AMENDED AND RESTATED
OPERATING AGREEMENT
OF
THE HEALTH INFORMATION
NETWORK CONNECTION LLC
(A NEW YORK LIMITED LIABILITY COMPANY)
TABLE OF CONTENTS
Page
ARTICLE I Definitions......................................................2
Section 1.1 Definitions..................................................2
ARTICLE II Formation......................................................10
Section 2.1 Formation...................................................10
Section 2.2 Name........................................................10
Section 2.3 Trade Name Affidavits.......................................10
Section 2.4 Foreign Qualification.......................................11
Section 2.5 Term........................................................11
ARTICLE III Offices.......................................................11
Section 3.1 Principal Office............................................11
Section 3.2 Other Offices...............................................11
ARTICLE IV Business and Powers............................................11
Section 4.1 Business....................................................11
Section 4.2 Powers......................................................11
ARTICLE V Interests in the Company........................................12
Section 5.1 Certificates of Interest....................................12
Section 5.2 General Rights..............................................12
Section 5.3 General Protective Provisions...............................13
Section 5.4 Other Protective Provisions.................................13
Section 5.5 Additional Protective Provisions............................14
Section 5.6 Actions Requiring Unanimous Approval of Members.............14
Section 5.7 Transactions with Affiliates................................15
Section 5.8 Member Voting...............................................15
ARTICLE VI Capital Contributions; Members.................................15
Section 6.1 Current Contributions.......................................15
Section 6.2 Additional Contributions....................................16
Section 6.3 Loans.......................................................16
Section 6.4 Additional Capital..........................................16
Section 6.5 Payer-Member Capital Credits................................18
Section 6.6 GNYHA Credits...............................................19
Section 6.7 Withdrawal of Capital.......................................20
Section 6.8 No Interest on Capital......................................20
Section 6.9 Admission of Members........................................20
Section 6.10 Capital Return.............................................21
Section 6.11 Resignation of Member......................................21
Section 6.12 Removal of Member for Cause................................21
Section 6.13 Effect of Event of Withdrawal..............................22
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Section 6.14 Outside Businesses.........................................22
Section 6.15 Power of Attorney..........................................22
Section 6.16 No Claims Among Members....................................23
ARTICLE VII Meetings......................................................23
Section 7.1 Annual Meetings.............................................23
Section 7.2 Special Meeting.............................................23
Section 7.3 Notice of Meetings..........................................23
Section 7.4 Record Date.................................................24
Section 7.5 List of Members.............................................24
Section 7.6 Quorum......................................................24
Section 7.7 Organization................................................24
Section 7.8 Order of Business...........................................25
Section 7.9 Voting......................................................25
Section 7.10 Action by Written Consent..................................25
Section 7.11 Action by Communication Equipment..........................26
Section 7.12 Proxies....................................................26
ARTICLE VIII Management...................................................27
Section 8.1 General Powers..............................................27
Section 8.2 Binding Authority...........................................27
Section 8.3 Number and Term of Office...................................27
Section 8.4 Resignation and Vacancies...................................28
Section 8.5 Meetings....................................................28
Section 8.6 Compensation; Expenses......................................30
Section 8.7 Duties of Managers..........................................30
Section 8.8 Committees..................................................30
Section 8.9 Budget......................................................30
ARTICLE IX Chairman and Officers..........................................31
Section 9.1 Chairman....................................................31
Section 9.2 Election, Appointment and Term of Office....................32
Section 9.3 Resignation, Removal and Vacancies..........................32
Section 9.4 Duties and Functions........................................32
ARTICLE X Contracts, Checks, Drafts, Bank Accounts, Proxies, Etc..........33
Section 10.1 Execution of Documents.....................................33
Section 10.2 Deposits...................................................33
Section 10.3 Proxies in Respect of Stock or Other Securities of Other
Companies................................................................33
ARTICLE XI Books and Records; Right of Inspection; Tax Matters............34
Section 11.1 Books And Records..........................................34
Section 11.2 Information................................................34
Section 11.3 Tax Returns................................................34
Section 11.4 Tax Elections..............................................34
Section 11.5 Tax Matters Partner........................................34
Section 11.6 No Partnership.............................................35
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Section 11.7 Title to Company Assets....................................35
ARTICLE XII Capital Accounts..............................................36
Section 12.1 Maintenance................................................36
Section 12.2 Adjustments................................................36
Section 12.3 Market Value Adjustments...................................36
Section 12.4 Transfer...................................................36
ARTICLE XIII Allocation of Income, Gain, Loss and Deduction...............37
Section 13.1 Determination..............................................37
Section 13.2 Allocation of Net Profits and Net Losses...................37
Section 13.3 Allocation in the Event of Property Distribution...........38
Section 13.4 Special Rules..............................................38
Section 13.5 Tax Allocations............................................40
ARTICLE XIV Distributions.................................................41
Section 14.1 Distributions..............................................41
Section 14.2 Withholding................................................42
Section 14.3 Offset.....................................................42
Section 14.4 Limitation Upon Distributions..............................42
ARTICLE XIV Indemnification...............................................42
Section 15.1 Indemnification............................................42
Section 15.2 Indemnification Not Exclusive..............................43
Section 15.3 Insurance on Behalf of Indemnified Party...................43
Section 15.4 Indemnification Limited by Law.............................44
ARTICLE XVI Accounting Provisions.........................................44
Section 16.1 Fiscal Year................................................44
Section 16.2 Accounting Method..........................................44
ARTICLE XVII Dissolution..................................................44
Section 17.1 Dissolution................................................44
Section 17.2 Events of Withdrawal.......................................44
Section 17.3 Bankruptcy.................................................45
Section 17.4 Continuation...............................................45
ARTICLE XVIII Liquidation.................................................45
Section 18.1 Liquidation................................................45
Section 18.2 Tax Termination............................................46
Section 18.3 Priority of Payment........................................46
Section 18.4 Timing.....................................................46
Section 18.5 Liquidating Reports........................................46
Section 18.6 Articles of Dissolution....................................46
ARTICLE XIX Transfer Restrictions.........................................47
Section 19.1 Restrictions on Transfer of Membership Interests...........47
Section 19.2 First Refusal Rights.......................................48
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Section 19.3 No Member Rights...........................................49
Section 19.4 Transferee Rights..........................................49
Section 19.5 Effect of Transfer.........................................50
Section 19.6 Secured Party..............................................50
ARTICLE XX General Provisions.............................................50
Section 20.1 Amendment..................................................50
Section 20.2 Waiver of Dissolution Rights...............................51
Section 20.3 Waiver of Partition Right..................................51
Section 20.4 Waivers Generally..........................................51
Section 20.5 Equitable Relief...........................................51
Section 20.6 Remedies for Breach........................................51
Section 20.7 Costs......................................................51
Section 20.8 Counterparts...............................................52
Section 20.9 Notice.....................................................52
Section 20.10 Date of Performance.......................................52
Section 20.11 Limited Liability.........................................52
Section 20.12 Partial Invalidity........................................52
Section 20.13 Entire Agreement..........................................53
Section 20.14 Benefit...................................................53
Section 20.15 Binding Effect............................................53
Section 20.16 Confidentiality...........................................53
Section 20.17 Further Assurances........................................53
Section 20.18 Headings..................................................54
Section 20.19 Terms.....................................................54
Section 20.20 Informal Dispute Resolution...............................54
Section 20.21 Arbitration...............................................54
Section 20.22 Governing Law; Consent to Jurisdiction....................54
Schedule I Initial Contributions............................................1
EXHIBIT 1...................................................................2
EXHIBIT 2...................................................................3
EXHIBIT 3...................................................................4
EXHIBIT 4...................................................................5
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AMENDED AND RESTATED OPERATING AGREEMENT
OF THE HEALTH INFORMATION NETWORK CONNECTION LLC
This Amended and Restated Operating Agreement (the "Agreement"), dated as
of January 1, 1999, is entered into by and among THE HEALTH INFORMATION NETWORK
CONNECTION LLC (the "Company"), Empire Blue Cross and Blue Shield, a New York
non-for-profit company ("Empire"), GNYHA Management Corporation, a New York
corporation ("GNYHA"), Group Health Incorporated, a New York corporation
("GHI"), Health Insurance Plan of Greater New York, a New York non-for-profit
company ("HIP"), and Synetic Healthcare Communications, Inc., a Delaware
corporation ("Synetic").
W I T N E S S T H
WHEREAS, the Company, until the execution of this Agreement, has been
governed by that certain "Operating Agreement of The Health Information Network
Connection LLC" dated as of November __, 1996 (the "Operating Agreement"); and
WHEREAS, BRC Healthcare, Inc., an Oregon corporation, has withdrawn as a
Member of the Company pursuant to that certain "Consent of the Members to the
Withdrawal of a Member from The Health Information Network Connection LLC" dated
of even date herewith and attached hereto as Exhibit 1; and
WHEREAS, pursuant to the terms of Sections 5.5 and 6.5 of the Operating
Agreement, Synetic has been admitted as a Member pursuant to that certain
"Consent of the Members to the Admittance of a Member to The Health Information
Network Connection LLC" dated of even date herewith and attached hereto as
Exhibit 2; and
WHEREAS, in connection with the admittance of Synetic as a Member of the
Company, the Members desire to amend and restate the Operating Agreement in
order that the parties hereto may establish their respective economic and other
rights as Members of the Company and to provide regulations and procedures for
the governance of the Company.
NOW, THEREFORE, in consideration of the premises, the mutual promises and
obligations contained herein, and with the intent of being legally bound, the
parties hereto agree as follows:
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ARTICLE I
Definitions
Section 1.1 Definitions. For purposes of this Agreement, capitalized terms
used but not otherwise defined herein shall have the following meanings.
(a) "Adjusted Capital Account" shall mean, with respect to any Member,
the balance in such Member's Capital Account as of the end of the relevant
Fiscal Year, after giving effect to the following adjustments:
(i) such Capital Account shall be deemed to be increased by any
amounts that such Member is obligated to restore to the Company (pursuant
to this Agreement or otherwise) or is deemed to be obligated to restore
pursuant to (A) the penultimate sentence of ss. 1.704-2(g)(1) of the
Regulations, or (B) the penultimate sentence of ss.1.704-2(i)(5) of the
Regulations; and
(ii) such Capital Account shall be deemed to be decreased by the
items described in ss.ss.1.704-1(b)(2)(ii)(d) of the Regulations and shall
be interpreted and applied consistently therewith.
The foregoing definition of Adjusted Capital Account is intended to comply
with the provisions of ss. 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted and applied consistently therewith.
(b) "Affiliate" of a party shall mean any entity which directly or
indirectly controls, is controlled by or is under the common control with such
party. The term "control" means the power to direct the affairs of such entity
by reason of ownership of equity securities, by contract, or otherwise.
(c) "Agreement" shall mean this Amended and Restated Operating
Agreement, also known as an operating agreement under the LLCL, as may be
further amended from time to time.
(d) "Articles of Organization" shall mean the Articles of Organization
of the Company, as amended from time to time.
(e) "Available Cash" shall mean, with respect to any fiscal quarter, all
cash receipts of the Company (excluding Capital Contributions, Warrant Proceeds
and proceeds from any borrowings) during such quarter plus cash available from
any reduction in the amount of any reserves of the Company during such quarter
less the sum of the following to the extent made from such cash receipts or
reserves:
(i) all cash expenditures of the Company made during such quarter
(except Distributions), including expenses and costs incurred in the
acquisition, ownership, or management of the Company's property; and
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(ii) funds set aside as reserves for contingencies, working capital,
debt service, taxes, insurance or other costs or expenses incident to the
conduct of the Company's business.
(f) "Bankruptcy" shall have the meaning set forth in Section 17.3.
(g) "Board of Managers" shall mean a committee of Managers comprised in
accordance with this Agreement and having the powers set forth herein.
(h) "Book Value" means, with respect to any asset of the Company, the
adjusted basis of such asset as of the relevant date for federal income tax
purposes, except as follows:
(i) the initial Book Value of any asset contributed by a Member to
the Company shall be the Fair Market Value of such asset;
(ii) the Book Values of all Company assets (including intangible
assets such as goodwill) shall be adjusted to equal their respective Fair
Market Values as of the following times:
(A) the acquisition of an additional interest in 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 money or Company property as consideration for
its interest in the Company (other than a distribution to a Member
pursuant to Sections 6.11 or 6.12 hereof); and
(C) the liquidation of the Company within the meaning of
ss.1.704-1(b)(2)(iv)(f)(5)(ii) of the Regulations; and
(iii) if the Book Value of an asset has been determined or adjusted
pursuant to clause (i) or (ii) above, such Book Value shall thereafter be
adjusted by the Depreciation taking into account with respect to such
asset for purpose of computing Net Profits and Net Losses and other items
allocated pursuant to Article XIII hereof.
The foregoing definition of Book Value is intended to comply with the
provisions of ss.1.704-1(b)(2)(iv) of the Regulations and shall be interpreted
and applied consistently therewith.
(i) "Breaching Member" shall mean any Payer-Member that materially
breaches its obligations under either the Managed Care Transaction Contract or
the Clinical Transaction Contract, and such Payer-Member has failed to cure such
breach as specifically provided in the applicable provisions of such contract.
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(j) "Business Day" shall mean any day other than Saturday, Sunday and
any other day on which banks in New York City are not open for business.
(k) "Capital Account" shall mean the capital account established and
maintained for each Member pursuant to Article XII hereof.
(l) "Capital Contributions" shall mean the amount of cash and the Fair
Market Value of any property (net of liabilities secured by such property that
the Company is considered to assume or take subject to under ss.752 of the Code)
contributed by a Member to the capital of the Company and any Company
liabilities assumed by the Member within the meaning of ss.1.704-1(b)(2)(iv)(c)
of the Regulations. The application of Payer-Member Capital Credits or GNYHA
Credits, and the issuance by Synetic to the Company of the Warrants shall not be
deemed to be Capital Contributions.
(m) "Claims" shall mean medical claims (i.e., claims of the type
submitted on Healthcare Finance Administration Form No. 1500) submitted by
physicians and other health care providers in standard electronic format to a
Payer-Member's data processing center for adjudication.
(n) "Clinical Transaction Contract" shall mean any of the contracts
entered into by Synetic and the Payer-Members on the date of this Agreement for
the provision by Synetic of Clinical Transaction Services.
(o) "Clinical Transaction Services" shall mean and include any or all of
Synetic's prescription and laboratory services which connect physicians, staffs
and patients, with payers, pharmacies, hospitals, laboratories, suppliers or
other organizations involved in the concurrent, retrospective or prospective
communications of information relating to or prompted by the selection or use of
a prescription drug or lab test (as applicable) by physicians on behalf of
patients, all as provided pursuant to the Clinical Transaction Contract.
(p) "Code" shall mean the Internal Revenue Code of 1986, as amended, or
any corresponding provisions of superseding federal revenue statute.
(q) "Company" shall have the meaning set forth in the preamble to
this Agreement.
(r) "Company Minimum Gain" means the aggregate amount of gain (of
whatever character), determined for each Nonrecourse Liability of the Company,
that would be realized by the Company if it disposed of the Company property
subject to such liability in a taxable transaction in full satisfaction thereof
(and for no other consideration) and by aggregating the amounts so computed,
determined in accordance with xx.xx. 1.704-2(d) and (k) of the Regulations.
(s) "Company Notice" shall have the meaning set forth in Section
19.2(b).
(t) "Company Right" shall have the meaning set forth in Section
19.2(b).
(u) "Confidential Member Information" means information that Members
designate as confidential or proprietary at the time of providing such
information to the Company.
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(v) "Contract Manager" shall mean Synetic for so long as the Management
Services Agreement shall remain in effect, and thereafter, the Board of
Managers.
(w) "Contribution Notice" shall have the meaning set forth in
Section 6.4(a).
(x) "Contributing Member" shall have the meaning set forth in
Section 6.4(b).
(y) "Credit Maximum" shall have the meaning set forth in Section
6.5(b).
(z) "Credit Period" shall have the meaning set forth in Section
6.5(c).
(aa) "Deemed Capital Contributions" shall mean, for each Member, such
Member's total Capital Contributions plus the amount, if any, of Payer-Member
Capital Credits applied in lieu of additional Capital Contributions by such
Member pursuant to Section 6.5(c) and, in the case of GNYHA, the amount of GNYHA
Credits applied in lieu of additional Capital Contributions by GNYHA pursuant to
Section 6.6(b) and such Member's share of any adjustment to Book Value required
by Section 1.1(h)(ii), including any adjustment to Book Value that shall have
occurred as a result of Synetic becoming a Member.
(bb) "Depreciation" means, for each Fiscal Year or part thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
Fiscal Year or part thereof, except that if the Book Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of such
Fiscal Year, the depreciation, amortization or other cost recovery deduction for
such Fiscal Year or part thereof shall be an amount which bears the same ratio
to such Book Value as the federal income tax depreciation, amortization or other
cost recovery deduction for such Fiscal Year or part thereof bears to such
adjusted tax basis and provided further that if the federal income tax
depreciation, amortization or other cost recovery deduction for such Fiscal Year
or part thereof is zero (0) or less, then the depreciation, amortization or
other cost recovery deduction shall be whatever the Contract Manager determines
is reasonable under the circumstances.
(cc) "Dissolution" shall mean the happening of any of the events set
forth in Section 17.1.
(dd) "Distribution" shall mean any cash and the Fair Market Value of any
property (net of liabilities secured by such property that the Member is deemed
to assume or take subject to under ss. 752 of the Code) distributed by the
Company to the Members in accordance with Section 6.11 or Article XIV or XVIII
of this Agreement.
(ee) "Effective Date" shall mean the date first above written.
(ff) "Empire" shall have the meaning set forth in the preamble to
this Agreement.
