OPERATING AGREEMENT
OF
HEART HOSPITAL OF BK, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
AS AMENDED BY
FIRST AMENDMENT DATED JULY 11, 1996
TABLE OF CONTENTS
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF BK, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
ARTICLE I
DEFINITIONS.......................................................................................................2
ARTICLE II
FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY..............................................................2
SECTION 2.1. COMPANY FORMATION; EFFECTIVE DATE.............................................2
SECTION 2.2. NAME OF COMPANY...............................................................2
SECTION 2.3. PURPOSES AND INVESTMENT OBJECTIVES............................................2
SECTION 2.4. REGISTERED AGENT AND OFFICE; PRINCIPAL PLACE OF BUSINESS......................3
SECTION 2.5. COMMENCEMENT AND TERM.........................................................3
ARTICLE III
MEMBERS AND CAPITAL CONTRIBUTIONS.................................................................................4
SECTION 3.1. CONTRIBUTIONS OF MEMBERS......................................................4
SECTION 3.2. LIABILITY OF MEMBERS - FOR CAPITAL............................................4
SECTION 3.3. MEMBERS' ACCOUNTS AND WITHDRAWALS.............................................4
SECTION 3.4. INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL ACCOUNTS.........................4
SECTION 3.5. ADDITIONAL FUNDING............................................................5
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS....................................................................................5
ARTICLE V
MANAGEMENT OF THE COMPANY.........................................................................................6
SECTION 5.1. GENERAL AUTHORITY AND POWERS OF MANAGERS......................................6
SECTION 5.2. MANAGEMENT OF DAY-TO-DAY OPERATIONS......................................... 11
SECTION 5.3. RESTRICTIONS ON AUTHORITY OF THE MANAGERS................................... 13
SECTION 5.4. DUTIES OF THE MANAGERS...................................................... 14
SECTION 5.5. DELEGATION BY THE MANAGERS.................................................. 15
SECTION 5.6. RIGHT TO RELY UPON THE AUTHORITY OF THE MANAGERS............................ 15
SECTION 5.7. COMPANY EXPENSES............................................................ 15
SECTION 5.8. NO MANAGEMENT BY MEMBERS.................................................... 17
i
SECTION 5.9. CONSENT BY MEMBERS TO EXERCISE OF CERTAIN RIGHTS AND POWERS BY
MANAGERS.................................................................... 17
SECTION 5.10. OTHER BUSINESS OF MEMBERS................................................... 17
SECTION 5.11. MANAGERS' STANDARD OF CARE.................................................. 19
SECTION 5.12. LIMITATION OF LIABILITY..................................................... 19
SECTION 5.13. INDEMNIFICATION OF THE MANAGERS............................................. 20
SECTION 5.14. ELECTION AND REPLACEMENT OF INVESTOR MANAGER................................ 20
SECTION 5.15. ROLE OF INVESTOR MANAGER.................................................... 20
SECTION 5.16. PURCHASE OF GOODS AND SERVICES FROM HHBF.................................... 20
ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS................................................................................... 21
SECTION 6.1. DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS AND CASH FROM SALES OR
REFINANCING................................................................. 21
SECTION 6.2. PROFITS..................................................................... 21
SECTION 6.3. LOSSES. .................................................................... 21
SECTION 6.4. CODE SECTION 704(C) TAX ALLOCATIONS. ....................................... 21
SECTION 6.5. MISCELLANEOUS. ............................................................. 22
ARTICLE VII
DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS........................................................... 23
SECTION 7.1. NO TERMINATION BY CERTAIN ACTS OF MEMBER.................................... 23
SECTION 7.2. DISSOLUTION................................................................. 23
SECTION 7.3. DISSOLUTION AND FINAL LIQUIDATION........................................... 24
SECTION 7.4. TERMINATION................................................................. 25
SECTION 7.5. PAYMENT IN CASH............................................................. 25
SECTION 7.6. GOODWILL AND TRADE NAME..................................................... 25
SECTION 7.7. TERMINATION OF NONCOMPETITION COVENANTS..................................... 26
ARTICLE VIII
REMOVAL OR WITHDRAWAL OF MANAGERS AND MEMBERS AND
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS....................................................... 26
SECTION 8.1. MANAGER - TRANSFERS......................................................... 26
SECTION 8.2. MEMBERS' RIGHT TO CONTINUE WHEN COMPANY HAS NO MANAGER...................... 27
SECTION 8.3. RELATIONSHIP WITH SUBSTITUTE MANAGER........................................ 27
SECTION 8.4. MEMBERS WHO ARE NOT MANAGERS - RESTRICTION ON TRANSFER...................... 27
SECTION 8.5. CONDITION PRECEDENT TO TRANSFER OF ECONOMIC INTEREST AND/OR
MEMBERSHIP INTEREST......................................................... 28
ii
SECTION 8.6. SUBSTITUTE MEMBER - CONDITIONS TO FULFILL................................... 29
SECTION 8.7. ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE............................... 29
SECTION 8.8. RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE........................ 30
SECTION 8.9. DEATH OF A MEMBER........................................................... 30
SECTION 8.10. REPURCHASE OF INTERESTS IN CERTAIN EVENT.................................... 31
SECTION 8.11. PERMISSIBLE TRANSFERS BY INVESTOR MEMBERS................................... 31
SECTION 8.12. SPECIAL PROVISIONS REGARDING WITHDRAWAL..................................... 31
ARTICLE IX
RECORDS, ACCOUNTINGS AND REPORTS................................................................................ 33
SECTION 9.1. BOOKS OF ACCOUNT............................................................ 33
SECTION 9.2. ACCESS TO RECORDS........................................................... 33
SECTION 9.3. BANK ACCOUNTS AND INVESTMENT OF FUNDS....................................... 33
SECTION 9.4. FISCAL YEAR................................................................. 34
SECTION 9.5. ACCOUNTING REPORTS.......................................................... 34
SECTION 9.6. TAX RETURNS................................................................. 34
ARTICLE X
MEETINGS AND VOTING RIGHTS OF MEMBERS........................................................................... 35
SECTION 10.1. MEETINGS.................................................................... 35
SECTION 10.2. VOTING RIGHTS OF MEMBERS.................................................... 35
ARTICLE XI
AMENDMENTS...................................................................................................... 36
SECTION 11.1. AUTHORITY TO AMEND BY MANAGERS.............................................. 36
SECTION 11.2. RESTRICTIONS ON MANAGERS' AMENDMENTS: AMENDMENTS BY INVESTOR MEMBERS........ 37
SECTION 11.3. AMENDMENTS TO CERTIFICATES.................................................. 37
ARTICLE XII
MISCELLANEOUS................................................................................................... 37
SECTION 12.1. LIMITED POWER OF ATTORNEY................................................... 37
SECTION 12.2. WAIVER OF PROVISIONS........................................................ 38
SECTION 12.3. INTERPRETATION AND CONSTRUCTION............................................. 38
SECTION 12.4. GOVERNING LAW; JUDICIAL VENUE............................................... 38
SECTION 12.5. PARTIAL INVALIDITY.......................................................... 38
SECTION 12.6. BINDING ON SUCCESSORS....................................................... 38
SECTION 12.7. NOTICES AND DELIVERY........................................................ 38
SECTION 12.8. COUNTERPART EXECUTION; FACSIMILE EXECUTION.................................. 39
SECTION 12.9. STATUTORY PROVISIONS........................................................ 39
SECTION 12.10. WAIVER OF PARTITION......................................................... 39
iii
SECTION 12.11. CHANGE IN LAW............................................................... 39
SECTION 12.12. INVESTMENT REPRESENTATIONS OF THE MEMBERS................................... 40
SECTION 12.13. DECISIONS BY INVESTOR MANAGER............................................... 41
SECTION 12.14. REFERRALS TO HOSPITAL AND OWNERSHIP OF SHARES OF COMMON STOCK OF
MEDCATH INCORPORATED........................................................ 41
SECTION 12.15. EXHIBITS.................................................................... 41
iv
OPERATING AGREEMENT
OF
HEART HOSPITAL OF BK, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
THESE SECURITIES ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND THE CALIFORNIA 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 COMPANY IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.
THIS OPERATING AGREEMENT (THE "AGREEMENT") OF HEART HOSPITAL OF BK, LLC
(THE "COMPANY"), A NORTH CAROLINA LIMITED LIABILITY COMPANY IS MADE AND ENTERED
INTO BY AND AMONG THE COMPANY AND HHBF, INC., A NORTH CAROLINA CORPORATION
("HHBF"), AS A MEMBER AND EACH OF THE OTHER PARTIES IDENTIFIED ON THE
INFORMATION EXHIBIT AS MEMBERS (THE "INVESTOR MEMBERS").
RECITALS
1. THE COMPANY HAS BEEN FORMED TO DEVELOP, OWN AND OPERATE AN ACUTE
CARE HOSPITAL WHICH HOSPITAL SHALL BE LOCATED IN OR NEAR BAKERSFIELD, CALIFORNIA
AND SHALL SPECIALIZE IN ALL ASPECTS OF ADULT CARDIOLOGY AND ADULT CARDIOVASCULAR
CARE AND SURGERY WHICH HHBF AND THE INVESTOR MANAGER MAY AGREE UPON;
2. IT IS INTENDED THAT THE HOSPITAL WILL BE A LOW-COST, HIGH QUALITY
PROVIDER OF MEDICAL SERVICES WITHIN THE BAKERSFIELD, CALIFORNIA 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 ACTIVE INVOLVEMENT OF THE INVESTOR
MEMBERS ARE NECESSARY TO ENABLE THE COMPANY TO ACHIEVE ITS OBJECTIVES.
ARTICLE I
DEFINITIONS
UNLESS OTHERWISE INDICATED, CAPITALIZED WORDS AND PHRASES IN THIS
OPERATING AGREEMENT SHALL HAVE THE MEANINGS SET FORTH IN THE ATTACHED GLOSSARY
OF TERMS.
ARTICLE II
FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY
SECTION 2.1. COMPANY FORMATION; EFFECTIVE DATE. THE COMPANY WAS FORMED UPON
THE FILING OF THE ARTICLES OF ORGANIZATION WITH THE SECRETARY OF STATE OF NORTH
CAROLINA IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. UPON THE EFFECTIVENESS OF
THIS AGREEMENT, THE PERSONS LISTED ON THE ATTACHED INFORMATION EXHIBIT SHALL BE
ADMITTED TO THE COMPANY AS MEMBERS AND THE PERSONS WHO EXECUTED THE ARTICLES
SHALL BE WITHDRAWN AS MEMBERS (UNLESS THEY ARE LISTED ON THE INFORMATION
EXHIBIT), ALL WITHOUT THE NECESSITY OF ANY FURTHER ACT OR INSTRUMENT AND WITHOUT
CAUSING THE DISSOLUTION OF THE COMPANY. HHBF 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 LIABILITY COMPANY IN THE STATE OF
NORTH CAROLINA, AND OTHER DOCUMENTS TO REFLECT THE ADMISSION OF ADDITIONAL
MEMBERS TO THE COMPANY. ANY COSTS INCURRED BY HHBF IN CONNECTION WITH THE
FOREGOING SHALL BE REIMBURSED PROMPTLY UPON THE COMPLETION OF SUCH ACTION. THE
AGREEMENT SHALL BE EFFECTIVE AS OF THE DATE THE COMPANY WAS FORMED.
SECTION 2.2. NAME OF COMPANY. THE NAME OF THE COMPANY IS HEART HOSPITAL OF
BK, LLC.
SECTION 2.3. PURPOSES AND INVESTMENT OBJECTIVES. THE PRINCIPAL PURPOSES OF
THE COMPANY ARE AS FOLLOWS:
(A) TO DEVELOP, OWN AND OPERATE THE HOSPITAL WHICH WOULD
INCLUDE, BUT NOT BE LIMITED TO, THE FOLLOWING:
(I) SERVICES AND FACILITIES TO MEET ALL REQUIREMENTS
OF THE STATE OF CALIFORNIA, MEDICARE, JCAHO AND OTHER
CREDENTIALLING OR LICENSING BODIES OR AGENCIES IN ORDER TO
HAVE THE HOSPITAL LICENSED AS A GENERAL ACUTE CARE HOSPITAL
AND TO PERFORM ADULT CARDIOLOGY AND ADULT CARDIOVASCULAR
SURGICAL SERVICES OF EVERY TYPE OR NATURE AND TO BE ELIGIBLE
TO OBTAIN APPROPRIATE REIMBURSEMENTS THEREFORE;
2
(II) 70,000 TO 80,000 SQUARE FEET IN A BUILDING TO
BE CONSTRUCTED IN ACCORDANCE WITH PLANS AND SPECIFICATIONS
APPROVED BY THE COMPANY;
(III) APPROXIMATELY 60 MEDICAL/SURGICAL BEDS;
(IV) 4 HEART CATHETERIZATION LABORATORIES WITH ONE
SET UP FOR PROCEDURES RELATING TO ELECTROPHYSIOLOGY AND
PACEMAKERS;
(V) 3 HEART SURGICAL SUITES WITH SPACE FOR THE
DEVELOPMENT OF ONE ADDITIONAL HEART SURGICAL SUITE;
(VI) ALL APPROPRIATE SUPPORT SERVICES AND SYSTEMS;
AND
(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. THE MANAGERS 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.
SECTION 2.4. REGISTERED AGENT AND OFFICE; PRINCIPAL PLACE OF BUSINESS. THE
REGISTERED AGENT AND OFFICE OF THE COMPANY SHALL BE AS INDICATED IN THE ARTICLES
OF ORGANIZATION, AS AMENDED FROM TIME TO TIME. THE PRINCIPAL PLACE OF BUSINESS
OF THE COMPANY SHALL BE AT SUCH LOCATION IN CALIFORNIA AS SELECTED BY HHBF FROM
TIME TO TIME. HHBF SHALL PROMPTLY NOTIFY THE MEMBERS OF ANY CHANGES IN THE
COMPANY'S REGISTERED AGENT, REGISTERED OFFICE, OR PRINCIPAL PLACE OF BUSINESS.
SECTION 2.5.COMMENCEMENT AND TERM. THE COMPANY COMMENCED ON THE FILING OF
THE ARTICLES OF ORGANIZATION IN THE OFFICE OF THE SECRETARY OF STATE OF NORTH
CAROLINA, 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 HHBF. IN THE EVENT
HHBF DOES NOT ELECT TO EXTEND THE TERM
3
HEREOF, THE INVESTOR MANAGER MAY INSTEAD ELECT TO EXTEND THE TERM HEREOF,
SUBJECT TO HHBF'S CONSENT WHICH SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED.
ARTICLE III
MEMBERS AND CAPITAL CONTRIBUTIONS
SECTION 3.1. CONTRIBUTIONS OF MEMBERS. THE MEMBERS SHALL CONTRIBUTE CAPITAL
AS FOLLOWS:
(A) HHBF SHALL OWN AT LEAST A FIFTY-ONE PERCENT (51%)
MEMBERSHIP INTEREST IN THE COMPANY AND SHALL CONTRIBUTE TO THE COMPANY
FOR ITS MEMBERSHIP INTEREST ONE MILLION FIVE HUNDRED THIRTY THOUSAND
DOLLARS ($1,530,000).
(B) THE INVESTOR MEMBERS SHALL OWN IN THE AGGREGATE UP TO A
FORTY-NINE PERCENT (49%) MEMBERSHIP INTEREST AND SHALL CONTRIBUTE TO
THE COMPANY FOR THEIR MEMBERSHIP INTERESTS AN AMOUNT, IN THE AGGREGATE,
OF UP TO ONE MILLION FOUR HUNDRED SEVENTY THOUSAND DOLLARS
($1,470,000). THE MEMBERSHIP INTERESTS OF THE INVESTOR MEMBERS SHALL BE
OWNED AS SHOWN ON THE INFORMATION EXHIBIT ATTACHED HERETO.
THE MEMBERS MAY BE LIABLE TO THE COMPANY FOR AMOUNTS DISTRIBUTED TO
THEM AS A RETURN OF CAPITAL AS PROVIDED BY THE ACT. THE MEMBERS SHALL NOT BE
REQUIRED TO CONTRIBUTE ANY ADDITIONAL CAPITAL TO THE COMPANY EXCEPT AS PROVIDED
IN SECTION 3.5.
SECTION 3.2. LIABILITY OF MEMBERS - FOR CAPITAL. THE LIABILITY OF EACH
MEMBER, AS SUCH, SHALL BE LIMITED TO THE AMOUNT OF ITS AGREED CAPITAL
CONTRIBUTION AS A MEMBER AS PROVIDED IN SECTION 3.1.
SECTION 3.3. MEMBERS' ACCOUNTS AND WITHDRAWALS. AN INDIVIDUAL CAPITAL
ACCOUNT SHALL BE MAINTAINED FOR EACH MEMBER IN ACCORDANCE WITH REQUIREMENTS OF
THE CODE AND THE REGULATIONS PROMULGATED THEREUNDER. EXCEPT AS PROVIDED IN
SECTION 8.12 BELOW, NO MEMBER SHALL BE ENTITLED TO WITHDRAW OR TO MAKE DEMAND
FOR WITHDRAWAL OF ANY PART OF ITS CAPITAL ACCOUNT OR TO RECEIVE ANY DISTRIBUTION
EXCEPT AS PROVIDED HEREIN.
SECTION 3.4. INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL ACCOUNTS. NO
INTEREST SHALL BE PAID TO ANY MEMBER BASED SOLELY ON ITS CAPITAL CONTRIBUTIONS
OR CAPITAL ACCOUNT. THE PRECEDING SENTENCE SHALL NOT PREVENT THE COMPANY FROM
EARNING INTEREST ON ITS BANK ACCOUNTS AND INVESTMENTS AND DISTRIBUTING SUCH
EARNINGS TO THE MEMBER IN ACCORDANCE WITH ARTICLES VI AND VII.
4
SECTION 3.5. ADDITIONAL FUNDING. IF FROM TIME TO TIME, HHBF REASONABLY
DETERMINES 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, HHBF SHALL USE COMMERCIALLY REASONABLE EFFORTS TO
BORROW SUCH FUNDS FROM A BANK OR OTHER LENDER ON TERMS AND CONDITIONS
REASONABLY ACCEPTABLE TO HHBF, OR HHBF MAY, BUT SHALL NOT BE REQUIRED,
TO LOAN SUCH FUNDS TO THE COMPANY AT THE PRIME RATE PLUS ONE PERCENT
(1%) PER ANNUM WHICH LOAN SHALL BE SECURED BY THE COMPANY'S ASSETS.
INTEREST SHALL BE PAID MONTHLY IN ARREARS AND PRINCIPAL SHALL BE REPAID
AS THE COMPANY HAS FUNDS AVAILABLE THEREFORE. ALL LOANS OBTAINED
HEREUNDER SHALL BE SUBJECT TO THE APPROVAL OF THE INVESTOR MANAGER
WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED;
(B) SECOND, IF LOANS AS PROVIDED IN (A) ABOVE ARE NOT
AVAILABLE, HHBF MAY REQUEST THAT THE MEMBERS CONTRIBUTE ADDITIONAL
CAPITAL TO THE COMPANY PRO RATA ACCORDING TO THEIR RESPECTIVE
MEMBERSHIP INTERESTS, PROVIDED HOWEVER, SUCH CAPITAL CONTRIBUTIONS
SHALL BE MADE ONLY IF HHBF AND THE INVESTOR MANAGER APPROVE SUCH
CAPITAL CONTRIBUTIONS. IF ADDITIONAL CAPITAL CONTRIBUTIONS ARE SO
APPROVED, EACH MEMBER MAY ELECT WHETHER OR NOT TO CONTRIBUTE ITS PRO
RATA PORTION THEREOF. THE OTHER INVESTOR MEMBERS MAY ELECT TO
CONTRIBUTE CAPITAL NOT CONTRIBUTED BY ANY INVESTOR MEMBER HEREUNDER.
HHBF MAY THEN ELECT TO CONTRIBUTE AMOUNTS WHICH THE INVESTOR MEMBERS,
IN THE AGGREGATE, HAVE NOT SO CONTRIBUTED. THEREAFTER, HHBF SHALL
REASONABLY ADJUST THE PERCENTAGE MEMBERSHIP INTEREST OF EACH MEMBER
(BASED ON THE RELATIVE AGGREGATE CAPITAL CONTRIBUTIONS MADE BY THE
MEMBERS IN ACCORDANCE WITH THIS AGREEMENT) IN THE EVENT ANY MEMBER
ELECTED NOT TO CONTRIBUTE CAPITAL PURSUANT TO A CAPITAL CALL APPROVED
IN ACCORDANCE WITH THIS SECTION 3.5; AND
(C) THIRD, IF FUNDS ARE NOT AVAILABLE IN ACCORDANCE WITH (A)
OR (B) ABOVE, THEN HHBF MAY ELECT TO DISSOLVE THE COMPANY.
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS
THE NAMES AND ADDRESSES OF THE MEMBERS ARE AS INDICATED ON THE
INFORMATION EXHIBIT, ATTACHED HERETO AND AS AMENDED FROM TIME TO TIME.
5
ARTICLE V
MANAGEMENT OF THE COMPANY
SECTION 5.1. GENERAL AUTHORITY AND POWERS OF MANAGERS. EXCEPT AS SET FORTH
IN THOSE PROVISIONS OF THIS AGREEMENT THAT SPECIFICALLY REQUIRE THE VOTE,
CONSENT, APPROVAL OR RATIFICATION OF THE MEMBERS, THE MANAGERS SHALL HAVE
COMPLETE AUTHORITY AND EXCLUSIVE CONTROL OVER THE MANAGEMENT OF THE BUSINESS AND
AFFAIRS OF THE COMPANY. NO MEMBER HAS THE ACTUAL OR APPARENT AUTHORITY TO CAUSE
THE COMPANY TO BECOME BOUND IN ANY CONTRACT, AGREEMENT OR OBLIGATION, AND NO
MEMBER SHALL TAKE ANY ACTION PURPORTING TO BE ON BEHALF OF THE COMPANY. NO
MANAGER SHALL CAUSE THE COMPANY TO BECOME BOUND TO ANY CONTRACT, AGREEMENT OR
OBLIGATION, AND NO MANAGER SHALL TAKE ANY OTHER ACTION ON BEHALF OF THE COMPANY,
UNLESS SUCH MATTER HAS RECEIVED THE VOTE, CONSENT, APPROVAL OR RATIFICATION AS
REQUIRED PURSUANT TO THIS AGREEMENT WITH RESPECT TO SUCH MATTER OR EXCEPT AS
PROVIDED IN SECTION 5.2 BELOW WITH RESPECT TO THE AUTHORITY AND ACTIONS OF HHBF.
IT IS ACKNOWLEDGED THAT ALL DECISIONS RELATING TO THE HOSPITAL AND MEDICAL STAFF
BYLAWS AND PHYSICIAN CREDENTIALLING MATTERS SHALL BE HANDLED IN ACCORDANCE WITH
SECTION 11.1(G).
EXCEPT AS PROVIDED IN THIS AGREEMENT, DECISIONS AND ACTIONS TO BE TAKEN
BY THE MANAGERS SHALL BE DEEMED TO HAVE BEEN MADE ONLY UPON THE AFFIRMATIVE
APPROVAL OR CONSENT OF HHBF AND THE INVESTOR MANAGER. IN THE EVENT A DECISION,
APPROVAL OR CONSENT IS REQUESTED OF THE INVESTOR MANAGER BY HHBF, IT SHALL BE
DEEMED TO HAVE BEEN AFFIRMATIVELY MADE IF THE INVESTOR MANAGER FAILS TO RESPOND
TO ANY SUCH WRITTEN REQUEST THEREFOR WITHIN FIVE (5) DAYS OF NOTICE THEREOF BY
HHBF, PROVIDED HOWEVER, ONCE THE HOSPITAL HAS OPENED FOR BUSINESS AND REGULARLY
CONDUCTS SUCH BUSINESS THE FIVE (5) DAY PERIOD SHALL BE EXTENDED TO TEN (10)
DAYS. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, ALL DECISIONS
AND ACTIONS TO BE MADE BY THE MANAGERS WITH RESPECT TO ANY LOAN, LEASE OR OTHER
SIMILAR FINANCING OF THE DEVELOPMENT, CONSTRUCTION OR OPERATION OF THE HOSPITAL
OR THE COMPANY'S AFFAIRS, INCLUDING WITHOUT LIMITATION THE DECISIONS WITH
RESPECT TO INCURRING ANY INDEBTEDNESS OR THE REFINANCING THEREOF, SHALL BE MADE
BY HHBF AND SHALL BE SUBJECT TO THE CONSENT OF THE INVESTOR MANAGER, WHICH
CONSENT SHALL NOT BE UNREASONABLY WITHHELD; PROVIDED, THE APPLICATION OF THE
COMPANY'S FUNDS TOWARD THE REPAYMENT OF ALL OR A PORTION OF ANY FINANCING OF THE
COMPANY IN EXCESS OF AMOUNTS THEN REQUIRED TO BE PAID (I.E., VOLUNTARY
PREPAYMENTS) SHALL BE MADE ONLY WITH THE CONSENT OF HHBF AND THE INVESTOR
MANAGER.
