EXHIBIT 10.35
LIMITED PARTNERSHIP AGREEMENT
OF
SAN ANTONIO HEART HOSPITAL, LP
A TEXAS LIMITED PARTNERSHIP
TABLE OF CONTENTS
TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
SAN ANTONIO HEART HOSPITAL, LP
A Texas Limited Partnership
ARTICLE I DEFINITIONS............................................................................................1
ARTICLE II FORMATION AND AGREEMENT OF LIMITED PARTNERSHIP........................................................2
SECTION 2.1 Partnership Formation; Effective Date.......................................................2
Section 2.2 Name of Partnership.........................................................................2
Section 2.3 Purposes and Investment 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 PARTNERS AND CAPITAL CONTRIBUTIONS...................................................................4
Section 3.1 Initial Capital Contributions of Partners...................................................4
Section 3.2 Liability of Partners - For Capital.........................................................5
Section 3.3 Maintenance of Capital Accounts; Withdrawals of Capital; Withdrawals from the Partnership...5
Section 3.4 Interest on Capital Contributions or Capital Accounts.......................................6
Section 3.5 Additional Funding..........................................................................6
Section 3.6 Enforcement of Commitments..................................................................7
SECTION 3.7. Investor Limited Partner Documentation......................................................8
SECTION 3.8. Reserved Powers of Partners.................................................................9
SECTION 3.9 Obligations Relating to Real Property......................................................10
ARTICLE IV NAMES AND ADDRESSES OF PARTNERS......................................................................11
ARTICLE V MANAGEMENT OF THE PARTNERSHIP.........................................................................11
Section 5.1 General Authority and Powers of the General Partner and Investor General Partner...........11
Section 5.2 Restrictions on Authority of the General Partner and Investor General Partner..............12
Section 5.3 Duties of the General Partner and the Investor General Partner.............................13
Section 5.4 Delegation by the General Partner..........................................................13
Section 5.5 Right to Rely Upon the Authority of the General Partner....................................14
Section 5.6 Partnership Expenses.......................................................................14
Section 5.7 No Management by Limited Partners..........................................................16
SECTION 5.8 Consent by Limited Partners to Exercise of Certain Rights and Powers
by the General Partner and the Investor General Partner...................................16
Section 5.9 Other Business of Partners.................................................................17
Section 5.10 General Partner's and the Investor Limited Partner's Standard of Care......................20
Section 5.11 Limitation of Liability....................................................................20
Section 5.12 Indemnification of the General Partner and the Investor General Partner....................21
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Section 5.13 Role of and Decisions by Investor General Partner..........................................21
Section 5.14 Purchase of Goods and Services from the General Partner....................................22
Section 5.15 Certain Decisions of the General Partner and the Investor General Partner..................22
SECTION 5.16 Indemnity by the Partnership...............................................................23
Section 5.17 Force Majeure..............................................................................23
ARTICLE VI DISTRIBUTIONS AND ALLOCATIONS........................................................................24
Section 6.1 Distributions of Cash Flow from Operations and Cash from Sales or Refinancing..............24
Section 6.2 Profits....................................................................................24
Section 6.3 Losses.....................................................................................25
Section 6.4 Code Section 704(c) Tax Allocations........................................................25
Section 6.5 Miscellaneous..............................................................................25
Section 6.6 Special Allocations of Guarantee Fees......................................................26
ARTICLE VII DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS...............................................26
Section 7.1 No Termination by Certain Acts of Partner..................................................26
Section 7.2 Dissolution................................................................................27
Section 7.3 Dissolution and Final Liquidation..........................................................27
Section 7.4 Termination................................................................................29
Section 7.5 Payment in Cash............................................................................29
Section 7.6 Goodwill and Trade Name....................................................................29
Section 7.7 Termination of Noncompetition Covenants....................................................29
ARTICLE VIII REMOVAL OR WITHDRAWAL OF GENERAL PARTNER AND PARTNERS AND TRANSFER OF PARTNERS' PARTNERSHIP
AND/OR ECONOMIC INTERESTS..........................................................................30
Section 8.1 SAHMI and VHI - Transfers..................................................................30
Section 8.2 Partners' Right to Continue When Partnership has no General Partner........................30
Section 8.3 Relationship with Substitute General Partner...............................................31
Section 8.4 Investor General Partner and Investor Limited Partner - Restriction on Transfer............31
Section 8.5 Condition Precedent to Transfer of Economic Interest and/or Partnership Interest..........33
Section 8.6 Substitute Partner - Conditions to Fulfill.................................................33
Section 8.7 Allocations Between Transferor and Transferee..............................................33
Section 8.8 Rights, Liabilities of, and Restrictions on Assignee.......................................34
Section 8.9 Death of a Partner.........................................................................34
Section 8.10 Repurchase of Interests in Certain Event...................................................35
ARTICLE IX RECORDS, ACCOUNTINGS AND REPORTS.....................................................................36
Section 9.1 Books of Account...........................................................................36
Section 9.2 Access to Records..........................................................................36
Section 9.3 Bank Accounts and Investment of Funds......................................................36
Section 9.4 Fiscal Year................................................................................37
Section 9.5 Accounting Reports.........................................................................37
Section 9.6 Tax Matters Partner........................................................................37
ARTICLE X MEETINGS AND VOTING RIGHTS OF PARTNERS................................................................38
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Section 10.1 Meetings...................................................................................38
Section 10.2 Voting Rights of Partners..................................................................38
ARTICLE XI AMENDMENTS...........................................................................................39
Section 11.1 Authority to Amend by General Partner and the Investor General Partner.....................39
SECTION 11.2 Restrictions on Amendments.................................................................40
Section 11.3 Amendments to Certificate..................................................................40
ARTICLE XII MISCELLANEOUS.......................................................................................40
Section 12.1 Revocable Limited Power of Attorney........................................................40
Section 12.2 Waiver of Provisions.......................................................................41
Section 12.3 Interpretation and Construction............................................................41
Section 12.4 Governing Law..............................................................................41
Section 12.5 Partial Invalidity.........................................................................41
Section 12.6 Binding on Successors......................................................................41
Section 12.7 Notices and Delivery.......................................................................41
Section 12.8 Counterpart Execution; Facsimile Execution.................................................42
Section 12.9 Statutory Provisions.......................................................................42
Section 12.10 Waiver of Partition.......................................................................42
Section 12.11 Change In Law.............................................................................42
SECTION 12.12 Investment Representations of the Partners................................................43
SECTION 12.13 Decisions by General Partner and Investor General Partner Representatives.................44
SECTION 12.14 Referrals to Hospital and Ownership of Shares of Common Stock of MedCath Incorporated.....45
SECTION 12.15 Acknowledgments Regarding Legal Representation............................................45
SECTION 12.16 Arbitration...............................................................................45
SECTION 12.17 Exhibits..................................................................................46
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LIMITED PARTNERSHIP AGREEMENT
OF
SAN ANTONIO HEART HOSPITAL, LP
A Texas Limited Partnership
THESE SECURITIES ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND THE TEXAS 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 PARTNERSHIP IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.
THIS LIMITED PARTNERSHIP AGREEMENT (the "Agreement") of San Antonio
Heart Hospital, LP (the "Partnership"), a Texas Limited Partnership is made and
entered into by and among Persons whose names addresses and taxpayer
identification number are listed on the Information Exhibit.
RECITALS
A. The Partnership has been formed to develop, own and operate a
general acute care hospital which hospital shall be located in or near San
Antonio, Texas and shall specialize in all aspects of in-patient cardiology and
cardiovascular care and surgery and any other services which the General Partner
and the Investor General Partner may agree upon from time to time;
B. It is intended that the Hospital will be an efficient, quality
provider of medical services within the greater San Antonio, Texas area;
C. The Capital Contributions and involvement of the Limited
Partners are necessary to enable the Partnership to achieve its objectives.
ARTICLE I
DEFINITIONS
Unless otherwise indicated, capitalized words and phrases in this
Limited Partnership Agreement shall have the meanings set forth in the attached
Glossary of Terms.
ARTICLE II
FORMATION AND AGREEMENT OF LIMITED PARTNERSHIP
SECTION 2.1 PARTNERSHIP FORMATION; EFFECTIVE DATE.
The Partnership was formed upon the filing of the Certificate of
Limited Partnership with the Secretary of State of Texas in accordance with the
provisions of the Act. Upon the effectiveness of this Agreement, the Persons
listed on the attached Information Exhibit shall be admitted to the Partnership
as Partners and the Persons who executed the Certificate shall be withdrawn as
Partners (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 Partnership. The General Partner shall execute or 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 partnership in the State of Texas, and other documents to
reflect the admission of additional Partners to the Partnership. Any costs
incurred by the General Partner in connection with the foregoing shall be
reimbursed promptly upon the completion of such action. The Agreement shall be
effective as of the date the Partnership was formed.
SECTION 2.2 NAME OF PARTNERSHIP.
The name of the Partnership is San Antonio Heart Hospital, LP.
SECTION 2.3 PURPOSES AND INVESTMENT OBJECTIVES.
The principal purposes of the Partnership are as follows:
(a) To develop, own and operate a general acute care
hospital specializing in the diagnosis and treatment of cardiac disease
and cardiovascular and vascular surgery and other medical services and
procedures approved by the General Partner and the Investor General
Partner from time to time in the greater San Antonio, Texas which would
include, but not be limited to, the following:
(i) Services and facilities to meet all
requirements of the State of Texas, Medicare, JCAHO and other
credentialling or licensing bodies or agencies in order to
have the Hospital licensed as a general acute care hospital
and to perform medical and surgical services and to be
eligible to obtain appropriate reimbursements therefore;
(ii) Approximately One Hundred Forty Thousand
(140,000) square feet in a building to be constructed in
accordance with plans and specifications approved by the
Partnership;
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(iii) Approximately sixty (60) medical/surgical
beds;
(iv) Three (3) heart catheterization laboratories
for in-patient and emergency services with available space for
one (1) additional heart catheterization laboratory;
(v) One (1) electrophysiology laboratory;
(vi) Three (3) heart surgical suites with space
for the development of one (1) additional heart surgical
suite;
(vii) All appropriate support services and
systems; and
(viii) Appropriate Equipment and services with
respect to the facilities described above and as otherwise
reasonably necessary or appropriate for the diagnosis and
treatment of cardiovascular disease, including but not limited
to invasive and non-invasive cardiac testing, invasive and
non-invasive vascular procedures, interventional treatment
including percutaneous transluminal coronary angioplasty and
atherectomy, and cardiac surgery which would include, but not
be limited to, bypass grafts and valve surgery.
The above size, number and scope of facilities of the Hospital
are only preliminary estimates. The General Partner and the Investor
General Partner are mutually authorized to finally make all
determinations with respect thereto.
(b) To lease or acquire the real property, and if
appropriate to construct a suitable building, in which the Hospital
shall be located;
(c) Any other purpose reasonably related to (a) and (b)
above.
SECTION 2.4 STATEMENT OF PHILOSOPHY AND VALUES.
Notwithstanding anything in this Agreement to the contrary, the
Partnership and the Hospital shall be operated in accordance with the following
philosophy and values in all material respects:
(a) The Hospital shall seek to participate in all public
health care financing programs applicable to its business including the
Medicare and Medicaid programs:
(b) The General Partner and Investor General Partner
shall adopt and adhere to the policies of the Hospital, as they may be
reasonably amended from time to time, for providing care for those
patients who are unable to pay for Hospital care;
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(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;
(d) The Partnership shall adopt and adhere to a conflict
of interest policy with respect to contracts between the Partnership
and Partners;
(e) 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.
SECTION 2.5 REGISTERED AGENT AND OFFICE; PRINCIPAL PLACE OF
BUSINESS.
The registered agent and office of the Partnership shall be as
indicated in the Certificate of Limited Partnership, as amended from time to
time. The principal place of business of the Partnership shall be at such
location in San Antonio, Texas as selected by the General Partner from time to
time. The General Partner shall promptly notify the Partners of any changes in
the Partnership's registered agent, registered office, or principal place of
business.
SECTION 2.6 COMMENCEMENT AND TERM.
The Partnership commenced on the filing of the Certificate of Limited
Partnership in the Office of the Secretary of State of Texas, as required by
Section 2.1 hereof, and shall continue until December 31, 2061, unless sooner
terminated or dissolved as provided herein; provided, however, that the
termination date may be extended for up to an additional forty (40) years in
five (5) year increments upon the election of the General Partner. In the event
the General Partner does not elect to extend the term hereof, the Investor
General Partner may instead elect to extend the term hereof, subject to the
General Partner's consent which shall not be unreasonably withheld or delayed.
ARTICLE III
PARTNERS AND CAPITAL CONTRIBUTIONS
SECTION 3.1 INITIAL CAPITAL CONTRIBUTIONS OF PARTNERS.
(a) The initial Capital Contributions of the Partners
shall be set forth on Exhibit B to this Agreement:
(b) Such initial Capital Contribution shall be made as
follows:
(i) SAHMI shall own a 1% General Partnership
Interest in the Partnership and shall contribute to the
Partnership for its General Partnership Interest at least 1%
of the aggregate amount of such initial Capital Contributions.
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(ii) The Investor General Partner shall own a one
percent (1%) General Partnership Interest and shall contribute
to the Partnership for its General Partnership Interest at
least one percent (1%) of the aggregate amount of such initial
Capital Contribution.
(iii) VHI shall own a 50% Limited Partnership
Interest in the Partnership and shall contribute to the
Partnership for its Limited Partnership Interest at least 50%
of the aggregate amount of such initial Capital Contributions.
(iv) The Investor Limited Partner shall own in
the aggregate up to a 48% Limited Partnership Interest and
shall contribute to the Partnership for its Limited
Partnership Interest an amount equal in the aggregate to at
least 48% of such initial Capital Contributions. The Limited
Partnership Interests of the Limited Partners shall be owned
as finally shown on the Information Exhibit attached hereto.
(c) The Partners may be liable to the Partnership for
amounts distributed to them as a return of capital as provided by the
Act. Partners shall not be required to contribute any additional
capital to the Partnership except as provided in Section 3.5.
SECTION 3.2 LIABILITY OF PARTNERS - FOR CAPITAL.
The liability of each Partner for capital shall be limited to the
amount of its agreed Capital Contribution as a Partner as provided in Section
3.1 and Section 3.5, except that the Partners may be liable to the Partnership
for amounts distributed to them as a return of capital as provided by the Act.
The Partners shall not be required to contribute any additional capital to the
Partnership except as provided in Section 3.5.
SECTION 3.3 MAINTENANCE OF CAPITAL ACCOUNTS; WITHDRAWALS OF
CAPITAL; WITHDRAWALS FROM THE PARTNERSHIP.
An individual Capital Account shall be maintained for each Partner in
accordance with requirements of the Code and the Regulations promulgated
thereunder. No Partner shall be entitled to withdraw or to make demand for
withdrawal of any part of its Capital Account or to receive any distribution
except as provided herein. Except as otherwise provided in this Agreement, each
Partner shall look solely to the assets of the Partnership for the return of its
Capital Contributions and shall have no right or power to demand or receive
property other than cash from the Partnership. No Partner shall have priority
over any other Partner as to the return of its Capital Contributions,
distributions or allocations, except as provided in this Agreement.
Except as otherwise provided herein, a Partner may not withdraw from
the Partnership without the written consent of the General Partner and the
Investor General Partner and in no case shall a Partner have the right to have
its Interest redeemed by the Partnership unless approved by the General Partner
and the Investor General Partner.
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SECTION 3.4 INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL
ACCOUNTS.
No interest shall be paid to any Partner based solely on its Capital
Contributions or Capital Account. The preceding sentence shall not prevent the
Partnership from earning interest on its bank accounts and investments and
distributing such earnings to the Partner in accordance with Articles VI and
VII.
