U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File No. 0-11808
MB SOFTWARE CORPORATION
Colorado 59-2219994
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2225 E. Randol Mill Road - Suite 305
Arlington, Texas 76011-6306
(817) 633-9400
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ X ] No [ ]
As of June 30, 1997, 67,885,000 shares of the Issuer's $.001 par value common
stock were outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [ X ]
<PAGE>
MB SOFTWARE CORPORATION
Form 10-QSB
Quarter Ended June 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1 - Financial Statements
Consolidated Balance Sheet
June 30, 1997 (Unaudited) 3-4
Consolidated Statements of Operations
for the Six Months and Three Months
ended June 30, 1997 and 1996 (Unaudited) 5
Consolidated Statements of Cash Flows
for the Six Months ended June 30, 1997
(Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion
and Analysis of Financial Condition and
Results of Operations 7-9
PART II - OTHER INFORMATION
Item 5 - Other Information 9
Item 6 - Exhibits, Financial Statement
Schedules and Reports on Form 8-K 9-10
SIGNATURES 10
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
ASSETS
JUNE DECEMBER
1997 1996
CURRENT ASSETS
Cash $1,119,025 $196,653
Trade accounts receivable 3,136,549 345,452
Less allowance for bad debt ( 80,381) ( 33,487)
Notes receivable 129,542 10,000
Commissions receivable 61,452 -
Deposits 18,645 18,488
Prepaid expenses 22,155 19,883
----------- ---------
Total current assets 4,406,987 556,989
----------- ---------
PROPERTY AND EQUIPMENT, NET 303,336 63,349
----------- ---------
OTHER ASSETS
Goodwill 812,316 850,109
Software development costs 445,199 394,240
----------- ---------
Total other assets 1,257,515 1,244,349
----------- ---------
$5,967,838 $1,864,687
=========== =========
- Continued -
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
June 30, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE DECEMBER
1997 1996
CURRENT LIABILITIES
Notes payable $3,863,815 $ 242,029
Accounts payable 286,507 149,741
Accrued liabilities 122,864 101,382
Other liabilities 109,000 179,000
Other 2,452
Deferred revenue 93,472 159,026
----------- ----------
Total current liabilities 4,478,110 831,178
LONG TERM LIABILITIES
Note payable 1,347,866 1,283,808
Other liabilities 40,000 40,000
----------- ----------
Total long term liabilities 1,387,866 1,323,808
SHAREHOLDERS' EQUITY
Common stock .001 par value;100,000,000 shares
authorized; 67,885,000 shares issued 67,885 67,885
Additional paid-in capital 810,322 810,322
Retained earnings (deficit) (1,156,467) (1,156,467)
Treasury stock, at cost;409,577 (12,039) ( 12,039)
Net earnings 392,161
----------- ----------
Total shareholders' equity (deficit) 101,862 (290,299)
----------- ----------
$5,967,838 $1,864,687
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
June 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
REVENUES
Service fee & broker income $ 4,983 $ 34,027 $ 12,501 $ 35,843
Consulting fees 30,000 53,610
Software & maintenance sales 384,407 683,599 810,871 1,286,698
Medical Income 838,261 1,543,952
Other income 27 219,992 4,541 250,000
---------- --------- ---------- -----------
Total revenues 1,257,678 937,618 2,425,476 1,572,541
COST OF REVENUES
Cost of service & broker fees 2,548 2,548
Cost of software & maintenance 157,592 82,617 302,042 185,456
Cost of medical services 27,942 37,349
---------- --------- ---------- -----------
Total cost of revenues 185,534 85,165 339,390 188,004
---------- --------- ---------- -----------
GROSS PROFIT 1,072,144 852,453 2,086,086 1,384,537
OPERATING EXPENSES
Selling, general & administrative 831,334 565,515 1,557,369 995,354
Depreciation and amortization 80,701 4,646 139,928 10,262
---------- --------- ---------- -----------
Total operating expenses 912,035 570,161 1,697,297 1,005,616
---------- --------- ---------- -----------
INCOME FROM OPERATIONS 160,109 282,292 388,789 378,921
OTHER INCOME (EXPENSES)
Interest income, net ( 631) ( 7,409) ( 3,675) 8,445
Other, net ( 252) ( 13,743) 302 15,954
---------- --------- --------- -----------
Total other income, net ( 883) ( 21,150) ( 3,372) 24,399
---------- --------- --------- -----------
NET INCOME BEFORE TAXES 159,225 261,142 392,161 354,522
---------- --------- --------- -----------
PROVISION FOR INCOME TAXES
NET INCOME $ 159,225 261,142 392,161 354,522
========== ======== ========= ===========
Income per weighted-average common share $ 0.002 0.005 0.006 0.007
========== ======== ========== ===========
Weighted-average common shares outstanding 67,885,000 49,485,000 67,885,000 49,485,000
========== ======== ========== ===========
</TABLE>
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS SIX MONTHS
ENDED 06/30/97 ENDED 06/30/96
1997 1996
---------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(Loss) for the period $ 392,161 $ 354,522
Adjustments to reconcile net income(loss) to net
cash used by operating activities:
Depreciation 139,928 13,163
Amortization 37,793
Gain on debt extinguis (115,102)
Bad debt expense 26,267
Change in allowance for doubtful accounts 46,894
Changes in assets and liabilities:
Trade accounts receivable ( 2,824,584) ( 144,283)
Advances (1,125)
Commissions Receivable (61,452)
Prepaid expenses and other (2,273) (4,500)
Deposits (157) (700)
Accounts payable 136,766 73,086
Accrued liabilities 21,482 (55,371)
Other liabilities (70,000) 364,266
Deferred revenues (65,554) 79,283
Other 25,872 (6,812)
---------------- ------------------
Net cash used by operating activities (2,311,958) 671,529
CASH FLOWS FROM INVESTING ACTIVITIES
Disposal (Purchase) of property and equipment (239,987) (8,565)
Software development costs capitalized (50,959) (71,032)
Advances on notes receivable (119,542) (21,052)
---------------- ------------------
Net cash uesd by investing activities (410,489) (100,649)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (76,134) 764,600
Increase in notes payable 3,720,953 (350,411)
Increase (decrease) in cash overdraft 29,616
Purchase of treasury stock 45,000
---------------- ------------------
Net cash provided by financing activities 3,644,819 488,805
INCREASE / (DECREASE) IN CASH 922,372 82,075
---------------- ------------------
Cash at beginning of period 196,653 36,535
Cash at end of period $ 1,119,025 $ 118,610
================ ==================
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 3,675 $ 8,451
================ ==================
</TABLE>
<PAGE>
MB SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although management believes the disclosures
herein are adequate to make the information presented not misleading. These
interim financial statements should be read in conjunction with the most recent
financial statements of MB Software Corporation included in the Company's report
on Form 10-KSB for the year ended December 31, 1996.
The interim financial information included herein is unaudited; however it
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
financial position, results of operations and cash flows for the interim period.
The results of operations for the six months and three months ended June 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company
MB Software Corporation took a major step forward and unfolded the next phase of
its 1997 Strategic Plan by consolidating areas within its three operating
companies, thereby positioning them for long term benefits to derive greater
economies of scale and improved productivity.
The Company's primary focus continued to be the acquisition of companies that
provide reciprocal benefit and distribution channels for its software products
while currently increasing corporate asset value and developing greater market
share and critical mass for specific products and services.
Each operating company installed common practice management systems,
consolidated workflow processes and reporting mechanisms to facilitate
operational control and pinpoint areas where performance correction may be
indicated.
The Company continued to perform in accordance with it targets for the year;
however, for the quarter ended June 30, 1997, a steeper than anticipated expense
curve occurred from consolidation of Company functions which softened profit
margins, although the quarter still remained profitable. In each operating arm,
the Company realigned management, streamlined or downsized staff, reduced fixed
cost and explored expansion plans.
Santiago SDS, Inc. continued to sharpen its focus within the physician practice
management market through restructuring of marketing campaigns to offer a
more-defined, yet cost-competitive, state-of-the-art product. Santiago SDS,
Inc., in response to evolving market trends, continued to enhance product
capability and customer appeal, yet minimize product cost increases. In the
quarter ended June 30, 1997, Santiago SDS, Inc. maintained market share within
this highly competitive market segment through corporate extension of new
markets for its products and services. Strategies for 1997 remained on target
with financial and scheduling projections.
<PAGE>
Color Country Health Express, Inc. continued to exceed expectations and
continued to explore expansion of its satellite locations within its market by
maximization of existing, yet untapped, capacity without major demands for
capital or staff. Anticipated seasonal downturns in revenue were measured and
staffing levels adjusted to reduce controllable costs and protect profit
margins.
Intercoastal Rehabilitation, Inc. achieved positive results after
substantial realignment of staff and systems to position it for needed
efficiencies and improved productivity. The streamlined entity, with clearer
operational focus, continued to ramp up results, albeit after a longer period
than planned.
Results of Operations
This section discusses the results of operations of the Company and its
subsidiaries for the quarterly period ended June 30, 1997.
In the quarter ended June 30, 1997, revenues from the consolidated entities rose
to $1,257,678, an increase of 34% over the $937,618 reported for the same period
in 1996. The year to date revenue for 1997 of $2,425,476 represents an increase
of 54% over the revenue in the same period in 1996 of $1,572,541. This trend
continues to show strong revenue growth and it represents the sixth continued
quarter of increased revenues for the Company.
Cost of revenues and operating expenses for the quarter ended June 30, 1997 were
$185,514 and $912,035 respectively. This is an increase of 118% over the cost of
revenues of $85,165 and an increase of 60% over operating expenses of $570,161
for the same period in 1996. Year to date 1997 cost or revenues plus operating
expenses approximate 84% of total revenue. This 14% increase over the prior year
is primarily due to increased expenses incurred with the restructuring of
Santiago SDS, Inc.'s marketing plan, reduced sales while refocusing that
marketing campaign, and miscellaneous unanticipated additional expenses related
to the Florida acquisition and operational improvements.
Total assets increased to $5,967,838. This increase from December 31, 1996 is
largely attributable to the increase in receivables via increased revenue in
1997. The nature of revenues generated from the subsidiaries acquired during
1997 lends themselves to larger receivables balances. Additionally, an influx of
$1,000,000 of cash occurred near the end of the quarter. This represents a
short-term note payable.
Total liabilities increased to $5,865,976 from the December 31, 1996 balance of
$2,157,986. The escalation of liabilities was largely due to the $1,000,000
short-term note mentioned above, debt assumed with acquisitions, and debt
incurred through normal operations.
Liquidity and Capital Resources
As of June 30, 1997, the Company had total assets of $5,967,838 with current
assets of $4,406,987, property and equipment $303,336 and other assets totaling
$1,257,515. Total current liabilities at June 30, 1997 were $4,478,110 with
total long-term liabilities equaling $1,387,866. Loans to the Company by certain
of its officers, directors and shareholders totaled to $2,744,430. Net working
capital at the end of the period was ($71,123), an improvement from the quarter
ended March 31, 1997 which net working capital equaled ($104,849).
<PAGE>
The Company is actively engaging in acquisitions of complementary companies,
development of software products, and developing greater market share for
specific products and services. It is impossible to predict what impact, if any,
the above will have on the operating results of the Company. The Company will
attempt to enhance cash flows from operations through sales efforts and
operating efficiencies and in addition, may attempt to seek financing
opportunities to obtain funds in 1997 as necessary to continue the development
of the Company, its programs and strategic acquisitions. However, there can be
no assurance that the Company will produce additional revenue or profits from
these efforts. The Company intends to continue its growth by new acquisitions,
adding customers and catering to existing customers as well as aggressively
marketing new products and services.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company and Imagine, Inc. ("Imagine") announced on August 5, 1997, that they
had formed Healthcare Innovations, a limited liability company ("HI") for the
purposes of acquiring and operating healthcare businesses. Imagine is a
subsidiary of Stone Investments, which in turn is a subsidiary of Stone Capital,
a company with over $3 billion in assets. The Company will own a 51% common
equity interest in HI and Imagine will own a 49% common equity interest. In
addition, each of the Company and Imagine will own preferred interests in HI
designed to return their respective investments, plus a 10% return, over a three
year period.
For its interest, the Company contributed to HI its existing healthcare
businesses, consisting of two rehabilitation clinics in Jacksonville, Florida
and a Utah-based nurse practitioner business. The Company will also serve as
operator of HI, for which it will receive a management fee. For its interest,
Imagine contributed to HI the sum of $2,000,000, $900,000 of which was used to
repay debt assumed in connection with the purchase of the Jacksonville
facilities, and the remainder of which will be used to fund capital requirements
of the businesses and future acquisitions. The $900,000 loan repayment was
accomplished by a $1,000,000 loan from Imagine, through the Company, to Oak Tree
Receivables, Inc., which then repaid the loan with the cash and certain of its
receivables. The remaining $100,000 was used to repay obligations of the
Jacksonville facilities incurred in the ordinary course of business. Oak Tree
Receivables was contributed to HI by the Company, and the $1,000,000 note was
contributed to HI by Imagine as part of its $2,000,000 contribution.
Also in connection with the formation of HI, Imagine loaned the Company $500,000
for use in its Santiago operations. The loan bears interest at a rate of 10% and
is due on August 1, 2000. As security for the loan, the Company pledged all of
its stock of Santiago to Imagine and Robert T. Shaw, a shareholder of the
Company who had previously acquired a security interest in the Santiago stock,
consented to the pledge. In addition, a key part of the relationship between
Imagine and the Company is a funding arrangement whereby Imagine and its
affiliates will provide capital to HI through loan and equity arrangements in
order for HI to purchase healthcare businesses. The terms of such arrangements
are to be negotiated.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SHCEDULES AND REPORTS ON FORM 8-K
Exhibits
10.1 Operating Agreement dated as of August 1, 1997 for Healthcare
Innovations, LLC
10.2 LLC Preorganizational Agreement dated as of August 1, 1997 among the
Company, HI and Imagine
10.3 Services Agreement dated as of August 1, 1997 between HI and the
Company
10.4 Promissory Note dated as of August 1, 1997 in the principal amount of
$500,000 executed by the Company as maker in favor of Imagine
10.5 Amended and Restated Pledge Agreement dated as of August 1, 1997 among
the Company, Imagine and Robert T. Shaw
<PAGE>
Financial Statements - See Item 1 for financial statements filed with this
- -------------------- report.
