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EXHIBIT 10.30
OPERATING AGREEMENT
OF
HEART HOSPITAL OF SOUTH DAKOTA, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
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TABLE OF CONTENTS
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF SOUTH DAKOTA, LLC
A North Carolina Limited Liability Company
ARTICLE I DEFINITIONS...................................................................................... 1
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................................... 6
SECTION 3.5 Additional Funding...................................................................... 6
SECTION 3.6 Enforcement of Commitments.............................................................. 7
SECTION 3.7 NCHI Documentation...................................................................... 8
SECTION 3.8. Reserved Powers of Initial Members...................................................... 9
SECTION 3.9. Appointment of Board of Directors....................................................... 9
SECTION 3.10 Additional Obligations of McKennan and Company.......................................... 10
SECTION 3.11 Obligations Relating to Real Property................................................... 10
ARTICLE IV NAMES AND ADDRESSES OF MEMBERS................................................................... 11
ARTICLE V MANAGEMENT OF THE COMPANY........................................................................ 11
SECTION 5.1 General Authority and Powers of the Board of Directors.................................. 11
SECTION 5.2 Restrictions on Authority of the Board of Directors..................................... 11
SECTION 5.3 Duties of the Board of Directors........................................................ 12
SECTION 5.4 Delegation by the Board of Directors.................................................... 13
SECTION 5.5 Right to Rely Upon the Authority of the Manager......................................... 13
SECTION 5.6 Company Expenses; Purchase of Goods and Services from Members........................... 13
SECTION 5.7 No Management by Members................................................................ 15
SECTION 5.8 Consent by Members to Exercise of Certain Rights
and Powers by Board of Directors..................................................................... 16
SECTION 5.9. Meetings, Quorum and Vote of the Board of Directors..................................... 16
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SECTION 5.10 Other Business of Members............................................................... 17
SECTION 5.11 Board of Directors' Standard of Care.................................................... 19
SECTION 5.12 Limitation of Liability................................................................. 20
SECTION 5.13 Indemnification of the Directors........................................................ 20
SECTION 5.14 Certain Decisions of the Board of Directors............................................. 20
SECTION 5.15 Managed Care............................................................................ 21
ARTICLE VI DISTRIBUTIONS AND ALLOCATIONS.................................................................... 22
SECTION 6.1 Distributions of Cash Flow from Operations and Cash
from Sales or Refinancing............................................................................ 22
SECTION 6.2 Profits................................................................................. 22
SECTION 6.3 Losses.................................................................................. 22
SECTION 6.4 Code Section 704(c) Tax Allocations..................................................... 23
SECTION 6.5 Miscellaneous........................................................................... 23
ARTICLE VII DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS............................................ 24
SECTION 7.1 No Termination by Certain Acts of Member................................................ 24
SECTION 7.2 Dissolution............................................................................. 24
SECTION 7.3 Dissolution and Final Liquidation....................................................... 24
SECTION 7.4 Termination............................................................................. 26
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.................................. 28
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
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 9.5 Tax Matters Partner..................................................................... 32
ARTICLE X MEETINGS AND VOTING RIGHTS OF MEMBERS............................................................ 33
SECTION 10.1 Meetings................................................................................ 33
SECTION 10.2 Voting Rights of Members................................................................ 33
ARTICLE XI AMENDMENTS....................................................................................... 34
SECTION 11.1 Authority to Amend by the Board of Directors............................................ 34
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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.............................................. 39
SECTION 12.14 Referrals to Hospital and Ownership of Shares of
Common Stock of MedCath Holdings, Inc................................................................ 40
SECTION 12.15 Acknowledgments Regarding Legal Representation......................................... 40
SECTION 12.16 Exhibits............................................................................... 41
SECTION 12.16 Arbitration............................................................................ 41
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OPERATING AGREEMENT
OF
HEART HOSPITAL OF SOUTH DAKOTA, 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 SOUTH DAKOTA SECURITIES
ACT IN RELIANCE UPON THE REPRESENTATION OF EACH PURCHASER OF THE SECURITIES THAT
THE SAME ARE BEING ACQUIRED FOR INVESTMENT PURPOSES. THESE SECURITIES MAY
ACCORDINGLY NOT BE RESOLD OR OTHERWISE TRANSFERRED OR CONVEYED IN THE ABSENCE OF
REGISTRATION OF THE SAME PURSUANT TO THE APPLICABLE SECURITIES LAWS UNLESS AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.
THIS OPERATING AGREEMENT (the "Agreement") of Heart Hospital of South
Dakota, 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) as of
the date the Company is formed in accordance with Section 2.1.
RECITALS
A. The Company has been formed to develop, own and operate an
acute care hospital which hospital shall be located in or near Sioux Falls,
South Dakota and shall specialize in all aspects of cardiology and
cardiovascular care and surgery which the Board of Directors may agree upon;
B. It is intended that the hospital will be a low-cost, high
quality provider of medical services within the Sioux Falls area in a manner
which is consistent with the national health care policy of lowering the costs
of health care;
C. The Capital Contributions and active involvement of the
Members are necessary to enable the Company to achieve its objectives.
