OPERATING AGREEMENT
OF
WASHINGTON UROLOGICAL SERVICES, LLC
(A Washington Limited Liability Company)
Dated: ____________, 199__
THE LLC MEMBERSHIP INTERESTS REPRESENTED BY THIS OPERATING AGREEMENT HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES ACTS OR LAWS OF ANY STATE IN
RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS OR LAWS. THE SALE OR OTHER DISPOSITION
OF THE MEMBERSHIP INTERESTS IS RESTRICTED AS STATED IN THIS OPERATING AGREEMENT,
AND IN ANY EVENT IS PROHIBITED UNLESS THE LLC RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER DISPOSITION CAN BE
MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES ACTS AND LAWS. BY ACQUIRING THE MEMBERSHIP INTEREST
REPRESENTED BY THIS OPERATING AGREEMENT, EACH MEMBER REPRESENTS THAT IT WILL NOT
SELL OR OTHERWISE DISPOSE OF ITS MEMBERSHIP INTEREST WITHOUT REGISTRATION OR
OTHER COMPLIANCE WITH THE AFORESAID ACTS AND THE RULES AND REGULATIONS ISSUED
THEREUNDER.
TABLE OF CONTENTS
ARTICLE I - FORMATION OF THE COMPANY...........................................1
1.1 Formation....................................................1
1.2 Name.........................................................1
1.3 Registered Office and Registered Agent.......................1
1.4 Principal Place of Business..................................1
1.5 Purposes and Powers..........................................1
1.6 Term.........................................................2
1.7 Nature of Members' Interests.................................2
ARTICLE II - DEFINITIONS.......................................................2
2.1 Definitions..................................................2
ARTICLE III - MANAGEMENT OF THE COMPANY.......................................11
3.1 The Managing Board..........................................11
3.2 Specific Authority of the Managing Board....................11
3.3 Limitation on Authority of Managing Board...................13
3.4 Termination of the Management Agreement.....................14
3.5 Specific Authority of Managing Board........................14
3.6 Number, Term and Qualification..............................15
3.7 Removal and Replacement.....................................15
3.8 Authority as to Third Persons...............................15
3.9 Compensation and Expenses...................................15
3.10 Action by the Managing Board................................15
3.11 Action Without Meeting. ...................................16
3.12 Meeting by Communications Device. .........................16
3.13 Authorized Representative of Company. .....................16
3.14 Indemnification of Managing Board Members and Sun. ........16
3.15 Limitation on Liability. ..................................17
3.16 Liability for Return of Capital Contribution. .............17
ARTICLE IV - RIGHTS AND OBLIGATIONS OF MEMBERS................................17
4.1 Names and Addresses of Members..............................17
4.2 No Management by Members....................................17
4.3 Election of Member Designees................................17
4.4 Action by Members...........................................17
4.5 Operation of Lithotripter System............................18
4.6 Outside Activities..........................................18
4.7 Disclosure of Confidential Information......................19
4.8 Limited Liability...........................................20
ARTICLE V - CAPITAL CONTRIBUTIONS,
GUARANTIES AND DILUTION OFFERINGS....................................20
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5.1 Member's Contribution.......................................20
5.3 Dilution Offerings..........................................20
5.4 Conditions to the Capital Contributions of the Members......20
5.5 Capital Accounts............................................21
ARTICLE VI - REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE MANAGING BOARD......................................22
6.1 Managing Board's Representations and Warranties.............22
6.2 Managing Board's Covenants..................................22
ARTICLE VII - ALLOCATIONS, ELECTIONS AND REPORTS..............................22
7.1 Profits and Losses..........................................22
7.2 Sales Commission............................................23
7.3 Nonrecourse Deductions......................................23
7.4 Member Nonrecourse Deductions...............................23
7.5 Allocations Between Transferor and Transferee...............23
7.6 Gains from Capital Transactions.............................24
7.7 Contributed Property........................................24
7.8 Minimum Gain Chargeback.....................................24
7.9 Member Minimum Gain Chargeback..............................24
7.10 Qualified Income Offset.....................................25
7.11 Gross Income Allocation.....................................25
7.12 Section 754 Adjustment......................................25
7.13 Curative Allocations........................................26
7.14 Compliance with Treasury Regulations........................26
7.15 Tax Withholding.............................................26
ARTICLE VIII - DISTRIBUTIONS..................................................26
8.1 Company Cash Flow...........................................26
8.2 Company Refinancing Proceeds................................26
8.3 Company Sales Proceeds......................................26
8.4 Distributions in Liquidation................................27
8.5 Limitation Upon Distributions...............................27
ARTICLE IX - TRANSFER OF INTERESTS AND ADMISSION OF MEMBERS...................27
9.1 Transferability of Membership Interests.....................27
9.2 Restrictions on Transfers by Members........................28
9.3 Rights of Transferee........................................28
9.4 Admission of Members........................................29
9.5 Amendment of Certificate of Formation and Qualification.....29
9.6 Fundamental Changes.........................................29
ARTICLE X - OPTIONAL PURCHASE OF MEMBERSHIP INTERESTS
ON CERTAIN EVENTS....................................................30
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10.1 Death.......................................................30
10.2 Bankruptcy, Insolvency or Assignment for Benefit
of Creditors of a Member..............31
10.3 Default under Guaranties....................................32
10.4 Breach of Section 4.6.......................................32
10.5 Domestic Proceeding.........................................33
10.6 Divestiture Option..........................................34
10.7 Purchase Price..............................................35
10.8 Closing of Purchase and Sale................................36
10.9 Terms and Conditions of Purchase............................37
ARTICLE XI - DISSOLUTION AND LIQUIDATION OF THE COMPANY.......................37
11.1 Dissolution Events..........................................37
11.2 Continuation................................................38
11.3 Liquidation.................................................38
11.4 Certificate of Cancellation.................................39
ARTICLE XII - MISCELLANEOUS...................................................39
12.1 Fiscal Year.................................................39
12.2 Records.....................................................39
12.3 Reports.....................................................39
12.4 Reserves....................................................39
12.5 Notices.....................................................39
12.6 Amendments..................................................40
12.7 Additional Documents........................................40
12.8 Representations of Members..................................40
12.9 Survival of Rights..........................................40
12.10 Interpretation and Governing Law............................40
12.11 Severability................................................40
12.12 Agreement in Counterparts...................................40
12.13 Tax Matters Partner.........................................41
12.14 Third Parties...............................................41
12.15 Power of Attorney...........................................41
12.16 Arbitration.................................................41
Attachments:
Schedule I - Names, Initial Capital Contributions and Percentage Interests of
the Members
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OPERATING AGREEMENT
OF
WASHINGTON UROLOGICAL SERVICES, LLC
THIS OPERATING AGREEMENT of WASHINGTON UROLOGICAL SERVICES, LLC (the "Company"),
a limited liability company organized pursuant to the Washington Limited
Liability Company Act, is executed effective as of the ____ day of
______________, 199__, by and among the Company and the persons executing this
Agreement as the Members (as defined below).
ARTICLE I - FORMATION OF THE COMPANY
1.1 Formation. The Company was formed on August 31, 1998 upon the filing
with the Secretary of State of the Certificate of Formation of the Company. In
consideration of the mutual premises and covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree that the rights and obligations of the
parties and the administration and termination of the Company shall be governed
by this Agreement, the Certificate of Formation and the Act.
1.2 Name. The name of the Company is as set forth on the cover page of this
Agreement. The Managing Board may change the name of the Company from time to
time as it deems advisable, provided that appropriate amendments to this
Agreement and the Certificate of Formation and necessary filings under the Act
are first obtained.
1.3 Registered Office and Registered Agent. The Company's registered office
shall be at 000 Xxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxx 00000 and the name of its
initial registered agent at such address shall be the CT Corporation System.
1.4 Principal Place of Business. The principal place of business of the
Company shall be located at 00000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxxx,
Xxxxxxxxxx 00000, or at any other place or places as the Managing Board may from
time to time deem necessary or advisable.
1.5 Purposes and Powers.
(a) The purpose and business of the Company shall be: (i) to operate
one or more transportable lithotripters (or any other renal stone treatment
equipment) for the treatment of renal stones primarily in the area of the
State of Washington west of the Cascade Mountains, or in such other
location(s) as the Managing Board may determine to be in the best interests
of the Company; (ii) to acquire and operate in the future any other
therapeutic urological device or equipment provided that such device or
equipment has received FDA premarket approval at the time it is acquired by
the Company; (iii) to acquire an interest in any business entity,
including, without limitation, a limited partnership, limited liability
company or corporation, that engages in any business activity described in
this Section
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1.5; and (iv) to engage in any and all activities incidental or
related to the foregoing, upon and subject to the terms and conditions of
this Agreement.
(b) The Company shall have any and all powers which are necessary or
desirable to carry out the purposes and business of the Company, to the
extent the same may be legally exercised by limited liability companies
under the Act. The Company shall carry out the foregoing activities
pursuant to the arrangements set forth in the Certificate of Formation and
this Agreement.
1.6 Term. The Company shall continue in existence until the close of
the Company's business on December 31, 2020, unless the Company is earlier
dissolved and its affairs wound up in accordance with the provisions of
this Agreement or the Act.
1.7 Nature of Members' Interests. The Membership Interests of the
Members in the Company shall be personal property for all purposes. Legal
title to all Company assets shall be held in the name of the Company.
Neither any Member nor a successor, representative or assign of such
Member, shall have any right, title or interest in or to any Property owned
by the Company or the right to partition any Property owned by the Company.
Membership Interests are evidenced by the execution of this Agreement by
the Members.
ARTICLE II - DEFINITIONS
2.1 Definitions. The following terms used in this Agreement shall have
the following meanings (unless otherwise expressly provided herein):
2.1.1"Act" means the Washington Limited Liability Company Act, as the
same may be amended from time to time.
2.1.2 "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:
(i) Credit to such Capital Account any amounts to which such
Member is obligated to restore 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
(ii) Debit to such Capital Account the items described in
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) of the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
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2.1.3 "Adjusted Capital Contributions" means, as of any day, a
Member's Capital Contributions adjusted as follows:
(i) Increased by the amount of any Company liabilities which, in
connection with Distributions, are assumed by such Member or are
secured by any Company Property distributed to such Member; and
(ii) Reduced by the amount of cash and the value of any Company
property distributed to such Member and the amount of any liabilities
of such Member assumed by the Company or which are secured by any
property contributed by such Member to the Company.
In the event any Member transfers all or any portion of his or
her Membership Interest in accordance with the terms of this
Agreement, his or her transferee shall succeed to the Adjusted Capital
Contribution of the transferor to the extent it relates to the
transferred Membership Interest or portion thereof.
2.1.4 "Affiliate" of a specified Person means (i) any Person
directly or indirectly controlling, controlled by or under common
control with the specified Person; (ii) any Person owning or
controlling 10% or more of the outstanding voting interest of such
specified Person; (iii) any officer, director or partner of such
specified Person; and (iv) if the specified Person is an officer,
director or partner, any entity for which the specified Person acts in
such capacity.
2.1.5 "Agreement" means this Operating Agreement, as amended from
time to time.
2.1.6 "Bank" means First Citizens Bank & Trust Company, its
successor in interest, or any other commercial financial institution
providing financing to the Company.
2.1.7 "Bankruptcy" means with respect to a Member, when such
Member (i) makes an assignment for the benefit of creditors; (ii)
files a voluntary petition in bankruptcy; (iii) is adjudged a bankrupt
or insolvent, or has entered against him or her an order for relief,
in any bankruptcy or insolvency proceeding; (iv) files a petition or
answer seeking for himself or herself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief
under any statute, law or regulation; (v) files an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed against him or her in any proceeding of the type
described in clauses (i)-(iv) above; or (vi) seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator of
the Member or of all or any substantial part of his or her properties.
"Bankruptcy" shall also be deemed to have occurred to a Member 120
days after the commencement of any proceeding against such Member
seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or
regulation, if the proceeding has not been dismissed, or if within 90
days after the appointment without his or her consent or acquiescence
of a trustee, receiver or liquidator of the Member or of all or any
substantial part of his or her properties, the appointment is not
vacated or stayed, or within 90 days after the expiration of any such
stay, the appointment is not vacated.
2.1.8 "Capital Account" means, with respect to any Member, the
capital account maintained for such Member in accordance with Section
5.5 of this Agreement.
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2.1.9 "Capital Contribution" means all contributions to the
Company of cash or property (valued for this purpose at initial gross
fair market value as determined by the contributing Member and the
Managing Board) made by a Member or his or her predecessor in interest
which shall include, without limitation, those contributions made
pursuant to Article V of this Agreement.
2.1.10 "Capital Transaction" means any transactions undertaken by
the Company or by any company or partnership in which the Company owns
an interest, which, were it to generate proceeds, would produce
Company Sales Proceeds or Company Refinancing Proceeds.
2.1.11 "Certificate of Formation" means the Certificate of
Formation of the Company filed with the Secretary of State, as amended
or restated from time to time.
2.1.12 "Code" means the Internal Revenue Code of 1986, as amended
from time to time (and any corresponding provisions of succeeding
law).
