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EXHIBIT 10.33
OPERATING AGREEMENT
OF
LOUISIANA HEART HOSPITAL, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
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TABLE OF CONTENTS
TO THE
OPERATING AGREEMENT
OF
LOUISIANA HEART HOSPITAL, LLC
A North Carolina Limited Liability Company
ARTICLE I DEFINITIONS........................................................................................... 2
ARTICLE II FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY................................................. 2
SECTION 2.1 Company Formation; Effective Date........................................................... 2
SECTION 2.2 Name of Company............................................................................. 2
SECTION 2.3 Purposes and Business Objectives............................................................ 2
[SECTION 2.4 Statement of Philosophy and Values......................................................... 3
SECTION 2.5 Registered Agent and Office; Principal Place of Business.................................... 4
SECTION 2.6 Commencement and Term....................................................................... 4
ARTICLE III MEMBERS AND CAPITAL CONTRIBUTIONS................................................................... 4
SECTION 3.1 Initial Capital Contributions of Members.................................................... 4
SECTION 3.2 Liability of Members - For Capital.......................................................... 5
SECTION 3.3 Maintenance of Capital Accounts; Withdrawals of Capital;
Withdrawals from the Company............................................................................ 5
SECTION 3.4 Interest on Capital Contributions or Capital Accounts....................................... 5
SECTION 3.5 Additional Funding.......................................................................... 5
SECTION 3.6 Enforcement of Commitments.................................................................. 7
SECTION 3.7 Member Documentation........................................................................ 8
SECTION 3.8 Reserved Powers of Members.................................................................. 8
SECTION 3.9 Appointment of Board of Directors........................................................... 9
SECTION 3.10 Obligations Relating to Real Property...................................................... 9
ARTICLE IV NAMES AND ADDRESSES OF MEMBERS.......................................................................10
ARTICLE V MANAGEMENT OF THE COMPANY.............................................................................10
SECTION 5.1 General Authority and Powers of LHMI and the Board of Directors.............................10
SECTION 5.2 Restrictions on Authority of the Board of Directors.........................................11
SECTION 5.3 Duties of the Board of Directors............................................................11
SECTION 5.4 Delegation by the Board of Directors........................................................12
SECTION 5.5 Right to Rely Upon the Authority of the Manager.............................................12
SECTION 5.6 Company Expenses............................................................................12
SECTION 5.7 No Management by Members....................................................................14
SECTION 5.8 Consent by Members to Exercise of Certain Rights and
Powers by Board of Directors............................................................................15
SECTION 5.9 Meetings, Quorum and Vote of the Board of Directors.........................................15
SECTION 5.10 Other Business of Members..................................................................16
SECTION 5.11 Board of Directors' Standard of Care.......................................................18
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SECTION 5.12 Limitation of Liability....................................................................18
SECTION 5.13 Indemnification of the Directors...........................................................19
SECTION 5.14 Purchase of Goods and Services from LHMI...................................................19
SECTION 5.15 Certain Decisions of the Board of Directors................................................19
SECTION 5.16 Indemnity by the Company...................................................................20
SECTION 5.17 Force Majeure..............................................................................21
ARTICLE VI DISTRIBUTIONS AND ALLOCATIONS........................................................................21
SECTION 6.1 Distributions of Cash Flow from Operations and Cash from
Sales or Refinancing....................................................................................21
SECTION 6.2 Profits.....................................................................................22
SECTION 6.3 Losses......................................................................................22
SECTION 6.4 Code Section 704(c) Tax Allocations.........................................................22
SECTION 6.5 Miscellaneous...............................................................................23
ARTICLE VII DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS...............................................23
SECTION 7.1 No Termination by Certain Acts of Member....................................................23
SECTION 7.2 Dissolution.................................................................................24
SECTION 7.3 Dissolution and Final Liquidation...........................................................24
SECTION 7.4 Termination.................................................................................25
SECTION 7.5 Payment in Cash.............................................................................26
SECTION 7.6 Termination of Noncompetition Covenants.....................................................26
ARTICLE VIII REMOVAL OR WITHDRAWAL OF MANAGERS AND MEMBERS AND
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS........................................................26
SECTION 8.1 Members - Restriction on Transfer...........................................................26
SECTION 8.2 Condition Precedent to Transfer of Membership Interest......................................27
SECTION 8.3 Substitute Member - Conditions to Fulfill...................................................28
SECTION 8.4 Allocations Between Transferor and Transferee...............................................28
SECTION 8.5 Rights, Liabilities of, and Restrictions on Assignee........................................29
SECTION 8.6 Repurchase of Interests in Certain Event....................................................29
SECTION 8.7 Death of a Member...........................................................................29
ARTICLE IX RECORDS, ACCOUNTINGS AND REPORTS.....................................................................31
SECTION 9.1 Books of Account............................................................................31
SECTION 9.2 Access to Records...........................................................................31
SECTION 9.3 Bank Accounts and Investment of Funds.......................................................31
SECTION 9.4 Fiscal Year.................................................................................32
SECTION 9.5 Accounting Reports..........................................................................32
SECTION 9.6 Tax Matters Partner.........................................................................32
ARTICLE X MEETINGS AND VOTING RIGHTS OF MEMBERS.................................................................32
SECTION 10.1 Meetings...................................................................................33
SECTION 10.2 Voting Rights of Members...................................................................33
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ARTICLE XI AMENDMENTS...........................................................................................33
SECTION 11.1 Authority to Amend by the Board of Directors...............................................34
SECTION 11.2 Restrictions on the Board of Directors' Amendments:
Amendments by Members.................................................................................34
SECTION 11.3 Amendments to Certificates.................................................................35
ARTICLE XII MISCELLANEOUS.......................................................................................35
SECTION 12.1 Limited Power of Attorney..................................................................35
SECTION 12.2 Waiver of Provisions.......................................................................35
SECTION 12.3 Interpretation and Construction............................................................35
SECTION 12.4 Governing Law..............................................................................35
SECTION 12.5 Partial Invalidity.........................................................................36
SECTION 12.6 Binding on Successors......................................................................36
SECTION 12.7 Notices and Delivery.......................................................................36
SECTION 12.8 Counterpart Execution; Facsimile Execution.................................................36
SECTION 12.9 Statutory Provisions.......................................................................36
SECTION 12.10 Waiver of Partition.......................................................................37
SECTION 12.11 Change in Law.............................................................................37
SECTION 12.12 Investment Representations of the Members.................................................38
SECTION 12.13 Decisions by Managers.....................................................................39
SECTION 12.14 Referrals to Hospital and Ownership of Shares of Common Stock
of MedCath Incorporated................................................................................39
SECTION 12.15 Acknowledgments Regarding Legal Representation............................................39
SECTION 12.16 Arbitration...............................................................................40
SECTION 12.17 Exhibits..................................................................................40
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OPERATING AGREEMENT
OF
LOUISIANA HEART HOSPITAL, LLC
A North Carolina Limited Liability Company
THESE SECURITIES ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND THE LOUISIANA SECURITIES ACT
IN RELIANCE UPON THE REPRESENTATION OF EACH PURCHASER OF THE SECURITIES THAT THE
SAME ARE BEING ACQUIRED FOR INVESTMENT PURPOSES. THESE SECURITIES MAY
ACCORDINGLY NOT BE RESOLD OR OTHERWISE TRANSFERRED OR CONVEYED IN THE ABSENCE OF
REGISTRATION OF THE SAME PURSUANT TO THE APPLICABLE SECURITIES LAWS UNLESS AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.
THIS OPERATING AGREEMENT (the "Agreement") of Louisiana Heart Hospital,
LLC (the "Company"), a North Carolina Limited Liability Company is made and
entered into by and among Persons whose names, addresses and taxpayer
identification numbers are listed on the Information Exhibit (Exhibit A).
RECITALS
A. The Company has been formed to develop, own and operate an
acute care hospital which hospital shall be located in or near St. Tammany
Parish, Louisiana and shall specialize in all aspects of cardiology,
cardiovascular care and surgery, and other services which the Board of Directors
may agree upon, including orthopedics, and orthopedic surgery;
B. It is intended that the hospital will be an efficient, quality
provider of medical services within the St. Tammany Parish, Louisiana area;
C. The Capital Contributions and active involvement of the
Members are necessary to enable the Company to achieve its objectives;
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ARTICLE I
DEFINITIONS
Unless otherwise indicated, capitalized words and phrases in this
Operating Agreement shall have the meanings set forth in the attached Glossary
of Terms (Exhibit B).
ARTICLE II
FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY
SECTION 2.1 COMPANY FORMATION; EFFECTIVE DATE.
The Company was formed upon the filing of the Articles of Organization
with the North Carolina Secretary of State in accordance with the provisions of
the Act. Upon the effectiveness of this Agreement, the Persons listed on the
attached Information Exhibit shall be admitted to the Company as Members and the
Persons who executed the Articles shall be withdrawn as Members (unless they are
listed on the Information Exhibit), all without the necessity of any further act
or instrument and without causing the dissolution of the Company. This Agreement
shall be effective as of the date the Company was formed.
SECTION 2.2 NAME OF COMPANY.
The name of the Company is Louisiana Heart Hospital, LLC.
SECTION 2.3 PURPOSES AND BUSINESS OBJECTIVES.
The principal purposes and business objectives of the Company are as
follows:
(a) To develop, own and operate a Hospital specializing
in the diagnosis and treatment of cardiac disease and cardiovascular
and vascular surgery and other medical services and procedures approved
by the Board of Directors from time to time in or near St. Tammany
Parish, Louisiana which would include, but not be limited to, the
following:
(i) Services and facilities to meet all
requirements of the State of Louisiana, Medicare, Medicaid,
JCAHO and other credentialing or licensing bodies or agencies
in order to have the Hospital licensed as a general acute care
hospital and to perform cardiology and cardiovascular surgical
services, of every type or nature and other medical services
and procedures including orthopedics and orthopedic surgery
services which may be approved by the Board of Directors from
time to time and to be eligible to obtain appropriate
reimbursements therefore;
(ii) Approximately 90,000 square feet in a
building to be constructed in accordance with plans and
specifications approved by the Company;
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(iii) Approximately 48 medical/surgical beds;
(iv) Three (3) heart catheterization laboratories
with available space for one additional heart catheterization
lab;
(v) Three (3) heart surgical suites with space
for the development of an additional heart surgical suite;
(vi) All appropriate support services and
systems; and
(vii) Appropriate Equipment and services with
respect to the facilities described above and as otherwise
reasonably necessary or appropriate for the diagnosis and
treatment of cardiovascular disease, including but not limited
to invasive and non-invasive cardiac testing, interventional
treatment including percutaneous transluminal coronary
angioplasty and atherectomy, and cardiac surgery which would
include, but not be limited to, bypass grafts and valve
surgery.
The above size, number and scope of facilities of the Hospital
are only preliminary estimates. The Board of Directors is authorized to
finally make all determinations with respect thereto.
(b) To lease or acquire the real property, and if
appropriate to construct a suitable building, in which the Hospital shall be
located;
(c) Any other purpose reasonably related to (a) and (b)
above.
SECTION 2.4 STATEMENT OF PHILOSOPHY AND VALUES.
Notwithstanding anything in this Agreement to the contrary, the Company
and the Hospital shall be operated in accordance with the following philosophy
and values in all material respects:
(a) The Hospital shall seek to participate in all public
health care financing programs applicable to its business including the
Medicare and Medicaid programs:
(b) The medical staff of the Hospital shall be open to
any physician who meets the qualifications stated in the Bylaws, Rules
and Regulations of the Medical Staff;
(c) The Company shall adopt and adhere to a conflict of
interest policy with respect to contracts between the Company and
Members or Directors;
(d) All medical decisions at the Hospital shall be made
by those physicians who are members of the medical staff of the
Hospital as provided in the bylaws, rules and regulations of the
medical staff.
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SECTION 2.5 REGISTERED AGENT AND OFFICE; PRINCIPAL PLACE OF
BUSINESS.
The registered agent and office of the Company shall be as indicated in
the Articles of Organization, as amended from time to time. The principal place
of business of the Company shall be at such location in St. Tammany Parish,
Louisiana as selected by the Board of Directors from time to time. The Board of
Directors shall promptly notify the Members of any changes in the Company's
registered agent, registered office, or principal place of business.
SECTION 2.6 COMMENCEMENT AND TERM.
The Company commenced on the filing of the Articles of Organization in
the Office of the Secretary of State of North Carolina, as required by Section
2.1 hereof, and shall continue until December 31, 2060, unless sooner terminated
or dissolved as provided herein; provided, however, that the termination date
may be extended for up to an additional forty (40) years in five (5) year
increments upon the election of the Board of Directors. The consent of each
Director to such extension shall not be unreasonably withheld or delayed.
ARTICLE III
MEMBERS AND CAPITAL CONTRIBUTIONS
SECTION 3.1 INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS.
(a) The initial Capital Contributions of the initial
Members shall equal the greater of (i) $6,730,000 or
(ii) 15% of the Project Costs.
(b) Such initial Capital Contribution shall be made as
follows:
(i) LHMI shall own at least a 51% Membership
Interest in the Company and shall contribute
to the Company for its Membership Interest
at least 51% of the aggregate amount of such
initial Capital Contributions.
(ii) The Investor Members shall own in the
aggregate up to a 49% Membership Interest
and shall contribute to the Company for
their Membership Interests an amount up to
49% of such initial Capital Contributions.
The Membership Interests of the Investor
Members shall be owned as set forth in the
Information Exhibit.
(c) The Members may be liable to the Company for amounts
distributed to them as a return of capital as
provided by the Act. Members shall not be required to
contribute any additional capital to the Company
except as provided in Section 3.5.
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(d) Once the Board of Directors finally determines the
total Project Costs, it may require all Members, upon
written notice, to contribute any remaining portion
of their respective initial Capital Contribution.
SECTION 3.2 LIABILITY OF MEMBERS - FOR CAPITAL.
The liability of each Member for capital shall be limited to the amount
of its agreed Capital Contribution as a Member as provided in Section 3.1 and
Section 3.5, except that the Members may be liable to the Company for amounts
distributed to them as a return of capital as provided by the Act. The Members
shall not be required to contribute any additional capital to the Company except
as provided in Section 3.5.
SECTION 3.3 MAINTENANCE OF CAPITAL ACCOUNTS; WITHDRAWALS OF
CAPITAL; WITHDRAWALS FROM THE COMPANY.