ARTICLE I
DEFINITIONS
Unless otherwise indicated, capitalized words and phrases in this
Operating Agreement shall have the meanings set forth in the attached Glossary
of Terms (Exhibit B).
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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 Heart Hospital of South Dakota, 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 cardiovascular disease and
cardiovascular and vascular surgery in Sioux Falls, South Dakota which
would include, but not be limited to, the following:
(i) Services and facilities to meet all
requirements of the State of South Dakota, Medicare, JCAHO and
other credentialing or licensing bodies or agencies in order
to have the Hospital licensed as an acute care hospital and to
perform cardiology and cardiovascular surgical services of
every type or nature and to be eligible to obtain appropriate
reimbursements therefore;
(ii) Approximately 70,000 to 90,000 square feet
in a building to be constructed in accordance with plans and
specifications approved by the Company;
(iii) Approximately 48 to 60 medical/surgical
beds;
(iv) 3 heart catheterization laboratories;
(v) 3 heart surgical suites;
(vi) All appropriate support services and
systems; and
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(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 are authorized
to finally make all determinations with respect thereto; provided that
the Board of Directors shall not unreasonably refuse to allow services
or procedures generally performed by cardiologists, cardiovascular or
vascular surgeons at hospitals to be provided at the Hospital.
(b) To lease or acquire real property located near the
corner of 00xx Xxxxxx and Xxxxxx in Sioux Falls and to construct a suitable
building thereon 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 at all times:
(a) The Company and the Hospital shall be operated in
accordance with the mission of Xxxxx XxXxxxxx ("McKennan") and the
Ethical and Religious Directives for Catholic Health Care Services, as
promulgated by the United States Catholic Conference;
(b) The Hospital shall seek to participate in all public
health care financing programs applicable to its business including the
Medicare and Medicaid programs:
(c) The Board of Directors shall adopt and adhere to the
policies of McKennan, as they may be reasonably amended from time to
time, for providing care for those patients who are unable to pay for
Hospital care;
(d) 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;
(e) The Company shall adopt and adhere to a conflict of
interest policy with respect to contracts between the Company and
Members or Directors;
(f) All medical decisions and all policies and procedures
relating to the delivery of medical services 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 Sioux Falls, South
Dakota 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 $3,600,000.00:
(b) Such initial Capital Contribution shall be made as
follows:
(i) SFHM shall own a 33 1/3% Membership Interest
in the Company and shall contribute to the
Company for its Membership Interest 33 1/3%
of the aggregate amount of such initial
Capital Contributions.
(ii) NCHI shall own a 33 1/3% Membership Interest
and shall contribute to the Company for its
Membership Interest an amount equal to
33 1/3% of such initial Capital
Contributions.
(iii) McKennan shall own a 33 1/3% Membership
Interest in the Company and shall contribute
to the Company for its Membership Interest
33 1/3% of the aggregate amount of such
initial Capital Contributions.
(c) It is anticipated that other qualified investors
approved by the Initial Members will contribute up to
an additional $400,000.00 to the Company,
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which investors would become Members and would own,
in the aggregate, up to a ten percent (10%)
Membership Interest in the Company. In such event,
the Membership Interests of each of the Initial
Members shall be reduced equally in order to reflect
such additional Capital Contributions. If by
September 1, 1999 or a later date approved by the
Board of Directors, sufficient additional qualified
investors approved by the Initial Members have not
been admitted as Members, then each Initial Member
shall make equal additional Capital Contributions in
order to bring the initial Capital Contributions to a
total of $4,000,000.00 and the ownership of the
Initial Members will be increased proportionately.
(d) The Initial Members shall make their initial Capital
Contributions upon their admission as Members of the
Company:
(e) Members admitted after the formation of the Company
shall contribute their initial Capital Contribution
upon their admission as Members to the Company.
(f) 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.
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 expressly provided in this Agreement, a Member may
not withdraw from the Company without the written consent of the Initial
Members. In no case shall a
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Member have the right to have its Interest redeemed by the Company unless
approved by the Board.
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, SFHM or one of its Affiliates shall loan the
Company up to Twelve Million Dollars ($12,000,000.00) 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 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 schedule to
be agreed upon by the Company and SFHM prior to the date the first
advances are made hereunder. 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; provided that at SFHM's discretion, such loans may be used
for such purposes on a short-term basis pending 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. In the event that SFHM determines and
provides written notice thereof to McKennan that SFHM or its Affiliates
must provide, and they have elected to so provide, guarantees or
collateral security to any lender or lessor who is providing loans or
lease financing to the Company only on the condition that adequate
guarantees or collateral security be provided to such lender or
lessors, then McKennan agrees to provide, on a several basis,
guarantees of any such loans or lease financing, or additional
collateral security for such loans or leases, on the same terms and
conditions as are then being provided from time to time by SFHM and its
Affiliates, it being acknowledged and agreed that 50% of any such
guarantees or collateral security shall be
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provided by SFHM and its Affiliates, and 50% thereof shall be provided
by McKennan. McKennan and SFHM agree to execute guarantees, provide
customary covenants, representations and warranties and to provide such
financial statements as are required from time to time by parties
providing loans or lease financing to the Company.
