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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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): September 25, 1998
MEDICALCONTROL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-11922 75-2297429
(State of (Commission File (IRS employment
incorporation) Number) identification no.)
8625 KING GEORGE DRIVE
SUITE 300
DALLAS, TEXAS 75235
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 214-630-6368
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 25, 1998, a subsidiary of MedicalControl, Inc. (together
with its subsidiaries, the "Company") acquired all of the outstanding shares of
capital stock of Business Health Companies, Inc. (together with its
subsidiaries, "BHC"). BHC is engaged in the managed care industry and provides
other healthcare related services, including operating a contracted network of
hospitals, physicians and ancillary healthcare providers; preparing quality
information on hospitals; marketing a contracted dental network; and providing
consulting and repricing services. The purchase price was $4,572,000 consisting
of $2,150,000 in cash, $1,000,000 of convertible subordinated promissory notes
issued to the former shareholders of BHC and 270,900 shares of the Company's
common stock (a portion of which were deposited in escrow to settle potential
future claims). The purchase price was determined as a result of arms' length
negotiations between the Company and BHC. Since July 1997, BHC has marketed a
network product offering which includes directly and indirectly contracted
healthcare providers of BHC and the Company within Texas. Additionally, the
Company has provided claims repricing and administration services to BHC since
September 1997. Total fees paid to the Company by BHC for claims repricing,
administration services and network access fees were $49,200 for the year ended
December 31, 1997, and $220,400 for the six-month period ended June 30, 1998.
The Company funded the cash portion of the purchase price primarily
with borrowings under a new credit facility with Bank One, Texas, N.A. as well
as cash from operations.
The transaction was deemed to be effective as of the closing of
business on September 1, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. Financial statements of BHC
prepared pursuant to Regulation S-X and as required by Item 310(c) and (d) of
Regulation S-B are not currently available but will be filed not later than 60
days from the date on which this report on Form 8-K was required to be filed.
(b) PRO FINANCIAL INFORMATION. Pro forma financial statements of BHC prepared
pursuant to Regulation S-X and as required by Item 310(c) and (d) of Regulation
S-B are not currently available but will be filed not later than 60 days from
the date on which this report on Form 8-K was required to be filed.
(c) EXHIBITS.
2.1 Asset Purchase Agreement, dated as of September 10, 1998, by and among
Business Health Companies, Inc.; Douglas L. Elden; Donald Richard
Huntington; Ralph T. Smith, Jr.; MedicalControl, Inc.; and
MedicalControl Network Solutions, Inc. (filed herewith).
4.1 Form of Convertible Subordinated Promissory Note (filed herewith)
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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.
MEDICAL CONTROL, INC.
Date: October 9, 1998 By: /s/ J. Ward Hunt
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J. Ward Hunt
President and Chief Executive Officer
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INDEX TO EXHIBITS
2.1 Asset Purchase Agreement, dated as of September 10, 1998, by and among
Business Health Companies, Inc.; Douglas L. Elden; Donald Richard
Huntington; Ralph T. Smith, Jr.; MedicalControl, Inc.; and
MedicalControl Network Solutions, Inc. (filed herewith).
4.1 Form of Convertible Subordinated Promissory Note (filed herewith).
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of the 10th
day of September, 1998, is by and among Business Health Companies, Inc., a
Delaware corporation (the "Company"); Douglas L. Elden ("Elden"); Donald
Richard Huntington ("Huntington"); Ralph T. Smith, Jr. ("Smith" and together
with Elden and Huntington, the "Shareholders"); MedicalControl, Inc., a
Delaware corporation ("MedicalControl"), and MedicalControl Network Solutions,
Inc., a Delaware corporation and a subsidiary of MedicalControl ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the managed care industry and
provides other healthcare related services, including operating a contracted
network of hospitals, physicians and ancillary healthcare providers; preparing
quality information on hospitals; marketing a contracted dental network; and
providing consulting and repricing services (the "Business"); and
WHEREAS, the Shareholders own all of the capital stock of the Company
(such shares issued by the Company as of the date hereof, together with those
shares of capital stock issued on or before the Closing, as hereinafter
defined, are collectively referred to as the "Shares"); and
WHEREAS, the Shareholders desire to sell to the Purchaser, and
Purchaser desires to purchase from the Shareholders, all of the Shares and
MedicalControl wishes to undertake the performance of certain obligations in
connection with this acquisition to induce the Shareholders to sell, all
subject to the terms, conditions and exceptions contained herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Shares. Upon the terms and subject to
the conditions set forth in this Agreement, at the Closing (as defined in
Section 2.2 hereof), the Shareholders shall assign, transfer, convey and
deliver to Purchaser, and Purchaser shall purchase from the Shareholders, all
right, title and interest in and to all of the Shares, free and clear of all
liens, security interests, charges, encumbrances and rights of others.
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1.2 Employment Agreements and Non-Competition Agreement. At the
Closing, Purchaser and each of the Messrs. Huntington and Smith shall enter
into an employment, confidentiality and non-competition agreement substantially
in the form of Exhibit "A" hereto (the "Employment Agreements") and Mr. Elden
shall enter into a confidentiality and non- competition agreement substantially
in the form of Exhibit "B" hereto (the "Confidentiality Agreement").
1.3 Excluded Liabilities. Notwithstanding anything to the
contrary in this Agreement, the obligations and liabilities of the Company
designated as excluded liabilities on Schedule 1 attached hereto and made a
part hereof (the "Excluded Liabilities") shall not be acquired by the
Purchaser. The Shareholders agree to assume and discharge all of the Excluded
Liabilities from and after the Effective Date (as defined).
2. CONSIDERATION; CLOSING
2.1 Consideration for Shares. The consideration to be received by
the Shareholders in exchange for the Shares shall be the following:
(a) A total of $2,150,000 will be payable in cash at
the Closing by wire transfer to an account specified by the
Shareholders.
(b) The Purchaser will issue to each Shareholder, in
accordance with their respective ownership of the Shares, a
convertible subordinated promissory note in the aggregate principal
amount of $1,000,000, substantially in the form of Exhibit "C"
attached hereto (collectively, the "Notes"). Subject to the
consent of the independent, unaffiliated third party primary lender
of MedicalControl, the repayment of the Notes will be secured by
(i) a lien (which shall be junior to liens of MedicalControl's
primary lender) on the assets of MedicalControl and the Purchaser
pursuant to the Subordinated Security Agreement (the "Security
Agreement") substantially in the form of Exhibit "D" attached
hereto and (ii) a pledge of 20% of the Shares sold by the
Shareholders, which Subordinated Pledge Agreement (the "Pledge
Agreement") shall be substantially in the form of Exhibit "E"
attached hereto.
(c) A total of 270,900 shares (the "Parent Shares")
of common stock of MedicalControl will be issued, transferred and
delivered to the Shareholders at the Closing. Of such Parent
Shares hereunder, 95,238 Parent Shares (the "Escrow Shares") will
be deposited with Southwest Guaranty Trust, Inc. or other entity
agreed to by the parties as escrow agent pursuant to the terms of
the escrow agreement (the "Escrow Agreement")
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substantially in the form of Exhibit "F" attached hereto. The
escrow agent shall hold the Escrow Shares for a period of two
years, after which the Escrow Amount shall be delivered to the
Shareholders, subject to earlier claims in favor of Purchaser as
set forth in the Escrow Agreement.
(d) The Shareholders hereby appoint Douglas L. Elden
as their attorney-in-fact and as the Shareholder Representative
under the Escrow Agreement, the Pledge Agreement and Security
Agreement. The Shareholders acknowledge that the Shareholder
Representative has the full and independent authority to act on
behalf of the Shareholders as to matters set forth therein and the
parties to such agreements may rely on the acts and words of the
Shareholder Representative acting in such capacity.