An individual Capital Account shall be maintained for each Member in
accordance with requirements of the Code and the Regulations promulgated
thereunder. No Member shall be entitled to withdraw or to make demand for
withdrawal of any part of its Capital Account or to receive any distribution
except as provided herein. Except as otherwise provided in this Agreement, each
Member shall look solely to the assets of the Company for the return of its
Capital Contributions and shall have no right or power to demand or receive
property other than cash from the Company. No Member shall have priority over
any other Member as to the return of its Capital Contributions, distributions or
allocations, except as provided in this Agreement.
Except as otherwise provided herein, a Member may not withdraw from the
Company without the written consent of the other Member. In no case shall a
Member have the right to have its Interest redeemed by the Company unless
approved by the other Member.
SECTION 3.4 INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL
ACCOUNTS.
No interest shall be paid to any Member based solely on its Capital
Contributions or Capital Account. The preceding sentence shall not prevent the
Company from earning interest on its bank accounts and investments and
distributing such earnings to the Member in accordance with Articles VI and VII.
SECTION 3.5 ADDITIONAL FUNDING.
If from time to time, the Board of Directors reasonably determines
(which determination shall not be unreasonably withheld or delayed) that funds
in addition to that contemplated by Sections 3.1 and 3.2 are necessary or
appropriate for the development or operation of the Hospital, then:
(a) First, on terms and conditions reasonably acceptable
to the Board of Directors, LHMI shall loan the Company up to Eight
Million Dollars ($8,000,000) at the Prime Rate plus one percent (1%)
per annum which loan shall be secured by the Company's assets. Interest
shall be paid monthly in arrears. Funds initially shall be
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advanced hereunder through the period ending no later that the first
(1st) anniversary of the opening of the Hospital. Amounts then
outstanding shall be repaid with interest on a five (5) year repayment
schedule so that the principal amount of the loan is reduced by
one-sixtieth (1/60) per month, with interest payable monthly on the
balance of the principal (the "Repayment Schedule"); provided LHMI
shall be required to advance additional amounts necessary to ensure
that at the beginning of the thirteenth month from the opening of the
Hospital, Company has cash on hand of not less than Five Hundred
Thousand Dollars ($500,000), which additional advances, if any, shall
be added to the principal and repaid according to the Repayment
Schedule. To the extent the Company repays such loan from time to time
in amounts which are in excess of scheduled principal amounts, such
amounts of excess principal payments may be reborrowed by the Company
on mutually acceptable terms. The parties acknowledge that the Company
intends to seek construction, mortgage and equipment financing from
third party lenders and lessors and that the loans set forth in this
subsection (a) are not intended to be used for such purposes. In the
event that interim financing is needed for such purposes, LHMI may
elect in its discretion to provide such financing on an interim basis
pending the closing of third-party financing therefor;
(b) Second, the Board of Directors thereafter shall use
commercially reasonable efforts to borrow such funds from a bank or
other lender on terms and conditions reasonably acceptable to the Board
of Directors. All loans obtained hereunder shall be subject to the
approval of the Board of Directors, which approval shall not be
unreasonably withheld or delayed.
(c) Third, if loans as provided in (a) have been fully
advanced for their intended purpose and loans as provided in (b) above
are not reasonably available, the Board of Directors may through
written notice require that the Members contribute additional capital
to the Company pro rata according to their respective Membership
Interests, provided however, a Member's maximum obligation for such
additional Capital Contributions shall be limited to an additional
amount equal to two times the Member's initial Capital Contribution
pursuant to Section 3.1;
(d) Fourth, if additional funds are thereafter needed by
the Company, LHMI or one of its Affiliates may, but shall not be
required to, loan such funds to the Company at the Prime Rate plus one
percent (1%) per annum which loan shall be secured by the Company's
assets. Interest shall be paid monthly in arrears and principal shall
be repaid according to a schedule to be agreed upon by the Company and
LHMI or its Affiliate;
(e) Fifth, if additional funds are thereafter needed by
the Company, the Board of Directors shall request additional Capital
Contributions from the Members and each Member may elect whether or not
to contribute its pro rata portion of such additional capital
requirements as optional Capital Contributions. The other Members may
elect to contribute optional Capital Contributions not contributed by
any Member hereunder. Thereafter, the Board of Directors shall
reasonably adjust the percentage Membership Interest of each Member
(based on the aggregate of all Capital Contributions made by all
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of the Members in accordance with this Agreement) in the event any
Member elected not to make optional Capital Contributions pursuant to
this Section 3.5(e); and
(f) Sixth, if adequate funds have not been obtained or
raised in accordance with (a) through (e) above (including, without
limitation, taking into consideration funds made available by Members
for amounts which are in excess of their obligations hereunder), then
the Board of Directors may elect to dissolve the Company provided,
however, if any Members or any of their Affiliates (i) have any
outstanding loans to the Company or are committed to provide such loans
or (ii) are providing a guaranty or are committed to provide a guaranty
for any indebtedness of the Company, then only those Members alone upon
unanimous approval of such Members, upon at least fifteen (15) days
prior written notice to the other Members, shall be entitled to so
dissolve the Company due to the Company not having sufficient funds to
meet its financial obligations or liabilities as they come due.
SECTION 3.6 ENFORCEMENT OF COMMITMENTS.
In the event any Member (a "Delinquent Member") fails to make a
mandatory Capital Contribution as provided in Section 3.1 or Section 3.5 or an
optional Capital Contribution as agreed to by the Member under Section 3.5 (the
"Commitment"), the Board of Directors shall give the Delinquent Member a Notice
of the failure to meet the Commitment. If the Delinquent Member fails to perform
the Commitment (including any costs associated with the failure to meet the
Commitment and interest on such obligation at the Default Interest Rate) within
ten (10) business days of the giving of Notice, the Board of Directors may take
such action, including but not limited to enforcing the Commitment in the court
of appropriate jurisdiction in the state in which the principal office of the
Company is located or the state of the Delinquent Member's address as then
reflected in the Agreement. Each Member expressly agrees to the jurisdiction of
such courts but only for the enforcement of Commitments. The other Members may
elect to contribute additional amounts equal to any amount of the Commitment not
contributed by such Delinquent Member. The contributing Member shall be entitled
at its election to treat the amounts contributed pursuant to this Section either
as a Capital Contribution or as a loan from the contributing Member bearing
interest at the Default Rate secured by the Delinquent Member's Interest in the
Company. If the contributing Member elects to contribute such amount as a
Capital Contribution, the percentage Membership Interests of the Members shall
be adjusted proportionately. Until the contributing Member is fully repaid for
such loan made as a result of the default by the Delinquent Member and only if
the contributing Member agrees to accept repayment of such amount, the
contributing Member shall be entitled to all distributions to which the
Delinquent Member would have been entitled had such Commitment been fulfilled
thereby. Notwithstanding the foregoing, no Commitment or other obligation to
make an additional Capital Contribution may be enforced by a creditor of the
Company unless the Member expressly consents to such enforcement or to the
assignment of the obligation to such creditor. Notwithstanding anything herein
to the contrary, the Directors designated by the non-delinquent Members may take
all actions contemplated by this Section 3.6 without the consent of the
Directors designated by the Delinquent Member.
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SECTION 3.7 MEMBER DOCUMENTATION.
Prior to the execution of this Agreement, the Investor Members that are
Entities (an "Investor Entity") shall have delivered to the Company copies of
all documents, instruments and agreements related to the formation, ownership
and governance of the Investor Entity and its owners ("the Investor Entity
Documents"). None of the Investor Entity Documents will be altered or amended
without the consent of the Board of Directors, which consent shall not be
unreasonably withheld. Contemporaneously with the Investor Entity's admission as
a Member of the Company, the members of the Investor Entity shall each execute
an Addendum to Subscription Agreement under which, among other things, those
individuals agree to be personally bound by the terms and conditions of Section
5.10 hereof. Additionally (unless such requirement is waived by the Board of
Directors), the members of the Investor Entity shall also execute a Hospital
Professional Services Agreement with the Company and a Right of First Refusal
Agreement with an Affiliate of LHMI. No Person shall be admitted hereafter as a
member of the Investor Entity unless such Person also executes such Addendum to
Subscription Agreement, the Hospital Professional Services Agreement and the
Right of First Refusal Agreement so that they are bound thereby to the same
extent as are members of the Investor Entity as of the date hereof.
SECTION 3.8 RESERVED POWERS OF MEMBERS.
The following actions are the only actions which can be taken by the
Members and shall require the consent of the Required Members:
(a) Amendments to the Articles of Organization or the
Operating Agreement of the Company;
(b) A merger, consolidation, liquidation, or similar
reorganization or transfer of a substantial portion of the Company's
assets;
(c) A sale, lease encumbrance or other transfer of all or
substantially all of the Company's assets, except for encumbrances
incurred in connection with financing provided to the Company;
(d) Admission of new Members to the Company;
(e) Any alteration or amendment of the Company's
Statement of Philosophy and Values and any action which is inconsistent
with the Company's Statement of Philosophy and Values; and
(f) Approval and authorization of disproportionate
distributions or allocations of profits, losses or assets of the
Company, except as specifically permitted elsewhere in this Operating
Agreement.
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SECTION 3.9 APPOINTMENT OF BOARD OF DIRECTORS.
The Members shall appoint a Board of Directors as follows:
(a) LHMI shall appoint three (3) Directors; and
(b) The Investor Members shall appoint three (3)
Directors.
A Member or group of Members shall have the right, with or without
cause, to remove, substitute or replace any Director which it or they appointed.
SECTION 3.10 OBLIGATIONS RELATING TO REAL PROPERTY.
The Company intends to purchase real property located at a site
approved by the Board of Directors (the "Development") subject to the following:
(a) The agreement by the developer thereof to sell
sufficient land on which to develop the Hospital for a purchase price
or rent equal to the fair market value thereof as determined by a
qualified independent real estate appraiser acceptable to LHMI, the
Investor Members and the developer;
(b) The developer shall record a restriction acceptable
to the developer, LHMI, and the Investor Members prohibiting any Person
from using any part of the Development for a purpose which, if
conducted by a Member would violate Section 5.10 hereof;
(c) The agreement will contain other commercially
reasonable terms and conditions, including without limitation, terms
obligating the developer to execute commercially reasonable documents
required by third parties providing financing to the Company which will
require among other things, a first priority lien on the Company's
interest in the Property.
SECTION 3.11 MEDICAL OFFICE BUILDING.
(a) LHMI is hereby authorized, itself or to designate another
party, at its or their expense to develop and own a medical office building on
real property which such party will lease or own adjacent to the Hospital and
which will contain approximately Forty-Five Thousand (45,000) to Sixty Thousand
(60,000) of leasable square footage ("the MOB"). The tenant space in the MOB may
be leased to Members, their Affiliates or to other third parties. The owners of
the MOB and the Company shall enter into cross easement agreements and other
agreements which are customary for commercial real estate developments.
(b) Unless otherwise approved in writing by LHMI in its
discretion, the Company shall not make any binding commitments regarding the
financing or construction of the Hospital unless LHMI or its designee has
entered into commercially reasonable, binding agreements with tenants to lease
office space
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within the MOB, in a form and for an amount of office space acceptable to LHMI
or its designee but in no event less than Forty-Thousand (40,000) leasable
square feet.
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the Members are as indicated on the
Information Exhibit attached hereto, which may be amended by the Board of
Directors from time to time.
ARTICLE V
MANAGEMENT OF THE COMPANY
SECTION 5.1 GENERAL AUTHORITY AND POWERS OF LHMI AND THE BOARD
OF DIRECTORS.
(a) Except as set forth in those provisions of this
Agreement that specifically require the vote, consent, approval or
ratification of the Members and subject to (b) below, the Board of
Directors shall have complete authority and exclusive control over the
management of the business and affairs of the Company. Subject to the
terms and conditions of this Agreement and except as otherwise provided
herein, all Material Agreements and Material Decisions with respect to
the business and affairs of the Company shall be approved or made by
the Board of Directors in accordance with Section 5.15 hereof. No
Member has the actual or apparent authority to cause the Company to
become bound in any contract, agreement or obligation, and no Member
shall take any action purporting to be on behalf of the Company. No
Director shall cause the Company to become bound to any contract,
agreement or obligation, and no Director shall take any other action on
behalf of the Company, unless such matter has received the vote,
consent, approval or ratification as required pursuant to this
Agreement with respect to such matter or except as provided below with
respect to the authority and actions of LHMI.
(b) The day-to-day management of the business and affairs
of the Company shall be the responsibility of LHMI pursuant to the
terms of the Management Agreement, which management shall be subject to
decisions, guidelines and policies made or established by the Board of
Directors hereunder, provided, however, decisions relating to medical
and clinical practice at the Hospital shall be made exclusively by the
qualified medical personnel of the Hospital under the direction of a
member of the Hospital's medical staff.
(c) The parties acknowledge that the Management Agreement
is an integral part of the plans to develop and operate the Hospital
and its execution is a condition to LHMI's participation in the
Company.
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SECTION 5.2 RESTRICTIONS ON AUTHORITY OF THE BOARD OF DIRECTORS.
The Board of Directors shall not do any of the following:
(a) Act in contravention of this Agreement;
(b) Act in any manner which would make it impossible to
carry on the express business purposes of the Company;
(c) Commingle the Company funds with those of any other
Person;
(d) Admit an additional Member without the approval of
all Members or except as otherwise provided in this Agreement.
(e) Alter the primary purposes of the Company as set
forth in Section 2.3;
(f) Possess any property or assign the rights of the
Company in specific property for other than a Company purpose;
(g) Employ, or permit the employ of, the funds or assets
of the Company in any manner except for the exclusive benefit of the
Company;
(h) Make any payments of any type, directly or
indirectly, to anyone for the referral of patients to the Hospital in
order to use the Hospital or to provide other services; or
(i) Sell all or substantially all of the assets of the
Company or merge the Company with or into any other Entity without the
approval of all of the Members;
SECTION 5.3 DUTIES OF THE BOARD OF DIRECTORS.
The Board of Directors shall do the following:
(a) Diligently and faithfully devote such of its time to
the business of the Company as may be necessary to properly conduct the
affairs of the Company, however, the individual Directors shall not be
required to devote their full time to such duties;
(b) Use its best efforts to cause the Company to comply
with such conditions as may be required from time to time to permit the
Company to be classified for federal income tax purposes as a
partnership and not as an association taxable as a corporation;
(c) File and publish all certificates, statements, or
other instruments required by law for the formation and operation of
the Company as a limited liability company in all appropriate
jurisdictions;
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(d) Use their commercially reasonable best efforts to
cause the Company to obtain and keep in force during the term of the
Company fire and extended coverage and public liability and
professional liability insurance with such issuers and in such amounts
as the Board of Directors shall deem advisable, but in amounts not less
(and deductible amounts not greater) than those customarily maintained
with respect to the business equipment and property comparable to the
Company's; and
(e) Have a fiduciary duty to conduct the affairs of the
Company in the best interests of the Company and of the Members,
including the safekeeping and use of all funds and assets, whether or
not in its immediate possession and control, and it shall not employ or
permit others besides the Board of Directors to employ such funds or
assets in any manner except for the benefit of the Company.
