OPERATING AGREEMENT
OF
KENTUCKY I LITHOTRIPSY, LLC
(A Kentucky Limited Liability Company)
Dated: January 26, 1999
THE LLC MEMBERSHIP INTERESTS REPRESENTED BY THIS OPERATING AGREEMENT HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES ACTS OR LAWS OF ANY STATE IN
RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS OR LAWS. THE SALE OR OTHER DISPOSITION
OF THE MEMBERSHIP INTERESTS IS RESTRICTED AS STATED IN THIS OPERATING AGREEMENT,
AND IN ANY EVENT IS PROHIBITED UNLESS THE LLC RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER DISPOSITION CAN BE
MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES ACTS AND LAWS. BY ACQUIRING THE MEMBERSHIP INTEREST
REPRESENTED BY THIS OPERATING AGREEMENT, EACH MEMBER REPRESENTS THAT IT WILL NOT
SELL OR OTHERWISE DISPOSE OF ITS MEMBERSHIP INTEREST WITHOUT REGISTRATION OR
OTHER COMPLIANCE WITH THE AFORESAID ACTS AND THE RULES AND REGULATIONS ISSUED
THEREUNDER.
TABLE OF CONTENTS
ARTICLE I - FORMATION OF THE COMPANY...........................................1
1.1 Formation....................................................1
1.2 Name.........................................................1
1.3 Registered Office and Registered Agent.......................1
1.4 Principal Place of Business..................................1
1.5 Purposes and Powers..........................................1
1.6 Term.........................................................2
1.7 Nature of Members' Interests.................................2
ARTICLE II - DEFINITIONS.......................................................2
2.1 Definitions..................................................2
ARTICLE III - MANAGEMENT OF THE COMPANY.......................................11
3.1 The Manager.................................................11
3.2 Specific Authority of the Manager...........................12
3.3 Specific Authority of Manager...............................15
3.4 Authority as to Third Persons...............................15
3.5 Compensation and Expenses...................................15
3.6 Indemnification and Exculpation of the Manager..............15
3.7 Liability for Return of Capital Contribution................15
ARTICLE IV - EXECUTIVE COMMITTEE..............................................16
4.1 General Powers. ...........................................16
4.2 Number, Term and Qualification..............................16
4.3 Removal and Replacement. ..................................16
4.4 Compensation and Expenses. ................................17
4.5 Action by the Executive Committee. ........................17
4.6 Action Without Meeting. ...................................17
4.7 Meeting by Communications Device. .........................17
4.8 Indemnification of Executive Committee Members. ...........17
4.9 Liability for Return of Capital Contribution. .............18
ARTICLE V - RIGHTS AND OBLIGATIONS OF MEMBERS.................................18
5.1 Names and Addresses of Members..............................18
5.2 No Management by Members....................................18
5.3 Election of Manager.........................................18
5.4 Action by Members...........................................18
5.5 Operation of Mobile System..................................18
5.6 Outside Activities..........................................19
5.7 Disclosure of Con...........................................19
5.8 Limited Liability...........................................20
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ARTICLE VI - CAPITAL CONTRIBUTIONS,
GUARANTIES AND DILUTION OFFERINGS....................................20
6.1 Manager Contribution........................................20
6.2 Physician Members Contribution..............................20
6.3 No Interest.................................................20
6.4 Dilution Offerings..........................................20
6.5 Conditions to the Capital Contributions
of the Physician Members...............21
6.6 Capital Accounts............................................21
ARTICLE VII - REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE MANAGER.............................................22
7.1 Manager's Representations and Warranties....................22
7.2 Manager's Covenants.........................................23
ARTICLE VIII - ALLOCATIONS, ELECTIONS AND REPORTS.............................23
8.1 Profits and Losses..........................................23
8.2 Sales Commission............................................23
8.3 Nonrecourse Deductions......................................23
8.4 Member Nonrecourse Deductions...............................24
8.5 Allocations Between Transferor and Transferee...............24
8.6 Gains from Capital Transactions.............................24
8.7 Contributed Property........................................24
8.8 Minimum Gain Chargeback.....................................25
8.9 Member Minimum Gain Chargeback..............................25
8.10 Qualified Income Offset.....................................25
8.11 Gross Income Allocation.....................................26
8.12 Section 754 Adjustment......................................26
8.13 Curative Allocations........................................26
8.14 Compliance with Treasury Regulations........................26
8.15 Tax Withholding.............................................26
ARTICLE IX - DISTRIBUTIONS....................................................27
9.1 Company Cash Flow...........................................27
9.2 Company Refinancing Proceeds................................27
9.3 Company Sales Proceeds......................................27
9.4 Distributions in Liquidation................................27
9.5 Limitation Upon Distributions...............................27
ARTICLE X - TRANSFER OF INTERESTS AND ADMISSION OF MEMBERS....................27
10.1 Transferability of Membership Interests.....................27
10.2 Restrictions on Transfers by Physician Members..............28
10.3 Rights of Transferee........................................29
10.4 Admission of Members........................................29
10.5 Amendment of Articles of Organization
and Certificate of Qualification................30
10.6 Fundamental Changes.........................................30
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ARTICLE XI - OPTIONAL PURCHASE OF MEMBERSHIP INTERESTS
ON CERTAIN EVENTS....................................................30
11.1 Death.......................................................30
11.2 Bankruptcy, Insolvency or Assignment for Benefit
of Creditors of a Physician Member..................31
11.3 Breach of Section 5.6.......................................31
11.4 Domestic Proceeding.........................................32
11.5 Divestiture Option..........................................32
11.6 Purchase Price..............................................33
11.7 Closing of Purchase and Sale................................34
11.8 Terms and Conditions of Purchase............................35
ARTICLE XII - DISSOLUTION AND LIQUIDATION OF THE COMPANY......................35
12.1 Dissolution Events..........................................35
12.2 Continuation................................................36
12.3 Liquidation.................................................36
12.4 Articles of Dissolution.....................................36
ARTICLE XIII - MISCELLANEOUS..................................................37
13.1 Fiscal Year.................................................37
13.2 Records.....................................................37
13.3 Reports.....................................................37
13.4 Reserves....................................................37
13.5 Notices.....................................................37
13.6 Amendments..................................................37
13.7 Additional Documents........................................37
13.8 Representations of Members..................................38
13.9 Survival of Rights..........................................38
13.10 Interpretation and Governing Law............................38
13.11 Severability................................................38
13.12 Agreement in Counterparts...................................38
13.13 Tax Matters Partner.........................................38
13.14 Third Parties...............................................38
13.15 Power of Attorney...........................................39
13.16 Arbitration.................................................39
Attachments:
Schedule I - Names, Initial Capital Contributions and Percentage Interests of
the Members
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OPERATING AGREEMENT
OF
KENTUCKY I LITHOTRIPSY, LLC
THIS OPERATING AGREEMENT of KENTUCKY I LITHOTRIPSY LLC (the "Company"), a
limited liability company organized pursuant to the Delaware Limited Liability
Company Act, is executed effective as of the ____ day of ______________, 199__,
by and among the Company and the persons executing this Agreement as the initial
Members (as defined below).
ARTICLE I - FORMATION OF THE COMPANY
1.1 Formation. The Company was formed on September 23, 1997 upon the filing with
the Secretary of State of the Articles of Organization of the Company. In
consideration of the mutual premises and covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree that the rights and obligations of the
parties and the administration and termination of the Company shall be governed
by this Agreement, the Articles of Organization and the Act.
1.2 Name. The name of the Company is as set forth on the cover page of this
Agreement. The Manager may change the name of the Company from time to time as
it deems advisable, provided that appropriate amendments to this Agreement and
the Articles of Organization and necessary filings under the Act are first
obtained.
1.3 Registered Office and Registered Agent. The Company's registered office
shall be at Kentucky Home Xxxx Xxxxxxxx, Xxxxxxxxxx, Xxxxxxxx, 00000, and the
name of its initial registered agent at such address shall be The Corporation
Trust Company.
1.4 Principal Place of Business. The principal place of business of the Company
shall be located at 0000 Xxxxxxx xx Xxxxx Xxxxxxx, Xxxxx X-000, Xxxxxx, Xxxxx
00000, or at any other place or places as the Manager may from time to time deem
necessary or advisable.
1.5 Purposes and Powers.
(a) The purpose and business of the Company shall be: (i) to operate one or
more extracorporeal shock-wave lithotripters (or any other renal stone treatment
equipment) for the lithotripsy of renal stones primarily in central Kentucky, or
in such other location(s) as the Manager, with the consent of the Executive
Committee, may determine to be in the best interests of the Company; (ii) to
acquire and operate in the future any other therapeutic urological device or
equipment provided that such device have FDA premarket approval at the time it
is acquired by the Company; (iii) to acquire an interest in any business entity,
including, without limitation, a limited partnership, limited liability company
or corporation, that engages in any business activity described in this Section
1.5; and (iv) to
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engage in any and all activities incidental or related to the foregoing, upon
and subject to the terms and conditions of this Agreement.
(b) The Company shall have any and all powers which are necessary or desirable
to carry out the purposes and business of the Company, to the extent the same
may be legally exercised by limited liability companies under the Act. The
Company shall carry out the foregoing activities pursuant to the arrangements
set forth in the Articles of Organization and this Agreement.
1.6 Term. The Company shall continue in existence until the close of the
Company's business on December 31, 2047 as specified in the Company's
Certificate of Formation, unless the Company is earlier dissolved and its
affairs wound up in accordance with the provisions of this Agreement or the Act.
1.7 Nature of Members' Interests. The Membership Interests of the Members in the
Company shall be personal property for all purposes. Legal title to all Company
assets shall be held in the name of the Company. Neither any Member nor a
successor, representative or assign of such Member, shall have any right, title
or interest in or to any Property owned by the Company or the right to partition
any Property owned by the Company. Membership Interests are evidenced by the
execution of this Agreement by the Members.
ARTICLE II - DEFINITIONS
2.1 Definitions. The following terms used in this Agreement shall have the
following meanings (unless otherwise expressly provided herein):
2.1.1 "Act" means the Kentucky Limited Liability Company Act, as the same may be
amended from time to time.
2.1.2 "Adjusted Capital Account Deficit" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts to which such Member is obligated
to restore or is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Sections 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6) of the
Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
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2.1.3 "Adjusted Capital Contributions" means, as of any day, a Member's Capital
Contributions adjusted as follows:
(i) Increased by the amount of any Company liabilities which, in connection with
Distributions, are assumed by such Member or are secured by any Company Property
distributed to such Member; and
(ii) Reduced by the amount of cash and the value of any Company property
distributed to such Member and the amount of any liabilities of such Member
assumed by the Company or which are secured by any property contributed by such
Member to the Company.
In the event any Member transfers all or any portion of his or her Membership
Interest in accordance with the terms of this Agreement, his transferee shall
succeed to the Adjusted Capital Contribution of the transferor to the extent it
relates to the transferred Membership Interest or portion thereof.
2.1.4 "Affiliate" of a specified Person means (i) any Person directly or
indirectly controlling, controlled by or under common control with the specified
Person; (ii) any Person owning or controlling 10% or more of the outstanding
voting interest of such specified Person; (iii) any officer, director or partner
of such specified Person; and (iv) if the specified Person is an officer,
director or partner, any entity for which the specified Person acts in such
capacity.
2.1.5 "Agreement" means this Operating Agreement, as amended from time to time.
2.1.6 "Appraiser" means an independent appraiser, investment banker, financial
analyst or other valuation expert with at least 5 years experience valuing
closely held businesses.
2.1.7 "Bank" means First Citizens Bank & Trust Company.
2.1.8 "Articles of Organization" means the Articles of Organization of the
Company filed with the Secretary of State, as amended or restated from time to
time.
2.1.9 "Bankruptcy" means with respect to a Member, when such Member (i) makes an
assignment for the benefit of creditors; (ii) files a voluntary petition in
bankruptcy; (iii) is adjudged a bankrupt or insolvent, or has entered against
him an order for relief, in any bankruptcy or insolvency proceeding; (iv) files
a petition or answer seeking for himself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation; (v) files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against him in
any proceeding of the type described in clauses (i)-(iv) above; or (vi) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the Member or of all or any substantial part of his properties.
"Bankruptcy" shall also be deemed to have occurred to a Member 120 days after
the commencement of any proceeding against such Member seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, if the proceeding has not been
dismissed, or if within 90 days after the appointment without his consent or
acquiescence of a trustee, receiver or liquidator of the Member or of all or any
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substantial part of his properties, the appointment is not vacated or stayed, or
within 90 days after the expiration of any such stay, the appointment is not
vacated.
