AMENDED AND RESTATED
OPERATING AGREEMENT
OF
HEART HOSPITAL OF NEW MEXICO, LLC
A NEW MEXICO LIMITED LIABILITY COMPANY
TABLE OF CONTENTS
TO THE
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
HEART HOSPITAL OF NEW MEXICO, LLC
A NEW MEXICO LIMITED LIABILITY COMPANY
ARTICLE I DEFINITIONS ....................................................... 2
ARTICLE II FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY ............. 2
Section 2.1 Company Formation: Effective Date ......................... 2
Section 2.2 Name of Company ........................................... 2
Section 2.3 Purposes and Business Objectives .......................... 2
Section 2.4 Statement of Philosophy and Values ........................ 3
Section 2.5 Registered Agent and Office; Principal Place of Business .. 4
Section 2.6 Commencement and Term ..................................... 4
ARTICLE III MEMBERS AND CAPITAL CONTRIBUTIONS ............................... 4
Section 3.1 Names and Addresses of Members ............................ 4
Section 3.2 Initial Capital Contributions of Members .................. 4
Section 3.3 Membership Interests as of the Effective Date ............. 5
Section 3.4 Liability of Members - For Capital ........................ 5
Section 3.5 Maintenance of Capital Accounts: Withdrawals of Capital ... 5
Section 3.6 Interest on Capital Contributions or Capital Accounts ..... 6
Section 3.7 Additional Funding ........................................ 6
Section 3.8 Enforcement of Commitments ................................ 7
Section 3.9 Reserved Powers of Members ................................ 8
Section 3.10 Other Business of Members ................................ 9
Section 3.11 Appointment of Board of Directors ........................ 13
ARTICLE IV MANAGEMENT OF THE COMPANY ........................................ 13
Section 4.1 General Authority and Powers of Board of Directors ........ 13
Section 4.2 Restrictions on Authority of the Board of Directors ....... 13
Section 4.3 Duties of the Board of Directors .......................... 14
Section 4.4 Delegation by the Board of Directors ...................... 15
Section 4.5 Right to Rely Upon the Authority of the Manager ........... 15
Section 4.6 No Management by Members .................................. 15
Section 4.7 Consent by Members to Exercise of Certain Rights and Powers
by Board of Directors ..................................... 16
Section 4.8 Meetings, Quorum and Vote of the Board of Directors ....... 16
Section 4.9 Board of Directors' Standard of Care ...................... 17
Section 4.10 Limitation of Liability ................................... 18
Section 4.11 Indemnification of Directors .............................. 18
Section 4.12 Guarantee Fee ............................................. 18
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ARTICLE V DISTRIBUTIONS AND ALLOCATIONS ..................................... 20
Section 5.1 Distributions of Cash Flow from Operations and Cash from
Sales
or Refinancing ..................................... 20
Section 5.2 Profits ................................................... 20
Section 5.3 Losses .................................................... 20
Section 5.4 Code Section 704(c) Tax Allocations ....................... 21
Section 5.5 Miscellaneous ............................................. 21
Section 5.6 Special Allocations of Guarantee Fees ..................... 22
ARTICLE VI DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS ............ 22
Section 6.1 No Termination by Certain Acts of Member .................. 22
Section 6.2 Dissolution ............................................... 22
Section 6.3 Dissolution and Final Liquidation ......................... 22
Section 6.4 Termination ............................................... 24
Section 6.5 Payment in Cash ........................................... 24
Section 6.6 Goodwill and Trade Name ................................... 24
Section 6.7 Termination of Noncompetition Covenants ................... 24
ARTICLE VII REMOVAL OR WITHDRAWAL OF MEMBERS AND ............................ 24
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS .................... 24
Section 7.1 Withdrawal of Member ...................................... 24
Section 7.2 Conditions Precedent to Transfer of Membership Interest ... 26
Section 7.3 Substitute Member - Conditions to Fulfill ................. 26
Section 7.4 Allocations Between Transferor and Transferee ............. 26
Section 7.5 Rights, Liabilities of, and Restrictions on Assignee ...... 27
Section 7.6 Repurchase of Interests in Certain Event .................. 27
ARTICLE VIII RECORDS, ACCOUNTINGS AND REPORTS ............................... 28
Section 8.1 Books of Account .......................................... 28
Section 8.2 Access to Records ......................................... 28
Section 8.3 Bank Accounts and Investment of Funds ..................... 28
Section 8.4 Fiscal Year ............................................... 28
Section 8.5 Accounting Reports ........................................ 28
Section 8.6 Tax Returns ............................................... 29
ARTICLE IX MEETINGS AND VOTING RIGHTS OF MEMBERS ............................ 29
Section 9.1 Meetings .................................................. 29
Section 9.2 Voting Rights of Members .................................. 30
ARTICLE X AMENDMENTS ........................................................ 30
ARTICLE XI MISCELLANEOUS .................................................... 31
Section 11.1 Waiver of Provisions ..................................... 31
Section 11.2 Interpretation and Construction .......................... 31
Section 11.3 Governing Law ............................................ 31
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Section 11.4 Partial Invalidity ....................................... 31
Section 11.5 Binding on Successors .................................... 31
Section 11.6 Notices and Delivery ..................................... 31
Section 11.7 Counterpart Execution: Facsimile Execution ............... 32
Section 11.8 Statutory Provision ...................................... 32
Section 11.9 Waiver of Partition ...................................... 32
Section 11.10 Change In Law ............................................ 32
Section 11.11 Investment Representations of the Members ................ 36
Section 11.12 Exhibits ................................................. 37
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AMENDED AND RESTATED
OPERATING AGREEMENT
OF
HEART HOSPITAL OF NEW MEXICO, LLC
A New Mexico Limited Liability Company
THESE SECURITIES ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND THE NEW MEXICO 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 AMENDED AND RESTATED OPERATING AGREEMENT (the "Agreement") of Heart
Hospital of New Mexico, LLC (the "Company"), a New Mexico 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 B).
RECITALS
A. On or about February 20, 1998, the Company was formed in
accordance with the original Operating Agreement of the Company (the
"Original Operating Agreement");
B. The Company was formed to develop, own and operate an acute care
hospital, located in Albuquerque, New Mexico and specializing in all aspects
of cardiology and cardiovascular care and surgery which the Board of
Directors may agree upon;
C. It is intended that the hospital will be a cost effective, high quality
provider of medical services within New Mexico in a manner which is consistent
with the national health care goals of lowering the costs of health care;
D. The Capital Contributions and active involvement of the Members
are necessary to enable the Company to achieve its objectives;
E. The Original Operating Agreement was amended by the First Amendment to
Private Placement Memorandum of Heart Hospital of New Mexico, LLC and to the
Operating Agreement of the Company and to Management Services Agreement dated
February 20, 1998 and by the Amendment of Heart Hospital of New Mexico, LLC
Agreements dated October 1, 1998;
F. Members of the Company have entered into a Membership Purchase
Agreement whereby, among other things, St. ▇▇▇▇▇▇ Healthcare System ("SJHS"),
NMHI, LLC and SWCA, LLC have agreed to sell a portion of their Membership
Interests to NMHM; and
G. The Members of the Company hereby desire to amend and restate the
Original Operating Agreement to incorporate the terms of the previous amendments
to the Original Operating Agreement and to make certain changes related to
SJHS's sale of its Membership Interest.
ARTICLE I
DEFINITIONS
Unless otherwise indicated, capitalized words and phrases in this
Agreement shall have the meanings set forth in the attached Glossary of Terms
(Exhibit C).
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 New Mexico State Corporation Commission in accordance with the
provisions of the Act. Upon the effectiveness of the Original Operating
Agreement, the Persons listed on the attached Information Exhibit (Exhibit B)
were admitted to the Company as Members and the Persons who executed the
Articles were 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. The Company shall cause to be executed
all other such certificates or documents, and shall do or cause to be done all
such filing, recording, or other acts, as may be necessary or appropriate from
time to time to comply with the requirements of law for the continuation and/or
operation of a limited liability company in the State of New Mexico and other
documents to reflect the admission of additional Members to the Company. The
Original Operating Agreement was effective as of the date the Company was
formed, and this Agreement shall be effective as of the Effective Date, as
defined herein.
SECTION 2.2 NAME OF COMPANY.
The name of the Company is Heart Hospital of New Mexico, LLC.
SECTION 2.3 PURPOSES AND BUSINESS OBJECTIVES.
The principal purposes and business objectives of the Company are as
follows:
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(a) To develop, own and operate a Hospital specializing in the
diagnosis and treatment of cardiac and vascular diseases in Albuquerque,
New Mexico, which includes, but is not limited to, the following:
(i) Services and facilities which meet the requirements of the
State of New Mexico, Medicare, JCAHO and other agencies for
licensing, credentialing and certification as a general acute care
hospital specializing in cardiology and cardiovascular and vascular
surgical services of every type or nature and to be eligible to
obtain appropriate reimbursements therefor;
(ii) Approximately 90,000 square feet in a building to be
constructed in accordance with plans and specifications approved
by the Company;
(iii) Approximately 60 medical/surgical beds;
(iv) Five heart catheterization laboratories with
available space for one additional heart catheterization lab;
(v) Three heart surgical suites with space for the
development of one additional heart surgical suite; and
(vi) All appropriate support services and systems;
(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.)
(b) To acquire real property and to construct a suitable
building in which the Hospital shall be located;
(c) Any other purpose reasonably related to (a) and (b) above.
SECTION 2.4 STATEMENT OF PHILOSOPHY AND VALUES.
The Company and the Hospital shall be operated in accordance with the
following philosophy and values at all times:
(a) The Board shall adopt and adhere to the policies of SJHS, as
they may be amended from time to time, for providing care for those
patients who are unable to pay for Hospital care;
(b) The Hospital shall participate in all public health care
financing programs applicable to its business including the Medicare and
Medicaid programs;
(c) 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;
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(d) The Company shall adopt and adhere to a conflict of interest
policy with respect to contracts between the Company and Members or
Directors requiring full disclosure of all conflicts;
(e) Within the first two years of its operation, the Company shall
adopt and thereafter adhere to a Corporate Compliance Program to assure
compliance with all State and federal laws governing the delivery of
health care services;
(f) The Company and the Hospital shall be operated in accordance
with the Ethical and Religious Directives for Catholic Health Care
Facilities;
(g) 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; and
(h) The Hospital will not be operated in a manner which is
inconsistent with the mission and charitable purposes of SJHS.
SECTION 2.5 REGISTERED AGENT AND OFFICE; PRINCIPAL PLACE OF BUSINESS.
The registered agent and office of the Company shall be and the principal
place of business of the Company shall be at such location in Albuquerque, New
Mexico as selected by the Board of Directors from time to time.
SECTION 2.6 COMMENCEMENT AND TERM.
The Company commenced on the filing of the Articles of Organization in the
Office of the New Mexico State Corporation Commission, as required by Section
2.1 hereof, and shall continue until December 31, 2097 or until terminated or
dissolved as provided herein.
ARTICLE III
MEMBERS AND CAPITAL CONTRIBUTIONS
SECTION 3.1 NAMES AND ADDRESSES OF MEMBERS.
