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EXHIBIT 10.20
OPERATING AGREEMENT
OF
HEART HOSPITAL OF DTO, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
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TABLE OF CONTENTS
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF DTO, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
ARTICLE I.........................................................................................................2
ARTICLE II........................................................................................................2
SECTION 2.1. Company Formation; Effective Date...........................................................2
SECTION 2.2. Name of Company.............................................................................2
SECTION 2.3. Purposes and Investment Objectives..........................................................2
SECTION 2.4. Registered Agent and Office; Principal Place of Business....................................3
SECTION 2.5. Commencement and Term.......................................................................3
ARTICLE III.......................................................................................................4
SECTION 3.1. Initial Capital Contributions of Members....................................................4
SECTION 3.2. Liability of Members - For Capital..........................................................4
SECTION 3.3. Maintenance of Capital Accounts; Withdrawals of Capital; Withdrawals from the Company.......4
SECTION 3.4. Interest on Capital Contributions or Capital Accounts.......................................5
SECTION 3.5. Additional Funding..........................................................................5
SECTION 3.6. Enforcement of Commitments..................................................................7
ARTICLE IV........................................................................................................7
ARTICLE V.........................................................................................................8
SECTION 5.1. General Authority and Powers of Managers....................................................8
SECTION 5.2. Restrictions on Authority of the Managers..................................................11
SECTION 5.3. Duties of the Managers.....................................................................12
SECTION 5.4. Delegation by the Managers.................................................................12
SECTION 5.5. Right to Rely Upon the Authority of the Managers...........................................13
SECTION 5.6. Company Expenses...........................................................................13
SECTION 5.7. No Management by Members...................................................................15
SECTION 5.8. Consent by Members to Exercise of Certain Rights and Powers by Managers....................16
SECTION 5.9. Other Business of Members..................................................................16
SECTION 5.10. Managers' Standard of Care................................................................17
SECTION 5.11. Limitation of Liability...................................................................18
SECTION 5.12. Indemnification of the Managers...........................................................18
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SECTION 5.13. Election and Replacement of Investor Manager..............................................18
SECTION 5.14. Role of Investor Manager..................................................................19
SECTION 5.15. Purchase of Goods and Services from MedCath...............................................19
SECTION 5.16. Decisions by Managers.....................................................................19
ARTICLE VI.......................................................................................................20
SECTION 6.1. Distributions of Cash Flow from Operations and Cash from Sales or Refinancing..............20
SECTION 6.2. Profits....................................................................................20
SECTION 6.3. Losses.....................................................................................20
SECTION 6.4. Code Section 704(c) Tax Allocations........................................................21
SECTION 6.5. Miscellaneous..............................................................................21
ARTICLE VII......................................................................................................22
SECTION 7.1. No Termination by Certain Acts of Member...................................................22
SECTION 7.2. Dissolution................................................................................22
SECTION 7.3. Dissolution and Final Liquidation..........................................................23
SECTION 7.4. Termination................................................................................24
SECTION 7.5. Payment in Cash............................................................................25
SECTION 7.6. Goodwill and Trade Name....................................................................25
SECTION 7.7. Termination of Noncompetition Covenants....................................................25
ARTICLE VIII.....................................................................................................25
SECTION 8.1. Manager - Transfers........................................................................25
SECTION 8.2. Members' Right to Continue When Company has no Manager.....................................26
SECTION 8.3. Relationship with Substitute Manager.......................................................26
SECTION 8.4. Members Who Are Not Managers - Restriction on Transfer.....................................27
SECTION 8.5. Condition Precedent to Transfer of Economic Interest and/or Membership Interest............28
SECTION 8.6. Substitute Member - Conditions to Fulfill..................................................28
SECTION 8.7. Allocations Between Transferor and Transferee..............................................29
SECTION 8.8. Rights, Liabilities of, and Restrictions on Assignee.......................................29
SECTION 8.9. Death of a Member..........................................................................30
SECTION 8.10. Repurchase of Interests in Certain Event..................................................30
SECTION 8.11. Permissible Transfers by Investor Members.................................................31
ARTICLE IX.......................................................................................................31
SECTION 9.1. Books of Account...........................................................................31
SECTION 9.2. Access to Records..........................................................................31
SECTION 9.3. Bank Accounts and Investment of Funds......................................................31
SECTION 9.4. Fiscal Year................................................................................32
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SECTION 9.5. Accounting Reports.........................................................................32
SECTION 9.6. Tax Returns................................................................................32
ARTICLE X........................................................................................................33
SECTION 10.1. Meetings..................................................................................33
SECTION 10.2. Voting Rights of Members..................................................................33
ARTICLE XI.......................................................................................................34
SECTION 11.1. Authority to Amend by Managers............................................................34
SECTION 11.2. Restrictions on Managers' Amendments: Amendments by Investor Members......................35
SECTION 11.3. Amendments to Certificates................................................................35
ARTICLE XII......................................................................................................35
SECTION 12.1. Limited Power of Attorney.................................................................35
SECTION 12.2. Waiver of Provisions......................................................................36
SECTION 12.3. Interpretation and Construction...........................................................36
SECTION 12.4. Governing Law.............................................................................36
SECTION 12.5. Partial Invalidity........................................................................36
SECTION 12.6. Binding on Successors.....................................................................36
SECTION 12.7. Notices and Delivery......................................................................36
SECTION 12.8. Counterpart Execution; Facsimile Execution................................................37
SECTION 12.9. Statutory Provisions......................................................................37
SECTION 12.10. Waiver of Partition......................................................................37
SECTION 12.11. Change In Law............................................................................37
SECTION 12.12. Investment Representations of the Members................................................38
SECTION 12.13. Decisions by Investor Manager............................................................39
SECTION 12.14. Referrals to Hospital and Ownership of Shares of Common Stock of MedCath Incorporated....39
SECTION 12.15. Exhibits.................................................................................39
EXHIBIT A: Information Exhibit.
EXHIBIT B: Glossary of Terms.
EXHIBIT C: Development Budget Exhibit.
EXHIBIT D: Regulatory Allocations.
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OPERATING AGREEMENT
OF
HEART HOSPITAL OF DTO, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
THESE SECURITIES ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND THE OHIO SECURITIES ACT IN
RELIANCE UPON THE REPRESENTATION OF EACH PURCHASER OF THE SECURITIES THAT THE
SAME ARE BEING ACQUIRED FOR INVESTMENT PURPOSES. THESE SECURITIES MAY
ACCORDINGLY NOT BE RESOLD OR OTHERWISE TRANSFERRED OR CONVEYED IN THE ABSENCE OF
REGISTRATION OF THE SAME PURSUANT TO THE APPLICABLE SECURITIES LAWS UNLESS AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.
THIS OPERATING AGREEMENT (the "Agreement") of Heart Hospital of DTO,
LLC (the "Company"), a North Carolina Limited Liability Company 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 Company has been formed to develop, own and operate an
acute care hospital which hospital shall be located in or near Dayton, Ohio and
shall specialize in all aspects of cardiology and cardiovascular care and
surgery which DTO Management and the Investor Manager may agree upon;
B. It is intended that the hospital will be a low-cost, high
quality provider of medical services within the Dayton, Ohio area in a manner
which is consistent with the national health care policy of lowering the costs
of health care;
C. The Capital Contributions and active involvement of the
Investor Members are necessary to enable the Company to achieve its objectives.
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ARTICLE I
DEFINITIONS
Unless otherwise indicated, capitalized words and phrases in this
Operating Agreement shall have the meanings set forth in the attached Glossary
of Terms.
ARTICLE II
FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY
SECTION 2.1. Company Formation; Effective Date. The Company shall
be upon the filing of the Articles of Organization with the Secretary of State
of North Carolina in accordance with the provisions of the Act. Upon the
Effective Date of this Agreement, the Persons listed on the attached Information
Exhibit shall be admitted to the Company as Members and the Persons who executed
the Articles shall be withdrawn as Members (unless they are listed on the
Information Exhibit), all without the necessity of any further act or instrument
and without causing the dissolution of the Company. DTO Management 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 liability company in the
State of North Carolina, and other documents to reflect the admission of
additional Members to the Company. Any costs incurred by DTO Management 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 "Effective
Date") the Company was formed.
SECTION 2.2. Name of Company. The name of the Company is Heart
Hospital of DTO, LLC.
SECTION 2.3. Purposes and Investment Objectives. The principal
purposes of the Company are as follows:
(a) To develop, own and operate the Hospital which would
include, but not be limited to, the following:
(i) Services and facilities to meet all
requirements of the State of Ohio, 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 cardiology and cardiovascular surgical services
of every type or nature and to be eligible to obtain
appropriate reimbursements therefore;
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(ii) Approximately 53,000 square feet in a
building to be constructed in accordance with plans and
specifications approved by the Company;
(iii) Approximately 40 medical/surgical beds;
(iv) 3 heart catheterization laboratories with
available space for one additional heart catheterization lab;
(v) 3 heart surgical suites with space for the
development of one additional heart surgical suite;
(vi) All appropriate support services and
systems; and
(vii) Appropriate Equipment and services with
respect to the facilities described above and as otherwise
reasonably necessary or appropriate for the diagnosis and
treatment of cardiovascular disease, including but not limited
to invasive and non-invasive cardiac testing, interventional
treatment including percutaneous transluminal coronary
angioplasty and atherectomy, and cardiac surgery which would
include, but not be limited to, bypass grafts and valve
surgery.
The above size, number and scope of facilities of the Hospital
are only preliminary estimates. The Managers are 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. Registered Agent and Office; Principal Place of
Business. The registered agent and office of the Company shall be as indicated
in the Articles of Organization, as amended from time to time. The principal
place of business of the Company shall be at such location in North Carolina as
selected by DTO Management from time to time. DTO Management shall promptly
notify the Members of any changes in the Company's registered agent, registered
office, or principal place of business.
SECTION 2.5. Commencement and Term. The Company commenced on the
filing of the Articles of Organization in the Office of the Secretary of State
of North Carolina, as required by Section 2.1 hereof, and shall continue until
December 31, 2037, 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 DTO
Management. In the event DTO Management does not elect to extend the
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term hereof, the Investor Manager may instead elect to extend the term hereof,
subject to DTO Management's consent which shall not be unreasonably withheld or
delayed.
ARTICLE III
MEMBERS AND CAPITAL CONTRIBUTIONS
SECTION 3.1. Initial Capital Contributions of Members. The
Members shall make the following initial Capital Contributions:
(a) DTO Management shall own at least a fifty-one percent
(51%) Membership Interest in the Company and shall contribute to the
Company for its Membership Interest One Million Five Hundred Thirty
Thousand Dollars ($1,530,000).
(b) The Investor Members shall own in the aggregate up to
a forty-nine percent (49%) Membership Interest and shall contribute to
the Company for their Membership Interests an amount, in the aggregate,
of up to One Million Four Hundred Seventy Thousand Dollars
($1,470,000). The Membership Interests of the Investor Members shall be
owned as shown on the Information Exhibit attached hereto.
In connection with the initial offering and admission of
Investor Members to the Company, in the event that additional portions of the
Membership Interests described in this Section 3.1(b) have not been subscribed
for, the Investor Members who become Members on or about the Effective Date
shall be entitled to acquire on a pro rata basis such remaining Member Interests
if DTO Management and the Investor Manager have agreed to offer such remaining
interests to any such original Investor Member.
The Members may be liable to the Company for amounts distributed to
them as a return of capital as provided by the Act. The Members shall not be
required to contribute any additional capital to the Company except as provided
in Section 3.5.
SECTION 3.2. Liability of Members - For Capital. The liability of
each Member for capital shall be limited to the amount of its agreed Capital
Contribution as a Member as provided in Section 3.1 and Section 3.5, except that
the Members may be liable to the Company for amounts distributed to them as a
return of capital as provided by the Act. The Members shall not be required to
contribute any additional capital to the Company except as provided in Section
3.5.
SECTION 3.3. Maintenance of Capital Accounts; Withdrawals of
Capital; Withdrawals from the Company. An individual Capital Account shall be
maintained for each Member in accordance with requirements of the Code and the
Regulations promulgated thereunder. No Member shall be entitled to withdraw or
to make demand for withdrawal of any part of its Capital Account or to receive
any distribution except as provided herein.
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Except as otherwise provided in this Agreement, each Member shall look solely to
the assets of the Company for the return of its Capital Contributions and shall
have no right or power to demand or receive property other than cash from the
Company. No Member shall have priority over any other Member as to the return of
its Capital Contributions, distributions or allocations, except as provided in
this Agreement.
Except as otherwise provided herein, a Member may not withdraw from the
Company without the written consent of DTO Management and the Supermajority Vote
of the Members and in no case shall a Member have the right to have its Interest
redeemed by the Company unless approved by DTO Management and by the
Supermajority Vote of the Members.
SECTION 3.4. Interest on Capital Contributions or Capital
Accounts. No interest shall be paid to any Member based solely on its Capital
Contributions or Capital Account. The preceding sentence shall not prevent the
Company from earning interest on its bank accounts and investments and
distributing such earnings to the Member in accordance with Articles VI and VII.
