THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. NO
TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN MAY BE MADE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
SUBORDINATED NOTE
$1,400,000
New York, New York
As of December 18, 1997
FOR VALUE RECEIVED, MDNY HEALTHCARE INC., a New York corporation
("Borrower"), hereby promises to pay to the order of CATHOLIC HEALTH CARE
NETWORK OF LONG ISLAND INC., a New York corporation ("Lender"), the principal
sum of ONE MILLION FOUR HUNDRED THOUSAND AND 00/100 DOLLARS ($1,400,000) (the
"Loan") on the date and subject to the conditions specified in the Loan
Agreement (as defined below). Borrower further promises to pay interest on the
principal amount of the Loan outstanding from time to time at the adjustable
interest rate specified in the Loan Agreement, payable at the times and subject
to the conditions specified in the Loan Agreement.
1. Certain Defined Terms. As used in this Note, the following capitalized
terms shall have the following meanings:
"Business Day" means any day other than Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required to close
under the laws of the State of New York.
"Holdings" means MDNY Holdings, LLC, a New York limited liability company.
"Loan Agreement" means the Section 1307 Loan Agreement, dated as of
December 18, 1997, between Lender and Borrower.
"Merger" means those several merger transactions as a result of which
Holdings will be at the effective time thereof, the holder of all of .the^
issued and outstanding shares of the capital stock of Borrower, all as
contemplated by that certain Agreement and Plan of Merger, dated as of December
18, 1996, among Long Island Physician Holdings Corporation, Holdings and MDNY
Holdings Delaware, Inc.
"SCDs" means the series of Subordinated Convertible Debentures of Borrower
in an aggregate original principal amount of up to $10 million, as contemplated
to be authorized, offered and issued by that certain Memorandum of
Understanding, dated December _, 1997, between Long Island Physician Holdings
Corporation and Lender.
"Superintendent" means the Superintendent of Insurance of the Stale of New
York.
2. Section 1307 Loan.
a. This Note is the promissory note contemplated by Section 9 of the
Loan Agreement, evidences me indebtedness of Borrower to Lender under the Loan
Agreement in respect of the Loan and is entitled to the benefits of, and is
subject to the conditions set forth in, the Loan Agreement.
b. The Loan Agreement, among other things, requires the prior
approval of the Superintendent prior to repayment of any portion of the
principal amount of, and payment of any portion of accrued interest on, the
Loan. Not later than five Business Days prior to each due xxxx for any principal
or interest payment in respect of the Loan, and immediately upon the request of
Lender following an Event of Default, Borrower shall make application to the
Superintendent for approval of the payment then due and owing to Lender. If the
Superintendent shall withhold its approval to the making of such payment,
Borrower shall reapply for such approval, until received, at each such time as
Borrower or Lender may reasonably believe that Borrower's financial position is
such that the Superintendent would grant its approval.
c. Any payment of principal or interest in respect of the Loan that
is not paid on the due date therefor, by reason of the Borrower's failure to
obtain the Superintendent's approval thereof or for any other reason, shall
accrue interest at the rate specified in the Loan Agreement until the lime at
which such payment is made.
d. This Note contains provisions which are supplemental to the
provisions contained in the Loan Agreement. If and to the extent of any conflict
between the provisions of this Note and the express provisions of the Loan
Agreement, the provisions of the Loan Agreement shall control.
3. SCD Exchange Right. In the event that Borrower shall commence an
offering of SCDs, Lender shall have the right (the "Exchange Right"),
exercisable at its sole option, to exchange this Note, in whole or part, for one
or more SCDs, in accordance with the following:
a. Promptly following the commencement by Borrower of its offering
of SCDs, Borrower shall give a written notice thereof to Lender (the "Trigger
Notice"), which notice shall also set forth the original issue price at which
each $100 of face amount of SCDs is being offered by Borrower (the "Original
Issue Price"). Within 15 days of its receipt of the Trigger Notice. Lender shall
give a written notice to Borrower (the "Election Notice") specifying whether it
elects to exercise its Exchange Right and. if so, the principal amount of this
Note as to which it is exercising the Exchange Right (the "Exchanged Debt").
Failure by Lender to timely give an Election Notice shall be deemed a waiver by
Lender of its Exchange Right. If Lender exercises its Exchange Right by timely
delivery to Borrower of the Election Notice, Borrower shall not issue or sell
any SCDs to any other purchaser thereof unless and until the
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consummation of the Exchange Right shall have taken place in accordance with
subsection b. below; and
b. If Lender exercises its Exchange Right by timely delivery to
Borrower of the Election Notice, then, on the tenth Business Day following the
date on which the Election Notice is deemed delivered pursuant to Section 6
hereof (the "Exchange Date"). Borrower shall deliver to Lender: (i) one or more
duly issued SCDs having an aggregate original principal amount equal to the
product of (x) the principal amount of the Exchanged Debt and (y) the quotient
obtained by dividing 100 by the Original Issue Price; (ii) payment of all
accrued and unpaid interest through the Exchange Date in respect of the
principal amount of the Exchanged Debt (if and to the extent then permitted
pursuant to the terms of the Loan Agreement); and (iii) if Lender has not
exercised the Exchange Right as to me entirety of the `then outstanding
principal balance of this Note, a Note, of like tenor with this Note, equal to
the principal balance of this Note as to which Lender has not exercised its
Exchange Right; provided, however, that Borrower shall not be obligated to Issue
any SCDs to Lender until this Note is tendered for exchange to Borrower.