The names and addresses of the Members are as indicated on the Information
Exhibit (Exhibit B), attached hereto and as amended from time to time.
SECTION 3.2 INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS.
The Members made the following initial Capital Contributions, paid in two
equal installments, with the first installment due on February 20, 1998 and the
second installment due on or before April 1, 1998:
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(a) SWCA, LLC initially owned a fifteen percent (15%) Membership
Interest in the Company and contributed to the Company for its Membership
Interest the sum of Six Hundred Thousand and No/100 Dollars ($600,000.00);
(b) NMHI, LLC initially owned a twenty-six percent (26%) Membership
Interest in the Company and contributed to the Company for its Membership
Interest the sum of One Million Forty Thousand and No/100 Dollars
($1,040,000.00);
(c) St. ▇▇▇▇▇▇ Healthcare System initially owned a thirty-five
percent (35%) Membership Interest in the Company and contributed to the
Company for its Membership Interest the sum of One Million Four Hundred
Thousand and No/100 Dollars ($1,400,000.00); and
(d) NM Hospital Management, Inc. ("NMHM") initially owned a
twenty-four percent (24%) Membership Interest in the Company and
contributed to the Company for its Membership Interest the sum of Nine
Hundred Sixty Thousand and No/100 Dollars ($960,000.00).
SECTION 3.3 MEMBERSHIP INTERESTS AS OF THE EFFECTIVE DATE.
Upon the Effective Date of this Agreement:
(a) SWCA, LLC shall own a ten percent (10%) Membership Interest
in the Company;
(b) NMHI, LLC shall own an eighteen percent (18%) Membership
Interest in the Company;
(c) SJHS shall own a three percent (3%) Membership Interest in
the Company; and
(d) NMHM shall own a sixty-nine percent (69%) Membership
Interest in the Company.
SECTION 3.4 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 3.2 and
Section 3.7. The Members shall not be required to contribute any additional
capital to the Company except as provided in Section 3.7.
SECTION 3.5 MAINTENANCE OF CAPITAL ACCOUNTS: WITHDRAWALS OF CAPITAL.
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
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receive any distribution except as provided herein. 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.
SECTION 3.6 INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL ACCOUNTS.
No interest shall be paid to any Member based solely on its Capital
Contributions or Capital Account.
SECTION 3.7 ADDITIONAL FUNDING.
If from time to time, the Board of Directors determines that funds in
addition to those contemplated by Sections 3.2 are necessary or appropriate for
the development or operation of the Hospital, then:
(a) First, the Board shall instruct the Manager to use commercially
reasonable efforts to arrange a loan for the Company of such funds from a
bank or other lender (which could include a Member) on terms and
conditions reasonably acceptable to the Board of Directors. All Members
agree to pledge their Membership Interests, if required by lenders or
lessors, to secure Company's financing. The Board of Directors shall
obtain such loans without the requirement of guarantees by the Members if
it is economically feasible to do so.
(i) If loan guarantees are required for financing the
construction and equipping of the Hospital, each Member agrees to
provide the required guarantee. The aggregate amount of the loans
for the construction and equipping of the hospital (and the
commensurate aggregate amount of the guarantees) shall not exceed
$45 million. The guarantees shall be several and in proportion to
the equity interest of the Member. Each Member shall provide its
guarantee promptly and in the form reasonably approved by the Board
of Directors and required by the lenders or lessors to the Company.
Each Member agrees to promptly provide financial statements and
other information customarily required by the lender or lessor.
(ii) Other than as required to finance the construction and
equipping of the Hospital, no Member is required to guarantee any
other loan to the Company.
(b) Second, if loans as provided in (a) above are not available, the
Board of Directors shall request in writing that the Members contribute
additional capital to the Company in proportion to their respective
Membership Interests. Each Member may elect whether or not to contribute
its proportionate share of the additional Capital Contribution. Membership
Interests shall be adjusted as necessary as provided in (c)(i) below.
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(c) Third, if the Board determines that adequate funds are not
available under (a) or (b) above, the Board shall so notify all of the
Members. Any Member shall then have the right to contribute all or some
portion of the additional funds required. If more than one Member elects
to advance the funds to the Company, preference will be given to
maintaining the relative equity interests of the Members making the
additional contributions in the Company. In the event that either SWCA,
LLC or NMHI, LLC does not elect to make all of its proportionate share of
additional Capital Contributions which its is entitled to make under (b)
above, then the other of them shall have the first opportunity to make the
pro rata Capital Contribution which such noncontributing Member declined
to make pursuant to (b) above. Thereafter the other Members may elect to
contribute such amounts. Each 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 to the
Company.
(i) If the contributing Member elects to contribute the amount
as a Capital Contribution, the percentage Membership Interests of
the Members shall again be adjusted proportionately.
(ii) If the contributing Member elects to contribute such
amount as a loan to the Company, the loan shall bear interest as
agreed by the Contributing Member and the Company. The loan shall be
a general obligation of the Company, but repaid before a cash
distribution, other than a required minimum distribution under
Section 5.1, is made to any of the Members.
(d) Fourth, if funds are not available in accordance with (a), (b)
or (c) above, then the Board of Directors may elect to dissolve the
Company.
(e) All adjustments to Membership Interests as provided in this
Section 3.7 shall be made based solely upon the actual total Capital
Contributions made by the Members as of the date of each such adjustment.
SECTION 3.8 ENFORCEMENT OF COMMITMENTS.
In the event any Member (a "Delinquent Member") fails to make a mandatory
Capital Contribution as provided in Section 3.2 or an optional Capital
Contribution as agreed to by the Member under Section 3.7 (the "Commitment"),
the Board of Directors shall give the Delinquent Member a Notice of the failure
to meet the Commitment. If the Delinquent Member fails to perform the Commitment
(including any costs associated with the failure to meet the Commitment and
interest on such obligation at the Default Interest Rate) within ten (10)
business days of the giving of Notice, the Board of Directors shall give notice
of such failure to the other Members. 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 (i) as a Capital
Contribution of the contributing Member or (ii) as a loan from the contributing
Member to the Delinquent Member bearing interest at the Default Rate secured by
the Delinquent Member's Interest in the Company and the proceeds of which loan
shall be applied to
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meet the Delinquent Member's commitment. 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, the contributing Member shall be entitled to
all distributions to which the Delinquent Member would have been entitled had
such Commitment been fulfilled thereby, and any such distribution shall be
applied first to accrued interest and then to principal in repayment of the
loan. 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.
SECTION 3.9 RESERVED POWERS OF MEMBERS.
(a) Subject to Section 3.9(b), the following actions are the only
actions which can be taken by the Members and shall require the unanimous
consent of the Members entitled to designate and appoint voting members of
the Board of Directors:
(i) Amendments to or waivers of the rights and
obligations provided by the Articles of Organization or this
Agreement;
(ii) A merger, consolidation, liquidation, or similar
reorganization or transfer of a substantial portion of the
Company's assets;
(iii) 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;
(iv) Creation by the Company of subsidiaries and/or
establishment of corporate joint ventures or interest in
partnerships or limited liability companies;
(v) Election of new Members into the Company;
(vi) Any alteration or amendment of the Company's Statement of
Philosophy and Values and any action which is inconsistent with the
Company's Statement of Philosophy and Values;
(vii) Dissolution of the Company for reasons other than
those expressly delegated to the Board of Directors;
(viii) Any action, which in the reasonable opinion of counsel,
would give rise to regulatory and/or criminal penalties or liability
or would prevent SJHS from receiving referrals of patients from the
Hospital or physicians who are direct or indirect investors in the
Company; and
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(ix) Approval and authorization of disproportionate
distributions or allocations of profits, losses or assets of the
Company, except as specifically permitted elsewhere in this
Agreement.
(b) If first approved by at least three (3) members of the Board of
Directors designated by NMHI and SWCA, then, upon the written consent of
owners holding units constituting at least seventy-five percent (75%) of
the membership interests of each of NMHI, LLC and SWCA, LLC, NMHI, LLC and
SWCA, LLC may invoke the termination procedures under Section 6.2-2(b) of
the Management Services Agreement regardless of the vote of the Board
members designated by NMHM on such issue provided that the Manager shall
be entitled to exercise all of its rights with regard to such termination
in accordance with the terms of the Management Services Agreement.
SECTION 3.10 OTHER BUSINESS OF MEMBERS.
(a) Subject to (b) below, any Member may engage independently or
with others in other business ventures of every nature and description,
including without limitation the purchase of medical equipment, the
rendering of medical services of any kind, and the making or management of
other investments and neither the Company nor any Member shall have any
right by virtue of this Agreement or the relationship created hereby in or
to such other ventures or activities or to the income or proceeds derived
therefrom, and the pursuit of such ventures.
(b) As long as a Member owns a Membership Interest in the Company,
and for a period of five (5) years after a Member ceases for any reason to
own a Membership Interest in the Company, neither such Member nor any of
its Affiliates shall do any of the following:
(i) hold, directly or indirectly, any investment ownership or
other beneficial equity interest in, or be associated in a
consulting, management or advisory role with, any hospital or other
facility specializing primarily in the diagnosis or treatment of
cardiac or vascular disease within the Territory;
(ii) hold, directly or indirectly, any investment ownership or
other beneficial equity interest in, or be associated in a
consulting, management or advisory role with any Entity, hospital or
sole proprietorship which provides any of the following services or
facilities: cardiac catheterization, cardiac or peripheral
angioplasty, atherectomy, stenting or cardiac or cardiovascular
surgical procedures ("Cardiac Services") within a fifty (50) mile
radius of the Hospital, it being acknowledged that both SHJS and the
Company may provide non-coronary vascular surgery procedures
(excluding in all events in the case of SJHS, cardiovascular surgery
procedures, except upon prior written approval pursuant to Section
11.10(b)(i)(F)(4) of this Agreement);
Except that,
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(A) nothing herein shall prevent a Member who is a
medical group, its Affiliates or employed physicians from
having medical staff privileges and participating fully as a
member of the medical staff (including service on committees
and medical directorships, which do not violate the terms of
any other agreement to which a Member or its Affiliates are
bound) of any hospital or medical facility in the Territory,
or from providing any diagnostic procedures customarily
performed on an outpatient basis in medical offices or cardiac
rehabilitation services;
(B) nothing herein shall prevent any Member who owns or
operates a hospital, directly or through an Affiliate, within
the Territory at the time of the formation of the Company from
(i) continuing to provide diagnostic cardiac catheterization
and 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, (ii) providing peripheral angioplasty, peripheral
stenting and vascular surgery as long as such procedures are
not being performed on patients who have been admitted to the
Member's hospital primarily for treatment of any cardiac
disease or condition, or (iii) continuing to provide all
cardiology and cardiovascular services currently offered by
such Member until the earlier to occur of the date on which
sixty-six percent (66%) of the Hospital's beds are open and
ready to receive patients or the date which is forty-five (45)
days after Medicare certification of the Hospital, on which
date this subsection (B)(iii) shall be deemed to be deleted
from this Agreement;
(C) a Member who is a nonprofit corporation may acquire
or become affiliated with other corporations which operate
general hospitals that provide or may provide Cardiac Services
in the Territory but outside the fifty (50) mile radius of the
Hospital. Within a fifty (50) mile radius of the Hospital, a
Member who is a nonprofit corporation may (a) acquire, manage
or become affiliated with other entities which operate general
hospitals providing Cardiac Services, as of the date hereof,
and (b) acquire, affiliate with or manage a program which
provides Cardiac Services on behalf of an entity which
operates, as of the date hereof, such a program (including any
cardiac program related to Section 3.10(b)(ii)(C)(a)), so long
as in any event the nonprofit Member uses its reasonable
effort to provide either the Hospital or each of SWCA. LLC,
NMHI, LLC and NMHM with an opportunity to participate therein.
