EXHIBIT 10.72
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AMENDED AND RESTATED
OPERATING AGREEMENT
of
LYRIC HEALTH CARE LLC
by and between
INTEGRATED HEALTH SERVICES, INC.
and
TFN HEALTHCARE INVESTORS, LLC
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Dated as of February 1, 1998
TABLE OF CONTENTS
ARTICLE 1 - Organization; Name; Office
ARTICLE 2 - Purpose
ARTICLE 3 - Term
ARTICLE 4 - Members
ARTICLE 5 - Percentages
ARTICLE 6 - Profits and Losses; Tax Allocations
ARTICLE 7 - Capital
ARTICLE 8 - Management, Duties and Restrictions
ARTICLE 9 - Limited Liability
ARTICLE 10 - Voting; Meetings
ARTICLE 11 - Distributions
ARTICLE 12 - Books; Accounting; Fiscal Year
ARTICLE 13 - Bank Accounts
ARTICLE 14 - Indemnification
ARTICLE 15 - Assignments Limited
ARTICLE 16 - Rights of First Offer or First Refusal
ARTICLE 17 - Dissolution
ARTICLE 18 - Notices
ARTICLE 19 - Dispute Resolution
ARTICLE 20 - Miscellaneous
ARTICLE 21 - Buy-Sell
ARTICLE 22 - Closing Protocols
ARTICLE 23 - Admission of New Members
ARTICLE 24 - Certain Representations and Warranties
Schedule "1" - Original Subsidiaries; Original Facilities
Schedule "2" - Distributions of Sale/Leaseback Transaction
Appendix "A" - Calculation of Capital Accounts, Profits, and Losses;
Income Tax Matters
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AMENDED AND RESTATED OPERATING AGREEMENT of LYRIC HEALTH CARE LLC, a
Delaware limited liability company (the "Company"), dated as of February 1, 1998
by and between INTEGRATED HEALTH SERVICES, INC. ("IHS"), a Delaware corporation,
and TFN HEALTHCARE INVESTORS, LLC ("N-Co "), a Delaware limited liability
company.
Introductory Statement
The Company was formed May 28, 1997 to acquire from IHS, directly or
indirectly, the shares of the corporations listed on Schedule "1" hereto which
own and operate healthcare facilities under the IHS name and using IHS systems
(the "Original Subsidiaries"). The facilities are also listed on Schedule "1"
and are referred to in this Agreement as the "Original Facilities". IHS
contributed all the shares of the Original Subsidiaries to the Company as IHS's
initial capital contribution to the Company.
On January 13, 1998 the Original Subsidiaries (the "Lessees") sold their
Facilities to Omega Healthcare Investors, Inc. (the "Lessor"). Lyric Health Care
Holdings, Inc., a subsidiary of the Company, then leased those Facilities back
from Lessor and simultaneously subleased them back to the Lessees (the
"Leases"). The proceeds from the sale of the Facilities were distributed from
the Original Subsidiaries to the Company as set forth on Schedule "2" hereto.
The proceeds received by the Company were then distributed to IHS.
N-Co now desires to invest in, and become a Member of, the Company; and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("TFN") desires to become the Managing Director of the
Company. IHS also wishes N-Co to invest in, and become a Member of, the Company,
and TFN to become the Managing Director, upon the terms and conditions set forth
below. Accordingly, IHS and N-Co are entering into this instrument to amend and
restate in its entirety the Operating Agreement of the Company and to set forth
the terms and conditions under which the Company will operate after the date of
this instrument.
It is the intention of IHS and N-Co that the Company will build upon the
base of the Original Facilities and, under TFN's direction, will acquire new
facilities (whether by purchase or lease) and also enter new businesses which
complement, or relate to, health care services.
NOW, THEREFORE, in consideration of their respective promises and
contributions, and intending to be legally bound hereby, IHS and N-Co agree as
follows:
ARTICLE 1. Organization; Name; Office.
1.1 The Company was formed and organized as a limited liability company
pursuant to the Delaware Limited Liability Company Act, Del. Code ▇▇▇. tit. 6,
▇▇.▇▇. 18-101 et seq. (the "DLLCL"), by the filing of the Articles of
Organization of the Company pursuant to the DLLCL effective May 28, 1997. The
Operating Agreement of the Company (the "Original Operating Agreement") was
executed by IHS as of May 28, 1997. This instrument amends and restates in its
entirety the Original Operating Agreement. All references in this instrument to
"this Agreement" or the "Operating Agreement" mean this instrument, which shall
now constitute the operating agreement of the Company.
1.2 The name of the Company is "Lyric Health Care LLC".
1.3 The principal office of the Company shall be located at ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ or at such other location as the
Managing Director shall determine from time to time.
ARTICLE 2. Purpose.
2.1 The purposes of the Company are:
(a) to acquire, own, operate, manage, finance, sell or otherwise
dispose of health care facilities and other real and/or personal property
of any kind, including the Original Facilities and the shares of the
Original Subsidiaries;
(b) to engage, directly or indirectly, and whether through
subsidiaries or otherwise, in all aspects of the health care business;
(c) to engage in all other businesses and activities of every kind
permitted of a limited liability company under the DLLCL;
(d) to enter into, make, execute, deliver, and perform any and all
such contracts, agreements, and other undertakings, and to engage in any
and all such other activities or businesses, as may in the judgment of the
Members and/or the Managing Director (subject to the terms of this
Agreement), be necessary, advisable, or incident to the carrying out or
effectuation of the foregoing purposes; and
(e) to enter into one or more management agreements (an "IHS
Management Agreement") and franchise agreements (an "IHS Franchise
Agreement") with IHS (or an affiliate of IHS) covering the Original
Facilities and any other facilities or businesses acquired by the Company
which are within areas of IHS expertise; and to enter into agreements with
other managers for any additional businesses or facilities to be operated
by the Company outside the areas of IHS expertise.
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ARTICLE 3. Term.
3.1 The Company shall continue until the Company is dissolved or wound up
pursuant to Article 17, but in no event later than December 31, 2047.
ARTICLE 4. Members.
4.1 The name and mailing address of each of the Members are as follows:
Name Address
Integrated Health Services, Inc. ▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
TFN Healthcare Investors, LLC ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
4.2 Subject to the terms, covenants, conditions and provisions of this
Agreement, the rights and duties of the Members shall be as set forth in the
DLLCL.
ARTICLE 5. Percentages.
5.1 The respective percentages (the "Percentages") of the Members in and of
the capital, profits and losses, and distributions of the Company, and of all
other rights, and obligations in and of the Company, are as follows:
Member Percentage
IHS 50%
N-Co 50%
5.2 In this Agreement: (a) "a majority-in-interest of the Members" means
Members whose respective Percentages at the time in question constitute more
than 50% of the total of all such Percentages; and (b) "Membership Interest"
means the entire right, title, and interest of a Member in and to this Company.