SECTION 3.5 ADDITIONAL FUNDING.
If from time to time, the General Partner and the Investor General
Partner reasonably determine that funds in addition to that contemplated by
Sections 3.1 and 3.2 are necessary or appropriate for the development or
operation of the Hospital, then:
(a) First, on terms and conditions reasonably acceptable
to the General Partner and the Investor General Partner, the General
Partner or one of its Affiliates shall loan the Partnership up to Nine
Million Dollars ($9,000,000) at the Prime Rate plus one percent (1%)
per annum which loan shall be secured by the Partnership's assets.
Interest shall be paid monthly in arrears. Funds initially shall be
advanced hereunder through the period ending no later that the first
(1st) anniversary of the opening of the Hospital. Amounts then
outstanding shall be repaid with interest on a five (5) year repayment
schedule so that the principal amount of the loan is reduced by
one-sixtieth (1/60) per month, with interest payable monthly on the
balance of the principal (the "Repayment Schedule"); provided the
General Partner or one of its Affiliates, as the case may be, shall be
required to advance additional amounts necessary to ensure that at the
beginning of the thirteenth (13th) month following the opening of the
Hospital, the Partnership has cash on hand of not less than Five
Hundred Thousand Dollars ($500,000), which additional advances, if any,
shall be added to the principal and repaid according to the Repayment
Schedule. To the extent the Partnership repays such loan from time to
time in amounts which are in excess of scheduled principal amounts,
such amounts of excess principal payments may be reborrowed by the
Partnership on mutually acceptable terms. The parties acknowledge that
the Partnership intends to seek construction, mortgage and equipment
financing from third party lenders and lessors and that the loans set
forth in this subsection (a) are not intended to be used for such
purposes, provided that the General Partner, in its discretion, may
loan such funds for such purposes on an interim basis while permanent
financing is being completed;
(b) Second, the General Partner thereafter shall use
commercially reasonable efforts to borrow such funds from a bank or
other lender on terms and conditions reasonably acceptable to the
General Partner and Investor General Partner. All loans obtained
hereunder shall be subject to the approval of the General Partner and
Investor General Partner, which approval shall not be unreasonably
withheld or delayed;
(c) Third, if loans as provided in (a) have been fully
advanced for their intended purpose and loans as provided in (b) above
are not reasonably available, the General Partner may through written
notice require that the Partners contribute additional
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capital to the Partnership pro rata according to their respective
Partnership Interests; provided, however, that each Partner's maximum
obligation for such additional Capital Contributions shall be limited
so that any additional Capital Contributions required under this
Section 3.5(c) added to the Partner's Initial Capital Contribution
under Section 3.1 does not exceed the amount set forth at Exhibit B as
the Aggregate Contribution Cap for such Partner, and further provided
that after the initial seven (7) year period commencing when the
Hospital opens to treat patients, the Aggregate Contribution Cap for
each Partner shall be reduced to the amount set forth at Exhibit B as
the Reduced Aggregate Contribution Cap for each Partner.
(d) Fourth, if additional funds are thereafter needed by
the Partnership, the General Partner or one of its Affiliates may, but
shall not be required to, loan such funds to the Partnership at the
Prime Rate plus one percent (1%) per annum which loan shall be secured
by the Partnership's assets. Interest shall be paid monthly in arrears
and principal shall be repaid according to a schedule to be agreed upon
by the Partnership and the General Partner or its Affiliate; and
(e) Fifth, if additional funds are thereafter needed by
the Partnership, the General Partner shall request additional Capital
Contributions from the Partners and each Partner may elect whether or
not to contribute its pro rata portion of such additional capital
requirements as optional Capital Contributions. The other Partners may
elect to contribute optional Capital Contributions not contributed by
any Partner hereunder. Thereafter, the General Partner shall reasonably
adjust the percentage Partnership Interest of each Partner (based on
the aggregate of all Capital Contributions made by all of the Partners
in accordance with this Agreement) in the event any Partner elected not
to make optional Capital Contributions pursuant to this Section 3.5(e);
(f) Sixth, if adequate funds have not been obtained or
raised in accordance with (a) through (e) above (including, without
limitation, taking into consideration funds made available by Partners
for amounts which are in excess of their obligations hereunder), then
the General Partner may elect to dissolve the Partnership provided,
however, if any Partners or any of their Affiliates (i) have any
outstanding loans to the Partnership or are committed to provide such
loans or (ii) are providing a guaranty or are committed to provide a
guaranty for any indebtedness of the Partnership, then only those
Partners alone upon unanimous approval of such Partners, upon at least
fifteen (15) days prior written notice to the other Partners, shall be
entitled to so dissolve the Partnership due to the Partnership not
having sufficient funds to meet its financial obligations or
liabilities as they come due.
SECTION 3.6 ENFORCEMENT OF COMMITMENTS.
In the event any Partner (a "Delinquent Partner") fails to make a
mandatory Capital Contribution as provided in Section 3.1 or Section 3.5 or an
optional Capital Contribution as agreed to by the Partner under Section 3.5 (the
"Commitment"), the General Partner shall give the Delinquent Partner a notice of
the failure to meet the Commitment. If the Delinquent Partner
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fails to perform the Commitment (including any costs associated with the failure
to meet the Commitment and interest on such obligation at the Default Rate)
within ten (10) business days of the giving of notice, the General Partner may
take such action that the General Partner deems appropriate, including but not
limited to, enforcing the Commitment in the court of appropriate jurisdiction in
the state in which the principal office of the Partnership is located or the
state of the Delinquent Partner's address as then reflected in the Agreement.
Each Partner expressly agrees to the jurisdiction of such courts but only for
the enforcement of Commitments. The other Partners may elect to contribute
additional amounts equal to any amount of the Commitment not contributed by such
Delinquent Partner. The contributing Partner 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 Partner bearing interest at the
Default Rate secured by the Delinquent Partner's Interest in the Partnership. If
the contributing Partner elects to contribute such amount as a Capital
Contribution, the percentage Partnership Interests of the Partners shall be
adjusted proportionately. Until the contributing Partner is fully repaid for
such loan made as a result of the default by the Delinquent Partner and only if
the contributing Partner agrees to accept repayment of such amount, the
contributing Partner shall be entitled to all distributions to which the
Delinquent Partner would have been entitled had such Commitment been fulfilled
thereby. Notwithstanding the foregoing, no Commitment or other obligation to
make an additional Capital Contribution may be enforced by a creditor of the
Partnership unless the Partner expressly consents to such enforcement or to the
assignment of the obligation to such creditor. Notwithstanding anything
contained herein to the contrary, (i) if either the Investor General Partner or
Investor Limited Partner is a Delinquent Partner, then the General Partner may
take all actions contemplated by this Section 3.6 without the consent of the
Investor General Partner; and (ii) if either SAHMI or VHI is a Delinquent
Partner, then the Investor General Partner may take all actions contemplated by
this Section 3.6 without the consent of the General Partner.
SECTION 3.7. INVESTOR LIMITED PARTNER DOCUMENTATION.
Prior to the execution of this Agreement, the Investor General Partner,
the Investor Limited Partner, and all Investor Entities shall have delivered to
the Partnership copies of all documents, instruments and agreements related to
the formation, ownership and governance of the Investor General Partner, the
Investor Limited Partner and all Investor Entities (the "Investor Documents").
The Partners acknowledge and agree that the ownership of the Investor General
Partner, the Investor Limited Partner, and all Investor Entities shall not
change without the written consent of the General Partner; provided, however,
that transfers of any direct or indirect ownership of the Investor General
Partner, the Investor Limited Partner, and all Investor Entities (except any
changes of ownership described in Section 8.4(c) which shall remain in all
events subject to said section) to any Owner or new Owner who executes the
Required Documents as defined below prior to such transfer and which transfer
otherwise complies in all respects with the governing documents of such entities
approved by the General Partner in the manner set forth below shall not require
the written consent of the General Partner so long as prior written notice of
the transfer of ownership with all supporting documentation of said transfer is
provided to the General Partner. In no event shall any transfer of an ownership
interest in the Investor Limited Partner, Investor General Partner, or any
Investor Entity be permitted if such transfer or change
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of ownership is to any Person who if a Partner would be in violation of Section
5.9(b) of this Agreement. None of the Investor Documents will be altered or
amended without the consent of the General Partner, which consent shall not be
unreasonably withheld. Contemporaneously with the Investor General Partner's and
Investor Limited Partner's admission as a Limited Partner of the Partnership,
(i) the Investor Entities shall each execute an Addendum to Subscription
Agreement under which, among other things, they agree to be bound by the terms
and conditions of Section 5.9 hereof, and no additional Investor Entities shall
be admitted as owners of the Investor General Partner or Investor Limited
Partner unless such Investor Entities executes an Addendum to Subscription
Agreement; and (ii) the Owners shall each execute an Addendum to Subscription
Agreement under which, among other things, those individuals agree to be
personally bound by the terms and conditions of Section 5.9 hereof, and
additionally (unless such requirement is waived by the General Partner and the
Investor General Partner), the Owners who are physicians (or their Practices)
shall also execute a Hospital Professional Services Agreement with the
Partnership and a Right of First Refusal Agreement with an Affiliate of the
General Partner. No Person shall be admitted hereafter as an Owner of the
Investor General Partner, Investor Limited Partner or Investor Entities unless
such Person also executes such Addendum to Subscription Agreement, the Hospital
Professional Services Agreement (Owners who are physicians only) and the Right
of First Refusal Agreement (collectively, the "Required Agreements") so that
they are bound thereby to the same extent as are Owners as of the date hereof.
SECTION 3.8. RESERVED POWERS OF PARTNERS.
The following actions are the only actions which can be taken by the
Partners and shall require the consent of the General Partner, VHI, the Investor
General Partner and the Investor Limited Partner:
(a) Except as provided in Section 11.1, amendments to the
Partnership's Certificate of Limited Partnership or this Agreement;
(a) A merger, consolidation, liquidation, or similar
reorganization or transfer of a substantial portion of the
Partnership's assets;
(b) A sale, lease encumbrance or other transfer of all or
substantially all of the Partnership's assets, except for encumbrances
incurred in connection with financing provided to the Partnership;
(c) Admission of new Partners to the Partnership;
(d) Any alteration or amendment of the Partnership's
Statement of Philosophy and Values and any action which is inconsistent
with the Partnership's Statement of Philosophy and Values;
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(e) Approval and authorization of disproportionate
distributions or allocations of profits, losses or assets of the
Partnership, except as specifically permitted elsewhere in this
Agreement; and
(f) Confession of a judgment against the Partnership.
SECTION 3.9 OBLIGATIONS RELATING TO REAL PROPERTY.
The Partnership intends to purchase a portion of approximately ___
acres of real property located at _____________ (the "Development") subject
to the following:
(a) The agreement by the developer thereof to sell
sufficient land on which to develop the Hospital for a purchase price
or rent equal to or less than the fair market value thereof as
determined by a qualified independent real estate appraiser is
acceptable to the General Partner and the developer;
(b) The General Partner shall use its best efforts to
cause the developer to record a restriction acceptable to the developer
and the General Partner prohibiting any Person from using any part of
the Development for a purpose which, if conducted by a Partner would
violate Section 5.9 hereof;
(c) The agreement will contain other commercially
reasonable terms and conditions, including without limitation, terms
obligating the developer to execute commercially reasonable documents
required by third parties providing financing to the Partnership which
will require among other things, a first priority lien on the
Partnership's interest in the Property.
SECTION 3.10 MEDICAL OFFICE BUILDING.
(a) The General Partner or its Affiliate is hereby authorized,
itself or to designate another party, including, but not limited to, VHI, at its
or their expense to develop and own a medical office building on real property
which such party will lease or own adjacent to the Hospital and which will
contain approximately Forty-Five Thousand (45,000) to Sixty Thousand (60,000) of
leasable square footage (the "MOB"). The tenant space in the MOB may be leased
to Partners, Owners, Practices or their Affiliates, or to other third parties.
The owners of the MOB and the Partnership shall enter into cross easement
agreements and other agreements which are customary for commercial real estate
developments.
(b) Unless otherwise approved in writing by the General Partner in
its discretion, the Partnership shall not make any binding commitments regarding
the financing or construction of the Hospital unless the General Partner or its
designee has final approved plans to develop the MOB, in a form and for an
amount of office space acceptable to the General Partner or its designee.
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ARTICLE IV
NAMES AND ADDRESSES OF PARTNERS
The names and addresses of the Partners are as indicated on the
Information Exhibit, attached hereto as Exhibit B and as amended from time to
time.
ARTICLE V
MANAGEMENT OF THE PARTNERSHIP
SECTION 5.1 GENERAL AUTHORITY AND POWERS OF THE GENERAL PARTNER
AND INVESTOR GENERAL PARTNER.
(a) Except as set forth in those provisions of this
Agreement that specifically require the vote, consent, approval or
ratification of the Partners or the approval or consent of the Investor
General Partner and subject to (b) below, the General Partner and the
Investor General Partner shall have control over the management of the
business and affairs of the Partnership; provided, however, that the
Investor General Partner shall not have any right or authority to act
unilaterally on behalf of the Partnership but shall act only as
expressly provided in this Agreement. Subject to the terms and
conditions of this Agreement and except as otherwise provided herein,
all Material Agreements and Material Decisions with respect to the
business and affairs of the Partnership shall be approved or made by
the General Partner and the Investor General Partner in accordance with
Section 5.15 hereof. No Limited Partner has the actual or apparent
authority to cause the Partnership to become bound in any contract,
agreement or obligation, and no Limited Partner shall take any action
purporting to be on behalf of the Partnership. Neither the General
Partner nor the Investor General Partner shall cause the Partnership to
become bound to any contract, agreement or obligation, and neither the
General Partner nor the Investor General Partner shall take any other
action on behalf of the Partnership, unless such matter has received
the vote, consent, approval or ratification as required pursuant to
this Agreement with respect to such matter or except as provided below
with respect to the authority and actions of the General Partner.
Except as provided specifically in this Agreement when the approval or
consent of the Investor General Partner is required, the Investor
General Partner shall not participate in the management of the business
and affairs of the Partnership nor enter into any liabilities or
obligations on behalf of the Partnership.
(b) The day-to-day management of the business and affairs
of the Partnership shall be the responsibility of the General Partner
pursuant to the terms of the Management Services Agreement, which
management shall be subject to decisions, guidelines and policies made
or established by the General Partner and the Investor General Partner,
or, if applicable, the Governing Body, provided, however, decisions
relating to medical and clinical practice at the Hospital shall be made
exclusively by the
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qualified medical personnel of the Hospital under the direction of a
member of the Hospital's Medical Staff.
(c) The parties acknowledge that the Management Services
Agreement is an integral part of the plans to develop and operate the
Hospital and its execution is a condition to the General Partner's
participation in the Partnership.
SECTION 5.2 RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER AND
INVESTOR GENERAL PARTNER.
Neither the General Partner nor the Investor General Partner shall 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 Partnership;
(c) Commingle the Partnership funds with those of any
other Person;
(d) Admit an additional General Partner, Investor General
Partner or Substitute General Partner, except as provided in this
Agreement;
(e) Admit an additional Limited Partner, except as
provided in this Agreement;
(f) Alter the primary purposes of the Partnership as set
forth in Section 2.3;
(g) Possess any property or assign the rights of the
Partnership in specific property for other than a Partnership purpose;
(h) Employ, or permit the employ of, the funds or assets
of the Partnership in any manner except for the exclusive benefit of
the Partnership;
(i) Make any payments of any type, directly or
indirectly, to anyone for the referral of patients to the Hospital in
order to use the Hospital or to provide other services;
(j) Sell all or substantially all of the assets of the
Partnership or merge the Partnership with or into any other Entity
without the approval of all of the Partners; or
(k) Take any action that the General Partner or Investor
General Partner knows would subject a Limited Partner to liability as
if the Limited Partner were a general partner or the Partnership under
the Act.
