EXHIBIT 10.22
OPERATING AGREEMENT
FOR
MINNESOTA MEDICAL COMMUNICATION NETWORK
LIMITED Liability COMPANY
THIS OPERATING AGREEMENT ("Agreement") is made and entered into as of
November 1, 1993, by and between BLUE CROSS AND BLUE SHIELD OF MINNESOTA, a
Minnesota corporation ("BCBSM") and INTEGRATED MEDICAL SYSTEMS INC., a Colorado
corporation ("IMS"). The parties hereto are sometimes hereafter individually
referred to as "Member" and collectively referred to as "Members", which terms
shall include any other person or entity from time to time admitted to the
Company, as hereafter defined, in accordance with the terms and conditions of
this Agreement.
THIS AGREEMENT is made and entered into with reference to the following
facts:
A. IMS has developed and owns proprietary, computer software operating on
various types of computers that supports the transmission of, text, voice,
graphics, images and other data, as hereafter defined, and has developed
business plans, concepts and other proprietary ideas and technology for the
operation of medical communication networks using IMS computer software.
B. IMS has formed Minnesota Medical Communication Network Limited
Liability Company ("Company"), a limited liability company formed under the laws
of Colorado and, upon appropriate approval by law, authorized to conduct
business in Minnesota, and has granted an exclusive license to Company for use
of its proprietary business rights and related computer software in the
Exclusive Territory, as hereafter defined.
C. BCBSM is a major participant in and is familiar with the Minnesota
healthcare market and knows of or has developed relationships with healthcare
consumers, hospitals, physicians, employers, insurance companies and other
healthcare related entities.
D. IMS and BCBSM, in exchange for their respective good and valuable
considerations to each other as hereafter defined, wish to enter into a joint
venture to develop, own and operate Company as a for-profit medical
communication network business in the Exclusive Territory.
E. BCBSM and IMS desire to set forth their intentions and agreements with
respect to the development, ownership and operation of Company as a joint
venture between the Members.
NOW, THEREFORE, in consideration of the recitals, covenants, conditions and
agreements contained herein, the parties agree as follows:
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1. Definitions. For purposes of this Agreement and in addition to the
terms otherwise defined herein the following terms shall have the meanings as
set forth below:
1.1. ComCenter(TM) Hardware. "ComCenter (Communications Center) Hardware"
refers to the message switching computer(s) on which the ComCenter Software
runs. Such hardware is part of the Digital Equipment Corporation ("DEC') VAX
family of computers.
1.2 ComCenter Software. "ComCenter Software" shall mean the computer
software developed and owned by IMS that supports and facilitates the
transmission of data, text, voice, graphics, images and other data, and which
resides on and is operated on the ComCenter hardware.
1.3. ComCenter System. "ComCenter System" refers to the ComCenter
Software and ComCenter Hardware together.
1.4. Company. "Company" refers to "Minnesota Medical Communication
Network Limited Liability Company", a limited liability company formed under the
laws of Colorado and registered to conduct business in Minnesota, to be
developed, owned and operated by the Members as a joint venture between the
Members.
1.5. Exclusive Territory. "Exclusive Territory" shall mean all of the
state of Minnesota.
1.6. IMS-Net(TM) Software. The "IMS--Net Software" shall mean the computer
software developed and owned by IMS which includes the PC-Com Software, RELAY
Software, ComCenter Software and other software, which interact with the
ComCenter Hardware and remotely located computers and their operating systems to
form a complete and functioning network by which medical and other information
and data, text, voice, graphics and images can be transmitted, shared, stored
and accessed.
1.7. Licensed Software. "Licensed Software" shall mean the IMS-Net
Software and that portion of the Synergy Series Software owned outright by IMS,
together with any and all subsequent modifications, revisions, improvements,
enhancements or updates made by IMS in such software, and all of which has been
licensed to Company by IMS through the Software License Agreement referred to
herein.
1.8. Local Sponsor. "Local Sponsor" shall mean any individual or entity
desiring to use a Network to receive and/or disseminate information from or to a
particular group of Network users and who or which agrees to pay fees to a
Network for the right to use a Network.
1.9. National Sponsor. "National Sponsor" shall mean any individual or
entity desiring to use a Network, and any other networks operated by IMS or an
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affiliate of IMS, to receive and/or disseminate information from or to network
users and who or which agrees to pay fees for the right to use the networks.
1.10. Network. "Network" shall mean one or more electronic medical
communication networks to be owned and operated in the Exclusive Territory by
the Company, which utilizes IMS-Net software to permit text, voice, graphics,
images and other data to be transmitted between and among physicians, hospitals,
clinical laboratories, pharmacies, managed care organizations, insurance
companies, other payors, employers and other individuals or entities.
1.11. PC-Com(TM) Software. "PC-Com Software" shall mean the computer
software developed and owned by IMS which supports and facilitates the
transmission of text, voice, graphics, images and other data from (or to) a
Network user's computer to (or from) the ComCenter System, and which acts as a
user interface between a Network user and a Network, and which operates on a
user's International Business Machines ("IBM") or compatible personal computer
("PC") or other computer.
1.12. RELAY(TM) Software. "RELAY Software" shall mean the computer
software developed and owned by IMS which supports and facilitates the
transmission of text, voice, graphics, images and other data from a host
computer system to the ComCenter System, and which acts as an automatic
interface between a host computer system and a Network, and which operates on
PCs or other computers.
1.13. Subscriber or Network Subscriber. "Subscriber" or "Network
Subscriber" shall mean physicians and other members of the healthcare community
who use a Network and with whom Local and National Sponsors pay to communicate
over one or more networks.
1.14. Synergy Series(TM) Software. The "Synergy Series Software" shall
mean the computer software, portions of which were developed and are owned by
IMS, and portions of which IMS possesses and uses pursuant to one or more
perpetual licenses under which IMS has the right to use and to sub-license,
which includes practice support software intended primarily for use by persons
or entities who use a Network, and which includes such capabilities as "Word-
Pro(TM)" word processing, "Clinical Manager" clinical data management, "RX-
Manager(TM)" drug therapy management and "CME-Manager(TM)" continuing medical
education management.
2. Business and Purpose of Company.
2.1. Purpose. The purpose of Company is to establish and operate, and
facilitate the rapid growth of, one or more for-profit Networks in the Exclusive
Territory, with the intent that such Networks shall become the recognized
standard for medical communication in the Exclusive Territory, to improve the
efficiency and effectiveness of communication related to health care delivery
among all hospitals, labs, pharmacies, payors, managed care and other medical
facilities and physicians, and other licensed health care professionals with
privileges to utilize such facilities,
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and other providers, payors, individuals and entities with a bona fide interest
in communicating with such other participants, including BCBSM.
2.2. Scope of Powers. Company shall be engaged in all such activities
related to its purpose, including marketing, sales, administration, Network
operations and management, consulting, and installation, education, training,
service and support of Local Sponsors, National Sponsors and Subscribers. In
furtherance of its business, Company shall have and may exercise all the powers
now or hereafter conferred by applicable law, and shall do any and all things
related or incidental to its business as fully as natural persons might or could
do by applicable law.
3. Formation of Company, Members.
3.1. Formation and Controlling Law. IMS certifies that on October 18,
1993, Articles of Organization of Company as a wholly owned affiliate of IMS, a
copy of which is attached as Exhibit A-1 hereto and hereby incorporated herein,
were executed and, on October 18, 1993, filed with the office of the Colorado
Secretary of State under the provisions of the Colorado Limited Liability
Company Act (C.R.S. 7-80-101, et seq.), as amended, which, in conjunction with
Colorado case law relating thereto, shall be the controlling law for purposes of
this Agreement and shall be utilized in this or any other jurisdiction for
purposes of construing the terms and conditions contained herein.
3.1.1. This Agreement shall be the Operating Agreement of Company, as may
be amended from time to time and as permitted herein, and as referenced in the
Articles of Organization, and hereby replaces the interim Operating Agreement
established by Company on October 20, 1993, a copy of which is attached as
Exhibit A-2 hereto.
3.2. Authority in Minnesota. IMS certifies that on October 18, 1993, an
Application For Registration As A Foreign Limited Liability Company, a copy of
which is attached as Exhibit A-3 hereto, was executed and submitted to the
office of the Minnesota Secretary of State under the provisions of Minnesota
Code 322B.90. IMS further certifies that on October 18, 1993, Certificates of
Assumed Business Name, copies of which are attached as Exhibit A4 hereto, were
executed and submitted to the office of the Minnesota Secretary of State under
the provisions of Minnesota Code 322B.90.