2.1.10 "Buy-Sell Event" has the meaning assigned to it in Section 11.1.
2.1.11 "Buy-Sell Notice" has the meaning assigned to it in Section 11.2.
2.1.12 "Capital Account" means, with respect to any Member, the capital account
maintained for such Member in accordance with Section 6.12 of this Agreement.
2.1.13 "Capital Contribution" means all contributions to the Company of cash or
property (valued for this purpose at initial gross fair market value as
determined by the contributing Member and the Manager) made by a Member or his
or her predecessor in interest which shall include, without limitation, those
contributions made pursuant to Article VI of this Agreement.
2.1.14 "Capital Transaction" means any transactions undertaken by the Company or
by any company or partnership in which the Company owns an interest, which, were
it to generate proceeds, would produce Company Sales Proceeds or Company
Refinancing Proceeds.
2.1.15 "Code" means the Internal Revenue Code of 1986, as amended from time to
time (and any corresponding provisions of succeeding law).
2.1.16 "Company Cash Flow" for any period means the excess, if any, of (A) the
sum of (i) all gross receipts from any source for such period, other than from
Company loans, Capital Transactions and Capital Contributions, and (ii) any
funds released by the Company from previously established reserves, over (B) the
sum of (i) all cash expenses paid by the Company for such period (including any
compensation to the Managers and their Affiliates); (ii) all amounts paid by the
Company in such period on account of the amortization of the principal of any
debts or liabilities of the Company (including loans from any Member);
(iii) capital expenditures of the Company; and (iv) a reasonable reserve for
future expenditures as provided by Section 13.4; provided, however, that the
amounts referred to in (B) (i), (ii) and (iii) above shall be taken into account
only to the extent not funded by Capital Contributions, loans or paid out of
previously established reserves. Such term shall also include all other funds
deemed available for distribution and designated as Company Cash Flow by the
Managers.
2.1.17 "Company Minimum Gain" means gain as defined in Treasury Regulations
Section 1.704-2(d).
2.1.18 "Company Refinancing Proceeds" means (i) the cash realized from the
financing or refinancing of all or any portion of any Company assets, less the
retirement of any related secured loans, the payment of all expenses relating to
the transaction and the establishment of such reasonable reserves as the
Managers shall deem prudent or necessary and (ii) the Company's allocable
portion of cash realized by an entity in which the Company owns an interest from
such entity financing or refinancing all or any portion of such entity's assets,
less the retirement of any related secured loans and the payment of all expenses
relating to such transaction.
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2.1.19 "Company Sales Proceeds" means (i) the cash realized from the sale,
exchange, condemnation, casualty or other disposition of all or any portion of
any Company assets not in the ordinary course of business, less the retirement
of any related secured loans, the payment of all expenses relating to the
transaction and the establishment of such reasonable reserves as the Managers
shall deem prudent or necessary and (ii) the Company's allocable portion of cash
realized by an entity in which the Company owns an interest from the sale,
exchange, condemnation, casualty or other disposition of all or any portion of
such entity's assets not in the ordinary course of business, less the retirement
of any related secured loans and the payment of all expenses relating to such
transaction.
2.1.20 "Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an Asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Managers.
2.1.21 "Dilution Offering" means, as provided in Article VI of this Agreement,
the future offering of additional Membership Interests in the Company by the
Manager. Except as otherwise provided in Article VI, any successful Dilution
Offering will proportionately reduce the Percentage Interests of the then
current Members in the Company.
2.1.22 "Distribution" means any money or other property distributed to a Member
with respect to the Member's Membership Interest, but shall not include any
payment to a Member for materials or services rendered nor any reimbursement to
a Member for expenses permitted in accordance with this Agreement.
2.1.23 "Domestic Proceeding" means any divorce, annulment, separation or similar
domestic proceeding between a married couple.
2.1.24 "Encumbrance" means any lien, pledge, encumbrance, collateral assignment
or hypothecation.
2.1.25 "Equipment" means the initial equipment to be acquired by the Company for
the operation of the Mobile Lithotripsy System. The initial equipment to be used
in the operation of the Mobile Lithotripsy System will include the Trailer, a
tractor truck, the Dornier HM3 lithotripter and miscellaneous medical equipment
and supplies.
2.1.26 "Executive Committee" means the committee made up of four Physician
Members and a representative of the Manager, each appointed by the Manager,
which has certain management authority as set forth in Article IV.
2.1.27 "FDA" means the United States Food and Drug Administration.
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2.1.28 "Fiscal Year" means an annual accounting period ending December 31 of
each year during the term of the Company, unless otherwise specified by the
Managers.
2.1.29 "Gains from Capital Transactions" means the gains realized by the Company
as a result of or upon any sale, exchange, condemnation or other disposition of
capital assets of the Company or any entity in which the Company shall own an
interest (which assets shall include Code Section 1231 assets and all real and
personal property) or as a result of or upon the damage to or destruction of
such capital assets.
2.1.30 "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a Member to the
Company shall be the gross fair market value of such asset, as determined by the
contributing Member and the Managers, provided that, if the contributing Member
is a Manager, the determination of the fair market value of a contributed asset
shall be determined by appraisal;
(ii) The Gross Asset Values of all Company assets shall be adjusted to equal
their respective gross fair market values, as determined by the Managers, as of
the following times: (a) the acquisition of an additional interest in the
Company (other than upon the initial formation of the Company) by any new or
existing Member in exchange for more than a de minimis Capital Contribution;
(b) the distribution by the Company to a Member of more than a de minimis amount
of Company property as consideration for an interest in the Company; and (c) the
liquidation of the Company within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to
clauses (a) and (b) above shall be made only if the Managers reasonably
determine that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Members in the Company;
(iii) The Gross Asset Value of any Company asset distributed to any Member shall
be adjusted to equal the gross fair market value of such asset on the date of
distribution as determined by the distributee and the Managers, provided that,
if the distributee is a Manager, the determination of the fair market value of
the distributed asset shall be determined by appraisal; and
(iv) The Gross Asset Values of Company assets shall be increased (or decreased)
to reflect any adjustments to the adjusted basis of such assets pursuant to Code
Section 734(b) or Code Section 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Sections 2.1.48(vi) and
7.11 hereof; provided, however, that Gross Asset Values shall not be adjusted
pursuant to this Section 2.1.29(iv) to the extent the Managers determine that an
adjustment pursuant to Section 2.1.29(ii) hereof is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this Section 2.1.29(iv).
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If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Section 2.1.29(i), Section 2.1.29(ii), or Section 2.1.29(iv) hereof, such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Profits, Gains from Capital
Transactions or Losses.
2.1.31 "Guaranty" means the Guaranty Agreement pursuant to which each
Member will guarantee a portion of the Company's obligation to the Bank under
the Loan. The form of Guaranty Agreement is included in the Subscription Packet
accompanying the Memorandum.
2.1.32 "Loan" means the loan of $550,000 from the Bank to the Company. Loan
proceeds will be used by the Company to (i) acquire a used Dornier HM3
lithotripter (up to $100,000), (ii) acquire and upfit a mobile Trailer to house
the lithotripter (up to $325,000), (iii) acquire a used tractor truck for
hauling the Trailer housing the lithotripter (up to $50,000), and (iv) purchase
additional miscellaneous equipment (up to $30,000), (v) pay the applicable state
sales and use taxes on the lithotripter Trailer, tractor truck and additional
miscellaneous equipment (estimated to be $30,300), and (vi) serve as working
capital (estimated at $14,700).
2.1.33 "Losses from Capital Transactions" means the losses realized by the
Company as a result of or upon any sales exchange, condemnation or other
disposition of the capital assets of the Company (which include Code Section
1231 assets) or as a result of or upon the damage or destruction of such capital
assets.
2.1.34 "Management Agent" means Lithotripters, Inc., a wholly owned
subsidiary of Prime and an Affiliate of the Manager.
2.1.35 "Management Agreement" means the agreement pursuant to which the
Management Agent will provide the daily management services to the Company.
2.1.36 "Majority in Interest" means, with respect to any referenced group
of Members, a combination of any of such Members who, in the aggregate, own more
than fifty percent (50%) of the Percentage Interests owned by all of such
referenced group of Members.
2.1.37 "Manager" means Prime Kidney Stone Treatment, Inc. ("PKST"), a New
Jersey Corporation, the initial Manager of the Company, and any other Person or
Persons that succeeds such Manager in its capacity as Manager, and any other
Person elected to act as Manager of the Company as provided herein. PKST is also
a member of the Company.
2.1.38 "Member" means each Person designated as a member of the Company on
Schedule I hereto, or any additional member admitted as a member of the Company
in accordance with Article IX. "Members" refers to such Persons as a group, and
shall include the Manager, PKST, where no distinction is required by the context
in which the term is used herein.
2.1.39 "Member Minimum Gain" means an amount, with respect to each Member
Nonrecourse Debt, equal to the Company Minimum Gain that would result if such
Member Nonrecourse
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Debt were treated as a Nonrecourse Liability, determined in accordance with
Treasury Regulations Section 1.704-2(i).
2.1.40 "Member Nonrecourse Debt" means any nonrecourse debt (for the
purposes of Treasury Regulations Section 1.1001-2) of the Company for which any
Member bears the "economic risk of loss," within the meaning of Treasury
Regulations Section 1.752-2.
2.1.41 "Member Nonrecourse Deductions" means deductions as described in
Treasury Regulations Section 1.704-2(i). The amount of Member Nonrecourse
Deductions with respect to a Member Nonrecourse Debt for any Fiscal Year equals
the excess, if any, of (A) the net increase, if any, in the amount of Member
Minimum Gain attributable to such Member Nonrecourse Debt during such Fiscal
Year, over (B) the aggregate amount of any Distributions during that Fiscal Year
to the Member that bears the economic risk of loss for such Member Nonrecourse
Debt to the extent such Distributions are from the proceeds of such Member
Nonrecourse Debt and are allocable to an increase in Member Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Treasury Regulations Section 1.704-2(i).
2.1.42 "Membership Interest" means all of a Member's rights in the Company,
including without limitation, the Member's share of the Profits and Losses of
the Company, the right to receive Distributions, any right to vote and any right
to participate in the management of the Company as provided in the Act and this
Agreement.
2.1.43 "Memorandum" means the Confidential Private Placement Memorandum of
the Company dated October 14, 1998, as amended or as supplemented.
2.1.44 "Mobile Lithotripsy System" means the Trailer and tractor truck with
the installed and operational Dornier HM3 lithotripter.
2.1.45 "Nonrecourse Deductions" means deductions as set forth in Treasury
Regulations Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for a
given Fiscal Year equals the excess, if any, of (A) the net increase, if any, in
the amount of Company Minimum Gain during such Fiscal Year, over (B) the
aggregate amount of any Distributions during such Fiscal Year of proceeds of a
Nonrecourse Liability that are allocable to an increase in Company Minimum Gain,
determined according to the provisions of Treasury Regulations Section
1.704-2(h).
2.1.46 "Nonrecourse Liability" means any Company liability (or portion
thereof) for which no Member bears the "economic risk of loss," within the
meaning of Treasury Regulations Section 1.752-2.
2.1.47 "Offering" means the initial offering of Units in the Company
pursuant to the Memorandum.
2.1.48 "Percentage Interest" means the interest of each Member in the
Company, to be determined in the case of a Physician Member by reference to his
or her Unit ownership based upon the Physician Members holding an aggregate 80%
Percentage Interest in the Company, with each Unit sold
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representing an initial 1% interest. The Manager will own a 20% Percentage
Interest in the Company. As provided in Article VI, a Physician Member's
Percentage Interest may be reduced by a future Dilution Offering. The Members'
Percentage Interests in the Company as of the date hereof are as set forth in
Schedule I attached hereto. Any future adjustments in the Member's Percentage
Interests, due to future Dilution Offerings or otherwise, will be reflected by
revisions to Schedule A.
2.1.49 "Person" means an individual, a foreign or domestic corporation, a
professional corporation, a partnership, a limited partnership, a limited
liability company, a foreign limited liability company, an unincorporated
association, or other legal entity.
2.1.50 "Physician Members" means those investors in the Units admitted to
the Company, and any Person admitted as a substitute Physician Member in
accordance with the provisions herein, provided that the Manager and its
Affiliates shall not be considered Physician Members.
2.1.51 "PKST" means Prime Kidney Stone Treatment, Inc., a New Jersey
corporation. PKST is the sole Manager of the Company.