Reports on Form 8-K - Original 8-K was filed on February 6, 1997 and an
- ------------------- Amendment No. 1 was filed April 4, 1997.
<PAGE>
<PAGE>
OPERATING AGREEMENT
OF
HEALTHCARE INNOVATIONS, LLC
THIS OPERATING AGREEMENT (this "Agreement") of HEALTHCARE INNOVATIONS, LLC
(the "Company") entered into the 1st day of August, 1997, by and between IMAGINE
INVESTMENTS, INC., a corporation organized and existing under the laws of the
State of Delaware ("IMAGINE"), and MB HOLDING CORPORATION, a corporation
organized and existing under the laws of the state of Arkansas ("MB")
(collectively, the "Initial Members") is effective upon the filing of the
Articles of Organization of the Company with the Secretary of State of Arkansas.
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein below contained, the parties agree as follows:
ARTICLE I.
Section 1.1 Formation of Limited Liability Company. The parties to this
Agreement hereby form a limited liability company pursuant to the Small Business
Entity Tax Pass Through Act of 1993, Act 1003 of 1993 (Ark. Code Ann. Sect.
4-32-101 et. seq.), as from time to time amended (the "Act"). Section 1.2
Organization Certificates. The parties hereto shall immediately execute, file,
record and/or publish Articles of Organization (the "Certificate" as defined in
ARTICLE II below) and other documents conforming hereto, and take all other
appropriate action, to comply with
1
<PAGE>
all legal requirements, for the creation of the Company under the Act and its
operation in the State of Arkansas.
Section 1.3 Company Name. The business of the Company shall be conducted
under the name of HEALTHCARE INNOVATIONS, LLC and under such name or variations
thereof as the Members deem appropriate.
Section 1.4 Principal Office. Theprincipal place of business and address of
the Company shall be as agreed in the Services Agreement contemplated in Section
6.8 hereof. The registered agent for service of process in Arkansas (the
"Agent") shall be Ken F. Calhoon, whose address is c/o Hilburn, Calhoon, Harper,
Pruniski & Calhoun, Ltd., Eighth Floor - Mercantile Bank Building, One
Riverfront Place, North Little Rock, Arkansas 72114. MB shall be the "Tax
Matters Partner" within the meaning of Code Section 6231 (a)(7). The Members
may, from time to time, by affirmative vote of the Members, change the principal
place of business, the Agent or the Tax Matters Partner. However, the Tax
Matters Partner must at all times be a Member. In addition, the Managers shall
have authority to and shall execute such amendments to filings with governmental
agencies as may be required as a result of any change of address or Agent.
Section 1.5 Term of Company. The Company shall be effective from the filing
of the Certificate and the payment of the filing fee therefor, in the office of
the Secretary of State of the State of Arkansas, as required by the Act, and any
amendments thereto, and shall remain effective until the earlier to occur of:
(a) December 31, 2047, or
(b) the date the Company is dissolved pursuant to the Act or any
provisions of this Agreement.
2
<PAGE>
The period of time between the date the Company becomes effective and the
date it ceases to be effective shall be referred to herein as "Company Term".
ARTICLE II.
Section 2.1 Definitions. Whenever used in this Agreement the terms set
forth below shall be defined as follows:
(a) "affiliate" means any person who controls, is controlled by, or is
under common control with, another person.
(b) "affirmative vote of the Members", "determined by the Members,"
"approval by the Members," "approved by the Members," or when any other
language is used herein indicating that a particular matter, decision, or
determination requires the consent, approval or other joint action of the
Members, the same shall mean that the matter in question must be approved
in writing by an affirmative vote of more than fifty percent (50%) of the
issued and outstanding Class A Units; provided that for purposes of Section
6.3 the same shall mean that the matter in question must be approved in
writing by an affirmative vote of more than sixty-six and two thirds
percent (66-2/3%) of the issued and outstanding Class A Units. Each Member
shall be entitled to cast one vote for each Class A Unit owned by said
Member.
(c) "Agreement" means this Operating Agreement, as amended from time
to time. Words such as "herein," "hereinafter," "hereto" and "hereunder",
refer to this Agreement as a whole, unless the context otherwise requires.
(d) "Capital Account" means, with respect to any Member, the Capital
Account maintained for such person in accordance with ARTICLE V hereof.
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<PAGE>
(e) "Capital Contributions" means, with respect to any Member, the
amount of money and the initial Gross Asset Value of any property (other
than money) contributed to the Company with respect to the interest in the
Company held by such person.
(f) The "Certificate" shall mean the Articles of Organization to be
filed on behalf of the Company as required by the Act, all similar
certificates required by the Acts of other jurisdictions in which the
Company does business, and all amendments thereto and substitutions
thereof.
(g) "Class A Units" means the units in the Company with features and
rights as described in this Agreement as attributable to Class A Units to
be acquired by the Members for the sum of $10.00 per Unit, payable in cash
or property as agreed to by the Members. The total Class A Units authorized
to be issued by the Company shall be 100,000 or such other amount as
determined by the Members. Each Member shall be entitled to cast one vote
for each Class A Unit owned by said Member.
(h) "Class B Units" means the non-voting units in the Company with
features and rights as described in this Agreement as attributable to Class
B Units to be acquired by the Members for the sum of $10.00 per Unit,
payable in cash or property as agreed to by the Members. The total Class B
Units authorized to be issued by the Company shall be 151,000, or such
other amount as determined by the Members. Members shall not be entitled to
vote with respect to Class B Units owned by such Members.
(i) "Class C Units" means the non-voting units in the Company with
features and rights as described in this Agreement as attributable to Class
C Units to be acquired by the Members for the sum of $10.00 per Unit,
payable in cash or property as agreed to by the Members. The total
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<PAGE>
Class C Units authorized to be issued by the Company shall be 149,000, or such
other amount as determined by the Members. Members shall not be entitled to vote
with respect to Class C Units owned by such Members.
(j) "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law).
(k) "Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization, or other cost recovery
deduction allowable under the Code with respect to an asset for such year
or other period.
(l) "Event of Bankruptcy" means, with respect to any Member of the
Company, any of the following: (1) filing a voluntary petition in
bankruptcy or for reorganization or for the adoption of an arrangement
under the Bankruptcy Code as now or in the future amended) or an admission
seeking the relief therein provided; (2) making a general assignment for
the benefit of creditors; (3) consenting to the appointment of a receiver
for all or a substantial part of such Person's property; (4) in the case of
the filing of an involuntary petition in bankruptcy, an entry of an order
for relief; (5) the entry of a court order appointing a receiver or trustee
for all or a substantial part of such Person's property without its
consent; or (6) the assumption of custody or sequestration by a court of
competent jurisdiction of all or substantially all of such Person's
property.
(m) "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for purposes of the Code, except as follows:
(1) The initial Gross Asset Value of any asset contributed
by a Member to the Company shall be the gross fair market value
of such asset, as determined by the contributing Member and the
Company;
5
<PAGE>
(2) The initial Gross Asset Values of all Company assets
shall be adjusted to equal their respective gross fair market
values, as determined by the Members, as of the following times:
(i) the acquisition of an additional interest in the Company by
any new or existing Member in exchange for more than a de minimis
Capital Contribution; (ii) the distribution by the Company to a
Member of more than a de minimis amount of property as
consideration for an interest in the Company; and (iii) the
liquidation of the Company within the meaning of Section 1.704-1
(b)(2)(ii)(g) of the Regulations;
(3) The Gross Asset Value of any Company asset distributed
to any Member shall be the gross fair market value of such asset
on the date of distribution; and
(4) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or
Code Section 743(b).
(n) "Managers" shall mean any Person or group of Persons (hereinafter
individually or collectively referred to as "Managers") appointed Managers
in accordance with the terms hereof.
(o) "Minimum Gain Chargeback Regulations" shall have the meaning as
set forth in Section 1.704-2 of the Regulations.
(p) "Members" shall mean the Initial Members, and any additional
Person who may be admitted as a new or Substitute Member pursuant to the
terms hereof.
(q) "Net Cash" means the gross cash proceeds from Company operations
less the portion thereof used to pay or establish reserves for all Company
expenses, debt payments, capital improvements, replacements, and
contingencies, all as determined by the Members. "Net Cash"
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<PAGE>
shall not be reduced by Depreciation, but shall be increased by any reductions
of reserves previously established which are not used for the purpose for which
the reserve was established.
(r) "Ownership Interest" means a Member's interest in the Company, as
determined by the ratio of the number of Units owned by a Member to the
total number of Units issued and outstanding.
(s) "Person" means any individual, partnership, corporation, trust or
other entity.
(t) "Profits" and "Losses" mean, for each fiscal year or other period,
an amount equal to the Company's taxable income or loss for such year or
period, determined in accordance with the Code.
(u) "Property" means all real and personal property acquired by the
Company and any improvements thereto, and shall include both tangible and
intangible property.
(v) "Regulations" means the Income Tax Regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
(w) "Related To or Affiliated With" shall mean:
(1) Any "Owning Person", which shall mean a Person owning
directly or indirectly more than 1% of the issued and outstanding
capital stock of, or more than a 1% beneficial interest in, any
Manager, or any Member;
(2) Any "Owned Person", which shall mean a Person more than
1% of the issued and outstanding capital stock of which, or more
than 1% beneficial interest in which, is owned directly or
indirectly by any Manager, any officer of the Company or any
Member;
7
<PAGE>
(3) Any "Affiliated Person", which shall mean (1) a Person
more than 1% of the issued and outstanding capital stock of
which, or more than a 1% beneficial interest in which, is owned
by an Owning Person or an Owned Person; and (2) a Person which
owns more than 1% of the issued and outstanding capital stock of,
or more than a 1% beneficial interest in, any Owning Person or
any Owned Person; and (4) Any agent, officer, director, employee,
or partner (or any member of the family or any agent, officer,
director, employee or partner) of any Manager, any officer of the
Company, any Member, any Owning Person, any Owned Person or any
Affiliated Person.
(x) "Substitute Member" means a Person other than IMAGINE or MB who is
admitted as a Member pursuant to this Agreement.
(y) "Units" means Class A, Class B and/or Class C Units issued
by the Company as defined and described herein.
ARTICLE III.
Section 3.1 Purposes of the Company. The purpose of the Company shall
be (a) to carry on the business of owning, acquiring and operating medically
related business operations, (b) to otherwise manage and operate the assets of
the Company (c) subject to the provisions of this Agreement, to enter into, from
time to time, such financing arrangements as the Members may determine to be
necessary, appropriate or advisable to enable the company to accomplish the
purposes set forth in clauses (a) and (b) of this sentence, (d) subject to the
provisions of this Agreement, to mortgage, pledge, assign, grant a security
interest in, or otherwise encumber, lease, exchange or otherwise dispose of, all
or a part of the assets of the Company to secure such financing arrangements,
and (e) to engage in all activities and to enter into, exercise the rights and
enjoy the
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benefits under, and discharge the obligations of the Company pursuant to, all
contracts, agreements and documents that may be necessary, appropriate or
advisable to enable the Company to accomplish the purposes set forth in clauses
(a), (b), (c) and (d) of this sentence.
Section 3.2 Powers of the Company. The purpose of the Company may, in
instances where the Members hereunder deem such action appropriate to achieve
the purpose of the Company and to the extent Company funds are available
therefor, be accomplished by taking any and all other action which is permitted
under the Act which is customary or reasonably related to Company operations and
activities related thereto.
Section 3.3 Acquisitions. If, during the Company Term, any Member or
its affiliates proposes, directly or indirectly, to acquire any interest in a
business providing medically related services similar in scope and operations to
those businesses conducted by the Company and its affiliates then such Member or
its affiliate, as the case may be (the "Offeror"), shall give notice thereof to
the Company and the other Member, which notice (the "Participation Notice")
shall (i) describe in reasonable detail the investment contemplated by the
Offeror (including the estimated cost thereof and the material obligations to be
undertaken in connection therewith), (ii) describe any required funding needed
by the Company and the proposed terms of such funding, and (iii) contain an
irrevocable offer to the Members to make the investment through the Company on
the same terms and conditions described in the Participation Notice. In order to
exercise such right, the other Member shall give notice to the Offeror no later
than 30 days after its receipt of the Participation Notice that it wishes to
consummate the proposed transaction through the Company and agrees to the
proposed financing terms. If the other Member does not exercise such right as
aforesaid, the Offeror shall be free to consummate such transaction without the
participation therein by the other
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Member or the Company and free of any rights or claims of the other Member or
the Company under this Section. Upon such terms as may be agreed to by Imagine
and the Company, Imagine agrees in good faith that it intends to provide to the
Company additional acquisition funding in the form of equity or loans from time
to time for future medically related business acquisitions on a transaction by
transaction basis. Any such funding shall be satisfactorily secured and shall
provide a return to Imagine of approximately prime plus four percent (4%) or
such other negotiable rates of return as agreed by Imagine and the Company. Each
event of funding by Imagine will be strictly conditional upon the parties
negotiating and executing formal agreements and documents with respect thereto
which are mutually satisfactory to the parties at the time of each future
acquisition transaction.