2.1.13 "Company Cash Flow" for any period means the excess, if
any, of (A) the sum of (i) all gross receipts from any source for such
period, other than from Company loans, Capital Transactions and
Capital Contributions, and (ii) any funds released by the Company from
previously established reserves, over (B) the sum of (i) all cash
expenses paid by the Company for such period (including any
compensation to the Members and their Affiliates); (ii) all amounts
paid by the Company in such period on account of the amortization of
the principal of any debts or liabilities of the Company (including
loans from any Member); (iii) capital expenditures of the Company; and
(iv) a reasonable reserve for future expenditures as provided by
Section 13.4; provided, however, that the amounts referred to in (B)
(i), (ii) and (iii) above shall be taken into account only to the
extent not funded by Capital Contributions, loans or paid out of
previously established reserves. Such term shall also include all
other funds deemed available for distribution and designated as
Company Cash Flow by the Managing Board.
2.1.14 "Company Minimum Gain" means gain as defined in Treasury
Regulations Section 1.704-2(d).
2.1.15 "Company Refinancing Proceeds" means (i) the cash realized from
the financing or refinancing of all or any portion of any Company assets,
less the retirement of any related secured loans, the payment of all
expenses relating to the transaction and the establishment of such
reasonable reserves as the Managing Board shall deem prudent or necessary
and (ii) the Company's allocable portion of cash realized by an entity in
which the Company owns an interest from such entity financing or
refinancing all or any portion of such entity's assets, less the retirement
of any related secured loans and the payment of all expenses relating to
such transaction.
2.1.16 "Company Sales Proceeds" means (i) the cash realized from the
sale, exchange, condemnation, casualty or other disposition of all or any
portion of any Company assets not in the ordinary course of business, less
the retirement of any related secured loans, the payment of all expenses
relating to the transaction and the establishment of such reasonable
reserves as the Managing Board shall deem prudent or necessary and (ii) the
Company's allocable portion of cash realized by an entity in which the
Company owns an interest from the sale, exchange, condemnation, casualty or
other
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disposition of all or any portion of such entity's assets not in the
ordinary course of business, less the retirement of any related secured
loans and the payment of all expenses relating to such transaction.
2.1.17 "Depreciation" means, for each Fiscal Year, an amount equal to
the depreciation, amortization, or other cost recovery deduction allowable
with respect to an asset for such Fiscal Year, except that if the Gross
Asset Value of an Asset differs from its adjusted basis for federal income
tax purposes at the beginning of such Fiscal Year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as
the federal income tax depreciation, amortization, or other cost recovery
deduction for such Fiscal Year bears to such beginning adjusted tax basis;
provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such Fiscal Year is zero,
Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Managing Board.
2.1.18 "Dilution Offering" means, as provided in Article V of this
Agreement, the future offering of additional Membership Interests in the
Company by the Managing Board. Except as otherwise provided in Article V,
any successful Dilution Offering will proportionately reduce the Percentage
Interests of the then current Members in the Company.
2.1.19 "Distribution" means any money or other property distributed to
a Member with respect to the Member's Membership Interest, but shall not
include any payment to a Member for materials or services rendered nor any
reimbursement to a Member for expenses permitted in accordance with this
Agreement.
2.1.20 "Domestic Proceeding" means any divorce, annulment, separation
or similar domestic proceeding between a married couple.
2.1.21 "Encumbrance" means any lien, pledge, encumbrance, collateral
assignment or hypothecation.
2.1.22 "Equipment" means the equipment to be acquired by the Company
and used in the operation of the Lithotripter System including the mobile
transport vehicle, the transportable lithotripter and miscellaneous medical
equipment and supplies, and any similar additional equipment acquired by
the Company in the future.
2.1.23 "FDA" means the United States Food and Drug Administration.
2.1.24 "Fiscal Year" means an annual accounting period ending December
31 of each year during the term of the Company, unless otherwise specified
by the Managing Board.
2.1.25 "Gains from Capital Transactions" means the gains realized by
the Company as a result of or upon any sale, exchange, condemnation or
other disposition of capital assets of the Company or any entity in which
the Company shall own an interest (which assets shall include Code Section
1231 assets and all real and personal property) or as a result of or upon
the damage to or destruction of such capital assets.
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2.1.26 "Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such
asset, as determined by the contributing Member and the Managing
Board, provided that, if the contributing Member is a member of the
Managing Board, such Member shall abstain from the determination of
the fair market value of a contributed asset;
(ii) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Managing Board, as of the following times: (a) the
acquisition of an additional interest in the Company (other than upon
the initial formation of the Company) by any new or existing Member in
exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Company to a Member of more than a de minimis
amount of Company property as consideration for an interest in the
Company; and (c) the liquidation of the Company within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided, however,
that the adjustments pursuant to clauses (a) and (b) above shall be
made only if the Managing Board reasonably determine that such
adjustments are necessary or appropriate to reflect the relative
economic interests of the Members in the Company;
(iii) The Gross Asset Value of any Company asset distributed to
any Member shall be adjusted to equal the gross fair market value of
such asset on the date of distribution as determined by the
distributee and the Managing Board, provided that, if the distributee
is a member of the Managing Board, such Member shall abstain from the
determination of the fair market value of the distributed asset; and
(iv) The Gross Asset Values of Company assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b),
but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m) and Sections 2.1.47(vi) and 7.12 hereof;
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this Section 2.1.26(iv) to the extent the Managing Board
determine that an adjustment pursuant to Section 2.1.26(ii) hereof is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this Section 2.1.26(iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to Section 2.1.26(i), Section 2.1.26(ii), or Section
2.1.26(iv) hereof, such Gross Asset Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such asset for
purposes of computing Profits, Gains from Capital Transactions or
Losses.
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2.1.27 "Guaranty" means the Guaranty Agreement pursuant to which
each Member will guarantee a portion of the Company's obligation to
the Bank under the Loan. The form of Guaranty Agreement is included in
the Subscription Packet accompanying the Memorandum.
2.1.28 "Lithotripter System" means the mobile transport vehicle
and operational lithotripter.
2.1.29 "Loan" means the loan of up to $550,000 from the Bank to
the Company. Loan proceeds will be used by the Company to (i) acquire
a transportable lithotripter with options (estimated at $400,000),
(ii) acquire and upfit a mobile van to transport the lithotripter
(estimated at $50,000), (iii) pay the applicable state sales and use
taxes on the purchase of the lithotripter and van (estimated to be
$38,700), and (iv) serve as working capital (estimated at $61,300).
2.1.30 "Losses from Capital Transactions" means the losses
realized by the Company as a result of or upon any sales exchange,
condemnation or other disposition of the capital assets of the Company
(which include Code Section 1231 assets) or as a result of or upon the
damage or destruction of such capital assets.
2.1.31 "Management Agent" means Sun Medical Technologies, Inc.,
the initial management agent of the Company, and any other Person that
succeeds such management agent in its capacity as management agent.
2.1.32 "Management Agreement" means the agreement pursuant to
which the Management Agent will provide daily management services to
the Company.
2.1.33 "Majority in Interest" means, with respect to any
referenced group of Members, a combination of any of such Members who,
in the aggregate, own more than fifty percent (50%) of the Percentage
Interests owned by all of such referenced group of Members.
2.1.34 "Managing Board" means the four person board of managers
comprised of two designees appointed by Sun and two designees elected
by the non-Sun affiliated Members of the Company, and which has the
management authority set forth in Article III.
2.1.35 "Member" means each Person designated as a member of the
Company on Schedule I hereto, or any additional member admitted as a
member of the Company in accordance with Article IX. "Members" refers
to such Persons as a group.
2.1.36 "Member Minimum Gain" means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a
Nonrecourse Liability, determined in accordance with Treasury
Regulations Section 1.704-2(i).
2.1.37 "Member Nonrecourse Debt" means any nonrecourse debt (for
the purposes of Treasury Regulations Section 1.1001-2) of the Company
for which any Member bears the "economic risk of loss," within the
meaning of Treasury Regulations Section 1.752-2.
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2.1.38 "Member Nonrecourse Deductions" means deductions as
described in Treasury Regulations Section 1.704-2(i). The amount of
Member Nonrecourse Deductions with respect to a Member Nonrecourse
Debt for any Fiscal Year equals the excess, if any, of (A) the net
increase, if any, in the amount of Member Minimum Gain attributable to
such Member Nonrecourse Debt during such Fiscal Year, over (B) the
aggregate amount of any Distributions during that Fiscal Year to the
Member that bears the economic risk of loss for such Member
Nonrecourse Debt to the extent such Distributions are from the
proceeds of such Member Nonrecourse Debt and are allocable to an
increase in Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulations
Section 1.704-2(i).
2.1.39 "Membership Interest" means all of a Member's rights in
the Company, including without limitation, the Member's share of the
Profits and Losses of the Company, the right to receive Distributions,
any right to vote and any right to participate in the management of
the Company as provided in the Act and this Agreement.
2.1.40 "Memorandum" means the Confidential Private Placement
Memorandum of the Company dated December 21, 1998, as amended or as
supplemented.
2.1.41 "Nonrecourse Deductions" means deductions as set forth in
Treasury Regulations Section 1.704-2(b)(1). The amount of Nonrecourse
Deductions for a given Fiscal Year equals the excess, if any, of (A)
the net increase, if any, in the amount of Company Minimum Gain during
such Fiscal Year, over (B) the aggregate amount of any Distributions
during such Fiscal Year of proceeds of a Nonrecourse Liability that
are allocable to an increase in Company Minimum Gain, determined
according to the provisions of Treasury Regulations Section
1.704-2(h).
2.1.42 "Nonrecourse Liability" means any Company liability (or
portion thereof) for which no Member bears the "economic risk of
loss," within the meaning of Treasury Regulations Section 1.752-2.
2.1.43 "Offering" means the initial offering of Units in the
Company pursuant to the Memorandum.
2.1.44 "Percentage Interest" means the percentage which the
Capital Contributions of a Member of the Company bears to the Capital
Contributions of all Members. As provided in Article V, a Member's
Percentage Interest may be reduced by a future Dilution Offering. The
Members' Percentage Interests in the Company as of the date hereof are
as set forth in Schedule I attached hereto. Any future adjustments in
the Member's Percentage Interests, due to future Dilution Offerings or
otherwise, will be reflected by revisions to Schedule I.
2.1.45 "Person" means an individual, a foreign or domestic
corporation, a professional corporation, a partnership, a limited
partnership, a limited liability company, a foreign limited liability
company, an unincorporated association, or other legal entity.
2.1.46 "Prime" means Prime Medical Services, Inc., a publicly
held Delaware corporation and parent of Sun.
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2.1.47 "Profits and Losses" means, for each Fiscal Year, an
amount equal to the Company's taxable income or loss for such Fiscal
Year (excluding Gains from Capital Transactions), 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:
(i) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits and
Losses pursuant to this definition (excluding Gains from Capital
Transactions) shall be added to such taxable income or loss;
(ii) 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 Profits or Losses pursuant to this Section 2.1.47 shall be
subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to Section 2.1.26, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of
such asset for purposes of computing Profits or Losses;
(iv) 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 Gross Asset
Value of the property disposed of, notwithstanding that the adjusted
tax basis of such property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year or other period, computed in accordance with the
definition of Depreciation set out hereof;
(vi) 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 pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
Capital Accounts as a result of a distribution other than in
liquidation of a Member's interest in the Company, the amount of such
adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
the basis of the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Profits or Losses;
(vii) Notwithstanding any other provision of this Section 2.1.47,
any items which are specially allocated pursuant to Sections 7.3, 7.4,
7.8, 7.9, 7.10, 7.11, 7.12 or 7.13 hereof shall not be taken into
account in computing Profits or Losses.
-9-
The amounts of the items of Company income, gain, loss or
deduction available to be specially allocated pursuant to Sections
7.3, 7.4, 7.8, 7.9, 7.10, 7.11, 7.12 or 7.13 hereof shall be
determined by applying rules analogous to those set forth in Sections
(i) through (vi) above.
2.1.48 "Property" means any and all property acquired by the
Company, real and/or personal (including, without limitation,
intangible property).
2.1.49 "Pro Rata Basis" means in connection with an allocation or
distribution in proportion to the respective Percentage Interests of
the class of Members to which reference is made.
2.1.50 "Sales Agency Agreement" means the sales agency agreement
through which MedTech Investments, Inc., an Affiliate of Sun and a
broker-dealer company registered with the Securities and Exchange
commission and a member of the National Association of Securities
Dealers, Inc. shall offer and sell the membership interest of the
Company pursuant to the Memorandum.
2.1.51 "Sales Commission" means the $100.00 sales commission paid
to MedTech Investments, Inc. for each Unit sold to parties other than
Sun and its Affiliates.
2.1.52 "Secretary of State" means the Secretary of State of
Washington.
2.1.53 "Service" means the Internal Revenue Service.
2.1.54 "Service Area" means the geographic region in which the
Company operations are expected to be conducted and which will include
the area of the State of Washington west of the Cascade Mountains.
2.1.55 "Sun" means Sun Medical Technologies, Inc., a California
corporation wholly owned by Prime, and an initial Member of the
Company.
2.1.56 "Tax Matters Partner" means the Person designated by the
Managing Board as the "tax matters partner," as that term is defined
in the Code.
2.1.57 "Transfer" means sell, assign, transfer, lease or
otherwise dispose of property, including without limitation an
interest in the Company.
2.1.58 "Treasury Regulations" means the Income Tax Regulations
and Temporary Regulations promulgated under the Code, as such
regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
2.1.59 "Units" means the 100 equal membership interests in the
Company offered pursuant to the Memorandum for a price per Unit of
$1,500 in cash and personal guaranty of 1% of the Company's
obligations under the Loan.
2.1.60 "Withdrawing Member" has the meaning assigned to it in
Article X.