2.1.52 "Prime" means Prime Medical Services, Inc., a publicly held
corporation and parent of both the Manager and the Management Agent.
2.1.53 "Profits and Losses" means, for each Fiscal Year, an amount equal to
the Company's taxable income or loss for such Fiscal Year (excluding Gains from
Capital Transactions), determined in accordance with Code Section 703(a) (for
this purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
(i) Any income of the Company that is exempt from federal income tax and
not otherwise taken into account in computing Profits and Losses pursuant to
this definition (excluding Gains from Capital Transactions) shall be added to
such taxable income or loss;
(ii) Any expenditures of the Company described in Code Section 705(a)(2)(B)
or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this Section 2.1.48 shall be
subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to Section 2.1.27, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Profits or Losses;
(iv) Gain or loss resulting from any disposition of Company property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of,
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notwithstanding that the adjusted tax basis of such property differs from its
Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year or other period,
computed in accordance with the definition of Depreciation set out hereof;
(vi) To the extent an adjustment to the adjusted tax basis of any Company
asset pursuant to Code Section 734(b) or Code Section 743(b) is required
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Member's interest in the Company, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of the asset)
from the disposition of the asset and shall be taken into account for purposes
of computing Profits or Losses;
(vii) Notwithstanding any other provision of this Section 2.1.48, any items
which are specially allocated pursuant to Sections 7.2, 7.3, 7.7, 7.8, 7.9,
7.10, 7.11 or 7.12 hereof shall not be taken into account in computing Profits
or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 7.2, 7.3, 7.7, 7.8,
7.9, 7.10, 7.11 or 7.12 hereof shall be determined by applying rules analogous
to those set forth in Sections (i) through (vi) above.
2.1.54 "Property" means any and all property acquired by the Company, real
and/or personal (including, without limitation, intangible property).
2.1.55 "Pro Rata Basis" means in connection with an allocation or
distribution in proportion to the respective Percentage Interests or the class
of Members to which reference is made.
2.1.56 "Sales Agency Agreement" means the sales agency agreement through
which MedTech Investments, Inc., an Affiliate of the Manager and a broker-dealer
company registered with the Securities and Exchange commission and a member of
the National Association of Securities Dealers, Inc. shall offer and sell the
membership interest of the Company pursuant to the Memorandum.
2.1.57 "Sales Commission" means the $250.00 sales commission paid to
MedTech Investments, Inc. for each Unit sold to parties other than the Manager
and its Affiliates.
2.1.58 "Secretary of State" means the Secretary of State of Kentucky.
2.1.59 "Service" means the Internal Revenue Service.
2.1.60 "Service Area" means the geographic region in which the Company
operations are expected to be conducted and which is anticipated to consist
primarily of central Kentucky.
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2.1.61 "Tax Matters Partner" means the Person designated by the Managers as
the "tax matters partner," as that term is defined in the Code.
2.1.62 "Trailer" means the new mobile trailer manufactured and upfitted by
AK Associates, Inc. to house the lithotripter.
2.1.63 "Transfer" means sell, assign, transfer, lease or otherwise dispose
of property, including without limitation an interest in the Company.
2.1.64 "Treasury Regulations" means the Income Tax Regulations and
Temporary Regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
2.1.65 "Units" means the 80 equal membership interests in the Company
offered to the Memorandum for a price per Unit of $2,500 in cash and personal
guaranty of 1% of the Company's obligations under the Loan.
2.1.66 "Withdrawing Member" has the meaning assigned to it in Article 11.
ARTICLE III - MANAGEMENT OF THE COMPANY
3.1 The Manager.
(a) Except as otherwise may be expressly provided in this Agreement, the
Articles of Organization or the Act, all decisions with respect to the
management of the business and affairs of the Company shall be made by action of
the Manager. The Manager shall have full and complete authority, power and
discretion to manage and control the business of the Company, to make all
decisions regarding those matters and to perform any and all other acts or
activities customary or incident to the management of the Company's business,
except only as to those acts and things as to which approval by the Executive
Committee and/or the Members is expressly required by this Agreement. The
Manager may delegate responsibility for the day-to- day management of the
Company to any Person retained by the Manager including Affiliates of Members or
the Managers who shall have and exercise on behalf of the Company all powers and
rights necessary or convenient to carry out such management responsibilities.
(b) The Manager shall be under no duty to devote all of its time to the
business of the Company, but shall devote only such time as it deems necessary
to conduct the Company business and to operate and manage the Company in an
efficient manner.
(c) The Manager may charge to the Company all ordinary and necessary costs
and expenses, direct and indirect, attributable to the activities, conduct and
management of the business of the Company. The costs and expenses to be borne by
the Company shall include, but are not limited to, all expenditures incurred in
acquiring and financing the Equipment or other Company property, legal and
accounting fees and expenses, salaries of employees of the
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Company, consulting and quality assurance fees paid to independent contractors,
insurance premiums and interest.
(d) The Manager shall serve as Manager until the earlier to occur of its
resignation or removal. If the Manager shall be finally adjudged by a court of
competent jurisdiction to be liable to the Members or the Company for any act of
gross negligence or willful misconduct in the performance of its duties under
the terms of this Agreement, the Manager may be removed and another substituted
with the consent of all of the Physician Members. With the unanimous consent of
the Members, the Manager may also be removed for cause for the following
reasons:
(i) The failure to establish and maintain a quality assurance and outcome
analysis program aimed at improving the quality of care of all Company patients;
(ii) The failure to make adequate and customary arrangements for the
maintenance of the Mobile Lithotripsy System, or to provide for the disposables
and other supplies necessary for Company operations;
(iii) The failure to make reasonable arrangements for the timely billing
for the Company's services and to timely collect for such services;
(iv) The failure to engage drivers and lithotripsy technicians and to
arrange for the engagement of all other nonphysician personnel reasonably
necessary to staff and operate the Mobile Lithotripsy System, including, without
limitation, nurses, secretaries and receptionists;
(v) The failure to establish an Executive Committee;
(vi) The failure to timely make reasonable repairs, replacements,
alterations, additions and improvements to the equipment used in the Mobile
Lithotripsy System; and
(vii) The failure to make reasonable arrangements for the travel and
location itinerary of the Mobile Lithotripsy System in the Service Area.
Consent to the removal of the Manager shall be evidenced by a certificate
of removal signed by all of the Members. In the event of removal, the new
Manager shall succeed to all of the powers, privileges and obligations of the
Manager. The removed Manager shall become a Member and shall maintain its same
Percentage Interest in the Company notwithstanding anything contained in the Act
to the contrary. In addition, in the event of removal, the new Manager shall
take all steps necessary and appropriate to prepare and record an amendment to
the Articles of Organization to reflect the removal of the Manager and the
admission of such new Manager.
3.2 Specific Authority of the Managers. Without limiting the generality of
Section 3.1 above, and except as otherwise prohibited by this Agreement or the
Act, the Manager or Managers shall
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have and exercise on behalf of the Company all powers and rights necessary or
convenient to carry out the purposes of the Company. Such powers shall include,
without limitation, the following:
(a) To acquire a Mobile Lithotripsy System;
(b) To purchase, hold, manage and dispose of Company assets, including the
purchase, exchange, trade, or sale of Company assets at such price, or amount,
for cash, securities or other property and upon such terms, as the Manager deems
to be in the best interests of the Company; provided, that should the Company
assets be exchanged or traded for securities or other property the Manager shall
have the same powers with regard to such property as it does towards the
property traded;
(c) To exercise the option of the Manager or the Company to purchase a
Member's Membership Interest pursuant to Article XI;
(d) To determine the travel itinerary and site locations for the Mobile
Lithotripsy System or other Company technology;
(e) Subject to the limitations set forth in Section 4.1, to acquire (i)
additional Mobile Lithotripter Systems, (ii) any other assets related to the
provision of lithotripsy treatment services, or (iii) any other assets or
equipment or an interest in another entity consistent with the purposes of the
Company as provided in Section 1.5 (collectively, the "Additional Assets"), at
such times and at such price and upon such terms, as the Manager deems to be in
the best interest of the Company;
(f) Subject to the limitations set forth in Section 4.1, to borrow money
for any Company purpose and, if security is required therefor, to subject to any
security device any portion of the Property of the Company, to obtain
replacements of any other security device, to repay, in whole or in part,
refinance, increase, modify, consolidate or extend any Encumbrance or other
security device;
(g) To deposit, withdraw, invest, pay, retain (including the establishment
of reserves) and distribute the Company funds in accordance with the provisions
of this Agreement;
(h) To consent to the modifications, renewal or extension of any
obligations to the Company of any Person or of any agreement to which the
Company is a party or of which it is a beneficiary;
(i) To enter into and carry out contracts and agreements and any or all
other documents and instruments, and to do any and all such other things as may
be in furtherance of Company purposes or necessary or appropriate to the conduct
of the Company activities;
(j) To adjust, compromise, settle or refer to arbitration any claim against
or in favor of the Company, and to institute, prosecute and defend any actions
or proceedings relating to the Company, its business and property;
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(k) To make all decisions related to principles and methods of accounting
and federal income tax elections;
(l) Generally to possess and exercise any and all rights, powers and
privileges of Managers under the Act and the laws of the State of Kentucky;
(m) To do and perform all such other acts and things and to execute,
acknowledge and deliver any and all other documents or instruments in connection
with any or all of the foregoing; and
(n) Subject to the limitations set forth in Section 4.1(j), to engage or
retain one or more persons to perform acts or provide materials as may be
required by the Company, at the Company's expense, and to compensate such person
or persons at a rate to be set by the Manager, provided that the compensation is
at the then prevailing rate for the type of services and materials provided, or
both. Any person, whether a Member, an Affiliate of a Member or otherwise,
including without limitation the Manager, may be employed or engaged by the
Company to render services and provide materials, including, but not limited to,
management services, professional services, accounting services, quality
assessment services, legal services, marketing services, maintenance services or
provide materials; and if such person is a Member or an Affiliate of a Member,
he shall be entitled to, and shall be paid compensation for said services or
materials, anything in this Agreement to the contrary notwithstanding, provided
that the compensation to be received for such services or materials is
competitive in price and terms with then prevailing rate for the type of
services and/or materials provided. The Company, pursuant to the terms of a
Management Agreement, will contract with the Management Agent with respect to
the supervision and coordination of the management and administration of the
day-to-day operations of the Mobile Lithotripsy System for a monthly fee equal
to 7.5% of Company Cash Flow per month. All costs incurred by the Management
Agent in performing its duties as management agent shall be paid by the Company
directly. The Company may also contract with qualified physicians desiring to
use the Mobile Lithotripsy System for treatment of patients. Owning an interest
in the Company shall not be a condition to using the Mobile Lithotripsy System.
The Manager and its Affiliates may engage in or possess an interest in other
business ventures of any nature and description independently or with others,
including, but not limited to, the operation of a mobile lithotripsy treatment
unit similar to the Mobile Lithotripsy System, whether or not such business
ventures are in direct or indirect competition with the Company, and neither the
Company nor the Physician Members shall have any right by virtue of this
Agreement in and to said independent ventures or to the income or profits
derived therefrom.
(o) To cause the Company to engage in a Dilution Offering as provided in
Section 6.4.
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3.3 Specific Authority of Manager. Notwithstanding Sections 3.1 and 3.2,
the Manager shall have and may exercise on behalf of the Company the following
powers:
(a) To prepare or cause to be prepared reports, statements and other
relevant information for distribution to Members; and
(b) To open accounts and deposit and maintain funds in the name of the
Company in banks or savings and loan associations.
3.4 Authority as to Third Persons. Notwithstanding Sections 3.2, 3.3 and
4.5 the signed statement of the Manager reciting that he has the authority or
the necessary approvals of either the Executive Committee or the Members for any
action, as to any third Person, shall be conclusive evidence of the authority of
the Manager to take that action and of compliance with Section 3.2, if
applicable. Each Physician Member will promptly execute instruments determined
by the Manager to be appropriate to evidence the authority of the Manager to
consummate any transaction permitted by this Agreement.
3.5 Compensation and Expenses. The Manager shall not receive any
compensation from the Company for serving as Manager, but all expenses incurred
by the Manager in connection with its service as Manager will be paid or
promptly reimbursed by the Company. Nothing contained in this Section 3.5 is
intended to affect the Percentage Interest of the Manager as a Member or the
amounts that may be payable to the Manager by reason of its respective
Percentage Interests.
3.6 Indemnification and Exculpation of the Manager. The Manager, as the
managing member of the Company, is accountable to the Company as a fiduciary and
consequently must exercise good faith and integrity in handling Company affairs.