THE FOLLOWING MATERIAL DECISIONS SHALL BE MADE BY THE MANAGERS AS
DETERMINED ABOVE, EXCEPT AS OTHERWISE PROVIDED:
(A) HOSPITAL DEVELOPMENT. HHBF AND THE INVESTOR MANAGER SHALL APPROVE
THE DEVELOPMENT PLAN FOR THE HOSPITAL, THE SELECTION OF THE SITE FOR THE
HOSPITAL, THE DESIGN OF THE HOSPITAL AND THE CONSTRUCTION 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
6
APPROVED BY HHBF AND THE INVESTOR MANAGER AND SHALL BE BASED UPON
ECONOMIC FEASIBILITY, PATIENT CARE CRITERIA AND THEN CURRENT MARKET CONDITIONS.
(C) KEY MANAGEMENT AND CLINICAL EMPLOYEES. THE SELECTION, RETENTION AND
REMOVAL OF THE PRESIDENT/SENIOR ADMINISTRATOR, VICE PRESIDENT-CLINICAL, VICE
PRESIDENT-MANAGED CARE, CATHETERIZATION LABORATORY DIRECTOR, NURSES AND
TECHNICIANS, OPERATING ROOM/SURGERY SUITES DIRECTOR, NURSES AND TECHNICIANS, AND
ICU/CCU DIRECTOR, NURSES AND TECHNICIANS SHALL BE SUBJECT TO THE APPROVAL OF
HHBF AND THE INVESTOR MANAGER UPON THE WRITTEN REQUEST OF THE INVESTOR MANAGER
ON AN EMPLOYEE BY EMPLOYEE BASIS. EITHER HHBF OR THE INVESTOR MANAGER MAY
INITIATE THE PROCESS TO DETERMINE WHETHER THE EMPLOYMENT OF ANY OF THE ABOVE
INDIVIDUALS SHOULD BE TERMINATED BY PROVIDING TO THE OTHER A WRITTEN REPORT
WHICH DOCUMENTS THE REASONS WHY THE INDIVIDUAL'S JOB PERFORMANCE IS MATERIALLY
DEFICIENT AND INCLUDES A RECOMMENDED COURSE OF ACTION FOR THE COMPANY TO TAKE.
WITH THE CONSENT OF THE NON-INITIATING MANAGER, WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD, THE MANAGERS SHALL CAUSE THE COMPANY TO TAKE SUCH
RECOMMENDED ACTIONS; PROVIDED, SUCH ACTIONS SHALL BE CONSISTENT WITH THE
ESTABLISHED DISCIPLINARY PROCEDURES OF THE COMPANY WITH RESPECT TO EMPLOYEES,
WHICH SHALL INCLUDE ANY PROCEDURES SET FORTH IN ANY EMPLOYEE HANDBOOKS OR
MANUALS; PROVIDED FURTHER, THE ACTIONS MUST BE CONSISTENT WITH THE OBLIGATIONS
OF THE COMPANY UNDER ANY CONTRACTS OR AGREEMENTS TO WHICH IT IS A PARTY,
INCLUDING AGREEMENTS WITH THE INDIVIDUAL IN QUESTION, AND WITH APPLICABLE LAW.
(D) CERTAIN SERVICE PROVIDERS. THE SELECTION, RETENTION AND REMOVAL OF
PERFUSIONISTS, RADIOLOGISTS, EMERGENCY ROOM PHYSICIANS, PATHOLOGISTS AND
ANESTHESIOLOGISTS TO PROVIDE SERVICES AT THE HOSPITAL SHALL BE SUBJECT TO THE
APPROVAL OF HHBF AND THE INVESTOR MANAGER UPON THE WRITTEN REQUEST OF THE
INVESTOR MANAGER ON AN EMPLOYEE BY EMPLOYEE BASIS. EITHER HHBF OR THE INVESTOR
MANAGER MAY INITIATE THE PROCESS TO DETERMINE WHETHER THE SERVICE RELATIONSHIP
OF ANY OF THE ABOVE SERVICE PROVIDERS SHOULD BE TERMINATED BY PROVIDING TO THE
OTHER A WRITTEN REPORT WHICH DOCUMENTS THE REASONS WHY THE SERVICE PROVIDER'S
PERFORMANCE IS MATERIALLY DEFICIENT AND INCLUDES A RECOMMENDED COURSE OF ACTION
FOR THE COMPANY TO TAKE. WITH THE CONSENT OF THE NON-INITIATING MANAGER, WHICH
CONSENT SHALL NOT BE UNREASONABLY WITHHELD, THE MANAGERS SHALL CAUSE THE COMPANY
TO TAKE SUCH RECOMMENDED ACTIONS; PROVIDED, SUCH ACTIONS SHALL BE CONSISTENT
WITH THE ESTABLISHED DISCIPLINARY PROCEDURES OF THE COMPANY (I) CONTAINED IN THE
MEDICAL STAFF BYLAWS AND RULES AND REGULATIONS AND HOSPITAL BYLAWS AND (II) WITH
RESPECT TO EMPLOYEES, WHETHER OR NOT SUCH SERVICE PROVIDER IS AN EMPLOYEE OF THE
COMPANY, WHICH SHALL INCLUDE ANY PROCEDURES SET FORTH IN ANY EMPLOYEE HANDBOOKS
OR MANUALS; PROVIDED FURTHER, THE ACTIONS MUST BE CONSISTENT WITH THE
OBLIGATIONS OF THE COMPANY UNDER ANY CONTRACTS OR AGREEMENTS TO WHICH IT IS A
PARTY, INCLUDING AGREEMENTS WITH THE SERVICE PROVIDER IN QUESTION, AND WITH
APPLICABLE LAW.
(E) MARKETING. ALL ADVERTISING AND OTHER MARKETING OF THE SERVICES
PERFORMED AT THE HOSPITAL SHALL BE SUBJECT TO THE PRIOR REVIEW AND APPROVAL OF
HHBF AND THE INVESTOR MANAGER.
7
(F) ANCILLARY SERVICES. HHBF AND THE INVESTOR MANAGER 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 HHBF AND THE INVESTOR MANAGER.
(H) STRATEGIC PLANNING. HHBF AND THE INVESTOR MANAGER SHALL DEVELOP
LONG-TERM STRATEGIC PLANNING OBJECTIVES AND ADOPT A STRATEGIC PLAN FOR THE
HOSPITAL.
(I) CAPITAL EXPENDITURES AND REPLACEMENTS. HHBF AND THE INVESTOR
MANAGER SHALL DETERMINE THE PRIORITY OF MAJOR CAPITAL EXPENDITURES. IN ADDITION,
WITH RESPECT TO EQUIPMENT FOR THE CATHETERIZATION LABORATORY, THE OPERATING
ROOMS/SURGERY SUITES AND THE ICC/CCU DEPARTMENT, EITHER HHBF OR THE INVESTOR
MANAGER MAY PRESENT TO THE OTHER PROPOSALS FOR THE REPLACEMENT OF ANY SUCH
EQUIPMENT THAT IS USED AND OBSOLETE AND SUCH PROPOSAL SHALL BE IMPLEMENTED WITH
THE CONSENT OF THE OTHER MANAGER, WHICH CONSENT SHALL NOT BE UNREASONABLY
WITHHELD; PROVIDED, SUCH REPLACEMENT SHALL BE MADE ONLY AFTER THE COST OF ANY
SUCH USED EQUIPMENT HAS BEEN FULLY RECOVERED AS DEPRECIATION ON THE COMPANY'S
BOOKS AND FINANCIAL RECORDS IN ACCORDANCE WITH GENERAL ACCEPTED ACCOUNTING
PRINCIPALS.
(J) SELECTION OF SURGICAL SUPPLIES AND IMPLANTS. DECISIONS REGARDING
THE SELECTION OF SUPPLIES AND IMPLANTS USED IN CARDIAC, THORACIC AND VASCULAR
SURGERY, INCLUDING INSTRUMENTS, SUTURES, CARDIOPLEGIA, VALVES AND SYNTHETIC
GRAPHS, SHALL BE MADE BY HHBF AND THE INVESTOR MANAGER AS FOLLOWS:
(I) THE INVESTOR MANAGER SHALL SUBMIT TO HHBF A LIST OF
PREFERRED PARTIES TO BE THE "PRIMARY VENDOR" FOR SUCH
ITEMS.
(II) HHBF SHALL SOLICIT BIDS FROM THOSE PARTIES WHO DESIRE
TO SERVE AS THE HOSPITAL'S PRIMARY VENDOR FOR SUCH
ITEMS.
(III) HHBF SHALL SUBMIT SUCH BIDS TO THE INVESTOR MANAGER
AND THE INVESTOR MANAGER SHALL CHOOSE ONE SUCH PARTY
TO BE THE PRIMARY VENDOR AND ANOTHER SUCH PARTY TO BE
THE "SECONDARY VENDOR."
(IV) THE MANAGERS SHALL CAUSE THE COMPANY TO ENTER INTO AN
AGREEMENT WITH THE PARTY SELECTED BY THE INVESTOR
MANAGER AS THE PRIMARY VENDOR PURSUANT TO WHICH SUCH
PARTY SHALL PROVIDE SUCH ITEMS TO THE HOSPITAL.
(V) THE NEEDED ITEMS SHALL THEREAFTER BE ACQUIRED FROM
THE PARTY SELECTED AS THE PRIMARY VENDOR PURSUANT TO
THE AGREEMENT REACHED WITH THAT PARTY. IN THE EVENT
THE PRIMARY VENDOR IS NOT ABLE TO PROVIDE THE
REQUIRED ITEMS, THE HOSPITAL MAY ACQUIRE THEM FROM
THE SECONDARY VENDOR. IN
8
THE CASE OF SPECIALTY ITEMS THAT NEITHER THE PRIMARY
VENDOR NOR THE SECONDARY VENDOR CAN PROVIDE, THE
HOSPITAL MAY ACQUIRE THEM FROM OTHER VENDORS.
(VI) UPON REASONABLE NOTICE, THE INVESTOR MANAGER MAY GIVE
NOTICE TO HHBF OF ITS DESIRE TO CHANGE THE PARTY WHO
WILL SERVE AS THE PRIMARY VENDOR, AND TO THE EXTENT
SUCH A CHANGE WILL NOT VIOLATE ANY CONTRACT OR
AGREEMENT TO WHICH THE COMPANY IS A PARTY, INCLUDING
ANY CONTRACT OR AGREEMENT WITH THE PARTY WHO IS THE
PRIMARY VENDOR AT THAT TIME, HHBF WILL ATTEMPT TO
ENTER INTO AN AGREEMENT WITH THE PARTY SELECTED BY
THE INVESTOR MANAGER TO REPLACE THE PRIOR PARTY AS
THE PRIMARY VENDOR.
(K) SELECTION OF SUPPLIES UTILIZED IN THE CATHETERIZATION LABORATORY.
DECISIONS REGARDING THE SELECTION OF SUPPLIES, INCLUDING PACEMAKERS, USED IN THE
CATHETERIZATION LABORATORY SHALL BE MADE BY HHBF AND THE INVESTOR MANAGER AS
FOLLOWS:
(I) THE INVESTOR MANAGER SHALL SUBMIT TO HHBF A LIST OF
PREFERRED PARTIES TO BE THE "PRIMARY VENDOR" FOR SUCH
ITEMS.
(II) HHBF SHALL SOLICIT BIDS FROM THOSE PARTIES WHO DESIRE
TO SERVE AS THE HOSPITAL'S PRIMARY VENDOR FOR SUCH
ITEMS.
(III) HHBF SHALL SUBMIT SUCH BIDS TO THE INVESTOR MANAGER
AND THE INVESTOR MANAGER SHALL CHOOSE ONE SUCH PARTY
TO BE THE PRIMARY VENDOR AND ANOTHER SUCH PARTY TO BE
THE "SECONDARY VENDOR."
(IV) THE MANAGERS SHALL CAUSE THE COMPANY TO ENTER INTO AN
AGREEMENT WITH THE PARTY SELECTED BY THE INVESTOR
MANAGER AS THE PRIMARY VENDOR PURSUANT TO WHICH SUCH
PARTY SHALL PROVIDE SUCH ITEMS TO THE HOSPITAL.
(V) THE NEEDED ITEMS SHALL THEREAFTER BE ACQUIRED FROM
THE PARTY SELECTED AS THE PRIMARY VENDOR PURSUANT TO
THE AGREEMENT REACHED WITH THAT PARTY. IN THE EVENT
THE PRIMARY VENDOR IS NOT ABLE TO PROVIDE THE
REQUIRED ITEMS, THE HOSPITAL MAY ACQUIRE THEM FROM
THE SECONDARY VENDOR. IN THE CASE OF SPECIALTY ITEMS
THAT NEITHER THE PRIMARY VENDOR NOR THE SECONDARY
VENDOR CAN PROVIDE, THE HOSPITAL MAY ACQUIRE THEM
FROM OTHER VENDORS.
(VI) UPON REASONABLE NOTICE, THE INVESTOR MANAGER MAY GIVE
NOTICE TO HHBF OF ITS DESIRE TO CHANGE THE PARTY WHO
WILL SERVE AS THE PRIMARY VENDOR, AND TO THE EXTENT
SUCH A CHANGE WILL NOT VIOLATE ANY CONTRACT OR
AGREEMENT TO WHICH THE COMPANY IS A PARTY, INCLUDING
ANY CONTRACT OR AGREEMENT WITH THE PARTY WHO IS THE
PRIMARY VENDOR AT THAT TIME,
9
HHBF WILL ATTEMPT TO ENTER INTO AN AGREEMENT WITH THE
PARTY SELECTED BY THE INVESTOR MANAGER TO REPLACE THE
PRIOR PARTY AS THE PRIMARY VENDOR.
(L) SCOPE OF HOSPITAL SERVICES. ANY DECISION TO EXPAND THE SCOPE OF THE
HOSPITAL SERVICES BEYOND THOSE CONSISTENT WITH THE SERVICES REASONABLY EXPECTED
TO BE PROVIDED BY A HOSPITAL SPECIALIZING IN ALL ASPECTS OF ADULT CARDIOLOGY AND
ADULT CARDIOVASCULAR CARE AND SURGERY SHALL BE MADE ONLY UPON THE UNANIMOUS
CONSENT OF HHBF AND THE INVESTOR MANAGER, WHICH CONSENT CAN BE GIVEN OR WITHHELD
ON THE SOLE AND ABSOLUTE DISCRETION OF EACH MANAGER.
(M) EXCLUSIVE CONTRACTS. HHBF AND THE INVESTOR MANAGER SHALL APPROVE
THE EXECUTION OF EXCLUSIVE CONTRACTS TO PROVIDE PHYSICIAN SERVICES TO THE
HOSPITAL.
(N) GLOBAL CONTRACTING. HHBF AND THE INVESTOR MANAGER SHALL DEVELOP AND
APPROVE A UNIFIED MANAGED CARE STRATEGY UNDER WHICH THE HOSPITAL AND PHYSICIANS
PRACTICING AT THE HOSPITAL WOULD ENTER INTO MANAGED CARE AGREEMENTS INCLUDING
AGREEMENTS CONTAINING PACKAGE PRICING FOR THE SERVICES OF THE HOSPITAL AND SUCH
PHYSICIANS.
(O) OTHER MATERIAL DECISIONS. HHBF AND THE INVESTOR MANAGER SHALL
APPROVE ANY BINDING AGREEMENT WHICH MAY NOT BE CANCELED UPON LESS THAN NINETY
(90) DAYS' NOTICE AND WHICH CALLS FOR THE EXPENDITURE OF FUNDS, OR INVOLVES AN
OBLIGATION FOR FINANCING, IN EXCESS OF $100,000, EXCLUSIVE OF AGREEMENTS OR
OBLIGATIONS CONTEMPLATED BY ANY BUDGET, DEVELOPMENT PLAN, FINANCING OR
CONSTRUCTION CONTRACT APPROVED BY THE MANAGERS OR AGREEMENTS INCURRED IN THE
ORDINARY COURSE OF BUSINESS SUCH AS EMPLOYMENT AGREEMENTS FOR OTHER THAN KEY
EMPLOYEES, PURCHASES OF SUPPLIES AND ROUTINE SERVICES AND THE LIKE.
(P) BUDGETS. THE DEVELOPMENT AND ANNUAL OPERATING BUDGETS TO BE
PROPOSED BY HHBF SHALL BE APPROVED BY THE MANAGERS AS PROVIDED ABOVE SUBJECT
TO THE FOLLOWING:
(I) THE INVESTOR MANAGER SHALL BE DEEMED TO HAVE APPROVED A
DEVELOPMENT BUDGET WHICH IS SUBSTANTIALLY CONSISTENT WITH THE ATTACHED
DEVELOPMENT BUDGET EXHIBIT TO THIS AGREEMENT;
(II) THE INVESTOR MANAGER SHALL NOT UNREASONABLY WITHHOLD ITS
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 COMPANY'S
LENDERS AND OTHER PARTIES PROVIDING FINANCING TO THE COMPANY; AND
(III) IN THE EVENT THAT THE MANAGERS ARE UNABLE TO APPROVE AN
ANNUAL BUDGET, HHBF SHALL BE AUTHORIZED TO OPERATE THE COMPANY 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.
10
SECTION 5.2. MANAGEMENT OF DAY-TO-DAY OPERATIONS. THE DAY-TO-DAY MANAGEMENT
OF THE BUSINESS AND AFFAIRS OF THE COMPANY SHALL BE THE RESPONSIBILITY OF HHBF,
WHICH MANAGEMENT SHALL BE SUBJECT TO DECISIONS, GUIDELINES AND POLICIES MADE OR
ESTABLISHED BY THE MANAGERS HEREUNDER, INCLUDING THOSE GOVERNED BY SECTION 5.1,
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, HHBF SHALL HAVE THE RIGHT AND
THE POWER, IF, AS, AND WHEN IT, FROM TIME TO TIME, DEEMS NECESSARY OR
APPROPRIATE ON BEHALF OF THE COMPANY, SUBJECT ONLY TO THE TERMS AND CONDITIONS
OF THIS AGREEMENT:
(A) TO NEGOTIATE AND EXECUTE ON BEHALF OF THE COMPANY 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 THE EQUIPMENT AND ENTER INTO LOANS OR OTHER
FINANCING ARRANGEMENTS THEREFOR;
(D) TO HANDLE THE NEGOTIATION AND EXECUTION OF ALL SUCH
OTHER AGREEMENTS REGARDING THE PURCHASE OF GOODS OR SERVICES FOR THE
HOSPITAL;
(E) TO ESTABLISH PROCEDURES FOR QUALITY ASSURANCE, PEER REVIEW
AND GRANTING PRIVILEGES TO PHYSICIANS WITH OTHER SPECIALTIES AT THE
HOSPITAL, SUBJECT TO THE TERMS OF THE HOSPITAL AND MEDICAL STAFF BYLAWS
ADOPTED FOR THE HOSPITAL;
(F) TO EXPEND ALL OR PORTIONS OF THE COMPANY'S CAPITAL AND
INCOME IN FURTHERANCE OF OR RELATING TO THE COMPANY'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 COMPANY'S FUNDS AS ARE
TEMPORARILY NOT REQUIRED FOR THE DEVELOPMENT OR OPERATION OF THE
COMPANY AND THE PAYMENT OF COMPANY OBLIGATIONS; PROVIDED, THAT THE
MANAGERS SHALL ESTABLISH CASH MANAGEMENT GUIDELINES TO BE FOLLOWED BY
HHBF;
(G) TO EMPLOY OR RETAIN ON SUCH TERMS AND FOR SUCH
COMPENSATION AS HHBF MAY REASONABLY DETERMINE, SUCH PERSONS, FIRMS, OR
CORPORATIONS AS HHBF MAY DEEM ADVISABLE, INCLUDING WITHOUT LIMITATION
QUALIFIED MEDICAL AND OTHER EMPLOYEES
11
NECESSARY OR APPROPRIATE 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 HHBF,
PROVIDED THAT THE SELECTION OF THE SENIOR ADMINISTRATOR OF THE HOSPITAL
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
COMPANY AS LESSEE WITH RESPECT TO THE HOSPITAL OR RIGHTS HELD BY THE
COMPANY;
(J) TO CONSENT TO THE MODIFICATION, RENEWAL, OR EXTENSION OF
ANY OBLIGATIONS TO THE COMPANY OF ANY PERSON OR OF ANY AGREEMENT TO
WHICH THE COMPANY IS A PARTY OR OF WHICH IT IS A BENEFICIARY;
(K) TO EXECUTE IN FURTHERANCE OF ANY OR ALL OF THE PURPOSES OF
THE COMPANY, 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 COMPANY;
(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 COMPANY, AND TO INSTITUTE, PROSECUTE,
AND DEFEND ANY ACTIONS OR PROCEEDINGS RELATING TO THE COMPANY, ITS
BUSINESS, AND PROPERTIES;
(N) TO ACQUIRE AND ENTER INTO ANY CONTRACT OF INSURANCE WHICH
HHBF DEEMS NECESSARY OR APPROPRIATE FOR THE PROTECTION OF THE COMPANY
AND HHBF, FOR THE CONSERVATION OF THE COMPANY OR ITS ASSETS, OR FOR ANY
PURPOSE BENEFICIAL TO THE COMPANY; HOWEVER, NEITHER HHBF 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 MEMBERS, INCLUDING ANNUAL REPORTS;
(P) TO OPEN ACCOUNTS AND DEPOSIT AND MAINTAIN FUNDS IN THE
NAME OF THE COMPANY IN BANKS OR SAVINGS AND LOAN ASSOCIATIONS;
PROVIDED, HOWEVER, THAT THE COMPANY'S FUNDS SHALL NOT BE COMMINGLED
WITH THE FUNDS OF ANY OTHER PERSON;
12
(Q) TO CAUSE THE COMPANY 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;
(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) TO POSSESS AND EXERCISE, SUBJECT TO THE RESTRICTIONS
CONTAINED IN THIS AGREEMENT, ANY AND ALL OF THE RIGHTS, POWERS AND
PRIVILEGES OF A MANAGER UNDER THE ACT;
(T) TO EXECUTE, ACKNOWLEDGE, AND DELIVER ANY AND ALL DOCUMENTS
OR INSTRUMENTS IN CONNECTION WITH ANY OR ALL OF THE FOREGOING;
(U) TO MODIFY OR OTHERWISE IMPROVE THE HOSPITAL, SUBJECT TO
THE RESTRICTIONS CONTAINED IN THIS AGREEMENT;
(V) TO MANAGE, DIRECT, AND GUIDE THE OPERATION OF THE HOSPITAL
INCLUDING ALL NECESSARY ACTS RELATING THERETO, OTHER THAN MEDICAL OR
CLINICAL MATTERS WHICH SHALL BE UNDER THE DIRECTION OF THE INVESTOR
MANAGER AND OTHER AGREED UPON QUALIFIED MEDICAL PERSONNEL;
(W) TO ESTABLISH MINIMUM INSURANCE REQUIREMENTS FOR ALL
PHYSICIANS PRACTICING AT THE HOSPITAL;
(X) TO ADMIT AS MEMBERS ADDITIONAL INVESTORS WHO HAVE BEEN
PROPOSED FOR MEMBER STATUS BY HHBF AND APPROVED BY THE INVESTOR
MANAGER, WHICH APPROVAL SHALL BE GIVEN OR WITHHELD IN THE SOLE AND
ABSOLUTE DISCRETION OF THE INVESTOR MANAGER; AND
(Y) TO SELL ASSETS OF THE COMPANY, SUBJECT TO THE RESTRICTIONS
CONTAINED IN THIS AGREEMENT.
SECTION 5.3. RESTRICTIONS ON AUTHORITY OF THE MANAGERS. THE MANAGERS SHALL NOT
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 COMPANY;
(C) COMMINGLE THE COMPANY FUNDS WITH THOSE OF ANY OTHER
PERSON;
(D) ADMIT AN ADDITIONAL MANAGER, EXCEPT AS PROVIDED IN THIS
AGREEMENT;
13
(E) ADMIT AN ADDITIONAL MEMBER, EXCEPT AS PROVIDED IN THIS
AGREEMENT;
(F) ALTER THE PRIMARY PURPOSES OF THE COMPANY AS SET FORTH IN
SECTION 2.3;
(G) POSSESS ANY PROPERTY OR ASSIGN THE RIGHTS OF THE COMPANY
IN SPECIFIC PROPERTY FOR OTHER THAN A COMPANY PURPOSE;
(H) EMPLOY, OR PERMIT THE EMPLOY OF, THE FUNDS OR ASSETS OF
THE COMPANY IN ANY MANNER EXCEPT FOR THE EXCLUSIVE BENEFIT OF THE
COMPANY;
(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;
OR
(J) SELL ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY
OR MERGE THE COMPANY WITH OR INTO ANY OTHER ENTITY WITHOUT THE APPROVAL
OF A SUPERMAJORITY VOTE OF THE MEMBERS.