(gg) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
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(hh) "Event of Breach" shall mean any Payer-Member's material breach of
its obligations under either the Managed Care Transaction Contract or the
Clinical Transaction Contract, and such Payer-Member's failure to cure such
breach as specifically provided in the applicable provisions of such contract.
(ii) "Event of Withdrawal" shall mean, with respect to any Member, the
occurrence of such Member's Bankruptcy, death, insanity, adjudication of
incompetency, resignation, removal, expulsion, or any other event that
terminates the continued membership of such Person in the Company by operation
of law (including the dissolution of any Member that is not an individual).
(jj) "Fair Market Value" shall mean, with respect to any property
(including the Membership Interests), the value that would be obtained in an
arm's length transaction for ownership of such property for cash between an
informed and willing seller and an informed and willing purchaser, each with an
adequate understanding of the facts and under no compulsion to buy or sell.
(kk) "Fiscal Year" shall mean the fiscal and taxable year of the Company
which shall be the year ending December 31.
(ll) "GHI" shall have the meaning set forth in the preamble to this
Agreement.
(mm) "GNYHA" shall have the meaning set forth in the preamble to
this Agreement.
(nn) "GNYHA Contract" shall mean the contract entered into concurrently
herewith between the Company and GNYHA, and as such contract may be amended,
supplemented and/or extended from time to time, whereby GNYHA will perform
certain sales and marketing activities for the Company and provide the Company
with access to certain electronic business applications.
(oo) "GNYHA Credits" shall have the meaning ascribed to such term in
Section 6.6(a).
(pp) "GNYHA Nonrecourse Note" shall have the meaning ascribed to such
term in Section 6.1.
(qq) "GNYHA Recourse Note" shall have the meaning ascribed to such term
in Section 6.1.
(rr) "Health Plan Competitor" shall mean an organization that is engaged
primarily in the business of providing health insurance or health maintenance
organization services.
(ss) "HIP" shall have the meaning set forth in the preamble to this
Agreement.
(tt) "Indemnified Party" shall have the meaning set forth in Section
15.1.
(uu) "Indemnification Obligations" shall have the meaning set forth
in Section 15.1.
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(vv) "Internal Claims" shall mean Claims that either (i) originate from
an electronic source other than claims clearinghouses and are received directly
from a Payer-Member's data processing center or (ii) originate from an
electronic claims clearinghouse for which the Payer-Member does not pay the
clearinghouse any fee or other amount.
(ww) "Liquidation" shall mean the process of winding up and
terminating the Company after its Dissolution.
(xx) "LLCL" shall mean the New York Limited Liability Company Law, as
amended from time to time.
(yy) "Managed Care Services" shall mean and include any or all of the
Company's managed care transaction services, which include claims submission,
on-line (batch and real-time) eligibility, benefit plan detail, roster
distribution, remittance advice distribution, online claims inquiry, electronic
referral/pre-certification and authorization, and encounter submission, all as
provided pursuant to the Managed Care Transaction Contract.
(zz) "Managed Care Transaction Contract" shall mean any of the contracts
entered into by the Company and the Payer-Members on the date of this Agreement
for the provision by the Company of Managed Care Services.
(aaa) "Management Services Agreement" shall mean the Management Services
Agreement entered into concurrently herewith between the Company and Synetic and
which is attached hereto as Exhibit 3, and as such agreement may be amended,
supplemented and/or extended from time to time.
(bbb) "Managers" shall have the meaning set forth in Section 8.1(b).
(ccc) "Member" shall mean any Person which signs a counterpart of this
Agreement initially or which is admitted to the Company as a Member thereafter
in accordance with the terms of this Agreement.
(ddd) "Membership Interest" shall mean, with respect to each Member, all
of the interests in the Company held by such Member, including such Member's
rights to participate in Company votes and to receive Distributions and
allocations of Net Profits and Net Losses.
(eee) "Member Minimum Gain" means the aggregate amount of gain (of
whatever character), determined for each Member Nonrecourse Debt, that would be
realized by the Company if it disposed of the Company property subject to such
Member Nonrecourse Debt in a taxable transaction in full satisfaction thereof
(and for no other consideration), determined in accordance with the provisions
of xx.xx. 1.704-2(i)(3) and (k) of the Regulations for determining a Member's
share of minimum gain attributable to a Member Nonrecourse Debt.
(fff) "Member Nonrecourse Debt" has the meaning ascribed to the term
"partner non-recourse debt" in ss. 1.704-2(b)(4) of the Regulations.
7
(ggg) "Member Notice" shall have the meaning set forth in Section
19.2(c).
(hhh) "Member Right" shall have the meaning set forth in Section
19.2(c).
(iii) "Migration Period" shall have the meaning set forth in Section
6.5(a).
(jjj) "Net Losses" shall mean, with respect to any Fiscal Year, or part
thereof, the net losses of the Company for such period computed using Book
Values and applying the methods and principles of accounting used for federal
income tax purposes, including, as appropriate, each item of income, gain, loss,
deduction or credit entering into such determination, as determined by the
accountants of the Company.
(kkk) "Net Profits" shall mean, with respect to any Fiscal Year, or part
thereof, the net profits of the Company for such period computed using Book
Values and applying the methods and principles of accounting used for federal
income tax purposes, including, as appropriate, each item of income, gain, loss,
deduction or credit entering into such determination, as determined by the
accountants of the Company.
(lll) "Non-Breaching Members" shall have the meaning set forth in
Section 13.2(b)(ii).
(mmm) "Non-Contributing Member" shall have the meaning set forth in
Section 6.4(b).
(nnn) "Nonrecourse Liability" shall mean any Company liability (or portion
thereof) for which no Member bears the economic risk of loss for such liability
under ss. 1.752-2 of the Regulations.
(ooo) "Offer" shall have the meaning set forth in Section 19.2(a).
(ppp) "Operating Agreement" shall have the meaning set forth in the
first "WHEREAS" clause.
(qqq) "Operating Plan" shall mean the operating plan and budget for the
Company which is attached to the Management Services Agreement, as the same may
be amended from time to time pursuant to the terms of such Management Services
Agreement or this Agreement.
(rrr) "Option Notice" shall have the meaning set forth in Section
19.2(a).
(sss) "Outside Party" shall have the meaning set forth in Section
19.2(a).
(ttt) "Payer" shall mean an insurer or other payer of health related
claims.
(uuu) "Payer-Member" shall mean Empire, GHI and HIP.
(vvv) "Payer-Member Capital Credit" shall have the meaning set forth
in Section 6.5(a).
8
(www) "Percentage Interest" shall mean the percentage held by such Member
set forth opposite the Member's name on Schedule I attached hereto, as such
percentage may be adjusted from time to time pursuant to the terms of this
Agreement.
(xxx) "Permitted Transfer" shall have the meaning set forth in Section
19.1(d).
(yyy) "Person" shall mean an individual, corporation, limited liability
company, partnership, trust or unincorporated organization, or other entity.
(zzz) "Put Right" shall have the meaning set forth in Section 6.5(a).
(aaaa) "Regulations" shall mean the Treasury Regulations (including
temporary or proposed regulations) promulgated and in effect under the Code, as
amended from time to time (including corresponding provisions of succeeding
regulations).
(bbbb) "Regulatory Allocations" shall have the meaning set forth in
Section 13.4(a)(vi).
(cccc) "Revenue Plan" shall mean the projected revenue recognized in
accordance generally accepted accounting principles for hospital contracts
entered into after August 1, 1998, (including extensions or renewals of current
hospital contracts) as agreed upon by the Company and GNYHA and attached hereto
as Exhibit 4.
(dddd) "Selling Holder" shall have the meaning set forth in Section
19.2(a).
(eeee) "Shortfall" shall have the meaning set forth in Section 6.4(b).
(ffff) "Synetic" shall mean Synetic Healthcare Communications, Inc., a
Delaware corporation.
(gggg) "Synetic Affiliate" shall mean any individual or entity which owns,
directly or indirectly, more than fifty percent (50%) in value of the
outstanding stock of Synetic or any entity in which Synetic owns, directly or
indirectly, more than fifty percent (50%) in value of the outstanding stock
thereof.
(hhhh) "Synetic Contingent Line of Credit" shall mean the indebtedness
which will be made available or arranged for by Synetic to the Company and
documented pursuant to the Synetic Contingent Credit Agreement entered into
concurrently herewith between the Company and Synetic, and as such agreement may
be amended, supplemented and/or extended from time to time.
(iiii) "Synetic Working Capital Line of Credit" shall mean the indebtedness
which will be made available or arranged for by Synetic to the Company and
documented pursuant to the Synetic Working Capital Credit Agreement entered into
concurrently herewith between the Company and Synetic, and as such agreement may
be amended, supplemented and/or extended from time to time.
9
(jjjj) "ss.704(b) Regulations" shall have the meaning set forth in
Section 12.1.
(kkkk) "Tax Matters Partner" shall have the meaning set forth in
Section 11.5(a).
(llll) "Transfer" shall mean a sale, exchange, assignment, transfer,
pledge, hypothecation or other disposition of Membership Interests (whether
voluntary or involuntary) other than by operation of law.
(mmmm) "Warrants" shall mean rights to purchase shares of common stock of
Synetic as more completely described in the Warrant Agreement.
(nnnn) "Warrant Agreement" shall mean the agreement entered into
concurrently herewith between the Company and Synetic, and as such agreement may
be amended, supplemented and/or extended from time to time.
(oooo) "Warrant Income" shall mean each item of income or gain of the
Company attributable to the exercise or sale of the Warrants, as determined by
the accountants of the Company.
(pppp) "Warrant Proceeds" shall mean the proceeds to the Company
attributable to the exercise or sale of the Warrants, as determined by the
accountants of the Company.
All other capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned thereto in the LLCL. To the extent that a term
specifically defined in this Section 1.1 conflicts with a definition provided in
the LLCL, the specific definition set forth herein shall govern.
ARTICLE II
Formation
Section 2.1 Formation. The Company was formed on November __, 1996, by the
filing of the Articles of Organization with the Department of State of the State
of New York pursuant to the LLCL and on behalf of the Members of the Company.
Section 2.2 Name. The name of the Company is THE HEALTH INFORMATION NETWORK
CONNECTION LLC. The business of the Company will be conducted under such name or
such other trade names or fictitious names as may be adopted in accordance with
Section 2.3.
Section 2.3 Trade Name Affidavits. The Company will file such trade name or
fictitious name affidavits and other certificates as may be necessary or
desirable in connection with the formation, existence and operation of the
Company (including those filings required in any jurisdiction where the Company
owns property).
10
Section 2.4 Foreign Qualification. The Company will apply for authority to
transact business in those jurisdictions where it is required to do so. The
Company will file such other certificates and instruments as may be necessary or
desirable in connection with its formation, existence and operation.
Section 2.5 Term. The Company shall continue in existence from the date of
filing of the Articles of Organization with the Secretary of State of the State
of New York until the Company is dissolved pursuant to this Agreement or the
LLCL.
ARTICLE III
Offices
Section 3.1 Principal Office. The principal office, place of business and
address of the Company shall be 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx
00000, and may be changed by the Board of Managers from time to time. In the
event that the business address of the Company is changed, prompt written notice
thereof shall be given to all Members.
Section 3.2 Other Offices. The Company may also have offices at other
places, either within or without the State of New York, as the Board of Managers
may from time to time determine in accordance with the terms of this Agreement
or as the business of the Company may require.
ARTICLE IV
Business and Powers
Section 4.1 Business. The business of the Company shall initially be to
establish a community health information network dedicated to improving the
quality and efficiency of the health care system in the New York metropolitan
area by increasing the electronic communication of administrative, financial and
clinical information and to conduct such other lawful activities or businesses
as those Members holding of record at least eighty percent (80%) of all votes
permitted hereunder may determine from time to time.
Section 4.2 Powers. The Company shall have all the powers permitted to a
limited liability company under the LLCL and which are necessary, convenient or
advisable in order for it to conduct its business.
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ARTICLE V
Interests in the Company
Section 5.1 Certificates of Interest. Every holder of record of a
Membership Interest shall be entitled to have a certificate certifying the class
and the Membership Interests owned by such Person in the Company. Each
certificate evidencing ownership of Membership Interests shall bear, and be
subject to, the following legend:
"THE MEMBERSHIP INTERESTS EVIDENCED HEREBY ARE SUBJECT TO AN AMENDED
AND RESTATED OPERATING AGREEMENT DATED AS OF JANUARY 1, 1999 (A COPY
OF WHICH MAY BE OBTAINED FROM THE COMPANY). SUCH OPERATING AGREEMENT
RESTRICTS THE SALE, PLEDGE, HYPOTHECATION AND TRANSFER OF THE
MEMBERSHIP INTERESTS AND CONTAINS PROVISIONS GOVERNING THE VOTING OF
THE MEMBERSHIP INTERESTS. BY ACCEPTING ANY INTEREST IN SUCH
MEMBERSHIP INTERESTS, THE PERSON ACCEPTING SUCH MEMBERSHIP INTERESTS
SHALL BE DEEMED TO AGREE TO, AND SHALL BECOME BOUND BY, ALL THE
PROVISIONS OF SUCH OPERATING AGREEMENT.
NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE MEMBERSHIP INTERESTS EVIDENCED BY THIS
CERTIFICATE MAY BE MADE EXCEPT AS OTHERWISE PROVIDED IN SUCH
OPERATING AGREEMENT."
Each such certificate shall be signed in the name of the Company by the
Chairman, the President or a Vice President of the Company and by the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company.
In case any duly authorized individual who has signed, or whose facsimile
signature has been placed upon, a certificate while such individual was duly
authorized by this Agreement, ceases to be duly authorized before such
certificate is issued, the certificate may nevertheless be issued by the Company
with the same effect as if such individual were duly authorized by this
Agreement at the date of issue.
Section 5.2 General Rights. (a) Membership Interests shall not have a
stated value or, except as otherwise specifically provided herein, any rights to
Distributions unless the Board of Managers, pursuant to the terms hereof, shall
have declared such a Distribution out of funds legally available therefor.
(b) Except as expressly provided herein, no Member shall have priority
over any other Member whether for the return of a Capital Contribution or
Capital Account or for the Net Profits, Net Losses or a Distribution; provided,
however, that the foregoing shall not apply to loans, advances or other
indebtedness (as distinguished from a Capital Contribution) made by a Member to
the Company.
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(c) Except as otherwise expressly provided for in this Agreement, any
action requiring the vote or consent of the Members shall be approved by those
Members holding of record more than fifty percent (50%) of all votes permitted
hereunder at the time such vote is required.
Section 5.3 General Protective Provisions. Notwithstanding anything else to
the contrary contained herein or in the Management Services Agreement, without
first obtaining the written approval of those Members holding of record more
than fifty percent (50%) of all votes permitted hereunder, no Person shall cause
the Company to:
(a) make any material change proposed by the Contract Manager to the
Operating Plan for so long as the Management Services Agreement
shall remain in effect;
(b) admit any new Member (except as shall be provided in Sections 6.4(c)
and 6.9 of this Agreement) and amend this Agreement accordingly;
(c) issue additional Membership Interests in the Company (except as
provided in Section 6.4 of this Agreement) and amend this Agreement
accordingly;
(d) terminate the Management Services Agreement pursuant to the terms
thereof; provided, however, that in determining whether the
necessary percentage required for approval in this Section 5.3(d)
has been received, the vote of Synetic will not be included;
(e) exercise the Warrants and distribute the proceeds therefrom to the
Members; or
(f) amend the Management Services Agreement; provided, however, that in
determining whether the necessary percentage required for approval
in this Section 5.3(f) has been received, the vote of Synetic will
be included.
Section 5.4 Other Protective Provisions. Notwithstanding anything else to
the contrary contained herein or in the Management Services Agreement, without
first obtaining the written approval of those Members holding of record at least
eighty percent (80%) of all votes permitted hereunder (which must include the
approval of Synetic for so long as the Management Services Agreement remains in
effect) no Person shall cause the Company to:
(a) dissolve;
(b) sell all or substantially all of the Company's assets;
(c) merge or consolidate the Company with or into another entity;
(d) convert the Company into another form of business entity;
(e) change the rights or obligations relating to any Membership
Interest in the Company, such that (i) the rights or obligations
of Synetic, or the benefits that may accrue to
13
Synetic, under any Clinical Transaction Contract is affected in a
manner adverse to Synetic in any material respect or (ii) the rights
or obligations of the Company, or the benefits that may accrue to
the Company, under any Managed Care Transaction Contract is
affected in a manner adverse to the Company in any material
respect;
(f) engage in any material transactions or activities not in the
ordinary course of the Company's business, such that (i) the
rights or obligations of Synetic, or the benefits that may
accrue to Synetic, under any Clinical Transaction Contract is
affected in manner adverse to Synetic in any material respect,
(ii) the rights or obligations of the Company, or the benefits
that may accrue to the Company, under any Managed Care
Transaction Contract is affected in a manner adverse to the
Company in any material respect, or (iii) such transactions or
activities expose the assets of the Company to risk or create
additional liabilities of the Company in any material respect;
(g) permit a Member to Transfer its Membership Interest in the Company
(except as provided in Section 19.1(d) of this Agreement);
(h) amend this Agreement (other than as described in Section 6.4 of
this Agreement), such that (i) the rights or obligations of
Synetic, or the benefits that may accrue to Synetic, under any
Clinical Transaction Contract is affected in a manner adverse to
Synetic in any material respect or (ii) the rights or
obligations of the Company, or the benefits that may accrue to
the Company, under any Managed Care Transaction Contract is
affected in a manner adverse to the Company in any material
respect; or
(i) make any changes proposed by a Member other than Synetic to the
Operating Plan for so long as the Management Services Agreement
shall remain in effect.