SECTION 3.5. Additional Funding. If from time to time, DTO
Management reasonably determines 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) Subject to the terms hereof, if additional funds are
required by the Company to enable it to pay its liabilities during its
development or startup phase, DTO Management agrees to loan the Company
up to Three Million Dollars ($3,000,000) for such purpose at the Prime
Rate plus one percent (1%) per annum which loan shall be secured by the
Company's assets. Interest on such loan shall be payable monthly and
the principal shall be repaid as the Company has funds available
therefore. Provided, however, if the Company's losses as calculated by
the Company's accountants under Generally Accepted Accounting
Principles ("GAAP") exceed the initial Capital Contributions made
pursuant to Section 3.1, DTO Management shall not be required to make
any such loan to the Company hereunder unless it is still needed after
the Members and Economic Interest Holders make additional Capital
Contributions pursuant to the terms of Section 3.5(b)(ii) below.
(b) Thereafter, if additional funds are required by the
Company to enable it to pay its obligations, subject to the
requirements set forth in (ii) below, then:
(i) DTO Management shall use
commercially reasonable efforts to borrow such funds from a
bank or other lender on terms and conditions reasonably
acceptable to DTO Management, or DTO Management may, but shall
not be required, to loan such funds to the Company at the
Prime Rate plus one percent (1%) per annum which loan shall be
secured by the Company's assets. Interest shall be paid
monthly in arrears and principal shall be repaid as the
Company has funds available therefore. All loans obtained
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hereunder shall be subject to the approval of the Investor
Manager which approval shall not be unreasonably withheld or
delayed;
(ii) If the Company has losses (after
the application of the delay in earning and accrual of the
fees provided for in Section 5.6(b)(ii), (iii) and (iv)) in
excess of the amount of the initial Capital Contributions, DTO
Management may from time to time, subject to the terms below,
upon at least fifteen (15) days prior written notice require
that the Members and Economic Interest Holders contribute
additional capital to the Company pro rata according to their
respective Membership Interests and Economic Interests,
provided however, a Member's or Economic Interest Holder's
maximum obligation for such additional Capital Contributions
shall be limited to an amount equal to two (2) times the
Member's initial Capital Contribution pursuant to Section 3.1
(or in the case of an Economic Interest Holder, the initial
Capital Contribution obligation under Section 3.1 of the
Person who first acquired that Economic Interest from the
Company). DTO Management shall determine from time to time
when such a mandatory Capital Contribution is needed and shall
give written notice to the Investor Member(s) and the Investor
Manager of the need for the Capital Contribution. This
mandatory Capital Contribution shall be subject to the consent
of the Investor Manager; however, said consent may not be
unreasonably withheld by the Investor Manager. It is further
acknowledged and agreed that in the event that after the
Manager has fully advanced its loan pursuant to Section 3.5(a)
that for any reason the Company requires additional funds to
meet debts that become due or because of a lack of reasonable
operating reserves, those shall be acceptable reasons for the
mandatory Capital Contribution which shall not be objected to
by the Investor Manager.
(iii) If additional Capital Contributions
are needed beyond the loans described in (a) and (b)(i) above
and beyond the mandatory amount indicated in (b)(ii) above,
each Member may elect whether or not to contribute its pro
rata portion thereof of these optional Capital Contributions.
The other Investor Members may elect to contribute optional
Capital Contributions not contributed by any Investor Member
hereunder. DTO Management may then elect to contribute amounts
which the Investor Members, in the aggregate, have not so
contributed as optional Capital Contributions. Thereafter, DTO
Management shall reasonably adjust the percentage Membership
Interest of each Member (based on the relative aggregate
Capital Contributions made by the Members in accordance with
this Agreement) in the event any Member elected not to make
optional Capital Contributions pursuant to this Section 3.5
within; and
(iv) If funds are not available in
accordance with (a) and (b), (i), (ii) or (iii) above, then
DTO Management may elect to dissolve the Company.
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SECTION 3.6. Enforcement of Commitments. In the event any Members
(a "Delinquent Member") fails to make a mandatory Capital Contribution as
provided in Section 3.1 or Section 3.5 or an optional Capital Contribution as
agreed to by the Member under Section 3.5 (the "Commitment"), DTO Management
shall give the Delinquent Member a Notice of the failure to meet the Commitment.
If the Delinquent Member fails to perform the Commitment (including any costs
associated with the failure to meet the Commitment and interest on such
obligation at the Default Interest Rate) within ten (10) business days of the
giving of Notice, DTO Management may take such action, including but not limited
to enforcing the Commitment in the court of appropriate jurisdiction in the
state in which the principal office of the Company is located or the state of
the Delinquent Member's address as then reflected in the Agreement. Each Member
expressly agrees to the jurisdiction of such courts but only for the enforcement
of Commitments. The other Member's may elect to contribute additional amounts
equal to any amount of the Commitment not contributed by such Delinquent Member.
The contributing Member shall be entitled at its election to treat the amounts
contributed pursuant to this Section either as a Capital Contribution or as a
loan from the contributing Member bearing interest at the Default Rate secured
by the Delinquent Member's Interest in the Company. If the contributing Member
elects to contribute such amount as a Capital Contribution, the percentage
Membership Interests of the Members shall be adjusted proportionately. Until the
contributing Member is fully repaid for such loan made as a result of the
default by the Delinquent Member and only if the contributing Member agrees to
accept repayment of such amount, the contributing Member shall be entitled to
all distributions to which the Delinquent Member would have been entitled had
such Commitment been fulfilled thereby. Notwithstanding the foregoing, no
Commitment or other obligation to make an additional Capital Contribution may be
enforced by a creditor of the Company unless the Member expressly consents to
such enforcement or to the assignment of the obligation to such creditor.
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the Members are as indicated on the
Information Exhibit, attached hereto and as amended from time to time.
ARTICLE V
MANAGEMENT OF THE COMPANY
SECTION 5.1. General Authority and Powers of Managers. Except as
set forth in those provisions of this Agreement that specifically require the
vote, consent, approval or ratification of the Members, the Managers shall have
complete authority and exclusive control
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over the management of the business and affairs of the Company. Subject to the
terms and conditions of this Agreement and except as otherwise provided herein,
all Material Agreements and Material Decisions with respect to the business and
affairs of the Company shall be approved or made by the Managers in accordance
with Section 5.16 hereof. No Member has the actual or apparent authority to
cause the Company to become bound in any contract, agreement or obligation, and
no Member shall take any action purporting to be on behalf of the Company. No
Manager shall cause the Company to become bound to any contract, agreement or
obligation, and no Manager shall take any other action on behalf of the Company,
unless such matter has received the vote, consent, approval or ratification as
required pursuant to this Agreement with respect to such matter or except as
provided below with respect to the authority and actions of DTO Management.
The day-to-day management of the business and affairs of the Company
shall be the responsibility of DTO Management, which management shall be subject
to decisions, guidelines and policies made or established by the Managers
hereunder, provided, however, decisions relating to medical and clinical
practice at the Hospital shall be made exclusively by the qualified medical
personnel of the Hospital. Subject in all cases to the foregoing, DTO Management
shall have the right and the power, if, as, and when it, from time to time,
deems necessary or appropriate on behalf of the Company, subject only to the
terms and conditions of this Agreement:
(a) To negotiate and execute on behalf of the Company all
documents, instruments and agreements reasonably necessary or
appropriate to lease, acquire and/or construct the Hospital and/or the
real property on which the Hospital is or will be located, and to
borrow funds to finance such lease, acquisition and/or construction (it
being acknowledged that the Hospital may be an existing building or may
be a newly constructed building);
(b) To prepare a budget for the development of the
Hospital and thereafter, annual operating budgets;
(c) To acquire the Equipment and enter into loans or
other financing arrangements therefor;
(d) To handle the negotiation and execution of all such
other agreements regarding the purchase of goods or services for the
Hospital;
(e) To establish procedures for quality assurance, peer
review and granting privileges to physicians with other specialties at
the Hospital, subject to the terms of the Hospital and medical staff
bylaws adopted for the Hospital;
(f) To expend all or portions of the Company's capital
and income in furtherance of or relating to the Company's business and
purposes, including, but not limited to, payment of all ongoing
operational expenses, payment of commissions,
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organization expenses, professional fees, rental fees, and management
fees, and to invest in short-term debt obligations (including, but not
limited to, obligations of federal and state governments and their
agencies, commercial paper, and certificates of deposit of commercial
banks, or savings banks or savings and loan associations) such of the
Company's funds as are temporarily not required for the development or
operation of the Company and the payment of Company obligations;
provided, that the Managers shall establish cash management guidelines
to be followed by DTO Management;
(g) To employ or retain on such terms and for such
compensation as DTO Management may reasonably determine, such persons,
firms, or corporations as DTO Management may deem advisable, including
without limitation qualified medical and other employees necessary or
appropriate to operate the Hospital, attorneys, accountants, financial
and technical consultants, supervisory managing agents, insurance
brokers, brokers and loan brokers, appraisers, architects and
engineers, who may also provide such services to DTO Management,
provided that the selection of the senior administrator of the Hospital
shall be a Material Decision;
(h) To execute leases, deeds, contracts, rental
agreements, construction contracts, sales agreements, and management
contracts;
(i) To exercise all rights, powers, and privileges of the
Company as lessee with respect to the Hospital or rights held by the
Company;
(j) To consent to the modification, renewal, or extension
of any obligations to the Company of any Person or of any agreement to
which the Company is a party or of which it is a beneficiary;
(k) To execute in furtherance of any or all of the
purposes of the Company, any deed, lease, deed of trust, security
interest, mortgage, promissory note, ▇▇▇▇ of sale, assignment,
contract, or other instrument purporting to purchase or convey or
encumber in whole or in part the Equipment or the Hospital or other
real or personal property of the Company;
(l) To prepay in whole or in part, refinance, recast,
increase, modify, or extend any security interest, deed of trust, or
mortgage affecting the Hospital and in connection therewith to execute
any extensions or renewals thereof on the Hospital and to grant
security interests in any of the Equipment or the Hospital;
(m) To adjust, compromise, settle, or refer to
arbitration any claim against or in favor of the Company, and to
institute, prosecute, and defend any actions or proceedings relating to
the Company, its business, and properties;
(n) To acquire and enter into any contract of insurance
which DTO Management deems necessary or appropriate for the protection
of the Company and
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DTO Management, for the conservation of the Company or its assets, or
for any purpose beneficial to the Company; however, neither DTO
Management nor its Affiliates shall be compensated for providing
insurance brokerage services relating to obtaining such insurance;
(o) To prepare or cause to be prepared reports,
statements, and other relevant information for distribution to the
Members, including annual reports;
(p) To open accounts and deposit and maintain funds in
the name of the Company in banks or savings and loan associations;
provided, however, that the Company's funds shall not be commingled
with the funds of any other Person;
(q) To cause the Company to make or revoke any of the
elections referred to in Section 754 of the Internal Revenue Code of
1986 as amended or any similar provisions enacted in lieu thereof;
(r) To make all decisions related to generally accepted
principles of accounting to be applied on a consistent basis and
federal income tax elections;
(s) To possess and exercise, subject to the restrictions
contained in this Agreement, any and all of the rights, powers and
privileges of a manager under the Act;
(t) To execute, acknowledge, and deliver any and all
documents or instruments in connection with any or all of the
foregoing;
(u) To modify or otherwise improve the Hospital, subject
to the restrictions contained in this Agreement;
(v) To manage, direct, and guide the operation of the
Hospital including all necessary acts relating thereto, other than
medical or clinical matters which shall be under the direction of the
Investor Manager and other agreed upon qualified medical personnel;
(w) To establish minimum insurance requirements for all
physicians practicing at the Hospital;
(x) To admit as Members additional investors who have
been proposed for Member status by DTO Management and approved by the
Investor Manager, which approval shall be given or withheld in the sole
and absolute discretion of the Investor Manager;
(y) To sell assets of the Company, subject to the
restrictions contained in this Agreement;
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(z) Subject to the Governing Body and Medical Staff
By-Laws, and with the written consent of the Investor Manager, to
provide exclusive cardiology and cardiovascular surgery professional
service agreements to Investor Members who will be integral to the
successful development of the Hospital; and
(aa) Acquire equipment and other related tangible assets
appropriate for the operation of a cardiac rehabilitation service from
third parties or from Investor Members based on the fair market value
therefor.
SECTION 5.2. Restrictions on Authority of the Managers. The
Managers shall not do any of the following:
(a) Act in contravention of this Agreement;
(b) Act in any manner which would make it impossible to
carry on the express business purposes of the Company;
(c) Commingle the Company funds with those of any other
Person;
(d) Admit an additional Manager, except as provided in
this Agreement;
(e) Admit an additional Member, except as provided in
this Agreement;
(f) Alter the primary purposes of the Company as set
forth in Section 2.3;
(g) Possess any property or assign the rights of the
Company in specific property for other than a Company purpose;
(h) Employ, or permit the employ of, the funds or assets
of the Company in any manner except for the exclusive benefit of the
Company;
(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 payable by
Medicare or Medicaid; or
(j) Sell all or substantially all of the assets of the
Company or merge the Company with or into any other Entity without the
approval of a Supermajority Vote of the Members.
