Exhibit 10.69
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
HARLINGEN MEDICAL CENTER, LIMITED PARTNERSHIP
A North Carolina Limited Partnership
TABLE
OF CONTENTS
TO THE
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
HARLINGEN MEDICAL CENTER, LIMITED PARTNERSHIP
A North Carolina Limited Partnership
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ARTICLE I
DEFINITIONS
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ARTICLE II
FORMATION AND AGREEMENT OF LIMITED PARTNERSHIP
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SECTION 2.1
Partnership Formation; Effective Date
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SECTION 2.2 Name
of Partnership
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SECTION 2.3
Purposes and Investment Objectives
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SECTION 2.4
Registered Agent and Office; Principal Place of Business
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SECTION 2.5
Commencement and Term
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ARTICLE III
PARTNERS AND CAPITAL CONTRIBUTIONS
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SECTION 3.1
Capital Contributions of Partners
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SECTION 3.2
Liability of Partners-For Capital
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SECTION 3.3
Maintenance of Capital Accounts; Withdrawals of Capital;
Withdrawals from the Partnership
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SECTION 3.4
Interest on Capital Contributions or Capital Accounts
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SECTION 3.5
Additional Funding
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SECTION 3.6
Enforcement of Commitments
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SECTION 3.7 Tax
Treatment of Conversion
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ARTICLE IV NAMES
AND ADDRESSES OF PARTNERS
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ARTICLE V
MANAGEMENT OF THE PARTNERSHIP
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SECTION 5.1
General Authority and Powers of the General Partner
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SECTION 5.2
Restrictions on Authority of the General Partner
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SECTION 5.3 Duties
of the General Partner
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SECTION 5.4
Delegation by the General Partner
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SECTION 5.5 Right
to Rely Upon the Authority of the General Partner
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SECTION 5.6
Partnership Expenses
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SECTION 5.7 No
Management by Limited Partners
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SECTION 5.8
Consent by Limited Partners to Exercise of Certain Rights and
Powers by the General Partner
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SECTION 5.9 Other
Business of Partners
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SECTION 5.10
General Partner’s Standard of Care
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SECTION 5.11
Limitation of Liability
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SECTION 5.12
Indemnification of the General Partner
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SECTION 5.13
Election and Replacement of Investor Representatives; Appointment
of Hospital Representative
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SECTION 5.14 Role
of and Decisions by Investor Representatives
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SECTION 5.15
Purchase of Goods and Services from the General Partner
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SECTION 5.16
Decisions by the General Partner
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ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS
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SECTION 6.3
Losses
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SECTION 6.4 Code
Section 704(c) Tax Allocations
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SECTION 6.5
Miscellaneous
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ARTICLE VII
DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS
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SECTION 7.1 No
Termination by Certain Acts of Partner
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SECTION 7.2
Dissolution
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SECTION 7.3
Dissolution and Final Liquidation
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SECTION 7.4
Termination
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SECTION 7.5
Payment in Cash
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SECTION 7.6
Goodwill and Trade Name
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SECTION 7.7
Termination of Noncompetition Covenants
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ARTICLE VIII
REMOVAL OR WITHDRAWAL OF GENERAL PARTNER AND PARTNERS AND TRANSFER
OF PARTNERS’ PARTNERSHIP AND/OR ECONOMIC INTERESTS
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SECTION 8.1
General Partner-Transfers
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SECTION 8.2
Partners’ Right to Continue When Partnership has no General
Partner
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SECTION 8.3
Relationship with Substitute General Partner
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SECTION 8.4
Investor Limited Partners-Restriction on Transfer
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SECTION 8.5
Hospital Limited Partne- Restriction on Transfer
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SECTION 8.6
Condition Precedent to Transfer of Economic Interest and/or
Partnership Interest
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SECTION 8.7
Substitute Partner Conditions to Fulfill
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SECTION 8.8
Allocations Between Transferor and Transferee
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SECTION 8.9
Rights, Liabilities of, and Restrictions on Assignee
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SECTION 8.10 Death
of a Partner
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SECTION 8.11
Repurchase of Interests in Certain Event
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SECTION 8.12
Permissible Transfers by Limited Partners
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SECTION 8.13 Sale
of Partnership
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ARTICLE IX
RECORDS, ACCOUNTINGS AND REPORTS
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SECTION 9.1 Books
of Account
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SECTION 9.2 Access
to Records
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SECTION 9.3 Bank
Accounts and Investment of Funds
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SECTION 9.4 Fiscal
Year
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SECTION 9.5
Accounting Reports
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SECTION 9.6 Tax
Returns
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ARTICLE X MEETINGS
AND VOTING RIGHTS OF PARTNERS
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SECTION 10.1
Meetings
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SECTION 10.2
Voting Rights of Partners
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ARTICLE XI
AMENDMENTS
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SECTION 11.1
Authority to Amend by General Partner
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SECTION 11.2
Restrictions on General Partner’s Amendments: Amendments by
Limited Partners
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SECTION 11.3
Amendments to Certificate
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ARTICLE XII
MISCELLANEOUS
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SECTION 12.1
Revocable Limited Power of Attorney
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SECTION 12.2
Waiver of Provisions
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SECTION 12.3
Interpretation and Construction
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SECTION 12.4
Governing Law
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SECTION 12.5
Partial Invalidity
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SECTION 12.6
Binding on Successors
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SECTION 12.7
Notices and Delivery
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SECTION 12.8
Counterpart Execution; Facsimile Execution
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SECTION 12.9
Statutory Provisions
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SECTION 12.10
Waiver of Partition
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SECTION 12.11
Change In Law
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SECTION 12.12
Investment Representations of the Partners
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SECTION 12.13
Authorization and Release of Investor Representatives
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SECTION 12.14
Referrals to Hospital and Ownership of Shares of Common Stock of
MedCath Holdings, Inc. and/or MedCath Incorporated
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SECTION 12.15
Acknowledgments Regarding Legal Representation
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SECTION 12.16
Exhibits
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iii
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
HARLINGEN MEDICAL CENTER, LIMITED PARTNERSHIP
A North Carolina Limited Partnership
THESE SECURITIES ARE BEING ISSUED
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933 AND THE TEXAS SECURITIES ACT IN RELIANCE UPON THE
REPRESENTATION OF EACH PURCHASER OF THE SECURITIES THAT THE SAME
ARE BEING ACQUIRED FOR INVESTMENT PURPOSES. THESE SECURITIES MAY
ACCORDINGLY NOT BE RESOLD OR OTHERWISE TRANSFERRED OR CONVEYED IN
THE ABSENCE OF REGISTRATION OF THE SAME PURSUANT TO THE APPLICABLE
SECURITIES LAWS UNLESS AN OPINION OF COUNSEL SATISFACTORY TO THE
PARTNERSHIP IS FIRST OBTAINED THAT SUCH REGISTRATION IS NOT THEN
NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.