5.3 Unless this Agreement provides otherwise, all actions requiring
approval or consent of the Members shall be deemed to require approval of a
majority-in-interest of the Members.
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ARTICLE 6. Profits and Losses; Tax Allocations.
6.1 The Profits and Losses of the Company shall be allocated among the
Members in proportion to their respective Percentages.
6.2 The Company shall maintain a Capital Account for each Member.
6.3 In this Agreement:
(a) "Profits" means "Net Profits" as defined and determined in
accordance with Appendix "A";
(b) "Losses" means "Net Losses" as defined and determined in
accordance with Appendix "A"; and
(c) "Capital Account" means an account for each Member determined and
maintained throughout the full term of this Agreement in accordance with
Appendix "A".
ARTICLE 7. Capital
7.1 The initial capital (the "Initial Capital") of the Company shall
consist of $2,000,000, as follows:
(a) $500,000 from IHS, representing the agreed value of the shares of
the Original Subsidiaries;
(b) $500,000 in cash from N-Co, to match the agreed value of the
shares of the Original Subsidiaries contributed by IHS;
(c) $500,000 in cash from IHS, representing working capital; and
(d) $500,000 in cash from N-Co, representing working capital.
7.2 No interest shall be paid on the Initial Capital or on any subsequent
contributions to the capital of the Company.
7.3 Except for the Initial Capital contributions specified in Section 7.1,
no Member shall have any obligation of any kind to contribute any other or
additional capital or funds whatsoever to the Company.
7.4 The Members shall look solely to the assets of the Company for any
distributions of Profits or of capital.
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7.5 N-Co. will receive a credit to its Capital Account in an amount equal
to the brokerage commission that would otherwise have been earned for each
acquisition by the Company of healthcare facilities (or the corporations or
other legal entities owing the same) arranged by TFN.
ARTICLE 8. Management, Duties and Restrictions.
8.1 The business and affairs of the Company shall be managed by one
manager, who shall have the title "Managing Director". Subject to Sections 8.3
and 8.7, the Managing Director shall be appointed and compensated, and shall
serve, pursuant and subject to the terms and conditions of a contract between
the Company and such Managing Director (the "M/D Contract"). (The M/D Contract
shall also set forth the compensation (if any) to be paid to the Managing
Director for finding new acquisitions and businesses on behalf of the Company.)
Simultaneously herewith, the Members have approved the M/D Contract appointing
TFN the Managing Director of the Company.
8.2 Subject to Section 8.3, the Managing Director shall have general
authority for the management, conduct, and operation of the Company and its
business and affairs and also shall initiate policy proposals and/or strategic
proposals for the growth, enhancement, and profitability of the Company's
business, including: (a) acquisition of new facilities and businesses (and
negotiation of proposed agreements for the same); (b) business plans and other
proposals to grow the Company's business; (c) setting Company's employment
policy, oversight of Facility employees, and supervision of all human resources
matters; (d) financing strategy and sources; (e) ancillary service usage; (f)
diversification of investments; (g) additional service offerings; (h)
acquisition, financing, licensing, leasing, or dispositions of facilities or
other material assets, whether owned directly or through subsidiaries; (i)
change in material terms of any lease, financing agreement, or other material
agreements affecting a facility or any of the Company's subsidiaries; (j)
approval of annual and capital budgets; (k) engagement of accountants, counsel,
and other professionals; (l) adoption and amendment of employee health, benefit,
and compensation plans and employment contracts (except that the Company shall
participate, if (but only so long as) IHS requests, in multi-employer employee
health, benefit, and compensation plans and employment contracts in which IHS
(or any of its subsidiaries) participates from time to time); and (m) adoption
of insurance programs for the Company (although the Managing Director is
authorized and directed, if and so long as IHS requests, to have the Company
participate in any insurance programs in which IHS (or any of its subsidiaries)
participates, including any so-called "captive" insurance program).
8.3 The following matters and actions shall require approval of all
Members:
(a) sale, encumbrance or other disposition of shares of Company
subsidiaries;
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(b) actions specifically requiring consent of a majority-in-interest
of Members (or, if applicable, a greater percentage) under the DLLCL;
(c) admission of new Members;
(d) any change in the terms of the IHS Management Agreement or the IHS
Franchise Agreement;
(e) appointment of the Managing Director, signing of the M/D Contract,
or any change in the terms of the M/D Contract (other than a termination of
the M/D Contract by sole action of IHS where permitted under the M/D
Contract), subject to Section 8.7;
(f) public sale of the Company and all terms relating to any public
offering of interests in the Company;
(g) other matters for which approval is expressly reserved to Members
under this Agreement;
(h) related party transactions (including, but not limited to, master
preferred referral agreements);
(i) signing of any contract, agreement, engagement letter, or other
undertaking of any kind with any person or entity under which the Company
incurs (or is reasonably likely to incur) an obligation exceeding $100,000
per annum (except for master purchasing or procurement contracts in which
the Company shall participate with IHS and/or any of its subsidiaries if
and so long as IHS requests that the Company so participate); and
(j) incurring or guaranteeing debt on behalf of the Company in excess
of $50,000 in any one case or $500,000 in the aggregate;
(k) commencement, defense, and settlement of litigation where the
total amount in controversy exceeds $500,000; and
(l) the matters described in subparagraphs (a), (d), (e), (f), (g),
(h), (i), (j), (k), and (l) of Section 8.2.
8.4 Except for consideration of matters for which their approval or
consultation is required under Section 8.3 or other provisions of this
Agreement, the Members shall take no part in the management of the Company and
need devote no time to management of the Company.
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8.5 Actions of the Managing Director must be evidenced in writing, signed
by a duly authorized representative of the Managing Director. Any person dealing
with the Company may rely on an instrument thus signed by the Managing Director.
8.6 The Managing Director shall report to the Members on a regular basis
regarding the status of budgets, proposed new acquisitions and businesses,
governmental and regulatory affairs, human resources issues and policies,
expense and capital budgets, litigations, the Leases, material dealings with
Lessees and Lessor, financing matters, material dealings with lenders, and other
material issues and matters relating to the Company and its facilities and
businesses.
8.7 If the M/D Contract is terminated or if the Managing Director resigns
for any reason, IHS (by its sole action) shall have the right to appoint an
interim Managing Director of the Company (who may be either an individual or a
legal entity but shall not be IHS itself), subject to Article 21, to serve until
the appointment of a new permanent Managing Director. If the Managing Director
resigns or is terminated when N-Co has a Percentage of 40% or more, the
appointment of a new permanent Managing Director may be made by IHS subject to
N-Co's approval not to be unreasonably withheld or delayed. However, if at such
time N-Co has a Percentage of less than 40%, IHS shall not need N-Co's approval
to appoint a new permanent Managing Director.