(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 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 the
Member's initial Capital Contribution pursuant to Section 3.1;
(d) Fourth, if additional funds are thereafter needed by
the Company, SFHM 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
SFHM 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 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 ("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
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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.
SECTION 3.7 MEMBER DOCUMENTATION.
Prior to the execution of this Agreement, NCHI and any other Member
(other than SFHM and McKennan) 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), 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 SFHM. 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.
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SECTION 3.8. RESERVED POWERS OF INITIAL MEMBERS.
The following actions are the only actions which can be taken by the
Members and shall require the unanimous consent of the Initial 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 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;
(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;
(g) The name of the Hospital, provided that such name
shall include in it the words "Heart Hospital" and the Members shall
each be entitled to require that they be identified with the name as
affiliates of the Hospital; and
(h) Any amendment to the Company's policy that the
Company shall commit at least the lesser of 1.5% of its net income or
$100,000.00 per year to support local causes and charities selected by
the Board of Directors whose missions are consistent with those of the
Company.
SECTION 3.9. APPOINTMENT OF BOARD OF DIRECTORS.
The Initial Members shall appoint a Board of Directors as follows:
(a) SFHM shall appoint three (3) Directors;
(b) NCHI shall appoint three (3) Directors; and
(c) McKennan shall appoint three (3) Directors.
A Member shall have the right, with or without cause, to remove,
substitute or replace any Director which it appointed.
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SECTION 3.10 ADDITIONAL OBLIGATIONS OF MCKENNAN AND COMPANY.
McKennan hereby further agrees as follows:
(a) In the event that McKennan desires, subject to the terms
hereof, to sell any material portion of its assets or 50% or more, in the
aggregate, of its direct or indirect ownership, or, if another nonprofit Entity
or its members or trustees become the members or trustees of McKennan and
thereby gain control of McKennan, such assets or ownership may be sold, or
control taken, only to or by a Person (the "McKennan Successor") that: (i) will
not be in violation of Section 5.10 and (ii) first agrees in writing, prior to
the closing of the transaction with the McKennan Successor, in form satisfactory
to SFHM and NCHI, that such Person and its Affiliates (and its successors and
assigns) will be bound by the terms and conditions of this Section 3.10 and
Section 5.10. Such agreement shall be for the express benefit of SFHM and NCHI.
Additionally, if requested to do so by the Board of Directors (acting without
the vote of Directors designated by McKennan), McKennan will require that the
McKennan Successor also acquire McKennan's Membership Interest and assume and
fulfill all of McKennan's liabilities and obligations hereunder. McKennan will
make information reasonably available from time to time and shall execute
reasonable agreements in order to implement the intent of this subsection 3.10;
(b) If requested by McKennan, the Company and McKennan shall enter
into a consulting services agreement on terms acceptable to them under which the
Company will provide training to McKennan's employees involved in providing
cardiac services to the extent permitted by Section 5.10(b) and other services
agreed upon by the Company and McKennan. McKennan will provide fair market value
compensation to the Company for such services;
(c) The Company will satisfy initial hiring needs by hiring
employees of McKennan, subject, however, to the Company's needs for such
employees and to such employees' meeting the Company's job qualifications.
SECTION 3.11 OBLIGATIONS RELATING TO REAL PROPERTY.
The Company intends to lease or purchase a portion of approximately 53
acres of real property located near 69th and Xxxxxx in Sioux Falls (the
"Development") subject to the following:
(a) The agreement by the developer thereof to lease or 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 McKennan, SFHM, NCHI and the developer;
(b) The developer shall record a restriction acceptable to the
developer, McKennan, NCHI and SFHM 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;
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(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.
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 THE BOARD OF
DIRECTORS.
Except as set forth in those provisions of this Agreement that
specifically require the vote, consent, approval or ratification of the Members,
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 5.14 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 SFHM.
The day-to-day management of the business and affairs of the Company
shall be the responsibility of SFHM 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.
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;
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(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
the Initial 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 the Initial 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;
(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;
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(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; PURCHASE OF GOODS
AND SERVICES FROM MEMBERS.
(a) In general, the Company's expenses shall be billed
directly to and paid by the Company. The Company shall reimburse SFHM
and its Affiliates for (i) the Organization Expenses listed on Schedule
5.6; (ii) the actual costs to the Manager or its Affiliates of goods,
services, and materials used for and by the Company; and (iii) all
reasonable travel expenses incurred after the date of this Agreement
and other out-of-pocket expenses incurred by Manager and the Directors
in the development and management of the Company and its business. The
reimbursement for expenses provided for in this Section 5.6(a) shall be
made to SFHM and the Directors or their Affiliates regardless of
whether any distributions are made to the Members under Article VI and
Article VII.
