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FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE
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Houston, Texas September 25, 1998
MedicalControl Network Solutions, Inc., a Delaware corporation (the
"Maker"), for value received, hereby promises to pay to __________ (with any
successors or assigns, the "Holder"), at the time and in the manner hereinafter
provided, the principal sum of $_____________ and to pay interest at the rate
of 8.5% per annum computed on the basis of actual days over a 365 day year on
the unpaid balance of such principal sum beginning on the date hereof and
continuing until the due date in the manner hereafter provided. This Note
shall be payable at _____________________, or at such other address as the
Holder shall from time to time designate. This Note has been issued in
connection with that certain Stock Purchase Agreement (the "Purchase
Agreement"), dated as of September 10, 1998, by and among the Maker, the
Holder, Business Health Companies, Inc. ("BHC"), MedicalControl, Inc.
("MedicalControl") and the other shareholders of BHC, pursuant to which the
Maker acquired all of the outstanding shares of capital stock of BHC (the
"Acquisition").
1. Payment. The outstanding principal amount of this Note shall
be due and payable in 20 quarterly installments of $________ plus interest
accrued thereon (subject to adjustment as provided herein), payable on January
2, April 1, July 1 and October 1 of each year, commencing January 2, 1999 and
continuing until October 1, 2003 whereupon this Note (and all accrued interest
thereon) shall be due and payable.
2. Prepayment. This Note may be prepaid in whole or in part
from time to time, without premium or penalty upon 30 days notice from the
Maker to the Holder. At any time during such 30-day period following a
prepayment notice, the Holder can convert all or a portion (in minimum
increments of $25,000) of the then outstanding principal amount of the Note
into shares of common stock of MedicalControl, Inc. ("MedicalControl"), which
directly or indirectly owns all of Maker's capital stock.
3. Conversion. Upon 30 days written notice to the Maker, the
Holder shall have the right to convert all or a portion (such partial
conversion to be in minimum increments of $25,000) of then outstanding
principal amount of this Note into MedicalControl common stock at the
Conversion Rate (as defined hereinafter), subject to adjustment pursuant to the
provisions hereof. Any such conversion must occur on the last business day of
a calendar quarter.
(a) The Conversion Rate in effect at any time for the
MedicalControl common stock shall be the quotient obtained by dividing
the principal amount of this Note together with interest accrued
thereon to be converted by $5.25.
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(b) In order to exercise the conversion privilege, the
Holder shall surrender this Note to MedicalControl at its principal
office, accompanied by written notice to MedicalControl stating the
principal amount of this Note to be converted. Such notice shall also
state the name or names (with addresses) in which the certificate or
certificates for shares of MedicalControl common stock issuable upon
such conversion shall be issued. Within five business days after the
receipt of such notice and surrender of this Note or any replacement
Note, as aforesaid, MedicalControl shall issue and deliver to such
owner, or on its written order to a third party designated by the
owner as the proper and duly authorized recipient thereof, a
certificate or certificates for the number of full shares of
MedicalControl common stock issuable upon the conversion of this Note.
No fractional shares of Common Stock shall be issued upon conversion
of all or a portion of this Note. Any portion of a share which would
otherwise be convertible into a fractional share of MedicalControl
common stock shall be paid in cash by MedicalControl to the Holder
thereof in an amount equal to such fractional share amount multiplied
by the closing price of the MedicalControl common stock as of the date
of conversion. Upon surrender, this Note shall be destroyed and a
renewal note issued as a substitution therefor. The renewal note
shall provide for reduced monthly installments of principal and
interest payable on the Note to reflect the reduction of principal
caused by the conversion.
(c) The Conversion Rate shall be subject to adjustment
from time to time as follows:
(i) If MedicalControl at any time shall consolidate or
merge with or sell or convey all or substantially all of its
assets to any other corporation, this Note shall be convertible
into such number and kind of securities and property as would
have been issuable or distributable on account of such
consolidation, merger, sale or conveyance upon or with respect
to the securities into which this Note is convertible
immediately prior to such consolidation, merger, sale or
conveyance. MedicalControl shall take such steps in connection
with such consolidation or merger or sale as may be necessary to
assure that the conversion provisions of this Note shall
thereafter be applicable, as nearly as reasonably may be, in
relation to any security or property thereafter deliverable upon
conversion of this Note.
