1
EXHIBIT 10.12
AGREEMENT OF LIMITED PARTNERSHIP
OF
HEART HOSPITAL IV, L.P.
AS AMENDED
BY THE FIRST, SECOND, THIRD AND FOURTH
AMENDMENTS THERETO
2
AGREEMENT OF LIMITED PARTNERSHIP
OF
HEART HOSPITAL IV, L.P.
A Texas Limited Partnership
THESE SECURITIES ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND THE TEXAS SECURITIES ACT IN
RELIANCE UPON THE REPRESENTATION OF EACH PURCHASER OF THE SECURITIES THAT THE
SAME ARE BEING ACQUIRED FOR INVESTMENT PURPOSES. THESE SECURITIES MAY
ACCORDINGLY NOT BE RESOLD OR OTHERWISE TRANSFERRED OR CONVEYED IN THE ABSENCE OF
REGISTRATION OF THE SAME PURSUANT TO THE APPLICABLE SECURITIES LAWS UNLESS AN
OPINION OF COUNSEL SATISFACTORY TO THE PARTNERSHIP IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.
THIS AGREEMENT OF LIMITED PARTNERSHIP (the "Agreement") of Heart
Hospital IV, L.P. (the "Partnership"), a Texas limited partnership is made and
entered into as of the 22nd day of February, 1996, by and among the Partnership
and HOSPITAL MANAGEMENT IV, INC., a North Carolina corporation ("HM"), as a
general partner and EACH OF THE OTHER PARTIES IDENTIFIED ON SCHEDULE A AS
LIMITED PARTNERS (THE "INVESTOR PARTNERS).
RECITALS
1. The Partnership has been formed to develop, own and operate an
acute care hospital which hospital shall be located in or near Austin, Texas and
shall specialize in all aspects of cardiology and cardiovascular care and
surgery which the HM and the Investor Representatives may agree upon;
2. It is intended that the hospital will be a low-cost, quality
provider of medical services within the Austin, Texas area in a manner which is
consistent with the national health care policy of lowering the costs of health
care;
3. The capital contributions and participation of the Investor
Partners as provided herein are necessary to enable the Partnership to achieve
its objectives.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
definitions (unless otherwise expressly provided herein).
3
1.1 "Adjusted Capital Account" means, with respect to any Partner
or Assignee, such Person's Capital Account as of the end of the relevant fiscal
year of the Partnership with the following adjustments:
(i) credit to such Capital Account any amounts
which such Person is obligated to restore or
is deemed obligated to restore pursuant to
the penultimate sentences of Regulation
Sections 1.704-2(g)(1) (share of minimum
gain) and 1.704-2(i)(5) (share of partner
nonrecourse debt minimum gain); and
(ii) debit to such Capital Account the items
described in Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
1.2 "Affiliate" with respect to a Person, (i) any relative of such
Person; (ii) any officer, director, trustee, partner, manager, employee or
holder of ten percent (10%) or more of any class of the outstanding voting
securities or of an equity interest of such Person; or (iii) any Entity or
holder of ten percent (10%) or more of the outstanding voting securities or of
an equity interest of any Entity, controlling, controlled by, or under common
control with such Person.
1.3 "Agreement" shall mean this Agreement of Limited Partnership,
as amended from time to time.
1.4 "Assignee" shall mean a Person who has acquired a Partner's
Partnership Interest but who has not become a Partner and thereby is only
entitled to the rights granted hereunder to a Person holding an Economic
Interest.
1.5 "Capital Account" shall mean the amount of any Capital
Contributions of each of the Partners, as the same may be (i) increased from
time to time by such Partner's share of Income, (ii) decreased from time to time
by distributions to such Partner and by such Partner's distributive share of
Losses, (iii) increased and/or decreased by those other items required by the
Code and the Regulations thereunder (items described in (i) and (ii) are subject
to change from time to time to comply with the Code and the Regulations), and
(iv) upon or in connection with (1) the liquidation of the Partnership, (2) a
Capital Contribution (other than a de minimis amount) to the Partnership by a
new or existing Partner as consideration for a Partnership Interest in the
Partnership, or (3) a distribution of money or other property (other than a de
minimis amount) by the Partnership to a retiring or continuing Partner as
consideration for a Partnership Interest in the Partnership, the Capital
Accounts of all Partners shall be increased or decreased to reflect a
revaluation of all assets of the Partnership on its books and records in
accordance with the requirements of Treasury Regulation ss. 1.704-1(b)(2)(iv)(f)
or any successor regulatory or statutory provision, as of the date the event
occurs causing the Capital Accounts to be revalued. For purposes of computing
the amount of any item of income, gain, deduction, or loss to be reflected in
the Partners' Capital Accounts, the determination, recognition, and
classification of any such items shall be the same as its determination,
recognition, and classification for Federal income tax purposes (including any
method of depreciation, cost recovery, or amortization used for this purpose);
provided that if in any taxable year the Partnership has in effect an election
under Section 754 of the Code, capital accounts shall be adjusted in accordance
with Treasury Regulation Section 1.704-1(b)(2)(iv)(m). Loans by a
2
4
Partner to the Partnership shall not be considered Capital Contributions. If any
Partner or Assignee shall advance funds to the Partnership in excess of the
amounts required hereunder to be contributed by it to the capital of the
Partnership, the making of such advances shall not result in any increase in the
amount of the Capital Account of such Partner or Assignee, shall be treated
solely as loans, and shall be payable or collectible only out of the Partnership
assets in accordance with the terms and conditions upon which such advances are
made.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulation Section 1.704-1(b)(2)(iv), and shall be interpreted and applied in a
manner consistent with such Regulation. In the event HM and the Investor
Representatives shall determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto, are computed to comply
with such Regulation, HM and the Investor Representatives may make such
modification, provided that it is not likely to have a material effect on the
amounts distributable to any Partner pursuant to Articles VI or VII hereof upon
the dissolution of the Partnership. In the event HM and the Investor
Representatives shall determine such adjustments are necessary or appropriate to
comply with Regulation Section 1.704-1(b)(2)(iv), HM and the Investor
Representative shall adjust the amounts debited or credited to Capital Accounts
with respect to (i) any property contributed by the Partners or distributed to
the Partners and (ii) any liabilities secured by such contributed or distributed
property or assumed by the Partners. HM and the Investor Representatives shall
also make any other appropriate modifications in the event unanticipated events
might otherwise cause this Agreement not to comply with Regulation Section
1.704-1(b). In the event any interest in the Partnership is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest.
1.6 "Capital Contribution" shall mean the gross amount of cash
investment in the Partnership by each and all of the Partners.
1.7 "Cash Distributions" shall mean net cash distributed to
Partners resulting from Cash Flow from Operations or Cash from Sales or
Refinancing, but shall not include cash distributed to HM as its Management Fee
for services or any amount in repayment of loans made by the Partners to the
Partnership.
1.8 "Cash Flow from Operations" shall mean net cash funds provided
from operations of the Partnership or investment of any Partnership funds,
without deduction for depreciation, but after deducting cash funds used to pay
or establish a reserve for expenses, debt payments, capital improvements and
replacements thereof and for such other items as HM and the Investor
Representatives reasonably determine to be necessary or appropriate, provided
that a minimum operating reserve to cover a period of three (3) months is hereby
deemed reasonable.
1.9 "Cash from Sales or Refinancing" shall mean the net cash
proceeds received by the Partnership from or as a result of any Sale or
Refinancing of property after deducting (i) all expenses incurred in connection
therewith, (ii) any amounts applied by HM and the Investor Representatives
toward the payment of any indebtedness and other obligations of the Partnership,
including payments of principal and interest on mortgages, (iii) the payment of
any other expenses or amounts owed by the Partnership to other parties, and (iv)
the establishment of any reserves
3
5
deemed necessary by HM and the Investor Representatives. If the proceeds of any
Sale or Refinancing are paid in more than one installment, each such installment
shall be treated as a separate Sale or Refinancing for the purposes of this
definition.
1.10 "Certificate of Limited Partnership" shall refer to the
Certificate of Limited Partnership of the Partnership, as filed with the
Secretary of State of Texas, as the same may be amended from time to time.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. "Regulations" shall mean rules, orders, and
regulations issued pursuant to or under the authority of the Code. Any reference
herein to a specific section(s) of the Code or Regulations shall be deemed to
include a reference to any corresponding provision of future law.
1.12 "Economic Interest" shall refer to that portion of the
Partnership Interest of a Partner in the economic rights and benefits of the
Partnership, including but not limited to all Income, Loss and Cash
Distributions. Such an Economic Interest will be measured by an amount equal to
the percentage of a Partner's Partnership Interest in the Partnership as the
same may be adjusted from time to time.
1.13 "Entity" shall mean any general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
business trust, cooperative or association or any foreign trust or foreign
business organization.
1.14 "General Partner" or "HM" shall refer to Hospital Management
IV, Inc. which shall serve as the initial general partner of the Partnership or
any Substitute General Partner.
1.15 "Hospital" shall have the meaning provided in Section 2.3
hereof.
1.16 "Income" or "Loss" shall mean, with respect to any fiscal year
or other period, the taxable income or taxable loss in such year or other period
determined by the Partnership in accordance with Code Section 703(a) and
Regulations thereunder, including without limitation, each item of income,
credit, gain, loss, or deduction required to be separately stated pursuant to
Code Section 703(a)(1), determined by the method of accounting then being
utilized by the Partnership (provided it is permitted by the Code), applied on a
consistent basis throughout the period for which taxable income or taxable loss
is determined, adjusted to take into account (i) any income received or accrued
that is exempt from federal income tax; (ii) expenditures and losses referred to
in Code Section 705(a)(2)(B) (or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Regulation Section 1.704-1(b)(2)(iv)(i)), 267(a)(1),
707(b), and 709 which are not deductible, depreciable or amortizable in
computing Income or Loss; (iii) amounts of net income or net loss that would be
recognized if property distributed in kind to a Partner was sold to an unrelated
person at fair market value on the date of distribution, and (iv) expenditures
which reduce capital accounts under Regulation Section 1.704-1(b)(2)(iv)
including, but not limited to, nonamortizable syndication expenses. To the
extent the Partnership recognizes a tax deduction attributable to an amount
included in Income or Loss under the preceding sentence, such amount shall not
again be included in taxable income or taxable loss but shall be allocated among
the Partners in accordance with the allocation of the amount under the preceding
sentence.
4
6
1.17 "Investor Partners" shall mean the Limited Partners other than
VHI listed on Schedule A attached hereto.
1.18 "Investor Representatives" shall refer to the individuals
elected by Investor Partners who shall serve as representatives of the Investor
Partners. The first five (5) Investor Partners who acquire at least a four
percent (4%) Partnership Interest shall be entitled to designate one (1)
Investor Representative; provided that there be no more than five (5) Investor
Representatives unless the then existing Investor Representatives elect to
expand the number of Investor Representatives to a total of up to nine (9). It
is agreed that as long as an original Investor Partner owns at least an eight
percent (8%) Partnership Interest as a result of its merger, or the merger of an
Affiliate, with another Investor Partner, then the original Investor Partner
shall be entitled to designate two (2) Investor Representatives who shall each
have the rights and obligations set forth in the Partnership Agreement.
1.19 "Limited Partners" shall refer to VHI and other individuals or
entities hereafter admitted to the Partnership as Limited Partners.
1.20 "Majority Vote of Investor Partners" shall refer to the
affirmative vote, approval or consent of the then existing Investor Partners
holding sixty-seven percent (67%) of the Partnership Interests held by such
Investor Partners in the aggregate.
1.21 "Majority Vote of Partners" shall refer to the affirmative
vote, approval or consent of Partners holding seventy-six percent (76%) of the
Partnership Interests in the aggregate.
1.22 "Management Fee" shall mean the amounts payable to HM pursuant
to Section 5.6(b)(ii) for services rendered in managing the operations of the
Partnership.
1.23 "MedCath" shall refer to MedCath Incorporated, a North
Carolina corporation, which is the sole shareholder of HM and VHI.
1.24 "Minimum Gain" shall mean the excess, if any, of debt of the
Partnership as to which no Partner is personally liable over the Partnership's
basis in the assets (for Capital Account purposes) that secure such debt, and as
such term is further defined in Regulation Section 1.704-2(d).
1.25 "Organization Expenses" shall mean those expenses incurred,
either by the Partnership or for which the Partnership has agreed to make
reimbursement, in connection with the formation of the Partnership which shall
be subject to the reasonable approval of the Investor Representatives and which
shall include such expenses as: (i) registration fees, filing fees, and taxes;
and (ii) legal and accounting fees incurred in connection with any of the
foregoing.
1.26 "Partner" shall refer to the General Partner and each of the
Limited Partners identified in the then applicable Schedule A attached hereto
and incorporated herein by this reference. If a Person is already a Partner
immediately prior to the purchase or other acquisition by such Person of an
Economic Interest or Partnership Interest, such Person shall have all the rights
of
5
7
a Partner with respect to such purchased or otherwise acquired Partnership
Interest or Economic Interest, as the case may be.