Provided, however, no such nonprofit Member may initiate, or
be involved with the initiation of, any new Cardiac Services
at its existing hospital or at any such other affiliated or
acquired hospital or at any new hospital. The parties
acknowledge and agree that a proprietary (for-profit)
Successor (as defined at Section 3.10(b)(ii)(H) below) of SJHS
shall have
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the same benefits and obligations as SJHS under this Section
3.10(b)(ii)(C);
(D) nothing herein shall prevent any Member from
operating directly or through an Affiliate a mobile
catheterization laboratory within the Territory so long as
such service is provided pursuant to a lease of six (6) months
or less (including all renewals and extensions) to a provider
which is already providing catheterization laboratory services
in the Territory at the time of the inception of the lease;
(E) nothing herein shall prohibit a Member from owning
up to three percent (3%) of the outstanding 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;
(F) nothing herein shall prevent SWCA, LLC, NMHI, LLC,
NMHM or their Affiliates from owning, operating, advising or
managing, together or with other third parties, any hospital,
facility, clinic or service which provides any diagnosis or
treatment, of any type or nature, of any cardiac or vascular
condition as long as (i) each such party uses its reasonable
efforts to provide the others (SWCA. LLC, NMHI, LLC or NMHM)
with an opportunity to participate therein and (ii) it is
located outside of the 50 mile radius of the Hospital;
(G) nothing herein shall prevent any Member from
offering a service which the Company does not offer after the
first anniversary of the opening of the Hospital; and
(H) (1) with respect to SJHS only, the restrictions set
forth in Section 3.10(b) shall be applicable until the
later of (x) five (5) years from the Effective Date, or
(y) two (2) years after SJHS ceases to be a Member of
the Company. SJHS and its Affiliates shall cause any
successor or assign of SJHS or its Affiliates
("Successors") to agree to be bound by the terms of
Section 3.10(b) including, but not limited to, this
Section 3.10(b)(ii)(H).
(2) Successors shall include (x) any person, firm
or corporation which purchases or leases any of the real
estate holdings of SJHS or its Affiliates for the
purpose of operating, or thereafter during the period of
this restrictive covenant operates, a hospital within
the geographic area referred to in Section 3.10(b) of
this Agreement; (y) any person, firm or corporation who
purchases more than fifty percent (50%) of the assets of
SJHS or its Affiliates; or (z) any person, firm or
corporation who gains control of SJHS or its Affiliates,
either by reason of controlling a majority of its
directors or trustees or by reason of becoming a
11
member of SJHS or its Affiliates. Any transfer by SJHS
or its Affiliates to a Successor shall be referred to
herein as an "SJHS Sale".
(3) An SJHS Sale may only be made to a Successor
that (x) will not be in violation of Section 3.10(b) of
the Agreement at the time of the conveyance and (y)
first agrees in writing, prior to the transaction with
SJHS, that such Successor (its affiliates and their
successors and assigns) will be bound by this Section
3.10(b) for the remainder of the term that SJHS would
have been bound had there been no SJHS Sale. Such
agreement will be for the express benefit of the Company
and its Affiliates, and SJHS will make information
pertinent to this Section 3.10(b)(ii)(H) reasonably
available to NMHM or its Affiliates from time to time.
All parties agree that the Territory is the reasonable and
anticipated business service area of the Company.
(c) The Members, including the Directors, have reviewed the term and
geographical restrictions in Section 3.10(b), and in light of the
interests of the parties hereto, agree that such restrictions are fair and
reasonable.
(d) If there is a breach or threatened breach of the provisions of
this Section 3.10, in addition to other remedies at law or equity, the
non-breaching party shall be entitled to injunctive relief. The parties
desire and intend that the provision of this Section 3.10 shall be
enforced to the fullest extent permissible under the law and public
policies applied, but the enforceability 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 3.10.
Should any paragraph, subparagraph, sentence, clause, phrase, word or
figure be adjudicated to be wholly invalid or unenforceable, the balance
of this Section 3.10 shall thereupon be modified in order to render the
same valid and enforceable and the unenforceable portion of this Section
3.10 shall be deemed to have been deleted from this Agreement.
(e) 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 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.
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SECTION 3.11 APPOINTMENT OF BOARD OF DIRECTORS.
The Members shall appoint a Board of Directors as follows:
(a) SWCA, LLC shall appoint two (2) Directors;
(b) NMHI, LLC shall appoint two (2) Directors;
(c) NMHM shall appoint four (4) Directors; and
(d) SJHS shall appoint one (1) Director who, notwithstanding any
provision herein to the contrary, shall not be entitled to vote on any
matter which requires the consent or approval of the Board of Directors or
otherwise requires the Board of Directors to act hereunder.
A Member shall have the right, with or without cause, to remove,
substitute or replace any Director which it appointed.
ARTICLE IV
MANAGEMENT OF THE COMPANY
SECTION 4.1 GENERAL AUTHORITY AND POWERS OF BOARD OF DIRECTORS.
Except as set forth elsewhere in this Agreement, the Board of Directors
shall have complete authority and exclusive control over the management of the
business and affairs of the Company and all Material Agreements and Material
Decisions with respect to the business and affairs of the Company shall be made
by the Board of Directors. 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. The
Board of Directors shall, in consultation with the medical staff and according
to the terms of the Medical Staff Bylaws, Rules and Regulations of the Hospital,
establish procedures for quality assurance, peer review and grant privileges to
physicians at the Hospital. Decisions relating to medical and clinical practice
at the Hospital, however, shall be made exclusively by the medical staff of the
Hospital, as provided in the Bylaws, Rules and Regulations of the Medical Staff.
SECTION 4.2 RESTRICTIONS ON AUTHORITY OF THE BOARD OF DIRECTORS.
The Board of Directors shall not do any of the following:
(a) Act in contravention of this Agreement;
(b) Act in any manner which would make it impossible to carry
on the express business purposes of the Company;
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(c) Commingle the Company funds with those of any other Person;
(d) Admit an additional Member, except as provided in this
Agreement;
(e) Alter or act inconsistently with 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 or cause the making of 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;
(i) Sell all or substantially all of the assets of the Company
or merge the Company with or into any other Entity without the approval
of all of the Members;
(j) Delegate authority to make Material Decisions or enter into
Material Agreements; or
(k) Dissolve the Company, except as provided in this Agreement.
SECTION 4.3 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 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) Cause the Company to obtain and keep in force during the term of
the Company fire and extended coverage, public liability and professional
liability insurance and other insurance policies, with such issuers and in
such amounts as the Board of Directors shall deem advisable, but in
amounts not less (and deductible amounts not
14
greater) than those customarily maintained with respect to the business
equipment and property comparable to the Company's;
(e) Have a fiduciary duty to conduct the affairs of the Company in
the best interests of the Company and of the Members, including the
safekeeping and use of all funds and assets, whether or not in its
immediate possession and control, and it 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;
(f) When this Agreement or circumstances affecting the business of
the Company require the Directors to take certain action or to make a
determination, the Board of Directors shall take such action or make such
determination in a reasonable and timely manner;
(g) Deliver to the New Mexico State Corporation Commission for
filing an annual statement in accordance with the Act;
(h) Employ legal counsel, public accountants and such other
advisors and consultants for the Company as it deems necessary; and
(i) Establish and adhere to a conflict of interest policy.
SECTION 4.4 DELEGATION BY THE BOARD OF DIRECTORS.
Subject to restrictions otherwise provided herein, the Board of Directors
may at any time employ a Manager, including a Manager affiliated with, or
related to any member of the Board of Directors or any Member to perform
services for the Company and its business, and may delegate all or part of their
duties, authority or control to such Manager, provided that such employment or
delegation shall not relieve the Board of Directors of its respective
responsibilities and obligations under this Agreement or under the laws of the
State of New Mexico nor will it make any such Manager a Member of the Company.
SECTION 4.5 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 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.
SECTION 4.6 NO MANAGEMENT BY MEMBERS.
Other than as set forth in Article III hereof, the Members shall take no
part in, or at any time interfere in any manner with, the management, conduct,
or control of the Company's business and operations and shall have no right or
authority to act for or bind the Company. 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
15
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. The exercise by any other Member of any of the rights granted to the
Member hereunder shall not be deemed to be taking part in the control of the
business of the Company and shall not constitute a violation of this Section.
SECTION 4.7 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 4.8 MEETINGS, QUORUM AND VOTE OF THE BOARD OF DIRECTORS.
(a) The Board of Directors shall meet at least quarterly. A meeting
may be called by any Director or the Manager. Notice of any meeting,
regular or special, shall be delivered to each Director personally, by
telephone, by electronic mail, by facsimile transmission or in writing at
least five (5) business days before the meeting. If a request for
additional funding pursuant to Section 3.7(b) is to be considered at the
meeting, it must be so stated specifically in the Notice of Meeting. The
Director calling the meeting or the Manager shall be responsible for
preparing and delivering the Notice of Meeting.
(b) An emergency meeting of the Board of Directors may be called by
the Manager upon shorter notice. Action taken at the emergency meeting
shall be valid so long as the meeting is attended by at least one Board
member appointed by each of SWCA, LLC, NMHI, LLC and NMHM and the action
is unanimously approved by the Board members in attendance entitled to
vote under this Agreement.
(c) The Board of Directors shall elect one of its voting members to
preside over the meetings as the Chairperson and one of its members, as
the Secretary, to oversee the preparation and delivery of meeting notices
and the preparation of minutes of the meetings of the Board of Directors
and Members.
(d) A quorum of the Board of Directors shall be necessary to conduct
business at any meeting, except as provided in Section 4.8(b). A quorum
shall consist of a majority of the voting Directors. The Directors present
at a meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of Directors, so long as
any action taken is approved by at least a majority of the required quorum
for such meeting and one of such remaining Directors must have been
appointed by each of the Members for there to be business transacted. 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.
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(e) Any action taken by the Board of Directors shall require the
affirmative vote of at least a majority of the Directors (at least one of
whom shall have been appointed by NMHM) present at a meeting at which a
quorum is present, except that the following actions shall require the
consent of at least one Board member appointed by each of NMHM, NMHI, LLC
and SWCA, LLC:
(i) the determination of the annual budget of the Company
and any material amendments or modifications thereof, including
material expenditures in excess thereof; and
(ii) any maintenance and/or capital improvement expenditures
not included in an annual budget and in excess of Twenty-Five
Thousand Dollars ($25,000.00) or resulting in an aggregate
expenditure outside of the budget by more than five percent (5%)
thereof unless matched or supported by revenue in excess of that
reflected in such budget.