SECTION 5.4. DUTIES OF THE MANAGERS. EACH MANAGER SHALL DO THE FOLLOWING:
(A) DILIGENTLY AND FAITHFULLY DEVOTE SUCH OF ITS TIME TO THE
BUSINESS OF THE COMPANY AS MAY BE NECESSARY TO PROPERLY CONDUCT THE
AFFAIRS OF THE COMPANY, HOWEVER, EACH MANAGER SHALL NOT BE REQUIRED TO
DEVOTE ITS FULL TIME TO SUCH DUTIES;
(B) USE ITS BEST EFFORTS TO CAUSE THE COMPANY TO COMPLY WITH
SUCH CONDITIONS AS MAY BE REQUIRED FROM TIME TO TIME TO PERMIT THE
COMPANY 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 HHBF FILE AND PUBLISH ALL CERTIFICATES,
STATEMENTS, OR OTHER INSTRUMENTS REQUIRED BY LAW FOR THE FORMATION AND
OPERATION OF THE COMPANY AS A LIMITED LIABILITY COMPANY IN ALL
APPROPRIATE JURISDICTIONS;
(D) IN THE CASE OF HHBF CAUSE THE COMPANY TO OBTAIN AND KEEP
IN FORCE DURING THE TERM OF THE COMPANY FIRE AND EXTENDED COVERAGE AND
PUBLIC LIABILITY AND PROFESSIONAL LIABILITY INSURANCE WITH SUCH ISSUERS
AND IN SUCH AMOUNTS AS HHBF SHALL DEEM ADVISABLE, BUT IN AMOUNTS NOT
LESS (AND DEDUCTIBLE AMOUNTS NOT GREATER) THAN THOSE CUSTOMARILY
MAINTAINED WITH RESPECT TO THE BUSINESS EQUIPMENT AND PROPERTY
COMPARABLE TO THE COMPANY'S;
(E) HAVE A FIDUCIARY DUTY TO CONDUCT THE AFFAIRS OF THE
COMPANY IN THE BEST INTERESTS OF THE COMPANY AND OF THE MEMBERS,
INCLUDING THE SAFEKEEPING AND USE OF ALL FUNDS AND ASSETS, WHETHER OR
NOT IN ITS IMMEDIATE POSSESSION AND CONTROL, AND IT
14
SHALL NOT EMPLOY OR PERMIT OTHERS BESIDES MANAGERS TO EMPLOY SUCH FUNDS
OR ASSETS IN ANY MANNER EXCEPT FOR THE BENEFIT OF THE COMPANY; AND
(F) IN THE CASE OF HHBF, DELIVER TO THE SECRETARY OF STATE OF
NORTH CAROLINA FOR FILING AN ANNUAL STATEMENT IN ACCORDANCE WITH THE
ACT AND MAKE ANY SIMILAR FILINGS REQUIRED UNDER CALIFORNIA LAW.
SECTION 5.5. DELEGATION BY THE MANAGERS. SUBJECT TO RESTRICTIONS OTHERWISE
PROVIDED HEREIN, THE MANAGERS MAY AT ANY TIME EMPLOY ANY OTHER PERSON, INCLUDING
PERSONS AND ENTITIES EMPLOYED BY, AFFILIATED WITH, OR RELATED TO THE MANAGERS TO
PERFORM SERVICES FOR THE COMPANY 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 THE MANAGERS OF THEIR RESPECTIVE
RESPONSIBILITIES AND OBLIGATIONS UNDER THIS AGREEMENT OR UNDER THE LAWS OF THE
STATE OF NORTH CAROLINA NOR WILL IT MAKE ANY SUCH PERSON A MEMBER OR MANAGER OF
THE COMPANY.
SECTION 5.6. RIGHT TO RELY UPON THE AUTHORITY OF THE MANAGERS. PERSONS
DEALING WITH THE COMPANY MAY RELY UPON THE REPRESENTATION OF THE MANAGERS THAT
SUCH MANAGERS ARE MANAGERS OF THE COMPANY AND THAT SUCH MANAGERS HAVE THE
AUTHORITY TO MAKE ANY COMMITMENT OR UNDERTAKING ON BEHALF OF THE COMPANY. NO
PERSON DEALING WITH THE MANAGERS SHALL BE REQUIRED TO DETERMINE ITS AUTHORITY TO
MAKE ANY SUCH COMMITMENT OR UNDERTAKING. IN ADDITION, NO PURCHASER FROM THE
COMPANY SHALL BE REQUIRED TO DETERMINE THE SOLE AND EXCLUSIVE AUTHORITY OF ANY
MANAGER TO SIGN AND DELIVER ON BEHALF OF THE COMPANY 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 COMPANY AFFECTING THE SAME.
SECTION .5.7. COMPANY EXPENSES
(A) IN GENERAL, THE COMPANY'S EXPENSES SHALL BE BILLED
DIRECTLY TO AND PAID BY THE COMPANY. THE COMPANY SHALL REIMBURSE THE
MANAGERS OR THEIR AFFILIATES FOR: (I) ALL ORGANIZATION EXPENSES
INCURRED BY THE MANAGERS OR THEIR AFFILIATES IN CONNECTION WITH THE
FORMATION OF THE COMPANY; (II) THE ACTUAL COSTS TO THE MANAGERS OR
THEIR AFFILIATES OF GOODS, SERVICES, AND MATERIALS USED FOR AND BY THE
COMPANY; AND (III) ALL REASONABLE TRAVEL AND OTHER OUT-OF-POCKET
EXPENSES INCURRED BY THE MANAGERS IN THE DEVELOPMENT AND MANAGEMENT OF
THE COMPANY AND ITS BUSINESS. NOTWITHSTANDING THE ABOVE PROVISION, EACH
PARTY HERETO SHALL BEAR THE COSTS OF ITS OWN LEGAL FEES INCURRED PRIOR
TO THE EXECUTION OF THIS AGREEMENT IN CONNECTION WITH THIS VENTURE AND
HHBF SHALL NOT BE REIMBURSED FOR ANY SALARY OR COMPENSATION OF ITS
EMPLOYEES OR ITS AFFILIATES' EMPLOYEES FOR SERVICES PRIOR TO THE
EXECUTION OF THIS AGREEMENT (I.E., HHBF AND ITS AFFILIATES SHALL NOT BE
ENTITLED TO A REIMBURSEMENT OF CORPORATE OVERHEAD RESULTING FROM
EMPLOYEE COMPENSATION); PROVIDED, THE PARTIES HERETO SPECIFICALLY
RECOGNIZE THAT HHBF AND ITS AFFILIATES HAVE INCURRED LEGAL FEES, FILING
FEES, AND OTHER OUT-OF-POCKET COSTS FOR THE BENEFIT OF THE COMPANY,
INCLUDING
15
COSTS IN CONNECTION WITH THE PREPARATION OF DOCUMENTS FOR SECURITIES
LAW AND HEALTH CARE LAW COMPLIANCE, REAL ESTATE ACQUISITION MATTERS AND
FORMATION AND REGISTRATION OF THE COMPANY, AND AGREE THAT HHBF SHALL BE
REIMBURSED FOR THE FIRST $25,000.00 OF SUCH COSTS. THE REIMBURSEMENT
FOR EXPENSES PROVIDED FOR IN THIS SECTION 5.7(A) SHALL BE MADE TO THE
MANAGERS OR THEIR AFFILIATES REGARDLESS OF WHETHER ANY DISTRIBUTIONS
ARE MADE TO THE MEMBERS UNDER ARTICLE VI AND ARTICLE VII.
(B) THE COMPANY SHALL ALSO PAY THE FOLLOWING EXPENSES OF THE
COMPANY:
(I) ALL DEVELOPMENT AND OPERATIONAL EXPENSES OF THE
COMPANY, 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 COMPANY; 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); AND THE MAINTENANCE OF THE HOSPITAL AND ITS
EQUIPMENT, WHICH MAY BE PERFORMED BY HHBF OR ONE OF ITS
AFFILIATES AS LONG AS THE CHARGES TO THE COMPANY FOR SUCH
SERVICE ARE NO GREATER THAN THE CHARGES FOR SUCH SERVICE FROM
A THIRD PARTY SERVICE PROVIDER;
(II) ALL FEES AND EXPENSES PAID TO THIRD PARTIES FOR
ACCOUNTING, LEGAL, DOCUMENTATION, PROFESSIONAL, AND REPORTING
SERVICES TO THE COMPANY, WHICH MAY INCLUDE, BUT ARE NOT
LIMITED TO: PREPARATION AND DOCUMENTATION OF COMPANY
BOOKKEEPING, ACCOUNTING AND AUDITS; PREPARATION AND
DOCUMENTATION OF BUDGETS, CASH FLOW PROJECTIONS, AND WORKING
CAPITAL REQUIREMENTS; PREPARATION AND DOCUMENTATION OF COMPANY
STATE AND FEDERAL TAX RETURNS; AND TAXES INCURRED IN
CONNECTION WITH THE ISSUANCE, DISTRIBUTION, TRANSFER,
REGISTRATION, AND RECORDATION OF DOCUMENTS EVIDENCING
OWNERSHIP OF A MEMBERSHIP INTEREST OR ECONOMIC INTEREST IN THE
COMPANY OR IN CONNECTION WITH THE BUSINESS OF THE COMPANY;
EXPENSES IN CONNECTION WITH PREPARING AND MAILING REPORTS
REQUIRED TO BE FURNISHED TO THE MEMBERS OR ECONOMIC INTEREST
OWNERS 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 MEMBERS WHICH HHBF DEEMS TO BE IN THE
BEST INTEREST OF THE COMPANY; EXPENSES OF REVISING, AMENDING,
CONVERTING, MODIFYING, OR TERMINATING THE COMPANY OR THIS
AGREEMENT; COSTS INCURRED IN CONNECTION WITH ANY LITIGATION IN
WHICH THE COMPANY IS INVOLVED AS WELL AS ANY EXAMINATION,
INVESTIGATION, OR OTHER PROCEEDINGS CONDUCTED BY ANY
REGULATORY AGENCY INVOLVING THE COMPANY; COSTS OF ANY COMPUTER
EQUIPMENT OR SERVICES USED FOR OR BY THE COMPANY; AND THE
COSTS OF PREPARING AND DISSEMINATING INFORMATIONAL MATERIAL
AND DOCUMENTATION RELATING TO A POTENTIAL SALE, REFINANCING,
OR OTHER DISPOSITION OF THE HOSPITAL OR THE EQUIPMENT.
16
SECTION 5.8. NO MANAGEMENT BY MEMBERS. OTHER THAN THE MANAGERS, THE MEMBERS
SHALL TAKE NO PART IN, OR AT ANY TIME INTERFERE IN ANY MANNER WITH, THE
MANAGEMENT, CONDUCT, OR CONTROL OF THE COMPANY'S BUSINESS AND OPERATIONS AND
SHALL HAVE NO RIGHT OR AUTHORITY TO ACT FOR OR BIND THE COMPANY EXCEPT AS SET
FORTH IN THIS AGREEMENT. THE RIGHTS AND POWERS OF SUCH MEMBERS SHALL NOT EXTEND
BEYOND THOSE SET FORTH IN THIS AGREEMENT AND THOSE GRANTED UNDER THE ARTICLES OF
ORGANIZATION AND ANY ATTEMPT TO PARTICIPATE IN THE CONTROL OF THE COMPANY IN A
MANNER CONTRARY TO THE RIGHTS AND POWERS GRANTED HEREIN AND UNDER THE ARTICLES
OF ORGANIZATION SHALL BE NULL AND VOID AND WITHOUT FORCE AND EFFECT. SUBJECT TO
THE DECISIONS AND JUDGMENT WITH RESPECT TO ALL PROFESSIONAL MEDICAL OR CLINICAL
MATTERS OF QUALIFIED MEDICAL PERSONNEL, HHBF, IN CONJUNCTION WITH THE INVESTOR
MANAGER WHEN APPLICABLE, SHALL HAVE THE RIGHT TO DETERMINE WHEN AND HOW THE
OPERATIONS OF THE COMPANY SHALL BE CONDUCTED. THE EXERCISE BY ANY OTHER MEMBER
OF ANY OF THE RIGHTS GRANTED TO THE MEMBER HEREUNDER SHALL NOT BE DEEMED TO BE
TAKING PART IN THE CONTROL OF THE BUSINESS OF THE COMPANY AND SHALL NOT
CONSTITUTE A VIOLATION OF THIS SECTION.
SECTION 5.9. CONSENT BY MEMBERS TO EXERCISE OF CERTAIN RIGHTS AND POWERS BY
MANAGERS. BY ITS EXECUTION HEREOF, EACH MEMBER EXPRESSLY CONSENTS TO THE
EXERCISE BY THE MANAGERS OF THE RIGHTS, POWERS, AND AUTHORITY CONFERRED ON THE
MANAGERS BY THIS AGREEMENT.
SECTION 5.10. OTHER BUSINESS OF MEMBERS
(A) SUBJECT TO (B) BELOW, ANY MEMBER, INCLUDING ANY MANAGER,
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
COMPANY NOR ANY MEMBER 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 MEMBER OWNS A MEMBERSHIP INTEREST IN THE
COMPANY, AND FOR A PERIOD OF FIVE (5) YEARS (THE "TAIL PERIOD") AFTER A
MEMBER CEASES FOR ANY REASON TO OWN A MEMBERSHIP INTEREST IN THE
COMPANY, NEITHER A MEMBER 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 (INCLUDING
A SOLE PROPRIETORSHIP) 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 ANY CASE WITHIN XXXX COUNTY, CALIFORNIA AND
TULARE COUNTY, CALIFORNIA (THE "TERRITORY"), PROVIDED THAT (I) NO
MEMBER WHO IS A PHYSICIAN SHALL BE PROHIBITED FROM MAINTAINING HIS OR
HER STAFF PRIVILEGES AT ANY OTHER HOSPITAL OR FROM OWNING AN INTEREST
IN A MEDICAL PRACTICE THAT PROVIDES THE PROFESSIONAL SERVICE COMPONENT
OF THE MEDICAL PROCEDURES DESCRIBED IN (B)(II) ABOVE AND (II) NOTHING
HEREIN SHALL PROHIBIT A MEMBER FROM OWNING UP TO THREE
17
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; PROVIDED,
FURTHER, THE TAIL PERIOD SHALL BE REDUCED TO TWO (2) YEARS ONCE THE
HOSPITAL HAS BEEN OPENED FOR BUSINESS AND REGULARLY CONDUCTING THAT
BUSINESS PROVIDED THE MEMBER IN QUESTION CAN DEMONSTRATE THAT AT THE
COMMENCEMENT OF THE TAIL PERIOD HE WAS NOT A PARTY TO ANY AGREEMENT,
WHETHER WRITTEN OR ORAL, BINDING OR CONDITIONAL/TENTATIVE, TO ACQUIRE
(OR HAVE AN OPTION TO ACQUIRE) AN INTEREST IN ANY ENTITY OR ENTERPRISE
TO WHICH THIS SECTION 5.10(B) WOULD OTHERWISE APPLY. IF AT ANY TIME
AFTER THE HOSPITAL HAS BEEN OPENED FOR BUSINESS AND REGULARLY
CONDUCTING BUSINESS FOR AT LEAST FIVE (5) YEARS SUBSTANTIALLY ALL OF
THE ASSETS OR STOCK OF MEDCATH INCORPORATED OR HHBF IS ACQUIRED BY ONE
PERSON OR A GROUP OF PERSONS WHO ARE NOT AFFILIATES OF MEDCATH
INCORPORATED IN ONE TRANSACTION OR SERIES OF RELATED TRANSACTIONS
WITHIN A TWELVE (12) MONTH PERIOD, THE TAIL PERIOD SHALL BE REDUCED TO
ONE (1) YEAR. FURTHER, IF DURING THE FIRST FIVE (5) YEARS AFTER THE
HOSPITAL HAS OPENED FOR BUSINESS AND IS REGULARLY CONDUCTING THAT
BUSINESS THE STOCK OF HHBF IS SOLD TO A PERSON WHO IS NEITHER AN
AFFILIATE OF MEDCATH INCORPORATED NOR A PURCHASER OF ALL OR
SUBSTANTIALLY ALL OF MEDCATH INCORPORATED'S ASSETS OR STOCK, THEN THERE
WILL BE NO TAIL PERIOD. IN ADDITION, NEITHER HHBF NOR ITS AFFILIATES
SHALL SEPARATELY OPERATE A MOBILE CATHETERIZATION LABORATORY WITHIN THE
TERRITORY. NOTHING CONTAINED HEREIN SHALL LIMIT THE ABILITY OF A
RELATIVE OF AN INDIVIDUAL MEMBER TO OWN AN INTEREST IN AN ENTITY
PROVIDING THE ABOVE-REFERENCED SERVICES OR FACILITIES IF SUCH RELATIVE
IS ACTIVELY ENGAGED IN THE PRACTICE OF MEDICINE AS A LICENSED PHYSICIAN
OR IF THE MEMBER IN QUESTION CAN REASONABLY DEMONSTRATE THAT SUCH
RELATIVE'S OWNERSHIP IS NOT DESIGNED TO CIRCUMVENT THE INTENT OF THIS
SECTION 5.10(B). NOTWITHSTANDING THE ABOVE LIMITATIONS, IF A WRITTEN
PROPOSAL IS MADE BY EITHER HHBF OR THE INVESTOR MANAGER REGARDING THE
ESTABLISHMENT OR OPERATION OF A MOBILE CATHETERIZATION LABORATORY IN
THE TERRITORY BY THE COMPANY, AND HHBF (IF THE PROPOSAL IS MADE BY THE
INVESTOR MANAGER) OR THE INVESTOR MANAGER (IF THE PROPOSAL IS MADE BY
HHBF), DOES NOT APPROVE SUCH PROPOSAL, THEN THE PARTY MAKING SUCH
PROPOSAL MAY, ALONE OR WITH OTHER MEMBERS ESTABLISH OR OPERATE SUCH A
SERVICE BUT ONLY IN SUBSTANTIAL CONFORMITY WITH SUCH PROPOSAL. ANY SUCH
WRITTEN PROPOSAL MUST HAVE SUFFICIENT DETAILS AND SPECIFICITY TO ALLOW
A PROPER EVALUATION OF IT AND TO DETERMINE WHETHER ANY MEMBER(S)
SEPARATELY ESTABLISHING OR OPERATING SUCH A SERVICE HAVE DONE SO IN
SUBSTANTIAL CONFORMANCE WITH SUCH PROPOSAL.
(C) THE MEMBERS, INCLUDING THE MANAGERS, HAVE REVIEWED THE
TERM AND GEOGRAPHICAL RESTRICTIONS INCLUDED IN SECTION 5.10(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 5.10 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 5.10 SHALL BE ENFORCED TO THE FULLEST EXTENT PERMISSIBLE
UNDER THE LAW AND PUBLIC POLICIES APPLIED, BUT THE UNENFORCEABILITY OR
18
MODIFICATION OF ANY PARTICULAR PARAGRAPH, SUBPARAGRAPH, SENTENCE,
CLAUSE, PHRASE, WORD, OR FIGURE SHALL NOT BE DEEMED TO RENDER
UNENFORCEABLE THE REMAINDER OF THIS SECTION 5.10. SHOULD ANY SUCH
PARAGRAPH, SUBPARAGRAPH, SENTENCE, CLAUSE, PHRASE, WORD, OR FIGURE BE
ADJUDICATED TO BE WHOLLY INVALID OR UNENFORCEABLE, THE BALANCE OF THIS
SECTION 5.10 SHALL THEREUPON BE MODIFIED IN ORDER TO RENDER THE SAME
VALID AND ENFORCEABLE AND THE UNENFORCEABLE PORTION OF THIS SECTION
5.10 SHALL BE DEEMED TO HAVE BEEN DELETED FROM THIS AGREEMENT.
(E) THE COMPANY, THE MANAGERS AND THE INVESTOR MEMBERS AGREE
THAT THE BENEFITS TO ANY INVESTOR MEMBER 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 HHBF OR THE COMPANY TO PATIENTS OF SUCH INVESTOR
MEMBER IN ANY FACILITY, LABORATORY, CARDIAC CATHETERIZATION FACILITY OR
OTHER HEALTH CARE OPERATION CONTROLLED, MANAGED OR OPERATED BY HHBF OR
THE COMPANY AND NOTHING HEREIN IS INTENDED TO PROHIBIT ANY PARTY FROM
PRACTICING MEDICINE AT ANY OTHER FACILITY.
(F) IF AN INVESTOR MEMBER IS A LEGAL ENTITY AND NOT AN
INDIVIDUAL, SUCH INVESTOR MEMBER SHALL CAUSE EACH OF ITS EXISTING AND
FUTURE AFFILIATES TO AGREE IN WRITING TO BE PERSONALLY BOUND BY THE
TERMS OF THIS SECTION 5.10.
SECTION 5.11. MANAGERS' STANDARD OF CARE. EACH MANAGER SHALL ACT IN A
MANNER IT BELIEVES IN GOOD FAITH TO BE IN THE BEST INTEREST OF THE COMPANY AND
WITH SUCH CARE AS AN ORDINARILY PRUDENT PERSON IN A LIKE POSITION WOULD USE
UNDER SIMILAR CIRCUMSTANCES. IN DISCHARGING ITS DUTIES, EACH MANAGER 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 MANAGERS, MEMBERS, OR AGENTS, OR BY ANY OTHER
PERSON AS TO MATTERS EACH MANAGER 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 COMPANY, INCLUDING INFORMATION, OPINIONS,
REPORTS OR STATEMENTS AS TO THE VALUE AND AMOUNT OF THE ASSETS, LIABILITIES,
INCOME OR LOSSES OF THE COMPANY 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 MANAGER OR MEMBER
SHALL HAVE THE RIGHT TO VOTE OR APPROVE COMPANY MATTERS IN ACCORDANCE WITH THE
TERMS OF THIS AGREEMENT REGARDLESS OF THE PERSONAL INTEREST OF ANY MEMBER OR
MANAGER IN THE OUTCOME OF ANY VOTE, DECISION OR MATTER.
SECTION 5.12. LIMITATION OF LIABILITY. A MANAGER SHALL NOT BE LIABLE TO THE
COMPANY, ITS MEMBERS, OR OTHER MANAGERS FOR ANY ACTION TAKEN IN MANAGING THE
BUSINESS OR AFFAIRS OF THE COMPANY IF IT PERFORMS THE DUTY OF ITS OFFICE IN
COMPLIANCE WITH THE STANDARD CONTAINED IN SECTION 5.11. NO MANAGER HAS
GUARANTEED NOR SHALL HAVE ANY OBLIGATION WITH RESPECT TO THE RETURN OF A
MEMBER'S CAPITAL CONTRIBUTION OR SHARE OF INCOME FROM THE
19
OPERATION OF THE COMPANY. FURTHERMORE, NO MANAGER, ITS AFFILIATES OR ITS
EMPLOYEES (COLLECTIVELY, ITS "AGENTS") SHALL BE LIABLE TO THE COMPANY OR TO ANY
MEMBER FOR ANY LOSS OR DAMAGE SUSTAINED BY THE COMPANY OR ANY MEMBER EXCEPT LOSS
OR DAMAGE RESULTING FROM GROSS NEGLIGENCE OR INTENTIONAL MISCONDUCT OR KNOWING
VIOLATION OF LAW OR A TRANSACTION FOR WHICH SUCH MANAGER OR AGENT RECEIVED A
PERSONAL BENEFIT IN VIOLATION OR BREACH OF THE PROVISIONS OF THIS AGREEMENT.
SECTION 5.13. INDEMNIFICATION OF THE MANAGERS
(A) EACH MANAGER AND ITS AGENTS SHALL BE INDEMNIFIED BY THE
COMPANY 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 MEMBER OR ITS
AGENTS IN ITS CAPACITY AS A MANAGER OF THE COMPANY (OR, IN THE CASE OF
AN AGENT, WITHIN THE SCOPE OF THE MANAGER'S AUTHORITY) TO THE FULLEST
EXTENT ALLOWED BY LAW, PROVIDED THAT THE SAME WERE NOT THE RESULT OF
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE MANAGER OR AN
AGENT AND PROVIDED THAT THE MANAGER OR AN AGENT, IN GOOD FAITH,
REASONABLY DETERMINED THAT SUCH COURSE OF CONDUCT WAS IN THE BEST
INTEREST OF THE COMPANY; PROVIDED, HOWEVER, THAT SUCH INDEMNIFICATION
AND AGREEMENT TO HOLD HARMLESS SHALL BE RECOVERABLE ONLY OUT OF COMPANY
ASSETS. SUBJECT TO APPLICABLE LAW, THE COMPANY SHALL ADVANCE EXPENSES
INCURRED WITH RESPECT TO MATTERS FOR WHICH A MANAGER MAY BE INDEMNIFIED
HEREUNDER.
(B) IF AT ANY TIME, THE COMPANY HAS INSUFFICIENT FUNDS TO
FURNISH INDEMNIFICATION AS HEREIN PROVIDED, IT SHALL PROVIDE SUCH
INDEMNIFICATION IF AND AS IT GENERATES SUFFICIENT FUNDS AND PRIOR TO
ANY CASH DISTRIBUTIONS, PURSUANT TO ARTICLE VI OR ARTICLE VII HEREOF,
TO THE MEMBERS.