ARTICLE 9. Limited Liability.
9.1 Neither the Managing Director, nor any Member, nor any agent, of the
Company shall be liable for any debts, obligations, or liabilities whatsoever of
the Company or of each other, whether arising in tort, contract, or otherwise,
solely by reason of being such Member, Managing Director, or an agent, or acting
(or omitting to act) in such capacities or participating (as an employee,
consultant, contractor or otherwise) in the conduct of the business of the
Company.
ARTICLE 10. Voting; Meetings
10.1 The Members may vote at a meeting of Members or by written consent in
lieu of a meeting.
10.2 The Members shall meet at least semi-annually and at such other times
as the Managing Director, or any Member, may request from time to time. The
procedure for calling and voting at such meetings shall be as specified in the
DLLCL (unless otherwise required under other provisions of this Agreement).
10.3 There shall be no prior notice or other procedural requirements for
voting by Members by written consent in lieu of a meeting. The execution of the
applicable written consent by a Member shall evidence the vote of such Member
concerning the subject of such written consent.
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ARTICLE 11. Distributions.
11.1 There shall be no distributions to the Members prior to December 31,
1998. Thereafter, subject to ss. 18-607(a) of the DLLCL and Section 11.3,
Available Cash shall be distributed in amounts and at times determined by the
Members. Distributions shall be paid in the following order (unless the Members
agree otherwise in a particular case):
(a) first, to N-Co. until N-Co has received a 15% Return on its
Initial Capital;
(b) next, to IHS until IHS has received a 15% Return on its Initial
Capital;
(c) then to the Members in proportion to their respective Percentages.
Subject to the foregoing, distributions shall be timed, where possible, to cover
the current income liabilities of the Members attributable to the Company's
Profits.
11.2 In this Agreement:
(a) "Available Cash" means all cash and cash items (from whatever
source received) held by the Company, and all unused availability under any
credit lines of the Company, on the date in question to the extent such
cash is not reasonably necessary (in the judgment of the Members) to cover
obligations or expenses of the Company at such time or (taking into account
expected revenues) within a reasonable period thereafter, after setting
aside reserves (or retaining availability under credit lines), in amounts
approved by the Members in their discretion, for (i) working capital and
(ii) capital expenditures;
(b) "15% Return" means a simple return of 15% per annum, computed (i)
first from the date of the Members' contribution of Initial Capital and
(ii) after the first distribution to a Member, from the date of the
preceding distribution to such Member; and
(c) "Initial Capital" means, in Articles 11 and 17, the portion of a
Member's Initial Capital which has not previously been distributed or
repaid to such Member.
ARTICLE 12. Books; Accounting; Fiscal Year.
12.1 The Company shall keep complete and accurate books of account. The
Managing Director shall cause to be entered in such books all transactions of or
relating to the Company and its business. Each Member shall have access to (and
the right to inspect and copy) such books and other Company records at the
principal office of the Company during business hours and upon reasonable
notice.
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12.2 The books of the Company shall be kept in accordance with United
States accounting principles consistently applied ("GAAP").
12.3 The fiscal year of the Company shall be the calendar year (except that
the first fiscal year shall commence on the date of this Agreement and end on
December 31, 1998).
12.4 On or before the ninetieth (90th) day after the end of each fiscal
year of the Company (subject to delays beyond the Managing Director's control),
the Managing Director shall cause to be prepared by the Company's accountants
and sent to each Member: (a) a statement of the Company's financial position as
of the end of such fiscal year and a statement of profits or losses during such
fiscal year, each prepared in accordance with GAAP; and (b) such income tax
information as shall be necessary or desirable for each Member to prepare such
Member's income tax returns for such fiscal year.
12.5 On or before the twenty-fifth (25th) day of each calendar month the
Managing Director shall cause to be prepared and furnished to each Member, with
respect to the preceding month, a statement of profits or losses, a balance
sheet and a statement of cash flow, each prepared in accordance with GAAP,
together with reports ("Compliance Reports") on compliance by the Company and
its subsidiaries with financial and/or performance covenants under the Leases
and other relevant agreements by which the Company and its subsidiaries are
bound or to which they are parties.
12.6 On or before the thirtieth (30th) day after each calendar quarter, the
Managing Director shall cause to be prepared and furnished to each Member, a
statement of the Company's financial position as of the end of such quarter and
a statement of profits or losses during such quarter, each prepared in
accordance with GAAP, together with Compliance Reports for such quarter.
12.7 IHS shall be the Company's "tax matters partner" and for such purpose
shall have the powers and duties specified for a tax matters partner under
Section 6621 et seq of the Internal Revenue Code of 1986 as amended from time to
time.
12.8 The Managing Director shall cause to be prepared and filed, on a
timely basis, all governmental and regulatory reports applicable to, or required
for, the Company, its subsidiaries, and their operations.
12.9 With all statements of profit or loss, and the balance sheets
furnished to the Members, the Managing Director shall include comparisons to the
monthly, quarterly, or annual expense and capital budgets for the applicable
periods.
12.10 Some of the duties of the Managing Director under this Agreement may
be delegated by the Managing Director to the Manager under the IHS Management
Agreement or to the Franchisor under the IHS Franchise Agreement. The Managing
Director shall not be
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responsible for inadequate performance or default by the Manager with respect to
any duties so delegated, provided however, that the Managing Director gives
notice to IHS and the Manager promptly after the Managing Director receives
written notice (other otherwise obtains actual knowledge) of such inadequate
performance or default.
ARTICLE 13. Bank Accounts.
13.1 All funds of the Company shall be deposited in a bank account or
accounts in the Company's name. The Members shall determine the banking
institution in which such accounts shall be opened.
13.2 All checks and drafts on, or other withdrawals from, any of the
Company's bank accounts shall be signed by an authorized signatory of the
Managing Director. Two signatories shall be required for any check or draft in
excess of $10,000.
ARTICLE 14. Indemnification.
14.1 The Managing Director shall not be liable or responsible in damages or
otherwise to any Member or to the Company for acts performed by the Managing
Director except for gross negligence, bad faith, or actions which are materially
beyond the scope of such person's authority.
14.2 The Company shall indemnify and hold harmless the Managing Director,
each Member, and the Company's agents from and against (and none of them shall
be liable for) any and all claims and demands asserted against them (and/or any
of them) by reason of being the Managing Director, a Member, or an agent of the
Company, or acting or omitting to act in any such capacity, or participating in
the conduct of the business of the Company. However, no indemnification may be
made to or on behalf of a Member, the Managing Director, or another person for
gross negligence, bad faith, or actions which are materially beyond the scope of
such person's authority.
14.3 Sections 14.1 and 14.2 are intended (and shall be interpreted) to
protect the Managing Director, the Members, and the agents of the Company to the
fullest extent permitted by law.
ARTICLE 15. Assignments Limited.