SECTION 5.4 DELEGATION BY THE BOARD OF DIRECTORS.
Subject to restrictions otherwise provided herein, the Board of
Directors may at any time employ any other Person, including Persons and
Entities employed by, affiliated with, or related to any Director or any Member
to perform services for the Company and its business, and may delegate all or
part of their authority or control to any such other Persons, provided that such
employment or delegation shall not relieve the Board of Directors of its
responsibilities and obligations under this Agreement or under the laws of the
State of North Carolina nor will it make any such Person a Member of the
Company.
SECTION 5.5 RIGHT TO RELY UPON THE AUTHORITY OF THE MANAGER.
Persons dealing with the Company may rely upon the representation of
the Manager that such Manager is the manager of the Company and that such
Manager has the authority to make any commitment or undertaking on behalf of the
Company. No Person dealing with the Manager shall be required to determine its
authority to make any such commitment or undertaking. In addition, no purchaser
from the Company shall be required to determine the sole and exclusive authority
of the Manager to sign and deliver on behalf of the Company any instruments of
transfer with respect thereto or to see to the application or distribution of
revenues or proceeds paid or credited in connection therewith, unless such
purchaser shall have received written notice from the Company affecting the
same.
SECTION 5.6 COMPANY EXPENSES.
(a) The Company shall pay the amounts due to LHMI under
the Management Services Agreement from time to time.
(b) The Company shall also pay the following expenses of
the Company:
(i) All development and operational expenses of
the Company, which may include, but are not limited to: the
salary and related expenses of employees and staff of the
Hospital, all costs of borrowed money, taxes, and assessments
on the Hospital, and other taxes applicable to the Company;
expenses in connection
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with the acquisition, maintenance, leasing, refinancing,
operation, and disposition of the Equipment, furniture and
fixtures of the Hospital (including legal, accounting, audit,
commissions, engineering, appraisal, and the other fees); and
the maintenance of the Hospital and its Equipment, which may
be performed by LHMI or one of its Affiliates as long as the
charges to the Company for such service are no greater than
the charges for such service from a third party service
provider;
(ii) A medical director's fee in an amount approved
by the Board of Directors to be paid to the medical director
of the Hospital pursuant to the Medical Director Agreement;
and
(iii) All fees and expenses paid to third parties for
accounting, legal, documentation, professional, and reporting
services to the Company, which may include, but are not
limited to: preparation and documentation of Company
bookkeeping, accounting and audits; preparation and
documentation of budgets, cash flow projections, and working
capital requirements; preparation and documentation of Company
state and federal tax returns; and taxes incurred in
connection with the issuance, distribution, transfer,
registration, and recordation of documents evidencing
ownership of a Membership Interest in the Company or in
connection with the business of the Company; expenses in
connection with preparing and mailing reports required to be
furnished to the Members for tax reporting or other purposes,
including reports, if any, that may be required to be filed
with any federal or state regulatory agencies, or expenses
associated with furnishing reports to Members which the Board
of Directors deems to be in the best interest of the Company;
expenses of revising, amending, converting, modifying, or
terminating the Company or this Agreement; costs incurred in
connection with any litigation in which the Company is
involved as well as any examination, investigation, or other
proceedings conducted by any regulatory agency involving the
Company; costs of any computer equipment or services used for
or by the Company; and the costs of preparing and
disseminating informational material and documentation
relating to a potential sale, refinancing, or other
disposition of the Hospital or the Equipment.
(c) Guarantee Fee. In the event that any Member of the Company,
its Affiliates or MedCath Incorporated provide a guarantee of any indebtedness
of the Company which is acceptable to and required by the Company's lenders
("Guarantor Members") and such guarantees are not provided on a pro rata basis
by all other Members of the Company (the "Nonguarantor Members"), then the
Guarantor Members shall be paid an annual guarantee fee equal to (a) the amount
of such indebtedness which is guaranteed by the Guarantor Members, multiplied by
(b) .0075, multiplied by (c) the percentage Membership Interest in the Company
owned by the Nonguarantor Members (the "Guarantee Fee"). The Guarantee Fee shall
be paid quarterly and the expense thereof shall be allocated to the Nonguarantor
Members as follows:
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(i) The Guarantee Fee shall be deducted from the
Cash Distributions otherwise distributable to the Nonguarantor
Members and shall be paid to the Guarantor Members;
(ii) To the extent that at the time such
Guarantee Fee is due to be paid hereunder there are no
anticipated Cash Distributions, then the Company shall pay
such Guarantee Fee to the Guarantor Members and the amount of
such payments shall be charged to the Capital Accounts of the
Nonguarantor Members;
(iii) When Cash Distributions become available for
distribution to the Members in the future, the Cash
Distributions otherwise distributable to the Nonguarantor
Members shall first be retained by the Company to the extent
that amounts were previously charged to the Capital Accounts
of the Nonguarantor Members in accordance with subsection (ii)
above and any remaining Cash Distributions shall be
distributed to the Members in accordance with Section 6.1.
(d) Once a budget has been approved by the Board of
Directors, LHMI shall have the authority to expend up to one hundred
and five percent (105%) of any and all funds which are included in the
budget and sign all agreements related thereto, including reimbursement
to LHMI and its Affiliates for goods and services provided to the
Company. LHMI shall have the right to recast the budget by transferring
all or part of the funds approved for specific line items to another
category or line item by an aggregate amount not to exceed five percent
(5%) of the total budgeted funds. If revenues exceed those in the
current budget, LHMI is further authorized to make additional
expenditures reasonably related to such additional revenues. LHMI shall
report to the Board of Directors from time to time on variances between
the Hospital's budget and actual operating results.
SECTION 5.7 NO MANAGEMENT BY MEMBERS.
The Members shall take no part in, or at any time interfere in any
manner with, the management, conduct, or control of the Company's business and
operations and shall have no right or authority to act for or bind the Company
except as set forth in this Agreement. The rights and powers of such Members
shall not extend beyond those set forth in this Agreement and those granted
under the Articles of Organization and any attempt to participate in the control
of the Company in a manner contrary to the rights and powers granted herein and
under the Articles of Organization shall be null and void and without force and
effect. Subject to the decisions and judgment with respect to all professional
medical or clinical matters of qualified medical personnel, the Board of
Directors shall have the right to determine when and how the operations of the
Company shall be conducted. The exercise by any other Member of any of the
rights granted to the Member hereunder shall not be deemed to be taking part in
the control of the business of the Company and shall not constitute a violation
of this Section.
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SECTION 5.8 CONSENT BY MEMBERS TO EXERCISE OF CERTAIN RIGHTS AND
POWERS BY BOARD OF DIRECTORS.
By its execution hereof, each Member expressly consents to the exercise
by the Board of Directors of the rights, powers, and authority conferred on the
Board of Directors by this Agreement.
SECTION 5.9 MEETINGS, QUORUM AND VOTE OF THE BOARD OF DIRECTORS.
(a) The Board of Directors shall meet at least quarterly.
Notice of any meeting, regular or special, shall be delivered to each
Director personally, by telephone, by electronic mail, by facsimile
transmission or in writing at least five (5) business days before the
meeting.
(b) An emergency meeting of the Board of Directors may be
called by any Director upon shorter notice. Action taken at the
emergency meeting shall be valid so long as the meeting is attended by
at least two members of the Board of Directors who are representatives
of each of the Investor Members and of LHMI, and the action is
unanimously approved by the members of the Board of Directors present
at such meeting.
(c) The Board of Directors shall elect one of its members
to preside over the meetings as the Chairperson and one of its members,
as the Secretary, to oversee the preparation and delivery of meeting
notices and the preparation of minutes of the meetings of the Board of
Directors and Members.
(d) A quorum of the Board of Directors shall be necessary
to conduct business at any meeting. A quorum shall consist of four
Directors and must include two Directors designated by each of LHMI and
the Investor Members. A Director may attend a meeting by telephone or
other electronic means and be considered present for purposes of a
quorum so long as the telephone or other connection allows each
Director to hear and be heard by all other Directors.
(e) Except as provided in Section 5.15 or as otherwise
expressly provided in this Agreement, any action taken by the Board of
Directors shall require the affirmative vote of at least a majority of
the Directors present at a meeting at which a quorum is present and
shall require the consent of at least one member of the Board of
Directors appointed by each of LHMI and the Investor Members.
(f) Any action which is required to be or may be taken at
a meeting of the Board of Directors may be taken without a meeting if
consent in writing, either collectively or in counterparts, setting
forth the action so taken.
(g) Attendance at a meeting of the Board of Directors
constitutes waiver of any objection to the Notice of the meeting.
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SECTION 5.10 OTHER BUSINESS OF MEMBERS.
(a) Subject to (b) below, any Member may engage
independently or with others in other business ventures of every nature
and description, including without limitation the purchase of medical
equipment, the rendering of medical services of any kind, and the
making or management of other investments and neither the Company nor
any Member shall have any right by virtue of this Agreement or the
relationship created hereby in or to such other ventures or activities
or to the income or proceeds derived therefrom, and the pursuit of such
ventures.
(b) Notwithstanding the terms of this Section 5.10:
(i) No Member or Affiliate of a Member who is a
physician shall be prohibited from maintaining his or her
staff privileges and admitting and treating patients at any
other hospital;
(ii) Nothing herein shall prohibit a Member or
Affiliate of a Member from owning up to three percent (3%) of
the outstanding capital stock of a company whose stock is
publicly traded and listed on a nationally recognized
securities exchange or from investing in a publicly traded
mutual fund or making other investments with the prior written
approval of the Board of Directors;
(iii) Except as specifically provided in Schedule
5.10 or in (i) and (ii) above, as long as any Member owns a
Membership Interest in the Company, and for a period of two
(2) years after a Member ceases for any reason to own a
Membership Interest in the Company, neither a Member nor any
of its respective Affiliates, shall hold, directly or
indirectly (an Affiliate who no longer owns an interest in an
Investor Entity shall not be subject to this restriction
following the second (2nd) anniversary of the date such
Affiliate no longer owns for any reason an interest in the
Investor Entity), an investment, ownership or other beneficial
interest in (x) any hospital, or (y) any other Entity
(including a sole proprietorship) which provides any of the
following services or facilities in St. Tammany Parish,
Louisiana (the "Territory"): cardiac catheterization,
angioplasty, peripheral angioplasty, atherectomy, stenting and
PTCA or other cardiac surgical procedures or services or
orthopedic surgery or orthopedic services (collectively, the
"Services"), and any other type of medical service or surgical
procedure provided at the Hospital from time to time which (a)
is not part of Services and (b) which is not generally
provided by physicians in their offices within the Territory.
Notwithstanding the foregoing, nothing herein shall prohibit a
physician owner of the Investor Member from owning an interest
in an ambulatory surgical center, provided that (x) such
physician has privileges to perform surgery at such center and
(y) such center does not offer or include the Services; and
provided further, however, that any Affiliate of an Investor
Member who owns, or had a legally binding commitment to
acquire, an ownership interest in an ambulatory surgery center
as of August 15, 2000 and who discloses such
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ownership interest in writing to Company prior to execution of
this Agreement shall be permitted to continue to hold or
acquire such interest;
(iv) LHMI or its Affiliates may separately
operate a mobile diagnostic catheterization laboratory within
the Territory, but only if either LHMI or an Affiliate thereof
is providing such service pursuant to a lease of twelve (12)
months or less to a provider who is already providing cath lab
services and if the Board of Directors has elected not to have
such service provided by the Company;
(v) The Investor Members may separately operate
a single diagnostic cardiac catheterization laboratory in the
MOB and may provide only diagnostic catheterization services
therein; and
(vi) Nothing herein shall prevent any Member or
Affiliate who is a physician from personally performing
professional medical services directly for his or her patients
at any hospital or facility and from billing and receiving
professional fees as a result of his or her professional
medical services from any payor.
(c) The Members have reviewed the term and geographical
restrictions included in Section 5.10(b), and in light of the interests
of the parties hereto, agree that such restrictions are fair and
reasonable.
(d) In order to ensure that the Hospital has available to
it at all times leading and qualified cardiologists and cardiovascular
surgeons, as of the date hereof the Company is entering into the
Hospital Professional Services Agreement (the "Professional Service
Agreement") with the Investor Members and if the Investor Member is an
entity, its physician owners (the "Physician Owners"), which Agreement
includes in paragraph 7 thereof certain covenants by the Practice and
its physicians which are designed to ensure that such physicians will
be available to the Hospital from time to time in order to enable it to
meet its objectives of being an efficient quality provider of
cardiology and cardiovascular services. The parties acknowledge and
agree that the Investor Member's and its Physician Owners' execution of
the Professional Service Agreement is further consideration for the
execution by the Members of this Agreement.
(e) If there is a breach or threatened breach of the
provisions of this Section 5.10 of this Agreement, in addition to other
remedies at law or equity, the non-breaching parties shall be entitled
to injunctive relief. The parties desire and intend that the provisions
of this Section 5.10 shall be enforced to the fullest extent
permissible under the law and public policies applied, but the
unenforceability or modification of any particular paragraph,
subparagraph, sentence, clause, phrase, word, or figure shall not be
deemed to render unenforceable the remainder of this Section 5.10.
Should any such paragraph, subparagraph, sentence, clause, phrase,
word, or figure be adjudicated to be wholly invalid or unenforceable, a
court with applicable authority is hereby authorized to "blue pencil"
or modify this Section, the balance of this Section 5.10 shall
thereupon be
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modified in order to render the same valid and enforceable and the
unenforceable portion of this Section 5.10 shall be deemed to have been
deleted from this Agreement.
(f) The Company, the Board of Directors and the Members
agree that the benefits to any Member hereunder do not require, are not
payment for, and are not in any way contingent upon the referral,
admission or any other arrangement for the provision of any item or
service offered by the Company to patients of such Member or any
physician owner or Affiliate of such Member or any physician owner or
Affiliate of such Member in any facility, laboratory, cardiac
catheterization facility or other health care operation controlled,
managed or operated by the Company and nothing herein is intended to
prohibit any party from practicing medicine at any other facility.
(g) If a Member is a legal entity and not an individual,
such Member shall cause each of its existing and future Affiliates to
agree in writing to be personally bound by the terms of this Section
5.10.