4. Automatic Exchange Upon Merger. Lender, Borrower and Holdings hereby
agree that, immediately following me effectiveness of the Merger, Lender shall
tender this Note to Holdings and Holdings shall deliver to Lender, in exchange
for this Note, a duly executed note of Holdings (the "Holdings Note"), of like
tenor with this Note (by incorporating herein such of the provisions of the Loan
Agreement as relate to the financial terms of the Loan and such other provisions
as may apply to a note issued by Holdings), but without any provision
corresponding to this Section 4 and with such other modifications as are
necessary to reflect Holdings as the maker of the Holdings Note. The Holdings
Note shall have an original principal amount equal to the outstanding principal
balance of this Note as of the date of exchange and shall reflect the obligation
of Holdings to pay to Lender all interest on this Note that has accrued and
remains unpaid hereunder as of the date of exchange. Holdings further agrees
that, upon receipt of this Note from Lender, Holdings shall forgive the
indebtedness of Borrower evidenced thereby and shall remit this Note to Borrower
for cancellation. Holdings is executing this Note at the foot hereof to evidence
its agreement to be bound and observe the provisions of this Section 4.
5. Events of Default. The occurrence and continuation of any one of the
following events ("Event of Default") shall constitute a default hereunder: (i)
Borrower shall fail to make any payment required by this Note within 5 days of
the date it is due (other than as a result of the refusal of the Superintendent
to approve such payment) (ii) Holdings shall fail to issue to Lender the
Holdings Note upon the effectiveness of the Merger, as required pursuant to
Section 4 hereof; or (iii) Borrower makes an assignment for the benefit of
creditors, files a petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions a court for the appointment of any receiver or trustee for it or any
substantial part of its property, commences any proceeding relating to Borrower
under any arrangement or debt readjustment law or statute of any jurisdiction
whether now or hereafter in effect or there is commenced against Borrower any
such proceeding which remains undismissed for sixty (60) days, or Borrower by
any act indicates consent to, approval of or acquiescence in any such proceeding
or the appointment of any receiver or trustee for it or any substantial part of
its property, or suffers any such receivership or trusteeship to continue
undischarged for sixty (60) days.
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If an Event of Default occurs and is continuing, then, at the option of
Lender, the entire unpaid principal balance of, and all accrued and unpaid
interest on, this Note shall, upon written notice from Lender to Borrower,
become immediately due and payable. The rights, remedies, powers and privileges
provided for herein are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
6. Notices. Unless otherwise provided herein, all notices, requests,
demands and other communications pursuant to this Note shall be in writing,
delivered by hand or commercial messenger service or sent by certified mail,
return receipt requested, addressed as follows: (i) if to Lender, to it at Xxx
Xxxxxxxxxx Xxxxxxxxxx, Xxxxx 0X00, Xxxxxxxx, Xxx Xxxx 00000, Attention: Chief
Financial Officer - Xxxxx Xxxx; or (ii) if to Borrower, to it at Xxx Xxxxxxxxxx
Xxxxxxxxxx, Xxxxx 0X00, Xxxxxxxx, Xxx Xxxx 00000. Any notice, request, demand or
communication hereunder shall be deemed to have been given on the day on which
it is delivered by hand or commercial messenger service to such party at its
address specified above, or, if sent by certified or registered mail, return
receipt requested, on the third Business Day after the day deposited in the
mail, postage prepaid.
7. Miscellaneous.
a. This Note shall not be prepayable, either in whole or in part.
b. No waiver by Lender of any default shall be effective unless in
writing, nor shall it operate as a waiver of any other default or of the same
default on a future occasion. No delay or omission by Lender in exercising any
of its rights, remedies, powers and privileges hereunder or at law and no course
of dealing between Lender and Borrower or any other person shall be deemed a
waiver by Lender of any of such rights, remedies, powers and privileges even if
such delay or omission is continuous or repealed, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise thereof by Lender or the exercise of any other right, remedy,
power or privilege by Lender.
c. Borrower hereby waives presentment, demand, protest and notice of
any kind (including notice of presentment, demand, protest, dishonor and
nonpayment).
d. If this Note shall be mutilated, lost, stolen or destroyed.
Borrower shall execute and deliver, in exchange and substitution for and upon
cancellation of this Note (if mutilated), or in lieu of or in substitution for
this Note (if lost, stolen or destroyed), a new Note for the principal amount of
this Note but only upon receipt of evidence of such loss, theft or destruction
of this Note, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to Borrower.
e. Each provision of this Note shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Note shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
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f. This Note shall be binding upon Borrower and its successors and
permitted assigns and shall inure to the benefit of Lender, its legal
representatives, successors and permitted assigns.
g. This Note shall be governed by and construed and enforced in
accordance with Section 1307 of the New York Insurance Law and, to the extent
not inconsistent therewith, other applicable laws of the State of New York,
without giving effect to principles of conflicts of laws. This Note may not be
changed orally, hut only by an instrument in writing executed by the parties
hereto.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Note
as of the date first written above.
MDNY HEALTHCARE, INC.
Borrower
By: /s/
-------------------------------
Name:
Title: CEO
SOLELY FOR PURPOSES OF SECTION 4:
MDNY HOLDINGS, LLC
By: /s/
------------------------------
Name:
Title: CEO
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