2.2 Time of Closing. A closing (the "Closing") for the sale and
purchase of the Shares shall be held on or before September 30, 1998 (or such
later date as may be agreed to by the parties, such agreement not to be
unreasonably withheld) at the offices of Purchaser's special counsel, Crouch &
Hallett, LLP, located at 717 North Harwood Street, Suite 1400, Dallas, Texas,
75201 or at such other place or places and/or on such other date as may be
agreed upon by the parties (the "Closing Date"). The parties agree that all
documents to be delivered at the Closing (other than certificates evidencing
the Parent Shares) will be executed and placed in escrow with Crouch & Hallett,
L.L.P. as escrow agent at least two business days prior to the Closing. The
effective date (the "Effective Date") of the sale and purchase of the Shares
contemplated hereby is September 1, 1998.
2.3 Closing Procedure. At the Closing, the Shareholders shall
deliver to Purchaser stock certificates duly endorsed to Purchaser and
representing the Shares, in form sufficient to vest record and beneficial title
fully in Purchaser to the Shares. Against such delivery, (a) Purchaser shall
issue and deliver to the Shareholders the cash purchase price, the Notes, the
Pledge Agreement and Security Agreement and the Parent Shares (less the Escrow
Shares, copies of which shall be provided) described in Section 2.1 above, and
(b) Purchaser, the Company and each of the Shareholders shall execute and
deliver the Escrow Agreement, the Non-Competition Agreement or Employment
Agreement, as applicable. Each party will cause to be prepared, executed and
delivered all other documents required to be delivered by such party pursuant
to Article 8 hereof and all other appropriate and customary documents as
another party or its counsel may reasonably request for the purpose of
consummating the transactions contemplated by this Agreement. All actions
taken at the Closing shall be deemed to have been taken simultaneously at the
time the last of any such actions is taken or completed.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.
The Shareholders and the Company, jointly and severally (subject to
the provisions of Section 15.10 hereof), hereby represent and warrant to
Purchaser as follows (except as qualified by the Disclosure Schedule attached
hereto):
3.1 Organization; Good Standing.
(a) The Company and each Company Subsidiary (as
defined below) is a corporation, duly incorporated, validly
existing and in good standing under the laws of its incorporation
and has all requisite corporate power and authority to own and
lease its properties and assets and to carry on its business as
currently conducted.
(b) The Disclosure Schedule sets forth an
organizational chart that includes the Company and all Company
Subsidiaries. Except as set forth on the Disclosure Schedule, all
outstanding shares of capital stock of each Company Subsidiary are
owned either by the Company or another Company Subsidiary. For
purposes of this Agreement, a "Subsidiary" of any person means (A)
a corporation in which such person, a subsidiary of such person, or
such person and one or more subsidiaries of such person, directly
or indirectly, at the date of determination, has either (i) a
majority ownership interest or (ii) the power, under ordinary
circumstances, to elect, or to direct the election of, a majority
of the board of directors of such corporation or (B) a partnership
in which such person, a subsidiary of such person, or such person
and one or more subsidiaries of such person (i) is, at the date of
determination, a general partner of such partnership, or (ii) has a
majority ownership interest in such partnership or the right to
elect, or to direct the election of, a majority of the governing
body of such partnership, or (C) any other person (other than a
corporation or a partnership) in which such person, a subsidiary of
such person, or such person and one or more subsidiaries of such
person has either (i) at least a majority ownership interest or
(ii) the power to elect, or to direct the election of, a majority
of the directors or other governing body of such person. For the
purposes of this Article 3, the term "Company" shall mean Business
Health Companies, Inc. and the Company Subsidiaries.
(c) Each of the Company and the Company Subsidiaries
is duly qualified and licensed to do business and is in good
standing in all jurisdictions where it owns or leases real property
or has employees.
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3.2 Due Authorization; Execution and Delivery. The Company and
each of the Shareholders have full power and authority to enter into and
perform this Agreement and the other documents to be executed by them in
connection herewith and to carry out the transactions contemplated hereby and
thereby. The Company has taken all requisite action to approve the execution
and delivery of this Agreement and the other documents to be executed by it in
connection herewith and the consummation of the transactions contemplated
hereby and thereby. This Agreement and the other documents contemplated hereby
constitute the valid and binding obligation of the Company and the
Shareholders, as applicable, enforceable against them in accordance with their
respective terms, except as may be limited by the availability of equitable
remedies or by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally. Neither the execution and
delivery by the Company or the Shareholders of this Agreement and the other
documents to be executed by them in connection herewith nor the consummation of
the transactions contemplated hereby and thereby will: (i) conflict with or
result in a breach of the articles of incorporation or bylaws of the Company;
(ii) violate any statute, law, rule or regulation or any order, writ,
injunction or decree of any court or governmental authority, which violation,
either individually or in the aggregate, might reasonably be expected to have a
material adverse effect on the business or operations of the Company or
Purchaser's ownership of the Shares; or (iii) violate or conflict with or
constitute a default under (or give rise to any right of termination,
cancellation or acceleration under), or result in the creation of any lien on
the Shares (except pursuant to this Agreement) or any of the properties or
assets of the Company pursuant to any material agreement, indenture, mortgage
or other instrument to which the Shareholders or the Company is a party or by
which their assets may be bound or affected.
3.3 Consents. No approval, authorization, consent, order or other
action of, or filing with, any governmental authority or administrative agency
is required in connection with the execution and delivery by the Company or the
Shareholders of this Agreement or the other documents to be executed by them in
connection herewith or the consummation of the transactions contemplated hereby
and thereby. Except as set forth in the Disclosure Schedule, no approval,
authorization or consent of any other third party is required in connection
with the execution and delivery by the Company or the Shareholders of this
Agreement or the other documents to be executed by them in connection herewith
and the consummation of the transactions contemplated hereby and thereby.
3.4 Transactions with Affiliates. At the time of the Closing,
none of the Company's shareholders, officers, or directors or any of foregoing
persons' Affiliates or, to the Company's and the Shareholders' knowledge, any
employee will have any interest in or will own any property or right used
principally in the conduct of the
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Business. The term "Affiliate" shall mean the Shareholders or the Company's
officers, employees and directors, any partner of any such person, or any
member of the immediate family (including brother, sister, descendant, ancestor
or in-law) of any such person, or any corporation, partnership, trust or other
entity in which any such person or any such family member has a substantial
interest or is a director, officer, partner or trustee.
3.5 Title to Assets. The Company is the sole and exclusive legal
owner of all right, title and interest in and has good and marketable title to
all of the assets that it purports to own (the "Assets"), free and clear of
liens, claims and encumbrances except (i) liens, claims and encumbrances to be
released at Closing, (ii) liens for taxes not yet payable, and (iii) purchase
money security interests on assets being financed. Purchaser and MedicalControl
acknowledge that Messrs. Huntington and Smith own a entity named Huntington and
Smith, L.L.C. which is not part of the Assets transferred to Purchaser. At the
Closing, the Assets owned by the Company shall include, by way of example and
not of limitation, the following:
(a) Accounts receivable, notes receivable (if any)
and items of prepaid expense relating to the Company's operations;
(b) Fixtures, equipment, inventories of supplies,
furniture, office equipment and other tangible assets and property
used in business operations;
(c) Rights under agreements and contracts entered
into by the Company;
(d) Any right, title or interest the Company has in
any tradenames, trademarks, service marks, copyrights and patents;
(e) All books and records related to the Company,
the Assets or the operation of the Business, including all
financial, accounting and tax records, computer data and programs,
and records and all correspondence with and documents pertaining to
suppliers, governmental authorities and other third parties; and
(f) Governmental licenses as required to conduct the
Business.