Section 3.4 Non-exclusivity. Subject to Section 3.3 hereof, (a) the Members
expressly recognize and agree that each Member has the right to purchase, sell,
develop, exploit and deal in every manner with properties, assets, transactions
and business arrangements that may be similar to, competitive with or adverse to
the activities, properties, assets and prospects of the Company, either for its
personal account and benefit or in an agency or representative capacity for the
account and benefit of any other person and (b) there shall be no duty on the
part of any Member to notify the other Member(s) concerning, or to account to
the Company or any other member for, any or all of the properties, assets or
rights of whatever nature acquired through such activities permitted by this
sentence, and the other Member(s) hereby waive and relinquish any and all rights
with respect to such Member's involvement in any activities described above.
Section 3.5 Consolidation. The parties agree and acknowledge that it is
their intent that MB Software Corp., parent corporation of MB ("MBS"), be
allowed to consolidate the results of operations of the Company with its own
financial records. To the extent that the Securities and
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Exchange Commission changes its rules such that MBS is not able to consolidate
the Company's results of operations, the parties will attempt in good
faith to restructure the transaction such that the economic benefit remains the
same but MBS is able to consolidate the Company's results of operations
with its own.
ARTICLE IV.
Section 4.1 Admission of Members. No additional Members shall be admitted
except by an affirmative vote of all the Members.
Section 4.2 Completion of Admission. A person shall become a Member when it
shall have completed all of the following:
(a) Executed a counterpart of this Agreement or an adoption agreement
agreeing to be bound by the terms of this Agreement;
(b) Executed any other document, certificate or instrument and taken
such other action, as the Members may reasonably request to evidence and
perfect such Person's admission as a Member;
(c) Shall have been accepted as a new Member by an affirmative vote of
the Members. (d) Shall have been accepted as a Substitute Member by an
affirmative vote of the Members other than the transferring Member; and (e)
The filing of a Certificate with the Secretary of State of the State of
Arkansas if so required by the Act.
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ARTICLE V.
Section 5.1 Contributions of the Members. Units in the Company shall be
issued to the Members in accordance with the terms of this Agreement in exchange
for cash and property. The Initial Members hereby agree to contribute the cash
and property at the agreed gross fair market value set forth on Exhibit A
attached hereto in exchange for the Units set forth therein. All Units to be
purchased to this Agreement are acknowledged to have been offered and sold by
the Company without registration under the Securities Act of 1933 or any Blue
Sky Law in reliance upon the express representation and warranty by the
purchaser thereof that such Units are acquired for purposes of such person's
own investment and not for resale or distribution.
Section 5.2 Capital Accounts. Each Member shall have a Capital Account
which shall be maintained strictly in accordance with Regulation Sect.
1.704-1(b)(2)(iv). The beginning balance of each Member's Capital Account shall
be zero and, as of any date, shall be:
(a) Increased by (1) the amount of cash contributed by the Member to the
Company; (2) the fair market value of property contributed by the Member to the
Company (net of liabilities securing such contributed property that the Company
is considered to assume or take subject to under Code Section 752); and (3)
allocations to the Member of Company Profits and gains (or items thereof) made
pursuant to ARTICLE VIII hereof; and (b) Decreased by (1) the amount of cash
distributed to the Member by the Company; (2) the fair market value of property
distributed to the Member by the Company (net of liabilities securing such
distributed property that such Member is considered to assume or take subject to
under Code Section 752); and (3) allocations of Company Losses and deductions
(or items thereof) made pursuant to ARTICLE VIII hereof.
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Section 5.3 Determination of Capital Account. The Capital Account of a
Member shall be determined after giving effect to all allocations of income,
gains, Profits and Losses of the Company for the current year and all
distributions for such year in respect of transactions effected prior to the
date of which such determination is to be made. A Member shall not be entitled
to withdraw any part of his Capital Account or to receive any distribution from
the Company, except as specifically provided in this Agreement. Any Member,
including any additional or Substitute Member, who shall receive an interest in
the Company or whose interest in the Company shall be increased by means of a
transfer to him of all or part of the interest of another Member, shall have a
Capital Account which reflects such transfer. Loans by any Member to the Company
shall not be considered Capital Contributions and shall not increase the Capital
Account of the lending Member.
Section 5.4 No Deficit Restoration Obligation.Notwithstanding anything
herein to the contrary, this Agreement shall not be construed as creating a
deficit restoration obligation or otherwise personally obligate any Member to
make a Capital Contribution in excess of the Capital Contribution initially made
for said Member's Units.
ARTICLE VI.
Section 6.1 Managers. Subject to the rights, duties and obligations of the
Members to make Major Decisions (as hereinafter defined) and subject to other
specificz affairs of the Company shall be vested in the Managers who shall be
appointed by an affirmative vote of the Members in accordance with the terms of
this Agreement. The Managers shall at all times be comprised of a board of four
(4) individuals who shall be appointed by the Members, with each Initial Member
having the right to appoint two (2) Managers. Managers need not be Members. A
majority vote of the Managers shall bind all the Managers; provided that in the
event of a tie vote, the affirmative vote of the Managers appointed by MB shall
bind all the Managers. The Managers may designate one Manager to execute
documents and take such other actions as have been approved or are provided for
herein.
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Section 6.2 Manager Meetings and Procedures. The Managers shall meet at
such intervals as may be agreed upon by the Managers, but at least quarterly.
The purpose of the meetings shall be to review the operations and needs of the
Company and to establish an open line of communication between the Managers and
the Members. Any Manager may call a meeting on not less than ten (10) working
days written notice given to the other Managers. The Managers meeting shall be
held at the principal office of the Company or at such other place as the
Managers determine. Three managers shall constitute a quorum for the purpose of
transacting business. At all meetings there shall be present a secretary
designated by the Managers to keep full and accurate minutes of each meeting. As
soon as is reasonably practicable after completion of each meeting, the
secretary shall distribute to each Manager copies of the minutes of each
meeting. A resolution in writing approved by a majority of the Managers shall
have the same effect as a resolution duly adopted at a meeting of the Managers.
Such approval may be written, or by telex, telegram, facsimile transmission or
other similar means of communication. Unless otherwise provided in this
Agreement, any agreement, contract, or document to be signed by the Company in
connection with a Major Decision (defined below) must be approved by an
affirmative vote of the Members and executed by the Managers. Any other
agreement, contract or document to be signed by the Company shall be executed by
the Managers or by those persons or that person authorized to execute on behalf
of the Managers.
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Section 6.3 Major Decisions. No act shall be taken, sum expended,
decision made or obligation incurred by the Company or the Managers with respect
to a matter within the scope of any of the major decisions enumerated below (the
"Major Decisions"), unless and until the same has been approved by an
affirmative vote of the Members, or expressly delegated by the Members in
writing. The Major Decisions shall include:
(a) Acquisition of any land or other real property or interest therein;
(b) Issuance by the Company of additional Units or any option or other
right to acquire a Unit or Units;
(c) Acceptance of any additional capital contributions by any party;
(d) Borrowing of moneys or entering into any contractual obligations if
such borrowings or contractual obligations are in excess of $100,000.00 or such
other amount as determined by the Members from time to time;
(e) The sale of all or substantially all of the assets of the Company or
the sale or disposition of any entity owned directly or indirectly by the
Company;
(f) Entering into a related party contract as defined and described in
Section 6.8 hereof; and
(g) Any reorganization, merger or liquidation of the Company.
Section 6.4 Officers. The Managers may appoint individuals as officers of
the Company which may include, but shall not be limited to (a) CEO; (b)
president, (c) Vice-President; (d) Secretary; and (e) Treasurer. Subject to
Section 6.3 hereof, such officers shall have the authority to contract or
negotiate on behalf of and otherwise represent the interests of the Company as
authorized by the Managers; provided, however, that the Managers shall withdraw
any such delegation ofmanagement responsibilities to any officer and shalL
remove any officer from his responsibilities and office at the direction of the
Members after an affirmative vote of the Members has been taken with respect
thereto. The initial officers shall be as set forth on Exhibit B hereto.
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Section 6.5 Prior Authorization. Except as expressly provided herein to the
contrary, the Managers shall be authorized to make any expenditure or incur any
obligation on behalf of the Company in the ordinary course of business and,
notwithstanding anything herein to the contrary, the Managers shall be
authorized to make any expenditure in the case of a bona-fide emergency (notice
of which shall be promptly given to the Members). The Managers shall not expend
more than what the Managers in good faith believe to be the fair and reasonable
market value at the time and place of contracting for any goods purchased or
services engaged on behalf of the Company.
Section 6.6 Rights Not Assignable. The rights and obligations of the
Managers under this Agreement shall not be assignable voluntarily or by
operation of law.
Section 6.7 Compensation. The Members, by an affirmative vote of the
Members, may provide for the payment of commercially reasonable arms-length
compensation by the Company to the Managers for the services of the Managers.
Section 6.8 Contracts with Related Parties. Managers shall not knowingly
enter into any agreement or other arrangement for the furnishing to or by the
Company of goods or services with any Person Related To or Affiliated With any
Manager, any officer of the Company or any Member unless such agreement or
arrangement has been approved by the Members after the nature of the
relationship or affiliation has been disclosed. Notwithstanding, the Members
agree that the Company shall enter into a non-exclusive agreement with MB for
the provision of management services for the business operations initially
contributed on a cost plus fifteen percent (15%) basis, following final approval
of the specific written agreement by all Members.
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Section 6.9 Indemnification. No Manager shall take any action on behalf of
or in the name of the Company, or enter into any commitment or obligation
binding upon the Company, except such actions as are expressly provided for in
this Agreement. No Manager shall be liable to the Company for any actions taken
in such person's capacity as a Manager, unless such conduct is deemed to
constitute gross negligence or wilful misconduct on the part of such Manager.
The Company does hereby indemnify and hold harmless the Managers and their
agents, officers and employees as to third parties against and from any personal
loss, liability or damages suffered as a result of any act or omission which the
Managers believed, in good faith, to be within the scope of authority conferred
by this Agreement, except for willful or fraudulent misconduct, gross negligence
or willful breach of fiduciary duties, but not in excess of the capital
contributions of all Members. Notwithstanding the foregoing, the Company's
indemnification of the Managers and their agents, officers and employees as to a
third party is only with respect to such loss, liability or damage which is not
otherwise compensated for by insurance carried for the benefit of the Company.
Insurance coverage for public liability, and all other insurance deemed
necessary or appropriate by the Managers to the business of the Company, shall
be carried in such amounts and of such types as shall be determined by the
Managers.
Section 6.10 Status as Manager. Upon the occurrence of any of the following
events to or by a Manager, such Manager shall automatically and without the
action or consent of any Member, cease to be a Manager of the Company: (a) makes
an assignment for the benefit of creditors; (b) files a voluntary petition in
bankruptcy; (c) is adjudicated bankrupt or insolvent;
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(d) files a petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any statute, law, or regulation; (e) files an answer or other
pleading admitting or failing to contest the material allegations of a petition
filed against itself in any proceeding of this nature; (f) seeks, consents to,
or acquiesces in the appointment of a trustee, receiver, or liquidator of all or
any substantial part of its properties, or (g) dissolves.
Section 6.11 Election of Managers. The Members shall elect the Managers
annually, or may remove or replace the Managers at any time, by an affirmative
vote of the Members. In the event a Manager ceases to hold office as a result of
the requirements of Section 6.10, resignation or removal in accordance with
Section 6.11, the Member that originally nominated such Manager shall have the
right to appoint a successor.
Section 6.12 Limitations on Managers. The Managers shall be subject to all
the restrictions and limitations of managers under the Act.
Section 6.13 Company Meetings. Meetings of Members may be called by the
Managers at any time. Meetings of Members shall be called by the Managers upon
receipt of a written request of Members holding at least ten percent (10%) of
the outstanding Class A Units. Notice of a meeting shall be given not less than
ten (10) nor more than sixty (60) business days prior to the date of the
meeting. The matters to be voted upon at such meeting shall be specified in the
notice. The Managers shall call for an annual meeting of the Members during the
first calendar quarter for the purpose of election of Managers, a report of
Company activity for the year just completed and such other purposes of the
Managers may determine. A meeting of the Members shall not be held unless
Members owning at least fifty-one percent (51%) of the outstanding Class A Units
are present in person or are represented by proxy. At all meetings there shall
be a secretary designated by the Members to keep full and accurate minutes of
each meeting. As soon as is reasonably practicable after completion of each
meeting, the secretary shall distribute to each Member copies of the minutes of
each meeting. All acts and approvals of the Members shall require the
affirmative vote of the Members. A resolution in writing approved by an
affirmative vote of the Members shall have the same effect as a resolution duly
adopted at a meeting of the Members. Such approval may be written, or by telex,
telegram, facsimile transmission or other similar means of communication. Unless
otherwise provided in this Agreement or agreed by the Members, any agreement,
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contract, or document to be signed by the Company in connection with a Major
Decision must be approved by an affirmative vote of the Members and executed by
a Manager. Any other agreement, contract or document to be signed by the Company
shall be executed by the Managers or by those persons or that person authorized
to execute on behalf of the Managers.
ARTICLE VII.
Section 7.1 Rights and Limitations of Member. A Member shall not be:
(a) personally liable for any of the debts of the Company or to a Manager,
unless a liability of the Company or a Manager, as the case may be, is (1)
founded on some unauthorized activity of such Member or (2) results from the
execution of any document providing for personal liability;
(b) personally liable for any losses of any other Member;
(c) except as provided herein, allowed to take part in the management or
control of the Company business, or to sign for or to bind the Company, such
power to vest solely and exclusively in the Managers;
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(d) entitled to be paid any salary or to have a Company drawing account
solely because of his, her or its status as a Member;
(e) entitled to a partition of any Company Property notwithstanding any
other provision of law to the contrary; or
(f) allowed to voluntarily withdraw from the Company.