1.27 "Partnership" shall refer to Heart Hospital IV, L.P., which
shall be created upon the filing of the Certificate of Limited Partnership with
the Office of the Secretary of State of Texas, to be operated under the name
Heart Hospital IV, L.P., a Texas limited Partnership, and to continue under this
Agreement, as amended from time to time.
1.28 "Partnership Interest" shall mean all of a Partner's rights in
the Partnership, including without limitation the Partner's share of the
profits, losses and benefits of the Partnership, the right to receive
distributions of the Partnership assets, any right to vote, any right to
participate in the management of the business and affairs of the Partnership,
including the right to vote on, consent to, or otherwise participate in any
decision or action of or by the Partners granted pursuant to this Operating
Agreement or the Texas Act. The percentage Partnership Interest of each Partner,
their Capital Contributions and other related information shall be listed on
Schedule A. Partnership Interests shall be based upon the pro rata Capital
Contribution of each Partner.
1.29 "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors, and assigns of
such individual or Entity where the context so permits.
1.30 "Prime Rate" means the rate of interest as of the relevant day
or time period as announced by the First Union National Bank, N.A. or its
successor in interest from time to time as its prime or reference rate.
1.31 "Refinancing" means any borrowing incurred or made to
recapitalize the Partnership or the equity investment in, or to refinance any
loan used to finance the acquisition of property.
1.32 "Sale" means the sale, exchange, involuntary conversion (other
than a casualty followed by reconstruction), condemnation, or other disposition
of property by the Partnership, except for dispositions of inventory items and
personal property in the ordinary course of business and in connection with the
replacement of such property.
1.33 "Substitute General Partner" shall mean a General Partner who
succeeds either HM or another General Partner with all of the specific rights
and powers of such General Partner under this Agreement.
1.34 "Substitute Investor Representative" shall mean an Investor
Representative who succeeds an Investor Representative with all of the specific
rights and powers of such Investor Representative under this Agreement.
1.35 "Substitute Partner" shall mean an Assignee of a Partner who
has been admitted to the Partnership and granted all the rights of a Partner in
place of his or her assignor pursuant to the provisions of this Agreement. A
Substitute Partner, upon his or her admission as such, shall replace and succeed
to the rights, privileges, and liabilities of the Partner from whom he or she
acquired his or her interest in the Partnership, to the extent of the
Partnership Interest assigned.
6
8
1.36 "Texas Act" means the Texas Revised Limited Partnership Act.
1.37 "VHI" shall refer to Venture Holdings, Inc., an Arizona
corporation, which is a Limited Partner in the Partnership.
ARTICLE II
FORMATION AND AGREEMENT OF LIMITED PARTNERSHIP
2.1 Partnership Formation and Agreement. The Partnership will be
formed upon the execution of this Agreement and the execution and filing by HM
on behalf of the Partnership of the Certificate of Limited Partnership with the
Secretary of State of Texas in accordance with the provisions of the Texas Act.
HM shall execute or cause to be executed all other such certificates or
documents, and shall do or cause to be done all such filing, recording, or other
acts, as may be necessary or appropriate from time to time to comply with the
requirements of law for the continuation and/or operation of a limited
partnership in the State of Texas and other documents to reflect the admission
of additional Partners to the Partnership. Any costs incurred by HM in
connection with the foregoing shall be reimbursed promptly upon the completion
of such action.
2.2 Name of Partnership. The name of the Partnership is Heart
Hospital IV, L.P., a Texas limited partnership.
2.3 Purposes and Investment Objectives. The principal purposes of
the Partnership are as follows:
(a) To develop, own and operate an acute care hospital
specializing in all aspects of cardiology and cardiovascular care and
surgery in Austin, Texas (the "Hospital") which would include, but not
be limited to, the following:
(i) Services and facilities to meet all
requirements of the State of Texas, Medicare, JCAHO and other
credentialing or licensing bodies or agencies in order to have
the Hospital licensed as a general acute care hospital and to
perform cardiology and cardiovascular surgical services of
every type or nature and to be eligible to obtain appropriate
reimbursements therefor;
(ii) Sixty to ninety thousand square feet in a
building to be constructed in accordance with plans and
specifications approved by the Partnership;
(iii) Forty to eighty medical/surgical beds;
(iv) Two to three heart catheterization
laboratories;
(v) Two to three heart surgical suites;
7
9
(vi) All appropriate support services and
systems;
(vii) Appropriate equipment and services with
respect to the facilities described above and as otherwise
reasonably necessary or appropriate for the diagnosis and
treatment of cardiovascular disease, including but not limited
to invasive and non-invasive cardiac testing, interventional
treatment including percutaneous transluminal coronary
angioplasty and atherectomy, and cardiac surgery which would
include, but not be limited to, bypass grafts and valve
surgery;
The above size, number and scope of facilities of the Hospital
are only preliminary estimates. HM and the Investor Representatives are
authorized to finally make all determinations with respect thereto.
(b) To lease or acquire the real property, and if
appropriate to construct a suitable building, in which the Hospital
shall be located;
(c) Any other purpose reasonably related to (a) and (b)
above.
2.4 Registered Office and Principal Place of Business; Registered
Agent. The principal place of business of the Partnership shall be maintained at
the Texas offices of HM or such other place in the State of Texas as HM shall
designate. The Registered Agent of the Partnership shall be CT Corporation
System and the Registered Office of the Partnership is c/o CT Corporation
System, 000 X. Xx. Xxxx Xxxxxx, Xxxxxx, Xxxxx 00000. HM shall promptly notify
the Partners of any changes in the principal place of business, the registered
office, or the registered agent of the Partnership.
2.5 Commencement and Term. The Partnership shall commence on the
filing of the Certificate of Limited Partnership in the Office of the Secretary
of State of Texas, as required by Section 2.1 hereof, and shall continue until
December 31, 2035, unless sooner terminated or dissolved as provided herein;
provided, however, that the termination date may be extended for up to an
additional forty (40) years in five (5) year increments upon the election of HM.
In the event HM does not elect to extend the term hereof, the Investor
Representatives may instead elect to extend the term hereof, subject to HM's
consent which shall not be unreasonably withheld or delayed.
ARTICLE III
PARTNERS AND CAPITAL CONTRIBUTIONS
3.1 Contributions of Partners. The Partners shall contribute
capital as follows:
(a) HM shall contribute to the Partnership for its
Partnership Interest at least Thirty Thousand Dollars ($30,000.00).
8
10
(b) VHI shall contribute for its Partnership Interest at
least One Million Five Hundred Thousand Dollars ($1,500,000.00).
(c) The Investor Partners shall contribute to the
Partnership for their Partnership Interests an amount, in the
aggregate, of up to One Million Four Hundred Seventy Thousand Dollars
($1,470,000.00).
The Partnership Interests of the Investor Partners shall be owned as
shown on Schedule A attached hereto. The Partners may be liable to the
Partnership for amounts distributed to them as a return of capital as
provided by the Texas Act. The Partners shall not be required to
contribute any additional Capital Contributions to the Partnership
except as provided in Section 3.5.
3.2 Liability of Partners - For Capital. The liability of each
Limited Partner, as such, shall be limited to the amount of his agreed Capital
Contribution as a Limited Partner as provided in Section 3.1. The liability of
the General Partner, as such, shall be limited to the amount of its agreed
Capital Contributions as a General Partner as provided in Section 3.1.
3.3 Partners' Accounts and Withdrawals. An individual Capital
Account shall be maintained for each Partner in accordance with requirements of
the Code and the Regulations promulgated thereunder. No Partner shall be
entitled to withdraw or to make demand for withdrawal of any part of his or her
Capital Account or to receive any distribution except as provided herein.
3.4 Interest on Capital Contributions. No interest shall be paid
on Capital Contributions.
3.5 Additional Funding. If from time to time, HM and the Investor
Representatives determine that funds in addition to that contemplated by
Sections 3.1 and 3.2 are necessary or appropriate for the development or
operation of the Hospital, then:
(a) First, HM shall use commercially reasonable efforts
to borrow such funds from a bank or other lender on terms and
conditions reasonably acceptable to HM, or HM may, but shall not be
required, to loan such funds to the Partnership at the Prime Rate plus
one percent (1%) per annum which loan shall be secured by the
Partnership's assets. Interest shall be paid monthly in arrears and
principal shall be repaid as the Partnership has funds available
therefor. All loans obtained hereunder shall be subject to the approval
of HM and the Investor Representatives which approval shall not be
unreasonably withheld or delayed;
(b) Second, if loans as provided in (a) above are not
available, HM and the Investor Representatives may decide to request
that the Partners contribute additional capital to the Partnership pro
rata according to their respective Partnership Interests. If additional
Capital Contributions are so requested, each Partner may elect whether
or not to contribute its pro rata portion thereof. The other Investor
Partners may elect to contribute capital not contributed by any
Investor Partner hereunder. HM or VHI may then elect to contribute
amounts which the Investor Partners, in the aggregate, have not so
contributed. Thereafter,
9
11
HM and the Investor Representatives shall reasonably adjust the
Partnership Interest of each Partner (taking into consideration the
Capital Contributions made by the Partners in accordance with this
Section 3.5) in the event any Partner elects not to contribute capital
pursuant to a capital call approved in accordance with this Section
3.5;
(c) If funds are not available in accordance with (a) or
(b) above, then HM and the Investor Representatives may elect to
dissolve the Partnership.
3.6 Intentionally Omitted.
ARTICLE IV
NAMES AND ADDRESSES OF INITIAL PARTNERS
4.1 The names and addresses of the Partners are as follows:
Name Address
---- -------
- Hospital Management IV, Inc. 0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
- See the Partners listed on Schedule A attached hereto.
ARTICLE V
MANAGEMENT OF THE PARTNERSHIP
5.1 General Authority and Powers of HM and the Investor
Representatives. Subject to the terms of this Agreement, including without
limitation Section 5.16 hereof, HM and the Investor Representatives shall be
responsible for developing management and administrative policies for the
overall operation of the Hospital. HM and the Investor Representatives shall
have the following duties and obligations:
(a) Hospital Development. HM and the Investor
Representatives shall approve the development plan for the Hospital,
the selection of the site for the Hospital, the design of the Hospital
and the construction contracts for the development of the Hospital.
(b) Capital Improvements and Expansion. Any renovation
and expansion plans and capital equipment expenditures with respect to
the Hospital shall be reviewed and approved by HM and the Investor
Representatives and shall be based upon economic feasibility, patient
care criteria and then current market conditions.
10
12
(c) Annual Budgets. All annual capital and operating
budgets, including financing plans, prepared by HM shall be subject to
the review and approval of HM and the Investor Representatives.
(d) Marketing. All advertising and other marketing of the
services performed at the Hospital shall be subject to the prior review
and approval of HM and the Investor Representatives.
(e) Patient Fees. As a part of the annual operating
budget, HM and the Investor Representatives shall review and adopt the
charge schedule for all services rendered by the Hospital.
(f) Ancillary Services. HM and the Investor
Representatives shall approve Hospital-provided ancillary services
based upon the pricing, access to and quality of such services.
(g) Provider and Payor Relationships. Decisions regarding
the establishment or maintenance of relationships with other health
care providers and payors shall be made by HM and the Investor
Representatives.
(h) Strategic Planning. HM and the Investor
Representatives shall develop long-term strategic planning objectives
and adopt a strategic plan for the Hospital.
(i) Capital Expenditures. HM and the Investor
Representatives shall determine the priority of major capital
expenditures.
(j) Senior Administrator. The selection, retention and
removal of the senior administrator for the Hospital (the "Senior
Administrator") shall be subject to the approval of HM and the Investor
Representatives.
(k) Other Material Decisions. HM and the Investor
Representatives shall approve all Material Agreements and Material
Decisions. "Material Agreement" and "Material Decision" shall mean (i)
any agreement or decision defined elsewhere in this Agreement as a
Material Agreement or Material Decision and (ii) any binding agreement
which may not be canceled upon less than thirty (30) days notice and
which calls for the expenditure of funds, or involves an obligation for
financing, in excess of $50,000.00 exclusive of agreements or
obligations contemplated by any budget, development plan, financing or
construction contract approved by HM and the Investor Representatives
or agreements incurred in the ordinary course of business such as
employment agreements, purchases of supplies and routine services and
the like.
(l) Exclusive Contracts. HM and the Investor
Representatives shall approve the execution of exclusive contracts to
provide physician services to the Hospital.
(m) Global Contracting. HM and the Investor
Representatives shall develop and approve a unified managed care
strategy under which the Hospital and physicians practicing
11
13
at the Hospital would enter into managed care agreements, including
agreements containing package pricing for the Hospital and such
physicians' services.