The Manager and its Affiliates shall have no liability to the Company which
arises out of any action or inaction of the Manager or its Affiliates if the
Manager or its Affiliates, in good faith, determined that such course of conduct
was in the best interest of the Company and such course of conduct did not
constitute gross negligence or willful misconduct of the Manager or its
Affiliates. The Company shall indemnify the Manager, each officer, director,
employee, agent or Affiliate of the Manager or of any of their officers or
directors (the "Indemnified Persons") against any direct and actual losses,
liabilities, damages or expenses (including court costs and reasonable
attorney's fees but excluding consequential damages) that any of the Indemnified
Persons incur in connection with the Company, but only to the extent that such
Indemnified Person acted in good faith, without gross negligence, or willful
misconduct, and in a manner reasonably believed to be in the best interests of
the Company. Any attorney's fees or other litigation expenses incurred by an
Indemnified Person shall be advanced to such Indemnified Person within 30 days
of receipt of a written demand therefor, together with an undertaking by or on
behalf of the Indemnified Person to repay to the Company such amount if it is
ultimately determined that the Indemnified Person is not entitled to be
indemnified by the Company pursuant to this Section 3.6.
3.7 Liability for Return of Capital Contribution. The Manager shall not be
liable for the return of the Capital Contributions of the Physician Members, and
upon dissolution, the Physician Members shall look solely to the assets of the
Company.
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ARTICLE IV - EXECUTIVE COMMITTEE
4.1 General Powers. The business and affairs of the Company shall be
managed under the direction of the Manager; provided, however, that without the
prior written consent of the Executive Committee, the Manager shall have no
authority to do any of the following:
(a) The refinancing of any Company indebtedness, or the incurrence of
additional Company indebtedness, in excess of $100,000;
(b) A capital expenditure by the Company, other than out of the initial
Offering proceeds, in excess of $100,000, including the acquisition by the
Company of one or more additional Mobile Lithotripsy Systems or other urological
equipment;
(c) The institution and carrying out any plan of merger, consolidation or
sale of all the Membership Interests or the Company as set forth in Section
10.6;
(d) The voluntary dissolution of the Company;
(e) The disposition of all or substantially all of the Company's assets;
(f) Doing any act in contravention of this Agreement;
(g) Possessing or in any manner dealing with the Company's Property or
assigning the rights of the Company in the Company's Property for other than
Company purposes;
(h) Amending this Agreement;
(i) Expanding the Service Area beyond the boundaries of the State of
Kentucky;
(j) With the exception of the Management Agreement (including renewals
thereof) and the Sales Agency Agreement, authorize or make payment of any salary
or other compensation to, or enter into any contract, agreement or other
arrangement with, any Affiliate of the Manager; and
(k) Confessing a judgment against the Company in connection with any
threatened or pending legal action.
4.2 Number, Term and Qualification. The Executive Committee shall be
appointed by the Manager and shall consist of four Physician Members and a
representative of the Manager who need not be a Member. Each member of the
Executive Committee shall continue to hold office until his or her death,
resignation or removal and replacement by the Manager.
4.3 Removal and Replacement. The Manager may remove and replace one or more
of the Executive Committee members at any time, with or without cause, provided,
however, that written
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notice of such removal and replacement must be given to the Executive Committee
and all Physician Members at least five (5) days before the effective date of
removal and replacement.
4.4 Compensation and Expenses. The members of the Executive Committee shall
not receive compensation for their services as such, but all expenses incurred
by the members of the Executive Committee in connection with their service as
such will be paid or promptly reimbursed by the Company. Any member of the
Executive Committee may serve the Company in any other capacity and receive
compensation therefore.
4.5 Action by the Executive Committee. Any action to be taken by the
Executive Committee under this Agreement may be taken at a meeting of the
Executive Committee held on such terms, and after such notice as the Manager may
establish; provided, however, that notice of a meeting of the Executive
Committee must be given to all Members entitled to vote at the meeting at least
five (5) days before the date of the meeting. All of the members of the
Executive Committee in office shall constitute a quorum for the transaction of
business at a meeting of the Executive Committee, and the affirmative vote of a
majority of such members shall constitute the act of the Executive Committee,
unless a different affirmative vote is otherwise specifically provided for
herein. An Executive Committee member who is present at a meeting of the
Executive Committee at which action on any Company matter is taken is deemed to
have assented to the action taken unless he or she objects at the beginning of
the meeting (or promptly upon arrival) to the holding, or transacting of
business at, the meeting, or unless his or her dissent or abstention is entered
in the minutes of the meeting or unless he or she shall file written notice of
his or her dissent or abstention to such action with the presiding officer of
the meeting before its adjournment or with the Manager immediately after
adjournment of the meeting. The right of dissent or abstention shall not apply
to a member of the Executive Committee who voted in favor of such action.
4.6 Action Without Meeting. Unless otherwise provided in this Agreement,
any action required or permitted to be taken at a meeting of the Executive
Committee may be taken without a meeting if the action is taken by all members
of the Executive Committee. Such action must be evidenced by one or more written
consents signed by each member before or after such action, describing the
action taken, and included in the records of the Company. Action taken without a
meeting is effective when the last director signs the consent, unless the
consent specifies a different effective date.
4.7 Meeting by Communications Device. Unless otherwise provided in this
Agreement, the Executive Committee may permit any or all members to participate
in a meeting by, or conduct the meeting through the use of, any means of
communication by which all members participating may simultaneously hear each
other during the meeting. A member participating in a meeting by this means is
deemed to be present in person at the meeting.
4.8 Indemnification of Executive Committee Members. The Executive Committee
and its members shall have no liability to the Company which arises out of any
action or inaction of the Executive Committee if the Executive Committee and its
members in good faith determined that such course of conduct was in the best
interest of the Company and such course of conduct did not constituted gross
negligence or willful misconduct of the Executive Committee and its members. The
Company
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shall indemnify the members of the Executive Committee against any direct and
actual losses, liabilities, damages or expenses (including court cost and
reasonable attorney's fees but excluding consequential damages) that any of the
members incur in connection with the Company but only to the extent that such
member acted in good faith, without gross negligence, and in a manner reasonably
believed to be in the best interests of the Company. Any attorney's fees or
other litigation expenses incurred by a member of the Executive Committee member
shall be advanced to such member within thirty (30) days of receipt of a written
demand therefor, together with an undertaking by or on behalf of the member to
repay to the Company such amount if it is ultimately determined that such member
is not entitled to be indemnified by the Company pursuant to this Section 4.8.
4.9 Liability for Return of Capital Contribution. The Executive Committee
and its members shall not be liable for the return of the Capital Contributions
of the Members, and upon dissolution, the Members shall look solely to the
assets of the Company.
ARTICLE V - RIGHTS AND OBLIGATIONS OF MEMBERS
5.1 Names and Addresses of Members. The names, addresses and Percentage
Interests of the Members are as reflected in Schedule I attached hereto and made
a part hereof, which Schedule shall be amended by the Company upon the effective
date of any Transfer or subsequent issuance of any Membership Interest.
5.2 No Management by Members. The Members in their capacity as Members
shall not take part in the management or control of the business, nor transact
any business for the Company, nor shall they have power to sign for or to bind
the Company. The Company may, however, contract with one or more Members to act
as the local Medical Director for the Mobile Lithotripsy System. No Member may
withdraw from the Company except as expressly permitted herein.
5.3 Election of Manager. PKST shall serve as the initial Manager of the
Company. The Members shall have the power to remove and replace the Manager as
set forth in Section 3.1(d).
5.4 Action by Members. Any action to be taken by the Members under the Act
or this Agreement may be taken (i) at a meeting of the Members held on such
terms, and after such notice as the Manager may establish; provided, however,
that notice of a meeting of Members must be given to all Members entitled to
vote at the meeting at least five (5) days before the date of the meeting, or
(ii) by written action of a Majority in Interest of the Members; provided,
however, that any action requiring the consent of all Members under the Act or
this Agreement taken by written action must be signed by all Members. No notice
need be given of action proposed to be taken by written action, or an approval
given by written action, unless specifically required by this Agreement or the
Act. Such written actions must be kept with the records of the Company.
5.5 Operation of Mobile System. The Members shall not operate or utilize
the Mobile Lithotripsy System or other Company equipment except pursuant to (i)
an agreement with the Company; or (ii) any other arrangement specifically
approved by the Manager.
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5.6 Outside Activities. The Physician Members agree that they owe fiduciary
duties to the Company and, as a consequence, each Physician Member agrees that
he or she shall not engage in "Outside Activities" (as defined below) in the
"Market Area" (as defined below) while he or she is a Member of the Company. The
phrase "Outside Activities" means directly or indirectly owning, leasing or
subleasing Mobile Lithotripsy System (or any similar equipment or competing
devices used for lithotripsy of renal stones) or any other therapeutic equipment
acquired by the Company. Prohibited indirect ownership shall include the direct
or indirect ownership of any interest in a business venture (through stock
ownership, partnership interest ownership, ownership by or through a close
family member, or as otherwise determined in good faith by the Manger) involving
the ownership, purchase, lease, sublease, promotion, management or operation of
a Mobile Lithotripsy System (or similar equipment or competing devices used for
lithotripsy of renal stones), or other competing device or equipment, unless the
Manager determines that such activity by the Physician Members is not
detrimental to the best interests of the Company.
Upon the termination or transfer of a Physician Member interest in the
Company for any reason, including a transfer pursuant to Section 11.3 hereof,
the withdrawing Physician Member shall not, for a period of two (2) years
following the date of his or her withdrawal, engage in any Outside Activities in
any "Market Area" in which the Company is transacting business or within the
prior twelve months has transacted business (the "Restricted Facilities"). For
the purposes of this Section 5.6, the term "Market Area" shall mean (i) the area
within a fifty mile radius of any Restricted Facility, but if such area is
determined by a court of competent jurisdiction to be too broad, then it shall
mean (ii) the area within a twenty-five mile radius of any Restricted Facility,
but if such area is determined by a court of competent jurisdiction to be too
broad then it shall mean (iii) the area within a ten mile radius of any
Restricted Facility.
In the event a Physician Member wishes and intends to engage in an Outside
Activity in a Market Area, he or she must provide written notice of such intent
to the Manager prior to engaging in the Outside Activity. The written notice
shall be deemed an election by the Physician Member to withdraw from the Company
(the "Notice of Withdrawal"), and shall give the Manager the purchase rights as
provided in Section 11.3 hereof. After the Notice of Withdrawal, the former
Physician Member may engage in an Outside Activity in the Market Area only after
waiting the period of two years specified in this Section 5.6. In the event of
breach of the waiting period, the Company shall be entitled to any remedy at law
or equity with respect to such breach, including without limitation an
injunction or suit for damages.
If a Physician Member during his or her participating in the Company
engages in an Outside Activity in a Market Area without first notifying the
Manager in violation of this Section 5.6, the Physician Member shall be deemed
to have given a Notice of Withdrawal on the date the Manager first becomes aware
of the Physician Member's Outside Activity in the Market Area. Upon receiving a
Physician Member's Notice of Withdrawal or equivalent thereof, the Company may
invoke the purchase rights provided in Section 11.3 and shall be entitled to any
other remedy at law or equity including without limitation and injunction or
suit for damages.
5.7 Disclosure of Confidential Information. Each Physician Member
acknowledges and agrees that his or her participation in the Company under this
Agreement necessarily involves his or her
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understanding of and access to certain trade secrets and other confidential
information pertaining to the business of the Company. Accordingly, each
Physician Member agrees that at all times during his or her participation in the
Company as a Member and thereafter, he or she will not, directly or indirectly,
without the express written authority of the Company, unless required by law or
directed by a applicable legal authority having jurisdiction over the Physician
Member, disclose or use for the benefit of any person, corporation or other
entity (other than the Company), or himself or herself, (i) any trade,
technical, operational, management or other secrets, any patient or customer
lists or other confidential or secret data, or any other proprietary,
confidential or secret information of the Company or (ii) any confidential
information concerning any of the financial arrangements, financial positions,
hospital or physician contracts, third party payor arrangements, quality
assurance and outcome analysis programs, competitive status, customer or
supplier matters, internal organizational matters, technical abilities, or other
business affairs of or relating to the Company. The Physician Members
acknowledge that all of the foregoing constitutes proprietary information, which
is the exclusive property of the Company. In the event of breach of this Section
5.7 as determined by the Manager, the Company shall be entitled to any remedy at
law or equity with respect to such breach, including without limitation, an
injunction or suit for damages.