15.1 Subject to Articles 16, 21 and 23 no Member shall sell, assign,
transfer, encumber, or otherwise dispose of such Member's Membership Interest
(or any part thereof) without the consent of the other Member. No new Members
shall be admitted to the Company unless the Members agree otherwise, subject to
Article 23.
15.2 Subject to Articles 16, 21, 23 , and 24 no Member shall withdraw from
the Company, except after dissolution of the Company pursuant to Article 17.
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ARTICLE 16. Rights of First Offer or First Refusal
16.1 This Article shall be effective from and after the date hereof.
16.2 In this Article "Escrow Agent" means a law firm or bank designated by
the Offeror in its Sale Notice (defined below) which has agreed to act in such
capacity.
16.3 If either Member desires to sell all or any part of its Membership
Interest at any time after the Initial Period, before entering into an agreement
with a purchaser, such Member (the "Offeror") shall give notice (the "Sale
Notice") to the other Member (the "Offeree") setting forth a price (the "Offer
Price") for such Membership Interest, free and clear of encumbrances.
16.4 The Sale Notice shall constitute a binding offer of the Offeror to
sell its Membership Interest at the Offer Price. The Offeree shall have 60 days
after the giving of the Sale Notice within which to give notice (the "Acceptance
Notice") accepting the Offeror's offer. If the Offeror does not receive the
Acceptance Notice within that 60 days, time being of the essence, the Offeror
shall be authorized to sell the Membership Interest, subject to Section 16.8.
16.5 If the Offeree gives the Acceptance Notice, simultaneously the Offeree
shall wire to the Escrow Agent immediately available funds equal to ten percent
(10%) of the Offer Price (the "Deposit"). Upon the Closing (defined below) of
the transaction, Escrow Agent shall pay the Deposit to the Offeror with all
interest and other income accrued thereon. If the Offeree defaults in paying the
balance of the Offer Price (the "Balance"), the Members agree that Escrow Agent
shall pay the Deposit (with all interest and other income accrued thereon) to
the Offeror as liquidated damages, since the Members agree that actual damages
would be difficult or impossible to ascertain.
16.6 The closing of the purchase and sale of the Membership Interest
pursuant to this Article (the "Closing") shall occur no later than 90 days after
the giving of the Acceptance Notice.
16.7 The Closing Protocols of Article 22 shall apply to this Article.
16.8 If the Offeror gives a Sale Notice under Section 16.3 and the Offeree
does not give the Acceptance Notice within the time specified in Section 16.4,
the Offeree shall have the right to sell its Membership Interest for a purchase
price no lower than the Offer Price and upon other terms and conditions no more
favorable to the buyer than those set forth in the Sale Notice. However, subject
to Section 18.11, if the Offeror fails (for whatever reason) to complete the
closing of a sale of such Membership Interest within 180 days after the giving
of the Sale Notice (the "First Sale Period"), or if the terms of the proposed
sale are more favorable to the buyer than those set forth in the Sale Notice,
the Offeror must again comply with all requirements of this Article (i.e., as if
the Offeror had never given the original Sale Notice), and the Offeree shall
again have all rights under this Article, before the Offeror may sell its
Membership Interest to any person or entity other than the Offeree.
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16.9 If the Offeror has already negotiated - but not signed - an agreement
with a prospective purchaser, the Offeror may use that agreement as the Sale
Notice for purposes of this Article (or may set forth the purchase price and
other terms and conditions of such negotiated agreement in and as the Sale
Notice). In such event the Offeror shall also include in the Sale Notice the
name and address of the prospective purchaser; a list of the prospective
purchaser's officers, directors, partners, managers, and controlling
shareholders, partners, and/or members (as applicable); and the prospective
purchaser's audited financial statements for its most recently- ended complete
fiscal year and also most recent shorter fiscal period.
16.10 For the avoidance of doubt, this Article shall apply to sales of all
or any part of a Membership Interest.
16.11 If the Offeror has been unable to sell to a third party within the
First Sale Period, the Offeror may attempt to sell its interest by a private
placement through an investment bank or other financial institution reasonably
acceptable to the other Member. The Offeror shall have 120 days after the end of
the First Sale Period for this purpose; and the non-selling Member shall
cooperate reasonably in the proposed private placement. (However, the offeror
shall bear the expenses of the proposed private placement.) If such a private
placement is unsuccessful, the Offeror must again comply with all requirements
of this Article (i.e., as if the Offeror had never given the original Sale
Notice), and the Offeree shall again have all rights under this Article, before
the Offeror may sell its Membership Interest (or any part thereof) to any person
or entity other than the Offeree.
16.12 If N-Co. gives a Sale Notice during January, 2003, or if N-Co. has
been diluted to a Percentage of less than 33-1/3%, and if N-Co. has been
unsuccessful in selling under the procedures set forth above, IHS or the Company
will acquire the Membership Interest of N-Co. for fair market value, determined
as a valuation equal to N-Co.'s then Percentage of 8-1/2 times the Company's
earnings before interest, taxes, depreciation, and amortization plus positive
working capital MINUS the sum of:
(a) the principal and unpaid accrued interest of all indebtedness of
the Company (whether secured or unsecured, and of whatever priority) on the
closing date of such transaction (after applying current cash and working
capital balances as of such date); and
(b) the full amount of preferred or other senior capital of the
Company (if any) and all accrued bur unpaid dividends or distributions thereon;
and
(c) all accrued but unpaid distributions under Section 17.2; and
(d) negative working capital.
All the foregoing computations shall be based on financial statements for the
Company's most recent 12 months (including pro forma acquisitions of the
Company).
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16.13 If either Member sells its Membership Interest (or any part thereof)
pursuant to this Article, admission of the buyer as a new Member of the Company
shall be subject to the approval of the non-selling Member(s) which shall not be
unreasonably withheld or delayed.
16.14 This Article shall not apply to any transaction between Affiliates of
IHS. An "Affiliate" is a corporation, limited liability company, or other legal
entity in which IHS owns, directly or indirectly, more than 50% of the common
shares or other equity interests.
ARTICLE 17. Dissolution.
17.1 The Company shall be dissolved and its affairs wound up upon the
earliest to occur of the following: (a) the last day specified for expiration of
the term of the Company under Section 3.1; (b) the written agreement of the
Members to dissolve the Company; (c) the bankruptcy, insolvency, dissolution,
liquidation, expulsion, death, incapacity, or withdrawal of any Member, or the
occurrence of any other event which terminates, as a matter of law or otherwise,
the continued membership of any Member, unless (in any such case) the other
Member specifies that the Company shall continue notwithstanding the foregoing
by notice given within 30 days after the action or event in question; or (d) the
entry of a decree of judicial dissolution of the Company under the DLLCL. For
purposes of this Article, "bankruptcy" shall mean any of the following: (i) the
filing of an application by a Member for, or a consent to, the appointment of a
trustee of its assets, (ii) the filing by a Member of a voluntary petition for
relief as a debtor under the United States Bankruptcy Code or the filing of a
pleading in any court of record admitting in writing the Member's inability to
pay its debts as they come due, (iii) the making by a Member of a general
assignment for the benefit of creditors, (iv) the filing by a Member of an
answer admitting the material allegations of, or its consenting to, or
defaulting in answering, a bankruptcy petition filed against it in any
bankruptcy proceeding or (v) the expiration of 60 days following the entry of an
order, judgment or decree by any court of competent jurisdiction adjudicating a
Member a bankrupt or appointing a trustee of its assets.
