FIRST ACCEPTANCE CORPORATION - FORM 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): January 18, 2006 (January 12, 2006)
FIRST ACCEPTANCE CORPORATION
(Exact Name of Registrant as Specified in Charter)
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Delaware
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001-12117
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75-1328153 |
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(State or Other Jurisdiction of
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(Commission File Number)
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(I.R.S. Employer |
Incorporation)
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Identification No.) |
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3813 Green Hills Village Drive
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Nashville, Tennessee
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37215 |
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(Address of Principal Executive Offices)
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(Zip Code) |
(Registrants Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
TABLE OF CONTENTS
Item 1.01 Entry into a Material Definitive Agreement.
(a) Asset Purchase Agreement.
First Acceptance Corporation (First Acceptance) and Acceptance Insurance Agency of Illinois,
Inc., a wholly-owned indirect subsidiary of First Acceptance (First Acceptance Subsidiary),
entered into an Asset Purchase Agreement dated as of January 12, 2006 (the Purchase Agreement),
with Insurance Plus Agency II, Inc., Yale International Insurance Agency, Inc. (Insurance Plus
Agency II, Inc. and Yale International Insurance Agency, Inc., collectively, the Sellers) and
Constantine Danos, as the sole stockholder of each of the Sellers. Under the terms of the Purchase
Agreement, First Acceptance Subsidiary acquired certain assets of the Sellers relating to the
Sellers business of operating independent retail agencies providing non-standard automobile
insurance, primarily in the Chicago, Illinois area. The closing of the transactions contemplated
by the Purchase Agreement occurred on January 12, 2006, simultaneously with the execution and
delivery of the Purchase Agreement.
The assets of the Sellers acquired by First Acceptance Subsidiary (the Acquired Assets),
include, without limitation, all goodwill of Sellers, and certain real property leases, contracts,
intellectual property rights, tangible personal property and other assets of Sellers. The Acquired
Assets did not include certain other assets of Sellers, including the cash and accounts receivable
of Sellers. First Acceptance Subsidiary did not assume any liabilities of Sellers, other than
liabilities arising after the closing under assumed contracts, leases and transferable governmental
permits.
The purchase price payable by First Acceptance Subsidiary for the Acquired Assets was (i)
$25,000,000, payable in cash at closing, (ii) $5,000,000, to be held in escrow (which amount will
be paid out in monthly installments to First Acceptance Subsidiary in connection with certain
transition services to be performed by First Acceptance Subsidiary for twelve months following the
closing, and which amount may also be reduced, at First Acceptance Subsidiarys option, by any
claims of First Acceptance Subsidiary during such period), (iii) the payment of certain prepayments
and prepaid expenses of Sellers, and (iv) the assumption by First Acceptance Subsidiary of
liabilities arising under the assumed contracts, leases and transferable permits following the
closing. In addition, following the closing, and as additional consideration for the Acquired
Assets, First Acceptance Subsidiary may be required to make a performance payment to Sellers in an
amount between $0 and $4,000,000 depending upon the performance of the Sellers business acquired
by First Acceptance Subsidiary during the twelve-month period beginning on February 1, 2006 and
ending on January 31, 2007 (the Performance Period) as follows: if the net premiums written (as
defined in the Purchase Agreement) by First Acceptance Subsidiary during the Performance Period in
connection with the transferred business is (a) equal to or less than $30,000,000, the performance
payment will equal $0, (b) greater than $30,000,000 but less than $36,000,000, the performance
payment will equal 66 2/3% of the amount by which such net premiums written exceeds $30,000,000,
and (c) equal to or greater than $36,000,000, the performance payment will equal $4,000,000. The
total purchase price payable by First Acceptance Subsidiary at closing was funded by a loan made to
First Acceptance at closing under the Credit Agreement (as defined below), as described in clause
(b) of this Item 1.01.
The Purchase Agreement contains customary representations and warranties by Sellers and the
sole stockholder of Sellers, including representations about Sellers business, assets, operations
and liabilities. The Purchase Agreement also includes indemnifications by Sellers and the sole
stockholder of Sellers for losses incurred by First Acceptance Subsidiary and related parties
arising from (i) breaches of representations, warranties and covenants by Sellers and the
sole stockholder of Sellers, and (ii) liabilities of Sellers not assumed by First Acceptance
Subsidiary pursuant to the Purchase Agreement.
On January 12, 2006, First Acceptance issued a press release announcing the consummation of
the transactions contemplated by the Purchase Agreement and Credit Agreement, the text of which
press release was attached as Exhibit 99 to a Current Report on Form 8-K filed by First Acceptance
on January 13, 2006.
The foregoing description of the Purchase Agreement is qualified in its entirety by reference
to the Purchase Agreement, which is attached as Exhibit 10.1 and incorporated herein by this
reference.
(b) Credit Agreement.
Concurrently with the execution and delivery of the Purchase Agreement, First Acceptance
entered into a Revolving Credit and Term Loan Agreement dated as of January 12, 2006 (the Credit
Agreement), with SunTrust Bank, in its capacity as a lender and as administrative agent for the
lenders (the Administrative Agent), and First Bank (SunTrust Bank and First Bank, collectively,
the Lenders). First Acceptance may borrow an aggregate principal amount of up to $30,000,000 in
the aggregate under the Credit Agreement, which consists of (x) $25,000,000 in principal pursuant
to a term loan facility which is due on June 30, 2010 (the Term Loan Facility), and (y) up to
$5,000,000 in a revolving credit facility which is due on June 30, 2010 (the Revolving Credit
Facility).