Section 7.2 Access to Information. Any Member shall have access to the
books and records of the Company and may inspect and copy such information at
reasonable request at such Member's expense. The information available to a
Member includes: (a) the name and address of all Members; (b) the Articles of
Organization and any amendments thereto; (c) the Company's federal, state and
local tax returns and reports for the three (3) most recent years; (d) the
Operating Agreement then in effect; and (e) financial statements of the Company
for the three (3) most recent years.
ARTICLE VIII.
Section 8.1 Profits and Losses. Except as may be required by Sect. 704(c)
of the Code and the Regulations thereunder, Profits and Losses of the Company
and each item of income, gain, loss, deduction or credit shall be allocated
among the Members based upon the Member's Ownership Interest in the Company as
set forth herein. Profits of the Company for any year shall be allocated as
follows:
(a) first, for any year there shall be allocated and distributed
proportionately to the Members owning Class B Units an amount of profits
equal to a ten-percent annual return on the original amount of capital
contribution ($10.00 per Unit) for such Class B Units from the date of
contribution until repurchased and canceled by Company pursuant to Article
X.
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(b) second, for any year there shall be allocated and distributed
proportionately to the Members owning Class C Units an amount of profits
equal to a ten-percent annual return on the original amount of capital
contribution ($10.00 per Unit) for such Class C Units from the date of
contribution until repurchased and canceled by Company pursuant to Article
X.
(c) all remaining profits shall be allocated proportionately to the
number Members owning Class A Units.
(d) Losses of the Company for any year shall be borne and allocated
proportionately to the Members owning Class A Units.
Section 8.2 Tax Allocations: Code Section 704(c). In accordance with
Code Section 704(c) and the Regulations thereunder, income, gain, loss, and
deduction with respect to any property contributed to the capital of the Company
shall, solely for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its initial Gross Asset Value. Any
items allocated pursuant to this Section 8.2 shall neither be charged nor
credited to the Capital Accounts.
In the event the Gross Asset Value of any Company asset is adjusted,
subsequent allocations of income, gain, loss and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Regulations thereunder. Any
elections or other decisions relating to such allocations shall be made by the
Managers in any manner that reasonably reflects the purpose and intention of
this Agreement.
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Section 8.3 Qualified Income Offset. The "qualified income offset"
provisions of Regulation Sect. 1.704-1(b)(2)(ii)(d) shall apply at all times and
in such a manner as to cause all allocations herein to have economic effect.
Section 8.4 Cost Recovery and Depreciation. Notwithstanding the provisions
of Section 8.3 above, if taxable income to be allocated pursuant to such section
includes gain to be treated by the Company as ordinary income for federal income
tax purposes because it is attributable to the recapture of Depreciation, such
ordinary income shall be allocated to the Members in the same proportion as the
deductions for such Depreciation were allocated.
Section 8.5 Allocations to Members with Varying Interests. If during any
taxable year there is a change in any Member's interest in the Company, each
member's distributive share of the Company's tax items shall be determined by
(a) allocating such tax items to the appropriate monthly period and (b)
allocating the tax items attributable to each such period to the Members in
accordance with the provisions of this Article and according to their respective
interests in the Company as of the beginning of each such period.
Section 8.6 Special Provisions. Notwithstanding the foregoing provisions in
this Article:
(a) If any Company expenditure treated as a deduction on the Company's
federal income tax return is disallowed as a deduction and treated as a
distribution pursuant to Code Section 731 (a), there shall be a special
allocation of gross income to the Member deemed to have received such
distribution equal to the amount of such distribution;
(b) If the Company is entitled to a deduction for imputed interest under
any provision of the Code on any loan or advance from a Member, such deduction
shall be allocated solely to such Member; and
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(c) The Minimum Gain Chargeback provisions of the Regulations under Code
Section 704 shall apply beginning in the first taxable year of the Company in
which there are nonrecourse deductions or the Company makes a distribution of
proceeds of a nonrecourse liability that are allocable to an increase in Company
minimum gain and thereafter throughout the Company Term, and any such
nonrecourse deductions shall be allocated in a manner that is reasonably
consistent with allocations that have substantial economic effect of some other
significant Company item attributable to the property securing the nonrecourse
debt.
Section 8.7 Fiscal Year and Annual Report. The Company fiscal year end
shall be December. The Company books shall be kept on an accounting basis
determined by the Managers and in accordance with usual and customary accounting
practices. The Managers shall furnish within seventy-five (75) days after the
year end, an annual report of operations and statement of financial condition
(including such information as is necessary for preparation of federal and state
income tax returns) to each Member prepared by such public accounting firm or
otherwise or as the Managers may designate.
ARTICLE IX.
Section 9.1 Distributions. The Members agree to cause the Managers to take
such action as may be necessary to proportionately distribute from Net Cash the
annual ten percent (10%) return to the Members owning Class B Units first, and
then to Members owning Class C Units, pursuant to Sections 8.1 (a) and (b) at
the end of each fiscal year of the Company. To the extent Profits are less than
the profit distribution required pursuant to Sections 8.1(a) and (b), such
entire distribution shall nevertheless be made and the difference between
profits for the year and the amount distributed shall be in the form of a
guaranteed payment by the Company, deductible by the Company for
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federal income tax purposes and proportionately charged against the interest of
the Member owning Class A Units. Upon the affirmative vote of the Members, a
portion or all of the Net Cash, as determined by said vote, shall be distributed
proportionately to the Members based upon their Ownership Interest in the
Company,
(a) first, only to the Members owning Class B Units until such Members have
been distributed the full amount of the initial capital contribution with
respect to all Class B Units, with such distributions being as a withdrawal of
capital and cancellation of such Units; and
(b) second, only to the Members owning Class C Units until such Members
have been distributed the full amount of the initial capital contribution with
respect to all Class C Units, with such distributions being as a withdrawal of
capital and cancellation of such Units.
The Members agree they will cause the Managers and Company to have
fully distributed and repaid the full amount of the initial contributions of
capital for Class B and Class C Units to Members owning Class B and Class C
Units in cancellation thereof as follows:
(a) with respect to all Class B Units, on or before the date ending such
Class B Units; and
(b) with respect to all Class C Units, on or before the later of (1) the
date ending three (3) years following the date of the capital contributions for
such Class C Units; or (2) the date when Net Cash is available and all
distributions to Members owning Class B Units have been fully distributed and
repaid in cancellation of all Class B Units.
Only after full distributions in return of capital to the Members owning
all Class B and Class C Units pursuant hereto in complete cancellation thereof
may any distributions be made to Members
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with respect to Class A Units, and then only upon an affirmative vote of the
Members. Distributions with respect to Class A Units shall not be in
cancellation of Class A Units.
Section 9.2 Security Interest. To secure the obligations of Company to
perform the mandatory distributions with respect to the Class B Units above, the
Members and Company agree that the Company hereby grants, bargains, sells,
transfers, and pledges to the undersigned Members owning Class B Units a first
priority security interest in all of Company's right, title and interest in, to
and under the membership interests or tangible property contributed to Company
by the Members and described on Exhibit A attached hereto. The Members agree to
cause the Company or its subsidiary limited liability companies to promptly
deliver such pledge and security agreements, UCC financing statements and such
other documents as may be necessary and appropriate to more fully provide a
perfected security interest in the collateral described in Exhibit A, and in and
to any underlying assets of any entity described on Exhibit A.
ARTICLE X
Section 10.1 Restrictions on Transfer. No Member shall sell, assign,
transfer, pledge or encumber any interest in a Unit except (i) as provided in
this Section, (ii) for blanket pledges or encumbrances of all of a Member's or
its affiliates' assets or (iii) with the prior written consent of the other
Member. Any Member (hereafter, the "Assignor") who receives an offer to purchase
all or any portion of such Assignor's Units in the Company from any Person
(hereafter, the "Proposed Assignee") and if such Assignor is willing to accept
such offer, the Assignor may transfer all or part of Assignor's Units to the
Proposed Assignee only after providing the Company and other Members the
following rights of first refusal:
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(a) The Assignor shall notify the Company and each other Member, in
writing, of the terms of the offer from the Proposed Assignee, and the identity
of the Proposed Assignee.
(b) The Company shall have the option to purchase the Units which the
Assignor wishes to sell at a price equal to the same price and terms from the
Proposed Assignee as those described in the written notice provided by the
Assignor to the Company under the terms of (a) above. The Company shall exercise
its option by giving written notice to the Assignor of such intention within
thirty (30) days of the receipt of the written notification given by the
Assignor under the provisions of (a) above.
(c) If the Company does not exercise its option to purchase the Units
proposed to be sold by the Assignor within the time provided for exercise of
such option, any other Member desiring to purchase part or all of the Units
proposed to be sold by the Assignor shall notify, in writing, the Assignor of
such intention within forty (40) days of the receipt of the written notification
required to be given by the Proposed Assignor under the provisions of (a) above,
at the same price at which the Company could have purchased such Units if it had
exercised its option under the provisions of (b) above. If more than one Member
provides notification of intention to exercise the option to purchase the Units
Assignor proposes to sell, the Units Assignor proposes to sell will be sold to
each such other Members providing notice of intent to exercise the purchase in
the same proportion as that other Members' number of Units bears to the
aggregate number of Units of all Members giving notice of intent to exercise the
option to purchase. The portion of the total purchase price to be paid by each
such purchasing Member shall be determined in like fashion.
(d) If neither the Company nor the other Members exercise options for the
purchase of all the Units, which Assignor proposes to sell, Assignor shall be
entitled to sell the Units Assignor
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has proposed to sell to the Proposed Assignee at a price and upon terms no more
favorable to Proposed Assignee than those described in the written notice
provided to the Company and other Members under the provisions of (a) above. The
sale of Assignor's Units shall be subject to the following limitations unless
and until the Proposed Assignee becomes a Member:
(1) such assignment entitles the assignee to receive, to the
extent assigned, only the distributions to which the Assignor would
have been entitled;
(2) such assignment does not entitle the assignee to participate
in the management and affairs of the Company or to become or exercise
any rights of a Member;
(3) the assignee has no liability as a Member solely by reason of
the assignment;
(4) the Assignor of an interest in the Company continues to be a
Member and to have all the rights of Members, until the assignee
becomes a Member or unless the Assignor is earlier removed. A Member
who assigns all of such Member's interest in the Company may be
removed as a Member by an affirmative vote of the Members other than
the transferring Member. Whether or not the assignee becomes a Member,
the Assignor is not released from any liability the Assignor may have
to the Company with respect to promised contributions of money,
property or services by the Assignor.
Section 10.2 Substitute Members. An assignee or successor in interest of
any Member's interest in the Company may become a Substitute Member only upon
the affirmative vote of the Members other than the Assignor or transferring
Member.
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Section 10.3 Successors in Interest.
(a) If any Member who is a natural person dies or is adjudicated
incompetent or bankrupt (either voluntarily or involuntarily), the successor in
interest of such Member shall not become a Substitute Member except as provided
in Section 10.2 above.
(b) If any Member which is not a natural person liquidates, dissolves or is
adjudicated a bankrupt (either voluntarily or involuntarily), the successor in
interest of such Member shall not become a Substitute Member except as provided
in Section 10.2 above.
ARTICLE XI
Section 11.1 Liquidating Events. The Company shall dissolve and commence
winding up and liquidating upon the first to occur of any of the following
("Liquidating Event"):
(a) December 31, 2047;
(b) The sale of all or substantially all of the Property of the Company;
(c) The happening of any other event that makes it unlawful, impossible or
impractical to carry on the business of the Company; or
(d) The death, retirement, resignation, expulsion, Bankruptcy or
dissolution of any Member or the occurrence of any other event which terminates
the continued membership of a Member in the Company, unless the business of the
Company is continued by the affirmative vote of the Members other than the
terminated Member within ninety (90) days after the occurrence of such event;
(e) Upon the affirmative vote of the Members to liquidate or sell all or
substantially all of the Property of the Company.
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Section 11.2 Winding Up. Upon the occurrence of a Liquidating Event, the
Company shall continue solely for the purpose of winding up its affairs in an
orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Members. No Member shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the Company's
business and affairs. The Managers or such person elected by an affirmative vote
of the Members shall be responsible for overseeing the winding up and
dissolution of the Company and shall take full account of the Company's
liabilities and Property and the Company Property shall be liquidated as
promptly as is consistent with obtaining the fair value therefor, and the
proceeds therefrom, to the extent sufficient therefor, shall be applied and
distributed in the following order:
(a) First, to the payment of all debts and liabilities of the company,
including expenses arising from the liquidation and the repayment of loans or
advances from the Members;
(b) Second, to the establishment of a reserve to meet any contingencies
arising from the occurrence of the liquidation;
(c) Third, to all the Members owning outstanding Class B Units in an amount
equal to the initial contribution for such outstanding Class B Units, together
with the amount of any undistributed annual return provided for in Article VIII.
(d) Fourth, to all the Members owning outstanding Class C Units in an
amount equal to the initial contribution for such outstanding Class C Units,
together with the amount of any undistributed annual return provided for in
Article VIII.
(e) Fifth, to all the Members in amounts equal to the positive balances, if
any, in their respective Capital Accounts or, if the proceeds to be so
distributed are less than the total of such positive balances, to all the
Members having positive balances in their Capital Accounts pro-rata based upon
the ratio of the amount of each such Member's positive balance to all such
positive balances.