17.2 Upon a dissolution of the Company under Section 17.1, the Managing
Director, or such other person(s) as the Members shall designate as liquidators
for such purpose (the "Liquidators"), shall wind up the affairs of the Company,
sell such assets of the Company as the Liquidators deem necessary or
appropriate, and pay (or otherwise provide for) all debts and liabilities of the
Company to the extent possible from proceeds of such sale or otherwise from
liquidation of assets of the Company. The Liquidators shall make such payment or
provision in accordance with the priority of the respective debt or liability
(and a Member who is a creditor shall receive payment of the applicable debt
pari passu with other creditors in such Member's class). To the extent that cash
or assets remain after payment or provision for all debts and liabilities of the
Company, the Liquidators shall distribute any such remaining cash or other
assets to the Members, in cash or in kind, as follows:
(a) first to N-Co until N-Co has received a 15% Return on its Initial
Capital;
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(b) next to IHS until IHS has received a 15% Return on its Initial
Capital;
(c) next to the Members in accordance with their respective Capital
Accounts.
17.3 Each Member agrees to take no actions which would dissolve (or cause
the dissolution of) the Company in violation of this Article.
ARTICLE 18. Notices.
18.1 All notices, consents or other communications under this Agreement
(any such, a "notice") must be in writing and addressed to each party at its
respective addresses set forth above (or at any other address which the
respective party may designate by notice given to the other party). Any notice
required by this Agreement to be given or made within a specified period of
time, on or before a date certain, shall be deemed given or made if sent by
hand, by fax with confirmed answerback received, or by registered or certified
mail (return receipt requested and postage and registry fees prepaid). Delivery
"by hand" shall include delivery by commercial express or courier service. A
notice sent by registered or certified mail shall be deemed given on the date of
receipt (or attempted delivery if refused) indicated on the return receipt. All
other notices shall be deemed given when actually received. Any written consent
of the Manager or a Member signed and sent by facsimile or other electronic
transmission shall be valid and deemed an original for purposes of this
Agreement.
ARTICLE 19. Dispute Resolution
19.1 In the event of any dispute or controversy arising under or in
connection with this Agreement, the parties shall attempt to resolve such
dispute or controversy by mediation as provided in this Section 19.1 prior to
exercising any rights under the remaining provisions of Article 19. Either party
may commence mediation by notice to the other party (the "Mediation Notice"),
which notice shall name a proposed Mediator (as defined below) to resolve the
dispute. The party receiving the Mediation Notice, within seven days after
receipt, shall send the other party notice accepting the proposed Mediator (the
"Acceptance Notice") or proposing an alternate Mediator (the "Alternate
Notice"). Within seven (7) days after receipt of an Alternate Notice, the
receiving party shall deliver notice accepting or rejecting the alternate
Mediator. Within five (5) days after the Mediator has been selected the dispute
shall be submitted to him or her by both parties, and the Mediator shall decide
the dispute within fourteen (14) days thereafter. The decision of the Mediator
shall not be binding upon the parties, and after the Mediator issues a decision
either party may submit the dispute to arbitration or litigation, as provided in
Sections 19.2 and 19.3. If the parties fail to agree upon a Mediator within
twenty (20) days after receipt of the Mediation Notice, the dispute may be
resolved as provided in Sections 19.2 and 19.3. "Mediator" means an individual
with experience relevant to the matter in dispute who is not
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employed by or affiliated with either party and who does not have (and is not an
officer, employee or director of an entity which has) significant business
contacts with either party. The Company shall pay all costs of the Mediator.
19.2 (a) Subject to Sections 19.1 and 19.3, any dispute between Owner and
Manager regarding a financial, tax, or accounting issue shall be resolved
exclusively through arbitration conducted by a principal of KPMG Peat Marwick
(the "Financial Arbitrator"). Either party may commence arbitration hereunder by
notice to the other party and to the Financial Arbitrator, who shall decide the
dispute. The Company shall pay all costs of the Financial Arbitrator. The
Financial Arbitrator shall conduct the arbitration in any manner he or she
elects; however, the Financial Arbitrator shall issue a final decision with
respect to such dispute within thirty (30) days after the dispute is referred to
him or her. The decision of such Financial Arbitrator shall be final and binding
upon the parties and shall not be subject to appeal. Judgment upon the award
rendered by the Financial Arbitrator may be entered in any court having
jurisdiction over the parties.
(b) Subject to Sections 19.1, 19.2(a) and 19.3, any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration, conducted before a panel of three arbitrators in Baltimore,
Maryland, in accordance with the rules of the American Arbitration Association
then in effect, and judgement may be entered on the arbitrators' award in any
court having jurisdiction over the parties. The Company shall pay all costs of
the American Arbitration Association and the arbitrators. Each party shall
select one arbitrator, and the two so designated shall select a third
arbitrator. If either party shall fail to designate an arbitrator within seven
(7) days after arbitration is requested, or if the two arbitrators shall fail to
select a third arbitrator within fourteen (14) days after arbitration is
requested, then an arbitrator shall be selected by the American Arbitration
Association upon application of either party. In considering any issue under
this Agreement, the arbitrators shall construe and interpret this Agreement
strictly in accordance with the specific terms and provisions hereof and in
accordance with the judicial decisions, statutes, and other indicia of Delaware
law.
19.3 This Article shall not apply to Articles 16, 21, or 22.
ARTICLE 20. Miscellaneous.
20.1 This Agreement shall be governed and construed in accordance with the
laws of the State of Delaware (without giving effect to principles of conflicts
of laws). This Agreement shall not be modified or amended without written
consent of all Members. This Agreement constitutes the entire agreement of the
Members with respect to the subject matter hereof and supersedes all prior
agreements and understandings of the parties relating thereto. This Agreement
may be executed (a) in counterparts, a complete set of which shall constitute an
original and (b) in duplicates, each of which shall constitute an original.