3.6 Real Estate.
(a) The Company does not own and has never owned any
real property. With respect to the Company's leased real property
(the "Real
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Estate"), the Company has delivered to Purchaser a true, accurate
and complete copy of the applicable lease or sublease (the
"Leases"). Each Lease is valid, binding and in full force and
effect, all rent and other sums and charges payable by the Company
or any Company Subsidiary as tenants thereunder are current and no
termination event or condition or uncured default of a material
nature on the part of the Company or any Company Subsidiary exists
under such Lease.
(b) The Company has received no notice of, and has
no actual knowledge of, any material violation of any zoning,
building, health, fire, water use or similar statute, ordinance,
law, regulation or code in connection with the Real Estate.
(c) The Company has received no notice of, and has
no actual knowledge of, any hazardous or toxic material (as
hereinafter defined) existing on the Real Estate which is, in any
case, in material violation of applicable environmental law. For
purposes of this Section, "hazardous or toxic material" shall mean
waste, substance, materials, smoke, gas or particulate matter
designated as hazardous, toxic or dangerous under any environmental
law. For purposes of this Section, "environmental law" shall
included the Comprehensive Environmental Response Compensation and
Liability Act, the Clean Air Act, the Clean Water Act and any other
applicable federal, state or local environmental, health or safety
law, rule or regulation relating to or imposing liability or
standards concerning or in connection with hazardous, toxic or
dangerous waste, substance, materials, smoke, gas or particulate
matter.
3.7 Condition of Assets.
(a) All of the Assets viewed as a whole and not on an
asset by asset basis are in good condition and working order,
ordinary wear and tear excepted, free from any known defects except
such minor defects as do not substantially interfere with the
continued use thereof. The fixed assets of the Company as of the
date hereof are set forth on the Disclosure Schedule. The Company
has in force such insurance of its properties and operations as is
set forth on the Disclosure Schedule.
(b) The accounts receivable of the Company as set
forth on the Balance Sheets (as defined in Section 3.14) and
arising since the date thereof are valid and genuine; have arisen
solely out of bona fide sales and deliveries of goods, performance
of services and other business transactions in the ordinary course
of business consistent with past practice; are not subject to
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valid defenses, set-offs or counterclaims; and are collectible
within 90 days after billing at the full recorded amount thereof
less the recorded allowance for collection losses set forth in such
balance sheet. The allowance for collection losses on the Balance
Sheets has been determined in accordance with generally accepted
accounting principles consistent with past practice.
3.8 Governmental Licenses. The Disclosure Schedule lists and
accurately describes all licenses, permits, orders, approvals, authorizations
and filings issued to the Company by a governmental or regulatory authority in
connection with the lawful ownership and operation of the Company's business
(the "Governmental Licenses"), except where the failure to hold such
Governmental License would not have a material adverse effect on the Company.
The Company has furnished to Purchaser true and accurate copies of all such
Governmental Licenses, and each Governmental License is in full force and
effect and is valid under applicable federal, state and local laws.
3.9 Taxes. All tax reports and returns required to be filed by or
relating to the Company's assets and operations (including sales, use, income,
property, franchise and employment taxes) have been filed with the appropriate
federal, state and local governmental agencies, and there have been paid all
taxes, penalties, interest, deficiencies, assessments or other charges due as
reflected on the filed returns or claimed to be due by such federal, state or
local taxing authorities (other than taxes, deficiencies, assessments or claims
which are being contested in good faith and which in the aggregate are not
material). There are no examinations or audits pending or unresolved
examinations or audit issues with respect to the Company's federal, state or
local tax returns. All additional taxes, if any, assessed as a result of such
examinations or audits have been paid. There are no pending claims or
proceedings relating to, or asserted for, taxes, penalties, interest,
deficiencies or assessments against the Company. The Company has delivered to
the Purchaser true, accurate and complete copies of all tax returns and filings
made by them in the last three years and any related correspondence from the
Company, the Shareholders or applicable taxing authority relating to such
returns and filings.
3.10 Litigation. There is no order of any court, governmental
agency or authority and no action, suit, proceeding or investigation, judicial,
administrative or otherwise, of which the Shareholders have knowledge that is
pending or threatened against or affecting the Company which, if adversely
determined, might materially and adversely affect the business, operations,
properties, assets or conditions (financial or otherwise) of the Company or
which challenges the validity or propriety of any of the transactions
contemplated by this Agreement.
3.11 Reports and Governmental Compliance. The Company has duly
filed all reports required to be filed by law or applicable rule, regulation,
order, writ or decree
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of any court, governmental commission, body or instrumentality and have made
payment of all charges and other payments, if any, shown by such reports to be
due and payable.
3.12 Employee Benefit Plans; Labor Controversies. The Disclosure
Schedule sets forth all liabilities of the Company under ERISA or similar laws
with respect to employee benefit plans. There are no labor disputes of a
material nature pending between the Company, on the one hand, and any of its
employees, on the other hand, and there are no known organizational efforts
presently being made involving any of such employees. The Company has complied
in all material respects with all laws relating to the employment of labor,
including any provisions thereof relating to wages, hours, collective
bargaining and the payment of social security and other taxes, and is not
liable for any material arrearages of wages or any taxes or penalties for
failure to comply with any of the foregoing. The Company is not a party to any
agreement, contract or understanding that would obligate the Company to make
"golden parachute" payments, severance payments or other similar payments to
employees, agents or independent contractors due to the transactions
contemplated hereby.
3.13 Capitalization. All of the issued and outstanding shares of
the capital stock of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, and (as of the date hereof and the
Closing) will be owned of record and beneficially by the Shareholders. Set
forth on the Disclosure Schedule is an accurate and complete listing of all of
the shareholders of the Company and the number of outstanding shares of capital
stock owned by such shareholders. There are 300 shares of capital stock of the
Company held in its treasury which were redeemed by the Company from a former
shareholder. There are no outstanding subscription, contract, option, warrant,
call or other right obligating the Company to issue, sell, exchange or
otherwise dispose of, or to purchase, redeem or otherwise acquire, shares of,
or securities convertible into or exchangeable for, capital stock of the
Company. The Shareholders are the lawful, sole and beneficial owners of the
Shares as reflected on the Disclosure Schedule, free and clear of all liens,
claims and encumbrances of every kind, and, at the Closing, the Shareholders
will convey to Purchaser good and valid title to the Shares. The existing
Shareholders' Agreement among the Shareholders will be terminated at or prior
to the Closing.
3.14 Financial Statements and Records of the Company.
(a) The Company has delivered, or will deliver prior
to Closing, to Purchaser true, correct and complete copies of the
following financial statements (the "Company Financial
Statements"): (i) audited balance sheets (the "Balance Sheets") as
of June 30, 1997 and 1998 and the related audited statements of
income, cash flow and changes in stockholders' equity
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for the years then ended and (ii) the unaudited statements of
income and cash flow for the six-month period ended June 30, 1998
and the unaudited balance sheet, statements of income and cash flow
for the two-month period ended August 31, 1998 (the "Interim
Statements").
(b) The Company Financial Statements present fairly
the assets, liabilities and financial position of the Company as of
the dates thereof and the results of operations thereof for the
periods then ended and have been prepared in conformity with
generally accepted accounting principles applied on a consistent
basis with prior periods, except, with respect to the Interim
Statements, the lack of footnotes thereto and subject to normal
year-end adjustments. The books and records of the Company have
been and are being maintained in accordance with good business
practice, reflect only valid transactions, are complete and correct
in all material respects and present fairly in all material
respects the basis for the financial position and results of
operations of the Company set forth in the Company Financial
Statements.