Section 5.5 Additional Protective Provisions. Notwithstanding anything else
to the contrary contained herein or in the Management Services Agreement,
without first obtaining the written approval of those Members holding of record
at least eighty percent (80%) of all votes permitted hereunder, no Person shall
cause the Company to:
(a) change the rights or obligations relating to any Membership Interest
in the Company (other than as described in Section 5.4(e) of this
Agreement);
(b) engage in any other material transactions or activities not in the
ordinary course of the Company's business (other than as described
in Section 5.4(f) of this Agreement); or
(c) amend this Agreement (other than as described in Sections 5.4(h) and
6.4 of this Agreement).
Section 5.6 Actions Requiring Unanimous Approval of Members.
Notwithstanding anything else to the contrary contained herein or in the
Management Services Agreement, without
14
first obtaining the written approval of those Members holding of record one
hundred percent (100%) of all votes permitted hereunder, no Person shall cause
the Company to:
(a) enter into any agreement with any Member or Affiliate on terms that
are more favorable than those offered to all other Members; and
(b) permit any Member to resign and/or withdraw all or any portion of
its Capital Account (except in connection with the exercise of the
Warrants and the distribution of the proceeds from such exercise, as
provided in Section 5.3(e)).
Section 5.7 Transactions with Affiliates. Nothing in this Agreement shall
preclude transactions between the Company and a Member or any of their
Affiliates, employees or agents acting in and for his/her or its own account,
provided that all such transactions (other than Capital Contributions governed
by Article VI and the provisions of Section 5.3) shall be approved by those
Members holding of record at least fifty percent (50%) of all votes permitted
hereunder (excluding the vote of the interested Member for purposes of
determining such percentage). For purposes of this Section 5.7, the term
"transactions" shall include but not be limited to any modifications,
amendments, extensions, waivers of, or the enforcement of any rights under, any
contract between the Company and a Member or any of their Affiliates, employees
or agents acting in and for his/her or its own account. The Members hereby
acknowledge and agree that concurrently with the execution of this Agreement the
Company shall enter into: (i) the Management Services Agreement; (ii) an
agreement with Synetic to provide the Synetic Contingent Line of Credit; (iii)
an agreement with Synetic to provide the Synetic Working Capital Line of Credit;
(iv) the Warrant Agreement; (v) a Managed Care Transaction Contract with each of
the Payer-Members; and (vi) the GNYHA Contract. The Members further acknowledge
that concurrently with the execution of this Agreement Synetic shall enter into
a Clinical Transaction Contract with each of the Payer-Members.
Section 5.8 Member Voting. Notwithstanding anything contained in this
Article V to the contrary other than the required approval of Synetic in Section
5.4 and the provisions of Section 5.3(f), in determining whether the necessary
percentage required for approval hereunder has been received for any contract or
agreement between the Company and any Member, the vote of the interested Member
shall not be included. The Members hereby acknowledge and agree that neither
Synetic nor the Payer-Members shall be excluded from any vote solely by reason
of the Management Services Agreement, any Clinical Transaction Contract or any
Managed Care Transaction Contract.
ARTICLE VI
Capital Contributions; Members
Section 6.1 Current Contributions. The Capital Contributions made by each
Member as of the Effective Date are as set forth opposite the Member's name on
Schedule I attached hereto. The Members acknowledge that GNYHA has contributed
two (2) capital contribution notes dated of even date herewith but executed
prior hereto, one a recourse note in the amount of One Hundred Seventy Five
Thousand Dollars ($175,000) (the "GNYHA Recourse Note") and the second a
15
nonrecourse note in the amount of Three Hundred Twenty Thousand Dollars
($320,000) (the "GNYHA Nonrecourse Note") which in part comprise the "Current
Contributions" of GNYHA stated on Schedule I and have been included in
determining the "01/01/99 Capital Account Balance" of GNYHA stated on Schedule
I. The Members agree that to the extent any amount is unpaid with respect to
these notes at the maturity dates provided thereby (which in the case of the
GNYHA Nonrecourse Note, notwithstanding anything to the contrary contained
therein, shall be immediately prior to the earlier of the date of withdrawal of
GNYHA from the Company and the date of liquidation of the Company), the Capital
Contributions and Capital Account of GNYHA will be reduced by the unpaid amount.
The Members further agree that, in the event that any amount remains unpaid at
maturity with respect to the GNYHA Recourse Note, GNYHA's Percentage Interest
shall be reduced by the percentage determined by dividing the amount of such
underpayment by One Million Seventy Thousand Dollars ($1,070,000) and the other
Members' Percentage Interests increased proportionately.
Section 6.2 Additional Contributions. Except as required by any provision
of the LLCL that cannot be overridden by agreement of the Members, no Member
will be required to make any additional Capital Contributions to, or restore any
deficit in, its Capital Account.
Section 6.3 Loans. For so long as each of the Management Services Agreement
and the Synetic Working Capital Loan remains in effect, in the event that the
Contract Manager shall determine in its reasonable discretion, at any time and
from time to time, that the Company requires additional funds solely to fund the
Company's cost of sales, operating expenses and capital expenditures as set
forth in the Operating Plan, the Contract Manager shall cause the Company to
borrow additional funds under the Synetic Working Capital Line of Credit.
Section 6.4 Additional Capital. (a) In the event that the Contract Manager
determines, in its reasonable discretion, that an additional Capital
Contribution is needed by the Company to fund its cost of sales, operating
expenses and capital expenditures as set forth in the Operating Plan or to
refinance any indebtedness of the Company at the maturity thereof and the
Company has exhausted all possible capital pursuant to the Synetic Working
Capital Line of Credit, then the Contract Manager shall give notice to each
Member (the "Contribution Notice") of the amount of the required additional
Capital Contribution. Subject to Section 6.4(d), each Member shall then have the
opportunity, but not the obligation, to fund their pro rata share (or any
portion thereof) of the additional Capital Contribution called for (in
proportion to the ratio of each Member's Percentage Interest to the aggregate of
all Members' Percentage Interests in the Company determined on the date the
Contribution Notice is given) no later than ninety (90) days following the date
the Contribution Notice is given.
(b) In the event that any Member fails to contribute (the
"Non-Contributing Member") its pro rata share of any such additional Capital
Contribution called for in Section 6.4(a) or GNYHA Credits are applied for a
portion of such additional Capital Contribution (collectively the "Shortfall"),
then the Contract Manager shall give notice to each of the Members of the
existence and the amount of the Shortfall. Each or all of the Members who funded
their pro rata share of the additional Capital Contribution called for pursuant
to Section 6.4(a) may, at their option, within five (5) business days of receipt
of such notice of Shortfall, make an additional Capital Contribution to
16
the Company to fund their pro rata share of the Shortfall (in proportion to the
ratio of the Percentage Interest of each Member contributing to the Shortfall
(each a "Contributing Member") to the aggregate of the Percentage Interests for
all Contributing Members determined on the date the Contribution Notice is
given). The foregoing process shall be continued until either (i) the full
amount of the Shortfall has been contributed or (ii) no Member agrees to
contribute any additional funds to satisfy the Shortfall; provided, however,
that all contributions to such Shortfall must be made within ten (10) business
days following receipt of the original notice of such Shortfall. If there is a
Shortfall, the Percentage Interest of the Members shall be recalculated, and
Schedule I amended, to reflect the dilution of the Non-Contributing Member's
Percentage Interest and the increase of the Contributing Members' Percentage
Interests. Immediately following the receipt by the Company of all Deemed
Capital Contributions under Section 6.4(a) and this Section 6.4(b), the
Percentage Interest of each Member shall be determined by the ratio of the
aggregate Deemed Capital Contributions of each Member over the aggregate Deemed
Capital Contributions made by all Members. In determining the aggregate Deemed
Capital Contributions of the Members all Deemed Capital Contributions (other
than Deemed Capital Contributions made currently pursuant to Sections 6.4(a) and
(b) and Sections 6.5(c) and 6.6(b)) shall be accounted for and the aggregate
amount of such Deemed Capital Contributions shall be reallocated among the
Members in accordance with their then effective pre-contribution Percentage
Interests and each Member's current Deemed Capital Contribution made currently
pursuant to Sections 6.4(a) and (b) and Sections 6.5(c) and 6.6(b) shall be
added to such Member's reallocated Deemed Capital Contributions; provided,
however, that in calculating the aggregate Capital Contributions for Synetic and
the aggregate contributions of all Members, Synetic's Capital Contributions made
under Section 6.4(a) shall be reduced as appropriate to reflect the thirty
percent (30%) premium called for in Section 6.4(d) (e.g., a Capital Contribution
by Synetic of $130,000 pursuant to Section 6.4(a) will be credited for these
purposes as a Capital Contribution of $100,000).
(c) In the event that the Shortfall is not fully funded by the
Contributing Members pursuant to Section 6.4(b), the Contract Manager shall
retain an independent accounting firm or investment bank to provide a valuation
of the Company and determine the terms and conditions upon which the balance of
the Shortfall would be funded by a third party. The Contract Manager shall
notify the Members of such terms and conditions within five (5) business days
following receipt of the final valuation from such independent accounting firm
or investment bank requesting that the Members contribute the Shortfall on such
terms and conditions. The Members shall notify the Contract Manager of their
intention to contribute their pro rata share of the Shortfall within five (5)
business days following their receipt of the notice from the Contract Manager.
If any Member shall elect not to contribute on such terms and conditions, the
other Members shall be given an opportunity to contribute the remaining balance
of the Shortfall pro rata in accordance with their Percentage Interests. This
procedure shall be repeated until no Member elects to contribute the balance of
any Shortfall; provided that all Member contributions to the Shortfall shall be
fully funded within fifteen (15) business days from the date of the valuation of
the Company. If a Shortfall remains following completion of the foregoing
procedure, then notwithstanding anything in this Agreement to the contrary, the
Contract Manager shall be entitled to offer Membership Interests in the Company
to third parties on terms and conditions as necessary to fund the Shortfall,
admit such third parties as Members, and amend this Agreement accordingly, as
necessary; provided, however, that if the terms and conditions pursuant to which
such Membership Interests are proposed
17
to be sold to third parties are in the aggregate more favorable than the terms
and conditions offered to existing Members pursuant to this Section 6.4(c), the
existing Members shall be given written notice of the terms and conditions
applicable to such third parties and may, by written notice delivered to the
Contract Manager within five (5) business days of receipt of notice of such
terms and conditions, elect to contribute all but not less than all such
additional Capital pro rata on the same terms and conditions offered to such
third parties. If any Member does not elect to contribute within such notice
period, the remaining Members may elect to contribute the amount necessary to
meet the Shortfall provided all such elections are made within ten (10) business
days of the initial notice. If the Members do not elect to contribute the entire
Shortfall within the foregoing notice period, the Contract Manager may sell the
Membership Interests to the third party.
(d) For purposes of Section 6.4(a) (and not Sections 6.4(b) and (c)),
Synetic will be required to participate in additional capital calls at a thirty
percent (30%) premium over its pro rata share, as determined herein, to maintain
its pre-contribution Percentage Interest in the Company provided, that after
taking into account Synetic's required premium, the total additional Capital
Contribution shall not exceed the amount set forth in the applicable
Contribution Notice.
(e) This Section 6.4 shall remain in effect only for so long as the
Management Services Agreement remains in effect; thereafter, any request for
additional Capital shall be made and approved by those Members holding of record
more than fifty percent (50%) of all votes permitted hereunder.
Section 6.5 Payer-Member Capital Credits. (a) For the first six (6) months
following the Effective Date of this Agreement, each Payer-Member shall have the
right to convert its Internal Claims to the Company's network ("Put Right"). The
Company shall provide each Payer-Member with a credit equal to $0.25 per Claim
(a "Payer-Member Capital Credit") submitted to the Company's network during the
Migration Period by physicians and other healthcare providers whose systems,
prior to the exercise of the Put Right, generated Internal Claims to such
Payer-Member. The "Migration Period" shall mean the period from the exercise of
the Put Right to the later of (1) June 1, 2001 and (2), if such Payer-Member has
performed its obligations under the Managed Care Transaction Contract, the date
that is twenty-four (24) months after the date that the Company has implemented,
tested, approved and placed into a production environment the processing of
Claims for such Payer-Member.
(b) The maximum amount of Payer-Member Capital Credits that can be
earned by a Payer-Member for each physician or other healthcare provider
converted to the Company's network shall be equal to the product of: (1) the
average monthly volume of Internal Claims for such Payer-Member conducted during
the twelve (12) months prior to the exercise of the Put Right by such physician
or healthcare provider multiplied by (2) the number of months that such
physician or healthcare provider submits claims through the Company's network
during the Migration Period (the "Credit Maximum"), but in any event shall be
limited to $1.5 million for all Payer-Members. A Payer-Member ceases to earn
Payer-Member Capital Credits when (i) the Credit Maximum for such Payer-Member
has been reached or (ii) $1.5 million of total credits has been earned by the
Payer-Members in the aggregate, whichever occurs first.
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(c) In the event that the Contract Manager makes a call for additional
Capital Contribution pursuant to Section 6.4(a) hereof, then during the three
and one-half (3.5) year period following the Effective Date (the "Credit
Period") the Payer-Members can apply their Payer-Member Capital Credits in lieu
of making cash Capital Contributions (including reimbursements thereof as
described below) in order to maintain their Percentage Interests in the Company
(in no event may a Payer-Member apply these credits to increase its Percentage
Interest in the Company or may a Payer-Member apply the same Payer-Member
Capital Credits more than once to maintain their Percentage Interest in the
Company). In the event that a Payer-Member has: (1) previously made an
additional cash Capital Contribution pursuant to Section 6.4(a) hereof, and (2)
at the time of such contribution had exercised its Put Right, then such
Payer-Member may apply its Payer-Member Capital Credits to be reimbursed for
such cash Capital Contributions subject to all the limitations set forth in this
Section 6.5.
(d) In the event that a Payer-Member applies its Payer-Member Capital
Credits pursuant to the terms of Section 6.5(c) hereof, then the Contract
Manager shall cause the Company to borrow additional capital pursuant to the
Synetic Contingent Line of Credit (or, in the event the Synetic Contingent Line
of Credit has expired, other debt financing) to fund the additional capital
foregone or reimbursed due to a Payer-Member's use of the Payer-Member Capital
Credits.
(e) Notwithstanding anything herein to the contrary, (1) upon expiration
of the Credit Period each Payer-Member shall forfeit all Payer-Member Capital
Credits held by such Payer-Member and shall not earn any additional Payer-Member
Capital Credits and (2) upon any Payer-Member becoming a Breaching Member, such
Breaching Member shall forfeit all Payer-Member Capital Credits held by such
Payer-Member and shall not earn any additional Payer-Member Capital Credits. In
addition, a Breaching Member shall pay to Synetic any outstanding balance of the
Synetic Contingent Line of Credit attributable to Payer-Member Capital Credits
applied by such Breaching Member pursuant to the terms of the Synetic Contingent
Line of Credit.
(f) Unless the Members unanimously agree otherwise, this Section 6.5
shall remain in effect only for so long as the Management Services Agreement
remains in effect.
Section 6.6 GNYHA Credits (a) GNYHA will receive capital credits (the
"GNYHA Credits") based on the Company's ability to meet its projected amount of
revenue recognized (as determined in accordance with generally accepted
accounting principles) for hospital contracts entered into after August 1, 1998,
(including extensions or renewals of current hospital contracts) as agreed to in
the Revenue Plan. The amount of such GNYHA Credits will be calculated as
follows:
(i) If the Company meets or exceeds the Revenue Plan for a Fiscal
Year after the Effective Date of this Agreement, GNYHA will
receive a GNYHA Credit equal to ten percent (10%) of the
revenue recognized on such contracts during such year.
(ii) If the Company achieves seventy percent (70%) of the Revenue
Plan for a Fiscal Year after the Effective Date of this
Agreement, GNYHA will receive
19
a GNYHA Credit equal to two and one-half percent (2.5%) of
such revenue recognized on such contracts during such year.
(iii) If the Company achieves between seventy percent (70%) and one
hundred percent (100%) of the Revenue Plan for a Fiscal Year
after the Effective Date of this Agreement, GNYHA will receive
a GNYHA Credit equal to the sum of (i) two and one-half
percent (2.5%) of such revenue recognized on such contracts
during such year plus (ii) the product of (A) seven and
one-half percent (7.5%) of such revenue recognized on such
contracts during such year multiplied by (B) the percentage
obtained by dividing (x) the excess of the percentage of the
Revenue Plan achieved over seventy percent (70%), by (y)
thirty percent (30%).
(b) GNYHA will be entitled to apply such GNYHA Credit in lieu of making
additional Capital Contributions called for in Sections 6.4(a) and/or (b) hereof
in order to maintain its Percentage Interests in the Company. In no event will
GNYHA be entitled to apply such GNYHA Credit to increase its Percentage
Interests in the Company or may GNYHA apply the same GNYHA Credit more than once
to maintain its Percentage Interest in the Company. In accounting for the
applied GNYHA Credits, an amount equal to the applied GNYHA Credits will be
booked as a receivable, which will be repaid by GNYHA to the Company from
Distributions of Available Cash to which GNYHA is entitled hereunder, with a
corresponding credit reflected in a suspense account pending payment of the
receivable. At such time as the receivable is repaid (in whole or in part) a
book entry shall be made: (i) reducing the balance of the receivable in an
amount equal to the applied GNYHA Credits repaid by Distributions, (ii) reducing
the balance of the suspense account in an amount equal to the applied GNYHA
Credits repaid by Distributions, (iii) reducing GNYHA's Capital Account in an
amount equal to the applied GNYHA Credits repaid by Distributions, and (iv)
increasing GNYHA's Capital Account in an amount equal to the applied GNYHA
Credits repaid by Distributions.
(c) Unless the Members unanimously agree otherwise, this Section 6.6
shall remain in effect only for so long as the Management Services Agreement
remains in effect.
Section 6.7 Withdrawal of Capital. Except as specifically provided in this
Agreement, no Member will be entitled to withdraw all, or any part of, such
Person's Capital Contribution or Capital Account from the Company prior to the
Company's Dissolution and Liquidation. When such withdrawal is permitted, no
Member will be entitled to demand a Distribution of property other than money.