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SECTION 5.3 DUTIES OF THE GENERAL PARTNER AND THE INVESTOR
GENERAL PARTNER.
(a) The General Partner and the Investor General Partner
shall do the following:
(i) Diligently and faithfully devote such of its
time to the business of the Partnership as may be necessary to
properly conduct the affairs of the Partnership, however,
neither the General Partner nor the Investor General Partner
shall be required to devote their full time to such duties;
and
(ii) Have a fiduciary duty to conduct the affairs
of the Partnership in the best interests of the Partnership
and of the Partners, 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 General Partner to employ such funds or assets in any
manner except for the benefit of the Partnership.
(b) The General Partner shall do the following:
(i) Use its best efforts to cause the
Partnership to comply with such conditions as may be required
from time to time to permit the Partnership to be classified
for federal income tax purposes as a partnership and not as an
association taxable as a corporation;
(ii) File and publish all certificates,
statements, or other instruments required by law for the
formation and operation of the Partnership as a limited
partnership in all appropriate jurisdictions;
(iii) Use its commercially reasonable best efforts
to cause the Partnership to obtain and keep in force during
the term of the Partnership fire and extended coverage and
public liability and professional liability insurance with
such issuers and in such amounts as the General Partner shall
deem advisable, but in amounts not less (and deductible
amounts not greater) than those customarily maintained with
respect to the business equipment and property comparable to
the Partnership's; and
(iv) Deliver to the Secretary of State of Texas
for filing a periodic statement in accordance with the Act.
SECTION 5.4 DELEGATION BY THE GENERAL PARTNER
Subject to restrictions otherwise provided herein, the General Partner
may at any time employ any other Person, including Persons and Entities employed
by, affiliated with, or related to the General Partner to perform services for
the Partnership and its business, and may delegate
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all or part of their authority or control to any such other Persons, provided
that such employment or delegation shall not relieve the General Partner of its
responsibilities and obligations under this Agreement or under the laws of the
State of Texas nor will it make any such Person a Partner in the Partnership.
SECTION 5.5 RIGHT TO RELY UPON THE AUTHORITY OF THE GENERAL
PARTNER.
Persons dealing with the Partnership may rely upon the representation
of the General Partner that such General Partner is a general partner of the
Partnership and that such General Partner has the authority to make any
commitment or undertaking on behalf of the Partnership. No Person dealing with
the General Partner shall be required to determine its authority to make any
such commitment or undertaking. In addition, no purchaser from the Partnership
shall be required to determine the sole and exclusive authority of the General
Partner to sign and deliver on behalf of the Partnership any instruments of
transfer with respect thereto or to see to the application or distribution of
revenues or proceeds paid or credited in connection therewith, unless such
purchaser shall have received written notice from the Partnership affecting the
same.
SECTION 5.6 PARTNERSHIP EXPENSES.
(a) The Partnership shall pay the amounts due to the General
Partner under the Management Services Agreement from time to time.
(b) The Partnership shall also pay the following expenses
of the Partnership:
(i) All development and operational expenses of
the Partnership, which may include, but are not limited to:
the salary and related expenses of employees and staff of the
Hospital, all costs of borrowed money, taxes, and assessments
on the Hospital, and other taxes applicable to the
Partnership; expenses in connection with the acquisition,
maintenance, leasing, refinancing, operation, and disposition
of the Equipment, furniture and fixtures of the Hospital
(including legal, accounting, audit, commissions, engineering,
appraisal, and the other fees); and the maintenance of the
Hospital and its Equipment, which may be performed by the
General Partner or one of its Affiliates as long as the
charges to the Partnership for such service are no greater
than the charges for such service from a third party service
provider;
(ii) A medical director's fee in an amount which
shall represent fair market value for the services to be
rendered, and which shall be approved by the General Partner
and the Investor General Partner to be paid to the Medical
Director of the Hospital pursuant to the Medical Director
Agreement; and
(iii) All fees and expenses paid to third parties
for accounting, legal, documentation, professional, and
reporting services to the Partnership, which may include, but
are not limited to: preparation and documentation of
Partnership bookkeeping, accounting and audits; preparation
and documentation of budgets,
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cash flow projections, and working capital requirements;
preparation and documentation of Partnership state and federal
tax returns; and taxes incurred in connection with the
issuance, distribution, transfer, registration, and
recordation of documents evidencing ownership of a Partnership
Interest or Economic Interest in the Partnership or in
connection with the business of the Partnership; expenses in
connection with preparing and mailing reports required to be
furnished to the Partners or Economic Interest Owners for tax
reporting or other purposes, including reports, if any, that
may be required to be filed with any federal or state
regulatory agencies, or expenses associated with furnishing
reports to Partners which the General Partner and the Investor
General Partner deem to be in the best interest of the
Partnership; expenses of revising, amending, converting,
modifying, or terminating the Partnership or this Agreement;
costs incurred in connection with any litigation in which the
Partnership is involved as well as any examination,
investigation, or other proceedings conducted by any
regulatory agency involving the Partnership; costs of any
computer equipment or services used for or by the Partnership;
and the costs of preparing and disseminating informational
material and documentation relating to a potential sale,
refinancing, or other disposition of the Hospital or the
Equipment.
(c) Guarantee Fee. In the event that any Partner of the
Partnership or its Affiliates or MedCath Incorporated provide a
guarantee of any indebtedness of the Partnership which is acceptable to
and required by the Partnership's lenders ("Guarantor Partners") and
such guarantees are not provided on a pro rata basis by all other
Partners of the Partnership (the "Nonguarantor Partners"), then the
Guarantor Partners shall be paid an annual guarantee fee equal to (a)
the amount of such indebtedness which is guaranteed by the Guarantor
Partners, multiplied by (b) .0075, multiplied by (c) the percentage
Partnership Interest in the Partnership owned by the Nonguarantor
Partners (the "Guarantee Fee"). The Guarantee Fee shall be paid
quarterly and the expense thereof shall be allocated to the
Nonguarantor Partner as follows:
(i) The Guarantee Fee shall be deducted from the
Cash Distributions otherwise distributable to the Nonguarantor
Partners and shall be paid to the Guarantor Partners;
(ii) To the extent that at the time such
Guarantee Fee is due to be paid hereunder there are no
anticipated Cash Distributions, then the Partnership shall pay
such Guarantee Fee to the Guarantor Partners and the amount of
such payments shall be charged to the Capital Accounts of the
Nonguarantor Partners;
(iii) When Cash Distributions become available for
distribution to the Partners in the future, the Cash
Distributions otherwise distributable to the Nonguarantor
Partners shall first be retained by the Partnership to the
extent that amounts were previously charged to the Capital
Accounts of the Nonguarantor Partners in accordance with
subsection (ii) above and any remaining Cash Distributions
shall be distributed to the Partners in accordance with
Section 6.1.
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(d) Once a budget has been approved by the General
Partner and the Investor General Partner, the General Partner shall
have the authority to expend up to one hundred and ten percent (110%)
of any and all funds which are included in the budget and sign all
agreements related thereto, including reimbursement to the General
Partner and its Affiliates for goods and services provided to the
Partnership. The General Partner shall have the right to recast the
budget by transferring all or part of the funds approved for specific
line items to another category or line item by an aggregate amount not
to exceed ten percent (10%) of the total budgeted funds. The General
Partner is further authorized to make additional expenditures
reasonably related to additional revenues or increased patient or
procedural volumes provided that in making such additional expenditures
the gross margin between net patient revenues and operating expenses of
the Partnership is the same or greater than the gross margin between
net patient revenues and operating expenses in the most recent budget
approved by the General Partner and the Investor General Partner. The
General Partner shall report to the Investor General Partner from time
to time on variances between the Hospital's budget and actual operating
results.
SECTION 5.7 NO MANAGEMENT BY LIMITED PARTNERS.
The Limited Partners shall take no part in, or at any time interfere in
any manner with, the management, conduct, or control of the Partnership's
business and operations and shall have no right or authority to act for or bind
the Partnership except as set forth in this Agreement. The rights and powers of
such Limited Partners shall not extend beyond those set forth in this Agreement
and those granted under the Certificate of Limited Partnership and any attempt
to participate in the control of the Partnership in a manner contrary to the
rights and powers granted herein and under the Certificate of Limited
Partnership shall be null and void and without force and effect. Subject to the
decisions and judgment with respect to all professional medical or clinical
matters of qualified medical personnel, the General Partner, and the Investor
General Partner to the extent expressly provided for in this Agreement, shall
have the right to determine when and how the operations of the Partnership shall
be conducted in accordance with the terms of this Agreement. The exercise by any
Limited Partner of any of the rights granted to the Limited Partner hereunder
shall not be deemed to be taking part in the control of the business of the
Partnership and shall not constitute a violation of this Section.
SECTION 5.8 CONSENT BY LIMITED PARTNERS TO EXERCISE OF CERTAIN
RIGHTS AND POWERS BY THE GENERAL PARTNER AND THE
INVESTOR GENERAL PARTNER.
By its execution hereof, each Limited Partner expressly consents to the
exercise by the General Partner and the Investor General Partner of the rights,
powers, and authority conferred on the General Partner and the Investor General
Partner, respectively, by this Agreement.
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SECTION 5.9 OTHER BUSINESS OF PARTNERS.
(a) Subject to (b) below, any Partner 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 Partnership
nor any Partner shall have any right by virtue of this Agreement or the
relationship created hereby in or to such other ventures or activities
or to the income or proceeds derived therefrom, and the pursuit of such
ventures.
(b) Except as specifically provided in this Section 5.9,
as long as any Partner owns a Partnership Interest in the Partnership,
and for a period of five (5) years after a Partner ceases for any
reason to own a Partnership Interest in the Partnership, neither a
Partner, Investor Entity, Owner, Practice nor any of their respective
Affiliates, shall hold, directly or indirectly, an investment,
ownership or other beneficial interest in (x) any hospital, or (y) any
other Entity (including a sole proprietorship) which provides any of
the following services or facilities: cardiac catheterization,
angioplasty, peripheral angioplasty, atherectomy, stenting and PTCA or
other cardiac surgical procedures or services (collectively, the
"Services"), in any case within a fifty (50) mile radius of the
Hospital or in the cities of Fredericksburg and Kerrville, Texas
(collectively, the "Territory"). Notwithstanding the terms of this
Section 5.9(b):
(i) No Partner or Owner who is a physician shall
be prohibited from maintaining his or her staff privileges and
admitting and treating patients at any other hospital, nor
from performing and receiving professional fees for
interventional cardiac catheterization at any other hospital;
(ii) Nothing herein shall prohibit a Partner,
Owner, Practice or their Affiliates from owning up to three
percent (3%) of the outstanding capital stock of a company
whose stock is publicly traded and listed on a nationally
recognized securities exchange or from investing in a publicly
traded mutual fund or making other investments with the prior
written approval of the General Partner;
(iii) Nothing herein shall prevent the Investor
Limited Partner, an Owner or a Practice from operating a
cardiac catheterization laboratory in the MOB located on the
Hospital's campus; provided, however, that, among the Investor
Limited Partner, the Owners and the Practices, there may only
be a total of two (2) cardiac catheterization laboratories in
the MOB and further provided that (aa) only diagnostic and
therapeutic (but not interventional) cardiac catheterization
services may be provided in such laboratory and (bb) SAHMI or
an Affiliate is engaged to manage the laboratories;
(iv) Subject to the limitations set forth in
(iii) above, any Owner who is a physician may personally
perform the professional physician services required for
therapeutic and diagnostic cardiovascular services (other than
interventional
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cardiac catheterization services) including, but not limited
to, nuclear imaging, echocardiography, stress testing and
other similar ancillary services, directly for his or her
patients at the office established by such physician for the
conduct of his regular medical practice, or at any hospital or
any other facility and such Owner shall not be prevented from
billing and receiving professional fees as a result of his or
her professional medical services from any payor;
(v) Nothing herein shall prevent SAHMI or its
Affiliates from separately operating a mobile catheterization
laboratory within the Territory, but only if either SAHMI or
an Affiliate thereof is providing such service as of the
effective date of this Agreement pursuant to a lease of six
(6) months or less to a provider who is already providing cath
lab services. In addition, SAHMI or its Affiliates may provide
new mobile catheterization laboratory services in the
Territory following the execution of this Agreement so long as
the Partnership does not elect to provide such service with
the approval for providing such service by the General Partner
not to be unreasonably withheld;
(vi) Nothing herein shall prevent any Owner from
personally performing professional medical services directly
for his or her patients at any hospital or facility and from
billing and receiving professional fees as a result of his or
her professional medical services from any payor;
(vii) Nothing herein shall prevent any Owner from
continuing to hold an ownership interest in an Entity which
owns or leases a cardiac catheterization lab provided that
such Owner held an ownership interest prior to April, 1, 2001;
and
(viii) Notwithstanding the foregoing, in the event
that any Partner, Investor Entity, Practice or Owner (whether
alone or in conjunction with any third party) wishes to
develop, own, manage, operate or otherwise participate in any
entity within the Territory but outside of the area within the
Highway 1604 Loop related to the provision of diagnostic and
therapeutic, but excluding interventional, cardiac
catheterization services, such Investor Entity, Practice,
Owner or Partner shall, prior to agreeing to any such
transaction or agreeing to vote his, her, or its interest to
approve such transaction, give the other Partners written
notice of such proposed transaction including all terms and
conditions (the "Third Party Notice"). The other Partners who
receive the Third Party Notice shall then have forty-five (45)
days following receipt of the Third Party Notice to elect to
agree to all material terms and conditions of the transaction
including, without limitation, the time period over which any
payments shall be made, set forth in the Third Party Notice
(the "Option"), in which event such transaction shall be
entered into only between the Partners. In the event the
Partners receiving the Third Party Notice do not elect to
exercise any such Option within such forty-five (45) day
period, the applicable Investor Entity, Practice, Partner or
Owner may enter into the transaction set forth in the Third
Party Notice only
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within the ninety (90) day period immediately following such
forty-five (45) day period. In the event that such Partner or
Owner fails to enter into such transaction within such ninety
(90) day period, then the terms and conditions of this Section
5.9(b)(viii) shall again apply.
(c) The Partners and Owners have reviewed the term and
geographical restrictions included in Section 5.9(b), and in light of
the interests of the parties hereto, agree that such restrictions are
fair and reasonable.
(d) In order to ensure that the Hospital has available to
it at all times leading and qualified cardiologists and cardiovascular
surgeons, as of the date hereof the Partnership is entering into the
Hospital Professional Services Agreements (the "Professional Services
Agreements") with the Owners who are physicians or the Practices which
Professional Services Agreement includes in paragraph 7 thereof certain
covenants by the Owners who are Physicians or Practices which are
designed to ensure that the Owners who are physicians will be available
to the Hospital from time to time in order to enable it to meet its
objectives of being an efficient, quality provider of cardiology and
cardiovascular services. The parties acknowledge and agree that the
execution of the Professional Services Agreement by the Physician
Owners or Practices is further consideration for the execution by all
of the Partners of this Agreement.
(e) If there is a breach or threatened breach of the
provisions of this Section 5.9 of this Agreement, 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 provisions of
this Section 5.9 shall be enforced to the fullest extent permissible
under the law and public policies applied, but the unenforceability or
modification of any particular paragraph, subparagraph, sentence,
clause, phrase, word, or figure shall not be deemed to render
unenforceable the remainder of this Section 5.9. Should any such
paragraph, subparagraph, sentence, clause, phrase, word, or figure be
adjudicated to be wholly invalid or unenforceable, a court with
applicable authority is hereby authorized to "blue pencil" or modify
this Section, the balance of this Section 5.9 shall thereupon be
modified in order to render the same valid and enforceable and the
unenforceable portion of this Section 5.9 shall be deemed to have been
deleted from this Agreement.