The day-to-day management of the business and affairs of the
Partnership shall be the responsibility of HM, which management shall be subject
to decisions, guidelines and policies made or established by HM and the Investor
Representatives hereunder, provided, however, decisions relating to medical and
clinical practice at the Hospital shall be made exclusively by the qualified
medical personnel of the Hospital. Subject in all cases to the foregoing, HM
shall have the right and the power, if, as, and when it, from time to time,
deems necessary or appropriate on behalf of the Partnership, subject only to the
terms and conditions of this Agreement:
(a) To negotiate and execute on behalf of the Partnership
all documents, instruments and agreements reasonably necessary or
appropriate to lease, acquire and/or construct the Hospital and/or the
real property on which the Hospital is or will be located, and to
borrow funds to finance such lease, acquisition and/or construction (it
being acknowledged that the Hospital may be an existing building or may
be a newly constructed building);
(b) To prepare a budget for the development of the
Hospital and thereafter, annual operating budgets;
(c) To acquire all appropriate equipment and supplies
required from time to time in connection with the development and
operation of the Hospital (the "Equipment") and loans or other
financing therefor;
(d) The negotiation and execution of all such other
agreements regarding the purchase of goods or services for the
Hospital;
(e) Subject to the terms of the hospital and medical
staff bylaws to be adopted for the Hospital, propose procedures for
quality assurance, peer review and granting privileges to physicians
with other specialties at the Hospital;
(f) To expend all or portions of the Partnership's
capital and income in furtherance of or relating to the Partnership's
business and purposes, including, but not limited to, payment of all
ongoing operational expenses, payment of commissions, organization
expenses, professional fees, rental fees, and management fees, and to
invest in short-term debt obligations (including, but not limited to,
obligations of Federal and state governments and their agencies,
commercial paper, and certificates of deposit of commercial banks, or
savings banks or savings and loan associations) such of the
Partnership's funds as are temporarily not required for the development
or operation of the Partnership and the payment of Partnership
obligations; provided that HM and the Investor Representatives shall
establish cash management guidelines to be followed by HM;
(g) To employ or retain on such terms and for such
compensation as HM may reasonably determine, such persons, firms, or
corporations as HM may deem advisable, including without limitation
qualified medical and other employees necessary or appropriate
12
14
to operate the Hospital, attorneys, accountants, financial and
technical consultants, supervisory managing agents, insurance brokers,
brokers and loan brokers, appraisers, architects and engineers, who may
also provide such services to HM, provided that the selection of the
Senior Administrator shall be a Material Decision;
(h) To execute leases, deeds, contracts, rental
agreements, construction contracts, sales agreements, and management
contracts;
(i) To exercise all rights, powers, and privileges of the
Partnership as lessee with respect to the Hospital or rights held by
the Partnership;
(j) To consent to the modification, renewal, or extension
of any obligations to the Partnership of any person or of any agreement
to which the Partnership is a party or of which it is a beneficiary;
(k) To execute in furtherance of any or all of the
purposes of the Partnership, any deed, lease, deed of trust, security
interest, mortgage, promissory note, xxxx of sale, assignment,
contract, or other instrument purporting to purchase or convey or
encumber in whole or in part the Equipment or the Hospital or other
real or personal property of the Partnership;
(l) To prepay in whole or in part, refinance, recast,
increase, modify, or extend any security interest, deed of trust, or
mortgage affecting the Hospital and in connection therewith to execute
any extensions or renewals thereof on the Hospital and to grant
security interests in any of the Equipment or the Hospital;
(m) To adjust, compromise, settle, or refer to
arbitration any claim against or in favor of the Partnership, and to
institute, prosecute, and defend any actions or proceedings relating to
the Partnership, its business, and properties;
(n) To acquire and enter into any contract of insurance
which XX xxxxx necessary or appropriate for the protection of the
Partnership and HM, for the conservation of the Partnership or its
assets, or for any purpose beneficial to the Partnership; however,
neither HM nor its Affiliates shall be compensated for providing
insurance brokerage services relating to obtaining such insurance;
(o) To prepare or cause to be prepared reports,
statements, and other relevant information for distribution to the
Partners including annual reports;
(p) To open accounts and deposit and maintain funds in
the name of the Partnership in banks or savings and loan associations;
provided, however, that the Partnership's funds shall not be commingled
with the funds of any other Person;
(q) To cause the Partnership to make or revoke any of the
elections referred to in Section 754 of the Internal Revenue Code of
1986 as amended or any similar provisions enacted in lieu thereof;
13
15
(r) To make all decisions related to generally accepted
principles of accounting to be applied on a consistent basis and
Federal income tax elections;
(s) Generally, to possess and exercise any and all of the
rights, powers and privileges of a General Partner under the Texas Act;
(t) To execute, acknowledge, and deliver any and all
documents or instruments in connection with any or all of the
foregoing;
(u) To manage, direct, and guide the operation of the
Hospital, other than medical or clinical matters which shall be under
the direction of qualified medical personnel, including all necessary
acts relating thereto;
(v) To establish minimum insurance requirements for all
physicians practicing at the Hospital;
(w) To admit as Limited Partners after the Termination
Date (as extended) additional investors who have been approved by a
Majority Vote of Investor Partners;
(x) Subject to Section 5.2(j), to sell assets of the
Partnership;
(y) Subject to applicable law and to the terms of the
hospital and medical staff bylaws to be hereafter adopted, in order to
assure the availability to the Hospital of qualified physicians and to
maintain the quality of medical services to be provided by the
Hospital, the execution of exclusive professional services agreements
with professional associations or professional limited liability
companies, who directly or through their owners or Affiliates, became
Partners prior to the Termination Date and thereafter with physicians
approved by HM and the Investor Representatives under which such
physicians shall serve as the exclusive providers of cardiology
services to the Hospital. All physicians in such professional
associations or professional limited liability companies who provide
such services to the Hospital must obtain medical staff membership and
privileges in accordance with the bylaws and the reasonable rules and
regulations adopted by the Hospital. Subject to applicable law and to
the terms of the hospital and medical staff bylaws to be hereafter
adopted, in order to assure the availability to the Hospital of
qualified physicians and to maintain the quality of medical services to
be provided by the Hospital, the execution of an exclusive professional
services agreement with the first professional association or
professional limited liability company which specializes in
cardiovascular surgery which, directly or indirectly, through its
owners or Affiliates, became a Partner herein prior to the Termination
Date under which such physicians shall serve as the exclusive providers
of cardiovascular surgery services to the Hospital for the two year
period commencing as of the effective date of the Hospital's Medicare
certification. All such physicians in such professional association or
professional limited liability company who provide service to the
Hospital must obtain medical staff membership and privileges in
accordance with the bylaws and the reasonable rules and regulations
adopted by the Hospital; and
14
16
(z) Upon written request of the Investor Representatives,
establish a medical practice committee to make medical and clinical
decisions with respect to patient care matters whose voting members
shall be physicians selected by Partners provided that such committee
shall no longer exist once the medical staff is chosen and the medical
staff bylaws are adopted.
5.2 Restrictions on Authority of HM and the Investor
Representatives. Neither HM nor the Investor Representatives shall do any of the
following:
(a) Act in contravention of this Agreement;
(b) Act in any manner which would make it impossible to
carry on the express business purposes of the Partnership;
(c) Commingle the Partnership funds with those of any
other Person;
(d) Admit an additional General Partner, Investor
Representative, Substitute General Partner, or Substitute Investor
Representative, except as provided in this Agreement;
(e) Admit an additional Limited Partner, except as
provided in this Agreement;
(f) Alter the primary purposes of the Partnership as set
forth in Section 2.3;
(g) Possess any property or assign the rights of the
Partnership in specific property for other than a Partnership purpose;
(h) Employ, or permit the employ of, the funds or assets
of the Partnership in any manner except for the exclusive benefit of
the Partnership;
(i) Make any payments of any type, directly or
indirectly, to anyone for the referral of patients to the Hospital in
order to use the Hospital or to provide other services payable by
Medicare or Medicaid;
(j) Sell all or substantially all of the assets of the
Partnership or merge the Partnership with or into any other Entity
without the approval of a Majority Vote of the Partners;
(k) Cause the Hospital, once it has opened for business,
to cease its operations, without the consent of HM and a Majority Vote
of Investor Partners unless after the Hospital has been operating for
at least three (3) years, the net revenues of the Hospital have been
less than expenses, including payments of principal and interest due
with respect to any indebtedness, of the Hospital, during the previous
twelve (12) month period, in which event either HM or any Investor
Representative who has guaranteed outstanding financing (debt or
leases) of Two Million Dollars ($2,000,000.00) or more may upon one
hundred twenty (120) days prior written notice to the other General
Partners and Investor Representatives,
15
17
require the Hospital to cease its operations and cause the Partnership
to be dissolved unless within such one hundred twenty (120) day period
HM and the Investor Representatives are able to refinance such
financing without the requirement for any guarantee by HM, an Investor
Representative or any Partner hereof, provided however, in the event
that substantially all of the assets of MedCath or of HM, or more than
fifty percent (50%) of its capital stock or the capital stock of HM,
has been sold to an unrelated third party, then upon the consummation
of such transaction, the reference above to "twelve (12) months" shall
be deemed to be deleted herefrom and "twenty-four (24) months" shall be
substituted in lieu thereof.
5.3 Duties of HM and the Investor Representatives. HM and each
Investor Representative shall do the following:
(a) Diligently and faithfully devote such of its time to
the business of the Partnership as may be necessary to properly conduct
the affairs of the Partnership and, in the case of HM, perform the
duties for which it will receive a Management Fee as provided in
Section 5.6(b), or otherwise; however, HM and each Investor
Representative shall not be required to devote its full time to such
duties;
(b) Use its best efforts to cause the Partnership to
comply with such conditions as may be required from time to time to
permit the Partnership to be classified for Federal income tax purposes
as a partnership and not as an association taxable as a corporation;
(c) In the case of HM file and publish all certificates,
statements, or other instruments required by law for the formation and
operation of the Partnership as a partnership in all appropriate
jurisdictions;
(d) In the case of HM cause the Partnership to obtain and
keep in force during the term of the Partnership fire and extended
coverage and public liability and professional liability insurance with
such issuers and in such amounts as HM and the Investor
Representatives, deem advisable; and
(e) Have a fiduciary duty to conduct the affairs of the
Partnership in the best interests of the Partnership and of the
Partners, including the safekeeping and use of all funds and assets,
whether or not in its immediate possession and control, and it shall
not employ or permit others besides HM and the Investor Representatives
to employ such funds or assets in any manner except for the benefit of
the Partnership.
5.4 Delegation by HM and the Investor Representatives. Subject to
restrictions otherwise provided herein, HM and the Investor Representatives may
at any time employ any other Person, including Persons employed by, affiliated
with, or related to HM and the Investor Representatives to perform services for
the Partnership and its business, and may delegate all or part of their
authority or control to any such other Persons, provided that such employment or
delegation shall not relieve HM and the Investor Representatives of their
respective responsibilities and obligations under this Agreement or, if
applicable, under the laws of the State of Texas nor will it make any such
person a Partner of the Partnership.
16
18
5.5 Right to Rely Upon the Authority of HM. All actions and
decisions of the Partnership, including those actions or decisions reserved to
the Partners, the Limited Partners, the Investor Partners, or HM and the
Investor Partners, shall be taken or carried out by and through HM. Persons
dealing with the Partnership may rely upon the representation of HM as to (a)
the identity of the General Partner or any Limited Partner or Investor Partner;
(b) the existence or nonexistence of any fact or facts that constitute a
condition precedent to acts by a Partner (including, without limitation, the
power and authority of HM and the Investor Representatives to bind the
Partnership in any of the matters or to authorize and direct HM to take any of
the actions described in this Agreement) or which are in any other manner
germane to the affairs of the Partnership; or (c) any act or failure to act by
the Partnership or any other matter whatsoever involving the Partnership or any
Partner. In addition, no purchaser from the Partnership shall be required to
determine the sole and exclusive authority of HM to sign and deliver on behalf
of the Partnership any instruments of transfer with respect thereto or to see to
the application or distribution of revenues or proceeds paid or credited in
connection therewith, unless such purchaser shall have received written notice
from the Partnership affecting the same.
5.6 Partnership Expenses.
(a) In general, the Partnership's expenses shall be
billed directly to and paid by the Partnership. The Partnership shall
reimburse HM and the Investor Representatives or their Affiliates for:
(i) all Organization Expenses incurred by HM and the Investor
Representatives or their Affiliates in connection with the formation of
the Partnership; (ii) the actual costs to HM and the Investor
Representatives or their Affiliates of goods, services, and materials
used for and by the Partnership; and (iii) all reasonable travel and
other out-of-pocket expenses incurred by HM and the Investor
Representatives in the development and management of the Partnership
and its business. The reimbursement for expenses provided for in this
Section 5.6(a) shall be made to HM and the Investor Representatives or
their Affiliates regardless of whether any distributions are made to
the Partners under Article VI and Article VII.