Section 6.8 No Interest on Capital. No Member will be entitled to receive
interest on such Member's Capital Account or any Capital Contribution.
Section 6.9 Admission of Members. Except as described in Section 6.4(c), a
Person shall be admitted to the Company as a Member only (a) upon the Company's
issuance of a Membership Interest to each Person or the Transfer (other than any
pledge or hypothecation) of any Membership Interest to such Person in accordance
with the provisions of Article XIX hereof, and (b) upon
20
receiving the required approval of the Members as provided in Article V, and (c)
provided there has been compliance with the terms contained in Article XIX
hereof. Any new voting Member shall be entitled to appoint a Manager and,
accordingly, the Board of Managers shall be expanded by one.
Section 6.10 Capital Return. Any Member who has received the return of all
or any part of such Person's Capital Contribution pursuant to any Distribution
that has been wrongfully or erroneously made to such Person in violation of the
LLCL, the Articles of Organization or this Agreement, and who knew at the time
of the Distribution that the Distribution violated Section 508(a) of the LLCL,
will be required to return such Distribution to the Company if notice of an
obligation to return such amount is given to such Person within three (3) years
of the date of such return or Distribution; provided, however, that, if such
return of such Person's Capital Contribution or Distribution has occurred
without violation of the LLCL, the Articles of Organization or this Agreement,
the three (3) year obligation to return such Capital Contribution or
Distribution will apply only to the extent necessary to discharge the Company's
liability to its creditors who reasonably relied on such obligation in extending
credit prior to such return of capital.
Section 6.11 Resignation of Member. After giving thirty (30) days prior
written notice to the Board of Managers and upon receiving the unanimous
approval of the Members as required pursuant to Section 5.6(b) hereof, a Member
may resign as a Member from the Company. Any resigning Member who at the time of
such resignation is not in default of any covenant or obligation hereunder or
pursuant to any other agreement relating to the Company shall be entitled to
receive an amount in cash equal to the balance in such Member's Capital Account
in exchange for such Member's Membership Interests. Any such Distribution to a
resigning Member shall be paid to such Member, at the sole discretion of the
remaining Members, either in a lump sum or in monthly installments without
interest, over a period not to exceed sixty (60) months, commencing with the
first day of the second month following the effective date of such resignation;
provided, however, that the Company shall not be obligated to make any such
Distribution to a resigning Member for so long as in the sole opinion of the
remaining Members such Distribution would materially impact the Company's
ability to operate its business. Any Member that resigns as a Member will be
treated as resigning from any and all positions with the Company and shall
immediately cause any and all of its designees or representatives to resign
immediately from any and all positions held with the Company on the effective
date of such Member's resignation. The resignation of any Member as a Member
shall terminate all of such Member's rights and privileges hereunder.
Section 6.12 Removal of Member for Cause. Any Member may be removed as a
Member for Cause upon the unanimous consent of the Members entitled to vote
(other than the Member to be removed) by delivering a copy of such written
consent to such Member. As used herein, a removal for "Cause" shall mean that
the Member to be removed shall have (a) engaged in fraud or embezzlement, (b)
committed an act of dishonesty, gross negligence, willful misconduct, or
malfeasance, in its capacity as a Member, that has had a material adverse effect
on the Company or any other Member, or (c) been convicted of any felony. A
Member that has been removed for Cause pursuant to this Section 6.12 shall be
entitled to receive from the Company an amount in cash equal to eighty percent
(80%) of the balance in such Member's Capital Account in exchange for all of
such Member's Membership Interests; provided, however, that the Company may, in
the sole discretion of the remaining Members, pay such amount in up to sixty
(60) equal interest-free monthly
21
installments, with the first such installment to be made on the first day of the
second month following the date of the written consent removing such Member and
the remaining payments to be made on the first day of each month thereafter.
Notwithstanding the Company's election to make monthly payments in accordance
with this Section 6.12, a Member that has been removed for Cause pursuant to
this Section 6.12 shall be deemed removed on the date of delivery of the written
consent and such removal shall immediately terminate all of such Member's rights
and privileges hereunder. Any Member removed pursuant to this Section 6.12 will
be treated as resigning from any and all positions with the Company and shall
immediately cause any and all of its designees or representatives to resign
immediately from any and all positions held with the Company on the effective
date of such Member's removal. The rights and remedies of the Members pursuant
to this Section 6.12 shall be in addition to and shall not in any way limit or
restrict any other rights or remedies at law or in equity of the Company or the
Members.
Section 6.13 Effect of Event of Withdrawal. Upon an Event of Withdrawal of
a Member, all property of the Company shall for accounting purposes be deemed
sold immediately prior to such withdrawal at the Fair Market Value of such
property. Any gain or loss resulting from such deemed sale shall be allocated
among the Capital Accounts of all Members immediately prior to such withdrawal
in accordance with Article XIII. Except as otherwise provided herein, if the
Company is continued pursuant to Section 17.4 upon an Event of Withdrawal, any
Member who ceases to be a Member upon such Event of Withdrawal other than
pursuant to Sections 6.11 or 6.12 and who at the time of such Event of
Withdrawal is not in default of any covenant or obligation hereunder or pursuant
to any other agreement relating to the Company shall be entitled to receive an
amount in cash equal to the balance in such Member's Capital Account in exchange
for such Member's Membership Interests. Any such Distribution to such Member
shall be paid to such Member, at the sole discretion of the remaining Members,
either in a lump sum or in monthly installments without interest, over a period
not to exceed sixty (60) months, commencing with the first day of the second
month following the effective date of such resignation; provided, however, that
the Company shall not be obligated to make any such Distribution to such Member
for so long as, in the sole opinion of the Board of Managers, such Distribution
would materially impact the Company's ability to operate its business. Any
Member who ceases to be a Member as a result of such Event of Withdrawal will be
treated as resigning from any and all positions with the Company and shall
immediately cause any and all of its designees or representatives to resign
immediately from any and all positions held with the Company on the effective
date of such Event of Withdrawal. The withdrawal of any Member as a Member shall
terminate all of such Member's rights and privileges hereunder.
Section 6.14 Outside Businesses. Any Member may engage in or possess an
interest in other business ventures of any nature or description, independently
or with others. The Company and the Members shall have no rights by virtue of
this Agreement in and to such independent ventures, or the income or profits
derived therefrom, and the pursuit of any such venture shall not be deemed
wrongful or improper.
Section 6.15 Power of Attorney. (a) Each Member hereby appoints the Board
of Managers, and any duly appointed officer of the Company, as its true and
lawful representative and attorney-in-fact, in its name, place and stead to
make, execute, sign, acknowledge, swear to and file: (i) any and all
instruments, certificates, and other documents that may be deemed necessary or
22
desirable to effect the Dissolution and/or Liquidation of the Company, (ii) any
business certificate, fictitious name certificate, amendment thereto, or other
instrument or document of a similar nature necessary or desirable to accomplish
the business, purpose and objectives of the Company, or required by any
applicable federal, state or local law; and (iii) all amendments or
modifications to this Agreement, provided that such amendment or modification
has been approved in accordance with Section 20.1.
(b) The power of attorney hereby granted by each Member is coupled with
an interest, is irrevocable, and shall survive, and shall not be affected by,
the subsequent death, disability, incapacity, incompetency, termination,
Bankruptcy or insolvency of such Member.
Section 6.16 No Claims Among Members. Each Member waives its right to
assert or institute any claim, action or proceeding against any other Member
with respect to the rights or obligations related to this Agreement. Nothing
contained in the preceding sentence shall be construed to limit the Company's
right to assert or institute any claim, action or proceeding against any Member
in accordance with this Agreement.
ARTICLE VII
Meetings
Section 7.1 Annual Meetings. A meeting of the Members shall be held
annually for the transaction of business as may properly come before the Members
at such meeting. The annual meeting shall be held at such place (within or
without the State of New York), date and hour as shall be designated in the
notice by the Company thereof, except that no annual meeting need be held if all
actions required by this Agreement to be taken at an annual meeting of Members
are taken by written consent in lieu of a meeting pursuant to Section 7.10.
Section 7.2 Special Meeting. Special meetings of the Members for any
purpose or purposes may be called by any Member or Members holding of record at
least twenty percent (20%) of the votes permitted hereunder, or by the Board of
Managers, the Contract Manager, the Chairman or the President, and held at such
place (within or without the State of New York), date and hour as shall be
designated in the notice thereof.
Section 7.3 Notice of Meetings. (a) Notice of each meeting of the Members
shall be given not less than ten (10) nor more than sixty (60) calendar days
before the date of the meeting to each Member by mailing such notice, postage
prepaid, to each Member at the address of such Member as it appears on the
records of the Company. Every such notice shall state the place, date, and hour
of the meeting and the purpose or purposes for which the meeting is called.
Except as provided in the immediately succeeding sentence, notice of any
adjourned meeting of the Members need not be given if the time and place thereof
is announced at the meeting at which the adjournment is taken. If the
adjournment is for more than thirty (30) calendar days or if, after the
adjournment, a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given to
23
each Member entitled to vote at such adjourned meeting in the manner and
containing the information set forth in the first and second sentences of this
Section 7.3(a), respectively.
(b) A written waiver of notice, signed by a Member entitled thereto,
whether before or after the notice period required by Section 7.3(a), shall be
deemed equivalent to notice of the meeting relating thereto. Attendance of a
Member in person or by proxy at a Members' meeting shall constitute a waiver of
notice to such Member of such meeting, except when such Member attends the
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not duly called or
convened.
Section 7.4 Record Date. For the purpose of determining the Members
entitled to notice of or to vote at any meeting of the Members or any
adjournment of such meeting, the date five (5) Business Days prior to the date
on which notice of the meeting is mailed shall be the record date for making
such a determination. When a determination of Members entitled to vote at any
meeting of the Members has been made pursuant to this Section 7.4, such
determination of Members shall also apply to any adjournment of the meeting. For
the purpose of determining the Members for any other purpose (excluding
entitlement to Distributions which shall be governed by the provision contained
in Article XIV), the date established by the Board of Managers as the record
date for making such determination shall be deemed to be the record date for
making such a determination.
Section 7.5 List of Members. It shall be the duty of the Secretary, or
other officer of the Company (or a duly qualified transfer agent authorized to
act on behalf of the Company) who shall have charge of the Company's records, to
prepare and keep a complete list of the Members, their addresses and ownership
interests. Such custodian shall make available for inspection such list in
accordance with the provisions of Section 11.2(a).
Section 7.6 Quorum. At each meeting of the Members, except as otherwise
required by law, Members holding of record a majority of the votes permitted
hereunder shall be present in person or by proxy to constitute a quorum for the
transaction of business. In the absence of a quorum at any such meeting or any
adjournment or adjournments thereof, a majority in voting interest of those
present in person or represented by proxy and entitled to vote thereat, or, in
the absence therefrom of all the Members, any officer entitled to preside at, or
to act as secretary of, such meeting may adjourn such meeting from time to time
until the requisite Members for a quorum shall be present in person or by proxy.
At any such adjourned meeting at which a quorum may be present, any business may
be transacted that might have been transacted at the meeting as originally
called.
Section 7.7 Organization. At each meeting of the Members, one of the
following shall act as chairman of the meeting and preside thereat, in the
following order of precedence:
(a) the Chairman;
(b) the Secretary;
24
(c) if the Chairman and the Secretary shall be absent from such meeting,
any other officer of the Company designated by the Board of Managers to act as
chairman of such meeting and to preside thereat; or
(d) in the absence of any of the above, a Member who shall be chosen
chairman of such meeting by a majority in voting interest of the Members present
in person or by proxy and entitled to vote thereat.
The Secretary or, if the Secretary shall be presiding over the meeting in
accordance with the provisions of this Section 7.7 or if he shall be absent from
such meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary shall be present thereat) whom the chairman of such meeting shall
appoint, shall act as secretary of such meeting and keep the minutes thereof.
Section 7.8 Order of Business. The order of business at each meeting of the
Members shall be determined by the chairman of such meeting.
Section 7.9 Voting. (a) Each Member shall, with respect to all matters
requiring its vote, be entitled to one vote in person or by proxy for each
Percentage Interest registered in such Member's name on the transfer books of
the Company on the date fixed pursuant to the provisions of Section 7.4 as the
record date for the determination of Members who shall be entitled to receive
notice of and to vote at such meeting; provided, however, Synetic shall maintain
the voting rights of any interest transferred pursuant to Section 19.1(d)
hereof.
(b) Any vote held by Members may be given at any meeting of the Members
by the Members entitled to vote there at either in person or by proxy appointed
by an instrument in writing fulfilling the requirements of Section 7.12 and
delivered to the secretary of the meeting. The attendance at any meeting of a
Member who may theretofore have given a proxy shall not have the effect of
revoking such proxy unless the Member shall in writing so notify the secretary
of the meeting prior to the voting of the proxy. At all meetings of the Members,
all matters, except as otherwise provided by law or in this Agreement, shall be
decided by the vote of a majority of the votes cast by Members present in person
or by proxy and entitled to vote thereat, a quorum being present. Except as
otherwise expressly required by law, the vote at any meeting or the Members on
any matter need not be by ballot, unless so directed by the chairman of the
meeting. On a vote by ballot, each ballot shall be signed by the Member voting,
or by such Member's proxy, if there be such a proxy, and shall state the number
of votes cast.
Section 7.10 Action by Written Consent. Any action required or permitted to
be taken at any annual or special meeting of the Members may be taken without a
meeting, without prior notice and without a vote if a consent or consents in
writing setting forth the action so taken, shall be signed by the Members who
hold of record the minimum number of votes that would be necessary to authorize
or to take such action at a meeting at which all the Members required to vote
thereon were present and voted and shall be delivered to the Secretary or other
officer of the Company who shall have charge of its records. Every consent must
be signed and dated by the Member or its attorney-in-fact. Any consent given
under a power-of-attorney shall be presented together with the executed, dated
and notarized document granting such power upon the Person claiming the same.
Unless the
25
minimum number of votes necessary to authorize the applicable action
shall have been obtained within thirty (30) days of the date of consent, no
consent shall be valid after the expiration of such thirty (30) day period.
Every consent shall be revocable at the pleasure of the Member executing it
until such time as there have been obtained the minimum number of votes
necessary to authorize the applicable action. In the event of conflicting
consents, the later dated consent shall govern.
Section 7.11 Action by Communication Equipment. The Members may participate
in a meeting of Members by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear or otherwise interactively communicate with each other, and
such participation shall constitute presence in person at such meeting.
Section 7.12 Proxies. (a) A Member may vote in person or by a proxy
executed in writing by the Member or by a duly authorized attorney-in-fact.
Every proxy must be signed and dated by the Member or its attorney-in-fact. Any
proxy given under a power-of-attorney shall be presented together with the
executed, dated and notarized document granting such power upon the Person
claiming the same. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Member executing it, except as
otherwise provided in this Section 7.12. In the event of conflicting proxies,
the later dated proxy shall govern.
(b) Except when other provisions shall have been made by written
agreement between the parties, the holder of record of a Membership Interest who
holds such Membership Interest as nominee, pledgee or otherwise as security
collateral, shall issue to the pledgor or to such owner of such Membership
Interest, if such pledgor or owner be a Member, upon demand therefor and payment
of necessary expenses thereof, a proxy to vote or take other action thereon.
(c) A proxy that is entitled "irrevocable proxy" and that states that it
is irrevocable, is irrevocable when it is held by (i) a pledgee; (ii) a Person
who has purchased or agreed to purchase the Membership Interest at issue, if
any; (iii) a creditor or creditors of the Company who extend or continue credit
to the Company in consideration of the proxy if the proxy states that it was
given in consideration of such extension or continuation of credit, the amount
thereof, and the name of the person extending or continuing credit; (iv) a
Person who has contracted to perform services as an officer of the Company, if a
proxy is required by the contract of employment, if the proxy states that it was
given in consideration of such contract of employment, the name of the employee
and the period of employment contracted for; (v) a Person designated by
agreement to vote the Membership Interests of one or more Members; or (vi) a
nominee duly empowered under a notarized power of appointment of any of the
Persons described in clauses (i)-(v) of this Section 7.12(c).
(d) Notwithstanding a provision in a proxy stating that it is
irrevocable, the proxy becomes revocable after the pledge is redeemed, or the
debt to which it relates is paid, or the period of employment provided for in
the contract of employment has terminated or the agreement referenced in Section
7.12(c)(v) has terminated and, in a case provided for in clause (i) or (ii) of
Section 7.12(c), becomes revocable three (3) years after the date of the proxy
or at the end of the period, if any, specified therein, whichever period is
less, unless the period of irrevocability is
26
renewed from time to time by the execution of a new irrevocable proxy as
provided in this Section 7.12. This Section 7.12(d) does not affect the duration
of a proxy given under Section 7.12(a).
(e) A proxy relating to the voting of a particular Membership Interest
may be revoked, notwithstanding a provision making it irrevocable, by a
purchaser of such Membership Interest who, at the time of such purchase, was
without knowledge of the existence of such proxy.
ARTICLE VIII
Management
Section 8.1 General Powers. (a) Subject to the rights expressly granted to
the Members under the provisions of this Agreement, the Board of Managers and
the authorized officers of the Company shall have the exclusive authority and
responsibility to manage the business of the Company. Such authority and
responsibility as are set forth in the Management Services Agreement are hereby
delegated to the Contract Manager for so long as the Management Services
Agreement remains in effect.