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SECTION 5.3. Duties of the Managers. Each Manager shall do the
following:
(a) Diligently and faithfully devote such of its time to
the business of the Company as may be necessary to properly conduct the
affairs of the Company and, in the case of DTO Management, to perform
the duties for which it will receive a Management Fee as provided in
Section 5.6(b), or otherwise, however, each Manager shall not be
required to devote its full time to such duties;
(b) Use its best efforts to cause the Company to comply
with such conditions as may be required from time to time to permit the
Company to be classified for federal income tax purposes as a
partnership and not as an association taxable as a corporation;
(c) In the case of DTO Management file and publish all
certificates, statements, or other instruments required by law for the
formation and operation of the Company as a limited liability company
in all appropriate jurisdictions;
(d) In the case of DTO Management cause the Company to
obtain and keep in force during the term of the Company fire and
extended coverage and public liability and professional liability
insurance with such issuers and in such amounts as DTO Management shall
deem advisable, but in amounts not less (and deductible amounts not
greater) than those customarily maintained with respect to the business
equipment and property comparable to the Company's;
(e) Have a fiduciary duty to conduct the affairs of the
Company in the best interests of the Company and of the Members,
including the safekeeping and use of all funds and assets, whether or
not in its immediate possession and control, and it shall not employ or
permit others besides Managers to employ such funds or assets in any
manner except for the benefit of the Company; and
(f) In the case of DTO Management, deliver to the
Secretary of State of North Carolina for filing an annual statement in
accordance with the Act and make any similar filings required under
Ohio law.
SECTION 5.4. Delegation by the Managers. Subject to restrictions
otherwise provided herein, the Managers may at any time employ any other Person,
including Persons and Entities employed by, affiliated with, or related to the
Managers to perform services for the Company and its business, and may delegate
all or part of their authority or control to any such other Persons, provided
that such employment or delegation shall not relieve the Managers of their
respective responsibilities and obligations under this Agreement or under the
laws of the State of North Carolina nor will it make any such Person a Member or
Manager of the Company.
SECTION 5.5. Right to Rely Upon the Authority of the Managers.
Persons dealing with the Company may rely upon the representation of the
Managers that such
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Managers are managers of the Company and that such Managers have the authority
to make any commitment or undertaking on behalf of the Company. No Person
dealing with the Managers shall be required to determine its authority to make
any such commitment or undertaking. In addition, no purchaser from the Company
shall be required to determine the sole and exclusive authority of any Manager
to sign and deliver on behalf of the Company any instruments of transfer with
respect thereto or to see to the application or distribution of revenues or
proceeds paid or credited in connection therewith, unless such purchaser shall
have received written notice from the Company affecting the same.
SECTION 5.6. Company Expenses.
(a) In general, the Company's expenses shall be billed
directly to and paid by the Company. The Company shall reimburse the
Managers or their Affiliates for: (i) all Organization Expenses
incurred by the Managers or their Affiliates in connection with the
formation of the Company; (ii) the actual costs to the Managers or
their Affiliates of goods, services, and materials used for and by the
Company; and (iii) all reasonable travel and other out-of-pocket
expenses incurred by the Managers in the development and management of
the Company and its business. The parties specifically recognize that
DTO Management and its Affiliates have incurred legal fees, filing
fees, and other out-of-pocket costs for the benefit of the Company,
including costs connected with the preparation of securities law and
health care law compliance documentation and filings, real estate
acquisition matters and formation and registration of the Company, and
agree that DTO Management shall be reimbursed for these amounts. The
reimbursement for expenses provided for in this Section 5.6(a) shall be
made to the Managers or their Affiliates regardless of whether any
distributions are made to the Members under Article VI and Article VII.
(b) The Company shall also pay the following expenses of
the Company:
(i) All development and operational expenses of
the Company, which may include, but are not limited to: the
salary and related expenses of employees and staff of the
Hospital, all costs of borrowed money, taxes, and assessments
on the Hospital, and other taxes applicable to the Company;
expenses in connection 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 DTO Management or one
of its Affiliates as long as the charges to the Company for
such service are no greater than the charges for such service
from a third party service provider;
(ii) In addition to reimbursements and other
amounts due hereunder, a Management Fee shall be paid to DTO
Management, which for periods prior to the opening of the
Hospital for business shall equal [***]
13
[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
18
($[***]) per year and shall first accrue commencing with the
month during which the Company receives the Capital
Contributions described in Section 3.1(b), and shall be
payable monthly on the last day of each month, and for periods
after the opening of the Hospital for business shall equal two
percent (2%) of the Hospital"s collected gross revenues for a
month, and shall be payable monthly on or before the tenth
(10th) day following the end of each month but which amount
shall be no less than One Hundred Fifty Thousand Dollars
($150,000.00) per annum;
(iii) An annual medical director's fee of Fifty
Thousand Dollars ($50,000) commencing with the beginning of
the design process for the Hospital which annual fee shall be
increased to One Hundred Thousand Dollars ($100,000)
commencing as of the date on which the first of the following
occurs: (X) the substantial completion of the construction of
the Hospital if the Hospital is to be located in a new
building (whether to be leased to or owned by the Company), or
(Y) the closing of the purchase of the real property in which
the Hospital is to be located if located in an existing
building (either by the Company or by a third party who shall
in turn lease such building to the Company) and shall be
payable monthly on the last day of each month, which fee shall
be increased annually by the Consumer Price Index reasonably
applied by DTO Management on January 1st of each year;
(iv) As compensation for (X) the substantial
efforts of the Investor Manager in assisting in the
organization and development of the Company and the Hospital,
(Y) for such Investor Manager's substantial and ongoing
involvement in connection with the design, development and
initial operations of the Hospital after the date hereof, and
(Z) for serving as the Investor Manager in accordance with the
terms of this Agreement and taking all reasonable efforts to
ensure that the other Investor Members are adequately
represented hereunder, the Investor Manager shall be paid a
fee equal to [***] ($[***]) per annum commencing with the
beginning of the design process for the Hospital for the two
(2) year period commencing as of such date, which annual fee
shall be [***] ($[***]) per year thereafter;
(v) All fees and expenses paid to third parties
for accounting, legal, documentation, professional, and
reporting services to the Company, which may include, but are
not limited to: preparation and documentation of Company
bookkeeping, accounting and audits; preparation and
documentation of budgets, cash flow projections, and working
capital requirements; preparation and documentation of Company
state and federal tax returns; and taxes incurred in
connection with the issuance, distribution, transfer,
registration, and recordation of documents evidencing
ownership of a Membership Interest or Economic
14
[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
19
Interest in the Company or in connection with the business of
the Company; expenses in connection with preparing and mailing
reports required to be furnished to the Members 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 Members which DTO Management deems
to be in the best interest of the Company; expenses of
revising, amending, converting, modifying, or terminating the
Company or this Agreement; costs incurred in connection with
any litigation in which the Company is involved as well as any
examination, investigation, or other proceedings conducted by
any regulatory agency involving the Company; costs of any
computer equipment or services used for or by the Company; and
the costs of preparing and disseminating informational
material and documentation relating to a potential sale,
refinancing, or other disposition of the Hospital or the
Equipment; and
(vi) In the event that DTO Management and the
Investor Member reasonably agree that it would be beneficial
to the Company to have the advice of a third party consultant
when making a Material Decision, the reasonable expenses of
the third party consultant shall be an expense of the Company.
(c) Notwithstanding anything herein to the contrary, no
amounts shall be earned, accrued or due from the Company under (b)(ii),
(iii) or (iv) above to the extent that the Company has losses which (i)
would be greater as a result of such amounts being earned, and (ii)
which are resulting in additional Capital Contributions being required
under Section 3.5(b)(ii).
SECTION 5.7. No Management by Members. Other than the Managers,
the Members shall take no part in, or at any time interfere in any manner with,
the management, conduct, or control of the Company's business and operations and
shall have no right or authority to act for or bind the Company except as set
forth in this Agreement. The rights and powers of such Members shall not extend
beyond those set forth in this Agreement and those granted under the Articles of
Organization and any attempt to participate in the control of the Company in a
manner contrary to the rights and powers granted herein and under the Articles
of Organization shall be null and void and without force and effect. Subject to
the decisions and judgment with respect to all professional medical or clinical
matters of qualified medical personnel, DTO Management, in conjunction with the
Investor Manager when applicable, shall have the right to determine when and how
the operations of the Company shall be conducted. The exercise by any other
Member of any of the rights granted to the Member hereunder shall not be deemed
to be taking part in the control of the business of the Company and shall not
constitute a violation of this Section.
SECTION 5.8. Consent by Members to Exercise of Certain Rights and
Powers by Managers. By its execution hereof, each Member expressly consents to
the exercise by the Managers of the rights, powers, and authority conferred on
the Managers by this Agreement.
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SECTION 5.9. Other Business of Members.
(a) Subject to (b) below, any Member, including any
Manager, may engage independently or with others in other business
ventures of every nature and description, including without limitation
the purchase of medical equipment, the rendering of medical services of
any kind, and the making or management of other investments and neither
the Company nor any Member shall have any right by virtue of this
Agreement or the relationship created hereby in or to such other
ventures or activities or to the income or proceeds derived therefrom,
and the pursuit of such ventures.
(b) As long as any Member owns a Membership Interest in
the Company, and for a period of five (5) years after a Member ceases
for any reason to own a Membership Interest in the Company, neither a
Member nor any of its respective Affiliates, shall hold, directly or
indirectly, an investment, ownership or other beneficial interest in
(i) any hospital or (ii) 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, in
any case within a fifty (50) mile radius of the Hospital (the
"Territory"), provided that (i) no Member or Affiliate who is a
physician shall be prohibited from maintaining his or her staff
privileges at any other hospital and (ii) nothing herein shall prohibit
a Member or Affiliate 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. In addition, DTO Management
or its Affiliates may separately operate a mobile catheterization
laboratory within the Territory, but only if either DTO Management or
an Affiliate thereof is providing such service pursuant to a lease of
six (6) months or less to a provider who is already providing cath lab
services or if the Investor Manager has elected not to have such
service provided by the Company.
(c) The Members, including the Managers, 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) 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, the balance of this
Section 5.9 shall thereupon be
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modified in order to render the same valid and enforceable and the
unenforceable portion of this Section 5.9 shall be deemed to have been
deleted from this Agreement.
(e) The Company, the Managers and the Investor Members
agree that the benefits to any Investor Member hereunder do not
require, are not payment for, and are not in any way contingent upon
the referral, admission or any other arrangement for the provision of
any item or service offered by DTO Management or the Company to
patients of such Investor Member in any facility, laboratory, cardiac
catheterization facility or other health care operation controlled,
managed or operated by DTO Management or the Company and nothing herein
is intended to prohibit any party from practicing medicine at any other
facility.
(f) If an Investor Member is a legal entity and not an
individual, such Investor Member shall cause each of its existing and
future Affiliates to agree in writing to be personally bound by the
terms of this Section 5.9.
SECTION 5.10. Managers' Standard of Care. Each Manager shall act
in a manner it believes in good faith to be in the best interest of the Company
and with such care as an ordinarily prudent Person in a like position would use
under similar circumstances. In discharging its duties, each Manager shall be
fully protected in relying in good faith upon the records required to be
maintained under this Agreement and upon such information, opinions, reports and
statements by any of its other Managers, Members, or agents, or by any other
Person as to matters each Manager reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company, including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
income or losses of the Company or any other facts pertinent to the existence
and amount of assets from which distributions to members might properly be paid.
Notwithstanding anything herein to the contrary, a Manager or Member
shall have the right to vote or approve Company matters in accordance with the
terms of this Agreement regardless of the personal interest of any Member or
Manager in the outcome of any vote, decision or matter.
SECTION 5.11. Limitation of Liability. A Manager shall not be
liable to the Company, its Members, or other Managers for any action taken in
managing the business or affairs of the Company if it performs the duty of its
office in compliance with the standard contained in Section 5.10. No Manager has
guaranteed nor shall have any obligation with respect to the return of a
Member's Capital Contribution or share of income from the operation of the
Company. Furthermore, no Manager, its Affiliates or its employees (collectively,
its "Agents") shall be liable to the Company or to any Member for any loss or
damage sustained by the Company or any Member except loss or damage resulting
from gross negligence or intentional misconduct or knowing violation of law or a
transaction for which such Manager or Agent received a personal benefit in
violation or breach of the provisions of this Agreement.
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SECTION 5.12. Indemnification of the Managers.
(a) Each Manager and its Agents (as defined in Section
5.11) shall be indemnified by the Company against any losses,
judgments, liabilities, expenses, including attorneys' fees and amounts
paid in settlement of any claims sustained by them arising out of any
action or inaction of the Member or its Agents in its capacity as a
Manager of the Company (or, in the case of an Agent, within the scope
of the Manager'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 Manager or an Agent and provided
that the Manager or an Agent, in good faith, reasonably determined that
such course of conduct was in the best interest of the Company;
provided, however, that such indemnification and agreement to hold
harmless shall be recoverable only out of Company assets. Subject to
applicable law, the Company shall advance expenses incurred with
respect to matters for which a Manager may be indemnified hereunder.
(b) If at any time, the Company has insufficient funds to
furnish indemnification as herein provided, it shall provide such
indemnification if and as it generates sufficient funds and prior to
any cash distributions, pursuant to Article VI or Article VII hereof,
to the Members.