(b) The Partnership shall also pay the following expenses
of the Partnership:
(i) All development and operational
expenses of the Partnership, which may include, but are not
limited to: the salary and related expenses of employees and
staff of the Hospital, all costs of borrowed money, taxes, and
assessments on the Hospital, and other taxes applicable to the
Partnership; expenses in connection with the acquisition,
maintenance, leasing, refinancing, operation, and disposition
of the Equipment, furniture and fixtures of the Hospital
(including legal, accounting, audit, commissions, engineering,
appraisal, and the other fees); the maintenance of the
Hospital and its Equipment may be performed by HM or one of
its Affiliates as long as the charges to the Partnership for
such service are no greater than the charges for such service
from a third party service provider;
(ii) In addition to reimbursements and
other amounts due hereunder, a Management Fee equal to [***]
17
[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
19
($[***]) per year due to HM which fees shall first accrue
commencing on the first to occur of (the "Completion Date")
(X) the substantial completion of the construction of the
Hospital if the Hospital is to be located in a new building
(whether to be leased to or owned by the Partnership), or (Y)
the closing of the purchase of the real property in which the
Hospital is to be located if located in an existing building
(either by the Partnership or by a third party who shall in
turn lease such building to the Partnership) and which fees
shall be increased annually by the Consumer Price Index
reasonably applied by HM on January 1st of each year. The
Management Fee shall compensate HM for the efforts of
employees of HM or its Affiliates in managing all aspects of
the development of the Hospital (i.e., seeking Investor
Partners, the design, construction and financing of the
Hospital) and in supervising the business of the Partnership
after the Hospital commences operations;
(iii) A fee of One Hundred Thousand
Dollars ($100,000.00) payable to the medical director of the
Hospital which fee shall first accrue commencing as of the
Completion Date, which fee shall be increased annually by the
Consumer Price Index reasonably applied by HM on January 1st
of each year. The medical director shall be a cardiologist and
shall be elected by a Majority Vote of Investor Partners for a
two (2) year term subject however to the terms of the medical
staff bylaws;
(iv) All fees and expenses paid to third
parties for accounting, legal, documentation, professional,
and reporting services to the Partnership, which may include,
but are not limited to: preparation and documentation of
Partnership bookkeeping, accounting and audits; preparation
and documentation of budgets, cash flow projections, and
working capital requirements; preparation and documentation of
Partnership state and federal tax returns; and taxes incurred
in connection with the issuance, distribution, transfer,
registration, and recordation of documents evidencing
ownership of a Partnership Interest or Economic Interest in
the Partnership or in connection with the business of the
Partnership; expenses in connection with preparing and mailing
reports required to be furnished to the Partners or Assignees
for tax reporting or other purposes, including reports, if
any, that may be required to be filed with any federal or
state regulatory agencies, or expenses associated with
furnishing reports to Partners which HM and the Investor
Representatives deem to be in the best interest of the
Partnership; expenses of revising, amending, converting,
modifying, or terminating the Partnership or this Agreement;
costs incurred in connection with any litigation in which the
Partnership is involved as well as any examination,
investigation, or other proceedings conducted by any
regulatory agency involving the Partnership; costs of any
computer equipment or services used for or by the Partnership;
the costs of preparing and disseminating informational
material and documentation relating to potential sale,
refinancing, or other disposition of the Hospital or the
Equipment.
(c) Neither HM nor its Affiliates shall be paid or
reimbursed for the overhead of its corporate offices including, without
limitation, the costs of employees of HM or of its Affiliates, unless
those employees work full-time for the Hospital (or part-time as
approved
18
[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
20
by HM and the Investor Representatives), in which event such expenses
shall be paid by the Partnership.
5.7 No Management by Partners. Other than HM and the Limited
Partners acting through the Investor Representatives to the extent permitted
under this Agreement, the Partners shall take no part in, or at any time
interfere in any manner with, the management, conduct, or control of the
Partnership's business and operations and shall have no right or authority to
act for or bind the Partnership except as set forth in this Agreement. The
rights and powers of such Partners shall not extend beyond those set forth in
this Agreement and those granted under the Certificate of Limited Partnership
and any attempt to participate in the control of the Partnership in a manner
contrary to the rights and powers granted herein and under the Certificate of
Limited Partnership shall be null and void and without force and effect. Subject
to the decisions and judgement with respect to all professional medical or
clinical matters of qualified medical personnel, HM and the Investor
Representatives shall have the right to determine when and how the operations of
the Partnership shall be conducted in accordance with the terms of this
Agreement. The exercise by any Limited Partner of any of the rights granted him
hereunder shall not be deemed to be taking part in the control of the business
of the Partnership and shall not constitute a violation of this section.
5.8 Consent by Partners to Exercise of Certain Rights and Powers
by HM and the Investor Representatives. By its execution hereof, each Partner
expressly consents to the exercise by HM and the Investor Representatives of the
rights, powers, and authority conferred on HM and the Investor Representatives
by this Agreement.
5.9 Other Business of Partners.
(a) Subject to (b) below, any Partner, including without
limitation HM or any Investor Partner that has the right to appoint an
Investor Representative under this Agreement, may engage independently
or with others in other business ventures of every nature and
description, including without limitation the purchase of medical
equipment, the rendering of medical services of any kind, and the
making or management of other investments and neither the Partnership
nor any Partner shall have any right by virtue of this Agreement or the
relationship created hereby in or to such other ventures or activities
or to the income or proceeds derived therefrom, and the pursuit of such
ventures.
(b) As long as any Partner owns a Partnership Interest
herein, and for a period of five (5) years after a Partner ceases for
any reason to own a Partnership Interest in the Partnership, neither a
Partner nor any of its respective Affiliates shall hold, directly or
indirectly, an investment, ownership or other beneficial interest in
(i) any hospital or (ii) other Entity which provides any of the
following services or facilities: cardiac catheterization, angioplasty,
peripheral angioplasty, atherectomy, stenting and PTCA or other cardiac
surgical procedures or services, in either case within a fifty (50)
mile radius of the Hospital (the "Territory"), provided that (i) no
Partner who is a physician shall be prohibited from or maintaining his
or her staff privileges at any other hospital, (ii) nothing herein
shall prohibit a Partner from owning up to three percent (3%) of the
outstanding capital stock of a company whose stock is publicly traded
and listed on a nationally recognized securities exchange or from
investing in a publicly traded mutual fund, and (iii)
19
21
nothing herein shall restrict a Partner from entering into managed care
or other professional service agreements with health care facilities
within the Territory the purpose of which is to enable the Partner or
its physicians the opportunity to provide professional services either
alone or pursuant to a pricing package with such facility as long as
such agreements or arrangements do not constitute or represent,
directly or indirectly, an interest in such health care facilities (the
sharing of funds in a risk sharing pool or arrangement created by such
package pricing shall not constitute a violation of this subsection
(b)). In addition, HM or its Affiliates may separately operate a mobile
catheterization laboratory within the Territory, but only if either HM
or an Affiliate thereof is providing such service pursuant to a lease
of six (6) months or less to a provider who is already providing cath
lab services or if HM and the Investor Representatives have elected not
to have such service provided by the Partnership.
(c) The Partners have reviewed the term and geographical
restrictions included in Section 5.9(b), and in light of the interests
of the parties hereto, agree that such restrictions are fair and
reasonable.
(d) If there is a breach or threatened breach of the
provisions of this Section 5.9 of this Agreement, in addition to other
remedies at law or equity, the non-breaching party shall be entitled to
injunctive relief. The parties desire and intend that the provisions of
this Section 5.9 shall be enforced to the fullest extent permissible
under the law and public policies applied, but the unenforceability or
modification of any particular paragraph, subparagraph, sentence,
clause, phrase, word, or figure shall not be deemed to render
unenforceable the remainder of this Section 5.9. Should any such
paragraph, subparagraph, sentence, clause, phrase, word, or figure be
adjudicated to be wholly invalid or unenforceable, the balance of this
Section 5.9 shall thereupon be modified in order to render the same
valid and enforceable and the unenforceable portion of this Section 5.9
shall be deemed to have been deleted from this Agreement.
(e) The Partnership, HM, VHI, the Investor
Representatives and the Investor Partners agree that the benefits to
any Investor Partner hereunder do not require, are not payment for, and
are not in any way contingent upon the referral, admission or any other
arrangement for the provision of any item or service offered by HM or
the Partnership to patients of such Investor Partner in any facility,
laboratory, cardiac catheterization facility or other health care
operation controlled, managed or operated by HM or the Partnership and
nothing herein is intended to prohibit any party from practicing
medicine at any other facility.
(f) If an Investor Partner is a legal entity and not an
individual, such Investor Partner shall cause each of its existing and
future Affiliates to agree in writing to be personally bound by the
terms of this Section 5.09.
5.10 HM's and Investor Representatives' Standard of Care. HM and
each Investor Representative shall act in a manner he, she or it believes in
good faith to be in the best interest of
20
22
the Partnership and with such care as an ordinarily prudent person in a like
position would use under similar circumstances. In discharging its duties, HM
and each Investor Representative shall be fully protected in relying in good
faith upon the records required to be maintained under this Agreement and upon
such information, opinions, reports and statements by any of its other General
Partners, Investor Representatives, Partners, or agents, or by any other person
as to matters HM or such Investor Representative, as the case may be, reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Partnership,
including any formation, opinions, reports or statements as to the value and
amount of the assets, liabilities, profits or losses of the Partnership or any
other facts pertinent to the existence and amount of assets from which
distributions to members might properly be paid.
Notwithstanding anything herein to the contrary, a Partner or an
Investor Representative shall have the right to vote or approve Partnership
matters in accordance with the terms of this Agreement regardless of the
personal interest of any Partner or any Investor Representative in the outcome
of any vote, decision or matter.
5.11 Limitation of Liability. HM and the Investor Representatives
shall not be liable to the Partnership or its Partners for any action taken in
managing the business or affairs of the Partnership if he, she or it performs
the duty of his, her or its office in compliance with the standard contained in
Section 5.10. Neither HM nor the Investor Representatives has guaranteed nor
shall have any obligation with respect to the return of a Partner's Capital
Contribution or profits from the operation of the Partnership. Furthermore,
neither HM or any Investor Representative, their Affiliates or their employees
(collectively, their "Agents") shall be liable to the Partnership or to any
Partner for any loss or damage sustained by the Partnership or any Partner
except loss or damage resulting from gross negligence or intentional misconduct
or knowing violation of law or a transaction for which HM, such Investor
Representative or Agent received a personal benefit in violation or breach of
the provisions of this Agreement.
5.12 Indemnification of HM and the Investor Representatives.
(a) To the fullest extent permitted under the Texas Act
and any other applicable law, each of HM, the Investor Representatives
and their Agents (an "Indemnitee") shall be indemnified by the
Partnership against any losses, judgments, liabilities, expenses,
including attorneys' fees and amounts paid in settlement of any claims
sustained by them arising out of any action or inaction of the
Indemnitee in its capacity as a General Partner or Investor
Representative of the Partnership (or, in the case of an Agent, within
the scope of the General Partner's or Investor Representative's
authority), provided that the same were not the result of gross
negligence or willful misconduct on the part of an Indemnitee and
provided that the Indemnitee, in good faith, reasonably determined that
such course of conduct was in the best interest of the Partnership;
provided, however, that such indemnification and agreement to hold
harmless shall be recoverable only out of Partnership assets. Subject
to applicable law, the Partnership shall advance expenses incurred with
respect to matters for which an Indemnitee may be indemnified
hereunder.
21
23
(b) If at any time, the Partnership has insufficient
funds to furnish indemnification as herein provided, it shall provide
such indemnification if and as it generates sufficient funds and prior
to making any Cash Distributions, pursuant to Article VI or Article VII
hereof, to the Partners.
5.13 Election and Replacement of Investor Representative. In
accordance with the procedures outlined in Section 1.17 herein, the Investor
Partners shall designate Investor Representatives to serve until their
successors are duly elected subject, however, to the Investor Partner
relinquishing its rights to designate an Investor Representative as set forth in
Section 8.4 hereof. At any time, in accordance with Section 1.17, an Investor
Partner entitled to designate an Investor Representative may replace the
individual it designates as an Investor Representative and designate a new
Investor Representative.
5.14 Role of Investor Representative. Notwithstanding anything
herein to the contrary, the Investor Representatives shall take no action nor
make any decision on behalf of the Partnership except to the extent they are
expressly authorized to do so under this Agreement in their capacity as Investor
Representatives.
5.15 Purchase of Goods and Services from HM. Goods and services
purchased from HM or its Affiliates shall be of substantially the same quality
and price as could be obtained from an unrelated third party and first shall be
disclosed to HM and the Investor Representatives.