(b) The members of the Board of Managers (the "Managers") shall be
"managers" within the meaning of the LLCL. Except as set forth in this
Agreement, the Board of Managers shall have power and authority, on behalf of
the Company, to take any and all lawful acts that the Board of Managers
considers necessary, advisable, and in the best interests of the Company in
connection with any business of the Company, including, without limitation: (i)
to authorize the purchase, lease or other acquisition, or the sale, lease or
other disposition, of any property; (ii) to open, maintain and close bank
accounts, draw checks or other orders for the payment of moneys and invest the
funds of the Company; (iii) to authorize the purchase of insurance on the
business and assets of the Company; (iv) to commence lawsuits and other
proceedings; (v) to authorize the Company to enter into any agreement,
instrument or other writing; (vi) to retain accountants, attorneys, consultants,
appraisers or other agents or advisors; and (vii) to appoint and remove officers
of the Company. Notwithstanding the foregoing, for so long as the Management
Services Agreement shall remain in effect, the Contract Manager, and not the
Board of Managers, shall have the power and authority, on behalf of the Company,
to take any such acts that are delegated to the Contract Manager pursuant to the
Management Services Agreement, subject to the ultimate power and authority of
the Board of Managers to provide strategic direction to the Company in
accordance with the Operating Plan.
Section 8.2 Binding Authority. Unless specifically authorized to do so by
this Agreement or the Management Services Agreement, no Member or other Person
shall have any power or authority to bind the Company, unless such Member or
other Person has been authorized by the Board of Managers in writing to act on
behalf of the Company.
Section 8.3 Number and Term of Office. The number of Managers constituting
the Board of Managers shall be initially six (6) subject to increase by action
of the Members as provided in Section 6.9. Each of the initial Members shall
have the right to designate in its sole discretion any one of its officers,
directors, or equity holders to be a Manager and its representative on the Board
of
27
Managers and to remove and replace that Manager, in each case by written
notice to the Board of Managers. Each new voting Member shall have the right to
designate in its sole discretion any one of its officers, directors, or equity
holders (or, in the case of a Member that is an individual, any one individual)
to be a Manager and its representative on the Board of Managers and to remove
and replace that Manager, in each case by written notice to the Board of
Managers. In addition to the Managers described above, the President of the
Company shall be a non-voting Manager for so long as he shall hold such office.
Section 8.4 Resignation and Vacancies. (a) Any Manager may resign at any
time by giving written notice of his resignation to the Chairman, the President,
or the Secretary of the Company. Any such resignation shall take effect at the
time specified therein, or, if the time when it shall become effective shall not
be specified therein, when accepted by action of the Board of Managers. Except
as aforesaid, the acceptance of such resignation shall not be necessary to make
it effective.
(b) Any Manager that resigns or dies shall be replaced by any
individual, subject to the limitations in Section 8.3, designated by the Member
who had designated the Manager who had resigned or died such that each Member
(except as may otherwise be provided in any resolution admitting a new Member
pursuant to Sections 5.3(b) and 6.9) shall at all times have one designee on the
Board of Managers.
Section 8.5 Meetings.
(a) Annual Meetings. As soon as practicable after each annual meeting of
Members, the Board of Managers shall meet for the purpose of organization and
the transaction of other business.
(b) Regular Meetings. Regular meetings of the Board of Managers shall be
held at such times as the Board of Managers shall from time to time determine.
(c) Special Meetings. Special meetings of the Board of Managers shall be
held whenever called by the Chairman, the President or any Manager at the time
in office. Any and all business may be transacted at a special meeting that may
be transacted at a regular meeting of the Board of Managers.
(d) Place of Meeting. The Board of Managers may hold its meetings at
such place or places within or without the State of New York as the Board of
Managers may from time to time by resolution determine or as shall be designated
in the respective notices or waivers of notice thereof.
(e) Notice of Meetings. Notice of any regular, special, or adjourned
meeting of the Board of Managers shall be mailed or sent by telecopy, telegraph,
cable or other form of recorded communication or delivered via messenger by the
Secretary or an Assistant Secretary of the Company to each Manager, addressed to
such Person at such Person's residence or usual place of business, so as to be
received at least two (2) weeks before the day on which such meeting is to be
held. Such notice shall include the time and place of such meeting. However,
notice of any such meeting need not be given to any Manager if waived in writing
or by telecopy, telegraph, cable or
28
other form of recorded communication, whether before or after such meeting shall
be held or if such Person shall be present at such meeting.
(f) Quorum and Manner of Acting. Except as otherwise provided by law or
this Agreement, at least eighty percent (80%) of the total number of voting
Managers shall be present at any meeting of the Board of Managers in order to
constitute a quorum for the transaction of business at such meeting. In the
absence of a quorum for any such meeting, the Managers present thereat shall
adjourn such meeting until a quorum shall be present thereat. Each Manager
(other than the President who shall be a non-voting Manager) shall, with respect
to all matters requiring a vote of the Board of Managers, be entitled to vote in
accordance with the percentage set forth on Schedule I (as amended from time to
time) next to the Member's name who appointed such Manager pursuant to Section
8.3. At all meetings of the Board of Managers, all matters, except as otherwise
provided by law or in this Agreement, shall be decided by the vote of a majority
of the votes cast by the Board of Managers, a quorum being present.
(g) Interested Member or Manager. Notwithstanding anything else in this
Agreement to the contrary, with regard to any Board of Managers vote on or
relating to a contract or agreement or proposed contract or proposed agreement
between the Company and a Member, Affiliate of a Member, or Manager
representative, the interested Member and the Manager representative designated
by such interested Member shall recuse themselves from such vote and any
meetings relating to such vote, and such vote shall be decided by the other
Board Managers and be given full effect notwithstanding the absence of vote and
participation by the interested Manager or Member.
(h) Action by Communication Equipment. The Managers may participate in a
meeting of the Board of Managers and members of a committee of the Board of
Managers may participate in a meeting of such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
(i) Action by Consent. Any action required or permitted to be taken by
the Managers or members of a committee of the Board of Managers, as the case may
be, may be taken without a meeting if the number of Managers that would be
necessary to authorize or take such action at a meeting of the Board of
Managers, or the number of members of a committee that would be necessary to
authorize or take such action at a meeting of the committee, as the case may be,
consent thereto in writing and such writing is filed with the minutes of the
proceedings of the Board of Managers or of the committee, as the case may be.
Any such consents must satisfy all of the requirements of Section 7.10 above.
(j) Organization. At each meeting of the Board of Managers, in the
absence of the Chairman, one of the following shall act as chairman of the
meeting and preside thereat, in the following order of precedence: (i) the
President, and (ii) any Manager chosen by a majority of the Managers present.
The Secretary or, in case of the Secretary's absence, any person (who shall be
an Assistant Secretary, if an Assistant Secretary shall be present thereat) whom
the Chairman shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
29
Section 8.6 Compensation; Expenses. (a) Managers, as such, shall not
receive any stated salary for their services, but by resolution of the Board of
Managers may receive a fixed sum for expenses incurred in performing the
functions of Manager, and such additional, reasonable compensation as the Board
of Managers may award from time to time. Nothing herein contained shall be
construed so as to preclude any Manager from serving the Company in any other
capacity and receiving compensation therefor.
(b) The Company shall be responsible for paying, and the Board of
Managers shall pay directly out of Company funds, all ordinary and necessary
costs and expenses incurred in connection with the business of the Company,
including, without limitation, any such expenses incurred by the Managers,
liability and other insurance premiums, expenses in the preparation of reports
to the Members and legal, accounting and other professional fees and expenses.
Section 8.7 Duties of Managers. Each Manager shall perform his duties as a
Manager in good faith and with that degree of care that an ordinarily prudent
person in a like position would use under similar circumstances. In performing
his duties, each Manager shall be entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by: (i) one or more agents or employees of
the Company; (ii) counsel, public accountants or other persons as to matters
that such Manager reasonably believes to be within such person's professional or
expert competence; or (iii) any other Manager duly designated in accordance with
this Agreement, as to matters within his designated authority, which the Manager
believes to merit confidence, so long as in so relying he shall be acting in
good faith and with such degree of care that an ordinarily prudent person in a
like position would use under similar circumstances; provided, however, that a
Manager shall not be considered to be acting in good faith if he has knowledge
concerning the matter in question that would cause reliance on any of the
Persons listed above to be unwarranted. The provisions of this Agreement, to the
extent they restrict the duties and liabilities of a Manager otherwise existing
at law or in equity, are agreed by the parties hereto to replace such other
duties and liabilities of such Manager.
Section 8.8 Committees. The Board of Managers may, by unanimous vote,
establish one or more committees to consist of one or more persons, and each
such committee may be altered or dissolved by the Board of Managers in its sole
discretion. Each duly established committee shall have the powers and perform
such duties as may from time to time be assigned to it by the Board of Managers
and shall be subject to the limitations of this Agreement and applicable law.
Section 8.9 Budget. The Members shall establish an annual operating and
capital budget for the Company (the "Budget"). The Members hereby agree that the
initial Budget for the first five (5) Fiscal Years of the Company shall be as
set forth in the Operating Plan. The Budget as set forth in the Operating Plan
shall remain the Budget for the Company unless such Operating Plan and Budget
are revised or amended in accordance with the provisions of this Agreement. At
least sixty (60) days prior to the commencement of the third (3rd) Fiscal Year
of the Company (i.e., the Fiscal Year ending December 31, 2001), the Contract
Manager (or the Board of Managers if the Management Services Agreement shall no
longer be in effect) shall submit a proposed Budget for such third (3rd) Fiscal
Year of the Company setting forth in the aggregate the Company's estimated cost
of sales, operating expenses and capital expenditures for such Fiscal Year. Upon
the affirmative
30
vote of those Members holding of record fifty percent (50%) or more of the votes
permitted hereunder, the Budget setting forth such aggregate cost of sales,
operating expenses and capital expenditures for such third (3rd) Fiscal Year
shall become effective; provided, however, that no Budget shall be effective
without the consent of the Contract Manager (for so long as the Management
Services Agreement shall remain in effect) unless the aggregate cost of sales,
operating expenses and capital expenditures reflected in such Budget are at
least equal to ninety percent (90%) of the aggregate of such amounts as
reflected in the initial Budget for such third (3rd) Fiscal Year as set forth in
the Operating Plan. Thereafter, the Contract Manager (or the Board of Managers
if the Management Services Agreement shall no longer be in effect) shall submit
a detailed Budget for such third (3rd) Fiscal Year based upon the aggregate
Budget approved by the Members. Upon the affirmative vote of those Members
holding of record fifty percent (50%) or more of the votes permitted hereunder
(which affirmative vote must include the Contract Manager for so long as the
Management Services Agreement shall be in effect), the detailed Budget for the
third (3rd) Fiscal Year shall become effective. At least sixty (60) days prior
to the commencement of the fourth (4th) and fifth (5th) Fiscal Years of the
Company, respectively, the Contract Manager (or the Board of Managers if the
Management Services Agreement shall no longer be in effect) shall submit a
proposed Budget for the fourth (4th) and fifth (5th) Fiscal Years of the
Company, respectively, setting forth in detail the Company's estimated Budget
for such Fiscal Year. Upon the affirmative vote of those Members holding of
record fifty percent (50%) or more of the votes permitted hereunder, the Budget
for such Fiscal Year shall become effective; provided, however, that no Budget
shall be effective without the consent of the Contract Manager (for so long as
the Management Services Agreement shall remain in effect) unless the aggregate
cost of sales, operating expenses and capital expenditures reflected in such
Budget are at least equal to ninety percent (90%) of the aggregate cost of
sales, operating expenses and capital expenditures reflected in the initial
Budget for such Fiscal Year as set forth in the Operating Plan. In the event
that the Members are unable to reach agreement and approve the proposed Budget
for the third (3rd), fourth (4th) or fifth (5th) Fiscal Years, the aggregate
Budget for such items for such Fiscal Year shall be equal to ninety percent
(90%) of the cost of sales, operating expenses and capital expenditures as
reflected in the initial Budget for such Fiscal Year as set forth in the
Operating Plan and such aggregate Budget shall be allocated among the applicable
detailed line items comprising the Budget in a manner reasonably consistent with
such prior Fiscal Year's Budget. Any Budget adopted pursuant to this Section 8.9
shall be substituted for and replace the applicable Fiscal Year's Budget as set
forth in the Operating Plan.
ARTICLE IX
Chairman and Officers
Section 9.1 Chairman. The Chairman shall be the Chairman of the Board of
Managers and the Chairman shall preside at all meetings of the Members and at
all meetings of the Board of Managers and shall perform such other duties and
exercise such other powers as may from time to time be prescribed by the Board
of Managers. At each annual meeting of the Board of Managers at which a quorum
is present, the individual receiving the greatest number of votes shall be
Chairman until his successor is elected at the next annual Board of Managers
meeting or until his resignation or
31
removal in accordance with Section 8.4(b) in which event his replacement shall
become Chairman for the remainder of his term.
Section 9.2 Election, Appointment and Term of Office.
(a) The officers of the Company shall be a President, Treasurer and
Secretary who shall be appointed by and hold office pursuant to this Article IX;
provided that the Contract Manager shall appoint any such officers, which
appointment shall be subject to the reasonable approval of the Board of
Managers, for so long as the Management Services Agreement shall remain in
effect. Any two (2) or more offices may be held by the same person. Each officer
shall hold office until the next annual meeting of the Board of Managers and
until his successor is appointed or until his earlier death, or his earlier
resignation or removal in the manner hereinafter provided.
(b) The Board of Managers, if the Management Services Agreement
shall not be in effect, or the Contract Manager, if the Management Services
Agreement shall be in effect, may appoint such other officers as it deems
necessary, including one or more Vice Presidents, Assistant Vice Presidents,
Assistant Treasurers and Assistant Secretaries; provided that any appointment by
the Contract Manager shall be subject to the reasonable approval of the Board of
Managers. Each such officer shall have such authority and shall perform such
duties as may be provided herein or as the Person who appointed such officer may
prescribe.
(c) If additional officers are elected or appointed during the year,
each of them shall hold office until the next annual meeting of the Board of
Managers and until his successor is appointed or until his earlier death,
resignation or removal.
Section 9.3 Resignation, Removal and Vacancies.
(a) Any officer may resign at any time by giving written notice to
the Board of Managers, and such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, when accepted by action of the Board of Managers. Except as
aforesaid, the acceptance of such resignation shall not be necessary to make it
effective.
(b) All officers elected or appointed under Section 9.2 shall be
subject to removal at any time by the Board of Managers, if the Management
Services Agreement shall not be in effect, or the Contract Manager, if the
Management Services Agreement shall be in effect, with or without cause.
(c) A vacancy in any office may be filled for the unexpired portion
of the term in the same manner as provided for election or appointment to such
office.
Section 9.4 Duties and Functions.
(a) President. The President shall be the chief executive officer of
the Company and shall have the supervision and control over, and responsibility
for, the day-to-day management
32
of the operations of the Company, subject to any strategic direction provided by
the Board of Managers in accordance with the Operating Plan.
(b) Treasurer. The Treasurer shall keep and maintain, or cause to be
kept and maintained, adequate and correct accounts of the properties and
business transactions of the Company, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
Membership Interests. The Treasurer shall disburse the funds of the Company as
may be ordered by the President, taking proper vouchers for such disbursements
and shall render to the Chairman, the Board of Managers and the President,
whenever they shall so request, an account of all of his transactions as
Treasurer and of the financial condition of the Company.
(c) Secretary. The Secretary shall give or cause to be given notice
of all meetings of the Board of Managers and the Members and keep the records of
all meetings of the Board of Managers and the Members. The Secretary shall be
custodian of all contracts, deeds, documents and all other indicia of title to
properties owned by the Company and of its other records and in general shall
have all powers incident to the office of Secretary and perform such duties as
may be prescribed by the President, under whose supervision he shall be.
ARTICLE X
Contracts, Checks, Drafts, Bank Accounts, Proxies, Etc.
Section 10.1 Execution of Documents. Subject to the terms of the Management
Services Agreement to the extent not inconsistent with any other provision
contained herein, the President and any other duly appointed officer of the
Company shall have the power to execute and deliver deeds, leases, contracts,
mortgages and other grants of security interests, bonds, debentures, notes and
other evidences of indebtedness, checks, drafts and other orders for the payment
of money and other documents for and in the name of the Company, and such power
may be delegated (including power to redelegate) by written instrument to
employees or agents of the Company.
Section 10.2 Deposits. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the Company or otherwise
in accordance with Company policy as approved by the Board of Managers.
Section 10.3 Proxies in Respect of Stock or Other Securities of Other
Companies. The President and any other duly appointed officers of the Company
shall have the authority (a) to appoint from time to time an agent or agents of
the Company to exercise in the name and on behalf of the Company the powers and
rights that the Company may have as the holder of stock or other securities in
any other company, (b) to vote or consent in respect of such stock or securities
and (c) to execute or cause to be executed in the name and on behalf of the
Company such written proxies, consents, powers of attorney or other instruments
as he may deem necessary or appropriate in order that the Company may exercise
such powers and rights.
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ARTICLE XI
Books and Records; Right of Inspection; Tax Matters
Section 11.1 Books And Records. The Company will keep accurate books and
records relating to transactions with respect to the assets of the Company based
on Book Values using federal income tax accounting principles. The Company will
also keep the following books and records at the Company's principal office: (i)
a current list of the full name and last known business, residence or mailing
address of each Member, (ii) a copy of the Articles of Organization and of this
Agreement (as well as any signed powers of attorney pursuant to which any such
document was executed); (iii) a copy of the Company's federal, state and local
income tax returns and reports, and annual financial statements of the Company,
for each of the most recent three (3) Fiscal Years; and (iv) minutes, or minutes
of action (or written consent without a meeting), of every meeting of the
Members or the Board of Managers or any committee thereof.
Section 11.2 Information. (a) Each Member has the right to the fullest
extent granted under the LLCL to obtain from the Company; (i) a current list of
the full name and last known business, residence or mailing address of each
Member, (ii) a copy of the Articles of Organization and of this Agreement (as
well as any signed powers of attorney pursuant to which any such document was
executed); (iii) a copy of the Company's federal, state and local income tax
returns and reports, and annual financial statements of the Company, for the
prior six (6) Fiscal Years; and (iv) minutes (or written consents without a
meeting), of every meeting (or action taken by consent) of the Members or the
Board of Managers or any committee thereof.