THIS AMENDED AND RESTATED LIMITED
PARTNERSHIP AGREEMENT of Harlingen Medical Center, Limited
Partnership, a North Carolina Limited Partnership is made and
entered into on the
day of July, 2007 (the “Effective Date”) by and among
the Persons whose names, addresses and taxpayer identification
numbers are listed on the Information Exhibit .
RECITALS
A. The Partnership was formed in
accordance with the original Limited Partnership Agreement of the
Partnership by and among the General Partner and the original
Investor Limited Partners (as amended by an Amendment to Limited
Partnership Agreement dated July 3, 2001 and a Second
Amendment to Limited Partnership Agreement dated September 26,
2001, the “Original Limited Partnership
Agreement”);
B. The Partnership owns and
operates a general acute care hospital which is located in
Harlingen, Texas and provides medical care and surgery services
agreed upon by the General Partner and the Investor
Representatives;
C. It is intended that the
hospital will continue to be a low-cost, high quality provider of
medical services within the Harlingen, Texas area in a manner which
is consistent with the national health care policy of lowering the
costs of health care;
D. In lieu of the procedures set
forth in that certain Convertible Note Purchase Agreement (the
“Convertible Note Purchase Agreement”) dated
December 27, 2005 by and between the Partnership and the
Hospital Limited Partner, the Hospital Limited Partner has agreed
to convert certain loans made to the Partnership (the
“Convertible Loans”) into the percentage Partnership
Interest reflected on the Information Exhibit for the
Hospital Limited Partner and to be admitted as a Limited Partner of
the Partnership;
E. The Capital Contributions,
Convertible Loans and involvement of the Limited Partners are
necessary to enable the Partnership to achieve its objectives;
and
F. The Partners desire to amend
and restate the Original Limited Partnership Agreement to reflect
the new percentage Partnership Interests set forth on the
Information Exhibit , to reflect the
assignment of the general partner interest to a new General
Partner, and to set forth the respective rights and obligations of
the parties hereto.
NOW THEREFORE, in consideration of
the foregoing, the parties hereby amend in its entirety and restate
the Original Limited Partnership Agreement to read as
follows:
ARTICLE I
DEFINITIONS
Unless otherwise indicated,
capitalized words and phrases in this Limited Partnership Agreement
shall have the meanings set forth in the attached Glossary of
Terms .
ARTICLE II
FORMATION AND AGREEMENT OF LIMITED PARTNERSHIP
SECTION 2.1 Partnership
Formation; Effective Date .
The Partnership was formed on
June 1, 1999 upon the filing of the Certificate of Limited
Partnership with the Secretary of State of North Carolina in
accordance with the provisions of the Act. The General Partner
shall execute or cause to be executed all other such certificates
or documents, and shall do or cause to be done all such filing,
recording, or other acts, as may be necessary or appropriate from
time to time to comply with the requirements of law for the
continuation and/or operation of a limited partnership in the State
of North Carolina, and other documents to reflect the admission of
additional Partners to the Partnership. Any costs incurred by the
General Partner in connection with the foregoing shall be
reimbursed promptly upon the completion of such action. This
Agreement shall be effective as of the date set forth in the
introductory paragraph hereof.
SECTION 2.2 Name of
Partnership .
The name of the Partnership is
Harlingen Medical Center, Limited Partnership.
SECTION 2.3 Purposes
and Investment Objectives.
The principal purposes of the
Partnership are as follows:
(a) To develop, own and operate the
Hospital and related facilities and provide related services,
including, but not limited to, the following:
(i) Services and facilities to meet
all requirements of the State of Texas, Medicare, JCAHO and other
credentialing or licensing bodies or agencies in order to have the
Hospital licensed as a general acute care hospital and to perform
medical and surgical services and to be eligible to obtain
appropriate reimbursements therefore;
(ii) All appropriate support services
and systems; and
(iii) Appropriate Equipment and
services with respect to the facilities described above and as
otherwise reasonably necessary or appropriate.
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(b) Any other purpose reasonably
related to (a) above.
SECTION 2.4 Registered Agent
and Office; Principal Place of Business.
The registered agent and office of
the Partnership shall be as indicated in the Certificate of Limited
Partnership, as amended from time to time. The principal place of
business of the Partnership shall be at such location in Harlingen,
Texas as selected by the General Partner from time to time. The
General Partner shall promptly notify the Partners of any changes
in the Partnership’s registered agent, registered office, or
principal place of business.
SECTION 2.5
Commencement and Term .
The Partnership commenced on the
filing of the Certificate of Limited Partnership in the Office of
the Secretary of State of North Carolina, as required by
Section 2.1 hereof, and shall continue until December 31,
2060, unless sooner terminated or dissolved as provided herein;
provided, however, that the termination date may be extended for up
to an additional forty (40) years in five (5) year increments
upon the election of the General Partner. In the event the General
Partner does not elect to extend the term hereof, the Investor
Representatives may instead elect to extend the term hereof,
subject to the General Partner’s consent which shall not be
unreasonably withheld or delayed.
ARTICLE III
PARTNERS AND CAPITAL CONTRIBUTIONS
SECTION 3.1 Capital
Contributions of Partners .
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The initial Capital Contributions of HHM, HPHI and the Investor
Limited Partners equaled the greater of: |
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(i) $8,000,000.00; or |
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(ii) 10% of Project Costs. |
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Such initial Capital Contribution were made as follows: |
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HHM owns a 1% General Partnership Interest in the Partnership
and contributed to the Partnership for its General Partnership
Interest at least 1% of the aggregate amount of such initial
Capital Contributions. |
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HPHI owns a 50% Limited Partnership Interest in the Partnership
and contributed to the Partnership for its Limited Partnership
Interest at least 50% of the aggregate amount of such initial
Capital Contributions. |
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The Investor Limited Partners own in the aggregate up to a 49%
Limited Partnership Interest and contributed to the Partnership for
their Limited Partnership Interest an amount equal in the aggregate
to at least 49% of such initial Capital Contributions. |
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The specific amounts of initial Capital Contributions actually
made were finally reflected in the books and records of the
Partnership. |
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As of the date that each original Limited Partner subscribed
for a Partnership Interest, such Limited Partner made an initial
Capital Contribution to the Partnership assuming that total initial
Capital Contributions equaled $8,000,000.00. Once the General
Partner finally determined the amount of Project Costs, if 10% of
such Project Costs exceeded $8,000,000.00, then the General Partner
provided written notice to all Partners thereof and informed all
original Partners of any additional Capital Contribution which they
were required to make to the Partnership. Upon such written
request, all original Limited Partners made such additional Capital
Contributions to the Partnership no later than 15 days after
the date of such written notice from the General Partner. |
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The Hospital Limited Partner has made a capital contribution to
the Partnership by conversion of a portion of the Convertible Loans
as described on the Information Exhibit, in lieu of the procedures
described in the Convertible Note Purchase Agreement and the
Convertible Notes issued in connection therewith. |
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HMC Management has made a capital contribution to the
Partnership by assigning to the Partnership a portion of a loan
owed by HMC Realty, LLC (by assumption and assignment from the
Partnership) to MedCath Finance Co., LLC, an affiliate of HMC
Management, as described on the Information Exhibit. HMC Management
has made a further capital contribution to the Partnership by
conversion of the unassigned portion of such loan as described on
the Information Exhibit. |
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The Partners may be liable to the Partnership for amounts
distributed to them as a return of capital as provided by the Act.