3.15 Absence of Certain Changes. Since June 30, 1998, the Company
has not (i) suffered any change in its financial condition or results of
operations other than changes in the ordinary course of business that,
individually or in the aggregate, have not had a material adverse effect on the
Company, (ii) acquired or disposed of any asset, or incurred, assumed,
guaranteed or endorsed any liability or obligation, or subjected or permitted
to be subjected any material amount of assets to any lien, claim or encumbrance
of any kind, except in the ordinary course of business or as contemplated by
this Agreement, (iii) entered into or terminated any Material Contract (as
hereinafter defined), or agreed or made any material changes in any Material
Contract, other than renewals and extensions thereof in the ordinary course of
business, (iv) declared, paid or set aside for payment any dividend or
distribution with respect to its capital stock, (v) entered into any collective
bargaining, employment, consulting, compensation or similar agreement with any
person or group or (vi) entered into, adopted or amended any employee benefit
plan. At all times from the date of this Agreement through the Closing Date,
the Shareholders will cause the Company to be operated in the ordinary course
of business, including the payment of trade payables in the ordinary course of
business consistent with past practices of the Company, except for such changes
as are contemplated by this Agreement.
3.16 Material Undisclosed Liabilities. Other than as set forth on
the Company Financial Statements, there are no material liabilities or
obligations of the Company of a nature required to be disclosed on financial
statements prepared in accordance with generally accepted accounting
principles.
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3.17 Contracts and Agreements.
(a) The Disclosure Schedule contains a list, complete and accurate
in all material respects, of all of the following categories of contracts and
agreements to which the Company is bound at the date hereof: (i) employee
benefit plans, employment, consulting or similar contracts; (ii) client
contracts and provider contracts (the "Client/Provider Contracts"); (iii) any
contracts that involve remaining aggregate payments by the Company or a Company
Subsidiary in excess of $5,000 or which have a term in excess of one year; (iv)
insurance policies; (v) any contract containing non- competition or exclusivity
covenants or restrictions; and (vi) other contracts not made in the ordinary
course of business (collectively the "Material Contracts"). The Company is not
in default with respect to any of the Material Contracts.
(b) Each of the Material Contracts is valid and enforceable in
accordance with its terms; the Company is, and to the Company's knowledge all
other parties thereto are, in compliance with the provisions thereof; the
Company is not, and to the Company's knowledge no other party thereto is, in
default in the performance, observance or fulfillment of any material
obligation, covenant or condition contained in any Material Contract; and no
event has occurred which with or without the giving of notice or lapse of time,
or both, would constitute a default under any Material Contract.
(c) The Company has not received any notice from any party to any
Client/Provider Contract that such party wishes to terminate such
Client/Provider Contract or does not want to renew any such Client/Provider
Contract upon the expiration of its current term. The number of the Company's
covered employees under the Client/Provider Contracts exceeds 50,000.
3.18 Trade Payables. The trade payables of the Company have arisen
in the ordinary course of its business and are consistent (in both amount and
type) with past practices. All outstanding trade payables (other than the trade
payables which are Excluded Liabilities) as of the Closing Date relate to
invoices that have been billed to the Company no more than 45 days from such
date.
3.19 Completeness of Disclosure. No representation or warranty by
the Company or the Shareholders in this Agreement nor any certificate, schedule,
statement, document or instrument furnished or to be furnished to Purchaser
pursuant hereto, or in connection with the execution or performance of this
Agreement, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact required to be stated herein or
therein or necessary to make any statement herein or therein not misleading.
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3.20 Finders and Brokers. No person has, as a result of any
agreement or action of the Company or the Shareholders, any valid claim against
any of the parties hereto for a brokerage commission, finder's fee or other like
payment.
3.21 Completeness of Disclosure. No representation or warranty by
the Company or the Shareholders in this Agreement nor any certificate, schedule,
document or instrument furnished or to be furnished to Purchaser and
MedicalControl pursuant hereto, or in connection with the negotiation, execution
or performance of this Agreement, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make any statement herein or therein
not misleading.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MEDICALCONTROL.
Purchaser and MedicalControl represent and warrant to the Company
and the Shareholders as follows:
4.1 Organization and Good Standing. Purchaser and MedicalControl
are corporations duly incorporated and organized, validly existing and in good
standing under the laws of the State of Delaware and have all requisite
corporate power and authority to own and lease their properties and assets and
carry on their business as currently conducted. All outstanding shares of
capital stock of the Purchaser are owned by MedicalControl. MedicalControl and
Purchaser are duly qualified and licensed to do business and are in good
standing in all jurisdictions where they own or lease real property or have
employees.
4.2 Due Authorization. Purchaser and MedicalControl have full
power and authority to enter into this Agreement and the other documents to be
executed by them in connection herewith and to carry out their obligations
hereunder. The execution and delivery of this Agreement and the other
documents to be executed by them in connection herewith and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Purchaser and MedicalControl.
This Agreement and the other documents to be executed by it in connection
herewith have been duly executed and delivered by Purchaser and MedicalControl
and constitute the legal, valid and binding obligation of each, enforceable
against each in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally or general equitable
principles.
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4.3 Execution and Delivery. The execution and delivery by
Purchaser and MedicalControl of this Agreement and the other documents to be
executed by them in connection herewith and the consummation of the
transactions contemplated hereby and thereby will not: (i) conflict with or
result in a breach of the Certificate of Incorporation or Bylaws of Purchaser
or MedicalControl; (ii) violate any law, statute, rule or regulation or any
order, writ, injunction or decree of any court or governmental authority; or
(iii) violate or conflict with or constitute a default under (or give rise to
any right of termination, cancellation or acceleration under) any indenture,
mortgage, lease, contract or other instrument to which Purchaser or
MedicalControl is a party or by which they may be bound or affected.
4.4 Consents. No approval, authorization, consent, order or other
action of, or filing with, any governmental authority or administrative agency
is required in connection with the execution and delivery by Purchaser or
MedicalControl of this Agreement or the other documents to be executed by them
in connection herewith or the consummation of the transactions contemplated
hereby and thereby. No approval, authorization or consent of any other third
party is required in connection with the execution and delivery by the
Purchaser or MedicalControl of this Agreement or the other documents to be
executed by them in connection herewith and the consummation of the
transactions contemplated hereby and thereby which has not been obtained.
4.5 Parent Shares. The Parent Shares to be issued to the
Shareholders by virtue of the transactions contemplated hereby, when issued and
delivered, will be duly authorized, validly issued, fully paid, and
nonassessable, free and clear of all liens, claims and encumbrances. The
Parent Shares shall be identical in rights to outstanding shares of
MedicalControl's common stock. MedicalControl does not make any representation
as to the market price which the Shareholders will realize upon the ultimate
disposition of the Parent Shares, it being acknowledged by the Shareholders
that the market price of publicly traded securities will be affected by many
factors which are outside the control of Parent and as to which it can offer no
assurance.
4.6 MedicalControl Reports to SEC. MedicalControl has furnished
to the Shareholders true and complete copies of (i) the MedicalControl's Form
10-KSB for the year ended December 31, 1997 and (ii) the MedicalControl's
Quarterly Reports on Form 10-Q for the first two fiscal quarters of fiscal 1998
(collectively the "SEC Reports"). The SEC Reports did not, on their respective
dates of filing, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. MedicalControl has filed on a timely basis all documents
required to be filed by it with the Securities and Exchange Commission (the
"SEC") and all such documents complied as to form with
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the applicable requirements of law. MedicalControl is not aware of any reason
that would delay or prevent such timely filing in the future. All financial
statements included in such documents, including without limitation, the SEC
Reports, (i) complied as to form in all material respects with the applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, (ii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein), (iii) fairly present the
financial position, results of operations and cash flows of MedicalControl as
of the respective dates thereof and for the periods referred to therein, and
(iv) are consistent with the books and records of MedicalControl. Since the
date of the most recent SEC Reports, there has not been any material adverse
change in the assets, business, financial condition or results of operations of
MedicalControl.