(b) The Company shall deliver to each Member, as soon as practicable,
but in any event within ninety (90) days after the end of each Fiscal Year of
the Company, audited financial statements, including an income statement of the
Company for such period and a balance sheet and statement of the Percentage
Interests held by each Member as of the end of such period.
Section 11.3 Tax Returns. The Company, at its expense, will cause the
preparation and timely filing (including extensions) of all tax and
informational returns required to be filed by the Company pursuant to the Code
as well as all other required state and local tax and informational returns in
each jurisdiction in which the Company owns property or does business. Within
ninety (90) days following the end of each Fiscal Year, the Company will provide
each Member with all necessary tax reporting information, a copy of the
Company's informational federal income tax return for such Fiscal Year and such
other information as is reasonably necessary to enable the Members to comply
with their tax reporting requirements.
Section 11.4 Tax Elections. The Company shall make and revoke such tax
elections as the Board of Managers may from time to time determine.
Section 11.5 Tax Matters Partner. (a) Synetic, for so long as the
Management Services Agreement shall remain in effect, shall be the tax matters
partner (the "Tax Matters Partner") under ss. 6231(a)(7) of the Code;
thereafter, those Members holding of record more than fifty percent (50%) of all
votes permitted hereunder shall appoint a successor Tax Matters Partner.
34
(b) The Tax Matters Partner will be responsible for notifying all
Members of ongoing proceedings, both administrative and judicial, and will
represent the Company throughout any such proceeding. Each Member agrees, and
each holder of Membership Interests who is not a Member shall be deemed by
virtue of its ownership of Membership Interests to agree, that it will furnish
the Tax Matters Partner with such information as the Tax Matters Partner may
reasonably request in order to allow the Tax Matters Partner to provide the
Internal Revenue Service with sufficient information with respect to any such
proceedings.
(c) If an administrative proceeding with respect to a partnership item
under the Code has begun, and the Tax Matters Partner so requests, each Member
agrees, and each holder of Membership Interests who is not a Member shall be
deemed by virtue of its ownership of Membership Interests to agree, that it will
notify the Tax Matters Partner of its treatment of any partnership item on its
federal income tax return, if any, that is inconsistent with the treatment of
that item on the partnership return for the Company. Any settlement agreement
with the Internal Revenue Service will be binding upon the holder of Membership
Interests only as provided in the Code. The Tax Matters Partner will not bind
any other holder of Membership Interests to any extension of the statute of
limitations or to a settlement agreement without such holder's written consent.
Any holder of Membership Interests who enters into a settlement agreement with
respect to any partnership item will notify the other holders of Membership
Interests of such settlement agreement and its terms within thirty (30) days
from the date of settlement.
(d) If the Tax Matters Partners does not file a petition for
readjustment of partnership items in the Tax Court, Federal District Court or
Claims Court within the ninety (90) day period following a notice of a final
partnership administrative adjustment, any notice partner and 5-percent group
(as such terms are defined in the Code) may institute such action within the
following sixty (60) days. The Tax Matters Partner will timely notify the other
Members in writing of its decision. Any notice partner and 5-percent group will
notify any other Member of its filing of any petition for readjustment.
Section 11.6 No Partnership. The classification of the Company as a
partnership will apply only for federal (and, as appropriate, state and local)
income tax purposes. This characterization, solely for tax purposes, does not
create or imply a general partnership among the Members for state law or any
other purpose. Instead, the Members acknowledge the status of the Company as a
limited liability company formed under the LLCL.
Section 11.7 Title to Company Assets. Title to, and all right and interest
in, the Company's assets shall be acquired in the name of and held by the
Company, or, if acquired in any other name, be held for the benefit of the
Company.
35
ARTICLE XII
Capital Accounts
Section 12.1 Maintenance. Each Member agrees that a single capital account
(each a "Capital Account") will be established and maintained for each Member
and will be credited, charged and otherwise adjusted as provided in this Article
XII and as required by the Regulations promulgated under ss.704(b) of the Code
(the "ss.704(b) Regulations"). The Capital Account of each Member as of January
1, 1999 is as set forth on Schedule 1 and will be:
(a) credited with (i) each Capital Contribution made by such Member,
(ii) such Member's allocable share of Net Profits and other items of income and
gain of the Company (including items of income and gain exempt from tax), and
(iii) all other items properly charged to the Capital Account of such Member as
required by the ss.704(b) Regulations; and
(b) charged with (i) each Distribution made to such Member by the
Company, (ii) such Member's allocable share of Net Losses and other items of
loss and deduction of the Company (including items of loss and deduction that
are not deductible for income tax purposes), and (iii) all other items properly
charged to the Capital Account of such Member as required by the ss.704(b)
Regulations.
Section 12.2 Adjustments. The Members intend to comply with the ss.704(b)
Regulations in all respects, and to agree to adjust their Capital Accounts to
the full extent that the ss.704(b) Regulations may apply (including, without
limitation, applying the concepts of the minimum gain chargebacks and qualified
income offsets). To this end, each Member agrees to make any Capital Account
adjustment that, in the opinion of tax counsel selected by the Board of
Managers, is necessary or appropriate to maintain equality between the aggregate
Capital Accounts of the Members and the amount of capital of the Company
reflected on its balance sheet (as computed for book purposes), as long as such
adjustments are consistent with the underlying economic arrangement of the
Members and are based on, wherever practicable, and consistent with federal tax
accounting principles.
Section 12.3 Market Value Adjustments. Each Member agrees to make
appropriate adjustments to the Capital Account of such Member upon any Transfer
of Membership Interests, including those that apply upon the constructive
liquidation of the Company under ss.708(b)(1) of the Code or the liquidation of
a Member's Membership Interests, all in accordance with the ss.704(b)
Regulations.
Section 12.4 Transfer. Each Member agrees that, if all or any part of its
Membership Interests are Transferred in accordance with this Agreement, except
to the extent otherwise provided in the ss.704(b) Regulations, upon admission of
the transferee as a Member, the Capital Account of the transferor that is
attributable to the Transferred Membership Interests will carry over to the
transferee.
36
ARTICLE XIII
Allocation of Income, Gain, Loss and Deduction
Section 13.1 Determination. Each Member agrees that for each Fiscal Year,
Net Profits and Net Losses, including items of income, gain, loss and deduction
of the Company, will be determined based upon Book Values in accordance with
federal income tax accounting principles consistently applied (including the
ss.704(b) Regulations).
Section 13.2 Allocation of Net Profits and Net Losses. (a) Provided that an
Event of Breach has not occurred, the Net Profits and the Net Losses for each
Fiscal Year shall be allocated to each Member on a pro rata and pari passu basis
in proportion to their Percentage Interests registered on the Company's books in
such Member's name as of the date chosen as the determination date for such
allocation by the Board of Managers.
(b) If an Event of Breach has occurred, then the Net Profits and the Net
Losses for each Fiscal Year shall be allocated as follows:
(i) the Net Profits and the Net Losses, less any Warrant Income, for
each Fiscal Year shall be allocated to each Member on a pro rata and pari
passu basis in proportion to their Percentage Interests registered on the
Company's books in such Member's name as of the date chosen as the
determination date for such allocation by the Board of Managers.
(ii) Warrant Income shall first be divided, but not allocated, for
each Member on a pro rata and pari passu basis in proportion to their
Percentage Interests registered on the Company's books in such Member's
name as of the date chosen as the determination date for such allocation
by the Board of Managers. Each Member who is not a Breaching Member (the
"Non-Breaching Members") shall be allocated their share of Warrant Income
as determined in the preceding sentence. Each Breaching Member's share of
Warrant Income shall be forfeited by such Breaching Member and shall be
allocated as follows:
(I) FIFTY PERCENT (50%) to Synetic; and
(II) FIFTY PERCENT (50%) to the Non-Breaching Members
(including Synetic) on a pro rata basis in proportion to the ratio of each
Non-Breaching Member's Percentage Interest over the aggregate of all
Non-Breaching Members' Percentage Interests. Each Non-Breaching Members
Percentage Interest shall be such interest registered on the Company's
books in such Member's name as of the date chosen as the determination
date for such allocation by the Board of Managers.
37
Section 13.3 Allocation in the Event of Property Distribution. In the event
that property other than cash is distributed to each Member, such property shall
be deemed sold at its Fair Market Value immediately prior to its Distribution,
and any gain or loss resulting from such deemed sale shall be allocated among
the Members in accordance with Section 13.2; provided, however, that if a
distribution of property is made to a Member pursuant to Section 18.3(c), any
gain or loss resulting from a deemed sale of such property shall be specifically
allocated to such Member.
Section 13.4 Special Rules. Notwithstanding the general allocation rules
set forth in Section 13.2 or the allocation rules set forth in Section 13.3, the
following special allocation rules shall apply under the circumstances
described.
(a) Deficit Capital Account and Nonrecourse Debt Rules.
(i) Limitation on Loss Allocations. The Net Losses allocated to any
Member pursuant to Section 13.2 with respect to any Fiscal Year shall not exceed
the maximum amount of Net Losses that can be so allocated without causing such
Member to have a deficit in its Adjusted Capital Account at the end of such
Fiscal Year. All Net Losses in excess of the limitation set forth in the
preceding sentence of this Section 13.4(a)(i) shall be allocated (1) first, to
the maximum extent permitted by the Code and the Regulations, pro rata among the
Members having positive balances in their Adjusted Capital Accounts (after
giving effect to the allocations required by Section 13.2) in the ratio obtained
by dividing (x) each such Member's Capital Account balance by (y) the sum of all
such Members' Capital Account balances and (2) second, any remaining amount to
the Members in the manner required by the Code and the Regulations.
(ii) Qualified Income Offset. If in any Fiscal Year a Member
unexpectedly receives an adjustment, allocation or distribution described in
xx.xx. 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, and such
adjustment, allocation or distribution causes, or increases, a deficit in the
Adjusted Capital Account for such Member, then, before any other allocations are
made under this Agreement or otherwise, such Member shall be allocated items of
income and gain (consisting of a pro rata portion of each item of income,
including gross income and gain) in an amount and manner sufficient to eliminate
such deficit in the Adjusted Capital Account as quickly as possible.
(iii) Company Minimum Gain Chargeback. If there is a net decrease in
Company Minimum Gain during any Fiscal Year, each Member shall be allocated
items of income and gain for such Fiscal Year (and, if necessary, for subsequent
Fiscal Years) in proportion to, and to the extent of, an amount equal to the
portion of such Member's share of the net decrease in Company Minimum Gain
during such Fiscal Year, subject to the exceptions set forth in xx.xx.
1.704-2(f)(2), (3) and (5) of the Regulations; provided that, if the Company has
any discretion as to an exception set forth in ss. 1.704-2(f)(5), the Tax
Matters Partner (with the consent of the other Members) shall exercise such
discretion on behalf of the Company. The Tax Matters Partner shall, if the
application of this Section 13.4(a)(iii) would cause a distortion in the
economic arrangement among the Members, ask the Commissioner of the Internal
Revenue Service to waive the Company Minimum Gain Chargeback requirements
pursuant to ss. 1.704-2(f)(4) of the Regulations. To the extent that this
Section is inconsistent with ss. 1.704-2(f) or 1.704-2(k) of the Regulations or
incomplete with respect
38
to such Sections of the Regulations, the Company Minimum Gain Chargeback
provided for herein shall be applied and interpreted in accordance with such
Sections of the Regulations.
(iv) Member Minimum Gain Chargeback. If there is a net decrease in
Member Minimum Gain during any Fiscal Year, each Member shall be allocated items
of income and gain for such Fiscal Year (and, if necessary, for subsequent
Fiscal Years) in proportion to, and to the extent of, an amount equal to such
Member's share of the net decrease in Member Minimum Gain during such Fiscal
Year, subject to the exceptions set forth in ss.ss.1.704-2(f)(2), (3), and (5)
of the Regulations as referenced by ss.1.704-2(i)(4) of the Regulations. The Tax
Matters Partner shall, if the application of this Section 13.4(a)(iv) would
cause a distortion in the economic arrangement among the Members, ask the
Commissioner of the Internal Revenue Service to waive the Member Minimum Gain
Chargeback requirement pursuant to ss.1.704-2(i)(4) of the Regulations. To the
extent that this Section 13.4(a)(iv) is inconsistent with ss.ss.1.704-2(i)(4) or
1.704-2(k) of the Regulations or incomplete with respect to such Sections of the
Regulations, the Member Minimum Gain Chargeback provided for herein shall be
applied and interpreted in accordance with such Sections of the Regulations.
(v) Member Nonrecourse Deductions. Member Nonrecourse Deductions
shall be allocated among the Members in accordance with the ratios in which the
Members share the economic risk of loss for the Member Nonrecourse Debt that
gave rise to those deductions as determined under ss.1.752-2 of the Regulations.
This allocation is intended to comply with the requirements of ss.1.704-2(i) of
the Regulations and shall be interpreted and applied consistent therewith.
(vi) Limited Effect and Interpretation. The special rules set forth
in Sections 13.4(a)(i), (ii), (iii), (iv) and (v) (the "Regulatory Allocations")
shall be applied only to the extent required by applicable Regulations for the
resulting allocations provided for in this Section 13.4, taking into account
such Regulatory Allocations, to be respected for federal income tax purposes.
The Regulatory Allocations are intended to comply with the requirements of
ss.ss.1.704-1(b), 1.704-2 and 1.752-1 through 1.752-5 of the Regulations and
shall be interpreted and applied consistently therewith.
(vii) Curative Allocations. The Regulatory Allocations may not be
consistent with the manner in which the Members intend to divide the Net
Profits, Net Losses and similar items. Accordingly, Net Profits, Net Losses and
other items will be reallocated among the Members in a manner consistent with
ss.ss.1.704-1(b) and 1.704-2 of the Regulations so as to negate as rapidly as
possible any deviation from the manner in which Net Profits, Net Losses and
other items are intended to be allocated among the Members pursuant to Sections
13.2 and 13.3 that is caused by the Regulatory Allocations.
(viii)Change in Regulations. If the Regulations incorporating the
Regulatory Allocations are hereafter changed or if new Regulations are hereafter
adopted, and such changed or new Regulations, in the opinion of independent tax
counsel for the Company, make it necessary to revise the Regulatory Allocations
or provide further special allocation rules in order to avoid a significant risk
that a material portion of any allocation set forth in this Article XIII would
not be
39
respected for federal income tax purposes, the Members shall make such
reasonable amendments to this Agreement as, in the opinion of such counsel, are
necessary or desirable, taking into account the interests of the Members as a
whole and all other relevant factors, to avoid or reduce significantly such risk
to the extent possible without materially changing the amounts allocable and
distributable to any Member pursuant to this Agreement.
(b) Change in Member's Interests. If there is a change in any Member's
share of the Net Profits, Net Losses or other items of the Company during any
Fiscal Year, allocations among the Members shall be made in accordance with
their interests in the Company from time to time during such Fiscal Year in
accordance with ss. 706 of the Code, using the closing-of-the-books method,
except that Depreciation, amortization and similar items shall be deemed to
accrue ratably on a daily basis over the entire Fiscal Year during which the
corresponding asset is owned by the Company if such asset is placed in service
prior to or during the Fiscal Year.
(c) Special Allocation on Sale of Assets to Synetic or a Synetic
Affiliate. In the event of a sale of all or substantially all of the assets of
the Company to Synetic or a Synetic Affiliate, any resulting gain or loss shall
be allocated among the Members such that the ratio of each Member's Capital
Account balance to the aggregate Capital Account balance of all Members
following such allocation is equal to such Member's Percentage Interest at such
time.
Section 13.5 Tax Allocations (a) In General. Except as set forth in Section
13.4, allocations for tax purposes of items of income, gain, loss and deduction,
and credits and basis therefor, shall be made in the same manner as allocations
for book purposes as set forth in Sections 13.2 and 13.3. Allocations pursuant
to this Section 13.5 are solely for purposes of federal, state and local income
taxes and shall not affect, or in any way be taken into account in computing,
any Member's Capital Account or share of Net Profits, Net Losses, other items or
Distributions pursuant to any provision of this Agreement.
(b) Special Rules. (i) Elimination of Book/Tax Disparities. In
determining a Member's allocable share of the Company's taxable income, the
Member's allocable share of each item of Net Profits and Net Losses shall be
properly adjusted to reflect the difference between such Member's share of the
adjusted tax basis and the Book Value of the Company's assets used in
determining such item. With respect to Depreciation, in determining the taxable
income allocable to such Member, Net Profits and Net Losses allocable to such
Member shall be adjusted by eliminating Depreciation allocable to such Member
and substituting therefor tax depreciation allocatable to such Member determined
by reference to such Member's share of the tax basis of the Company's assets.
This provision is intended to comply with the requirements of ss. 704(c) of the
Code and ss. 1.704-1(b)(2)(iv)(f) of the Regulations and shall be interpreted
and applied consistently therewith.
(ii) Allocation of Items Among Members. Except as otherwise provided
in Section 13.5(a), each item of income, gain, loss and deduction and all other
items governed by ss. 702(a) of the Code shall be allocated among the Members in
proportion to the allocation of Net Profits and Net Losses set forth in Sections
13.2, provided that any gain recognized from any disposition of a Company asset
that is treated as ordinary income because it is attributable to the recapture
of any Depreciation or amortization shall be allocated among the Members in the
same
40
ratio as the prior allocations of Net Profits, Net Losses or other items
that included such Depreciation or amortization, but not in excess of the gain
otherwise allocatable to each Member.
(iii) Tax Credits. All tax credits shall be allocated among the
Members in accordance with applicable law.
(c) Conformity of Reporting. The Members are aware of the income tax
consequences of the allocations made by this Section 13.5 and hereby agree to be
bound by the provisions of this Section 13.5 in reporting their shares of the
Company's profits, gains, income, losses, deductions, credits and other items
for income tax purposes.