SECTION 5.11 BOARD OF DIRECTORS' STANDARD OF CARE.
Each Director shall act in a manner he or she believes in good faith to
be in the best interest of the Company and with such care as an ordinarily
prudent Person in a like position would use under similar circumstances. In
discharging his or her duties, each Director shall be fully protected in relying
in good faith upon the records required to be maintained under this Agreement
and upon such information, opinions, reports and statements by any of its other
Directors, Members, or agents, or by any other Person as to matters each
Director reasonably believes are within such other Person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Company, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, income or losses of the Company or
any other facts pertinent to the existence and amount of assets from which
distributions to members might properly be paid.
Notwithstanding anything herein to the contrary, a Director or Member
shall have the right to vote or approve Company matters in accordance with the
terms of this Agreement regardless of the personal interest of any Member or
Director in the outcome of any vote, decision or matter.
SECTION 5.12 LIMITATION OF LIABILITY.
A Director shall not be liable to the Company or its Members for any
action taken in managing the business or affairs of the Company if it performs
the duty of its office in compliance with the standard contained in Section
5.11. No Director has guaranteed nor shall have any obligation with respect to
the return of a Member's Capital Contribution or share of income from the
operation of the Company. Furthermore, no Director, its Affiliates or its
employees (collectively, its "Agents") shall be liable to the Company or to any
Member for any loss or damage sustained by the Company or any Member except loss
or damage resulting from gross negligence or intentional misconduct or knowing
violation of law or a transaction for
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which such Director or Agent received a personal benefit in violation or breach
of the provisions of this Agreement.
SECTION 5.13 INDEMNIFICATION OF THE DIRECTORS.
(a) Each Director and its Agents shall be indemnified by
the Company against any losses, judgments, liabilities, expenses,
including attorneys' fees and amounts paid in settlement of any claims
sustained by such Director arising out of any action or inaction of the
Director and its Agents in its capacity as a Director of the Company to
the fullest extent allowed by law, provided that the same were not the
result of gross negligence or willful misconduct on the part of the
Director or an Agent and provided that the Director or an Agent, in
good faith, reasonably determined that such course of conduct was in
the best interest of the Company; provided, however, that such
indemnification and agreement to hold harmless shall be recoverable
only out of Company assets. Subject to applicable law, the Company
shall advance expenses incurred with respect to matters for which a
Director may be indemnified hereunder.
(b) If at any time, the Company has insufficient funds to
furnish indemnification as herein provided, it shall provide such
indemnification if and as it generates sufficient funds and prior to
any cash distributions, pursuant to Article VI or Article VII hereof,
to the Members.
SECTION 5.14 PURCHASE OF GOODS AND SERVICES FROM LHMI.
Goods and services may be purchased from Members or their Affiliates as
long as they are of substantially the same quality and price as could be
obtained from an unrelated third party.
SECTION 5.15 CERTAIN DECISIONS OF THE BOARD OF DIRECTORS.
(a) As long as LHMI and/or its Affiliates are (i)
providing a guaranty or are committed to provide a guaranty for any
indebtedness of the Company, and/or (ii) have any outstanding loans to
the Company or are committed to provide such loans, then
notwithstanding anything in this Agreement to the contrary, all
decisions and actions to be made by the Board of Directors with respect
to any loan, lease or other similar financing of the development,
construction or operation of the Hospital or the Company's affairs,
including without limitation the decisions with respect to incurring
any indebtedness or the refinancing thereof, shall be made by the
Directors designated by LHMI and shall be subject to the consent of at
least one of the Directors appointed by the Investor Members, which
consent shall not be unreasonably withheld.
(b) The Board of Directors shall be deemed to have
specifically approved all expenditures proposed by LHMI under this
Article V that are substantially consistent with the Development Budget
Exhibit (Exhibit C) or an approved operating budget when funded from
additional Capital Contributions made to the Company by the Members
pursuant to Section 3.5 above.
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(c) The development and annual operating budgets to be
proposed by LHMI hereunder shall be approved by the Board of Directors
as provided above subject to the following:
(i) The Board of Directors shall be deemed to
have approved a development budget which is substantially
consistent with the attached Development Budget Exhibit to
this Agreement;
(ii) No Director shall unreasonably withhold its
approval of budgets which are within the reasonable revenue
expectations of the Hospital and which are in compliance (both
as to terms and availability of financing) with agreements
with the Company's lenders and other parties providing
financing to the Company; and
(iii) In the event that the Board of Directors are
unable to approve an annual budget, LHMI shall be authorized
to operate the Company pursuant to the this Agreement under
the previous year's budget increased by the greater of 5% or
the increase during the previous year in the Consumer Price
Index for Medical Items until a new budget is approved.
(d) Without LHMI's written consent, the Investor Members
and the Board will not approve any change to the construction, design
or equipment of the Hospital, if the effect thereof is to materially
increase the cost thereof as set forth on the Development Budget
Exhibit approved hereunder.
SECTION 5.16 INDEMNITY BY THE COMPANY.
The Company shall use its commercially reasonable best efforts to
purchase "directors and officers" and similar insurance to protect the actions
of Members and the Board of Directors in their management of the Company within
the scope of this Agreement. To the extent not covered by such insurance, the
Company agrees to indemnify, defend and hold all Members, their Affiliates,
directors, officers, employees and agents, harmless from and against any and all
loss, claim, cause of action, demand, penalty, liability, action, damage or
deficiency, lawsuit or other proceeding, resulting or arising from (a) acts or
omissions of the Company, its members, officers, employees (unless due to the
gross negligence or willful misconduct of the applicable Member), (b) any
liability or obligation of the Company, except those which the applicable Member
created in violation of this Article V; (c) any nonfulfillment of the Company of
any of its covenants or agreements under this Article V; (d) any violation of
law by the Company; and (e) any loss or damage, reasonable attorney's fees and
other costs and expenses incident to any of (a) through (d). The indemnity
covenants set forth in this Section 5.16 shall survive the termination of this
Agreement for any reason. Notwithstanding the foregoing, no Member shall be
entitled to the indemnity rights set forth in this Section for any acts or
omissions arising from or related to the provision of medical, health or
therapeutic services; provided, however, that this sentence shall not prohibit
any Member from asserting any separate claim it may have under other contractual
agreements or arising by operation of law against the Company arising from
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any claim or action made or alleged against such Member by a third party as a
result of the acts or omissions of Company or its employees.
SECTION 5.17 FORCE MAJEURE.
No Member shall be liable nor shall it be deemed to be in default for
any delay or failure in performance under this Article V or other interruption
of service or employment deemed resulting directly or indirectly from Acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by a Member's employees or any similar or dissimilar cause
beyond the reasonable control of a Member. Further, no Member shall be in
default under this Article V if the default resulted from actions taken at the
request or direction of the Board of Directors or if the Board of Directors
failed to take reasonable action recommended by a Member to enable it to meet
its obligations hereunder.
ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS
SECTION 6.1 DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS AND CASH
FROM SALES OR REFINANCING.
Prior to the dissolution of the Company, and subject to the terms and
conditions to which the Company is bound with respect to its lenders ("Loan
Conditions"), Cash Flow from Operations and Cash from Sales or Refinancing, if
any, remaining after repayment of any amounts currently due with respect to
loans made by the Members to the Company shall be distributed as Cash
Distributions according to the relative percentage Membership Interests of the
Members at such times as the Board of Directors deems appropriate; provided,
however, that to the extent possible, any Guarantee Fee shall be deducted from
the Cash Distributions otherwise distributable to the Nonguarantor Members and
paid to the Guarantor Members as set forth in Section 5.6(c). Notwithstanding
anything herein to the contrary, no distributions shall be made to Members if
prohibited by the Act or any other applicable law.
The Board of Directors shall, to extent permitted by the Loan
Conditions and subject to the availability of Cash Flow from Operations and
using commercially reasonable efforts, distribute cash annually pro rata to
Members in an amount which is sufficient to enable them to pay income taxes
which arise from the taxable income of the Company. In computing taxable income
of each Member, the taxable income of each Member for the current year shall be
reduced by any cumulative tax losses incurred in prior years (after reduction by
taxable income in prior years). Such distributions shall assume for all Members
the highest combined federal and state tax rates applicable to any Member with
respect to his or its Profits from the Company.
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SECTION 6.2 PROFITS.
Except as provided in the Regulatory Allocations Exhibit (Exhibit D)
and subject to Section 6.6, Profits shall be allocated as follows:
(a) First, to the Members who have been allocated Losses
pursuant to Subsection 6.3(a) below until the cumulative Profits
allocated pursuant to this Subsection 6.2(a) equal the cumulative prior
allocations of Losses under that Subsection.
(b) Next, to the Members who have been allocated Losses
pursuant to Subsection 6.3(b) below until the cumulative Profits
allocated pursuant to this Subsection 6.2(b) equal the cumulative prior
allocations of Losses under that Subsection.
(c) All remaining Profits shall be allocated to the
Members in accordance with their percentage Membership Interests.
SECTION 6.3 LOSSES.
Except as provided in the Regulatory Allocations Exhibit and subject to
Section 6.6, Losses shall be allocated as follows:
(a) First, Losses shall be allocated to the Members with
positive Adjusted Capital Account balances in proportion to those
balances.
(b) All remaining Losses shall be allocated to the
Members in accordance with their percentage Membership Interests.
SECTION 6.4 CODE SECTION 704(C) TAX ALLOCATIONS.
Income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its initial Agreed Value pursuant to any method allowable under Code Section
704(c) and the Regulations promulgated thereunder.
In the event the Agreed Value of any Company asset is adjusted after
its contribution to the Company, subsequent allocations of income, gain, loss
and deduction with respect to such asset shall take into account any variation
between the adjusted basis of such asset for federal income tax purposes and its
Agreed Value pursuant to any method allowable under Code Section 704(c) and the
Regulations promulgated thereunder.
Any elections or other decisions relating to allocations under this
Section shall be determined by the Board of Directors. Absent a determination by
the Board of Directors, the remedial allocation method under Regulation Section
1.704-3(d) shall be used. Allocations pursuant to this Section are solely for
purposes of federal, state, and local taxes and shall not be
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taken into account in computing any Member's Capital Account or share of
Profits, Losses, other items, or distributions pursuant to any provision of this
Agreement.
SECTION 6.5 MISCELLANEOUS.
(a) Allocations Attributable to Particular Periods. For
purposes of determining Profits, Losses or any other items allocable to
any period, such items shall be determined on a daily, monthly, or
other basis, as determined by the Board of Directors using any
permissible method under Code Section 706 and the Regulations
thereunder.
(b) Other Items. Except as otherwise provided in this
Agreement, all items of Company income, gain, loss, deduction, credit
and any other allocations not otherwise provided for shall be divided
among the Members in the same proportion as they share Profits or
Losses, as the case may be, for the year.
(c) Tax Consequences; Consistent Reporting. The Members
are aware of the income tax consequences of the allocations made by
this Article and by the Regulatory Allocations and hereby agree to be
bound by those allocations as reflected on the information returns of
the Company in reporting their shares of Company income and loss for
income tax purposes. Each Member agrees to report its distributive
share of Company items of income, gain, loss, deduction and credit on
its separate return in a manner consistent with the reporting of such
items to it by the Company. Any Member failing to report consistently,
and who notifies the Internal Revenue Service of the inconsistency as
required by law, shall reimburse the Company for any legal and
accounting fees incurred by the Company in connection with any
examination of the Company by federal or state taxing authorities with
respect to the year for which the Member failed to report consistently.
SECTION 6.6 SPECIAL ALLOCATIONS OF GUARANTEE FEES.
Any and all deductions, losses or reductions to Capital Accounts
attributable to the payment by the Company of Guarantee Fees shall be allocated
to the Nonguarantor Members in accordance with their relative percentage
Membership Interests.
ARTICLE VII
DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS
SECTION 7.1 NO TERMINATION BY CERTAIN ACTS OF MEMBER.
Neither the transfer of interest, withdrawal from the Company,
bankruptcy, insolvency, dissolution, liquidation or other disability, nor the
legal incompetency of any Member shall result in the termination or dissolution
of the Company or affect its continuance in any manner whatsoever.
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SECTION 7.2 DISSOLUTION.
The Company shall be dissolved upon the happening of any of the
following events, whichever shall first occur:
(a) The election to dissolve the Company in accordance
with the terms of Section 3.5(f) hereof;
(b) The expiration of the term of the Company as provided
in Section 2.5 hereof;
(c) The adjudication of bankruptcy of the Company;
(d) Upon the written consent of the Required Members;
(e) In accordance with Section 12.11 hereof; and
(f) The entry of a decree of judicial dissolution or the
administrative dissolution of the Company as provided in the Act.
(g) Upon the written election of LHMI prior to the
execution by LHMI on behalf of the Company of definitive agreements for
the construction of the Hospital and for a loan to finance the
construction of the Hospital, in the event that upon thirty (30) days
prior written notice to the other Members, the conditions set forth at
Section 3.11 have not been met with regard to the MOB.
SECTION 7.3 DISSOLUTION AND FINAL LIQUIDATION.
(a) Upon any dissolution of the Company, the Company
shall not terminate, but shall cease to engage in further business
except to the extent necessary to perform existing contracts and
preserve the value of its assets. Its assets shall be liquidated and
its affairs shall be wound up as soon as practical thereafter by the
Manager or, if for any reason there is no Manager, by another Person
designated by the Board of Directors. In winding up the Company and
liquidating assets, the Manager, or other Person so designated for such
purpose, may arrange, either directly or through others, for the
collection and disbursement to the Members of any future receipts from
the Hospital or other sums to which the Company may be entitled, and
shall sell the Company's interest in the Hospital and the Equipment to
any Person, including any Member or any Affiliate thereof, on such
terms and for such consideration as shall be consistent with obtaining
the fair market value thereof, as such fair market value is approved by
the Members.
(b) Upon any such dissolution and liquidation of the
Company, the net assets, if any, of the Company available for
distribution, including any cash proceeds from the liquidation of
Company assets, shall be applied and distributed in the following
manner or order, to the extent available:
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(i) To the payment of or creation of reserves for all
debts, liabilities, and obligations to all creditors of the Company
(other than the Members or their Affiliates) and the expenses of
liquidation;
(ii) To the payment of all debts and liabilities
(including interest), and further including without limitation any
accrued but unpaid Guarantee Fees, owed to the Members or their
Affiliates as creditors; and
(iii) The balance to the Members with positive Capital
Account balances after taking into account all other adjustments during
the Fiscal Year in which liquidation occurs.