Goods and services may be purchased from Members or their
Affiliates as long as they are of a substantially the same quality and
price as could be obtained from an unrelated third party. It is
intended that SFHM and its Affiliates shall have the first
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opportunity to provide information and accounting and human resource
services to be purchased by the Company and that McKennan shall have
the first opportunity to provide other support services to be purchased
by the Company which McKennan is qualified to provide. Any such
purchase of goods and services by the Company from Members is further
subject to the following:
(x) Other than for reimbursement for
out-of-pocket travel costs and expenses (airfare, lodging and
other similar expenses), the Company shall not be charged for
the time of senior management of MedCath and of its Hospital
Division;
(y) To the extent that the Company is purchasing
services from SFHM or its Affiliates, reimbursement shall
include the expenses for each full-time equivalent, or a
portion thereof, assigned directly to the business of the
Hospital even though such person may be employed outside of
the Sioux Falls area;
(z) The actual costs of the information system
(hardware and software) incurred by SFHM or its Affiliates for
the direct benefit of the Company shall be reimbursed by the
Company.
(b) The Company shall also pay the following expenses of
the Company anticipated to be incurred by the Company in the course of
the development, construction and operation of the Hospital:
(i) All development and operational expenses of
the Company, which may include, but are not limited to:
expenses as set forth in Section 5.14, the salary and related
expenses of employees and staff of the Hospital, all costs of
borrowed money, taxes, and assessments on the Hospital, and
other taxes applicable to the Company; expenses in connection
with the acquisition, maintenance, leasing, refinancing,
operation, and disposition of the Equipment, furniture and
fixtures of the Hospital (including legal, accounting, audit,
commissions, engineering, appraisal, and the other fees); and
the maintenance of the Hospital and its equipment, which may
be performed by SFHM 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) In addition to reimbursements and other
amounts due hereunder, an Operating and Licensing Fee shall be
paid to SFHM pursuant to the Management Agreement;
(iii) 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
(iv) All fees and expenses paid to third parties
for accounting, legal, documentation, professional, and
reporting services to the Company, which may
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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.
(v) An annual guaranty fee shall be payable to
SFHM or one of its Affiliates and McKennan in the event that
SFHM or one of its Affiliates and McKennan guarantee (and such
guarantees have been approved by the applicable third-party
lenders) any financing, lease, or other obligation or
liability of the Company as set forth in Section 3.5(b), equal
to a total of one and one-quarter (1 1/4%) percent per annum
of the amount so guaranteed from time to time by SFHM or one
of its Affiliates and McKennan multiplied by the aggregate
percentage Membership Interest in the Company owned by the
Members other than SFHM and McKennan (the "Guarantee Fee").
Said fee shall be payable by the Company in monthly
installments each year during which any such guarantee of SFHM
or one of its Affiliates and McKennan remains in effect and
shall be paid one-half (1/2) to SFHM and one-half (1/2) to
McKennan. No such fee shall be paid unless any such guaranty
is currently effective and the dollar amount of such fee shall
accordingly decline as the amount of any liability required to
be guaranteed declines. In the event that McKennan withdraws
as a Member in accordance with the terms and conditions of
Section 8.7, then the entire Guarantee Fee shall thereafter be
paid only to SFHM and its Affiliates. Further, in the event
that McKennan is released from its obligations and liabilities
with respect to any guarantee of any indebtedness of the
Company in accordance with the terms and conditions of Section
12.11(b), then thereafter the entire Guarantee Fee shall be
paid solely to SFHM and its Affiliates.
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
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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
Members hereunder shall not be deemed to be taking part in the control of the
business of the Company and shall not constitute a violation of this Section.
SECTION 5.8 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 business days before the
meeting.
(b) An emergency meeting of the Board of Directors may be
called by the Director upon shorter notice. Action taken at the
emergency meeting shall be valid so long as the meeting is attended by
at least two Board members who are representatives of each Initial
Member and the action is approved in accordance with (e) below.
(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
for to conduct business at any meeting. A quorum shall consist of six
(6) Directors and must include two Directors designated by each Initial
Member. 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 5.14 or as otherwise
expressly provided in this Agreement, any action taken by the Board of
Directors shall require the affirmative vote of at least two (2)
Directors appointed by each Initial Member.
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(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, is signed by the number of Directors
required for approval as set forth in (e) above.
(g) Attendance at a meeting of the Board of Directors
constitutes waiver of any objection to the Notice of the meeting.
SECTION 5.10 OTHER BUSINESS OF MEMBERS.