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ARTICLE III - MANAGEMENT OF THE COMPANY
3.1 The Managing Board.
(a) Except as otherwise may be expressly provided in this
Agreement, the Certificate of Formation or the Act, all decisions
with respect to the management of the business and affairs of the
Company shall be made by action of the Managing Board. The
Managing Board shall have full and complete authority, power and
discretion to manage and control the business of the Company, to
make all decisions regarding those matters and to perform any and
all other acts or activities customary or incident to the
management of the Company's business, except only as to those
acts and things as to which approval by the Members is expressly
required by this Agreement. The Managing Board may delegate
responsibility for the day-to-day management of the Company to
any Person retained by the Managing Board (including Members or
their Affiliates) who shall have and exercise on behalf of the
Company all powers and rights necessary or convenient to carry
out such management responsibilities.
(b) The members of the Managing Board shall be under no duty
to devote all of their time to the business of the Company, but
shall devote only such time as they deem necessary to conduct the
Company business and to operate and manage the Company in an
efficient manner.
(c) The Managing Board may charge to the Company all
ordinary and necessary costs and expenses, direct and indirect,
attributable to the activities, conduct and management of the
business of the Company. The costs and expenses to be borne by
the Company shall include, but are not limited to, all
expenditures incurred in acquiring and financing the Equipment or
other Company property, legal and accounting fees and expenses,
salaries of employees of the Company, consulting and quality
assurance fees paid to independent contractors, insurance
premiums and interest.
3.2 Specific Authority of the Managing Board. Without limiting the
generality of Section 3.1 above, and except as otherwise prohibited by this
Agreement or the Act, the Managing Board shall have and exercise on behalf of
the Company all powers and rights necessary or convenient to carry out the
purposes of the Company. Such powers shall include, without limitation, the
following:
(a) To conduct the Offering and acquire the Lithotripter System;
(b) Subject to the limitations set forth in Sections 3.3(f) and 3.3(h), to
purchase, hold, manage, lease, license and dispose of Company assets, including
the purchase, exchange, trade, or sale of Company assets at such price, or
amount, for cash, securities or other property and upon such terms, as the
Managing Board deems to be in the best interests of the Company; provided, that
should the Company assets be exchanged or traded for securities or other
property (the "Replacement Property") the Managing Board shall have the same
powers with regard to the Replacement Property as it does towards the property
traded;
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(c) To exercise the option of the Company to purchase a Member's Membership
Interest pursuant to Article X;
(d) To determine the travel itinerary and site locations for the
Lithotripter System or other Company technology;
(e) Subject to the limitations set forth in Section 3.3(g), to acquire (i)
additional Lithotripter Systems, (ii) any other assets related to the provision
of lithotripsy treatment services, or (iii) any other assets or equipment or an
interest in another entity consistent with the purposes of the Company as
provided in Section 1.5 (collectively, the "Additional Assets"), at such times
and at such price and upon such terms, as the Managing Board deems to be in the
best interest of the Company;
(f) Subject to the limitations set forth in Section 3.3(h), to borrow money
for any Company purpose and, if security is required therefor, to subject to any
security device any portion of the Property of the Company, to obtain
replacements of any other security device, to repay, in whole or in part,
refinance, increase, modify, consolidate or extend any Encumbrance or other
security device;
(g) To deposit, withdraw, invest, pay, retain (including the establishment
of reserves) and distribute the Company funds in accordance with the provisions
of this Agreement;
(h) To consent to the modifications, renewal or extension of any
obligations to the Company of any Person or of any agreement to which the
Company is a party or of which it is a beneficiary;
(i) To enter into and carry out contracts and agreements and any or all
other documents and instruments, and to do any and all such other things as may
be in furtherance of Company purposes or necessary or appropriate to the conduct
of the Company activities;
(j) Subject to the limitations set forth in Section 3.3(c), to adjust,
compromise, settle or refer to arbitration any claim against or in favor of the
Company, and to institute, prosecute and defend any actions or proceedings
relating to the Company, its business and property;
(k) To make all decisions related to principles and methods of accounting
and federal income tax elections;
(l) Generally to possess and exercise any and all rights, powers and
privileges of managers under the Act and the laws of the State of Washington;
(m) To do and perform all such other acts and things and to execute,
acknowledge and deliver any and all other documents or instruments in connection
with any or all of the foregoing;
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(n) To engage or retain one or more persons to perform acts or provide
materials as may be required by the Company, at the Company's expense, and to
compensate such person or persons at a rate to be set by the Managing Board,
provided that the compensation is at the then prevailing rate for the type of
services and materials provided, or both. Any person, whether a Member, an
Affiliate of a Member or otherwise may be employed or engaged by the Company to
render services and provide materials, including, but not limited to, management
services, professional services, accounting services, quality assessment
services, legal services, marketing services, maintenance services or provide
materials; and if such person is a Member or an Affiliate of a Member, he or she
shall be entitled to, and shall be paid compensation for said services or
materials, anything in this Agreement to the contrary notwithstanding, provided
that the compensation to be received for such services or materials is
competitive in price and terms with then prevailing rate for the type of
services and/or materials provided. The Company, pursuant to the terms of a
Management Agreement, will contract with the Management Agent with respect to
the supervision and coordination of the management and administration of the
day-to-day operations of the Lithotripter System for an initial quarterly fee
equal to 7.5% of Company net profits per calendar quarter. Costs incurred by the
Management Agent in performing its duties as management agent shall be paid as
agreed to by the Company and Management Agent and as specifically set forth in
the Management Agreement. The Company may also make arrangements with hospitals,
other treatment facilities and qualified physicians desiring to use the
Lithotripter System for treatment of patients. Owning an interest in the Company
shall not be a condition to using the Lithotripter System. Subject to the
limitations set forth in Section 4.6, any Person, whether a Member, an Affiliate
of a Member or otherwise, that contracts with the Company to render services and
provide materials, including the Management Agent and its Affiliates, may engage
in or possess an interest in other business ventures of any nature and
description independently or with others, including, but not limited to, the
operation of a mobile lithotripsy treatment unit similar to the Lithotripter
System, whether or not such business ventures are in direct or indirect
competition with the Company, and neither the Company nor the Members shall have
any right by virtue of this Agreement in and to said independent ventures or to
the income or profits derived therefrom; and
(o) Subject to the limitations set forth in Sections 3.3(d) and 3.3(g), to
cause the Company to engage in a Dilution Offering as provided in Section 5.3.
3.3 Limitation on Authority of Managing Board. Notwithstanding anything to
the contrary in this Agreement, the Managing Board shall undertake the following
actions upon receiving the prior written consent of the Members representing
two-thirds of the aggregate interests in the Company:
(a) Any act in contravention of this Agreement or the Certificate of
Formation;
(b) Any act which would make it impossible to carry on the ordinary
business of the Company, other than a transfer of all or substantially all of
the assets of the Company;
(c) Confess a material judgment against the Company in connection with any
threatened or pending legal action;
-13-
(d) Cause the Company to engage in a Dilution Offering as provided in
Section 5.3 pursuant to which the Percentage Interests of the existing Members
are diluted by more than 15% in the aggregate; and
(e) Institute and carry out any plan providing for the merger,
consolidation or sale of Membership Interests or any other actions outlined in
Section 9.6 hereof;
(f) Sell any Company assets in a single transaction or series of related
transactions with an aggregate fair market value in excess of $50,000;
(g) Adopt the annual Company capital and operating budget, including the
approval of the Company's Purchase Price Formula (as that term is defined in
Section 10.7), provided, that in the case of approvals of Company operating
budget expenditures involving compensation or reimbursement to Members or
Affiliates of Members engaged by the Company to render services and/or provide
materials (collectively, the "Affiliated Contracting Parties"), the Affiliated
Contracting Parties shall abstain from voting on the approval of such Company
expenditures;
(h) Incurring any single capital expenditure in excess of $50,000 not
contemplated in the Company's annual capital and operating budget, or incurring
any long-term debt or any single borrowing of the Company in excess of $50,000
not contemplated in the Company's annual capital and operating budget;
(i) Amend the Operating Agreement;
(j) Modify the purposes of the Company's business as set forth in Section
1.5; or
(k) Accept or reject the Company's right of first refusal to provide the
Alternative Services as described in Section 4.6 below (provided that Sun and
its Affiliates shall abstain from voting on such right of first refusal).
3.4 Termination of the Management Agreement. Except as otherwise provided
herein or in the Management Agreement, the Company may, in the event such action
is in the best interests of the Company, exercise its right to terminate the
Management Agreement and select a replacement Management Agent for the Company
upon the prior written consent of the Managing Board and a Majority in Interest
of the Members. In the event of a deadlock of the Managing Board and/or the
Members, the decision of whether or not to terminate the Management Agreement
shall be submitted to binding arbitration in accordance with Section 12.16
hereof.
3.5 Specific Authority of Managing Board. Notwithstanding Sections 3.1, 3.2
and 3.3, the Managing Board shall have and may exercise on behalf of the Company
the following powers:
(a) To prepare or cause to be prepared reports, statements and other
relevant information for distribution to Members; and
-14-
(b) To open accounts and deposit and maintain funds in the name of the
Company in banks or savings and loan associations.
3.6 Number, Term and Qualification. The Managing Board shall consist of
four (4) managers, comprised of two designees appointed by Sun (the "Sun
Designees") and two designees elected annually pursuant to the vote of a
Majority in Interest of the Members (excluding Sun and its Affiliates) (the
"Member Designees"). One of the Sun Designees, as determined in the sole
discretion of Sun, shall serve as the Chairman of the Managing Board (the
"Chairman"). The Chairman shall only have the authority to act on behalf of the
Company as specifically set forth herein, or as otherwise approved and
authorized by the Managing Board and Members. The Members may, upon their
unanimous consent, change the number of managers serving on the Managing Board.
Each manager shall continue to hold office until his or her death, resignation
or removal and replacement by his or her designating party. Managers need not be
residents of the State of Washington or Members of the Company, and may be any
Person selected by Sun or the other Members (excluding Sun and its Affiliates).
3.7 Removal and Replacement. Sun and the other Members (excluding Sun and
its Affiliates) may remove and replace one or more of their respective
designated managers at any time, with or without cause; provided, however, that
written notice of such removal and replacement must be given to the Managing
Board and all Members at least five (5) days before the effective date of
removal and replacement.
3.8 Authority as to Third Persons. Notwithstanding Sections 3.3, 3.4 and
3.5 the signed statement of the Chairman reciting that he or she has the
authority or the necessary approvals of either the Managing Board or the Members
for any action, as to any third Person, shall be conclusive evidence of the
authority of the Managing Board to take that action and of compliance with
Sections 3.3 or 3.4, if applicable. Each Member will promptly execute
instruments determined by the Managing Board to be appropriate to evidence the
authority of the Managing Board to consummate any transaction permitted by this
Agreement.
3.9 Compensation and Expenses. The members of the Managing Board shall not
receive any compensation from the Company for serving as managers, but all
expenses incurred by the managers in connection with their service as managers
will be paid or promptly reimbursed by the Company. Nothing contained in this
Section 3.8 is intended to affect the Percentage Interest of a manager as a
Member or the amounts that may be payable to a manager by reason of his or her
respective Percentage Interests.
3.10 Action by the Managing Board. Any action to be taken by the Managing
Board under this Agreement may be taken at a meeting of the Managing Board held
on such terms, and after such notice as the members of the Managing Board may
establish; provided, however, that notice of a meeting of the Managing Board
must be given to all members entitled to vote at the meeting at least five (5)
days before the date of the meeting. All of the members of the Managing Board in
office shall constitute a quorum for the transaction of business at a meeting of
the Managing Board, and the affirmative vote of a three-fourths of such members
shall constitute the act of the Managing Board, unless a different affirmative
vote is otherwise specifically provided for herein. A Managing Board
-15-
member who is present at a meeting of the Managing Board at which action on
any Company matter is taken is deemed to have assented to the action taken
unless he or she objects at the beginning of the meeting (or promptly upon
arrival) to the holding, or transacting of business at, the meeting, or unless
his or her dissent or abstention is entered in the minutes of the meeting or
unless he or she shall file written notice of his or her dissent or abstention
to such action with the presiding officer of the meeting before its adjournment
or with the Chairman immediately after adjournment of the meeting. The right of
dissent or abstention shall not apply to a member of the Managing Board who
voted in favor of such action.
3.11 Action Without Meeting. Unless otherwise provided in this Agreement,
any action required or permitted to be taken at a meeting of the Managing Board
may be taken without a meeting if the action is taken by all members of the
Managing Board. Such action must be evidenced by one or more written consents
signed by each member before or after such action, describing the action taken,
and included in the records of the Company. Action taken without a meeting is
effective when the last manager signs the consent, unless the consent specifies
a different effective date.
3.12 Meeting by Communications Device. Unless otherwise provided in this
Agreement, the Managing Board may permit any or all members to participate in a
meeting by, or conduct the meeting through the use of, any means of
communication by which all members participating may simultaneously hear each
other during the meeting. A member participating in a meeting by this means is
deemed to be present in person at the meeting.
3.13 Authorized Representative of Company. Sun is hereby appointed an
authorized representative and agent of the Company and the Managing Board for
the sole purpose of negotiating, making, entering and executing on behalf of the
Company any and all contracts and agreements and any or all other documents and
instruments, and to do any and all such other things as may be necessary or
appropriate to conducting and consummating the Offering. Such actions shall
include, but shall not be limited to, the formation of the Company, the
finalization of the Loan from the Bank, the offering of Units to investors
through the Sales Agent pursuant to the Sales Agency Agreement, providing for
the escrow of the Offering proceeds and Guaranties with the Bank and the
termination thereof, and the acceptance and rejection of investor subscription
applications for purchases of Units. Upon the termination of the Offering and
the closing of the Loan by Sun, the authority granted to it pursuant to this
Section 3.12 shall be null and void and become of no further force or effect.