Copies of this Agreement showing the signatures of the respective parties,
whether produced by photographic, digital, computer, or other reproduction, may
be used for all purposes as originals. This Agreement shall be binding upon
-15-
the respective permitted successors, assigns, and legal representatives of the
parties and shall inure to the benefit of and be enforceable by the parties and
their respective permitted successors, assigns, and legal representatives. The
headings of this Agreement are for reference only and shall not limit or
otherwise affect the meaning thereof. If any term, covenant, condition, or
provision of this Agreement is determined by a final judgment to be invalid or
unenforceable, at the option of Members with a majority-in-interest the
remaining terms, covenants, conditions, and provisions of this Agreement shall
not be affected thereby.
20.2 Nothing in this Agreement, express or implied, is intended: (a) to
confer on any person other than the Members and the Managing Director any rights
or remedies; (b) to constitute the Members as partners or co-venturers; or (c)
to waive any claim or right of any of the Members against any person who is not
a party to this Agreement.
ARTICLE 21. Buy-Sell.
21.1 This Article shall apply only upon the occurrence of a "Buy-Sell"
Event--which means a termination by IHS of the M/D Contract and a failure of IHS
and N-Co to agree on a new Managing Director within nine months after the
effective date of such termination.
21.2 In this Article: (a) "Closing" means the closing of the sale of the
Seller's Membership Interest pursuant to this Article; (b) "Closing Date" means
the date of the Closing under Buy/Sell pursuant to this Article; (c) "Escrow
Agent" means a law firm or a bank designated by the Initiator in its Buy/Sell
notice; (d) "Initiator" means the Member who gives a Buy/Sell Notice under
Section 21.3; (e) "Purchaser" means the Member electing (or deemed to have
elected) to purchase the Membership Interest of the other Member under Section
21.4; (f) "Recipient" means the Member to whom a Buy/Sell Notice is given under
Section 21.3; and (g) "Seller" means the Member electing (or deemed to have
elected) to sell its Membership Interest under Section 21.4.
21.3 Upon the occurrence of a Buy/Sell Event, either Member may give notice
to the other (the "Buy/Sell Notice") specifying a price (the "Purchase Price"),
which shall constitute a binding offer of the Initiator either: (a) to buy the
entire Membership Interest of the Recipient for the Purchase Price; or (b) to
sell the Initiator's entire Membership Interest to the Recipient for the
Purchase Price. The Purchase Price may be determined by the Initiator in its
sole discretion.
21.4 The Recipient shall have 60 days after the giving of the Buy/Sell
Notice within which to give notice to the Initiator of the Recipient's election
to buy or sell its entire Membership Interest for the Purchase Price (the
"Recipient Notice"); and, if the Recipient fails to give the Recipient Notice
within such 60 days (time being of the essence), the Recipient shall be deemed
to have agreed to sell its entire Membership Interest to the Initiator for the
Purchase Price.
21.5 The Closing of the purchase of the Seller's Membership Interest by the
Purchaser pursuant to this Article shall occur no later than 90 days after the
giving of the Recipient Notice
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(or, if applicable, the date when the Recipient is deemed to have elected to
sell under Section 21.4), time being of the essence.
21.6 With the Buy/Sell Notice, the Initiator shall wire to Escrow Agent
immediately available funds equal to ten percent (10%) of the Purchase Price
(the "Initiator's Deposit"). If the Recipient elects to become the Purchaser
under Section 21.4, simultaneously with the giving of the Recipient Notice, the
Recipient/Purchaser shall wire to Escrow Agent immediately available funds equal
to ten percent (10%) of the Purchase Price (the "Recipient's Deposit"); and,
within five days after receiving the Recipient's Deposit, Escrow Agent shall
return (by wire transfer) the Initiator's Deposit to the Initiator, with any
accrued interest. At the Closing, Escrow Agent shall pay the Initiator's Deposit
to the Recipient if the Recipient is the Seller or the Recipient's Deposit to
the Initiator if the Initiator is the Seller, in either case (with any accrued
interest) as part of the Purchase Price.
21.7 If the Initiator becomes the Purchaser and defaults in paying the
purchase price and/or otherwise completing the Closing, Escrow Agent shall pay
the Initiator's Deposit to the Recipient (with any accrued interest). If the
Recipient becomes the Purchaser and defaults in paying the Purchase Price and/or
otherwise in completing the Closing, Escrow Agent shall pay the Recipient's
Deposit to the Initiator with any accrued interest. In either such case, since
the Members agree that actual damages would be difficult or impossible to
ascertain, the Members agree that the applicable Deposit (plus any legal fees
and expenses to enforce the applicable Member's rights), shall constitute
liquidated damages.
21.8 The Closing Protocols of Article 22 shall apply to this Article.
ARTICLE 22. Closing Protocols.
22.1 This Article shall apply to purchase and sales of Membership Interests
between the Members under Articles 16 and 21.
22.2 At any closing under Articles 16 or 21, the purchasing Member shall
pay the amounts due to the selling Member by wire transfer of immediately
available funds to a bank account to be specified by the seller by notice given
at least one day prior to the closing (or, if such notice is not given, by an
unendorsed official bank check drawn on a New York City branch of a bank which
is a member of The New York Clearing House Association). At the closing the
seller shall execute and deliver to the purchaser an instrument of assignment
and other documents as are necessary and appropriate (and which shall include
representations and warranties customary for such transactions) to convey,
transfer, and assign the Membership Interest to the purchaser free and clear of
encumbrances.
22.3 Fees to finders, brokers, consultants, or others engaged by either
Member in connection with any transaction covered by this Article shall be borne
solely by the Member who engaged or consulted the particular person or firm.
Sales, transfer, and other taxes applicable to
-17-
the particular transaction shall be borne by the Member who is (or would be)
responsible under applicable law to pay the particular tax.
22.4 If the selling Member defaults in its obligation to sell its
Membership Interest in any transaction covered by this Article, the purchaser
shall be entitled to specific performance of the seller's obligation; and if the
purchaser prevails in an action for specific performance, the seller shall
reimburse the purchaser, on demand, for the purchaser's reasonable attorneys'
fees and expenses in connection with such action. If the purchaser defaults, the
seller shall be entitled to damages, plus the seller's reasonable attorneys'
fees and expenses to enforce the seller's rights in such matter.
22.5 At any closing covered by this Article the purchaser shall have the
right to designate another person to acquire the Membership Interest to be
conveyed and assigned by the seller. However, no such person shall acquire any
rights whatsoever against the seller if the closing of the applicable
transaction does not occur.
ARTICLE 23. Admission of New Members
23.1 A new Member or Members may be admitted to the Company either upon the
written consent of all existing Members or otherwise upon the terms and
conditions of this Article.
23.2 If either Member believes that new capital is required, based on the
Company's approved budget or financial plan, such Member may propose that the
Members contribute additional capital or bring in new Member(s) for the Company.