(a) Subject to the terms and conditions of (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) Except as otherwise expressly provided herein, as
long as any Member owns a Membership Interest in the Company, and for a
period of three (3) 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
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 (collective "CV
Services and Facilities"): cardiac catheterization, angioplasty,
peripheral angioplasty, atherectomy, stenting and PTCA or other
cardiovascular surgical procedures or services, in any case within a
one hundred fifty (150) mile radius of the Hospital (the "Territory");
provided, however, the restriction set forth above shall be subject to
the following exceptions:
(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 and from billing and receiving professional
fees payable as a result of his or her professional medical
services provided directly to patients;
(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) Affiliates of NCHI may provide diagnostic
catheterization services at the 00xx Xxxxxx and Xxxxxx
Development or in lieu thereof, at its primary offices
(located outside of a hospital) and may own an interest in an
outpatient surgical
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hospital to be located in the Development as long as no other
CV Services and Facilities are included or provided therein;
(iv) Any Member which owns or operates a hospital
as of the date hereof, directly or through an Affiliate,
within the Territory at the time of the formation of the
Company may continue to provide at the location of its
existing hospital diagnostic catheterization or such other
cardiac services as are necessary to provide emergency care
within the standard of the community or to stabilize the
medical condition of its patients in preparation for transfer
to another facility for treatment of the cardiac condition,
(v) SFHM or its Affiliates may maintain its
interest in the catheterization laboratory located in Dakota
Dunes, South Dakota and may separately operate a mobile
catheterization laboratory within the Territory, but only if
either SFHM or an Affiliate thereof is providing such service
pursuant to a lease of six (6) months or less to a provider
who is already providing cath lab services and if the Board of
Directors has elected not to have such service provided by the
Company;
(vi) For Affiliates of McKennan (but not McKennan
itself) which own hospitals as of the date hereof, the
"Territory" shall be limited to the area within a fifty (50)
mile radius of the Hospital;
(vii) Each Member and their Affiliates may own
interests in other services and facilities providing
diagnostic services of any type or nature in the area which is
outside of the fifty (50) mile radius of the Hospital, it
being acknowledged however that this exception shall not
permit Members and their Affiliates to own interests in any
Entity or facility providing therapeutic cardiology or
cardiovascular services within the remainder of the Territory.
(c) 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 North Central Heart Institute, P.C. (the "Practice"),
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 a quality provider of
cardiology and cardiovascular services on cost efficient basis. The
parties acknowledge and agree that the Practice's execution of the
Professional Service Agreement is further consideration for the
execution by the Members of this Agreement.
(d) The Company shall not permit the Hospital to provide
services and procedures which are generally performed by physicians
other than (x) those typically performed from time to time by
cardiologists, cardiothoracic surgeons and vascular surgeons and (y)
other services and procedures of any type or nature required by a
patient
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of the Hospital first admitted for the types of services or procedures
identified in (x) above;
(e) 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.
(f) 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 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.
(g) 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.
(h) 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 its 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.
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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 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 CERTAIN DECISIONS OF THE BOARD OF DIRECTORS.
(a) As long as SFHM and/or its Affiliates and/or McKennan
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
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Company's affairs (all of which shall be on fair market value terms and
conditions), including without limitation the decisions with respect to
incurring any indebtedness or the refinancing thereof, shall be made by
the Directors designated by SFHM and McKennan and shall be subject to
the consent of at least one of the Directors appointed by NCHI, which
consent shall not be unreasonably withheld; provided, the application
of the Company's funds toward the repayment of all or a portion of any
financing of the Company provided by third party lenders in excess of
amounts then required to be paid (i.e., voluntary prepayments) shall be
made only with the consent of the Board of Directors.
(b) The Board of Directors shall be deemed to have
specifically approved all expenditures proposed by SFHM under the
Management Agreement that are substantially consistent with the
Development Budget Exhibit or an approved operating budget when funded
from additional Capital Contributions made to the Company by the
Members pursuant to Section 3.5 above.
(c) The development and annual operating budgets to be
proposed by SFHM under the Management Agreement 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, SFHM shall be authorized
to operate the Company pursuant to the Management 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.
SECTION 5.15 MANAGED CARE.
The Initial Members shall negotiate in good faith with each other
regarding theirs and the Hospital's joint participation in managed care plans,
including without limitation, plans sponsored by McKennan, McKennan or its
Affiliates, including without limitation, Xxxxx Health Plans, Inc., all of which
shall be on terms and conditions acceptable to the Initial Members.
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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.
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,
distribute cash annually pro rata to Members in an amount which is sufficient to
enable them to pay income taxes which arise from Profits of the Company. 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.
SECTION 6.2 PROFITS.
Except as provided in the Regulatory Allocations Exhibit, Profits shall
be allocated as follows:
(a) First, to the Members who have been allocated Losses pursuant
to Subsection 6.3(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, 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.
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(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 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
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by federal or state taxing authorities with respect to the year for which the
Member failed to report consistently.
ARTICLE VII
DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS
SECTION 7.1 NO TERMINATION BY CERTAIN ACTS OF MEMBER.
Neither the transfer of interest, withdrawal from the Company,
bankruptcy, insolvency, dissolution, liquidation or other disability, nor the
legal incompetency of any Member shall result in the termination or dissolution
of the Company or affect its continuance in any manner whatsoever.