3.14 Indemnification of Managing Board Members and Sun. Subject to the
limitations set forth in this Section 3.13, all of the acts and deeds taken or
performed by Sun and its officers, directors, and employees in the name of the
Company while acting on behalf of the Company in conducting and consummating the
Offering as set forth in Section 3.12 above, shall, upon the completion thereof,
be ratified, adopted and approved in all respects as the duly authorized and
official acts and deeds of the Company. In addition, Sun, the Managing Board and
its members shall have no liability to the Company which arises out of any
action or inaction of Sun or the Managing Board if Sun and the Managing Board
and its members in good faith determined that such course of conduct was in the
best interest of the Company and such course of conduct did not constitute gross
negligence or willful misconduct of Sun, the Managing Board and its members. The
Company shall indemnify Sun and the members of the Managing Board against any
direct and actual losses, liabilities, damages or
-16-
expenses (including court cost and reasonable attorney's fees but excluding
consequential damages) that Sun and any of the members incur in connection with
the Company but only to the extent that such parties acted in good faith,
without gross negligence, and in a manner reasonably believed to be in the best
interests of the Company. Any attorney's fees or other litigation expenses
incurred by Sun or a member of the Managing Board shall be advanced to such
party within thirty (30) days of receipt of a written demand therefor, together
with an undertaking by or on behalf of the party to repay to the Company such
amount if it is ultimately determined that such party is not entitled to be
indemnified by the Company pursuant to this Section 3.13.
3.15 Limitation on Liability. No member of the Managing Board shall be
liable to the Company for monetary damages for an act or omission in such
person's capacity as a manager, except for (i) acts or omissions that involve
intentional misconduct or a knowing violation of law; (ii) any distributions
received from the Company in violation of the Act; and (iii) any transaction
from which a manager derived an improper personal benefit. Any repeal or
modification of this section shall not adversely affect the right or protection
of a director existing at the time of such repeal or modification.
3.16 Liability for Return of Capital Contribution. The Managing Board and
its members shall not be liable for the return of the Capital Contributions of
the Members, and upon dissolution, the Members shall look solely to the assets
of the Company.
ARTICLE IV - RIGHTS AND OBLIGATIONS OF MEMBERS
4.1 Names and Addresses of Members. The names, addresses and Percentage
Interests of the Members are as reflected in Schedule I attached hereto and made
a part hereof, which Schedule shall be amended by the Company upon the effective
date of any Transfer or subsequent issuance of any Membership Interest.
4.2 No Management by Members. The Members in their capacity as Members
shall not take part in the management or control of the business, nor transact
any business for the Company, nor shall they have power to sign for or to bind
the Company. The Company may, however, contract with one or more Members to act
as the local medical director(s) for the Lithotripter System. No Member may
withdraw from the Company except as expressly permitted herein.
4.3 Election of Member Designees. The Members (excluding Sun and its
Affiliates), pursuant to a vote of a Majority in Interest, shall elect two
managers annually to serve on the Managing Board. The Members (excluding Sun and
its Affiliates) shall have the power to remove and replace such managers as set
forth in Section 3.6.
4.4 Action by Members. Any action to be taken by the Members under the Act
or this Agreement may be taken (i) at a meeting of the Members held on such
terms, and after such notice as the Managing Board may establish; provided,
however, that notice of a meeting of Members must be given to all Members
entitled to vote at the meeting at least five (5) days before the date of the
meeting, or (ii) by written action of either the Members representing two-thirds
of the aggregate interests in the Company or a Majority in Interest, whichever
is applicable; provided, however, that any action requiring
-17-
the consent of all Members under the Act or this Agreement taken by written
action must be signed by all Members. No notice need be given of action proposed
to be taken by written action, or an approval given by written action, unless
specifically required by this Agreement or the Act. Such written actions must be
kept with the records of the Company.
4.5 Operation of Lithotripter System. The Members shall not operate or
utilize the Lithotripter System or other Company equipment except pursuant to
(i) an agreement with the Company; or (ii) any other arrangement specifically
approved by the Managing Board.
4.6 Outside Activities. The Members agree that they owe fiduciary duties to
the Company and, as a consequence, each Member agrees that he, she or it
(including his, her or its Affiliates) shall not engage in "Outside Activities"
(as defined below) in the Service Area while he, she or it is a Member of the
Company, except as otherwise provided below. The phrase "Outside Activities"
means directly or indirectly owning, leasing or subleasing a lithotripter (or
any similar equipment or competing devices used for treating renal stone
disease) or any other urological therapeutic equipment acquired by the Company.
Prohibited indirect ownership shall include the direct or indirect ownership of
any interest in a business venture (through stock ownership, partnership
interest ownership, ownership by or through a close family member, or as
otherwise determined in good faith by the Managing Board) involving the
ownership, purchase, lease, sublease, promotion, management or operation of a
lithotripter (or similar equipment or competing devices used for treating renal
or biliary stone disease), unless the Managing Board determines that such
activity by the Members is not detrimental to the best interests of the Company.
Upon the termination or transfer of a Member's interest in the Company for
any reason (including a transfer pursuant to Section 10.4 hereof), other than a
material breach of this Agreement by the Company which is not cured in a timely
manner, the withdrawing Member shall not, for a period of two (2) years
following the date of his, her or its withdrawal, engage in any Outside
Activities in the Service Area.
In the event a Member wishes and intends to engage in an Outside Activity
in the Service Area, he, she or it must provide written notice of such intent to
the Managing Board prior to engaging in the Outside Activity. The written notice
shall be deemed an election by the Member to withdraw from the Company (the
"Notice of Withdrawal"), and shall give the Company the purchase rights as
provided in Section 10.4 hereof. After the Notice of Withdrawal, the former
Member may engage in an Outside Activity in the Service Area only after waiting
the period of two years specified in this Section 4.6. In the event of breach of
the waiting period, the Company shall be entitled to any remedy at law or equity
with respect to such breach, including without limitation an injunction or suit
for damages.
If a Member during his, her or its participation in the Company engages in
an Outside Activity in the Service Area without first notifying the Managing
Board in violation of this Section 4.6, the Member shall be deemed to have given
a Notice of Withdrawal on the date the Managing Board first becomes aware of the
Member's Outside Activity in the Service Area. Upon receiving a Member's Notice
of Withdrawal or equivalent thereof, the Company may invoke the purchase rights
provided in Section 10.4 and shall be entitled to any other remedy at law or
equity including without limitation an injunction or suit for damages.
-18-
Notwithstanding any provisions of this Section 4.6 to the contrary, it is
understood and agreed by the parties hereto that Sun and its Affiliates, to the
extent permitted by contract and applicable laws, will at the earliest
practicable date after the date hereof cease to provide lithotripsy services at
any location in the Service Area and will use their reasonable best efforts to
either terminate their existing contracts and assist the Company in negotiating
new contracts on its own behalf with such facilities in the Service Area
currently being served by Sun or its Affiliates, or assign all related service
contracts from such discontinued operations to the Company. However, in certain
limited circumstances it may be in the best interest of the Company (as
determined by the Managing Board) for Sun, or an Affiliate of Sun, to contract
directly with a hospital or other treatment facility as agent for the Company
and such activities shall not be deemed a violation of this Section 4.6. In such
circumstances Sun or its Affiliate (as the case may be) will contract solely for
the benefit of the Company, and unless otherwise agreed to by Sun (or its
Affiliate) and the Managing Board, Sun (or its Affiliate) shall not receive any
compensation as a result of such agreements.
In addition, in the event Sun or its Affiliates desire to expand any of
their urological medical treatment services in the Service Area to include
services using equipment other than lithotripsy equipment (other than
replacement parts or models for Sun's or its Affiliates' existing lithotripsy
equipment in the Service Area) (the "Alternative Services"), Sun, or its
Affiliate, as the case may be, shall give written notice of such intent (the
"Notice of Intent") to the Managing Board prior to engaging in such Alternative
Services. Upon receiving the Notice of Intent, the Company shall have a 60-day
right of first refusal to provide the Alternative Services on the same terms and
conditions as Sun, or its Affiliate, proposes to provide them in the Service
Area. Upon the expiration of the Company's right of first refusal, Sun, or its
Affiliate, as the case may be, may commence providing the Alternative Services
and neither the Company nor the Members shall have any right by virtue of this
Agreement in and to the income or profits derived therefrom.
4.7 Disclosure of Confidential Information. Each Member acknowledges and
agrees that his, her or its participation in the Company under this Agreement
necessarily involves his, her or its understanding of and access to certain
trade secrets and other confidential information pertaining to the business of
the Company. Accordingly, each Member agrees that at all times during his, her
or its participation in the Company as a Member and thereafter, he, she or it
will not, directly or indirectly, without the express written authority of the
Company, unless required by law or directed by a applicable legal authority
having jurisdiction over the Member, disclose or use for the benefit of any
person, corporation or other entity (other than the Company), or himself,
herself or itself, (i) any trade, technical, operational, management or other
secrets, any patient or customer lists or other confidential or secret data, or
any other proprietary, confidential or secret information of the Company or (ii)
any confidential information concerning any of the financial arrangements,
financial positions, hospital or physician contracts, third party payor
arrangements, quality assurance and outcome analysis programs, competitive
status, customer or supplier matters, internal organizational matters, technical
abilities, or other business affairs of or relating to the Company. The Members
acknowledge that all of the foregoing constitutes proprietary information, which
is the exclusive property of the Company. The obligations imposed in this
Section 4.7 shall not apply to information that is in the public domain at the
time of disclosure or is known by the Member independently of his, her or its
participation in the Company. In the event of breach of this Section 4.7 as
determined by the Managing Board, the Company shall be entitled to any
-19-
remedy at law or equity with respect to such breach, including without
limitation, an injunction or suit for damages.
4.8 Limited Liability. No Member shall be required to make any contribution
to the capital of the Company except as set forth in Article V, nor shall any
Member in his, her or its capacity as such be bound by, or personally liable
for, any expense, liability or obligation of the Company except to the extent of
his, her or its (i) interest in the Company, (ii) Guaranties of Company
obligations, and (iii) obligation to return Distributions made to him, her or it
under certain circumstances as required by the Act.
ARTICLE V - CAPITAL CONTRIBUTIONS,
GUARANTIES AND DILUTION OFFERINGS
5.1 Member's Contribution. Each Member hereby agrees to contribute and
shall contribute to the capital of the Company on the date of his, her or its
admission to the Company the cash amount set forth opposite his, her or its name
on Schedule I attached hereto.
5.2 No Interest. Except as otherwise provided herein, no interest shall be
paid on any contribution to the capital of the Company.
5.3 Dilution Offerings. Subject to the limitations set forth in Section
3.3(d), if the Managing Board determines that it is in the best interest of the
Company, the Managing Board may, from time to time, cause the Company to issue,
offer and sell additional Membership Interests in the Company (a "Dilution
Offering") to local urologists who are not already Members ("Qualified
Investors"). The primary purpose of any Dilution Offering would be to raise
additional capital for any legitimate Company purpose as set forth in Section
1.5. Any Membership Interests offered by the Company in a Dilution Offering
shall be sold in the manner and according to the terms prescribed in the sole
discretion of the Managing Board; provided, however, that any additional
Membership Interests offered in a Dilution Offering will be sold for a purchase
price per 1% Membership Interest determined by the Purchase Price Formula set
forth in Section 10.7. The parties hereto agree that the Purchase Price Formula
shall reflect the fair market value of a Membership Interest and the Purchase
Price Formula shall be subject to revision from time to time as set forth in
Section 3.3(g). Any sale of additional Membership Interests will result in the
proportionate dilution of the Company Percentage Interests of the existing
Members. Any investor acquiring a Membership Interest in a Dilution Offering
shall agree to be bound by the terms of this Agreement, and shall be
automatically admitted as a Member of the Company notwithstanding any other
provisions in this Agreement to the contrary. Any adjustment in the Members'
Percentage Interests resulting from a Dilution Offering shall be set forth on
Schedule I attached hereto.
5.4 Conditions to the Capital Contributions of the Members. The obligation
of the Members to make cash Capital Contributions hereunder are subject to the
condition that the representations, warranties, agreements and covenants of the
Managing Board set forth in Article VI of this Agreement are and shall be true
and correct or have been and will have been complied with in all
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material respects on the date such Capital Contributions are required to be
made, except to the extent that any such representation or warranty expressly
pertains to an earlier date.
5.5 Capital Accounts. A Capital Account shall be established for each
Member and shall be credited with each Member's Capital Contributions pursuant
to Section 5.1. All contributions of property to the Company by a Member shall
be valued and credited to the Member's Capital Account at such property's gross
fair market value on the date of contribution as determined by the contributing
Member and the Managing Board. All distributions of Property to the Member by
the Company shall be valued and debited against the Member's Capital Account at
such Property's gross fair market value on the date of distribution as
determined by the Managing Board. Each Member's Capital Account shall at all
times be determined and maintained pursuant to the principles of this Section
5.5 and Treasury Regulations Section 1.704-1(b)(2)(iv). A Member shall not be
entitled to withdraw any part of his or her Capital Account except as otherwise
specifically provided herein. Each Member's Capital Account shall be increased
in accordance with such Regulations by:
(i) The amount of Profits allocated to the Member pursuant to this
Agreement;
(ii) The amount of all Gains From Capital Transactions allocated to the
Member pursuant to this Agreement; and
(iii) The amount of any Company liabilities assumed by the Member or which
are secured by any Company property distributed to such Member.
