Exhibit 10.68
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, LLC
A North Carolina Limited Liability Company
Effective as of the 1st day of July, 2007

 

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TABLE OF CONTENTS
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, LLC
A North Carolina Limited Liability Company

                  ARTICLE I DEFINITIONS     2   ARTICLE II FORMATION AND
AGREEMENT OF LIMITED LIABILITY COMPANY     2  
 
  SECTION 2.1   Company Formation; Effective Date     2  
 
  SECTION 2.2   Name of Company     2  
 
  SECTION 2.3   Purposes and Business Objectives     2  
 
  SECTION 2.4   Registered Agent and Office; Principal Place of Business     3  
 
  SECTION 2.5   Commencement and Term     3   ARTICLE III MEMBERS AND CAPITAL
CONTRIBUTIONS     4  
 
  SECTION 3.1   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     6  
 
  SECTION 3.7   Member Documentation     7  
 
  SECTION 3.8   Reserved Powers of Members     7  
 
  SECTION 3.9   Appointment of Board of Directors     8  
 
  SECTION 3.10   Involvement of Investor Members and/or Owners     8   ARTICLE
IV NAMES AND ADDRESSES OF MEMBERS     9   ARTICLE V MANAGEMENT OF THE COMPANY  
  9  
 
  SECTION 5.1   General Authority and Powers of MedCath and the Board of
Directors; Delegation of MedCath     9  
 
  SECTION 5.2   Restrictions on Authority of the Board of Directors and MedCath
    11  
 
  SECTION 5.3   Duties of the Board of Directors     12  
 
  SECTION 5.4   Delegation by the Board of Directors and MedCath     12  
 
  SECTION 5.5   Right to Rely Upon the Authority of MedCath     12  
 
  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
Board of Directors     16  
 
  SECTION 5.9   Meetings and Vote of the Board of Directors     16  
 
  SECTION 5.10   Other Business of Members     16  
 
  SECTION 5.11   Board of Directors’ Standard of Care     20  
 
  SECTION 5.12   Limitation of Liability     20  
 
  SECTION 5.13   Indemnification of the Directors     21  
 
  SECTION 5.14   Purchase of Goods and Services from Members     21  
 
  SECTION 5.15   Certain Decisions of the Board of Directors     21  

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  SECTION 5.16   Indemnity by the Company     22  
 
  SECTION 5.17   Responsibility of MedCath     22  
 
  SECTION 5.18   Force Majeure     23   ARTICLE VI DISTRIBUTIONS AND ALLOCATIONS
    23  
 
  SECTION 6.1   Distributions of Cash Flow from Operations and Cash from Sales
or Refinancing     23  
 
  SECTION 6.2   Profits     24  
 
  SECTION 6.3   Losses     24  
 
  SECTION 6.4   Code Section 704(c) Tax Allocations     24  
 
  SECTION 6.5   Miscellaneous     25  
 
  SECTION 6.6   Special Allocations of Guarantee and Financing Fees     25  
ARTICLE VII DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS     26  
 
  SECTION 7.1   No Termination by Certain Acts of Member     26  
 
  SECTION 7.2   Dissolution/No Dissolution Upon Termination of Management and
Service Agreement     26  
 
  SECTION 7.3   Dissolution and Final Liquidation     26  
 
  SECTION 7.4   Termination     28  
 
  SECTION 7.5   Payment in Cash     28   ARTICLE VIII REMOVAL OR WITHDRAWAL OF
MEMBERS AND TRANSFER OF MEMBERS’ MEMBERSHIP AND/OR      ECONOMIC INTERESTS    
28  
 
  SECTION 8.1   Members - Restriction on Transfer     28  
 
  SECTION 8.2   Condition Precedent to Transfer of Membership Interest     30  
 
  SECTION 8.3   Substitute Member - Conditions to Fulfill     30  
 
  SECTION 8.4   Allocations Between Transferor and Transferee     31  
 
  SECTION 8.5   Rights, Liabilities of, and Restrictions on Assignee     31  
 
  SECTION 8.6   Repurchase of Interests in Certain Event     31  
 
  SECTION 8.7   Death of a Member     32   ARTICLE IX RECORDS, ACCOUNTINGS AND
REPORTS     33  
 
  SECTION 9.1   Books of Account     33  
 
  SECTION 9.2   Access to Records     33  
 
  SECTION 9.3   Bank Accounts and Investment of Funds     33  
 
  SECTION 9.4   Fiscal Year     33  
 
  SECTION 9.5   Accounting Reports     33  
 
  SECTION 9.6   Tax Matters Partner     34   ARTICLE X MEETINGS AND VOTING
RIGHTS OF MEMBERS     34  
 
  SECTION 10.1   Meetings     34  
 
  SECTION 10.2   Voting Rights of Members     35   ARTICLE XI AMENDMENTS     36
 
 
  SECTION 11.1   Authority to Amend by the Board of Directors     36  
 
  SECTION 11.2   Restrictions on the Board of Directors’ Amendments: Amendments
by Members     36  
 
  SECTION 11.3   Amendments to Articles of Organization     37   ARTICLE XII
MISCELLANEOUS     37  
 
  SECTION 12.1   Limited Power of Attorney     37  
 
  SECTION 12.2   Waiver of Provisions     37  
 
  SECTION 12.3   Interpretation and Construction     37  

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  SECTION 12.4   Governing Law     38  
 
  SECTION 12.5   Partial Invalidity     38  
 
  SECTION 12.6   Binding on Successors     38  
 
  SECTION 12.7   Notices and Delivery     38  
 
  SECTION 12.8   Counterpart Execution; Facsimile Execution     38  
 
  SECTION 12.9   Statutory Provisions     39  
 
  SECTION 12.10   Waiver of Partition     39  
 
  SECTION 12.11   Change in Law     39  
 
  SECTION 12.12   Investment Representations of the Members     40  
 
  SECTION 12.13   Acknowledgments Regarding Legal Representation     41  
 
  SECTION 12.14   Dispute Resolution     41  
 
  SECTION 12.15   Exhibits     42  

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AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, 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 NORTH CAROLINA SECURITIES
ACT IN RELIANCE UPON THE REPRESENTATION OF EACH PURCHASER OF THE SECURITIES THAT
THE SAME ARE BEING ACQUIRED FOR INVESTMENT PURPOSES. THESE SECURITIES MAY
ACCORDINGLY NOT BE RESOLD OR OTHERWISE TRANSFERRED OR CONVEYED IN THE ABSENCE OF
REGISTRATION OF THE SAME PURSUANT TO THE APPLICABLE SECURITIES LAWS UNLESS AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.
     THIS AMENDED AND RESTATED OPERATING AGREEMENT (the “Agreement”) of Coastal
Carolina Heart, LLC (the “Company”), a North Carolina Limited Liability Company
is made and entered into by and among Persons whose names, addresses and
taxpayer identification numbers are listed on the Information Exhibit
(Exhibit A).
RECITALS
     A. The Company was formed by MedCath Diagnostics, LLC, now known as MedCath
Partners, LLC (“MedCath”), and the Investor Members on June 15, 2001 to develop,
own, and operate a facility (the “Facility”) located in Wilmington, North
Carolina where the services of an outpatient cardiac catheterization laboratory
is providing cardiac catheterization procedures on an outpatient basis. The
Company now intends to manage the inpatient and outpatient diagnostic and
interventional cardiac catheterization and electrophysiology laboratories (the
“Cath Labs”) at New Hanover Regional Medical Center, a general acute care
hospital located in Wilmington, North Carolina (the “Hospital”) as well as to
continue to own and operate the Facility.
     B. It is intended that the management services that will be provided by the
Company hereafter will enhance the Hospital’s clinical capabilities within the
Cath Labs and bring a higher level of care to the Wilmington, North Carolina
region through the provision of efficient, quality cardiac services.
     C. The Hospital now wishes to become a Member of the Company. The Capital
Contributions and involvement of all of the Members are necessary to enable the
Company to achieve its objectives.

 

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     D. The Members now wish to amend and restate the original operating
agreement of the Company to reflect this intended purpose as well as to reflect
the Membership Interest of the Hospital in the Company.
ARTICLE I
DEFINITIONS
     Unless otherwise indicated, capitalized words and phrases in this Agreement
shall have the meanings set forth in the attached Glossary of Terms (Exhibit B).
ARTICLE II
FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY
     SECTION 2.1 Company Formation; Effective Date.
     The Company was formed upon the filing of the Articles of Organization with
the North Carolina Secretary of State in accordance with the provisions of the
Act on June 15, 2001. This Agreement shall be effective as of the date that this
Agreement has been executed by the Required Members of the Company as set forth
in Section 11.2 (the “Effective Date”). Upon the Effective Date, the Persons
listed on the attached Information Exhibit shall be admitted to the Company as
Members, all without the necessity of any further act or instrument and without
causing the dissolution of the Company.
     SECTION 2.2 Name of Company.
     The name of the Company is Coastal Carolina Heart, LLC.
     SECTION 2.3 Purposes and Business Objectives.
     Subject to and as supplemented by the provisions of this Section, the
principal purposes and business objectives of the Company are as follows:
     (a) To continue to own and operate the Facility to provide cardiovascular
services and peripheral vascular services using the services of one or more
cardiac catheterization laboratories provided by MedCath and to manage a mobile
cardiac catheterization laboratory route within the Territory using the services
of one or more cardiac catheterization laboratories provided by MedCath;
     (b) To lease or acquire real property, and if appropriate to construct a
suitable building, in which the Facility shall be located, and the personal
property, the equipment and other personalty to be utilized in the operation of
the Facility;
     (c) To enhance, manage, oversee and administer the Cath Labs;

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     (d) To establish and arrange for the operation of a mobile route to provide
cardiac catheterization services to hospitals and other locations approved by
the Board of Directors; and
     (e) To exercise all other powers necessary to or reasonably connected with
the Company’s business (as determined by the Board of Directors) which may by
legally exercised by limited liability companies under the Act and permitted by
North Carolina law.
     The Members expressly agree and acknowledge that the Company is intended to
provide and assist with the provision of healthcare services to the surrounding
community as a whole and to promote the health of a broad cross-section of that
community, including through the provision of an appropriate level of charity
care consistent with the overall mission of the Hospital. In that regard, the
Company shall be operated and managed in a manner that will not cause the
Hospital to act contrary to its tax-exempt purpose or in a manner that is likely
to adversely affect its tax-exempt status under Section 501(c)(3) of the Code,
or generate income for the Hospital which is subject to federal taxation. The
duty of the Company to operate in a manner that furthers the charitable purposes
of the Hospital as described above overrides any duty of the Company to operate
for the financial benefit of the Members. Whenever this Agreement refers to the
tax-exempt status of the Hospital, or the tax-exempt nature of any income
generated by the Company and allocated to the Hospital, the parties shall
construe this Agreement to refer to tax-exemption under Section 501(c)(3) of the
Code and to the lack of applicability of the unrelated business income tax to
any income allocated to the Hospital. Any references to tax-exempt status or the
tax-exempt nature of any income shall apply equally to the Hospital or any
tax-exempt Affiliate of the Hospital which is a transferee of the Hospital’s
Membership Interest.
     SECTION 2.4 Registered Agent and Office; Principal Place of Business.
     The registered agent and registered 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 the
greater Wilmington, North Carolina area as selected by the Board of Directors
from time to time. The Board of Directors shall promptly notify the Members of
any changes in the Company’s registered agent, registered office, or principal
place of business.
     SECTION 2.5 Commencement and Term.
     The Company commenced on the filing of the Articles of Organization with
the Office of the Secretary of State of North Carolina on June 15, 2001, and
shall continue until December 31, 2021, 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
consent of the Required Members.