SECTION 7.2 DISSOLUTION.
The Company shall be dissolved upon the happening of any of the
following events, whichever shall first occur:
(a) The election 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 Initial 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.
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, or 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
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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:
(i) To the payment of or creation of reserves
for all debts, liabilities, and obligations to all creditors
of the Company (other than the Members or their Affiliates)
and the expenses of liquidation;
(ii) To the payment of all debts and liabilities
(including interest) owed to the Members or their Affiliates
as creditors; and
(iii) The balance to the Members with positive
Capital Account balances after taking into account all other
adjustments during the Fiscal Year in which liquidation
occurs.
(c) The Members shall look solely to the assets, if any,
of the Company for any return of their Capital Contributions and, if
the assets of the Company remaining after payment or discharge of the
Company's debts and liabilities, or provision therefor, are
insufficient to return all or any part of the Capital Contributions, no
Member shall have any right of recourse against the 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 deems or the Person winding up the affairs of the
Company deems reasonably necessary pursuant to Section 7.3(b)) prior to
the later of (a) the end of the taxable year in which the event occurs
which caused the termination and dissolution of the Company, or (b)
ninety (90) days after the occurrence of such event. The 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
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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.
SECTION 7.5 PAYMENT IN CASH.
Any payments made to any Member pursuant to this Article VII shall be
made only in cash unless otherwise approved by the Board.
SECTION 7.6 TERMINATION OF NONCOMPETITION COVENANTS.
Members shall have no continuing liability or obligation under Section
5.10(b) after the second anniversary of the dissolution of the Company; provided
that if either (a) as a result of a material default thereunder by SFHM, the
Management Services Agreement has been finally terminated after full compliance
with the terms thereof or (b) the Company has been dissolved and terminated in
accordance with Section 7.2(b) or (e) only, then no Member shall have any
obligation arising under Section 5.10 after the dissolution and termination of
the Company. Additionally, if the Company has been dissolved and terminated in
accordance with Section 7.2(a) then during the two (2) year period thereafter,
NCHI and its Affiliates may, directly or indirectly, invest in or own an
interest in a hospital located within a one hundred fifty (150) mile radius of
the location of the Hospital, which hospital provides or includes CV Services
and Facilities, only if each of SFHM and McKennan are provided with the same
opportunity to own or invest therein which shall require that they be entitled
to own the same percentage interest therein for the same pro rata cost and for
the same duration as NCHI except that they shall not be obligated to provide
professional medical services.
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
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all or any of its Membership Interest to any party which, if a Member, would be
in violation of Section 5.10 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 counsel to that effect.
Any Member that assigns all 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 Board of Directors, 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"). Any
transaction which invokes or gives rise to MedCath Physician Management, Inc.'s
right of first refusal with respect to North Central Heart Institute, P.C. under
the Right of First Refusal Agreement between such parties also shall be deemed
to be a sale of NCHI for purposes of this Section 8.1(c).
(d) Notwithstanding anything herein to the contrary, SFHM may
assign its Membership Interest in the Company and its rights to designate
Directors hereunder (x) to any party who purchases 51% or more of MedCath
Holdings, Inc.'s, MedCath Incorporated's and their subsidiaries' assets or
capital stock if such purchaser (in the case of an asset sale) assumes in
writing the obligations of SFHM hereunder or (y) to a party under control of,
common control,
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or which controls, SFHM. SFHM may also assign its Membership Interest in the
Company and its right to designate Directors 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 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,
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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
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, 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 breach of the Member's obligations
contained in Article III, Sections 5.10, 8.1, and 12.11 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 the other Directors shall make all decisions
under this Section 8.6 with respect to such activities.
SECTION 8.7 WITHDRAWAL BY MCKENNAN.
Notwithstanding anything herein to the contrary, if at any time
following the fifth (5th) anniversary of the date the Hospital first accepts a
patient and has been certified for Medicare
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reimbursement, the Board of Trustees of McKennan determines that its involvement
in the Hospital materially interferes with McKennan's strategic mission, then
upon ninety (90) days prior written notice, McKennan may elect to withdraw as a
Member in accordance with the following terms and conditions:
(a) NCHI and SFHM shall purchase McKennan's Membership
Interest, half by NCHI and half by SFHM, based upon a purchase price
equal to the total of all Capital Contributions made by McKennan prior
to its withdrawal hereunder less the amount of all distributions of
cash paid to McKennan through and including such date, which purchase
price shall be paid twenty-five percent (25%) upon such withdrawal and
the remainder in equal annual installments on the following three (3)
anniversaries of such date which amounts shall bear interest at the
Prime Rate; provided that if such payment schedule will violate any
obligation of the Company to its lenders, then such payment schedule
shall be revised so that it does not place the Company in violation of
such obligation;
(b) McKennan shall have no further liability or
obligation under Section 5.10(b) hereof;
(c) McKennan shall not be entitled to use for its own
benefit or for the benefit of any other Person any information of or
about the Company or the Hospital which the Company reasonably
determines to be confidential or proprietary;
(d) The Board of Directors thereafter shall be reduced in
size by the number of Directors previously designated hereunder by
McKennan; and
(e) SFHM and its Affiliates shall use their reasonable
best efforts in order to have McKennan released from liabilities and
obligations which it incurred on behalf of the Company in accordance
with the terms of this Agreement, including without limitation, any
guarantees, in which event the entire Guarantee Fee shall thereafter be
paid only to SFHM and its Affiliates.