SECTION 5.13. Election and Replacement of Investor Manager. In
accordance with the procedures outlined in Section 10.1 herein, the Investor
Members shall elect an Investor Manager to serve for one year terms or until a
successor is duly elected. At any time, in accordance with Section 10.1, the
Investor Members may replace the Investor Manager and elect a new Investor
Manager.
SECTION 5.14. Role of Investor Manager. Notwithstanding anything
herein to the contrary, the Investor Manager shall take no action nor make any
decision on behalf of the Company except to the extent it is expressly
authorized to do so under this Agreement in its capacity as Investor Manager.
SECTION 5.15. Purchase of Goods and Services from DTO Management.
Goods and services purchased from DTO Management or its Affiliates shall be of
substantially the same quality and price as could be obtained from an unrelated
third party.
SECTION 5.16. Decisions by Managers. Except as provided in this
Agreement, decisions and actions to be taken by the Managers shall be deemed to
have been made only upon the affirmative approval or consent of DTO Management
and the Investor Manager. If there is more than one Investor Manager, the
decision of the Investor Manager shall be determined by the decision of a
majority of such Investor Managers. In the event a decision, approval or consent
is requested of the Investor Manager by DTO Management, it shall be deemed to
have been affirmatively made if the Investor Manager fails to respond to any
such
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23
written request therefor within five (5) days of notice thereof by DTO
Management. Notwithstanding anything in this Agreement to the contrary, all
decisions and actions to be made by the Managers with respect to any loan, lease
or other similar financing of the development, construction or operation of the
Hospital or the Company's affairs, including without limitation the decisions
with respect to incurring any indebtedness or the refinancing thereof, shall be
made by DTO Management and shall be subject to the consent of the Investor
Manager, which consent shall not be unreasonably withheld; provided, the
application of the Company's funds toward the repayment of all or a portion of
any financing of the Company in excess of amounts then required to be paid
(i.e., voluntary prepayments) shall be made only with the consent of DTO
Management and the Investor Manager. The Investor Manager shall be deemed to
have specifically approved all expenditures proposed by DTO Management that are
substantially consistent with the Development Budget Exhibit or an approved
operating budget when funded from additional Capital Contributions made to the
Company by the Members pursuant to Section 3.5 above.
The development and annual operating budgets to be proposed by DTO
Management shall be approved by the Managers as provided above subject to the
following:
(a) The Investor Manager shall be deemed to have approved
a development budget which is substantially consistent with the
attached Development Budget Exhibit to this Agreement;
(b) The Investor Manager 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 Company's
lenders and other parties providing financing to the Company; and
(c) In the event that the Managers are unable to approve
an annual budget, DTO Management shall be authorized to operate the
Company under the previous year's budget increased by the greater of 5%
or the increase during the previous year in the Consumer Price Index
for Medical Items until a new budget is approved.
ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS
SECTION 6.1. Distributions of Cash Flow from Operations and Cash
from Sales or Refinancing. Prior to the dissolution of the Company, Cash Flow
from Operations and Cash from Sales or Refinancing, if any, remaining after
repayment of any amounts then due on loans made by the Members to the Company
shall be distributed quarterly by the Managers as Cash Distributions according
to the relative percentage Membership Interests of the Members and Economic
Interest Owners. Notwithstanding anything herein to the contrary, no
distributions shall be made to Members if prohibited by the Act.
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SECTION 6.2. Profits. Except as provided in the Regulatory
Allocations Exhibit, Profits shall be allocated as follows:
(a) First, to the Members who have been allocated Losses pursuant
to Subsection 6.3(c) below until the cumulative Profits allocated pursuant to
this Subsection 6.2(a) equal the cumulative prior allocations of Losses under
that Subsection.
(b) Next, to the Members who have been allocated Losses pursuant
to Subsection 6.3(b) below until the cumulative Profits allocated pursuant to
this Subsection 6.2(b) equal the cumulative prior allocations of Losses under
that Subsection.
(c) All remaining Profits shall be allocated to the Members in
accordance with their percentage Membership Interests.
SECTION 6.3. Losses. Except as provided in the Regulatory Allocations
Exhibit, Losses shall be allocated as follows:
(a) First, Losses shall be allocated to the Members with positive
Adjusted Capital Account balances in proportion to those balances.
(b) All remaining Losses shall be allocated to the Members in
accordance with their percentage Membership Interests.
SECTION 6.4. Code Section 704(c) Tax Allocations. Income, gain,
loss, and deduction with respect to any property contributed to the capital of
the Company shall, solely for tax purposes, be allocated among the Members so as
to take account of any variation between the adjusted basis of such property to
the Company for federal income tax purposes and its initial Agreed Value
pursuant to any method allowable under Code Section 704(c) and the Regulations
promulgated thereunder.
In the event the Agreed Value of any Company asset is adjusted after
its contribution to the Company, subsequent allocations of income, gain, loss
and deduction with respect to such asset shall take into account any variation
between the adjusted basis of such asset for federal income tax purposes and its
Agreed Value pursuant to any method allowable under Code Section 704(c) and the
Regulations promulgated thereunder.
Any elections or other decisions relating to allocations under this
Section shall be determined by DTO Management. Absent a determination by DTO
Management, the remedial allocation method under Regulation Section 1.704-3(d)
shall be used. Allocations pursuant to this Section are solely for purposes of
federal, state, and local taxes and shall not be taken into account in computing
any Member's Capital Account or share of Profits, Losses, other items, or
distributions pursuant to any provision of this Agreement.
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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
DTO Management using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) Other Items. Except as otherwise provided in this Agreement,
all items of Company income, gain, loss, deduction, credit and any other
allocations not otherwise provided for shall be divided among the Members in the
same proportion as they share Profits or Losses, as the case may be, for the
year.
(c) Tax Consequences; Consistent Reporting. The Members are aware
of the income tax consequences of the allocations made by this Article and by
the Regulatory Allocations and hereby agree to be bound by those allocations as
reflected on the information returns of the Company in reporting their shares of
Company income and loss for income tax purposes. Each Member agrees to report
its distributive share of Company items of income, gain, loss, deduction and
credit on its separate return in a manner consistent with the reporting of such
items to it by the Company. Any Member failing to report consistently, and who
notifies the Internal Revenue Service of the inconsistency as required by law,
shall reimburse the Company for any legal and accounting fees incurred by the
Company in connection with any examination of the Company by federal or state
taxing authorities with respect to the year for which the Member failed to
report consistently.
(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.
ARTICLE VII
DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS
SECTION 7.1. No Termination by Certain Acts of Member. Neither the
transfer of interest, withdrawal from the Company, bankruptcy, insolvency,
dissolution, liquidation or other disability, nor the legal incompetency of any
Member shall result in the termination or dissolution of the Company or affect
its continuance in any manner whatsoever.
SECTION 7.2. Dissolution. The Company shall be dissolved upon the
happening of any of the following events, whichever shall first occur:
(a) The election by DTO Management to dissolve the
Company in accordance with the terms of Section 3.5(c) hereof;
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(b) The death, insanity, bankruptcy, retirement (other
than due to a failure of an Investor Manager to be re-elected as an
Investor Manager), resignation (other than due to an Investor Manager's
resigning from serving as a Manager while still remaining a Member) or
expulsion of any Manager who is also a Member, unless the Company is
continued by the consent of not less than a majority in interest
(defined in accordance with Revenue Procedure 94-46 or successor
provisions) of the remaining Members within ninety (90) days after
notice of such event, effective as of the date of such event. If there
is no remaining Manager, the remaining Members owning at least 51% of
the Membership Interests which are owned by the remaining Members
shall, if they desire to continue the Company, elect a Substitute
Manager who shall assume all of the rights and duties of DTO Management
under this Agreement (which Substitute Manager accepts such election);
(c) Upon the written agreement of DTO Management and the
Investor Manager;
(d) The expiration of the term of the Company as provided
in Section 2.5 hereof;
(e) The adjudication of bankruptcy of the Company;
(f) Upon the written consent of a Supermajority Vote of
the Members;
(g) In accordance with Section 12.11 hereof; and
(h) The entry of a decree of judicial dissolution or the
administrative dissolution of the Company as provided in the Act.
(i) At the election of the Manager, in the event that by
September 30, 1997 (unless such date is extended by the consent by the
Manager and the Investor Manager) Investor Members reasonably
acceptable to Manager have not been admitted as Members subscribing for
at least sixty-seven (67%) percent of the Membership Interests
described in Section 3.1(b).
SECTION 7.3. Dissolution and Final Liquidation.
(a) Upon any dissolution of the Company, the Company
shall not terminate, but shall cease to engage in further business
except to the extent necessary to perform existing contracts and
preserve the value of its assets. Its assets shall be liquidated and
its affairs shall be wound up as soon as practical thereafter by the
Managers, or if for any reason there is no Manager, by another Person
designated by a Supermajority Vote of the Members. In winding up the
Company and liquidating assets, the Managers, or other Person so
designated for such purpose, may arrange, either directly or through
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others, for the collection and disbursement to the Members of any
future receipts from the Hospital or other sums to which the Company
may be entitled, and shall sell the Company's interest in the Hospital
and the Equipment to any Person, including DTO Management 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 a Supermajority Vote of the Members.
(b) Upon any such dissolution and liquidation of the
Company, the net assets, if any, of the Company available for
distribution, including any cash proceeds from the liquidation of
Company assets, shall be applied and distributed in the following
manner or order, to the extent available:
(i) To the payment of or creation of reserves
for all debts, liabilities, and obligations to all creditors
of the Company (other than the Members or their Affiliates)
and the expenses of liquidation;
(ii) To the payment of all debts and liabilities
(including interest) owed to the Members or their Affiliates
as creditors; and
(iii) The balance to the Members with positive
Capital Account balances after taking into account all other
adjustments during the Fiscal Year in which liquidation
occurs.
(c) The Members shall look solely to the assets, if any,
of the Company for any return of their Capital Contributions and, if
the assets of the Company remaining after payment or discharge of the
Company's debts and liabilities, or provision therefor, are
insufficient to return all or any part of the Capital Contributions, no
Member shall have any right of recourse against the Managers or other
Members or to charge the Managers or other Members for any amounts
except as provided herein and except to the extent otherwise provided
by the Act and/or North Carolina law.
(d) Upon such dissolution, reasonable time shall be
allowed for the orderly liquidation of the assets of the Company and
the discharge of liabilities to creditors so as to minimize the losses
normally attendant to a liquidation.
(e) The Capital Accounts of the Members, as adjusted,
shall be utilized by the Company for the purpose of making
distributions to those Members with positive balances in their
respective Capital Accounts pursuant to Section 7.3(b). In making such
distributions, the Managers or the Person winding up the affairs of the
Company shall distribute all funds available for distribution to the
Members and Economic Interest Owners (after establishing any reserves
that the Managers deem or the Person winding up the affairs of the
Company deems reasonably necessary pursuant to Section 7.3(b)) prior to
the later of (a) the end of the taxable year in which the event occurs
which caused the termination and dissolution of the Company, or (b)
ninety (90) days
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after the occurrence of such event. The Managers in their sole
discretion, or the Person winding up the affairs of the Company, in its
discretion, may elect to have the Company retain any installment
obligations owed to the Company until collected in full so long as any
portion of the reserves which are later determined to be unnecessary,
and all collections on such installment obligations which are not
deemed to be reasonably necessary by the Managers or the Person winding
up the affairs of the Company to add to such reserves are distributed
as soon as practicable in accordance with the provisions of Section
7.3(b) as modified by this Section.
(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 Company
assets, the Company shall terminate.
SECTION 7.5. Payment in Cash. Any payments made to any Member
pursuant to this Article VII shall be made only in cash.
SECTION 7.6. Goodwill and Trade Name. Upon the dissolution of the
Company, the firm or trade name of the Company and any goodwill associated
therewith shall become the sole property of DTO Management, provided that
distributions and allocations otherwise due to DTO Management shall not be
reduced as a result of DTO Management becoming entitled to such assets.
SECTION 7.7. Termination of Noncompetition Covenants. Upon the
later of the dissolution of the Company and the completion of the liquidation
process, the Members shall have no continuing liability, or obligation under
Section 5.9(b) except that Section 5.9(b) shall continue to be binding upon a
Member whose breach of this Agreement caused a dissolution of the Company and
any actions for a breach of this Agreement, including a breach of Section
5.9(b), shall not be impaired by the dissolution or completed liquidation.
ARTICLE VIII
REMOVAL OR WITHDRAWAL OF MANAGERS AND MEMBERS AND
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS
SECTION 8.1. Manager - Transfers.
(a) Except as provided in this Section 8.1, without the
consent of a Majority Vote of Investor Members, DTO Management shall
not voluntarily withdraw from the Company as a Member at any time prior
to its termination, or transfer or assign any of
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its rights and duties as a Manager, provided that DTO Management may
assign its Membership Interest in the Company and its rights to be a
Manager to any party who purchases all or substantially all of MedCath
Incorporated"s and its subsidiaries' assets or capital stock if such
purchaser assumes in writing the obligations of DTO Management
hereunder or to a party under control of, common control, or which
controls, DTO Management. DTO Management may also assign its Membership
Interest in the Company and its rights to be a Manager to a financial
institution as collateral security for repayment of indebtedness for
borrowed funds by MedCath Incorporated or its Affiliates. In the event
that DTO Management desires to sell any Membership Interest and such
sale is not in connection with the sale of all or substantially all of
the assets or capital stock of MedCath Incorporated and its
subsidiaries, then the other Members shall first have an option to
purchase such Membership Interest in accordance with the Right of First
Refusal provided in Section 8.4. If upon any transfer of DTO
Management's Membership Interest, DTO Management is not permitted to
assign its rights as Manager under this Section 8.1(a), DTO Management
shall not continue as Manager after said transfer, and the provisions
of Section 8.2 shall apply.