5.8 Limited Liability. No Members shall be required to make any
contribution to the capital of the Company except as set forth in Article VI,
nor shall any Member in his or her capacity as such be bound by, or personally
liable for, any expense, liability or obligation of the Company except to the
extent of his or her (i) interest in the Company, (ii) Guaranties of Company
obligations, and (iii) obligation to return Distributions made to him or her
under certain circumstances as required by the Act.
ARTICLE VI - CAPITAL CONTRIBUTIONS,
GUARANTIES AND DILUTION OFFERINGS
6.1 Manager Contribution. On or before the date of this Agreement, the
Manager will contribute to the capital of the Company cash in an amount equal to
20% (up to $50,000) of the total cash contributed to the Company by the Members
in the Offering made pursuant to the Memorandum.
6.2 Physician Members Contribution. Each Physician Member hereby agrees to
contribute and shall contribute to the capital of the Company on the date of his
or her admission to the Company the cash amount set forth opposite his or her
name on Schedule I attached hereto.
6.3 No Interest. Except as otherwise provided herein, no interest shall be
paid on any contribution to the capital of the Company.
6.4 Dilution Offerings. As provided in Section 4.1(a), Manager may, from
time to time, cause the Company to issue, offer and sell additional Membership
Interests in the Company (a "Dilution Offering") to local urologists who are not
already Members ("Qualified Investors"). The primary purpose of any Dilution
Offering would be (i) to raise additional capital for any legitimate Company
purpose as set forth in Section 1.5 and (ii) to assure the highest quality of
patient care by admitting Qualified Investors to the Company who would be
dedicated and motivated as owners to follow the Company's treatment protocol,
and comply with its quality assurance and outcome analysis programs.
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Any Membership Interests offered by the Company in a Dilution Offering shall be
sold in the manner and according to the terms prescribed in the sole discretion
of the Manager; provided, however, that any additional Membership Interests
offered in a Dilution Offering will be sold for a price no lower than the
highest price for which proportionate Membership Interests in the Company have
been previously sold by the Manager. Any sale of additional Membership Interests
will result in the proportionate dilution of the Company Percentage Interests of
the existing Members. Any investor acquiring a Membership Interest in a Dilution
Offering shall agree to be bound by the terms of this Agreement, and shall be
automatically admitted as a Member of the Company notwithstanding any other
provisions in this Agreement to the contrary. Any adjustment in the Members'
Percentage Interests resulting from a Dilution Offering shall be set forth on
Schedule I attached hereto.
6.5 Conditions to the Capital Contributions of the Physician Members. The
obligation of the Physician Members to make cash Capital Contributions hereunder
are subject to the condition that the representations, warranties, agreements
and covenants of the Manager set forth in Article VII of this Agreement are and
shall be true and correct or have been and will have been complied with in all
material respects on the date such Capital Contributions are required to be
made, except to the extent that any such representation or warranty expressly
pertains to an earlier date.
6.6 Capital Accounts. A Capital Account shall be established for each Member and
shall be credited with each Member's Capital Contributions pursuant to Sections
6.1 and 6.2. All contributions of property to the Company by a Member shall be
valued and credited to the Member's Capital Account at such property's gross
fair market value on the date of contribution as determined by the contributing
Member and the Manager. All distributions of Property to the Member by the
Company shall be valued and debited against the Member's Capital Account at such
Property's gross fair market value on the date of distribution as determined by
the Manager. Each Member's Capital Account shall at all times be determined and
maintained pursuant to the principles of this Section 6.6 and Treasury
Regulations Section 1.704-1(b)(2)(iv). A Member shall not be entitled to
withdraw any part of his or her Capital Account except as otherwise specifically
provided herein. Each Member's Capital Account shall be increased in accordance
with such Regulations by:
(i) The amount of Profits allocated to the Member pursuant to this Agreement;
(ii) The amount of all Gains From Capital Transactions allocated to the Member
pursuant to this Agreement; and
(iii) The amount of any Company liabilities assumed by the Member or which are
secured by any Company property distributed to such Member.
Each Member's Capital Account shall be decreased in accordance with such
Regulations by:
(i) The amount of Losses allocated to the Member pursuant to this
Agreement;
(ii) The amount of Company Cash Flow distributed to the Member pursuant to
this Agreement;
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(iii) The amount of Company Sales Proceeds and Company Refinancing Proceeds
distributed to the Member pursuant to this Agreement; and
(iv) The amount of any liabilities of the Member assumed by the Company or
which are secured by any property contributed by such Member to the Company.
In addition, each Member's Capital Account shall be subject to such other
adjustments as may be required in order to comply with the capital account
maintenance requirements of Section 704(b) of the Code.
In the event that the Manager shall determine that it is prudent to modify
the manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities that
are secured by contributed or distributed property or that are assumed by the
Company or the Members), are computed in order to comply with such Treasury
Regulations, the Manager may make such modification, provided that it is not
likely to have a material effect on the amounts distributable to any Member upon
dissolution of the Company. The Manager also shall (i) make any adjustments that
are necessary or appropriate to maintain equality between the Capital Accounts
of the Members and the amount of Company capital reflected on the Company's
balance sheet, as computed for book purposes, in accordance with Treasury
Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Treasury Regulations Section 1.704-1(b).
ARTICLE VII - REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE MANAGER
7.1 Manager's Representations and Warranties. The Manager hereby represents
and warrants to the Physician Members that:
(a) The Company is a limited liability company formed in accordance with
and validly existing under the Act and the other applicable laws of the State of
Kentucky;
(b) The interest in the Company of the Physician Members will have been
duly authorized or created and validly issued and the Physician Members shall
have no personal liability to contribute money to the Company other than the
amounts agreed to be contributed by them in the manner and on the terms set
forth in this Agreement, subject, however, to such limitations as may be imposed
under the Act;
(c) No material breach or default adverse to the Company exists under the
terms of any other material agreement affecting the Company; and
(d) The Manager is a New Jersey corporation formed and existing under the
laws of the State of New Jersey.
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7.2 Manager's Covenants. The Manager hereby covenants to the Physician
Members that:
(a) It will at all times act in a fiduciary manner with respect to the
Company and the Physician Members.
(b) Except as provided in Articles III and XI, it will serve as the Manager
of the Company until the Company is terminated without reconstitution; and
(c) It will cause the Company to carry adequate public liability, property
damage and other insurance as is customary in the business to be engaged in by
the Company.
ARTICLE VIII - ALLOCATIONS, ELECTIONS AND REPORTS
8.1 Profits and Losses.
(a) Except as otherwise provided herein, Profits and Losses of the Company
and all items of tax credit and tax preference shall be allocated among the
Members in accordance with their respective Percentage Interests. In the event
the Percentage Interests vary during any Fiscal Year, Profits and Losses and all
items of tax credit and tax preference for such Fiscal Year shall be allocated
among the Members as provided in Section 8.5 below.
(b) Losses allocated pursuant to this Section 8.1 shall not exceed the
maximum amount of Losses that can be so allocated without causing any Member to
have an Adjusted Capital Account Deficit at the end of any Fiscal Year. In the
event some but not all of the Members would have Adjusted Capital Account
Deficits as a consequence of an allocation of Losses pursuant to this
Section 8.1, the limitation set forth in this Section 8.1 shall be applied on a
Member by Member basis so as to allocate the maximum possible Losses to each
Member under Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
8.2 Sales Commission. The Sales Commission shall be allocated to the
Physician Members holding Units to the extent such Physician Members paid the
Sales Commission, and in proportion to their respective capital contributions
represented by such Units (i.e., $250 in Sales Commission per each such Unit).
The purpose of this Section 8.2 is to allocate the Sales Commission to those
Members who actually bore the burden of paying the Sales Commission.
8.3 Nonrecourse Deductions. Nonrecourse Deductions shall be allocated among
the Members in accordance with their respective Percentage Interests.
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8.4 Member Nonrecourse Deductions. Any Member Nonrecourse Deductions shall
be specially allocated to the Member who bears the economic risk of loss with
respect to the Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Treasury Regulations Section
1.704-2(i).
8.5 Allocations Between Transferor and Transferee. In the event of the
transfer of all or any part of a Member's Membership Interest (in accordance
with the provisions of this Agreement) at any time other than at the end of a
Fiscal Year, the change in any Member's Percentage Interest or the admission of
a new Member (in accordance with the terms of this Agreement), the transferring
Member or new Member's share of the Company's income, gain, loss, deductions and
credits, as computed both for accounting purposes and for federal income tax
purposes, shall be allocated between the transferor Member and the transferee
Member, or the new Member and the other Members, as the case may be, in the same
ratio as the number of days in such Fiscal Year before and after the date of the
transfer or admission; provided, however, that if there has been a sale or other
disposition of the assets of the Company (or any part thereof) during such
Fiscal Year, then upon the mutual agreement of all the Members (excluding the
new Member and the transferring Member), the Company shall treat the periods
before and after the date of the transfer or admission as separate Fiscal Years
and allocate the Company's net income, gain, net loss, deductions and credits
for each of such deemed separate Fiscal Years of the Company. Notwithstanding
the foregoing, the Company's "allocable cash basis items," as that term is used
in Section 706(d)(2)(B) of the Code, shall be allocated as required by Section
706(d)(2) of the Code and the Treasury Regulations thereunder.
8.6 Gains from Capital Transactions. Gains from Capital Transactions during
any Fiscal Year shall be allocated as follows:
(a) First, to those Members whose Capital Accounts immediately prior to the
Capital Transaction were negative, in an amount sufficient to increase the
Capital Accounts to zero, but in the event sufficient gain is not recognized to
do so, then among them pro rata in proportion to their negative Capital
Accounts;
(b) Second, to the Members in an amount equal to the difference between the
Company Sales Proceeds to be distributed to each of the Members as provided in
Section 8.3 and the Capital Accounts of each respective Member as adjusted (if
necessary) by paragraph (a) above, but in the event sufficient gain is not
recognized to do so, then among the Members in an amount which, when credited to
the Capital Accounts of the Members, results in the Members' Capital Accounts
bearing the same ratio to one another as the ratio of the distribution of
Company Sales Proceeds to each of the Members, as provided in Section 9.3; and
thereafter
(c) Any remaining gain shall be allocated among the Members in accordance
with their respective Percentage Interests as of the date of the Capital
Transaction giving rise to the gain.
8.7 Contributed Property. In accordance with Code Section 704(c) and the
Treasury Regulations thereunder, income, gain, loss and deduction with respect
to any property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take
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account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its initial Gross Asset Value at the
time of contribution.
Any elections or other decisions relating to such allocations shall be made
by the Members in any manner that reasonably reflects the purpose and intention
of this Agreement. Allocations pursuant to this Section 8.7 are solely for
purposes of federal, state and local taxes and shall not affect, or in any way
be taken into account in computing, any Member's Capital Account or share of
Profits, Losses, other items or Distributions pursuant to any provision of this
Agreement.
8.8 Minimum Gain Chargeback. If there is a net decrease in Company Minimum
Gain during any Fiscal Year, each Member shall be specially allocated items of
Company income and gain for such Fiscal Year (and, if necessary, subsequent
years) in an amount equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulation Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Treasury Regulations Sections 1.704-2(f) and 1.704- 2(j)(2). This Section
8.8 is intended to comply with the minimum gain chargeback requirement in
Treasury Regulation 1.704-2(f) and shall be interpreted consistently therewith.
8.9 Member Minimum Gain Chargeback. If there is a net decrease in Member
Minimum Gain attributable to a Member Nonrecourse Debt, as defined in Treasury
Regulation Section 1.704- 2(i)(4), during any Fiscal Year, each Member who has a
share of the Member Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Treasury Regulation Section 1.704-2(i)(5), shall
be specially allocated items of Company income and gain for such Fiscal Year
(and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's
share of the net decrease in Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulation Section
1.704-2(i)(4) and (5). Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to be allocated to each
Member pursuant thereto. The items to be so allocated shall be determined in
accordance with Treasury Regulations Section 1.704-2(i)(4). This Section 8.8 is
intended to comply with the Member Minimum Gain chargeback requirement in
Treasury Regulation Section 1.704(i)(4) and shall be interpreted consistently
therewith.
8.10 Qualified Income Offset. If any Member unexpectedly receives an
adjustment, allocation or distribution as described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4) through (6) which causes or increases a deficit
Capital Account balance in such Member's Capital Account (as determined in
accordance with such Regulation), items of Company income and gain shall be
specially allocated to each such Member in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of such Member as quickly as possible, provided that an
allocation pursuant to this Section 8.10 shall be made if and only to the extent
that such Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article VII have been tentatively made as if
this Section 8.10 were not in this Agreement. This provision is intended to be a
"qualified income offset," as defined in Treasury Regulation Section 1.704-
1(b)(2)(ii)(d), such Regulation being specifically incorporated herein by
reference.