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ARTICLE III
MEMBERS AND CAPITAL CONTRIBUTIONS
     SECTION 3.1 Capital Contributions of Members.
     (a) MedCath and the Investor Members made initial Capital Contributions set
forth below to the Company on such dates as are reflected in the records of the
Company. Based upon the $9,416,000 value of their Membership Interests (the
“Current Value of Original Interests”) and Hospital’s additional Capital
Contribution to the Company in connection with its admission as a Member of the
Company, at $43,000,000, the Members upon the Effective Date, hold the
Percentage Membership Interests set forth below:
     (i) MedCath shall hold a 9.2% Membership Interest;
     (ii) Investor Members shall hold a 8.8% Membership Interest, Members; and
     (iii) The Hospital shall hold an 82.0 % Membership Interest.
     (b) As of the Effective Date, the Membership Interests and Capital Account
balance of MedCath, the Investor Members and the Hospital are set forth in the
Information Exhibit assuming all such Capital Contributions have been made.
     SECTION 3.2 Liability of Members — For Capital.
     The liability of each Member for capital shall be limited to the amount of
his, her or 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 the requirements of the Code and the Regulations promulgated
thereunder. No Member shall be entitled to withdraw or to make demand for
withdrawal of any part of its Capital Account or to receive any distribution
except as provided herein. Except as otherwise provided in this Agreement, each
Member shall look solely to the assets of the Company for the return of its
Capital Contributions and shall have no right or power to demand or receive
property other than cash from the Company. No Member shall have priority over
any other Member as to the return of its Capital Contributions, distributions or
allocations, except as provided in this Agreement.

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     Except as otherwise provided in Article VIII, a Member may not withdraw
from the Company without the written consent of the Required Members. In no case
shall a Member have the right to have its Membership Interest redeemed by the
Company unless approved by the Required 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, the Board of Directors reasonably determines (which
determination shall not be unreasonably withheld or delayed) that funds in
addition to that contemplated by Section 3.1 are necessary or appropriate for
the business of the Company, including but not limited to the operation or
management of the Facility or the Cath Labs, then:
     (a) First, the Board of Directors shall use commercially reasonable efforts
to borrow such funds from a bank or other lender on terms and conditions
reasonably acceptable to the Board of Directors. All loans obtained hereunder
shall be subject to the approval of the Board of Directors, which approval shall
not be unreasonably withheld or delayed;
     (b) Second, if loans as provided in (a) above are not reasonably available,
the Board of Directors may through written notice require that the Members
contribute additional capital to the Company pro rata according to their
respective Membership Interests. Notwithstanding the foregoing, a Member’s
maximum obligation for such additional Capital Contributions shall be limited to
an additional amount equal to the following:
     (i) Investor Members (pro rata, based on the proportion that each
individual Investor Member’s membership interest bears to the percentage
membership interests held by Investor Members in the aggregate) – $92,400 from
all Investors Members in the aggregate;
     (ii) MedCath       -$96,600; and
     (iii) Hospital       -$861,000.
     Notwithstanding the foregoing, Hospital shall not be required to contribute
additional capital to the extent such capital is to be used solely to improve,
modernize or expand the Facility and such capital requirements shall be met
solely by contributions from the Investor Members and MedCath up to the limits
in this subsection (b) and from amounts

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made as optional capital contributions by any Member pursuant to the following
subsection (c).
     (c) Third, if additional funds are thereafter needed by the Company, the
Board of Directors shall request additional Capital Contributions from the
Members and each Member may elect whether or not to contribute its pro rata
portion of such additional capital requirements as optional Capital
Contributions. The other Members may elect to contribute optional Capital
Contributions not contributed by any Member hereunder. Thereafter, the Board of
Directors shall reasonably adjust the percentage Membership Interest of each
Member (based on the aggregate of all Capital Contributions made by all of the
Members in accordance with this Agreement) in the event any Member elected not
to make optional Capital Contributions pursuant to this Section 3.5(c); and
     (d) Fourth, if adequate funds have not been obtained or raised in
accordance with (a) through (c) above (including, without limitation, taking
into consideration funds made available by Members for amounts which are in
excess of their obligations hereunder), then the Board of Directors may elect to
dissolve the Company provided, however, if any Members or any of their
Affiliates (i) have any outstanding loans to the Company or are committed to
provide such loans or (ii) are providing a guaranty or are committed to provide
a guaranty for any indebtedness of the Company, then only those Members alone
upon unanimous approval of such Members, upon at least fifteen (15) days prior
written notice to the other Members, shall be entitled to so dissolve the
Company due to the Company not having sufficient funds to meet its financial
obligations or liabilities as they come due.
     SECTION 3.6 Enforcement of Commitments.
     In the event any Member (a “Delinquent Member”) fails to make a mandatory
Capital Contribution as provided in Section 3.1 or Section 3.5(b) or an optional
Capital Contribution as agreed to in writing by the Delinquent Member under
Section 3.5(c) (the “Commitment”), the Board of Directors shall give the
Delinquent Member a notice of the failure to meet the Commitment. If the
Delinquent Member fails to perform the Commitment (including any costs
associated with the failure to meet the Commitment and interest on such
obligation at the Default Rate) within ten (10) business days of the giving of
notice, the Board of Directors may take such action necessary to enforce the
Commitment, including but not limited to enforcing the Commitment in a court of
appropriate jurisdiction in the state in which the principal office of the
Company is located or the state of the Delinquent Member’s address as then
reflected in the Agreement. Each Member expressly agrees to the jurisdiction of
such courts but only for the enforcement of Commitments. The other Members may
elect to contribute additional amounts equal to any amount of the Commitment not
contributed by such Delinquent Member. The contributing Member shall be entitled
at its election to treat the amounts contributed pursuant to this Section either
as a Capital Contribution or as a loan from the contributing Member bearing
interest at the Default Rate secured by the Delinquent Member’s Membership
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 as determined by the Board of
Directors based on amounts actually contributed.

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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 Delinquent Member expressly
consents to such enforcement or to the assignment of the obligation to such
creditor. Notwithstanding anything herein to the contrary, (i) if the Delinquent
Member is a Director, if a Director is a direct or indirect owner of a
Delinquent Member or if a Director is appointed by a Delinquent Member (each, a
“Conflicted Director”), then the Directors who are not Conflicted Directors may
take all actions contemplated by this Section 3.6 without the consent or
participation of the Conflicted Directors; and (ii) no Delinquent Member may
participate in any vote or other action in which Members are entitled to
participate hereunder.
     SECTION 3.7 Member Documentation.
     If at any time any Investor Member is an Entity, such Investor Member that
is an Entity shall have delivered to MedCath as manager of the Company copies of
all documents, instruments and agreements related to the formation, ownership
and governance of the Investor Member that is an Entity (the “Investor
Documents”). None of the Investor Documents will be altered or amended without
the consent of MedCath, which consent shall not be unreasonably withheld
following review of the Investor Documents by MedCath for the purpose of
ensuring (a) that the Company’s ownership is in compliance with applicable law
and (b) that the Investor Documents include terms that will enable the Company
to enforce the obligations of this Agreement against the applicable Investor
Member that is an Entity. If MedCath has not provided the Investor Member that
is an Entity with MedCath’s written objections to a proposed alteration or
amendment to Investor Documents within thirty (30) days of the receipt by
MedCath of such proposed alteration or amendment, then such alteration or
amendment shall be deemed to have been consented to by MedCath.
Contemporaneously with such Investor Member’s admission as a Member of the
Company: (i) the Investor Member shall execute appropriate documentation under
which, among other things, it agrees to be bound by the terms and conditions of
this Agreement; and (ii) the Owners shall each execute appropriate documentation
under which, among other things, those individuals agree to be personally bound
by the terms and conditions of Article III, and Sections 5.10, 8.1, 8.6, 8.7,
12.11 and 12.13 hereof.
     SECTION 3.8 Reserved Powers of Members.
     The following are actions which can be taken only by the Members and shall
require the consent of the Required Members, either by vote thereof at a meeting
of the Members or by written consent of the Required Members:
     (a) Amendments to the Article of Organization of the Company or this
Agreement, except as specifically permitted in Section 11.1;

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     (b) Approval and authorization of disproportionate distributions or
allocations of profits, losses or assets of the Company, except as specifically
permitted elsewhere in this Agreement; and
     (c)Extension of the term of the Company.
     SECTION 3.9 Appointment of Board of Directors.
     (a) The initial Board of Directors shall consist of five (5) Directors who
shall be appointed as follows:
     (i) MedCath shall appoint one (1) Director;
     (ii) Hospital shall appoint three (3) Directors; and
     (iii) The Investor Members shall appoint one (1) Director, which Director
shall be appointed or removed either (i) by a vote of a majority of the
percentage Membership Interests of the Investor Members at a meeting held
pursuant to Section 10.1(b); or (ii) by written consent of a majority of the
percentage Membership Interests of the Investor Members.
     (b) A Director shall serve on the Board of Directors until removed by the
Member or group of Members appointing such Director. A Member or group of
Members shall have the right, with or without cause, to remove, substitute or
replace any Director which it or they appointed.
     SECTION 3.10 Involvement of Investor Members and/or Owners.
     The nature of the management services that Company intends to provide to
the Hospital contemplates the integral involvement of the Investor Members in
the performance of the services, and as such the involvement of Investor Members
in the functions required of them is a condition of each Investor Member’s
continued ownership in the Company. All Investor Members and Physician Owners
agree that they must be active Medical Staff Members in good standing at the
Hospital and possess education and training that enables them to perform the
required physician involvement activities. Further, the Investor Members and
Physician Owners hereby agree to perform such functions and responsibilities as
are reasonably assigned to them by the Board of Directors taking into
consideration the needs and requirements of the Hospital which may include, but
are not limited to, Investor Member and Physician Owner participation in:
     (a) One or more task force(s) to establish and implement procedures for
performance improvement, utilization management, and peer review for the Cath
Labs and the Facility which shall in all events be performed under the
performance improvement and peer review function of the Hospital;

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     (b) The evaluation of clinical competencies and performance evaluation
processes for patient care personnel performing services in the Cath Labs and
the Facility;
     (c) The evaluation of the impact of new and emerging technologies and
making recommendations for both new and existing technology to be offered in the
Cath Labs and the Facility;
     (d) The development of clinical protocols, policies and procedures to be
implemented in the Cath Labs and the Facility and the performance of periodic
review and evaluation of the same to make recommendations for necessary
revisions; and
     (e) The evaluation of supply utilization in the Cath Labs and the Facility.
     The Board of Directors shall delegate to MedCath and MedCath hereby accepts
the task of implementing an appropriate system to monitor and document each
Investor Member’s compliance with the involvement requirements determined by the
Board of Directors and revised from time to time, including assignment of
Investor Members to specific functions.
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS
     The names and addresses of the Members are as indicated on the Information
Exhibit attached hereto as Exhibit A, which may be amended by the Board of
Directors from time to time in accordance with the provisions of this Agreement.
ARTICLE V
MANAGEMENT OF THE COMPANY
     SECTION 5.1 General Authority and Powers of MedCath and the Board of
Directors; Delegation of MedCath.
     (a) Except as set forth in those provisions of this Agreement that
specifically require the vote, consent, approval or ratification of the Members
and subject to (b) and (c) below, the Board of Directors shall have complete
authority and exclusive control over the management of the business and affairs
of the Company. Subject to the terms and conditions of this Agreement and except
as otherwise provided herein, all Material Agreements and Material Decisions and
other decisions required to be made by the Board of Directors under the terms of
this Agreement shall be approved or made in accordance with Sections 5.9 and
5.15 hereof. Subject to the terms and conditions of this Agreement including
Section 3.8 and except as otherwise provided herein, the Board of Directors
shall make decisions concerning the following:

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     (i) All Material Agreements and Material Decisions with respect to the
business affairs of the Company;
     (ii) Annual capital and operating budgets for the Company;
     (iii) Any change in the criteria and/or schedule for the Cash Distributions
made to the Members as set forth in Section 6.1;
     (iv) Admission of new Members pursuant to Article VIII except as expressly
permitted by this Agreement;
     (v) Repurchase of Membership Interests pursuant to Section 8.6; and
     (vi) The determination of whether the Company will engage any physician to
serve as Medical Director for the Company and the duties and associated
compensation to be paid to any such Medical Directors; provided, however, that
in all events the terms of such agreements shall comply with applicable law and
the compensation paid shall be documented as representing fair market value for
the services rendered.
     No Member has the actual or apparent authority to cause the Company to
become bound in any contract, agreement or obligation, and no Member shall take
any action purporting to be on behalf of the Company. No Director shall cause
the Company to become bound to any contract, agreement or obligation, and no
Director shall take any other action on behalf of the Company, unless such
matter has received the vote, consent, approval or ratification as required
pursuant to this Agreement with respect to such matter or except as provided
below with respect to the authority and actions of MedCath;
     (b) Subject to the terms of this Agreement, the day-to-day management of
the business and affairs of the Company shall be the responsibility of MedCath,
which management shall be subject to decisions, guidelines and policies made or
established by the Board of Directors hereunder, provided, however, that
decisions relating to the medical and clinical practice of the Cath Labs shall
be made exclusively by the qualified medical personnel of the Hospital under the
direction of a member of the Hospital’s medical staff; and
     (c) Notwithstanding any provision herein to the contrary, the Board of
Directors shall (i) not cause the Company to engage in any activities or take
any action which is inconsistent with the tax-exempt status of the Hospital, and
(ii) cause the Company to conduct its activities and transactions so that the
charitable purposes of the Hospital referenced in Section 2.3 take precedence
over any profit-making motives. All Members are aware of the limitations on the
activities of the Company under this Section and agree that the decision of the
Board of Directors to forego an action or activity which would be inconsistent
with the tax-exempt status of the Hospital or to take or forego an action or
activity in a manner so that the charitable purposes in Section 2.3 take
precedence over any profit-making motives shall not be a breach of the duty of
loyalty or

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any other duty of the Directors to the Company or its Members. The Company
hereby adopts and agrees to operate in accordance with the charity care policy
attached hereto as Exhibit C and incorporated herein by reference, which has
been proposed by Hospital (the “Charity Policy”). Notwithstanding any other
provision of this Operating Agreement to the contrary, in the event of any
dispute over the initiation or approval of actions (including decisions
regarding the Company’s Charity Policy and decisions to provide care to indigent
patients without the expectation of payment and the provision in any budget for
such care) which are necessary or appropriate to further the charitable purposes
described in Section 2.3 which is not agreed to by the Board of Directors as a
whole shall only require the approval of the Directors appointed by the
Hospital. If after submission to the Board of Directors, the Board does not
reach agreement in any amendments to the Company’s Charity Policy, then the
Directors appointed by the Hospital shall have the sole authority to amend the
Company’s Charity Policy from time to time.
     SECTION 5.2 Restrictions on Authority of the Board of Directors and
MedCath.
     The Board of Directors (and any of its delegates, including MedCath) 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 except that
the Board of Directors shall permit MedCath to manage the Company funds as a
part of the cash management program of MedCath’s affiliate, MedCath
Incorporated;
     (d) Alter the primary purposes of the Company as set forth in Section 2.3;
     (e) Possess any property or assign the rights of the Company in specific
property for other than a Company purpose;
     (f) Employ, or permit the employment of, the funds or assets of the Company
in any manner except for the exclusive benefit of the Company;
     (g) Make any payments of any type, directly or indirectly, to anyone for
the referral of patients to the Cath Labs or Facility in order to use the Cath
Labs or the Facility or to provide other services;
     (h) Sell all or substantially all of the assets of the Company or merge the
Company with or into any other Entity without the approval of the Required
Members; or
     (i)Extend the term of this Agreement.

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     SECTION 5.3 Duties of the Board of Directors.
     The Board of Directors shall do the following:
     (a) Diligently and faithfully devote such of its time to the business of
the Company as may be necessary to properly conduct the affairs of the Company,
however, the individual Directors shall not be required to devote their full
time to such duties;
     (b) Use its best efforts to cause the Company to comply with such
conditions as may be required from time to time to permit the Company to be
classified for federal income tax purposes as a partnership and not as an
association taxable as a corporation;
     (c) File and publish all certificates, statements, or other instruments
required by law for the formation and operation of the Company as a limited
liability company in all appropriate jurisdictions;
     (d) Use its commercially reasonable best efforts to cause the Company to
obtain and keep in force during the term of the Company fire and extended
coverage and public liability and professional liability, and E & O insurance
(including coverage for the Directors) with such issuers and in such amounts as
the Board of Directors shall deem advisable, but in amounts not less (and
deductible amounts not greater) than those customarily maintained by businesses
comparable to the Company’s; and
     (e) Have a fiduciary duty to conduct the affairs of the Company in the best
interests of the Company, including the safekeeping and use of all funds and
assets, whether or not in its immediate possession and control, and it shall not
employ or permit others besides the Board of Directors to employ such funds or
assets in any manner except for the benefit of the Company.
     SECTION 5.4 Delegation by the Board of Directors and MedCath.
     Subject to restrictions otherwise provided herein, the Board of Directors
or MedCath may at any time employ any other Person, including Persons and
Entities employed by, affiliated with, or related to any Director or any Member
to perform services for the Company and its business, and may delegate all or
part of their authority or control to any such other Persons, provided that such
employment or delegation shall not relieve the Board of Directors or MedCath 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 of the Company.
     SECTION 5.5 Right to Rely Upon the Authority of MedCath.
     Persons dealing with the Company may rely upon the representation of
MedCath that MedCath is the manager of the Company and that MedCath has the
authority to make any commitment or undertaking on behalf of the Company to the
extent permitted hereunder. No Person dealing with MedCath 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 MedCath to sign and deliver on behalf of the Company any
instruments of transfer with respect thereto or to see to the application or

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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) For management services provided to the Company, the Company shall pay
to MedCath, beginning upon the Commencement Date as defined in Section 4.01 of
the Management and Service Agreement, an annual management fee equal to Seven
Hundred Fifty Thousand Dollars ($750,000) for those services provided by MedCath
as further described on Exhibit D attached hereto. The fee shall be payable in
monthly installments of Sixty Two Thousand Five Hundred Dollars ($62,500) on or
before the fifteenth (15th) day following the end of each month and fees for any
partial month shall be pro-rated;
     (b) The Company shall also pay the following expenses of the Company:
     (i) all expenses incurred by MedCath or its Affiliate in connection with
necessary corporate filings for the Company with the North Carolina Secretary of
State, related taxes, and registration and filing fees, and expenses incurred
after the Effective Date related to the amendment of this Agreement;
     (ii) the actual costs to MedCath or its Affiliates of goods, services, and
materials used for and by the Company (not to exceed the acquisition cost of
such goods, services and materials) for those services not included in Exhibit D
(costs not exclusively incurred for the benefit of the Company shall be
pro-rated according to the relative benefit received by the Company);
     (iii) the recruitment, salary and related expenses of employees and staff
of the Company;
     (iv) all costs of borrowed money, taxes, and assessments on the Company,
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 Cath Labs;
     (v) all reasonable travel and other out-of-pocket expenses incurred by
MedCath in the development and management of the Company and its business to the
extent consistent with any budget approved in the manner set forth in this
Agreement or consistent with policies established by the Board of Directors. The
reimbursement for expenses and payment of fees to MedCath provided for in this
Section shall be made to MedCath or its Affiliates regardless of whether any
distributions are made to the Members under Article VI and Article VII; and
     (vi) all fees and expenses paid to third parties for accounting, legal,
documentation, professional, and reporting services to the Company (to the
extent such fees and expenses are not for services MedCath is obligated to
provide pursuant to Exhibit D), which may include, but are not limited to:
preparation and

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documentation of Company audits; preparation and documentation of Company state
and federal income tax returns; and taxes incurred in connection with the
issuance, distribution, transfer, registration, and recordation of documents
evidencing ownership of a Membership Interest in the Company or in connection
with the business of the Company; expenses in connection with preparing and
mailing reports required to be furnished to the Members for tax reporting or
other purposes, including reports, if any, that may be required to be filed with
any federal or state regulatory agencies, or expenses associated with furnishing
reports to Members which the Board of Directors deems to be in the best interest
of the Company; expenses of revising, amending, converting, modifying, or
terminating the Company or this Agreement; costs incurred in connection with any
litigation in which the Company is involved as well as any examination,
investigation, or other proceedings conducted by any regulatory agency involving
the Company; allocable 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 Equipment.
     (c) Guarantee and Financing Fee. In the event that, at the Company’s
request, any Member of the Company, its Affiliates or MedCath Incorporated
either (x) provide a guarantee of any indebtedness of the Company which is
acceptable to and required by the Company’s lenders or (y) provide loans to the
Company (“Financing Members”) and such guarantees or loans are not provided on a
pro rata basis by all other Members of the Company (the “NonFinancing Members”),
then the Financing Members shall be paid an annual guarantee and financing fee
equal to (a) the amount of such indebtedness which is guaranteed, or loans made,
by the Financing Members, multiplied by (b) .0075, multiplied by (c) the
percentage Membership Interest in the Company owned by the NonFinancing Members
(the “Guarantee and Financing Fee”). The Guarantee and Financing Fee shall be
paid quarterly and the expense thereof shall be allocated to the NonFinancing
Members as follows:
     (i) The Guarantee and Financing Fee shall be deducted from the Cash
Distributions otherwise distributable to the NonFinancing Members and shall be
paid to the Financing Members;
     (ii) To the extent that at the time such Guarantee and Financing Fee is due
to be paid hereunder there are no anticipated Cash Distributions, then the
Company shall pay such Guarantee and Financing Fee to the Financing Members and
the amount of such payments shall be charged to the Capital Accounts of the
NonFinancing Members;
     (iii) When Cash Distributions become available for distribution to the
Members in the future, the Cash Distributions otherwise distributable to the
NonFinancing Members shall first be retained by the Company to the extent that
amounts were previously charged to the Capital Accounts of the NonFinancing

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Members in accordance with subsection (ii) above and any remaining Cash
Distributions shall be distributed to the Members in accordance with
Section 6.1.
     (d) Once a budget has been approved by the Board of Directors, MedCath
shall have the authority to expend Company funds consistent with the budget
(including the specific line item categories) and sign all agreements related
thereto, including reimbursement to MedCath and its Affiliates for goods and
services provided to the Company. In addition, MedCath may make additional
expenditures beyond the budget in an amount reasonably related to additional
revenues or increased patient or procedure volumes to the extent those
additional expenditures will not cause the actual gross margin between the
Company’s net patient revenues and operating expenses to be less than the gross
margin between net patient revenues and operating expenses as reflected in the
approved budget.
     (e) MedCath shall be paid the amounts due MedCath to (i) manage the
Company’s mobile route to provide mobile cardiac catheterization services and
(ii) provide the services of one of MedCath’s cardiac catheterization
laboratories that it is authorized to operate within North Carolina, pursuant to
the terms of the Mobile Services Agreement attached hereto as Exhibit E, as such
agreement may be amended from time to time.
     (f) MedCath shall be paid all amounts due MedCath accruing after the
Effective Date under the Amended and Restated Management and Services Agreement
by and between the Company and MedCath attached hereto as Exhibit F, as such
agreement may be amended from time to time.
     SECTION 5.7 No Management by Members.
     Except as provided hereinafter, 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 of the Company
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 of the Company shall be null and void and without force and effect.
Subject to the decisions and judgment with respect to all professional medical
or clinical matters of qualified medical personnel, the Board of Directors shall
have the right to determine when and how the operations of the Company shall be
conducted. The exercise by any 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.