3.3. Filing of Certificates. IMS shall file and publish all such
certificates, notices, statements or other instruments required by law for the
formation and operation of a limited liability company in all jurisdictions
where Company may elect to do business.
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3.4. Duration of Company. The duration of Company shall be the maximum
allowed by law, which is thirty (30) years from its
date of organization, unless dissolved earlier in accordance with the provisions
of this Agreement and applicable law.
3.5. Fiscal Year. Except for the Company's first and last fiscal years,
the fiscal year of the Company shall start on January 1 and end on December 31.
3.6. Name of Company. The name of Company shall be "Minnesota Medical
Communication Network Limited Liability Company", d/b/a "Minnesota Medical
Communication Network", d/b/a "Minnesota MedCom", or such other name as the
Members may from time to time designate. The Members shall cause to be filed,
on behalf of Company, such certificates of assumed or fictitious names as may
from time to time be required by law.
3.7. Place of Business of Company. The principal place of business of
Company shall be at a Minnesota location consistent with the purpose and
business activities of Company, said location to be selected promptly upon
execution of this Agreement, and until such time the business of Company shall
be conducted from the addresses of the Members.
3.8. Members Names and Addresses. The names and addresses of the Members,
along with the titles of the persons to whom notices should be sent, are:
Integrated Medical Systems, Inc.
00000 Xxxx Xxxxx Xxxxxx, Xxx. 000
Xxxxxx, Xxxxxxxx 00000
Attention: Senior Vice President and CFO
and
Blue Cross and Blue Shield of Minnesota
0000 Xxxx Xxxxx Xxxx, X000
Xx. Xxxx, Xxxxxxxxx 00000-0000
Attention: Senior Vice President and CFO
3.9. Members Rights. Members shall have all of the rights granted under
the Colorado Limited Liability Company Act, subject to the provisions of this
Agreement.
3.10. Transfer of Interest. Except for the transfer of ownership interest
provisions in Section 4, no Member may sell, exchange, encumber, hypothecate,
assign, transfer or otherwise dispose of any portion of its ownership interest
in Company, or its right to receive any share of distributions as described
herein, without the unanimous consent of the Members.
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3.11. Additional Members. Except for the provisions in Section 4, no
additional Member may be added to Company without the unanimous consent of the
Members.
4. Contributions, Purchases. Ownership of Members.
4.1. IMS Contribution to and Interest in Company. IMS and Company have
executed the Software License Agreement, a copy of which is attached as Exhibit
B hereto and hereby made a part of this Agreement, which provides to Company an
exclusive and perpetual license in the Exclusive Territory to IMS' proprietary
concepts, trade secrets, techniques, business plans and other acumen developed
by IMS for the purpose of commercializing medical communication networks, and to
the Licensed Software, and including the escrow of said software which provides
for the survival of Company's licensed rights in the event of IMS' bankruptcy,
non-performance or substantial discontinuance of business, as more fully set
forth in Exhibit B hereto. BCBSM hereby acknowledges and accepts the rights of
University of Minnesota Hospital and Clinic under a pre-existing agreement with
IMS as described in Exhibit B hereto. Upon the execution of this Agreement and
pursuant to Section 4.2 herein, IMS shall then have a ninety percent (90%)
ownership interest in Company.
4.2. BCBSM Purchase of Interest in Company. BCBSM is hereby purchasing,
from IMS, a ten percent (10%) ownership interest in Company for $500,000,
payable in three installments as follows:
(i) $50,000 shall be paid, by check to IMS, upon the execution of
this Agreement.
(ii) $300,000 shall be paid, by check to IMS, upon the completion
of registration of Company in Colorado and registration and
qualification to conduct business in Minnesota; approval by BCBSM's
Board of Trustees pursuant to Section 4.2.4; and election of Company's
officers and Board of Managers ("Board"), as hereafter defined, at
which time a certificate representing BCBSM's ten percent (10%)
ownership interest in Company shall be provided to BCBSM. For
purposes of this Agreement, this payment by BCBSM and delivery of
certificate by IMS shall constitute the closing ("Closing") of BCBSM's
purchase of interest in Company.
(iii) $150,000 shall be paid, by bank wire transfer to IMS, upon
completion of Company's first year business plan and budget with
revenue and cost projections, occupation of its Minnesota place of
business, and commencement of operation of the ComCenter System.
4.2.1. The Members hereby agree that time is of the essence in
completing these conditions for payment, and will mutually take all reasonable
actions to complete these conditions as promptly as reasonably possible.
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4.2.2 In the event that these conditions cannot be completed due to
non-performance by IMS, its products or services, or other circumstances within
the control of IMS, then BCBSM shall have the right to terminate this Agreement,
and IMS shall then, within ninety (90) days of receiving written notice from
BCBSM and provided IMS cannot within that time remedy the completion of said
conditions, return any payments made to IMS under this Agreement. BCBSM shall
then have no portion of ownership interest in Company, and shall promptly return
its ownership certificate in Company to IMS.
4.2.3. In the event that these conditions cannot be completed due to
non-performance by BCBSM, or other circumstances within the control of BCBSM,
then IMS shall have the right to terminate this Agreement and, provided that
BCBSM cannot remedy the completion of said conditions within ninety (90) days of
receiving written notice of termination from IMS, retain the first payment as
liquidated damages and return any other payments made to IMS under this
Agreement. BCBSM shall then have no portion of ownership interest in Company,
and shall promptly return its ownership certificate in Company to IMS.
4.2.4. In the event that BCBSM's Board of Trustees does not give its
final approval of this Agreement by December 10, 1993, then this Agreement shall
be terminated effective immediately. BCBSM shall then have no portion of
ownership interest in Company. IMS shall then credit the first payment to the
first year's Annual Network Fee to be paid by BCBSM under the provisions of the
Network Services Agreement as described in Section 9.1, after deducting actual
and reasonable expenses incurred by IMS in connection with the formation and
organization of Company.
4.3. Option for Additional Transfer of Interest. IMS and BCBSM
hereby agree to the following additional provisions for changes to their
respective interests in Company.
4.3.1. IMS hereby provides BCBSM with the option to purchase up to an
additional thirty-nine percent (39%) ownership interest in Company from IMS, in
increments of and at a purchase price of $50,000 per one percent (1%), at any
time during the first six months from execution of this Agreement, said purchase
to be made by bank wire transfer to IMS within said period of time, at which
time IMS shall then, within thirty (30) days from receipt of same, issue and
deliver additional certificates representing said incremental ownership
interest.
4.3.2. IMS further provides BCBSM with the right to defer purchase of
up to fifteen percent (15%) of the ownership interest option provided in Section
4.3.1, to any time during months six through twelve from execution of this
Agreement, said deferred purchase to be made in increments of and
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at a purchase price of $50,000 per one percent (1%), to be made by bank wire
transfer to IMS within said period of time, at which time IMS shall then, within
thirty (30) days from receipt of same, issue and deliver additional certificates
representing said incremental ownership interest.
4.3.3. In consideration for the provisions to BCBSM of Sections 4.3.1
and 4.3.2, IMS shall have the right, and BCBSM hereby gives its advance consent
as a Member, at any subsequent time during the term of this Agreement and after
the provisions of Sections 4.3.1 and 4.3.2 have expired, to sell any amount of
the remaining portion of BCBSM's ownership option not exercised or exercisable
by BCBSM to other parties at prices to be established by IMS at such time.
4.3.4. In further consideration for the provisions to BCBSM of
Sections 4.3.1 and 4.3.2, BCBSM hereby agrees to use its best efforts and
diligence in cooperating with IMS at senior management and other levels of
personnel, to attract both Subscribers, Local Sponsors and National Sponsors to
the Network, including BCBSM executive involvement in recruiting other
healthcare entities such as hospitals, introductions of IMS and Company by BCBSM
senior management to counterparts at other potential sponsoring entities known
to BCBSM, accommodating site visits and demonstrations at BCBSM facilities,
participation in presentations to and meetings with prospective sponsoring
entities and Subscribers, cooperative publicity and the like.