(f) Notwithstanding Section 4.8(e) or any other provision herein to
the contrary, the Board of Directors may invoke the termination procedures
under Section 6.2-2(b) of the Management Services Agreement upon the
written consent of at least three (3) of the Directors appointed by NMHI,
LLC and SWCA, LLC regardless of the vote of the Board members designated
by NMHM on such issue provided that after the Board consents to invoke
such termination procedures NMHI, LLC and SWCA, LLC consent to invoke such
termination procedures in accordance with Section 3.9(b) and further
provided that the Manager shall be entitled to exercise its rights with
regard to such termination in accordance with the terms of the Management
Services Agreement.
(g) 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 unanimously by all Directors entitled to vote under
this Agreement.
(h) Minutes of the meetings of the Board of Directors shall be
taken. The original of the minutes shall be signed by the Secretary of the
Board and kept with the records of the Company. A copy of the minutes
shall be sent to each of the Directors.
(i) Attendance at a meeting of the Board of Directors
constitutes waiver of any objection to the Notice of the meeting.
SECTION 4.9 BOARD OF DIRECTORS' STANDARD OF CARE.
Each Director and the Board of Directors shall act in a manner it believes
in good faith to be in the best interest of the Company and with such care as an
ordinarily prudent Person in a like position would use under similar
circumstances. In discharging its duties, each 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
17
believes are within such other Person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Company,
including information, opinions, reports or statements as to the value and
amount of the assets, liabilities, income or losses of the Company or any other
facts pertinent to the existence and amount of assets from which distributions
to members might properly be paid.
Notwithstanding anything herein to the contrary, a Director or Member
shall have the right to vote or approve Company matters in accordance with the
terms of this Agreement regardless of the personal interest of any Director or
Member in the outcome of any vote, decision or matter, subject to the obligation
to disclose conflicts in advance under Section 2.4(d).
SECTION 4.10 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 Sections 4.3
and 4.9. 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 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 4.11 INDEMNIFICATION OF DIRECTORS.
(a) Each Director 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 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 willful misconduct or gross
negligence on the part of the Director and provided that the Director, 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 V or Article VI hereof, to the Members.
SECTION 4.12 GUARANTEE FEE.
In the event that a lender of funds to the Company requires that all or a
portion of such loan be guaranteed (the portion of such loan required to
be guaranteed is hereafter referred to as
18
the "Guarantee Amount"), then to the extent that (a) the lender either is
unwilling to accept a guarantee from a Member for its pro rata share of
such Guarantee Amount, (b) such Member is unwilling to provide a guarantee
for its pro rata share of the Guarantee Amount or (c) such lender requires
NMHM or its Affiliates to also guarantee all or a portion of the pro rata
Guarantee Amount of such other Member (in addition to any other portion of
such loan which NMHM or its Affiliates is obligated to guarantee as a
result of NMHM's pro rata interest in the Company), then NMHM shall be
paid an annual guarantee fee by such Members of the Company other than
NMHM (collectively, the "Non-Guarantor Members") equal to .0075 multiplied
by the pro rata portion of the Guarantee Amount of such other Member which
is required by such lender to be guaranteed by NMHM or its Affiliates with
respect to such loan (the "Guarantee Fee"). The Guarantee Fee shall be
paid quarterly and the expense thereof shall be allocated to the
Non-Guarantor Members as follows:
(a) The Guarantee Fee shall be deducted from the Cash Distributions
otherwise distributable to the Non-Guarantor Members and shall be paid to
NMHM;
(b) To the extent that at the time such Guarantee Fee is due to be
paid hereunder there are no anticipated Cash Distributions, then the
Company shall pay such Guarantee Fee to NMHM and the amount of such
payments shall be charged to the Capital Accounts of the Non-Guarantor
Members;
(c) When Cash Distributions become available for distribution to the
Members in the future, the Cash Distributions otherwise distributable to
the Non-Guarantor Members shall first be retained by the Company and the
Capital Accounts of the Non-Guarantor Members shall be restored to the
extent that amounts were previously charged to the Capital Accounts of the
Non-Guarantor Members in accordance with (b) above and any remaining Cash
Distributions shall be distributed to the Members in accordance with
Section 5.1.
Notwithstanding anything herein to the contrary, (i) SJHS alone shall be
obligated to pay to NMHM on the date of the closing of the Membership Purchase
Agreement, a guarantee fee equal to One Hundred Eleven Thousand Nine Hundred
Twenty Dollars ($111,920) arising from an additional Six Million Six Hundred
Thousand Dollars ($6,600,000) of debt guarantees being required by Health Care
Property Investors, Inc. ("HCPI") for thirty (30) months in consideration of the
release of SJHS from its guarantee to HCPI as of October 1, 2001; and (ii) in
consideration of such payment, for purposes of computing the amount of the
guarantee fee payable by the other Members to NMHM and/or its Affiliates
pursuant to this Section 4.12, the additional guarantee of debt referred to in
(i) above shall not be included in the total amount of indebtedness guaranteed
by NMHM and/or its Affiliates.
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ARTICLE V
DISTRIBUTIONS AND ALLOCATIONS
SECTION 5.1 DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS AND CASH FROM
SALES OR REFINANCING.
Prior to the dissolution of the Company, Cash Flow from Operations and
Cash from Sales or Refinancing, if any, remaining after repayment of any amounts
then due on loans made by the Members to the Company, shall be distributed
quarterly as Cash Distributions according to the relative percentage Membership
Interests of the Members; provided, however, that to the extent possible, any
Guarantee Fee shall be deducted from the Cash Distributions otherwise
distributable to the Non-Guarantor Members and paid to NMHM as set forth in
Section 4.12. The Board shall make a minimum distribution of Cash Flow from
Operations equal to fifty percent (50%) of net profit, after taking into
consideration the requirement for cash reserves or other limitations established
by any lender. Notwithstanding anything herein to the contrary, no distributions
shall be made to Members if prohibited by the Act or other applicable law.
SECTION 5.2 PROFITS.
Except as provided in the Regulatory Allocations Exhibit (Exhibit E) and
subject to Section 5.6, Profits shall be allocated as follows:
(a) First, to the Members who have been allocated Losses pursuant to
Subsection 5.3(a) below until the cumulative Profits allocated pursuant to
this Subsection 5.2(a) equal the cumulative prior allocations of Losses
under that Subsection.
(b) Next, to the Members who have been allocated Losses pursuant to
Subsection 5.3(b) below until the cumulative Profits allocated pursuant to
this Subsection 5.2(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 5.3 LOSSES.
Except as provided in the Regulatory Allocations Exhibit (Exhibit E) and
subject to Section 5.6, Losses shall be allocated as follows:
(a) First, Losses shall be allocated to the Members with positive
Adjusted Capital Account balances in proportion to those balances.
(b) All remaining Losses shall be allocated to the Members in
accordance with their percentage Membership Interests.
20
SECTION 5.4 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 5.5 MISCELLANEOUS.
(a) Allocations Attributable to Particular Periods. For purposes of
determining Profits, Losses or any other items allocable to any period,
such items shall be determined on a daily, monthly, or other basis, as
determined by the Board of Directors using any permissible method under
Code Section 706 and the Regulations thereunder.
(b) Other Items. Except as otherwise provided in this Agreement, all
items of Company income, gain, loss, deduction, credit and any other
allocations not otherwise provided for shall be divided among the Members
in the same proportion as they share Profits or Losses, as the case may
be, for the year.
(c) Tax Consequences Consistent Reporting. The Members are aware of
the income tax consequences of the allocations made by this Article and by
the Regulatory Allocations and hereby agree to be bound by those
allocations as reflected on the information returns of the Company in
reporting their shares of Company income and loss for income tax purposes.
Each Member agrees to report its distributive share of Company items of
income, gain, loss, deduction and credit on its separate return in a
manner consistent with the reporting of such items to it by the Company.
Any Member failing to report consistently, and who notifies the Internal
Revenue Service of the inconsistency as required by law, shall reimburse
the Company for any legal and accounting fees incurred by the Company in
connection with any examination of the Company by federal or state taxing
authorities with respect to the year for which the Member failed to report
consistently.
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SECTION 5.6 SPECIAL ALLOCATIONS OF GUARANTEE FEES.
Any and all deductions, losses or reductions to Capital Accounts
attributable to the payment by the Company of Guarantee Fees shall be allocated
to the Non-Guarantor Members in accordance with their relative percentage
Membership Interests.
ARTICLE VI
DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS
SECTION 6.1 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 6.2 DISSOLUTION.
The Company shall be dissolved upon the happening of any of the following
events, whichever shall first occur:
(a) The election by the Directors to dissolve the Company in
accordance with the terms of Section 3.7(c) hereof;
(b) The expiration of the term provided in Section 2.6 hereof.
(c) The adjudication of bankruptcy of the Company;
(d) In accordance with Section 11.10 hereof; and
(e) The entry of a decree of judicial dissolution or the
administrative dissolution of the Company as provided in the Act.
SECTION 6.3 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 Board of Directors or by another
Person designated by the Members. In winding up the Company and
liquidating assets, the Board of Directors, or other Person so designated
for such purpose, may arrange, either directly or through others, for the
collection and disbursement to the Members of any future receipts from the
Hospital or other sums to which the Company may be entitled, and shall
sell the Company's interest in the Hospital and the Equipment
22
to any Person, including a 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), and further including without limitation any accrued but
unpaid Guarantee Fees, owed to the Members or their Affiliates as
creditors; and
(iii) The balance to the Members with positive Capital Account
balances after taking into account all other adjustments during the
Fiscal Year in which liquidation occurs.
(c) The Members shall look solely to the assets, if any, of the
Company for any return of their Capital Contributions and, if the assets
of the Company remaining after payment or discharge of the Company's debts
and liabilities, or provision therefor, are insufficient to return all or
any part of the Capital Contributions, no Member shall have any right of
recourse against the Directors or other Members or to charge the Board of
Directors or other Members for any amounts except as provided herein and
except to the extent otherwise provided by the Act and/or New Mexico 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 6.3(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 deem or the Person
winding up the affairs of the Company deems reasonably necessary pursuant
to Section 6.3(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 their sole discretion, or the Person winding up
the affairs of the Company, in its discretion, may elect to have the
Company retain any installment obligations owed to the Company until
collected in full so long as any portion of the reserves which are later
determined to be unnecessary, and all collections on such
23
installment obligations which are not deemed to be reasonably necessary by
the Board of Directors or the Person winding up the affairs of the Company
to add to such reserves are distributed as soon as practicable in
accordance with the provisions of Section 6.3(b) as modified by this
Section.
SECTION 6.4 TERMINATION.
Upon completion of the dissolution, winding up, distribution of the
liquidation proceeds and any other Company assets, the Company shall terminate.
SECTION 6.5 PAYMENT IN CASH.
Any payments made to any Member pursuant to this Article VI shall be made
only in cash.
SECTION 6.6 GOODWILL AND TRADE NAME.
Upon the dissolution of the Company, the firm or trade name of the Company
and any goodwill associated therewith shall become the sole property of the
Members, provided that distributions and allocations otherwise due to the
Members shall not be reduced as a result of the Members becoming entitled to
such assets.
SECTION 6.7 TERMINATION OF NONCOMPETITION COVENANTS.