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     SECTION 5.8 Consent by Members to Exercise of Certain Rights and Powers by
Board of Directors.
     By its execution hereof, each Member expressly consents to the exercise by
the Board of Directors of the rights, powers, and authority conferred on the
Board of Directors by this Agreement.
     SECTION 5.9 Meetings and Vote of the Board of Directors.
     (a) The Board of Directors shall meet regularly but in no event less than
annually. Notice of any meeting, regular or special, shall be delivered to each
Director personally, by telephone, by electronic mail, by facsimile transmission
or in writing at least five (5) business days before the meeting; provided,
however, an emergency meeting of the Board of Directors may be called by any
Director upon shorter notice;
     (b) Notice of any meeting (whether regular, emergency or special) shall
specify the purpose for which the meeting is called; provided, however, that the
business of any emergency meeting shall be limited to the purpose stated in the
notice;
     (c) The Board of Directors shall elect one of its members to preside over
the meetings as the Chairperson and one of its members, as the Secretary, to
oversee the preparation and delivery of meeting notices and the preparation of
minutes of the meetings of the Board of Directors and Members;
     (d) A Director may attend a meeting by telephone or other electronic means
and be considered present for all purposes, including a quorum, so long as the
telephone or other connection allows each Director to hear and be heard by all
other Directors;
     (e) Except as otherwise expressly provided in this Agreement, any action
taken by the Board of Directors shall require the affirmative vote of at least
two (2) Directors appointed by the Hospital, and either one (1) Director
appointed by MedCath, or one (1) Director appointed by the Investor Members;
     (f) Any action which is required to be or may be taken at a meeting of the
Board of Directors may be taken without a meeting if consent in writing
including the required votes, either collectively or in counterparts, setting
forth the action so taken, is signed by the required number of Directors as set
forth in (e) above; and
     (g) Attendance at a meeting of the Board of Directors constitutes a waiver
of any objection to the notice of the meeting.
     SECTION 5.10 Other Business of Members.
     (a) Subject to (b) below, any Member may engage independently or with
others in other business ventures of every nature and description, including
without limitation the purchase of medical equipment, the rendering of medical
services of any kind, and the making or management of other investments and
neither the Company nor

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any Member shall have any right by virtue of this Agreement or the relationship
created hereby in or to such other ventures or activities or to the income or
proceeds derived therefrom, and the pursuit of such ventures;
     (b) Except as specifically provided in this Section 5.10, as long as any
Member owns a Membership Interest in the Company and for a period of two
(2) years thereafter, neither the Member, Investor Entity, Owner, Practice nor
any of their respective Affiliates, shall hold, directly or indirectly, an
investment, ownership or other beneficial interest in any Entity (including a
sole proprietorship) operating a Competing Business within the North Carolina
counties of New Hanover, Pender, and Brunswick (the “Territory”). The term
“Competing Business” means a business which (i) provides management,
administrative or consulting services to (A) one or more cardiac catheterization
laboratories performing diagnostic or interventional procedures or
electrophysiology procedures, (B) a hospital that provides cardiac services
similar to those provided in the Cath Labs, (C) any other facility focused
primarily on cardiac inpatient or outpatient services similar to those provided
in the Cath Labs from time to time at the Hospital, or (D) a business that
manages inpatient or outpatient diagnostic or interventional cardiac
catheterization services similar to those provided in the Cath Labs, or
(ii) provides any of the following services or facilities: diagnostic and
interventional cardiac catheterization and electrophysiology procedures
including pacemakers, AICDs and other electrophysiology devices, emergent and
elective PCI, external counterpulsation, or any other service or procedure then
being provided or managed by the Company. Notwithstanding the terms of this
Section 5.10 (b):
     (i) No Member or Owner who is a physician shall be prohibited from engaging
in the practice of medicine, maintaining his or her staff privileges and
admitting and treating patients at any other hospital or health care facility,
from personally performing professional medical services directly for his or her
patients at any hospital or facility, or billing and receiving professional fees
as a result of his or her professional medical services from any payor;
     (ii) Nothing herein shall prohibit a Member, Owner, Practice or their
Affiliates from owning up to three percent (3%) of the outstanding capital stock
of a company which operates a Competing Business and whose stock is publicly
traded and listed on a nationally recognized securities exchange or from
investing in a publicly traded mutual fund or making other investments with the
prior written approval of the Board of Directors;
     (iii) Nothing herein shall prevent: (a) Hospital from conducting any
activities of the Hospital, including the continued operation of the Cath Labs;
or (b) from contracting for management services for the Cath Labs with any
Person or Entity other than Company or its Affiliates after (i) Hospital ceases
to own a Membership Interest in the Company and (ii) termination of the
Management and Service Agreement, provided that no current or former indirect or
direct Owner of Company holds any ownership or other interest in the Person or
Entity providing such management services for the Cath Labs;

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     (iv) Nothing herein shall restrict Members or any of their respective
Affiliates from conducting any competing activities, or holding any ownership or
other interest in any Entity that is engaged in a Competing Business in either
case outside of the Territory;
     (v) Nothing herein shall prevent Hospital from: (a) acquiring, managing,
leasing or operating an acute care hospital even if such hospital owns, leases
or operates cardiac catheterization laboratories providing diagnostic or
interventional cardiac catheterization or electrophysiology procedures so long
as no Member or Owner (other than Hospital) has an ownership or other beneficial
interest in such transaction except as approved by the Company’s Board of
Directors; (b) owning or operating (in whole or in part) diagnostic radiology
services furnished in a setting outside a cardiac catheterization laboratory.
Moreover, Hospital’s participation in the following ventures within the
Territory shall not be subject to this Section 5.10 to the extent in force as of
the Effective Date: Porters Neck Imaging, LLC; South Atlantic Radiation
Oncology, LLC; Atlantic SurgiCenter, LLC; and Dosher/NHRMC, LLC;
     (vi) Notwithstanding the above, the restrictions set forth in this
Section 5.10 shall not apply to Hospital in the event (A) Hospital terminates
the Management Services Agreement during the Initial or any Renewal Term for
default of the Company pursuant to Section 4.02(c) of such agreement; provided,
however, that in the case of a termination under Section 4.02(c)(ii), Hospital
shall not be released from its obligations under this Section 5.10 unless and
until the arbitrators have finally determined the existence of a default by the
Company and that Hospital did not cause such default as more specifically
provided in Sections 4.02(e) and 5.12 of the Management Services Agreement, or
(B) Hospital elects not to renew or extend the term of the Management Services
Agreement, provided that in the case of this (B) during the two-year period
following such termination no current or former indirect or direct Owner of
Company may hold any ownership or other interest in any Person or Entity
providing management services to the Cath Labs; and
     (vii) Notwithstanding any other term of this Agreement, Hospital shall have
no rights, whether asserted under this Agreement or otherwise, to prevent
MedCath, the Investor Members, and Owners from continuing to own and operate the
Company and to continue to pursue all aspects of the Company’s business
following the date that Hospital is no longer a Member of the Company.
     (c) In the event that any Member, during the period that such Member holds
a Membership Interest in the Company, wishes to participate (directly or
indirectly) in the ownership, management or operation of a Competing Business
within any of the following counties: Duplin, Columbus, Bladen, or Onslow, or
any other North Carolina county where the Company’s mobile route is then
operated, then such Member shall provide the Company with written notice of the
terms of the proposed transaction to the Company and its Members, specifying all
material terms of the proposed transaction (the “Notice”). Thereafter the
Company, acting through the Board of Directors, shall for a

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period of fifteen (15) days, have the right to elect to participate in the
proposed transaction in place of the notifying Member; provided, however,
Company shall have no right to participate in and neither MedCath nor Hospital
shall be prohibited from participating in any existing agreement to which
MedCath or Hospital, respectively, is a party as of the Effective Date (other
than the mobile lab agreement between MedCath and Southeastern Cardiology which
MedCath is assigning to Company). As the date hereof, Hospital and MedCath each
represent that neither it nor any of their respective Affiliates have any
existing agreements within Duplin, Columbus, Bladen, or Onslow counties. No
Director representing the notifying Member shall vote against participation in
the proposed transaction. Thereafter, Company shall then have sixty (60) days
following receipt of the Notice to agree to all material terms and conditions of
the proposed transaction set forth in the Notice, in which event such
transaction shall be entered into by the Company. The Board of Directors and the
Members shall act in good faith in the negotiation of the proposed transaction
and the Members shall reasonably consent to an extension of such sixty (60) day
period up to an additional sixty (60) day period if the Board of Directors
reasonably recommends such an extension due to external factors not within the
control of the Members. In the event that the Company acting through the Board
of Directors does not elect to participate in the transaction within the fifteen
(15) day period, or if after electing, does not agree to the material terms and
conditions of the proposed transaction within sixty (60) days following receipt
of the Notice, the notifying Member may enter into the transaction set forth in
the Notice but only if such transaction is consummated during the one hundred
and twenty (120) day period following the Notice. In the event that such
notifying Member fails to enter into such transaction within such one hundred
and twenty (120) day period, then the terms and conditions of this subsection
(c) shall again apply. In no event shall the Company’s decision not to
participate in the proposed transaction alter the continuing obligations of the
notifying Member under Section 5.10(b). Notwithstanding anything contained in
this subsection (c), the Company shall not participate in any transaction which
would cause MedCath to be in violation of any agreement to which MedCath is a
party as of the Effective Date within any North Carolina county other than
Duplin, Columbus, Bladen, or Onslow;
     (d) The Members and Owners have reviewed the term and geographical
restrictions included in Section 5.10, and in light of the interests of the
Members and Owners, agree that such restrictions are fair and reasonable;
     (e) If there is a breach or threatened breach of the provisions of this
Section 5.10 of this Agreement, in addition to other remedies at law or equity,
the non-breaching parties shall be entitled to injunctive relief. The Members
and Owners desire and intend that the provisions of this Section 5.10 shall be
enforced to the fullest extent permissible under the law and public policies
applied, but the unenforceability or modification of any particular paragraph,
subparagraph, sentence, clause, phrase, word, or figure shall not be deemed to
render unenforceable the remainder of this Section 5.10. Should any such
paragraph, subparagraph, sentence, clause, phrase, word, or figure be
adjudicated to be wholly invalid or unenforceable, a court with applicable
authority is hereby authorized to “blue pencil” or modify this Section, the
balance of this Section 5.10 shall thereupon be

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modified in order to render the same valid and enforceable and the unenforceable
portion of this Section 5.10 shall be deemed to have been deleted from this
Agreement;
     (f) The Company, the Board of Directors and the Members agree that the
benefits to any Member, Owner, Practice or their Affiliates hereunder do not
require, are not payment for, and are not in any way contingent upon the
referral, admission or any other arrangement for the provision of any item or
service offered by the Company to patients of such Member, any Owner, Practice
or their Affiliates or in any facility, laboratory, cardiac catheterization
facility or other health care operation controlled, managed or operated by the
Company and nothing herein is intended to prohibit any Investor Member or Owner
who is a physician from practicing medicine at any other facility;
     (g) The Investor Members and Investor Entities shall cause each of their
existing and future Owners to agree in writing to be personally bound by the
terms of this Section 5.10 for as long as they are Owners and for two (2) years
after they cease to be Owners, provided that the Investor Member associated with
such Owner remains subject to the restrictions of this Section.
     SECTION 5.11 Board of Directors’ Standard of Care.
     Each Director shall act in a manner he or she believes in good faith to be
in the best interest of the Company and with such care as an ordinarily prudent
Person in a like position would use under similar circumstances. In discharging
his or her duties, each Director shall be fully protected in relying in good
faith upon the records required to be maintained under this Agreement and upon
such information, opinions, reports and statements by any of its other
Directors, Members, or agents, or by any other Person as to matters each
Director reasonably believes are within such other Person’s professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Company, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, income or losses of the Company or
any other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be paid.
     Notwithstanding anything herein to the contrary, a Director or Member shall
have the right to vote or approve Company matters in accordance with the terms
of this Agreement regardless of the personal interest of any Member or Director
in the outcome of any vote, decision or matter. In any case, a Director who has
a personal interest in the outcome of any vote, decision, or matter shall notify
the other Directors of such personal interest prior to the applicable vote or
decision of the Board of Directors, provided that such additional notification
shall not be required if such conflict is reasonably obvious based upon the
circumstances then existing.
     SECTION 5.12 Limitation of Liability.
     A Director shall not be liable to the Company or the Members for any action
taken in managing the business or affairs of the Company if he or she performs
the duty of his or her