4.3.5. At the closing of BCBSM's purchase of any additional ownership
interest in Company pursuant to Section 4.3, IMS will certify in writing that
all warranties and representations provided to BCBSM at the first Closing are
still true and correct, or if not true and correct, IMS will make full
disclosure to BCBSM of any and all material changes since the date of the last
closing. IMS shall further repeat the warranties provided in Section 12.2.15 in
connection with the new closing. IMS will further certify at the time of any
such closing that it has not knowingly failed to fully disclose to BCBSM any and
all facts known to IMS that IMS knows or reasonably should know would render
false any material statement, or statement of material fact, in any
representation or warranty made by Company or IMS in connection with any such
purchase.
5. Capital Contributions and Sources of Funds.
5.1. Capital Contributions of Members. The Members shall have no
obligation to make any capital contributions to Company at any time.
5.2. Sources of Funds. It is the intent of the Members that adequate
funding of the financial requirements of Company shall be derived from Local
Sponsor and National Sponsor fees, the first source of which shall be from BCBSM
as the charter Local Sponsor of the Network under the terms and conditions of
the
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Network Services Agreement to be executed between BCBSM and IMS. The Members
shall direct Company, through the Board, to manage the Company's growth in a
manner consistent with this intent.
5.3. Additional Contributions. Additional contributions shall be
made only with the consent of the Members.
5.4. No Dilution of Equity. No Member's portion of its ownership
interest in Company shall be diluted by virtue of any financial provisions as
described in this Section 5.
6. Consolidation and Allocation of Profits and Losses.
6.1. Consolidation of Results. IMS shall be entitled to consolidate
the financial results of Company by virtue of its majority ownership interest in
Company.
6.2. Profits and Losses. All Company profits and losses shall be
determined using generally accepted accounting principles, consistently applied.
All Company losses shall be allocated pro rata according to the ownership
interests of the Members. All Company profits, following the recovery of
cumulative net losses, shall be allocated pro rata according to the ownership
interests of the Members.
6.3. Federal Tax Allocation. Except as otherwise required hereunder
or as otherwise provided by the Code and the rules and Treasury Regulations, for
federal income tax purposes, each item of income, gain or credit, and each item
of loss or deduction entering into the computation of the Members' taxable
income shall be allocated to the Members on the same basis as profits and losses
are allocated to the Members for book purposes.
6.3.1. Tax Election. Upon the purchase of interest in Company, the
purchasing Member, including BCBSM, may elect, pursuant to Section 754 of the
Code, to adjust the basis of the Company's property as allowed by Sections
734(b) and 743(b) of the Code. Any election so made will be filed with
Company's tax return for the first taxable year to which the election applies.
6.4. Allocations Respecting Contributed Assets. In accordance with
Code Section 704(c) and the Treasury Regulations thereunder, income gain,
credit, loss and deduction with respect to any asset contributed to the capital
of 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
Company for federal income tax purposes and its initial Adjusted Asset Value.
In the event the Adjusted Asset Value of any Company asset is adjusted pursuant
to the terms of this Agreement, subsequent allocations of income, gain, credit,
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 Adjusted Asset Value in the
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same manner as under Code Section 704(c) and the Treasury Regulations
thereunder.
6.5. Capital Accounts and Balances. A separate capital
account shall be maintained for each Member. Each Member's capital account
shall be zero at the commencement of this Agreement and after completion of the
transactions described in Sections 4.1 and 4.2. The capital accounts are to be
maintained in a manner consistent with Treasury Regulations Section 1.704-
1(b)(2)(iv). In the case of the distribution of property which is subject to
any special allocation, the credit or debit to the capital account shall occur
as if the property had been sold for its then fair market value. No Member
shall be entitled to receive interest on its capital account, and none shall be
paid.
6.5.1. Each Member's capital account shall be credited with:
(i) any contributions of cash to the capital of Company;
(ii) its allocable share of Company profits determined as set
forth in Section 6.2;
(iii) additional capital contributions made by it, if any; and
(iv) the amount of any Company liabilities that are assumed by it
or that are secured by any Company property distributed to it.
6.5.2. Each Members's capital account shall be debited with:
(i) its allocable share, if any, of Company losses;
(ii) the amount of any withdrawals by or distributions to it by
Company; and
(iii) the amount of any of its liabilities that are assumed by
Company or that are secured by any property contributed by it to
Company.
6.6. Distributions of Available Cash. The Company shall make cash
distributions to Members only out of profits as determined and allocated under
Section 6.2. Distributions, if available, shall be made within 60 days
following the end of each calendar year. It is the intent of the Members to
make such distributions, if available, at least equal to the current year's
taxes on the previous year's allocated net income from Company operations. The
Board may authorize such other cash distributions from time to time, if
available and as agreed to, and consistent with cash needs for the on-going
operation and growth of Company.
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6.7. General. The respective interests of the Members in the profits
and losses of Company shall remain as set forth above unless changed by
amendment to this Agreement or by approval of the Board.
7. IMS Services on Behalf of Company.
7.1. IMS Services. IMS shall provide certain services on behalf of
Company regarding the general business, affairs and certain management of
Company. IMS shall serve, with the powers described below, until it resigns or
is replaced pursuant to the agreement of the Board or other provisions herein.
7.2. Management Services Agreement. The duties, rights,
responsibilities, obligations and authority of IMS and Company regarding the
provision of certain services by IMS on behalf of Company shall be as set forth
in the Management Services Agreement executed between IMS and Company, a copy of
which is attached as Exhibit C hereto and hereby incorporated into this
Agreement.
7.3. Approval of Certain Actions. Notwithstanding the foregoing, the
authority of IMS to provide certain services on behalf of Company shall be
subject to the approval of the Board in certain matters which are described in
this Agreement and in the Management Services Agreement, and, in addition or
including, the following matters:
(a) Actions with respect to the purchase, sale or lease of real estate
and other significant assets on behalf of Company;
(b) Payment of fees or other compensation to employees, officers or
directors of Members, or other persons, which compensation is not
contemplated by the budget of Company or is not fair value for services
actually provided to Company;
(c) Distribution of dividends or surplus by Company to the Members or
other distributions or payments of cash other than in accordance with this
Agreement or the Management Services Agreement;
(d) Participation in any business venture not contemplated by this
Agreement, or any extraordinary expense or purchase of capital items
exceeding $50,000 in any 12 month period, which expense or purchase is not
contemplated by the Board-approved budget of Company; and
(e) Payment by Company to IMS or any affiliate or subsidiary thereof
of a management fee, home office fee, or any extraordinary fee not
specifically provided in this Agreement or contemplated by the Board
approved budget of Company;
(f) Termination and Dissolution of Company, except as otherwise
provided herein.
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(g) Approval of Company's annual budget.
8. Board of Managers. Officers. Decisions.
8.1. Board of Managers. The business and affairs of Company shall be
directed by its Board of Managers, and the Members of Company hereby authorize
the Board to act on their behalf and represent their interests with respect to
this Agreement and the Company, except as otherwise may be provided herein.
8.1.1. Number. Tenure. Voting Privileges. There shall initially be
up to five (5) voting members of the Board, of which one shall be appointed by
BCBSM and up to four shall be appointed by IMS. If and when BCBSM elects to
acquire at least thirty percent (30%) additional ownership interest in Company
under the provisions of Section 4.3, there shall then be two members of the
Board appointed by BCBSM and three appointed by IMS. The vote of each such
member of the Board shall have a vote equivalent to the total ownership interest
in Company owned by his or her Member divided by the total number of members of
the Board appointed by his or her Member. If and when BCBSM elects to acquire
thirty-nine percent (39%) additional ownership interest in Company under the
provisions of Section 4.3, then for the purposes of voting only, BCBSM shall be
considered to have a fifty percent (50%) ownership interest in Company. Each
Member hereby agrees to accept the other Member's appointments. Each such
member of the Board shall serve until his/her resignation or until his/her
successor shall have been appointed by the respective Member. Vacancies of such
members shall be filled by notice, to the Board, by the respective Member. The
number, tenure and voting privileges of the Board may not be modified without
the unanimous written consent of the Members, unless BCBSM does not elect to
acquire thirty-nine percent (39%) additional ownership interest in Company under
the provisions of Section 4.3, in which case if IMS sells any unexercised
portion of BCBSM's ownership option to one or more parties, BCBSM and IMS hereby
agree to modify this Section 8.1.1 to permit similar Board participation by an
additional Member or Members represented by said parties and their respective
ownership interests.
