be enforced.
9.15 EXPENSES.
Except as otherwise expressly provided in this Agreement, each Party
will bear its own costs and expenses incurred in connection with the
preparation, execution and performance of this Agreement and the Transactions
including all fees and expenses of agents, representatives, financial advisors,
legal counsel and accountants.
9.16 CONSTRUCTION.
The Parties have participated jointly in the negotiation and drafting
of this Agreement. If an ambiguity or question of intent or interpretation
arises, this Agreement will be construed as if drafted jointly by the Parties
and no presumption or burden of proof will arise favoring or disfavoring any
Party because of the authorship of any provision of this Agreement. Any
reference to any federal, state, local, or foreign Law will be deemed also to
refer to Law as amended and all rules and regulations promulgated thereunder,
unless the context requires otherwise. The words "include," "includes," and
"including" will be deemed to be followed by "without limitation." Pronouns in
masculine, feminine, and neuter genders will be construed to include any other
38
gender, and words in the singular form will be construed to include the plural
and vice versa, unless the context otherwise requires. The words "this
Agreement," "herein," "hereof," "hereby," "hereunder," and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. The Parties intend that each representation,
warranty, and covenant contained herein will have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached will not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
9.17 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES.
The Exhibits, Annexes, Schedules, and other attachments identified in
this Agreement are incorporated herein by reference and made a part hereof.
9.18 REMEDIES.
Except as expressly provided herein, the rights, obligations and
remedies created by this Agreement are cumulative and in addition to any other
rights, obligations or remedies otherwise available at Law or in equity. Except
as expressly provided herein, nothing herein will be considered an election of
remedies.
9.19 ELECTRONIC SIGNATURES.
(a) Notwithstanding the Electronic Signatures in Global and National
Commerce Act (15 U.S.C. Sec. 7001 et.seq.), the Uniform Electronic
Transactions Act, or any other Law relating to or enabling the
creation, execution, delivery, or recordation of any Contract or
signature by electronic means, and notwithstanding any course of
conduct engaged in by the Parties, no Party will be deemed to have
executed a Transaction Document or other document contemplated thereby
(including any amendment or other change thereto) unless and until
such Party shall have executed such Transaction Document or other
document on paper by a handwritten original signature or any other
symbol executed or adopted by a Party with current intention to
authenticate such Transaction Document or such other document
contemplated.
(b) Delivery of a copy of a Transaction Document or such other document
bearing an original signature by facsimile transmission (whether
directly from one facsimile device to another by means of a dial-up
connection or whether mediated by the worldwide web), by electronic
mail in "portable document format" (".pdf") form, or by any other
electronic means intended to preserve the original graphic and
pictorial appearance of a document, will have the same effect as
physical delivery of the paper document bearing the original
signature. "Originally signed" or "original signature" means or refers
to a signature that has not been mechanically or electronically
reproduced.
[signature page follows]
39
Signature Page to the Merger Agreement and Plan of Merger
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
American Physicians Service Group, Inc.
By: /s/ Xxx Xxxxxxx
-------------------------------------------------
Name: Xxx Xxxxxxx
-------------------------------------------------
Title: Chairman of the Board
-------------------------------------------------
APSG ACQCO, INC.
By: /s/ Xxx Xxxxxxx
------------------------------------------------
Name: Xxx Xxxxxxx
------------------------------------------------
Title: President
------------------------------------------------
American Physicians Insurance Exchange
By: /s/ Xxxxxx X. Xxxxxx, Xx. M.D.
------------------------------------------------
Name: Xxxxxx X. Xxxxxx, Xx. M.D.
------------------------------------------------
Title: Chairman of the Board
------------------------------------------------