(b) The Investor Manager may not assign its rights to be
a Manager herein. Upon the withdrawal or resignation of the Investor
Manager, a substitute therefore who must be an Investor Member may be
elected by a Majority Vote of Investor Members.
(c) Any resignation or withdrawal by a Manager as a
manager shall not constitute such Manager's withdrawal as a Member.
(d) The Manager will not, without the consent of the
Investor Manager, pledge the assets of the Hospital except for the
benefit of the Hospital.
SECTION 8.2. Members' Right to Continue When Company has no
Manager. If at any time there is no remaining Manager, a meeting of the Members
shall be held at the principal place of business of the Company within
forty-five (45) days after the happening of such event to consider whether to
continue the Company on the same terms and conditions as are contained in this
Agreement (except that the Managers may be different) and to select a Manager
for the Company, or whether to wind up the affairs of the Company, liquidate its
assets and distribute the proceeds therefrom in accordance with Article VII
hereof. The Company may be continued and a new Manager (who accepts such
appointment) selected by the Members within ninety (90) days of the occurrence
of the event described in Section 7.2(b) with respect to the last Manager. The
new Manager shall execute, acknowledge, file or record (as appropriate) Articles
of Organization and an Operating Agreement, or amendments to those documents,
and such other documents as may be required by the Act. The continuance of the
Company pursuant to the terms of this Section 8.2 is conditioned upon (i) any
amendment required by the Act of the Articles of Organization to reflect the
foregoing change and, if applicable, compliance by the Company with any notice
provisions of the Act and (ii) delivery to the withdrawing Manager of an
indemnification agreement by the Company, in form and
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substance reasonably satisfactory to the withdrawing Manager, indemnifying and
holding the withdrawing Manager harmless against all future liabilities of the
Company.
SECTION 8.3. Relationship with Substitute Manager. The
relationship of the Members to any Person that has either acquired the
Membership Interest of DTO Management or has been elected as a successor Manager
as provided herein shall be governed by this Agreement. If such Person was not
previously a Manager, then such Person, as Substitute Manager, shall have all
the rights and powers of its predecessor Manager under this Agreement; provided,
such Person assumes in writing the obligations of such Manager under this
Agreement and any arising thereafter, and accepts and adopts all the terms and
provisions of this Agreement in writing. The withdrawing Manager 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 Manager.
SECTION 8.4. Members Who Are Not Managers - Restriction on
Transfer. Except as otherwise set forth in this Section or in this Agreement, no
Economic Interest and/or Membership Interest of an Investor Member or any
portion thereof, shall be validly sold or assigned whether voluntarily,
involuntarily or by operation of law, and no purported assignee shall be
recognized by the Company for any purpose, unless such Economic Interest and/or
Membership Interest shall have been transferred in accordance with the
provisions of this Agreement and in compliance with such additional restrictions
as may be imposed by DTO Management to comply with requirements imposed by any
federal or state securities regulatory authority and unless DTO Management's
consent is obtained. In no event, however, shall an Investor Member transfer or
sell all or any of its Economic Interest and/or Membership Interest to any party
which, if a Member, would be in violation of Section 5.9(b) hereof. Except as
otherwise set forth in this Section or in this Agreement, an Investor Member may
transfer, sell or assign its entire Economic Interest and/or Membership Interest
if it has received the approval of DTO Management, not to be unreasonably
withheld, provided however: (a) the Company first for a period of fifteen (15)
days, and thereafter the other Members for a period of fifteen (15) days shall
have the right, but not the obligation, to purchase all, but not less than all,
of the Economic Interest and/or Membership Interest proposed to be transferred,
which right shall be exercisable on the terms and for the purchase price set
forth in writing in a bona fide offer made for the Interests by a third-party
(the "Right of First Refusal"), and (b) there shall have been filed with the
Company a duly executed and acknowledged counterpart of the instrument making
such assignment signed by both the assignor and assignee and such instrument
evidences the written acceptance by the assignee of all of the terms and
provisions of the Agreement, represents that such assignment was made in
accordance with all applicable laws and regulations and the assignee shall have
represented to the Company in writing that it meets the investor suitability
standards established by the appropriate state of residence, or, in the absence
thereof, the investor suitability standards established by the Company. DTO
Management shall use reasonable care to determine that transfers are in
accordance with applicable laws and regulations, including obtaining an opinion
of counsel to that effect. Any Member who is not a Manager that assigns all its
Membership Interest shall cease to be a Member of the Company. Any Membership
Interests
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acquired by the Company pursuant to Section 8.4 shall, subject to applicable
law, be re-offered by the Company to suitable investors.
Any dissolution, liquidation, merger (unless Investor Members or their
Affiliates as of the Effective Date and existing prior to such merger own at
least fifty-one percent (51%) of the surviving entity after the merger or unless
both parties to such merger are majority owned by parties who are Investor
Members or their Affiliates as of the Effective Date and prior to such merger)
or sale of an Investor Member which is an Entity (a sale shall include a
transfer of fifty percent (50%) or more of its ownership interests or of fifty
(50%) percent or more of its assets or any other transaction or series of
related transactions intended to accomplish, in substance, a sale of such
Entity) shall constitute an offer by such Investor Member to sell such Investor
Member's Interest pursuant to Section 8.4 for the Formula Purchase Price (as
defined in Section 8.9 below). The Investor Members who are Entities as of the
Effective Date have provided copies to DTO Management of the documents and
agreements related to the creation and governance thereof. These documents and
agreements have not been amended since they were provided to DTO Management and
shall not be amended without DTO Management's written consent. The restriction
of the foregoing sentence shall not apply to Entities which have historically
been dedicated solely to the practice of medicine and continue to be dedicated
solely to the practice of medicine in the future.
SECTION 8.5. Condition Precedent to Transfer of Economic Interest
and/or Membership Interest. Notwithstanding anything herein to the contrary, no
transfer of an Economic Interest and/or Membership Interest may be made if such
transfer (a) constitutes a violation of the registration provisions of the
Securities Act of 1933, as amended, or the registration provisions of any
applicable state securities laws; (b) if after such transfer the Company will
not be classified as a partnership for federal income tax purposes; and (c) if
when taken together with other prior transfers, results in a "termination" of
the Company for federal income tax purposes. The Company may require, as a
condition precedent to transfer of an Economic Interest and/or Membership
Interest, delivery to the Company, at the proposed transferor's expense, of an
opinion of counsel satisfactory (both as to the counsel and substance of the
opinion) to DTO Management that the transfer will not violate any of the
foregoing restrictions.
SECTION 8.6. Substitute Member - Conditions to Fulfill. No
assignee of a Member's Membership Interest in the Company shall have the right
to become a Substitute Member in place of its assignor unless, in addition to
any other requirement herein, all of the following conditions are satisfied:
(a) The Company has waived its right pursuant to Section
8.4 to purchase the Membership Interest held by the assignee;
(b) The duly executed and acknowledged written instrument
of assignment which has been filed with the Company sets forth that the
assignee becomes a Substitute Member in place of the assignor;
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(c) The assignor and assignee execute and acknowledge
such other instruments as DTO Management 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 DTO Management and the
Investor Manager to such substitution is obtained, which consent may be
reasonably withheld by DTO Management or the Investor Manager; and
(e) The payment by the assignee of all costs to the
Company associated with the transaction, including but not limited to
legal fees, transfer fees, and filing fees.
SECTION 8.7. Allocations Between Transferor and Transferee. Upon
the transfer of a Member's Economic Interest or Membership Interest, all items
of income, gain, loss, deduction and credit attributable to the Economic
Interest or Membership Interest so transferred shall be allocated between the
transferor and the transferee in such manner as the transferor and transferee
agree at the time of transfer; provided such allocation does not violate federal
or state income tax law. If DTO Management, in its sole discretion, deems such
laws violated, then such allocation shall be made pro rata for the fiscal year
based upon the number of days during the applicable fiscal year of the Company
that the Economic Interest or Membership Interest so transferred was held by the
transferor and transferee, without regard to the results of Company activities
during the period in which each was the holder, or in such other manner as DTO
Management 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 Membership Interest on the date of
distribution. Notwithstanding anything contained in this Agreement to the
contrary, both the Company and DTO Management shall be entitled to treat the
assignor of any assigned Economic Interest or Membership Interest as the
absolute owner thereof in all respects, and shall incur no liability for
distributions made in good faith to such assignor in reliance on the Company
records as they exist until such time as the written assignment has been
received by, and recorded on the books of the Company. For purposes of this
Article VIII, the effective date of an assignment of any Economic Interest or
Membership 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 Member's Economic Interest or Membership Interest shall have
the right to participate in the Company, inspect the books of account of the
Company or exercise any other right of a Member unless and until admitted as a
Substitute Member. Notwithstanding DTO Management's failure or refusal to admit
an assignee as a Substitute Member, such assignee shall be entitled to receive
the share of income, credit, gain, expense, loss and deduction and cash
distributions provided hereunder that is assigned to it, and, upon demand, may
receive copies of all reports thereafter delivered pursuant to the requirements
of this Agreement; provided, the Company shall have first received notice of
such assignment and all required
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consents thereto shall have been obtained and other conditions precedent to
transfer thereof shall have been satisfied. The Company's tax returns shall be
prepared to reflect the interests of assignees as well as Members.
SECTION 8.9. Death of a Member. If any Member is an individual,
heirs of such a Member shall be entitled to inherit the Membership Interests of
a deceased Member, provided that upon a Member's death such interests shall be
automatically converted to an Economic Interest only in the Company until such
heir agrees in writing to all of the terms and conditions of this Agreement and
such other reasonable terms as may be established by DTO Management as a
condition to such heir becoming a Member, in which event such interest shall
again become a Membership Interest in the Company. Notwithstanding the previous
sentence, within one hundred twenty (120) days of the Company first learning of
the death of a Member, the Company shall have the option to purchase the
Membership Interest of the deceased Member, and the estate of the deceased
Member shall be obligated to sell such Membership Interest to the Company, in
accordance with the terms of this Section 8.9. The Company may exercise its
option by giving written notice thereof to the estate of the deceased Member, or
the appropriate representative thereof, within such one hundred twenty (120) day
period. The purchase price for such Membership Interest shall equal five (5)
multiplied by the net income (as reasonably determined by the Company's
accountants) of the Company for the twelve (12) month period ending as of the
calendar quarter most recently ended prior to the death of such Member
multiplied by the percentage Membership Interest of such Member in the Company
(the "Formula Purchase Price"). 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 Company to the estate of the deceased
Member shall bear interest at Prime Rate as of the date of such Member's death.
Accrued interest shall be paid as of the dates payments of principal are due as
provided above. If the Investor Member is an Entity, the agreements for the
formation and the governance of such Entity shall provide for the disposition of
the membership interest of a deceased member of the Investor Member Entity,
which disposition shall be subject to DTO Management's approval.
SECTION 8.10. Repurchase of Interests in Certain Event.
(a) In the discretion of DTO Management, the Company may,
but is not obligated to, repurchase a Member's Economic Interest or
Membership Interest upon such Member's breach of the Member's
obligations contained in Article III, Sections 5.9, 8.1(b), 8.4, 8.9,
12.1 and 12.11 of this Agreement.
(b) Each Member agrees to sell its Membership Interest to
the Company in the event DTO Management elects to exercise the right
of repurchase granted under Section 8.10(a) and the purchase price
shall the lower of (x) the Capital Contributions of the Member less
all amounts distributed to such Member by the Company, (y) the fair
market value of such Member's Membership Interest determined by an
independent
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appraiser reasonably selected by DTO Management, and (z) the formula
Purchase Price; provided however, in the event that the Company elects
to purchase any Membership Interest due to a Member's failure to make a
required Capital Contribution pursuant to Section 3.5, the purchase
price therefor shall be determined solely under (x) above.
SECTION 8.11. Permissible Transfers by Investor Members.
Notwithstanding anything in this Agreement to the contrary, an Investor Member
may elect within ninety (90) days of acquiring a Membership Interest in the
Company to assign its Membership Interest to a corporation, limited liability
company or limited partnership formed and maintained for the purpose of holding
such Membership Interest, or for additional purposes approved by DTO Management
by advance written consent, if such assignee is owned by the Investor Member or
such assignee"s owners are substantially identical to the owners of such
Investor Member as long as such assignee and its Affiliates agree in writing to
be bound by all the terms and conditions of this Agreement and DTO Management
first approves in writing the terms of all documents creating and constituting
such Entity.
ARTICLE IX
RECORDS, ACCOUNTINGS AND REPORTS
SECTION 9.1. Books of Account. At all times during the continuance
of the Company, DTO Management shall maintain or cause to be maintained true and
full financial records and books of account showing all receipts and
expenditures, assets and liabilities, income and losses, and all other records
necessary for recording the Company's business and affairs including those
sufficient to record the allocations and distributions required by the
provisions of this Agreement.