(ii) If MedicalControl at any time shall, by
subdivision, combination or reclassification of securities or
otherwise change any of the securities into which this Note is
then convertible into the same or a different number of
securities of any class or classes, this Note shall thereafter
be convertible into such number and kind of securities as would
have been issuable as the result of such change with respect to
the securities which
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were subject to the conversion immediately prior to such
subdivision, combination, reclassification or other change. If
shares of MedicalControl's common stock are subdivided or
combined into a greater or smaller number of shares of common
stock, the number of the shares to be received upon conversion
of this Note shall be proportionately reduced or increased, as
the case may be, by the ratio which the total number of shares
of common stock to be outstanding immediately after such event
bears to the total number of shares of common stock outstanding
immediately prior to such event.
(iii) The foregoing provisions shall similarly apply
to successive transactions of a similar nature by any such
successor or purchaser.
(iv) On the occurrence of an event requiring an
adjustment of the Conversion Rate, MedicalControl shall
forthwith give written notice to the Holder stating the adjusted
Conversion Rate and the adjusted number and kind of securities
purchasable hereunder resulting from the event and setting forth
the method of calculation. The Board of Directors of
MedicalControl, acting in good faith, shall determine the
calculation.
4. Security. A security interest in the assets of Maker and
MedicalControl has been granted by Maker to the Holder to secure the payment of
this Note pursuant to the terms and conditions of the Subordinated Security
Agreements (the "Security Agreement"). In addition, the Maker has pledged 140
shares of BHC common stock acquired from the Holder pursuant to the
Subordinated Pledge Agreement, dated of even date herewith (the "Pledge
Agreement"). The Holder acknowledges that the security interests granted in
the Security Agreement and the Pledge Agreement are subordinated to the holder
of the Senior Indebtedness (as defined herein).
5. Subordination. This Note shall be subordinate to the Senior
Indebtedness, as follows:
(a) In the event of any insolvency or bankruptcy proceedings,
or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to Maker, or to its
property, then the holders of the Senior Indebtedness shall be
entitled to receive payment in full of all Senior Indebtedness before
Holder shall receive any payment on account of principal or interest
due under this Note.
(b) After and during the continuance of an event of default
under the Senior Indebtedness, as to which the holder of this Note
shall have received written notice, such holder shall not exercise or
attempt to exercise any right of offset or counterclaim in respect to
any of its obligations to Maker if the effect
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thereof shall be to reduce the amount of any payment to which the
holders of Senior Indebtedness would be entitled in the absence of
such offset or counterclaim; and if and to the extent that,
notwithstanding the foregoing, such holder is required by any
mandatory provision of law to exercise any such right of offset or
counterclaim each reduction of the amount owing on account of the
principal of or premium (if any) or interest on this Note by reason of
such offset or counterclaim shall be deemed to be a payment by Maker
in a like amount in respect of this Note to which subparagraph (d)
below shall apply.
(c) Following the occurrence and during the continuance of
any event of default under the Senior Indebtedness as to which the
holder of this Note shall have received written notice, and unless and
until such event of default has been waived or cured to the
satisfaction of the holders of the Senior Indebtedness, (i) no payment
of the principal or interest upon this Note shall be made hereunder
until payment in full of all Senior Indebtedness, and (ii) the holders
of the Senior Indebtedness shall be entitled to receive payment in
full of all Senior Indebtedness prior to the entitlement of the holder
of this Note to receive any payment of the principal or interest upon
this Note (except for payments which have been made prior to such
holder's receipt of notice of the occurrence of such event of
default).
(d) If any payment on this Note shall be received by a holder
hereof in violation of the foregoing subparagraphs (a) through (c),
such payment or distribution shall be (and shall be deemed to be) held
in trust for the benefit of, and shall be paid over or delivered or
transferred to, the holders of the Senior Indebtedness for application
to the payment of all Senior Indebtedness remaining unpaid (pro rata
to each holder on the basis of the amount of Senior Indebtedness held
by such holder) to the extent necessary to satisfy such Senior
Indebtedness.
(e) No present or future holder of Senior Indebtedness shall
be prejudiced in his or its right to enforce subordination of Holder
by any act or failure to act on the part of Maker whether or not such
act or failure shall give rise to any right of rescission or other
claim or cause of action on the part of Holder. The provisions of the
foregoing paragraphs with respect to subordination are solely for the
purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand, and Holder on the other hand, and none
of such provisions shall impair, as between Maker and Holder, the
obligation of Maker, which is unconditional and absolute, to pay to
Holder the principal and interest under this Note in accordance with
its terms, nor shall anything in such provisions prevent Holder from
exercising all remedies otherwise permitted by applicable law or
hereunder upon default hereunder, subject to the rights of holders of
Senior Indebtedness under such provisions.