(f) The Partnership, the General Partner, the Investor
General Partner and the Limited Partners agree that the benefits to any
Limited Partner, Owner, Practice or Affiliate 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 General Partner or the Partnership to
patients of such Limited Partner, Owner, Practice or their Affiliates
in any facility, laboratory, cardiac catheterization facility or other
health care operation controlled, managed or operated by the General
Partner or the Partnership and nothing herein is intended to prohibit
any party from practicing medicine at any other facility.
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(g) The Investor Limited Partner and the Investor
Entities shall cause each of their existing and future Owners to agree
in writing to be personally bound by the terms of this Section 5.9.
SECTION 5.10 GENERAL PARTNER'S AND THE INVESTOR LIMITED PARTNER'S
STANDARD OF CARE.
The General Partner and the Investor General Partner shall act in a
manner they believe in good faith to be in the best interest of the Partnership
and with such care as an ordinary prudent Person in a like position would use
under similar circumstances. In discharging their duties, the General Partner
and the Investor General Partner 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 Partners, agents, or
by any other Person as to matters the General Partner or Investor General
Partner reasonably believe are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Partnership, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, income or losses of the Partnership
or any other facts pertinent to the existence and amount of assets from which
distributions to Partners might properly be paid.
The obligations of the General Partner and the Investor General Partner
set forth above and in Section 5.3(a) shall not preclude the Partners from
having the right to vote or approve Partnership matters in accordance with the
terms of this Agreement regardless of the personal interest of any Partner in
the outcome of any vote, decision or matter; provided, however, that such
personal interest of any Partner in the outcome of any vote, decision or matter
shall be disclosed to the Partnership pursuant to a Conflict of Interest Policy
adopted by the Partnership.
SECTION 5.11 LIMITATION OF LIABILITY.
Neither the General Partner nor an Investor General Partner shall be
liable to the Partnership, or its Partners, for any action taken in managing the
business or affairs of the Partnership if it performs the duty of its office in
compliance with the standard contained in Section 5.10. Neither the General
Partner nor the Investor General Partner have guaranteed nor shall they have any
obligation with respect to the return of a Partner's Capital Contribution or
share of income from the operation of the Partnership. Furthermore, neither the
General Partner nor the Investor General Partner, nor any of their Affiliates or
employees (collectively, "Agents") shall be liable to the Partnership or to any
Partner for any loss or damage sustained by the Partnership or any Partner
except loss or damage resulting from gross negligence or intentional misconduct
or knowing violation of law or a transaction for which such General Partner,
Investor General Partner or Agent received a personal benefit in violation or
breach of the provisions of this Agreement; provided, however, that the
limitation of liability set forth at this Section 5.11 does not apply to any
liabilities related to the performance of professional medical services.
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SECTION 5.12 INDEMNIFICATION OF THE GENERAL PARTNER AND THE
INVESTOR GENERAL PARTNER.
(a) The General Partner, the Investor General Partner and
their Agents (as defined in Section 5.11) shall be indemnified by the
Partnership against any losses, judgments, liabilities, expenses,
including attorneys' fees and amounts paid in settlement of any claims
sustained by them arising out of any action or inaction of the Partner
or its Agents in its capacity as a General Partner or Investor General
Partner of the Partnership (or, in the case of an Agent, within the
scope of the General Partner's or Investor General Partner's authority)
to the fullest extent allowed by law, provided that the same were not
the result of gross negligence or willful misconduct on the part of the
General Partner, Investor General Partner or Agent and provided that
the General Partner, Investor General Partner or an Agent, in good
faith, reasonably determined that such course of conduct was in the
best interest of the Partnership; provided, however, that such
indemnification and agreement to hold harmless shall be recoverable
only out of Partnership assets. Subject to applicable law, the
Partnership shall advance expenses incurred with respect to matters for
which the General Partner, Investor General Partner or Agents may be
indemnified hereunder.
(b) If at any time, the Partnership has insufficient
funds to furnish indemnification as herein provided, it shall provide
such indemnification if and as it generates sufficient funds and prior
to any cash distributions, pursuant to Article VI or Article VII
hereof, to the Partners.
SECTION 5.13 ROLE OF AND DECISIONS BY INVESTOR GENERAL PARTNER.
Notwithstanding anything herein to the contrary, the Investor General
Partner shall take no action nor make any decision on behalf of the Partnership
except to the extent it is expressly authorized to do so under this Agreement in
its capacity as Investor General Partner. The Investor General Partner shall
designate upon written notice to the Investor General Partner three (3)
individuals, any of whom shall be authorized to convey the Investor General
Partner's consent, approval, or agreement to act, wherever in this Agreement the
consent, approval, or other act of the Investor General Partner is required. The
General Partner shall be entitled to rely conclusively on the giving of
approval, consent, or agreement to act by any one of the individuals so
designated in writing by the Investor General Partner as the duly authorized
consent, approval, or agreement to act of the Investor General Partner, until
the General Partner receives notice in writing from the Investor General Partner
that any individual so designated no longer has such authority. Any such
consent, approval, or agreement to act shall be deemed affirmatively given by
the Investor General Partner if the Investor General Partner does not notify the
General Partner in writing of the Investor General Partner's intent to withhold
such consent or approval or refuse to act, within seventy-two (72) hours of
written notice (the "72 Hour Notice") given to the Investor General Partner and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇▇▇▇▇▇, Blend, ▇▇▇▇▇▇▇▇ & ▇▇▇▇, Inc., ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ stating that such approval, consent, or
act of the Investor General Partner is required. The General Partner may perform
any act permitted or required to be performed by the Investor General
21
Partner under this Agreement if the Investor General Partner does not notify the
General Partner of its refusal to perform such act within seventy-two (72) hours
of receipt of the 72 Hour Notice.
SECTION 5.14 PURCHASE OF GOODS AND SERVICES FROM THE GENERAL
PARTNER.
Goods and services may be purchased from the General Partner or its
Affiliates as long as they are of substantially the same quality and price as
could be obtained from an unrelated third party and as long as the General
Partner provides advance notice of such purchases to the Investor General
Partner.
SECTION 5.15 CERTAIN DECISIONS OF THE GENERAL PARTNER AND THE
INVESTOR GENERAL PARTNER.
(a) As long as the General Partner and/or its Affiliates
are (i) providing a guaranty or are committed to provide a guaranty for
any indebtedness of the Partnership, and/or (ii) have any outstanding
loans to the Partnership or are committed to provide such loans, then
notwithstanding anything in this Agreement to the contrary, all
decisions and actions to be made by the General Partner and Investor
General Partner with respect to any loan, lease or other similar
financing of the development, construction or operation of the Hospital
or any loan, lease or other similar financing related to the
Partnership's affairs, including without limitation the decisions with
respect to incurring any indebtedness or the refinancing thereof, shall
be made by the General Partner and shall be subject to the consent of
the Investor General Partner, which consent shall not be unreasonably
withheld.
(b) The Investor General Partner shall be deemed to have
specifically approved all expenditures proposed by the General Partner
under this Article V that are substantially consistent with the
Development Budget Exhibit or an approved operating budget when funded
from additional Capital Contributions made to the Partnership by the
Partners pursuant to Section 3.5 above.
(c) The development and annual operating budgets to be
proposed by the General Partner shall be approved by the General
Partner and the Investor General Partner as provided above subject to
the following:
(i) The Investor General Partner shall be deemed
to have approved a development budget which is substantially
consistent with the attached Development Budget Exhibit to
this Agreement;
(ii) The Investor General Partner shall not
unreasonably withhold its approval of budgets which are within
the reasonable revenue expectations of the Hospital and which
are in compliance (both as to terms and availability of
financing) with agreements with the Partnership's lenders and
other parties providing financing to the Partnership; and
22
(iii) In the event that the General Partner and
the Investor General Partner are unable to approve an annual
budget, the General Partner shall be authorized to operate the
Partnership under the previous year's budget increased by the
greater of five percent (5%) or the increase during the
previous year in the Consumer Price Index for Medical Items
until a new budget is approved.
(d) Without the General Partner's written consent, the
Investor General Partner will not approve any change to the
construction, design or equipment of the Hospital, if the effect
thereof is to materially increase the cost thereof as set forth on the
Development Budget Exhibit approved hereunder.
SECTION 5.16 INDEMNITY BY THE PARTNERSHIP.
The Partnership agrees to indemnify, defend and hold the General
Partner, the Investor General Partner and their directors, officers, employees
and agents, harmless from and against any and all loss, claim, cause of action,
demand, penalty, liability, action, damage or deficiency, lawsuit or other
proceeding, resulting or arising from (a) acts or omissions of the Partnership,
its Partners, officers, employees; (b) any liability or obligation of the
Partnership, except those which the General Partner or Investor General Partner
created in violation of this Article V; (c) any nonfulfillment of the
Partnership of any of its covenants or agreements under this Article V; (d) any
violation of law by the Partnership; and (e) any loss or damage, reasonable
attorney's fees and other costs and expenses incident to any of (a) through (d)
to the greatest extent permitted by the Act but subject in all events to the
limitations of the Act; provided, however, that such indemnity shall not be
available to a Partner if an event set forth in (a) through (d) is due primarily
to the gross negligence or willful misconduct of such Partner seeking indemnity.
The indemnity covenants set forth in this Section 5.16 shall survive the
termination of this Agreement for any reason.
SECTION 5.17 FORCE MAJEURE.
The General Partner shall not be liable nor shall it be deemed to be in
default for any delay or failure in performance under this Article V or other
interruption of service or employment deemed resulting directly or indirectly
from Acts of God, civil or military authority, acts of public enemy, war,
accidents, fires, explosions, earthquakes, floods, failure of transportation,
strikes or other work interruptions by the General Partner's employees or any
similar or dissimilar cause beyond the reasonable control of the General
Partner. Further, the General Partner shall not be in default under this Article
V if the default resulted from actions taken at the request or direction of the
Investor General Partner (by themselves or in conjunction with the General
Partner) or if the Investor General Partner (by themselves or in conjunction
with the General Partner) failed to take reasonable action recommended by the
General Partner to enable it to meet its obligations hereunder.
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ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS
SECTION 6.1 DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS AND CASH
FROM SALES OR REFINANCING.
(a) Prior to the dissolution of the Partnership, and
subject to the terms and conditions to which the Partnership is bound
with respect to its lenders ("Loan Conditions"), Cash Flow from
Operations and Cash from Sales or Refinancing, if any, remaining after
repayment of any amounts currently due with respect to loans made by
the Partners to the Partnership, shall be distributed quarterly by the
General Partner as Cash Distributions according to the relative
percentage Partnership Interests of the Partners at such times as the
General Partner and Investor General Partner deem appropriate;
provided, however, that to the extent possible, any Guarantee Fee shall
be deducted from the Cash Distributions otherwise distributable to the
Nonguarantor Partners and paid to the Guarantor Partners as set forth
in Section 5.6(c). Notwithstanding anything herein to the contrary
(subject, however, to Section 6.1(b) below), no distributions shall be
made to Partners if prohibited by the Act or any other applicable law
and unless the principal balance of any loans made to Partnership by
the General Partner or an Affiliate pursuant to Section 3.5 does not
exceed Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000) at
the time of any Cash Distributions.
(b) Notwithstanding the terms of Section 6.1(a), the
General Partner shall, to extent permitted by the Loan Conditions and
subject to the availability of Cash Flow from Operations and using
commercially reasonable efforts, distribute cash annually pro rata to
Partners in an amount which is sufficient to enable them to pay income
taxes which arise from the taxable income of the Partnership. In
computing taxable income of each Partner, the taxable income of each
Partner for the current year shall be reduced by any cumulative tax
losses incurred in prior years (after reduction by taxable income in
prior years). Such distributions shall assume for all Partners the
highest combined federal and state tax rates applicable to any Partner
with respect to his or its Profits from the Partnership.
SECTION 6.2 PROFITS.
Except as provided in the Regulatory Allocations Exhibit and subject to
Section 6.6, Profits shall be allocated as follows:
(a) First, to the Partners who have been allocated Losses
pursuant to Section 6.3(a) below until the cumulative Profits allocated
pursuant to this Section 6.2(a) equal the cumulative prior allocations
of Losses under that Section.
24
(b) Next, to the Partners who have been allocated Losses
pursuant to Section 6.3(b) below until the cumulative Profits allocated
pursuant to this Section 6.2(b) equal the cumulative prior allocations
of Losses under that Section.
(c) All remaining Profits shall be allocated to the
Partners in accordance with their percentage Partnership Interests.
SECTION 6.3 LOSSES.
Except as provided in the Regulatory Allocations Exhibit and subject to
Section 6.6, Losses shall be allocated as follows:
(a) First, Losses shall be allocated to the Partners with
positive Adjusted Capital Account balances in proportion to those
balances.
(b) All remaining Losses shall be allocated to the
Partners in accordance with their percentage Partnership Interests.
SECTION 6.4 CODE SECTION 704(C) TAX ALLOCATIONS.
Income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership 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 Partnership asset is adjusted
after its contribution to the Partnership, 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 General Partner. Absent a determination by
the General Partner, 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 Partner's Capital Account or share of Profits, Losses, other
items, or distributions pursuant to any provision of this Agreement.
SECTION 6.5 MISCELLANEOUS.
(a) Allocations Attributable to Particular Periods. For
purposes of determining Profits, Losses or any other items allocable to
any period, such items shall be determined on a daily, monthly, or
other basis, as determined by the General Partner using any permissible
method under Code Section 706 and the Regulations thereunder.
25
(b) Other Items. Except as otherwise provided in this
Agreement, all items of Partnership income, gain, loss, deduction,
credit and any other allocations not otherwise provided for shall be
divided among the Partners in the same proportion as they share Profits
or Losses, as the case may be, for the year.
(c) Tax Consequences; Consistent Reporting. The Partners
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 Partnership in reporting their shares of Partnership income and
loss for income tax purposes. Each Partner agrees to report its
distributive share of Partnership 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 Partnership. Any Partner
failing to report consistently, and who notifies the Internal Revenue
Service of the inconsistency as required by law, shall reimburse the
Partnership for any legal and accounting fees incurred by the
Partnership in connection with any examination of the Partnership by
federal or state taxing authorities with respect to the year for which
the Partner failed to report consistently.
(d) Economic Interest Owners. Each Economic Interest
Owner shall be entitled to the distributions and allocations to which
its predecessor in interest would have been entitled under this Article
VI had it retained the Economic Interest acquired by the Economic
Interest Owner.
SECTION 6.6 SPECIAL ALLOCATIONS OF GUARANTEE FEES.
Any and all deductions, losses or reductions to Capital Accounts
attributable to the payment by the Partnership of Guarantee Fees shall be
allocated to the Nonguarantor Partners in accordance with their relative
percentage Partnership Interests.
ARTICLE VII
DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS
SECTION 7.1 NO TERMINATION BY CERTAIN ACTS OF PARTNER.
Neither the transfer of interest, withdrawal from the Partnership,
bankruptcy, insolvency, dissolution, liquidation or other disability, nor the
legal incompetency of any Partner shall result in the termination or dissolution
of the Partnership or affect its continuance in any manner whatsoever.
26
SECTION 7.2 DISSOLUTION.