Each Member's Capital Account shall be decreased in accordance with such
Regulations by:
(i) The amount of Losses allocated to the Member pursuant to this
Agreement;
(ii) The amount of Company Cash Flow distributed to the Member pursuant to
this Agreement;
(iii) The amount of Company Sales Proceeds and Company Refinancing Proceeds
distributed to the Member pursuant to this Agreement; and (iv) The amount of any
liabilities of the Member assumed by the Company or which are secured by any
property contributed by such Member to the Company.
In addition, each Member's Capital Account shall be subject to such other
adjustments as may be required in order to comply with the capital account
maintenance requirements of Section 704(b) of the Code.
In the event that the Managing Board 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 that are secured by contributed or distributed property or that are
assumed by the Company or the Members), are computed in order to comply with
such Treasury Regulations, the Managing Board may make such modification,
provided that it is not likely to have a material effect
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on the amounts distributable to any Member upon dissolution of the Company.
The Managing Board 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).
ARTICLE VI - REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE MANAGING BOARD
6.1 Managing Board's Representations and Warranties. The Managing Board
hereby represents and warrants to the Members that:
(a) The Company is a limited liability company formed in accordance with
and validly existing under the Act and the other applicable laws of the State of
Washington;
(b) The interest in the Company of the Members will have been duly
authorized or created and validly issued and the Members shall have no personal
liability to contribute money to the Company other than the amounts agreed to be
contributed by them in the manner and on the terms set forth in this Agreement,
subject, however, to such limitations as may be imposed under the Act; and
(c) No material breach or default adverse to the Company exists under the
terms of any other material agreement affecting the Company.
6.2 Managing Board's Covenants. The Managing Board hereby covenants to the
Members that:
(a) It will at all times act in a fiduciary manner with respect to the
Company and the Members.
(b) It will cause the Company to carry adequate public liability, property
damage and other insurance as is customary in the business to be engaged in by
the Company.
ARTICLE VII - ALLOCATIONS, ELECTIONS AND REPORTS
7.1 Profits and Losses.
(a) Except as otherwise provided herein, Profits and Losses of the Company
and all items of tax credit and tax preference shall be allocated among the
Members in
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accordance with their respective Percentage Interests. In the event the
Percentage Interests vary during any Fiscal Year, Profits and Losses and all
items of tax credit and tax preference for such Fiscal Year shall be allocated
among the Members as provided in Section 7.5 below.
(b) Losses allocated pursuant to this Section 7.1 shall not exceed the
maximum amount of Losses that can be so allocated without causing any Member to
have an Adjusted Capital Account Deficit at the end of any Fiscal Year. In the
event some but not all of the Members would have Adjusted Capital Account
Deficits as a consequence of an allocation of Losses pursuant to this
Section 7.1, the limitation set forth in this Section 7.1 shall be applied on a
Member by Member basis so as to allocate the maximum possible Losses to each
Member under Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
7.2 Sales Commission. The Sales Commission shall be allocated to the
Members holding Units to the extent such Members paid the Sales Commission, and
in proportion to their respective capital contributions represented by such
Units (i.e., $100 in Sales Commission per each such Unit). The purpose of this
Section 7.2 is to allocate the Sales Commission to those Members who actually
bore the burden of paying the Sales Commission.
7.3 Nonrecourse Deductions. Nonrecourse Deductions shall be allocated among
the Members in accordance with their respective Percentage Interests.
7.4 Member Nonrecourse Deductions. Any Member Nonrecourse Deductions shall
be specially allocated to the Member who bears the economic risk of loss with
respect to the Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Treasury Regulations Section
1.704-2(i).
7.5 Allocations Between Transferor and Transferee. In the event of the
transfer of all or any part of a Member's Membership Interest (in accordance
with the provisions of this Agreement) at any time other than at the end of a
Fiscal Year, the change in any Member's Percentage Interest or the admission of
a new Member (in accordance with the terms of this Agreement), the transferring
Member or new Member's share of the Company's income, gain, loss, deductions and
credits, as computed both for accounting purposes and for federal income tax
purposes, shall be allocated between the transferor Member and the transferee
Member, or the new Member and the other Members, as the case may be, in the same
ratio as the number of days in such Fiscal Year before and after the date of the
transfer or admission; provided, however, that if there has been a sale or other
disposition of the assets of the Company (or any part thereof) during such
Fiscal Year, then upon the mutual agreement of all the Members (excluding the
new Member and the transferring Member), the Company shall treat the periods
before and after the date of the transfer or admission as separate Fiscal Years
and allocate the Company's net income, gain, net loss, deductions and credits
for each of such deemed separate Fiscal Years of the Company. Notwithstanding
the foregoing, the Company's "allocable cash basis items," as that term is used
in Section 706(d)(2)(B) of the Code, shall be allocated as required by Section
706(d)(2) of the Code and the Treasury Regulations thereunder.
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7.6 Gains from Capital Transactions. Gains from Capital Transactions during
any Fiscal Year shall be allocated as follows:
(a) First, to those Members whose Capital Accounts immediately prior to the
Capital Transaction were negative, in an amount sufficient to increase the
Capital Accounts to zero, but in the event sufficient gain is not recognized to
do so, then among them pro rata in proportion to their negative Capital
Accounts;
(b) Second, to the Members in an amount equal to the difference between the
Company Sales Proceeds to be distributed to each of the Members as provided in
Section 8.3 and the Capital Accounts of each respective Member as adjusted (if
necessary) by paragraph (a) above, but in the event sufficient gain is not
recognized to do so, then among the Members in an amount which, when credited to
the Capital Accounts of the Members, results in the Members' Capital Accounts
bearing the same ratio to one another as the ratio of the distribution of
Company Sales Proceeds to each of the Members, as provided in Section 8.3; and
thereafter
(c) Any remaining gain shall be allocated among the Members in accordance
with their respective Percentage Interests as of the date of the Capital
Transaction giving rise to the gain.
7.7 Contributed Property. In accordance with Code Section 704(c) and the
Treasury Regulations thereunder, income, gain, loss and deduction with respect
to any property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its initial Gross Asset Value at the time of contribution.
Any elections or other decisions relating to such allocations shall be made
by the Members in any manner that reasonably reflects the purpose and intention
of this Agreement. Allocations pursuant to this Section 7.7 are solely for
purposes of federal, state and local taxes and shall not affect, or in any way
be taken into account in computing, any Member's Capital Account or share of
Profits, Losses, other items or Distributions pursuant to any provision of this
Agreement.
7.8 Minimum Gain Chargeback. If there is a net decrease in Company Minimum
Gain during any Fiscal Year, each Member shall be specially allocated items of
Company income and gain for such Fiscal Year (and, if necessary, subsequent
years) in an amount equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulation Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Treasury Regulations Sections 1.704-2(f) and 1.704- 2(j)(2). This Section
7.8 is intended to comply with the minimum gain chargeback requirement in
Treasury Regulation 1.704-2(f) and shall be interpreted consistently therewith.
7.9 Member Minimum Gain Chargeback. If there is a net decrease in Member
Minimum Gain attributable to a Member Nonrecourse Debt, as defined in Treasury
Regulation Section 1.704- 2(i)(4), during any Fiscal Year, each Member who has a
share of the Member Minimum Gain
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attributable to such Member Nonrecourse Debt, determined in accordance with
Treasury Regulation Section 1.704-2(i)(5), shall be specially allocated items of
Company income and gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years) in an amount equal to such Member's share of the net decrease in
Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Treasury Regulation Section 1.704-2(i)(4) and (5). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The items to
be so allocated shall be determined in accordance with Treasury Regulations
Section 1.704-2(i)(4). This Section 8.8 is intended to comply with the Member
Minimum Gain chargeback requirement in Treasury Regulation Section 1.704(i)(4)
and shall be interpreted consistently therewith.
7.10 Qualified Income Offset. If any Member unexpectedly receives an
adjustment, allocation or distribution as described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4) through (6) which causes or increases a deficit
Capital Account balance in such Member's Capital Account (as determined in
accordance with such Regulation), items of Company income and gain shall be
specially allocated to each such Member in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of such Member as quickly as possible, provided that an
allocation pursuant to this Section 7.10 shall be made if and only to the extent
that such Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article VII have been tentatively made as if
this Section 7.10 were not in this Agreement. This provision is intended to be a
"qualified income offset," as defined in Treasury Regulation Section 1.704-
1(b)(2)(ii)(d), such Regulation being specifically incorporated herein by
reference.
7.11 Gross Income Allocation. In the event any Member has a deficit Capital
Account at the end of any Fiscal Year which is in excess of the sum of (i) the
amount such Member is obligated to restore, and (ii) the amount such Member 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), each such Member
shall be specially allocated items of Company income and gain in the amount of
such excess as quickly as possible, provided that an allocation pursuant to this
Section 7.11 shall be made if and only to the extent that such Member would have
a deficit Capital Account in excess of such sum after all other allocations
provided for in this Article VII have been tentatively made as if this Section
7.11 and Section 7.10 hereof were not in this Agreement.
7.12 Section 754 Adjustment. 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, pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Treasury Regulations Section 1.704-
1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as
the result of a Distribution to a Member in complete liquidation of his interest
in the Company, 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 accordance with their interests in the
Company in the event that Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2)
applies, or to the Members to whom such distribution was made in the event that
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
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7.13 Curative Allocations. The allocations set forth in Sections 7.1(b),
7.2, 7.3, 7.7, 7.8, 7.9, 7.10, and 7.11 hereof (the "Regulatory Allocations")
are intended to comply with certain requirements of the Treasury Regulations. It
is the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss or deduction
pursuant to this Section 7.13. Therefore, notwithstanding any other provision of
this Article VII (other than the Regulatory Allocations), the Managing Board
shall make such offsetting special allocations of Company income, gain, loss or
deduction in whatever manner they determine appropriate so that, after such
offsetting allocations are made, each Member's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Member would have
had if the Regulatory Allocations were not part of the Agreement and all Company
items were allocated pursuant to Section 7.1(a). In exercising its discretion
under this Section 7.13, the Managing Board shall take into account future
Regulatory Allocations under Sections 7.8 and 7.9 that, although not yet made,
are likely to offset other Regulatory Allocations previously made under Sections
7.3 and 7.4.
7.14 Compliance with Treasury Regulations. The above provisions of this
Article VII notwithstanding, it is specifically understood that the Managing
Board may without the consent of any Member make such elections, tax allocations
and adjustments, including amendments to this Agreement, as the Managing Board
deem necessary or appropriate to maintain to the greatest extent possible the
validity of the tax allocations set forth in this Agreement, particularly with
regard to Treasury Regulations under Code Section 704(b).
7.15 Tax Withholding. The Company shall be authorized to pay, on behalf of
any Member, any amounts to any federal, state or local taxing authority, as may
be necessary for the Company to comply with tax withholding provisions of the
Code or other income tax or revenue laws of any taxing authority. To the extent
the Company pays any such amounts that it may be required to pay on behalf of a
Member, such amounts shall be treated as a cash Distribution to such Member and
shall reduce the amount otherwise distributable to such Member.
ARTICLE VIII - DISTRIBUTIONS
8.1 Company Cash Flow. Company Cash Flow for each Fiscal Year, to the
extent available, shall be distributed to the Members within 60 days of the end
of each Fiscal Year, or earlier in the discretion of the Managing Board, in
accordance with the Members respective Percentage Interests at the time of the
distribution.
8.2 Company Refinancing Proceeds. Company Refinancing Proceeds, to the
extent available, shall be distributed to the Members within 60 days of the
Capital Transaction giving rise to such proceeds, or earlier in the discretion
of the Managing Board, in accordance with the Members respective Percentage
Interests at the time of the distribution.
8.3 Company Sales Proceeds. Company Sale Proceeds, to the extent available
shall be distributed to the Members within 60 days of the Capital Transaction
giving rise to such proceeds, or
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earlier, in the discretion of the Managing Board, in accordance with the
Members respective Percentage Interests at the time of the distribution.
8.4 Distributions in Liquidation. Upon liquidation of the Company, all the
Company's Property shall be liquidated or distributed as provided in Section
11.3 and Profits and Losses allocated accordingly. Proceeds from the liquidation
of the Company shall be distributed in accordance with the provisions of Section
11.3.
8.5 Limitation Upon Distributions. No Distribution shall be declared and
paid if payment of such Distribution would cause the Company to violate any
limitation on distributions provided in the Act or provided in any agreement
entered into by the Company for the express purpose of obtaining financing for
Company operations.
ARTICLE IX - TRANSFER OF INTERESTS AND ADMISSION OF MEMBERS
9.1 Transferability of Membership Interests.
(a) The term "transfer" when used in this Agreement with respect to a
Membership Interest includes a sale, assignment, gift, pledge, exchange, or any
other disposition (but does not include the issuance of new Membership Interests
pursuant to a Dilution Offering);
(b) The Membership Interest of any Member shall not be transferred, in
whole or in part, except in accordance with the conditions and limitations set
forth in Section 9.2 or Article X;
(c) The transferee of a Membership Interest by assignment, operation of law
or otherwise, shall have only the rights, powers and privileges enumerated in
Section 9.3 or otherwise provided by law and may not be admitted to the Company
as a Member except as provided in Section 9.4;
(d) Notwithstanding any provision herein to the contrary, this Agreement
shall in no way restrict the issuance or transfers of stock of Sun or its
Affiliates; and
(e) Notwithstanding any provision herein to the contrary, the issuance of
Membership Interests pursuant to a Dilution Offering and the admission of new
Members pursuant to a Dilution Offering shall be governed by the provisions of
Section 5.3 of this Agreement.