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(f) Subject to the payment in full of all Senior
Indebtedness, Holder shall be subrogated to the rights of the holders
of Senior Indebtedness to receive payments or distributions of cash,
property or securities of Maker applicable to the Senior Indebtedness
until all amounts owing on this Note shall be paid in full.
(g) As used herein, the term "Senior Indebtedness" shall mean
all obligations under the Loan Agreement, term note and line of credit
note entered into by MedicalControl with Bank One, Texas, N.A. on or
about the date hereof and the documents related thereto and all
renewals, replacements, extensions, amendments or addenda thereto (in
each case including any increases in the amount of the indebtedness
referenced therein).
6. Affirmative Covenants. From the date hereof until the
repayment of the outstanding principal amount of this Note and all accrued and
unpaid interest thereon, the Maker covenants and agrees that it will promptly
inform the Holder of an occurrence of an Event of Default (as defined herein).
7. Events of Default. Should any of the following events
(each of which is herein called an "Event of Default") occur, the Maker shall
be in default hereunder:
(a) if a payment of principal of, or interest accrued on,
this Note is not paid when the same becomes due and such amount
remains unpaid for ten (10) days after the Maker's receipt of written
notice; provided, however, such ten-day notice and cure period shall
be applicable only for two late payments and any payments not paid on
any due date thereafter will be an Event of Default without a notice
and cure period;
(b) the Maker or MedicalControl breaches or otherwise fails
to perform or observe any covenant or agreement that is set forth
herein;
(c) an "event of default" occurs under the Security
Agreement or the Pledge Agreement;
(d) the sale of 50% or more of MedicalControl's outstanding
shares of common stock;
(e) MedicalControl or Maker at any time, or in a series of
related transactions with the same or related parties, consolidates
with, or sells or conveys all or substantially all of its assets to,
any other corporation or entity or merges with any corporation or
entity and is not the surviving entity, other than any such
transaction in which the other party or entity is controlled by,
controlling or under the common control of MedicalControl or Maker;
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(f) If an event of default, subject to applicable cure
periods, occurs with respect to the Senior Indebtedness and the holder
of the Senior Indebtedness accelerates the obligations of Maker or
MedicalControl under the Senior Indebtedness and declares the entire
amount of such Senior Indebtedness due and payable; or
(g) the Maker or MedicalControl or any subsidiary makes an
assignment for the benefit of creditors or admits in writing its
inability to pay its debts generally as they become due; or an order,
judgment or decree is entered into adjudicating the Maker or
MedicalControl or any subsidiary bankrupt or insolvent; or any order
for relief with respect to the Maker, MedicalControl or any subsidiary
is entered under the Federal Bankruptcy Code; or the Maker,
MedicalControl or any subsidiary petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of
the Maker, MedicalControl or any subsidiary or any substantial part of
the assets of the Maker, MedicalControl or any subsidiary, or
commences any proceeding (other than a proceeding for the voluntary
liquidation and dissolution of a subsidiary) relating to the Maker,
MedicalControl or any subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the
Maker, MedicalControl or any subsidiary and either (i) the Maker,
MedicalControl or any such subsidiary by any act indicates its
approval thereof, consent thereto or acquiescence therein or (ii) such
petition, application or proceeding is not dismissed within 90 days.
8. Acceleration of Indebtedness. Upon the occurrence of
an Event of Default described in Sections 7(a) or (f) hereof, or upon the
occurrence of any of the Events of Default described in Sections 7(b) through
(e) hereof which is not cured by the Maker or MedicalControl or waived by the
Holder within 15 days after notice to the Maker and MedicalControl by the
Holder, the entire unpaid principal amount, together with any interest accrued
thereon, of this Note shall be due and payable in full at the option of the
Holder.
9. Purchase Agreement. This Note is made subject to the
terms and conditions contained in the Purchase Agreement, including but not
limited to Section 12 of the Purchase Agreement relating to the adjustment of
the principal amount hereof and certain offset rights in favor of Maker. The
amount of the quarterly installments set forth in Article 1 hereof shall be
appropriately adjusted in the event of any adjustment in the principal amount
of this Note as a result of the events described in the preceding sentence.