The Partnership shall be dissolved upon the happening of any of the
following events, whichever shall first occur:
(a) The election to dissolve the Partnership in
accordance with the terms of Section 3.5(f) hereof;
(b) If there is no longer a General Partner of the
Partnership, unless the Partnership is continued by the consent of not
less than a majority in interest of the remaining Partners within
ninety (90) days after notice of such event, effective as of the date
of such event. If there is no remaining General Partner, the remaining
Partners owning at least 51% of the Partnership Interests which are
owned by the remaining Partners shall, if they desire to continue the
Partnership, elect a Substitute General Partner who shall assume all of
the rights and duties of the General Partner under this Agreement
(which Substitute General Partner accepts such election);
(c) Upon the written agreement of the General Partner,
VHI and the Investor General Partner;
(d) The expiration of the term of the Partnership as
provided in Section 2.6 hereof;
(e) The adjudication of bankruptcy of the Partnership;
(f) In accordance with Section 12.11 hereof;
(g) The entry of a decree of judicial dissolution or the
administrative dissolution of the Partnership as provided in the Act;
(h) Upon the written election of the SAHMI prior to the
execution by SAHMI on behalf of the Partnership of definitive
agreements for the construction of the Hospital and for a loan to
finance the construction of the Hospital, in the event that upon thirty
(30) days prior written notice to the other Partners, the conditions
set forth at Section 3.10 have not been met with regard to the MOB.
SECTION 7.3 DISSOLUTION AND FINAL LIQUIDATION.
(a) Upon any dissolution of the Partnership, the
Partnership 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 General Partner, or if for any reason there is no General Partner,
by another Person designated by the General Partner. In winding up the
Partnership and liquidating assets, the General Partner, or other
Person so designated for such purpose, may arrange, either directly or
27
through others, for the collection and disbursement to the Partners of
any future receipts from the Hospital or other sums to which the
Partnership may be entitled, and shall sell the Partnership's interest
in the Hospital and the Equipment to any Person, including the General
Partner 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 VHI and the
Investor Limited Partner.
(b) Upon any such dissolution and liquidation of the
Partnership, the net assets, if any, of the Partnership available for
distribution, including any cash proceeds from the liquidation of
Partnership 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 Partnership (other than the Partners 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 Partners or
their Affiliates as creditors; and
(iii) The balance to the Partners with positive
Capital Account balances after taking into account all other
adjustments during the Fiscal Year in which liquidation
occurs.
(c) The Partners shall look solely to the assets, if any,
of the Partnership for any return of their Capital Contributions and,
if the assets of the Partnership remaining after payment or discharge
of the Partnership's debts and liabilities, or provision therefor, are
insufficient to return all or any part of the Capital Contributions, no
Partner shall have any right of recourse against the General Partner
and the Investor General Partner or other Partners or to charge the
General Partner and the Investor General Partner or other Partners for
any amounts except as provided herein and except to the extent
otherwise provided by the Act and/or Texas law.
(d) Upon such dissolution, reasonable time shall be
allowed for the orderly liquidation of the assets of the Partnership
and the discharge of liabilities to creditors so as to minimize the
losses normally attendant to a liquidation.
(e) The Capital Accounts of the Partners, as adjusted,
shall be utilized by the Partnership for the purpose of making
distributions to those Partners with positive balances in their
respective Capital Accounts pursuant to Section 7.3(b). In making such
distributions, the General Partner or the Person winding up the affairs
of the Partnership shall distribute all funds available for
distribution to the Partners and Economic Interest Owners (after
establishing any reserves that the General Partner deem or the Person
winding up the affairs of the Partnership deems reasonably necessary
pursuant to Section 7.3(b)) prior to the later of (a) the end of the
taxable year in which the event occurs which
28
caused the termination and dissolution of the Partnership, or (b)
ninety (90) days after the occurrence of such event. The General
Partner in its sole discretion, or the Person winding up the affairs of
the Partnership, in its discretion, may elect to have the Partnership
retain any installment obligations owed to the Partnership until
collected in full so long as any portion of the reserves which are
later determined to be unnecessary, and all collections on such
installment obligations which are not deemed to be reasonably necessary
by the General Partner or the Person winding up the affairs of the
Partnership to add to such reserves are distributed as soon as
practicable in accordance with the provisions of Section 7.3(b) as
modified by this Section.
(f) Each Economic Interest Owner shall be entitled to the
distributions to which its predecessor in interest would have been
entitled pursuant to this Article VII had it retained the Economic
Interest acquired by the Economic Interest Owner.
SECTION 7.4 TERMINATION.
Upon completion of the dissolution, winding up, distribution of the
liquidation proceeds and any other Partnership assets, the Partnership shall
terminate.
SECTION 7.5 PAYMENT IN CASH.
Any payments made to any Partner pursuant to this Article VII shall be
made only in cash.
SECTION 7.6 GOODWILL AND TRADE NAME.
Upon the dissolution of the Partnership, the firm or trade name of the
Partnership and any goodwill associated therewith shall become the sole property
of the General Partner, provided that distributions and allocations otherwise
due to the General Partner shall not be reduced as a result of the General
Partner becoming entitled to such assets.
SECTION 7.7 TERMINATION OF NONCOMPETITION COVENANTS.
The Partners shall have no continuing liability, or obligation under
Section 5.9(b) after the second (2nd) anniversary of the dissolution of the
Partnership.
29
ARTICLE VIII
REMOVAL OR WITHDRAWAL OF GENERAL PARTNER AND PARTNERS AND
TRANSFER OF PARTNERS' PARTNERSHIP AND/OR ECONOMIC INTERESTS
SECTION 8.1 SAHMI AND VHI - TRANSFERS.
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, SAHMI AND/OR
VHI MAY SELL OR PLEDGE THEIR PARTNERSHIP INTERESTS OR TRANSFER OR ASSIGN ANY OF
SAHMI'S RIGHTS AND DUTIES AS A GENERAL PARTNER (I) TO ANY PARTY WHO PURCHASES
FIFTY-ONE PERCENT (51%) OR MORE OF MEDCATH HOLDINGS, INC.'S, MEDCATH
INCORPORATED'S AND THEIR SUBSIDIARIES' ASSETS OR CAPITAL STOCK IF SUCH PURCHASER
(IN CASE OF AN ASSET SALE) ASSUMES IN WRITING SAHMI'S OBLIGATIONS AND
LIABILITIES ARISING UNDER THIS AGREEMENT OR (II) TO A PARTY UNDER CONTROL OF,
COMMON CONTROL, OR WHICH CONTROLS SAHMI OR VHI. THE GENERAL PARTNER AND/OR VHI
MAY ALSO ASSIGN THEIR PARTNERSHIP INTEREST IN THE PARTNERSHIP AND THE GENERAL
PARTNER'S RIGHTS UNDER THE MANAGEMENT SERVICES AGREEMENT TO A FINANCIAL
INSTITUTION AS COLLATERAL SECURITY FOR REPAYMENT OF INDEBTEDNESS FOR BORROWED
FUNDS BY MEDCATH INCORPORATED OR ITS AFFILIATES; PROVIDED, HOWEVER, THAT A
LENDER WILL NOT HAVE THE RIGHT TO VOTE ON BEHALF OF SAHMI AS A GENERAL PARTNER
OF THE PARTNERSHIP UNLESS AND UNTIL THE LENDER FORECLOSES ON SAHMI'S PARTNERSHIP
INTEREST IN THE PARTNERSHIP. THE PARTNERS ACKNOWLEDGE AND AGREE, HOWEVER, THAT A
LENDER OF FUNDS TO THE PARTNERSHIP MAY REQUIRE THAT THE PARTNERSHIP NOT AMEND
AGREEMENTS ENTERED INTO BY THE PARTNERSHIP WITHOUT LENDER'S CONSENT AND THAT A
LENDER MAY REQUIRE THAT THE PARTNERSHIP AND/OR THE PARTNERS AGREE TO CERTAIN
RESTRICTIONS AND COVENANTS THAT WILL BIND THE PARTNERSHIP, WHICH RESTRICTIONS
AND COVENANTS COULD AFFECT THE RIGHTS OF THE PARTNERS UNDER THIS AGREEMENT.
SECTION 8.2 PARTNERS' RIGHT TO CONTINUE WHEN PARTNERSHIP HAS NO
GENERAL PARTNER.
If at any time there is no remaining General Partner, a meeting of the
Partners shall be held at the principal place of business of the Partnership
within forty-five (45) days after the happening of such event to consider
whether to continue the Partnership on the same terms and conditions as are
contained in this Agreement (except that the General Partner may be different)
and to select a General Partner for the Partnership, or whether to wind up the
affairs of the Partnership, liquidate its assets and distribute the proceeds
therefrom in accordance with Article VII hereof. The Partnership may be
continued and a new General Partner (who accepts such appointment) selected by
the Partners within ninety (90) days of the occurrence of the event
30
described in Section 7.2(b) with respect to the last General Partner. The new
General Partner shall execute, acknowledge, file or record (as appropriate)
Certificate of Limited Partnership and a Limited Partnership Agreement, or
amendments to those documents, and such other documents as may be required by
the Act. The continuance of the Partnership pursuant to the terms of this
Section 8.2 is conditioned upon (i) any amendment required by the Act of the
Certificate of Limited Partnership to reflect the foregoing change and, if
applicable, compliance by the Partnership with any notice provisions of the Act
and (ii) delivery to the withdrawing General Partner of an indemnification
agreement by the Partnership, in form and substance reasonably satisfactory to
the withdrawing General Partner, indemnifying and holding the withdrawing
General Partner harmless against all future liabilities of the Partnership.
SECTION 8.3 RELATIONSHIP WITH SUBSTITUTE GENERAL PARTNER.
The relationship of the Partners to any Person that has either acquired
the Partnership Interest of the General Partner or has been elected as a
successor General Partner as provided herein shall be governed by this
Agreement. If such Person was not previously a General Partner, then such
Person, as Substitute General Partner, shall have all the rights and powers of
its predecessor General Partner under this Agreement; provided, such Person
assumes in writing the obligations of such General Partner under this Agreement
and any arising thereafter, and accepts and adopts all the terms and provisions
of this Agreement in writing. The withdrawing General Partner shall be liable
for all of its covenants and obligations under this Agreement for all periods
prior to its withdrawal until such liability is assumed by a Substitute General
Partner.
SECTION 8.4 INVESTOR GENERAL PARTNER AND INVESTOR LIMITED PARTNER
- RESTRICTION ON TRANSFER.
(a) Except as otherwise set forth in this Section or in
this Agreement, no Economic Interest and/or Partnership Interest of the
Investor General Partner or of the Investor Limited Partner or any
portion thereof, shall be validly sold or assigned directly or
indirectly whether voluntarily, involuntarily or by operation of law,
and no purported assignee shall be recognized by the Partnership for
any purpose, unless such Economic Interest and/or Partnership 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 the General Partner to comply with requirements imposed by
any federal or state securities regulatory authority and unless the
consent of the General Partner is obtained. In no event, however, shall
the Investor General Partner or Investor Limited Partner transfer or
sell all or any of its Economic Interest and/or Partnership Interest to
any Person who, if a Partner, would be in violation of Section 5.9(b)
hereof.
(b) Except as otherwise set forth in this Section or in
this Agreement, the Investor General Partner and the Investor Limited
Partner may transfer, sell or assign its entire Economic Interest
and/or Partnership Interest if it has received the approval of the
General Partner, provided however:
31
(i) (1) VHI for a period of fifteen (15) days
and thereafter (2) the General Partner for a period of fifteen
(15) days and thereafter (3) the Partnership 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
Economic Interest and/or Partnership Interest proposed to be
transferred, which right shall be exercisable on the terms and
for the purchase price set forth in writing in a bona fide
offer made for the Interests by a third-party (the "Right of
First Refusal"); and
(ii) there shall have been filed with the
Partnership 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
Partnership 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 Partnership. The General Partner shall use
reasonable care to determine that transfers are in accordance
with applicable laws and regulations, including obtaining an
opinion of counsel to that effect. If the Investor General
Partner or the Investor Limited Partner assigns all its
Partnership Interest, the Investor General Partner or the
Investor Limited Partner, whichever the case may be, shall
cease to be a Partner of the Partnership. Any Partnership
Interests acquired by the Partnership pursuant to Section 8.4
may, subject to applicable law, be re-offered by the
Partnership to suitable investors.
(c) Any dissolution, liquidation, merger (unless the
Investor General Partner, the Investor Limited Partner, Owners,
Practices or their Affiliates existing prior to such merger own at
least fifty-one percent (51%) of the surviving entity after the merger
or unless both parties to such merger are majority owned by Owners,
Investor Entities or their Affiliates prior to such merger) or sale of
the Investor Limited Partner (a sale shall include a transfer of fifty
percent (50%) or more of its ownership interests or of substantially
all of its assets or any other transaction or series of related
transactions intended to accomplish, in substance, a sale of the
Investor General Partner or Investor Limited Partner) shall constitute
an offer by the Investor General Partner or Investor Limited Partner to
sell such Investor General Partner's or Investor Limited Partner's
Interest pursuant to Section 8.4 for the Formula Purchase Price (as
defined in Section 8.9 below). If there is a sale of a majority of the
ownership interests or substantially all of the assets of the Investor
Limited Partner, then the General Partner may, in its sole discretion,
require that the Investor General Partner be sold to the same party
purchasing the ownership interests or assets of the Investor Limited
Partner. For purposes of this Section 8.4(c), any transaction such as a
dissolution, liquidation, merger or sale of assets conducted by a legal
entity that directly or indirectly owns the Investor Limited Partner or
Investor General Partner shall be deemed to be a transaction engaged
indirectly by the Investor Limited Partner or Investor General Partner.
32
SECTION 8.5 CONDITION PRECEDENT TO TRANSFER OF ECONOMIC INTEREST
AND/OR PARTNERSHIP INTEREST.
Notwithstanding anything herein to the contrary, no transfer of an
Economic Interest and/or Partnership 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 Partnership 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
Partnership for federal income tax purposes. The Partnership may require, as a
condition precedent to transfer of an Economic Interest and/or Partnership
Interest, delivery to the Partnership, at the proposed transferor's expense, of
an opinion of counsel satisfactory (both as to the counsel and substance of the
opinion) to the General Partner that the transfer will not violate any of the
foregoing restrictions.
SECTION 8.6 SUBSTITUTE PARTNER - CONDITIONS TO FULFILL.
No assignee of a Partner's Partnership Interest in the Partnership
shall have the right to become a Substitute Partner in place of its assignor
unless, in addition to any other requirement herein, all of the following
conditions are satisfied:
(a) The Partnership has waived its right pursuant to
Section 8.4 to purchase the Partnership Interest held by the assignee;
(b) The duly executed and acknowledged written instrument
of assignment which has been filed with the Partnership sets forth that
the assignee becomes a Substitute Partner in place of the assignor;
(c) The assignor and assignee execute and acknowledge
such other instruments as the General Partner and the Investor General
Partner 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 written consent of the General Partner to such
substitution is obtained, which consent may be withheld in the General
Partner's sole and absolute discretion; and
(e) The payment by the assignee of all costs to the
Partnership associated with the transaction, including but not limited
to legal fees, transfer fees, and filing fees.
SECTION 8.7 ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE.
Upon the transfer of a Partner's Economic Interest or Partnership
Interest, all items of income, gain, loss, deduction and credit attributable to
the Economic Interest or Partnership Interest so transferred shall be allocated
between the transferor and the transferee in such manner as the transferor and
transferee agree at the time of transfer; provided such allocation does not
violate federal or state income tax law. If the General Partner, in its sole
discretion, deems such
33
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
Partnership that the Economic Interest or Partnership Interest so transferred
was held by the transferor and transferee, without regard to the results of
Partnership activities during the period in which each was the holder, or in
such other manner as the General Partner 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 Economic Interest or Partnership Interest on
the date of distribution. Notwithstanding anything contained in this Agreement
to the contrary, both the Partnership and the General Partner shall be entitled
to treat the assignor of any assigned Economic Interest or Partnership 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 Partnership
records as they exist until such time as the written assignment has been
received by, and recorded on the books of the Partnership. For purposes of this
Article VIII, the effective date of an assignment of any Economic Interest or
Partnership Interest shall be the last day of the month specified in the written
instrument of assignment.