SECTION 9.2. Access to Records. The books of account and all
documents and other writings of the Company, including the Articles of
Organization and any amendments thereto, shall at all times be kept and
maintained by DTO Management or, if required by law, at the registered office of
the Company. Each Member or its designated representatives shall, upon
reasonable notice to DTO Management, 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) DTO Management shall open and maintain, on behalf of
the Company, a bank account or accounts in a federally insured bank or
savings institution as it shall determine, in which all monies received
by or on behalf of the Company shall be deposited. All withdrawals from
such accounts shall be made upon the signature of such Person or
Persons as DTO Management may from time to time designate.
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(b) Any funds of the Company which DTO Management may
determine are not currently required for the conduct of the Company's
business may be deposited with a federally insured bank or savings
institution or invested in short-term debt obligations (including
obligations of federal or state governments and their agencies,
commercial paper, certificates of deposit of commercial banks, savings
banks or savings and loan associations) as shall be determined by DTO
Management in its sole discretion.
SECTION 9.4. Fiscal Year. The Fiscal Year and accounting period
of the Company shall end on September 30 of each year.
SECTION 9.5. Accounting Reports. As soon as reasonably practicable
after the end of each fiscal year but in no event later than 120 days after the
end thereof, each Member shall be furnished an annual accounting showing the
financial condition of the Company at the end of such fiscal year and the result
of its operations for the fiscal year then ended, which annual accounting shall
be prepared on an accrual basis in accordance with generally accepted accounting
principles applied on a consistent basis and shall be delivered to each of the
Members promptly after it has been prepared. It shall include a balance sheet as
of the end of such Fiscal Year and statements of income and expense, each
Member's equity, and cash flow for such Fiscal Year. The Company shall be
audited on an annual basis by a firm of independent certified public accountants
engaged by DTO Management on behalf of the Company. The report shall set forth
the distributions to the Members for such Fiscal Year and shall separately
identify distributions from (i) operating revenue during such Fiscal Year, (ii)
operating revenue from a prior period which had been held as reserves, (iii)
proceeds from the sale or refinancing of the Equipment, and (iv) unexpended
proceeds received from the sale of Membership Interests. Following the opening
of the Hospital, DTO Management shall also cause to be prepared and distributed
to the Members quarterly financial statements following DTO Management's public
announcement of its results for such quarter in a form and containing such
information as reasonably determined by DTO Management.
SECTION 9.6. Tax Returns. DTO Management shall cause income tax
returns for the Company to be prepared, at Company expense, and timely filed
with the appropriate authorities. As soon as is reasonably practicable, and in
any event on or before the expiration of 75 days following the end of each
Fiscal Year, each Member shall be furnished with a statement to be used in the
preparation of the Member"s tax returns, showing the amounts of any Profits or
Losses allocated to the Member, and the amount of any distributions made to the
Member, pursuant to this Agreement, along with a reconciliation of the annual
report with information furnished to Members for income tax purposes.
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ARTICLE X
MEETINGS AND VOTING RIGHTS OF MEMBERS
SECTION 10.1. Meetings.
(a) Meetings of the Members of the Company for any
purpose may be called by DTO Management, the Investor Manager or by
Investor Members holding in the aggregate ten percent (10%) of the
Membership 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 Dayton, Ohio area.
(b) A notice of any such meeting shall be given by mail,
not less than fifteen (15) days nor more than sixty (60) days before
the date of the meeting, to each Member at its address as specified in
Section 12.7. Such notice shall be in writing, and shall state the
place, date and hour of the meeting, and shall indicate that it is
being issued at or by the direction of DTO Management or by the
Investor Members, 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 Member may authorize any Person or Persons to
act for the Member by proxy in all matters in which a Member is
entitled to participate, whether by waiving notice of any meeting, or
voting or participating at a meeting. Every proxy must be signed by the
Member or its attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure
of the Member executing it.
SECTION 10.2. Voting Rights of Members.
(a) Each Member shall take no part in or interfere in any
manner with the control, conduct or operation of the Company, and shall
have no right or authority to act for or bind the Company except as
provided herein. Votes or decisions, to the extent taken or to be made,
of the Members may be cast at any duly called meeting of the Company or
in writing within ten (10) days after written request therefor. Each
Member shall be entitled to the number of votes equal to the percentage
Membership Interest of such Member.
(b) No Member shall have the right or power to vote to:
(i) withdraw or reduce the Member"s Capital Contributions except as a
result of the dissolution and liquidation of the Company or as
otherwise provided by law or this Agreement; (ii) bring an action for
partition against the Company; (iii) cause the termination and
dissolution of the Company by court decree or otherwise, except as set
forth in this
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Agreement; or (iv) demand or receive property other than cash in return
for its Capital Contributions.
ARTICLE XI
AMENDMENTS
SECTION 11.1. Authority to Amend by Managers. Except as otherwise
provided by Section 11.2, this Agreement and the Articles of Organization of the
Company may be amended by DTO Management with the approval of the Investor
Manager which approval shall not be unreasonably withheld or delayed:
(a) To admit additional Members or Substitute Members but
only in accordance with and if permitted by the other terms of this
Agreement;
(b) To preserve the legal status of the Company as a
limited liability company under the Act or other applicable state or
federal laws if such does not change the substance hereof, and the
Company has obtained the written opinion of its counsel to that effect;
(c) To cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, to clarify any provision of this Agreement, or to make any
other provisions with respect to matters or questions arising under
this Agreement which will not be inconsistent with the provisions of
this Agreement;
(d) To satisfy the requirements of the Code and
Regulations with respect to limited liability companies or of any
federal or state securities laws or regulations, provided such
amendment does not adversely affect the Membership Interests of Members
and is necessary or appropriate in the written opinion of counsel and
any amendment under this subsection (d) shall be effective as of the
date of this Agreement;
(e) To the extent that it can do so without materially
reducing the economic return on investment in the Company to any
Member, to satisfy any requirements of federal or state legislation or
regulations, court order, or action of any governmental administrative
agency with respect the operation or ownership of the Hospital;
(f) Subject to the terms of Section 2.5, to extend the
term of the Company; and
(g) Upon written notice to all Members, DTO Management
may elect to expand the number of Managers up to nine (9) so that the
Managers can serve as the governing body of the Hospital. In such
event, the Managers shall include, in addition
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to DTO Management or its designee, the president or chief executive
officer of the Hospital who shall be designated by DTO Management and
three (3) additional Managers elected from time to time by the Investor
Members one of whom must be the medical director of the hospital. The
remaining Managers shall be elected from time to time by DTO
Management. DTO Management may delegate to such governing body such
duties and responsibilities of DTO Management as DTO Management deems
necessary or appropriate. Notwithstanding the foregoing, in the event
the number of Managers is expanded, the Investor Members shall continue
to have the right to elect an Investor Manager who shall be designated
to make decisions which are specifically authorized to be made by the
Investor Manager under this Agreement and DTO Management shall continue
to have the right to make decisions with respect to matters which are
reserved for DTO Management at the time the number of Managers is so
expanded.
SECTION 11.2. Restrictions on Managers' Amendments: Amendments by
Investor Members. Except as provided in Section 11.1, amendments to this
Agreement shall be made only upon the consent of DTO Management and with a
Majority Vote of Investor Members. Except as set forth in this Section 11.2, no
amendment shall be made pursuant to Section 11.1 which would materially and
adversely affect the federal income tax treatment to be afforded each Member,
materially and adversely affect the Membership Interests and liabilities of each
Member as provided herein, materially change the purposes of the Company, extend
or otherwise modify the term of the Company, or materially change the method of
allocations and distributions as provided in Article VI and Article VII.
SECTION 11.3. Amendments to Certificates. In making any amendments
to this Agreement, there shall be prepared, executed and filed for recording by
DTO Management such documents amending the Articles of Organization as required
under the Act.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. Limited Power of Attorney. Upon the execution hereof,
each Member hereby irrevocably constitutes and appoints DTO Management as its
true and lawful attorney in the Member's name and on the Member's behalf to take
and perform at any time all such action which DTO Management is expressly
authorized to perform under this Agreement, administrative actions which a
Member is expressly required to perform under this Agreement, or actions
required or reasonably necessary following the breach of this Agreement by a
Member provided said breach remains uncured for a continuous period of fifteen
(15) days after written notice by DTO Management to the breaching Member.
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
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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
contains the entire agreement among the Members and any modification or
amendment hereto must be accomplished in accordance with the provisions of
Article XI and Article XII. Where the context so requires, the masculine shall
include the feminine and the neuter, and the singular shall include the plural.
The headings and captions in this Agreement are inserted for convenience and
identification only and are in no way intended to define, limit or expand the
scope and intent of this Agreement or any provision thereof. The references to
Section and Article in this Agreement are to the Sections and Articles of this
Agreement.
SECTION 12.4. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of North Carolina,
exclusive of its conflict of law rules.
SECTION 12.5. Partial Invalidity. In the event that any part or
provision of this Agreement shall be determined to be invalid or unenforceable,
the remaining parts and provisions of said Agreement which can be separated from
the invalid or unenforceable provision and shall continue in full force and
effect.
SECTION 12.6. Binding on Successors. The terms, conditions and
provisions of this Agreement shall inure to the benefit of, and be binding upon
the parties hereto and their respective heirs, successors, distributees, legal
representatives, and assigns. However, none of the provisions of this Agreement
shall be for the benefit of or enforceable by any creditors of the Company.
SECTION 12.7. Notices and Delivery.
(a) To Members. Any notice to be given hereunder at any
time to any Member or any document reports or returns required by this
Agreement to be delivered to any Member, may be delivered personally or
mailed to such Member, postage prepaid, addressed to the Member at such
times as the Member shall by notice to the Company have designated as
the Member"s address for the mailing of all notices hereunder or, in
the absence of such notice, to the address set forth in Article IV
hereof. Any notice, or any document, report or return so delivered or
mailed shall be deemed to have been given or delivered to such Member
at the time it is mailed, as the case may be.
(b) To the Company. Any notice to be given to the Company
hereunder shall be delivered personally or mailed to the Company, by
certified mail, postage prepaid, addressed to the Company at its
registered office. Any notice so delivered or mailed shall be deemed to
have been given to the Company at the time it is delivered or mailed,
as the case may be.
35
40
SECTION 12.8. Counterpart Execution; Facsimile Execution. This
Agreement may be executed in any number of counterparts with the same effect as
if all of the Members had signed the same document. Such executions may be
transmitted to the Company and/or the other Members by facsimile and such
facsimile execution shall have the full force and effect of an original
signature. All fully executed counterparts, whether original executions or
facsimile executions or a combination, shall be construed together and
constitute one and the same agreement.
SECTION 12.9. Statutory Provisions. Any statutory reference in
this Agreement shall include a reference to any successor to such statute and/or
revision thereof.
SECTION 12.10. Waiver of Partition. Each party does hereby waive any
right to partition or the right to take any other action which might otherwise
be available to such party for the purpose of severing its relationship with the
Company or such party's interest in the assets held by the Company from the
interests of other Members until the end of the term of both this Company and
any successor company formed pursuant to the terms hereof.
SECTION 12.11. Change In Law. If due to any new law, rule or
regulation, or due to an interpretation or enforcement of any existing law, rule
or regulation, health care counsel reasonably selected by DTO Management
determines in writing that it is reasonably likely that the relationships
established between any of the parties to this Agreement including any of their
Affiliates and/or successors or assigns will not comply with any law, rule,
regulation or interpretation thereof ("Applicable Law"), then the parties hereto
hereby agree first, to negotiate in good faith to restructure the relationships
established under this Agreement so as to bring them into compliance with such
applicable laws while at the same time preserving the material benefits of each
of the parties hereto. In the event that a specific proposal for the
restructuring of this Agreement is approved by DTO Management and a Majority
Vote of Investor Members, such restructured agreement shall become binding upon
all Members of the Company. Second, in the event that within forty-five (45)
days following the Company's receipt of legal advice in writing from such health
care counsel regarding Applicable Law the parties hereto are unable to negotiate
an acceptable restructuring of their relationship, then DTO Management shall
have the option, within the following forty-five (45) day period, to purchase
the Membership Interests of some or all of the Investor Members 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 Member to the Company together with
interest thereon computed at the Prime Rate as of the date of this Agreement
from the date of such contribution through the date upon which DTO Management
pays all amounts due under the terms of this Section 12.11. For these purposes,
distributions to the Members by the Company after the effective date of this
Agreement (and whether before or after health care counsel determined there was
a problem under an Applicable Law or before or after the exercise of the
purchase option) shall be treated as payments by DTO Management. Such purchase
price shall be paid in accordance with the Payment Method. Third, in the event
that DTO Management does not
36
41
exercise its option to purchase Membership Interests of a Member whose ownership
causes the Company not to be in compliance with Applicable Law, such Members may
elect in writing within the following forty-five (45) day period, to require
that the Company be dissolved, in which event the Company shall be dissolved in
accordance with the terms of this Agreement.
SECTION 12.12. Investment Representations of the Members.