5.16 Decisions by HM and the Investor Representatives. Except as
provided in this Agreement, decisions and actions to be taken by HM and the
Investor Representatives shall be deemed to have been made only upon the
affirmative approval or consent of HM and of at least fifty percent (50%) of the
then designated Investor Representatives which may be obtained and evidenced by
the written vote, consent or approval of such required number of Investor
Representatives. In the event a decision, approval or consent is requested of
the Investor Representatives by HM, it shall be deemed to have been
affirmatively made if the Investor Representatives fail to respond to any such
written request therefor within five (5) days of notice thereof by HM; provided,
however, once the Hospital has been open for business for six (6) months,
responses to requests for decisions shall be due in ten (10), rather than five
(5) days. Notwithstanding anything in this Agreement to the contrary, all
decisions and actions to be made by HM and the Investor Representatives with
respect to any loan, lease or other similar financing of the development,
construction or operation of the Hospital or the Partnership's affairs,
including without limitation the decisions with respect to incurring any
indebtedness or the refinancing thereof, shall be made by HM and shall be
subject to the consent of the Investor Representatives (pursuant to the
procedure for Investor Representative approval as provided above), which consent
shall not be unreasonably withheld; provided, further, however, the application
of the Partnership's funds towards the repayment of all or a portion of any
financing of the Partnership in excess of amounts then required to be paid (i.e.
voluntary prepayments) shall be made only with the consent of HM and the
Investor Representatives.
22
24
The development and annual operating budgets to be proposed by HM shall
be approved by HM and the Investor Representatives as provided above subject to
the following:
(a) The Investor Representatives shall be deemed to have
approved a development budget which is substantially consistent with
the development budget included in the Partnership's Private Placement
Memorandum;
(b) The Investor Representatives shall not unreasonably
withhold their approval of budgets which are within the reasonable
revenue expectations of the Hospital and which are in compliance (both
as to terms and availability of financing) with agreements with the
Partnership's lenders and other parties providing financing to the
Partnership;
(c) The priority for capital expenditures shall be
subject to HM and Investor Representative approval as set forth in the
first sentence of Section 5.16; and
(d) In the event that HM and the Investor Representatives
are unable to approve an annual budget, HM shall be authorized to
operate under the previous year's budget increased by the greater of 5%
or the increase during the previous year in the Consumer Price Index
for Medical Items until a new budget is approved.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 Distributions of Cash Flow from Operations and Cash from Sales
or Refinancing. Prior to the dissolution of the Partnership, Cash Flow from
Operations and Cash from Sales or Refinancing, if any, remaining after repayment
of any loans made by the Partners to the Partnership shall be distributed
quarterly by HM and the Investor Representatives as Cash Distributions according
to the relative Economic Interests of the Partners and Assignees.
Notwithstanding anything herein to the contrary, no distributions shall be made
to Partners or Assignees if prohibited by the Texas Act.
6.2 Allocations of Income and Loss.
(a) Income shall be first allocated to those Partners and
Assignees, if any, with negative Adjusted Capital Account balances, pro
rata according to their negative Adjusted Capital Account balances,
until all such balances have been returned to zero.
(b) After the allocations are made pursuant to Section 6.2(a),
all allocations of Income and Loss from whatever source shall then be
made according to the Economic Interest of each Partner and Assignee.
23
25
(c) In accordance with Code Section 704(c) and the
Regulations thereunder, Income and Loss with respect to that portion of
the property contributed to the capital of the Partnership shall,
solely for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property to
the Partnership for Federal income tax purposes and its initial fair
market value used as the book value of the property by the Partnership.
(d) Notwithstanding anything in this Agreement to the
contrary, no Partner or Assignee shall be entitled to any allocation of
Loss if such allocation would result in such Partner or Assignee having
a negative Adjusted Capital Account while any other Partner or Assignee
has a positive Adjusted Capital Account. In such event, the Losses
shall be allocated to the Partners or Economic Interest Owners with
positive Adjusted Capital Accounts until their Adjusted Capital
Accounts have been reduced to zero or until the negative amount in the
Adjusted Capital Accounts are proportionately the same as the negative
accounts of the other Partners or Assignee as measured by their
respective Economic Interests in the Partnership. Additionally, HM
shall at all times during the existence of the Partnership have at
least a 1% interest in each material item of Partnership income, gain,
loss, deduction or credit.
6.3 Qualified Income Offset Provision. Any Partner or Assignee who
unexpectedly receives an adjustment, allocation, or distribution as described in
Regulation Section 1.704-1(b)(2)(ii)(d) at (4) to (6), will be allocated items
of income and gain in an amount and manner sufficient to eliminate any deficit
balance in the Partner's or Assignee's Adjusted Capital Account created by such
adjustment, allocation or distribution as quickly as possible. This provision is
intended to be a "qualified income offset" as defined in Regulation Section
1.704-1(b)(2)(ii)(d), such Regulation being specifically incorporated herein by
reference.
6.4 Minimum Gain Chargeback. If there is a net decrease in Minimum
Gain of the Partnership during any taxable year or other period, each Partner or
Assignee shall be allocated items of Partnership income and gain, before any
other allocation is made under Code Section 704(b) of Partnership items for such
taxable year, in an amount equal to such Partner's or Assignee's share of the
net decrease in Minimum Gain of the Partnership. The items to be so allocated
shall be determined in accordance with Regulation Section 1.704-2(g)(2). This
provision is intended to be a "minimum gain chargeback" as described in
Regulation Section 1.704-2(f), such Regulation being specifically incorporated
herein by reference.
6.5 Partner Nonrecourse Debt Minimum Gain Chargeback. If there is
a net decrease in partner nonrecourse debt minimum gain attributable to a
partner nonrecourse debt for any fiscal year of the Partnership, each Partner
who has a share of the partner nonrecourse debt minimum gain attributable to
such partner nonrecourse debt as of the beginning of such fiscal year,
determined in accordance with Regulation Section 1.704-2(i)(5), shall be
allocated items of Partnership income gain for such year (and, if necessary,
subsequent years) in an amount equal to such Partner's share of the net decrease
in partner nonrecourse debt minimum gain attributable to such partner
nonrecourse debt, determined in accordance with Regulation Sections
1.704-2(i)(4) and (5). For
24
26
purposes of this Section, "partner nonrecourse debt" means any liability of the
Partnership with respect to which one or more but less than all of the Partners
bears the economic risk of loss within the meaning of Regulation Section 1.752-2
as a guarantor, lender or otherwise, and "partner nonrecourse debt minimum gain"
means the minimum gain attributable to partner nonrecourse debt as determined
pursuant to Regulation Section 1.704-2(i)(3). This Section is intended to comply
with the member nonrecourse debt minimum gain chargeback requirement in Treasury
Regulations ss. 1.704-2(i)(4) and shall be interpreted consistently therewith.
ARTICLE VII
TERMINATION AND DISSOLUTION OF THE PARTNERSHIP
7.1 No Termination by Certain Acts of Partner. Neither the
transfer of interest, withdrawal from the Partnership, bankruptcy, insolvency,
dissolution, liquidation or other disability, nor the legal incompetency of any
Partner shall result in the termination or dissolution of the Partnership or
affect its continuance in any manner whatsoever.
7.2 Dissolution of the Partnership. The Partnership shall be
dissolved upon the happening of any of the following events, whichever shall
first occur:
(a) The election by HM and the Investor Representatives
to dissolve the Partnership in accordance with the terms of Section
3.5(c) hereof;
(b) The death, dissolution, insanity, bankruptcy,
retirement, resignation or expulsion of HM, unless the remaining
Partners owning at least 51% of the Partnership Interests which are
owned by the remaining Partners shall elect a Substitute General
Partner which shall assume all rights and duties of HM under this
Agreement (which Substitute General Partner accepts such election);
(c) The written agreement of HM and the Investor
Representatives;
(d) The expiration of the term of the Partnership as
provided in Section 2.5 hereof;
(e) The adjudication of bankruptcy of the Partnership;
(f) The written consent of a Majority Vote of the
Partners;
(g) Except as otherwise expressly provided herein, the
occurrence of any event which, under the Texas Act or any other law,
causes the dissolution or termination of the Partnership under the law
of the State of Texas;
25
27
(h) In accordance with Section 12.11 hereof; and
(i) The election of HM or an Investor Representative to
dissolve the Partnership in accordance with Section 5.2(k) hereof.
7.3 Dissolution and Final Liquidation.
(a) Upon any dissolution of the Partnership, the
Partnership shall not terminate, but shall cease to engage in further
business except to the extent necessary to perform existing contracts
and preserve the value of its assets. Its assets shall be liquidated
and its affairs shall be wound up as soon as practical thereafter by HM
and the Investor Representatives, or if for any reason there is no
General Partner or Investor Representative, by another Person
designated by a Majority Vote of the Partners. In winding up the
Partnership and liquidating assets, HM, or other Person so designated
for such purpose, may arrange, either by itself or through others, for
the collection and disbursement to the Partners of any future receipts
from the Hospital or other sums to which the Partnership may be
entitled, or may sell the Partnership's interest in the Hospital and
the Equipment to any person, including HM or any Affiliate thereof, on
such terms and for such consideration as shall be consistent with
obtaining the fair market value thereof.
(b) Upon any such dissolution and liquidation of the
Partnership, the net assets, if any, of the Partnership available for
distribution, and any cash proceeds from the liquidation of any such
assets, shall be applied and distributed in the following manner or
order, to the extent available:
(i) To the payment of or creation of
reserves for all debts, liabilities, and obligations to all
creditors of the Partnership (other than the Partners or their
Affiliates) and the expenses of liquidation;
(ii) To the payment of all debts and
liabilities (including interest) owed to the Partners or their
Affiliates as creditors; and
(iii) The balance according to the
Partners' and Assignees' positive Capital Account balances
after taking into account all other adjustments during the
fiscal year in which liquidation occurs.
(c) Except as otherwise provided in this Agreement, the
Partners shall look solely to the assets, if any, of the Partnership
for any return of their Capital Contributions. If the assets of the
Partnership remaining after payment or discharge of the Partnership's
debts and liabilities, or provision therefor, are insufficient to
return all or any part of the Capital Contributions, no Partner shall
have any right of recourse against HM and the Investor Representatives
or other Partners or to charge HM and the Investor Representatives or
other Partners for any amounts except as provided herein and except to
the extent otherwise provided by the Texas Act and/or Texas law.
26
28
(d) Upon such dissolution, reasonable time shall be
allowed for the orderly liquidation of the assets of the Partnership
and the discharge of liabilities to creditors so as to minimize the
losses normally attendant to a liquidation.
(e) The Capital Accounts of the Partners and Assignees,
as adjusted pursuant to Section 1.4, shall be utilized by the
Partnership for the purpose of making distributions to those Partners
and Assignees with positive balances in their respective capital
accounts pursuant to Section 7.3(b). In making such distributions, HM
or the person winding up the affairs of the Partnership shall
distribute all funds available for distribution to the Partners and
Assignees (after establishing any reserves that HM or the person
winding up the affairs of the Partnership deems reasonably necessary
pursuant to Section 7.3(b)) prior to the later of (a) the end of the
taxable year in which the event occurs which caused the termination and
dissolution of the Partnership, or (b) ninety (90) days after the
occurrence of such event. HM in its sole discretion, or the person
winding up the affairs of the Partnership, in his, her or its
discretion, may elect to have the Partnership retain any installment
obligations owed to the Partnership until collected in full so long as
any portion of the reserves which are later determined to be
unnecessary, and all collections on such installment obligations which
are not deemed to be reasonably necessary by HM or the person winding
up the affairs of the Partnership to add to such reserves are
distributed as soon as practicable in accordance with the provisions of
Section 7.3(b) as modified by this Section.
7.4 Termination. Upon completion of the dissolution, winding up,
distribution of the liquidation proceeds and any other Partnership assets, the
Partnership shall terminate.
7.5 Payment in Cash or in Kind. Any payments made to any Partner
pursuant to Section 7.3 hereof may be made in cash or in property, tangible or
intangible, or partially in cash and partially in such property in the
discretion of HM; provided, however, that the other Partners have no right to
receive other than cash in return for their contributions.
7.6 Good Will and Trade Name. Upon the dissolution of the
Partnership the firm or trade name of the Partnership and any good will
associated therewith shall become the sole property of HM, provided that
distributions and allocations otherwise due to HM shall not be reduced as a
result of HM's becoming entitled to such assets.
7.7 Termination of Noncompetition Covenants. Upon a dissolution of
the Partnership, the Partners shall have no continuing liability or obligation
under Section 5.9(b) except that Section 5.9(b) shall continue to be binding
upon a Partner whose breach of this Agreement caused a dissolution of the
Partnership.