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Section 11.3 Distributions in Kind. With respect to assets distributed in
kind to the Members in liquidation or otherwise, (a) any unrealized appreciation
or unrealized depreciation in the values of such assets shall be deemed to be
Profits and Losses realized by the Company immediately prior to the liquidation
or other distribution event, and (b) such Profits and Losses shall be allocated
to the Members in accordance with ARTICLE VIII hereof, and any Property so
distributed shall be treated as a distribution of an amount in cash equal to the
excess of such fair market value over the outstanding principal balances of and
accrued interest on any debt by which the Property is encumbered. For the
purposes of this Section 11.3, "unrealized appreciation" or "unrealized
depreciation" shall mean the difference between the fair market value of such
assets, taking into account the fair market value of the associated financing
but subject to Code Section 7701 (g), and the Company's basis in such assets for
book purposes. This Section 11.3 is merely intended to provide a rule for
allocating unrealized gains and losses upon liquidation or other distribution
event, and nothing contained in this Section 11.3 or elsewhere in this Agreement
is intended to treat or cause such distributions to be treated as sales for
value. If fair market value cannot be determined by the Members, the Company
shall retain an independent appraiser to determine the value of the assets in
dispute. The cost of such appraiser shall be borne by the Company.
Section 11.4 No Right to Company Property. Except as specifically set forth
in this Agreement, no Member shall be entitled to demand or receive Property
other than cash in return for his Capital Contribution and, to the maximum
extent permissible under applicable law, each Member hereby waives all right to
partition any real property that may be acquired by the Company.
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ARTICLE XII
Section 12.1 Notices. Except as otherwise provided herein all notices under
this Agreement shall be in writing and shall be given to the parties at the
addresses provided by them to the Manager and to the Company at its principal
office or at such other address as any of the parties may hereafter specify in
the same manner.
Section 12.2 Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arkansas.
Section 12.3 Amendments. Amendments to this Operating Agreement must be in
writing and approved by all the Members owning Class A Units. Additionally,
without the consent of all the Members, no amendment will be effective that
would (a) enlarge the obligations of any Member under the Operating Agreement or
modify the limited liability of any Member without the consent of such Member;
or (b) amend this Section 12.3.
Section 12.4 Successors and Assigns. This Agreement, and all the terms and
provisions hereof, shall be binding upon and shall inure to the benefit of the
Members and their respective legal representatives, heirs, successors and
assigns.
Section 12.5 Gender and Number. Whenever required by the context, as used
in this Agreement, the singular number shall include the plural, and the
masculine gender shall include the feminine or the neuter.
Section 12.6 Severability. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations of the jurisdictions in which the Company does
business. If any provision of this Agreement, or the application thereof to any
person or circumstance shall, for any reason and to any extent, be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
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Section 12.7 Integrated Agreement. This Agreement, the Services Agreement
contemplated herein and the LLC Preorganization Agreement dated of even date
herewith constitutes the entire understanding and agreement among the parties
hereto with respect to the subject matter hereof.
Section 12.8 Construction. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Person.
Section 12.9 Headings. Section and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision hereof.
Section 12.10 Incorporation by Reference. Every exhibit, schedule and other
appendix attached to this Agreement and referred to herein is hereby
incorporated in this Agreement by reference.
Section 12.11 Additional Documents. Each Member and each Manager agrees to
perform all further acts and execute, acknowledge and deliver any documents
which may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement. Section 12.12 Loans. Any Member may, with the
approval of the Manager, lend or advance money to the Company. If any Member
shall make any loan or loans to the Company or advance money on its behalf, the
amount of any such loan or advance shall not be treated as a contribution to the
capital of the Company but shall be a debt due from the Company. The amount of
any such loan or advance by a lending Member shall be repayable out of the
Company's cash and shall bear interest at the rate agreed between the Company
and the lending Member. No Member shall be obligated to make any loan or advance
to the Company pursuant to this Agreement.
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Section 12.13 Counterparts. This Agreement may be executed in two or more
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. It shall not be necessary
in making proof of this Agreement to produce or account for more than one
counterpart.
Section 12.14 Third Party Beneficiaries. This Agreement shall not create
any rights for the benefit of any third party.
Section 12.15 Proxies. Any Member may delegate by written proxy his ability
to vote on any matter hereunder.
Section 12.16 No Partnership Intended for Non-tax Purposes. The Members
have formed the Company under the Act, and expressly do not intend hereby to
form a partnership under either the Arkansas Uniform Partnership Act nor the
Arkansas Revised Limited Partnership Act of 1991. The Members do not intend to
be partners one to another, or partners as to any third party.
IN WITNESS WHEREOF, the Members have set their hands effective as of the
date set forth above.
Members:
MB HOLDING CORPORATION
By:
Title:
IMAGINE INVESTMENTS, INC.
By:
Title:
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EXHIBIT A
Ownership
Interest in
Members' Names the Company
and Addresses Contribution @) $10 per Unit
-------------- ------------ ---------------
IMAGINE Cash in the amount of 49,000 Class A Units
INVESTMENTS, INC. $1,000,000 and a Promissory 151,000 Class B Units
Note in the amount of
$1,000,000 executed by
MB Software Corporation as
Maker and assigned to and
assumed by Oak Tree
Receivables, Inc., which is the
predecessor in interest to
Oak Tree Receivables, LLC
MB HOLDING Membership interests in the 51,000 Class A Units
CORPORATION following limited liability 149,000 Class C Units
companies in the agreed
fair market value amount of
$2,000,000: Intercoastal
Rehabilitation, LLC; N.F.P.M.,
LLC; Oak Tree Receivables,
LLC; and C.C.H.E., LLC
<PAGE>
EXHIBIT B
OFFICERS
NAME OFFICE
---- ------
Scott A. Haire CEO, President
Gilbert Valdez Vice President
Tom Wilkins Treasurer
Lucy J. Singleton Secretary
LLC PREORGANIZATIONAL AGREEMENT
This LLC Preorganizational Agreement (this"Agreement") is dated as of August 1,
1997, and is among MB Holding Corp., a Nevada corporation ("Holding") , MB
Software Corporation, a Colorado corporation ("Shareholder"), Imagine
Investments, Inc., a Delaware corporation ("Imagine") and Healthcare
Innovations, LLC, an Arkansas limited liability company (the"Company").
WITNESSETH:
WHEREAS, Holding, a wholly owned subsidiary of Shareholder, and Imagine have
formed and organized the Company as of the date hereof subject to the terms of
that certain Operating Agreement dated of even date herewith; and
WHEREAS, Shareholder has transferred its stock of Oak Tree Receivables, Inc.,
Intercoastal Rehabilitation, Inc., and C.C. Acquisition Corp. to Holding, and
Holding has by statutory mergers converted such entities to limited liability
companies and has contributed its membership interests in the following Arkansas
limited liability companies to the Company: Oak Tree Receivables, LLC, N.F.P.M.,
LLC, Intercoastal Rehabilitation, LLC, and C.C.H.E., LLC (collectively, the
"Subsidiaries"), and Imagine has contributed One Million and No/100 Dollars
($1,000,000.00) and a Promissory Note in the principal amount of One Million and
No/100 Dollars ($1,000,000) executed by Oak Tree Receivables, Inc. as maker in
favor of Imagine (the "Note") to the Company; and
WHEREAS, Shareholder has previously granted a security interest in stock of said
subsidiary corporations securing indebtedness owing by its subsidiary, Oak Tree
Receivables, Inc., by assumption, to Imagine and has transferred such stock
subject to a Stock Pledge Agreement dated June 30, 1997, to Holding; and
WHEREAS, it is the parties' intent and desire that the security interest in
favor of Imagine be terminated in light of the fact that current owner of the
Note is also the owner of such subsidiaries (or their successors, as the case
may be); and
WHEREAS, the parties wish to enter into such other agreements related to or
incident to the formation and acquisition of the Company; and
WHEREAS, the parties hereto wish to enter into this Agreement to set forth their
respective rights and agreements with respect to the matters set forth herein
regarding the capitalization and formation of the Company;
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NOW, THEREFORE, in consideration of the mutual promises and obligations set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I - OAK TREE INDEBTEDNESS
With respect to the indebtedness of Oak Tree Receivables, Inc. (and Oak
Tree Receivables, LLC, its successsor by merger) pursuant to a Promissory Note,
Loan Agreement and Stock Pledge Agreement, all dated June 30, 1997, the
obligations of which were assumed by Oak Tree Receivables, Inc. by an Assignment
and Assumption Agreement dated July 24, 1997, with Shareholder, the parties
agree that the security interest in favor of Imagine pursuant to the Stock
Pledge Agreement dated June 30, 1997, is hereby released in all respects.
ARTICLE II- PAYMENT OF EXISTING SUBSIDIARIES' INCOME TAX LIABILITIES
The parties agree that all income, loss and gain of the Subsidiaries or
their predecessors, or attributable to any merger or transfer up to and
including the transfer to Company shall be included on the consolidated tax
returns of Shareholder and any federal or state income tax liability with
respect thereto shall be paid by Shareholder and/or its affiliated corporations,
so that the Subsidiaries or Company will have no income tax liability for any
period prior to and including the date of transfer to Company.
ARTICLE III - OTHER LOANS
As soon as practical after formation and capitalization of the Company,
Imagine agrees in good faith that it intends to provide a loan to Holding the
sum of Five Hundred Thousand and No/100 Dollars ($500,000.00) payable with
interest at the rate of prime plus two percent (2%) payable quarterly, with all
principal and any unpaid accrued interest due at the end of a three (3) year
term. The loan documents shall provide for such collateral, covenants and
limitations on additional borrowing as satisfactory to Imagine. Any funding
obligation of Imagine hereto is strictly conditional upon the parties
negotiating and executing formal agreements and documents with respect thereto
which are mutually satisfactory to the parties.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Holding and Shareholder represent and warrant to Imagine and the
Company as follows as of the date hereof:
4.1 Organization, Power and Qualification of Holding and Shareholder. Each
ofHolding and Shareholder is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation, has all
requisite corporate power and authority to own, lease and operate its
properties, to carry on its business as now being conducted, to enter into this
Agreement and to perform its obligations hereunder (in the case of Shareholder).
Holding and Shareholder havebeen duly qualified to do business in all states in
which the character of its property or activities require such qualification
under applicable law. At the time of contribution to the Company, Holding owned
100% of the outstanding membership interests of each of the Subsidiaries free
from all encumbrances.
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4.2 Authorization. The execution and delivery of this Agreement, and each other
agreement and certificate or other document delivered, or to be delivered, in
connection with the transfers contemplated by this Agreement have been duly and
validly authorized by all necessary corporate and other action on the part of
Holding and Shareholder and this Agreement constitutes, and all other documents
and agreements to be delivered by Holding or Shareholder on or before the date
of closing, shall constitute valid and legally binding obligations of Holding
and to Shareholder enforceable against them in accordance with their terms,
subject to the application of bankruptcy, reorganization, insolvency, moratorium
or other similar laws affecting the rights of creditors.
4.3 The Subsidiaries. Each of the Subsidiaries is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Arkansas, and has all requisite limited liability company power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of the Subsidiaries has been or will be duly
qualified to do business in all states which the character of its property or
actions require such qualifications under applicable law.
4.4 No Violation. Neither the execution, delivery or performance by Holding and
Shareholder of this Agreement or any other agreement delivered, or to be
delivered, in connection with the transactions contemplated by this Agreement,
nor the execution by Holding of the Operating Agreement, nor compliance with the
terms and provisions hereof or thereof, nor the consummation of the transactions
contemplated herein or therein, including, without limitation, the transfer to
the Company of Holding's right, title and interest in and to the Subsidiaries,
(i) will contravene any applicable provision of any law, statute, rule,
regulation, order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict or be inconsistent with or result in any
breach of, any of the terms, covenants, conditions or provisions of any
agreement or other instrument to which Shareholder, Holding or any Subsidiary is
a party or by which Shareholder, Holding, any Subsidiary or any of their
respective properties or assets is bound or subject, or (iii) will violate any
provision of the organizational documents of Shareholder, Holding or any
Subsidiary.
4.5 Proceedings or Investigations. There is no action, suit or legal,
administrative, arbitration or other proceeding or governmental investigation
pending or, to the best knowledge of Shareholder, threatened against
Shareholder, Holding or any of the Subsidiaries before or by any court, tribunal
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency, or instrumentality, domestic or foreign, and, to the best
knowledge of Shareholder, no such action, suit, or legal, administrative,
arbitration or other proceeding or governmental investigation is probable of
assertion against Shareholder, Holding or any of the Subsidiaries, which, if
adversely determined, could reasonably be expected to have a material adverse
effect on the value or operations of any Subsidiary or its assets, or adversely
affect or impede the transfer to the Company of all of Holding's right, title
and interest in the Subsidiaries. To the best of the knowledge of Shareholder,
each of the Subsidiaries is in compliance with all laws, rules, regulations,
reporting and licensing requirements and orders applicable to its business or to
its employees conducting its business.
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4.6 Consents. No consents or approvals of any public body or authority or
shareholders of Shareholder or Holding, and no consents or waivers from any
parties to leases, licenses, franchises, permit, indentures, agreement or other
instruments are required for the lawful consummation of the transactions
contemplated hereby.
4.7 Financial Statements. The unaudited financial statements of the Subsidiaries
for the quarter ended June 30, 1997 (collectively, the "Financial Statements")
present fairly the financial position, results of operations and cash flows of
each Subsidiary, or its predecessor, at the dates and for the fiscal periods
then ended, in accordance with GAAP, and reflect all material claims, debts and
liabilities, absolute or contingent, direct or indirect, of each Subsidiary.
Holding has delivered true and complete copies of the Financial Statements to
Imagine.
4.8 No Adverse Change. Since June 30, 1997, the businesses of Subsidiary has
been carried on in the normal course and there has been no material adverse
change in the business, financial condition, results of operations, assets or
liabilities of the Subsidiaries.
4.9 Taxes. (a) All tax returns required to be filed by or on behalf of the
Subsidiaries, or their predecessors, have been timely filed, or requests for
extensions have been timely filed, granted and have not expired, for periods
ending on or before June 30, 1997, and all such returns filed are complete and
accurate in all material respects.