Partners shall not be required to contribute any additional capital
to the Partnership except as provided in Section 3.5. |
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The Capital Contributions shall also include any additional
Capital Contributions made by the Partners prior to the Effective
Date. |
SECTION 3.2 Liability
of Partners — For Capital .
The liability of each Partner for
capital shall be limited to the amount of its agreed Capital
Contribution as a Partner as provided in Section 3.1 and
Section 3.5, except that the Partners may be liable to the
Partnership for amounts distributed to them as a return of capital
as provided by the Act. The Partners shall not be required to
contribute any additional capital to the Partnership except as
provided in Section 3.5.
SECTION 3.3 Maintenance
of Capital Accounts; Withdrawals of Capital; Withdrawals from the
Partnership .
An individual Capital Account shall
be maintained for each Partner in accordance with requirements of
the Code and the Regulations promulgated thereunder. No Partner
shall be entitled to withdraw or to make demand for withdrawal of
any part of its Capital Account or to receive any distribution
except as provided herein. Except as otherwise provided in this
Agreement, each Partner shall look solely to the assets of the
Partnership for the return of its Capital Contributions and shall
have no right or power to demand or receive property other than
cash from the Partnership. No Partner shall have priority over any
other Partner as to the return of its Capital Contributions,
distributions or allocations, except as provided in this
Agreement.
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Except as otherwise provided herein,
a Partner may not withdraw from the Partnership without the written
consent of the General Partner and the Majority Vote of the
Investor Limited Partners and in no case shall a Partner have the
right to have its Interest redeemed by the Partnership unless
approved by the General Partner and by the Majority Vote of the
Investor Limited Partners.
SECTION 3.4 Interest on
Capital Contributions or Capital Accounts .
No interest shall be paid to any
Partner based solely on its Capital Contributions or Capital
Account. The preceding sentence shall not prevent the Partnership
from earning interest on its bank accounts and investments and
distributing such earnings to the Partner in accordance with
Articles VI and VII.
SECTION 3.5 Additional
Funding .
If from time to time, the General
Partner 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) First, the General Partner shall
use commercially reasonable efforts to borrow such funds from a
bank or other lender on terms and conditions reasonably acceptable
to the General Partner. All loans obtained hereunder shall be
subject to the approval of the Investor Representatives, which
approval shall not be unreasonably withheld or delayed;
(b) Second, if loans as provided in
(a) above are not available, the General Partner may through
written notice require that the Partners contribute additional
capital to the Partnership pro rata according to their respective
Partnership Interests, provided however, the maximum obligation for
such additional Capital Contributions for HMC Management, HPHI and
the Investor Limited Partners shall be limited to an additional
amount equal to such Partners’ initial Capital Contribution
pursuant to Section 3.1; provided further that the Hospital
Limited Partner may elect whether or not to contribute its pro rata
portion of such additional capital requirements but shall be
diluted in the manner described in Section 3.5(c) if it elects not
to contribute its pro rata portion of such additional capital
requirements.
(c) Third, if additional funds are
thereafter needed by the Partnership, the General Partner shall
request additional Capital Contributions from the Partners and each
Partner may elect whether or not to contribute its pro rata portion
of such additional capital requirements as optional Capital
Contributions. The other Partners may elect to contribute optional
Capital Contributions not contributed by any Partner hereunder.
Thereafter, the General Partner shall reasonably adjust the
percentage Partnership Interest of each Partner (based on the
aggregate of all Capital Contributions made by all of the Partners
in accordance with this Agreement) in the event any Partner
(including the Hospital Limited Partner) elected not to make
optional Capital Contributions pursuant to this Section 3.5(c)
or in the event the Hospital Limited Partner elected not to make
Capital Contributions pursuant to Section 3.5(b);
(d) At any stage of the process under
this Section 3.5, if additional funds are needed by the
Partnership, the General Partner or one of its Affiliates may, but
shall not be required to, loan all or any portion of such funds to
the Partnership at the Prime Rate plus one percent (1%) per annum
which loan shall be secured by the Partnership’s assets.
Interest shall be paid monthly in arrears and principal shall be
repaid according to a schedule to be agreed upon by the Investor
Representatives and the General Partner or its Affiliate; and
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(e) Finally, if funds are not
available in accordance with (a) through (d) above, then
the General Partner may elect to dissolve the Partnership.
SECTION 3.6 Enforcement
of Commitments .
In the event any Partner (a
“Delinquent Partner”) fails to make a mandatory Capital
Contribution as provided in Section 3.1 or Section 3.5 or
an optional Capital Contribution as agreed to by the Partner under
Section 3.5 (the “Commitment”), the General
Partner shall give the Delinquent Partner a Notice of the failure
to meet the Commitment. If the Delinquent Partner fails to perform
the Commitment (including any costs associated with the failure to
meet the Commitment and interest on such obligation at the Default
Interest Rate) within ten (10) business days of the giving of
Notice, the General Partner 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
Partnership is located or the state of the Delinquent
Partner’s address as then reflected in the Agreement. Each
Partner expressly agrees to the jurisdiction of such courts but
only for the enforcement of Commitments. The other Partners may
elect to contribute additional amounts equal to any amount of the
Commitment not contributed by such Delinquent Partner. The
contributing Partner shall be entitled at its election to treat the
amounts contributed pursuant to this Section either as a Capital
Contribution or as a loan from the contributing Partner bearing
interest at the Default Rate secured by the Delinquent
Partner’s Interest in the Partnership. If the contributing
Partner elects to contribute such amount as a Capital Contribution,
the percentage Partnership Interests of the Partners shall be
adjusted proportionately. Until the contributing Partner is fully
repaid for such loan made as a result of the default by the
Delinquent Partner and only if the contributing Partner agrees to
accept repayment of such amount, the contributing Partner shall be
entitled to all distributions to which the Delinquent Partner would
have been entitled had such Commitment been fulfilled thereby.