SECTION 8.8 RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE.
No assignee of a Partner's Economic Interest or Partnership Interest
shall have the right to participate in the Partnership, inspect the books of
account of the Partnership or exercise any other right of a Partner unless and
until admitted as a Substitute Partner. Notwithstanding the failure or refusal
to admit an assignee as a Substitute Partner, 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 Partnership 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
Partnership's tax returns shall be prepared to reflect the interests of
assignees as well as Partners.
SECTION 8.9 DEATH OF A PARTNER.
Heirs of Partners shall be entitled to inherit the Partnership
Interests of a deceased Partner or of a Partner owned directly or indirectly by
an individual who has deceased, provided that upon such death such interests
shall be automatically converted to an Economic Interest only in the Partnership
until such heir agrees in writing to all of the terms and conditions of this
Agreement and such other reasonable terms as may be established by the General
Partner and the Investor General Partner as a condition to such heir becoming a
Partner, in which event such interest shall again become a Partnership Interest
in the Partnership. Notwithstanding the previous sentence, within one hundred
twenty (120) days of the Partnership first learning of the death of an
individual or of an individual that owns a Partner, the Partnership shall have
the option to purchase the Partnership Interest owned by such deceased Partner
directly or indirectly through an Entity, and the estate of the deceased
individual shall be obligated to sell such Partnership Interest to the
Partnership, in accordance with the terms of this Section 8.9. The Partnership
may exercise its option by giving written notice thereof to the estate of the
deceased individual, or the appropriate representative thereof, within such one
hundred twenty (120) day
34
period. The purchase price for such Partnership Interest shall equal the greater
of (i) five (5) multiplied by the net income (as reasonably determined by the
Partnership's accountants) of the Partnership for the twelve (12) month period
ending as of the calendar quarter most recently ended prior to the death of such
Partner multiplied by the percentage Partnership Interest of such Partner in the
Partnership (the "Formula Purchase Price;" and (ii) the aggregate Capital
Contributions of the applicable Investor Limited Partner less all amounts
distributed to the applicable Investor Limited Partner by the Partnership. The
purchase price shall be paid (the "Payment Method") in three (3) equal annual
installments, the first third of which shall be paid upon the determination of
the purchase price and the remaining two (2) installments of which shall be paid
on the first and second anniversary of such date. The outstanding amounts due
from the Partnership to the estate of the deceased Partner shall bear interest
at Prime Rate as of the date of such Partner's death. Accrued interest shall be
paid as of the dates payments of principal are due as provided above.
SECTION 8.10 REPURCHASE OF INTERESTS IN CERTAIN EVENT.
(a) The Partnership may, but is not obligated to,
repurchase a Partner's Economic Interest or Partnership Interest upon a
breach by the Partner or any of its Affiliates of the Partner's
obligation contained in Article III, Sections 5.9, 8.1, 8.4, 12.1 and
12.11 of this Agreement; provided that the Partnership shall be
entitled to repurchase a Partner's Economic Interest or Partnership
Interest for breaches of Article III, 12.1 and 12.11 provided that if
such breach is reasonably capable of being cured, the breaching Partner
shall have thirty (30) days to cure such breach after the date of
notice given to the breaching Partner of the Partner's breach.
Notwithstanding anything contained herein to the contrary, (i) if
either the Investor General Partner or the Investor Limited Partner or
any of their Affiliates breaches their obligations contained in Article
III, Sections 5.9, 8.4, 12.1 and 12.11 of this Agreement, then the
General Partner may take all actions on behalf of the Partnership under
this Section 8.10(a) without the consent of the Investor General
Partner; and (ii) if either SAHMI or VHI or any of their Affiliates
breaches their obligations contained in Article III, Sections 5.9,
8.1(a), and 12.11 of this Agreement, then the Investor General Partner
may take all actions on behalf of the Partnership under this Section
8.10(a) without the consent of the General Partner. In the event that a
breach of the Investor General Partner's or Investor Limited Partner's
obligations arises out of or is caused by a breach of the obligations
of one or more of the Investor General Partner's or Investor Limited
Partner's Affiliates (a "Breaching Affiliate") and the Investor General
Partner or Investor Limited Partner as applicable fails to cure such
breach of the Breaching Affiliate when permitted as set forth above,
then the General Partner may, in its discretion, purchase a portion of
the Investor General Partner's and/or Investor Limited Partner's
Partnership Interest that is proportionate to the ownership interest of
the Breaching Affiliate in the Investor General Partner and/or Investor
Limited Partner at the time of the breach of the Partner's obligations
under this Section 8.10(a).
(b) Each Partner agrees to sell its Partnership Interest
to the Partnership in the event the General Partner or Investor General
Partner elects to exercise the right of repurchase granted under
Section 8.10(a) and the purchase price shall the lower of (x) the
35
Capital Contributions of the Partner less all amounts distributed to
such Partner by the Partnership and (y) the Formula Purchase Price. In
the event that the General Partner elects to purchase a portion of the
Investor General Partner's or Investor Limited Partner's Partnership
Interest after a breach by a Breaching Affiliate, the purchase price
shall be the lower of (i) the Capital Contributions of the Investor
General Partner and/or Investor Limited Partner less all amounts
distributed to the Investor General Partner and/or Investor Limited
Partner by the Partnership and (ii) the Formula Purchase Price,
multiplied by the percentage ownership interest of the Breaching
Affiliate in the Investor General Partner and/or Investor Limited
Partner.
(c) Notwithstanding anything herein to the contrary, the
repurchase of the Economic Interest or Partnership Interest of the
General Partner or VHI under Section 8.10(a) shall not become effective
unless and until the General Partner and its Affiliates are fully
released from their liability as guarantors for any indebtedness of the
Partnership and unless and until all amounts loaned by the General
Partner or its Affiliates to the Partnership are paid in full.
ARTICLE IX
RECORDS, ACCOUNTINGS AND REPORTS
SECTION 9.1 BOOKS OF ACCOUNT.
At all times during the continuance of the Partnership, the General
Partner 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 Partnership's business and affairs including those sufficient to record the
allocations and distributions required by the provisions of this Agreement.
SECTION 9.2 ACCESS TO RECORDS.
The books of account and all documents and other writings of the
Partnership, including the Certificate of Limited Partnership and any amendments
thereto, shall at all times be kept and maintained by the General Partner or, if
required by law, at the registered office of the Partnership. Each Partner or
its designated representatives shall, upon reasonable notice to the General
Partner, have access to such financial books, records and documents during
reasonable business hours and may inspect and make copies of any of them.
SECTION 9.3 BANK ACCOUNTS AND INVESTMENT OF FUNDS.
(a) The General Partner shall open and maintain, on
behalf of the Partnership, 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 Partnership shall be
36
deposited. All withdrawals from such accounts shall be made upon the
signature of such Person or Persons as the General Partner may from
time to time designate.
(b) Any funds of the Partnership which the General
Partner may determine are not currently required for the conduct of the
Partnership'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 General Partner in its sole discretion.
SECTION 9.4 FISCAL YEAR.
The Fiscal Year and accounting period of the Partnership shall end on
September 30 of each year.
SECTION 9.5 ACCOUNTING REPORTS.
As soon as reasonably practicable after the end of each fiscal year but
in no event later than 120 days after the end thereof, each Partner shall be
furnished an annual accounting showing the financial condition of the
Partnership 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 Partners
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 Partner's
equity, and cash flow for such Fiscal Year. At the General Partner's election
the Partnership shall either be audited or such annual accountings shall be
either reviewed or compiled by a firm of independent certified public
accountants engaged by the General Partner on behalf of the Partnership. The
report shall set forth the distributions to the Partners 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 Partnership Interests.
Following the opening of the Hospital, the General Partner shall also cause to
be prepared and distributed to the Partners financial statements on a quarterly
basis or at such other intervals as the General Partner and the Investor General
Partner may mutually agree.
SECTION 9.6 TAX MATTERS PARTNER.
SAHMI shall act as the "Tax Matters Partner" of the Partnership as that
term is defined Section 6231 of the Code.
37
ARTICLE X
MEETINGS AND VOTING RIGHTS OF PARTNERS
SECTION 10.1 MEETINGS.
(a) Meetings of the Partners of the Partnership for any
purpose may be called by the General Partner, the Investor General
Partner or by Limited Partners holding in the aggregate ten percent
(10%) of the Partnership Interests. Such request shall state the
purpose of the proposed meeting and the matters proposed to be acted
upon thereat. Such meetings shall be held in the greater San Antonio,
Texas area.
(b) A notice of any such meeting shall be given by mail,
not less than ten (10) days nor more than sixty (60) days before the
date of the meeting, to each Partner at its address as specified in
Section 12.7. Such notice shall be in writing, and shall state the
place, date and hour of the meeting, and shall indicate that it is
being issued at or by the direction of the General Partner, the
Investor General Partner or by the Limited Partners, as the case may
be. The notice shall state the purpose or purposes of the meeting. If a
meeting is adjourned to another time or place, and if any announcement
of the adjournment of time or place is made at the meeting, it shall
not be necessary to give notice of the adjourned meeting.
(c) Each Partner may authorize any Person or Persons to
act for the Partner by proxy in all matters in which a Partner 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
Partner 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 Partner executing it.
SECTION 10.2 VOTING RIGHTS OF PARTNERS.
(a) Each Partner shall take no part in or interfere in
any manner with the control, conduct or operation of the Partnership,
and shall have no right or authority to act for or bind the Partnership
except as provided herein. Votes or decisions, to the extent taken or
to be made, of the Partners may be cast at any duly called meeting of
the Partnership or in writing within ten (10) days after written
request therefor. Each Partner shall be entitled to the number of votes
equal to the percentage Partnership Interest of such Partner.
(b) No Partner shall have the right or power to vote to:
(i) withdraw or reduce the Partner's Capital Contributions except as a
result of the dissolution and liquidation of the Partnership or as
otherwise provided by law or this Agreement; (ii) bring an action for
partition against the Partnership; (iii) cause the termination and
dissolution of the Partnership 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.
38
ARTICLE XI
AMENDMENTS
SECTION 11.1 AUTHORITY TO AMEND BY GENERAL PARTNER AND THE
INVESTOR GENERAL PARTNER.
Notwithstanding Section 3.8 of this Agreement, the General Partner and
the Investor General Partner may amend this Agreement or the Certificate of
Formation of the Partnership without the consent of the Partners for the
following purposes only:
(a) To admit additional Partners or Substitute Partners
but only in accordance with and if permitted by the other terms of this
Agreement;
(b) To preserve the legal status of the Partnership as a
limited partnership under the Act or other applicable state or federal
laws if such does not change the substance hereof, and the Partnership
has obtained the written opinion of its counsel to that effect;
(c) To cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, to clarify any provision of this Agreement, or to make any
other provisions with respect to matters or questions arising under
this Agreement which will not be inconsistent with the provisions of
this Agreement;
(d) To satisfy the requirements of the Code and
Regulations with respect to limited partnerships or of any federal or
state securities laws or regulations, provided such amendment does not
adversely affect the Partnership Interests of Partners and is necessary
or appropriate in the written opinion of counsel and any amendment
under this subsection (d) shall be effective as of the date of this
Agreement;
(e) To the extent that it can do so without materially
reducing the economic return on investment in the Partnership to any
Partner, to satisfy any requirements of federal or state legislation or
regulations, court order, or action of any governmental administrative
agency with respect the operation or ownership of the Hospital;
(f) Subject to the terms of Section 2.5, to extend the
term of the Partnership; and
(g) Upon written notice to all Partners, the General
Partner and the Investor General Partner may elect to create a
governing body of up to nine (9) members to serve as the Governing Body
of the Hospital. In such event, the Governing Body members shall
include, in addition to the General Partner or its designee, the
president or chief executive officer of the Hospital who shall be
designated by the General Partner and three (3) representatives elected
from time to time by the Investor General
39
Partner one of whom must be the medical director of the hospital. The
remaining members of the Governing Body shall be elected from time to
time by the General Partner. The General Partner may delegate to such
governing body such duties and responsibilities of the General Partner
as the General Partner deems necessary or appropriate. Notwithstanding
the foregoing, in the event the Governing Body is so created, the
General Partner shall continue to have the right to make decisions with
respect to matters which are reserved for the General Partner under the
terms of this Agreement and the Investor General Partner shall continue
to have the right to make decisions with respect to matters which are
expressly reserved to the Investor General Partner hereunder.
Any proposed amendment by either the General Partner or the Investor
General Partner under this Section 11.1 shall not be unreasonably delayed or
rejected by the other.
SECTION 11.2 RESTRICTIONS ON AMENDMENTS.
Notwithstanding Section 11.1 above, the General Partner and the
Investor General Partner shall make no amendment which would materially and
adversely affect the federal income tax treatment to be afforded each Partner,
materially and adversely affect the Partnership Interests and liabilities of
each Partner as provided herein, materially change the purposes of the
Partnership, extend or otherwise modify the term of the Partnership, or
materially change the method of allocations and distributions as provided in
Article VI and Article VII, without the written consent of VHI and the Investor
Limited Partner.
SECTION 11.3 AMENDMENTS TO CERTIFICATE.
In making any amendments to this Agreement, there shall be prepared,
executed and filed for recording by the General Partner such documents amending
the Certificate of Limited Partnership as required under the Act.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 REVOCABLE LIMITED POWER OF ATTORNEY.
Upon the execution hereof, the Investor Limited Partner hereby
revocably constitutes and appoints the Investor General Partner as its true and
lawful attorneys in the Investor Limited Partner's name and on the Investor
Limited Partner's behalf to take at any time all such action which the Investor
General Partner are expressly authorized to perform, or which the Investor
Limited Partner is expressly required to perform, under this Agreement.
40
SECTION 12.2 WAIVER OF PROVISIONS.
The waiver of compliance at any time with respect to any of the
provisions, terms or conditions of this Agreement shall not be considered a
waiver of such provision, term or condition itself or of any of the other
provisions, terms or conditions hereof.
SECTION 12.3 INTERPRETATION AND CONSTRUCTION.
This Agreement, together with the Management Services Agreement, the
Hospital Professional Services Agreement and the Right of First Refusal
Agreement between an Affiliate of the General Partner and the Owners constitutes
the entire agreement among the Partners and any modification or amendment hereto
must be accomplished in accordance with the provisions of Article XI and Article
XII. Where the context so requires, the masculine shall include the feminine and
the neuter, and the singular shall include the plural. The headings and captions
in this Agreement are inserted for convenience and identification only and are
in no way intended to define, limit or expand the scope and intent of this
Agreement or any provision thereof. The references to Section and Article in
this Agreement are to the Sections and Articles of this Agreement.
SECTION 12.4 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, exclusive of its conflict of law rules.
SECTION 12.5 PARTIAL INVALIDITY.
In the event that any part or provision of this Agreement shall be
determined to be invalid or unenforceable, the remaining parts and provisions of
said Agreement which can be separated from the invalid or unenforceable
provision and shall continue in full force and effect.
SECTION 12.6 BINDING ON SUCCESSORS.
The terms, conditions and provisions of this Agreement shall inure to
the benefit of, and be binding upon the parties hereto and their respective
heirs, successors, distributees, legal representatives, and assigns. However,
none of the provisions of this Agreement shall be for the benefit of or
enforceable by any creditors of the Partnership.
SECTION 12.7 NOTICES AND DELIVERY.