(b) There is no audit examination, deficiency or refund litigation or
matter that has been raised by a taxing authority with respect to any previously
filed tax returns of any of the Subsidiaries (or their predecessors) or any
prior tax payments or periods that could reasonably be expected to result in a
determination the effect of which would have a material adverse effect. All
taxes due with respect to completed and settled examinations or concluded
litigation have been paid or adequately reserved for.
(c) None of the Subsidiaries (or their predecessors) has executed an
extension or waiver of any statute of limitations on the assessment or
collection of any tax due that is currently in effect.
(d) Adequate provision of any taxes due or to become due for the
Subsidiaries (or their predecessors) for any period or periods through and
including June 1997, has been made and is reflected on the June 1997 financial
statements included in the Financial Statements. Deferred taxes of the
Subsidiaries reflected in the Financial Statements are adequate, subject in the
case of interim financial statements to normal recurring year end adjustments.
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(e) Each of the Subsidiaries (or their predecessors) has collected and
withheld all taxes which it has been required to collect or withhold and has
timely submitted all such collected and withheld amounts to the appropriate
authorities. Each of the Subsidiaries is in compliance with the back-up
withholding and information reporting requirements under the Internal Revenue
Code (the "Code") and any state, local or foreign laws, and the rules and
regulations thereunder.
(f) None of the Subsidiaries (or their predecessors) has made any payments,
is not obligated to make any payments, or is not a party to any contract,
agreement or other arrangement that could obligate it to make any payments that
would be disallowed as a deduction under Section 280G of the Code.
(g) There are no liens with respect to taxes upon any of the assets of the
Subsidiaries.
(h) To the best of Shareholder's knowledge, there has not been an ownership
change, as defined in Code Section 382(g), of any of the Subsidiaries or any of
their predecessors that occurred during or after any taxable period in which any
Subsidiary or any of its predecessors incurred a net operating loss that carries
over to any taxable period ending after December 31, 1996.
(i) None of the Subsidiaries has filed a consent under Section 341(f) of
the Code concerning collapsible corporations.
(j) None of the Subsidiaries has or has had a permanent establishment in
any foreign country, as defined in any applicable tax treaty or convention
between the United States and such foreign country.
4.10 Properties. Except as disclosed in the Financial Statements and except for
claims, liens, pledges or encumbrances ("Liens:), arising in the ordinary course
of business after the date hereof, each Subsidiary has good and marketable
title, free and clear of all Liens, to all its properties and assets whether
tangible or intangible, real, personal or mixed, reflected in the Financial
Statements as being owned by the Subsidiaries as of the date hereof, except for
such defects in title which individually or in the aggregate would not have a
material adverse effect. All buildings, and all fixtures, equipment and other
property and assets, held under leases or subleases by the Subsidiaries are held
under valid instruments enforceable in accordance with their respective terms
except where the failure to have such valid and enforceable instruments would
not have a material adverse effect. All equipment of the Subsidiaries in regular
use has been well maintained and is in good serviceable condition, reasonable
wear and tear excepted, except for such defects which individually or in the
aggregate would not have a material adverse effect. N.F.P.M., LLC, one of the
Subsidiaries, owns all of the assets set forth on Schedule A hereto, free and
clear of all Liens.
4.11 Material Contract Defaults. None of the Subsidiaries is, or has received
any notice or has any knowledge that any other party is, in default in any
respect under any contract, agreement, commitment, arrangement, lease, insurance
policy or other instrument to which a Subsidiary is a party or by which a
Subsidiary or the assets, business or operations thereof may be bound or
affected
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or under which it or its assets, business or operations receives benefits,
except for those defaults which would not have, individually or in the
aggregate, a material adverse effect; and there has not occurred any event that
with the lapse of time or the giving of notice or both would constitute such a
default, except for those defaults which would not have, individually or in the
aggregate, a material adverse effect.
4.12 Benefit Plans. (a) Schedule B-1 hereto lists all existing employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), in which employees or former employees of the
Subsidiaries currently participate (the "Plans").
(b) Each Plan is and has been in substantial compliance, in form and
operation, in all material respect with all applicable laws and has been
administered in all material respects in accordance with its terms. To
Shareholder's knowledge, no event has occurred and no condition exists with
respect to any Plan which is likely to subject the Company, directly or
indirectly (through an indemnification agreement or otherwise), to any material
liability (including, without limitation, liability for taxes, breach of
fiduciary duty, or for a "prohibited transaction" within the meaning of Section
406 of ERISA or Section 4975 of the Code). There is no action, suit, or claim
(other than routine claims for benefits in the ordinary course) with respect to
any Plan pending or threatened which is reasonably likely to have a material
adverse effect. No Plan is currently under investigation or audit by any
governmental agency and, to the knowledge of Shareholder, no such investigation
or audit is contemplated or under consideration. Each Plan intended to be a
qualified plan under Section 401(a) of the Code is so qualified and a favorable
determination letter as to qualification under Section 401(a) of the Code has
been issued and the related trust has been determined to be exempt from taxation
under Section 501(a) of the Code.
(c) All contributions and premium payments required to have been made or
accrued under or with respect to any Plan have been timely made or accrued.
Except as set forth in Schedule B-1, the consummation of the transactions
contemplated hereby will not give rise to any right to severance, separation or
similar pay or benefits.
4.13 Environmental Matters. To the knowledge of Shareholder, none of the
Subsidiaries, nor any properties owned or operated by a Subsidiary has been or
is in violation of or liable under any Environmental Law, except for such
violations or liabilities that, individually or in the aggregate, are not
reasonably likely to have a material adverse effect., There are no actions,
suits or proceedings, or demands, claims, notices or investigations (including,
without limitation, notices, demand letter or requests for information from any
environmental agency) instituted or pending, or to the knowledge of Shareholder
threatened, relating to the liability of any properties owned or operated by any
of the Subsidiaries under any Environmental Law, except for liabilities or
violations that would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect.
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
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regulatory authority relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulation, whether by type or by quantity, including any material
containing any such substance as a component.
4.14 Insurance. Attached hereto as Schedule B-2 is an accurate schedule as of
the date hereof reflecting the insurance policies maintained with respect to the
ownership and operation of the business and assets of the Subsidiaries and their
employees, which Schedule reflects the policies, numbers, terms, identity of
insurers, amounts of coverage and all claims made on the policies since the
effective date of the policies and true and correct copies of all policies of
general and professional liability and all endorsements and amendments thereto.
All policies set forth on Schedule B-3 are in full force and effect and may be
maintained in full force and effect after transfer to the Company.
4.15 Absence of Certain Business Practices. To the best of Shareholder's
knowledge, none of the Subsidiaries, nor any of their officers, employees,
agents, or affiliates nor any other person acting on their behalf, has, directly
or indirectly, during the immediately preceding twenty-four (24) month period
given, accepted, or agreed to give or accept any gift or similar benefit to or
from any customer, supplier, governmental employee or other person who is or may
be in a position to help or hinder the business of any Subsidiary (or assist any
Subsidiary in connection with any actual or proposed transaction) that (i) might
subject any Subsidiary, their affiliates, or any other person to any damage or
penalty in any civil, criminal or governmental litigation or other proceeding,
(ii) if not given or accepted in the past, might have had an adverse effect on
the assets or operations or the business of any Subsidiary, (iii) if not
continued in the future, might adversely affect the assets or the business or
might subject any Subsidiary to damages or penalties in any private or
governmental litigation or other proceeding.
4.16 Disclosure. To the best of Shareholder's knowledge, no representation or
warranty of Shareholder contained in this Agreement or in any statement or
certificate furnished or to be furnished to any party pursuant hereto in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements made herein or therein, in the
light of the circumstances under which they were made, not misleading.
4.17 Other Matters. Neither Holding, any Subsidiary nor Shareholder has taken or
has agreed to take any action, and has no knowledge of any fact or
circumstances, that would materially impede or delay the consummation of the
transactions contemplated hereby.
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4.18 Brokers and Finders. Neither Shareholder, Holding nor any Subsidiary nor
any of their respective officers, directors or employees has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted
directly or indirectly for any of such parties in connection with this Agreement
or the transactions contemplated hereby.
4.19 Subsidiaries. For purposes of this Agreement, the term Subsidiaries shall
also be deemed to include the predecessor entities of such subsidiaries.
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF IMAGINE
Imagine represents and warrants to Shareholder and the Company as
follows as of the date hereof:
5.1 Organization, Power and Qualification of Imagine. Imagine is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, has all requisite corporate power and authority to own, lease
and operate its properties, to carry on its business as now being conducted, to
enter this Agreement and the Operating Agreement to perform its obligations
hereunder and thereunder. Imagine has been duly qualified to do business in all
states in which the character of its property or activities require such
qualification under applicable law.
Imagine has no subsidiaries.
5.2 Authorization. The execution and delivery of this Agreement, the Operating
Agreement and each other agreement and certificate or other document delivered,
or to be delivered, in connection with the transactions contemplated by this
Agreement have been duly and validly authorized by all necessary corporate and
other action on the part of Imagine and this Agreement constitutes, and all
other documents and agreements to be delivered by Imagine on or before the date
of closing, shall constitute valid and legally binding obligations of Imagine
enforceable against it in accordance with its terms, subject to the application
of bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting the rights of creditors.
5.3 No Violation. Neither the execution, delivery or performance by Imagine of
this Agreement or any other agreement delivered, or to be delivered, in
connection with the transfers contemplated by this Agreement, nor compliance
with the terms and provisions hereof or thereof, nor the consummation of the
transactions contemplated herein or therein, including, (i) will contravene any
applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality, (ii) will
conflict or be inconsistent with or result in any breach of, any of the terms,
covenants, conditions or provisions of any agreement or other instrument to
which Imagine is a party or by which Imagine or any of its respective properties
or assets is bound or subject, or (iii) will violate any provision of the
Articles of Incorporation or By-Laws of Imagine.
5.4 Proceedings or Investigations. There is no action, suit or legal,
administrative, arbitration or other proceeding or governmental investigation
pending or, to the best knowledge of Imagine, threatened against Imagine before
8
<PAGE>
or by any court, tribunal or Federal, state, municipal or other governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, and, to the best knowledge of Imagine, no such action, suit, or legal,
administrative, arbitration or other proceeding or governmental investigation is
probably of assertion against Imagine.
5.5 Consents. No consents or approvals of any public body or authority or
shareholders of Imagine and no consents or waivers from any parties to leases,
licenses, franchises, permits, indentures, agreements or other instruments are
required for the lawful consummation of the transactions contemplated hereby.
ARTICLE VI - INDEMNITY
6.1 Indemnity. From and after the Closing Date, Holding and Shareholder shall
indemnify and hold harmless Imagine and the Company, its Subsidiaries, and each
of its respective directors, officers, employees and agents, and each of the
heirs, executors, successors and assigns of any of the foregoing (the "Imagine
Indemnified Parties") from and against any and all Losses (as defined below)
incurred by or asserted against any of such parties in connection with or
arising out of any breach by Holding and Shareholder of any representation or
warranty of Holding and Shareholder set forth herein; provided, however, that
the Imagine Indemnified Parties shall be entitled to indemnification under this
Section 6.1 only if and to the extent its amount of Losses hereunder exceeds
$20,000, and then only to the extent of such excess; and provided further,
however, that in no event shall Shareholder's liability hereunder exceed
$200,000, it being understood that this limitation shall not apply in the event
of fraud, nor to any failure by Holding or Shareholder to comply with any
covenant or agreement set forth herein.
From and after the Closing Date, Imagine shall indemnify and hold harmless
Holding and the Company, and any of their directors, shareholders, officers,
employees and agents, and each of the heirs, executors, successors and assigns
of any of the foregoing (the 'Holding Indemnified Parties') from and against any
and all Losses (as defined below) incurred by or asserted against any of such
parties in connection with or arising out of any breach by Imagine of any
representation or warranty; provided, however, that the Holding Indemnified
Parties shall be entitled to indemnification under this Section 6.1 only if and
to the extent their aggregate amount of Losses hereunder exceeds $20,000, and
then only to the extent of such excess; and provided further, however, that in
no event shall Imagine's aggregate liability hereunder exceed $200,000, it being
understood that this limitation shall not apply in the event of fraud, nor to
any failure by Imagine to comply with any covenant or agreement set forth
herein.
"Losses" means any and all debts, losses, liabilities, claims, damages,
obligations (including those arising out of any action, such as any settlement
or compromise thereof or judgment or award therein) and any reasonable
out-of-pocket costs and expenses (including reasonable attorneys' fees and
expenses incurred in defending any lawsuit or other action).
9
<PAGE>
6.2 Claims. (a) The party being indemnified hereunder (the "Indemnified Party")
shall give written notice to the party against whom a claim for indemnification
is asserted hereunder (the "Indemnifying Party") within the earlier of twenty
(20) days of receipt of written notice or forty (40) days from discovery by the
Indemnified Party of any matters which may give rise to a claim for
indemnification or reimbursement under this Agreement (a "Claim"). The failure
to give such notice shall not affect the right of the Indemnified Party to
indemnity hereunder unless such failure has materially and adversely affected
the rights of the Indemnifying Party.
(b) In the event an action by a third party (a'Third-Party Claim') shall be
brought or asserted in respect of which indemnity may be sought by an
Indemnified Party under this Section 6.2, the Indemnified Party shall notify the
Indemnifying Party in writing thereof within such period of time as to not
prejudice the defense thereof, but in any case within ten (10) days thereof.
Subject to this Section 6.2, the Indemnifying Party shall have the opportunity
to defend and/or settle such Third-Party Claim, and employ counsel reasonably
satisfactory to the Indemnified Party, and the Indemnifying Party shall pay all
expenses related thereto, including without limitation all fees and expenses of
counsel. After receipt of such notice, the Indemnifying Party shall notify the
Indemnified Party within twenty (20) days (or such shorter period if necessary
so as not to prejudice the defense thereof) in writing whether it will assume
the defense thereof.