27
29
ARTICLE VIII
REMOVAL OR WITHDRAWAL OF PARTNERS
AND TRANSFER OF PARTNERS' PARTNERSHIP
AND/OR ECONOMIC INTERESTS
8.1 HM, VHI and Investor Representatives - Transfers.
(a) (i) Except as provided in this Section
8.1, without the consent of a Majority Vote of Investor
Partners neither HM nor VHI shall voluntarily withdraw from
the Partnership as a Partner at any time prior to the
termination of the Partnership, and neither HM nor VHI shall
transfer or assign any of their rights and duties as a General
Partner or Limited Partner, respectively, without such
consent. Further, except as otherwise provided in this Section
8.1, a sale of fifty-one percent (51%) or more of the capital
stock of either HM or VHI shall constitute a transfer or
assignment of such Partner's respective Partnership Interests
in the Partnership. Notwithstanding the foregoing, HM and VHI
may assign their Partnership Interests in the Partnership, and
each may assign its rights to be a General Partner or a
Limited Partner, as the case may be, to any party who
purchases all or substantially all of MedCath's and its
subsidiaries' assets or its capital stock if such purchaser
assumes in writing the obligations of HM hereunder, or to a
party under control of, common control with, or which controls
HM. HM and VHI may also assign their Partnership Interest in
the Partnership and their rights to be a General Partner or
Limited Partner, as the case may be, to a financial
institution as collateral security for repayment of
indebtedness for borrowed funds by HM, MedCath or their
Affiliates. A sale or transfer of fifty-one percent (51%) or
more of the capital stock of either HM or VHI shall not be
considered a transfer or assignment of such Partner's
respective Partnership Interest for purposes of this Agreement
if such sale or transfer occurs in a transaction pursuant to
which a sale of HM's or VHI's assets, if a part thereof, would
not have constituted an assignment of their Partnership
Interests in a manner which gives the other Partners the right
to purchase such Partnership Interests in accordance with the
following sentence. In the event that HM or VHI desires to
sell any Partnership Interest and such sale is not permitted
as provided above, then the other Partners shall first have an
option to purchase such Partnership Interest in accordance
with the Right of First Refusal provided in Section 8.4 except
that in no event shall the purchase price due to HM or VHI for
its Partnership Interest exceed the appraised value for such
Partnership Interest determined in accordance with (ii) below.
(ii) The appraised value of the
Partnership Interest of HM or VHI, as appropriate (the
"Seller") shall be the fair market value thereof as determined
by a qualified appraiser who has no equity investment in
Seller or its Affiliate and who has experience in providing
appraisals for comparable businesses and transactions. Such
appraiser shall be retained in good faith by Seller with the
approval of the
28
30
Investor Representatives, which approval shall not be
unreasonably withheld or delayed. If Seller and the Investor
Representatives are unable to agree upon the selection of the
appraiser within fifteen (15) days of Seller first proposing
an appraiser to the Investor Representatives, then each of
Seller and the Investor Representatives shall, within fifteen
(15) days, in good faith select and retain an appraiser who
meets the requirements outlined above solely for the purpose
of determining the fair market value of the interest being
valued (respectively, the "Seller Appraiser" and the "Investor
Representatives Appraiser"). Each of the Seller Appraiser and
the Investor Representatives Appraiser shall, within thirty
(30) days, then independently determine the fair market value
of the interest being valued. If, upon completion of such
appraisals, the amounts determined by the Seller Appraiser and
the Investor Representatives Appraiser to be the fair market
value of the interest being valued differ by ten percent (10%)
or less, then the appraised value of such interest shall be
the average of the amounts determined by such Appraisers to be
fair market value of such interest. If, upon completion of
such appraisals, the amounts determined by the Seller
Appraiser and the Investor Representatives Appraiser to be the
fair market value of the interest being valued differ by more
than ten percent (10%), the Seller Appraiser and the Investor
Representatives Appraiser shall, within fifteen (15) days,
then select and retain a third appraiser who meets the
requirements outlined above (the "Third Appraiser") solely to
determine the fair market value of such interest, and the
appraised value of such interest shall be the average of the
amount determined by the Third Appraiser to be the fair market
value of such interest (the "Third Value") and the closest to
the Third Value of the amounts determined by the Seller
Appraiser and the Investor Representatives Appraiser to be
fair market values of such interest. The Third Appraiser shall
have fifteen (15) days from the date of his or her selection
to complete his or her appraisal. Seller and the Investor
Partners shall share equally all the fees and expenses of the
Seller Appraiser, the Investor Representatives Appraiser and
the Third Appraiser (collectively, the "Appraisers") in
connection with the performance of the services described
above.
(b) The Investor Representatives may not assign their
rights to be an Investor Representative herein. Upon the withdrawal or
resignation of an Investor Representative, a substitute therefor who
must be either an Investor Partner or an owner thereof may be elected
as provided herein.
(c) Any resignation or withdrawal as an Investor
Representative by an Investor Representative who is also a Partner
shall not constitute such Investor Representative's withdrawal as a
Partner.
8.2 Partners' Right to Continue. If at any time there is no
remaining General Partner, a meeting of the Partners shall be held at the
principal place of business of the Partnership within forty-five (45) days after
the happening of such event to consider whether to continue the Partnership on
the same terms and conditions as are contained in this Agreement (except that
the
29
31
General Partner may be different) and to select a General Partner for the
Partnership, or whether to wind up the affairs of the Partnership, liquidate its
assets and distribute the proceeds therefrom in accordance with Article VII
hereof. The Partnership may be continued and a new General Partner (who accepts
such appointment) selected by the Partners as provided in Section 7.2(b) within
ninety (90) days of the occurrence of the event described in Section 7.2(b). The
new General Partner shall execute, acknowledge, file or record (as appropriate)
a Certificate of Limited Partnership and an Agreement of Limited Partnership and
such other documents as may be required by the Texas Act. The continuance of the
Partnership pursuant to the terms of this Section 8.2 is conditioned upon (i)
the amendment of the Certificate of Limited Partnership to reflect the foregoing
change and, if applicable, compliance by the Partnership with any notice
provisions of the Texas Act and (ii) delivery to the withdrawing General Partner
of an indemnification agreement by the Partnership, in form and substance
reasonably satisfactory to the withdrawing General Partner, indemnifying and
holding the withdrawing General Partner harmless against all future liabilities
of the Partnership.
8.3 Relationship with Substitute General Partner. The relationship
of the Partners to any Person that has either acquired the Partnership Interest
of HM or has been elected as a Substitute General Partner as provided herein
shall be governed by this Agreement. If such Person was not theretofore a
General Partner, then such Person, as Substitute General Partner, shall have all
the rights and powers of its predecessor General Partner under this Agreement;
provided, it assumes in writing the obligations of such General Partner under
this Agreement and any arising thereafter, and accepts and adopts all the terms
and provisions of this Agreement in writing. All references to HM under this
Agreement shall thereafter be deemed to refer to such Substitute General
Partner. The withdrawing General Partner shall be liable for all of its
covenants and obligations under this Agreement for all periods prior to its
withdrawal until such liability is assumed by a Substitute General Partner.
8.4 Investor Partners - Restriction on Transfer. Except as
otherwise set forth in this Section or in this Agreement, no Economic or
Partnership Interest of an Investor Partner or any portion thereof, shall be
validly sold or assigned whether voluntarily, involuntarily or by operation of
law, and no purported assignee shall be recognized by the Partnership for any
purpose, unless such Economic or Partnership Interest shall have been
transferred in accordance with the provisions of this Agreement and in
compliance with such additional restrictions as may be imposed by HM to comply
with requirements imposed by any Federal or state securities regulatory
authority and unless the consent of HM and the Investor Representatives is
obtained. In no event, however, shall an Investor Partner transfer or sell all
or any of its Economic or Partnership Interest to any party which, if a Partner,
would be in violation of Section 5.9(b) hereof. Except as otherwise set forth in
this Section or in this Agreement, an Investor Partner may transfer, sell or
assign his or her entire Economic or Partnership Interest if it has received the
approval of HM and the Investor Representatives, not to be unreasonably
withheld, provided however: (a) the other Investor Partners on a pro rata basis
first for a period of fifteen (15) days, and thereafter HM for a period of
fifteen (15) days shall have the right, but not the obligation, to purchase all,
but not less than all, of the Economic or Partnership Interest proposed to be
transferred, which right shall be exercisable on the terms and for the purchase
price set forth in writing in a bona fide offer made for the Interests by a
third-party (the "Right of First Refusal"), and (b) there shall have been filed
with the Partnership a
30
32
duly executed and acknowledged counterpart of the instrument making such
assignment signed by both the assignor and assignee and such instrument
evidences the written acceptance by the assignee of all of the terms and
provisions of the Agreement, represents that such assignment was made in
accordance with all applicable laws and regulations and the assignee shall have
represented to the Partnership in writing that he, she or it meets the investor
suitability standards established by his, her or its state of residence, or, in
the absence thereof, the investor suitability standards established by the
Partnership. HM shall use reasonable care to determine that transfers are in
accordance with applicable laws and regulations, including obtaining an opinion
of counsel to that effect. Any Partner who is not a General Partner who shall
assign all its Partnership Interest shall cease to be a Partner of the
Partnership, except that unless and until a Substitute Partner is admitted in
his or her stead, such assigning Partner shall retain the statutory rights of an
assignor of a Partnership Interest under the Texas Act. Any Partnership
Interests acquired by the Partnership pursuant to Section 8.4 shall, subject to
applicable law, be re-offered by the Partnership to suitable investors.
Any dissolution, liquidation, merger (unless Investor Partners or their
Affiliates existing prior to such merger own at least fifty-one percent (51%) of
the surviving entity after the merger or unless both parties to such merger are
majority owned by parties who are Investor Partners or their Affiliates prior to
such merger) or sale of an Investor Partner which is an Entity (a sale shall
include a transfer of fifty percent (50%) or more of its capital stock or other
ownership interest or of substantially all of its assets or any other
transaction intended to accomplish, in substance, a sale of fifty percent (50%)
or more of such Entity) shall constitute an offer by such Investor Partner to
sell such Investor Partner's Interest pursuant to Section 8.4 for the Formula
Purchase Price (as defined in Section 8.9 below).
In the event that HM or its Affiliates acquires or enters into a
practice acquisition transaction with an Investor Partner which does not convey,
directly or indirectly, the Partnership Interest of the Investor Partner to HM
or its Affiliates, then such transaction shall not be deemed to have resulted in
an offer by such Investor Partner to sell its interest pursuant to Section 8.4;
provided however, HM shall not directly or indirectly be entitled to exercise
the voting rights of an Investor Partner in the event of any practice
acquisition transaction, the employment of Investor Partners by HM or its
Affiliates or the execution of a management or service agreement between HM or
its Affiliates and Investor Partners or their Affiliates (a "Practice
Transaction"). In the event that it is intended that HM or its Affiliates
purchase, directly or indirectly, the Partnership Interest of an Investor
Partner, then such Investor Partner shall be deemed to have made an offer to
sell such Investor Partner's Partnership Interest pursuant to Section 8.4 hereof
for the Formula Purchase Price. In the event of a Practice Transaction, neither
HM, the Investor Partner which is a party thereto nor their Affiliates shall be
entitled to the voting or decision making rights (including without limitation
the rights to designate an Investor Representative) held by such Investor
Partner and all such voting and decision making rights shall be deemed to have
been transferred to the remaining Investor Partners on a pro rata basis based
upon their current percentage Partnership Interests in the Partnership.
31
33
8.5 Condition Precedent to Transfer of Economic Interest and/or
Partnership Interest. Notwithstanding anything herein to the contrary, no
transfer of an Economic or Partnership Interest may be made if such transfer (a)
constitutes a violation of the registration provisions of the Securities Act of
1933, as amended, or the registration provisions of any applicable state
securities laws; (b) if after such transfer the Partnership will not be
classified as a partnership for Federal income tax purposes; or (c) if when
taken together with other prior transfers, results in a "termination" of the
Partnership for Federal income tax purposes. The Partnership may require, as a
condition precedent to transfer of an Economic Interest and/or Partnership
Interest, delivery to the Partnership, at the proposed transferor's expense, of
an opinion of counsel satisfactory (both as to the counsel and substance of the
opinion) to HM that the transfer will not violate any of the foregoing
restrictions.
8.6 Substitute Partner - Conditions to Fulfill. No Assignee of a
Partner's Economic or Partnership Interest in the Partnership shall have the
right to become a Substitute Partner in place of his or her assignor unless, in
addition to any other requirement herein, all of the following conditions are
satisfied:
(a) The Partners have waived their right pursuant to
Section 8.4 to purchase the Economic or Partnership Interest held by
the assignee;
(b) The duly executed and acknowledged written instrument
of assignment which has been filed with the Partnership sets forth that
the assignee becomes a Substitute Partner in place of the assignor;
(c) The assignor and Assignee execute and acknowledge
such other instruments as HM may deem reasonably necessary or desirable
to effect such admission, including, but not limited to, the written
acceptance and adoption by the assignee of the provisions of this
Agreement;
(d) The written consent of HM and the Investor
Representatives to such substitution is obtained, which consent may be
withheld in sole and absolute discretion of HM and the Investor
Representatives;
(e) The payment by the Partner of all costs to the
Partnership associated with the transaction, including but not limited
to legal fees, transfer fees, and filing fees.