In such event, each Member will first have the right to contribute new capital
in such amount as each Member agrees. If more capital is still needed, either
Member may propose new Member(s) to contribute the difference. If too many new
Members are proposed, the original Member contributing the largest amount of new
capital may choose which prospective Members to sponsor as new Members, subject
to the reasonable approval of the other Member. A Member proposing new Members
under this Section shall furnish the following information: the proposed terms
for the new Member's admission to the Company; information on the financial
strength, business, and officers, directors, managers, and controlling
shareholders or equity owners of the proposed new Member; and the respective
Percentages of all Members after such new Member's admission. If neither Member
is able to introduce prospective new Members and/or to provide for the needed
new capital, the Members shall attempt to raise such new capital by private
placement through an investment bank or other financial institution reasonably
acceptable to the Members.
ARTICLE 24. Certain Representations and Warranties
24.1 IHS represents and warrants to N-Co as of the date of this Agreement:
(a) IHS is a corporation duly organized and validly existing under the
laws of the State of Delaware.
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(b) IHS has all necessary power and lawful authority to execute,
deliver, and perform its obligations under, this Agreement.
(c) The execution and delivery by IHS of this Agreement, and the
consummation by IHS of the transactions contemplated thereby, have been duly
authorized by all necessary action of IHS; and, assuming due execution and
delivery of this Agreement by N-Co this Agreement will constitute the legal,
valid, and binding obligations of IHS, enforceable in accordance with the
respective terms thereof.
(d) The execution and delivery of this Agreement by IHS and the
consummation of the transactions contemplated hereby, will not:
(1) violate any provision of the organizational documents or
by-laws of IHS;
(2) violate any judgement, order, or decree of any government
entity against or binding upon IHS or its property or business; and/or
(3) result in the acceleration of any indebtedness of IHS.
(e) To IHS's knowledge, there are no outstanding judgments, orders,
writs, injunctions or decrees of any government entity, and no pending legal
proceedings against IHS which would have a material adverse effect on IHS's
performance of its obligations under this Agreement.
24.2 N-Co represents and warrants to IHS as of the date of this Agreement:
(a) N-Co is a limited liability company duly organized and validly
existing under the laws of the State of Delaware.
(b) N-Co has all necessary power and lawful authority to execute,
deliver and perform its obligations under, this Agreement.
(c) The execution and delivery by N-Co of this Agreement, and the
consummation by N-Co of the transactions contemplated thereby, have been duly
authorized by all necessary action of N-Co; and assuming due execution and
delivery of this Agreement by IHS this Agreement will constitute the legal,
valid, and binding obligations of N-Co, enforceable in accordance with the terms
thereof.
(d) The execution and delivery of this Agreement by N-Co, and the
consummation of the transactions contemplated hereby, will not:
-19-
(1) violate any provision of the organizational documents or
by-laws of N-Co;
(2) require the consent of any Person;
(3) violate any judgment, order, or decree of any government
entity against or binding upon N-Co or its property or
business; and/or
(4) result in the acceleration of any indebtedness of N-Co.
(e) To N-Co's knowledge, there are no outstanding judgments, orders,
writs, injunctions or decrees of any government entity, and no pending legal
proceeding against N-Co, which would have a material adverse effect on N-Co's
performance of its obligations under this Agreement.
24.3 IHS represents and warrants to N-Co as of the date of this Agreement:
(a) The Company is a limited liability company duly organized and
validly existing under the laws of the State of Delaware.
(b) The Company has all necessary power and lawful authority to
execute, deliver, and perform its obligations under, this Agreement.
(c) The consummation of the transactions contemplated hereby by the
Company, will not:
(1) violate any provision of the organizational documents of the
Company;
(2) violate any judgement, order, or decree of any government
entity against or binding upon the Company or its property
or business; and/or
(3) result in the acceleration of any indebtedness of the
Company.
(d) To IHS's knowledge, there are no outstanding judgments, orders,
writs, injunctions or decrees of any government entity, and no pending legal
proceedings against the Company which would have a material adverse effect on
the Company's performance of its obligations under this Agreement.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE DATE
FIRST ABOVE WRITTEN.
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INTEGRATED HEALTH SERVICES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice President
TFN HEALTHCARE INVESTORS, LLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
-21-
SCHEDULE "1"
Original Subsidiaries; Original Facilities
LIST OF ORIGINAL SUBSIDIARIES
1. Gainesville Health Care Center, Inc.
2. Rest Haven Nursing Center (Chestnut Hill), Inc.
3. Claremont Integrated Health, Inc.
4. Rikad Properties, Inc.
5. Integrated Management - Governor's Park, Inc.
LIST OF ORIGINAL FACILITIES
1. Integrated Health Services at Gainesville
▇▇▇▇ ▇.▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇ (fax)
2. Integrated Health Services of Chestnut Hill
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇ (fax)
3. Integrated Health Services of New Hampshire at Claremont
RFD ▇ ▇▇▇ ▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇ (fax)
4. Integrated Health Services of St. Petersburg
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇.
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇ (fax)
Sch. 1-1
5. Governor's Park
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(including 2.5 acres of unimproved land)
Sch. 1-1
SCHEDULE "2"
Distributions of Sale/Leaseback Transaction
Before Admission of N-Co As a Member
1. That gross proceeds received from the sale/leaseback transaction involving
the original facilities was $44,900,000 in the aggregate. Of that amount,
the net proceeds after payment of expenses were distributed by the Company
to IHS, then the sole member of the Company.
Sch. 2-1
APPENDIX "A"
ACCOUNTING ANNEX
TO
AMENDED AND RESTATED OPERATING AGREEMENT
OF
LYRIC HEALTH CARE LLC
A.1 Introduction.
This Accounting Annex sets forth principles under which items of income,
gain, loss, deduction and credit shall be allocated among the Members. This
Accounting Annex also provides for the determination and maintenance of Capital
Accounts, generally in accordance with Treasury Regulations promulgated under
Section 704(b) of the Code, for purposes of determining such allocations.
A.2 Definitions.
For purposes of this Accounting Annex, the following terms have the
meanings set forth below. If a capitalized term is used herein but not defined
in this Section A.2, it shall have the meaning ascribed thereto in the Agreement
or elsewhere in this Accounting Annex, unless the context otherwise indicates.
"Adjusted Capital Account Deficit" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts which such Member is
obligated to restore pursuant to any provision of the Agreement or is
deemed to be obligated to restore pursuant to the penultimate sentences of
Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and
1.704-1(b)(2)(ii)(d)(6).
AA-1
The foregoing definition of Adjusted Capital Account Balance is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Book Value" means the fair market value of any property contributed to the
Company as agreed by the Members and the cost of any other property. References
to "book purposes" shall be similarly interpreted.
"Capital Account" shall have the meaning set forth in Section A.3 hereof.
"Code" means the United States Internal Revenue Code of 1986, as amended
(or any successor thereto).