Upon the later of the dissolution of the Company and the completion of the
liquidation process, the Members shall have no continuing liability or
obligation under Section 3.10(b), except that Section 3.10(b) shall continue to
be binding upon a Member whose breach of this Agreement caused a dissolution of
the Company and any action for a breach of this Agreement, including a breach of
Section 3.10(b), shall not be impaired by the dissolution or completed
liquidation.
ARTICLE VII
REMOVAL OR WITHDRAWAL OF MEMBERS AND
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS
SECTION 7.1 WITHDRAWAL OF MEMBER.
(a) Except as provided in this Section 7.1, without the unanimous
consent of the nonwithdrawing Members, a Member shall not voluntarily
withdraw from the Company as a Member at any time prior to its
termination, or transfer or assign any of its rights and duties, provided
that a Member may assign its Membership Interest in the Company and its
rights to appoint one or more Directors to wholly-owned Affiliates (for
NMHM, including MedCath Corporation, MedCath Incorporated and their
wholly-owned Affiliates) and lenders. A Member shall give written notice
to the remaining Members if
24
it desires to otherwise sell its Membership Interest. In that event, the
other Members shall first have an option to purchase such Membership
Interest in accordance with Section 7.1(c) below. The foreclosure of a
Member's Interest by a lender shall give the remaining Members a right to
purchase the Interest being foreclosed for either the amount due and owing
to the lender or pursuant to Section 7.1(c). A sale or transfer in a
single transaction or in a series of related transactions of 50% or more
of the direct or indirect ownership interests in SWCA, LLC or NMHI, LLC
(other than to another entity owned solely by either or both of such
Members or their Affiliates) shall constitute an offer by such Member to
sell its Membership Interest to the Company and the other Members in
accordance with (c) below.
(b) In the event that NMHM or an Affiliate desires to sell its
Membership Interest, SJHS shall be given the first right to negotiate the
purchase of such Membership Interest from NMHM or its Affiliate; provided,
however, that (i) the sale of MedCath Corporation or MedCath Incorporated
or a substantial portion of their assets shall not be considered a sale of
the Membership Interest of NMHM or an Affiliate for purposes of this
Article VII; and (ii) any proposed purchase by SJHS under this Section
7.1(b) shall, except as otherwise provided in Section 7.1(a) or (b), be
subject to the Right of First Refusal of the Company and the other Members
as set forth at Section 7.1(c) below.
(c) Except as otherwise set forth 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 law and
with the consent of the Board of Directors. In no event, however, shall a
Member transfer or sell all or any of its Membership Interest to any party
which, if a Member, would be in violation of Section 3.10(b) hereof.
Except as otherwise set forth in this Section or in this Agreement, a
Member may transfer, sell or assign its entire Membership Interest if it
has received the consent of the Board of Directors, not to be unreasonably
withheld, provided however: (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 a bona fide offer made for the Interest 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, which may include obtaining an opinion of counsel to that
effect.
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(d) Notwithstanding Section 7.1(c) or any other provision of this
Agreement, (i) SJHS shall not be entitled to exercise any Right of First
Refusal nor have any purchase rights under Section 7.1(c) and (ii) sales
of Membership Interests by Members pursuant to the Membership Purchase
Agreement are hereby approved by the Company and such sales made pursuant
to the Membership Purchase Agreement are not subject to Section 7.1(c).
SECTION 7.2 CONDITIONS PRECEDENT TO TRANSFER OF MEMBERSHIP INTEREST.
Notwithstanding anything herein to the contrary, no transfer of a
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 a 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 7.3 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 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 7.4 ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE.
Upon the transfer of a Member's 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
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transfer; provided such allocation does not violate federal or state income tax
law. If the Board of Directors deems such laws violated, then such allocation
shall be made pro rata for the fiscal year based upon the number of days during
the applicable fiscal year of the Company that the Membership Interest so
transferred was held by the transferor and transferee, without regard to the
results of Company activities during the period in which each was the holder, or
in such other manner as the Board of Directors deems necessary to comply with
federal or state income tax laws. Distributions as called for by this Agreement
shall be made to the holder of record of the Membership Interest on the date of
distribution. Notwithstanding anything contained in this Agreement to the
contrary, the Company shall be entitled to treat the assignor of any assigned
Membership Interest as the absolute owner thereof in all respects, and shall
incur no liability for distributions made in good faith to such assignor in
reliance on the Company records as they exist until such time as the written
assignment has been received by, and recorded on the books of the Company. For
purposes of this Article VII, 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 7.5 RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE.
No assignee of a Member's 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 7.6 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 Interest upon such Member's
breach of the Member's obligations contained in Article III, Sections 7.1
and 7.2 of this Agreement, unless the breach is cured promptly after
notice thereof by the Company.
(b) Any Member who is in breach of this Agreement agrees to sell its
Membership Interest to the Company in the event the Company elects to
exercise the right of repurchase granted under Section 7.6(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 or (y)
the fair market value of such Member's Membership Interest determined by
an independent appraiser reasonably selected by the Board of Directors.
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ARTICLE VIII
RECORDS, ACCOUNTINGS AND REPORTS
SECTION 8.1 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 8.2 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.
SECTION 8.3 BANK ACCOUNTS AND INVESTMENT OF FUNDS.
(a) The Board of Directors 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 the
Board of Directors may from time to time designate.
(b) Any funds of the Company which the Board of Directors 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 the Board of
Directors.
SECTION 8.4 FISCAL YEAR.
The Fiscal Year and accounting period of the Company shall end on
September 30 of each year, unless otherwise determined by the Board of
Directors.
SECTION 8.5 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
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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.
The Company shall be audited by a firm of independent certified public
accountants regularly engaged by the Board of Directors on behalf of the
Company. (For so long as NMHM is a Member of the Company, the Company shall
endeavor to use the same firm of accountants as used by MedCath.) 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, Board of Directors shall also cause to be prepared
and distributed to the Members quarterly financial statements.
SECTION 8.6 TAX RETURNS.
It is the intention of all Members that the Company be treated for tax
purposes as a partnership under Subchapter J of the Code, and that this
Agreement be construed in accordance with such intent. All Members agree to
construe and/or amend the Agreement as may be necessary from time to time to
effect such intent. The Board of Directors shall cause income tax returns for
the Company to be prepared, at Company expense, and timely filed with the
appropriate authorities. As soon as is reasonably practicable, and in any event
on or before the expiration of 75 days following the end of each Fiscal Year,
each Member shall be furnished with a statement to be used in the preparation of
the Member's tax returns, showing the amounts of any Profits or Losses allocated
to the Member, and the amount of any distributions made to the Member, pursuant
to this Agreement, along with a reconciliation of the annual report with
information furnished to Members for income tax purposes.
ARTICLE IX
MEETINGS AND VOTING RIGHTS OF MEMBERS
SECTION 9.1 MEETINGS.
(a) Meetings of the Members of the Company for any purpose may be
called by the Board of Directors, or any Member. Such meetings shall be
held in Albuquerque, New Mexico.
(b) A notice of any such meeting shall be given in person, by mail,
by overnight courier or by facsimile transmission not less than seven (7)
days nor more than sixty (60) days before the date of the meeting, to each
Member at its address as specified in Section 11.6. Such notice shall be
in writing, and shall state the place, date and hour of the meeting. The
notice shall state the purpose or purposes of the meeting. If a meeting is
29
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, by filing a written notice of such revocation with each
Director.
SECTION 9.2 VOTING RIGHTS OF MEMBERS.
(a) No Member shall take part in or interfere in any manner with the
control, conduct or operation of the Company, nor have any 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 by filing such writing with each
Director. 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.
ARTICLE X
AMENDMENTS
This Agreement and the Articles of Organization of the Company may be
amended only with the unanimous consent of NMHI, LLC, SWCA, LLC and NMHM.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1 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 11.2 INTERPRETATION AND CONSTRUCTION.
Any modification or amendment hereto must be accomplished in accordance
with the provisions of Article X. 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 11.3 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New Mexico exclusive of its conflict of law rules.
SECTION 11.4 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 11.5 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 11.6 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, certified mail, 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
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Exhibit (Exhibit B) hereof. Any notice, or any document, report or opinion
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 11.7 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 11.8 STATUTORY PROVISION.
Any statutory reference in this Agreement shall include a reference to any
successor to such statute and/or revision thereof.
SECTION 11.9 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 11.10 CHANGE IN LAW.
(a) 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 selected 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 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 unanimously by the 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
32
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 the Company shall have the
option, within the following forty-five (45) day period, to purchase the
Membership Interests of some or all of the Members whose ownership is
involved with such noncompliance with Applicable Law for a purchase price
equal to the greater of: (a) five times the net income of the Company for
the prior 12 month period times the percentage of the selling Member's
Membership Interest or (b) the amount of the Capital Contributions made by
each such Member to the Company together with interest thereon computed at
the Prime Rate as of the date of this Agreement from the date of such
contribution through the date upon which the Company pays all amounts due
under the terms of this Section 11.10. For the purpose of Subparagraph
(b), distributions to the Members by the Company after the effective date
of this Agreement (and whether before or after health care counsel
determined there was a problem under an Applicable Law or before or after
the exercise of the purchase option) shall be treated as payments by the
Company. Such purchase prices shall be paid in accordance with the Payment
Method. Third, in the event that the Company does not exercise its option
to purchase Membership Interests of a Member whose ownership causes the
Company not to be in compliance with Applicable Law, such Members may
elect in writing within the following forty-five (45) day period, to
require that the Company be dissolved, in which event the Company shall be
dissolved in accordance with the terms of this Agreement.
(b)(i) In the event, that nationally recognized tax counsel of
SJHS, but who prior to their engagement for purposes of this
Agreement have not previously represented SJHS or any of its
Affiliates with respect to this transaction, and which tax counsel
is selected with the approval of NMHM, which approval shall not be
unreasonably withheld, reasonably determines in writing after
regular consultation with NMHM, the other Members and their counsel,
and offer 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) SJHS'
Membership Interest in the Company, both directly and alternatively
through a for-profit affiliate of SJHS (the "SJHS Sub") of which
SJHS is the sole shareholder to which it assigns (or to which it is
entitled to assign under the terms of this Agreement) its Membership
Interest or (y) SJHS' obligation under Section 3.7(a)(i) to
guarantee a portion of the Company's indebtedness, will result in
SJHS losing its tax-exempt status, SJHS may give notice in writing
to the Company, SWCA, LLC, NMHI, LLC and NMHM of that fact.
Thereafter, 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 SJHS
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.
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(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 SJHS of its Membership Interest
to its for-profit affiliate alone will not enable SJHS to
avoid the loss of its tax-exempt status and (z) if SJHS is
liable for any guarantees of indebtedness of the Company and
SJHS' being released from such guarantees any will avoid SJHS'
loss of its tax-exempt status, then conditioned upon (1) the
payment of a Guarantee Fee by the SJHS Sub to NMHM pursuant to
Section 4.12 of the outstanding balance of the principal
amount of debt of the Company then guaranteed by SJHS and its
affiliates plus the amount which thereafter would, absent the
operation of this subsection 11.10(b)(i)(B) have been
guaranteed by SJHS, (2) the execution and delivery by the SJHS
Sub of a reimbursement agreement providing for the SJHS Sub's
reimbursement of NMHM for all amounts of principal, interest
and other costs paid by NMHM or its Affiliates under its
guarantees of the Company's indebtedness which absent the
application of this subsection would have been paid by SJHS or
its Affiliates, and (3) the approval of such arrangement by
the Company's lenders, then NMHM and its parent MedCath
Incorporated shall assume all liability and obligation of SJHS
and its affiliates for their guaranty of the Company's debt.