(c) The Members shall look solely to the assets, if any, of the
Company for any return of their Capital Contributions and, if the assets of the
Company remaining after payment or discharge of the Company's debts and
liabilities, or provision therefor, are insufficient to return all or any part
of the Capital Contributions, no Member shall have any right of recourse against
the Directors or other Members or to charge the Board of Directors or other
Members for any amounts except as provided herein and except to the extent
otherwise provided by the Act and/or North Carolina law.
(d) Upon such dissolution, reasonable time shall be allowed for
the orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors so as to minimize the losses normally attendant to a
liquidation.
(e) The Capital Accounts of the Members, as adjusted, shall be
utilized by the Company for the purpose of making distributions to those Members
with positive balances in their respective Capital Accounts pursuant to Section
7.3(b). In making such distributions, the Board of Directors or the Person
winding up the affairs of the Company shall distribute all funds available for
distribution to the Members (after establishing any reserves that the Board of
Directors or the Person winding up the affairs of the Company deems reasonably
necessary pursuant to Section `(b)) prior to the later of (a) the end of the
taxable year in which the event which caused the termination and dissolution of
the Company occurs, or (b) ninety (90) days after the occurrence of such event.
The Board of Directors in its sole discretion, or the Person winding up the
affairs of the Company, in its discretion, may elect to have the Company retain
any installment obligations owed to the Company until collected in full so long
as any portion of the reserves which are later determined to be unnecessary, and
all collections on such installment obligations which are not deemed to be
reasonably necessary by the Board of Directors or the Person winding up the
affairs of the Company to add to such reserves are distributed as soon as
practicable in accordance with the provisions of Section 7.3(b) as modified by
this Section.
SECTION 7.4 TERMINATION.
Upon completion of the dissolution, winding up, distribution of the
liquidation proceeds and any other Company assets, the Company shall terminate.
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SECTION 7.5 PAYMENT IN CASH.
Any payments made to any Member pursuant to this Article VII shall be
made only in cash.
SECTION 7.6 TERMINATION OF NONCOMPETITION COVENANTS.
Members shall have no continuing liability or obligation under Section
5.10(b) after the second (2nd) anniversary of the dissolution of the Company.
ARTICLE VIII
REMOVAL OR WITHDRAWAL OF MANAGERS AND MEMBERS AND
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS
SECTION 8.1 MEMBERS - RESTRICTION ON TRANSFER.
(a) Except as otherwise set forth in this Section or in
this Agreement, no Membership Interest or any portion thereof, shall be
validly sold or assigned whether voluntarily, involuntarily or by
operation of law, and no purported assignee shall be recognized by the
Company for any purpose, unless such Membership Interest shall have
been transferred in accordance with the provisions of this Agreement
and in compliance with such additional restrictions as may be imposed
by any federal or state securities regulatory authority or law and with
the consent of the Board of Directors. In no event, however, shall a
Member transfer or sell all or any of its Membership Interest to any
party which, if a Member, would be in violation of Section 5.10(b)
hereof.
(b) Except as otherwise set forth in this Section or in
this Agreement, a Member may transfer, sell or assign its entire
Membership Interest only if it has received the approval of the Board
of Directors. Subject to the foregoing: (i) the Company first for a
period of fifteen (15) days, and thereafter the other Members for a
period of fifteen (15) days shall have the right, but not the
obligation, to purchase all, but not less than all, of the Membership
Interest proposed to be transferred, which right shall be exercisable
on the terms and for the purchase price set forth in writing in a bona
fide offer made for the Interests by a third-party (the "Right of First
Refusal"), and (ii) there shall have been filed with the Company a duly
executed and acknowledged counterpart of the instrument making such
assignment signed by both the assignor and assignee and such instrument
evidences the written acceptance by the assignee of all of the terms
and provisions of the Agreement, represents that such assignment was
made in accordance with all applicable laws and regulations and the
assignee shall have represented to the Company in writing that it meets
the investor suitability standards established by the appropriate state
of residence, or, in the absence thereof, the investor suitability
standards established by the Company. The Board of Directors shall use
reasonable care to determine that transfers are in accordance with
applicable laws and regulations, including obtaining an opinion of
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counsel to that effect. Any Member that assigns all of its Membership
Interest shall cease to be a Member of the Company. Any Membership
Interests acquired by the Company pursuant to Section 8.1 shall,
subject to applicable law, be re-offered by the Company to suitable
investors.
(c) Subject to (d) below, any dissolution, liquidation,
merger (unless Members or their Affiliates existing prior to such
merger own at least fifty-one percent (51%) of the surviving entity
after the merger or unless both parties to such merger are majority
owned by parties who are Members or their Affiliates prior to such
merger) or sale of a Member which is an Entity (a sale shall include a
transfer of fifty percent (50%) or more of its ownership interests or
of substantially all of its assets or any other transaction or series
of related transactions intended to accomplish, in substance, a sale of
such Entity), which event shall not occur, subject to (d) below,
without the written consent of the other Members, shall constitute an
offer by such Member to sell such Member's Interest to the Company and
the other Members pursuant to Section 8.6 for a purchase price equal to
five (5) multiplied by the net income (as reasonably determined by the
Company's accountants) of the Company for the twelve (12) month period
ending as of the calendar quarter most recently ended prior to such
event multiplied by the percentage Membership Interest of such Member
in the Company (the "Formula Purchase Price"). The Formula Purchase
Price shall be paid in three (3) equal annual installments, the first
third of which shall be paid upon the determination of the Purchase
Price and the remaining two (2) installments of which shall be paid on
the first and second anniversary of such date (the "Payment Method").
The remaining two (2) installments shall bear interest at the Prime
Rate as of the date of the date of the determination of the Formula
Purchase Price. Accrued interest shall be paid as of the dates payments
of principal are due as provided above according to the Payment Method.
Any transaction which invokes or gives rise to MedCath Physician
Management, Inc.'s right of first refusal with respect to each Investor
Member or Investor Member Entity under the Right of First Refusal
Agreement between such parties shall also be deemed a sale of such
Investor Member Entity or the Investor Member for purposes of this
Section 8.1(c).
(d) Notwithstanding anything herein to the contrary, LHMI
may assign its Membership Interest in the Company, its rights to
designate Directors hereunder, and its rights as manager under the
Management Services Agreement to any party that assumes in writing the
obligations of LHMI hereunder, as long as such party would not be in
violation of the term of this Agreement. LHMI may also assign its
Membership Interest in the Company, its right to designate Directors,
and its rights under the Management Services Agreement to a financial
institution as collateral security for repayment of indebtedness for
borrowed funds by MedCath Incorporated or its Affiliates.
SECTION 8.2 CONDITION PRECEDENT TO TRANSFER OF MEMBERSHIP
INTEREST.
Notwithstanding anything herein to the contrary, no transfer of
Membership Interest may be made if such transfer (a) constitutes a violation of
the registration provisions of the Securities Act of 1933, as amended, or the
registration provisions of any applicable state securities laws; (b) if after
such transfer the Company will not be classified as a partnership for federal
income
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tax purposes; and (c) if when taken together with other prior
transfers, results in a "termination" of the Company for federal income
tax purposes. The Company may require, as a condition precedent to
transfer of Membership Interest, delivery to the Company, at the
proposed transferor's expense, of an opinion of counsel satisfactory
(both as to the counsel and substance of the opinion) to the Company
that the transfer will not violate any of the foregoing restrictions.
SECTION 8.3 SUBSTITUTE MEMBER - CONDITIONS TO FULFILL.
No assignee of a Member's Membership Interest in the Company shall have
the right to become a Substitute Member in place of its assignor unless, in
addition to any other requirement herein, all of the following conditions are
satisfied:
(a) The Company has waived its right pursuant to Section
8.1 to purchase the Membership Interest held by the assignee;
(b) The duly executed and acknowledged written instrument
of assignment which has been filed with the Company sets forth that the
assignee becomes a Substitute Member in place of the assignor;
(c) The assignor and assignee execute and acknowledge
such other instruments as the Board of Directors may deem reasonably
necessary or desirable to effect such admission, including, but not
limited to, the written acceptance and adoption by the assignee of the
provisions of this Agreement;
(d) The payment by the assignee of all costs to the
Company associated with the transaction, including but not limited to
legal fees, transfer fees, and filing fees.
SECTION 8.4 ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE.
Upon the transfer of a Membership Interest, all items of income, gain,
loss, deduction and credit attributable to the Membership Interest so
transferred shall be allocated between the transferor and the transferee in such
manner as the transferor and transferee agree at the time of transfer; provided
such allocation does not violate federal or state income tax law. If the Board
of Directors, in its sole discretion, deems such laws violated, then such
allocation shall be made pro rata for the fiscal year based upon the number of
days during the applicable fiscal year of the Company that the Membership
Interest so transferred was held by the transferor and transferee, without
regard to the results of Company activities during the period in which each was
the holder, or in such other manner as the Board of Directors deems necessary to
comply with federal or state income tax laws. Distributions as called for by
this Agreement shall be made to the holder of record of the Membership Interest
on the date of distribution. Notwithstanding anything contained in this
Agreement to the contrary, the Company shall be entitled to treat the assignor
of any assigned Membership Interest as the absolute owner thereof in all
respects, and shall incur no liability for distributions made in good faith to
such assignor in reliance on the Company records as they exist until such time
as the written assignment has been received by, and recorded on the books of the
Company. For purposes of this Article VIII, the effective date
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of an assignment of any Membership Interest shall be the last day of the month
specified in the written instrument of assignment.
SECTION 8.5 RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE.
No assignee of a Membership Interest shall have the right to
participate in the Company, inspect the books of account of the Company or
exercise any other right of a Member unless and until admitted as a Substitute
Member. Notwithstanding the failure or refusal to admit an assignee as a
Substitute Member, such assignee shall be entitled to receive the share of
income, credit, gain, expense, loss and deduction and cash distributions
provided hereunder that is assigned to it, and, upon demand, may receive copies
of all reports thereafter delivered pursuant to the requirements of this
Agreement; provided, however, that the Company shall have first received notice
of such assignment and all required consents thereto shall have been obtained
and other conditions precedent to transfer thereof shall have been satisfied.
The Company's tax returns shall be prepared to reflect the interests of
assignees as well as Members.
SECTION 8.6 REPURCHASE OF INTERESTS IN CERTAIN EVENT.
(a) In the discretion of the Board of Directors, the
Company may, but is not obligated to, repurchase a Member's Membership
Interest upon such Member's and/or any of its Affiliates' breach of the
Member's or the Affiliate's obligations contained in Article III,
Sections 5.10 and 8.1 of this Agreement.
(b) Each Member agrees to sell its Membership Interest to
the Company in the event the Company elects to exercise the right of
repurchase granted under Section 8.6(a) and the purchase price shall be
the lower of (x) the Capital Contributions of the Member less all
amounts distributed to such Member by the Company, and (y) the Formula
Purchase Price.
(c) The Directors designated by the Member whose
activities give rise to the event set forth in Section 8.6(a) shall not
have a vote hereunder and a majority of the other Directors shall make
all decisions under this Section 8.6 with respect to such activities.
SECTION 8.7 DEATH OF A MEMBER/SALE BY MEMBER UPON RETIREMENT OR
DISABILITY.
(a) Heirs of Members who are individuals shall be
entitled to inherit the Membership Interests of a deceased Member,
provided that upon a Member's death (or the death of an individual that
owns a Member) such interests shall be automatically converted to an
economic interest only in the Company until such heir agrees in writing
to all of the terms and conditions of this Agreement and such other
reasonable terms as may be established by the Board of Directors, in
which event such interest shall again become a Membership Interest in
the Company.
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(b) A Member who is an individual, or an individual that
holds an ownership in Member that is an Investor Entity (an "Individual
Owner") or the estate of a Member or Individual Owner, shall have the
right, but shall in no event be required, to offer his Membership
Interest (or in the case of an Individual Owner, his proportionate
share of the Investor Entity's Membership Interest) to the Company,
upon the Individual Owner's or Member's death or permanent retirement
from the practice of medicine after the age of sixty-two (62), or upon
his becoming permanently disabled from the practice of his medical
specialty which disability is determined by an independent medical
evaluation reasonably satisfactory to LHMI. Within thirty (30) days of
a written offer by the Member, Individual Owner, or the estate of a
deceased Member to sell his Membership Interest to the Company pursuant
to this Section 8.7, the Company shall have the right, but not the
obligation, to purchase the Membership Interest owned by such Member
directly or through an Entity, and the estate, Individual Owner or
Investor Entity shall thereupon be obligated to sell such Membership
Interest or proportionate share thereof, to the Company, in accordance
with the terms of this Section 8.7. The Company may exercise its option
by giving written notice thereof to the Member, the Individual Owner or
the estate within such thirty (30) day period. If the Company declines
to exercise its option, thereafter the Investor Members other than LHMI
for a period of thirty (30) days shall have the right, but not the
obligation, to purchase a pro rata portion, based on the percentage
Membership Interest of the purchasing Member, of the Membership
Interest proposed to be transferred by the retiring or disabled Member,
the estate of the deceased Member or the Investor Entity of the
deceased, retired or disabled Individual Owner, which option shall be
exercised within thirty (30) days of the date the Company declines in
writing to exercise its option, and if exercised, the applicable
Member, the Investor Entity or estate shall thereupon be obligated to
sell the applicable Membership Interest to such other Members.
Thereafter, for a period of thirty (30) days, LHMI shall have such
right, but not the obligation, to purchase any remaining Membership
Interest(s) not purchased by Company or the Investor Members on the
same terms. The purchase price for such Membership Interest, whether
purchased by Company, LHMI or any other Member shall equal the Formula
Purchase Price calculated as of the quarter ending prior to the date of
retirement, death, or the date that the Member or Individual Owner is
determined by an independent medical evaluation to be permanently
disabled. The Formula Purchase Price shall be paid in accordance with
the Payment Method. The outstanding amounts due to Member, the
Individual Owner or the estate shall bear interest at Prime Rate as of
the date of death, retirement or disability. Accrued interest shall be
paid as of the dates that payments of principal are due as provided
above.