4.7 No Material Undisclosed Liabilities. There are no material
liabilities or obligations of MedicalControl of any nature, whether absolute,
accrued, contingent or otherwise, other than (i) the liabilities and
obligations that are fully reflected in the SEC Reports, or incurred in the
ordinary course of business and consistent with past practices since such date,
(ii) liabilities or obligations not required to be disclosed in financial
statements prepared in accordance with generally accepted accounting principles
and (iii) liabilities incurred in connection with this Agreement and the
transactions contemplated hereby.
4.8 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Purchaser and
MedicalControl directly with the Shareholders and the Company. No person has as
a result of any agreement or action of the Purchaser or MedicalControl any
valid claim against any of the parties hereto for a brokerage commission,
finder's fee or other like payment.
5. CERTAIN COVENANTS AND AGREEMENTS
The Shareholders and the Company, jointly and severally (subject to
the provisions of Section 15.10 hereof), covenant and agree that from and after
the execution and delivery of this Agreement to and including the Closing Date
(and thereafter as reflected below), it shall comply (with respect to the
Company), and they shall cause the Company to comply (with respect to the
Shareholders), with the covenants set forth below, and Purchaser and
MedicalControl covenant and agree that they shall similarly comply with said
covenants to the extent applicable to either or both of them.
5.1 Access. Upon reasonable notice, the Company and the
Shareholders will give to Purchaser and its counsel, accountants and other
authorized representatives, full access during reasonable business hours to all
of the Company's properties, books,
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contracts, documents and records and shall furnish Purchaser with all such
information concerning the Company's affairs, including financial statements,
as the other may reasonably request in order that Purchaser may have full
opportunity to make such reasonable investigations as it shall desire for the
purpose of verifying the performance of and compliance with the
representations, warranties, covenants and the conditions contained herein or
for other purposes reasonably related to the transactions contemplated hereby.
If the sale of the Shares to Purchaser does not occur or this Agreement is
terminated, all copies of the Company's properties, books, contracts, documents
and records which are in the possession of Purchaser or its affiliates, agents,
representatives, counsel or accountants, including all copies thereof, shall be
returned immediately to Company, and all copies of Purchaser's or
MedicalControl's properties, books, contracts, documents and records which are
in the possession of the Company, the Shareholders or any of their affiliates,
agents, representatives, counsel or accountants, including all copies thereof,
shall be returned immediately to Purchaser; provided, however, unless
specifically requested by the Company, Purchaser will not return any
information provided to it by the Company in connection with certain on-going
services performed by Purchaser on the Company's behalf. The Company and the
Shareholders will take all reasonably required action necessary to enable
Purchaser, its counsel, accountants and other representatives to discuss the
affairs, properties, business, operations and records of the other at such
times and as often as the Purchaser may reasonably request with executives,
independent accountants and counsel of the Company and the Shareholders. The
Company and the Shareholders acknowledge that Purchaser, at its own expense,
may audit the books and records of the Company, and the Company and the
Shareholders agree to provide such assistance as may be reasonably requested by
the Purchaser in conducting such audit. In the event that the Closing does not
occur and this Agreement is terminated, the Company and the Shareholders, on
the one hand, and Purchaser, on the other, shall (i) maintain the
confidentiality of all information obtained from the other party in connection
herewith, except for such information as is in the public domain; (ii) not use
any such information so obtained to the detriment or competitive disadvantage
of the other party; and (iii) promptly return copies of any books, records,
contracts and any other documentation of the other delivered to such party
pursuant to the transactions contemplated hereby.
5.2 Best Efforts. The Company, Purchaser and MedicalControl
shall take all reasonable action necessary to consummate the transactions
contemplated by this Agreement and will use all necessary and reasonable means
at their disposal to obtain all necessary consents and approvals of other
persons and governmental authorities required to enable it to consummate the
transactions contemplated by this Agreement. Each party shall make all
filings, applications, statements and reports to all governmental agencies or
entities which are required to be made prior to the Closing Date by or on its
behalf pursuant to any statute, rule or regulation in order
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to consummate the transactions contemplated by this Agreement, and copies of
all such filings, applications, statements and reports shall be provided to the
other.
5.3 Public Announcements. Unless otherwise provided by law, any
public announcement or similar publicity with respect to the transactions
contemplated by this Agreement will be issued, if at all, only at such time and
only in such manner as Purchaser and the Company mutually determine. The
Shareholders, Purchaser and MedicalControl will mutually agree concerning the
means by which the Company's employees, customers, and suppliers and others
having dealings with the Company will be informed of the transactions
contemplated by this Agreement, and Purchaser will have the right to be present
for any such communication.
5.4 Ordinary Course of Business. During the period from the
execution and delivery of this Agreement through the Closing Date, the Company
shall (i) conduct their operations in the ordinary course of business consistent
with past and current practices, (ii) use reasonable best efforts to maintain
and preserve intact their goodwill and business relationships, (iii) not enter
into any agreement which involves the payment by the Company of an aggregate
amount exceeding $15,000 or which has a term exceeding one year or (iv) take any
action which would cause any representation contained in Article 3 to be untrue
as of the Closing Date. Notwithstanding anything to the contrary, the Purchaser
and MedicalControl acknowledge that the Company has paid management cash bonuses
to Messrs. Huntington, Smith and Jenny Sweaney, and has made contributions to an
employee profit sharing plan previously discussed with Purchaser, which
contributions did not exceed $45,000 in the aggregate. The parties agree that
the cash remaining in the Company's operating and money market accounts (which
shall not be less than $5,000 as of the Closing) shall be recorded as a payable
to Messrs. Huntington and Smith, such payable to be liquidated within 60 days
from the Closing. The Company agrees to reimburse Messrs. Huntington and Smith
for any incremental federal income taxes, if any, that may be owed by them as a
result of such payable being distributed to Huntington and Smith subsequent to
Closing rather than prior to Closing.
5.5 No Solicitation. From the date hereof until the Closing Date or
until this Agreement is terminated or abandoned as provided in this Agreement,
neither the Company nor any of the Shareholders shall directly or indirectly (i)
solicit or initiate discussion with or (ii) enter into negotiations or
agreements with, or furnish any information to, any corporation, partnership,
person or other entity or group (other than Purchaser, MedicalControl, an
affiliate of MedicalControl or their authorized representatives pursuant to this
Agreement) concerning any proposal for a merger, sale of any of its assets other
than in the ordinary course of business, sale of shares of stock or securities
or other takeover or business combination transaction (the "Acquisition
Proposal") involving the Company or any of its subsidiaries, and the
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Company will instruct its officers, directors, advisors and its financial and
legal representatives and consultants not to take any action contrary to the
foregoing provisions of this sentence. The Company and the Shareholders will
notify Purchaser promptly if the Company or the Shareholders become aware that
any inquiries or proposals are received by, any information is requested from
or any negotiations or discussions are sought to be initiated with, the Company
or any of the Shareholders with respect to an Acquisition Proposal, and the
Company and the Shareholders shall promptly deliver to Purchaser any written
inquiries or proposals received by them relating to an Acquisition Proposal.
5.6 Board Nomination. MedicalControl will use its reasonable best
efforts, subject to fiduciary duties, to include one designee selected by the
mutual agreement of Messrs. Huntington and Smith to MedicalControl's proposed
slate of directors at MedicalControl's annual shareholders meetings so long as
one or more of such shareholders own at least 50% of the Parent Shares acquired
by them at the Closing or to be acquired upon the conversion of the Notes, and
one or more of such Shareholders are employed by the Company at the time of the
preparation of the proxy statement for such annual meeting. A MedicalControl
shareholder, The Answer Partnership, Ltd., will execute the Voting Agreement
substantially in the form of Exhibit "G" attached hereto (the "Voting
Agreement").