SECTION 8.8 DEATH OF A MEMBER.
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 other than any Initial 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, in which event such interest shall again become a Membership Interest in
the Company. Notwithstanding the previous sentence, within one hundred twenty
(120) days of the Company first learning of the death of an individual or of an
individual that owns a Member (other than the Initial Members), the Company
shall have the option to purchase the Membership Interest owned by such deceased
Member directly or through an Entity, and the estate of the deceased individual
shall be obligated to sell such Membership Interest to the Company, in
accordance with the terms of this Section 8.8. The
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Company may exercise its option by giving written notice thereof to the estate
of the deceased individual, or the appropriate representative thereof, within
such one hundred twenty (120) day period. The purchase price for such Membership
Interest shall equal the Formula Purchase Price. The 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 outstanding amounts due from the Company to the estate of the deceased
individual shall bear interest at Prime Rate as of the date of such individual's
death. Accrued interest shall be paid as of the dates payments of principal are
due as provided above.
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. Each Member shall be responsible to
ensure that the Member and its Affiliates keep all information of the Company
and the Hospital confidential and that it not be used in any manner which would
be adverse to the best interests of the Company and the Hospital. Without
limitation of the foregoing, it is acknowledged and agreed that information
regarding the operation of the Hospital may be used by the Members in order to
enable them to participate in managed care programs with the Hospital.
SECTION 9.3 BANK ACCOUNTS AND INVESTMENT OF FUNDS.
(a) SFHM, under the Management Agreement, 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 SFHM may from time to time
designate.
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(b) Any funds of the Company which SFHM 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 SFHM in its sole
discretion.
SECTION 9.4 FISCAL YEAR.
The Fiscal Year and accounting period of the Company shall end on
September 30 of each year.
SECTION 9.5 ACCOUNTING REPORTS.
As soon as reasonably practicable after the end of each fiscal year but
in no event later than 120 days after the end thereof, each Member shall be
furnished an annual accounting showing the financial condition of the Company at
the end of such fiscal year and the result of its operations for the fiscal year
then ended, which annual accounting shall be prepared on an accrual basis in
accordance with generally accepted accounting principles applied on a consistent
basis and shall be delivered to each of the Members promptly after it has been
prepared. It shall include a balance sheet as of the end of such Fiscal Year and
statements of income and expense, each Member's equity, and cash flow for such
Fiscal Year. At the election of either the Board of Directors or the Manager the
Company shall be audited 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.
SFHM shall act as the "Tax Matters Partner" of the Company as that term
is defined in 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 Initial Member.
Such meetings shall be held in the Sioux Falls, South Dakota area.
(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:
(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 all Initial Members. Except as set forth in
this Section 11.2, no amendment shall be made pursuant to Section 11.1 which
would materially and adversely affect the federal income tax treatment to be
afforded each Member, materially and adversely affect the Membership Interests
and liabilities of each Member as provided herein, materially change the
purposes of the Company, extend or otherwise modify the term of the Company, or
materially change the method of allocations and distributions as provided in
Article VI and Article VII.
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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 North Central Heart
Institute, P.C. contain the entire agreement among the Members. 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.
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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 (Exhibit A) 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.
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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.
(a) Other than to the extent related to McKennan's
tax-exempt status, 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 SFHM 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 Initial 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 Initial Members, such restructured
agreement shall become binding upon all Members of the Company. Second,
in the event that within forty-five (45) days following the Company's
receipt of legal advice in writing from such health care counsel
regarding Applicable Law the parties hereto are unable to negotiate an
acceptable restructuring of their relationship, then, 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 or (b)
the amount of the Capital Contributions made by such Member to the
Company together with interest thereon computed at the Prime Rate as of
the date of this Agreement from the date of such contribution through
the date upon which the purchasing Members pays all amounts due under
the terms of this Section 12.11. For these purposes, 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 by the purchasing
Members. Such purchase price shall be paid in accordance with the
Payment Method. 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
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(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.