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9.2 Restrictions on Transfers by Members.
(a) All or part of a Membership Interest may be transferred by a Member
only with the prior written approval of the Managing Board, which approval may
be granted or denied in its sole discretion.
(b) The Managing Board shall not approve any transfer of a Membership
Interest, except a pledge of any Membership Interest by the Managing Board to
any bank, insurance company or other financial institution to secure payment of
indebtedness (a "Permitted Pledge"), or otherwise unless the proposed transferee
shall have furnished the Managing Board with a sworn statement that:
(i) The proposed transferee proposes to acquire his or her Membership
Interest as a principal, for investment and not with a view to resale or
distribution;
(ii) The proposed transferee meets such requirements regarding
sophistication, income and net worth as required by applicable state and federal
securities laws;
(iii) The proposed transferee has met such net worth and income suitability
standards as have been established by the Managing Board;
(iv) The proposed transferee recognizes that investment in the Company
involves certain risks and has taken full cognizance of and understands all of
the risk factors related to the purchase of a Membership Interest; and
(v) The proposed transferee has met all other requirements of the Managing
Board for the proposed transfer.
(c) Other than in the case of a Permitted Pledge, a transfer of a
Membership Interest may be made only if, prior to the date thereof, the Company
upon request receives an opinion of counsel, satisfactory in form and substance
to the Managing Board, that neither the offering nor the proposed transfer will
require registration under federal or applicable state securities laws or
regulations.
9.3 Rights of Transferee. Unless admitted to the Company as a Member in
accordance with Section 9.4, the transferee of a Membership Interest or a part
thereof or any right, title or interest therein (including any transferee having
an interest in a Membership Interest as a result of a Permitted Pledge) shall
not be entitled to any of the rights, powers, or privileges of his or her
predecessor in interest, except that (s)he shall be entitled to receive and be
credited or debited with his or her proportionate share of Company Profits,
Losses, Gains from Capital Transactions, Company Cash Flow, Company Sales
Proceeds, Company Refinancing Proceeds and Distributions in liquidation.
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9.4 Admission of Members. Except as otherwise provided in Section 5.3 and
Article X, the transferee of all or part of the Membership Interest of a Member,
may be admitted to the Company as a Member upon furnishing to the Managing Board
all of the following:
(a) The written approval of a Majority in Interest of the Members (except
the assignor Member), or the assignor Member alone, which approval may be
granted or denied in the sole discretion of such Members or Member (as the case
may be);
(b) The written approval of the Managing Board, which approval may be
granted or denied in the sole discretion of the Managing Board;
(c) Acceptance, in a form satisfactory to the Managing Board, of all the
terms and conditions of this Agreement and any other documents required in
connection with the operation of the Company pursuant to the terms of this
Agreement;
(d) If the transferee is a corporation, a certified copy of a resolution of
its Board of Directors authorizing it to become a Member under the terms and
conditions of this Agreement;
(e) A properly executed power of attorney substantially identical to that
contained in Section 12.15;
(f) Such other documents or instruments as may be required in order to
effect his or her admission as a Member; and
(g) Payment of such reasonable expenses as may be incurred in connection
with his or her admission as a Member.
9.5 Amendment of Certificate of Formation and Qualification. The Managing
Board shall take all steps necessary and appropriate to prepare and record any
amendments to the Certificate of Formation, as may be necessary or appropriate
from time to time to comply with the requirements of the Act, and shall take all
steps necessary and appropriate to prepare and record any and all documents
necessary to qualify the Company to do business in jurisdictions where the
Company is doing business, and may for these purposes exercise the power of
attorney delivered to the Company pursuant to Sections 9.4 and 12.15.
9.6 Fundamental Changes. As provided in Section 3.3(e), if the Managing
Board and the Members representing two-thirds of the aggregate interests in the
Company approve a plan providing for the merger or consolidation of the Company
with another person or entity, or the sale of all or substantially all of the
Membership Interests, including without limitation the exchange of Membership
Interests for equity interests in another person or entity or for cash or other
consideration or combination thereof, then and in such event, the Members shall
be obligated to take or refrain from taking, as the case may be, such actions as
the plan may provide, including, without limitations, executing such
instruments, and providing such information as the Managing Board shall
reasonably request. Any plan described in this Section 9.6 may also effect an
amendment to the Certificate of Formation or Operating
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Agreement, or the adoption of a new operating agreement in connection with
the merger of the Company with another person or entity as provided in Section
25.15.410 of the Act. The plan may also provide that the Managing Board members
shall receive fees for services rendered in connection with the operation of the
Company or any successor entity following the consummation of the transactions
described in the plan, and neither the Company nor the Members shall have any
right by virtue of this Agreement in the income derived therefrom. Any
securities or other consideration to be distributed to the Members pursuant to
the plan shall be distributed in the manner set forth in Section 11.3 as though
the Company were being liquidated. For this purpose only, the fair market value
of the securities or other consideration to be received pursuant to the plan
shall be treated as "Profits" and the capital accounts of the Members shall be
increased in the manner provided in Section 5.5. No Member shall be entitled to
any appraisal or similar rights in connection with a plan contemplated by this
Section 9.6.
ARTICLE X - OPTIONAL PURCHASE OF MEMBERSHIP INTERESTS
ON CERTAIN EVENTS
10.1 Death. Upon the death of a Member, the deceased Member's executor,
administrator, or other legal or personal representative shall give written
notice of that fact to the Managing Board. The Company shall have the option to
purchase at the Closing (as defined below) the Membership Interest of the
deceased Member (whose executor, administrator or other legal or personal
representative shall then become obligated to sell such Membership Interest) at
the price determined in the manner provided in Section 10.7 of this Agreement
and on the terms and conditions provided in Section 10.8 of this Agreement. The
Company shall have a period of thirty (30) days following the date it first
received notice of the death of the Member (the "First Option Period") within
which to notify in writing the deceased Member's executor, administrator or
other legal or personal representative, whether the Company desires to purchase
all or a portion of the Membership Interest of the deceased Member. If the
Company does not elect to purchase the entire Membership Interest of the
deceased Member before the expiration of the First Option Period and in the
manner provided herein, the Members shall have the option to purchase all or any
part of the Membership Interest of the deceased Member not purchased by the
Company at the price determined in the manner provided in Section 10.7 of this
Agreement and on the terms and conditions provided in Section 10.8 of this
Agreement. Any Member desiring to purchase any part or all of the remaining
Membership Interest of the deceased Member shall deliver to the Managing Board a
written election to purchase all or a specified portion of such Membership
Interest within the ten (10) day period immediately following the close of the
First Option Period (the "Second Option Period"). If the Members in the
aggregate elect to purchase more than the Membership Interest then available,
each electing Member shall have a priority, up to that portion specified in his
or her notice of election, to purchase such proportion of the Membership
Interest of the deceased Member then available as his or her Percentage Interest
bears to the aggregate Percentage Interests of the Members electing to purchase.
That portion of the deceased Member's Membership Interest not purchased on such
a priority basis shall be allocated in one or more successive allocations to
those remaining Members electing to purchase more of the Membership Interest
than they have a priority right, up to the portion specified in their respective
elections, in the proportion that each of their Percentage Interests bears to
the aggregate Percentage Interest of all of them.
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Within the ten (10) day period immediately following the close of the
Second Option Period (the "Confirmation Period"), the Managing Board shall
inform each electing Member of the portion of the Membership Interest of the
deceased Member as to which his or her election is effective. The Managing Board
shall give notice to the deceased Member within the ten (10) day period
following the close of the Confirmation Period (the "Notification Period") of
the election by the Members to exercise their option. Such notice shall indicate
the portion of the deceased Member's Membership Interest that will be purchased
by each of the purchasing Members and the Company, if any. Any portion of the
Membership Interest not purchased by the Company and Members shall be held by
the deceased Member's executor, administrator or other legal representative
pursuant to the terms of this Agreement.
10.2 Bankruptcy, Insolvency or Assignment for Benefit of Creditors of a
Member. In the event that an involuntary or voluntary proceeding under the
Federal Bankruptcy Code, as amended, is filed for or against any Member, or if
any Member shall make an assignment for the benefit of his or her creditors, or
if any Member has a receiver or custodian appointed for his or her assets, or
any Member generally fails to pay his or her debts when due, the insolvent
Member shall give written notice (the "Notice of Insolvency") to the Managing
Board of the commencement of any such proceeding or the occurrence of such event
within five days of the first notice to him or her of such commencement or
occurrence of such event. The Company shall have the option to purchase at the
Closing (as defined below) the Membership Interest of the insolvent Member
(which insolvent Member or his trustee, custodian, receiver or other personal or
legal representative, as the case may be, shall then become obligated to sell
such Membership Interest) at the price determined in the manner provided in
Section 10.7 of this Agreement and on the terms and conditions provided in
Section 10.8 of this Agreement. The Company shall have a period of thirty (30)
days following the date of either the Notice of Insolvency, or if such formal
notice is not given, the date the Managing Board first becomes aware of the
financial condition of the Member as outlined in this Article 10.2 (the "First
Option Period"), within which to notify in writing the insolvent Member or his
trustee, custodian, receiver, or other legal or personal representative, whether
the Company wishes to purchase all or a portion of the Membership Interest of
the insolvent Member. If the Company does not elect to purchase the entire
Membership Interest of the insolvent Member before the expiration of the First
Option Period and in the manner provided herein, the Members shall have the
option to purchase all or any part of the Membership Interest of the insolvent
Member not purchased by the Company at the price determined in the manner
provided in Section 10.7 of this Agreement and on the terms and conditions
provided in Section 10.8 of this Agreement. Any Member desiring to purchase any
part or all of the remaining Membership Interest of the insolvent Member shall
deliver to the Managing Board a written election to purchase all or a specified
portion of such Membership Interest within the ten (10) day period immediately
following the close of the First Option Period (the "Second Option Period"). If
the Members in the aggregate elect to purchase more than the Membership Interest
then available, each electing Member shall have a priority, up to that portion
specified in his or her notice of election, to purchase such proportion of the
Membership Interest of the insolvent Member then available as his or her
Percentage Interest bears to the aggregate Percentage Interests of the Members
electing to purchase. That portion of the insolvent Member's Membership Interest
not purchased on such a priority basis shall be allocated in one or more
successive allocations to those remaining Members electing to purchase more of
the Membership Interest than they have a priority right, up to the portion
specified in their respective elections, in the proportion that each of their
Percentage Interests bears to the aggregate Percentage Interest of all of them.
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Within the ten (10) day period immediately following the close of the
Second Option Period (the "Confirmation Period"), the Managing Board shall
inform each electing Member of the portion of the Membership Interest of the
insolvent Member as to which his or her election is effective. The Managing
Board shall give notice to the insolvent Member within the ten (10) day period
following the close of the Confirmation Period (the "Notification Period") of
the election by the Members to exercise their option. Such notice shall indicate
the portion of the insolvent Member's Membership Interest that will be purchased
by each of the purchasing Members and the Company, if any. Any portion of the
Membership Interest not purchased by the Company and Members shall be held by
the insolvent Member, his or her trustee, custodian, receiver or other legal or
personal representative pursuant to the terms of this Agreement.
10.3 Default under Guaranties. Notwithstanding any other provision of this
Article X to the contrary, if any of the events outlined in Sections 10.1 or
10.2 or any other defaulting event outlined in the Guaranty (the "Defaulting
Events") should occur with respect to a Member (the "Defaulting Member"), and
the Managing Board determines (in its sole discretion) that such event may
result in default and acceleration of an obligation secured by the Guaranty
unless another guarantor acceptable to the Bank can be substituted in the place
of the Defaulting Member, then the Managing Board shall have the right to
immediately take the steps as outlined in this Section 10.3 to prevent such
default. Upon the Managing Board receiving notice of a Defaulting Event as
provided above, the Managing Board, in its sole discretion, shall immediately
have the right to either (i) sell the entire Membership Interest of the
Defaulting Member to an investor approved of by the Managing Board, (ii)
purchase for the Company's account the entire Membership Interest of the
Defaulting Member, or (iii) sell the entire Membership Interest of the
Defaulting Member to one or more of the other Members. The Defaulting Member
shall sell his or her Membership Interest to the purchaser at the purchase price
determined in the manner as provided in Section 10.7 and on the terms and
conditions as provided in Section 10.8. The transfer of the Membership Interest,
the payment of the purchase price, and the assumption of the Defaulting Member's
obligations under his or her Guaranty (as provided in Section 10.7), shall be
made at such time as determined by the Managing Board in order to avoid the
default and acceleration of the obligation secured by the Guaranty. Each Member
hereby makes, constitutes and appoints the Chairman, with full power of
substitution, his or her true and lawful attorney-in-fact, to take such actions
and execute such documents on his or her behalf to effect the transfer of his or
her Membership Interest as provided in this Section 10.3, in the event such
Member becomes a Defaulting Member.