5.7 Officer and Director Insurance Coverage. For a period of two
years following the Closing, the Purchaser agrees to maintain the Company's
current directors' and officers' liability insurance or to substitute a policy
with similar coverage for claims relating to periods prior to the Closing.
Purchaser or MedicalControl will also extend coverage of its current officers'
and directors' insurance to Messrs. Huntington and Smith for claims relating to
periods following the Closing.
6. CONDITIONS TO PURCHASER'S CLOSING
All obligations of Purchaser under this Agreement shall be subject
to the fulfillment at or prior to the Closing of the following conditions, it
being understood that Purchaser may, in its sole discretion, waive any or all of
such conditions in whole or in part:
6.1 Representations, Etc. The Company and the Shareholders shall
have performed in all material respects the covenants and agreements contained
in this Agreement that are to be performed by each of them at or prior to the
Closing, and the representations and warranties of the Company and the
Shareholders contained in this Agreement shall be true and correct as of the
Closing Date with the same effect as though made at such time (except as
contemplated or permitted by this Agreement).
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6.2 Consents. All consents and approvals of governmental agencies
and from any other third parties required to consummate the transactions
contemplated by this Agreement shall have been obtained without material cost or
other materially adverse consequence to Purchaser and shall be in full force and
effect.
6.3 No Adverse Litigation. No order or preliminary or permanent
injunction shall have been entered and no action, suit or other legal or
administrative proceeding by any court or governmental authority, agency or
other person shall be pending or threatened on the Closing Date which may have
the effect of (i) making any of the transactions contemplated hereby illegal,
(ii) materially adversely affecting the value of the assets or business of the
Company or (iii) making Purchaser or the Company liable for the payment of a
material amount of damages to any person.
6.4 Material Adverse Changes. There shall have occurred no material
adverse change in the business, properties, assets, liabilities, results of
operations or condition, financial or otherwise, of the Company.
6.5 Closing Deliveries. Purchaser shall have received each of the
documents or items required to be delivered to it pursuant to Section 8.1
hereof.
6.6 Completion of Due Diligence Review. Purchaser will have
completed its due diligence review of the Company, including its accounting
records, major contracts and tax returns, and the results of which shall be
satisfactory to Purchaser in its sole discretion.
6.7 Receipt of 1997 and 1998 Audit. Purchaser will have received the
audited financial statements of the Company for the years ended June 30, 1997
and 1998 and shall be satisfied in its sole discretion with the results thereof.
6.8 Consent of Senior Lender. Purchaser and MedicalControl will have
received a consent from MedicalControl's primary lender to the transactions
contemplated hereby, in a form reasonably satisfactory to Purchaser and
MedicalControl.
7. CONDITIONS TO SHAREHOLDERS' CLOSING
All obligations of the Shareholders under this Agreement shall be
subject to the fulfillment at or prior to the Closing of the following
conditions, it being understood that the Shareholders may, in their sole
discretion, waive any or all of such conditions in whole or in part:
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7.1 Representations, Etc. Purchaser and MedicalControl shall have
performed in all material respects the covenants and agreements contained in
this Agreement that are to be performed by Purchaser or MedicalControl at or
prior to the Closing, and the representations and warranties of Purchaser and
MedicalControl contained in this Agreement shall be true and correct as of the
Closing Date with the same effect as though made at such time (except as
contemplated or permitted by this Agreement).
7.2 Consents. All consents and approvals of governmental agencies
and from any other third parties required to consummate the transactions
contemplated by this Agreement shall have been obtained without material cost or
other materially adverse consequence to MedicalControl or Purchaser and shall be
in full force and effect.
7.3 No Adverse Litigation. No order or preliminary or permanent
injunction shall have been entered and no action, suit or other legal or
administrative proceeding by any court or governmental authority, agency or
other person shall be pending or threatened on the Closing Date which may have
the effect of (i) making any of the transactions contemplated hereby illegal,
(ii) materially adversely affecting the value of the assets or business of
MedicalControl or Purchaser or (iii) making Purchaser or MedicalControl liable
for the payment of a material amount of damages to any person.
7.4 Registration Rights Agreement. At the Closing, MedicalControl
will execute and deliver the Registration Rights Agreement substantially in the
form of Exhibit "H" attached hereto.
7.5 Material Adverse Changes. There shall have occurred no material
adverse change in the business, properties, assets, liabilities, results of
operations or condition, financial or otherwise, of MedicalControl or Purchaser.
7.6 Closing Deliveries. The Shareholders and the Company shall have
received each of the documents or items required to be delivered to them
pursuant to Section 8.2 hereof.
7.7 Completion of Due Diligence Review. The Shareholders will have
completed their due diligence review of Purchaser and MedicalControl, including
accounting records, major contracts and tax returns, and the results of which
shall be satisfactory to the Shareholders in their sole discretion.
7.8 Consent of Senior Lender. The Shareholders and the Company will
have received a copy of the consent received by MedicalControl from its primary
lender to the transactions contemplated hereby, in a form reasonably
satisfactory to the Shareholders and the Company.
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8. DOCUMENTS TO BE DELIVERED AT CLOSING
8.1 To Purchaser. At the Closing, there shall be delivered to
Purchaser:
(a) The Shares, together with duly executed stock
powers, in form satisfactory to Purchaser and its counsel;
(b) The Escrow Agreement;
(c) The Non-Competition Agreement;
(d) The Employment Agreements;
(e) The Shareholders' Agreement executed by all of
the Shareholders substantially in the form of Exhibit "I" attached
hereto;
(f) A certificate, signed by the President or chief
executive officer of the Company, as to the fulfillment of the
conditions set forth in Sections 6.1 through 6.4 hereof;
(g) Opinion of counsel to the Company and the
Shareholders, dated as of the Closing Date, in form reasonably
acceptable to Purchaser;
(h) A copy of all consents and approvals referred to
in Section 6.2 hereof;
(i) The corporate minute books and stock books of
the Company; and
(j) All other items reasonably requested by
Purchaser.
8.2 To the Shareholders. At the Closing, there shall be delivered
to the Shareholders:
(a) The Notes, the Parent Shares (less the Escrow
Shares), the Security Agreement, the Pledge Agreement and the cash
portion of the purchase price as contemplated by Section 2.1
hereof;
(b) The Registration Rights Agreement and the Voting
Agreement;
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(c) A certificate, signed by an executive of
Purchaser and MedicalControl, as to the fulfillment of the
conditions set forth in Sections 7.1 and 7.2 hereof;
(d) An opinion of Purchaser's and MedicalControl's
counsel, dated the Closing Date, in form reasonably acceptable to
the Shareholders; and
(e) An executed duplicate original of the
Shareholders Agreement, the Escrow Agreement and the Employment
Agreements.
(f) All other items reasonably requested by the
Shareholders.
9. SURVIVAL
All representations, warranties, covenants and agreements made by
any party to this Agreement or pursuant hereto shall be deemed to have been
relied upon by the parties hereto and shall survive the Closing for two years.
The representations and warranties hereunder shall not be affected or
diminished by any investigation at any time by or on behalf of the party for
whose benefit such representations and warranties were made. All statements
contained herein or in any certificate, exhibit, list or other document
delivered pursuant hereto shall be deemed to be representations and warranties.