(b) (i) In the event, that nationally recognized tax
counsel of McKennan, but who prior to their engagement for purposes of
this Agreement have not previously represented McKennan or any of its
Affiliates with respect to this transaction, and which tax counsel is
selected with the approval of SFHM, which approval shall not be
unreasonably withheld (Xxxxx, Day, Xxxxxx and Xxxxx is hereby approved
for such purpose), reasonably determines in writing after consultation
with SFHM, the other Members and their counsel, and after using their
reasonable best efforts to avoid such determination, that as a result
of any change in any law or regulation or change in the interpretation
of an existing law or regulation after the date hereof, that the
existence of (x) McKennan's Membership Interest in the Company, both
directly and alternatively through a for-profit subsidiary of McKennan
of which McKennan is the sole shareholder (the "McKennan's Sub") to
which it assigns (or to which it is entitled to assign under the terms
of this Agreement) its Membership Interest or (y) McKennan's obligation
under Section 3.5(b) to guarantee a portion of the Company's
indebtedness, will result in McKennan losing its tax-exempt status,
McKennan may give notice in writing to the Company and the Members of
that fact (the "Tax-Exempt Event"). Any disagreement among the Initial
Members regarding whether a Tax-Exempt Event then exists shall first be
resolved either among the Initial Members themselves during the
following thirty (30) day period, and absent such resolution, by
arbitration under Section 12.16. Thereafter, if a Tax-Exempt Event has
been determined to exist, then the parties agree to the following:
(A) The parties hereto shall in good
faith consider and discuss with one another mutually
acceptable alternatives to revise this Agreement in a
manner which would prevent McKennan from losing its
tax-exempt status but which would not materially
alter the substance of the transaction among the
parties and would not substantially diminish the
material benefits of the transaction to any party.
(B) If (x) the parties have failed to
renegotiate the Agreement in a mutually acceptable
manner as provided in (A) above, (y) the assignment
by McKennan of its Membership Interest to the
McKennan Sub (which McKennan is hereby obligated to
do if it will assist in McKennan maintaining its
tax-exempt status) will not enable McKennan to avoid
the loss of its tax-exempt status and (z) if
McKennan's being released from its obligations and
liabilities to guarantee any indebtedness of the
Company will avoid McKennan's loss of its tax-exempt
status, then conditioned upon the execution and
delivery by the McKennan Sub of a reimbursement
agreement providing for the McKennan Sub's
reimbursement of SFHM for all amounts of principal,
interest and other costs paid by SFHM or its
Affiliates under its guarantees of the Company's
indebtedness which absent the application of this
subsection would have been paid by McKennan or its
Affiliates, and (3) the approval of such arrangement
by the Company's lenders, then SFHM and its parent
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MedCath Incorporated shall assume all liability and
obligation of McKennan and its affiliates for their
guaranty of the Company's debt.
Rather than assigning its guarantee to SFHM and
paying the Guarantee Fee as provided above, McKennan
and its affiliates shall have the right to use any
other commercially reasonable alternative for
obtaining a release of McKennan from any obligation
or liability to guarantee the debts of the Company as
long as such alternative does not impose any cost,
expense, liability or obligation upon the Company or
any of its other Members.
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 South Dakota
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 South Dakota 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
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behalf of an Entity which is a Member acknowledges that such Member or
such Member's representative or attorney has made such inquiries and
requested, received, and reviewed any additional documents necessary
for such Member to make an informed investment decision and that such
Member does not desire any further information or data relating to the
Company or to the Members. Each Member or individual executing this
Agreement on behalf of an Entity which is a Member hereby acknowledges
that such Member understands that the purchase of such Member's
Membership Interest in the Company is a speculative investment
involving a high degree of risk and hereby represents that such Member
has a net worth sufficient to bear the economic risk of such Member's
investment in the Company and to justify such Member's investing in a
highly speculative venture of this type.
SECTION 12.13 REFERRALS TO HOSPITAL AND OWNERSHIP OF SHARES OF
COMMON STOCK OF MEDCATH HOLDINGS, INC.
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 Holdings, Inc. 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 or Affiliate of an Owner shall
not acquire, nor continue to own any of shares of common stock of MedCath
Holdings, Inc.
SECTION 12.14 ACKNOWLEDGMENTS REGARDING LEGAL REPRESENTATION.
(a) Each of the Members hereunder acknowledge and agree that Xxxxx
& Xxx Xxxxx, PLLC is counsel for Sioux Falls Hospital Management, Inc., 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 Sioux Falls Hospital Management, Inc. 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.
(b) Each of the Members hereunder acknowledge and agree that
Woods, Fuller, Xxxxxx & Xxxxx, X.X. is counsel for NCHI 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 NCHI further acknowledges and
agrees that they shall have no attorney-client relationship with Woods, Fuller,
Xxxxxx & Xxxxx, X.X. as a result of Woods, Fuller, Xxxxxx & Xxxxx, X.X.'s
representation of the Company from time to time.
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(c) Each of the Members hereunder acknowledge and agree that
Xxxxxx & Xxxxxxx is counsel for McKennan and its 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 McKennan further acknowledges and agrees
that they shall have no attorney-client relationship with Xxxxxx & Xxxxxxx as a
result of Xxxxxx & Michel's representation of the Company from time to time.
SECTION 12.15 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.
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 Sioux Falls, South
Dakota 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 South Dakota. Any decision rendered by the
arbitrators shall be final and binding on the parties and shall be enforceable
in any court having jurisdiction thereof.
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)]
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