Notwithstanding the foregoing, no Commitment or other obligation to
make an additional Capital Contribution may be enforced by a
creditor of the Partnership unless the Partner expressly consents
to such enforcement or to the assignment of the obligation to such
creditor.
SECTION 3.7 Tax
Treatment of Conversion .
Notwithstanding any provision herein
to the contrary, the conversion, if any, of the Convertible Loans
shall be treated for US federal income tax purposes in a manner
that (i) is consistent with the proposed Regulations
pertaining to noncompensatory partnership options published by the
Treasury Department and IRS in the Federal Register on
January 22, 2003 (REG-103580-02), as amended, or
(ii) complies with the requirements of any final Regulations
and associated guidance promulgated by the Treasury Department and
IRS regarding the tax consequences associated with the
Partnership’s issuance of noncompensatory partnership
options, including the requirement to make any corrective
allocations contemplated by proposed Regulations Section
1.704-1(b)(2)(iv)( s ) (or the corresponding provision of
any final Regulations and associated guidance by the Treasury
Department and IRS regarding the tax consequences pertaining to
noncompensatory partnership options), if and to the extent that any
such final Regulations and associated guidance are applicable to
any conversion of the Convertible Loans; provided ,
however , that (i) any elections required to be made by
the Partnership or otherwise contemplated in connection with the
foregoing shall be made by the Partnership only with the consent of
the Hospital Limited Partner, which consent shall not be
unreasonably withheld, and (ii) the Partnership and Partners shall
use the remedial allocation method provided under Regulation
Section 1.704-3(d) in connection with any corrective
allocations contemplated by proposed Regulations
Section 1.704-1(b)(2)(iv)( s ) (or the corresponding
provision of any final Regulations and associated guidance by the
Treasury Department and IRS regarding the tax consequences
pertaining to noncompensatory partnership options). The Partners
acknowledge and agree that Agreed Values and Capital Accounts may
be adjusted in connection with the foregoing.
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SECTION 3.8 Limitation
on Hospital Limited Partner’s Contribution
Right
Notwithstanding any provision herein
to the contrary, any right herein of the Hospital Limited
Partner’s to make a Capital Contribution shall be limited to
the extent that a Capital Contribution would result in the Hospital
Limited Partner having a percentage Partnership Interest that
exceeds forty-nine percent (49%) at any time during the term of
this Agreement.
ARTICLE IV
NAMES AND ADDRESSES OF PARTNERS
The names and addresses of the
Partners are as indicated on the Information Exhibit ,
attached hereto and as amended from time to time.
ARTICLE V
MANAGEMENT OF THE PARTNERSHIP
SECTION 5.1 General
Authority and Powers of the General Partner .
Except as set forth in those
provisions of this Agreement that specifically require the vote,
consent, approval or ratification of the Partners, the General
Partner shall have complete authority and exclusive control over
the management of the business and affairs of the Partnership.
Subject to the terms and conditions of this Agreement and except as
otherwise provided herein, all Material Agreements and Material
Decisions with respect to the business and affairs of the
Partnership shall be approved or made by the General Partner with
the consent of the Investor Representatives in accordance with
Section 5.16 hereof which in all cases shall not be
unreasonably withheld or delayed. No Limited Partner has the actual
or apparent authority to cause the Partnership to become bound in
any contract, agreement or obligation, and no Limited Partner shall
take any action purporting to be on behalf of the Partnership. The
General Partner shall not cause the Partnership to become bound to
any contract, agreement or obligation, and the General Partner
shall not take any other action on behalf of the Partnership,
unless such matter has received the vote, consent, approval or
ratification if, and as, required pursuant to this Agreement with
respect to such matter or except as provided below with respect to
the authority and actions of the General Partner.
The day-to-day management of the
business and affairs of the Partnership shall be the responsibility
of the General Partner, 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, the General Partner shall
have the right and the power, if, as, and when it, from time to
time, deems necessary or appropriate on behalf of the Partnership,
subject only to the terms and conditions of this Agreement:
(a) To negotiate and execute on
behalf of the Partnership 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;
7
(c) To acquire the Equipment and
enter into loans or other financing arrangements therefor;
(d) To handle the negotiation and
execution of all other agreements regarding the purchase of goods
or services for the Hospital;
(e) To establish and maintain
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
Partnership’s capital and income in furtherance of or
relating to the Partnership’s business and purposes,
including, but not limited to, payment of all ongoing operational
expenses, payment of commissions, 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
Partnership’s funds as are temporarily not required for the
development or operation of the Partnership and the payment of
Partnership obligations; provided, that the General Partner shall
establish cash management guidelines;
(g) To employ or retain on such terms
and for such compensation as the General Partner may reasonably
determine, such persons, firms, or corporations as the General
Partner 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 the General Partner, 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 Partnership as lessee with respect to the
Hospital or rights held by the Partnership;
(j) To consent to the modification,
renewal, or extension of any obligations to the Partnership of any
Person or of any agreement to which the Partnership is a party or
of which it is a beneficiary;
(k) To execute in furtherance of any
or all of the purposes of the Partnership, any deed, lease, deed of
trust, security interest, mortgage, promissory note, bill 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
Partnership;
(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
Partnership, and to institute, prosecute, and defend any actions or
proceedings relating to the Partnership, its business, and
properties;
8
(n) To acquire and enter into any
contract of insurance which the General Partner deems necessary or
appropriate for the protection of the Partnership and the General
Partner, for the conservation of the Partnership or its assets, or
for any purpose beneficial to the Partnership; however, neither the
General Partner 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 Partners, including annual reports;
(p) To open accounts and deposit and
maintain funds in the name of the Partnership in banks or savings
and loan associations; provided, however, that the
Partnership’s funds shall not be commingled with the funds of
any other Person;
(q) To cause the Partnership 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 general partner 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 Representatives and other
agreed upon qualified medical personnel;
(w) To establish minimum insurance
requirements for all physicians practicing at the Hospital;
(x) To admit as Partners additional
investors who have been proposed for Partner status by the General
Partner and approved by the Investor Representatives, which
approval shall be given or withheld in the sole and absolute
discretion of the Investor Representatives;
(y) To sell assets of the
Partnership, subject to the restrictions contained in this
Agreement; and
(z) To prepare Medical Staff Bylaws
(the approval of which shall constitute a Material Decision) which
shall provide that the medical staff of the Hospital will be open
to qualified physicians who meet the Hospital’s credentialing
criteria, it being acknowledged that exclusive contracts may be
entered into upon the approval of the General Partner and the
Investor Representatives.
9
SECTION 5.2
Restrictions on Authority of the General
Partner.