10. INDEMNIFICATION OF THE SHAREHOLDERS
Purchaser and MedicalControl shall indemnify and hold the
Shareholders harmless from, against, for and in respect of:
(i) any and all damages, losses, settlement
payments, obligations, liabilities, claims, actions or causes of
action and encumbrances suffered, sustained, incurred or required
to be paid by the Shareholders (or the Company prior to the
Closing) because of the breach of any written representation,
warranty, agreement or covenant of Purchaser or MedicalControl
contained in or made in connection with this Agreement;
(ii) any and all liabilities, obligations, claims
and demands (other than with respect to the Excluded Liabilities)
arising out of the ownership and operation of the Company on and
after the Effective Date, except to the extent the same arises from
a breach of any written representation, warranty, agreement or
covenant of the Company or the Shareholders contained in or made in
connection with this Agreement; and
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(iii) all reasonable costs and expenses (including,
without limitation, attorneys' fees, interest and penalties)
incurred by the Shareholders in connection with any action, suit,
proceeding, demand, assessment or judgment incident to any of the
matters indemnified against in this Section 10.
11. INDEMNIFICATION OF PURCHASER
The Shareholders shall indemnify and hold Purchaser and Medical
Control harmless from, against, for and in respect of:
(i) any and all damages, losses, settlement
payments, obligations, liabilities, claims, actions or causes of
action and encumbrances suffered, sustained, incurred or required
to be paid by Purchaser or the Company because of the breach of any
written representation, warranty, agreement or covenant of the
Company or the Shareholders (as applicable) contained in or made in
connection with this Agreement;
(ii) any and all damages, losses, settlement
payments, obligations, liabilities, claims, actions or causes of
action and encumbrances suffered, sustained, incurred or required
to be paid by Purchaser or the Company because of the Excluded
Liabilities;
(iii) any federal, state or local income or other
tax (A) payable with respect to the business, assets, properties or
operations of the Company or the Shareholders or any member of any
affiliated group of which any of them is a member for any period
prior to the Effective Date or (B) incident to or arising as a
consequence of the negotiation or consummation by the Company or
the Shareholders or any member of any affiliated group of which any
of them is a member of this Agreement and the transactions
contemplated hereby; provided, however, if a claim for
indemnification hereunder relates to a tax owed by a specific
Shareholder, then Purchaser and MedicalControl will pursue such
claim against the specific Shareholder and not the Shareholders
jointly;
(iv) any liability or obligation arising prior to or
as a result of the Closing to any employees, agents or independent
contractors of the Company, whether or not employed by Purchaser
after the Closing or under any benefit arrangement with respect
thereto,
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other than liabilities arising in the ordinary course of business
consistent with past practices;
(v) any liability or obligation of the Shareholders
or the Company arising or incurred in connection with the
negotiation, preparation and execution of this Agreement and the
transactions contemplated hereby; and
(vi) all reasonable costs and expenses (including,
without limitation, attorneys' fees, interest and penalties)
incurred by Purchaser in connection with any action, suit,
proceeding, demand, assessment or judgment incident to any of the
matters indemnified against in this Section 11.
12. GENERAL RULES REGARDING INDEMNIFICATION
(a) The obligations and liabilities of each
indemnifying party hereunder with respect to claims resulting from
the assertion of liability by the other party or indemnified third
parties shall be subject to the following terms and conditions:
(i) the indemnified party shall give prompt written
notice (which in no event shall exceed 10 days from the date on
which the indemnified party first became aware of such claim or
assertion) to the indemnifying party of any claim which might give
rise to a claim by the indemnified party against the indemnifying
party based on the indemnity agreements contained in Section 10 or
11 hereof, stating the nature and basis of said claims and the
amounts thereof, to the extent known;
(ii) if any action, suit or proceeding is brought
against the indemnified party with respect to which the
indemnifying party may have liability under the indemnity
agreements contained in Section 10 or 11 hereof, the action, suit
or proceeding shall, upon the written acknowledgment by the
indemnifying party that is obligated to indemnify under such
indemnity agreement, be defended (including all proceedings on
appeal or for review which counsel for the indemnified party shall
deem appropriate) by the indemnifying party. The indemnified party
shall have the right to employ its own counsel in any such case,
but the fees and expenses of such counsel shall be at the
indemnified party's own expense unless the employment of such
counsel and the payment of such fees and
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expenses both shall have been specifically authorized in writing by
the indemnifying party in connection with the defense of such
action, suit or proceeding, in which event the indemnifying party
shall not have the right to direct the defense of such action, suit
or proceeding on behalf of the indemnified party. The indemnified
party shall be kept fully informed of such action, suit or
proceeding at all stages thereof whether or not it is represented
by separate counsel.
(iii) The indemnified party shall make available to
the indemnifying party and its attorneys and accountants all books
and records of the indemnified party relating to such proceedings
or litigation and the parties hereto agree to render to each other
such assistance as they may reasonably require of each other in
order to ensure the proper and adequate defense of any such action,
suit or proceeding.
(iv) The indemnified party shall not make any
settlement of any claims without the written consent of the
indemnifying party, which consent shall not be unreasonably
withheld or delayed.
(v) If any claims are made by third parties against
an indemnified party for which an indemnifying party would be
liable, and it appears likely that such claims might also be
covered by the indemnified party's insurance policies, the
indemnified party shall make a timely claim under such policies and
to the extent that such party obtains any recovery from such
insurance, such recovery shall be offset against any sums due from
an indemnifying party (or shall be repaid by the indemnified party
to the extent that an indemnifying party has already paid any such
amounts). The parties acknowledge, however, that if an indemnified
party is self- insured as to any matters, either directly or
through an insurer which assesses retroactive premiums based on
loss experience, then to the extent that the indemnified party
bears the economic burden of any claims through self-insurance or
retroactive premiums or insurance ratings, the indemnifying party's
obligation shall only be reduced by any insurance recovery in
excess of the amount paid or to be paid by the indemnified party in
insurance premiums.
(vi) Purchaser will be entitled to offset against
the Escrow Shares or the balance of the Notes the amount of such
indemnification claim and shall so advise the Shareholders in
writing
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of such intent to offset (the date of which such notice is sent by
the Purchaser being referred to as the "Offset Notice Date") to
satisfy in full an indemnification claim (the "Claim Amount")
payable hereunder.
(b) The Shareholders shall elect to satisfy a Claim
Amount by delivering a written notice to Purchaser (a "Direction to
Offset") directing it to offset the unpaid balance of such Claim
Amount either against the Escrow Shares or the balance of the Notes
first. If Purchaser shall not receive a Direction to Offset within
ten (10) business days of the Offset Notice Date, Purchaser may
offset the unpaid balance of such Claim Amount against either the
Escrow Shares or the balance of the Notes first.
(c) Except as herein expressly provided in this
Agreement, the remedies provided in Sections 10 through 12 hereof
shall be cumulative and shall not preclude assertion by any party
of any other rights or the seeking of any other rights or remedies
against any other party hereto.
(d) MedicalControl and Purchaser agree to purchase
and maintain for two years following the Closing officer and
director insurance and errors and omissions insurance with coverage
of at least $1 million covering claims against BHC or its officers
and directors for periods prior to the Closing. As provided in
Subclause (v) hereof, MedicalControl and Purchaser will offset the
recovery from such insurance against any claims for indemnification
against the Shareholders. Notwithstanding the foregoing, the
Shareholders' shall not be obligated to pay or satisfy
indemnification claims other than through the offset of the Escrow
Shares or the balance of the Notes pursuant to Subclause (v)
hereof, except if such indemnification claim is for fraud or
intentional misconduct. In addition, notice of any indemnification
claim must be given to the indemnifying party no later than the
second anniversary of the Closing.