8.1.2. Initial Board. Prior to the execution of this Agreement,
the initial Board consisted of:
1. Xxxxxxx X. Xxxxx
2. Xxxxx X. Xxxxx
3. Xxxxxxx X. Xxxx
Upon the execution of this Agreement, the Board shall consist of:
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1. Xxxxxxx X. Xxxxx, IMS appointee
2. Xxxxx X. Xxxxx, IMS appointee
3. Xxxxxxx X. Xxxx, IMS appointee
4. Xxxxxx X. Xxxxxxxxxx, BCBSM appointee
The Members shall have such rights and perform such duties as are contemplated
for the Board until such time as the individual members of the Board have
accepted their appointment.
8.1.3. Regular Meetings. The first meeting of the Board shall take
place within thirty (30) days of execution of this Agreement. An annual meeting
of the Board shall take place each year no later than April 30 of each year.
The Board shall provide, by resolution, the time and place for the holding of
such other regular meetings as they decide upon without other notice than such
resolution.
8.1.4. Special Meetings. Special meetings of the Board may be called
by or at the request of any member of the Board or the President.
8.1.5. Governance at Meetings. In addition to the provisions of
voting and other provisions of this Agreement, provisions of the Colorado
Limited Liability Company Act shall govern actions taken in the conduct of any
meeting.
8.1.6. Telephone Participation at Meetings. One or more members of
Board, or other designated persons, may participate in a meeting by means of
conference telephone or similar equipment by which all persons participating in
the meeting can hear each other at the same time. Such participation shall
constitute presence in person at the meeting.
8.1.7. Notice of Meeting. Notice of any special meeting shall be
given at least two (2) days previous thereto by written notice delivered
personally, mailed, faxed, or otherwise delivered to each Board member at his or
her business address. Any Board member may waive notice of any meeting whether
before, at or after the meeting.
8.1.8. Quorum. Manner of Acting. At least one member of Board
appointed by each Member must be present at a meeting and, in such cases where a
majority of the members fixed by Section 8.1.1 are present, shall constitute a
quorum for the transaction of or voting on issues pertaining to Company. An act
of the majority of the voting members present at a meeting at which a quorum is
present shall be an act of the Board. Any member of Board may delay an action
to vote if all voting members are not present at a meeting, provided however,
that such delay shall not exceed
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thirty (30) days from the date of said meeting without the unanimous written
consent of the Members.
8.1.9. Presumption of Assent. A voting member who is present at a
meeting at which action on any matter is taken is deemed to have assented to the
action taken unless (a) he/she objects at the beginning of such meeting to the
holding of the meeting or the transacting of business at the meeting; (b) he/she
contemporaneously requests that his/her dissent from the action be entered in
the minutes of the meeting; or (c) he/she gives written notice of his/her
dissent to the presiding officer of the meeting before its adjournment or to the
Secretary of Company immediately after adjournment of the meeting. The right of
dissent as to a specific action taken in a meeting is not available to a voting
member who votes in favor of such action.
8.1.10. Informal Action by Members of Board. Any action required or
permitted to be taken at a meeting may be taken without a meeting if the action
is evidenced by one or more written consents describing the action taken, signed
by each voting member of the Board, and delivered to the Secretary of Company
for inclusion in the minutes or for filing with Company's records. Action thus
taken is effective when all voting members have signed the consent, unless the
consent specifies a different effective date. Such consent has the same force
and effect as a unanimous vote of the Board and may be stated as such in any
document.
8.1.11. Compensation of Board. Except for the payment of expenses,
if any, of attendance at each meeting, there shall be no other compensation to
the members of the Board. Notwithstanding the foregoing, no member is precluded
from serving the Company in any other capacity and receiving compensation
therefor.
8.1.12. Chairman of Board. One member of the Board shall be
appointed annually by the Board as its Chairman. If BCBSM elects to acquire
thirty-nine percent (39%) additional ownership interest in Company under the
provisions of Section 4.3, such appointment shall alternate each year between
appointees of BCBSM and IMS, unless this provision is waived by the Board. The
Chairman, when present, shall preside at all meetings of the Board and shall
perform all duties as may be prescribed by the Board from time to time.
8.2. Officers of Company. The Board shall appoint officers of
Company which shall consist of at least a President, Secretary and Treasurer.
The offices of Treasurer and Secretary may be held by one person. The officers
of Company shall be appointed annually at the annual meeting. Each officer
shall hold office until his/her successor shall have been duly elected or until
death, resignation or removal in the manner hereafter provided. The officers of
Company shall perform all duties as are contemplated in the performance of the
Management Services Agreement
14
and in general perform all of the duties incident to their offices and other
such duties as from time to time may be assigned by the Board.
8.2.1. Initial Officers. Prior to the execution of this Agreement,
the initial officers were:
President: Xxxxx X. Xxxxx
Secretary: Xxxxxxx X. Xxxx
Treasurer: Xxxxxxx X. Xxxxx
Upon execution of this Agreement, all positions of officers of Company shall be
vacant. The Board shall then take such steps as appropriate to appoint officers
of Company, and shall have such rights and perform such duties as are
contemplated for the officers of Company until such time as the officers are
appointed.
8.2.2. Removal. Vacancies. Any officer may be removed by the Board
whenever in its judgment the best interests of Company would be served thereby.
A vacancy in any office may be filled, under the provisions herein, for the
unexpired portion of the term.
8.2.3. President. The President shall be the chief executive officer
of Company and, subject to the Board, shall in general supervise and control all
business and affairs of Company according to the Management Services Agreement.
The President shall, when present, preside at any meeting of the Board in the
absence of the Chairman.
8.2.4. Employment. Compensation. Compensation of the President,
although anticipated to be provided by IMS and charged under the Management
Services Agreement, shall be subject to the approval of the Board. Other
officers, who are employees of a Member and whose duties to Company are on an
occasional basis, shall not be directly compensated for their duties by Company,
but such Member shall be reimbursed by Company for the services of such
employees under allocated charges, whether or not specifically covered under the
Management Services Agreement, provided if such reimbursement has not been
contemplated by the Board-approved budget, it shall be subject to Board
approval.
8.3. Inspection. The books, accounts and records of Company shall be
open to inspection by any member of the Board at all times.
8.4. Personal Liability. Unless specifically undertaken or required
by the Colorado Limited Liability Company Act, or other applicable law, no
Member, member of the Board or officer of Company shall have personal liability
for the debts and obligations of Company.
15
9. Miscellaneous Responsibilities of the Members.
9.1. Network Services Agreement. Coincident with the execution of
this Agreement, IMS and BCBSM shall execute the Network Services Agreement, a
copy of which is attached as Exhibit E hereto, and BCBSM shall make payment, by
check made out to Company ("Minnesota Medical Communication Network LLC") in the
amount of $100,000, for its first quarterly portion of the Annual Network Fee
thereunder.
9.2. Assignment of Agreements. Coincident with the execution of this
Agreement, IMS and Company shall execute Assignment Agreements, copies of which
are attached as Exhibits D-1 and D-2 hereto and hereby made a part hereof,
assigning to Company IMS' Network Services Agreement with BCBSM and IMS' present
agreement with University of Minnesota Hospital and Clinic.
9.3. National Sponsor Expenses and Revenues. IMS shall be solely
responsible for funding all expenses associated with the national marketing,
servicing and billing of National Sponsors. IMS shall receive all Network
revenues from National Sponsors and, after deducting twenty-five percent (25%)
of such revenue as its compensation, shall promptly transmit the balance to
Company. BCBSM shall use its best efforts to assist IMS and Company in
recruiting such National Sponsors which may exist within the Exclusive
Territory.
9.4. Improvements by IMS. IMS shall make available to Company, at no
cost, any improvements in the technology or business practices developed by IMS,
or reasonably available to IMS through its affiliated entities, which would
improve the operation of Company or Network.
9.5. Improvements by Company. Any improvements in technology
developed by Company at its expense shall be owned by Company, provided that IMS
shall have a perpetual nonexclusive license authorizing IMS to incorporate such
improvements into IMS software marketed or licensed outside the Exclusive
Territory, at reasonable agreed upon terms, conditions and fees as approved by
the Board.