ARTICLE XIV
Distributions
Section 14.1 Distributions. (a) Except as otherwise provided in this
Agreement, the Board of Managers shall cause the Company to distribute Available
Cash to all Members in accordance with this Section 14.1, quarterly prior to
Dissolution to the Members on a pro rata and pari passu basis in proportion to
the Percentage Interests registered in each Member's name on the Company's books
as of the date chosen by the Board of Managers. For the purpose of determining
the Members entitled to receive payment of any Distribution, the resolution
declaring a Distribution as adopted by the Board of Managers shall declare a
record date for purposes of the Distribution, which date shall be at least five
(5) business days after the effective date of such resolution.
(b) Subject to the Member approval required pursuant to Section 5.3(e),
the Board of Managers shall cause the Company to distribute Warrant Proceeds as
follows:
(i) Provided that an Event of Breach has not occurred, as soon as
practicable following the receipt of Warrant Proceeds by the Company, the
Board of Managers shall cause the Company to distribute such Warrant
Proceeds to all Members in accordance with this Section 14.1 to the
Members on a pro rata and pari passu basis in proportion to the Percentage
Interests registered in each Member's name on the Company's books as of
the date chosen by the Manager.
(ii) If an Event of Breach has occurred, then the Board of Managers
shall cause the Company to distribute Warrant Proceeds in the following
manner. Warrant Proceeds shall first be divided into shares for each
Member on a pro rata and pari passu basis in proportion to their
Percentage Interests registered in each Member's name on the Company's
books as of the date chosen by the Board of Managers. Each Member who is a
Non-Breaching Member shall be distributed their share of Warrant Proceeds
as determined in the preceding sentence. Each Breaching Member's share of
Warrant Proceeds shall be forfeited by such Breaching Member and shall be
distributed as follows:
(I) FIFTY PERCENT (50%) to Synetic; and
41
(II) FIFTY PERCENT (50%) to the Non-Breaching Members on a pro
rata basis in proportion to the ratio of each Non-Breaching Member's
Percentage Interest over the aggregate of all Non-Breaching Members'
Percentage Interests. Each Non-Breaching Member's Percentage
Interest shall be such interest registered on the Company's books in
such Member's name as of the date chosen by the Board of Managers.
Section 14.2 Withholding. (a) If required by the Code, or by state or local
law, the Company will withhold any required amount from Distributions to a
Member for payment to the appropriate taxing authority. Any amount so withheld
from a Member will be treated as a Distribution by the Company to such Member.
Each Member agrees to timely file any document that is required by any taxing
authority in order to avoid or reduce any withholding obligation that would
otherwise be imposed on the Company.
(b) To the extent any amount is required to be withheld with respect to
a Member and paid over to an appropriate taxing authority which amount is in
excess of the amounts distributed to such Member in respect of such withholding,
the amounts paid to the taxing authority in respect of such withholding shall be
treated as a Distribution to such Member and a corresponding Distribution shall
be made to each other Member in proportion to the number of Membership Interests
registered on the Company's books in such Member's name. To the extent that cash
is not available to make any of the Distributions required under this Section
14.2(b), such Distribution shall be delayed and paid out of the next Available
Cash.
Section 14.3 Offset. The Company may offset all amounts owing to the
Company by a holder of Membership Interests against any Distribution to be made
to such holder.
Section 14.4 Limitation Upon Distributions. No Distribution shall be
declared and paid to the extent that, at the time of the Distribution, after
giving effect to the Distribution, all liabilities of the Company (other than
liabilities to Members on account of their interest in the Company and
liabilities for which recourse of creditors is limited to specified property of
the Company) exceed the Fair Market Value of the assets of the Company (except
that the Fair Market Value of property that is subject to a liability for which
the recourse of creditors is limited shall be included in the assets of the
Company only to the extent that the Fair Market Value of such property exceeds
such liability). To the extent that any Distribution made pursuant to Section
14.2(b) would be limited by reason of this Section 14.4, the aggregate
Distributions under Section 14.2(b) which includes such Distribution shall be
treated as a loan to such Member that is payable on demand.
ARTICLE XV
Indemnification
Section 15.1 Indemnification. (a) The Company shall indemnify and hold
harmless each Manager and any representative, officer, shareholder, director,
agent, and independent contractor of
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each Manager (collectively, the "Indemnified Party"), in accordance with this
Article XV, from and against any and all losses, claims, damages, liabilities,
expenses (including legal and other professional fees and disbursements),
judgments, fines, settlements, and other amounts (collectively, the
"Indemnification Obligations") arising from any and all claims, demands,
actions, suits or proceedings (civil, criminal, administrative or
investigative), actual or threatened, in which such Indemnified Party may be
involved, as a party or otherwise, by reason of such Indemnified Party's service
to, or on behalf of, or management of the affairs of, the Company, or rendering
of advice or consultation with respect thereto, or which relate to the Company,
its properties, business or affairs, whether or not the Indemnified Party
continues to be a Manager, representative or officer at the time any such
Indemnification Obligation is paid or incurred, provided that such
Indemnification Obligation resulted from a mistake of judgment, or from action
or inaction of such Indemnified Party that did not constitute gross negligence,
willful misconduct or bad faith. The Company shall also indemnify and hold
harmless any Indemnified Party from and against any Indemnification Obligation
suffered or sustained by such Indemnified Party by reason of any action or
inaction of any employee, broker or other agent of such Indemnified Party,
provided, that such employee, broker or agent was selected, engaged or retained
by such Indemnified Party with reasonable care. The termination of a proceeding
by judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not, of itself, create a presumption that such
Indemnification Obligation resulted from the gross negligence, willful
misconduct or bad faith of such Indemnified Party.
(b) To the fullest extent permitted by applicable law, expenses
(including reasonable legal and other professional fees and disbursements)
incurred by an Indemnified Party in defending any claim, demand, action, suit or
proceeding (including but not limited to proceedings relating to the performance
of a Manager's duties under Section 8.7(a)) shall, from time to time, be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Company of an undertaking by or
on behalf of the Manager to repay such amount if it shall be determined by a
court of competent jurisdiction having final or unappealed dispositive authority
over such matter that the Manager is not entitled to be indemnified as
authorized by this Article XV.
Section 15.2 Indemnification Not Exclusive. The indemnification provided by
this Article XV shall not be deemed to be exclusive of any other rights to which
each Indemnified Party may be entitled under any agreement, or as a matter of
law, or otherwise, both as to action in such Indemnified Party's official
capacity and to action in another capacity, and shall continue as to such
Indemnified Party who has ceased to have an official capacity for acts or
omissions during such official capacity or otherwise when acting at the request
of the Manager, or any Person granted authority thereby, and shall inure to the
benefit of the heirs, successors and administrators of such Indemnified Party.
Section 15.3 Insurance on Behalf of Indemnified Party. The Board of
Managers shall have the power, but not the obligation, to purchase and maintain
insurance on behalf of each Indemnified Party, at the expense of the Company,
against any liability which may be asserted against or incurred by it or him in
any such capacity, whether or not the Company would have the
43
power to indemnify the Indemnified Parties against such liability under the
provisions of this Agreement.
Section 15.4 Indemnification Limited by Law. Notwithstanding any of the
foregoing to the contrary, the provisions of this Article XV shall not be
construed so as to provide for the indemnification of an Indemnified Party for
any liability to the extent (but only to the extent) that such indemnification
would be in violation of applicable law or to the extent that such liability may
not be waived, modified or limited under applicable law, but shall be construed
so as to effectuate the provisions of this Article XV to the fullest extent
permitted by law.
ARTICLE XVI
Accounting Provisions
Section 16.1 Fiscal Year. For income tax and financial accounting purposes,
the Fiscal Year of the Company will end on December 31 of each year (unless
otherwise required by the Code).
Section 16.2 Accounting Method. For income tax and financial accounting
purposes, the Company will use the accrual method of accounting.
ARTICLE XVII
Dissolution
Section 17.1 Dissolution. Dissolution of the Company will occur upon the
happening of any of the following events: (i) an Event of Withdrawal of a
Member, unless, after giving effect to such Event of Withdrawal, the Company is
continued as provided in Section 17.4; (ii) upon the sale of all or
substantially all of the Company's assets; (iii) the conversion of the Company
into a corporation or other Person, (iv) the vote of those members (which vote
must include Synetic for so long as the Management Services Agreement remains in
effect) holding at least eighty percent (80%) of all votes authorized hereunder;
or (v) the entry of a decree of judicial dissolution pursuant to Section 702 of
the LLCL.
Section 17.2 Events of Withdrawal. Within ten (10) days after the
occurrence of an Event of Withdrawal with respect to any Member, such Member (or
such Member's legal representative or other successor in interest) shall give
notice to the Company of the occurrence of such Event of Withdrawal. Absent such
notice, a Member's Event of Withdrawal will be deemed to occur upon the date any
other Member has actual notice of such Event of Withdrawal. Upon the occurrence
of a Event of Withdrawal with respect to any Member, such Member shall be
treated as having resigned as a Member pursuant to Section 6.11 with the
approval of the Members.
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Section 17.3 Bankruptcy. The bankruptcy ("Bankruptcy") of a Member will be
deemed to occur when (a) such Person shall commence any case, proceeding or
other action (i) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship
or relief of debtors seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (ii) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or such Person
shall make a general assignment for the benefit of its creditors; (b) there
shall be commenced against such Person any case, proceeding or other action of a
nature referred to in clause (a) above that (i) results in the entry of an order
for relief or any such adjudication or appointment or (ii) remains undismissed,
undischarged or unbonded for a period of sixty (60) days; or (c) there shall be
commenced against such Person any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets that results in the entry of
an order for any such relief that shall not have been vacated, discharged, or
stayed or bonded pending appeal within sixty (60) days from the entry thereof.
Section 17.4 Continuation. Upon the occurrence of an Event of Withdrawal
with respect to a Member pursuant to Section 17.2 hereof, the Company will be
continued if, (a) within ninety (90) days following such event, the remaining
Members holding of record more than fifty percent (50%) of all votes permitted
hereunder consent in writing to continue the Company's business as a limited
liability company under the LLCL and this Agreement and the Company and the
remaining Member(s) agree to indemnify the withdrawing Members against any
claims arising with respect to events occurring after the withdrawing Members'
withdrawal. If the business of the Company is so continued, such Event of
Withdrawal will not cause the Dissolution of the Company.
ARTICLE XVIII
Liquidation
Section 18.1 Liquidation. Upon Dissolution of the Company, the Company will
immediately proceed to wind up its affairs and liquidate. The Liquidation of the
Company will be accomplished in a businesslike manner by such Person or Persons
designated by the Board of Managers, which Person(s) shall be entitled to
reasonable compensation therefore. A reasonable time will be allowed for the
orderly Liquidation of the Company and the discharge of liabilities to creditors
so as to enable the Company to minimize any losses attendant upon Liquidation.
Any gain or loss on disposition of any Company assets in Liquidation will be
allocated among the Members and credited or charged to Capital Accounts in
accordance with the provisions of this Agreement. Until the filing of the
articles of dissolution under Section 18.6 and without affecting the liability
of Members and without imposing liability on the liquidating trustee, the Person
or Persons conducting the liquidation may settle and close the Company's
business, prosecute and defend suits, dispose of its property, discharge or make
provision for its liabilities, and make Distributions in accordance with the
priorities set forth in Section 18.3. The Members shall not be obligated to
restore any negative balances in their Capital Accounts on the liquidation of
the Company.
45
Section 18.2 Tax Termination. In addition to termination of the Company
following its Dissolution, a termination of the Company will occur for federal
income tax purposes on the date the Company is terminated under ss.708(b)(1) of
the Code. Under current law, events causing such a termination include the sale
or exchange of fifty percent (50%) or more of the total interest in the capital
and profits of the Company within a 12-month period. Upon the occurrence of a
termination under ss.708(b)(1) of the Code, a constructive liquidation and
constructive reformation of the Company as a tax partnership will be deemed to
occur for federal income tax purposes. All adjustments and computations will be
made under this Agreement as if the constructive transactions had actually
occurred, and the Capital Accounts of the Members in such new tax partnership
will be determined and maintained in accordance with the ss.704(b) Regulations.
Section 18.3 Priority of Payment. The assets of the Company will be
distributed in Liquidation in the following order:
(a) To creditors, including Members who are creditors, by the
payment or provision for payment of the debts and liabilities of the Company
and the expenses of Liquidation;
(b) To the setting up of any reserves that are reasonably necessary
for any contingent or unforeseen liabilities or obligations of the Company;
and
(c) To the Members in proportion to their Capital Accounts; provided,
that if a Member made a Capital Contribution of property other than cash, then
such property (if still in the possession of the Company) may be distributed to
such Member, in the sole discretion of the Board of Managers, and the
distribution of such other property shall be reflected on the Company's books at
such property's then Fair Market Value and any gain or loss resulting therefrom
shall be allocated specifically to the Member receiving such property in
accordance with the provisions of Section 13.3.
Section 18.4 Timing. Final Distributions in Liquidation (except in the case
of a constructive Liquidation under Section 18.2) will be made by the end of the
Company's Fiscal Year in which such actual Liquidation occurs (or, if later,
within ninety (90) days after such event) in the manner required to comply with
the ss.704(b) Regulations. Payments of Distributions in Liquidation may be made
to a liquidating trust established by the Company for the benefit of those
entitled to payments under Section 18.3 in any manner consistent with this
Agreement and the ss.704(b) Regulations.
Section 18.5 Liquidating Reports. A report will be submitted with each
liquidating Distribution to the Members, showing the collections, disbursements
and Distributions during the period which is subsequent to any previous report.
A final report, showing cumulative collections, disbursements and Distributions,
will be submitted upon completion of the Liquidation process.
Section 18.6 Articles of Dissolution. Within ninety (90) days following the
Dissolution of the Company and the commencement of winding up of its business,
or at any other time there are no Members, the Company will file Articles of
Dissolution (to cancel the Articles of Organization) with
46
the Secretary of State of the State of New York pursuant to the LLCL. At such
time, the Company will also file an application for withdrawal of its
certificate of authority in any jurisdiction where it is then qualified to do
business.
ARTICLE XIX
Transfer Restrictions
Section 19.1 Restrictions on Transfer of Membership Interests. (a) No
Person shall directly or indirectly Transfer any Membership Interest or any
interest therein except as may be expressly permitted by this Agreement.
(b) No Person shall Transfer any Membership Interest or any interest
therein without obtaining the approval of the Members required under Section
5.4(g) hereof.
(c) No Membership Interest or any interest therein may be Transferred
unless the transferee executes and delivers to the Board of Managers an
instrument pursuant to which he or it agrees to be bound by the terms of this
Agreement. No Transfer of a Membership Interest, or Transfer of an indirect
interest in the Company, or any portion of either thereof, shall be made if such
Transfer, or the transferee's, ownership as the case may be, of such Membership
Interest or indirect interest in the Company, would:
(i) result by itself, or in combination with any other previous
Transfers, in the termination of the Company as a partnership for federal
income tax purposes;
(ii) result in the violation of the Securities Act of 1933 or any
other applicable federal or state laws or local laws;
(iii) be a violation of or a default under (or an event that, with
notice or the lapse of time or both, would constitute a default), or
result in an acceleration of any indebtedness under, any note, mortgage,
loan agreement or similar instrument or document to which the Company is a
party;
(iv) result in or create a "prohibited transaction" or cause the
Company or a Member to be or become a "party in interest", as such terms
are defined in ss.3(3) of ERISA, or a "disqualified person", as defined in
ss.4975 of the Code, with respect to any "plan", as defined in ss.3(14) of
ERISA and/or ss.4975 of the Code; or result in or cause the Company or any
Member to be liable for tax under Chapter 42 of the Code;
(v) be a Transfer to an individual who is not legally competent or
who has not achieved his or her majority under the law of the state
(excluding trusts for the benefit of minors);
47
(vi) cause the Company or any Member (other than the transferee) to
be subject to any excise tax pursuant to Chapter 42A of Subtitle D of the
Code; or
(vii) be a Transfer to a "tax-exempt entity" or a "tax-exempt
controlled entity" within the meaning of ss.ss.168(h)(2) and
168(h)(6)(F)(ii), respectively, of the Code.
The Company shall not transfer on its books any Membership Interest or issue any
certificate or other document representing a Membership Interest or any interest
in the Company unless, in the opinion of counsel to the Company, there has been
compliance with all of the material conditions hereof affecting the Membership
Interests and any such attempted Transfer in violation of this Agreement shall
be void and of no effect.
(d) Notwithstanding the general prohibition on Transfers contained in
this Section 19.1, Synetic shall be permitted to Transfer up to and including
two percent (2%) of the Membership Interests ("Permitted Transfer"); provided,
however, that any such transfer by Synetic shall not include a transfer of
related voting rights and Synetic shall maintain all voting rights associated
with such Permitted Transfer.
Section 19.2 First Refusal Rights. Subject to the approval required by
Section 5.4(g), (a) If any holder of Membership Interests shall receive a bona
fide offer or enters or intends to enter into an agreement (the "Offer") for the
sale of one or more of the Membership Interests held of record by such holder to
an independent third party (the "Outside Party"), such holder (the "Selling
Holder") shall have the Offer reduced to writing and shall give notice (the
"Option Notice") to the Company and the Members other than the Selling Holder
containing the name and address of the Outside Party and accompanied by a copy
of the Offer. The Membership Interests subject to the Offer are referred to
herein as the "Offered Membership Interests."
(b) Upon the giving of the Option Notice and subject to Section 19.2(d),
the Company, to the extent permitted by law, shall have the right, but not the
obligation (the "Company Right") to purchase, at an amount equal to the Offer
price, on such other terms and subject to the conditions specified in the Offer,
all or part of the Offered Membership Interests covered by the Option Notice.