8.7 Allocations Between Transferor and Transferee. Upon the
transfer of a Partner's Economic or Partnership Interest, all items of income,
gain, loss, deduction and credit attributable to the Economic or Partnership
Interest so transferred shall be allocated between the transferor and the
transferee in such manner as the transferor and transferee agree at the time of
transfer; provided such allocation does not violate federal or state income tax
law. If HM, in its sole discretion, deems such laws violated, then such
allocation shall be made pro rata for the fiscal year based upon the number of
days during the applicable fiscal year of the Partnership that the Economic or
Partnership Interest so transferred was held by the transferor and transferee,
without regard to
32
34
the results of Partnership activities during the period in which each was the
holder, or in such other manner as XX xxxxx necessary to comply with Federal or
state income tax laws. Distributions as called for by this Agreement shall be
made to the holder of record of the Economic or Partnership Interest on the date
of distribution. Notwithstanding anything contained in this Agreement to the
contrary, both the Partnership and HM shall be entitled to treat the assignor of
any assigned Economic or Partnership Interest as the absolute owner thereof in
all respects, and shall incur no liability for distributions of cash or other
property made in good faith to such assignor in reliance on the Partnership
records as they exist until such time as the written assignment has been
received by, and recorded on the books of the Partnership. For purposes of this
Article VIII, the effective date of an assignment of any Economic or Partnership
Interest shall be the last day of the month specified in the written instrument
of assignment.
8.8 Rights, Liabilities of, and Restrictions on Assignee. No
assignee of a Partner's Economic or Partnership Interest shall have the right to
participate in the Partnership, inspect the books of account of the Partnership
or exercise any other right of a Partner unless and until admitted as a
Substitute Partner. Notwithstanding HM and the Investor Representatives' failure
or refusal to admit an assignee as a Substitute Partner, such assignee shall be
entitled to receive the share of income, credit, gain, expense, loss and
deduction and cash distributions provided hereunder that is assigned to it, and,
upon demand, may receive copies of all reports thereafter delivered pursuant to
the requirements of this Agreement; provided, the Partnership shall have first
received notice of such assignment and all required consents thereto shall have
been obtained and other conditions precedent to transfer thereof shall have been
satisfied. The Partnership's tax returns shall be prepared to reflect the
interests of assignees as well as Partners.
8.9 Death of a Partner. Heirs of Partners shall be entitled to
inherit the Partnership Interest of a deceased Partner, provided that upon a
Partner's death such Partnership Interest shall be automatically converted to an
Economic Interest only in the Partnership until such heir agrees in writing to
all of the terms and conditions of this Agreement and such other reasonable
terms as may be established by HM and the Investor Representatives as a
condition to such heir becoming a Partner, in which event such interest shall
again become a Partnership Interest in the Partnership. Notwithstanding the
previous sentence, within one hundred twenty (120) days of the Partnership first
learning of the death of a Partner, the Investor Partners, and if they decline
HM, shall have the option to purchase the Partnership Interest of the deceased
Partner, and the estate of the deceased Partner shall be obligated to sell such
Partnership Interest in accordance with the terms of this Section 8.9. The other
Investor Partners may exercise their option by giving written notice thereof to
the estate of the deceased Partner, or the appropriate representative thereof,
within such one hundred twenty (120) day period. The purchase price for such
Partnership Interest shall equal five (5) multiplied by the pretax net income
(as reasonably determined by the Partnership's accountants) of the Partnership
for the twelve (12) month period ending as of the calendar quarter most recently
ended prior to the death of such Partner multiplied by the percentage interest
of such Partner in the Partnership (the "Formula Purchase Price"). The purchase
price shall be paid (the "Payment Method") in three (3) equal annual
installments, the first third of which shall be paid upon the determination of
the purchase price and the remaining two (2) installments of which shall be paid
on the first and second anniversary of such date. The outstanding amounts due to
the estate of the
33
35
deceased Partner shall bear interest at Prime Rate as of the date of such
Partner's death. Accrued interest shall be paid as of the dates payments of
principal are due as provided above. It is acknowledged and agreed that this
Section 8.9 applies only to Partners who are individuals and not Entities.
8.10 Repurchase of Interests in Certain Events.
(a) At the election of HM and the Investor
Representatives, the Investor Partners on a pro rata basis may, but are
not obligated to, purchase a Partner's Economic or Partnership Interest
upon such Partner's breach of the Partner's obligations contained in
Article III, Sections 5.9, 8.1(b), 8.4, 8.9, 12.1 and 12.11 of this
Agreement. Any portion of such Interest not purchased by the Investor
Partners may be purchased by HM.
(b) Each Partner agrees to sell its Partnership Interest
to the other Partners as provided above in the event HM and the
Investor Representatives agree upon the exercise of the right of
purchase granted under Section 8.10(a) and the purchase price in such
events shall be the lower of (x) the Capital Contribution of the
Partner less all amounts distributed to such Partner by the
Partnership, or (y) the fair market value of such Partner's Partnership
Interest determined by an appraiser reasonably selected by HM and the
Investor Representatives.
8.11 Permissible Transfers by Investor Partners. Notwithstanding
anything in this Agreement to the contrary, upon ten (10) days prior written
notice to HM accompanied by copies of appropriate supporting documents and
agreements which conform to the terms of this Agreement, an Investor Partner may
elect within thirty (30) days of acquiring a Partnership Interest in the
Partnership to assign its Partnership Interest to a limited liability company or
limited partnership or corporation formed and maintained for the sole purpose of
holding such Partnership Interest whose owners are substantially identical to
the owners of such Investor Partner as long as such assignee and its Affiliates
agree in writing to be bound by all the terms and conditions of this Agreement.
The Entity to which a Partnership Interest is assigned pursuant to this Section
8.11 and which becomes an Investor Partner, together with the owners thereof,
shall enter into appropriate buy/sell agreements or arrangements which shall be
in writing and which shall be subject to the approval of HM, which approval
shall not be unreasonably withheld. Such agreements and arrangements shall
include provisions giving such Investor Partner, or the other owners thereof,
the option to purchase the interest therein of any owner of such Investor
Partner who resigns, dies, becomes disabled or otherwise ceases (for any reason)
his relationship with such Investor Partner or the medical practice which is an
Affiliate of such Investor Partner. Further, those agreements and arrangements
shall provide new physicians who obtain an equity or ownership interest in the
medical practice which is an Affiliate of such Investor Partner with a
reasonable opportunity to become an owner in such Investor Partner.
34
36
ARTICLE IX
RECORDS, ACCOUNTINGS AND REPORTS
9.1 Books of Account. At all times during the continuance of the
Partnership, HM shall maintain or cause to be maintained true and full financial
records and books of account showing all receipts and expenditures, assets and
liabilities, profits and losses, and all other records necessary for recording
the Partnership's business and affairs including those sufficient to record the
allocations and distributions required by the provisions of this Agreement.
9.2 Access to Records. The books of account and all documents and
other writings of the Partnership, including the Certificate of Limited
Partnership and any amendments thereto, shall at all times be kept and
maintained at the registered office of the Partnership. Each Partner or his or
her designated representatives shall, upon reasonable notice to HM, have access
to such financial books, records and documents during reasonable business hours
and may inspect and make copies of any of them. Each Partner may receive by
mail, upon written request to the Partnership and at his or her cost, a list of
the names and addresses of the Partners and the percentage of Economic Interest
held by each of them or such other information which may be obtained pursuant to
requirements of the Texas Act.
9.3 Bank Accounts and Investment of Funds.
(a) HM shall open and maintain, on behalf of the
Partnership, a bank account or accounts in a federally insured bank or
savings institution as it shall determine, in which all monies received
by or on behalf of the Partnership shall be deposited. All withdrawals
from such accounts shall be made upon the signature of such Person or
Persons as HM may from time to time designate.
(b) Any funds of the Partnership which HM may determine
are not currently required for the conduct of the Partnership's
business may be deposited with a federally insured bank or savings
institution or invested in short-term debt obligations (including
obligations of federal or state governments and their agencies,
commercial paper, certificates of deposit of commercial banks, savings
banks or savings and loan associations) as shall be determined by HM
and the Investor Representatives.
9.4 Fiscal Year. The fiscal year and accounting period of the
Partnership shall end on September 30 of each year.
9.5 Accounting Reports. As soon as reasonably practicable after
the end of each fiscal year but in no event later than 120 days after the end
thereof, each Partner shall be furnished an annual accounting showing the
financial condition of the Partnership at the end of such fiscal year and the
result of its operations for the fiscal year then ended, which annual accounting
shall be prepared on an accrual basis in accordance with generally accepted
accounting principles applied on a consistent basis and shall be delivered to
each of the Partners promptly after it has been
35
37
prepared. It shall include a balance sheet as of the end of such fiscal year and
statements of income and expense, each Partner's equity, and cash flow for such
fiscal year. It shall also include supplementary statements prepared pursuant to
the Capital Account accounting methods prescribed by this Agreement and
Regulations Section 1.704-1(b) and such other information and reports as
requested by the Mangers. At HM's election the Partnership shall either be
audited or such annual accountings shall be either reviewed or compiled by a
firm of independent certified public accountants engaged by HM on behalf of the
Partnership. The report shall set forth the distributions to the Partners for
such fiscal year and shall separately identify distributions from (i) operating
revenue during such fiscal year, (ii) operating revenue from a prior period
which had been held as reserves, (iii) proceeds from the sale or refinancing of
the Equipment, and (iv) unexpended proceeds received from the sale of
Partnership Interests. Once the Hospital has opened, HM shall also cause to be
prepared and distributed to the Partners quarterly (at such times as MedCath
prepares and publicly announces its results for such quarter) financial
statements in a form and containing such information as reasonably determined by
HM and the Investor Representatives.
9.6 Tax Returns. HM shall cause income tax returns for the
Partnership to be prepared, at Partnership expense, and timely filed with the
appropriate authorities. As soon as is reasonably practicable, and in any event
on or before the expiration of 75 days following the end of each fiscal year,
each Partner shall be furnished with a statement to be used by him or her in the
preparation of his or her individual income tax returns, showing the amounts of
any Income or Losses allocated to him or her, and the amount of any
distributions made to him or her, pursuant to this Agreement, along with a
reconciliation of the annual report with information furnished to investors for
income tax purposes.
ARTICLE X
MEETINGS AND VOTING RIGHTS OF PARTNERS
10.1 Meetings.
(a) Meetings of the Partners of the Partnership for any
purpose may be called by HM, the Investor Representatives or by
Investor Partners holding in the aggregate ten percent (10%) of the
Partnership Interests. Such request shall state the purpose of the
proposed meeting and the matters proposed to be acted upon thereat.
Such meetings shall be held in the Austin, Texas area.
(b) A notice of any such meeting shall be given by mail,
not less than fifteen (15) days nor more than sixty (60) days before
the date of the meeting, to each Partner at his address as specified in
Section 12.7. Such notice shall be in writing, and shall state the
place, date and hour of the meeting, and shall indicate that it is
being issued at or by the direction of HM or by the Investor Partners,
as the case may be. The notice shall state the purpose or purposes of
the meeting. If a meeting is adjourned to another time or place, and
36
38
if any announcement of the adjournment of time or place is made at the
meeting, it shall not be necessary to give notice of the adjourned
meeting.
(c) Each Partner may authorize any Person or Persons to
act for him or her by proxy in all matters in which a Partner is
entitled to participate, whether by waiving notice of any meeting, or
voting or participating at a meeting. Every proxy must be signed by the
Partner or his or her attorney-in-fact. No proxy shall be valid after
the expiration of eleven months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure
of the Partner executing it.
10.2 Voting Rights of Partners.
(a) Each Partner shall take no part in or interfere in
any manner with the control, conduct or operation of the Partnership,
and shall have no right or authority to act for or bind the Partnership
except as provided herein. Votes or decisions, to the extent taken or
to be made, of the Partners may be cast at any duly called meeting of
the Partnership or in writing within ten (10) days after written
request therefor. Each Partner shall be entitled to the number of votes
equal to the percentage Partnership Interest of such Partner.
(b) No Partner shall have the right or power to vote to:
(i) withdraw or reduce his or her Capital Contributions except as a
result of the dissolution of the Partnership or as otherwise provided
by law or this Agreement; (ii) bring an action for partition against
the Partnership; (iii) cause the termination and dissolution of the
Partnership by court decree or otherwise, except as set forth in this
Agreement; or (iv) demand or receive property other than cash in return
for his or her Capital Contributions.