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8.11 Gross Income Allocation. In the event any Member has a deficit Capital
Account at the end of any Fiscal Year which is in excess of the sum of (i) the
amount such Member is obligated to restore, and (ii) the amount such Member is
deemed to be obligated to restore pursuant to the penultimate sentences of
Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member
shall be specially allocated items of Company income and gain in the amount of
such excess as quickly as possible, provided that an allocation pursuant to this
Section 8.11 shall be made if and only to the extent that such Member would have
a deficit Capital Account in excess of such sum after all other allocations
provided for in this Article VIII have been tentatively made as if this Section
8.11 and Section 8.10 hereof were not in this Agreement.
8.12 Section 754 Adjustment. To the extent an adjustment to the adjusted
tax basis of any Company asset pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Treasury Regulations Section 1.704-
1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as
the result of a Distribution to a Member in complete liquidation of his interest
in the Company, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Members in accordance with their interests in the
Company in the event that Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2)
applies, or to the Members to whom such distribution was made in the event that
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
8.13 Curative Allocations. The allocations set forth in Sections 8.1(b),
8.2, 8.3, 8.7, 8.8, 8.9, 8.10, 8.11 hereof (the "Regulatory Allocations") are
intended to comply with certain requirements of the Treasury Regulations. It is
the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss or deduction
pursuant to this Section 8.13. Therefore, notwithstanding any other provision of
this Article VIII (other than the Regulatory Allocations), the Managers shall
make such offsetting special allocations of Company income, gain, loss or
deduction in whatever manner they determine appropriate so that, after such
offsetting allocations are made, each Member's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Member would have
had if the Regulatory Allocations were not part of the Agreement and all Company
items were allocated pursuant to Section 8.1(a). In exercising their discretion
under this Section 8.13, the Managers shall take into account future Regulatory
Allocations under Sections 8.7 and 8.8 that, although not yet made, are likely
to offset other Regulatory Allocations previously made under Sections 8.2 and
8.3.
8.14 Compliance with Treasury Regulations. The above provisions of this
Article VIII notwithstanding, it is specifically understood that the Manager may
without the consent of any Member make such elections, tax allocations and
adjustments, including amendments to this Agreement, as the Manager deem
necessary or appropriate to maintain to the greatest extent possible the
validity of the tax allocations set forth in this Agreement, particularly with
regard to Treasury Regulations under Code Section 704(b).
8.15 Tax Withholding. The Company shall be authorized to pay, on behalf of
any Member, any amounts to any federal, state or local taxing authority, as may
be necessary for the Company to
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comply with tax withholding provisions of the Code or other income tax or
revenue laws of any taxing authority. To the extent the Company pays any such
amounts that it may be required to pay on behalf of a Member, such amounts shall
be treated as a cash Distribution to such Member and shall reduce the amount
otherwise distributable to such Member.
ARTICLE IX - DISTRIBUTIONS
9.1 Company Cash Flow. Company Cash Flow for each Fiscal Year, to the
extent available, shall be distributed to the Members within 60 days of the end
of each Fiscal Year, or earlier in the discretion of the Manager, in accordance
with the Members respective Percentage Interests at the time of the
distribution.
9.2 Company Refinancing Proceeds. Company Refinancing Proceeds, to the
extent available, shall be distributed to the Members within 60 days of the
Capital Transaction giving rise to such proceeds, or earlier in the discretion
of the Managers, in accordance with the Members respective Percentage Interests
at the time of the distribution.
9.3 Company Sales Proceeds. Company Sale Proceeds, to the extent available
shall be distributed to the Members within 60 days of the Capital Transaction
giving rise to such proceeds, or earlier, in the discretion of the Manager, in
accordance with the Members respective Percentage Interests at the time of the
distribution.
9.4 Distributions in Liquidation. Upon liquidation of the Company, all the
Company's Property shall be liquidated or distributed as provided in Section
12.3 and Profits and Losses allocated accordingly. Proceeds from the liquidation
of the Company shall be distributed in accordance with the provisions of Section
12.3.
9.5 Limitation Upon Distributions. No Distribution shall be declared and
paid if payment of such Distribution would cause the Company to violate any
limitation on distributions provided in the Act.
ARTICLE X - TRANSFER OF INTERESTS AND ADMISSION OF MEMBERS
10.1 Transferability of Membership Interests.
(a) The term "transfer" when used in this Agreement with respect to a
Membership Interest includes a sale, assignment, gift, pledge, exchange, or any
other disposition (but does not include the issuance of new Membership Interests
pursuant to a Dilution Offering);
(b) Except as otherwise provided herein, the Manager shall not at any time
transfer or assigning its interest or obligation as Manager;
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(c) The Membership Interest of any Physician Member shall not be
transferred, in whole or in part, except in accordance with the conditions and
limitations set forth in Section 10.2 or Article XI;
(d) The transferee of a Membership Interest by assignment, operation of law
or otherwise, shall have only the rights, powers and privileges enumerated in
Section 10.3 or otherwise provided by law and may not be admitted to the Company
as a Member except as provided in Section 10.4;
(e) Notwithstanding any provision herein to the contrary, this Agreement
shall in no way restrict the issuance or transfers of stock of the Manager; and
(f) Notwithstanding any provision herein to the contrary, the issuance of
Membership Interests pursuant to a Dilution Offering and the admission of new
Members pursuant to a Dilution Offering shall be governed by the provisions of
Section 6.4 of this Agreement.
10.2 Restrictions on Transfers by Physician Members.
(a) All or part of a Membership Interest may be transferred by a Physician
Member only with the prior written approval of the Manager, which approval may
be granted or denied in its sole discretion.
(b) The Manager shall not approve any transfer of a Membership Interest,
except a pledge of any Membership Interest by the Manager to any bank, insurance
company or other financial institution to secure payment of indebtedness (a
"Permitted Pledge"), or otherwise unless the proposed transferee shall have
furnished the Manager with a sworn statement that:
(i) The proposed transferee proposes to acquire his or her Membership
Interest as a principal, for investment and not with a view to resale or
distribution;
(ii) The proposed transferee meets such requirements regarding
sophistication, income and net worth as required by applicable state and federal
securities laws;
(iii) The proposed transferee has met such net worth and income suitability
standards as have been established by the Manager;
(iv) The proposed transferee recognizes that investment in the Company
involves certain risks and has taken full cognizance of and understands all of
the risk factors related to the purchase of a Membership Interest; and
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(v) The proposed transferee has met all other requirements of the Manager
for the proposed transfer.
(c) Other than in the case of a Permitted Pledge, a transfer of a
Membership Interest may be made only if, prior to the date thereof, the Company
upon request receives an opinion of counsel, satisfactory in form and substance
to the Manager, that neither the offering nor the proposed transfer will require
registration under federal or applicable state securities laws or regulations.
10.3 Rights of Transferee. Unless admitted to the Company as a Member in
accordance with Section 10.4, the transferee of a Membership Interest or a part
thereof or any right, title or interest therein (including any transferee having
an interest in a Membership Interest as a result of a Permitted Pledge) shall
not be entitled to any of the rights, powers, or privileges of his or her
predecessor in interest, except that (s)he shall be entitled to receive and be
credited or debited with his or her proportionate share of Company Profits,
Losses, Gains from Capital Transactions, Company Cash Flow, Company Sales
Proceeds, Company Refinancing Proceeds and Distributions in liquidation.
10.4 Admission of Members. Except as otherwise provided in Section 6.4 and
Article XI, the Manager, or the transferee of all or part of the Membership
Interest of a Member, may be admitted to the Company as a Member upon furnishing
to the Manager all of the following:
(a) The written approval of a Majority in Interest of the Physician Members
(except the assignor Member), or the assignor Members alone, which approval may
be granted or denied in the sole discretion of such Members or Member (as the
case may be);
(b) The written approval of the Manager, which approval may be granted or
denied in the sole discretion of the Manager;
(c) Acceptance, in a form satisfactory to the Manager, of all the terms and
conditions of this Agreement and any other documents required in connection with
the operation of the Company pursuant to the terms of this Agreement;
(d) If the transferee is a corporation, a certified copy of a resolution of
its Board of Directors authorizing it to become a Member under the terms and
conditions of this Agreement;
(e) A properly executed power of attorney substantially identical to that
contained in Section 13.15;
(f) Such other documents or instruments as may be required in order to
effect his or her admission as a Member; and
(g) Payment of such reasonable expenses as may be incurred in connection
with his or her admission as a Member.
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10.5 Amendment of Articles of Organization and Certificate of
Qualification. The Manager shall take all steps necessary and appropriate to
prepare and record any amendments to the Articles of Organization, as may be
necessary or appropriate from time to time to comply with the requirements of
the Act, and shall take all steps necessary and appropriate to prepare and
record any and all documents necessary to qualify the Company to do business in
jurisdictions where the Company is doing business, any may for these purposes
exercise the power of attorney delivered to the Company pursuant to Sections
10.4 and 13.15.
10.6 Fundamental Changes. As provided in Section 4.1(c), if the Manager and
the Executive Committee approve a plan providing for the merger or consolidation
of the Company with another person or entity, or the sale of all or
substantially all of the Membership Interests, including without limitation the
exchange of Membership Interests for equity interests in another person or
entity or for cash or other consideration or combination thereof, then and in
such event, the Members shall be obligated to take or refrain from taking, as
the case may be, such actions as the plan may provide, including, without
limitations, executing such instruments, and providing such information as the
Manager shall reasonably request. Any plan described in this Section 10.6 may
also effect an amendment to the Operating Agreement or the adoption of a new
operating agreement in connection with the merger of the Company with another
person or entity as provided in Section 275.360 of the Act. The plan may also
provide that the Manager and its Affiliates shall receive fees for services
rendered in connection with the operation of the Company or any successor entity
following the consummation of the transactions described in the plan, and
neither the Company nor the Members shall have any right by virtue of this
Agreement in the income derived therefrom. Any securities or other consideration
to be distributed to the Members pursuant to the plan shall be distributed in
the manner set forth in Section12.3 as though the Company were being liquidated.
For this purpose only, the fair market value of the securities or other
consideration to be received pursuant to the plan shall be treated as "Profits"
and the capital accounts of the Members shall be increased in the manner
provided in Section 6.6. No Member shall be entitled to any appraisal or similar
rights in connection with a plan contemplated by this Section 10.6.
ARTICLE XI - OPTIONAL PURCHASE OF MEMBERSHIP INTERESTS ON CERTAIN EVENTS
11.1 Death. Upon the death of a Physician Member, the deceased Physician
Member's executor, administrator, or other legal or personal representative
shall give written notice of that fact to the Membership. The Manager shall have
the option to purchase at the Closing (as defined below) the Membership Interest
of the deceased Physician Member (whose executor, administrator or other legal
or personal representative shall then become obligated to sell such Membership
Interest) at the price determined in the manner provided in Section 11.6 of this
Agreement and on the terms and conditions provided in Section 11.7 of this
Agreement. The Manager shall have a period of thirty (30) days following the
date it first received notice of the death of the Physician (the "Option
Period") within which to notify in writing the deceased Physician's executor,
administrator or other legal or personal representative, whether the Manager
desires to purchase all or a portion of the Membership Interest of the deceased
Member. If the Manager does not elect to purchase the entire Membership Interest
of the deceased Physician Member before the expiration of the Option Period and
in the manner provided
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herein, the portion of the Membership Interest not purchased shall be held by
the deceased Physician Member's executor, administrator or other legal
representative pursuant to the terms of this Agreement. The Manager, in its sole
discretion, may elect to assign its rights to purchase the Membership Interest
of a deceased Physician Member under this Section 11.1 to the Company and, in
such case, the Company shall have the same rights as provided for the Manager
under this Section 11.1.