The Term Loan Facility is required to be paid in equal annual principal installments of
$1,388,000 on a quarterly basis beginning April 30, 2006 and ending April 30, 2010, with the
aggregate unpaid principal balance of the Term Loan Facility due and payable on June 30, 2010.
First Acceptance is permitted, at its option, to prepay all or part of the outstanding
principal amount of borrowings under the Credit Agreement, without premium or penalty.
Additionally, First Acceptance may cancel the unused portion of any commitments under the Revolving
Credit Facility at any time.
Borrowings outstanding under the Credit Agreement bear interest at a fluctuating rate equal to
(i) in the case of Eurodollar rate loans, with respect to each interest period for a Eurodollar
borrowing, the rate per annum obtained by dividing (x) LIBOR for such interest period by (y) a
percentage equal to 1.00 minus the Eurodollar reserve percentage (as defined in the Credit
Agreement), plus 1.75%, or (ii) in the case of alternate base rate loans and swingline loans, the
rate per annum equal to the higher of (a) the annual rate of interest announced by SunTrust Bank as
its prime rate, and (b) the federal funds rate plus 0.5%, in each case, plus 0.25%. In
connection with the Term Loan Facility, First Acceptance entered into an interest rate swap
agreement with SunTrust Bank which effectively fixes the interest rate under the Term Loan Facility
at approximately 6.63% per annum effective January 17, 2006 through June 30, 2010.
Interest on all Eurodollar rate loans is payable on the last day of each interest period
applicable thereto (but no less frequently than on a quarterly basis), or on the earlier maturity
date or termination date of such loans. Interest on all alternative base rate loans and swingline
loans
is due and payable on a quarterly basis, or on the earlier maturity date or termination date
of such loans.
The obligations of First Acceptance under the Credit Agreement are guaranteed by all of the
direct and indirect subsidiaries of First Acceptance, other than the two insurance company
subsidiaries of First Acceptance, First Acceptance Insurance Company, Inc. (f/k/a USAuto Insurance
Company, Inc.) and Village Auto Insurance Company, Inc. (the Insurance Company Subsidiaries). In
addition, the obligations of First Acceptance under the Credit Agreement are also secured by (i) a
pledge of 100% of the ownership interests in all of First Acceptances direct and indirect
subsidiaries (excluding the ownership interest held by First Acceptance Insurance Company, Inc. in
its subsidiaries (Village Auto Insurance Company, Inc., First Acceptance Services, Inc. and
Acceptance Insurance Agency of Texas, Inc.), but including the ownership interest held in First
Acceptance Insurance Company, Inc.), and (ii) a first-priority security interest in substantially
all of the tangible and intangible assets (excluding owned real property) of First Acceptance and
its direct and indirect subsidiaries (excluding the Insurance Company Subsidiaries).
The Credit Agreement provides for customary events of default with corresponding grace
periods, including (i) failure to pay any principal or interest when due, (ii) failure to comply
with covenants, (iii) any material representations or warranty made by First Acceptance proving to
be incorrect in any material respect, (iv) defaults relating to or acceleration of other material
indebtedness of First Acceptance or its subsidiaries, (v) certain insolvency or receivership events
affecting First Acceptance or any of its subsidiaries, (vi) certain adverse actions taken by any
insurance commissioner or other state insurance regulatory official against any Insurance Company
Subsidiary, (vii) a change in control of First Acceptance, or (viii) First Acceptance or its
subsidiaries becoming subject to certain material judgments, claims or liabilities.
First Acceptance must pay a commitment fee equal to 0.25% per annum of the unused commitment
under the Revolving Credit Facility.
First Acceptance borrowed the full $25,000,000 principal amount under the Term Loan Facility
and the full $5,000,000 principal amount under the Revolving Credit Facility on January 12, 2006,
to finance the purchase price payable under Purchase Agreement.
The foregoing description of the Credit Agreement is qualified in its entirety by reference to
the Credit Agreement, which is attached as Exhibit 10.2 and incorporated herein by this reference.
Item 2.01 Completion of Acquisition or Disposition of Assets.
On January 12, 2006, First Acceptance acquired the assets of Sellers pursuant to the Purchase
Agreement, the material terms and conditions of which are described in clause (a) of Item 1.01
above and are incorporated herein by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement of a Registrant.
On January 12, 2006, First Acceptance entered into the Credit Agreement, the material terms
and conditions of which are described in clause (b) of Item 1.01 above and are incorporated herein
by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
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10.1 |
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Asset Purchase Agreement dated as of January 12, 2006, by and among
First Acceptance Corporation, Acceptance Insurance Agency of
Illinois, Inc., Insurance Plus Agency II, Inc., Yale International
Insurance Agency, Inc. and Constantine Danos |
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10.2 |
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Credit Agreement dated as of January 12, 2006, by and among First
Acceptance Corporation, SunTrust Bank, in its capacity as a lender
and as administrative agent for the lenders, and First Bank |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
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FIRST ACCEPTANCE CORPORATION
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By: |
/s/ Stephen J. Harrison
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Stephen J. Harrison |
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President and Chief Executive Officer |
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Date: January 18, 2006
INDEX TO EXHIBITS
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Exhibit No. |
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Description |
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10.1 |
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Asset Purchase Agreement dated as of January 12, 2006, by and
among First Acceptance Corporation, Acceptance Insurance
Agency of Illinois, Inc., Insurance Plus Agency II, Inc., Yale
International Insurance Agency, Inc. and Constantine Danos |
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10.2 |
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Credit Agreement dated as of January 12, 2006, by and among
First Acceptance Corporation, SunTrust Bank, in its capacity
as a lender and as administrative agent for the lenders, and
First Bank |