The General Partner 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
Partnership;
(c) Commingle the Partnership funds
with those of any other Person;
(d) Admit an additional General
Partner, except as provided in this Agreement;
(e) Admit an additional Partner,
except as provided in this Agreement;
(f) Alter the primary purposes of the
Partnership as set forth in Section 2.3;
(g) Possess any property or assign
the rights of the Partnership in specific property for other than a
Partnership purpose;
(h) Employ, or permit the employ of,
the funds or assets of the Partnership in any manner except for the
exclusive benefit of the Partnership;
(i) Make any payments of any type,
directly or indirectly, to anyone for the referral of patients to
the Hospital in order to use the Hospital or to provide other
services; or
(j) Sell all or substantially all of
the assets of the Partnership or merge the Partnership with or into
any other Entity without (i) the approval of a Majority Vote
of the Investor Limited Partners and (ii) complying with the
requirements of the Right of First Offer set forth on the
Information Exhibit which incorporates the provisions of
Article XVI of the Convertible Note Purchase Agreement, if
applicable.
SECTION 5.3 Duties of
the General Partner.
The General Partner shall do the
following:
(a) Diligently and faithfully devote
such of its time to the business of the Partnership as may be
necessary to properly conduct the affairs of the Partnership and,
perform the duties for which it will receive a Management Fee as
provided in Section 5.6(b), or otherwise, however, the General
Partner shall not be required to devote its full time to such
duties;
(b) Use its best efforts to cause the
Partnership to comply with such conditions as may be required from
time to time to permit the Partnership to be classified for federal
income tax purposes as a partnership and not as an association
taxable as a corporation;
(c) File and publish all
certificates, statements, or other instruments required by law for
the formation and operation of the Partnership as a limited
partnership in all appropriate jurisdictions;
(d) Cause the Partnership to obtain
and keep in force during the term of the Partnership fire and
extended coverage and public liability and professional liability
insurance with such issuers and in such amounts as the General
Partner shall deem advisable, but in
10
amounts not
less (and deductible amounts not greater) than those customarily
maintained with respect to the business equipment and property
comparable to the Partnership’s;
(e) Have a fiduciary duty to conduct
the affairs of the Partnership in the best interests of the
Partnership and of the Partners, including the safekeeping and use
of all funds and assets, whether or not in its immediate possession
and control, and it shall not employ or permit others besides the
General Partner to employ such funds or assets in any manner except
for the benefit of the Partnership; and
(f) 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 Texas
law.
SECTION 5.4 Delegation
by the General Partner .
Subject to restrictions otherwise
provided herein, the General Partner may at any time employ any
other Person, including Persons and Entities employed by,
affiliated with, or related to the General Partner to perform
services for the Partnership and its business, and may delegate all
or part of their authority or control to any such other Persons,
provided that such employment or delegation shall not relieve the
General Partner of its responsibilities and obligations under this
Agreement or under the laws of the State of North Carolina nor will
it make any such Person a Partner or General Partner of the
Partnership.
SECTION 5.5 Right to
Rely Upon the Authority of the General Partner
.
Persons dealing with the Partnership
may rely upon the representation of the General Partner that such
General Partner is a general partner of the Partnership and that
such General Partner has the authority to make any commitment or
undertaking on behalf of the Partnership. No Person dealing with
the General Partner shall be required to determine its authority to
make any such commitment or undertaking. In addition, no purchaser
from the Partnership shall be required to determine the sole and
exclusive authority of the General Partner to sign and deliver on
behalf of the Partnership any instruments of transfer with respect
thereto or to see to the application or distribution of revenues or
proceeds paid or credited in connection therewith, unless such
purchaser shall have received written notice from the Partnership
affecting the same.
SECTION 5.6 Partnership
Expenses .
(a) In general, the
Partnership’s expenses shall be billed directly to and paid
by the Partnership. The Partnership shall reimburse the General
Partner or its Affiliates for: (i) all Organization Expenses
incurred by the General Partner or its Affiliates in connection
with the formation of the Partnership; (ii) following
consultation with the Investor Representatives, the costs to the
General Partner or its Affiliates of goods, services, and materials
used for and by the Partnership; and (iii) all reasonable
travel and other out-of-pocket expenses incurred by the General
Partner in the development and management of the Partnership and
its business provided that after the opening of the Hospital (i.e.
the date upon which it receives preliminary Medicare and Medicaid
certification) employees of the General Partner and MedCath
Incorporated who are not employed full-time for the benefit of the
Hospital shall not be reimbursed for their travel and other similar
expenses. The parties specifically recognize that the General
Partner and its Affiliates have incurred legal fees, filing fees,
and other out-of-pocket costs for the benefit of the Partnership,
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
Partnership, and agree that the General Partner shall be reimbursed
for these amounts. The reimbursement for expenses provided for in
this Section 5.6(a) shall be made to the
11
General Partner
or their Affiliates regardless of whether any distributions are
made to the Partners under Article VI and
Article VII.
(b) The Partnership shall also pay
the following expenses of the Partnership:
(i) All development and operational
expenses of the Partnership, which may include, but are not limited
to: the salary and related expenses of employees and staff of the
Hospital, all costs of borrowed money, taxes, and assessments on
the Hospital, and other taxes applicable to the Partnership;
expenses in connection with the acquisition, maintenance, leasing,
refinancing, operation, and disposition of the Equipment, furniture
and fixtures of the Hospital (including legal, accounting, audit,
commissions, engineering, appraisal, and the other fees); and the
maintenance of the Hospital and its Equipment, which may be
performed by the General Partner or one of its Affiliates as long
as the charges to the Partnership for such service are no greater
than the charges for such service from a third party service
provider;
(ii) In addition to reimbursements
and other amounts due hereunder, a Management Fee shall be paid to
the General Partner, which for periods prior to the opening of the
Hospital for business shall equal One Hundred Twenty Thousand
Dollars ($120,000.00), which amount shall be paid in full on the
date the Hospital is opened, and for periods after the opening of
the Hospital for business shall equal one and one-half percent (1
1 / 2 %) of the Hospital’s Net Revenues
(defined below) for a month and shall be payable monthly on or
before the tenth (10th) day following the end of each month. For
purposes of this Agreement, “Net Revenues” shall mean
all revenues of the Hospital net of contract allowances and bad
debt adjustments, all determined on a monthly basis in accordance
with GAAP on an accrual basis;
(iii) A medical director’s fee
in an amount approved by the General Partner and the Investor
Representatives to be paid to the medical director of the Hospital
which fee shall first accrue commencing as of the date on which the
Hospital is first ready to receive patients and shall be payable
monthly on the last day of each month based on actual time worked
at an agreed upon rate and for an agreed upon number of hours each
month; and
(iv) All fees and expenses paid to
third parties for accounting, legal, documentation, professional,
and reporting services to the Partnership, which may include, but
are not limited to: preparation and documentation of Partnership
bookkeeping, accounting and audits; preparation and documentation
of budgets, cash flow projections, and working capital
requirements; preparation and documentation of Partnership state
and federal tax returns; and taxes incurred in connection with the
issuance, distribution, transfer, registration, and recordation of
documents evidencing ownership of a Partnership Interest or
Economic Interest in the Partnership or in connection with the
business of the Partnership; expenses in connection with preparing
and mailing reports required to be furnished to the Partners or
Economic Interest Owners for tax reporting or other purposes,
including reports, if any, that may be required to be filed with
any federal or state regulatory agencies, or expenses associated
with furnishing reports to Partners which the General Partner deems
to be in the best interest of the Partnership; expenses of
revising, amending, converting, modifying, or terminating the
Partnership or this Agreement; costs incurred in connection with
any litigation in which the Partnership is involved as well as any
examination, investigation, or other proceedings conducted by any
regulatory agency involving the Partnership; costs of any computer
equipment or services used for or by the Partnership; and the costs
of preparing
12
and
disseminating informational material and documentation relating to
a potential sale, refinancing, or other disposition of the Hospital
or the Equipment.