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office in compliance with the standard contained in Section 5.11. No Director
has guaranteed nor shall have any obligation with respect to the return of a
Member’s Capital Contribution or share of income from the operation of the
Company. Furthermore, no Director shall be liable to the Company or to any
Member for any loss or damage sustained by the Company or any Member except loss
or damage resulting from gross negligence or intentional misconduct or knowing
violation of law or a transaction for which such Director received a personal
benefit in violation or breach of the provisions of this Agreement.
     SECTION 5.13 Indemnification of the Directors.
     (a) Each Director shall be indemnified by the Company against any losses,
judgments, liabilities, expenses, including attorneys’ fees and amounts paid in
settlement of any claims sustained by such Director arising out of any action or
inaction of the Director in his or her capacity as a Director of the Company to
the fullest extent allowed by law, provided that the same were not the result of
gross negligence or willful misconduct on the part of the Director and provided
that the Director, in good faith, reasonably determined that such course of
conduct was in the best interest of the Company; provided, however, that such
indemnification and agreement to hold harmless shall be recoverable only out of
Company assets and available insurance coverage. Subject to applicable law, the
Company shall advance expenses incurred with respect to matters for which a
Director may be indemnified hereunder;
     (b) If at any time, the Company has insufficient funds to furnish
indemnification as herein provided, it shall provide such indemnification if and
as it generates sufficient funds and prior to any cash distributions, pursuant
to Article VI or Article VII hereof, to the Members;
     (c) The Board of Directors may cause the Company to purchase and maintain
insurance on behalf of any current or past Director against any liability
asserted against or incurred by such Director while serving in his or her
capacity as a Director of the Company.
     SECTION 5.14 Purchase of Goods and Services from Members.
     Goods and services may be purchased from Members or their Affiliates as
long as they are of substantially the same quality and price as could be
obtained from an unrelated third party in an arm’s length transaction.
     SECTION 5.15 Certain Decisions of the Board of Directors.
     (a) The Board of Directors shall be deemed to have specifically approved
all expenditures proposed by MedCath under this Article V that are substantially
consistent with the Budget Exhibit (Exhibit G) or any subsequently approved
operating or capital budget when funded from additional Capital Contributions
made to the Company by the Members pursuant to Section 3.5 above;

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     (b) The annual operating and capital budgets to be proposed by MedCath
hereunder shall be approved by the Board of Directors as provided above subject
to the following:
     (i) No Director shall unreasonably withhold its approval of budgets which
are within the reasonable revenue expectations of the Company 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
     (ii) In the event that the Board of Directors is unable to approve an
annual budget, MedCath shall be authorized to operate the Company pursuant to
this Agreement under the previous year’s budget increased by the lesser of five
percent (5%) or the percentage increase during the previous year in the Consumer
Price Index for Medical Items as published by the United States Department of
Labor, Bureau of Labor Statistics for the region that is most proximate to
Wilmington, North Carolina, and as further adjusted by MedCath in accordance
with Section 5.6(d), until a new budget is approved.
     SECTION 5.16 Indemnity by the Company.
     The Company agrees to indemnify, defend and hold MedCath, its directors,
officers, employees and agents, harmless from and against any and all loss,
claim, cause of action, demand, penalty, liability, action, damage or
deficiency, lawsuit or other proceeding against MedCath in its capacity as
manager of the Company, resulting or arising from (a) acts or omissions of the
Company, its Members, officers, employees (unless due to the gross negligence or
willful misconduct of MedCath), (b) any liability or obligation of the Company,
except those which MedCath created in violation of this Article V; (c) any
nonfulfillment of the Company of any of its covenants or agreements under this
Article V; (d) any violation of law by the Company; and (e) any loss or damage,
reasonable attorney’s fees and other costs and expenses incident to any of
(a) through (d); provided, the above indemnification and “hold harmless”
provisions shall not apply, to the extent that any such item in (a) – (e) is
attributable to the gross negligence or willful misconduct of MedCath. The
indemnity covenants set forth in this Section 5.16 shall survive the termination
of this Agreement for any reason.
     SECTION 5.17 Responsibility of MedCath.
     MedCath agrees to utilize ordinary care and diligence in rendering the
management services to the Company under this Agreement. MedCath shall not be
liable to the Company for any matters arising from any act or omission of
MedCath or its employees, officers, agents or subcontractors in providing such
services, unless such act or omission constitutes gross negligence or willful
misconduct. MedCath agrees to indemnify, defend and hold Company, its directors,
officers, employees and agents, harmless from and against any and all loss,
claim, cause of action, demand, penalty, liability, action, damage or
deficiency, lawsuit or other proceeding against Company resulting or arising
from (a) acts or omissions of MedCath, its Affiliates, officers, or employees
which constitute gross negligence, willful misconduct, or (b)

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MedCath willfully exceeding the authority granted to MedCath under this
Agreement (unless due to the gross negligence or willful misconduct of Company
or its Members other than MedCath) and any directly resulting loss or damage,
reasonable attorney’s fees and other costs and expenses. The indemnity covenants
set forth in this Section shall survive the termination of this Agreement for
any reason.
     SECTION 5.18 Force Majeure.
     MedCath shall not be liable nor shall it be deemed to be in default for any
delay or failure in performance under this Article V or other interruption of
service or employment deemed resulting directly or indirectly from Acts of God,
civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by MedCath’s employees or any similar or dissimilar cause
beyond the reasonable control of MedCath. Further, MedCath shall not be in
default under this Article V if the default resulted from actions taken by
MedCath in material conformance with the request or direction of the Board of
Directors or if the Board of Directors failed to take reasonable action
recommended by MedCath to enable it to meet its obligations hereunder.
ARTICLE VI
DISTRIBUTIONS AND ALLOCATIONS
     SECTION 6.1 Distributions of Cash Flow from Operations and Cash from Sales
or Refinancing.
     Prior to the dissolution of the Company, and subject to the terms and
conditions to which the Company is bound with respect to its lenders (“Loan
Conditions”), Cash Flow from Operations and Cash from Sales or Refinancing, if
any, remaining after repayment of any amounts currently due with respect to
loans made by the Members to the Company, shall be distributed quarterly by the
Company as Cash Distributions according to the relative percentage Membership
Interests of the Members at such times as the Board of Directors deems
appropriate; provided, however, that to the extent possible, any Guarantee and
Financing Fee shall be deducted from the Cash Distributions otherwise
distributable to the NonFinancing Members and paid to the Financing Members as
set forth in Section 5.6(c). Notwithstanding anything herein to the contrary, no
distributions shall be made to Members if prohibited by the Act or any other
applicable law.
     The Board of Directors shall, to the extent permitted by the Loan
Conditions and subject to the availability of Cash Flow from Operations and
using commercially reasonable efforts, distribute cash annually pro rata to
Members in an amount which is sufficient to enable them to pay income taxes, if
any, which arise from the taxable income of the Company. In computing taxable
income of each Member, the taxable income of each Member for the current year
shall be reduced by any cumulative tax losses incurred in prior years (after
reduction by taxable income in prior years). Such distributions shall assume for
all Members the highest combined

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federal and state tax rates applicable to any Member with respect to his or its
Profits from the Company.
     SECTION 6.2 Profits.
     Except as provided in the Regulatory Allocations Exhibit (Exhibit H) and
subject to Section 6.6, Profits shall be allocated as follows:
     (a) First, to the Members who have been allocated Losses pursuant to
Subsection 6.3(b) below in proportion to such Losses 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(a) below in proportion to such Losses 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.
     For these purposes, only Losses for periods beginning on or after the
Effective Date shall be considered.
     SECTION 6.3 Losses.
     Except as provided in the Regulatory Allocations Exhibit (Exhibit H) and
subject to Section 6.6, Losses shall be allocated as follows:
     (a) First, Losses shall be allocated to the Members with positive Adjusted
Capital Account balances in proportion to those balances;
     (b) All remaining Losses shall be allocated to the Members in accordance
with their percentage Membership Interests.
     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

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income tax purposes and its Agreed Value pursuant to any method allowable under
Code Section 704(c) and the Regulations promulgated thereunder.
     Any elections or other decisions relating to allocations under this Section
shall be determined by the Board of Directors. Absent a determination by the
Board of Directors, the remedial allocation method under
Regulation Section 1.704-3(d) shall be used. Allocations pursuant to this
Section are solely for purposes of federal, state, and local taxes and shall not
be taken into account in computing any Member’s Capital Account or share of
Profits, Losses, other items, or distributions pursuant to any provision of this
Agreement.
     SECTION 6.5 Miscellaneous.
     (a) Allocations Attributable to Particular Periods. For purposes of
determining Profits, Losses or any other items allocable to any period, such
items shall be determined on a daily, monthly, or other basis, as determined by
the Board of Directors using any permissible method under Code Section 706 and
the Regulations thereunder;
     (b) Other Items. Except as otherwise provided in this Agreement, all items
of Company income, gain, loss, deduction, credit and any other allocations not
otherwise provided for shall be divided among the Members in the same proportion
as they share Profits or Losses, as the case may be, for the year;
     (c) Tax Consequences; Consistent Reporting. The Members are aware of the
income tax consequences of the allocations made by this Article and by the
Regulatory Allocations and hereby agree to be bound by those allocations as
reflected on the information returns of the Company in reporting their shares of
Company income and loss for income tax purposes. Each Member agrees to report
its distributive share of Company items of income, gain, loss, deduction and
credit on its separate return in a manner consistent with the reporting of such
items to it by the Company. Any Member failing to report consistently, and who
notifies the Internal Revenue Service of the inconsistency as required by law,
shall reimburse the Company for any legal and accounting fees incurred by the
Company in connection with any examination of the Company by federal or state
taxing authorities with respect to the year for which the Member failed to
report consistently.
     SECTION 6.6 Special Allocations of Guarantee and Financing Fees.
     Any and all deductions, losses or reductions to Capital Accounts
attributable to the payment by the Company of Guarantee and Financing Fees shall
be allocated to the NonFinancing Members in accordance with their relative
percentage Membership Interests.