SECTION 5.14. ELECTION AND REPLACEMENT OF INVESTOR MANAGER. IN ACCORDANCE
WITH THE PROCEDURES OUTLINED IN SECTION 10.1 HEREIN, THE INVESTOR MEMBERS SHALL
ELECT AN INVESTOR MANAGER TO SERVE FOR ONE YEAR TERMS OR UNTIL A SUCCESSOR IS
DULY ELECTED. AT ANY TIME, IN ACCORDANCE WITH SECTION 10.1, THE INVESTOR MEMBERS
MAY REPLACE THE INVESTOR MANAGER AND ELECT A NEW INVESTOR MANAGER.
SECTION 5.15. ROLE OF INVESTOR MANAGER. NOTWITHSTANDING ANYTHING HEREIN TO
THE CONTRARY, THE INVESTOR MANAGER SHALL TAKE NO ACTION NOR MAKE ANY DECISION ON
BEHALF OF THE COMPANY EXCEPT TO THE EXTENT IT IS EXPRESSLY AUTHORIZED TO DO SO
UNDER THIS AGREEMENT IN ITS CAPACITY AS INVESTOR MANAGER.
SECTION 5.16. PURCHASE OF GOODS AND SERVICES FROM HHBF. GOODS AND SERVICES
PURCHASED FROM HHBF OR ITS AFFILIATES SHALL BE OF SUBSTANTIALLY THE SAME QUALITY
AND PRICE AS COULD BE OBTAINED FROM AN UNRELATED THIRD PARTY.
20
ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS
SECTION 6.1. DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS AND CASH FROM SALES
OR REFINANCING. PRIOR TO THE DISSOLUTION OF THE COMPANY, CASH FLOW FROM
OPERATIONS AND CASH FROM SALES OR REFINANCING, IF ANY, REMAINING AFTER REPAYMENT
OF ANY LOANS MADE BY THE MEMBERS TO THE COMPANY SHALL BE DISTRIBUTED QUARTERLY
BY THE MANAGERS AS CASH DISTRIBUTIONS ACCORDING TO THE RELATIVE PERCENTAGE
MEMBERSHIP INTERESTS OF THE MEMBERS AND ECONOMIC INTEREST OWNERS.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NO DISTRIBUTIONS SHALL BE MADE
TO MEMBERS IF PROHIBITED BY THE ACT.
SECTION 6.2. PROFITS. EXCEPT AS PROVIDED IN THE REGULATORY ALLOCATIONS
EXHIBIT, PROFITS SHALL BE ALLOCATED AS FOLLOWS:
(A) FIRST, TO THE MEMBERS WHO HAVE BEEN ALLOCATED LOSSES PURSUANT TO
SUBSECTION 6.3(C) BELOW UNTIL THE CUMULATIVE PROFITS ALLOCATED PURSUANT TO THIS
SUBSECTION 6.2(A) EQUAL THE CUMULATIVE PRIOR ALLOCATIONS OF LOSSES UNDER THAT
SUBSECTION.
(B) NEXT, TO THE MEMBERS WHO HAVE BEEN ALLOCATED LOSSES PURSUANT TO
SUBSECTION 6.3(B) BELOW UNTIL THE CUMULATIVE PROFITS ALLOCATED PURSUANT TO THIS
SUBSECTION 6.2(B) EQUAL THE CUMULATIVE PRIOR ALLOCATIONS OF LOSSES UNDER THAT
SUBSECTION.
(C) ALL REMAINING PROFITS SHALL BE ALLOCATED TO THE MEMBERS IN
ACCORDANCE WITH THEIR PERCENTAGE MEMBERSHIP INTERESTS.
SECTION 6.3. LOSSES. EXCEPT AS PROVIDED IN THE REGULATORY ALLOCATIONS
EXHIBIT, LOSSES SHALL BE ALLOCATED AS FOLLOWS:
(A) FIRST, TO THE MEMBERS WHO HAVE BEEN ALLOCATED PROFITS PURSUANT TO
SUBSECTION 6.2(C) ABOVE UNTIL THE CUMULATIVE LOSSES ALLOCATED PURSUANT TO THIS
SUBSECTION 6.3(A) EQUAL THE CUMULATIVE PRIOR ALLOCATIONS OF PROFITS UNDER THAT
SUBSECTION.
(B) NEXT, LOSSES SHALL BE ALLOCATED TO THE MEMBERS WITH POSITIVE
ADJUSTED CAPITAL ACCOUNT BALANCES IN PROPORTION TO THOSE BALANCES.
(C) ALL REMAINING LOSSES SHALL BE ALLOCATED TO THE MEMBERS IN
ACCORDANCE WITH THEIR PERCENTAGE MEMBERSHIP INTERESTS.
SECTION 6.4. CODE SECTION 704(C) TAX ALLOCATIONS. INCOME, GAIN, LOSS, AND
DEDUCTION WITH RESPECT TO ANY PROPERTY CONTRIBUTED TO THE CAPITAL OF THE COMPANY
SHALL, SOLELY FOR TAX PURPOSES, BE ALLOCATED AMONG THE MEMBERS SO AS TO TAKE
ACCOUNT OF ANY VARIATION BETWEEN THE ADJUSTED BASIS OF SUCH PROPERTY TO THE
COMPANY FOR FEDERAL INCOME TAX PURPOSES
21
AND ITS INITIAL AGREED VALUE PURSUANT TO ANY METHOD ALLOWABLE UNDER CODE SECTION
704(C) AND THE REGULATIONS PROMULGATED THEREUNDER.
IN THE EVENT THE AGREED VALUE OF ANY COMPANY ASSET IS ADJUSTED AFTER
ITS CONTRIBUTION TO THE COMPANY, SUBSEQUENT ALLOCATIONS OF INCOME, GAIN, LOSS
AND DEDUCTION WITH RESPECT TO SUCH ASSET SHALL TAKE INTO ACCOUNT ANY VARIATION
BETWEEN THE ADJUSTED BASIS OF SUCH ASSET FOR FEDERAL INCOME TAX PURPOSES AND ITS
AGREED VALUE PURSUANT TO ANY METHOD ALLOWABLE UNDER CODE SECTION 704(C) AND THE
REGULATIONS PROMULGATED THEREUNDER.
ANY ELECTIONS OR OTHER DECISIONS RELATING TO ALLOCATIONS UNDER THIS
SECTION SHALL BE DETERMINED BY HHBF. ABSENT A DETERMINATION BY HHBF, THE
REMEDIAL ALLOCATION METHOD UNDER REGULATION SECTION 1.704-3(D) SHALL BE USED.
ALLOCATIONS PURSUANT TO THIS SECTION ARE SOLELY FOR PURPOSES OF FEDERAL, STATE,
AND LOCAL TAXES AND SHALL NOT BE TAKEN INTO ACCOUNT IN COMPUTING ANY MEMBER'S
CAPITAL ACCOUNT OR SHARE OF PROFITS, LOSSES, OTHER ITEMS, OR DISTRIBUTIONS
PURSUANT TO ANY PROVISION OF THIS AGREEMENT.
SECTION 6.5. MISCELLANEOUS.
(A) ALLOCATIONS ATTRIBUTABLE TO PARTICULAR PERIODS. FOR PURPOSES OF
DETERMINING PROFITS, LOSSES OR ANY OTHER ITEMS ALLOCABLE TO ANY PERIOD, SUCH
ITEMS SHALL BE DETERMINED ON A DAILY, MONTHLY, OR OTHER BASIS, AS DETERMINED BY
HHBF USING ANY PERMISSIBLE METHOD UNDER CODE SECTION 706 AND THE REGULATIONS
THEREUNDER.
(B) OTHER ITEMS. EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, ALL
ITEMS OF COMPANY INCOME, GAIN, LOSS, DEDUCTION, CREDIT AND ANY OTHER ALLOCATIONS
NOT OTHERWISE PROVIDED FOR SHALL BE DIVIDED AMONG THE MEMBERS IN THE SAME
PROPORTION AS THEY SHARE PROFITS OR LOSSES, AS THE CASE MAY BE, FOR THE YEAR.
(C) TAX CONSEQUENCES; CONSISTENT REPORTING. THE MEMBERS ARE AWARE OF
THE INCOME TAX CONSEQUENCES OF THE ALLOCATIONS MADE BY THIS ARTICLE AND BY THE
REGULATORY ALLOCATIONS AND HEREBY AGREE TO BE BOUND BY THOSE ALLOCATIONS AS
REFLECTED ON THE INFORMATION RETURNS OF THE COMPANY IN REPORTING THEIR SHARES OF
COMPANY INCOME AND LOSS FOR INCOME TAX PURPOSES. EACH MEMBER AGREES TO REPORT
ITS DISTRIBUTIVE SHARE OF COMPANY ITEMS OF INCOME, GAIN, LOSS, DEDUCTION AND
CREDIT ON ITS SEPARATE RETURN IN A MANNER CONSISTENT WITH THE REPORTING OF SUCH
ITEMS TO IT BY THE COMPANY. ANY MEMBER FAILING TO REPORT CONSISTENTLY, AND WHO
NOTIFIES THE INTERNAL REVENUE SERVICE OF THE INCONSISTENCY AS REQUIRED BY LAW,
SHALL REIMBURSE THE COMPANY FOR ANY LEGAL AND ACCOUNTING FEES INCURRED BY THE
COMPANY IN CONNECTION WITH ANY EXAMINATION OF THE COMPANY BY FEDERAL OR STATE
TAXING AUTHORITIES WITH RESPECT TO THE YEAR FOR WHICH THE MEMBER FAILED TO
REPORT CONSISTENTLY.
(D) ECONOMIC INTEREST OWNERS. EACH ECONOMIC INTEREST OWNER SHALL BE
ENTITLED TO THE DISTRIBUTIONS AND ALLOCATIONS TO WHICH ITS PREDECESSOR IN
INTEREST WOULD HAVE BEEN ENTITLED UNDER THIS ARTICLE VI HAD IT RETAINED THE
ECONOMIC INTEREST ACQUIRED BY THE ECONOMIC INTEREST OWNER.
22
ARTICLE VII
DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS
SECTION 7.1. NO TERMINATION BY CERTAIN ACTS OF MEMBER. NEITHER THE TRANSFER
OF INTEREST, WITHDRAWAL FROM THE COMPANY, BANKRUPTCY, INSOLVENCY, DISSOLUTION,
LIQUIDATION OR OTHER DISABILITY, NOR THE LEGAL INCOMPETENCY OF ANY MEMBER SHALL
RESULT IN THE TERMINATION OR DISSOLUTION OF THE COMPANY OR AFFECT ITS
CONTINUANCE IN ANY MANNER WHATSOEVER.
SECTION 7.2. DISSOLUTION. THE COMPANY SHALL BE DISSOLVED UPON THE HAPPENING
OF ANY OF THE FOLLOWING EVENTS, WHICHEVER SHALL FIRST OCCUR:
(A) THE ELECTION BY HHBF TO DISSOLVE THE COMPANY IN
ACCORDANCE WITH THE TERMS OF SECTION 3.5(C) HEREOF;
(B) THE DEATH, INSANITY, BANKRUPTCY, RETIREMENT (OTHER THAN
DUE TO A FAILURE OF AN INVESTOR MANAGER TO BE RE-ELECTED AS AN INVESTOR
MANAGER), RESIGNATION (OTHER THAN DUE TO AN INVESTOR MANAGER'S
RESIGNING FROM SERVING AS A MANAGER WHILE STILL REMAINING A MEMBER) OR
EXPULSION OF ANY MANAGER WHO IS ALSO A MEMBER, UNLESS THE COMPANY IS
CONTINUED BY THE CONSENT OF NOT LESS THAN A MAJORITY IN INTEREST
(DEFINED IN ACCORDANCE WITH REVENUE PROCEDURE 94-46 OR SUCCESSOR
PROVISIONS) OF THE REMAINING MEMBERS WITHIN NINETY (90) DAYS AFTER
NOTICE OF SUCH EVENT, EFFECTIVE AS OF THE DATE OF SUCH EVENT. IF THERE
IS NO REMAINING MANAGER, THE REMAINING MEMBERS OWNING AT LEAST 51% OF
THE MEMBERSHIP INTERESTS WHICH ARE OWNED BY THE REMAINING MEMBERS
SHALL, IF THEY DESIRE TO CONTINUE THE COMPANY, ELECT A SUBSTITUTE
MANAGER WHO SHALL ASSUME ALL OF THE RIGHTS AND DUTIES OF HHBF UNDER
THIS AGREEMENT (WHICH SUBSTITUTE MANAGER ACCEPTS SUCH ELECTION);
(C) UPON THE WRITTEN AGREEMENT OF HHBF AND THE INVESTOR
MANAGER;
(D) THE EXPIRATION OF THE TERM OF THE COMPANY AS PROVIDED IN
SECTION 2.5 HEREOF;
(E) THE ADJUDICATION OF BANKRUPTCY OF THE COMPANY;
(F) UPON THE WRITTEN CONSENT OF A SUPERMAJORITY VOTE OF THE
MEMBERS;
(G) IN ACCORDANCE WITH SECTION 12.11 HEREOF;
(H) THE ENTRY OF A DECREE OF JUDICIAL DISSOLUTION OR THE
ADMINISTRATIVE DISSOLUTION OF THE COMPANY AS PROVIDED IN THE ACT; AND
23
(I) IN ACCORDANCE WITH SECTION 8.12 HEREOF.
SECTION 7.3. DISSOLUTION AND FINAL LIQUIDATION.
(A) UPON ANY DISSOLUTION OF THE COMPANY, THE COMPANY 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 THE MANAGERS, OR IF FOR ANY
REASON THERE IS NO MANAGER, BY ANOTHER PERSON DESIGNATED BY A
SUPERMAJORITY VOTE OF THE MEMBERS. IN WINDING UP THE COMPANY AND
LIQUIDATING ASSETS, THE MANAGERS, OR OTHER PERSON SO DESIGNATED FOR
SUCH PURPOSE, MAY ARRANGE, EITHER DIRECTLY OR THROUGH OTHERS, FOR THE
COLLECTION AND DISBURSEMENT TO THE MEMBERS OF ANY FUTURE RECEIPTS FROM
THE HOSPITAL OR OTHER SUMS TO WHICH THE COMPANY MAY BE ENTITLED, AND
SHALL SELL THE COMPANY'S INTEREST IN THE HOSPITAL AND THE EQUIPMENT TO
ANY PERSON, INCLUDING HHBF OR ANY AFFILIATE THEREOF, ON SUCH TERMS AND
FOR SUCH CONSIDERATION AS SHALL BE CONSISTENT WITH OBTAINING THE FAIR
MARKET VALUE THEREOF; PROVIDED IF THE BUYER IS HHBF OR ANY OF ITS
AFFILIATES, SUCH FAIR MARKET VALUE SHALL, AT THE OPTION OF THE INVESTOR
MANAGER, BE DETERMINED BY INDEPENDENT APPRAISAL.
(B) UPON ANY SUCH DISSOLUTION AND LIQUIDATION OF THE COMPANY,
THE NET ASSETS, IF ANY, OF THE COMPANY AVAILABLE FOR DISTRIBUTION,
INCLUDING ANY CASH PROCEEDS FROM THE LIQUIDATION OF COMPANY 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
COMPANY (OTHER THAN THE MEMBERS OR THEIR AFFILIATES) AND THE
EXPENSES OF LIQUIDATION;
(II) TO THE PAYMENT OF ALL DEBTS AND LIABILITIES
(INCLUDING INTEREST) OWED TO THE MEMBERS OR THEIR AFFILIATES
AS CREDITORS; AND
(III) THE BALANCE TO THE MEMBERS WITH POSITIVE
CAPITAL ACCOUNT BALANCES AFTER TAKING INTO ACCOUNT ALL OTHER
ADJUSTMENTS DURING THE FISCAL YEAR IN WHICH LIQUIDATION
OCCURS.
(C) THE MEMBERS SHALL LOOK SOLELY TO THE ASSETS, IF ANY, OF
THE COMPANY FOR ANY RETURN OF THEIR CAPITAL CONTRIBUTIONS AND, IF THE
ASSETS OF THE COMPANY REMAINING AFTER PAYMENT OR DISCHARGE OF THE
COMPANY'S DEBTS AND LIABILITIES, OR PROVISION THEREFOR, ARE
INSUFFICIENT TO RETURN ALL OR ANY PART OF THE CAPITAL CONTRIBUTIONS, NO
MEMBER SHALL HAVE ANY RIGHT OF RECOURSE AGAINST THE MANAGERS OR OTHER
MEMBERS OR TO CHARGE THE MANAGERS OR OTHER MEMBERS FOR ANY AMOUNTS
EXCEPT AS PROVIDED HEREIN AND EXCEPT TO THE EXTENT OTHERWISE PROVIDED
BY THE ACT AND/OR NORTH CAROLINA LAW.
24
(D) UPON SUCH DISSOLUTION, REASONABLE TIME SHALL BE ALLOWED
FOR THE ORDERLY LIQUIDATION OF THE ASSETS OF THE COMPANY AND THE
DISCHARGE OF LIABILITIES TO CREDITORS SO AS TO MINIMIZE THE LOSSES
NORMALLY ATTENDANT TO A LIQUIDATION.
(E) THE CAPITAL ACCOUNTS OF THE MEMBERS, AS ADJUSTED, SHALL BE
UTILIZED BY THE COMPANY FOR THE PURPOSE OF MAKING DISTRIBUTIONS TO
THOSE MEMBERS WITH POSITIVE BALANCES IN THEIR RESPECTIVE CAPITAL
ACCOUNTS PURSUANT TO SECTION 7.3(B). IN MAKING SUCH DISTRIBUTIONS, THE
MANAGERS OR THE PERSON WINDING UP THE AFFAIRS OF THE COMPANY SHALL
DISTRIBUTE ALL FUNDS AVAILABLE FOR DISTRIBUTION TO THE MEMBERS AND
ECONOMIC INTEREST OWNERS (AFTER ESTABLISHING ANY RESERVES THAT THE
MANAGERS DEEM OR THE PERSON WINDING UP THE AFFAIRS OF THE COMPANY 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 COMPANY, OR (B) NINETY (90) DAYS
AFTER THE OCCURRENCE OF SUCH EVENT. THE MANAGERS IN THEIR SOLE
DISCRETION, OR THE PERSON WINDING UP THE AFFAIRS OF THE COMPANY, IN ITS
DISCRETION, MAY ELECT TO HAVE THE COMPANY RETAIN ANY INSTALLMENT
OBLIGATIONS OWED TO THE COMPANY 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 THE MANAGERS OR THE PERSON WINDING
UP THE AFFAIRS OF THE COMPANY 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.
(F) EACH ECONOMIC INTEREST OWNER SHALL BE ENTITLED TO THE
DISTRIBUTIONS TO WHICH ITS PREDECESSOR IN INTEREST WOULD HAVE BEEN
ENTITLED PURSUANT TO THIS ARTICLE VII HAD IT RETAINED THE ECONOMIC
INTEREST ACQUIRED BY THE ECONOMIC INTEREST OWNER.
SECTION 7.4. TERMINATION. UPON COMPLETION OF THE DISSOLUTION, WINDING UP,
DISTRIBUTION OF THE LIQUIDATION PROCEEDS AND ANY OTHER COMPANY ASSETS, THE
COMPANY SHALL TERMINATE.
SECTION 7.5. PAYMENT IN CASH. ANY PAYMENTS MADE TO ANY MEMBER PURSUANT TO
THIS ARTICLE VII SHALL BE MADE ONLY IN CASH.
SECTION 7.6. GOODWILL AND TRADE NAME. UPON THE DISSOLUTION OF THE COMPANY,
THE FIRM OR TRADE NAME OF THE COMPANY AND ANY GOODWILL ASSOCIATED THEREWITH
SHALL BECOME THE SOLE PROPERTY OF HHBF, PROVIDED THAT DISTRIBUTIONS AND
ALLOCATIONS OTHERWISE DUE TO HHBF SHALL NOT BE REDUCED AS A RESULT OF HHBF
BECOMING ENTITLED TO SUCH ASSETS, UNLESS THE DISSOLUTION WAS CAUSED DUE TO
HHBF'S BREACH OF THIS AGREEMENT IN WHICH CASE SUCH INTANGIBLE ASSETS SHALL NOT
BE DISTRIBUTED TO HHBF ON A NON PRO RATA BASIS; PROVIDED HOWEVER, UPON A
DISSOLUTION OF THE COMPANY IN CONNECTION WITH THE SALE OF SUBSTANTIALLY ALL OF
THE ASSETS OF THE COMPANY, THIS SECTION 7.6 SHALL NOT INCREASE THE DISTRIBUTIONS
AND ALLOCATIONS TO WHICH HHBF IS OTHERWISE ENTITLED.
25
SECTION 7.7. TERMINATION OF NONCOMPETITION COVENANTS. UPON THE LATER OF THE
DISSOLUTION OF THE COMPANY AND THE COMPLETION OF THE LIQUIDATION PROCESS, THE
MEMBERS SHALL HAVE NO CONTINUING LIABILITY, OR OBLIGATION UNDER SECTION 5.10(B)
EXCEPT THAT SECTION 5.10(B) SHALL CONTINUE TO BE BINDING UPON A MEMBER WHOSE
BREACH OF THIS AGREEMENT CAUSED A DISSOLUTION OF THE COMPANY AND ANY ACTIONS FOR
A BREACH OF THIS AGREEMENT, INCLUDING A BREACH OF SECTION 5.10(B), SHALL NOT BE
IMPAIRED BY THE DISSOLUTION OR COMPLETED LIQUIDATION.
ARTICLE VIII
REMOVAL OR WITHDRAWAL OF MANAGERS AND MEMBERS AND
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS
SECTION 8.1. MANAGER - TRANSFERS.
(A) EXCEPT AS PROVIDED IN THIS SECTION 8.1, WITHOUT THE
CONSENT OF A MAJORITY VOTE OF INVESTOR MEMBERS, HHBF SHALL NOT
VOLUNTARILY WITHDRAW FROM THE COMPANY AS A MEMBER AT ANY TIME PRIOR TO
ITS TERMINATION, OR TRANSFER OR ASSIGN ANY OF ITS RIGHTS AND DUTIES AS
A MANAGER, PROVIDED THAT HHBF MAY ASSIGN ITS MEMBERSHIP INTEREST IN THE
COMPANY AND ITS RIGHTS TO BE A MANAGER TO ANY PARTY WHO PURCHASES ALL
OR SUBSTANTIALLY ALL OF MEDCATH INCORPORATED'S ASSETS OR CAPITAL STOCK
IF SUCH PURCHASER ASSUMES IN WRITING THE OBLIGATIONS OF HHBF HEREUNDER
OR TO A PARTY UNDER CONTROL OF, COMMON CONTROL, OR WHICH CONTROLS,
HHBF. HHBF MAY ALSO ASSIGN ITS MEMBERSHIP INTEREST IN THE COMPANY AND
ITS RIGHTS TO BE A MANAGER TO A FINANCIAL INSTITUTION AS COLLATERAL
SECURITY FOR REPAYMENT OF INDEBTEDNESS FOR BORROWED FUNDS BY HHBF OR
ITS AFFILIATES. IN THE EVENT THAT HHBF DESIRES TO SELL ANY MEMBERSHIP
INTEREST AND SUCH SALE IS NOT IN CONNECTION WITH THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OR CAPITAL STOCK OF MEDCATH
INCORPORATED, THEN THE OTHER MEMBERS SHALL FIRST HAVE AN OPTION TO
PURCHASE SUCH MEMBERSHIP INTEREST IN ACCORDANCE WITH THE RIGHT OF FIRST
REFUSAL PROVIDED IN SECTION 8.4. IN ADDITION, HHBF SHALL ENSURE THAT
FOR THE FIRST FIVE (5) YEARS AFTER THE HOSPITAL FIRST OPENED FOR
BUSINESS AND REGULARLY CONDUCTED SUCH BUSINESS THE STOCK OF HHBF WILL
NOT BE SOLD TO ANY PERSON OR ENTITY THAT IS NOT AN AFFILIATE OF MEDCATH
INCORPORATED OTHER THAN IN CONNECTION WITH THE SALE OF SUBSTANTIALLY
ALL OF THE ASSETS OF MEDCATH INCORPORATED AND THEREAFTER, THE INVESTOR
MEMBERS SHALL BE GIVEN WRITTEN NOTICE OF ANY PROPOSED SALE AND SHALL
HAVE A RIGHT OF FIRST REFUSAL TO ACQUIRE THE STOCK OF HHBF SHOULD THE
OWNER INTEND TO SELL SUCH STOCK OTHER THAN IN CONNECTION WITH THE SALE
OF SUBSTANTIALLY ALL OF THE ASSETS OF MEDCATH INCORPORATED, WHICH RIGHT
SHALL BE EXERCISABLE FOR FORTY-FIVE (45) DAYS AFTER THE DATE THE
INVESTOR MEMBERS RECEIVE NOTICE OF A PROPOSED SALE.