(c) Guarantee Fee . In the
event that any Partner of the Partnership or its Affiliates provide
a guarantee of any indebtedness of the Partnership which is
acceptable to and required by the Partnership’s lenders
(“Guarantor Partners”) and such guarantees are
not provided on a pro rata basis by all other Partners of the
Partnership (the “Nonguarantor Partners”), then the
Guarantor Partners shall be paid an annual guarantee fee equal to
(a) the amount of such indebtedness which is guaranteed by the
Guarantor Partners or its Affiliates, multiplied by (b) .0075,
multiplied by (c) the percentage Partnership Interest in the
Partnership owned by the Nonguarantor Partners (the
“Guarantee Fee”). The Guarantee Fee shall be paid
quarterly and the expense thereof shall be allocated to the
Nonguarantor Partners as follows:
(i) The Guarantee Fee shall be
deducted from the Cash Distributions otherwise distributable to the
Nonguarantor Partners and shall be paid to the Guarantor
Partners;
(ii) To the extent that at the time
such Guarantee Fee is due to be paid hereunder there are no
anticipated Cash Distributions, then the Partnership shall pay such
Guarantee Fee to the Guarantor Partners and the amount of such
payments shall be charged to the Capital Accounts of the
Nonguarantor Partners;
(iii) When Cash Distributions (or, if
necessary, liquidating distributions) become available for
distribution to the Partners in the future, the Cash Distributions
(or liquidating distributions) otherwise distributable to the
Nonguarantor Partners shall first be retained by the Partnership to
the extent that amounts were previously charged to the Capital
Accounts of the Nonguarantor Partners in accordance with
(ii) above and any remaining Cash Distributions (or
liquidating distributions) shall be distributed to the Partners in
accordance with Section 6.1 or 7.3, as appropriate.
Loans made by MedCath Finance Company
or its Affiliates to the Partnership shall be considered the
provision of a guarantee of indebtedness for purposes of
calculating the Guarantee Fee.
SECTION 5.7 No
Management by Limited Partners .
The Limited Partners shall take no
part in, or at any time interfere in any manner with, the
management, conduct, or control of the Partnership’s business
and operations and shall have no right or authority to act for or
bind the Partnership except as set forth in this Agreement. The
rights and powers of such Limited Partners shall not extend beyond
those set forth in this Agreement and those granted under the
Certificate of Limited Partnership and any attempt to participate
in the control of the Partnership in a manner contrary to the
rights and powers granted herein and under the Certificate of
Limited Partnership shall be null and void and without force and
effect. Subject to the decisions and judgment with respect to all
professional medical or clinical matters of qualified medical
personnel, the General Partner, in conjunction with the Investor
Representatives when applicable, shall have the right to determine
when and how the operations of the Partnership shall be conducted.
The exercise by any Limited Partner of any of the rights granted to
the Limited Partner hereunder shall not be deemed to be taking part
in the control of the business of the Partnership and shall not
constitute a violation of this Section.
13
SECTION 5.8 Consent by
Limited Partners to Exercise of Certain Rights and Powers by the
General Partner .
By its execution hereof, each Limited
Partner expressly consents to the exercise by the General Partner
of the rights, powers, and authority conferred on the General
Partner by this Agreement.
SECTION 5.9 Other
Business of Partners .
(a) Subject to (b) below, any
Partner, including the General Partner, may engage independently or
with others in other business ventures of every nature and
description, including without limitation the purchase of medical
equipment, the rendering of medical services of any kind, and the
making or management of other investments and neither the
Partnership nor any Partner shall have any right by virtue of this
Agreement or the relationship created hereby in or to such other
ventures or activities or to the income or proceeds derived
therefrom, and the pursuit of such ventures.
(b) As long as any Partner owns a
Partnership Interest in the Partnership, and for a period of five
(5) years after a Partner ceases for any reason to own a
Partnership Interest in the Partnership, other than with respect to
investments made, equipment owned or services provided on or prior
to March 1, 1999, all of which the Partners will disclose in
writing to the General Partner upon request (a Partner may replace
any such existing equipment after March 1, 1999 as long as it
does not constitute a new service or facility which is otherwise
restricted hereunder), neither a Partner nor any of its respective
Affiliates, shall hold, directly or indirectly, an investment,
ownership or other beneficial interest in (i) any hospital
(ii) other Person (including a sole proprietorship) which
provides any of the services or facilities to be provided by the
Hospital or (iii) any outpatient surgery center, in any case
within Cameron County, Texas (the “Territory”),
provided that (i) no Partner 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
Partner 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, the
General Partner or its Affiliates may separately operate a mobile
catheterization laboratory within the Territory, but only if either
the General Partner 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 Representatives have elected not to have such service
provided by the Partnership.
Notwithstanding the foregoing, the
restrictions of this Section 5.9(b) shall not apply to the
Hospital Limited Partner.
(c) In order to ensure that the
Hospital has available to it at all times leading and qualified
physicians, the Partnership has entered into the Hospital
Professional Services Agreements (the “Professional Services
Agreements”) with the Investor Limited Partners or their
medical practices (the “Practices”), which Agreements
includes in paragraph 7 thereof certain covenants by the Practices
and its physicians which are designed to ensure that such
physicians will be available to the Hospital from time to time in
order to enable it to meet its objectives of being a quality
provider of medical services on a cost efficient basis. The parties
acknowledge and agree that the Practices’ execution of the
Professional Services Agreements is further consideration for the
execution by all of the Partners of this Agreement.
(d) The Partners, including the
General Partner, have reviewed the terms, conditions and
geographical restrictions included in Sections 5.9(b) and
(c) and in light of the interests of the parties hereto, agree
that such restrictions are fair and reasonable.