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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/No Dissolution Upon Termination of Management and
Service Agreement.
     The Company shall be dissolved upon the happening of any of the following
events, whichever shall first occur:
     (a) The election to dissolve the Company in accordance with the terms of
Section 3.5(d) hereof;
     (b) The expiration of the term of the Company as provided in Section 2.5
hereof;
     (c) The adjudication of bankruptcy of the Company;
     (d) Upon the written consent of the Required Members;
     (e) In accordance with Section 12.11 hereof; and
     (f) The entry of a decree of judicial dissolution or the administrative
dissolution of the Company as provided in the Act;
     Upon the occurrence of the events of dissolution set forth at this
Section 7.2, MedCath shall promptly take such steps as are required to dissolve
the Company, including, but not limited to, the winding up of the affairs of the
Company and, upon the completion of the winding up, the filing of necessary
documents as required under the Act.
     The termination of the Management and Service Agreement by and between
Company and Hospital shall not result in a dissolution of the Company, but shall
be governed by the terms of the Contribution Agreement (the “Contribution
Agreement”) executed by and among the Members, including without limitation
Section 7 of such Contribution Agreement.
     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

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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
MedCath or, if for any reason there is no MedCath, by another Person designated
by the Board of Directors. In winding up the Company and liquidating assets,
MedCath, or other Person so designated for such purpose, may arrange, either
directly or through others, for the collection and disbursement to the Members
of any future receipts from the operation and management of the Cath Labs and
the Facility or other sums to which the Company may be entitled, and shall sell
the Company’s assets to any Person, including any Member or any Affiliate
thereof, on such terms and for such consideration as shall be consistent with
obtaining the fair market value thereof, as such fair market value is approved
by the Members pursuant to Section 3.8;
     (b) Upon any such dissolution and liquidation of the Company, the net
assets, if any, of the Company available for distribution, including any cash
proceeds from the liquidation of Company assets, shall be applied and
distributed in the following manner or order, to the extent available:
     (i) To the payment of or creation of reserves for all debts, liabilities,
and obligations to all creditors of the Company (other than the Members or their
Affiliates) and the expenses of liquidation;
     (ii) To the payment of all debts and liabilities (including interest), and
further including without limitation any accrued but unpaid Guarantee and
Financing Fees, owed to the Members or their Affiliates as creditors; and
     (iii) The balance to the Members with positive Capital Account balances
after taking into account all other adjustments during the Fiscal Year in which
liquidation occurs.
     (c) The Members shall look solely to the assets, if any, of the Company for
any return of their Capital Contributions and, if the assets of the Company
remaining after payment or discharge of the Company’s debts and liabilities, or
provision therefor, are insufficient to return all or any part of the Capital
Contributions, no Member shall have any right of recourse against the Directors
or other Members or to charge the Board of Directors or other Members for any
amounts except as provided herein and except to the extent otherwise provided by
the Act and/or North Carolina law;
     (d) Upon such dissolution, reasonable time shall be allowed for the orderly
liquidation of the assets of the Company and the discharge of liabilities to
creditors so as to minimize the losses normally attendant to a liquidation;
     (e) The Capital Accounts of the Members, as adjusted, shall be utilized by
the Company for the purpose of making distributions to those Members with
positive balances in their respective Capital Accounts pursuant to
Section 7.3(b). In making such distributions, the Board of Directors or the
Person winding up the affairs of the Company shall distribute all funds
available for distribution to the Members (after establishing any

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reserves that the Board of Directors or the Person winding up the affairs of the
Company deems reasonably necessary pursuant to Section 7.3(b)) prior to the
later of (i) the end of the taxable year in which the event which caused the
termination and dissolution of the Company occurs, or (ii) ninety (90) days
after the occurrence of such event. The Board of Directors in its sole
discretion, or the Person winding up the affairs of the Company, in its
discretion, may elect to have the Company retain any installment obligations
owed to the Company until collected in full so long as any portion of the
reserves which are later determined to be unnecessary, and all collections on
such installment obligations which are not deemed to be reasonably necessary by
the Board of Directors or the Person winding up the affairs of the Company to
add to such reserves are distributed as soon as practicable in accordance with
the provisions of Section 7.3(b) as modified by this Section.
     SECTION 7.4 Termination.
     Upon completion of the dissolution, winding up, distribution of the
liquidation proceeds and any other Company assets, the Company shall terminate.
     SECTION 7.5 Payment in Cash.
     Any payments made to any Member pursuant to this Article VII shall be made
only in cash.
ARTICLE VIII
REMOVAL OR WITHDRAWAL OF MEMBERS AND TRANSFER OF MEMBERS’
MEMBERSHIP AND/OR ECONOMIC INTERESTS
     SECTION 8.1 Members — Restriction on Transfer.
     (a) Except as otherwise set forth in this Section or in this Agreement, no
Membership Interest or any portion thereof, shall be validly sold or assigned
whether voluntarily, involuntarily or by operation of law, and no purported
assignee shall be recognized by the Company for any purpose, unless such
Membership Interest shall have been transferred in accordance with the
provisions of this Agreement and in compliance with such additional restrictions
as may be imposed by any federal or state securities regulatory authority or law
and with the approval of the Board of Directors. In no event, however, shall a
Member transfer or sell all or any of its Membership Interest to any party
which, if a Member, would be in violation of Section 5.10(b) hereof;
     (b) Except as otherwise set forth in this Section or in this Agreement, a
Member may transfer, sell or assign its entire Membership Interest only if it
has received the approval of the Board of Directors. Subject to the foregoing:
(i) the Company first for a period of fifteen (15) days, and thereafter the
other Members in proportion to their Membership Interest in the Company for a
period of fifteen (15) days, shall have the

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right, but not the obligation, to purchase all, but not less than all, of the
Membership Interest proposed to be transferred, which right shall be exercisable
on the terms and for the purchase price set forth in writing in a bona fide
offer made for the Membership Interests by a third-party (the “Right of First
Refusal”), and (ii) there shall have been filed with the Company a duly executed
and acknowledged counterpart of the instrument making such assignment signed by
both the assignor and assignee and such instrument evidences the written
acceptance by the assignee of all of the terms and provisions of the Agreement,
represents that such assignment was made in accordance with all applicable laws
and regulations and the assignee shall have represented to the Company in
writing that it meets the investor suitability standards established by the
appropriate state of residence and the investor suitability standards
established by the Company. The Board of Directors shall use reasonable care to
determine that transfers are in accordance with applicable laws and regulations,
including obtaining an opinion of counsel to that effect. Any Member that
assigns all of its Membership Interest shall cease to be a Member of the
Company. Any Membership Interests acquired by the Company pursuant to
Section 8.1 may, subject to applicable law, be re-offered by the Company to
suitable investors;
     (c) Except as permitted in (d) below, any dissolution, liquidation, merger
(unless Members or their Affiliates existing prior to such merger own at least
fifty-one percent (51%) of the surviving entity after the merger or unless both
parties to such merger are majority owned by parties who are Members or their
Affiliates prior to such merger) or sale of a Member which is an Entity (a sale
shall include a transfer of fifty percent (50%) or more of its ownership
interests or of substantially all of its assets or any other transaction or
series of related transactions intended to accomplish, in substance, a sale of
such Entity), which event shall not occur, subject to (d) below, without the
written consent of the Board of Directors, shall constitute an offer by such
Member to sell such Member’s Membership Interest to the Company and the other
Members pursuant to Section 8.6 for a purchase price equal to the lesser of
(i) two (2) multiplied by the net income (as reasonably determined by the
Company’s independent public accountants) of the Company for the twelve
(12) month period ending as of the calendar quarter most recently ended prior to
such event multiplied by the percentage Membership Interest of such Member in
the Company (the “Formula Purchase Price”), or (ii) the Capital Contributions of
the Member less all amounts distributed to such Member by the Company. The
Formula Purchase Price shall be paid in three (3) equal annual installments, the
first third of which shall be paid upon the determination of the Formula
Purchase Price and the remaining two (2) installments of which shall be paid on
the first and second anniversary of such date (the “Payment Method”). The
remaining two (2) installments shall bear interest at the Prime Rate as of the
date of the determination of the Formula Purchase Price. Accrued interest shall
be paid as of the dates payments of principal are due as provided above
according to the Payment Method;
     (d) Notwithstanding anything herein to the contrary, MedCath may assign its
Membership Interest in the Company, its rights to designate Directors hereunder,
and its rights as Manager of the Company to any party (i) who assumes in writing
the obligations of MedCath under this Agreement and who purchases fifty-one
percent (51%) or more of MedCath, or (ii) purchases fifty-one percent (51%) or
more of MedCath Corporation,

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MedCath Holdings, Inc., MedCath Incorporated’s and their subsidiaries’ assets or
capital stock if such purchaser (in the case of an asset sale) assumes in
writing the obligations of MedCath Partners, LLC (and as to MedCath Corporation
and MedCath Incorporated, their respective successor(s), as applicable, assume
in writing their respective guarantee obligations assumed specifically under
this Agreement), hereunder, or (iii) to a party under control of, common control
with, or which controls MedCath. Hospital may also assign Hospital’s Membership
Interest in the Company and its rights to designate Directors hereunder to any
party who acquires or succeeds to fifty-one percent (51%) or more of Hospital’s
assets or outstanding ownership interests or a party under control of, common
control with, or which controls Hospital, so long as the Hospital requires such
party to assume simultaneously in writing the obligations of Hospital under this
Agreement and the Management and Service Agreement.
     MedCath may also assign its Membership Interest in the Company to a
financial institution (a “Lender”) as collateral security for repayment of
indebtedness for borrowed funds by MedCath Incorporated or its Affiliates;
provided, however, that a Lender will not have the right to vote on behalf of
MedCath as a Member of the Company unless and until the Lender forecloses on
MedCath’s Membership Interest in the Company.
     SECTION 8.2 Condition Precedent to Transfer of Membership Interest.
     Notwithstanding anything herein to the contrary, no transfer of Membership
Interest may be made if such transfer (a) constitutes a violation of the
registration provisions of the Securities Act of 1933, as amended, or the
registration provisions of any applicable state securities laws; or (b) if after
such transfer the Company will not be classified as a partnership for federal
income tax purposes. The Company may require, as a condition precedent to
transfer of Membership Interest, delivery to the Company, at the proposed
transferor’s expense, of an opinion of counsel satisfactory (both as to the
counsel and substance of the opinion) to the Company that the transfer will not
violate any of the foregoing restrictions.
     SECTION 8.3 Substitute Member — Conditions to Fulfill.
     No assignee of a Member’s Membership Interest in the Company shall have the
right to become a Substitute Member in place of its assignor unless, in addition
to any other requirement herein, all of the following conditions are satisfied:
     (a) The Company, and if applicable the other Members, have waived their
respective rights, pursuant to Section 8.1 to purchase the Membership Interest
held by the assignee;
     (b) The duly executed and acknowledged written instrument of assignment
which has been filed with the Company sets forth that the assignee becomes a
Substitute Member in place of the assignor;
     (c) The assignor and assignee execute and acknowledge such other
instruments as the Board of Directors may deem reasonably necessary or desirable
to