9.6. Improvements by Other Members. Any improvements in technology
or other technology owned or developed by a Member other than IMS, and provided
to Company at said Member's expense shall be owned by said Member, provided that
Company and IMS shall have the right to negotiate in good faith with said Member
to obtain nonexclusive licenses authorizing Company and IMS to incorporate such
improvements or other technology into IMS software marketed or licensed within
and outside the Exclusive Territory, at reasonable agreed upon terms, conditions
and fees as approved by the Board, said Member and IMS.
9.7. Network Pricing. IMS, by virtue of the Management Services
Agreement, its business expertise in the affairs of Company, its reasonable need
for
16
consistency among its owned or affiliated networks outside the Exclusive
Territory, and its contractual obligations in certain cases to maintain certain
minimum pricing, shall provide guidelines to Company for setting the prices of
standard Network services and products to be offered by Company, said standard
services being the same that IMS or its affiliated networks provide outside the
Exclusive Territory. Notwithstanding the foregoing, Company, through the Board,
shall have the right to approve or modify such pricing charged by Company,
provided that Company shall take no action that would violate certain minimum
pricing obligations of IMS based on evidence provided by IMS. Company, through
the Board, shall be responsible for setting the prices of non-standard Network
services and products, if any, that may be developed and offered by Company in
the Exclusive Territory.
9.8. Member Liabilities to Company and Each Other. No Member,
including any of its employees, officers or directors serving as a member of the
Board or officer of Company, shall be liable to any other Member or the Company
because any taxing authorities disallow or adjust any deductions or credits in
Company income tax returns. In addition, the doing of any act or the omission
to do any act by any Member, the effect of which may cause or result in loss or
damage to Company or a Member, if done in good faith and otherwise in accordance
with the terms of this Agreement, shall not subject such Member to any
liability. Company will indemnify and hold harmless each Member and its
successors and assigns from any claim, loss, expense, liability, action or
damage resulting from any act or omission in connection with Company including,
without limitation, reasonable costs and expenses of litigation, except where
the same is due to or arising out of the fraud, bad faith or negligence of the
indemnified Member.
9.9. IMS Repurchase of Another Member's Ownership Interest. In the
event that, as a condition for IMS becoming a public company or being acquired
by or merging with a public company, it is necessary that IMS re-acquire another
Member's ownership interest in Company as part of a re-acquisition of all
minority interests in its affiliated network businesses, said Member and IMS
hereby agree to negotiate in good faith to permit the repurchase of said
Member's ownership interest in Company, payable in cash, marketable securities
or other forms of payment, in an amount and under terms and conditions that are
acceptable to said Member and IMS.
9.10. Other. Additional responsibilities or duties of the Members,
other than as described in this Agreement, shall be subject to their mutual
approval.
10. Dissolution and Liquidation.
10.1. Events of Dissolution.
10.1.1. The Company shall be terminated and dissolved upon the
earlier to occur of the following:
17
(i) in the event a Member shall be in material breach of this
Agreement, in addition to such other remedies as may be available to
the non-defaulting Member under law, upon the election of such non-
defaulting Member after written notice of said material breach to the
breaching Member, which breach remains uncured for sixty (60) days
after written notice of such breach;
(ii) upon the dissolution and commencement of winding up of
either Member or upon either an adjudication of either Member or
Company as bankrupt or insolvent, or upon the filing by either Member
or Company of any petition under any chapter of the United States
Bankruptcy Code or any other present or future applicable federal,
state or other statute or law regarding bankruptcy, insolvency or
other relief for debtors, or either Member's or Company's seeking, or
consenting to, or acquiescing in, the appointment of any trustee,
receiver or liquidator of itself or of all, or any substantial portion
of, its property or, in the case of a Member, its interest in Company,
subject to the provisions of Section 10.2;
(iii) upon the unanimous consent of the Members;
(iv) the expiration of the term of Company, which is thirty (30)
years from the date of organization of Company; or
(v) any other act causing a dissolution under the Colorado
Limited Liability Company Act.
10.1.2. Dissolution of Company shall be effective on the day on which
the event occurs giving rise to the dissolution, but Company shall not terminate
until the assets of Company shall have been distributed as provided herein.
Notwithstanding the dissolution of Company, prior to the termination of Company
as aforesaid, the business of Company and the affairs of the Members, as such,
shall continue to be governed by this Agreement.
10.2. Continuation of Business of Company.
10.2.1. In the event of a threat of, or actual, bankruptcy or other
insolvency of Company as described in Section 10.1.1 (ii), and if the Members
elect not to do so collectively, then any Member may elect to take such actions
as may be appropriate to cure the conditions causing said event.
10.2.2. Notwithstanding anything to the contrary in this Agreement,
upon any dissolution under either Section 10.1.1 (ii) or (v), and if the non-
insolvent Members elect not to do so collectively, BCBSM may, at its sole
election, unless BCBSM is then insolvent, elect, in writing within sixty (60)
days of the event, to acquire and continue the business of Company. Upon such
election, and if IMS is an insolvent Member, BCBSM shall assume
18
control of Company, shall within thirty (30) days replace IMS under the
Management Services Agreement, and within 180 days after such date shall pay to
IMS all amounts to which IMS would have been entitled had the parties agreed to
liquidate Company and had disposed of its assets and its business at fair market
value.
10.2.3. Any disputes under this Section 10.2 shall be resolved by
binding arbitration under terms and conditions acceptable to the Members.
10.3. Liquidation of Assets. Upon dissolution, the Board shall
liquidate the assets of Company, and apply and distribute the proceeds thereof
as contemplated by this Agreement.
10.4. Distributions Upon Liquidation.
10.4.1. After payment of liabilities owing to creditors, the Board
shall set up such reserves as it deems reasonably necessary for any contingent
or unforeseen liabilities or obligations of Company. Said reserves may be paid
over by Board to a bank to be held in escrow for the purpose of paying any such
contingent or unforeseen liabilities or obligations and, at the expiration of
such period as the Board may deem advisable, such reserves shall be distributed
to the Members or their assigns in the manner set forth below.
10.4.2. After paying such liabilities and providing for such
reserves, the Board shall cause the remaining net assets of Company to be
distributed to the Members in respect of the positive balances in their capital
accounts in compliance with Treasury Regulations Section 1.704-
l(b)(2)(ii)(b)(2), and if any Member's capital account has a deficit balance
(after giving effect to all contributions, distributions and allocations for all
taxable years, including the year in which such liquidation occurs), such Member
shall contribute to the capital of Company the amount necessary to restore such
deficit balance to zero in compliance with Treasury Regulations Section 1.704-
1(b)(2)(ii)(b)(3)
10.5. Valuations. For the purposes of valuing the assets of Company
for distribution as contemplated herein, Company's assets shall be deemed to be
sold at their fair market value and the resulting profits and losses shall be
allocated to the Members capital accounts in accordance with Section 6 hereof.
10.6. No Recourse. No Member shall have recourse against another if
the assets of Company or the proceeds received by Company upon liquidation are
insufficient to return the positive balance in their capital account, except as
is provided in Section 9.8 herein.
10.7. Information Concerning Liquidation. Each Member shall be
furnished with a statement prepared by the Board setting forth the assets and
liabilities of Company on the date of complete liquidation. Members shall cease
19
to be such, and the Board shall cause to be executed, acknowledged and filed, in
duplicate, with the appropriate Secretary of State, a Certificate of
Cancellation of Company.
11. Mutual Representations and Warranties. Each Member, for itself alone,
warrants and represents that:
11.1. Content of Agreement. Each has carefully read and understands
the content of this Agreement.
11.2. Financial Risks. Each understands the financial risks involved
in this investment, which could result in a substantial or complete loss of its
investment. Each can assume a high degree of risk in making such an investment
and can afford the loss of its entire investment.
11.3. Reliance on Own Counsel. Each, in evaluating the merits of an
investment in Company has performed its own due diligence and has relied, to the
extent each deems necessary, on the advice of its own personal accountant and
tax and legal counsel. Each acknowledges.that neither Company nor its counsel
has provided any tax opinion or other legal advice in connection with this
offering.
11.4. Business and Financial Experience. Each, by reason of their
business and financial experience or the business and financial experience of
their professional advisors who are unaffiliated with Company, believe that they
have the capacity to protect their own interests in connection with this
offering.
11.5. Due Organization and Authority. Each is duly organized,
validly existing and in good standing in the state of its incorporation and
possesses all necessary powers and authority to enter into this Agreement.