(a) Each Member or individual executing this Agreement on
behalf of an Entity which is a Member hereby represents and warrants to
the Company and to the Members that such Member has acquired such
Member's Membership Interest in the Company for investment solely for
such Member's own account with the intention of holding such Membership
Interest for investment, without any intention of participating
directly or indirectly in any distribution of any portion of such
Membership Interest, including an Economic Interest, and without the
financial participation of any other Person in acquiring such
Membership Interest in the Company.
(b) Each Member or individual executing this Agreement on
behalf of an entity which is a Member hereby acknowledges that such
Member is aware that such Member's Membership Interest in the Company
has not been registered (i) under the Securities Act of 1933, as
amended (the "Federal Act"), (ii) under applicable Ohio securities
laws, or (iii) under any other state securities laws. Each Member or
individual executing this Agreement on behalf of an Entity which is a
Member further understands and acknowledges that his representations
and warranties contained in this Section are being relied upon by the
Company and by the Members as the basis for the exemption of the
Members' Membership Interest in the Company from the registration
requirements of the Federal Act and from the registration requirements
of applicable Ohio securities laws and all other state securities laws.
Each Member or individual executing this Agreement on behalf of an
Entity which is a Member further acknowledges that the Company will not
and has no obligation to recognize any sale, transfer, or assignment of
all or any part of such Member's Membership Interest, including an
Economic Interest in the Company to any Person unless and until the
provisions of this Agreement hereof have been fully satisfied.
(c) Each Member or individual executing this Agreement on
behalf of an Entity which is a Member hereby acknowledges that prior to
his execution of this Agreement, such Member received a copy of this
Agreement and that such Member has examined this Agreement or caused
this Agreement to be examined by such Member's representative or
attorney. Each Member or individual executing this Agreement on behalf
of an Entity which is a Member hereby further acknowledges that such
Member or such Member's representative or attorney is familiar with
this Agreement and with the Company's business plans. Each Member or
individual executing this Agreement on behalf of an Entity which is a
Member acknowledges that such Member or such Member's representative or
attorney has made such inquiries and requested, received, and reviewed
any additional documents necessary for such Member to make an
37
42
informed investment decision and that such Member does not desire any
further information or data relating to the Company or to the Members.
Each Member or individual executing this Agreement on behalf of an
Entity which is a Member hereby acknowledges that such Member
understands that the purchase of such Member's Membership Interest in
the Company is a speculative investment involving a high degree of risk
and hereby represents that such Member has a net worth sufficient to
bear the economic risk of such Member's investment in the Company and
to justify such Member's investing in a highly speculative venture of
this type.
SECTION 12.13. Decisions by Investor Manager. Each of the Investor
Members hereby authorize the Investor Manager to make the decisions to be made
by the Investor Manager hereunder and hereby release and hold harmless the
Investor Manager from any and all claims, liabilities, losses or damages which
any of them may have now or in the future resulting from any decision made by
the Investor Manager hereunder unless due to the gross negligence or willful
misconduct of the Investor Manager.
SECTION 12.14. Referrals to Hospital and Ownership of Shares of
Common Stock of MedCath Incorporated. Each Investor Member agrees that if in the
reasonable opinion of health care counsel to DTO Management, referrals of
patients to the Hospital by the Investor Member or ownership of shares of common
stock in MedCath Incorporated by the Investor Member would cause or constitute a
violation of any federal or state law, rule or regulation, then, as applicable,
(a) the Investor Member shall not refer patients to the
Hospital; or
(b) the Investor Member shall not acquire, nor continue
to own any of shares of common stock of MedCath Incorporated.
SECTION 12.15. Exhibits. The Exhibits to this Agreement, each of
which is incorporated by reference, are:
EXHIBIT A: Information Exhibit.
EXHIBIT B: Glossary of Terms.
EXHIBIT C: Development Budget Exhibit.
EXHIBIT D: Regulatory Allocations.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the following execution page(s), to be effective as of the date described in
Article II.
[EXECUTIONS APPEAR ON THE FOLLOWING PAGE(S)]
38
43
EXECUTION PAGE
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF DTO, LLC
A NORTH CAROLINA LIMITED LIABILITY COMPANY
[***]
For the purpose of acknowledging and agreeing to be bound by the terms of
Section 5.9, 8.4 and 8.9 hereof, the undersigned Affiliates of the Members other
than DTO Management hereby execute this Operating Agreement.
[***]
[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
44
EXHIBIT A
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF DTO, LLC
A North Carolina Limited Liability Company
INFORMATION EXHIBIT
Maximum
Mandatory
Additional
Initial Capital Capital Percentage
Name, Address & TIN Contribution Contributions Membership Interest
------------------- --------------- ------------- -------------------
DTO Management, Inc. $1,530,000 $3,060,000 51%
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇-▇▇▇▇▇▇▇)
Investor Members $1,470,000 $2,940,000 49%
45
EXHIBIT B
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF DTO, LLC
A North Carolina Limited Liability Company
GLOSSARY OF TERMS
As used in this Agreement, the following terms shall have the following
definitions (unless otherwise expressly provided herein).
"Act" means the North Carolina Limited Liability Company Act, as in
effect in North Carolina and set forth at N.C. Gen. Stat.ss.ss.57C-1-01 through
57C-10-07 (or any corresponding provisions of succeeding law).
"Adjusted Capital Account" means, with respect to any Member 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 member nonrecourse debt
minimum gain) and decreased by the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Affiliate" means with respect to a Person, (i) any relative of such
Person; (ii) any officer, director, trustee, partner, manager, employee or
holder of ten percent (10%) or more of any class of the outstanding voting
securities or of an equity interest of such Person; or (iii) Entity or holder of
ten percent (10%) or more of the outstanding voting securities or of an equity
interest of any Entity, controlling, controlled by, or under common control with
such Person.
"Agreed Value" means with respect to any noncash asset of the Company
an amount determined and adjusted in accordance with the following provisions:
(a) The initial Agreed Value of any noncash asset contributed to
the capital of the Company by any Member shall be its gross fair market value,
as agreed to by the contributing Member and the Company.
(b) The initial Agreed Value of any noncash asset acquired by the
Company other than by contribution by a Member shall be its adjusted basis for
federal income tax purposes.
(c) The initial Agreed Values of all the Company's noncash assets,
regardless of how those assets were acquired, shall be reduced by depreciation
or amortization, as the case may be, determined in accordance with the rules set
forth in Regulations Section 1.704-1(b)(2)(iv)(f) and (g).
46
(d) The Agreed Values, as reduced by depreciation or amortization,
of all noncash assets of the Company, regardless of how those assets were
acquired, shall be adjusted from time to time to equal their gross fair market
values, as agreed to by the Members in writing, as of the following times:
(i) the acquisition of a Membership
Interest or an additional Membership Interest in the
Company by any new or existing Member in exchange for
more than a de minimis Capital Contribution;
(ii) the distribution by the Company of
more than a de minimis amount of money or other
property as consideration for all or part of a
Membership Interest in the Company; and
(iii) the termination of the Company for
federal income tax purposes pursuant to Code Section
708(b)(1)(B).
If, upon the occurrence of one of the events described in (i), (ii) or
(iii) above the Members do not agree in writing on the gross fair market values
of the Company's assets, it shall be deemed that the fair market values of all
the Company's assets equal their respective Agreed Values immediately prior to
the occurrence of the event and thus no adjustment to those values shall be made
as a result of such event.
"Agreement" means this Operating Agreement, as amended from time to
time.
"Articles of Organization" means the Articles of Organization of the
Company, as filed with the Secretary of State of North Carolina as the same may
be amended from time to time.
"Capital Account" means with respect to each Member or assignee an
account maintained and adjusted in accordance with the following provisions:
(a) Each Person's Capital Account shall be increased by Person's
Capital Contributions, such Person's distributive share of Profits, any items in
the nature of income or gain that are allocated pursuant to the Regulatory
Allocations and the amount of any Company liabilities that are assumed by such
Person or that are secured by Company property distributed to such Person.
(b) Each Person's Capital Account shall be decreased by the amount
of cash and the Agreed Value of any Company property distributed to such Person
pursuant to any provision of this Agreement, such Person's distributive share of
Losses, any items in the nature of loss or deduction that are allocated pursuant
to the Regulatory Allocations, and the amount of any liabilities of such Person
that are assumed by the Company or that are secured by any property contributed
by such Person to the Company.
In the event any Membership Interest is transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the Capital Account
of the transferor to the extent it relates to the transferred Membership
Interest.
47
In the event the Agreed Values of the Company assets are adjusted
pursuant to the definition of Agreed Value contained in this Agreement, the
Capital Accounts of all Members shall be adjusted simultaneously to reflect the
aggregate adjustments as if the Company recognized gain or loss equal to the
amount of such aggregate adjustment.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such regulations. In the event MedCath 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, MedCath may make
such modification, provided that it is not likely to have a material effect on
the amounts distributable to any Member pursuant to Articles VI or VII hereof
upon the dissolution of the Company. In the event MedCath shall determine such
adjustments are necessary or appropriate to comply with Regulations Section
1.704-1(b)(2)(iv), MedCath shall adjust the amounts debited or credited to
Capital Accounts with respect to (i) any property contributed by the Members or
distributed to the Members and (ii) any liabilities secured by such contributed
or distributed property or assumed by the Members. MedCath shall also make any
other appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b). In the event any Membership Interest in the Company is transferred
in accordance with the terms of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred Membership Interest.
"Capital Contribution" means with respect to any Member, the amount of
money and the initial Agreed Value of any property (other than money)
contributed to the Company with respect to the Membership Interest of such
Member.
"Cash Distributions" means net cash distributed to Members resulting
from Cash Flow from Operations or Cash from Sales or Refinancing, but shall not
include cash payments made to MedCath as its Management Fee for services or any
amount in repayment of loans made by the Members to the Company.
"Cash Flow from Operations" means net cash funds provided from
operations, exclusive of Cash from Sales or Refinancing, of the Company or
investment of any Company funds, without deduction for depreciation, but after
deducting cash funds used to pay or establish a reserve for expenses, debt
payments, capital improvements, and replacements and for such other items as
MedCath reasonably determines to be necessary or appropriate; provided, without
the consent of the Investor Manager, MedCath shall not use such net cash funds
for the early repayment of Company debt.
"Cash from Sales or Refinancing" means the net cash proceeds received
by the Company from or as a result of any Sale or Refinancing of property after
deducting (i) all expenses incurred in connection therewith, (ii) any amounts
applied by MedCath in its sole and absolute discretion toward the payment of any
indebtedness and other obligations of the Company then due and payable,
including payments of principal and interest on mortgages, (iii) the payment of
any other expenses or amounts owed by the Company to other parties to the extent
then due and payable, and (iv) the establishment of any reserves deemed
necessary by MedCath in its sole and
48
absolute discretion. If the proceeds of any sale or refinancing are paid in more
than one installment, each such installment shall be treated as a separate Sale
or Refinancing for the purposes of this definition.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. Any reference herein to a specific section(s) of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Company" means and shall refer to Heart Hospital of DTO, LLC, which
was created upon the filing of the Articles of Organization with the Office of
the Secretary of State of North Carolina, to be operated under the name Heart
Hospital of DTO, LLC, a North Carolina limited liability company, and to
continue under this Agreement, as amended from time to time.
"Default Rate" means a per annum rate of return on a specified
principal sum, compounded monthly, equal to the greater of (a) the Prime Rate
plus 500 basis points, or (b) 18%, but in no event greater than the highest rate
allowed by law.
"Economic Interest" means and shall refer to that portion of the
Membership Interest of a Member in the economic rights and benefits of the
Company, including but not limited to all Profits, Losses and Cash
Distributions. Such an Economic Interest will be measured by an amount equal to
the Member's percentage Membership Interest in the Company as the same may be
adjusted from time to time.
"Economic Interest Owner" means a Person who has validly acquired a
Member's Economic Interest as permitted under this Agreement but who has not
become a Member. Such Person shall be entitled to the allocations of Profits and
Losses and Cash Distributions under Article 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 Member, it shall be a mere assignee of a Member.
"Entity" means any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative or association or any foreign trust or foreign business
organization.
"Equipment" means the appropriate equipment and supplies required from
time to time in connection with the development and operation of the Hospital.
"Fiscal Year" means, with respect to the first year of the Company, the
period beginning upon the formation of the Company and ending on the next
September 30, with respect to subsequent years of the Company, the twelve month
period beginning October 1 and ending September 30, and, with respect to the
last year of the Company, the portion of the period beginning October 1 and
ending with the date of the final liquidating distributions.
"Hospital" means an acute care hospital specializing in all aspects of
cardiology and cardiovascular care and surgery in Dayton, Ohio, as further
described in Section 2.3 of the Agreement.
49
"Investor Manager" means an individual elected by Investor Members in
accordance with Section 5.13 who shall serve as a Manager of the Company.
"Investor Members" means the Members other than MedCath and its
Affiliates listed on the Information Exhibit attached hereto.
"Majority Vote of Investor Members" means and shall refer to the
affirmative vote, approval or consent of Investor Members holding a majority of
the percentage Membership Interests held by the Investor Members in the
aggregate.
"Manager" or "Managers" means and shall refer to one or more managers
designated pursuant to this Agreement. Pursuant to this Agreement and the
Articles of Organization, no Member shall automatically be a manager by virtue
of such Person's status as a Member. Subject to Section 11.1(g) hereof, the
Managers of the Company shall be MedCath and the Investor Manager. The powers,
rights and duties of each Manager to manage the affairs of the Company are
specified or designated in this Agreement.