(c) In the event that neither Company, the Investor
Members, nor LHMI elect to purchase the Membership Interest of the
deceased, retiring or disabled Member or the proportionate share of the
Membership Interest held through an Investor Entity by an Individual
Owner, the estate, Individual Owner or Member may offer to sell the
Membership Interest to Company, and the Company shall be required to
purchase such Membership Interest, at the Formula Purchase Price
calculated as set forth above; provided, however, that the Formula
Purchase Price shall be payable in five (5) equal
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annual installments on each anniversary of the Member's or Individual
Owner's date of death, retirement or disability determination, with
interest accrued and payable on the outstanding balance at the Prime
Rate as of the date of death, retirement or disability. In the event
that the retiring Member or Individual Owner has held his Membership
Interest (or interest in the Investor Entity) for less than five (5)
years from the date that the Hospital first opens for business (the
"Hospital Opening"), the Member, or Individual Owner shall only be
entitled to sell twenty (20%) percent of his Membership Interest (or
interest in the Investor Entity) for each year of ownership which has
elapsed from the date of Hospital Opening through the date of
retirement for a purchase price equal to twenty percent (20%) of the
Formula Purchase Price. In no event shall Company be required to
purchase the Membership Interest of the deceased, retiring or disabled
Member or Individual Owner or make a current payment of the Formula
Purchase Price in the event that such purchase is prohibited by Loan
Conditions applicable to the Company or is otherwise prohibited by law
from making such purchase.
(d) In the event of any purchase by the Company or LHMI
hereunder of an Individual Owner's interest in an Investor Entity, all
parties agree that such interest may be exchanged by the Company or
LHMI for the underlying direct ownership in the Company.
ARTICLE IX
RECORDS, ACCOUNTINGS AND REPORTS
SECTION 9.1 BOOKS OF ACCOUNT.
At all times during the continuance of the Company, the Board of
Directors shall maintain or cause to be maintained true and full financial
records and books of account showing all receipts and expenditures, assets and
liabilities, income and losses, and all other records necessary for recording
the Company's business and affairs including those sufficient to record the
allocations and distributions required by the provisions of this Agreement.
SECTION 9.2 ACCESS TO RECORDS.
The books of account and all documents and other writings of the
Company, including the Articles of Organization and any amendments thereto,
shall at all times be kept and maintained at the principal office of the Company
or elsewhere as decided by the Board of Directors. Each Member or its designated
representatives shall, upon reasonable notice to the Company, have access to
such financial books, records and documents during reasonable business hours and
may inspect and make copies of any of them.
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SECTION 9.3 BANK ACCOUNTS AND INVESTMENT OF FUNDS.
(a) LHMI shall open and maintain, on behalf of the
Company, a bank account or accounts in a federally insured bank or
savings institution as it shall determine, in which all monies received
by or on behalf of the Company shall be deposited. All withdrawals from
such accounts shall be made upon the signature of such person or
persons as LHMI may from time to time designate.
(b) Any funds of the Company which LHMI may determine are
not currently required for the conduct of the Company's business may be
deposited with a federally insured bank or savings institution or
invested in short term debt obligations (including obligations of
federal or state governments and their agencies, commercial paper,
certificates of deposit of commercial banks, savings banks or savings
and loan associations) as shall be determined by LHMI in its sole
discretion.
SECTION 9.4 FISCAL YEAR.
The Fiscal Year and accounting period of the Company shall end on
September 30 of each year.
SECTION 9.5 ACCOUNTING REPORTS.
As soon as reasonably practicable after the end of each fiscal year but
in no event later than 120 days after the end thereof, each Member shall be
furnished a copy of the Company's tax return, Member's form 1065, Schedule K-1,
and an annual accounting showing the financial condition of the Company at the
end of such fiscal year and the result of its operations for the fiscal year
then ended, which annual accounting shall be prepared on an accrual basis in
accordance with generally accepted accounting principles applied on a consistent
basis and shall be delivered to each of the Members promptly after it has been
prepared. It shall include a balance sheet as of the end of such Fiscal Year and
statements of income and expense, each Member's equity, and cash flow for such
Fiscal Year. At the Manager's election the Company shall either be audited or
such annual accountings shall be either reviewed or compiled by a firm of
independent certified public accountants engaged by the Manager on behalf of the
Company which shall also be the accounting firm of the Manager. The report shall
set forth the distributions to the Members for such Fiscal Year and shall
separately identify distributions from (i) operating revenue during such Fiscal
Year, (ii) operating revenue from a prior period which had been held as
reserves, (iii) proceeds from the sale or refinancing of the Equipment, and (iv)
unexpended proceeds received from the sale of Membership Interests. Following
the opening of the Hospital, the Manager shall also cause to be prepared and
distributed to the Members quarterly financial statements.
SECTION 9.6 TAX MATTERS PARTNER.
LHMI shall act as the "Tax Matters Partner" of the Company as that term
is defined Section 6231 of the Code.
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ARTICLE X
MEETINGS AND VOTING RIGHTS OF MEMBERS
SECTION 10.1 MEETINGS.
(a) Meetings of the Members of the Company for any
purpose may be called by the Board of Directors or any Member holding
in the aggregate ten percent (10%) of the Membership Interests. Such
meetings shall be held in the St. Tammany Parish, Louisiana area. A
member may attend a meeting by telephone or other electronic means and
be considered present for purposes of a quorum so long as the telephone
or other connection allows each Member to hear and be heard by all
other Members.
(b) A notice of any such meeting shall be given by mail,
not less than ten (10) days nor more than sixty (60) days before the
date of the meeting, to each Member at its address as specified in
Section 12.7. Such notice shall be in writing, and shall state the
place, date and hour of the meeting, and shall indicate by whom it is
being issued. The notice shall state the purpose or purposes of the
meeting. If a meeting is adjourned to another time or place, and if any
announcement of the adjournment of time or place is made at the
meeting, it shall not be necessary to give notice of the adjourned
meeting.
(c) Each Member may authorize any Person or Persons to
act for the Member by proxy in all matters in which a Member is
entitled to participate, whether by waiving notice of any meeting, or
voting or participating at a meeting. Every proxy must be signed by the
Member or its attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure
of the Member executing it.
SECTION 10.2 VOTING RIGHTS OF MEMBERS.
(a) Each Member shall take no part in or interfere in any
manner with the control, conduct or operation of the Company, and shall
have no right or authority to act for or bind the Company except as
provided herein. Votes or decisions, to the extent taken or to be made,
of the Members may be cast at any duly called meeting of the Company or
in writing within ten (10) days after written request therefor. Each
Member shall be entitled to the number of votes equal to the percentage
Membership Interest of such Member.
(b) No Member shall have the right or power to vote to:
(i) withdraw or reduce the Member's Capital Contributions except as a
result of the dissolution and liquidation of the Company or as
otherwise provided by law or this Agreement; (ii) bring an action for
partition against the Company; (iii) cause the termination and
dissolution of the Company by court decree or otherwise, except as set
forth in this Agreement; or (iv) demand or receive property other than
cash in return for its Capital Contributions.
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ARTICLE XI
AMENDMENTS
SECTION 11.1 AUTHORITY TO AMEND BY THE BOARD OF DIRECTORS.
Except as otherwise provided by Section 11.2, this Agreement and the
Articles of Organization of the Company may be amended by the Board of
Directors, and any proposed amendment by members of the Board of Directors
designated by LHMI shall not be unreasonably delayed or rejected by any other
member of the Board of Directors:
(a) To admit additional Members or Substitute Members but
only in accordance with and if permitted by the other terms of this
Agreement;
(b) To preserve the legal status of the Company as a
limited liability company under the Act or other applicable state or
federal laws if such does not change the substance hereof, and the
Company has obtained the written opinion of its counsel to that effect;
(c) To cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, to clarify any provision of this Agreement, or to make any
other provisions with respect to matters or questions arising under
this Agreement which will not be inconsistent with the provisions of
this Agreement;
(d) To satisfy the requirements of the Code and
Regulations with respect to limited liability companies or of any
federal or state securities laws or regulations, provided such
amendment does not adversely affect the Membership Interests of Members
and is necessary or appropriate in the written opinion of counsel and
any amendment under this subsection (d) shall be effective as of the
date of this Agreement;
(e) To the extent that it can do so without materially
reducing the economic return on investment in the Company to any
Member, to satisfy any requirements of federal or state legislation or
regulations, court order, or action of any governmental administrative
agency with respect the operation or ownership of the Hospital; and
(f) Subject to the terms of Section 2.6, to extend the
term of the Company.
SECTION 11.2 RESTRICTIONS ON THE BOARD OF DIRECTORS' AMENDMENTS:
AMENDMENTS BY MEMBERS.
Except as provided in Section 11.1, amendments to this Agreement shall
be made only upon the consent of the Required Members. Except as set forth in
this Section 11.2, no amendment shall be made pursuant to Section 11.1 which
would materially and adversely affect the federal income tax treatment to be
afforded each Member, materially and adversely affect the
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Membership Interests and liabilities of each Member as provided herein,
materially change the purposes of the Company, extend or otherwise modify the
term of the Company, or materially change the method of allocations and
distributions as provided in Article VI and Article VII.
SECTION 11.3 AMENDMENTS TO CERTIFICATES.
In making any amendments to this Agreement, there shall be prepared,
executed and filed for recording by the Board of Directors such documents
amending the Articles of Organization as required under the Act.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 LIMITED POWER OF ATTORNEY.
Upon the execution hereof, each Member hereby irrevocably constitutes
and appoints the Directors it has appointed as its true and lawful attorney in
the Member's name and on the Member's behalf to take at any time all such action
which such Directors is expressly authorized to perform, or which a Member is
expressly required to perform, under this Agreement.
SECTION 12.2 WAIVER OF PROVISIONS.
The waiver of compliance at any time with respect to any of the
provisions, terms or conditions of this Agreement shall not be considered a
waiver of such provision, term or condition itself or of any of the other
provisions, terms or conditions hereof.
SECTION 12.3 INTERPRETATION AND CONSTRUCTION.
This Agreement, together with the Management Services Agreement, the
Hospital Professional Services Agreement and the Right of First Refusal
Agreement between MedCath Physician Management, Inc. and the Investor Members,
constitutes the entire agreement among the Members and any modification or
amendment hereto must be accomplished in accordance with the provisions of
Article XI and Article XII. Where the context so requires, the masculine shall
include the feminine and the neuter, and the singular shall include the plural.
The headings and captions in this Agreement are inserted for convenience and
identification only and are in no way intended to define, limit or expand the
scope and intent of this Agreement or any provision thereof. The references to
Section and Article in this Agreement are to the Sections and Articles of this
Agreement.
SECTION 12.4 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina, exclusive of its conflict of law rules.
35
40
SECTION 12.5 PARTIAL INVALIDITY.
In the event that any part or provision of this Agreement shall be
determined to be invalid or unenforceable, the remaining parts and provisions of
said Agreement which can be separated from the invalid or unenforceable
provision and shall continue in full force and effect.
SECTION 12.6 BINDING ON SUCCESSORS.
The terms, conditions and provisions of this Agreement shall inure to
the benefit of, and be binding upon the parties hereto and their respective
heirs, successors, distributees, legal representatives, and assigns. However,
none of the provisions of this Agreement shall be for the benefit of or
enforceable by any creditors of the Company.
SECTION 12.7 NOTICES AND DELIVERY.
(a) To Members. Any notice to be given hereunder at any
time to any Member or any document reports or returns required by this
Agreement to be delivered to any Member, may be delivered personally or
mailed to such Member, postage prepaid, addressed to the Member at such
times as the Member shall by notice to the Company have designated as
the Member's address for the mailing of all notices hereunder or, in
the absence of such notice, to the address set forth in the Information
Exhibit hereof. Any notice, or any document, report or return so
delivered or mailed shall be deemed to have been given or delivered to
such Member at the time it is mailed, as the case may be.
(b) To the Company. Any notice to be given to the Company
hereunder shall be delivered personally or mailed to the Company, by
certified mail, postage prepaid, addressed to the Company at its
registered office. Any notice so delivered or mailed shall be deemed to
have been given to the Company at the time it is delivered or mailed,
as the case may be.
SECTION 12.8 COUNTERPART EXECUTION; FACSIMILE EXECUTION.
This Agreement may be executed in any number of counterparts with the
same effect as if all of the Members had signed the same document. Such
executions may be transmitted to the Company and/or the other Members by
facsimile and such facsimile execution shall have the full force and effect of
an original signature. All fully executed counterparts, whether original
executions or facsimile executions or a combination, shall be construed together
and constitute one and the same agreement.
SECTION 12.9 STATUTORY PROVISIONS.
Any statutory reference in this Agreement shall include a reference to
any successor to such statute and/or revision thereof.
36
41
SECTION 12.10 WAIVER OF PARTITION.
Each party does hereby waive any right to partition or the right to
take any other action which might otherwise be available to such party for the
purpose of severing its relationship with the Company or such party's interest
in the assets held by the Company from the interests of other Members until the
end of the term of both this Company and any successor company formed pursuant
to the terms hereof.
SECTION 12.11 CHANGE IN LAW.
If due to any new law, rule or regulation, or due to an interpretation
or enforcement of any existing law, rule or regulation, health care counsel
reasonably selected by LHMI and reasonably approved by the Board of Directors,
determines in writing that it is reasonably likely that the relationships
established between any of the parties to this Agreement including any of their
Affiliates and/or successors or assigns will not comply with any law, rule,
regulation or interpretation thereof ("Applicable Law"), then the parties hereto
shall be given notice thereof (a "Change of Law Event"). If the Required Members
disagree with whether a Change of Law Event exists and that disagreement is not
resolved among such parties within the following thirty (30) days, then that
disagreement shall be resolved by arbitration under Section 12.16 hereof. If a
Change of Law Event is determined to exist, then the parties hereto hereby agree
first, to negotiate in good faith to restructure the relationships established
under this Agreement so as to bring them into compliance with such applicable
laws while at the same time preserving the material benefits of each of the
parties hereto. In the event that a specific proposal for the restructuring of
this Agreement is approved by the Board of Directors and the Required Members,
such restructured agreement shall become binding upon all Members of the
Company. The approval of any such proposal for the restructuring of this
Agreement shall not be unreasonably withheld or delayed by any Investor Member.
Second, in the event that within forty-five (45) days following the Company's
receipt of legal advice in writing from such health care counsel regarding
Applicable Law the parties hereto are unable to negotiate an acceptable
restructuring of their relationship, then, if one or more Member's ownership is
not involved in such non-compliance, such Members shall have the option, within
the following forty-five (45) day period, to purchase the Membership Interests
of each Member whose ownership is involved with such noncompliance with
Applicable Law for a purchase price equal to the greater of: (a) the Formula
Purchase Price, (b) the amount of the Capital Contributions made by such Member
to the Company, or (c) two and one-half (2 1/2) multiplied by the net income (as
reasonably determined by the Company's accountants) of the Company for the
twelve (12) month period ending as of the calendar quarter most recently ended
prior to such event multiplied by the percentage membership interest of such
Member in the Company, together with interest thereon computed at the Prime Rate
as of the date of this Agreement from the date of such contribution through the
date upon which the purchasing Members pays all amounts due under the terms of
this Section 12.11. For purposes of (a) or (b), distributions to the Members by
the Company after the effective date of this Agreement (and whether before or
after health care counsel determined there was a problem under an Applicable Law
or before or after the exercise of the purchase option) shall be treated as
payments for the Membership Interest by the purchasing Members. Such purchase
price shall be paid in accordance with the Payment Method, plus interest at the
Prime Rate as of the date of that the first installment of principal is due.