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effect such admission, including, but not limited to, the written acceptance and
adoption by the assignee of the provisions of this Agreement;
     (d) The payment by the assignee of all costs to the Company associated with
the transaction, including but not limited to legal fees, transfer fees, and
filing fees; and
     (e) Except as otherwise permitted in Section 8.1(d), the assignment shall
have been approved by the Company’s Board of Directors.
     SECTION 8.4 Allocations Between Transferor and Transferee.
     Upon the transfer of a Member’s Membership Interest, all items of income,
gain, loss, deduction and credit attributable to the Membership Interest so
transferred shall be allocated between the transferor and the transferee by
taking into account their varying interests during the Fiscal Year in accordance
with Code Section 706(d), using any conventions permitted by law and agreed to
by the transferor and transferee at the time of transfer. Distributions as
called for by this Agreement shall be made to the holder of record of the
Membership Interest on the date of distribution. Notwithstanding anything
contained in this Agreement to the contrary, the Company shall be entitled to
treat the assignor of any assigned Membership Interest as the absolute owner
thereof in all respects, and shall incur no liability for distributions made in
good faith to such assignor in reliance on the Company records as they exist
until such time as the written assignment has been received by, and recorded on
the books of the Company. For purposes of this Article VIII, the effective date
of an assignment of any Membership Interest shall be the last day of the month
specified in the written instrument of assignment.
     SECTION 8.5 Rights, Liabilities of, and Restrictions on Assignee.
     No assignee of a Membership Interest shall have the right to participate in
the Company, inspect the books of account of the Company or exercise any other
right of a Member unless and until admitted as a Substitute Member.
Notwithstanding the failure or refusal to admit an assignee as a Substitute
Member, such assignee shall be entitled to receive the share of income, credit,
gain, expense, loss and deduction and cash distributions provided hereunder that
is assigned to it, and, upon demand, may receive copies of all reports
thereafter delivered pursuant to the requirements of this Agreement; provided,
however, that the Company shall have first received notice of such assignment
and all required consents thereto shall have been obtained and other conditions
precedent to transfer thereof shall have been satisfied. The Company’s tax
returns shall be prepared to reflect the interests of assignees as well as
Members.
     SECTION 8.6 Repurchase of Interests in Certain Event.
     (a) In the discretion of the Board of Directors, the Company may, but is
not obligated to, repurchase a Member’s Membership Interest upon: (i) a breach
by the Member or any of its Affiliates of the Member’s obligations contained in
Article III, Sections 5.10, and 8.1 of this Agreement; or (ii) an application
being made by a Member for the appointment of a receiver, trustee or custodian
for any of the Member’s assets, a petition being filed under any section or
chapter of the federal Bankruptcy Code or any

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similar law or regulation by or against a Member, a Member making an assignment
for the benefit of its creditors, or a Member becoming insolvent or failing
generally to pay its debts as they become due;
     (b) Each Member agrees to sell its Membership Interest to the Company in
the event the Company elects to exercise the rights of repurchase granted under
Section 8.6(a) and the purchase price shall be paid according to the Payment
Method and shall be the lower of (i) the Capital Contributions of the Member
less all amounts distributed to such Member by the Company, and (ii) the Formula
Purchase Price;
     (c) The Directors designated solely by any Member or any Director who is a
Member, or who is an Owner of a Member, if such Member’s activities give rise to
the event set forth in Section 8.6(a) shall not have a vote hereunder and a
majority of the other Directors shall make all decisions under this Section 8.6
with respect to such activities;
     (d) Notwithstanding anything herein to the contrary, the repurchase of the
Economic Interest or Membership Interest of any Member under Section 8.6(a)
shall not become effective unless and until such Member and its Affiliates are
fully released from their liability as guarantors for any indebtedness of the
Company and unless and until all amounts loaned by such Member or its Affiliates
to the Company are paid in full.
     SECTION 8.7 Death of a Member.
     Heirs of Members who are individuals shall be entitled to inherit the
Membership Interests of a deceased Member, provided that upon a Member’s death
(or the death of an individual that owns a Member) such interests shall be
automatically converted to an Economic Interest only in the Company until such
heir agrees in writing to all of the terms and conditions of this Agreement and
such other reasonable terms as may be established by the Board of Directors, in
which event such interest shall again become a Membership Interest in the
Company. Notwithstanding the previous sentence, within one hundred twenty
(120) days of the Company first learning of the death of an individual or of an
individual that owns a Member, the Company shall have the option to purchase the
Membership Interest owned by such deceased Member directly or through an Entity,
and the estate of the deceased individual shall be obligated to sell such
Membership Interest to the Company, in accordance with the terms of this
Section 8.7. The Company may exercise its option by giving written notice
thereof to the estate of the deceased individual, or the appropriate
representative thereof, within such one hundred twenty (120) day period. The
purchase price for such Membership Interest shall equal the Formula Purchase
Price. The purchase price shall be paid according to the Payment Method. The
outstanding amounts due from the Company to the estate of the deceased
individual shall bear interest at Prime Rate as of the date of such individual’s
death. Accrued interest shall be paid as of the dates payments of principal are
due as provided above. The agreements for the formation and governance of
Investor Members that are Entities shall provide for the disposition of the
ownership interest of a deceased owner of such Investor Members, which
disposition shall be subject to the approval of MedCath and Hospital.

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ARTICLE IX
RECORDS, ACCOUNTINGS AND REPORTS
     SECTION 9.1 Books of Account.
     At all times during the continuance of the Company, the Board of Directors
shall maintain or cause to be maintained true and full financial records and
books of account showing all receipts and expenditures, assets and liabilities,
income and losses, and all other records necessary for recording the Company’s
business and affairs including those sufficient to record the allocations and
distributions required by the provisions of this Agreement.
     SECTION 9.2 Access to Records.
     The books of account and all documents and other writings of the Company,
including the Articles of Organization and any amendments thereto, shall at all
times be kept and maintained at the principal office of the Company or elsewhere
as decided by the Board of Directors. Each Member or its designated
representatives shall, upon reasonable notice to the Company, have access to
such financial books, records and documents during reasonable business hours and
may inspect and make copies of any of them.
     SECTION 9.3 Bank Accounts and Investment of Funds.
     (a) MedCath 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 MedCath may from time to time designate;
     (b) Any funds of the Company which MedCath 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 MedCath 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

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showing the financial condition of the Company at the end of such fiscal year
and the result of its operations for the fiscal year then ended, which annual
accounting shall be prepared on an accrual basis in accordance with generally
accepted accounting principles applied on a consistent basis and shall be
delivered to each of the Members promptly after it has been prepared. It shall
include a balance sheet as of the end of such Fiscal Year and statements of
income and expense, each Member’s equity, and cash flow for such Fiscal Year.
The Company shall be audited on an annual basis by a firm of independent
certified public accountants engaged by MedCath on behalf of the Company which
shall also be the accounting firm of MedCath; provided that the Hospital may
also elect for a separate audit to take place at Hospital’s expense and MedCath
shall cooperate fully with such audit. The audit may be a simple audit provided
that the audit 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. Any Member, at such Member’s sole cost and expense, may obtain an
audit of the Company by an independent certified public accountant at any time
upon notice to MedCath. Following the Effective Date, MedCath shall also cause
to be prepared and distributed to the Members quarterly financial statements.
     SECTION 9.6 Tax Matters Partner.
     Hospital shall act as the “Tax Matters Partner” of the Company as that term
is defined Section 6231 of the Code.
ARTICLE X
MEETINGS AND VOTING RIGHTS OF MEMBERS
     SECTION 10.1 Meetings.
     (a) Meetings of the Members of the Company for any purpose may be called by
the Board of Directors, or by any Member that owns, or any group of Members that
own in the aggregate, at least a five percent (5%) Membership Interest in the
Company. Such meetings shall be held in the Wilmington, North Carolina area. A
Member may attend a meeting by telephone or other electronic means and be
considered present for purposes of a quorum so long as the telephone or other
connection allows each Member to hear and be heard by all other Members. A
quorum of the Members shall be necessary to conduct business at any Members’
meeting. A quorum shall consist of MedCath, Hospital and Investor Members
holding a majority of the percentage Membership Interests of the Investor
Members. The Members present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal during such
meeting of that number of Members whose absence would cause less than a quorum;

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     (b) Meetings of the Investor Members of the Company for any purpose may be
called by Investor Members who, in the aggregate, own at least fifteen percent
(15%) of the Membership Interests in the Company. Such meetings shall be held in
the Wilmington, North Carolina area. A quorum of Investor Members shall be
necessary to conduct business at any Investor Members meeting. Investor Members
holding a majority of the percentage Membership Interests of the Investor
Members shall constitute a quorum at any meeting of the Investor Members of the
Company. An Investor Member may attend a meeting by telephone or other
electronic means and be considered present for purposes of a quorum so long as
the telephone or other connection allows each Investor Member to hear and be
heard by all other Investor Members;
     (c) A notice of any such meeting shall be given by mail, not less than ten
(10) days nor more than sixty (60) days before the date of the meeting, to each
Member at its address as specified in Section 12.7. Such notice shall be in
writing, and shall state the place, date and hour of the meeting, and shall
indicate by whom it is being issued. The notice shall state the purpose or
purposes of the meeting. If a meeting is adjourned to another time or place, and
if any announcement of the adjournment of time or place is made at the meeting,
it shall not be necessary to give notice of the adjourned meeting;
     (d) 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 by a
duly authorized representative of the Member designated by written notice to the
Company and each Member. Such votes may be cast at any duly called meeting of
the Company or in writing within ten (10) days after written request therefor.
Except as otherwise provided herein, any matters requiring the consent or
approval of the Members shall require the affirmative vote of the Required
Members. Each Member shall be entitled to the number of votes equal to the
percentage Membership Interest of such Member;
     (b) No Member shall have the right or power to vote to: (i) withdraw or
reduce the Member’s Capital Contributions except as a result of the dissolution
and liquidation of the Company or as otherwise provided by law or this
Agreement; (ii) bring an action for partition against the Company; (iii) cause
the termination and dissolution of the Company by court decree or otherwise,
except as set forth in this Agreement; or (iv) demand or receive property other
than cash in return for its Capital Contributions.

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ARTICLE XI
AMENDMENTS
     SECTION 11.1 Authority to Amend by the Board of Directors.
     Notwithstanding Section 3.8 of this Agreement, the Board of Directors may
amend this Agreement or the Articles of Organization of the Company without the
consent of the Required Members for the following purposes only:
     (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; and
     (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 of
the Cath Labs or the Facility.
     Any proposed amendment by a member of the Board of Directors consistent
with the above requirements shall not be unreasonably delayed or rejected by any
other member of the Board of Directors.

  SECTION 11.2 Restrictions on the Board of Directors’ Amendments: Amendments by
Members.

     Except as provided in Section 11.1, amendments to this Agreement shall be
made only upon the consent of the Required Members. Upon termination of the
Management and Service

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Agreement and the reversion of the NHRMC Contribution (as defined in the
Contribution Agreement) to Hospital pursuant to the terms of the Contribution
Agreement, the Investor Members and MedCath shall promptly consent to amend this
Agreement to reflect the terms of this Agreement prior to the Effective Date
including necessary provisions to address any changed circumstances, with
MedCath then holding a fifty-one (51%) percent Membership Interest and the
Investor Members holding in the aggregate a forty-nine (49%) percent Membership
Interest in the Company, or if different, the actual proportion of each of the
Company’s then Members’ actual Capital Contributions to the aggregate Capital
Contributions made by all Members other than Hospital. No amendment shall be
made pursuant to Section 11.1 above 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 Articles of Organization.