(c) Upon receipt of notice by the Indemnified Party from the Indemnifying
Party of its election to assume the defense of such an action and approval of
the Indemnified Party of counsel to the Indemnifying Party, which approval shall
not be unreasonably withheld or delayed, the Indemnifying Party shall not be
liable to the Indemnified Party unless (i) the Indemnifying Party agrees in
writing to pay such fees and expenses, (ii) the Indemnifying Party fails either
to assume the defense of such action or to employ counsel reasonably
satisfactory to the Indemnified Party, or (iii) the Indemnified Party shall have
been advised by counsel that there may be one or more legal defenses available
to the Indemnified Party that are different from or in addition to those
available to the Indemnifying Party or that there shall exist some other legal
conflict between the interests of the Indemnifying Party and the Indemnified
Party.
(d) If the Indemnifying Party shall not elect to assume the defense of any
Third-Party Claim, or if any of the events specified in clauses (i) through
(iii) in the preceding subsection (c) occurs, the Indemnified Party shall have
the right to maintain the defense of and to settle such Third- Party Claim, with
counsel reasonably satisfactory to the Indemnifying Party; provided, however,
that the Indemnifying Party shall retain the right to assume the defense of such
Third-Party Claim pursuant to paragraph (c) above, provided that such assumption
does not prejudice the defense of such Third-Party Claim.
(e) In the event that an offer to settle a Third-Party Claim is received,
each of the Indemnified Party and the Indemnifying Party shall notify the other
thereof, in writing, and shall consult with one another in considering such
offer. Such offer shall be accepted if the Indemnifying Party so directs in
writing unless either (A) the Indemnified Party shall agree in writing that any
liability arising out of such Third-Party Claim shall not be a Loss covered
hereunder, in which casethe Indemnified Party shall have full right to maintain
10
<PAGE>
the defense thereof, or (B) the failure to accept such settlement offer is based
on the Indemnified Party's reasonable objection to a sanction, restriction,
fine, or other penalty that would be imposed in it or its affiliates under the
settlement.
(f) Notwithstanding anything herein, and whichever party shall have the
right to maintain the defense of a Third-Party Claim, each of the Indemnifying
Party and the Indemnified Party shall consult with the other with respect
thereto, provide each other with such assistance as the other may reasonably
require in order to promptly and adequately defend such action, and have the
right to participate at its own expense in the defense thereof, with counsel
reasonably satisfactory to the other.
6.3 Survival. The representations, warranties, covenants and agreements of each
party set forth herein shall survive the date hereof for a period of eighteen
(18) months. Neither party hereto shall have any liability (for indemnification
or otherwise) with respect to any representation, warranty, covenant or
agreement set forth herein, unless on or before the eighteen-month anniversary
of the Closing Date the other party shall notify such party of a claim
specifying the factual basis of that claim in reasonable detail.
ARTICLE VII - MISCELLANEOUS
7.1 Counterparts. For the convenience of the parties, this Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original.
7.2 Survival of Covenants and Representations and Warranties. Any covenant,
representation and warranty contained herein shall survive closing of this
Agreement and the formation of the Company.
7.3 Agreement Binding. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto, their heirs,
successors and permitted assigns, but nothing herein, express or implied, is
intended to confer on any other person, any rights, benefits, or remedies by
reason of this Agreement.
7.4 Governing Law. This Agreement shall be governed by the laws of the State of
Arkansas.
7.5 Non-Assignability. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto.
7.6 Entire Agreement. This Agreement and other documents and agreements referred
to herein contain the entire agreement between the parties hereto with respect
to the subject matter hereof.
7.7 Covenant to Perform. Each party hereto expressly represents and warrants to
each other party hereto to use one's best efforts to carry out the purposes of
this Agreement and to execute such additional documents necessary to effect
same, and to refrain from taking any action contrary to the provisions of this
11
<PAGE>
Agreement and hereby acknowledges that this Agreement, or the breach hereof, is
subject to all rights of the parties at law or in equity, and may be
specifically enforced in a Court of competent jurisdiction in a proceeding
instituted by any of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this document as of the date first
written above.
MB HOLDING CORP.
By:
-------------------------------
--------------,
--------------
MB SOFTWARE CORPORATION
By:
--------------------------------
Scott A. Haire,
President
IMAGINE INVESTMENTS, INC.
By:
--------------------------------
---------------,
---------------
HEALTHCARE INNOVATIONS, LLC
By:
---------------------------------
--------------,
--------------
12
<PAGE>
SERVICES AGREEMENT
------------------
THIS SERVICES AGREEMENT (this "Agreement") is made and entered into as of
this 1st day of August, 1997 by and between MB Software Corporation, a Colorado
corporation ("MB") whose mailing address is 2225 E. Randol Mill Road, Suite 305,
Arlington, Texas 76011, and Healthcare Innovations, LLC, an Arkansas limited
liability company ("the Company") whose mailing address, as per the terms of
this Agreement, will be the same as MB.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to that certain Operating Agreement (the "Operating
Agreement") by and between MB Holding Corporation, a wholly owned subsidiary of
MB ("Holding") and Imagine Investments, Inc., the parties have organized and
formed the Company; and
WHEREAS, in connection with the organization and formation of the Company,
Holding has contributed certain limited liability companies to the Company (the
"Subsidiaries"); and
WHEREAS, pursuant to the provisions of the Operating Agreement, MB and the
Company now wish to set forth their understandings and agreements with respect
to certain matters relating to the business of the Company and the Subsidiaries.
NOW, THEREFORE, pursuant to the provisions of the Operating Agreement and
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Administrative Services
1.01 Commencing on the date hereof, MB shall provide, or cause to be provided,
to the Company and the Subsidiaries certain administrative services
described in this Section 1.01 (the "Services"), which Services have
heretofore been provided to the Subsidiaries by MB in conjunction with such
Subsidiaries' conduct of their businesses. The Services to be provided
shall be:
Management/Administrative
Human Resources
Finance and Accounting
Systems and Operations
Collections
- 1 -
<PAGE>
1.02 As part of the Services, MB shall allow the Company to use its address as
its mailing address; provided that nothing herein shall be deemed to imply
that the Company is doing business in the State of Texas.
1.03 The monthly administrative service charge for the Services shall be equal
to MB's actual cost of such Services, plus 15% (the "Service Charge"). The
Service Charge shall be payable monthly, in arrears, on or before the tenth
day of each month following the month during which Services are provided by
MB to the Company hereunder. MB will submit at the end of each month during
which Services are provided hereunder an invoice for the Service Charges
payable by the Company hereunder and an itemized attachment of the Services
provided. The Service Charge payable in any month shall be reduced by the
amount that MB's costs are reimbursed as a result of a cost-based
reimbursement business; provided that MB shall still have the right to
receive 15% over the actual cost of services..
1.04 The parties agree and acknowledge that the scope of the Services to be
provided hereunder, as well as the number of persons providing such
Services, may change from time to time as mutually agreed upon by the
parties.
1.05 The term of this Agreement shall be concurrent with the existence of the
Company, unless earlier terminated (i) by the mutual agreement of the
parties or (ii) by the Company in the event MB breaches any of its duties
hereunder and fails to cure such breach after fifteen days notice thereof.
2. Services With Respect to Third Party Matters
2.01 MB shall cause its subsidiary Color Country Health Express, Inc. ( "CCHE")
to provide billing services to the Company's subsidiary Color Country
Health Express, LLC as part of the Services provided hereunder for so long
as such company shall require such Services.
2.02 MB shall not incur costs or expenses to any third party in providing the
Services on behalf of the Company, including, without limitation, the cost
of any independent contractors, outside legal counsel or other outside
specialists, without the prior consent of the Company. If, with the consent
of the Company, such third party is retained, the Company shall reimburse
MB for the actual costs and expenses incurred by MB as a result of the
retention of such third party. Following the end of each month, MB shall
submit to the Company an invoice describing in reasonable detail any such
reimbursable costs and expenses incurred by MB during the prior calendar
month (and any other such costs and expenses incurred by MB but which were
not submitted in a previous invoice), which invoice shall be payable on
demand.
3. Standard of Care
- 2 -
<PAGE>
3.01 MB, or any provider of Services, shall seek to utilize the same degree of
care and oversight in providing Services to the Company hereunder as MB, or
the provider of such Services, exercises with respect to the administration
of its own businesses and in accordance with a standard of reasonable and
prudent conduct.
3.02 MB and the Company acknowledge that from time to time MB may retain
employees who, without MB's knowledge, may perform their duties with
negligence or gross negligence or who may even engage in willful
misconduct. MB and the Company expressly agree that it is their intention
that MB shall not be liable to the Company for any losses arising from such
conduct of MB's employees as long as the retention of such employees did
not result from MB's gross negligence or willful misconduct. In view of the
foregoing, unless MB has failed to perform its duties hereunder with the
degree of care set forth in Section 3.01 and such failure arises from MB's
gross negligence or willful misconduct, MB shall not be liable to the
Company for any losses or liabilities sustained or incurred by the Company,
including, without limitation, such losses or liabilities that arise from
MB's negligence (including gross negligence).
4. Miscellaneous
4.01 This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
4.02 All notices pursuant to this Agreement shall be delivered by hand or sent
by registered or certified mail, return receipt requested, postage prepaid,
to the party at its address first set forth above or at such other address
as such party may, from time to time, give notice of in accordance with
this paragraph. All such notices shall be deemed to have been effectively
given upon the earlier of. (a) actual receipt thereof by the party
receiving such notice; or (b) three (3) days after deposit in the United
States mail in the manner set forth hereinabove.
4.03 This Agreement may be executed in any number of counterparts, each of which
shall, for all purposes, be deemed to be an original and all of which
together shall, for all purposes, be deemed to constitute one and the same
document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
MB SOFTWARE CORPORATION
By:______________________________
Title:___________________________
HEALTHCARE INNOVATIONS, LLC
By:______________________________
Title:___________________________
- 3 -
<PAGE>
PROMISSORY NOTE
---------------
$500,000.00 August 1, 1997
FOR VALUE RECEIVED, the undersigned, MB SOFTWARE CORPORATION, a Colorado
corporation ("Maker"), promises to pay to the order of IMAGINE INVESTMENTS,
INC., a Delaware corporation ("Payee") the principal sum of FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($500,000.00), together with interest accrued
thereon (calculated on the basis of a 365- day year) at a rate of 10.0% per
annum from the date hereof until this Note is paid in full. In connection with
this Note, Maker has executed and delivered to Payee that certain Amended and
Restated Stock Pledge Agreement of even date herewith.
1. Payment.
--------
Unless otherwise provided herein: (a) interest of this Note shall be due and
payable quarterly commencing on October 1, 1997 and due every three (3) months
thereafter; and (b) the entire principal balance and all accrued and unpaid
interest thereon shall be due and payable in full on August 1, 2000. Payment
shall be made to Payee at Imagine Investments, Inc., P.O. Box 729081-229,
Dallas, Texas 75372.
2. Optional Prepayment.
--------------------
Maker may at its sole option prepay all or any part of the principal of this
Note before maturity without penalty or premium.
3. Senior Debt.
-----------
The obligation of Maker hereunder shall for all purposes be considered senior
indebtedness of Maker. All contractual obligations or indebtedness of Maker and
any subsidiary thereof shall be subordinate to the obligation of Maker
hereunder. Without the written consent of Payee, in its sole discretion, no
payments may be made, directly or indirectly, by Maker or any of its
subsidiaries on any loans or indebtedness of Maker or its subsidiaries to
Maker's officers, directors or shareholders (other than Payee or his successors
and assigns) or their respective affiliates while any portion of the principal
balance and/or accrued interest on this Note is outstanding.
4. Events of Default and Remedies.
---------------------------------
At the option of Payee, the entire principal balance of, together with all
accrued and unpaid interest on, this Note shall at once become due and payable,
without further notice or demand, upon the occurrence at any time of any of the
following events or default ("Events of Default"):
(i) Failure of Maker to make any payment of accumulated interest and
principal on this Note as and when the same becomes due and payable in
accordance with the terms hereof, and such failure continues for a period
of five days thereafter;
(ii) Breach of any of the representations or covenants of Payee in the
Stock Pledge Agreement;
(iii) Failure of Maker to perform any other covenant, agreement, or
condition contained herein, and such failure continues for a period of ten
(10) days after the receipt by Maker of written notice from Payee of the
occurrence of such failure; or
<PAGE>
PROMISSORY NOTE
Page 2
(iv) Maker shall (a) become insolvent, (b) voluntarily seek, consent
to, acquiesce in the benefit or benefits of any Debtor Relief Law (as
hereinafter defined) or (c) become party to (or be made the subject of) any
proceeding provided by any Debtor Relief Law, other than as a creditor or
claimant, that could suspend or otherwise adversely affect the rights of
Payee granted hereunder (unless in the event such proceeding is
involuntary, the petition instituting the same is dismissed within 90 days
of the filing of the same). As used herein, the term "Debtor Relief Law"
means the Bankruptcy Code of the United States of America and all other
applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization or similar debtor
relief laws from time to time in effect affecting the rights of creditors
generally.
In the event any one or more of the Events of Default specified above shall
have occurred, the holder of this Note may proceed to protect and enforce its
rights either by suit in equity and/or by action at law, or by other appropriate
proceedings, whether for the specific performance of any covenant or agreement
contained in this Note, or to enforce any other legal and equitable right of the
holder of this Note.
5. Waiver.
------
Except as expressly provided herein, Maker, and each surety, endorser, guarantor
and other party ever liable for the payment of any sum of money payable on this
Note, jointly and severally waive demand, presentment, protest, notice of
nonpayment, notice of intention to accelerate, notice of protest and any and all
lack of due diligence or delay in collection or the filing of suit hereon which
may occur.