(B) THE INVESTOR MANAGER MAY NOT ASSIGN ITS RIGHTS TO BE A
MANAGER HEREIN. UPON THE WITHDRAWAL OR RESIGNATION OF THE INVESTOR
MANAGER, A SUBSTITUTE THEREFORE WHO MUST BE AN INVESTOR MEMBER MAY BE
ELECTED BY A MAJORITY VOTE OF INVESTOR MEMBERS.
26
(C) ANY RESIGNATION OR WITHDRAWAL BY A MANAGER AS A MANAGER
SHALL NOT CONSTITUTE SUCH MANAGER'S WITHDRAWAL AS A MEMBER.
SECTION 8.2. MEMBERS' RIGHT TO CONTINUE WHEN COMPANY HAS NO MANAGER. IF AT
ANY TIME THERE IS NO REMAINING MANAGER, A MEETING OF THE MEMBERS SHALL BE HELD
AT THE PRINCIPAL PLACE OF BUSINESS OF THE COMPANY WITHIN FORTY-FIVE (45) DAYS
AFTER THE HAPPENING OF SUCH EVENT TO CONSIDER WHETHER TO CONTINUE THE COMPANY ON
THE SAME TERMS AND CONDITIONS AS ARE CONTAINED IN THIS AGREEMENT (EXCEPT THAT
THE MANAGERS MAY BE DIFFERENT) AND TO SELECT A MANAGER FOR THE COMPANY, OR
WHETHER TO WIND UP THE AFFAIRS OF THE COMPANY, LIQUIDATE ITS ASSETS AND
DISTRIBUTE THE PROCEEDS THEREFROM IN ACCORDANCE WITH ARTICLE VII HEREOF. THE
COMPANY MAY BE CONTINUED AND A NEW MANAGER (WHO ACCEPTS SUCH APPOINTMENT)
SELECTED BY THE MEMBERS WITHIN NINETY (90) DAYS OF THE OCCURRENCE OF THE EVENT
DESCRIBED IN SECTION 7.2(B) WITH RESPECT TO THE LAST MANAGER. THE NEW MANAGER
SHALL EXECUTE, ACKNOWLEDGE, FILE OR RECORD (AS APPROPRIATE) ARTICLES OF
ORGANIZATION AND AN OPERATING AGREEMENT, OR AMENDMENTS TO THOSE DOCUMENTS, AND
SUCH OTHER DOCUMENTS AS MAY BE REQUIRED BY THE ACT. THE CONTINUANCE OF THE
COMPANY PURSUANT TO THE TERMS OF THIS SECTION 8.2 IS CONDITIONED UPON (I) ANY
AMENDMENT REQUIRED BY THE ACT OF THE ARTICLES OF ORGANIZATION TO REFLECT THE
FOREGOING CHANGE AND, IF APPLICABLE, COMPLIANCE BY THE COMPANY WITH ANY NOTICE
PROVISIONS OF THE ACT AND (II) DELIVERY TO THE WITHDRAWING MANAGER OF AN
INDEMNIFICATION AGREEMENT BY THE COMPANY, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE WITHDRAWING MANAGER, INDEMNIFYING AND HOLDING THE
WITHDRAWING MANAGER HARMLESS AGAINST ALL FUTURE LIABILITIES OF THE COMPANY.
SECTION 8.3. RELATIONSHIP WITH SUBSTITUTE MANAGER. THE RELATIONSHIP OF THE
MEMBERS TO ANY PERSON THAT HAS EITHER ACQUIRED THE MEMBERSHIP INTEREST OF HHBF
OR HAS BEEN ELECTED AS A SUCCESSOR MANAGER AS PROVIDED HEREIN SHALL BE GOVERNED
BY THIS AGREEMENT. IF SUCH PERSON WAS NOT PREVIOUSLY A MANAGER, THEN SUCH
PERSON, AS SUBSTITUTE MANAGER, SHALL HAVE ALL THE RIGHTS AND POWERS OF ITS
PREDECESSOR MANAGER UNDER THIS AGREEMENT; PROVIDED, SUCH PERSON ASSUMES IN
WRITING THE OBLIGATIONS OF SUCH MANAGER UNDER THIS AGREEMENT AND ANY ARISING
THEREAFTER, AND ACCEPTS AND ADOPTS ALL THE TERMS AND PROVISIONS OF THIS
AGREEMENT IN WRITING. THE WITHDRAWING MANAGER 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 MANAGER.
SECTION 8.4. MEMBERS WHO ARE NOT MANAGERS - RESTRICTION ON TRANSFER. EXCEPT
AS OTHERWISE SET FORTH IN THIS SECTION OR IN THIS AGREEMENT, NO ECONOMIC
INTEREST AND/OR MEMBERSHIP INTEREST OF AN INVESTOR MEMBER 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
COMPANY FOR ANY PURPOSE, UNLESS SUCH ECONOMIC INTEREST AND/OR MEMBERSHIP
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 HHBF TO COMPLY WITH REQUIREMENTS IMPOSED BY ANY FEDERAL OR STATE SECURITIES
REGULATORY AUTHORITY AND UNLESS HHBF'S CONSENT IS OBTAINED. IN NO EVENT,
HOWEVER, SHALL AN INVESTOR MEMBER TRANSFER OR SELL ALL OR ANY OF ITS ECONOMIC
INTEREST AND/OR MEMBERSHIP INTEREST TO
27
ANY PARTY WHICH, IF A MEMBER, WOULD BE IN VIOLATION OF SECTION 5.10(B) HEREOF.
EXCEPT AS OTHERWISE SET FORTH IN THIS SECTION OR IN THIS AGREEMENT, AN INVESTOR
MEMBER MAY TRANSFER, SELL OR ASSIGN ITS ENTIRE ECONOMIC INTEREST AND/OR
MEMBERSHIP INTEREST IF IT HAS RECEIVED THE APPROVAL OF HHBF, NOT TO BE
UNREASONABLY WITHHELD, PROVIDED HOWEVER: (A) THE OTHER INVESTOR MEMBERS (ON A
PRO RATA BASIS OF ALL SUCH INVESTOR MEMBERS DESIRING TO DO SO) FIRST FOR A
PERIOD OF FIFTEEN (15) DAYS, AND THEREAFTER THE COMPANY 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 INTEREST AND/OR MEMBERSHIP 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 COMPANY A 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 COMPANY IN WRITING THAT IT MEETS THE INVESTOR
SUITABILITY STANDARDS ESTABLISHED BY THE APPROPRIATE STATE OF RESIDENCE, OR, IN
THE ABSENCE THEREOF, THE INVESTOR SUITABILITY STANDARDS ESTABLISHED BY THE
COMPANY. HHBF 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 MEMBER WHO IS NOT A MANAGER THAT ASSIGNS ALL ITS
MEMBERSHIP INTEREST SHALL CEASE TO BE A MEMBER OF THE COMPANY, EXCEPT THAT
UNLESS AND UNTIL A SUBSTITUTE MEMBER IS ADMITTED IN HIS OR HER STEAD, SUCH
ASSIGNING MEMBER SHALL RETAIN THE STATUTORY RIGHTS OF AN ASSIGNOR OF A
MEMBERSHIP INTEREST UNDER THE ACT. ANY MEMBERSHIP INTERESTS ACQUIRED BY THE
COMPANY PURSUANT TO SECTION 8.4 SHALL, SUBJECT TO APPLICABLE LAW, BE RE-OFFERED
BY THE COMPANY TO SUITABLE INVESTORS.
ANY DISSOLUTION, LIQUIDATION, MERGER (UNLESS INVESTOR MEMBERS 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 MEMBERS OR THEIR AFFILIATES PRIOR TO
SUCH MERGER) OR SALE OF AN INVESTOR MEMBER WHICH IS AN ENTITY (A SALE SHALL
INCLUDE A TRANSFER OF FIFTY PERCENT (50%) OR MORE OF ITS OWNERSHIP INTERESTS OR
OF SUBSTANTIALLY ALL OF ITS ASSETS OR ANY OTHER TRANSACTION OR SERIES OF RELATED
TRANSACTIONS INTENDED TO ACCOMPLISH, IN SUBSTANCE, A SALE OF SUCH ENTITY) SHALL
CONSTITUTE AN OFFER BY SUCH INVESTOR MEMBER TO SELL SUCH INVESTOR MEMBER'S
INTEREST PURSUANT TO SECTION 8.4 FOR THE FORMULA PURCHASE PRICE (AS DEFINED IN
SECTION 8.9 BELOW).
SECTION 8.5. CONDITION PRECEDENT TO TRANSFER OF ECONOMIC INTEREST AND/OR
MEMBERSHIP INTEREST. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NO
TRANSFER OF AN ECONOMIC INTEREST AND/OR MEMBERSHIP 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 COMPANY WILL
NOT BE CLASSIFIED AS A PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES; AND (C) IF
WHEN TAKEN TOGETHER WITH OTHER PRIOR TRANSFERS, RESULTS IN A "TERMINATION" OF
THE COMPANY FOR FEDERAL INCOME TAX PURPOSES. THE COMPANY MAY REQUIRE, AS A
CONDITION PRECEDENT TO TRANSFER
28
OF AN ECONOMIC INTEREST AND/OR MEMBERSHIP INTEREST, DELIVERY TO THE COMPANY, AT
THE PROPOSED TRANSFEROR'S EXPENSE, OF AN OPINION OF COUNSEL SATISFACTORY (BOTH
AS TO THE COUNSEL AND SUBSTANCE OF THE OPINION) TO HHBF THAT THE TRANSFER WILL
NOT VIOLATE ANY OF THE FOREGOING RESTRICTIONS.
SECTION 8.6. SUBSTITUTE MEMBER - CONDITIONS TO FULFILL. NO ASSIGNEE OF A
MEMBER'S MEMBERSHIP INTEREST IN THE COMPANY SHALL HAVE THE RIGHT TO BECOME A
SUBSTITUTE MEMBER IN PLACE OF ITS ASSIGNOR UNLESS, IN ADDITION TO ANY OTHER
REQUIREMENT HEREIN, ALL OF THE FOLLOWING CONDITIONS ARE SATISFIED:
(A) THE COMPANY HAS WAIVED ITS RIGHT PURSUANT TO SECTION 8.4
TO PURCHASE THE MEMBERSHIP INTEREST HELD BY THE ASSIGNEE;
(B) THE DULY EXECUTED AND ACKNOWLEDGED WRITTEN INSTRUMENT OF
ASSIGNMENT WHICH HAS BEEN FILED WITH THE COMPANY SETS FORTH THAT THE
ASSIGNEE BECOMES A SUBSTITUTE MEMBER IN PLACE OF THE ASSIGNOR;
(C) THE ASSIGNOR AND ASSIGNEE EXECUTE AND ACKNOWLEDGE SUCH
OTHER INSTRUMENTS AS HHBF 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 HHBF AND A MAJORITY OF THE OTHER
MEMBERS TO SUCH SUBSTITUTION IS OBTAINED, WHICH CONSENT MAY BE WITHHELD
IN HHBF'S OR THE OTHER MEMBERS' SOLE AND ABSOLUTE DISCRETION; AND
(E) THE PAYMENT BY THE ASSIGNEE OF ALL COSTS TO THE COMPANY
ASSOCIATED WITH THE TRANSACTION, INCLUDING BUT NOT LIMITED TO LEGAL
FEES, TRANSFER FEES, AND FILING FEES.
SECTION 8.7. ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE. UPON THE
TRANSFER OF A MEMBER'S ECONOMIC INTEREST OR MEMBERSHIP INTEREST, ALL ITEMS OF
INCOME, GAIN, LOSS, DEDUCTION AND CREDIT ATTRIBUTABLE TO THE ECONOMIC INTEREST
OR MEMBERSHIP 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 HHBF, 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 COMPANY THAT THE ECONOMIC
INTEREST OR MEMBERSHIP INTEREST SO TRANSFERRED WAS HELD BY THE TRANSFEROR AND
TRANSFEREE, WITHOUT REGARD TO THE RESULTS OF COMPANY ACTIVITIES DURING THE
PERIOD IN WHICH EACH WAS THE HOLDER, OR IN SUCH OTHER MANNER AS HHBF DEEMS
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 INTEREST OR MEMBERSHIP INTEREST ON THE DATE OF DISTRIBUTION.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, BOTH THE
COMPANY AND HHBF SHALL BE
29
ENTITLED TO TREAT THE ASSIGNOR OF ANY ASSIGNED ECONOMIC INTEREST OR MEMBERSHIP
INTEREST AS THE ABSOLUTE OWNER THEREOF IN ALL RESPECTS, AND SHALL INCUR NO
LIABILITY FOR DISTRIBUTIONS MADE IN GOOD FAITH TO SUCH ASSIGNOR IN RELIANCE ON
THE COMPANY RECORDS AS THEY EXIST UNTIL SUCH TIME AS THE WRITTEN ASSIGNMENT HAS
BEEN RECEIVED BY, AND RECORDED ON THE BOOKS OF THE COMPANY. FOR PURPOSES OF THIS
ARTICLE VIII, THE EFFECTIVE DATE OF AN ASSIGNMENT OF ANY ECONOMIC INTEREST OR
MEMBERSHIP INTEREST SHALL BE THE LAST DAY OF THE MONTH SPECIFIED IN THE WRITTEN
INSTRUMENT OF ASSIGNMENT.
SECTION 8.8. RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE. NO
ASSIGNEE OF A MEMBER'S ECONOMIC INTEREST OR MEMBERSHIP INTEREST SHALL HAVE THE
RIGHT TO PARTICIPATE IN THE COMPANY, INSPECT THE BOOKS OF ACCOUNT OF THE COMPANY
OR EXERCISE ANY OTHER RIGHT OF A MEMBER UNLESS AND UNTIL ADMITTED AS A
SUBSTITUTE MEMBER. NOTWITHSTANDING HHBF'S FAILURE OR REFUSAL TO ADMIT AN
ASSIGNEE AS A SUBSTITUTE MEMBER, 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 COMPANY 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
COMPANY'S TAX RETURNS SHALL BE PREPARED TO REFLECT THE INTERESTS OF ASSIGNEES AS
WELL AS MEMBERS.
SECTION 8.9.DEATH OF A MEMBER. HEIRS OF MEMBERS SHALL BE ENTITLED TO
INHERIT THE MEMBERSHIP INTERESTS OF A DECEASED MEMBER, PROVIDED THAT UPON A
MEMBER'S DEATH SUCH INTERESTS SHALL BE AUTOMATICALLY CONVERTED TO AN ECONOMIC
INTEREST ONLY IN THE COMPANY 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 HHBF AS A CONDITION TO SUCH HEIR BECOMING A MEMBER, IN WHICH
EVENT SUCH INTEREST SHALL AGAIN BECOME A MEMBERSHIP INTEREST IN THE COMPANY.
NOTWITHSTANDING THE PREVIOUS SENTENCE, WITHIN ONE HUNDRED TWENTY (120) DAYS OF
THE COMPANY FIRST LEARNING OF THE DEATH OF A MEMBER, THE COMPANY SHALL HAVE THE
OPTION TO PURCHASE THE MEMBERSHIP INTEREST OF THE DECEASED MEMBER, AND THE
ESTATE OF THE DECEASED MEMBER SHALL BE OBLIGATED TO SELL SUCH MEMBERSHIP
INTEREST TO THE COMPANY, IN ACCORDANCE WITH THE TERMS OF THIS SECTION 8.9. THE
COMPANY MAY EXERCISE ITS OPTION BY GIVING WRITTEN NOTICE THEREOF TO THE ESTATE
OF THE DECEASED MEMBER, OR THE APPROPRIATE REPRESENTATIVE THEREOF, WITHIN SUCH
ONE HUNDRED TWENTY (120) DAY PERIOD. THE PURCHASE PRICE FOR SUCH MEMBERSHIP
INTEREST SHALL EQUAL THE GREATER OF (A) SUCH DECEASED MEMBER'S CAPITAL ACCOUNT
BALANCE AS OF THE LAST DAY OF THE CALENDAR QUARTER MOST RECENTLY ENDED PRIOR TO
SUCH MEMBER'S DEATH, OR (B) FIVE (5) MULTIPLIED BY THE NET INCOME (AS REASONABLY
DETERMINED BY THE COMPANY'S ACCOUNTANTS) OF THE COMPANY FOR THE TWELVE (12)
MONTH PERIOD ENDING AS OF THE CALENDAR QUARTER MOST RECENTLY ENDED PRIOR TO THE
DEATH OF SUCH MEMBER MULTIPLIED BY THE PERCENTAGE MEMBERSHIP INTEREST OF SUCH
MEMBER IN THE COMPANY (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 FROM THE
30
COMPANY TO THE ESTATE OF THE DECEASED MEMBER SHALL BEAR INTEREST AT PRIME RATE
AS OF THE DATE OF SUCH MEMBER'S DEATH. ACCRUED INTEREST SHALL BE PAID AS OF THE
DATES PAYMENTS OF PRINCIPAL ARE DUE AS PROVIDED ABOVE.
SECTION 8.10. REPURCHASE OF INTERESTS IN CERTAIN EVENT.T
(A) IN THE DISCRETION OF HHBF, THE COMPANY MAY, BUT IS NOT
OBLIGATED TO, REPURCHASE A MEMBER'S ECONOMIC INTEREST OR MEMBERSHIP
INTEREST UPON SUCH MEMBER'S BREACH OF THE MEMBER'S OBLIGATIONS
CONTAINED IN ARTICLE III, SECTIONS 5.10, 8.1(B), 8.4, 8.9, 12.1 AND
12.11 OF THIS AGREEMENT.
(B) EACH MEMBER AGREES TO SELL ITS MEMBERSHIP INTEREST TO THE
COMPANY IN THE EVENT HHBF ELECTS TO EXERCISE THE RIGHT OF REPURCHASE
GRANTED UNDER SECTION 8.10(A) AND THE PURCHASE PRICE SHALL THE LOWER OF
(X) THE CAPITAL CONTRIBUTION OF THE MEMBER LESS ALL AMOUNTS DISTRIBUTED
TO SUCH MEMBER BY THE COMPANY, AND (Y) THE FAIR MARKET VALUE OF SUCH
MEMBER'S MEMBERSHIP INTEREST DETERMINED BY AN INDEPENDENT APPRAISER
REASONABLY SELECTED BY HHBF.
SECTION 8.11. PERMISSIBLE TRANSFERS BY INVESTOR MEMBERS. NOTWITHSTANDING
ANYTHING IN THIS AGREEMENT TO THE CONTRARY, AN INVESTOR MEMBER MAY ELECT WITHIN
THIRTY (30) DAYS OF ACQUIRING A MEMBERSHIP INTEREST IN THE COMPANY TO ASSIGN ITS
MEMBERSHIP INTEREST TO A CORPORATION, LIMITED LIABILITY COMPANY OR LIMITED
PARTNERSHIP FORMED AND MAINTAINED FOR THE SOLE PURPOSE OF HOLDING SUCH
MEMBERSHIP INTEREST IF SUCH ASSIGNEE IS OWNED BY THE INVESTOR MEMBER OR SUCH
ASSIGNEE'S OWNERS ARE SUBSTANTIALLY IDENTICAL TO THE OWNERS OF SUCH INVESTOR
MEMBER AS LONG AS SUCH ASSIGNEE AND ITS AFFILIATES AGREE IN WRITING TO BE BOUND
BY ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT AND HHBF FIRST APPROVES IN
WRITING THE TERMS OF ALL DOCUMENTS CREATING AND CONSTITUTING SUCH ENTITY.
SECTION 8.12. SPECIAL PROVISIONS REGARDING WITHDRAWAL. NOTWITHSTANDING
ANYTHING ELSE CONTAINED IN THE ACT OR THIS AGREEMENT, THE WITHDRAWAL OF AN
INVESTOR MEMBER FROM THE COMPANY SHALL BE GOVERNED BY AND MADE ONLY PURSUANT TO
THE TERMS OF THIS SECTION 8.12 AND THE WITHDRAWAL OF HHBF SHALL BE GOVERNED BY
SECTION 8.1.
(A) SUBJECT TO THIS SECTION 8.12, AN INVESTOR MEMBER
MAY WITHDRAW FROM THE COMPANY BY GIVING WRITTEN NOTICE OF SUCH
WITHDRAWAL TO THE COMPANY AT LEAST SIX (6) MONTHS PRIOR TO THE
EFFECTIVE DATE OF THE WITHDRAWAL EXCEPT THAT, DURING THE FIRST THIRTY
SIX (36) MONTHS AFTER AN INVESTOR MEMBER IS FIRST ADMITTED TO THE
COMPANY AS A MEMBER, SUCH INVESTOR MEMBER SHALL NOT WITHDRAW FROM THE
COMPANY EXCEPT AS FURTHER PERMITTED IN SUBSECTIONS (B) OR (C) BELOW.
UPON THE EFFECTIVE DATE OF A WITHDRAWAL, THE INVESTOR MEMBER SHALL NO
LONGER BE A MEMBER IN THE COMPANY AND SHALL HAVE THE STATUS AS IF HE
WERE ONLY AN ASSIGNEE OF A MEMBER AND SHALL BE ONLY AN ECONOMIC
INTEREST OWNER TO THE EXTENT THE WITHDRAWING INVESTOR MEMBER RETAINS
ITS ECONOMIC INTEREST. EXCEPT AS EXPRESSLY PROVIDED BELOW, AN INVESTOR
MEMBER SHALL NOT BE ENTITLED TO ANY DISTRIBUTIONS OR TO HAVE ITS
ECONOMIC INTEREST REDEEMED OR TO
31
ANY OTHER TYPE OF PAYMENT FROM THE COMPANY OR ANY OTHER MEMBER AS A
RESULT OF THE INVESTOR MEMBER'S WITHDRAWAL. EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED BELOW, THE COMPANY SHALL HAVE THE OPTION TO REDEEM
THE MEMBERSHIP INTEREST OF ANY INVESTOR MEMBER WHO HAS WITHDRAWN FROM
THE COMPANY FOR AN AMOUNT EQUAL TO SUCH WITHDRAWN INVESTOR MEMBER'S
CAPITAL ACCOUNT BALANCE AS OF THE EFFECTIVE DATE OF SUCH WITHDRAWAL NET
OF DISTRIBUTIONS TO SUCH WITHDRAWN INVESTOR MEMBER AFTER THE EFFECTIVE
DATE OF SUCH WITHDRAWAL. HHBF MAY EXERCISE SUCH OPTION ON BEHALF OF THE
COMPANY BY CAUSING IT TO TENDER THE REDEMPTION PRICE TO THE WITHDRAWN
INVESTOR MEMBER WITHIN THREE (3) MONTHS OF THE EFFECTIVE DATE OF THE
WITHDRAWAL.
(B) IF, BY THE END OF THE SIXTH (6TH) MONTH AFTER AN
INVESTOR MEMBER IS FIRST ADMITTED TO THE COMPANY AS A MEMBER, THE
COMPANY HAS NOT RECEIVED A WRITTEN COMMITMENT FROM A LENDER FOR THE
FINANCING OF THE CONSTRUCTION OF THE HOSPITAL (WHICH COMMITMENT SHALL
CONTAIN COMMERCIALLY REASONABLE TERMS AND SHALL BE SUBJECT TO
NEGOTIATION OF DEFINITIVE LOAN AGREEMENTS), SUCH INVESTOR MEMBER MAY
WITHDRAW FROM THE COMPANY BY PROVIDING WRITTEN NOTICE OF SUCH
WITHDRAWAL TO THE COMPANY WITHIN TEN (10) DAYS OF THAT SIX (6) MONTH
ANNIVERSARY. IN SUCH A CASE, THE MEMBERSHIP INTEREST OF THE WITHDRAWING
INVESTOR MEMBER SHALL BE REDEEMED BY THE COMPANY FOR AN AMOUNT EQUAL TO
THE INVESTOR MEMBER'S CAPITAL CONTRIBUTIONS TO THE COMPANY NET OF ANY
PREVIOUS DISTRIBUTIONS BY THE COMPANY TO SUCH INVESTOR MEMBER.
(C) IF, BY THE END OF THE EIGHTEENTH (18TH) MONTH
AFTER AN INVESTOR MEMBER IS FIRST ADMITTED TO THE COMPANY AS A MEMBER,
THE COMPANY HAS NOT COMMENCED, OR IS NOT DILIGENTLY PURSUING,
CONSTRUCTION OF THE HOSPITAL PURSUANT TO A CONSTRUCTION CONTRACT OR
SERIES OF RELATED CONSTRUCTION CONTRACTS TO BUILD THE HOSPITAL, SUCH
INVESTOR MEMBER MAY WITHDRAW FROM THE COMPANY BY PROVIDING WRITTEN
NOTICE OF SUCH WITHDRAWAL TO THE COMPANY WITHIN TEN (10) DAYS OF THAT
EIGHTEEN (18) MONTH ANNIVERSARY. IN SUCH A CASE AND SUBJECT TO (F)
BELOW, THE MEMBERSHIP INTEREST OF THE WITHDRAWING INVESTOR MEMBER SHALL
BE REDEEMED BY THE COMPANY FOR AN AMOUNT EQUAL TO THE INVESTOR MEMBER'S
CAPITAL ACCOUNT BALANCE AS OF THAT EIGHTEEN (18) MONTH ANNIVERSARY.