14
(e) If there is a breach or
threatened breach of the provisions of this Section 5.9 of
this Agreement, in addition to other remedies at law or equity, the
non-breaching party shall be entitled to injunctive relief. The
parties desire and intend that the provisions of this
Section 5.9 shall be enforced to the fullest extent
permissible under the law and public policies applied, but the
unenforceability or modification of any particular paragraph,
subparagraph, sentence, clause, phrase, word, or figure shall not
be deemed to render unenforceable the remainder of this
Section 5.9. Should any such paragraph, subparagraph,
sentence, clause, phrase, word, or figure be adjudicated to be
wholly invalid or unenforceable, the balance of this
Section 5.9 shall thereupon be modified in order to render the
same valid and enforceable and the unenforceable portion of this
Section 5.9 shall be deemed to have been deleted from this
Agreement.
(f) The Partnership, the General
Partner and the Limited Partners agree that the benefits to any
Limited Partner hereunder do not require, are not payment for, and
are not in any way contingent upon the referral, admission or any
other arrangement for the provision of any item or service offered
by the General Partner or the Partnership to patients of such
Limited Partner in any facility, laboratory or other health care
operation controlled, managed or operated by the General Partner or
the Partnership and nothing herein is intended to prohibit any
party from practicing medicine at any other facility.
(g) If a Limited Partner is a legal
entity and not an individual, such Limited Partner 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 General
Partner’s Standard of Care .
The General Partner shall act in a
manner it believes in good faith to be in the best interest of the
Partnership and with such care as an ordinarily prudent Person in a
like position would use under similar circumstances. In discharging
its duties, the General Partner shall be fully protected in relying
in good faith upon the records required to be maintained under this
Agreement and upon such information, opinions, reports and
statements by any Partners, or agents, or by any other Person as to
matters the General Partner 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
Partnership, including information, opinions, reports or statements
as to the value and amount of the assets, liabilities, income or
losses of the Partnership or any other facts pertinent to the
existence and amount of assets from which distributions to Partners
might properly be paid.
Notwithstanding anything herein to
the contrary, the General Partner or Partner shall have the right
to vote or approve Partnership matters in accordance with the terms
of this Agreement regardless of the personal interest of any
Partner or the General Partner in the outcome of any vote, decision
or matter.
SECTION 5.11 Limitation
of Liability .
The General Partner shall not be
liable to the Partnership, or its Partners, for any action taken in
managing the business or affairs of the Partnership if it performs
the duty of its office in compliance with the standard contained in
Section 5.10. The General Partner has not guaranteed nor shall
have any obligation with respect to the return of a Partner’s
Capital Contribution or share of income from the operation of the
Partnership. Furthermore, the General Partner, its Affiliates or
its employees (collectively, its “Agents”) shall not be
liable to the Partnership or to any Partner for any loss or damage
sustained by the Partnership or any Partner except loss or damage
resulting from gross negligence or intentional misconduct or
knowing violation of law or a transaction for which such General
Partner or Agent received a personal benefit in violation or breach
of the provisions of this Agreement.
15
SECTION 5.12
Indemnification of the General Partner .
(a) The General Partner and its
Agents (as defined in Section 5.11) shall be indemnified by
the Partnership against any losses, judgments, liabilities,
expenses, including attorneys’ fees and amounts paid in
settlement of any claims sustained by them arising out of any
action or inaction of the Partner or its Agents in its capacity as
the General Partner of the Partnership (or, in the case of an
Agent, within the scope of the General Partner’s authority)
to the fullest extent allowed by law, provided that the same were
not the result of gross negligence or willful misconduct on the
part of the General Partner or an Agent and provided that the
General Partner or an Agent, in good faith, reasonably determined
that such course of conduct was in the best interest of the
Partnership; provided, however, that such indemnification and
agreement to hold harmless shall be recoverable only out of
Partnership assets. Subject to applicable law, the Partnership
shall advance expenses incurred with respect to matters for which
the General Partner may be indemnified hereunder.
(b) If at any time, the Partnership
has insufficient funds to furnish indemnification as herein
provided, it shall provide such indemnification if and as it
generates sufficient funds and prior to any cash distributions,
pursuant to Article VI or Article VII hereof, to the
Partners.
SECTION 5.13 Election
and Replacement of Investor Representatives; Appointment of
Hospital Representative .
(a) In
accordance with the procedures outlined in Section 10.2
herein, the Investor Limited Partners shall elect five
(5) Investor Representatives by Majority Vote of the Investor
Limited Partners to serve for one year terms or until a successor
is duly elected. At any time, in accordance with Section 10.2,
the Investor Limited Partners may replace individual Investor
Representatives and elect a new Investor Representative by Majority
Vote of Investor Limited Partners to replace such Investor
Representative.
(b) The
Hospital Limited Partner shall be entitled to appoint an
independent nonvoting representative (the “Hospital
Representative”) who shall be permitted to attend all
meetings of the General Partner and the Investor Representatives;
provided that the Hospital Representative shall not have access to
competitive or proprietary information and shall not be permitted
to attend any portion of such meetings which relates to competitive
or proprietary information, in each case as determined collectively
by the General Partner and the Investor Representatives in their
reasonable discretion. The Partnership shall reimburse the Hospital
Representative for all reasonable travel and other out-of-pocket
expenses incurred by the Hospital Representative in attending
meetings of the Investor Limited Partners or Investor
Representatives.
SECTION 5.14 Role of
and Decisions by Investor Representatives .
Notwithstanding anything herein to
the contrary, the Investor Representatives shall take no action nor
make any decision on behalf of the Partnership except to the extent
they are expressly authorized to do so under this Agreement in
their capacity as Investor Representatives. Except as otherwise
expressly provided herein, all references to decisions to be made
or objections given by the Investor Representatives shall be deemed
to be made upon the affirmative vote, consent, or approval or
objection of a majority of the Investor Representatives.
16
SECTION 5.15 Purchase
of Goods and Services from the General Partner
.
Goods and services may be purchased
from the General Partner or its Affiliates as long as they are of
substantially the same quality and price as could be obtained from
an unrelated third party.
SECTION 5.16 Decisions
by the General Partner .
Except as provided in this Agreement,
decisions and actions to be taken by the Partnership shall be
deemed to have been made only upon the affirmative approval or
consent of the General Partner and the Investor Representatives. In
the event a decision, approval or consent is requested of the
Investor Representatives by the General Partner, it shall be deemed
to have been affirmatively made if the Investor Representatives
fail to respond to any such written request therefor within five
(5) days of notice thereof by the General Partner.