11.2 Bankruptcy, Insolvency or Assignment for Benefit of Creditors of a
Physician Member. In the event that an involuntary or voluntary proceeding under
the Federal Bankruptcy Code, as amended, is filed for or against any Physician
Member, or if any Physician Member shall make an assignment for the benefit of
his or her creditors, or if any Physician Member has a receiver or custodian
appointed for his assets, or any Physician Member generally fails to pay his or
her debts when due, the insolvent Physician Member shall give written notice
(the "Notice of Insolvency") to the Manager of the commencement of any such
proceeding or the occurrence of such event within five days of the first notice
to him or her of such commencement or occurrence of such event. The Manager
shall have the option to purchase at the Closing (as defined below) the
Membership Interest of the insolvent Physician Member (which insolvent Physician
Member or his trustee, custodian, receiver or other personal or legal
representative, as the case may be, shall then become obligated to sell such
Membership Interest) at the price determined in the manner provided in
Article 11.6 of this Agreement and on the terms and conditions provided in
Article 11.7 of this Agreement. The Manager shall have a period of thirty (30)
days following the date of either the Notice of Insolvency, or if such formal
notice is not given, the date the Manager first becomes aware of the financial
condition of the Physician Member as outlined in this Article 11.2 (the "Option
Period"), within which to notify in writing the insolvent Physician Member or
his trustee, custodian, receiver, or other legal or personal representative,
whether the Manager wishes to purchase all or a portion of the Membership
Interest of the insolvent Physician Member. If the Manager does not elect to
purchase the entire Membership Interest of the insolvent Physician Member before
the expiration of the Option Period and in the manner provided herein, the
portion of the Membership Interest not purchased shall be held by the insolvent
Member, his trustee, custodian, receiver or other legal or personal
representative pursuant to the terms of this Agreement. The Manager, in its sole
discretion, may elect to assign its rights to purchase the Membership Interest
of an insolvent Physician Member under this Section 11.2 to the Company and, in
such case, the Company shall have the same rights as provided for the Manager
under this Section 11.2.
11.3 Breach of Section 5.6. In the event the Manager either receives a
Notice of Withdrawal as provided in Section 5.6 or receives notice of a breach
of Section 5.6 by a Physician Member (the "Defaulting Physician Member"), the
Manager may elect, in its sole discretion, to treat such event as a default
under this Agreement and enforce the provisions of this Section 11.3. If the
Manager elects to enforce the provisions of this Section 11.3, the Manager shall
give written notice of such election (the "Notice of Default") to the Defaulting
Physician Member within 180 days of the date the Manager first received notice
of the defaulting event. Upon giving the Notice of Default, the Manager shall
have the option to purchase at the Closing (as defined below) the Membership
Interest of the Defaulting Physician Member (which Defaulting Physician Member
shall then become obligated to sell such Membership Interest) at the price
determined in the manner provided in Section 11.6 of this Agreement and on the
terms and conditions provided in Section 11.7 of this Agreement. The Manager
shall have a period of thirty (30) days following the date of the Notice of
Default (the "Option Period") within which to notify in writing the Defaulting
Physician Member, whether the Manager wishes to purchase
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all or a portion of the Membership Interest of the Defaulting Physician Member.
If the Manager does not elect to purchase the entire Membership Interest of the
Defaulting Physician Member before the expiration of the Option Period and in
the manner provided herein, the portion of the Membership Interest not purchased
shall be held by the Defaulting Physician Member pursuant to the terms of this
Agreement. The Manager, in its sole discretion, may elect to assign its rights
to purchase the Membership Interest of a Defaulting Physician Member under this
Section 11.3 to the Company and, in such case, the Company shall have the same
rights as provided for the Manager under this Section 11.3.
11.4 Domestic Proceeding. In the event that a spouse of a Physician Member
commences against a Physician Member, or a Physician Member is named in, a
Domestic Proceeding, the Physician Member shall give written notice (the "Notice
of Domestic Proceeding") to the Manager of the commencement of any such
proceeding within five days of the first notice to him or her of such
commencement. The Manager shall have the option to purchase at the Closing (as
defined below) the Membership Interest of the Physician Member involved in the
Domestic Proceeding (which Physician Member shall then become obligated to sell
such Membership Interest), at the price determined in the manner provided in
Section 11.6 of this Agreement and on the terms and conditions provided in
Section 11.7 of this Agreement. The Manager shall have a period of thirty (30)
days following the date of either the Notice of Domestic Proceeding, or if such
formal notice is not given, the date the Manager first becomes aware of the
domestic circumstances of the Physician Member as provided in this Section 11.4
(the "Option Period"), within which to notify in writing the Physician Member
involved in the Domestic Proceeding, whether the Manager wishes to purchase all
or a portion of the Membership Interest of such Physician Member. If the Manager
does not elect to purchase the Membership Interest of the Physician Member
involved in the Domestic Proceeding before the expiration of the Option Period
and in the manner provided herein, the portion of the Membership Interest not
purchased shall be held by such Physician Member pursuant to the terms of this
Agreement. The Manager, in its sole discretion, may elect to assign its rights
to purchase the Membership Interest of the Physician Member involved in the
Domestic Proceeding under this Section 11.4 to the Company and, in such case,
the Company shall have the same rights as provided for the Manager under this
Section 11.4.
11.5 Divestiture Option. If state or federal regulations or laws are
enacted or applied, or if any other legal developments occur, which, in the
opinion of the Manager adversely affect (or potentially adversely affect) the
operation of the Membership (e.g., the enactment or application of prohibitory
physician self-referral legislation against the Company or its Members), the
Manager shall promptly either, in its discretion, (i) take the steps outlined in
this Section 11.5 to divest the Physician Members of their Membership Interests,
or (ii) dissolve the Company as provided in Article XII. If the Manager chooses
option (i), it shall deliver a written notice to all of the Physician Members
(the "Notice of Election") and purchase such Membership Interests for its own
account. The purchase price to be paid for each Membership Interest shall be
determined in the manner as provided in Section 11.6 and shall be on the terms
and conditions as provided in Section 11.7. The transfer of the Membership
Interests and the payment of the purchase price (as provided in Section 11.6)
shall be made at such time as determined by the Manager to be in the best
interests of the Company and its Physician Members. Each Physician Member hereby
makes, constitutes and appoints the Manager, with full power of substitution,
his true and lawful attorney-in-fact, to take such actions and execute such
documents on his behalf to effect the transfer of his Membership Interest as
provided in this Section 11.5.
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11.6 Purchase Price. The purchase price to be paid for the Membership
Interest of any Physician Member whose interest is being purchased pursuant to
the provisions of Article 17.1, 17.2, 17.3, 17.4 or 17.5 (the "Withdrawing
Physician Member") shall be determined in the manner provided in this Article
17.6. The purchase price for the Membership Interest purchased pursuant to the
provisions of Sections 11.2, 11.3, 11.4 or 11.5 shall be an amount equal to the
lesser of (i) the fair market value of the Withdrawing Physician Member's
Membership Interest on the Valuation Date (prorated in the event that only a
portion of his or her Membership Interest is being purchased) as determined by
an Appraiser (as defined below) selected by the Manager, or (ii) the Withdrawing
Physician Member's share of the Company's book value, if any, (prorated in the
event that only a portion of his or her Membership Interest is being purchased)
as reflected by the Capital Account of the Withdrawing Physician Member
(unadjusted for any appreciation in Company assets and as reduced by
depreciation deductions claimed by the Company for tax purposes) as of the
Valuation Date (as defined below). In the case of a purchase of a Membership
Interest pursuant to the provisions of Section 11.1, the purchase price shall be
an amount equal to the greater of (i) two (2) times the aggregate distributions
made with respect to such Membership Interest pursuant to Section 9.1 during the
twelve-month period ending on the Valuation Date or (ii) the Withdrawing
Physician Member's share of the Company's book value determined in the manner
described above. For the purposes of this Section 11.6, the term "Appraiser"
shall mean an independent appraiser who is qualified in appraising membership
interests and who has at least five years experience. In determining fair market
value, the Appraiser shall take into consideration any outstanding indebtedness,
liabilities, liens and obligations of the Company and the relative Membership
Interests and capital accounts of all Members, as well as applying any customary
discounts for lack of liquidity and control. Such appraisal shall be conducted
in accordance with professional appraisal standards. The valuation of the
Appraiser shall be conclusive and binding upon the Company, the purchaser and
the Withdrawing Physician Member and his or her representatives. The
determination of the Withdrawing Physician Member's Capital Account on the
Valuation Date (as defined below) shall be made by the Company's internal
accountant (the "Company Accountant") upon a review of the Company's books of
account, and a formal audit is expressly waived. The statement of the Company
Accountant with respect to the Capital Account of the Withdrawing Physician
Member on the Valuation Date shall be binding and conclusive upon the Company,
the purchaser and the Withdrawing Physician Member and his representative. The
Manager, in its sole discretion, may pursue both of the above valuation methods
and choose the lesser value of the two as indicated above, or may designate and
follow only one of the methods in calculating the purchase price. The Valuation
Date shall be the last day of the month immediately preceding the month in which
occurs: (i) the death of a Physician Member, in the case of a purchase by reason
of death; (ii) the bankruptcy or insolvency of a Physician Member, in the case
of a purchase by reason of such bankruptcy or insolvency; (iii) the Notice of
Withdrawal or breach of Section 5.6 as provided in Article 11.3 in the case of a
purchase by reason thereof; (iv) the commencement of the Domestic Proceeding, in
the case of a purchase by reason thereof; or (v) the Notice of Election as
provided in Section 11.5, in the case of a purchase by reason thereof. Any
Physician Member whose Membership Interest is purchased pursuant to the
provisions of Section 11.2, 11.3, 11.4 or 11.5 shall be entitled only to the
purchase price which shall be paid at the Closing in cash (or by certified or
cashier's check) and shall not be entitled to any Company distributions made
after the Valuation Date. The transfer of a Membership Interest of a Withdrawing
Physician Member shall be deemed to occur as of the Valuation Date and the
Withdrawing Physician Member shall have no voting or other rights as a Physician
Member after such date. The purchaser shall be entitled to any
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distributions attributable to the transferred interest after the Valuation Date
and the Company shall have the right to deduct the amount of any such
distributions made to the Withdrawing Physician Member after the Valuation Date
from the purchase price.
11.7 Closing of Purchase and Sale. The Closing of any purchase and sale of
a Membership Interest pursuant to Section 11.1, 11.2, 11.3, 11.4 or 11.5 of this
Agreement shall take place at the principal office of the Company, or such other
place designated by the Manager, on the date determined as follows (the
"Closing"):
(a) In the case of a purchase and sale occurring by reason of the death of
a Physician Member as provided in Section 11.1 of this Agreement, the Closing
shall be held on the thirtieth day (or if such thirtieth day is not a business
day, the next business day following the thirtieth day) next following the last
to occur of:
(i) Qualification of the executor or personal administrator of the deceased
Physician Member's estate;
(ii) The date on which any necessary determination of the purchase price of
the Membership Interest to be purchased has been made; or
(iii) The date that coincides with the close of the Option Period.
(b) In the case of a purchase and sale occurring by reason of the
occurrence of one of the events described in Section 11.2, 11.3, 11.4 or 11.5 of
this Agreement, the Closing shall be held on the thirtieth day (or if such
thirtieth day is not a business day, the next business day following the
thirtieth day) next following the later to occur of:
(i) The date on which any necessary determination of the purchase price of
the Membership Interest to be purchased has been made; or
(ii) The date that coincides with the close of the Option Period.
At the Closing, although not necessary to effect the transfer, the
Withdrawing Physician Member shall concurrently with tender and receipt of the
applicable purchase price, deliver to the purchaser duly executed instruments of
transfer and assignment, assigning good and marketable title to the portion or
portions of the Withdrawing Physician Member's entire Membership Interest thus
purchased, free and clear from any liens or encumbrances or rights of others
therein. The parties acknowledge that occurrence of any of the triggering events
described in Section 11.1, 11.2, 11.3, 11.4 or 11.5 and compliance with all the
Articles of this Agreement, except the execution of the transfer documents by
the Withdrawing Member as provided above in this Section 11.7, are
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sufficient to effect the complete transfer of the Withdrawing Physician Member's
interest and the Withdrawing Physician Member shall be deemed to consent to
admission of the transferee as a substitute Physician Member. Notwithstanding
the date of the Closing or whether a Closing is successfully held, the transfer
of a Membership Interest of a Withdrawing Physician Member shall be deemed to
occur as of the Valuation Date as defined in Section 11.6. The deemed transfer
is effective regardless of whether the Withdrawing Physician Member performs the
duties set forth in this Section 11.7.
11.8 Terms and Conditions of Purchase. The Membership Interest of a
Physician Member shall not be transferred to any Member unless the requirements
of Sections 10.2 and 10.4 (b) through (g) are satisfied with respect to it. The
purchaser shall be liable for all obligations and liabilities connected with
that portion of the Membership Interest transferred to it unless otherwise
agreed in writing.