(D) IF THE COMPANY RECEIVES NOTICES OF WITHDRAWAL
FROM ANY INVESTOR MEMBER PURSUANT TO SUBSECTION (C) ABOVE THAT WOULD
RESULT, WHEN AGGREGATED WITH WITHDRAWALS PREVIOUSLY MADE PURSUANT TO
SUBSECTION (B) ABOVE, IN THE WITHDRAWAL OF MEMBERS HOLDING AT LEAST
TWENTY PERCENT (20%) OF THE PERCENTAGE MEMBERSHIP INTERESTS IN THE
COMPANY HELD BY INVESTOR MEMBERS, AT THE ELECTION OF HHBF, THE COMPANY
MAY BE DISSOLVED AND LIQUIDATED AND NO INVESTOR MEMBER WILL BE ENTITLED
TO WITHDRAW OR HAVE ITS MEMBERSHIP INTEREST REDEEMED. HHBF SHALL MAKE
THIS ELECTION BY WRITTEN NOTICE TO THE INVESTOR MANAGER WITHIN THIRTY
(30) DAYS OF THE ABOVE REFERENCED WITHDRAWAL NOTICES.
(E) IN THE EVENT AN INVESTOR MEMBER WITHDRAWS FROM
THE COMPANY PURSUANT TO (B) OR (C) ABOVE AND IS NOT AND HAS NOT AS OF
THE WITHDRAWAL DATE BEEN IN
32
BREACH OF THIS AGREEMENT, THERE SHALL BE NO "TAIL PERIOD" FOR THE
PURPOSES OF SECTION 5.10(B) OF THIS AGREEMENT WITH RESPECT TO THE
WITHDRAWN INVESTOR MEMBER, IT BEING ACKNOWLEDGED THAT IF AN INVESTOR
MEMBER WITHDRAWS FROM THE COMPANY PURSUANT TO SUBSECTION (A) ABOVE,
THERE SHALL BE A TAIL PERIOD AS SET FORTH IN SECTION 5.10(B).
(F) IN THE EVENT AN INVESTOR MEMBER WITHDRAWS FROM
THE COMPANY PURSUANT TO (B) OR (C) ABOVE AND HAS NOT AS OF THE
WITHDRAWAL DATE BEEN IN BREACH OF THIS AGREEMENT, THEN SUCH INVESTOR
MEMBER SHALL SIMULTANEOUSLY BE RELEASED FROM THE RESTRICTIONS SET FORTH
IN PARAGRAPH 7 OF THE HOSPITAL PROFESSIONAL SERVICES AGREEMENT ENTERED
INTO BY AND AMONG THE COMPANY, THE INVESTOR MEMBER'S MEDICAL PRACTICE
AND THE OWNERS OF SUCH MEDICAL PRACTICE.
ARTICLE IX
RECORDS, ACCOUNTINGS AND REPORTS
SECTION 9.1. BOOKS OF ACCOUNT. AT ALL TIMES DURING THE CONTINUANCE OF THE
COMPANY, HHBF SHALL MAINTAIN OR CAUSE TO BE MAINTAINED TRUE AND FULL FINANCIAL
RECORDS AND BOOKS OF ACCOUNT SHOWING ALL RECEIPTS AND EXPENDITURES, ASSETS AND
LIABILITIES, INCOME AND LOSSES, AND ALL OTHER RECORDS NECESSARY FOR RECORDING
THE COMPANY'S BUSINESS AND AFFAIRS INCLUDING THOSE SUFFICIENT TO RECORD THE
ALLOCATIONS AND DISTRIBUTIONS REQUIRED BY THE PROVISIONS OF THIS AGREEMENT.
SECTION 9.2. ACCESS TO RECORDS. THE BOOKS OF ACCOUNT AND ALL DOCUMENTS AND
OTHER WRITINGS OF THE COMPANY, INCLUDING THE ARTICLES OF ORGANIZATION AND ANY
AMENDMENTS THERETO, SHALL AT ALL TIMES BE KEPT AND MAINTAINED BY HHBF OR, IF
REQUIRED BY LAW, AT THE REGISTERED OFFICE OF THE COMPANY. EACH MEMBER OR ITS
DESIGNATED REPRESENTATIVES SHALL, UPON REASONABLE NOTICE TO HHBF, HAVE ACCESS TO
SUCH FINANCIAL BOOKS, RECORDS AND DOCUMENTS DURING REASONABLE BUSINESS HOURS AND
MAY INSPECT AND MAKE COPIES OF ANY OF THEM. EACH MEMBER MAY RECEIVE BY MAIL,
UPON WRITTEN REQUEST TO THE COMPANY AND AT SUCH MEMBER'S COST, A LIST OF THE
NAMES AND ADDRESSES OF THE MEMBERS AND ECONOMIC INTEREST HOLDERS AND THE
PERCENTAGE OF ECONOMIC INTEREST HELD BY EACH OF THEM OR SUCH OTHER INFORMATION
WHICH MAY BE OBTAINED PURSUANT TO REQUIREMENTS OF THE ACT.
SECTION 9.3. BANK ACCOUNTS AND INVESTMENT OF FUNDS.
(A) HHBF SHALL OPEN AND MAINTAIN, ON BEHALF OF THE COMPANY, 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 COMPANY SHALL BE DEPOSITED. ALL WITHDRAWALS FROM SUCH
ACCOUNTS SHALL BE MADE UPON THE SIGNATURE OF SUCH PERSON OR PERSONS AS
HHBF MAY FROM TIME TO TIME DESIGNATE.
33
(B) ANY FUNDS OF THE COMPANY WHICH HHBF MAY DETERMINE ARE NOT
CURRENTLY REQUIRED FOR THE CONDUCT OF THE COMPANY'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 HHBF IN ITS SOLE
DISCRETION.
SECTION 9.4. FISCAL YEAR. THE FISCAL YEAR AND ACCOUNTING PERIOD OF THE
COMPANY SHALL END ON SEPTEMBER 30 OF EACH YEAR.
SECTION 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 MEMBER SHALL BE FURNISHED AN ANNUAL ACCOUNTING SHOWING THE
FINANCIAL CONDITION OF THE COMPANY 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
MEMBERS PROMPTLY AFTER IT HAS BEEN PREPARED. IT SHALL INCLUDE A BALANCE SHEET AS
OF THE END OF SUCH FISCAL YEAR AND STATEMENTS OF INCOME AND EXPENSE, EACH
MEMBER'S EQUITY, AND CASH FLOW FOR SUCH FISCAL YEAR. AT HHBF'S ELECTION THE
COMPANY SHALL EITHER BE AUDITED OR SUCH ANNUAL ACCOUNTINGS SHALL BE EITHER
REVIEWED OR COMPILED BY A FIRM OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ENGAGED BY HHBF ON BEHALF OF THE COMPANY. THE REPORT SHALL SET FORTH THE
DISTRIBUTIONS TO THE MEMBERS 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 MEMBERSHIP INTERESTS. FOLLOWING THE OPENING OF THE HOSPITAL,
HHBF SHALL ALSO CAUSE TO BE PREPARED AND DISTRIBUTED TO THE MEMBERS QUARTERLY
FINANCIAL STATEMENTS FOLLOWING HHBF'S PUBLIC ANNOUNCEMENT OF ITS RESULTS FOR
SUCH QUARTER IN A FORM AND CONTAINING SUCH INFORMATION AS REASONABLY DETERMINED
BY HHBF.
SECTION 9.6. TAX RETURNS. HHBF SHALL CAUSE INCOME TAX RETURNS FOR THE
COMPANY TO BE PREPARED, AT COMPANY 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 MEMBER SHALL BE FURNISHED WITH A STATEMENT TO BE USED IN THE PREPARATION OF
THE MEMBER'S TAX RETURNS, SHOWING THE AMOUNTS OF ANY PROFITS OR LOSSES ALLOCATED
TO THE MEMBER, AND THE AMOUNT OF ANY DISTRIBUTIONS MADE TO THE MEMBER, PURSUANT
TO THIS AGREEMENT, ALONG WITH A RECONCILIATION OF THE ANNUAL REPORT WITH
INFORMATION FURNISHED TO MEMBERS FOR INCOME TAX PURPOSES.
34
ARTICLE X
MEETINGS AND VOTING RIGHTS OF MEMBERS
SECTION 10.1. MEETINGS
(A) MEETINGS OF THE MEMBERS OF THE COMPANY FOR ANY PURPOSE MAY
BE CALLED BY HHBF, THE INVESTOR MANAGER OR BY INVESTOR MEMBERS HOLDING
IN THE AGGREGATE TEN PERCENT (10%) OF THE MEMBERSHIP 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
BAKERSFIELD, CALIFORNIA 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 MEMBER AT ITS 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 HHBF OR BY THE INVESTOR MEMBERS,
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 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 MEMBER MAY AUTHORIZE ANY PERSON OR PERSONS TO ACT FOR
THE MEMBER BY PROXY IN ALL MATTERS IN WHICH A MEMBER 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 MEMBER OR
ITS 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 MEMBER
EXECUTING IT.
SECTION 10.2. VOTING RIGHTS OF MEMBERS.
(A) EACH MEMBER SHALL TAKE NO PART IN OR INTERFERE IN ANY
MANNER WITH THE CONTROL, CONDUCT OR OPERATION OF THE COMPANY, AND SHALL
HAVE NO RIGHT OR AUTHORITY TO ACT FOR OR BIND THE COMPANY EXCEPT AS
PROVIDED HEREIN. VOTES OR DECISIONS, TO THE EXTENT TAKEN OR TO BE MADE,
OF THE MEMBERS MAY BE CAST AT ANY DULY CALLED MEETING OF THE COMPANY OR
IN WRITING WITHIN TEN (10) DAYS AFTER WRITTEN REQUEST THEREFOR. EACH
MEMBER SHALL BE ENTITLED TO THE NUMBER OF VOTES EQUAL TO THE PERCENTAGE
MEMBERSHIP INTEREST OF SUCH MEMBER.
(B) NO MEMBER SHALL HAVE THE RIGHT OR POWER TO VOTE TO: (I)
WITHDRAW OR REDUCE THE MEMBER'S CAPITAL CONTRIBUTIONS EXCEPT AS A
RESULT OF THE DISSOLUTION AND LIQUIDATION OF THE COMPANY OR AS
OTHERWISE PROVIDED BY LAW OR THIS AGREEMENT; (II) BRING AN ACTION FOR
PARTITION AGAINST THE COMPANY; (III) CAUSE THE TERMINATION AND
35
DISSOLUTION OF THE COMPANY BY COURT DECREE OR OTHERWISE, EXCEPT AS SET
FORTH IN THIS AGREEMENT; OR (IV) DEMAND OR RECEIVE PROPERTY OTHER THAN
CASH IN RETURN FOR ITS CAPITAL CONTRIBUTIONS.
ARTICLE XI
AMENDMENTS
SECTION 11.1. AUTHORITY TO AMEND BY MANAGERS. EXCEPT AS OTHERWISE PROVIDED
BY SECTION 11.2, THIS AGREEMENT AND THE ARTICLES OF ORGANIZATION OF THE COMPANY
MAY BE AMENDED BY HHBF WITH THE APPROVAL OF THE INVESTOR MANAGER WHICH APPROVAL
SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED:
(A) TO ADMIT ADDITIONAL MEMBERS OR SUBSTITUTE MEMBERS BUT
ONLY IN ACCORDANCE WITH AND IF PERMITTED BY THE OTHER TERMS OF THIS
AGREEMENT;
(B) TO PRESERVE THE LEGAL STATUS OF THE COMPANY AS A LIMITED
LIABILITY COMPANY UNDER THE ACT OR OTHER APPLICABLE STATE OR FEDERAL
LAWS IF SUCH DOES NOT CHANGE THE SUBSTANCE HEREOF, AND THE COMPANY 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 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 LIABILITY COMPANIES OR OF ANY FEDERAL OR STATE
SECURITIES LAWS OR REGULATIONS, PROVIDED SUCH AMENDMENT DOES NOT
ADVERSELY AFFECT THE MEMBERSHIP INTERESTS OF MEMBERS 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 ON INVESTMENT IN THE COMPANY TO ANY
MEMBER, 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 COMPANY; AND
36
(G) UPON WRITTEN NOTICE TO ALL MEMBERS, HHBF MAY ELECT TO
EXPAND THE NUMBER OF MANAGERS UP TO NINE (9) SO THAT THE MANAGERS CAN
SERVE AS THE GOVERNING BODY OF THE HOSPITAL. IN SUCH EVENT, THE
MANAGERS SHALL INCLUDE, IN ADDITION TO HHBF OR ITS DESIGNEE, THE
PRESIDENT OR CHIEF EXECUTIVE OFFICER OF THE HOSPITAL WHO SHALL BE
DESIGNATED BY HHBF AND THREE (3) ADDITIONAL MANAGERS ELECTED FROM TIME
TO TIME BY THE INVESTOR MEMBERS ONE OF WHOM MUST BE THE MEDICAL
DIRECTOR OF THE HOSPITAL. THE REMAINING MANAGERS SHALL BE ELECTED FROM
TIME TO TIME BY HHBF. HHBF MAY DELEGATE TO SUCH GOVERNING BODY SUCH
DUTIES AND RESPONSIBILITIES OF HHBF AS HHBF DEEMS NECESSARY OR
APPROPRIATE. NOTWITHSTANDING THE FOREGOING, IN THE EVENT THE NUMBER OF
MANAGERS IS EXPANDED, THE INVESTOR MEMBERS SHALL CONTINUE TO HAVE THE
RIGHT TO ELECT AN INVESTOR MANAGER WHO SHALL BE DESIGNATED TO MAKE
DECISIONS WHICH ARE SPECIFICALLY AUTHORIZED TO BE MADE BY THE INVESTOR
MANAGER UNDER THIS AGREEMENT AND HHBF SHALL CONTINUE TO HAVE THE RIGHT
TO MAKE DECISIONS WITH RESPECT TO MATTERS WHICH ARE RESERVED FOR HHBF
AT THE TIME THE NUMBER OF MANAGERS IS SO EXPANDED.
SUBJECT TO AND IN ACCORDANCE WITH THE REQUIREMENTS OF THE
ACCREDITATION REQUIREMENTS OF JCAHO, THE GOVERNING BODY SHALL BE
RESPONSIBLE FOR ADOPTING AND APPROVING THE HOSPITAL'S AND MEDICAL
STAFF'S BYLAWS EXCEPT THAT THE GOVERNING BODY'S APPROVAL OF SUCH BYLAWS
SHALL BE CONDITIONED UPON THE APPROVAL THEREOF BY A MAJORITY OF THE
MANAGERS DESIGNATED HEREUNDER BY THE INVESTOR MEMBERS.
SECTION 11.2. RESTRICTIONS ON MANAGERS' AMENDMENTS: AMENDMENTS BY INVESTOR
MEMBERS. EXCEPT AS PROVIDED IN SECTION 11.1, AMENDMENTS TO THIS AGREEMENT SHALL
BE MADE ONLY UPON THE CONSENT OF HHBF AND WITH A MAJORITY VOTE OF INVESTOR
MEMBERS. EXCEPT AS SET FORTH IN THIS SECTION 11.2, NO AMENDMENT SHALL BE MADE
PURSUANT TO SECTION 11.1 WHICH WOULD MATERIALLY AND ADVERSELY AFFECT THE FEDERAL
INCOME TAX TREATMENT TO BE AFFORDED EACH MEMBER, MATERIALLY AND ADVERSELY AFFECT
THE MEMBERSHIP INTERESTS AND LIABILITIES OF EACH MEMBER AS PROVIDED HEREIN,
MATERIALLY CHANGE THE PURPOSES OF THE COMPANY, EXTEND OR OTHERWISE MODIFY THE
TERM OF THE COMPANY, OR MATERIALLY CHANGE THE METHOD OF ALLOCATIONS AND
DISTRIBUTIONS AS PROVIDED IN ARTICLE VI AND ARTICLE VII.
SECTION 11.3. AMENDMENTS TO CERTIFICATES. IN MAKING ANY AMENDMENTS TO THIS
AGREEMENT, THERE SHALL BE PREPARED, EXECUTED AND FILED FOR RECORDING BY HHBF
SUCH DOCUMENTS AMENDING THE ARTICLES OF ORGANIZATION AS REQUIRED UNDER THE ACT.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 LIMITED POWER OF ATTORNEY. UPON THE EXECUTION HEREOF, EACH
MEMBER HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS HHBF AS ITS TRUE AND LAWFUL
ATTORNEY IN THE MEMBER'S NAME AND ON THE MEMBER'S BEHALF TO TAKE AT ANY TIME ALL
SUCH ACTION WHICH HHBF IS EXPRESSLY AUTHORIZED TO PERFORM, OR WHICH A MEMBER IS
EXPRESSLY REQUIRED TO
37
PERFORM, UNDER THIS AGREEMENT; PROVIDED THAT HHBF SHALL GIVE WRITTEN NOTICE AT
LEAST FIVE (5) DAYS IN ADVANCE OF EXECUTING ANY DOCUMENT ON BEHALF OF A MEMBER
PURSUANT TO THIS SECTION 12.1.
SECTION 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.
SECTION 12.3. INTERPRETATION AND CONSTRUCTION. THIS AGREEMENT CONTAINS THE
ENTIRE AGREEMENT AMONG THE MEMBERS 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.
SECTION 12.4. GOVERNING LAW; JUDICIAL VENUE. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA, EXCLUSIVE OF ITS CONFLICT OF LAW RULES. THE PARTIES HEREBY AGREE TO
DESIGNATE THE STATE COURTS HAVING JURISDICTION OVER THE BAKERSFIELD, CALIFORNIA
AREA TO BE THE APPROPRIATE VENUES FOR THE RESOLUTION OF ANY DISPUTES ARISING
UNDER THIS AGREEMENT AND SPECIFICALLY SUBMIT THEMSELVES TO THOSE COURTS FOR THIS
PURPOSE.
SECTION 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.
SECTION 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 COMPANY.
SECTION 12.7. NOTICES AND DELIVERY.
(A) TO MEMBERS. ANY NOTICE TO BE GIVEN HEREUNDER AT ANY TIME
TO ANY MEMBER OR ANY DOCUMENT REPORTS OR RETURNS REQUIRED BY THIS
AGREEMENT TO BE DELIVERED TO ANY MEMBER, MAY BE DELIVERED PERSONALLY OR
MAILED TO SUCH MEMBER, POSTAGE PREPAID, ADDRESSED TO THE MEMBER AT SUCH
TIMES AS THE MEMBER SHALL BY NOTICE TO THE COMPANY HAVE DESIGNATED AS
THE MEMBER'S ADDRESS FOR THE MAILING OF ALL NOTICES HEREUNDER OR, IN
THE ABSENCE OF SUCH NOTICE, TO THE ADDRESS SET FORTH IN ARTICLE
38
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
MEMBER AT THE TIME IT IS MAILED, AS THE CASE MAY BE.
(B) TO THE COMPANY. ANY NOTICE TO BE GIVEN TO THE COMPANY
HEREUNDER SHALL BE DELIVERED PERSONALLY OR MAILED TO THE COMPANY, BY
CERTIFIED MAIL, POSTAGE PREPAID, ADDRESSED TO THE COMPANY AT ITS
REGISTERED OFFICE. ANY NOTICE SO DELIVERED OR MAILED SHALL BE DEEMED TO
HAVE BEEN GIVEN TO THE COMPANY AT THE TIME IT IS DELIVERED OR MAILED,
AS THE CASE MAY BE.
SECTION 12.8.COUNTERPART EXECUTION; FACSIMILE EXECUTION. THIS AGREEMENT MAY
BE EXECUTED IN ANY NUMBER OF COUNTERPARTS WITH THE SAME EFFECT AS IF ALL OF THE
MEMBERS HAD SIGNED THE SAME DOCUMENT. SUCH EXECUTIONS MAY BE TRANSMITTED TO THE
COMPANY AND/OR THE OTHER MEMBERS BY FACSIMILE AND SUCH FACSIMILE EXECUTION SHALL
HAVE THE FULL FORCE AND EFFECT OF AN ORIGINAL SIGNATURE. ALL FULLY EXECUTED
COUNTERPARTS, WHETHER ORIGINAL EXECUTIONS OR FACSIMILE EXECUTIONS OR A
COMBINATION, SHALL BE CONSTRUED TOGETHER AND CONSTITUTE ONE AND THE SAME
AGREEMENT.
SECTION 12.9. STATUTORY PROVISIONS. ANY STATUTORY REFERENCE IN THIS
AGREEMENT SHALL INCLUDE A REFERENCE TO ANY SUCCESSOR TO SUCH STATUTE AND/OR
REVISION THEREOF.
SECTION 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
COMPANY OR SUCH PARTY'S INTEREST IN THE EQUIPMENT HELD BY THE COMPANY FROM THE
INTERESTS OF OTHER MEMBERS UNTIL THE END OF THE TERM OF BOTH THIS COMPANY AND
ANY SUCCESSOR COMPANY FORMED PURSUANT TO THE TERMS HEREOF.
SECTION 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 HHBF 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 HHBF AND A MAJORITY VOTE OF INVESTOR MEMBERS, SUCH RESTRUCTURED
AGREEMENT SHALL BECOME BINDING UPON ALL MEMBERS OF THE COMPANY. SECOND, IN THE
EVENT THAT WITHIN FORTY-FIVE (45) DAYS FOLLOWING THE COMPANY'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 HHBF SHALL HAVE THE OPTION, WITHIN THE FOLLOWING FORTY-FIVE
(45) DAY PERIOD, TO PURCHASE THE MEMBERSHIP INTERESTS OF SOME OR ALL OF THE
INVESTOR MEMBERS WHOSE OWNERSHIP IS INVOLVED WITH SUCH NONCOMPLIANCE WITH
APPLICABLE LAW FOR A PURCHASE PRICE EQUAL TO THE GREATER OF:
39
(A) THE FORMULA PURCHASE PRICE OR (B) THE AMOUNT OF THE CAPITAL CONTRIBUTION
MADE BY EACH SUCH MEMBER TO THE COMPANY 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 HHBF PAYS ALL AMOUNTS DUE UNDER THE
TERMS OF THIS SECTION 12.11. FOR THESE PURPOSES, DISTRIBUTIONS TO THE MEMBERS BY
THE COMPANY SHALL BE TREATED AS PAYMENTS BY HHBF. SUCH PURCHASE PRICE SHALL BE
PAID IN ACCORDANCE WITH THE PAYMENT METHOD. THIRD, IN THE EVENT THAT HHBF DOES
NOT EXERCISE ITS OPTION TO PURCHASE MEMBERSHIP INTERESTS OF A MEMBER WHOSE
OWNERSHIP CAUSES THE COMPANY NOT TO BE IN COMPLIANCE WITH APPLICABLE LAW, SUCH
MEMBERS MAY ELECT IN WRITING WITHIN THE FOLLOWING FORTY-FIVE (45) DAY PERIOD, TO
REQUIRE THAT THE COMPANY BE DISSOLVED, IN WHICH EVENT THE COMPANY SHALL BE
DISSOLVED IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.
SECTION 12.12. INVESTMENT REPRESENTATIONS OF THE MEMBERS.
(A) EACH MEMBER OR INDIVIDUAL EXECUTING THIS AGREEMENT ON
BEHALF OF AN ENTITY WHICH IS A MEMBER HEREBY REPRESENTS AND WARRANTS TO
THE COMPANY AND TO THE MEMBERS THAT SUCH MEMBER HAS ACQUIRED SUCH
MEMBER'S MEMBERSHIP INTEREST IN THE COMPANY FOR INVESTMENT SOLELY FOR
SUCH MEMBER'S OWN ACCOUNT WITH THE INTENTION OF HOLDING SUCH MEMBERSHIP
INTEREST FOR INVESTMENT, WITHOUT ANY INTENTION OF PARTICIPATING
DIRECTLY OR INDIRECTLY IN ANY DISTRIBUTION OF ANY PORTION OF SUCH
MEMBERSHIP INTEREST, INCLUDING AN ECONOMIC INTEREST, AND WITHOUT THE
FINANCIAL PARTICIPATION OF ANY OTHER PERSON IN ACQUIRING SUCH
MEMBERSHIP INTEREST IN THE COMPANY.