(a) To Partners. Any notice to be given hereunder at any
time to any Partner or any document reports or returns required by this
Agreement to be delivered to any Partner, may be delivered personally
or mailed to such Partner, postage prepaid, addressed to the Partner at
such times as the Partner shall by notice to the Partnership have
designated as the Partner's address for the mailing of all notices
hereunder or, in the absence of such notice, to the address set forth
in Article IV hereof. Any notice, or any
41
document, report or return so delivered or mailed shall be deemed to
have been given or delivered to such Partner at the time it is mailed,
as the case may be.
(b) To the Partnership. Any notice to be given to the
Partnership hereunder shall be delivered personally or mailed to the
Partnership, by certified mail, postage prepaid, addressed to the
Partnership at its registered office. Any notice so delivered or mailed
shall be deemed to have been given to the Partnership at the time it is
delivered or mailed, as the case may be.
SECTION 12.8 COUNTERPART EXECUTION; FACSIMILE EXECUTION.
This Agreement may be executed in any number of counterparts with the
same effect as if all of the Partners had signed the same document. Such
executions may be transmitted to the Partnership and/or the other Partners by
facsimile and such facsimile execution shall have the full force and effect of
an original signature. All fully executed counterparts, whether original
executions or facsimile executions or a combination, shall be construed together
and constitute one and the same agreement.
SECTION 12.9 STATUTORY PROVISIONS.
Any statutory reference in this Agreement shall include a reference to
any successor to such statute and/or revision thereof.
SECTION 12.10 WAIVER OF PARTITION.
Each party does hereby waive any right to partition or the right to
take any other action which might otherwise be available to such party for the
purpose of severing its relationship with the Partnership or such party's
interest in the assets held by the Partnership from the interests of other
Partners until the end of the term of both this Partnership and any successor
partnership formed pursuant to the terms hereof.
SECTION 12.11 CHANGE IN LAW.
If due to any new law, rule or regulation, or due to an interpretation
or enforcement of any existing law, rule or regulation, health care counsel,
reasonably selected by the General Partner and approved by the Investor General
Partner with such approval not to be unreasonably withheld, determines in
writing that it is reasonably likely that the relationships established between
any of the parties to this Agreement including any Partner, Owner, Practice or
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 by the General
Partner and the Investor Limited Partner, such approval not to be unreasonably
withheld or delayed, such
42
restructured agreement shall become binding upon all Partners of the
Partnership. Second, in the event that within forty-five (45) days following the
Partnership's receipt of legal advice in writing from such health care counsel
regarding Applicable Law the parties hereto are unable to negotiate an
acceptable restructuring of their relationship, then the General Partner or, at
the General Partner's option, its Affiliate shall, within the following
forty-five (45) day period, purchase the Partnership Interests of all of the
Partners whose ownership is involved with such noncompliance with Applicable Law
for a purchase price equal to the greater of: (a) the Formula Purchase Price or
(b) the amount of the Capital Contributions made by each such Partner to the
Partnership 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 General Partner pays all amounts due under the terms of this Section
12.11. For these purposes, distributions to the Partners by the Partnership
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
General Partner. Such purchase price shall be paid in accordance with the
Payment Method. In the event that the General Partner or its Affiliate sells its
entire Partnership Interest (in a single transaction or a series of related
transactions) to a third party in an arm's length transaction (excluding,
however, any transaction with any party who purchases fifty-one percent (51%) or
more of MedCath.Corporation's, MedCath Incorporated's and their subsidiaries'
assets or their capital stock) that closes within twelve (12) months of the date
that the General Partner purchased such Partnership Interest pursuant to this
Section 12.11 for a purchase price (the "Resale Price") that is greater than the
purchase price paid by the General Partner under this Section 12.11, then the
purchase price payable under this Section 12.11 to the Partners whose
Partnership Interest was so acquired shall be increased to reflect the Resale
Price (or the proportionate share of the Resale Price if more than the original
Partnership Interest held by the Limited Partners is sold) actually paid by the
third party.
SECTION 12.12 INVESTMENT REPRESENTATIONS OF THE PARTNERS.
(a) Each Partner or individual executing this Agreement
on behalf of an Entity which is a Partner hereby represents and
warrants to the Partnership and to the Partners that such Partner has
acquired such Partner's Partnership Interest in the Partnership for
investment solely for such Partner's own account with the intention of
holding such Partnership Interest for investment, without any intention
of participating directly or indirectly in any distribution of any
portion of such Partnership Interest, including an Economic Interest,
and without the financial participation of any other Person in
acquiring such Partnership Interest in the Partnership and that by
executing this Agreement, or holding such Partnership Interest, such
Partner or individual is not in violation of any other agreement or
obligation.
(b) Each Partner or individual executing this Agreement
on behalf of an entity which is a Partner hereby acknowledges that such
Partner is aware that such Partner's Partnership Interest in the
Partnership has not been registered (i) under the Securities Act of
1933, as amended (the "Federal Act"), (ii) under applicable Texas
securities laws, or
43
(iii) under any other state securities laws. Each Partner or individual
executing this Agreement on behalf of an Entity which is a Partner
further understands and acknowledges that his representations and
warranties contained in this Section are being relied upon by the
Partnership and by the Partners as the basis for the exemption of the
Partners' Partnership Interest in the Partnership from the registration
requirements of the Federal Act and from the registration requirements
of applicable Texas securities laws and all other state securities
laws. Each Partner or individual executing this Agreement on behalf of
an Entity which is a Partner further acknowledges that the Partnership
will not and has no obligation to recognize any sale, transfer, or
assignment of all or any part of such Partner's Partnership Interest,
including an Economic Interest in the Partnership to any Person unless
and until the provisions of this Agreement hereof have been fully
satisfied.
(c) Each Partner or individual executing this Agreement
on behalf of an Entity which is a Partner hereby acknowledges that
prior to his execution of this Agreement, such Partner received a copy
of this Agreement and that such Partner has examined this Agreement or
caused this Agreement to be examined by such Partner's representative
or attorney. Each Partner or individual executing this Agreement on
behalf of an Entity which is a Partner hereby further acknowledges that
such Partner or such Partner's representative or attorney is familiar
with this Agreement and with the Partnership's business plans. Each
Partner or individual executing this Agreement on behalf of an Entity
which is a Partner acknowledges that such Partner or such Partner's
representative or attorney has made such inquiries and requested,
received, and reviewed any additional documents necessary for such
Partner to make an informed investment decision and that such Partner
does not desire any further information or data relating to the
Partnership or to the Partners. Each Partner or individual executing
this Agreement on behalf of an Entity which is a Partner hereby
acknowledges that such Partner understands that the purchase of such
Partner's Partnership Interest in the Partnership is a speculative
investment involving a high degree of risk and hereby represents that
such Partner has a net worth sufficient to bear the economic risk of
such Partner's investment in the Partnership and to justify such
Partner's investing in a highly speculative venture of this type.
SECTION 12.13 DECISIONS BY GENERAL PARTNER AND INVESTOR GENERAL
PARTNER REPRESENTATIVES.
EACH OF THE PARTNERS HEREBY AUTHORIZES THE REPRESENTATIVES OF THE
GENERAL PARTNER (THE "GENERAL PARTNER REPRESENTATIVES") AND THE REPRESENTATIVES
OF THE INVESTOR GENERAL PARTNER DESIGNATED PURSUANT TO SECTION 5.13 (THE
"INVESTOR GENERAL PARTNER REPRESENTATIVES") TO MAKE THE DECISIONS TO BE MADE BY
THE GENERAL PARTNER AND THE INVESTOR GENERAL PARTNER HEREUNDER AND HEREBY
RELEASE AND HOLD HARMLESS THE GENERAL PARTNER REPRESENTATIVES AND THE INVESTOR
GENERAL PARTNER REPRESENTATIVES FROM ANY AND ALL CLAIMS,
44
LIABILITIES, LOSSES OR DAMAGES WHICH ANY OF THEM MAY HAVE NOW OR IN THE FUTURE
RESULTING FROM ANY DECISION MADE BY THE GENERAL PARTNER REPRESENTATIVES AND THE
INVESTOR GENERAL PARTNER REPRESENTATIVES HEREUNDER UNLESS DUE TO THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH GENERAL PARTNER REPRESENTATIVE OR
INVESTOR GENERAL PARTNER REPRESENTATIVE.
SECTION 12.14 REFERRALS TO HOSPITAL AND OWNERSHIP OF SHARES OF
COMMON STOCK OF MEDCATH INCORPORATED.
Each Partner agrees that if in the reasonable opinion of health care
counsel of MedCath Incorporated, referrals of patients to the Hospital by a
Partner, Owner, Practice or their Affiliate or ownership of shares of common
stock in MedCath Incorporated by a Partner, Owner, Practice or their Affiliate
would cause or constitute a violation of any federal or state law, rule or
regulation, then, as applicable,
(a) the Partner, Owner, Practice or their Affiliate shall
not refer patients to the Hospital; and
(b) the Partner, Owner, Practice or their Affiliate shall
not acquire, nor continue to own any of shares of common stock of
MedCath Incorporated.
SECTION 12.15 ACKNOWLEDGMENTS REGARDING LEGAL REPRESENTATION.
Each of the Partners hereunder acknowledge and agree that ▇▇▇▇▇ & ▇▇▇
▇▇▇▇▇, PLLC is counsel for the General Partner and its Affiliates, and may also
serve as counsel for the Partnership from time to time. Each of the Partners
hereby acknowledges and consents to such representation. Each Partner other than
the General Partner further acknowledges and agrees that it shall have no
attorney-client relationship with ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, PLLC as a result of ▇▇▇▇▇ &
▇▇▇ ▇▇▇▇▇, PLLC's representation of the Partnership from time to time. Each
Partner further consents to ▇▇▇▇▇ & Van Allen's representation of the
Partnership to the extent such firm is requested to do so by the General
Partner.
SECTION 12.16 ARBITRATION.
Subject to the right of any party to seek an injunction or other
equitable relief from a court with applicable authority, any controversy,
dispute or disagreement arising out of or relating to this Agreement shall be
resolved by binding arbitration, which shall be conducted in San Antonio, Texas
in accordance with the American Health Lawyers Association Alternative Dispute
Resolution Service Rules of Procedure for Arbitration. Such arbitration shall be
conducted by a panel of three (3) arbitrators none of whom shall reside in or
practice primarily in Texas nor have previously represented the parties in any
capacity. Any decision rendered by the arbitrators shall be final and binding on
the parties and shall be enforceable in any court having jurisdiction thereof.
The arbitrators shall have the authority to require the losing party to pay all
costs associated with such arbitration, including expenses and fees of
arbitrators.
45
SECTION 12.17 EXHIBITS.
The Exhibits to this Agreement, each of which is incorporated by
reference, are:
EXHIBIT A: Certificate of Limited Partnership.
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 date described in
Article II.
[EXECUTIONS APPEAR ON THE FOLLOWING PAGES]
46
EXECUTION PAGE
TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
SAN ANTONIO HEART HOSPITAL, LP
A Texas Limited Partnership
[***]
[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
47
For the purpose of acknowledging and agreeing to be bound by the terms of
Section 5.9 hereof, the undersigned Investor Entities and Owners execute this
Limited Partnership Agreement.
[***]
[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
48
EXHIBIT A
TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
SAN ANTONIO HEART HOSPITAL, LP
A Texas Limited Partnership
See attached.
FILED
Office of the Secretary of State In the Office of the
Corporations Section Secretary of State of Texas
▇.▇. ▇▇▇ ▇▇▇▇▇ SEP 17 2001
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ Corporations Section
--------------------------------------------------------------------------------
Certificate of Limited Partnership
1. The name of the limited partnership is Heart Hospital of San Antonio,
LP
--------------------------------------------------------------------------------
2. The street address of its proposed registered office in Texas is (a
P.O. Box is not sufficient) c/o C T Corporation System, ▇▇▇ ▇. ▇▇. ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------------------------------------------------
and the name of its proposed registered agent in Texas at such address is
C T Corporation System
--------------------------------------------------------------------------------
3. The address of the principal office in the United States where records
of the partnership are to be kept or made available is
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
--------------------------------------------------------------------------------
4. The name, the mailing address, and the street address of the business
or residence of each general partner is as follows:
NAME MAILING ADDRESS STREET ADDRESS
(include city, state, zip code) (include city, state, zip code)
San Antonio Hospital Management, Inc. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Date Signed: 9/17/2001
---------
San Antonio Hospital Management, Inc.
--------------------------------------
General Partner(s)
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President,
Secretary and Assistant Treasurer
EXHIBIT B
TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
SAN ANTONIO HEART HOSPITAL, LP
A Texas Limited Partnership
INFORMATION EXHIBIT
Reduced
Aggregate Aggregate Percentage
Initial Capital Contribution Contribution Partnership
Name, Address & TIN Contribution Cap** Cap** Interest
------------------- --------------- ------------ ------------ -----------
[***]
**See Section 3.5(c) of the Limited Partnership Agreement
[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
EXHIBIT C
TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
SAN ANTONIO HEART HOSPITAL, LP
A Texas Limited Partnership
GLOSSARY OF TERMS
As used in this Agreement, the following terms shall have the following
definitions (unless otherwise expressly provided herein).
"Act" means the Texas Revised Limited Partnership Act, as in effect in
Texas and set forth at Tex. Rev. Civ. Stat. Art. 6132a-1 (or any corresponding
provisions of succeeding law).
"Adjusted Capital Account" means, with respect to any Partner or
Economic Interest Owner, such Person's Capital Account (as defined below) as of
the end of the relevant Fiscal Year increased by any amounts which such Person
is obligated to restore, or is deemed to be obligated to restore pursuant to the
next to last sentences of Regulations Section 1.704-2(g)(1) (share of minimum
gain) and Regulations Section 1.704-2(i)(5) (share of partner nonrecourse debt
minimum gain) and decreased by the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Affiliate" means with respect to a Person, (i) any relative of such
Person; (ii) any officer, director, trustee, partner, manager, employee or
holder of ten percent (10%) or more of any class of the outstanding voting
securities or of an equity interest of such Person; or (iii) any Entity or
holder of ten percent (10%) or more of the outstanding voting securities or of
an equity interest of any Entity, controlling, controlled by, or under common
control with such Person. In addition the following Entities, and all direct and
indirect owners thereof, shall be considered Affiliates under this Agreement:
S.A.H.H. Investment Group, Ltd., S.A.H.H. Management Company, LLC and S.A.H.H.
Hospital Management, LLC
"Agreed Value" means with respect to any noncash asset of the
Partnership 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 Partnership by any Partner shall be
its gross fair market value, as agreed to by the contributing Partner
and the Partnership.
(b) The initial Agreed Value of any noncash asset
acquired by the Partnership other than by contribution by a Partner
shall be its adjusted basis for federal income tax purposes.
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(c) The initial Agreed Values of all the Partnership'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 Partnership, regardless of
how those assets were acquired, shall be adjusted from time to time to
equal their gross fair market values, as agreed to by the Partners in
writing, as of the following times:
(i) the acquisition of a Partnership Interest or
an additional Partnership Interest in the Partnership by any
new or existing Partner in exchange for more than a de minimis
Capital Contribution;
(ii) the distribution by the Partnership of more
than a de minimis amount of money or other property as
consideration for all or part of a Partnership Interest in the
Partnership; and
(iii) the termination of the Partnership 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 Partners do not agree in writing on the gross fair market values
of the Partnership's assets, it shall be deemed that the fair market values of
all the Partnership'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 Limited Partnership Agreement, as amended from
time to time.
"Bylaws, Rules and Regulations of the Medical Staff" means those
bylaws, rules and regulations adopted for the Hospital's Medical Staff.