11.6. Disclosure. Each has not knowingly failed to disclose to the
other any and all facts known to it that it knows or reasonably should know
would render false any material statement, or statement of material fact, in any
representation or warranty made by it in this Agreement. No representation or
warranty made by each Member contains any untrue statements of a material fact
or omits to state a material fact necessary to make the statements not
misleading.
12. Representations and Warranties of IMS. IMS represents and warrants
that:
12.1. Company Covenants. IMS, to the extent it has the authority to
do so as majority owner of Company, and by virtue of its Management Services
Agreement with Company, shall assure that Company performs and observes all of
the covenants and provisions set forth in Section 13.
12.2. Company Representations and Warranties. IMS, to the extent it
has the authority to do so as majority owner of Company, and by virtue of its
Management Services Agreement with Company, hereby represents and warrants
20
on behalf of Company that both before, and/or upon as the case may be, Company's
registrations and qualifications as set forth in Sections 3.1 and 3.2.
12.2.1. Organization and Standing of Company. Company is a duly
organized and validly existing limited liability company in good standing under
the laws of the State of Colorado and has all requisite corporate power and
authority for the ownership and operations of its properties and for the
carrying on of its business as now conducted or as now proposed to be conducted.
Company is duly licensed or qualified and in good standing as a foreign
corporation authorized to do business in Minnesota.
12.2.2. Litigation. There is no litigation or governmental
proceeding or investigation pending or, to the best knowledge of Company,
threatened against Company. Company is not in default with respect to any
order, writ, injunction, decree, ruling or decision of any court, commission,
board or other government agency, which default would have a material adverse
effect on the business, operations, management or financial condition of
Company. There are no actions or proceedings pending or, to the knowledge of
Company, threatened which might result, either in any case or in the aggregate,
in any material adverse change in the business, operations, management, affairs
or condition of Company or in any of its properties or assets, or which might
call into question the validity of this Agreement, or any action taken or to be
taken pursuant hereto or thereto.
12.2.3. Compliance with Other Instruments. Company is in compliance
in all respects with the terms and provisions of this Agreement and of its
charter and Bylaws, as amended, and in all material respects with the terms and
provisions of all mortgages, indentures, leases, agreements and other
instruments by which it is bound or to which it or any of its properties or
assets are subject, the noncompliance with which would have a material adverse
effect on the business, assets, operations or financial condition of Company.
Neither the execution, issuance and delivery of this Agreement, or the Shares,
nor the consummation of any transaction contemplated hereby or thereby, has
constituted or resulted in or will constitute or result in a material default or
violation of any term or provision of any of the foregoing documents,
instruments, judgments, agreements, decrees, orders, statutes, rules and
regulations.
Company owns or has a valid right to use the patents, patent rights,
permits, licenses, trade secrets, trademarks, trademark rights, trade names or
trade name rights or franchises, copyrights, inventions, and intellectual
property rights (collectively, the "Proprietary Rights") being used to conduct
its business as now operated or proposed to be operated; and to the best of its
knowledge, Company owns or has a valid right to use the Proprietary Rights to
conduct its business as now proposed to be operated. To Company's knowledge, the
conduct of its business as now operated and as
21
now proposed to be operated does not and will not conflict with or infringe upon
patents, patent rights, permits, licenses, trade secrets, trademarks, trademark
rights, trade names or trade name rights or franchises, copyrights, inventions,
and intellectual property rights of others. No claim is pending or, to the best
knowledge of Company, threatened against Company to the effect that any
Proprietary Right owned or licensed by Company, or which Company otherwise has
the right to use, is invalid or unenforceable by Company.
12.2.4. Financial Information. The financial statements of Company,
as attached hereto as Exhibit Z, present fairly and accurately the financial
condition of Company. If Company has yet to start business and has no
financials to report, the Exhibit Z is to be designated as none.
12.2.5. Absence of Certain Developments. Company warrants that it
has never had involvement with respect to any: (i) declaration, setting aside or
payment of any dividends or other distribution with respect to the capital stock
of Company, (ii) loss, destruction or damage to any property of Company, whether
or not insured, which loss would have a material adverse affect on Company,
(iii) labor trouble involving Company or any material change in its personnel or
the terms and conditions of employment, (iv) acquisition or disposition of any
material assets (or any contract or arrangement therefor), or any other material
transaction by Company otherwise than for fair value in the ordinary course of
business, (v) borrowing of any amount not in the ordinary course of business or
creation of any mortgage or lien upon any of its assets or properties, (vi)
change of accounting methods or practices (including without limitation, any
change in depreciation or amortization policies or rates), (vii) receipt of
notice from any customer, supplier, vendor, governmental authority or any other
person or entity which could reasonably be expected to have, give rise to or
result in a material adverse effect upon the properties, assets, revenues,
business, operations, financial condition or prospects of the business; (viii)
declaration or payment of cash or assets to any shareholders or officers of
Company other than has been specifically disclosed or is in the ordinary course
of business, or (ix) any transaction not in the ordinary course of business.
12.2.6. Taxes. Company has accurately prepared and timely filed all
tax returns, whether Federal, state, county or local, required by law to be
filed by it, and Company has paid (or made provision for payment of), all taxes
shown to be due by such returns as well as all other taxes, assessments and
governmental charges which have become due or payable, including without
limitation, all taxes which Company is obligated to withhold from amounts owing
to employees, creditors and third parties. All such taxes with respect to which
Company has become obligated pursuant to elections made by Company in accordance
with generally accepted practices have been paid and adequate reserves have been
established for
22
all taxes accrued but not yet payable. The Federal income tax returns of Company
have never been audited by the Internal Revenue Service. No deficiency or
assessment with respect to, or proposed adjustment of, Company's Federal, state,
county or local taxes is pending or, to the best of Company's knowledge,
threatened. There is no tax lien, whether imposed by any Federal, state, county
or local taxing authority, outstanding against the assets, properties or
business of Company.
12.2.7. Transactions with Affiliates. No stockholder, officer or
director of Company or any "Affiliate" or associate" of such Persons (as such
terms are defined in the rules and regulations promulgated under the Securities
Act) (herein, a "Related Party") is a party to any material transaction with
Company, including, without limitation, any contract, agreement or other
arrangement providing for the rental of real or personal property from, or
otherwise requiring payments to, any Related Party, including IMS and its
officers and directors, except as follows: None.
12.2.8. Investments in Other Persons. Company has not made any loan
or advance to any Person which is outstanding on the date of this Agreement, nor
is it committed or obligated to make any such loan or advance, nor does Company
own any capital stock assets comprising the business of, obligations of, or any
interest in, any Person, including any joint venture, corporate partnership or
other strategic alliance. Company has no Subsidiaries.
12.2.9. Brokers or Finders. No Person has or will have, as a result
of the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon Company for any commission, fee or other compensation as a
finder or broker because of any act or omission by Company or any of its
respective agents.
12.2.10. Capitalization: Status of Capital Stock Company has a total
authorized capitalization consisting of 100 shares of capital stock. All the
outstanding shares of capital stock of Company have been duly authorized, are
validly issued and are fully paid and non-assessable. The Shares, when issued
and delivered in accordance with the terms hereof, will be duly authorized,
validly issued, fully-paid and non-assessable.
12.2.11. Insurance. Company presently carries insurance with
responsible and reputable insurance companies or associations in such amounts
and covering such risks as are reasonable given the nature of Company's
business.
12.2.12. Other Agreements. Company is not a party to any written
contract, obligation or commitment (or group of related agreements), involving
the payment by or to Company of an amount in excess of $1,000; employment
contract stock redemption or purchase agreements; agreement
23
relating to the borrowing of money or the mortgaging of, or placing a security
interest on, any asset of Company; distribution rights agreement, royalty
agreement or license agreement under which Company is licensee; leases or real
property or material amounts of personal property; pension, profit sharing,
retirement or stock option plans. Company has in all material respects performed
all the obligations required to be performed by it to date, under any of such
contracts, agreements or leases. Company has no present expectation or intention
of not fully performing all its obligations under each such lease, contract or
other agreement.
12.2.13. Compliance with Law. To the best of its 'knowledge, Company
is in material compliance with all applicable federal, state or local laws,
ordinances or regulations.