"Net Profits" and "Net Loss" means, 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 Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Net Profits or Net Loss
shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Net Profits or Net Loss, shall be
subtracted from such taxable income or loss;
(c) Gain or loss resulting from any disposition of Company property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the property
disposed of (unreduced by any liabilities attributable thereto),
notwithstanding that the adjusted tax basis of such property differs from
its Book Value;
(d) Notwithstanding any other provisions of this definition, any items
which are specially allocated pursuant to Sections A.4.2 and A.4.3 hereof
shall not be taken into account in computing Net Profits or Net Loss; and
(e) The amounts of the items of Company income, gain, loss or
deduction available to be specially allocated pursuant to Sections A.4.2
and A.4.3 hereof shall be determined by applying rules analogous to those
set forth above.
AA-2
A.3 Capital Accounts.
A.3.1 The Company shall determine and maintain Capital Accounts. "Capital
Account" shall mean an account of each Member determined and maintained
throughout the full term of the Company in accordance with the partnership
capital accounting rules of Treasury Regulations Section 1.704-1(b)(2)(iv).
Without limiting the generality of the foregoing, the following rules shall
apply:
(a) The Capital Account of each Member shall be credited with (i) an
amount equal to such Member's Capital Contributions and the fair market
value of property contributed to the Company by such Member (net of
liabilities that the Company is considered to assume or to which it is
considered to take subject to Code Section 752) and (ii) such Member's
share of the Company's Net Profits (or items thereof, including Gross
Income), together with items of income or gain specially allocated to such
Member pursuant to Sections A.4.2 and A.4.3 hereof. The Members' Capital
Account balances as of the date hereof are set forth in Schedule "2" to
this Agreement.
(b) The Capital Account of each Member shall be debited by (i) the
amount of cash and the fair market value of property distributed to such
Member (net of liabilities assumed by such Member and liabilities to which
such distributed property is subject) and (ii) such Member's share of the
Company's Net Loss (or items thereof), together with items of loss or
deduction specially allocated to such Member pursuant to Sections A.4.2 and
A.4.3 hereof.
(c) As permitted by such capital accounting rules (in the sole
discretion of the "Tax Matters Partner") or as may be required by such
rules, the Capital Accounts of the Members shall be increased or decreased
to reflect any adjustment to the Book Value of property of the Company on
the Company's books.
(d) Upon the transfer by a Member of all or part of an interest in the
Company after the date hereof, the Capital Account of the transferor that
is attributable to the transferred interest shall carry over to the
transferee and the Capital Accounts of the Members shall be adjusted to the
extent provided in Treasury Regulations Section 1.704- 1(b)(2)(iv)(m).
(e) In the event that the Company distributes property (other than
money) to the Members, the Capital Account balances of the Members shall be
adjusted, in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(e), to reflect the manner in which any unrealized income,
gain, loss and deduction inherent in such property (that has not been
reflected in the Capital Accounts previously) would be allocated among the
Members if such property were sold at its fair market value (which value in
no event shall be less than the amount of any nonrecourse indebtedness to
which such property is subject).
AA-3
(f) Adjustment to such Capital Accounts in respect of Company income,
gain, loss, deduction, and Code Section 705(a)(2)(B) expenditures (or items
thereof) shall be made with reference to the Federal tax treatment of such
items (and, in the case of book items, with reference to the Federal tax
treatment of the corresponding tax items) at the Company level, without
regard to any requisite or elective tax treatment of such items at the
Member level.
(g) In the event the "Tax Matters Partner" shall determine that it is
prudent to modify the manner in which the Capital Accounts, or any debits
or credits thereto (including, without limitation, debits or credits
relating to liabilities which are secured by contributions or distributed
property or which are assumed by the Company or the Members), are computed
in order to comply with such Treasury Regulations, the Tax Matters Partner
may make such modification, provided that it is not likely to have a
material effect on the amounts distributed to any Member upon the
dissolution of the Company. The Tax Matters Partner also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between
the Capital Accounts of the Members and the amount of Company capital
reflected on the Company's balance sheet, as computed for book purposes, in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g), and (ii)
make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Treasury Regulations
Section 1.704-1(b).
A.4 Allocations of Net Profits and Net Loss.
A.4.1 In General.
(a) Net Profits. After giving effect to the special allocations
set forth in Sections A.4.2 and A.4.3 hereof, Net Profits for any
Fiscal Year shall be allocated to and among the Members in accordance
with their Percentages.
(b) Net Loss. After giving effect to the special allocations set
forth in Sections A.4.2 and A.4.3 hereof, Net Loss for any Fiscal Year
shall be allocated to and among the Members in accordance with their
Percentages.
A.4.2 Special Allocations.
The following special allocations shall be made in the following
order:
(a) Qualified Income Offset. If any Member unexpectedly receives
any adjustment, allocation or distribution described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
Company income and gain (consisting of a pro rata portion of each item
of Company income, including gross income, and gain for such year)
shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by
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the Treasury Regulations, the Adjusted Capital Account Deficit of such
Member as quickly as possible. An allocation pursuant to the foregoing
sentence shall be made only if and to the extent that such Member
would have an Adjusted Capital Account Deficit after all other
allocations provided for in Article A.4 have been tentatively made as
if this Section A.4.2 were not in this Accounting Annex. This
allocation is intended to constitute a "qualified income offset"
within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(3) and shall be construed in accordance with the
requirements thereof.
(b) Basis Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section
734(b) or Code Section 743(b) is required under Treasury Regulations
Section 1.704-1(b)(2)(iv)(m) to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
such basis) and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Treasury Regulations; provided, in the event that an adjustment to the
Book Value of Company property is made as a result of an adjustment
pursuant to Section 734(b) of the Code, items of income, gain, loss or
deduction, as computed for book and tax purposes, shall be specially
allocated among the Members so that the effect of any such adjustment
shall benefit (or be borne by) the Member(s) receiving the
distribution which caused such adjustment.
A.4.3 Curative Allocations.
(a) Any allocations made under Section A.4.2(a) shall be taken
into account in allocating other items of income, gain, loss and
deduction among the Members so that, to the extent possible, the net
amount of such allocations of other items and the allocations under
Section A.4.2(a) to each Member shall be equal to the net amount that
would have been allocated to each such Member if the allocations under
Section A.4.2(a) had not occurred.
A.4.4 Other Allocation Rules.
(a) References in this Article A.4 to the "then current" Fiscal
Year shall mean the Fiscal Year for which allocations are then being
made. For purposes of this Annex, the first Fiscal Year of the Company
shall commence on the effective date of this Agreement.
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A.5 Tax Allocations.
(a) Income, gain, loss, and deduction with respect to any
property contributed to the capital of the Company or revalued
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f), 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 Book Value in
accordance with the principles of Code Section 704(c) and the Treasury
Regulations thereunder and Treasury Regulations Section
1.704-1(b)(4)(i) using any reasonable method required or permitted
thereunder and selected by the "Tax Matters Partner".
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