"Capital Account" means with respect to each Partner or assignee an
account maintained and adjusted in accordance with the following provisions:
(a) Each Person's Capital Account shall be increased by
Person's Capital Contributions, such Person's distributive share of
Profits, any items in the nature of income or gain that are allocated
pursuant to the Regulatory Allocations and the amount of any
Partnership liabilities that are assumed by such Person or that are
secured by Partnership 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 Partnership 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,
C-2
and the amount of any liabilities of such Person that are assumed by
the Partnership or that are secured by any property contributed by such
Person to the Partnership.
In the event any Partnership 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 Partnership
Interest.
In the event the Agreed Values of the Partnership assets are adjusted
pursuant to the definition of Agreed Value contained in this Agreement, the
Capital Accounts of all Partners shall be adjusted simultaneously to reflect the
aggregate adjustments as if the Partnership 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 General Partner 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 General Partner may make such modification, provided that it is not likely
to have a material effect on the amounts distributable to any Partner pursuant
to Articles VI or VII hereof upon the dissolution of the Partnership. In the
event the General Partner shall determine such adjustments are necessary or
appropriate to comply with Regulations Section 1.704-1(b)(2)(iv), the General
Partner shall adjust the amounts debited or credited to Capital Accounts with
respect to (i) any property contributed by the Partners or distributed to the
Partners and (ii) any liabilities secured by such contributed or distributed
property or assumed by the Partners. The General Partner 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 Partnership Interest in the Partnership 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 Partnership Interest.
"Capital Contribution" means with respect to any Partner, the amount of
money and the initial Agreed Value of any property (other than money)
contributed to the Partnership with respect to the Partnership Interest of such
Partner.
"Cash Distributions" means net cash distributed to Partners resulting
from Cash Flow from Operations or Cash from Sales or Refinancing, but shall not
include cash payments made to the General Partner as its Management Fee for
services or any amount in repayment of loans made by the Partners to the
Partnership.
"Cash Flow from Operations" means net cash funds provided from
operations, exclusive of Cash from Sales or Refinancing, of the Partnership or
investment of any Partnership 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
General Partner reasonably determines to be necessary or appropriate; provided,
C-3
without the consent of the Investor General Partner, the General Partner shall
not use such net cash funds for the early repayment of Partnership debt.
"Cash from Sales or Refinancing" means the net cash proceeds received
by the Partnership 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 General Partner in its sole and absolute discretion
toward the payment of any indebtedness and other obligations of the Partnership
then due and payable, including payments of principal and interest on mortgages,
(iii) the payment of any other expenses or amounts owed by the Partnership to
other parties to the extent then due and payable, and (iv) the establishment of
any reserves deemed necessary by the General Partner in its 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.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership of the Partnership, as filed with the Secretary of State of Texas as
the same may be amended from time to time.
"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.
"Default Rate" means a per annum rate of return on a specified
principal sum, compounded monthly, equal to the greater of (a) the Prime Rate
plus 500 basis points, or (b) 18%, but in no event greater than the highest rate
allowed by law.
"Economic Interest" means and shall refer to that portion of the
Partnership Interest of a Partner in the economic rights and benefits of the
Partnership, including but not limited to all Profits, Losses and Cash
Distributions. Such an Economic Interest will be measured by an amount equal to
the Partner's percentage Partnership Interest in the Partnership as the same may
be adjusted from time to time.
"Economic Interest Owner" means a Person who has validly acquired a
Partner's Economic Interest as permitted under this Agreement but who has not
become a Partner. Such Person shall be entitled to the allocations of Profits
and Losses and Cash Distributions under Article VI and VII 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 Partner, it shall be a mere assignee of a Partner.
"Entity" means any general partnership, limited partnership, limited
liability company, limited liability partnership, corporation, joint venture,
trust, business trust, cooperative or association or any foreign trust or
foreign business organization.
C-4
"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 Partnership,
the period beginning upon the formation of the Partnership and ending on the
next September 30, with respect to subsequent years of the Partnership, the
twelve month period beginning October 1 and ending September 30, and, with
respect to the last year of the Partnership, the portion of the period beginning
October 1 and ending with the date of the final liquidating distributions.
"General Partner" means and shall refer to SAHMI. The powers, rights
and duties of the General Partner to manage the affairs of the Partnership are
specified or designated in this Agreement.
"Governing Body" means a body created to govern Hospital affairs as
further described at Section 11.1(g) of this Agreement.
"Hospital" means an acute care general hospital specializing in all
aspects of cardiology and cardiovascular care and surgery in San Antonio, Texas
as further described in Section 2.3 of the Agreement.
"Investor Entity" means an Entity that has an indirect or direct
ownership interest in the Investor Limited Partner or the Investor General
Partner.
"Investor General Partner" means S.A.H.H. Hospital Management, LLC, a
Texas limited liability company and general partner under this Agreement. The
powers of the Investor General Partner with respect to the Partnership shall be
limited to those expressly delegated to the Investor General Partner in this
Agreement.
"Investor Limited Partner" means S.A.H.H. Investment Group, Ltd., a
Texas limited partnership.
"Limited Partners" means the Limited Partners listed on the Information
Exhibit attached hereto.
"Management Fee" means the amounts payable to the General Partner
pursuant to Section 5.6(a) for services rendered in managing the operations of
the Partnership.
"Management Services Agreement" means the agreement by and between the
Partnership and SAHMI pursuant to which SAHMI will manage the day-to-day
business and affairs of the Partnership.
"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: (1) agreements or obligations contemplated by any
budget, development plan, financing or construction contract approved by
C-5
the General Partner as adjusted in Section 5.6(d) and Section 5.15(c)(iii); or
(2) agreements incurred in the ordinary course of business such as employment
agreements, purchases of supplies and routine services and the like except for
those agreements for amounts in excess of $500,000.00 (whether in a single
transaction or a series of related transactions) that have not been previously
included in the budget approved by the General Partner and Investor General
Partner.
"Material Decision" means any decisions regarding approvals of the
development and operating budgets for the Hospital, the selection of the site
for the Hospital, the design of the Hospital, the selection of the Hospital's
senior administrator, strategic planning, the execution of managed care
contracts and the execution of exclusive contracts to provide physician services
to the Hospital.
"Medical Director" means the individual designated as the medical
director of the Hospital pursuant to a Medical Director Agreement.
"Medical Staff" means the medical staff of the hospital owned and
operated by the Partnership.
"Organization Expenses" means those expenses incurred, either by the
Partnership, on behalf of the Partnership or for which the Partnership has
agreed to make reimbursement, in connection with the formation of the
Partnership including such expenses as: (i) registration fees, filing fees, and
taxes; and (ii) legal fees incurred in connection with any of the foregoing.
"Owner" means an individual who, through an Investor Entity or
otherwise, has a direct or indirect ownership interest in the Investor Limited
Partner.
"Partner" means and shall refer to the organizers of the Partnership
(unless or until any such organizer has withdrawn) and each of the Persons
identified as "Partners" in the then applying Information Exhibit attached
hereto and incorporated herein by this reference. If a Person is already a
Partner immediately prior to the purchase or other acquisition by such Person of
an Economic Interest or Partnership Interest, such Person shall have all the
rights of a Partner with respect to such purchased or otherwise acquired
Partnership Interest or Economic Interest, as the case may be.
"Partnership" means and shall refer to San Antonio Heart Hospital, LP,
which was created upon the filing of the Certificate of Limited Partnership with
the Office of the Secretary of State of Texas, to be operated under the name San
Antonio Heart Hospital, LP, a Texas limited partnership, and to continue under
this Agreement, as amended from time to time.
"Partnership Interest" means all of a Partner's rights in the
Partnership, including without limitation the Partner's share of Profits,
Losses, Cash Distributions and other benefits of the Partnership, any right to
vote, any right to participate in the management of the business and affairs of
the Partnership, including the right to vote on, consent to, or otherwise
participate in any decision or action of or by the Partners granted pursuant to
this Limited Partnership
C-6
Agreement or the Act. The percentage Partnership Interest of each Partner,
their Capital Contributions and other related information shall be listed on the
Information Exhibit. The percentage Partnership Interests generally shall be
based upon the pro rata Capital Contribution of each Partner.
"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.
"Practice" means the Entity through which an Owner primarily conducts
his medical office practice.
"Prime Rate" means the rate of interest as of the relevant day or time
period as announced by the Bank of America, N.A. or its successor in interest
from time to time as its prime or reference rate.
"Profits and Losses" means, for each Fiscal Year or other period, an
amount equal to the Partnership's taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(l) shall be included in taxable income or loss),
with the following adjustments:
(a) Any income of the Partnership 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 Partnership 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 Partnership assets
shall be computed by reference to the Agreed Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Agreed Value.
"Project Costs" shall include, without limitation, all costs incurred
by the Partnership in connection with the development and construction of the
Hospital, including without limitation, land acquisition costs, equipment costs,
architectural, design and engineering costs, legal and accounting costs,
construction costs, construction period interest, pre-opening expenses, fees
payable to the General Partner or its Affiliates, and other construction and
development costs incurred in connection with the construction and development
of the Hospital, which total amount shall finally be determined by the General
Partner following the opening of the Hospital.
"Refinancing" means any borrowing incurred or made to recapitalize the
Partnership or the equity investment in, or to refinance any loan used to
finance the acquisition of property.
C-7
"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
Partnership income, gain, loss or deduction set forth on the Regulatory
Allocations Exhibit and designed to enable the Partnership 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.
"SAHMI" means and shall refer to San Antonio Hospital Management, Inc.,
which shall serve as the General Partner of the Partnership.
"Sale" means the sale, exchange, involuntary conversion (other than a
casualty followed by reconstruction), condemnation, or other disposition of
property by the Partnership, except for dispositions of inventory items and
personal property in the ordinary course of business and in connection with the
replacement of such property.
"Substitute General Partner" means a General Partner who succeeds the
General Partner with all of the specific rights and powers of such General
Partner under this Agreement.
"Substitute Partner" means an assignee of a Partner who has been
admitted to the Partnership and granted all the rights of a Partner in place of
its assignor pursuant to the provisions of this Agreement. A Substitute Partner,
upon its admission as such, shall replace and succeed to the rights, privileges,
and liabilities of the Partner from whom it acquired its interest in the
Partnership, to the extent of the Economic Interest assigned.
"VHI" means Venture Holdings, Inc., an Arizona corporation, which shall
be a Limited Partner of the Partnership.
C-8
EXHIBIT D
TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
SAN ANTONIO HEART HOSPITAL, LP
A Texas Limited Partnership
DEVELOPMENT BUDGET EXHIBIT
See attached
D-1
San Antonio Heart Hospital, LP
Capital Expenses
FACILITY SIZE
Total Beds [***]
Total Square Feet [***]
Finished Square Feet [***]
Shelled Square Feet [***]
CAPITAL EXPENSES Total
Amount
Property: $[***]
Land Cost [***]
Building Construction [***]
Architectural Fees [***]
Interest During Construction [***]
-------
Total Property $[***]
Equipment Capacity
Cath Labs [***]/labs/yr $[***]
Operating Rooms [***]/OR/yr [***]
CVRU/Recovery [***]
Radiology, Laboratory & Respiratory [***]
Patient Care [***]
Emergency [***]
Management Information Systems [***]
Other Departments [***]
Interest [***]
-------
Total Equipment $[***]
Loan Acquisition Costs: [***]
TOTALS $[***]
[***] These sections of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
EXHIBIT E
TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
SAN ANTONIO HEART HOSPITAL, LP
A Texas limited partnership
REGULATORY ALLOCATIONS
This Exhibit contains special rules for the allocation of items of
Partnership income, gain, loss and deduction that override the basic allocations
of Profits and Losses in the Agreement to the extent necessary to cause the
overall allocations of items of Partnership 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) "Partnership 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 Partnership 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
Partnership, until such time as there is regulatory
guidance on the determination of minimum gain with
respect to such liabilities, all such liabilities of
the Partnership shall be treated as a single
liability and allocated to the Partnership's assets
using any reasonable basis selected by the General
Partner.
(ii) "Partner Nonrecourse Deductions" means losses,
deductions or Code Section 705(a)(2)(B) expenditures
attributable to Partner Nonrecourse Debt under the
general principles applicable to "partner nonrecourse
deductions" set forth in Regulations Section
1.704-2(i)(2).
(iii) "Partner Nonrecourse Debt" means any Partnership
liability with respect to which one or more but not
all of the Partners or related Persons to one or more
but not all of the Partners bears the economic risk
of loss within the meaning of Regulations Section
1.752-2 as a guarantor, lender or otherwise.
E-1
(iv) "Partner Nonrecourse Debt Minimum Gain" means the
minimum gain attributable to Partner Nonrecourse Debt
as determined pursuant to Regulations Section
1.704-2(i)(3). In the case of Partner Nonrecourse
Debt for which the creditor's recourse against the
Partnership is not limited to particular assets of
the Partnership, until such time as there is
regulatory guidance on the determination of minimum
gain with respect to such liabilities, all such
liabilities of the Partnership shall be treated as a
single liability and allocated to the Partnership's
assets using any reasonable basis selected by the
General Partner.
(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
Partnership 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 Partnership Minimum Gain,
with such other modifications as provided in
Regulations Section 1.704-2(c).
(vi) "Nonrecourse Liability" means any Partnership
liability (or portion thereof) for which no Partner
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 Partner Nonrecourse Deductions
provided in Paragraph (c) below, the minimum gain
chargeback provided in Paragraph (d) below, the
Partner 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 Partners in accordance with their
percentage Partnership Interests.
(c) Partner Nonrecourse Deductions. All Partner Nonrecourse
Deductions for any Fiscal Year shall be allocated to the Partner who bears the
economic risk of loss under Regulations Section 1.752-2 with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable.
E-2
(d) Minimum Gain Chargeback. If there is a net decrease in
Partnership Minimum Gain for a Fiscal Year, each Partner shall be allocated
items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Partner's share of such net
decrease in Partnership Minimum Gain, determined in accordance with Regulations
Section 1.704-2(g)(2) and the definition of Partnership 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) Partner Nonrecourse Debt Minimum Gain Chargeback. If there is
a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a
Partner Nonrecourse Debt for any Fiscal Year, each Partner who has a share of
the Partner Nonrecourse Debt Minimum Gain attributable to such Partner
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
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Partner's share of the net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Sections 1.704-2(i)(4) and (5) and the
definition of Partner Nonrecourse Debt Minimum Gain set forth above. This
Paragraph is intended to comply with the Partner nonrecourse debt minimum gain
chargeback requirement in Regulations Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.
(f) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations, or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Partnership income and
gain (consisting of a pro rata portion of each item of Partnership income,
including gross income, and gain for such year) shall be allocated to such
Partner in an amount and manner sufficient to eliminate, to the extent required
by the Regulations, any deficit in such Partner's Adjusted Capital Account
created by such adjustments, allocations or distributions as quickly as
possible.
(g) Gross Income Allocation. In the event any Partner has a
deficit in its Adjusted Capital Account at the end of any Fiscal Year, each such
Partner shall be allocated items of Partnership 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 General
Partner determines that (i) either of the two minimum gain chargeback provisions
contained in this
E-3
Exhibit would cause a distortion in the economic arrangement among the
Partners, (ii) it is not expected that the Partnership will have sufficient
other items of income and gain to correct that distortion, and (iii) the
Partners have made Capital Contributions or received net income allocations that
have restored any previous Nonrecourse Deductions or Partner Nonrecourse
Deductions, then the General Partner shall have the authority, but not the
obligation, after giving notice to the Partners, to request on behalf of the
Partnership the Internal Revenue Service to waive the minimum gain chargeback or
Partner nonrecourse debt minimum gain chargeback requirements pursuant to
Regulations Sections 1.704-2(f)(4) and 1.704-2(i)(4). The Partnership shall pay
the expenses (including attorneys' fees) incurred to apply for the waiver. The
General Partner shall promptly copy all Partners 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 Partnership 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 Partners 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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