12.2.14, Full Disclosure. No representation or warranty made by
Company in this Agreement, including the documents, instruments and agreements
to be executed and/or delivered by Company pursuant to this Agreement, and no
statement, certificate or other documents or instrument furnished or to be
furnished by or on behalf of Company pursuant to this Agreement, 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 contained herein and
therein not misleading. Company has not knowingly failed to fully disclose to
BCBSM any and al' facts and information known to it that Company knows or
reasonably should know would render false any material statement, or statement
of material fact, in any representation or warrant,v made by Company in this
Agreement.
12.2.15. Miscellaneous. IMS and Company warrant the following:
(i) IMS will transfer the stock to BCBSM at the Closing free and
clear of all liens, encumbrances and restrictions, excepting only
those arising under or by reason of Company's Articles of Organization
or Bylaws (including this Operating Agreement).
(ii) IMS and Company have not granted any options or other rights
to purchase all or any part of the stock to any third party.
(iii) IMS and Company have the full power and authority to
execute, deliver and perform this Agreement.
(iv) This Agreement has been duly and validly authorized,
executed and delivered by IMS and Company and constitutes the valid
and legally binding obligation of IMS and Company, enforceable in
accordance with its terms.
24
(v) No consent, authorization or approval of, or exemption by, or
filing with any governmental, public or regulatory body or authority
is required in connection with (i) the execution, delivery and
performance by IMS or Company of this Agreement, or (ii) the taking of
any action herein contemplated.
12.2.16. Survival of Representations and Warranties, The statements,
representations, warranties, covenants and agreements of the parties as
contained in this Agreement and in any instrument or document delivered by or on
behalf of any of the parties hereto pursuant to this Agreement, and the
transactions contemplated hereby, shall survive the Closing and the consummation
of the transactions contemplated hereby.
13. Covenants of Company.
13.1 Affirmative Covenants of Company IMS, to the extent it has the
authority to do so as majority owner of Company, and by virtue of its Management
Services Agreement with Company, hereby agrees that for so long as BCBSM owns
the shares acquired by it under this Agreement, Company will perform and observe
the following covenants and provisions, and will cause each subsidiary, if and
when such subsidiary exists, to perform and observe such of the following
covenants and provisions as are applicable to such subsidiary:
13.1.1 Payment of Taxes. Pay and discharge, and cause each subsidiary
to pay and discharge, all taxes, assessments and governmental charges or levies
imposed upon it or upon its income, profits or business, or upon any properties
belonging to it, prior to the date on which penalties attached thereto, and all
lawful claims which, if unpaid, might become a lien or charge upon any
properties of Company or any subsidiary, provided that neither Company nor the
subsidiary shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by appropriate proceedings.
13.1.2. Maintenance of Insurance. Maintain, and cause each
subsidiary to maintain, (i) insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is
customarily carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which Company or such subsidiary
operates.
13.1.3. Preservation of Corporate Existence. Preserve and maintain,
and cause each subsidiary to preserve and maintain, its corporate existence,
rights, franchises and privileges in the jurisdiction of its incorporation, and
qualify and maintain qualified, and cause each subsidiary to qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and operations
or the ownership or lease of its properties, except where the failure to be so
qualified would not have a material adverse effect on the business, operations,
assets or financial condition of Company and its subsidiaries, taken as a whole.
25
13.1.4. Keeping of Records and Books of Account. Keep, and cause
each subsidiary to keep, adequate records and books of account in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of Company and any
subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
13.1.5. Dealings with Affiliates. Other than ordinary and usual
compensation arrangements, enter into any transaction, including, without
limitation, and loans, leases, extensions of credit or royalty agreements with
any officer or director of Company or any subsidiary, or any member of their
respective immediate families or any corporation or other entity directly or
indirectly controlled by one or more of such officers or directors or members of
their immediate families on terms not less favorable to Company or any
subsidiary than it would obtain in a transaction between unrelated parties.
13.1.6. Change in Nature of Business. Other than upon approval of
the Members, make, or permit any subsidiary to make, any material change in the
nature of its business as carried on at the date hereof or as contemplated in
written materials or any business plan delivered to BCBSM prior to the date
hereof. The addition of any new line of business representing 10% or less of
gross sales shall not constitute a material change in the nature of Company's
business.
13.1.7. Reporting and Requirements. For so long as BCBSM owns all of
the shares acquired by it under this Agreement, Company will furnish the
following to BCBSM:
(i) Quarterly Reports: Within forty-five (45) days following the
end of each fiscal quarter a reasonably detailed income statement,
balance sheet and cash flow statement as of the close of that quarter.
Such financial statements may be unaudited and shall be prepared in
accordance with generally accepted accounting principles, consistently
applied, subject to the addition of notes to such financial statements
and to normal year-end adjustments made in the ordinary course of
business.
(ii) Annual Reports: Within ninety (90) days following the close
of each fiscal year, an audited balance sheet as of the close of such
fiscal year and audited statements of income, stockholders' equity and
cash flows for the fiscal year then ended prepared in accordance with
the generally accepted accounting principles consistently applied,
together with notes thereto and the report thereon of Company's
independent certified public account.
(iii) Additional Financial Information: Such other financial or
budget data as BCBSM may from time to time reasonably request.
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(iv) Written Reports: Promptly upon receipt or publication
thereof, any written reports submitted to Company by independent
public accountants in connection with an annual or interim audit of
the books of Company and its subsidiaries made by such accounts or by
consultants or other experts in connection with such accountant's,
consultant's or other expert's review of Company's operations or
industry.
14. Payment of Certain Expenses.
14.1. Reimbursable Expenses. The Members agree to cause Company
either to pay or reimburse each or either Member, as the case may be, only for
such filing fees, costs, prepaid franchise taxes or other expenses directly
incurred in organizing and registering Company as a limited liability company in
good standing with the states of Colorado and Minnesota, and any county or local
government department or agency necessary or convenient to the operation of
Company as contemplated by this Agreement.
14.2. Nonreimbursable Expenses. The Members agree that any and all
other expenses incurred by each or either Member in organizing Company other
than as is expressly set forth above and in the Management Services Agreement
shall not be reimbursable by Company and shall be paid solely by the party
incurring such expenses. Without limiting the generality of the foregoing, each
party shall bear its own legal and accounting fees, travel, lodging, telephone
and other out-of-pocket expenses involved in the negotiation, organization and
formation of Company.
15. Confidentiality.
15.1. Confidentiality. The Members acknowledge that after execution
of this Agreement, the Members will each have access to certain confidential
information and trade secrets which are proprietary to the other Member. Each
party to this Agreement acknowledges that the unauthorized use of such
information or the disclosure of any such information of the other party, or the
disclosure of any such information, any part thereof belonging to the other
party, to any unauthorized third party shall be injurious to the party whose
confidential information and trade secrets are disclosed. Each party to this
Agreement, on its own behalf and on behalf of its officers, directors and
employees, by becoming a party to this Agreement, covenants and agrees that,
except as authorized hereunder, they will not use or disclose to any
unauthorized third party, information related to technology, clients, marketing,
research and development or other tradec secrets or proprietary confidential
information of the other party. Further, the Members agree to treat as
confidential the terms and conditions of this Agreement. Further, the Members
agree to treat as confidential all Company information such as client lists,
pricing information and related data, and the Members acknowledge that
unauthorized use of any such information would cause irreparable damage to
Company.
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15.2. Enforcement by Injunction. The Members agree and acknowledge
that irrevocable harm and damage will be sustained by the Member to whom the
proprietary information and trade secrets belongs in the event that another
Member or its officers, directors or employees violate or threatened to violate
the provisions of this Section. In the event of such a breach or threatened
breach, the Member seeking to enforce this Section shall be entitled to have an
injunction issued by any court of competent jurisdiction enjoining and
restraining such breach. The seeking of an injunction shall not preclude such
Member from seeking such other remedies as may be available, including monetary
damages.
15.3. Enforcement by Injunction by Company. The Members further agree
and acknowledge that irrevocable harm and damage would be sustained by Company
in the event that any Member, its officers, directors or affiliates violate the
provisions of this Section. In the event of a breach or threatened breach by
any one or more Members, then any other Member, acting in the name and place of
Company shall be entitled to have an injunction issued by any court of competent
jurisdiction enjoining and restraining such breach. The seeking of an
injunction shall not preclude any Member from seeking such other remedies as are
available, including monetary damages.