ARTICLE XII - DISSOLUTION AND LIQUIDATION OF THE COMPANY
12.1 Dissolution Events. The Company will be dissolved upon the happening
of any of the following events:
(a) The expiration of its term on December 31, 2047;
(b) The filing by, on behalf of, or against the Manager of any petition or
pleading, voluntary or involuntary, to declare the Manager bankrupt under any
bankruptcy law or act, or the commencement in any court of any proceeding,
voluntary or involuntary, to declare the Manager insolvent or unable to pay its
debts, or the appointment by any court or supervisory authority of a receiver,
trustee or other custodian of the property, assets or business of the Manager or
the assignment by it of all or any part of its property or assets for the
benefit of creditors, if said action, proceeding or appointment is not
dismissed, vacated or otherwise terminated within ninety (90) days of its
commencement;
(c) The determination of the Manager and Executive Committee in accordance
with Section 4.1(d) that the Company should be dissolved;
(d) The approval of a plan by the Manager and Executive Committee in
accordance with Section 4.1(c) providing for the merger, consolidation or sale
of Membership Interests as described in Section 10.6;
(e) The election of the Manager to dissolve the Company following the
occurrence of an event described in Article 11.5;
(f) The sale, exchange or other disposition of all or substantially all of
the Property of the Company without making provision for the replacement
thereof; or
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(g) Any other event resulting in the dissolution or termination of the
Company under the laws of the State of Kentucky.
12.2 Continuation. Upon the occurrence of any of the events described in
Section 12.1(b) above with respect to the Manager, the business of the Company
will be continued if within ninety (90) calendar days all of the remaining
Members elect to continue the business of the Company. If the Members fail to
continue the Company's business as provided in this Section, the Company will be
liquidated under Section 12.3.
12.3 Liquidation. Upon the happening of any of the events specified in
Section 12.1 and, if applicable, the failure to continue the business of the
Company under Section 12.2, the Manager, or any liquidating trustee elected by a
Majority in Interest of the Members, will commence as promptly as practicable to
wind up the Company's affairs unless the Manager or the liquidating trustee
(either, the "Liquidator") determines that an immediate liquidation of Company
assets would cause undue loss to the Company, in which event the liquidation may
be deferred for a time determined by the Liquidator to be appropriate. Assets of
the Company may be liquidated or distributed in kind, as the Liquidator
determines to be appropriate. The Members will continue to share Company Cash
Flow, Profits and Losses during the period of liquidation in the manner set
forth in Articles VIII and IX. The proceeds from liquidation of the Company,
including repayment of any debts of Members to the Company, and any Company
assets that are not sold in connection with the liquidation will be applied in
the following order of priority:
(a) To payment of the debts and satisfaction of the other obligations of
the Company, including without limitation debts and obligations to Members;
(b) To the establishment of any reserves deemed appropriate by the
Liquidator for any liabilities or obligations of the Company, which reserves
will be held for the purpose of paying liabilities or obligations and, at the
expiration of a period the Liquidator deems appropriate, will be distributed in
the manner provided in Section 12.3(c); and
(c) To the payment to the Members of the positive balances in their
respective Capital Accounts, pro rata, in proportion to the positive balances in
those capital accounts after giving effect to all allocations under Article VIII
and all distributions under Article IX for all prior periods, including the
period during which the process of liquidation occurs.
12.4 Articles of Dissolution. Upon the dissolution and completion of the
winding up of the Company, the Manager shall cause a Articles of Dissolution to
be executed on behalf of the Company and filed with the Secretary of State, and
the Manager shall execute, acknowledge and file any and all other instruments
necessary or appropriate to reflect the dissolution and winding up of the
Company.
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ARTICLE XIII - MISCELLANEOUS
13.1 Fiscal Year. The Fiscal Year will end on December 31, unless another
fiscal year-end is selected by the Managers.
13.2 Records. Proper and complete records and books of account shall be
kept by the Manager in which shall be entered fully and accurately all
transactions and such other matters relating to the Company's business as are
usually entered into records and books of account maintained by persons engaged
in business of like character. The records of the Company will be maintained at
the principal place of business of the Company, or at any other location the
Manager selects provided that the Company keep at its principal place of
business the records required by the Act to be maintained there. Appropriate
records in reasonable detail will be maintained to reflect income tax
information for the Members. Each Member may inspect and make copies of the
records maintained by the Company during reasonable business hours and upon
reasonable notice. Each Member, at his or her expense, may make copies of the
records maintained by the Company and may require an audit of the books of
account maintained by the Company to be conducted by the independent accountants
for the Company.
13.3 Reports. The Manager, at the expense of the Company, will cause to be
prepared in accordance with the method of accounting then used by the Company
and distributed to each Member within ninety (90) days after the end of each
Fiscal Year, a balance sheet as of the close of the Fiscal Year and the annual
income tax returns and related schedules of the Company for the Fiscal Year.
13.4 Reserves. The Manager may cause the Company to create reasonable
reserve accounts to be used exclusively for repairs and acquisition of
Additional Assets and for any other valid Company purpose. The Manager shall in
its sole discretion determine the amount of payments to such reserve accounts.
13.5 Notices. The Manager will notify the Members of any change in the
name, principal or registered office or registered agent of the Company. Any
notice or other communication required by this Agreement must be in writing.
Notices and other communications will be deemed to have been given when
delivered by hand or dispatched by telegraph, telex or other means of electronic
facsimile transmission, or three business days after being deposited in the
United States mail, postage prepaid, addressed to the Member to whom the notice
is intended to be given at his or her address set forth on Schedule I of this
Agreement or, in the case of the Company, to its principal place of business
provided for in Section 1.4. A Person may change his or her notice address by
notice in writing to the Company and to each other Member given under this
Section 13.5.
13.6 Amendments. Except as expressly provided in this Agreement in Section
4.1(h), no amendment of this Agreement will be valid or binding upon the
Members, nor will any waiver of any term of this Agreement be effective, unless
in writing and signed by the Manager and a majority of the members of the
Executive Committee.
13.7 Additional Documents. Each party agrees to execute and acknowledge all
documents and writings which the Manager may deem necessary or expedient in the
creation of this Company and
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the achievement of its purpose, specifically including but not limited to,
articles of organization and all amendments, as well as any cancellation
thereof.
13.8 Representations of Members. Each Member represents and warrants to the
Company and every other Member that (s)he (a) is fully aware of, and is capable
of bearing, the risks relating to an investment in the Company, (b) understands
that his or her interest in the Company has not been registered under the
Securities Act or the securities law of any jurisdiction in reliance upon
exemptions contained in those laws, and (c) has acquired his or her interest in
the Company for his or her own account, with the intention of holding the
interest for investment and without any intention of participating directly or
indirectly in any redistribution or resale of any portion of the interest in
violation of the Securities Act or any applicable law.
13.9 Survival of Rights. Except as herein otherwise provided to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties, their successors and assigns.
13.10 Interpretation and Governing Law. When the context in which words are
used in this Agreement indicates that such is the intent, words in the singular
number shall include the plural and vice versa. The masculine gender shall
include the feminine and neuter. The Article and Section headings or titles and
the table of contents shall not define, limit, extend or interpret the scope of
this Agreement or any particular Article or Section. This Agreement shall be
governed and construed in accordance with the laws of the State of Kentucky
without giving effect to the conflicts of laws provisions thereof.
13.11 Severability. If any provision, sentence, phrase or word of this
Agreement or the application thereof to any Person or circumstance shall be held
invalid, the remainder of this Agreement, or the application of such provision,
sentence, phrase, or word to Persons or circumstances, other than those as to
which it is held invalid, shall not be affected thereby.
13.12 Agreement in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. In addition, this Agreement may contain
more than one counterpart of the signature pages and this Agreement may be
executed by the affixing of the signatures of each of the Members to one of such
counterpart signature pages; all of such signature pages shall be read as though
one, and they shall have the same force and effect as though all of the signers
had signed a single signature page.
13.13 Tax Matters Partner. For purposes of this Agreement, the Manager is
designated as the Tax Matters Partner (as defined in Section 6231 of the Code).
13.14 Third Parties. The agreements, covenants and representations
contained herein are for the benefit of the parties hereto inter se. Nothing in
this Agreement is intended to benefit any third parties including, without
limitation, any creditor of the Company and/or any Member. No creditor of the
Company or any Member will be entitled to require the Manager to solicit or
accept any loan or additional capital contribution for the Company or to enforce
any right which the Company or any Member may have against a Member, whether
arising under this Agreement or otherwise.
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13.15 Power of Attorney. Each Physician Member hereby makes, constitutes
and appoints Xx. Xxxxxx Xxxxxxx and Xxxxxx Xxxxxx, Ph.D., severally, with full
power of substitution, his true and lawful attorneys-in-fact, for him and in his
name, place and stead and for his use and benefit to sign and acknowledge, file
and record, any amendments hereto among the Members for the further purpose of
executing and filing on behalf of each Physician Member, any and all articles of
organization or other documents necessary to constitute the Company or to effect
the continuation of the Company, the admission or withdrawal of members, the
qualification of the Company in a foreign jurisdiction (or amendment to such
qualification), the admission of substitute Members or the dissolution or
termination of the Company, provided such continuation, admission, withdrawal,
qualification, or dissolution and termination are in accordance with the terms
of this Agreement.
The foregoing power of attorney is a special power of attorney coupled with
an interest, is irrevocable and shall survive the death or legal incapacity of
each Member. It may be exercised by any one of said attorneys by listing all of
the Members executing any instrument over the signature of the attorney-in-fact
acting for all of them. The power of attorney shall survive the delivery of an
assignment by a Member of the whole or any portion of his Unit. In those cases
in which the assignee of, or the successor to, a Member owning a Unit has been
approved by the Members for admission to the Company as a substitute Member, the
power of attorney shall survive for the sole purpose of enabling the Manager to
execute, acknowledge and file any instrument necessary to effect such
substitution.
This power of attorney shall not be affected by the subsequent incapacity
or mental incompetence of any Member.
13.16 Arbitration. Any dispute arising out of or in connection with this
Agreement or the breach thereof shall be decided by arbitration in Raleigh,
North Carolina in accordance with the then effective commercial arbitration
rules of the American Arbitration Association, and judgment thereof may be
entered in any court having jurisdiction thereof.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the undersigned, being the Manager and initial Members
of the Company, have caused this Agreement to be duly adopted by the Company as
of the _____ day of _________, 199__, and do hereby assume and agree to be bound
by and to perform all of the terms and provisions set forth in this Agreement.
MANAGER:
PRIME KIDNEY STONE TREATMENT, INC.,
a New Jersey corporation
Attest:
By:
__________________________ Xxxxxx Xxxxxx, Ph.D., Vice President
Secretary
MEMBER:
PRIME KIDNEY STONE TREATMENT, INC.,
a New Jersey corporation
By:
Xxxxxx Xxxxxx, Ph.D., Vice President
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COUNTERPART SIGNATURE PAGE
By signing this Counterpart Signature Page, the undersigned acknowledges
his or her acceptance of that certain Operating Agreement of Kentucky I
Lithotripsy, LLC, and his or her intention to be legally bound thereby.
Dated this _________ day of ___________________, 199_.
---------------------------------------
Signature
-----------------------------------------
Printed Name
STATE OF _______________ )
)
COUNTY OF _____________ )
BEFORE ME, the undersigned Notary Public in and for the State and County
set forth above, on the _______ day of __________________, 199_, personally
appeared ___________________, and, being by me first duly sworn, stated that
(s)he signed this Counterpart Signature Page for the purpose set forth above and
that the statements contained therein are true.
-----------------------------------------
Signature of Notary Public
------------------------------------------
Printed Name of Notary
My Commission Expires:
___________________________
[SEAL]
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OPERATING AGREEMENT OF KENTUCKY I LITHOTRIPSY, LLC
SCHEDULE I
Names and Address Initial Capital
of Members Contribution Percentage Interest
Prime Kidney Stone Treatment, Inc. $50,000 20%
0000 Xxxxxxx xx Xxxxx Xxxxxxx
Xxxxx X-000
Xxxxxx, XX 00000
Limited partners as a whole $200,000 80%
TOTALS $250,000 100%
(1) Represents the principal portion of each Member's guaranty obligation,
as each Member's obligation under the Guaranty includes not only principal, but
also (as provided in the Guaranty) accrued and unpaid interest, late payment
penalties and all costs incurred by the Bank in collecting any defaulted
obligations. The principal amount of the loan is $550,000. The Manager will
guarantee 20% of the Loan (a $110,000 principal guaranty) as provided in the
Memorandum. The Physician Members will guarantee 1% of the loan (a $5,500
principal guaranty) for each Unit purchased as provided in the Memorandum.
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