(B) EACH MEMBER OR INDIVIDUAL EXECUTING THIS AGREEMENT ON
BEHALF OF AN ENTITY WHICH IS A MEMBER HEREBY ACKNOWLEDGES THAT SUCH
MEMBER IS AWARE THAT SUCH MEMBER'S MEMBERSHIP INTEREST IN THE COMPANY
HAS NOT BEEN REGISTERED (I) UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "FEDERAL ACT"), (II) UNDER APPLICABLE CALIFORNIA
SECURITIES LAWS, OR (III) UNDER ANY OTHER STATE SECURITIES LAWS. EACH
MEMBER OR INDIVIDUAL EXECUTING THIS AGREEMENT ON BEHALF OF AN ENTITY
WHICH IS A MEMBER FURTHER UNDERSTANDS AND ACKNOWLEDGES THAT HIS
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS SECTION ARE BEING
RELIED UPON BY THE COMPANY AND BY THE MEMBERS AS THE BASIS FOR THE
EXEMPTION OF THE MEMBERS' MEMBERSHIP INTEREST IN THE COMPANY FROM THE
REGISTRATION REQUIREMENTS OF THE FEDERAL ACT AND FROM THE REGISTRATION
REQUIREMENTS OF APPLICABLE CALIFORNIA SECURITIES LAWS AND ALL OTHER
STATE SECURITIES LAWS. EACH MEMBER OR INDIVIDUAL EXECUTING THIS
AGREEMENT ON BEHALF OF AN ENTITY WHICH IS A MEMBER FURTHER ACKNOWLEDGES
THAT THE COMPANY WILL NOT AND HAS NO OBLIGATION TO RECOGNIZE ANY SALE,
TRANSFER, OR ASSIGNMENT OF ALL OR ANY PART OF SUCH MEMBER'S MEMBERSHIP
INTEREST, INCLUDING AN ECONOMIC INTEREST IN THE COMPANY TO ANY PERSON
UNLESS AND UNTIL THE PROVISIONS OF THIS AGREEMENT HEREOF HAVE BEEN
FULLY SATISFIED.
(C) EACH MEMBER OR INDIVIDUAL EXECUTING THIS AGREEMENT ON
BEHALF OF AN ENTITY WHICH IS A MEMBER HEREBY ACKNOWLEDGES THAT PRIOR TO
HIS EXECUTION OF THIS
40
AGREEMENT, SUCH MEMBER RECEIVED A COPY OF THIS AGREEMENT AND THAT SUCH
MEMBER HAS EXAMINED THIS AGREEMENT OR CAUSED THIS AGREEMENT TO BE
EXAMINED BY SUCH MEMBER'S REPRESENTATIVE OR ATTORNEY. EACH MEMBER OR
INDIVIDUAL EXECUTING THIS AGREEMENT ON BEHALF OF AN ENTITY WHICH IS A
MEMBER HEREBY FURTHER ACKNOWLEDGES THAT SUCH MEMBER OR SUCH MEMBER'S
REPRESENTATIVE OR ATTORNEY IS FAMILIAR WITH THIS AGREEMENT AND WITH THE
COMPANY'S BUSINESS PLANS. EACH MEMBER OR INDIVIDUAL EXECUTING THIS
AGREEMENT ON BEHALF OF AN ENTITY WHICH IS A MEMBER ACKNOWLEDGES THAT
SUCH MEMBER OR SUCH MEMBER'S REPRESENTATIVE OR ATTORNEY HAS MADE SUCH
INQUIRIES AND REQUESTED, RECEIVED, AND REVIEWED ANY ADDITIONAL
DOCUMENTS NECESSARY FOR SUCH MEMBER TO MAKE AN INFORMED INVESTMENT
DECISION AND THAT SUCH MEMBER DOES NOT DESIRE ANY FURTHER INFORMATION
OR DATA RELATING TO THE COMPANY OR TO THE MEMBERS. EACH MEMBER OR
INDIVIDUAL EXECUTING THIS AGREEMENT ON BEHALF OF AN ENTITY WHICH IS A
MEMBER HEREBY ACKNOWLEDGES THAT SUCH MEMBER UNDERSTANDS THAT THE
PURCHASE OF SUCH MEMBER'S MEMBERSHIP INTEREST IN THE COMPANY IS A
SPECULATIVE INVESTMENT INVOLVING A HIGH DEGREE OF RISK AND HEREBY
REPRESENTS THAT SUCH MEMBER HAS A NET WORTH SUFFICIENT TO BEAR THE
ECONOMIC RISK OF SUCH MEMBER'S INVESTMENT IN THE COMPANY AND TO JUSTIFY
SUCH MEMBER'S INVESTING IN A HIGHLY SPECULATIVE VENTURE OF THIS TYPE.
SECTION 12.13. DECISIONS BY INVESTOR MANAGER. EACH OF THE INVESTOR MEMBERS
HEREBY AUTHORIZE THE INVESTOR MANAGER TO MAKE THE DECISIONS TO BE MADE BY THE
INVESTOR MANAGER HEREUNDER AND HEREBY RELEASE AND HOLD HARMLESS THE INVESTOR
MANAGER 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 THE
INVESTOR MANAGER HEREUNDER UNLESS DUE TO THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE INVESTOR MANAGER.
SECTION 12.14. REFERRALS TO HOSPITAL AND OWNERSHIP OF SHARES OF COMMON
STOCK OF MEDCATH INCORPORATED. EACH INVESTOR MEMBER XXX AGREES THAT IF IN THE
REASONABLE OPINION OF HEALTH CARE COUNSEL TO HHBF, REFERRALS OF PATIENTS TO THE
HOSPITAL BY THE INVESTOR MEMBER OR OWNERSHIP OF SHARES OF COMMON STOCK IN
MEDCATH INCORPORATED BY THE INVESTOR MEMBER WOULD CAUSE OR CONSTITUTE A
VIOLATION OF ANY FEDERAL OR STATE LAW, RULE OR REGULATION, THEN, AS APPLICABLE,
(A) THE INVESTOR MEMBER SHALL NOT REFER PATIENTS TO THE HOSPITAL; AND
(B) THE INVESTOR MEMBER SHALL NOT ACQUIRE, NOR CONTINUE TO OWN ANY OF
SHARES OF COMMON STOCK OF MEDCATH INCORPORATED.
EXHIBITS. THE EXHIBITS TO THIS AGREEMENT, EACH OF WHICH IS INCORPORATED BY
REFERENCE, ARE:
EXHIBIT A: ARTICLES OF ORGANIZATION.
EXHIBIT B: INFORMATION EXHIBIT.
EXHIBIT C: GLOSSARY OF TERMS.
41
EXHIBIT D: DEVELOPMENT BUDGET EXHIBIT.
EXHIBIT E: REGULATORY ALLOCATIONS.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT ON
THE FOLLOWING EXECUTION PAGE(S), TO BE EFFECTIVE AS OF THE DATE DESCRIBED IN
ARTICLE II.
[EXECUTIONS APPEAR ON THE FOLLOWING PAGE(S)]
42
EXHIBIT A
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF BK, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
[SEE ATTACHED ARTICLES OF ORGANIZATION.]
EXECUTION PAGE
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF BK, LLC
A North Carolina Limited Liability Company
MANAGERS:
HHBF, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------------
Title: President
MEMBERS:
HHBR, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------------
Title: President
-------------------------------------
-------------------------------------
-------------------------------------
EXHIBIT B
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF BK, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
INFORMATION EXHIBIT
INITIAL CAPITAL PERCENTAGE
NAME, ADDRESS & TIN CONTRIBUTION MEMBERSHIP INTEREST
HHBF, INC. $ __%
----------------
0000 XXXXXX XXXXXX, XXXXX 000
XXXXXXXXX, XX 00000
(56- )
$ __%
$ __%
$ __%
$ __%
$ __%
EXHIBIT C
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF BK, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
GLOSSARY OF TERMS
AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING
DEFINITIONS (UNLESS OTHERWISE EXPRESSLY PROVIDED HEREIN).
"ACT" SHALL MEAN THE NORTH CAROLINA LIMITED LIABILITY COMPANY ACT, AS
IN EFFECT IN NORTH CAROLINA AND SET FORTH AT N.C. GEN. STAT. XX.XX. 57C-1-01
THROUGH 57C-10-07 (OR ANY CORRESPONDING PROVISIONS OF SUCCEEDING LAW).
"ADJUSTED CAPITAL ACCOUNT" MEANS, WITH RESPECT TO ANY MEMBER OR
ECONOMIC INTEREST OWNER, SUCH PERSON'S CAPITAL ACCOUNT (AS DEFINED BELOW) AS OF
THE END OF THE RELEVANT FISCAL YEAR INCREASED BY ANY AMOUNTS WHICH SUCH PERSON
IS OBLIGATED TO RESTORE, OR IS DEEMED TO BE OBLIGATED TO RESTORE PURSUANT TO THE
NEXT TO LAST SENTENCES OF REGULATIONS SECTION 1.704-2(G)(1) (SHARE OF MINIMUM
GAIN) AND REGULATIONS SECTION 1.704-2(I)(5) (SHARE OF MEMBER NONRECOURSE DEBT
MINIMUM GAIN) AND DECREASED BY THE ITEMS DESCRIBED IN REGULATIONS SECTION
1.704-1(B)(2)(II)(D)(4), (5) AND (6).
"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) 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.
"AGREED VALUE" SHALL MEAN WITH RESPECT TO ANY NONCASH ASSET OF THE
COMPANY AN AMOUNT DETERMINED AND ADJUSTED IN ACCORDANCE WITH THE FOLLOWING
PROVISIONS:
(A) THE INITIAL AGREED VALUE OF ANY NONCASH ASSET CONTRIBUTED TO THE
CAPITAL OF THE COMPANY BY ANY MEMBER SHALL BE ITS GROSS FAIR MARKET VALUE, AS
AGREED TO BY THE CONTRIBUTING MEMBER AND THE COMPANY.
(B) THE INITIAL AGREED VALUE OF ANY NONCASH ASSET ACQUIRED BY THE
COMPANY OTHER THAN BY CONTRIBUTION BY A MEMBER SHALL BE ITS ADJUSTED BASIS FOR
FEDERAL INCOME TAX PURPOSES.
(C) THE INITIAL AGREED VALUES OF ALL THE COMPANY'S NONCASH ASSETS,
REGARDLESS OF HOW THOSE ASSETS WERE ACQUIRED, SHALL BE REDUCED BY DEPRECIATION
OR AMORTIZATION, AS THE CASE MAY BE, DETERMINED IN ACCORDANCE WITH THE RULES SET
FORTH IN REGULATIONS SECTION 1.704-1(B)(2)(IV)(F) AND (G).
(D) THE AGREED VALUES, AS REDUCED BY DEPRECIATION OR AMORTIZATION, OF
ALL NONCASH ASSETS OF THE COMPANY, REGARDLESS OF HOW THOSE ASSETS WERE ACQUIRED,
SHALL BE ADJUSTED FROM TIME TO TIME TO EQUAL THEIR GROSS FAIR MARKET VALUES, AS
AGREED TO BY THE MEMBERS IN WRITING, AS OF THE FOLLOWING TIMES:
(I) THE ACQUISITION OF A MEMBERSHIP INTEREST OR AN
ADDITIONAL MEMBERSHIP INTEREST IN THE COMPANY BY ANY NEW
OR EXISTING MEMBER IN EXCHANGE FOR MORE THAN A DE
MINIMIS CAPITAL CONTRIBUTION;
(II) THE DISTRIBUTION BY THE COMPANY OF MORE THAN A DE
MINIMIS AMOUNT OF MONEY OR OTHER PROPERTY AS
CONSIDERATION FOR ALL OR PART OF A MEMBERSHIP INTEREST
IN THE COMPANY; AND
(III) THE TERMINATION OF THE COMPANY FOR FEDERAL INCOME TAX
PURPOSES PURSUANT TO CODE SECTION 708(B)(1)(B).
IF, UPON THE OCCURRENCE OF ONE OF THE EVENTS DESCRIBED IN (I), (II) OR
(III) ABOVE THE MEMBERS DO NOT AGREE IN WRITING ON THE GROSS FAIR MARKET VALUES
OF THE COMPANY'S ASSETS, IT SHALL BE DEEMED THAT THE FAIR MARKET VALUES OF ALL
THE COMPANY'S ASSETS EQUAL THEIR RESPECTIVE AGREED VALUES IMMEDIATELY PRIOR TO
THE OCCURRENCE OF THE EVENT AND THUS NO ADJUSTMENT TO THOSE VALUES SHALL BE MADE
AS A RESULT OF SUCH EVENT.
"AGREEMENT" SHALL MEAN THIS OPERATING AGREEMENT, AS AMENDED FROM TIME
TO TIME.
"ARTICLES OF ORGANIZATION." THE ARTICLES OF ORGANIZATION OF THE
COMPANY, AS FILED WITH THE SECRETARY OF STATE OF NORTH CAROLINA AS THE SAME MAY
BE AMENDED FROM TIME TO TIME.
"CAPITAL ACCOUNT" SHALL MEAN WITH RESPECT TO EACH MEMBER OR ASSIGNEE AN
ACCOUNT MAINTAINED AND ADJUSTED IN ACCORDANCE WITH THE FOLLOWING PROVISIONS:
(A) EACH PERSON'S CAPITAL ACCOUNT SHALL BE INCREASED BY PERSON'S
CAPITAL CONTRIBUTIONS, SUCH PERSON'S DISTRIBUTIVE SHARE OF PROFITS, ANY ITEMS IN
THE NATURE OF INCOME OR GAIN THAT ARE ALLOCATED PURSUANT TO THE REGULATORY
ALLOCATIONS AND THE AMOUNT OF ANY COMPANY LIABILITIES THAT ARE ASSUMED BY SUCH
PERSON OR THAT ARE SECURED BY COMPANY PROPERTY DISTRIBUTED TO SUCH PERSON.
(B) EACH PERSON'S CAPITAL ACCOUNT SHALL BE DECREASED BY THE AMOUNT OF
CASH AND THE AGREED VALUE OF ANY COMPANY PROPERTY DISTRIBUTED TO SUCH PERSON
PURSUANT TO ANY PROVISION OF THIS AGREEMENT, SUCH PERSON'S DISTRIBUTIVE SHARE OF
LOSSES, ANY ITEMS IN THE NATURE OF LOSS OR DEDUCTION THAT ARE ALLOCATED PURSUANT
TO THE REGULATORY ALLOCATIONS, AND THE AMOUNT OF ANY LIABILITIES OF SUCH PERSON
THAT ARE ASSUMED BY THE COMPANY OR THAT ARE SECURED BY ANY PROPERTY CONTRIBUTED
BY SUCH PERSON TO THE COMPANY.
IN THE EVENT ANY MEMBERSHIP INTEREST 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 MEMBERSHIP
INTEREST.
C-2
IN THE EVENT THE AGREED VALUES OF THE COMPANY ASSETS ARE ADJUSTED
PURSUANT TO THE DEFINITION OF AGREED VALUE CONTAINED IN THIS AGREEMENT, THE
CAPITAL ACCOUNTS OF ALL MEMBERS SHALL BE ADJUSTED SIMULTANEOUSLY TO REFLECT THE
AGGREGATE ADJUSTMENTS AS IF THE COMPANY RECOGNIZED GAIN OR LOSS EQUAL TO THE
AMOUNT OF SUCH AGGREGATE ADJUSTMENT.
THE FOREGOING PROVISIONS AND THE OTHER PROVISIONS OF THIS AGREEMENT
RELATING TO THE MAINTENANCE OF CAPITAL ACCOUNTS ARE INTENDED TO COMPLY WITH
REGULATIONS SECTION 1.704-1(B), AND SHALL BE INTERPRETED AND APPLIED IN A MANNER
CONSISTENT WITH SUCH REGULATIONS. IN THE EVENT HHBF 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, HHBF MAY MAKE SUCH
MODIFICATION, PROVIDED THAT IT IS NOT LIKELY TO HAVE A MATERIAL EFFECT ON THE
AMOUNTS DISTRIBUTABLE TO ANY MEMBER PURSUANT TO ARTICLES VI OR VII HEREOF UPON
THE DISSOLUTION OF THE COMPANY. IN THE EVENT HHBF SHALL DETERMINE SUCH
ADJUSTMENTS ARE NECESSARY OR APPROPRIATE TO COMPLY WITH REGULATIONS SECTION
1.704-1(B)(2)(IV), HHBF SHALL ADJUST THE AMOUNTS DEBITED OR CREDITED TO CAPITAL
ACCOUNTS WITH RESPECT TO (I) ANY PROPERTY CONTRIBUTED BY THE MEMBERS OR
DISTRIBUTED TO THE MEMBERS AND (II) ANY LIABILITIES SECURED BY SUCH CONTRIBUTED
OR DISTRIBUTED PROPERTY OR ASSUMED BY THE MEMBERS. HHBF SHALL ALSO MAKE ANY
OTHER APPROPRIATE MODIFICATIONS IN THE EVENT UNANTICIPATED EVENTS MIGHT
OTHERWISE CAUSE THIS AGREEMENT NOT TO COMPLY WITH REGULATIONS SECTION
1.704-1(B). IN THE EVENT ANY MEMBERSHIP INTEREST IN THE COMPANY 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 MEMBERSHIP INTEREST.
"CAPITAL CONTRIBUTION" SHALL MEAN WITH RESPECT TO ANY MEMBER, THE
AMOUNT OF MONEY AND THE INITIAL AGREED VALUE OF ANY PROPERTY (OTHER THAN MONEY)
CONTRIBUTED TO THE COMPANY WITH RESPECT TO THE MEMBERSHIP INTEREST OF SUCH
MEMBER.
"CASH DISTRIBUTIONS" SHALL MEAN NET CASH DISTRIBUTED TO MEMBERS
RESULTING FROM CASH FLOW FROM OPERATIONS OR CASH FROM SALES OR REFINANCING, BUT
SHALL NOT INCLUDE CASH PAYMENTS MADE TO HHBF AS ITS MANAGEMENT FEE FOR SERVICES
OR ANY AMOUNT IN REPAYMENT OF LOANS MADE BY THE MEMBERS TO THE COMPANY.
"CASH FLOW FROM OPERATIONS" SHALL MEAN NET CASH FUNDS PROVIDED FROM
OPERATIONS, EXCLUSIVE OF CASH FROM SALES OR REFINANCING, OF THE COMPANY OR
INVESTMENT OF ANY COMPANY 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 AND FOR SUCH OTHER ITEMS AS
HHBF REASONABLY DETERMINES TO BE NECESSARY OR APPROPRIATE; PROVIDED, WITHOUT THE
CONSENT OF THE INVESTOR MANAGER, HHBF SHALL NOT USE SUCH NET CASH FUNDS FOR THE
EARLY REPAYMENT OF COMPANY DEBT. IN ADDITION, HHBF SHALL NOT CAUSE THE SUM OF
THE RESERVES OF CASH FLOW FROM OPERATIONS PLUS THE RESERVES OF CASH FROM SALES
OR REFINANCING TO EXCEED $3,000,000.00, WITHOUT THE CONSENT OF THE INVESTOR
MANAGER.
"CASH FROM SALES OR REFINANCING" SHALL MEAN THE NET CASH PROCEEDS
RECEIVED BY THE COMPANY 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 HHBF IN ITS SOLE AND ABSOLUTE DISCRETION TOWARD THE
PAYMENT OF ANY INDEBTEDNESS AND OTHER OBLIGATIONS OF THE COMPANY THEN DUE AND
PAYABLE, INCLUDING PAYMENTS OF PRINCIPAL AND INTEREST ON MORTGAGES,
C-3
(III) THE PAYMENT OF ANY OTHER EXPENSES OR AMOUNTS OWED BY THE COMPANY TO OTHER
PARTIES TO THE EXTENT THEN DUE AND PAYABLE, AND (IV) THE ESTABLISHMENT OF ANY
RESERVES DEEMED NECESSARY BY HHBF IN ITS SOLE AND ABSOLUTE DISCRETION. 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. IN ADDITION, HHBF SHALL NOT CAUSE THE SUM OF THE
RESERVES OF CASH FLOW FROM OPERATIONS PLUS THE RESERVES OF CASH FROM SALES OR
REFINANCING TO EXCEED $3,000,000.00, WITHOUT THE CONSENT OF THE INVESTOR
MANAGER.
"CODE" SHALL MEAN THE INTERNAL REVENUE CODE OF 1986, AS AMENDED FROM
TIME TO TIME. ANY REFERENCE HEREIN TO A SPECIFIC SECTION(S) OF THE CODE SHALL BE
DEEMED TO INCLUDE A REFERENCE TO ANY CORRESPONDING PROVISION OF FUTURE LAW.
"COMPANY" SHALL REFER TO HEART HOSPITAL OF BK, LLC, WHICH SHALL BE
CREATED UPON THE FILING OF THE ARTICLES OF ORGANIZATION WITH THE OFFICE OF THE
SECRETARY OF STATE OF NORTH CAROLINA, TO BE OPERATED UNDER THE NAME HEART
HOSPITAL OF BK, LLC, A NORTH CAROLINA LIMITED LIABILITY COMPANY, AND TO CONTINUE
UNDER THIS AGREEMENT, AS AMENDED FROM TIME TO TIME.
"ECONOMIC INTEREST" SHALL REFER TO THAT PORTION OF THE MEMBERSHIP
INTEREST OF A MEMBER IN THE ECONOMIC RIGHTS AND BENEFITS OF THE COMPANY,
INCLUDING BUT NOT LIMITED TO ALL PROFITS, LOSSES AND CASH DISTRIBUTIONS. SUCH AN
ECONOMIC INTEREST WILL BE MEASURED BY AN AMOUNT EQUAL TO THE MEMBER'S PERCENTAGE
MEMBERSHIP INTEREST IN THE COMPANY AS THE SAME MAY BE ADJUSTED FROM TIME TO
TIME.
"ECONOMIC INTEREST OWNER" SHALL MEAN A PERSON WHO HAS VALIDLY ACQUIRED
A MEMBER'S ECONOMIC INTEREST AS PERMITTED UNDER THIS AGREEMENT BUT WHO HAS NOT
BECOME A MEMBER. SUCH PERSON SHALL BE ENTITLED TO THE ALLOCATIONS OF PROFITS AND
LOSSES AND CASH DISTRIBUTIONS UNDER ARTICLE VI AND VII TO WHICH THE PREVIOUS
OWNER OF THE ECONOMIC INTEREST WOULD HAVE BEEN ENTITLED HAD SUCH PREVIOUS OWNER
RETAINED THE ECONOMIC INTEREST. UNLESS AND UNTIL SUCH ECONOMIC INTEREST HOLDER
IS ADMITTED AS A SUBSTITUTE MEMBER, IT SHALL BE A MERE ASSIGNEE OF A MEMBER.
"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.
"EQUIPMENT" SHALL MEAN THE APPROPRIATE EQUIPMENT AND SUPPLIES REQUIRED
FROM TIME TO TIME IN CONNECTION WITH THE DEVELOPMENT AND OPERATION OF THE
HOSPITAL.
"FISCAL YEAR" SHALL MEAN, WITH RESPECT TO THE FIRST YEAR OF THE
COMPANY, THE PERIOD BEGINNING UPON THE FORMATION OF THE COMPANY AND ENDING ON
THE NEXT SEPTEMBER 30, WITH RESPECT TO SUBSEQUENT YEARS OF THE COMPANY, THE
TWELVE MONTH PERIOD BEGINNING OCTOBER 1 AND ENDING SEPTEMBER 30, AND, WITH
RESPECT TO THE LAST YEAR OF THE COMPANY, THE PORTION OF THE PERIOD BEGINNING
OCTOBER 1 AND ENDING WITH THE DATE OF THE FINAL LIQUIDATING DISTRIBUTIONS.
"HHBF" SHALL REFER TO HHBF, INC., WHICH SHALL SERVE AS A MANAGER OF THE
COMPANY.
C-4
"HOSPITAL" SHALL MEAN AN ACUTE CARE HOSPITAL SPECIALIZING IN ALL
ASPECTS OF CARDIOLOGY AND CARDIOVASCULAR CARE AND SURGERY IN BAKERSFIELD,
CALIFORNIA, AS FURTHER DESCRIBED IN SECTION 2.3 OF THE AGREEMENT.
"INVESTOR MANAGER" SHALL REFER TO THE INDIVIDUAL ELECTED BY INVESTOR
MEMBERS IN ACCORDANCE WITH SECTION 5.13 WHO SHALL SERVE AS A MANAGER OF THE
COMPANY.
"INVESTOR MEMBERS" SHALL MEAN THE MEMBERS OTHER THAN HHBF LISTED ON THE
INFORMATION EXHIBIT ATTACHED HERETO.
"MAJORITY VOTE OF INVESTOR MEMBERS" SHALL REFER TO THE AFFIRMATIVE
VOTE, APPROVAL OR CONSENT OF INVESTOR MEMBERS HOLDING A MAJORITY OF THE
PERCENTAGE MEMBERSHIP INTERESTS HELD BY THE INVESTOR MEMBERS IN THE AGGREGATE.
"MANAGER" OR "MANAGERS" SHALL REFER TO ONE OR MORE MANAGERS DESIGNATED
PURSUANT TO THIS AGREEMENT. PURSUANT TO THIS AGREEMENT AND THE ARTICLES OF
ORGANIZATION, NO MEMBER SHALL AUTOMATICALLY BE A MANAGER BY VIRTUE OF SUCH
PERSON'S STATUS AS A MEMBER. SUBJECT TO SECTION 11.1(G) HEREOF, THE MANAGERS OF
THE COMPANY SHALL BE HHBF AND THE INVESTOR MANAGER. THE POWERS, RIGHTS AND
DUTIES OF EACH MANAGER TO MANAGE THE AFFAIRS OF THE COMPANY ARE SPECIFIED OR
DESIGNATED IN THIS AGREEMENT.