ARTICLE XI
AMENDMENTS
11.1 Authority to Amend by HM and the Investor Representatives.
Except as otherwise provided by Section 11.2, this Agreement and the Articles of
Organization of the Partnership may be amended by HM and the Investor
Representatives:
(a) To admit additional Partners or Substitute Partners
but only in accordance with and if permitted by the other terms of this
Agreement;
(b) To preserve the legal status of the Partnership as a
limited partnership under the Texas Act or other applicable state or
federal laws if such does not change the substance hereof, and the
Partnership has obtained the written opinion of its counsel to that
effect;
(c) To cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, to clarify any provision of this
37
39
Agreement, or to make any other provisions with respect to matters or
questions arising under this Agreement which will not be inconsistent
with the provisions of this Agreement;
(d) To satisfy the requirements of the Code and
Regulations with respect to limited partnerships taxed as partnerships
or of any Federal or state securities laws or regulations, provided
such amendment does not adversely affect the Partnership Interests of
Partners and is necessary or appropriate in the written opinion of
counsel. Any amendment under this subsection (d) shall be effective as
of the date of this Agreement;
(e) To the extent that it can do so without materially
reducing the economic return to any Partner on his or her investment in
the Partnership, to satisfy any requirements of federal or state
legislation or regulations, court order, or action of any governmental
administrative agency with respect the operation or ownership of the
Hospital;
(f) Subject to the terms of Section 2.5, to extend the
term of the Partnership;
(g) Upon written notice to all Partners, HM may elect to
create a governing body for the Hospital with up to nine (9) directors
(the "Directors"). In such event, the Directors shall include, in
addition to HM or its designee, the president or chief executive
officer of the Hospital who shall be designated by HM and three (3)
additional Directors elected from time to time by the Investor Partners
one of whom must be the medical director of the hospital. The remaining
Directors shall be elected from time to time by HM. HM and the Investor
Representatives may delegate to such governing body such duties and
responsibilities as HM and the Investor Representatives deem necessary
or appropriate. Notwithstanding the foregoing, in the event of creation
of such governing body, the Investor Partners shall continue to have
the right to elect Investor Representatives, and HM and the Investor
Representatives shall continue to have the voting and decision-making
rights provided to them under this Agreement; and
(h) To change the principal place of business, the
registered office or registered agent of the Partnership.
11.2 Restrictions on HM's and Investor Representatives' Amendments:
Amendments by Investor Partners. Except as provided in Section 11.1, amendments
to this Agreement shall be made only upon the Majority Vote of Partners,
provided that any term of this Agreement which requires the approval of a
Majority Vote of Investor Partners may only be amended by a Majority Vote of
Investor Partners. Except as set forth in this Section 11.2, no amendment shall
be made pursuant to Section 11.1 which would materially adversely affect the
federal income tax treatment to be afforded each Partner, materially adversely
affect the interests and liabilities of each Partner as provided herein,
materially change the purposes of the Partnership, extend or otherwise modify
the term of the Partnership, or materially change the method of allocations and
distributions as provided in Article VI.
11.3 Amendments to Certificate. In making any amendments to this
Agreement, there shall be prepared, executed and filed for recording by HM such
documents amending the Certificate of Limited Partnership as required under the
Texas Act.
38
40
ARTICLE XII
MISCELLANEOUS
12.1 Intentionally Omitted.
12.2 Waiver of Provisions. The waiver of compliance at any time
with respect to any of the provisions, terms or conditions of this Agreement
shall not be considered a waiver of such provision, term or condition itself or
of any of the other provisions, terms or conditions hereof.
12.3 Interpretation and Construction. This Agreement contains the
entire agreement among the Partners and any modification or amendment hereto
must be accomplished in accordance with the provisions of Article XI and Article
XII. Where the context so requires, the masculine shall include the feminine and
the neuter, and the singular shall include the plural. The headings and captions
in this Agreement are inserted for convenience and identification only and are
in no way intended to define, limit or expand the scope and intent of this
Agreement or any provision thereof. The references to Section and Article in
this Agreement are to the Sections and Articles of this Agreement.
12.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, exclusive of its
conflict of law rules.
12.5 Partial Invalidity. In the event that any part or provision of
this Agreement shall be determined to be invalid or unenforceable, the remaining
parts and provisions of said Agreement which can be separated from the invalid
or unenforceable provision and shall continue in full force and effect.
12.6 Binding on Successors. The terms, conditions and provisions of
this Agreement shall inure to the benefit of, and be binding upon the parties
hereto and their respective heirs, successors, distributees, legal
representatives, and assigns. However, none of the provisions of this Agreement
shall be for the benefit of or enforceable by any creditors of the Partnership.
12.7 Notices and Delivery.
(a) To Partners. Any notice to be given hereunder at any
time to any Partner or any document reports or returns required by this
Agreement to be delivered to any Partner, may be delivered personally
or mailed to such Partner, postage prepaid, addressed to him or her at
such times as (s)he shall by notice to the Partnership have designated
as his or her address for the mailing of all notices hereunder or, in
the absence of such notice, to the
39
41
address set forth in Article IV hereof. Any notice, or any document,
report or return so delivered or mailed shall be deemed to have been
given or delivered to such Partner at the time it is mailed, as the
case may be.
(b) To the Partnership. Any notice to be given to the
Partnership hereunder shall be delivered personally or mailed to the
Partnership, by certified mail, postage prepaid, addressed to the
Partnership at its registered office. Any notice so delivered or mailed
shall be deemed to have been given to the Partnership at the time it is
delivered or mailed, as the case may be.
12.8 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall be deemed an original, and the
several counterparts taken together shall constitute the Agreement of the
Partners.
12.9 Statutory Provisions. Any statutory reference in this
Agreement shall include a reference to any successor to such statute and/or
revision thereof.
12.10 Waiver of Partition. Each party does hereby waive any right to
partition or the right to take any other action which might otherwise be
available to such party for the purpose of severing its relationship with the
Partnership or such party's interest in the Equipment held by the Partnership
from the interests of other Partners until the end of the term of both this
Partnership and any successor Entity formed pursuant to the terms hereof.
12.11 Change In Law. If due to any new law, rule or regulation, or
due to an interpretation or enforcement of any existing law, rule or regulation,
health care counsel reasonably selected by HM and the Investor Representatives
determines in writing that it is reasonably likely that the relationships
established between any of the parties to this Agreement including any of their
Affiliates and/or successors or assigns will not comply with any law, rule,
regulation or interpretation thereof ("Applicable Law"), then the parties hereto
hereby agree first, to negotiate in good faith to restructure the relationships
established under this Agreement so as to bring them into compliance with such
applicable laws while at the same time preserving the material benefits of each
of the parties hereto. In the event that a specific proposal for the
restructuring of this Agreement is approved by HM and a Majority Vote of
Investor Partners, such restructured agreement shall become binding upon all
Partners of the Partnership. Second, in the event that within forty-five (45)
days following the Partnership's receipt of legal advice in writing from such
health care counsel regarding Applicable Law the parties hereto are unable to
negotiate an acceptable restructuring of their relationship, then HM shall have
the option, within the following forty-five (45) day period, to purchase the
Partnership Interests of some or all of the Investor Partners whose ownership is
involved with such noncompliance with Applicable Law for a purchase price equal
to the greater of (the "Buyout Price"): (a) the Formula Purchase Price or (b)
the amount of the Capital Contribution made by each Partner to the Partnership
together with interest thereon computed at the Prime Rate as of the date of this
Agreement from the date of such contribution through the date upon which HM pays
all amounts due under the terms of this Section 12.11. Such purchase price shall
be paid in accordance with the Payment Method. Third, in the
40
42
event that HM does not exercise its option to purchase Partnership Interests of
a Partner whose ownership causes the Partnership not to be in compliance with
Applicable Law, such Partners may elect by a Majority Vote of Investor Partners
in writing within the following forty-five (45) day period, to either purchase
on a pro rata basis HM's and MedCath's Partnership Interest for the Buyout Price
or to require that the Partnership be dissolved, in which event the Partnership
shall be dissolved in accordance with the terms of this Agreement.
12.12 Investment Representations of the Partners.
(a) Each Partner or individual executing this Agreement
on behalf of an Entity which is a Partner hereby represents and
warrants to the Partnership and to the Partners that such Partner has
acquired such Partner's Partnership Interest in the Partnership for
investment solely for such Partnership's own account with the intention
of holding such Partnership Interest for investment, without any
intention of participating directly or indirectly in any distribution
of any portion of such Partnership Interest, including an Economic
Interest, and without the financial participation of any other Person
in acquiring such Partnership Interest in the Partnership.
(b) Each Partner or individual executing this Agreement
on behalf of an Entity which is a Partner hereby acknowledges that such
Partner is aware that such Partner's Partnership Interest in the
Partnership has not been registered (i) under the Securities Act of
1933, as amended (the "Federal Act"), (ii) under applicable Texas
securities laws, or (iii) under any other State securities laws. Each
Partner or individual executing this Agreement on behalf of an Entity
which is a Partner further understands and acknowledges that his
representations and warranties contained in this Section are being
relied upon by the Partnership and by the Partners as the basis for the
exemption of the Partners' Partnership Interest in the Partnership from
the registration requirements of the Federal Act and from the
registration requirements of the Uniform Securities Act and all other
State securities laws. Each Partner or individual executing this
Agreement on behalf of an Entity which is a Partner further
acknowledges that the Partnership will not and has no obligation to
recognize any sale, transfer, or assignment of all or any part of such
Partner's Partnership Interest, including an Economic Interest in the
Partnership to any Person unless and until the provisions of this
Agreement hereof have been fully satisfied.
(c) Each Partner or individual executing this Agreement
on behalf of an entity which is a Partner hereby acknowledges that
prior to his execution of this Agreement, such Partner received a copy
of this Agreement and that such Partner has examined this Agreement or
caused this Agreement to be examined by such Partner's representative
or attorney. Each Partner or individual executing this Agreement on
behalf of an Entity which is a Partner hereby further acknowledges that
such Partner or such Partner's representative or attorney is familiar
with this Agreement and with the Partnership's business plans. Each
Partner or individual executing this Agreement on behalf of an entity
which is a Partner acknowledges that such Partner or such Partner's
representative or attorney has made such inquiries and requested,
received, and reviewed any additional documents necessary for
41
43
such Partner to make an informed investment decision and that such
Partner does not desire any further information or data relating to the
Partnership or to the Partners. Each Partner or individual executing
this Agreement on behalf of an Entity which is a Partner hereby
acknowledges that such Partner understands that the purchase of such
Partner's Partnership Interest in the Partnership is a speculative
investment involving a high degree of risk and hereby represents that
such Partner has a net worth sufficient to bear the economic risk of
such Partner's investment in the Partnership and to justify such
Partner's investing in a highly speculative venture of this type.
12.13 Decisions by HM and Investor Representatives. Each of the
Investor Partners hereby authorizes HM and the Investor Representatives to make
the decisions to be made by HM and the Investor Representatives hereunder and
hereby releases and holds harmless HM and the Investor Representatives from any
and all claims, liabilities, losses or damages which any of them may have now or
in the future resulting from any decision made by HM and the Investor
Representatives hereunder unless due to the gross negligence or willful
misconduct of HM and the Investor Representatives.
12.14 Ownership of Shares of MedCath. Each Investor Partner agrees
that either he shall not refer patients to the Hospital or that he shall not
acquire, nor continue to own any of the common shares of MedCath to the extent
that in the reasonable opinion of health care counsel of MedCath, that such
ownership, together with referrals of patients to the Hospital, by such Investor
Partner, would cause or constitute a violation of any federal or state law, rule
or regulation.
12.15 Arbitration. The parties hereto agree that any dispute between
them other than a dispute regarding a violation or alleged violation of Section
5.9 hereof shall be resolved by binding arbitration. Such arbitration shall be
conducted by the American Arbitration Association in accordance with its then
existing commercial rules applicable to such disputes. Such arbitration shall be
conducted in Austin, Texas provided that no arbitrator conducting such
arbitration shall reside or have an office within a fifty (50) mile radius of
the Hospital. The decision of such arbitrators shall be final and binding upon
the parties hereto and may be enforced by a court with applicable authority.
12.16 Medical Office Building. It is anticipated that HM and the
Investor Representatives or certain Affiliates thereof will use their
commercially reasonable best efforts to cause a medical office building to be
constructed adjacent to or near the Hospital. HM and the Investor
Representatives shall cause the tenant space in such building to be made
available to the Investor Partners pursuant to a selection and priority method
which allows an Investor Partner to select space in such building in the order
in which such Investor Partners became Partners of the Partnership.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
respective hands and seals as of the day and year first above written.
Solely for the purpose of acknowledging and agreeing to be bound by the terms of
Section 5.9 hereof, the undersigned Affiliates of the Partners (other than HM
and VHI) hereby execute this Agreement of Limited Partnership.
42