37
42
Accrued interest on any outstanding balance shall be paid as of the dates
payments of principal are due as provided above. Third, in the event that the
compliant Members do not exercise their option to purchase Membership Interests
of a Member whose ownership causes the Company not to be in compliance with
Applicable Law, any Member may elect in writing within the following forty-five
(45) day period, to require that the Company be dissolved, in which event the
Company shall be dissolved in accordance with the terms of this Agreement.
SECTION 12.12 INVESTMENT REPRESENTATIONS OF THE MEMBERS.
(a) Each Member or individual executing this Agreement on
behalf of an Entity which is a Member hereby represents and warrants to
the Company and to the Members that such Member has acquired such
Member's Membership Interest in the Company for investment solely for
such Member's own account with the intention of holding such Membership
Interest for investment, without any intention of participating
directly or indirectly in any distribution of any portion of such
Membership Interest and without the financial participation of any
other Person in acquiring such Membership Interest in the Company.
(b) Each Member or individual executing this Agreement on
behalf of an entity which is a Member hereby acknowledges that such
Member is aware that such Member's Membership Interest in the Company
has not been registered (i) under the Securities Act of 1933, as
amended (the "Federal Act"), (ii) under applicable Louisiana securities
laws, or (iii) under any other state securities laws. Each Member or
individual executing this Agreement on behalf of an Entity which is a
Member further understands and acknowledges that his representations
and warranties contained in this Section are being relied upon by the
Company and by the Members as the basis for the exemption of the
Members' Membership Interest in the Company from the registration
requirements of the Federal Act and from the registration requirements
of applicable Louisiana securities laws and all other state securities
laws. Each Member or individual executing this Agreement on behalf of
an Entity which is a Member further acknowledges that the Company will
not and has no obligation to recognize any sale, transfer, or
assignment of all or any part of such Member's Membership Interest in
the Company to any Person unless and until the provisions of this
Agreement hereof have been fully satisfied.
(c) Each Member or individual executing this Agreement on
behalf of an Entity which is a Member hereby acknowledges that prior to
his execution of this Agreement, such Member received a copy of this
Agreement and that such Member has examined this Agreement or caused
this Agreement to be examined by such Member's representative or
attorney. Each Member or individual executing this Agreement on behalf
of an Entity which is a Member hereby further acknowledges that such
Member or such Member's representative or attorney is familiar with
this Agreement and with the Company's business plans. Each Member or
individual executing this Agreement on behalf of an Entity which is a
Member acknowledges that such Member or such Member's representative or
attorney has made such inquiries and requested, received, and reviewed
any additional documents necessary for such Member to make an informed
investment decision and that such Member does not desire any further
information or
38
43
data relating to the Company or to the Members. Each Member or
individual executing this Agreement on behalf of an Entity which is a
Member hereby acknowledges that such Member understands that the
purchase of such Member's Membership Interest in the Company is a
speculative investment involving a high degree of risk and hereby
represents that such Member has a net worth sufficient to bear the
economic risk of such Member's investment in the Company and to justify
such Member's investing in a highly speculative venture of this type.
SECTION 12.13 DECISIONS BY MANAGERS.
EACH OF THE MEMBERS HEREBY AUTHORIZE THEIR RESPECTIVE APPOINTED MANAGER
TO MAKE THE DECISIONS TO BE MADE BY THE MANAGERS HEREUNDER AND HEREBY RELEASE
AND HOLD HARMLESS THE MANAGERS FROM ANY AND ALL CLAIMS, LIABILITIES, LOSSES OR
DAMAGES WHICH ANY OF THEM MAY HAVE NOW OR IN THE FUTURE RESULTING FROM ANY
DECISION MADE BY THE MANAGERS HEREUNDER UNLESS DUE TO THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH MANAGER.
SECTION 12.14 REFERRALS TO HOSPITAL AND OWNERSHIP OF SHARES OF
COMMON STOCK OF MEDCATH INCORPORATED.
Each Member agrees that if in the reasonable opinion of health care
counsel of MedCath Incorporated, referrals of patients to the Hospital by a
Member or a physician owner or Affiliate of a Member or ownership of shares of
common stock in MedCath Incorporated by a Member or a physician owner or
Affiliate of an Owner would cause or constitute a violation of any federal or
state law, rule or regulation, then, as applicable,
(a) the Member or a physician owner or Affiliate of an
Owner shall not refer patients to the Hospital; and
(b) the Member or a physician owner for Affiliate of an
Owner shall not acquire, nor continue to own any of shares of common
stock of MedCath Incorporated.
SECTION 12.15 ACKNOWLEDGMENTS REGARDING LEGAL REPRESENTATION.
Each of the Members hereunder acknowledge and agree that Xxxxx & Xxx
Xxxxx, PLLC is counsel for LHMI, MedCath Incorporated and their Affiliates, and
may, upon approval of the Board of Directors, also serve as counsel for the
Company from time to time. Each of the Members hereby acknowledges and consents
to such representation. Each Member other than LHMI further acknowledges and
agrees that they shall have no attorney-client relationship with Xxxxx & Xxx
Xxxxx, PLLC as a result of Xxxxx & Xxx Xxxxx, PLLC's representation of the
Company from time to time.
39
44
SECTION 12.16 ARBITRATION.
Subject to the right of any party to seek an injunction or other
equitable relief from a court with applicable authority, any controversy,
dispute or disagreement arising out of or relating to this Agreement shall be
resolved by binding arbitration, which shall be conducted in the New Orleans,
Louisiana area in accordance with the American Health Lawyers Association
Alternative Dispute Resolution Service Rules of Procedure for Arbitration. Such
arbitration shall be conducted by a panel of three (3) arbitrators none of which
shall reside in or practice primarily in Louisiana or North Carolina. Any
decision rendered by the arbitrators shall be final and binding on the parties
and shall be enforceable in any court having jurisdiction thereof. The
arbitrators shall have the authority to require the losing party to pay all
costs associated with such arbitration, including expenses and fees of
arbitrators.
SECTION 12.17 EXHIBITS.
The Exhibits to this Agreement, each of which is incorporated by
reference, are:
EXHIBIT A: Information Exhibit.
EXHIBIT B: Glossary of Terms.
EXHIBIT C: Development Budget Exhibit.
EXHIBIT D: Regulatory Allocations.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the following execution page(s), to be effective as of the date described in
Article II.
[EXECUTIONS APPEAR ON THE FOLLOWING PAGE(S)]
[***]
For the purpose of acknowledging and agreeing to be bound by the terms of
Section 5.10 hereof, the undersigned Affiliates of the Members other than LHMI
hereby execute this Operating Agreement.
[***]
[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
D-43
45
Schedule 5.10
None.
46
EXHIBIT A
TO THE
OPERATING AGREEMENT
OF
LOUISIANA HEART HOSPITAL, LLC
A North Carolina Limited Liability Company
INFORMATION EXHIBIT
Maximum
Mandatory
Additional
Initial Capital* Capital Percentage
Name and Address Contribution Contributions Membership Interest
LHMI $3,440,000 $ 6,880,000 51%
Investor Members $3,290,000 $ 6,580,000 49%
---------- -----------
$6,730,000 $13,460,000
*Greater of $6,726,000 or 15% of Project Costs
47
EXHIBIT B
TO THE
OPERATING AGREEMENT
OF
LOUISIANA HEART HOSPITAL, LLC
A North Carolina Limited Liability Company
GLOSSARY OF TERMS
As used in this Agreement, the following terms shall have the following
definitions (unless otherwise expressly provided herein).
"Act" means the North Carolina Limited Liability Company Act, as in
effect in North Carolina and set forth at N.C. Gen. Stat.ss.ss.57C-1-01 through
57C-10-07 (or any corresponding provisions of succeeding law).
"Adjusted Capital Account" means, with respect to any Member, such
Person's Capital Account (as defined below) as of the end of the relevant Fiscal
Year increased by any amounts which such Person is obligated to restore, or is
deemed to be obligated to restore pursuant to the next to last sentences of
Regulations Section 1.704-2(g)(1) (share of minimum gain) and Regulations
Section 1.704-2(i)(5) (share of member nonrecourse debt minimum gain) and
decreased by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4),
(5) and (6).
"Affiliate" means with respect to a Person, (i) any relative of such
Person; (ii) any officer, director, trustee, partner, manager, employee or
holder of ten percent (10%) or more of any class of the outstanding voting
securities or of an equity interest of such Person; or (iii) Entity or holder of
ten percent (10%) or more of the outstanding voting securities or of an equity
interest of any Entity, controlling, controlled by, or under common control with
such Person. For purposes of any Investor Entity, its Affiliates shall also
include each individual holding or owning any ownership interest in the Investor
Entity.
"Agreed Value" means with respect to any noncash asset of the Company
an amount determined and adjusted in accordance with the following provisions:
(a) The initial Agreed Value of any noncash asset contributed to
the capital of the Company by any Member shall be its gross fair market value,
as agreed to by the contributing Member and the Company.
(b) The initial Agreed Value of any noncash asset acquired by the
Company other than by contribution by a Member shall be its adjusted basis for
federal income tax purposes.
(c) The initial Agreed Values of all the Company's noncash assets,
regardless of how those assets were acquired, shall be reduced by depreciation
or amortization, as the case may be,
48
determined in accordance with the rules set forth in Regulations Section
1.704-1(b)(2)(iv)(f) and (g).
(d) The Agreed Values, as reduced by depreciation or amortization,
of all noncash assets of the Company, regardless of how those assets were
acquired, shall be adjusted from time to time to equal their gross fair market
values, as agreed to by the Members in writing, as of the following times:
(i) the acquisition of a Membership Interest or an
additional Membership Interest in the Company by any
new or existing Member in exchange for more than a de
minimis Capital Contribution;
(ii) the distribution by the Company of more than a de
minimis amount of money or other property as
consideration for all or part of a Membership
Interest in the Company; and
(iii) the termination of the Company for federal income tax
purposes pursuant to Code Section 708(b)(1)(B).
If, upon the occurrence of one of the events described in (i), (ii) or
(iii) above the Members do not agree in writing on the gross fair market values
of the Company's assets, it shall be deemed that the fair market values of all
the Company's assets equal their respective Agreed Values immediately prior to
the occurrence of the event and thus no adjustment to those values shall be made
as a result of such event.
"Agreement" means this Operating Agreement, as amended from time to
time.
"Articles of Organization" means the Articles of Organization of the
Company, as filed with the Secretary of State of North Carolina as the same may
be amended from time to time.
"Board of Directors," "Director" or "Directors" means those persons
appointed by the Members, pursuant to Section 3.9 of the Operating Agreement,
and given the power and authority under Article V of the Operating Agreement to
manage the Company. The terms "Director" or "Directors" is used for convenience,
but is intended to have the same meaning as the terms "Manager" or "Managers" in
the Act.
"Capital Account" means with respect to each Member or assignee an
account maintained and adjusted in accordance with the following provisions:
(a) Each Person's Capital Account shall be increased by Person's
Capital Contributions, such Person's distributive share of Profits, any items in
the nature of income or gain that are allocated pursuant to the Regulatory
Allocations and the amount of any Company liabilities that are assumed by such
Person or that are secured by Company property distributed to such Person.
49
(b) Each Person's Capital Account shall be decreased by the amount
of cash and the Agreed Value of any Company property distributed to such Person
pursuant to any provision of this Agreement, such Person's distributive share of
Losses, any items in the nature of loss or deduction that are allocated pursuant
to the Regulatory Allocations, and the amount of any liabilities of such Person
that are assumed by the Company or that are secured by any property contributed
by such Person to the Company.
In the event any Membership Interest is transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the Capital Account
of the transferor to the extent it relates to the transferred Membership
Interest.
In the event the Agreed Values of the Company assets are adjusted
pursuant to the definition of Agreed Value contained in this Agreement, the
Capital Accounts of all Members shall be adjusted simultaneously to reflect the
aggregate adjustments as if the Company recognized gain or loss equal to the
amount of such aggregate adjustment.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such regulations. In the event the Board of Directors shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto, are computed to comply with such Regulation,
the Board of Directors may make such modification, provided that it is not
likely to have a material effect on the amounts distributable to any Member
pursuant to Articles VI or VII hereof upon the dissolution of the Company. In
the event the Board of Directors shall determine such adjustments are necessary
or appropriate to comply with Regulations Section 1.704-1(b)(2)(iv), the Board
of Directors shall adjust the amounts debited or credited to Capital Accounts
with respect to (i) any property contributed by the Members or distributed to
the Members and (ii) any liabilities secured by such contributed or distributed
property or assumed by the Members. The Board of Directors shall also make any
other appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b). In the event any Membership Interest in the Company is transferred
in accordance with the terms of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred Membership Interest.
"Capital Contribution" means with respect to any Member, the amount of
money and the initial Agreed Value of any property (other than money)
contributed to the Company with respect to the Membership Interest of such
Member.
"Cash Distributions" means net cash distributed to Members resulting
from Cash Flow from Operations or Cash from Sales or Refinancing, but shall not
include cash payments made to LHMI as its Management Fee for services rendered
pursuant to Article V hereof or any amount in repayment of loans made by the
Members to the Company.
"Cash Flow from Operations" means net cash funds provided from
operations, exclusive of Cash from Sales or Refinancing, of the Company or
investment of any Company funds, without deduction for depreciation, but after
deducting cash funds used to pay or establish a
50
reserve for expenses, debt payments, capital improvements, and replacements and
for such other items as the Board of Directors reasonably determines to be
necessary or appropriate and subject to Loan Conditions.