"MANAGEMENT FEE" SHALL MEAN THE AMOUNTS PAYABLE TO HHBF PURSUANT TO
SECTION 5.6(B)(II) FOR SERVICES RENDERED IN MANAGING THE OPERATIONS OF THE
COMPANY.
"MEMBER" SHALL REFER TO THE ORGANIZERS OF THE COMPANY (UNLESS OR UNTIL
ANY SUCH ORGANIZER HAS WITHDRAWN) AND EACH OF THE MEMBERS IDENTIFIED IN THE THEN
APPLYING INFORMATION EXHIBIT ATTACHED HERETO AND INCORPORATED HEREIN BY THIS
REFERENCE. TO THE EXTENT A MANAGER HAS PURCHASED A MEMBERSHIP INTEREST IN THE
COMPANY, SUCH PERSON WILL HAVE ALL THE RIGHTS OF A MEMBER WITH RESPECT TO SUCH
MEMBERSHIP INTEREST, AND THE TERM "MEMBER" AS USED HEREIN SHALL INCLUDE A
MANAGER TO THE EXTENT SUCH PERSON HAS PURCHASED SUCH MEMBERSHIP INTEREST IN THE
COMPANY. IF A PERSON IS ALREADY A MEMBER IMMEDIATELY PRIOR TO THE PURCHASE OR
OTHER ACQUISITION BY SUCH PERSON OF AN ECONOMIC INTEREST OR MEMBERSHIP INTEREST,
SUCH PERSON SHALL HAVE ALL THE RIGHTS OF A MEMBER WITH RESPECT TO SUCH PURCHASED
OR OTHERWISE ACQUIRED MEMBERSHIP INTEREST OR ECONOMIC INTEREST, AS THE CASE MAY
BE.
"MEMBERSHIP INTEREST" SHALL MEAN ALL OF A MEMBER'S RIGHTS IN THE
COMPANY, INCLUDING WITHOUT LIMITATION THE MEMBER'S SHARE OF PROFITS, LOSSES,
CASH DISTRIBUTIONS AND OTHER BENEFITS OF THE COMPANY, ANY RIGHT TO VOTE, ANY
RIGHT TO PARTICIPATE IN THE MANAGEMENT OF THE BUSINESS AND AFFAIRS OF THE
COMPANY, INCLUDING THE RIGHT TO VOTE ON, CONSENT TO, OR OTHERWISE PARTICIPATE IN
ANY DECISION OR ACTION OF OR BY THE MEMBERS GRANTED PURSUANT TO THIS OPERATING
AGREEMENT OR THE ACT. THE PERCENTAGE MEMBERSHIP INTEREST OF EACH MEMBER, THEIR
CAPITAL CONTRIBUTIONS AND OTHER RELATED INFORMATION SHALL BE LISTED ON THE
INFORMATION EXHIBIT. THE PERCENTAGE MEMBERSHIP INTERESTS GENERALLY SHALL BE
BASED UPON THE PRO RATA CAPITAL CONTRIBUTION OF EACH MEMBER.
"ORGANIZATION EXPENSES" SHALL MEAN THOSE EXPENSES INCURRED, EITHER BY
THE COMPANY OR FOR WHICH THE COMPANY HAS AGREED TO MAKE REIMBURSEMENT, IN
CONNECTION WITH THE
C-5
FORMATION OF THE COMPANY INCLUDING SUCH EXPENSES AS: (I) REGISTRATION FEES,
FILING FEES, AND TAXES; AND (II) LEGAL FEES INCURRED IN CONNECTION WITH ANY OF
THE FOREGOING.
"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.
"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.
"PROFITS AND LOSSES" SHALL MEAN, FOR EACH FISCAL YEAR OR OTHER PERIOD,
AN AMOUNT EQUAL TO THE COMPANY'S TAXABLE INCOME OR LOSS FOR SUCH YEAR OR PERIOD,
DETERMINED IN ACCORDANCE WITH CODE SECTION 703(A) (FOR THIS PURPOSE, ALL ITEMS
OF INCOME, GAIN, LOSS, OR DEDUCTION REQUIRED TO BE STATED SEPARATELY PURSUANT TO
CODE SECTION 703(A)(L) SHALL BE INCLUDED IN TAXABLE INCOME OR LOSS), WITH THE
FOLLOWING ADJUSTMENTS:
(A) ANY INCOME OF THE COMPANY THAT IS EXEMPT FROM FEDERAL INCOME TAX
AND NOT OTHERWISE TAKEN INTO ACCOUNT IN COMPUTING PROFITS OR LOSSES SHALL BE
ADDED TO SUCH TAXABLE INCOME OR LOSS;
(B) ANY EXPENDITURES OF THE COMPANY DESCRIBED IN CODE SECTION
705(A)(2)(B) OR TREATED AS CODE SECTION 705(A)(2)(B) EXPENDITURES PURSUANT TO
REGULATIONS SECTION 1.704-1(B)(2)(IV)(I), AND NOT OTHERWISE TAKEN INTO ACCOUNT
IN COMPUTING PROFITS OR LOSSES, SHALL BE SUBTRACTED FROM SUCH TAXABLE INCOME OR
LOSS;
(C) GAIN OR LOSS RESULTING FROM DISPOSITIONS OF COMPANY ASSETS SHALL BE
COMPUTED BY REFERENCE TO THE AGREED VALUE OF THE PROPERTY DISPOSED OF,
NOTWITHSTANDING THAT THE ADJUSTED TAX BASIS OF SUCH PROPERTY DIFFERS FROM ITS
AGREED VALUE.
"REFINANCING" MEANS ANY BORROWING INCURRED OR MADE TO RECAPITALIZE THE
COMPANY OR THE EQUITY INVESTMENT IN, OR TO REFINANCE ANY LOAN USED TO FINANCE
THE ACQUISITION OF PROPERTY.
"REGULATIONS" SHALL MEAN RULES, ORDERS, AND REGULATIONS ISSUED PURSUANT
TO OR UNDER THE AUTHORITY OF THE CODE AND SHALL INCLUDE REVISIONS TO AND
SUCCEEDING PROVISIONS AS APPROPRIATE.
"REGULATORY ALLOCATIONS" SHALL MEAN THOSE ALLOCATIONS OF ITEMS OF
COMPANY INCOME, GAIN, LOSS OR DEDUCTION SET FORTH ON THE REGULATORY ALLOCATIONS
EXHIBIT AND DESIGNED TO ENABLE THE COMPANY TO COMPLY WITH THE ALTERNATE TEST FOR
ECONOMIC EFFECT PRESCRIBED IN REGULATIONS SECTION 1.704-1(B)(2)(II)(D), AND THE
SAFE-HARBOR RULES FOR ALLOCATIONS ATTRIBUTABLE TO NONRECOURSE LIABILITIES
PRESCRIBED IN REGULATIONS SECTION 1.704-2.
"SALE" MEANS THE SALE, EXCHANGE, INVOLUNTARY CONVERSION (OTHER THAN A
CASUALTY FOLLOWED BY RECONSTRUCTION), CONDEMNATION, OR OTHER DISPOSITION OF
PROPERTY BY THE COMPANY, EXCEPT FOR DISPOSITIONS OF INVENTORY ITEMS AND PERSONAL
PROPERTY IN THE ORDINARY COURSE OF BUSINESS AND IN CONNECTION WITH THE
REPLACEMENT OF SUCH PROPERTY.
C-6
"SUBSTITUTE MANAGER" SHALL MEAN A MANAGER WHO SUCCEEDS EITHER HHBF OR
THE INVESTOR MANAGER WITH ALL OF THE SPECIFIC RIGHTS AND POWERS OF SUCH MANAGER
UNDER THIS AGREEMENT.
"SUBSTITUTE MEMBER" SHALL MEAN AN ASSIGNEE OF A MEMBER WHO HAS BEEN
ADMITTED TO THE COMPANY AND GRANTED ALL THE RIGHTS OF A MEMBER IN PLACE OF ITS
ASSIGNOR PURSUANT TO THE PROVISIONS OF THIS AGREEMENT. A SUBSTITUTE MEMBER, UPON
ITS ADMISSION AS SUCH, SHALL REPLACE AND SUCCEED TO THE RIGHTS, PRIVILEGES, AND
LIABILITIES OF THE MEMBER FROM WHOM IT ACQUIRED ITS INTEREST IN THE COMPANY, TO
THE EXTENT OF THE ECONOMIC INTEREST ASSIGNED.
"SUPERMAJORITY VOTE OF THE MEMBERS" SHALL REFER TO THE AFFIRMATIVE
VOTE, APPROVAL OR CONSENT OF MEMBERS HOLDING SIXTY-SEVEN PERCENT (67%) OF THE
PERCENTAGE MEMBERSHIP INTERESTS HELD BY THE MEMBERS IN THE AGGREGATE.
C-7
EXHIBIT D
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF BK, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
DEVELOPMENT BUDGET EXHIBIT
[SEE ATTACHED CAPITAL EXPENSE INFORMATION.]
EXHIBIT E
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF BK, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
REGULATORY ALLOCATIONS
THIS EXHIBIT CONTAINS SPECIAL RULES FOR THE ALLOCATION OF ITEMS OF
COMPANY INCOME, GAIN, LOSS AND DEDUCTION THAT OVERRIDE THE BASIC ALLOCATIONS OF
PROFITS AND LOSSES IN THE AGREEMENT TO THE EXTENT NECESSARY TO CAUSE THE OVERALL
ALLOCATIONS OF ITEMS OF COMPANY INCOME, GAIN, LOSS AND DEDUCTION TO HAVE
SUBSTANTIAL ECONOMIC EFFECT PURSUANT TO REGULATIONS SECTION 1.704-1(B) AND SHALL
BE INTERPRETED IN LIGHT OF THAT PURPOSE. SUBSECTION (A) BELOW CONTAINS SPECIAL
TECHNICAL DEFINITIONS. SUBSECTIONS (B) THROUGH (H) CONTAIN THE REGULATORY
ALLOCATIONS THEMSELVES. SUBSECTIONS (I), (J) AND (K) ARE SPECIAL RULES
APPLICABLE IN APPLYING THE REGULATORY ALLOCATIONS.
(A) DEFINITIONS APPLICABLE TO REGULATORY ALLOCATIONS. FOR PURPOSES OF
THE AGREEMENT, THE FOLLOWING TERMS SHALL HAVE THE MEANINGS INDICATED:
(I) "COMPANY MINIMUM GAIN" HAS THE MEANING OF "PARTNERSHIP
MINIMUM GAIN" SET FORTH IN REGULATIONS SECTION
1.704-2(D), AND IS GENERALLY THE AGGREGATE GAIN THE
COMPANY WOULD REALIZE IF IT DISPOSED OF ITS PROPERTY
SUBJECT TO NONRECOURSE LIABILITIES IN FULL SATISFACTION
OF EACH SUCH LIABILITY, WITH SUCH OTHER MODIFICATIONS AS
PROVIDED IN REGULATIONS SECTION 1.704-2(D). IN THE CASE
OF NONRECOURSE LIABILITIES FOR WHICH THE CREDITOR'S
RECOURSE IS NOT LIMITED TO PARTICULAR ASSETS OF THE
COMPANY, UNTIL SUCH TIME AS THERE IS REGULATORY GUIDANCE
ON THE DETERMINATION OF MINIMUM GAIN WITH RESPECT TO
SUCH LIABILITIES, ALL SUCH LIABILITIES OF THE COMPANY
SHALL BE TREATED AS A SINGLE LIABILITY AND ALLOCATED TO
THE COMPANY'S ASSETS USING ANY REASONABLE BASIS SELECTED
BY HHBF.
(II) "MEMBER NONRECOURSE DEDUCTIONS" SHALL MEAN LOSSES,
DEDUCTIONS OR CODE SECTION 705(A)(2)(B) EXPENDITURES
ATTRIBUTABLE TO MEMBER NONRECOURSE DEBT UNDER THE
GENERAL PRINCIPLES APPLICABLE TO "PARTNER NONRECOURSE
DEDUCTIONS" SET FORTH IN REGULATIONS SECTION
1.704-2(I)(2).
(III) "MEMBER NONRECOURSE DEBT" MEANS ANY COMPANY LIABILITY
WITH RESPECT TO WHICH ONE OR MORE BUT NOT ALL OF THE
MEMBERS OR RELATED PERSONS TO ONE OR MORE BUT NOT ALL OF
THE MEMBERS BEARS THE ECONOMIC RISK OF LOSS WITHIN THE
MEANING OF REGULATIONS SECTION 1.752-2 AS A GUARANTOR,
LENDER OR OTHERWISE.
(IV) "MEMBER NONRECOURSE DEBT MINIMUM GAIN" SHALL MEAN THE
MINIMUM GAIN ATTRIBUTABLE TO MEMBER NONRECOURSE DEBT AS
DETERMINED PURSUANT TO REGULATIONS SECTION
1.704-2(I)(3). IN THE CASE OF MEMBER NONRECOURSE DEBT
FOR WHICH THE CREDITOR'S RECOURSE AGAINST THE COMPANY IS
NOT LIMITED TO PARTICULAR ASSETS OF THE COMPANY, UNTIL
SUCH TIME AS THERE IS REGULATORY GUIDANCE ON THE
DETERMINATION OF MINIMUM GAIN WITH RESPECT TO SUCH
LIABILITIES, ALL SUCH LIABILITIES OF THE COMPANY SHALL
BE TREATED AS A SINGLE LIABILITY AND ALLOCATED TO THE
COMPANY'S ASSETS USING ANY REASONABLE BASIS SELECTED BY
HHBF.
(V) "NONRECOURSE DEDUCTIONS" SHALL MEAN LOSSES, DEDUCTIONS,
OR CODE SECTION 705(A)(2)(B) EXPENDITURES ATTRIBUTABLE
TO NONRECOURSE LIABILITIES (SEE REGULATIONS SECTION
1.704-2(B)(1)). THE AMOUNT OF NONRECOURSE DEDUCTIONS FOR
A FISCAL YEAR SHALL BE DETERMINED PURSUANT TO
REGULATIONS SECTION 1.704-2(C), AND SHALL GENERALLY
EQUAL THE NET INCREASE, IF ANY, IN THE AMOUNT OF COMPANY
MINIMUM GAIN FOR THAT TAXABLE YEAR, DETERMINED GENERALLY
ACCORDING TO THE PROVISIONS OF REGULATIONS SECTION
1.704-2(D), REDUCED (BUT NOT BELOW ZERO) BY THE
AGGREGATE DISTRIBUTIONS DURING THE YEAR OF PROCEEDS OF
NONRECOURSE LIABILITIES THAT ARE ALLOCABLE TO AN
INCREASE IN COMPANY MINIMUM GAIN, WITH SUCH OTHER
MODIFICATIONS AS PROVIDED IN REGULATIONS SECTION
1.704-2(C).
(VI) "NONRECOURSE LIABILITY" MEANS ANY COMPANY LIABILITY (OR
PORTION THEREOF) FOR WHICH NO MEMBER BEARS THE ECONOMIC
RISK OF LOSS UNDER REGULATIONS SECTION 1.752-2.
(VII) "REGULATORY ALLOCATIONS" SHALL MEAN ALLOCATIONS OF
NONRECOURSE DEDUCTIONS PROVIDED IN PARAGRAPH (B) BELOW,
ALLOCATIONS OF MEMBER NONRECOURSE DEDUCTIONS PROVIDED IN
PARAGRAPH (C) BELOW, THE MINIMUM GAIN CHARGEBACK
PROVIDED IN PARAGRAPH (D) BELOW, THE MEMBER NONRECOURSE
DEBT MINIMUM GAIN CHARGEBACK PROVIDED IN PARAGRAPH (E)
BELOW, THE QUALIFIED INCOME OFFSET PROVIDED IN PARAGRAPH
(F) BELOW, THE GROSS INCOME ALLOCATION PROVIDED IN
PARAGRAPH (G) BELOW, AND THE CURATIVE ALLOCATIONS
PROVIDED IN PARAGRAPH (H) BELOW.
(B) NONRECOURSE DEDUCTIONS. ALL NONRECOURSE DEDUCTIONS FOR ANY FISCAL
YEAR SHALL BE ALLOCATED TO THE MEMBERS IN ACCORDANCE WITH THEIR PERCENTAGE
MEMBERSHIP INTERESTS.
(C) MEMBER NONRECOURSE DEDUCTIONS. ALL MEMBER NONRECOURSE DEDUCTIONS
FOR ANY FISCAL YEAR SHALL BE ALLOCATED TO THE MEMBER WHO BEARS THE ECONOMIC RISK
OF LOSS UNDER REGULATIONS SECTION 1.752-2 WITH RESPECT TO THE MEMBER NONRECOURSE
DEBT TO WHICH SUCH MEMBER NONRECOURSE DEDUCTIONS ARE ATTRIBUTABLE.
(D) MINIMUM GAIN CHARGEBACK. IF THERE IS A NET DECREASE IN COMPANY
MINIMUM GAIN FOR A FISCAL YEAR, EACH MEMBER SHALL BE ALLOCATED ITEMS OF COMPANY
INCOME AND GAIN FOR SUCH YEAR (AND, IF NECESSARY, SUBSEQUENT YEARS) IN AN AMOUNT
EQUAL TO SUCH MEMBER'S
E-2
SHARE OF SUCH NET DECREASE IN COMPANY MINIMUM GAIN, DETERMINED IN
ACCORDANCE WITH REGULATIONS SECTION 1.704-2(G)(2) AND THE DEFINITION OF
COMPANY MINIMUM GAIN SET FORTH ABOVE. THIS PROVISION IS INTENDED TO COMPLY
WITH THE MINIMUM GAIN CHARGEBACK REQUIREMENT IN REGULATIONS SECTION
1.704-2(F) AND SHALL BE INTERPRETED CONSISTENTLY THEREWITH.
(E) MEMBER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK. IF THERE IS A NET
DECREASE IN MEMBER NONRECOURSE DEBT MINIMUM GAIN ATTRIBUTABLE TO A MEMBER
NONRECOURSE DEBT FOR ANY FISCAL YEAR, EACH MEMBER WHO HAS A SHARE OF THE MEMBER
NONRECOURSE DEBT MINIMUM GAIN ATTRIBUTABLE TO SUCH MEMBER NONRECOURSE DEBT AS OF
THE BEGINNING OF THE FISCAL YEAR, DETERMINED IN ACCORDANCE WITH REGULATIONS
SECTION 1.704-2(I)(5), SHALL BE ALLOCATED ITEMS OF COMPANY INCOME AND GAIN FOR
SUCH YEAR (AND, IF NECESSARY, SUBSEQUENT YEARS) IN AN AMOUNT EQUAL TO SUCH
MEMBER'S SHARE OF THE NET DECREASE IN MEMBER NONRECOURSE DEBT MINIMUM GAIN
ATTRIBUTABLE TO SUCH MEMBER NONRECOURSE DEBT, DETERMINED IN ACCORDANCE WITH
REGULATIONS SECTIONS 1.704-2(I)(4) AND (5) AND THE DEFINITION OF MEMBER
NONRECOURSE DEBT MINIMUM GAIN SET FORTH ABOVE. THIS PARAGRAPH IS INTENDED TO
COMPLY WITH THE MEMBER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK REQUIREMENT IN
REGULATIONS SECTION 1.704-2(I)(4) AND SHALL BE INTERPRETED CONSISTENTLY
THEREWITH.
(F) QUALIFIED INCOME OFFSET. IN THE EVENT ANY MEMBER UNEXPECTEDLY
RECEIVES ANY ADJUSTMENTS, ALLOCATIONS, OR DISTRIBUTIONS DESCRIBED IN REGULATIONS
SECTIONS 1.704-1(B)(2)(II)(D)(4), (5), OR (6), ITEMS OF COMPANY INCOME AND GAIN
(CONSISTING OF A PRO RATA PORTION OF EACH ITEM OF COMPANY INCOME, INCLUDING
GROSS INCOME, AND GAIN FOR SUCH YEAR) SHALL BE ALLOCATED TO SUCH MEMBER IN AN
AMOUNT AND MANNER SUFFICIENT TO ELIMINATE, TO THE EXTENT REQUIRED BY THE
REGULATIONS, ANY DEFICIT IN SUCH MEMBER'S ADJUSTED CAPITAL ACCOUNT CREATED BY
SUCH ADJUSTMENTS, ALLOCATIONS OR DISTRIBUTIONS AS QUICKLY AS POSSIBLE.
(G) GROSS INCOME ALLOCATION. IN THE EVENT ANY MEMBER HAS A DEFICIT IN
ITS ADJUSTED CAPITAL ACCOUNT AT THE END OF ANY FISCAL YEAR, EACH SUCH MEMBER
SHALL BE ALLOCATED ITEMS OF COMPANY GROSS INCOME AND GAIN, IN THE AMOUNT OF SUCH
ADJUSTED CAPITAL ACCOUNT DEFICIT, AS QUICKLY AS POSSIBLE.
(H) CURATIVE ALLOCATIONS. WHEN ALLOCATING PROFITS AND LOSSES UNDER
ARTICLE VI, SUCH ALLOCATIONS SHALL BE MADE SO AS TO OFFSET ANY PRIOR ALLOCATIONS
OF GROSS INCOME UNDER PARAGRAPH (G) ABOVE TO THE GREATEST EXTENT POSSIBLE SO
THAT OVERALL ALLOCATIONS OF PROFITS AND LOSSES SHALL BE MADE AS IF NO SUCH
ALLOCATIONS OF GROSS INCOME OCCURRED.
(I) ORDERING. THE ALLOCATIONS IN THIS EXHIBIT TO THE EXTENT THEY APPLY
SHALL BE MADE BEFORE THE ALLOCATIONS OF PROFITS AND LOSSES UNDER ARTICLE VI AND
IN THE ORDER IN WHICH THEY APPEAR ABOVE.
(J) WAIVER OF MINIMUM GAIN CHARGEBACK PROVISIONS. IF HHBF DETERMINES
THAT (I) EITHER OF THE TWO MINIMUM GAIN CHARGEBACK PROVISIONS CONTAINED IN THIS
EXHIBIT WOULD CAUSE A DISTORTION IN THE ECONOMIC ARRANGEMENT AMONG THE MEMBERS,
(II) IT IS NOT EXPECTED THAT THE COMPANY WILL HAVE SUFFICIENT OTHER ITEMS OF
INCOME AND GAIN TO CORRECT THAT DISTORTION, AND (III) THE MEMBERS HAVE MADE
CAPITAL CONTRIBUTIONS OR RECEIVED NET INCOME ALLOCATIONS THAT HAVE RESTORED ANY
PREVIOUS NONRECOURSE DEDUCTIONS OR MEMBER NONRECOURSE
E-3
DEDUCTIONS, THEN HHBF SHALL HAVE THE AUTHORITY, BUT NOT THE OBLIGATION,
AFTER GIVING NOTICE TO THE MEMBERS, TO REQUEST ON BEHALF OF THE COMPANY THE
INTERNAL REVENUE SERVICE TO WAIVE THE MINIMUM GAIN CHARGEBACK OR MEMBER
NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK REQUIREMENTS PURSUANT TO
REGULATIONS SECTIONS 1.704-2(F)(4) AND 1.704-2(I)(4). THE COMPANY SHALL PAY
THE EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED TO APPLY FOR THE WAIVER.
HHBF SHALL PROMPTLY COPY ALL MEMBERS ON ALL CORRESPONDENCE TO AND FROM THE
INTERNAL REVENUE SERVICE CONCERNING THE REQUESTED WAIVER.
(K) CODE SECTION 754 ADJUSTMENTS. TO THE EXTENT AN ADJUSTMENT TO THE
ADJUSTED TAX BASIS OF ANY COMPANY ASSET PURSUANT TO CODE SECTION 734(B) OR CODE
SECTION 743(B) IS REQUIRED, PURSUANT TO REGULATIONS SECTION
1.704-1(B)(2)(IV)(M), TO BE TAKEN INTO ACCOUNT IN DETERMINING CAPITAL ACCOUNTS,
THE AMOUNT OF SUCH ADJUSTMENT TO THE CAPITAL ACCOUNTS SHALL BE TREATED AS AN
ITEM OF GAIN (IF THE ADJUSTMENT INCREASES THE BASIS OF THE ASSET) OR LOSS (IF
THE ADJUSTMENT DECREASES SUCH BASIS), AND SUCH GAIN OR LOSS SHALL BE SPECIALLY
ALLOCATED TO THE MEMBERS IN A MANNER CONSISTENT WITH THE MANNER IN WHICH THEIR
CAPITAL ACCOUNTS ARE REQUIRED TO BE ADJUSTED PURSUANT TO SUCH SECTION OF THE
REGULATIONS.
[THE REMAINDER OF THIS PAGE INTENTIONALLY HAS BEEN LEFT BLANK.]
E-4