Rather than assigning its guarantee to NMHM and paying
the Guarantee Fee as provided above, SJHS and its affiliates
shall have the right to use any other commercially reasonable
alternative for obtaining a release of SJHS 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.
(C) If the parties have failed to renegotiate the
Agreement in a mutually acceptable manner as provided in (A)
above and the arrangement set forth in (B) above will not
avoid SJHS' loss of its tax-exempt status, then SJHS may
provide written notice of its election to withdraw from the
Company pursuant to Section 7.1. Within one hundred eighty
(180) days of the date of the notice, SJHS shall relinquish
its Membership Interest in the Company and any of the
Company's directors, officers or managers appointed by SJHS
shall tender their resignations.
(D) Company, SWCA, LLC, NMHI, LLC and NMHM shall use
commercially reasonable efforts to obtain a release of SJHS
from any guaranty of the debts of Company and, in the event
they are unable to do so, Company, SWCA, LLC, NMHI, LLC and
NMHM shall, severally based upon their relative ownership of
the Company, indemnify and hold SJHS harmless from any such
guaranty and shall obtain the release of SJHS at the first
available opportunity.
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(E) Within thirty (30) days, either SJHS or the Company
may give the other notice that it intends to terminate any
hospital services agreement between them (the "Hospital
Services Agreement"). If either party terminates the Hospital
Services Agreement, SJHS shall continue to provide the
services set forth in the Agreement until such time as the
Company can find a replacement for the service, but not to
exceed one hundred eighty (180) days. If neither party gives
notice of termination within thirty (30) days, the Hospital
Services Agreement will continue in force and effect according
to its terms.
(F) Commencing as of the withdrawal date and continuing
for so long as the restrictions of Section 3.10(b) are
applicable to SJHS as set forth at Section 3.10(b)(ii)(H),
SJHS will not compete directly or indirectly with the Company,
in an area within a radius of fifty (50) miles of the
Hospital, by providing diagnosis or treatment of
cardiovascular disease or cardiothoracic and cardiovascular
surgery services or facilities (as an owner, manager or
otherwise), it being acknowledged that both SJHS and the
Company may provide non-coronary vascular surgery procedures
(excluding in all events in the case of SJHS, cardiovascular
surgery procedures, except upon prior written approval
pursuant to Section 11.10(b)(i)(F)(4) of this Agreement)
except
(1) SJHS may continue to provide diagnostic
cardiac catheterization and such cardiac services as are
necessary to stabilize the medical condition of its
patients in preparation for transfer to another facility
for treatment of the cardiovascular disease or providing
cardiothoracic or vascular surgery;
(2) To the extent that SJHS seeks to obtain the
services of the Hospital to enable SJHS to fulfill
obligations under managed care agreements, Company shall
sell those services to SJHS at a price and upon terms
which are no less favorable than it provides to any
other substantially similar managed care provider; and
(3) Company shall not provide acute care hospital
services except as needed by a cardiology, vascular or
cardiovascular patient of the heart hospital or as
necessary to stabilize a patient in preparation for
transfer to another facility for treatment of that
condition.
(4) Whenever due to lack of capacity at the
Hospital an attending physician desires to admit a
patient to SJHS, SJHS may provide diagnosis or treatment
of cardiovascular disease or cardiothoracic and
cardiovascular surgery services or facilities upon prior
written approval of the President of the Company.
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The parties agree that the terms of this
subsection (F) are fair and reasonable in light of the
important interests of each party hereto.
(G) Except as provided herein or in the Agreement for
Land Purchase, SJHS shall be released from any further
obligation to the Company, SWCA, LLC, NMHI, LLC or NMHM.
(ii) If there is a breach or threatened breach of this
Agreement, in addition to other remedies at law or equity, the
nonbreaching party shall be entitled to injunctive relief. The
parties desire and intend that the provisions of this Agreement
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 Agreement. Should any such
paragraph, subparagraph, sentence, clause, phrase, word or figure be
adjudicated to be wholly invalid or unenforceable, the balance of
this Agreement shall thereupon be modified in order to render the
same valid and enforceable and the unenforceable portion of this
Agreement shall be deemed to have been deleted from this Agreement.
SECTION 11.11 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 New Mexico 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 New Mexico 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
36
Company to any Person unless and until the provisions of this Agreement
hereof have been fully satisfied.
(c) Each Member or individual executing this Agreement on behalf of
an Entity which is a Member hereby acknowledges that prior to his
execution of this Agreement, such Member received a copy of this Agreement
and that such Member has examined this Agreement or caused this Agreement
to be examined by such Member's representative or attorney. Each Member or
individual executing this Agreement on behalf of an Entity which is a
Member hereby further acknowledges that such Member or such Member's
representative or attorney is familiar with this Agreement and with the
Company's business plans. Each Member or individual executing this
Agreement on behalf of an Entity which is a Member acknowledges that such
Member or such Member's representative or attorney has made such inquiries
and requested, received, and reviewed any additional documents necessary
for such Member to make an informed investment decision and that such
Member does not desire any further information or 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 11.12 EXHIBITS.
The Exhibits to this Agreement, each of which is incorporated by
reference, are:
EXHIBIT A: Articles of Organization.
EXHIBIT B: Information Exhibit.
EXHIBIT C: Glossary of Terms.
EXHIBIT D: Development Budget Exhibit.
EXHIBIT E: Regulatory Allocations.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
following execution page(s), to be effective as of the Effective Date.
37
EXECUTION PAGE
TO THE
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
HEART HOSPITAL OF NEW MEXICO, LLC
A NEW MEXICO LIMITED LIABILITY COMPANY
NMHI, LLC
a New Mexico limited liability company
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
Manager
SWCA, LLC
a New Mexico limited liability company
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., M.D.
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., M.D.
President
ST. ▇▇▇▇▇▇ HEALTHCARE SYSTEM,
a New Mexico nonprofit corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇
President
NM Hospital Management, Inc.
a North Carolina corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
Title: Vice President
EXHIBIT A
STATE OF NEW MEXICO
[SEAL OF STATE CORPORATION COMMISSION OF NEW MEXICO]
OFFICE OF
THE STATE CORPORATION COMMISSION
CERTIFICATE OF ORGANIZATION
OF
HEART HOSPITAL OF NEW MEXICO, LLC
1914902
The State Corporation Commission certifies that the Articles of
Organization, duly signed and verified pursuant to the provisions of the
LIMITED LIABILITY COMPANY ACT
(53-19-1 TO 53-19-74 NMSA 1978)
have been received by it and are found to conform to law.
Accordingly, by virtue of the authority vested in it by law, the State
Corporation Commission issued this Certificate of Organization and attaches
hereto a duplicate of the Articles of Organization.
Dated: FEBRUARY 18, 1998
In Testimony Whereof, the State Corporation
[SEAL] Commission of the State of New Mexico has
caused this certificate to be signed by its
Chairman and the Seal of said Commission to be
affixed at the City of Santa Fe
/s/ [???]
----------------------------------------------
Chairman
/s/ [???]
----------------------------------------------
Director
ARTICLES OF ORGANIZATION
OF
HEART HOSPITAL OF NEW MEXICO, LLC
I
NAME OF COMPANY
The name of the limited liability company is HEART HOSPITAL OF NEW MEXICO, LLC,
(the "Company").
II
REGISTERED AGENT AND OFFICE
The name of the registered agent and the street address of the registered office
of the company are:
D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
The street address of the Company's current principal place of business is the
same as the street address of its registered office.
III
PERIOD OF DURATION
The latest date upon which the Company is to dissolve is December 31, 2097.
IV
MANAGEMENT
The property, business and affairs of the Company shall be managed by a class of
managers (which are referred to as "Directors" for convenience, but Directors as
used herein and in the Operating Agreement shall have the same meaning as the
term "managers" used in the Limited Liability Company Act, Sections 53-19-1, et
seq., N.M.S.A. 1978, as amended). Individual members of the Company, other than
the Directors, shall have no management control of the Company.
V
INDEMNIFICATION OF MEMBERS AND DIRECTORS
The Company shall indemnify a Member or Director for judgments, settlements,
penalties, fines or expenses incurred in a proceeding to which a person is a
party because he or she is or was a Member or Director and for advancement of
expenses, including costs of defense, prior to final disposition of such
proceeding. However, nothing herein shall require the Company to indemnify a
Member or Director if a judgment or other final adjudication adverse to the
Member or Director establishes that such Member's or Director's acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that such Member or
Director personally gained, in fact, a financial profit or advantage to which
such Member or Director was not legally entitled.
IN WITNESS WHEREOF, I have executed these Articles this 18th day of
February, 1998.
/s/ D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------
Organizer
AFFIDAVIT OF REGISTERED AGENT
COUNTY OF BERNALILLO
ss.
STATE OF NEW MEXICO
I, D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, having being duly sworn, under oath, state that I am
a resident of the State of New Mexico and, having been appointed as initial
registered agent of HEART HOSPITAL OF NEW MEXICO, LLC hereby accept the
appointment as such registered agent.
/s/ D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------
D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Signed and sworn to before me on February 17, 1998 by D. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
/s/ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------------
Notary Public
My Commission expires:
November 27, 2000
--------------------------------------
EXHIBIT B
TO THE
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
HEART HOSPITAL OF NEW MEXICO, LLC
A NEW MEXICO LIMITED LIABILITY COMPANY
INFORMATION EXHIBIT
INITIAL PERCENTAGE
PERCENTAGE INITIAL MEMBERSHIP
MEMBERSHIP CAPITAL INTEREST AS OF
NAME & ADDRESS INTEREST CONTRIBUTION EFFECTIVE DATE
-------------- -------- ------------ --------------
SWCA, LLC 15% $600,000.00 10%
c/o President
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇,
▇▇▇▇. ▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
NMHI, LLC 26% $1,040,000.00 18%
c/o President
▇▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
St. ▇▇▇▇▇▇ Healthcare System 35% $1,400,000.00 3%
▇▇▇ ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇., ▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
NM Hospital Management, Inc. 24% $ 960,000.00 69%
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
EXHIBIT C
TO THE
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
HEART HOSPITAL OF NEW MEXICO, LLC
A NEW MEXICO LIMITED LIABILITY COMPANY
GLOSSARY OF TERMS
As used in this Agreement, the following terms shall have the following
definitions (unless otherwise expressly provided herein).
"Act" means the New Mexico Limited Liability Company Act, set forth at
"53-19-1, et seq. N.M.S.A. (1993 Rep. Pamp.), as amended or any corresponding
provisions of succeeding law.
"Adjusted Capital Account" means, with respect to any Member, such
Person's Capital Account (as defined below) as of the end of the relevant Fiscal
Year increased by any amounts which such Person is obligated to restore, or is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Section 1.704-2(g)(1) (share of minimum gain) and Regulations
Section 1.704-2(i)(5) (share of member nonrecourse debt minimum gain) and
decreased by the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(-4), (5) and (,6).