Within thirty (30) days after the date of the Option Notice, the Company shall
notify the Selling Holder and all of the other Members (the "Company Notice")
whether and to what extent it intends to exercise the Company Right. Failure to
deliver the Company Notice within such period shall constitute a waiver of the
Company Right.
(c) In the event that the Company does not exercise the Company Right as
to all of the Offered Membership Interests and subject to Section 19.2(d), each
of the other Members shall have the right, but not the obligation (the "Member
Right") to purchase, at the price, on the terms and subject to the conditions
specified in the Offer, such Member's Percentage Interest of the Offered
Membership Interests by notifying the Selling Holder, the other Members and the
Company in writing (the "Member Notice") within thirty (30) days after the date
of the Option Notice whether and to what extent such Member intends to exercise
the Member Right. If any Member fails to exercise the Member Right as to all of
its Percentage Interest of the Offered Membership Interests, then any of the
other Members shall have the right to purchase all or part of the Offered
Membership
48
Interests that such Member has elected not to purchase by amending
its respective Member Notice within five (5) days after the date that it
receives notice that any other Member has so declined to exercise the Member
Right in full. Failure to deliver the Member Notice within the applicable
periods shall constitute a waiver of such Member's purchase right as to the
Offered Membership Interests.
(d) In the event that all of the Offered Membership Interests are
covered by the Company Notice and/or the Member Notice, the Selling Holder shall
have the obligation to sell to the Company and/or the Members, as the case may
be, such portion of the Offered Membership Interests as are covered by the
Company Notice and the Member Notice. In the event that all of the Offered
Membership Interests are not covered by the Company Notice and/or the Member
Notice, the Selling Holder may sell such Offered Membership Interests to the
Outside Party on terms not more favorable to such Outside Party than those
contained in the Offer. In the event that such terms are more favorable or if
such sale to the Outside Party is not consummated within the time period
specified herein, the Offered Membership Interests shall again be subject to the
restrictions contained in this Agreement.
(e) The closing for any purchase of Offered Membership Interests by the
Company and/or any Members pursuant to this Section 19.2 shall be held at 10:00
A.M. (local time) at the offices of the Company on the seventieth (70th) day
after the date of the Option Notice or at such other time and place as the
parties shall agree. The closing of a purchase of one or more Offered Membership
Interests by an Outside Party shall occur within eighty (80) days after the
giving of the Option Notice. At the closing, the Company, the applicable Members
or the Outside Party, as the case may be, shall pay for the Offered Membership
Interests in accordance with the terms of the Offer. The Selling Holder shall
deliver certificates representing the Membership Interests being Transferred,
free and clear of all liens, charges and encumbrances and properly endorsed for
Transfer.
Section 19.3 No Member Rights. No Member, or holder of Membership Interests
which is not a Member has the right or power to confer upon any transferee the
attributes of a Member in the Company and no transferee of Membership Interests
shall be admitted as a Member except as provided in Section 6.9.
Section 19.4 Transferee Rights. Any transferee of Membership Interests who
is not admitted as a Member in accordance with Section 6.9 has no right (a) to
participate or interfere in the management or administration of the Company's
business or affairs or (b) to vote or agree on any matter affecting the Company
or any Member. The only rights of a transferee of Membership Interests who is
not admitted as a Member in accordance with this Agreement is to receive the
allocations of Net Profits and Net Losses and Distributions to which the
transferor would otherwise be entitled (to the extent of the Membership
Interests Transferred) and to obtain such information concerning the Company's
books and financial affairs as provided herein. However, each transferee of
Membership Interests will be subject to all of the obligations, restrictions and
other terms contained in this Agreement as if such transferee were a Member. To
the extent of any Membership Interests Transferred, the transferor Member shall
not possess any right or power as a Member or
49
under the terms of this Agreement and may not exercise any such right or power
directly or indirectly on behalf of the transferee.
Section 19.5 Effect of Transfer. Any Member that makes a Transfer of all of
the Membership Interests held of record by such Member will be treated as
resigning from any and all positions with the Company and shall immediately
cause any and all of its designees and representatives to resign immediately
from any and all positions held with the Company on the effective date of such
Transfer. Any Member that makes a Transfer of part (but not all) of its
Membership Interests will continue as a Member (with respect to the interest
retained), and such partial Transfer will not constitute an Event of Withdrawal
of such Member. The rights and obligations of any resigning Member or of any
transferee of a Membership Interest will be governed by the other provisions of
this Agreement.
Section 19.6 Secured Party. Subject to the approval requirement of Section
5.4(g), the pledge or hypothecation of, or the granting of any security interest
in, or other lien or encumbrance against, the Membership Interests by any Person
shall be made only in accordance with this Agreement and will not cause the
occurrence of an Event of Withdrawal of such Member from the Company. In no
event will the Company have any liability or obligation to any Person by reason
of the Company's payment of a Distribution to any secured party as long as the
Company makes such payment in reliance upon written instructions from the holder
of record on whose behalf such Distributions are payable. Any secured party will
be entitled, with respect to the security interest granted, only to the
Distributions to which the holder of record granting the security interest is
entitled under this Agreement, and only if, as and when such Distribution is
made by the Company. Upon any foreclosure or other Transfer in lieu of
foreclosure of the Membership Interests to any secured party, the Transfer will
be subject to the other provisions of this Agreement.
ARTICLE XX
General Provisions
Section 20.1 Amendment. The terms and provisions of this Agreement may be
modified or amended at any time and from time to time by obtaining the approval
of the Members required under Section 5.4(h) or Section 5.5(c) hereof, as the
case may be; provided, however, that each of the following amendments shall not
be made with respect to such Member without such Member's consent: (i) any
amendment to this Agreement that requires such Member to make a Capital
Contribution or loan to the Company; (ii) any amendment to the provisions of
Article XIX that cause such provisions to be materially less favorable to such
Member than prior to the amendment; (iii) any amendment to Sections 5.2, 5.3,
5.4, 5.5, 5.6, 6.5, 6.6 and 6.14; (iv) any amendment to Section 8.4; (v) except
as otherwise provided in this Agreement, any amendment to Sections 14.1 or 14.2,
this Section 20.1 or Section 20.11 that, in each case, would cause such
provisions to be modified as they affect such Member; or (vi) any amendment to
this Agreement which alters the allocation for tax purposes of income, Net
Profits, Net Losses, deductions, or credits.
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Section 20.2 Waiver of Dissolution Rights. The Members agree that
irreparable damage would occur if any Member should bring an action for judicial
dissolution of the Company. Accordingly, each Member accepts the provisions
under this Agreement as such Member's sole entitlement on Dissolution of the
Company and waives and renounces such Member's right to seek a court decree of
dissolution or to seek the appointment by a court of a liquidator for the
Company. Each Member further waives and renounces any alternative rights which
might otherwise be provided by law upon the withdrawal or resignation of such
Member and accepts the provisions under this Agreement as such Member's sole
entitlement upon the happening of such event.
Section 20.3 Waiver of Partition Right. Each Member waives and renounces
any right that it may have prior to Dissolution and Liquidation to institute or
maintain any action for partition with respect to any property of the Company.
Section 20.4 Waivers Generally. No course of performance or other conduct
subsequently pursued or acquiesced in, and no oral agreement or representation
subsequently made, by the Members, whether or not relied or acted upon, and no
usage of trade, whether or not relied or acted upon, shall amend this Agreement
or impair or otherwise affect any Member's obligations pursuant to this
Agreement or any rights and remedies of a Member pursuant to this Agreement. No
delay in the exercise of any right will operate as a waiver of such right. No
single or partial exercise of any right will preclude its further exercise. A
waiver of any right on any one occasion will not be construed as a bar to, or
waiver of, any such right on any other occasion.
Section 20.5 Equitable Relief. If any Member proposes to Transfer all or
any part of its Membership Interests in violation of the terms of this
Agreement, the Company or any Member may apply to any court of competent
jurisdiction for an injunctive order prohibiting such proposed Transfer except
upon compliance with the terms of this Agreement, and the Company or any Member
may institute and maintain any action or proceeding against the Person proposing
to make such Transfer to compel the specific performance of this Agreement. Any
attempted Transfer in violation of this Agreement is null and void, and of no
force and effect. The Person against whom such action or proceeding is brought
waives the claim or defense that an adequate remedy at law exists, and such
Person will not urge in any such action or proceeding the claim or defense that
such remedy at law exists.
Section 20.6 Remedies for Breach. The rights and remedies of the Members
set forth in this Agreement are neither mutually exclusive nor exclusive of any
right or remedy provided by law, in equity or otherwise. The Members agree that
all legal remedies (such as monetary damages) as well as all equitable remedies
(such as specific performance) will be available for any breach or threatened
breach of any provision of this Agreement.
Section 20.7 Costs. If the Company or any holder of Membership Interests
retains counsel for the purpose of enforcing or preventing the breach or any
threatened breach of any provision of this Agreement or for any other remedy
relating to it, then the prevailing party will be entitled to be reimbursed by
the nonprevailing party for all costs and expenses so incurred (including
reasonable attorneys' fees, costs of bonds, and fees and expenses for expert
witnesses).
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Section 20.8 Counterparts. This Agreement may be signed in multiple
counterparts. Each counterpart will be considered an original, but all of them
in the aggregate will constitute one instrument.
Section 20.9 Notice. All notices under this Agreement will be in writing
and will be delivered or sent to a Member at the address or fax number listed on
Schedule I hereto, or at such other address or fax number as a Member may give
by notice to the Company and all other Members. Any notices given to any Member
in accordance with this Agreement will be deemed to have been duly given: (a) on
the date of receipt if personally delivered, (b) five (5) days after being sent
by mail, postage prepaid, (c) the date of receipt, if sent by registered or
certified mail, postage prepaid, (d) when sent by confirmed facsimile or
telecopier transmission, or (e) one (1) Business Day after having been sent by a
recognized overnight courier service.
Section 20.10 Date of Performance. Whenever this Agreement provides for any
action to be taken on a day which is not a Business Day, such action shall be
taken on the next following Business Day.
Section 20.11 Limited Liability. (a) The liability of each Member, holder
of Membership Interests who is not a Member, Manager, committee member, officer
or agent of the Company shall be limited as set forth in this Agreement, the
LLCL and other applicable laws. No Member, holder of Membership Interests who is
not a Member, Manager, committee member, officer or agent of the Company is
liable for any debts, obligations or liabilities of the Company or each other,
whether arising in tort, contract or otherwise, solely by reason of being a
Member, holder of Membership Interests, Manager, officer or agent of the
Company, or acting (or omitting to act) in such capacities or participating (as
an employee, consultant, contractor or otherwise) in the conduct of the business
of the Company, except that a holder of Membership Interests shall remain
personally liable for the payment of such holder's Capital Contribution and as
otherwise set forth in this Agreement, the LLCL and other applicable law.
(b) Notwithstanding the foregoing, each Manager shall perform such
Manager's duties in accordance with the provisions of Section 8.7(a). Each
Manager who so performs such duties shall not have any liability by reason of
being or having been a Manager. No Manager shall be liable to the Company or any
holder of Membership Interests for any loss or damage sustained by the Company
or any holder of Membership Interests, unless a judgment or other final
adjudication adverse to such Manager establishes that such Manager's acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that such Manager personally gained, in fact, a financial
profit or other advantage to which such Manager was not legally entitled or
that, with respect to a Distribution the subject of Section 14.4, such Manager's
acts were not performed in accordance with the duties of such Manager set forth
in Section 8.7(a). Without limiting the generality of the preceding sentence,
neither any Manager nor the Manager in any way guaranties the return of any
Capital Contribution to a holder of Membership Interests or a profit for the
holders of Membership Interests from the operations of the Company.
Section 20.12 Partial Invalidity. Wherever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law. However, if for
52
any reason any one or more of the provisions of this Agreement are held to be
invalid, illegal or unenforceable in any respect, such action will not affect
any other provision of this Agreement. In such event this Agreement will be
construed as if such invalid, illegal or unenforceable provision had never been
contained in it.
Section 20.13 Entire Agreement. This Agreement contains the entire
agreement among the Members with respect to the subject matter of this
Agreement, and supersedes each course of conduct previously pursued or
acquiesced in, and each oral agreement and representation previously made by the
Members with respect thereto, whether or not relied or acted upon.
Section 20.14 Benefit. The contribution obligations of each Member will
inure solely to the benefit of the Members and the Company, without conferring
on any other Person any rights of enforcement or other rights.
Section 20.15 Binding Effect. This Agreement is binding upon, and inures to
the benefit of, the Members and their transferees, successors and assigns,
provided that any transferee will have only the rights specified in Section 19.4
unless admitted as an additional Member in accordance with this Agreement.
Section 20.16 Confidentiality. (a) The Company and the Members acknowledge
and agree that each Member and the Company's customers may from time to time
make certain of their confidential business information available to the Company
and that, except as provided in the Management Services Agreement, none of the
Members or their Manager designees shall have any right to access such
confidential business information. The Company and each Member agrees that it
shall not disclose to any third party any information concerning the customers,
trade secrets, methods, processes or procedures or any other confidential
business information of the Company or any Confidential Member Information which
it learns during the course of its performance of this Agreement, without the
prior written consent of such other party.
(b) No Member shall refer to the existence of this Agreement or its
business relationship with the Company in any press release, advertising or
materials distributed to prospective customers or other third parties, without
the prior consent (not to be unreasonably withheld) of the Board of Managers,
except that the Contract Manager shall make any such disclosures as necessary to
perform its obligations under the Management Services Agreement.
(c) The parties further acknowledge and agree that in the event of a
breach or threatened breach of this Section 20.16, the non-breaching party or
parties, as the case may be, may have no adequate remedy in money damages and,
accordingly, shall be entitled to appropriate injunctive relief against such
breach or threatened breach. The obligations contained in this Section 20.16
will survive the cancellation or other termination of this Agreement.
Section 20.17 Further Assurances. Each Member agrees, without further
consideration, to sign and deliver such other documents of further assurance as
may reasonably be necessary to effectuate the provisions of this Agreement.
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Section 20.18 Headings. Article and Section titles have been inserted for
convenience of reference only. They are not intended to affect the meaning or
interpretation of this Agreement.
Section 20.19 Terms. Terms used with initial capital letters will have the
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. All pronouns (and any variation) will be deemed to
refer to the masculine, feminine or neuter, as the identity of the Person may
require. The singular or plural includes the other, as the context requires or
permits. The word include (and any variation) is used in an illustrative sense
rather than in a limiting sense. The word day means a calendar day, unless
otherwise specified.
Section 20.20 Informal Dispute Resolution. The Members agree that any
dispute, controversy or claim arising out of or relating to this Agreement
between the Company and a Member (a "Dispute") shall be resolved in the
following manner. In the event of a Dispute, the Board of Managers and the
Member shall attempt to resolve such Dispute. If at any time a Dispute arises
that is not be resolved quickly and amicably through consultation and
negotiations among the Board of Managers and such Member, the Member involved in
such Dispute shall give written notice to all other Members identifying the
nature of such Dispute. Unless all of the Members agree otherwise, within thirty
(30) days of such written notice, all of the Members shall meet at a mutually
acceptable time and place in New York City in an effort to resolve such Dispute
amicably. If any party intends to be represented by an attorney at such meeting,
it shall give at least five (5) Business Days written notice to the other party
to that effect. If no amicable resolution of the Dispute is reached at this
meeting or any subsequent meeting which is agreed to by parties, the Dispute
shall be promptly arbitrated in accordance with the terms of Section 20.21
hereof.
Section 20.21 Arbitration. All disputes that cannot be resolved pursuant to
the internal issue resolution process identified above, other than those for
which injunctive relief is appropriate which either party may seek in a court of
competent jurisdiction, will be submitted to and settled by final and binding
arbitration. Any dispute which cannot be resolved as set forth above, will be
resolved by final and binding arbitration in New York, New York by a panel of
three (3) arbitrators in accordance with and subject to the Commercial
Arbitration Rules of the American Arbitration Association then in effect.
Following notice of a party's election to require arbitration, each party will
within thirty (30) days select one arbitrator, and those two arbitrators will
within thirty (30) days thereafter select a third arbitrator. If the two
arbitrators are unable to agree on a third arbitrator within thirty (30) days,
the American Arbitration Association will within thirty (30) days thereafter
select such third arbitrator. Judgment upon the award rendered in any such
arbitration may be entered in any court of competent jurisdiction, or
application may be made to such court for a judicial acceptance of the award and
an enforcement, as the law of such jurisdiction may require or allow.
Section 20.22 Governing Law; Consent to Jurisdiction. This Agreement will
be governed by, and construed in accordance with, the laws of the State of New
York (without giving effect to New York choice of law provisions). Any conflict
or apparent conflict between this Agreement and the LLCL will be resolved in
favor of this Agreement except as otherwise required by the LLCL. In any action
or proceeding arising out of, related to, or in connection with this Agreement,
the parties consent to be subject to the jurisdiction and venue of (a) the
Supreme Court of the State of New
54
York in and for the County of New York, and (b) the United States District Court
for the Southern District of New York. Each of the parties consents to the
service of process in any action commenced hereunder by certified or registered
mail, return receipt requested, or by any other method or service acceptable
under federal law or the laws of the State of New York.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
THE HEALTH INFORMATION NETWORK
CONNECTION LLC
By:
----------------------------------------------
Name:
Title:
EMPIRE BLUE CROSS AND BLUE SHIELD
By:
----------------------------------------------
Name:
Title:
GNYHA MANAGEMENT CORPORATION
By:
----------------------------------------------
Name:
Title:
GROUP HEALTH INCORPORATED
By:
----------------------------------------------
Name:
Title:
HEALTH INSURANCE PLAN OF GREATER NEW YORK
By:
----------------------------------------------
Name:
Title:
SYNETIC HEALTHCARE COMMUNICATIONS, INC.
By:
----------------------------------------------
Name:
Title:
56