13. FAILURE TO CLOSE BECAUSE OF DEFAULT
In the event that the Closing is not consummated by virtue of a
material default made by a party in the observance or in the due and timely
performance of any of its covenants or agreements herein contained ("Default"),
the parties shall have and retain all of the rights afforded them at law or in
equity by reason of that Default. In addition, the Shareholders, Purchaser and
MedicalControl acknowledge that the Shares and the transactions contemplated
hereby are unique, that a failure by the Shareholders, MedicalControl or
Purchaser to complete such transactions will cause irreparable injury to the
other, and that actual damages for any such failure may be
25
<PAGE> 26
difficult to ascertain and may be inadequate. Consequently, Purchaser,
MedicalControl and the Shareholders agree that each shall be entitled, in the
event of a Default by the other, to specific performance of any of the
provisions of this Agreement in addition to any other legal or equitable
remedies to which the non-defaulting party may otherwise be entitled. In the
event any action is brought, the prevailing party shall be entitled to recover
court costs and reasonable attorneys' fees.
14. TERMINATION RIGHTS
14.1 General. This Agreement may be terminated by either
Purchaser or the Shareholders, if the terminating party is not then in Default,
upon written notice to the other upon the occurrence of any of the following:
(a) If the Closing has not occurred on or before
September 30, 1998;
(b) If the non-terminating party Defaults and such
Default has not been cured within 30 days of written notice of such
Default by the other party;
(c) Subject to the provisions of Sections 6 and 7
hereof, by the Shareholders or Purchaser if on the Closing Date any
of the conditions precedent to the obligations of Shareholders or
Purchaser, respectively, set forth in this Agreement have not been
satisfied or waived by such party; or
(d) By mutual consent of the Shareholders and
Purchaser.
15. MISCELLANEOUS PROVISIONS
15.1 Expenses. The Purchaser shall pay the fees and expenses
incurred by it in connection with the transactions contemplated by this
Agreement and the Company shall pay the fees and expenses incurred by them and
the Company in connection with the transactions contemplated by this Agreement;
provided, however, all fees and expenses of the Company and the Shareholders
must be paid and satisfied in full at or prior to the Closing. If any action is
brought for breach of this Agreement or to enforce any provision of this
Agreement, the prevailing party shall be entitled to recover court costs and
reasonable attorneys' fees.
15.2 Amendment. This Agreement may be amended at any time but
only by an instrument in writing signed by the parties hereto.
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<PAGE> 27
15.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
nationally recognized "next-day" delivery service, to the parties at the
addresses set forth opposite their names on the signature page hereto (or at
such other address for a party as shall be specified by like notice).
15.4 Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, heirs and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the others; provided, however, that Purchaser may
assign, by written instrument in form and substance satisfactory to the
Shareholders, its rights under this Agreement to any of its subsidiaries or
affiliated corporations.
15.5 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.6 Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not constitute a part hereof.
15.7 Entire Agreement. This Agreement and the documents referred
to herein contain the entire understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties, conveyances or undertakings other than those expressly set forth
herein. This Agreement supersedes any prior agreements and understandings
between the parties with respect to the subject matter.
15.8 Waiver. No attempted waiver of compliance with any provision
or condition hereof, or consent pursuant to this Agreement, will be effective
unless evidenced by an instrument in writing by the party against whom the
enforcement of any such waiver or consent is sought.
15.9 Governing Law . This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
15.10 Remedies of the Company. In any proceeding by the Purchaser
to assert or prosecute any claims under, or to otherwise enforce, the Agreement
on behalf of itself or the Company, the Shareholders agree that they shall not
assert as a defense or bar to recovery, and hereby waive any right to so assert
such defense or bar such recovery, that (a) prior to Closing the Company shall
have had knowledge of the circumstances giving rise to the claim being pursued
by it; (b) prior to Closing, the
27
<PAGE> 28
Company engaged in conduct or took action that caused or brought about the
circumstances giving rise to its claim, or otherwise contributed thereto; (c)
the Company is estopped from asserting or recovering upon its claim by reason
of the Company having joined in the representations, warranties and covenants
made by the Shareholders in this Agreement; or (d) the Shareholders have a
right of contribution from the Company to the extent that there is any recovery
against them.
15.11 Severability. In the event that any of the
provisions contained in this Agreement are held to be invalid, illegal or
unenforceable shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provisions had
not been contained herein.
15.12 Intended Beneficiaries. The rights and obligations
contained in this Agreement are hereby declared by the parties hereto to have
been provided expressly for the exclusive benefit of such entities as set forth
herein and shall not benefit, and do not benefit, any unrelated third parties.
15.13 Mutual Contribution. The parties to this Agreement
and their counsel have mutually contributed to its drafting. Consequently, no
provision of this Agreement shall be construed against any party on the ground
that such party drafted the provision or caused it to be drafted or the
provision contains a covenant of such party.
[Signature Page to Follow]
28
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
MEDICALCONTROL, INC.
By: /s/ J. Ward Hunt
-----------------------------------------
J. Ward Hunt, President and
Chief Executive Officer
MEDICALCONTROL NETWORK
SOLUTIONS, INC.
By: /s/ Robert O. Brooks
-----------------------------------------
Robert O. Brooks, President and
Chief Executive Officer
ADDRESS: 8625 King George Drive
Suite 300
Dallas, Texas 75235
BUSINESS HEALTH COMPANIES, INC.
By: /s/ Donald Richard Huntington
-----------------------------------------
Donald Richard Huntington, President
ADDRESS: 123 North Post Oak Lane
Suite 400
Houston, Texas 77024
29
<PAGE> 30
SHAREHOLDERS:
/s/ Douglas L. Elden
-----------------------------------------
Douglas L. Elden
/s/ Donald Richard Huntington
-----------------------------------------
Donald Richard Huntington
/s/ Ralph T. Smith, Jr.
-----------------------------------------
Ralph T. Smith, Jr.
ADDRESS FOR SHAREHOLDERS:
Douglas L. Elden
The Elden Law Firm
150 North Michigan Avenue
Suite 2500
Chicago, Illinois 60601
Donald Richard Huntington
448 North Post Oak Lane
Houston, Texas 77024
Ralph T. Smith, Jr.
381 North Post Oak Lane
Houston, Texas 77024
30
<PAGE> 31
Schedule 1
Excluded Liabilities
Taxes of any kind, including but not limited to, income taxes,
franchise taxes and withholding and other payroll taxes, related to
periods prior to the Effective Date. No later than seven days prior
to the Closing Date, the Shareholders will deliver to the Purchaser
the Interim Statements for the two- month period ended August 31, 1998
as provided in Section 3.14. If Purchaser agrees to the calculation
of the Company's income tax liability for such two-month period as
reflected in such Interim Statements (which such agreement will not be
unreasonably withheld), then the amount of the Shareholders' liability
for the Federal income tax liability of the Company for the return to
be filed by April 15, 1999 will be limited to the amount reflected on
such Interim Statements. The parties will use their reasonable best
efforts to determine such liability prior to the Closing.
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<S> <C>
A Form of Employment Agreement
B Confidentiality and Non-Competition Agreement
C Form of Convertible Subordinated Promissory Note
D Subordinated Security Agreement
E Subordinated Pledge Agreement
F Escrow Agreement
G Voting Agreement
H Registration Rights Agreement
I Shareholders Agreement
</TABLE>
<PAGE> 1
FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$
--------------
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.
<PAGE> 2
(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
2
<PAGE> 3
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
3
<PAGE> 4
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.
4
<PAGE> 5
(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;
5
<PAGE> 6
(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
6
<PAGE> 7
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
7
<PAGE> 8
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.
8
<PAGE> 9
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/ Robert O. Brooks
-------------------------------------
Robert O. Brooks
President and Chief Executive Officer
MEDICALCONTROL, INC.
By: /s/ J. Ward Hunt
------------------------------------
J. Ward Hunt
President and Chief Executive Officer
9