Notwithstanding anything in this Agreement to the contrary, all
decisions and actions to be made by the General Partner with
respect to any loan, lease or other similar financing of the
development, construction or operation of the Hospital or the
Partnership’s affairs, including without limitation the
decisions with respect to incurring any indebtedness or the
refinancing thereof, shall be made by the General Partner and shall
be subject to the consent of the Investor Representatives, which
consent shall not be unreasonably withheld; provided , the
application of the Partnership’s funds toward the repayment
of all or a portion of any financing of the Partnership in excess
of amounts then required to be paid (i.e., voluntary prepayments)
shall be made only with the consent of the General Partner and the
Investor Representatives. The Investor Representatives shall be
deemed to have specifically approved all expenditures proposed by
the General Partner that are substantially consistent with the
Development Budget Exhibit or an approved operating budget
when funded from additional Capital Contributions made to the
Partnership by the Partners pursuant to Section 3.5 above.
The development and annual operating
budgets to be proposed by the General Partner shall be approved by
the General Partner and the Investor Representatives as provided
above subject to the following:
(a) The Investor Representatives
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 Representatives
shall not unreasonably withhold its approval of budgets which are
within the reasonable revenue expectations of the Hospital and
which are in compliance (both as to terms and availability of
financing) with agreements with the Partnership’s lenders and
other parties providing financing to the Partnership; and
(c) In the event that the General
Partner and the Investor Representatives are unable to approve an
annual budget, the General Partner shall be authorized to operate
the Partnership under the previous year’s budget increased by
the greater of 5% or the increase during the previous year in the
Consumer Price Index for Medical Items until a new budget is
approved.
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ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS
SECTION 6.1
Distributions of Cash Flow from Operations and Cash from
Sales or Refinancing .
(a) Prior to the dissolution of the
Partnership, 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 Partners to the Partnership and after
payment of any Cash Distributions pursuant to Section 6.7,
shall be distributed annually by the Partnership as Cash
Distributions following the end of such Fiscal Year. Such Cash
Distributions shall be made according to the relative percentage
Partnership Interests of the Partners and Economic Interest
Owners.
(b) To the extent possible, any
Guarantee Fee shall be deducted from the Cash Distributions
otherwise distributable to the Nonguarantor Partners pursuant to
paragraph (a) of this Section 6.1 and paid to the Guarantor
Partners as set forth in Section 5.6(c). Notwithstanding
anything herein to the contrary, no distributions shall be made to
Partners if prohibited by the Act.
SECTION 6.2
Profits .
Except as provided in the Regulatory
Allocations Exhibit and subject to Section 6.6, Profits shall
be allocated as follows:
(a) First, to the General Partner to
the extent of the amount equal to the remainder, if any, of
(i) the cumulative Losses allocated to the General Partner
pursuant to Section 6.3(e) for all prior Fiscal Years, less
(ii) the cumulative Profits allocated to the General Partner
pursuant to this Section 6.2(a) for all prior Fiscal
Years;
(b) Second, to the Limited Partners
pro rata in proportion to and to the extent of the amount
equal to the remainder, if any, of (i) the cumulative Losses
allocated to the Limited Partners pursuant to Section 6.3(e)
for all prior Fiscal Years, less (ii) the cumulative Profits
allocated to the Limited Partners pursuant to this
Section 6.2(b) for all prior Fiscal Years;
(c) Third, to the Partners pro
rata in proportion to and to the extent of the amount equal to
the remainder, if any, of (i) the cumulative Losses allocated
to the Partners pursuant to Section 6.3(d) for all prior
Fiscal Years, less (ii) the cumulative Profits allocated to
the Partners pursuant to this Section 6.2(c) for all prior
Fiscal Years;
(d) Fourth, to the Partners pro
rata in proportion to and to the extent of the amount equal to
the remainder, if any, of (i) the cumulative Losses allocated
to the Partners pursuant to Section 6.3(c) for all prior
Fiscal Years, less (ii) the cumulative Profits allocated to
the Partners pursuant to this Section 6.2(d) for all prior
Fiscal Years;
(e) Fifth, to the Partners until the
cumulative Profits allocated pursuant to this Section 6.2(e)
(net of Losses allocated pursuant to Section 6.3(b)) equals
the aggregate Cash Distributions made for all years with respect to
which any Partner’s Cash Distributions were adjusted pursuant
to Section 6.1(b), pro rata in accordance with the
relative difference, with respect to each Partner, between
(i) such aggregate Cash Distributions and (ii) the
cumulative Profits previously allocated pursuant to this
Section 6.2(e) (net of Losses allocated pursuant to
Section 6.3(b)); and
(f) Finally, all remaining Profits
shall be allocated to the Partners in accordance with their
percentage Partnership Interests.
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SECTION 6.3
Losses .
Except as provided in the Regulatory
Allocation Exhibit and subject to Section 6.6, Losses shall be
allocated as follows:
(a) First, to the Partners that have
been allocated Profits pursuant to Section 6.2(f) until the
cumulative Losses allocated pursuant to this Section 6.3(a)
equals the cumulative prior allocations of Profits pursuant to
Section 6.2(f);
(b) Second, to the Partners that have
been allocated Profits pursuant to Section 6.2(e) until the
cumulative Losses allocated pursuant to this Section 6.3(b)
equals the cumulative prior allocations of Profits pursuant to
Section 6.2(e);
(c) Third, Losses shall be allocated
to the Partners with positive Adjusted Capital Account balances in
proportion to those balances;
(d) Finally, all remaining Losses
shall be allocated to the Partners in accordance with their
percentage Partnership Interests.
(e) Notwithstanding the foregoing,
Losses allocated pursuant to this Section 6.3 shall not exceed
the maximum amount of Losses that can be so allocated without
causing any Limited Partner to have an Adjusted Capital Account
deficit at the end of any Fiscal Year. In the event some but not
all of the Limited Partners would have Adjusted Capital Account
deficits as a consequence of an allocation of Losses pursuant to
this Section 6.3, the limitation set forth in this
Section 6.3(e) shall be applied on a Limited
Partner-by-Limited Partner basis so as to allocate the maximum
permissible Losses to each Limited Partner under Regulations
Section 1.704-1(b)(2)(ii)(d). All Losses in excess of the
limitations set forth in this Section 6.3(e) shall be
allocated to the General Partner.
SECTION 6.4 Code
Section 704(c) Tax Allocations .
Income, gain, loss, and deduction
with respect to any property contributed to the capital of the
Partnership shall, solely for tax purposes, be allocated among the
Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for federal
income tax purposes and its initial Agreed Value pursuant to any
method allowable under Code Section 704(c) and the Regulations
promulgated thereunder.
In the event the Agreed Value of any
Partnership asset is adjusted after its contribution to the
Partnership, subsequent allocations of income, gain, loss and
deduction with respect to such asset shall take into account any
variation between the adjusted basis of such asset for federal
income tax purposes and its Agreed
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