16. Intent Not to Compete. It is the intent of the Members to use their
respective best efforts and good faith to position Company as the preferred
entity for the use and sale of medical information network technology, services
and arrangements within the Exclusive Territory, to provide access by Company to
related technology which may be made available to any Member through
acquisitions of or other relationships with other companies, and to wherever
possible and reasonable provide Company with the opportunity to propose, develop
and offer, or join with others in proposing, developing and offering, existing
or new medical information network technology and services to healthcare persons
and entities within the Exclusive Territory, in keeping with the purpose of
Company and its business and marketing plans. Nothing in the foregoing shall
deny any Member the right to independently or jointly make use of other medical
information network technology, services and arrangements for their own
enjoyment or requirements if it is in their respective best interests to do so,
or to pursue the same if it is not in the scope of Company's business to provide
the same.
17. Disputes. In the event of any unresolvable dispute between the
Members, the Members may, in addition to any other remedies available, elect to
choose one of any of the following methods of resolution, said method to then be
the deciding method for resolution in that instance.
17.1. Binding Arbitration. The Members may agree to submit a dispute
to binding arbitration, the terms and conditions of which shall be agreed to in
advance by the Members.
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17.2. Buy/Sell Agreement.
17.2.1. Offerer's Right. At any time, a Member ("Offerer") may offer
to purchase from the other Member ("Offeree"), all of the Offeree's ownership
interest in Company at a price to be specified as an amount in dollars per one
percent (1%) ownership interest. Such offer shall be in writing, and shall
offer to pay to the Offeree the total amount then due in cash within thirty (30)
days of acceptance by the Offeree and shall further provide that the Offeree
shall have at least sixty (60) days to consider the offer.
17.2.2. Offeree's Right. Within the period of the offers the Offeree
shall have the right to elect either (i) to sell all of its ownership interest
to the Offerer or (ii) to purchase from the Offerer all of the Offerer's
ownership interest in Company at a purchase price equivalent to the Offerer's
offer on a per one percent (1%) basis. On or before the expiration of the
Offerer's offer, the Offeree shall indicate in writing whether it elects to sell
all of its ownership interest in Company or to buy the ownership interest in
Company owned by Offerer.
17.2.3. Closing of Buy/Sell Transaction. The closing of a buy/sell
transaction as described herein shall occur within thirty (30) days after the
expiration of the Offerer's offer. The purchaser in the transaction shall pay to
the seller at the closing an amount in cash equal to the purchase price per one
percent (1%) ownership interest first specified in the Offerer's offer times the
total percent ownership interest of the seller. Upon such payment, all interest
in and to Company and its business and assets shall be owned by the purchaser
and the seller shall have no further interest in any aspect of Company's
business. If BCBSM is the purchaser under this provision, then either BCBSM or
IMS shall have the right to terminate the Management Services Agreement between
Company and IMS.
18. Miscellaneous.
18.1. Time of Essence. The Members acknowledge and agree that time
is of the essence in this Agreement.
18.2. Confirmation by Company. The Members agree to take all action
necessary and convenient to cause each member of the Board to confirm in writing
that he/she has read and understood this Agreement, and that each member shall
take appropriate action to cause the Company to comply with all of the relevant
provisions of this Agreement.
18.3. Notices. All notices required to be =given hereunder shall be
given in writing and shall be personally delivered or deemed delivered if
dispatched by certified mail, return receipt requested, postage prepaid,
addressed to the Members as set forth in Section 3.9. A notice shall be deemed
given on the date it is
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deposited in the mail in accordance with the foregoing. Any party may change the
address to which to send notices by notifying the other party of such change of
address in writing in accordance with the foregoing.
18.4. Governing Law. This Agreement and all rights, duties and
obligations hereunder shall be construed and interpreted in accordance with the
laws of Colorado.
18.5. Waiver. No waiver of any term, covenant or condition contained
in this Agreement or failure to exercise a right or remedy shall be deemed to
imply a further waiver of such term, covenant, right or remedy.
18.6. Severability. Nothing contained in this Agreement shall be
construed so as to require the commission of an act contrary to law and whenever
there is any conflict between any provision of this Agreement and any present
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevaiL but in such event, the
provisions of this Agreement affected shall be curtailed and limited only to the
extent necessary to bring it within the requirements of the law and to carry out
the purposes of this Agreement.
18.7. Binding Agreement. Subject to the restrictions on transfer and
encumbrances set forth herein, this Agreement shall inure to the benefit of and
be binding upon the Members and their respective legal representatives,
successors, transferees, and assigns. Whenever a reference is herein made to
any party such reference shall be deemed to include a reference to the legal
representatives, successors, transferees, and assigns of such party.
18.8. Assignment. This Agreement shall not be assigned by any Member
without the express prior written consent of the other Members, except that
BCBSM may assign this Agreement to any BCBSM wholly owned affiliate.
18.9. Headings. All headings and captions used herein are for
convenience of reference only, and shall not be a part or affect the
interpretation of this Agreement.
18.10. Modification. This Agreement may be modified only upon
execution of a written agreement signed by the Members.
18.11. Entire Agreement. This Agreement and any exhibits
specifically made a part hereof or referred to herein supersede all prior oral
and written understandings and agreements between the parties. The parties
acknowledge and agree that this Agreement and any exhibits specifically made a
part hereof or referred to herein contain the entire agreement between the
parties. No representations, promises, conditions or warranties with reference
to the execution of this Agreement have been made or entered into between the
parties other than as expressly stated herein. In the event of a conflict, the
provisions of this Agreement will govern.
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18.12. Attorneys Fees. In the event of any suit under this
Agreement, reasonable attorneys' fees and costs shall be awarded by the court to
the prevailing party, to be included in any judgment recovered. In addition,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in enforcing any judgment arising from a suit under this
Agreement. This post-judgment attorneys' fees and costs provision shall be
severable from the other provisions of this Agreement and shall survive any
judgment on such suit and is not to be deemed merged into the judgment.
18.13. Existing Agreement. IMS agrees to use its best efforts to
administer, amend or terminate, as may be appropriate, the existing agreement
between IMS and University of Minnesota Hospital and Clinic for the use of
certain IMS software so as to protect the interests of BCBSM and Company
contained herein and in the Network Services Agreement between IMS and BCBSM.
Upon execution of this Agreement, IMS will promptly assign its agreement with
UMHC to Company.
19. Conditions to BCBSM's Obligation to Purchase.
19.1 Closing. In addition to any provisions under Section 4.2, the
obligation of BCBSM to purchase and pay for the shares to be purchased by it at
the Closing is subject to the following conditions:
19.1.1. Representations and Warranties. Each of the representations
and warranties of Company and IMS set forth herein shall be true, accurate and
correct on the date of the Closing.
19.1.2. Documentation at Closing. BCBSM shall have received prior to
or at the closing all of the following materials, each in form and substance
satisfactory to BCBSM and its counsel, or each of the following events shall
have occurred prior to or simultaneous with the Closing:
(i) Copies of all necessary documents from Company and IMS
evidencing the approval of this Agreement, the issuance of the Shares
and the other matters contemplated hereby, and a copy of the Bylaws of
the Company, all of which have been certified by the Secretary or
Assistant Secretary of the Company to be true, complete and correct in
every particular.
(ii) A favorable opinion of counsel.
(iii) A certificate of the Secretary or an Assistant Secretary of
Company which shall certify the names of the officers of Company
authorized to sign this Agreement, the certificates for the shares and
the other documents, instruments or certificates to be delivered
pursuant to this Agreement by Company or any of its officers, together
with the true signatures of such officers. BCBSM may
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conclusively rely on such certificate until it shall receive a further
certificate of the Secretary or an Assistant Secretary of Company
canceling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate.
(iv) A Certificate of the Secretary of State of the State of
Colorado as to the due incorporation and good standing of IMS and a
certificate of the Secretary of State of Minnesota demonstrating that
Company has qualified to do business as a foreign limited liability
company.
(v) IMS and Company shall have entered into Software License
Agreement and Management Services Agreement as of approximately the
same date as this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
INTEGRATED MEDICAL SYSTEMS, INC. BLUE CROSS AND BLUE SHIELD OF MINNESOTA
By /s/ By /s/
----------------------------- -----------------------------
Its SENIOR VICE PRESIDENT Its CFO
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