"Cash from Sales or Refinancing" means the net cash proceeds received
by the Company from or as a result of any Sale or Refinancing of property after
deducting (i) all expenses incurred in connection therewith, (ii) any amounts
applied by the Board of Directors in their sole and absolute discretion toward
the payment of any indebtedness and other obligations of the Company then due
and payable, including payments of principal and interest on mortgages, (iii)
the payment of any other expenses or amounts owed by the Company to other
parties to the extent then due and payable, and (iv) the establishment of any
reserves deemed necessary by the Board of Directors in their sole and absolute
discretion. If the proceeds of any sale or refinancing are paid in more than one
installment, each such installment shall be treated as a separate Sale or
Refinancing for the purposes of this definition.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. Any reference herein to a specific section(s) of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Company" means and shall refer to Louisiana Heart Hospital, LLC, which
was created upon the filing of the Articles of Organization with the Office of
the Secretary of State of North Carolina, to be operated under the name
Louisiana Heart Hospital, LLC, a North Carolina limited liability company, and
to continue under this Agreement, as amended from time to time.
"Default Rate" means a per annum rate of return on a specified
principal sum, compounded monthly, equal to the greater of (a) the Prime Rate
plus 500 basis points, or (b) 18%, but in no event greater than the highest rate
allowed by law.
"Entity" means any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative or association or any foreign trust or foreign business
organization.
"Equipment" means the appropriate equipment and supplies required from
time to time in connection with the development and operation of the Hospital.
"Fiscal Year" means, with respect to the first year of the Company, the
period beginning upon the formation of the Company and ending on the next
September 30, with respect to subsequent years of the Company, the twelve month
period beginning October 1 and ending September 30, and, with respect to the
last year of the Company, the portion of the period beginning October 1 and
ending with the date of the final liquidating distributions.
"Guarantee Fee" shall have the meaning set forth in Section 5.6(c)
herein.
"Hospital" means an acute care hospital specializing in all aspects of
cardiology and cardiovascular care and surgery in St. Tammany Parish, Louisiana,
as further described in Section 2.3 of the Agreement.
51
"Investor Members" shall mean [***] and other parties hereafter
admitted as investors in the Company in accordance with the terms of this
Agreement, other than LHMI.
"LHMI" means Louisiana Hospital Management, Inc.
"Management Agreement" means the Management Agreement by and between
the Company and LHMI pursuant to which LHMI will manage the day-to-day business
and affairs of the Company.
"Manager" shall mean LHMI.
"Material Agreement" means any binding agreement which may not be
canceled upon less than ninety (90) days notice and which calls for the
expenditure of funds, or involves an obligation for financing, in excess of
$100,000.00 exclusive of agreements or obligations contemplated by any budget,
development plan, financing or construction contract approved by the Board of
Directors or agreements incurred in the ordinary course of business such as
employment agreements, purchases of supplies and routine services and the like.
"Material Decision" means any decisions regarding approvals of the
development and operating budgets for the Hospital, the selection of the site
for the Hospital, the design of the Hospital, the selection of the Hospital's
senior administrator, strategic planning, the execution of managed care
contracts and the execution of exclusive contracts to provide physician services
to the Hospital.
"Medical Director Agreement" means the Medical Director Agreement by
and between the Company and a medical director approved by the Board of
Directors, and which medical director shall be made available by the Investor
Member(s).
"Member" means and shall refer to the organizers of the Company (unless
or until any such organizer has withdrawn) and each of the Persons identified as
"Members" in the then applying Information Exhibit (Exhibit A) attached hereto
and incorporated herein by this reference or admitted as a Member in accordance
with the terms of this Agreement.
"Membership Interest" means all of a Member's rights in the Company,
including without limitation the Member's share of Profits, Losses, Cash
Distributions and other benefits of the Company, any right to vote, any right to
participate in the management of the business and affairs of the Company,
including the right to vote on, consent to, or otherwise participate in any
decision or action of or by the Members granted pursuant to this Operating
Agreement or the Act. The percentage Membership Interest of each Member, their
Capital Contributions and other related information shall be listed on the
Information Exhibit. The percentage Membership Interests generally shall be
based upon the pro rata Capital Contribution of each Member.
"MOB" shall have the meaning set forth in Section 3.11(a).
[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
52
"Organization Expenses" means those expenses incurred, either by the
Company, on behalf of the Company or for which the Company has agreed to make
reimbursement, in connection with the formation of the Company including such
expenses as: (i) registration fees, filing fees, and taxes; and (ii) legal fees
incurred in connection with any of the foregoing.
"Payment Method" shall have the definition set forth in Section 8.7
herein.
"Person" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such
individual or Entity where the context so permits.
"Prime Rate" means the rate of interest as of the relevant day or time
period as announced by the Bank of America, N.A. or its successor in interest
from time to time as its prime or reference rate.
"Principal Office of the Company" shall mean the office in Louisiana
designated by the Board of Directors as the principal office.
"Principal Place of Business of the Company" shall mean the location
within St. Tammany Parish, Louisiana selected by the Board of Directors.
"Profits and Losses" means, for each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(l) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses shall be
added to such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses, shall be subtracted from such taxable income or
loss;
(c) Gain or loss resulting from dispositions of Company assets
shall be computed by reference to the Agreed Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Agreed Value.
"Project Costs" shall include, without limitation, all costs incurred
by the Company in connection with the development and construction of the
Hospital, including without limitation, land acquisition costs, equipment costs,
architectural, design and engineering costs, legal and accounting costs,
construction costs, construction period interest, pre-opening expenses, fees
payable to LHMI or its Affiliates, and other construction and development costs
incurred in
53
connection with the construction and development of the Hospital, which total
amount shall finally be determined by LHMI following the opening of the
Hospital.
"Refinancing" means any borrowing incurred or made to recapitalize the
Company or the equity investment in, or to refinance any loan used to finance
the acquisition of property.
"Regulations" means rules, orders, and regulations issued pursuant to
or under the authority of the Code and shall include revisions to and succeeding
provisions as appropriate.
"Regulatory Allocations" means those allocations of items of Company
income, gain, loss or deduction set forth on the Regulatory Allocations Exhibit
and designed to enable the Company to comply with the alternate test for
economic effect prescribed in Regulations Section 1.704-1(b)(2)(ii)(d), and the
safe-harbor rules for allocations attributable to nonrecourse liabilities
prescribed in Regulations Section 1.704-2.
"Required Members" shall mean LHMI and a majority of the Investor
Members.
"Sale" means the sale, exchange, involuntary conversion (other than a
casualty followed by reconstruction), condemnation, or other disposition of
property by the Company, except for dispositions of inventory items and personal
property in the ordinary course of business and in connection with the
replacement of such property.
"Substitute Member" means an assignee of a Member who has been admitted
to the Company and granted all the rights of a Member in place of its assignor
pursuant to the provisions of this Agreement. A Substitute Member, upon its
admission as such, shall replace and succeed to the rights, privileges, and
liabilities of the Member from whom it acquired its interest in the Company.
54
EXHIBIT C
TO THE
OPERATING AGREEMENT
OF
LOUISIANA HEART HOSPITAL, LLC
A North Carolina Limited Liability Company
DEVELOPMENT BUDGET EXHIBIT
[SEE ATTACHED]
55
Louisiana Heart Hospital, LLC
Capital Expenses
FACILITY SIZE
TOTAL BEDS 00
XXXXX XXXXXX FEET [***]
CAPITAL EXPENSES TOTAL
AMOUNT
Property:
Land Cost $[***]
Building Construction $[***]/sq ft $[***]
Architectural Fees [***]
Interest During Construction 18 months @ [***]% $[***]
------
Total Property $[***]
Equipment Capacity
Cath Labs [***]/lab/yr 3 $[***]
Operating Rooms [***]/OR/yr 3 $[***]
CVRU/Recovery $[***]
Radiology, Laboratory & $[***]
Respiratory
Patient Care $[***]
Management Information $[***]
Systems
Other Departments $[***]
Interest $[***]
------
Total Equipment $[***]
Loan Acquisition Costs: $[***]
TOTALS $[***]
[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
56
EXHIBIT D
TO THE
OPERATING AGREEMENT
OF
LOUISIANA HEART HOSPITAL, LLC
a North Carolina limited liability company
REGULATORY ALLOCATIONS
This Exhibit contains special rules for the allocation of items of
Company income, gain, loss and deduction that override the basic allocations of
Profits and Losses in the Agreement to the extent necessary to cause the overall
allocations of items of Company income, gain, loss and deduction to have
substantial economic effect pursuant to Regulations Section 1.704-1(b) and shall
be interpreted in light of that purpose. Subsection (a) below contains special
technical definitions. Subsections (b) through (h) contain the Regulatory
Allocations themselves. Subsections (i), (j) and (k) are special rules
applicable in applying the Regulatory Allocations.
(a) Definitions Applicable to Regulatory Allocations. For purposes
of the Agreement, the following terms shall have the meanings indicated:
(i) "Company Minimum Gain" means the same as the meaning
of "partnership minimum gain" set forth in
Regulations Section 1.704-2(d), and is generally the
aggregate gain the Company would realize if it
disposed of its property subject to Nonrecourse
Liabilities in full satisfaction of each such
liability, with such other modifications as provided
in Regulations Section 1.704-2(d). In the case of
Nonrecourse Liabilities for which the creditor's
recourse is not limited to particular assets of the
Company, until such time as there is regulatory
guidance on the determination of minimum gain with
respect to such liabilities, all such liabilities of
the Company shall be treated as a single liability
and allocated to the Company's assets using any
reasonable basis selected by LHMI.
(ii) "Member Nonrecourse Deductions" means losses,
deductions or Code Section 705(a)(2)(B) expenditures
attributable to Member Nonrecourse Debt under the
general principles applicable to "partner nonrecourse
deductions" set forth in Regulations Section
1.704-2(i)(2).
(iii) "Member Nonrecourse Debt" means any Company liability
with respect to which one or more but not all of the
Members or related Persons to one or more but not all
of the Members bears the economic risk of loss within
the meaning of Regulations Section 1.752-2 as a
guarantor, lender or otherwise.
57
(iv) "Member Nonrecourse Debt Minimum Gain" means the
minimum gain attributable to Member Nonrecourse Debt
as determined pursuant to Regulations Section
1.704-2(i)(3). In the case of Member Nonrecourse Debt
for which the creditor's recourse against the Company
is not limited to particular assets of the Company,
until such time as there is regulatory guidance on
the determination of minimum gain with respect to
such liabilities, all such liabilities of the Company
shall be treated as a single liability and allocated
to the Company's assets using any reasonable basis
selected by LHMI.
(v) "Nonrecourse Deductions" means losses, deductions, or
Code Section 705(a)(2)(B) expenditures attributable
to Nonrecourse Liabilities (see Regulations Section
1.704-2(b)(1)). The amount of Nonrecourse Deductions
for a Fiscal Year shall be determined pursuant to
Regulations Section 1.704-2(c), and shall generally
equal the net increase, if any, in the amount of
Company Minimum Gain for that taxable year,
determined generally according to the provisions of
Regulations Section 1.704-2(d), reduced (but not
below zero) by the aggregate distributions during the
year of proceeds of Nonrecourse Liabilities that are
allocable to an increase in Company Minimum Gain,
with such other modifications as provided in
Regulations Section 1.704-2(c).
(vi) "Nonrecourse Liability" means any Company liability
(or portion thereof) for which no Member bears the
economic risk of loss under Regulations Section
1.752-2.
(vii) "Regulatory Allocations" means allocations of
Nonrecourse Deductions provided in Paragraph (b)
below, allocations of Member Nonrecourse Deductions
provided in Paragraph (c) below, the minimum gain
chargeback provided in Paragraph (d) below, the
member nonrecourse debt minimum gain chargeback
provided in Paragraph (e) below, the qualified income
offset provided in Paragraph (f) below, the gross
income allocation provided in Paragraph (g) below,
and the curative allocations provided in Paragraph
(h) below.
(b) Nonrecourse Deductions. All Nonrecourse Deductions for any
Fiscal Year shall be allocated to the Members in accordance with their
percentage Membership Interests.
(c) Member Nonrecourse Deductions. All Member Nonrecourse
Deductions for any Fiscal Year shall be allocated to the Member who bears the
economic risk of loss under Regulations Section 1.752-2 with respect to the
Member Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable.
(d) Minimum Gain Chargeback. If there is a net decrease in Company
Minimum Gain for a Fiscal Year, each Member shall be allocated items of Company
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Member's share of
58
such net decrease in Company Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g)(2) and the definition of Company Minimum Gain set
forth above. This provision is intended to comply with the minimum gain
chargeback requirement in Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
(e) Member Nonrecourse Debt Minimum Gain Chargeback. If there is a
net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member
Nonrecourse Debt for any Fiscal Year, each Member who has a share of the Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt as of
the beginning of the Fiscal Year, determined in accordance with Regulations
Section 1.704-2(i)(5), shall be allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Regulations Sections 1.704-2(i)(4) and (5) and the definition of Member
Nonrecourse Debt Minimum Gain set forth above. This Paragraph is intended to
comply with the member nonrecourse debt minimum gain chargeback requirement in
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(f) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company income and gain
(consisting of a pro rata portion of each item of Company income, including
gross income, and gain for such year) shall be allocated to such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, any deficit in such Member's Adjusted Capital Account created by
such adjustments, allocations or distributions as quickly as possible.
(g) Gross Income Allocation. In the event any Member has a deficit
in its Adjusted Capital Account at the end of any Fiscal Year, each such Member
shall be allocated items of Company gross income and gain, in the amount of such
Adjusted Capital Account deficit, as quickly as possible.
(h) Curative Allocations. When allocating Profits and Losses under
Article VI, such allocations shall be made so as to offset any prior allocations
of gross income under Paragraph (g) above to the greatest extent possible so
that overall allocations of Profits and Losses shall be made as if no such
allocations of gross income occurred.
(i) Ordering. The allocations in this Exhibit to the extent they
apply shall be made before the allocations of Profits and Losses under Article
VI and in the order in which they appear above.
(j) Waiver of Minimum Gain Chargeback Provisions. If LHMI
determines that (i) either of the two minimum gain chargeback provisions
contained in this Exhibit would cause a distortion in the economic arrangement
among the Members, (ii) it is not expected that the Company will have sufficient
other items of income and gain to correct that distortion, and (iii) the Members
have made Capital Contributions or received net income allocations that have
restored any previous Nonrecourse Deductions or Member Nonrecourse Deductions,
then LHMI
59
shall have the authority, but not the obligation, after giving notice to the
Members, to request on behalf of the Company the Internal Revenue Service to
waive the minimum gain chargeback or member nonrecourse debt minimum gain
chargeback requirements pursuant to Regulations Sections 1.704-2(f)(4) and
1.704-2(i)(4). The Company shall pay the expenses (including attorneys' fees)
incurred to apply for the waiver. LHMI shall promptly copy all Members on all
correspondence to and from the Internal Revenue Service concerning the requested
waiver.
(k) Code Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such gain or loss shall be specially
allocated to the Members in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
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