6. Cumulative Right.
-----------------
No delay on the part of the holder of this Note in the exercise of any power or
right under this Note shall operate as a waiver thereof, nor shall a single or
partial exercise of any other power or right. Enforcement by the holder of this
Note of any security for the payment hereof shall not constitute any election by
it of remedies so as to preclude the exercise of any other remedy available to
it.
7. Notices. --------
Any notice or demand given hereunder by the holder hereof shall be deemed to
have been given and received (i) when actually received by Maker, if delivered
in person or by facsimile transmission, or (ii) if mailed, on the earlier of the
date actually received or (whether ever received or not) three Business Days (as
hereinafter defined) after a letter containing such notice, certified or
registered, with postage prepaid, addressed to Maker, is deposited in the United
States mail. The address of Maker is 2225 E. Randol Mill Road, Suite 305,
Arlington, Texas 76011, or such other address as Maker shall advise the holder
hereof by certified or registered letter by this same procedure. "Business Day"
means every day which is not a Saturday or legal holiday in Arlington, Texas.
8. Successors and Assigns.
------------------------
This note and all covenants, promises and agreements contained herein shall be
binding upon and inure to the benefit of the respective legal representatives,
personal representative, devisees, heirs, successors and assigns of Payee and
Maker.
<PAGE>
PROMISSORY NOTE
Page 3
9. GOVERNING LAW.
---------------
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS. IN CASE ANY ONE OR MORE OF THE PROVISIONS CONTAINED IN THIS NOTE
SHALL FOR ANY REASON BE HELD TO BE INVALID, ILLEGAL OR UNENFORCEABLE IN ANY
RESPECT, SUCH INVALIDITY, ILLEGALITY OR UNENFORCEABILITY SHALL NOT AFFECT ANY
OTHER PROVISION HEREOF.
10. Attorneys' Fees and Costs.
---------------------------
In the event an Event of Default shall occur, and in the event that thereafter
this Note is placed in the hands of any attorney for collection, or in the event
this Note is collected in whole or in part through legal proceedings of any
nature, then and in any such case, Maker promises to pay all costs of
collection, including, but not limited to, reasonable attorneyS' fees incurred
by the holder hereof on account of such collection, whether or not suit is
filed.
11. Headings.
--------
The headings of the sections of this Note are inserted for convenience only and
shall not be deemed to constitute a part hereof.
EXECUTED as of the day and year first above written.
MB SOFTWARE CORPORATION
By:/s/ Scott Hair
----------------------
Scott Haire, President
<PAGE>
AMENDED AND RESTATED
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement (this "Agreement") is made and entered into as
of the 1st day of August, 1997, by and among MB SOFTWARE CORPORATION, a Colorado
corporation ("Pledgor") and IMAGINE INVESTMENTS, INC., a Delaware corporation,
and ROBERT T. SHAW (collectively, "Secured Party").
RECITALS
WHEREAS, Pledgor is the sole shareholder of 1,000 shares of common stock
(the "Pledged Shares") of Santiago SDS, Inc. (the "Company") being 100% of the
issued and outstanding stock of the Company; and
WHEREAS, Pledgor has, on the date hereof, executed and delivered a
Promissory Note to Imagine Investments, Inc. in the principal amount of
$500,000.00; and
WHEREAS, Pledgor has previously executed and delivered Promissory Notes to
Robert T. Shaw as follows:
Date Original Principal
December 22, 1995 $455,000.00
June 19, 1996 300,000.00
February 3, 1997 300,000.00
and
WHEREAS, Pledgor has pledged the Pledged Shares to Robert T. Shaw pursuant
to its Stock Pledge Agreements dated February 3, 1997; and
WHEREAS, in order to induce Imagine Investments, Inc. to accept its
Promissory Note for $500,000.00 and to advance funds thereunder on even date,
Pledgor has agreed, to amend and restate its Stock Pledge Agreement in order to
cause it to secure all four (4) Promissory Notes described above;
NOW, THEREFORE, the parties hereto hereby agree as follows:
AGREEMENT
1. Definitions.
-----------
As used in this Agreement, the following terms shall have
the meaning indicated:
<PAGE>
AMENDED AND RESTATED
STOCK PLEDGE AGREEMENT
Page 2
(a)"Event of Default" shall mean an Event of Default hereunder or
under any of the Secured Indebtedness.
(b) "Secured Indebtedness" means the four (4) Promissory Notes
described hereinabove.
2. Grant of Security Interest in the Pledged Shares.
-------------------------------------------------
To secure the full and punctual payment of the Secured Indebtedness, in pari
passu, and upon and subject to the terms, provisions and conditions of this
Agreement, Pledgor does hereby grant to each Secured Party and to its respective
heirs, successors and assigns, a security interest (the "Security Interest") in
the Pledged Shares. Pledgor hereby agrees that in the event that it and/or its
Affiliates (as hereinafter defined) acquire any additional capital stock of the
Company, that such additional capital stock shall be deemed to be Pledged Shares
and subject to this Agreement. For purposes hereof, an "Affiliate" of Pledgor is
a person or entity controlling, controlled by or under common control with
Pledgor.
3. Delivery of Share Certificates to Secured Party.
------------------------------------------------
The stock certificate evidencing the Pledged Shares and all other stock
certificates and instruments in registered form which may constitute or evidence
at any time or from time to time a part of the Pledged Shares shall be delivered
to either Secured Party, for the benefit of each Secured Party, and shall be
endorsed in blank for transfer or be accompanied by proper instruments of
assignment and transfer in blank upon delivery. Until the happening of an Event
of Default, all the Pledged Shares shall remain registered in the name of the
Pledgor. So long as the Secured Indebtedness, or any part thereof, remains
outstanding and unpaid, the certificates representing the Pledged Shares and any
other certificates or instruments which may from time to time constitute or
evidence a part of the Pledged Shares, delivered to the Secured Party pursuant
to this Section 3, shall be held by the Secured Party, and Pledgor shall not
have the right to procure the release of any of the Pledged Shares from the lien
hereby created except upon and in compliance with the terms and conditions
herein set forth.
4. Voting of Pledged Shares.
------------------------
Until the occurrence of an Event of Default, the Pledged Shares shall be treated
as shares of the Pledgor and the Pledgor shall be entitled to vote at any
meeting of the shareholders of the Company or its successor corporations. Until
the occurrence of an Event of Default, no dividends shall be payable to the
Secured Party on or with respect to the Pledged Shares. Pledgor hereby grants to
the Secured Party, upon the occurrence of an Event of Default, the right to vote
the Pledged Shares during the continuance of such Event of Default whether or
not the Secured Party seeks any other remedies available to him under this
Agreement or any applicable law or in equity. Pledgor agrees that upon the
occurrence of an Event of Default and during its continuance thereof, Pledgor
will not accept any dividends or distributions on the Pledged Shares.
<PAGE>
AMENDED AND RESTATED
STOCK PLEDGE AGREEMENT
Page 3
5. Remedies Upon Default.
----------------------
(a) If any Event of Default shall occur under any of the Secured
Indebtedness, either Secured Party may seek any remedies available to him
under any applicable law.
(b) Except as otherwise provided herein, Pledgor hereby waives notice
of an Event of Default, presentment for payment, demand, notice of dishonor
and protest.
(c) In addition, full power and authority are hereby given to the
Secured Party to sell, assign and deliver the whole or any part of the
Pledged Shares at any broker's board, or at public or private sales, at the
option of the Secured Party, either for cash or on credit or for future
delivery without assumption of any credit risk, and without either demand
or advertisement of any kind, both of which are hereby waived, and no delay
on the part of the Secured Party in exercising any power of sale or any
other rights or option hereunder, and no demand, which may be given to or
made upon Pledgor by the Secured Party to a power of sale or other right or
option hereunder, shall constitute a waiver thereof, or limit or impair the
rights hereunder, without demand, or prejudice the rights of the Secured
Party as against the Pledgor in any respect. At any sale of the Pledged
Shares in accordance with the preceding sentence, the Pledgor may itself
purchase the whole or any part of the Pledged Shares sold. In event of any
sale or other disposition of any of the Pledged Shares, after deducting all
costs or expenses of ever kind for care, safekeeping, collection, sale,
delivery or otherwise, the Secured Party shall, after applying the residue
of the proceeds of the sales, or other disposition thereof, as hereinabove
authorized, return any excess to the Pledgor. The Secured Party shall
notify the Pledgor in writing of his intent to exercise his right to sell
the Pledged Shares in accordance with this Section 5(c) at least five (5)
days prior to any such sale.
(d) Because of the Securities Act of 1933, as amended (the "Securities
Act"), or any other laws or regulations, there may be legal restrictions or
limitations affecting Secured Party in any attempts to dispose of certain
portions of the Pledged Shares in the enforcement of his rights and
remedies hereunder. For these reasons Secured Party is hereby authorized by
Pledgor, but not obligated, upon the occurrence of any Event of Default, to
sell, bid upon, and purchase all or any part of the Pledged Shares at a
private sales, subject to investment letter or in any other commercially
reasonable manner which will not require the Pledged Shares, or any part
thereof, to be registered in accordance with the Securities Act, or the
rules and
<PAGE>
AMENDED AND RESTATED
STOCK PLEDGE AGREEMENT
Page 4
regulations promulgated thereunder, or any other law of regulations.
Pledgor acknowledges that Secured Party may in his discretion approach a
restricted number of potential purchasers and that a sale under such
circumstances may yield a lower price of the Pledged Shares or any part or
parts thereof than would otherwise be obtainable if same were registered
and sold in the open market.
6. Further Assurances.
--------------------
Pledgor agrees to execute such stock powers, endorse such instruments, or
execute such additional pledge agreements or other documents as may be
reasonable requested by Secured Party in order effectively to grant to
Secured Party the Security Interest in (and pledge and assignment of) the
Pledged Shares and to enforce and exercise Secured Party's rights regarding
same.
7. Assignability by Secured Party.
-------------------------------
The rights, powers and interest held by the Secured Party hereunder,
together with the Pledged Shares, may be transferred by Secured Party upon
the transfer of the underlying Note upon the prior written consent of
Pledgor, such consent not to be unreasonably withheld.
8. Return of Pledged Shares.
-------------------------
When the Secured Indebtedness has been paid in full or otherwise satisfied,
the Secured Party shall deliver the Pledged Shares to Pledgor concurrently
with its receipt of such payment or satisfaction and this Agreement shall
terminate.
9. Waiver of Default.
The acceptance by the Secured Party at any time and from time to time of
partial payment of the aggregate amount of the Secured Indebtedness then
matured shall not be deemed to be a waiver of any Event of Default then
existing. No waiver by the Secured Party of any Event of Default shall be
deemed to be a waiver of any subsequent Event of Default, nor shall any
such waiver by Secured Party be deemed to be a continuing waiver. No delay
or omission by Secured Party in exercising any right or power hereunder,
except for the failure by Secured Party to give notice as provided herein
shall impair such right or power or be construed as a waiver thereof or any
acquiescence therein, nor shall any single or partial exercise of any such
right or power preclude other or further exercise of any other right or
power of the Secured Party hereunder.
10. Laws Applicable.
----------------
This Agreement and the rights and obligations of the parties hereto shall
be governed, construed and enforced in accordance with the laws of the
State of Texas.
11. Notices.
-------
Any notice, request, instruction or other document to be given hereunder or
to any party shall be delivered to the address set forth on Exhibit "A"
attached hereto, and shall be deemed to have been given and received (i)
when actually by the other party, if delivered in person or by facsimile,
or (ii) if mailed, on the earlier of the date actually received or (whether
ever received or not) three Business Days (as hereinafter defined) after a
letter containing such notice, certified or registered with postage
prepaid, addresses to the other party, is deposited in the United States
mail. Any party may change its address for the purposes of this section by
giving notice to the other parties hereto.
<PAGE>
AMENDED AND RESTATED
STOCK PLEDGE AGREEMENT
Page 5
12. Covenant of Assistance.
-----------------------
Pledgor agrees to execute all such further documents and take all such
further action as may be reasonable be requested by Secured Party in order
to better confirm the Security Interest herein granted in the Pledgor
Shares.
13. Amendment.
----------
None of the terms or provisions of this Agreement may be waived, modified
or amended, except in writing signed by both parties hereto.
14. Binding Effect.
---------------
This Agreement shall be binding on Pledgor and Pledgor's successors and
assigns and shall inure to the benefit of the Secured Party and his heirs,
successors and assigns.
15. Counterparts.
-------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which shall constitute one and the
same instrument, but only one of which need be produced.
16. Effect on other Collateral.
---------------------------
This Amended and Restated Stock Pledge Agreement is delivered in addition
to, and not in lieu of, such other stock pledge agreements or other
security agreements as may have been pledged, assigned or granted to either
Secured Party.
EXECUTED as of the day and year first above written.
MB SOFTWARE CORPORATION
By:/S/ Scott Haire
------------------------------------
Scott Haire, President
IMAGINE INVESTMENTS, INC., a
Delaware corporation
By:
Title:_______________________________
-----------------------------------
ROBERT T. SHAW
<PAGE>
AMENDED AND RESTATED
STOCK PLEDGE AGREEMENT
Page 6
EXHIBIT "A"
MB Software Corporation
2225 E. Randol Mill Road
Suite 305
Arlington, Texas 76011
Imagine Investments, Inc.
P.O. Box 729081-229
Dallas, Texas 75372
Robert T. Shaw
784 Harrington Lake Drive North
Venice, Florida 34293
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
MB SOFTWARE CORPORATION
Date: August 15, 1997 /s/ Scott A. Haire
----------------------
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-START> JAN-01-1997
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