"Affiliate" means (i) with respect to a person--the spouse and a child or
children of such person; (ii) with respect to a business corporation or limited
liability company--any officer, director, trustee, partner, manager, employee,
holder of ten percent (10%) or more of any class of the outstanding voting
securities or of an equity interest of such corporation or limited liability
corporation, or holder of ten percent (10%) or more of the outstanding voting
securities or of an equity interest of any Entity, controlling, controlled by,
or under common control with such corporation or limited liability company and
(iii) with respect to a nonprofit corporation--any member, director, officer,
employee or wholly-owned subsidiary corporation, but it shall not include either
Catholic Healthcare Initiatives ("CHI"), CHI--Mountain Region or Centura Health
with regard to their operations outside of the State of New Mexico; and (iv)
each of the direct and indirect owners of NMHI, LLC and SWCA, LLC.
"Agreed Value" means with respect to any noncash asset of the Company an
amount determined and adjusted in accordance with the following provisions:
(a) The initial Agreed Value of any noncash asset contributed to the
capital of the Company by any Member shall be its gross fair market value,
as agreed to by the contributing Member and the Company.
(b) The initial Agreed Value of any noncash asset acquired by the
Company other than by contribution by a Member shall be its adjusted basis
for federal income tax purposes.
(c) The initial Agreed Values of all the Company's noncash assets,
regardless of how those assets were acquired, shall be reduced by
depreciation or amortization, as the case may be, determined in accordance
with the rules set forth in Regulations Section 1.704-1(b)(2)(iv)(f) and
(g).
(d) The Agreed Values, as reduced by depreciation or amortization,
of all noncash assets of the Company, regardless of how those assets were
acquired, shall be adjusted from time to time to equal their gross fair
market values, as agreed to unanimously by the Members in writing, as of
the following times:
(i) the acquisition of a Membership Interest or an additional
Membership Interest in the Company by any new or existing Member in
exchange for more than a de minimis Capital Contribution;
(ii) the distribution by the Company of more than a de minimis
amount of money or other property as consideration for all or part
of a Membership Interest in the Company; and
(iii) the termination of the Company for federal income tax
purposes pursuant to Code Section 708(b)(1)(B).
If, upon the occurrence of one of the events described in (i), (ii)
or (iii) above the Members do not agree unanimously in writing on the
gross fair market values of the Company's assets, it shall be deemed that
the fair market values of all the Company's assets equal their respective
Agreed Values immediately prior to the occurrence of the event and thus no
adjustment to those values shall be made as a result of such event.
"Agreement" means this Amended and Restated Operating Agreement, as
amended from time to time.
"Articles of Organization" means the Articles of Organization of the
Company, as filed with the New Mexico State Corporation Commission as the same
may be amended from time to time.
"Board of Directors," "Director" or "Directors" means those persons
appointed by the Members, pursuant to Section 3.11 of the Agreement, and given
the power and authority under Article IV of the Agreement to manage the Company.
The terms "Director" or "Directors" is used for convenience, but is intended to
have the same meaning as the terms "Manager" or "Managers" in the Act.
"Capital Account" means with respect to each Member or assignee an account
maintained and adjusted in accordance with the following provisions:
2
(a) Each Person's Capital Account shall be increased by Person's
Capital Contributions, such Person's distributive share of Profits, any
items in the nature of income or gain that are allocated pursuant to the
Regulatory Allocations and the amount of any Company liabilities that are
assumed by such Person or that are secured by Company property distributed
to such Person.
(b) Each Person's Capital Account shall be decreased by the amount
of cash and the Agreed Value of any Company property distributed to such
Person pursuant to any provision of this Agreement, such Person's
distributive share of Losses, any items in the nature of loss or deduction
that are allocated pursuant to the Regulatory Allocations, and the amount
of any liabilities of such Person that are assumed by the Company or that
are secured by any property contributed by such Person to the Company.
In the event any Membership Interest is transferred in accordance
with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the
transferred Membership Interest.
In the event the Agreed Values of the Company assets are adjusted
pursuant to the definition of Agreed Value contained in this Agreement,
the Capital Accounts of all Members shall be adjusted simultaneously to
reflect the aggregate adjustments as if the Company recognized gain or
loss equal to the amount of such aggregate adjustment.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply
with Regulations Section 1.704-1(b), and shall be interpreted and applied
in a manner consistent with such regulations. In the event the Board of
Directors shall determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto, are computed to
comply with such Regulation. the Board of Directors may make such
modification, provided that it is not likely to have a material effect on
the amounts distributable to any Member pursuant to Articles V or VI
hereof upon the dissolution of the Company. In the event the Board of
Directors shall determine such adjustments are necessary or appropriate to
comply with Regulations Section 1.704-1(b)(2)(iv), the Board of Directors
shall adjust the amounts debited or credited to Capital Accounts with
respect to (i) any property contributed by the Members or distributed to
the Members and (ii) any liabilities secured by such contributed or
distributed property or assumed by the Members. The Board of Directors
shall also make any other appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply
with Regulations Section 1.704-1(b). In the event any Membership Interest
in the Company is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred Membership
Interest.
"Capital Contribution" means with respect to any Member, the amount of
money and the initial Agreed Value of any property (other than money)
contributed to the Company with respect to the Membership Interest of such
Member.
3
"Cash Distribution" means net cash distributed to Members resulting from
Cash Flow from Operations or Cash from Sales or Refinancing.
"Cash Flow from Operations" means net cash funds provided from operations,
exclusive of Cash from Sales or Refinancing, of the Company or investment of any
Company funds, without deduction for depreciation, but after deducting cash
funds used to pay or establish a reserve for expenses, debt payments, capital
improvements, and replacements and for such other items as the Board of
Directors reasonably determines to be necessary or appropriate.
"Cash from Sales or Refinancing" means the net cash proceeds received by
the Company from or as a result of any Sale or Refinancing of property after
deducting (i) all expenses incurred in connection therewith, (ii) any amounts
applied by the Board of Directors in their sole and absolute discretion toward
the payment of any indebtedness and other obligations of the Company then due
and payable, including payments of principal and interest on mortgages, (iii)
the payment of any other expenses or amounts owed by the Company to other
parties to the extent then due and payable, and (iv) the establishment of any
reserves deemed necessary by the Board of Directors in their sole and absolute
discretion. If the proceeds of any sale or refinancing are paid in more than one
installment, each such installment shall be treated as a separate Sale or
Refinancing for the purposes of this definition.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. Any reference herein to a specific section(s) of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Company" means and shall refer to Heart Hospital of New Mexico, LLC,
which was created upon the filing of the Articles of Organization with the New
Mexico State Corporation Commission to be operated under the name Heart Hospital
of New Mexico, LLC, a New Mexico limited liability company, and to continue
under this Agreement, as amended from time to time.
"Default Rate" means a per annum rate of onium on a specified principal
sum, compounded monthly, equal to the greater of (a) the Prime Rate plus 500
basis points, or (b) 18%, but in no event greater than the highest rate allowed
by law.
"Economic Interest" means and shall refer to that portion of the
Membership Interest of a Member in the economic rights and benefits of the
Company, including but not limited to all Profits, Losses and Cash
Distributions. Such an Economic Interest will be measured by an amount equal to
the Member's percentage Membership Interest in the Company as the same may be
adjusted from time to time.
"Economic Interest Owner" means a Person who has validly acquired a
Member's Economic Interest as permitted under this Agreement but who has not
become a Member. Such Person shall be entitled to the allocations of Profits and
Losses and Cash Distributions under Article V and VI to which the previous owner
of the Economic Interest would have been entitled had such previous owner
retained the Economic Interest. Unless and until such Economic Interest Holder
is admitted as a Substitute Member, it shall be a mere assignee of a Member.
4
"Effective Date" means the date this Amended and Restated Operating
Agreement becomes effective which shall be October 1, 2001.
"Entity" means any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative or association or any foreign trust or foreign business
organization.
"Equipment" means the appropriate equipment and supplies required from
time to time in connection with the development and operation of the Hospital.
"Fiscal Year" means, with respect to the first year of the Company, the
Period beginning upon the formation of the Company and ending on the next
September 30, with respect to subsequent years of the Company, the twelve month
period beginning October 1 and ending September 30, and, with respect to the
last year of the Company, the portion of the period beginning October 1 and
ending with the date of the final liquidating distributions.
"Hospital" means an acute care hospital specializing in all aspects of
cardiology and cardiovascular care and surgery in New Mexico, as further
described in Section 2.3 of the Agreement.
"Management Services Agreement" means that certain agreement for
management services between the Company and NMHM, as may be amended from time to
time.
"Manager" means and shall refer to those persons designated by the Board
of Directors to oversee the operation of the Company in accordance with the
terms of the Management Services Agreement.
"Material Agreement" means any binding agreement which may not be canceled
upon less than ninety (90) days notice and which calls for the expenditure of
funds, or involves an obligation for financing, in excess of $100,000.00
exclusive of agreements or obligations contemplated by any budget, development
plan, financing or construction contract approved by the Board of Directors or
agreements incurred in the ordinary course of business such as employment
agreements, purchases of supplies and routine services and the like.
"Material Decision" means any decisions regarding approvals of the
development and operating budgets for the Hospital, the selection of the site
for the Hospital, the design of the Hospital, the selection of the Hospital's
senior administrator, strategic planning, the execution of managed care
contracts, the execution of exclusive contracts to provide physician services to
the Hospital and any request for additional funding pursuant to Section 3.7(b)
of this Agreement.
"Member" means and shall refer to the organizers of the Company (unless or
until any such organizer has withdrawn) and each of the Persons identified as
"Members" in the then applying Information Exhibit attached hereto and
incorporated herein by this reference. If a Person is already a Member
immediately prior to the purchase or other acquisition by such Person of an
Economic Interest or Membership Interest, such Person shall have all the rights
of a
5
Member with respect to such purchased or otherwise acquired Membership Interest
or Economic Interest, as the case may be.
"Membership Interest" or "Interest" means all of a Member's rights in the
Company, including without limitation the Member's share of Profits, Losses,
Cash Distributions and other benefits of the Company, any right to vote, any
right to participate in the management of the business and affairs of the
Company, including the right to vote on, consent to, or otherwise participate in
any decision or action of or by the Members granted pursuant to this Agreement
or the Act. The percentage Membership Interest of each Member, their Capital
Contributions and other related information shall be listed on the Information
Exhibit. The percentage Membership Interests generally shall be based upon the
pro rata Capital Contribution of each Member.
"Membership Purchase Agreement" shall mean that certain Membership
Purchase Agreement among Members of the Company pursuant to which SJHS, NMHI,
LLC and SWCA, LLC agree to sell a portion of their Membership Interests in the
Company to NMHM.
"Person" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such
individual or Entity where the context so permits.
"Prime Rate" means the rate of interest as of the relevant day or time
period in the Wall Street Journal from time to time as the prime or reference
rate.
"Profits and Losses" means, for each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses shall
be added to such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses, shall be subtracted from such
taxable income or loss;
(c) Gain or loss resulting from dispositions of Company assets shall
be computed by reference to the Agreed Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from
its Agreed Value.