10.4 Breach of Section 4.6. In the event the Managing Board either receives
a Notice of Withdrawal as provided in Section 4.6 or receives notice of a breach
of Section 4.6 by a Member (the "Competing Member"), the Managing Board may
elect, in its sole discretion, to treat such event as a default under this
Agreement and enforce the provisions of this Section 10.4. In the event of a
deadlock of the Managing Board, the Managing Board's determination of whether to
treat a Member's Notice of Withdrawal under Section 4.6 or the notice of a
Member's breach of Section 4.6 as a default under this Agreement shall be
submitted to binding arbitration in accordance with Section 12.16 hereof. If the
Managing Board (pursuant to its own vote or the decision of an arbitrator)
elects to enforce the provisions of this Section 10.4, the Managing Board shall
give written notice of such election (the "Notice of Default") to the Competing
Member within 180 days of the date the Managing Board first received notice of
the defaulting event. Upon giving the Notice of Default, the Company shall have
the option to purchase at the Closing (as defined below) the Membership Interest
of the Competing Member
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(which Competing Member shall then become obligated to sell such Membership
Interest) at the price determined in the manner provided in Section 10.7 of this
Agreement and on the terms and conditions provided in Section 10.8 of this
Agreement. The Company shall have a period of thirty (30) days following the
date of the Notice of Default (the "First Option Period") within which to notify
in writing the Competing Member, whether the Company wishes to purchase all or a
portion of the Membership Interest of the Competing Member. If the Company does
not elect to purchase the entire Membership Interest of the Competing Member
before the expiration of the First Option Period and in the manner provided
herein, the Members shall have the option to purchase all or any part of the
Membership Interest of the Competing Member not purchased by the Company at the
price determined in the manner provided in Section 10.7 of this Agreement and on
the terms and conditions provided in Section 10.8 of this Agreement. Any Member
desiring to purchase any part or all of the remaining Membership Interest of the
Competing Member shall deliver to the Managing Board a written election to
purchase all or a specified portion of such Membership Interest within the ten
(10) day period immediately following the close of the First Option Period (the
"Second Option Period"). If the Members in the aggregate elect to purchase more
than the Membership Interest then available, each electing Member shall have a
priority, up to that portion specified in his or her notice of election, to
purchase such proportion of the Membership Interest of the Competing Member then
available as his or her Percentage Interest bears to the aggregate Percentage
Interests of the Members electing to purchase. That portion of the Competing
Member's Membership Interest not purchased on such a priority basis shall be
allocated in one or more successive allocations to those remaining Members
electing to purchase more of the Membership Interest than they have a priority
right, up to the portion specified in their respective elections, in the
proportion that each of their Percentage Interests bears to the aggregate
Percentage Interest of all of them.
Within the ten (10) day period immediately following the close of the
Second Option Period (the "Confirmation Period"), the Managing Board shall
inform each electing Member of the portion of the Membership Interest of the
Competing Member as to which his or her election is effective. The Managing
Board shall give notice to the Competing Member within the ten (10) day period
following the close of the Confirmation Period (the "Notification Period") of
the election by the Members to exercise their option. Such notice shall indicate
the portion of the Competing Member's Membership Interest that will be purchased
by each of the purchasing Members and the Company, if any. Any portion of the
Membership Interest not purchased by the Company and Members shall be held by
the Competing Member pursuant to the terms of this Agreement.
10.5 Domestic Proceeding. In the event that a spouse of a Member commences
against a Member, or a Member is named in, a Domestic Proceeding, the Member
shall give written notice (the "Notice of Domestic Proceeding") to the Managing
Board of the commencement of any such proceeding within five days of the first
notice to him or her of such commencement. The Company shall have the option to
purchase at the Closing (as defined below) the Membership Interest of the Member
involved in the Domestic Proceeding (which Member shall then become obligated to
sell such Membership Interest), at the price determined in the manner provided
in Section 10.7 of this Agreement and on the terms and conditions provided in
Section 10.8 of this Agreement. The Company shall have a period of thirty (30)
days following the date of either the Notice of Domestic Proceeding, or if such
formal notice is not given, the date the Managing Board first becomes aware of
the domestic circumstances of the Member as provided in this Section 10.5 (the
"First Option Period"), within which to notify in
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writing the Member involved in the Domestic Proceeding, whether the Company
wishes to purchase all or a portion of the Membership Interest of such Member.
If the Company does not elect to purchase the Membership Interest of the Member
involved in the Domestic Proceeding before the expiration of the First Option
Period and in the manner provided herein, the Members shall have the option to
purchase all or any part of the Membership Interest of the Member involved in
the Domestic Proceeding not purchased by the Company at the price determined in
the manner provided in Section 10.7 of this Agreement and on the terms and
conditions provided in Section 10.8 of this Agreement. Any Member desiring to
purchase any part or all of the remaining Membership Interest of the Member
involved in the Domestic Proceeding shall deliver to the Managing Board a
written election to purchase all or a specified portion of such Membership
Interest within the ten (10) day period immediately following the close of the
First Option Period (the "Second Option Period"). If the Members in the
aggregate elect to purchase more than the Membership Interest then available,
each electing Member shall have a priority, up to that portion specified in his
or her notice of election, to purchase such proportion of the Membership
Interest of the Member involved in the Domestic Proceeding then available as his
or her Percentage Interest bears to the aggregate Percentage Interests of the
Members electing to purchase. That portion of the Member's Membership Interest
not purchased on such a priority basis shall be allocated in one or more
successive allocations to those remaining Members electing to purchase more of
the Membership Interest than they have a priority right, up to the portion
specified in their respective elections, in the proportion that each of their
Percentage Interests bears to the aggregate Percentage Interest of all of them.
Within the ten (10) day period immediately following the close of the
Second Option Period (the "Confirmation Period"), the Managing Board shall
inform each electing Member of the portion of the Membership Interest of the
Member involved in the Domestic Proceeding as to which his or her election is
effective. The Managing Board shall give notice to the Member involved in the
Domestic Proceeding within the ten (10) day period following the close of the
Confirmation Period (the "Notification Period") of the election by the Members
to exercise their option. Such notice shall indicate the portion of the Member's
Membership Interest that will be purchased by each of the purchasing Members and
the Company, if any. Any portion of the Membership Interest not purchased by the
Company and Members shall be held by such Member involved in the Domestic
Proceeding pursuant to the terms of this Agreement.
10.6 Divestiture Option. If state or federal regulations or laws are
enacted or applied, or if any other legal developments occur, which, in the
opinion of the Managing Board adversely affect (or potentially adversely affect)
the operation of the Company (e.g., the enactment or application of prohibitory
physician self-referral legislation against the Company or its Members), the
Managing Board shall promptly notify the Members of the applicable legal
development and in good faith diligently work with the Members to devise a plan
pursuant to which the Company may avoid such adverse effect, including the
modification of this Agreement and any other contracts or agreements entered
into by the Company. In the event the Managing Board and Members are unable to
devise such a plan within a reasonable time period, the Managing Board shall
elect, in its discretion, to either (i) take the steps outlined in this Section
10.6 to divest the Members of their Membership Interests, or (ii) dissolve the
Company as provided in Article XI. If the Managing Board chooses option (i), it
shall deliver a written notice of such decision to all of the Members and Sun
shall purchase such Membership Interests for its own account. The purchase price
to be paid for each Membership Interest shall be determined in the
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manner as provided in Section 10.7 and shall be on the terms and conditions
as provided in Section 10.8. The transfer of the Membership Interests, the
payment of the purchase price and the assumption of the Members' obligations
under their respective Guaranties (as provided in Section 10.7) shall be made at
such time as determined by the Managing Board to be in the best interests of the
Company and its Members. In the event of the transfer of the Membership
Interests of all the Members to Sun pursuant to option (i) above, the transfer
of the Membership Interests, the payment of the purchase price and the
assumption of the Members' obligations under their respective Guaranties (as
provided in Section 10.7) shall be made either as of the effective date of the
applicable legal development giving rise to the divestiture, or at such earlier
date as determined by the Managing Board to be in the best interests of the
Company and its Members. Each Member hereby makes, constitutes and appoints the
Chairman, with full power of substitution, his, her or its true and lawful
attorney-in-fact, to take such actions and execute such documents on his, her or
its behalf to effect the transfer of his, her or its Membership Interest as
provided in this Section 10.6. The foregoing power of attorney shall not be
affected by the subsequent incapacity, mental incompetence, dissolution or
bankruptcy of any Member.
10.7 Purchase Price. The purchase price to be paid for the Membership
Interest of any Member whose interest is being purchased pursuant to the
provisions of Sections 10.1, 10.2, 10.3, 10.4, 10.5 or 10.6 (the "Withdrawing
Member") shall be determined in the manner provided in this Section 10.7. The
purchase price for a Membership Interest purchased pursuant to the provisions of
Sections 10.2, 10.3 or 10.4 shall be an amount equal to the Withdrawing Member's
share of the Company's book value, if any, (prorated in the event that only a
portion of his or her Membership Interest is being purchased) as reflected by
the Capital Account of the Withdrawing Member (unadjusted for any appreciation
in Company assets and as reduced by depreciation deductions claimed by the
Company for tax purposes) as of the Valuation Date (as defined below). The
determination of the Withdrawing Member's Capital Account on the Valuation Date
(as defined below) shall be made by the Company's internal accountant (the
"Company Accountant") upon a review of the Company's books of account, and a
formal audit is expressly waived. The statement of the Company Accountant with
respect to the Capital Account of the Withdrawing Member on the Valuation Date
shall be binding and conclusive upon the Company, the purchaser and the
Withdrawing Member and his, her or its representative. In the case of a purchase
of a Membership Interest pursuant to the provisions of Sections 10.1, 10.5 or
10.6, the purchase price shall be an amount equal to two (2) times the aggregate
distributions made with respect to such Membership Interest pursuant to Section
8.1 during the twelve-month period ending on the Valuation Date (the "Purchase
Price Formula"). The Purchase Price Formula shall be subject to revision from
time to time as set forth in Section 3.3(g). The Valuation Date shall be the
last day of the month immediately preceding the month in which occurs: (i) the
death of a Member, in the case of a purchase by reason of death; (ii) the
bankruptcy or insolvency of a Member, in the case of a purchase by reason of
such bankruptcy or insolvency; (iii) the notice of Defaulting Event as provided
in Section 10.3, in the case of a purchase occurring by reason of one of such
events; (iv) the Notice of Withdrawal or breach of Section 4.6 as provided in
Section 10.4 in the case of a purchase by reason thereof; (v) the commencement
of the Domestic Proceeding, in the case of a purchase by reason thereof; or (iv)
the Notice of Election as provided in Section 10.6, in the case of a purchase by
reason thereof. Any Member whose Membership Interest is purchased pursuant to
the provisions of Sections 10.1, 10.2, 10.3, 10.4, 10.5 or 10.6 shall be
entitled only to the purchase price which shall be paid at the Closing in cash
(or by certified or cashier's check) and shall not be entitled to any Company
distributions made after the Valuation Date. If as of the date of the Closing
the Withdrawing Member still has an outstanding
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personal obligation under the Guaranty (the "Obligation"), the purchasing
Member (or Members, as the case may be, in proportion to their share of the
purchased Membership Interest) shall assume the Obligation, indemnify the
Withdrawing Member from the Obligation, and take such steps deemed necessary by
the Managing Board to formally evidence the assumption of the Obligation,
including without limitation, executing such documents and providing such
financial information to the Bank (as the case may be) to evidence the
assumption of the Obligation, and obtain, if possible, the release of the
Withdrawing Member from the Obligation. The transfer of a Membership Interest of
a Withdrawing Member shall be deemed to occur as of the Valuation Date and the
Withdrawing Member shall have no voting or other rights as a Member after such
date. The purchaser shall be entitled to any distributions attributable to the
transferred interest after the Valuation Date and the Company shall have the
right to deduct the amount of any such distributions made to the Withdrawing
Member after the Valuation Date from the purchase price.
10.8 Closing of Purchase and Sale. The Closing of any purchase and sale of
a Membership Interest pursuant to Sections 10.1, 10.2, 10.3, 10.4, 10.5 or 10.6
of this Agreement shall take place at the principal office of the Company, or
such other place designated by the Managing Board, on the date determined as
follows (the "Closing"):
(a) In the case of a purchase and sale occurring by reason of the death of
a Member as provided in Section 10.1 of this Agreement, the Closing shall be
held on the thirtieth day (or if such thirtieth day is not a business day, the
next business day following the thirtieth day) immediately following the last to
occur of:
(i) Qualification of the executor or personal administrator of the deceased
Member's estate;
(ii) The date on which any necessary determination of the purchase price of
the Membership Interest to be purchased has been made; or
(iii) The date that coincides with the close of the First Option Period, if
the option exercised by the Company is with respect to the entire Membership
Interest of the deceased Member, or the date that coincides with the close of
the Notification Period, if the option exercised by the Company is with respect
to less than all of the Membership Interest of the deceased Member or the
Company does not exercise its option.
(b) In the case of a purchase and sale occurring by reason of the
occurrence of one of the events described in Sections 10.2, 10.3, 10.4, 10.5 or
10.6 of this Agreement, the Closing shall be held on the thirtieth day (or if
such thirtieth day is not a business day, the next business day following the
thirtieth day) immediately following the later to occur of:
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(i) The date on which any necessary determination of the purchase price of
the Membership Interest to be purchased has been made; or
(ii) The date that coincides with the close of the First Option Period, if
the option exercised by the Company is with respect to the entire Membership
Interest of the Member whose interest is being transferred, or the date that
coincides with the close of the Notification Period, if the option exercised by
the Company is with respect to less than all the Membership Interest of such
Member or the Company does not exercise its option.