"Management Fee" means the amounts payable to MedCath pursuant to
Section 5.6(b)(ii) for services rendered in managing the operations of the
Company.
"Material Agreement" means any binding agreement which may not be
canceled upon less than ninety (90) days notice and which calls for the
expenditure of funds, or involves an obligation for financing, in excess of
$100,000.00 exclusive of agreements or obligations contemplated by any budget,
development plan, financing or construction contract approved by the Managers or
agreements incurred in the ordinary course of business such as employment
agreements, purchases of supplies and routine services and the like.
"Material Decision" means any decisions regarding approvals of the
development and operating budgets for the Hospital, the selection of the site
for the Hospital, the design of the Hospital, the selection of the Hospital's
senior administrator, strategic planning, the execution of managed care
contracts and the execution of exclusive contracts to provide physician services
to the Hospital.
"MedCath" means and shall refer to ____________________________, which
shall serve as a Manager of the Company.
"Member" means and shall refer to the organizers of the Company (unless
or until any such organizer has withdrawn) and each of the Persons identified as
"Members" in the then applying Information Exhibit attached hereto and
incorporated herein by this reference. If a Person is already a Member
immediately prior to the purchase or other acquisition by such Person of an
Economic Interest or Membership Interest, such Person shall have all the rights
of a Member with respect to such purchased or otherwise acquired Membership
Interest or Economic Interest, as the case may be.
"Membership Interest" means all of a Member's rights in the Company,
including without limitation the Member's share of Profits, Losses, Cash
Distributions and other benefits
50
of the Company, any right to vote, any right to participate in the management of
the business and affairs of the Company, including the right to vote on, consent
to, or otherwise participate in any decision or action of or by the Members
granted pursuant to this Operating Agreement or the Act. The percentage
Membership Interest of each Member, their Capital Contributions and other
related information shall be listed on the Information Exhibit. The percentage
Membership Interests generally shall be based upon the pro rata Capital
Contribution of each Member.
"Organization Expenses" means those expenses incurred, either by the
Company, on behalf of the Company or for which the Company has agreed to make
reimbursement, in connection with the formation of the Company including such
expenses as: (i) registration fees, filing fees, and taxes; and (ii) legal fees
incurred in connection with any of the foregoing.
"Person" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such
individual or Entity where the context so permits.
"Prime Rate" means the rate of interest as of the relevant day or time
period as announced by the First Union National Bank, 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 Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(l) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses shall be
added to such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses, shall be subtracted from such taxable income or
loss;
(c) Gain or loss resulting from dispositions of Company assets
shall be computed by reference to the Agreed Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Agreed Value.
"Refinancing" means any borrowing incurred or made to recapitalize the
Company or the equity investment in, or to refinance any loan used to finance
the acquisition of property.
"Regulations" means rules, orders, and regulations issued pursuant to
or under the authority of the Code and shall include revisions to and succeeding
provisions as appropriate.
"Regulatory Allocations" means those allocations of items of Company
income, gain, loss or deduction set forth on the Regulatory Allocations Exhibit
and designed to enable the
51
Company to comply with the alternate test for economic effect prescribed in
Regulations Section 1.704-1(b)(2)(ii)(d), and the safe-harbor rules for
allocations attributable to nonrecourse liabilities prescribed in Regulations
Section 1.704-2.
"Sale" means the sale, exchange, involuntary conversion (other than a
casualty followed by reconstruction), condemnation, or other disposition of
property by the Company, except for dispositions of inventory items and personal
property in the ordinary course of business and in connection with the
replacement of such property.
"Substitute Manager" means a Manager who succeeds either MedCath or the
Investor Manager with all of the specific rights and powers of such Manager
under this Agreement.
"Substitute Member" means an assignee of a Member who has been admitted
to the Company and granted all the rights of a Member in place of its assignor
pursuant to the provisions of this Agreement. A Substitute Member, upon its
admission as such, shall replace and succeed to the rights, privileges, and
liabilities of the Member from whom it acquired its interest in the Company, to
the extent of the Economic Interest assigned.
"Supermajority Vote of the Members" means and shall refer to the
affirmative vote, approval or consent of Members holding sixty-seven percent
(67%) of the percentage Membership Interests held by the Members in the
aggregate.
52
EXHIBIT C
TO THE
OPERATING AGREEMENT
OF HEART HOSPITAL OF DTO, LLC
A North Carolina Limited Liability Company
DEVELOPMENT BUDGET EXHIBIT
[SEE ATTACHED CAPITAL EXPENSE INFORMATION]
53
HEART HOSPITAL OF DTO, LLC
CAPITAL EXPENSES
FACILITY SIZE
Total Beds 36 occ. beds = [***]% of 40 beds
capacity
Total Square Feet [***] sqft/bed +[***] add'l [***]
sqft
CAPITAL EXPENSES TOTAL DEPRECIATION & INTEREST
AMOUNT AMORTIZATION EXPENSE
-------------------- -----------------
TERM AMOUNT RATE AMOUNT
Property:
Building Construction $[***]/sqft $[***] 40 years $[***]
Land 11.00 acres @$[***]/sqft $[***] 0 years $[***]
Architectural Fees [***]% of $[***] 40 years $[***]
constr.
Interest During Constr. 9 months @[***]% $[***] 40 years $[***]
------
Total Property $v [***]% $[***]
Equipment: Capacity
--------
Cath Labs [***]/lab/yr 3 lab(s) $[***]
Operating Rooms [***]/OR/yr 3 OR(s) $[***]
Angiography Suite $[***]
CVRU/Recovery $[***]
Radiology & Laboratory $[***]
Patient Care $[***]
Other Departments $[***]
------
Total Equipment $[***] 7 years $[***] [***]% $[***]
Startup Costs:
Loan Acquisition Costs:
Loan Commitment Fee [***]% of loan amt $[***] 7 years $[***] [***]% $[***]
Legal Fees $[***] 5 years $[***] [***]% $[***]
------
$[***]
Pre-Opening Costs: $[***] 2 years $[***] [***]% $[***]
TOTALS ----- ------ -----
$[***] $[***] $[***]
[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
3/19/97
54
EXHIBIT D
TO THE
OPERATING AGREEMENT
OF
HEART HOSPITAL OF DTO, LLC
a North Carolina limited liability company
REGULATORY ALLOCATIONS
This Exhibit contains special rules for the allocation of items of
Company income, gain, loss and deduction that override the basic allocations of
Profits and Losses in the Agreement to the extent necessary to cause the overall
allocations of items of Company income, gain, loss and deduction to have
substantial economic effect pursuant to Regulations Section 1.704-1(b) and shall
be interpreted in light of that purpose. Subsection (a) below contains special
technical definitions. Subsections (b) through (h) contain the Regulatory
Allocations themselves. Subsections (i), (j) and (k) are special rules
applicable in applying the Regulatory Allocations.
(a) Definitions Applicable to Regulatory Allocations. For purposes
of the Agreement, the following terms shall have the meanings indicated:
(i) "Company Minimum Gain" means the
same as the meaning of "partnership minimum gain" set
forth in Regulations Section 1.704-2(d), and is
generally the aggregate gain the Company would
realize if it disposed of its property subject to
Nonrecourse Liabilities in full satisfaction of each
such liability, with such other modifications as
provided in Regulations Section 1.704-2(d). In the
case of Nonrecourse Liabilities for which the
creditor's recourse is not limited to particular
assets of the Company, until such time as there is
regulatory guidance on the determination of minimum
gain with respect to such liabilities, all such
liabilities of the Company shall be treated as a
single liability and allocated to the Company's
assets using any reasonable basis selected by
MedCath.
(ii) "Member Nonrecourse Deductions"
means losses, deductions or Code Section 705(a)(2)(B)
expenditures attributable to Member Nonrecourse Debt
under the general principles applicable to "partner
nonrecourse deductions" set forth in Regulations
Section 1.704-2(i)(2).
(iii) "Member Nonrecourse Debt" means any
Company liability with respect to which one or more
but not all of the Members or related Persons to one
or more but not all of the Members bears the economic
risk of loss within the meaning of Regulations
Section 1.752-2 as a guarantor, lender or otherwise.
55
(iv) "Member Nonrecourse Debt Minimum
Gain" means the minimum gain attributable to Member
Nonrecourse Debt as determined pursuant to
Regulations Section 1.704-2(i)(3). In the case of
Member Nonrecourse Debt for which the creditor's
recourse against the Company is not limited to
particular assets of the Company, until such time as
there is regulatory guidance on the determination of
minimum gain with respect to such liabilities, all
such liabilities of the Company shall be treated as a
single liability and allocated to the Company's
assets using any reasonable basis selected by
MedCath.
(v) "Nonrecourse Deductions" means
losses, deductions, or Code Section 705(a)(2)(B)
expenditures attributable to Nonrecourse Liabilities
(see Regulations Section 1.704-2(b)(1)). The amount
of Nonrecourse Deductions for a Fiscal Year shall be
determined pursuant to Regulations Section
1.704-2(c), and shall generally equal the net
increase, if any, in the amount of Company Minimum
Gain for that taxable year, determined generally
according to the provisions of Regulations Section
1.704-2(d), reduced (but not below zero) by the
aggregate distributions during the year of proceeds
of Nonrecourse Liabilities that are allocable to an
increase in Company Minimum Gain, with such other
modifications as provided in Regulations Section
1.704-2(c).
(vi) "Nonrecourse Liability" means any
Company liability (or portion thereof) for which no
Member bears the economic risk of loss under
Regulations Section 1.752-2.
(vii) "Regulatory Allocations" means
allocations of Nonrecourse Deductions provided in
Paragraph (b) below, allocations of Member
Nonrecourse Deductions provided in Paragraph (c)
below, the minimum gain chargeback provided in
Paragraph (d) below, the member nonrecourse debt
minimum gain chargeback provided in Paragraph (e)
below, the qualified income offset provided in
Paragraph (f) below, the gross income allocation
provided in Paragraph (g) below, and the curative
allocations provided in Paragraph (h) below.
(b) Nonrecourse Deductions. All Nonrecourse Deductions for any
Fiscal Year shall be allocated to the Members in accordance with their
percentage Membership Interests.
(c) Member Nonrecourse Deductions. All Member Nonrecourse
Deductions for any Fiscal Year shall be allocated to the Member who bears the
economic risk of loss under Regulations Section 1.752-2 with respect to the
Member Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable.
(d) Minimum Gain Chargeback. If there is a net decrease in Company
Minimum Gain for a Fiscal Year, each Member shall be allocated items of Company
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Member's share of such net decrease in Company Minimum Gain,
determined in accordance with Regulations
56
Section 1.704-2(g)(2) and the definition of Company Minimum Gain set forth
above. This provision is intended to comply with the minimum gain chargeback
requirement in Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
(e) Member Nonrecourse Debt Minimum Gain Chargeback. If there is a
net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member
Nonrecourse Debt for any Fiscal Year, each Member who has a share of the Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt as of
the beginning of the Fiscal Year, determined in accordance with Regulations
Section 1.704-2(i)(5), shall be allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Regulations Sections 1.704-2(i)(4) and (5) and the definition of Member
Nonrecourse Debt Minimum Gain set forth above. This Paragraph is intended to
comply with the member nonrecourse debt minimum gain chargeback requirement in
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(f) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company income and gain
(consisting of a pro rata portion of each item of Company income, including
gross income, and gain for such year) shall be allocated to such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, any deficit in such Member's Adjusted Capital Account created by
such adjustments, allocations or distributions as quickly as possible.
(g) Gross Income Allocation. In the event any Member has a deficit
in its Adjusted Capital Account at the end of any Fiscal Year, each such Member
shall be allocated items of Company gross income and gain, in the amount of such
Adjusted Capital Account deficit, as quickly as possible.
(h) Curative Allocations. When allocating Profits and Losses under
Article VI, such allocations shall be made so as to offset any prior allocations
of gross income under Paragraph (g) above to the greatest extent possible so
that overall allocations of Profits and Losses shall be made as if no such
allocations of gross income occurred.
(i) Ordering. The allocations in this Exhibit to the extent they
apply shall be made before the allocations of Profits and Losses under Article
VI and in the order in which they appear above.
(j) Waiver of Minimum Gain Chargeback Provisions. If MedCath
determines that (i) either of the two minimum gain chargeback provisions
contained in this Exhibit would cause a distortion in the economic arrangement
among the Members, (ii) it is not expected that the Company will have sufficient
other items of income and gain to correct that distortion, and (iii) the Members
have made Capital Contributions or received net income allocations that have
restored any previous Nonrecourse Deductions or Member Nonrecourse Deductions,
then MedCath shall have the authority, but not the obligation, after giving
notice to the Members, to request on behalf of the Company the Internal Revenue
Service to waive the minimum gain
57
chargeback or member nonrecourse debt minimum gain chargeback requirements
pursuant to Regulations Sections 1.704-2(f)(4) and 1.704-2(i)(4). The Company
shall pay the expenses (including attorneys' fees) incurred to apply for the
waiver. MedCath shall promptly copy all Members on all correspondence to and
from the Internal Revenue Service concerning the requested waiver.
(k) Code Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such gain or loss shall be specially
allocated to the Members in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
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