10. Waiver. The Maker and all other parties now or
hereafter liable hereon, severally waive grace, demand, presentment for
payment, notice of dishonor, protest
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and notice of protest, notice of intention to accelerate, notice of
acceleration, any other notice and diligence in collecting and bringing suit
against any party hereto and agree (a) to all extensions and partial payments,
with or without notice, before or after maturity, (b) to any substitution,
exchange or release of any security now or hereafter given for this Note, (c)
to the release of any party primarily or secondarily liable hereon, and (d)
that it will not be necessary for the holder hereof, in order to enforce
payment of this Note, to first institute or exhaust such holder's remedies
against the Maker or any other party liable therefor or against any security
for this Note. No delay on the part of the Holder in exercising any power or
right under this Note shall operate as a waiver of such power or right, nor
shall any single or partial exercise of any power or right preclude further
exercise of that power or right.
11. Usury. All agreements between the Maker and Holder
hereof, whether now existing or hereafter arising and whether written or oral,
are hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of the maturity hereof, or otherwise, shall
the amount paid, or agreed to be paid to the holder hereof for the use,
forbearance or detention of the funds advanced pursuant to this Note, or
otherwise, or for payment or performance of any covenant or obligation
contained herein or in any other document or instrument evidencing, securing or
pertaining to this Note exceed the maximum amount permissible under applicable
law. If from any circumstances whatsoever fulfillment of any provision hereof
or any other document or instrument described herein, at the time performance
of such provision shall be due, shall involve transcending the limit of
validity prescribed by law, then ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity, and if from any such
circumstances the holder hereof shall ever receive anything of value deemed
interest by applicable law, which would exceed interest at the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance of this Note or on account of any
other principal indebtedness of the Maker to the holder hereof, and not to the
payment of interest, or if such excessive interest exceeds the unpaid principal
balance of this Note and such other indebtedness, such excess shall be refunded
to the Maker. All sums paid, or agreed to be paid, by the Maker for the use,
forbearance or detention of the indebtedness of the Maker to the holder of this
Note shall to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full so that the actual rate of interest on account of such
indebtedness is uniform throughout the term hereof. The terms and provisions
of this paragraph shall control and supersede every other provision of all
agreements between the Maker and holder hereof.
12. Collection Fees. If an Event of Default occurs hereunder and
this Note is placed in the hands of an attorney for collection (whether or not
suit is filed), or if this Note is collected by suit or legal proceedings or
through bankruptcy proceedings, the Maker agrees to pay in addition to all sums
then due hereon, including principal and
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interest, all expenses of collection, including, without limitation, reasonable
attorneys' fees.
13. Governing Law. This Note shall be deemed to be a contract
made under the laws of the State of Texas, and for all purposes shall be
governed by and construed in accordance with the laws of the State of Texas,
exclusive of any such law under with the law of any other jurisdiction would
apply.
14. Successors and Assigns. All references to the Maker herein
shall, and shall be deemed to, include its successors and assigns, and all
covenants, stipulations, promises and agreements contained herein by or on
behalf of the Maker shall be binding upon its successors and assigns, whether
so expressed or not. As used herein, the term "assigns" shall include the
transferee of substantially all of the assets of the Maker.
15. Amendments and Waivers. This Note may be amended by written
agreement of the Maker and the Holder. No waiver of the provisions hereof
shall be effective unless agreed to in writing by the party against whom such
waiver is asserted.
16. Severability Clause. In case any provision in this Note shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
17. Notice. All notices to the Maker required or permitted by
this Note shall be sufficient if given in writing and executed by the Holder.
All such notices to the Maker shall be delivered by registered or certified
mail, return receipt requested, or personally delivered, to the Maker at its
principal place of business on the date of the execution of this Note, or such
other address as the Maker may designate by written notice to the Holder of
this Note.
18. Guaranty. By its execution hereof, MedicalControl irrevocably
and unconditionally guarantees to Holder the prompt performance when due of all
of the Maker's obligations and liabilities to Holder evidenced by this Note,
together with and as adjusted by any and all amendments, modifications,
offsets, supplements, renewals, extensions for any period and/or rearrangements
thereof.
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IN WITNESS WHEREOF, the Maker and MedicalControl have caused this Note
to be duly executed as of the 25th day of September, 1998.
MEDICALCONTROL NETWORK SOLUTIONS, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
President and Chief Executive Officer
MEDICALCONTROL, INC.
By: /s/ X. Xxxx Xxxx
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X. Xxxx Xxxx
President and Chief Executive Officer
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