At the Closing, although not necessary to effect the transfer, the
Withdrawing Member shall concurrently with tender and receipt of the applicable
purchase price, deliver to the purchaser duly executed instruments of transfer
and assignment, assigning good and marketable title to the portion or portions
of the Withdrawing Member's entire Membership Interest thus purchased, free and
clear from any liens or encumbrances or rights of others therein. The parties
acknowledge that occurrence of any of the triggering events described in
Sections 10.1, 10.2, 10.3, 10.4, 10.5 or 10.6 and compliance with all the
Articles of this Agreement, except the execution of the transfer documents by
the Withdrawing Member as provided above in this Section 10.8, are sufficient to
effect the complete transfer of the Withdrawing Member's interest and the
Withdrawing Member shall be deemed to consent to admission of the transferee as
a substitute Member. Notwithstanding the date of the Closing or whether a
Closing is successfully held, the transfer of a Membership Interest of a
Withdrawing Member shall be deemed to occur as of the Valuation Date as defined
in Section 10.7. The deemed transfer is effective regardless of whether the
Withdrawing Member performs the duties set forth in this Section 10.8.
10.9 Terms and Conditions of Purchase. The Membership Interest of a Member
shall not be transferred to any Member unless the requirements of Sections 9.2
and 9.4 (b) through (g) are satisfied with respect to it. The purchaser shall be
liable for all obligations and liabilities connected with that portion of the
Membership Interest transferred to it unless otherwise agreed in writing.
ARTICLE XI - DISSOLUTION AND LIQUIDATION OF THE COMPANY
11.1 Dissolution Events. The Company will be dissolved upon the happening
of any of the following events:
(a) The expiration of its term on December 31, 2020;
(b) The determination of the Managing Board and the Members representing
two-thirds of the aggregate interests of the Company that the Company should be
dissolved;
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(c) Pursuant to Section 3.3(e), the approval of a plan by the Managing
Board and the Members providing for the merger, consolidation or sale of
Membership Interests as described in Section 9.6;
(d) The election of the Managing Board to dissolve the Company following
the occurrence of an event described in Section 10.6;
(e) The sale, exchange or other disposition of all or substantially all of
the Property of the Company without making provision for the replacement
thereof;
(f) The Bankruptcy or dissolution of a Member or the occurrence of any
other event which terminates the continued membership of any Member, unless
there is at least one remaining Member and the business of the Company is
continued by the written consent of a Majority in Interest of the remaining
Members within ninety (90) days of the occurrence of such event; or
(g) Any other event resulting in the dissolution or termination of the
Company under the laws of the State of Washington.
11.2 Continuation. Upon the occurrence of any of the events described in
Section 11.1(f) above with respect to any of the Members, the business of the
Company will be continued if within ninety (90) calendar days a Majority in
Interest of the remaining Members elect to continue the business of the Company.
If the Members fail to continue the Company's business as provided in this
Section 11.2, the Company will be liquidated under Section 11.3.
11.3 Liquidation. Upon the happening of any of the events specified in
Section 11.1 and, if applicable, the failure to continue the business of the
Company under Section 11.2, the Managing Board, or any liquidating trustee
elected by a Majority in Interest of the Members, will commence as promptly as
practicable to wind up the Company's affairs unless the Managing Board or the
liquidating trustee (either, the "Liquidator") determines that an immediate
liquidation of Company assets would cause undue loss to the Company, in which
event the liquidation may be deferred for a time determined by the Liquidator to
be appropriate. Assets of the Company may be liquidated or distributed in kind,
as the Liquidator determines to be appropriate. The Members will continue to
share Company Cash Flow, Profits and Losses during the period of liquidation in
the manner set forth in Articles VII and VIII. The proceeds from liquidation of
the Company, including repayment of any debts of Members to the Company, and any
Company assets that are not sold in connection with the liquidation will be
applied in the following order of priority:
(a) To payment of the debts and satisfaction of the other obligations of
the Company, including without limitation debts and obligations to Members;
(b) To the establishment of any reserves deemed appropriate by the
Liquidator for any liabilities or obligations of the Company, which reserves
will be held for the purpose of paying liabilities or obligations and, at the
expiration of a period the Liquidator deems appropriate, will be distributed in
the manner provided in Section 11.3(c); and
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(c) To the payment to the Members of the positive balances in their
respective Capital Accounts, pro rata, in proportion to the positive balances in
those capital accounts after giving effect to all allocations under Article VII
and all distributions under Article VIII for all prior periods, including the
period during which the process of liquidation occurs.
11.4 Certificate of Cancellation. Upon the dissolution and completion of
the winding up of the Company, the Managing Board shall cause a Certificate of
Cancellation to be executed on behalf of the Company and filed with the
Secretary of State, and the Managing Board shall execute, acknowledge and file
any and all other instruments necessary or appropriate to reflect the
dissolution and winding up of the Company.
ARTICLE XII - MISCELLANEOUS
12.1 Fiscal Year. The Fiscal Year will end on December 31, unless another
fiscal year-end is selected by the Managing Board.
12.2 Records. Proper and complete records and books of account shall be
kept by the Managing Board in which shall be entered fully and accurately all
transactions and such other matters relating to the Company's business as are
usually entered into records and books of account maintained by persons engaged
in business of like character. The records of the Company will be maintained at
the principal place of business of the Company, or at any other location the
Managing Board selects provided that the Company keep at its principal place of
business the records required by the Act to be maintained there. Appropriate
records in reasonable detail will be maintained to reflect income tax
information for the Members. Each Member may inspect and make copies of the
records maintained by the Company during reasonable business hours and upon
reasonable notice. Each Member, at his or her expense, may make copies of the
records maintained by the Company and may require an audit of the books of
account maintained by the Company to be conducted by the independent accountants
for the Company.
12.3 Reports. The Managing Board, at the expense of the Company, will cause
to be prepared in accordance with the method of accounting then used by the
Company and distributed to each Member within ninety (90) days after the end of
each Fiscal Year, a balance sheet as of the close of the Fiscal Year and the
annual income tax returns and related schedules of the Company for the Fiscal
Year.
12.4 Reserves. The Managing Board may cause the Company to create
reasonable reserve accounts to be used exclusively for repairs and acquisition
of Additional Assets and for any other valid Company purpose. The Managing Board
shall in its sole discretion determine the amount of payments to such reserve
accounts.
12.5 Notices. The Managing Board will notify the Members of any change in
the name, principal or registered office or registered agent of the Company. Any
notice or other communication required by this Agreement must be in writing.
Notices and other communications will be deemed to have been given when
delivered by hand or dispatched by telegraph, telex or other means of electronic
facsimile transmission, or three business days after being deposited in the
United States mail, postage
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prepaid, addressed to the Member to whom the notice is intended to be given
at his or her address set forth on Schedule I of this Agreement or, in the case
of the Company, to its principal place of business provided for in Section 1.4.
A Person may change his or her notice address by notice in writing to the
Company and to each other Member given under this Section 12.5.
12.6 Amendments. As expressly provided in this Agreement in Section 3.3(h),
no amendment of this Agreement will be valid or binding upon the Members, nor
will any waiver of any term of this Agreement be effective, unless in writing
and signed by the Managing Board and the Members representing two-thirds of the
aggregate interests in the Company.
12.7 Additional Documents. Each party agrees to execute and acknowledge all
documents and writings which the Managing Board may deem necessary or expedient
in the creation of this Company and the achievement of its purpose, specifically
including but not limited to, a certificate of formation and all amendments, as
well as any cancellation thereof.
12.8 Representations of Members. Each Member represents and warrants to the
Company and every other Member that (s)he (a) is fully aware of, and is capable
of bearing, the risks relating to an investment in the Company, (b) understands
that his or her interest in the Company has not been registered under the
Securities Act of 1933, as amended, or the securities law of any jurisdiction in
reliance upon exemptions contained in those laws, and (c) has acquired his or
her interest in the Company for his or her own account, with the intention of
holding the interest for investment and without any intention of participating
directly or indirectly in any redistribution or resale of any portion of the
interest in violation of the Securities Act of 1933, as amended, or any
applicable law.
12.9 Survival of Rights. Except as herein otherwise provided to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties, their successors and assigns.
12.10 Interpretation and Governing Law. When the context in which words are
used in this Agreement indicates that such is the intent, words in the singular
number shall include the plural and vice versa. The masculine gender shall
include the feminine and neuter. The Article and Section headings or titles and
the table of contents shall not define, limit, extend or interpret the scope of
this Agreement or any particular Article or Section. This Agreement shall be
governed and construed in accordance with the laws of the State of Washington
without giving effect to the conflicts of laws provisions thereof.
12.11 Severability. If any provision, sentence, phrase or word of this
Agreement or the application thereof to any Person or circumstance shall be held
invalid, the remainder of this Agreement, or the application of such provision,
sentence, phrase, or word to Persons or circumstances, other than those as to
which it is held invalid, shall not be affected thereby.
12.12 Agreement in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. In addition, this Agreement may contain
more than one counterpart of the signature pages and this Agreement may be
executed by the affixing of the signatures of each of the Members to one of such
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counterpart signature pages; all of such signature pages shall be read as though
one, and they shall have the same force and effect as though all of the signers
had signed a single signature page. 12.13 Tax Matters Partner. For purposes of
this Agreement, the Managing Board shall designate either a Member or a member
of the Managing Board as the Tax Matters Partner (as defined in Section 6231 of
the Code).
12.14 Third Parties. The agreements, covenants and representations
contained herein are for the benefit of the parties hereto inter se. Nothing in
this Agreement is intended to benefit any third parties including, without
limitation, any creditor of the Company and/or any Member. No creditor of the
Company or any Member will be entitled to require the Managing Board to solicit
or accept any loan or additional capital contribution for the Company or to
enforce any right which the Company or any Member may have against a Member,
whether arising under this Agreement or otherwise.
12.15 Power of Attorney. Each Member hereby makes, constitutes and appoints
Xxxx Xxxxxxx, or his successor in interest as determined by the Managing Board,
severally, with full power of substitution, his true and lawful
attorneys-in-fact, for him and in his name, place and xxxxx and for his use and
benefit to sign and acknowledge, file and record, any amendments hereto among
the Members for the further purpose of executing and filing on behalf of each
Member, any and all articles of organization or other documents necessary to
constitute the Company or to effect the continuation of the Company, the
admission or withdrawal of members, the qualification of the Company in a
foreign jurisdiction (or amendment to such qualification), the admission of
substitute Members or the dissolution or termination of the Company, provided
such continuation, admission, withdrawal, qualification, or dissolution and
termination are in accordance with the terms of this Agreement.
The foregoing power of attorney is a special power of attorney coupled with
an interest, is irrevocable and shall survive the death, legal incapacity,
dissolution or Bankruptcy of each Member. It may be exercised by said attorney
by listing all of the Members executing any instrument over the signature of the
attorney-in-fact acting for all of them. The power of attorney shall survive the
delivery of an assignment by a Member of the whole or any portion of his or her
Unit. In those cases in which the assignee of, or the successor to, a Member
owning a Unit has been approved by the Members for admission to the Company as a
substitute Member, the power of attorney shall survive for the sole purpose of
enabling the Managing Board to execute, acknowledge and file any instrument
necessary to effect such substitution.
12.16 Arbitration. Any dispute arising out of or in connection with this
Agreement or the breach thereof shall be decided by arbitration in Seattle,
Washington in accordance with the then effective commercial arbitration rules of
the American Arbitration Association, and judgment thereof may be entered in any
court having jurisdiction thereof.
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IN WITNESS WHEREOF, the undersigned, being the Chairman of the Managing
Board and initial Members of the Company, have caused this Agreement to be duly
adopted by the Company as of the date first written above, and do hereby assume
and agree to be bound by and to perform all of the terms and provisions set
forth in this Agreement.
MANAGING BOARD:
By:
____________________________, Chairman
MEMBER:
SUN MEDICAL TECHNOLOGIES, INC.,
a California corporation
By:
Xxxx Xxxxxxx
President
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COUNTERPART SIGNATURE PAGE
By signing this Counterpart Signature Page, the undersigned acknowledges
his or her acceptance of that certain Operating Agreement of Washington
Urological Services, LLC, and his or her intention to be legally bound thereby.
Dated this _________ day of ___________________, 199__.
---------------------------
Signature
---------------------------
Printed Name
STATE OF _______________ )
)
COUNTY OF _____________ )
BEFORE ME, the undersigned Notary Public in and for the State and County
set forth above, on the _______ day of _____________________, 199__, personally
appeared ____________________________, and, being by me first duly sworn, stated
that (s)he signed this Counterpart Signature Page for the purpose set forth
above and that the statements contained therein are true.
---------------------------
Signature of Notary Public
---------------------------
Printed Name of Notary
My Commission Expires:
___________________________
[SEAL]
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OPERATING AGREEMENT OF WASHINGTON UROLOGICAL SERVICES, LLC
SCHEDULE I
Names and Address Initial Capital
of Members Contribution Guaranty(1) Percentage Interest
General Partner
Sun Medical
Technologies, Inc. $33,460 131,450 23.90%
Limited partners
as a whole 114,150 418,550 76.10%
TOTALS $ 147,610 $ 550,000 100.00%
(1) Represents the principal portion of each Member's guaranty obligation, as
each Member's obligation under the Guaranty includes not only principal, but
also (as provided in the Guaranty) accrued and unpaid interest, late payment
penalties and all costs incurred by the Bank in collecting any defaulted
obligations. The principal amount of the loan is $550,000. The Members will
guarantee 1% of the loan (up to a $5,500 principal guaranty) for each Unit
purchased as provided in the Memorandum.
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