"Refinancing" means any borrowing incurred or made to recapitalize the
Company or the equity investment in, or to refinance any loan used to finance
the acquisition of property.
6
"Regulations" means rules, orders, and regulations issued pursuant to or
under the authority of the Code and shall include revisions to and succeeding
provisions as appropriate.
"Regulatory Allocations" means those allocations of items of Company
income, gain, loss or deduction set forth on the Regulatory Allocations Exhibit
and designed to enable the Company to comply with the alternate test for
economic effect prescribed in Regulations Section 1.704-1(b)(2)(ii)(d), and the
safe-harbor rules for allocations attributable to nonrecourse liabilities
prescribed in Regulations Section 1.704-2.
"Sale" means the sale, exchange, involuntary conversion (other than a
casualty followed by reconstruction), condemnation, or other disposition of
property by the Company, except for dispositions of inventory items and personal
property in the ordinary course of business and in connection with the
replacement of such property.
"SJHS" means St. ▇▇▇▇▇▇ Healthcare System.
"Substitute Member" means an assignee of a Member who has been admitted to
the Company and granted all of the rights of a Member in place of its assignor
pursuant to the provisions of this Agreement. A Substitute Member, upon its
admission as such, shall replace and succeed to the rights, privileges, and
liabilities of the Member from whom it acquired its interest in the Company, to
the extent of the Economic Interest assigned.
"Territory" means the State of New Mexico and an area extending one
hundred (100) miles beyond the border of the State of New Mexico.
7
EXHIBIT D
TO THE
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
HEART HOSPITAL OF NEW MEXICO, LLC
A NEW MEXICO LIMITED LIABILITY COMPANY
DEVELOPMENT BUDGET EXHIBIT
[SEE ATTACHMENT]
SUMMARY OF CAPITAL COSTS
NEW MEXICO HEART HOSPITAL
Albuquerque, New Mexico
FACILITY SIZE
Total Beds 60 beds
Total Square Feet 90,000
Total Depreciation & Interest
CAPITAL EXPENSES Amount Amortization Expense
$19,276,350 ----------------------------------------------
Term Amount Rate Amount
Property:
Building Construction $190/sqft $17,100,000 40 years $ 427,500
Land 10.00 acres $ 2,500,000 0 years $ 0
Architectural Fees 6% of constr. $ 1,000,350 40 years $ 25,009
Interest During Constr. 8 months @ 9.0% $ 1,176,000 40 years $ 29,400
-----------
Total Property $21,776,350 11.0% $2,395,399
Equipment: Capacity:
-------------
Cath Labs 1000/lab/yr 4 lab(s) $ 4,798,400
Operating Rooms 400/OR/yr 3 OF(s) $ 1,038,000
Angiography Suite $ 605,000
CVRU/Recovery $ 258,000
Radiology & Laboratory $ 1,480,000
Patient Care $ 1,273,573
Other Departments $ 2,569,518
Add'l Equipment $ 2,175,000
Add'l MIS Equipment $ 750,000
-----------
Total Equipment $14,947,491 7 years $2,135,356 10.0% $1,494,749
Startup Costs:
Loan Acquisition Costs:
Loan Commitment Fees 2% of loan amt. $ 435,527 7 years $ 62,218 11.0% $ 47,908
Legal Fees $ 40,000 5 years $ 8,000 11.0% $ 4,400
-----------
$ 475,527
Pre-Opening Costs: $2,500,000 2 years $1,250,000 10.0% $ 250,000
---------- ---------- ----------
TOTALS $39,699,368 $3,937,483 $4,192,456
EXHIBIT E
TO THE
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
HEART HOSPITAL OF NEW MEXICO, LLC
A NEW MEXICO LIMITED LIABILITY COMPANY
REGULATORY ALLOCATIONS
This Exhibit contains special rules for the allocation of items of Company
income, gain, loss and deduction that override the basic allocations of Profits
and Losses in the Agreement only to the extent necessary to cause the overall
allocations of items of Company income, gain, loss and deduction to have
substantial economic effect pursuant to Regulations Section 1.704-1(b) and shall
be interpreted in light of that purpose. Subsection (a) below contains special
technical definitions. Subsections (b) through (h) contain the Regulatory
Allocations themselves. Subsections (i), (j) and (k) are special rules
applicable in applying the Regulatory Allocations.
(a) Definitions Applicable to Regulatory Allocations. For
purposes of the Agreement, the following terms shall have the meanings
indicated:
(i) "Company Minimum Gain" means the same as the meaning of
"partnership minimum gain" set forth in Regulations Section
1.704-2(d), and is generally the aggregate gain the Company would
realize if it disposed of its property subject to Nonrecourse
Liabilities in full satisfaction of each such liability, with such
other modifications as provided in Regulations Section 1.704-2(d).
In the case of Nonrecourse Liabilities for which the creditor's
recourse is not limited to particular assets of the Company, until
such time as there is regulatory guidance on the determination of
minimum gain with respect to such liabilities, all such liabilities
of the Company shall be treated as a single liability and allocated
to the Company's assets using any reasonable basis selected by the
Board of Directors.
(ii) "Member Nonrecourse Deductions" means losses, deductions
or Code Section 705(a)(2)(B) expenditures attributable to Member
Nonrecourse Debt under the general principles applicable to "partner
nonrecourse deductions" set forth in Regulations Section
1.704-2(i)(2).
(iii) "Member Nonrecourse Debt" means any Company liability
with respect to which one or more but not all of the Members or
related Persons to one or more but not all of the Members bears the
economic risk of loss within the meaning of Regulations Section
1.752-2 as a guarantor, lender or otherwise.
(iv) "Member Nonrecourse Debt Minimum Gain" means the minimum
gain attributable to Member Nonrecourse Debt as determined pursuant
to Regulations Section 1.704-2(i)(3). In the case of Member
Nonrecourse Debt for which the creditor's recourse against the
Company is not limited to particular assets of the Company, until
such time as there is regulatory guidance on the determination of
minimum gain with respect to such liabilities, all such liabilities
of the Company shall be treated as a single liability and allocated
to the Company's assets using any reasonable basis selected by the
Board of Directors.
(v) "Nonrecourse Deductions" means losses, deductions, or Code
Section 705(a)(2)(B) expenditures attributable to Nonrecourse
Liabilities (see Regulations Section 1.704-2(b)(1)). The amount of
Nonrecourse Deductions for a Fiscal Year shall be determined
pursuant to Regulations Section 1.704-2(c), and shall generally
equal the net increase, if any, in the amount of Company Minimum
Gain for that taxable year, determined generally according to the
provisions of Regulations Section 1.704-2(d), reduced (but not below
zero) by the aggregate distributions during the year of proceeds of
Nonrecourse Liabilities that are allocable to an increase in Company
Minimum Gain, with such other modifications as provided in
Regulations Section 1.704-2(c).
(vi) "Nonrecourse Liability" means any Company liability (or
portion thereof) for which no Member bears the economic risk of loss
under Regulations Section 1.752-2.
(vii) "Regulatory Allocations" means allocations of
Nonrecourse Deductions provided in Paragraph (b) below, allocations
of Member Nonrecourse Deductions provided in Paragraph (c) below,
the minimum gain chargeback provided in Paragraph (d) below, the
member nonrecourse debt minimum gain chargeback provided in
Paragraph (e) below, the qualified income offset provided in
Paragraph (f) below, the gross income allocation provided in
Paragraph (g) below, and the curative allocations provided in
Paragraph (h) below.
(b) Nonrecourse Deductions. All Nonrecourse Deductions for any
Fiscal Year shall be allocated to the Members in accordance with their
percentage Membership Interests.
(c) Member Nonrecourse Deductions. All Member Nonrecourse Deductions
for any Fiscal Year shall be allocated to the Member who bears the
economic risk of loss under Regulations Section 1.752-2 with respect to
the Member Nonrecourse Debt to which such Member Nonrecourse Deductions
are attributable.
(d) Minimum Gain Chargeback. If there is a net decrease in Company
Minimum Gain for a Fiscal Year, each Member shall be allocated items of
Company income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Member's share of such net decrease in
Company Minimum Gain, determined in accordance with Regulations Section
1.704-2(g)(2) and the definition of Company
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Minimum Gain set forth above. This provision is intended to comply with
the minimum gain chargeback requirement in Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.
(e) Member Nonrecourse Debt Minimum Gain Chargeback. If there is a
net decrease in Member Nonrecourse Debt Minimum Gain attributable to a
Member Nonrecourse Debt for any Fiscal Year, each Member who has a share
of the Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt as of the beginning of the Fiscal Year, determined in
accordance with Regulations Section 1.704-2(i)(5), shall be allocated
items of Company income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Member's share of the net
decrease in Member Nonrecourse Debt Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with Regulations
Sections 1.704-2(i)(4) and (5) and the definition of Member Nonrecourse
Debt Minimum Gain set forth above. This Paragraph is intended to comply
with the member nonrecourse debt minimum gain chargeback requirement in
Regulations Section 1.7()4-2(i)(4) and shall be interpreted consistently
therewith.
(f) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4),(5), or (6), items of Company
income and gain (consisting of a pro rata portion of each item of Company
income, including gross income, and gain for such year) shall be allocated
to such Member in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, any deficit in such Member's Adjusted
Capital Account created by such adjustments, allocations or distributions
as quickly as possible.
(g) Gross Income Allocation. In the event any Member has a deficit
in its Adjusted Capital Account at the end of any Fiscal Year, each such
Member shall be allocated items of Company gross income and gain, in the
amount of such Adjusted Capital Account deficit, as quickly as possible.
(h) Curative Allocations. When allocating Profits and Losses under
Article VI, such allocations shall be made so as to offset any prior
allocations of gross income under Paragraph (g) above to the greatest
extent possible so that overall allocations of Profits and Losses shall be
made as if no such allocations of gross income occurred.
(i) Ordering. The allocations in this Exhibit to the extent they
apply shall be made before the allocations of Profits and Losses under
Article VI and in the order in which they appear above.
(j) Waiver of Minimum Gain Chargeback Provisions. If the Board of
Directors determine that (i) either of the two minimum gain chargeback
provisions contained in this Exhibit would cause a distortion in the
economic arrangement among the Members, (ii) it is not expected that the
Company will have sufficient other items of income and gain to correct
that distortion, and (iii) the Members have made Capital Contributions or
received net income allocations that have restored any previous
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Nonrecourse Deductions or Member Nonrecourse Deductions, then the Board of
Directors shall have the authority, but not the obligation, after giving
notice to the Members, to request on behalf of the Company the Internal
Revenue Service to waive the minimum gain chargeback or member nonrecourse
debt minimum gain chargeback requirements pursuant to Regulations Sections
1.704-2(f)(4) and 1.704-2(i)(4). The Company shall pay the expenses
(including attorneys' fees) incurred to apply for the waiver. The Board of
Directors shall promptly copy all Members on all correspondence to and
from the Internal Revenue Service concerning the requested waiver.
(k) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such gain or
loss shall be specially allocated to the Members in a manner consistent
with the manner in which their Capital Accounts are required to be
adjusted pursuant to such Section of the Regulations.
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