     Following any amendments to this Agreement, MedCath shall prepare, execute
and file for recording such documents amending the Articles of Organization as
and if required under the Act.
ARTICLE XII
MISCELLANEOUS
     SECTION 12.1 Limited Power of Attorney.
     Upon the execution hereof, each Member hereby irrevocably constitutes and
appoints the Directors it has appointed as its true and lawful attorney in the
Member’s name and on the Member’s behalf to take at any time all such action
which such Directors are expressly authorized to perform, or which a Member is
expressly required to perform, under this Agreement.
     SECTION 12.2 Waiver of Provisions.
     The waiver of compliance at any time with respect to any of the provisions,
terms or conditions of this Agreement shall not be considered a waiver of such
provision, term or condition itself or of any of the other provisions, terms or
conditions hereof.
     SECTION 12.3 Interpretation and Construction.
     This Agreement constitutes the entire agreement among the Members with
respect to the subject matter hereto. Any modification or amendment to this
Agreement must be accomplished in accordance with the provisions of Article III
and Article XI. Any amendment approved consistent with the terms of this
Agreement shall be binding on all Members whether a Member

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voted to approve such amendment or not. 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 Members and their respective heirs,
successors, distributees, legal representatives, and assigns. However, none of
the provisions of this Agreement shall be for the benefit of or enforceable by
any creditors of the Company.
     SECTION 12.7 Notices and Delivery.
     (a) To Members. Any notice to be given hereunder at any time to any Member
or any document reports or returns required by this Agreement to be delivered to
any Member, may be delivered personally or mailed to such Member, postage
prepaid, addressed to the Member at such times as the Member shall by notice to
the Company have designated as the Member’s address for the mailing of all
notices hereunder or, in the absence of such notice, to the address set forth in
the Information Exhibit (Exhibit A) hereof. Any notice, or any document, report
or return so delivered or mailed shall be deemed to have been given or delivered
to such Member at the time it is mailed, as the case may be;
     (b) To the Company. Any notice to be given to the Company hereunder shall
be delivered personally or mailed to the Company, by certified mail, postage
prepaid, addressed to the Company at its registered office. Any notice so
delivered or mailed shall be deemed to have been given to the Company at the
time it is delivered or mailed, as the case may be.
     SECTION 12.8 Counterpart Execution; Facsimile Execution.
     This Agreement may be executed in any number of counterparts with the same
effect as if all of the Members had signed the same document. Such executions
may be transmitted to the

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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 Member 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 Member’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 MedCath or Hospital and reasonably approved by the Board
of Directors which approval shall not be unreasonably withheld, determines in
writing that it is reasonably likely that the relationships established between
any of the parties to this Agreement and the transactions contemplated hereunder
including any Member or its Affiliates and/or successors or assigns will not
comply with any law, rule, regulation or interpretation thereof (“Applicable
Law”) or reasonably threatens the tax-exempt status of the Hospital or the
tax-exempt nature of any income generated by the Company that is allocated to
Hospital, then the Members shall be given notice thereof (a “Change of Law
Event”). If the Required Members disagree with whether a Change of Law Event
exists and that disagreement is not resolved among such parties within the
following thirty (30) days, then that disagreement shall be resolved by
arbitration under Section 12.14 hereof. If a Change of Law Event is determined
to exist, then the Members 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 Members. In the event that a specific
proposal for the restructuring of this Agreement is approved by the Board of
Directors and the Required Members, such restructured agreement shall become
binding upon all Members of the Company. The approval of any such proposal for
the restructuring of this Agreement shall not be unreasonably withheld or
delayed by any Member. Second, in the event that within ninety (90) days
following the Company’s receipt of legal advice in writing from such health care
counsel regarding Applicable Law the parties hereto are unable to negotiate an
acceptable restructuring of their relationship, then, if MedCath’s ownership is
not involved in such non-compliance, then MedCath, or at MedCath’s option, its
Affiliate shall, within the following ninety (90) day period, purchase the
Membership Interests of each Member (including the Hospital) whose ownership is
involved with such noncompliance with Applicable Law for a purchase price equal
to the greater of: (a) the Formula

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Purchase Price or (b) the amount of the Capital Contributions made by such
Member to the Company together with interest thereon computed at the Prime Rate
as of the date of this Agreement from the date of such contribution through the
date upon which the purchasing Members pays all amounts due under the terms of
this Section 12.11. For these purposes, distributions to the Members by the
Company after the Effective Date of this Agreement (and whether before or after
health care counsel determined there was a problem under an Applicable Law or
before or after the exercise of the purchase option) shall be treated as
payments by MedCath or its Affiliate. Such purchase price shall be paid in
accordance with the Payment Method, plus interest at the Prime Rate as of the
date of that the first installment of principal is due. Accrued interest shall
be paid as of the dates payments of principal are due as provided above.
     SECTION 12.12 Investment Representations of the Members.
     (a) Each Member or individual executing this Agreement on behalf of an
Entity which is a Member hereby represents and warrants to the Company and to
the Members that such Member has acquired such Member’s Membership Interest in
the Company for investment solely for such Member’s own account with the
intention of holding such Membership Interest for investment, without any
intention of participating directly or indirectly in any distribution of any
portion of such Membership Interest and without the financial participation of
any other Person in acquiring such Membership Interest in the Company;
     (b) Each Member or individual executing this Agreement on behalf of an
Entity which is a Member hereby acknowledges that such Member is aware that such
Member’s Membership Interest in the Company has not been registered (i) under
the Securities Act of 1933, as amended (the “Federal Act”), (ii) under
applicable North Carolina 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 North Carolina
securities laws and all other state securities laws. Each Member or individual
executing this Agreement on behalf of an Entity which is a Member further
acknowledges that the Company will not and has no obligation to recognize any
sale, transfer, or assignment of all or any part of such Member’s Membership
Interest in the Company to any Person unless and until the provisions of this
Agreement hereof have been fully satisfied;
     (c) Each Member or individual executing this Agreement on behalf of an
Entity which is a Member hereby acknowledges that prior to his execution of this
Agreement, such Member received a copy of this Agreement and that such Member
has examined this Agreement or caused this Agreement to be examined by such
Member’s representative or attorney. Each Member or individual executing this
Agreement on behalf of an Entity which is a Member hereby further acknowledges
that such Member or

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such Member’s representative or attorney is familiar with this Agreement and
with the Company’s business plans. Each Member or individual executing this
Agreement on behalf of an Entity which is a Member acknowledges that such Member
or such Member’s representative or attorney has made such inquiries and
requested, received, and reviewed any additional documents necessary for such
Member to make an informed investment decision and that such Member does not
desire any further information or data relating to the Company or to the
Members. Each Member or individual executing this Agreement on behalf of an
Entity which is a Member hereby acknowledges that such Member understands that
the purchase of such Member’s Membership Interest in the Company is a
speculative investment involving a high degree of risk and hereby represents
that such Member has a net worth sufficient to bear the economic risk of such
Member’s investment in the Company and to justify such Member’s investing in a
highly speculative venture of this type.
     SECTION 12.13 Acknowledgments Regarding Legal Representation.
     Each of the Members hereunder acknowledge and agree that Moore & Van Allen,
PLLC is counsel for MedCath, MedCath Incorporated and their Affiliates, and may,
upon approval of the Board of Directors, also serve as counsel for the Company
from time to time. Each of the Members hereby acknowledges and consents to such
representation. Each Member other than MedCath further acknowledges and agrees
that they shall have no attorney-client relationship with Moore & Van Allen,
PLLC as a result of Moore & Van Allen, PLLC’s representation of the Company from
time to time.
     SECTION 12.14 Dispute Resolution.
     Subject to the right of any party to seek an injunction or other equitable
relief from a court with applicable authority, any controversy, dispute or
disagreement arising out of or relating to this Agreement shall be resolved by
binding arbitration, which shall be conducted in Wilmington, North Carolina in
accordance with the American Health Lawyers Association Alternative Dispute
Resolution Service Rules of Procedure for Arbitration. Each party shall select
an arbitrator from a list provided by the American Health Lawyers Association
Alternative Dispute Resolution Service (“Service”) within ten (10) days after
the list is provided. After the two (2) arbitrators are selected, the
arbitrators shall meet promptly to resolve the matter. If the arbitrators are
unable to resolve the matter within sixty (60) days after the selection of the
second arbitrator, then a third arbitrator shall be appointed by the two
arbitrators, or if they cannot agree, the third arbitrator shall be selected by
the arbitrators from a list provided by the Service. Promptly after the third
arbitrator has been selected, the three arbitrators shall resolve the matter. No
arbitrator shall be selected who previously represented any Member, Owner, or
any Affiliate in any capacity. A decision by a majority of the arbitrators shall
resolve the matter. Any decision rendered by a majority of the arbitrators shall
be final and binding on the parties and shall be enforceable in any court having
jurisdiction thereof. The arbitrators shall have the authority to require the
losing Party to pay all costs associated with such arbitration, including
expenses and fees of arbitrators. Costs shall include reasonable legal,
consulting, and other fees incurred by a Party in the course of such
arbitration.

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     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:  
Charity Policy
EXHIBIT D:  
Description of services included in management fee paid to MedCath
EXHIBIT E:  
Mobile Catheterization Agreement
EXHIBIT F:  
Amended and Restated Management and Services Agreement dated June, 2001
EXHIBIT G  
Budget Exhibit
EXHIBIT H:  
Regulatory Allocations

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
following execution pages, to be effective as of the date described in
Article II.
[EXECUTIONS APPEAR ON THE FOLLOWING PAGES]

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EXECUTION PAGE
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, LLC
A North Carolina Limited Liability Company

              MEMBERS:
 
            MedCath Partners, LLC
 
       
 
  By:    
 
       
 
       
 
  Title:    
 
       
 
            New Hanover Regional Medical Center
 
       
 
  By:    
 
       
 
       
 
  Title:    
 
       
 
       
 
  By:    
 
       
 
       
 
  Title:    
 
       

     
 
  INVESTOR MEMBERS:
 
   
 
   
 
  William Smith, M.D.
 
   
 
   
 
  James Forrester, M.D.
 
   
 
   
 
  James Sheerin, M.D.
 
   
 
   
 
  Paul Payne, M.D.
 
   

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  Lance Lewis, M.D.
 
   
 
   
 
  Mark Murphy, M.D.
 
   
 
   
 
  David Weaver, M.D.
 
   
 
   
 
  Linda P. Calhoun, M.D.
 
   
 
   
 
  James R. Harper, Jr., M.D.
 
   
 
   
 
  Peter J. Wiegman, M.D.
 
   
 
   
 
  Hemantkumar Patel, M.D.
 
   
 
   
 
  James W. Snyder, M.D.
 
   
 
   
 
  Praful Patel, M.D.
 
   
 
   
 
  David T. Sawyer, M.D.
 
   
 
   
 
  Robert G. Everhart, M.D.
 
   
 
   
 
  Tim Winslow, M.D.
 
   
 
   
 
  Damian A. Brezinski, M.D.
 
   
 
   
 
  Christopher C. Barber, M.D.
 
   
 
   
 
  Frank A. Hobart, M.D.

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  Michael J. Moeller, M.D.
 
   
 
   
 
  William Crafford, M.D.
 
   
 
   
 
  William P. Buchanan, Sr., M.D.
 
   
 
   
 
  Martin James Conley, Jr., M.D.
 
   
 
   
 
  William R. Holt, Jr., M.D.
 
   
 
   
 
  Robert A. Ver Nooy, Jr., M.D.
 
   
 
   
 
  Andrew H. Bishop, M.D.
 
   

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EXHIBIT A
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, LLC
A North Carolina Limited Liability Company
INFORMATION EXHIBIT

                                      Maximum                 Mandatory        
        Additional         Effective Date   Capital   Percentage Name and
Address   Capital Accounts   Contributions   Membership Interest
MedCath Partners, LLC
c/o MedCath Incorporated
10720 Sikes Place, Suite 300
Charlotte, NC 28277
  $ 4,802,000     $ 96,600       9.2 %
 
                       
New Hanover Regional Medical Center
2131 South 17th Street
Wilmington, NC 28401
  $ 43,000,000     $ 861,000       82.0 %
 
                       
Investor Members:
                       
 
                       
William Smith, M.D.
5128 Somersett Lane
Wilmington, NC 28409
  $ 177,462     $ 3,554       .338 %
 
                       
James Forrester, M.D.
5137 Nicholas Creek Circle
Wilmington, NC 28409
  $ 177,462     $ 3,554       .338 %
 
                       
James Sheerin, M.D.
4450 Fireside Court
Wilmington, NC 28412
  $ 177,462     $ 3,554       .338 %
 
                       
Paul Payne, M.D.
1642 Verrazzano Drive
Wilmington, NC 28405
  $ 177,462     $ 3,554       .338 %

--------------------------------------------------------------------------------

 

                                      Maximum                 Mandatory        
        Additional         Effective Date   Capital   Percentage Name and
Address   Capital Accounts   Contributions   Membership Interest
Lance Lewis, M.D.
708 Forrest Hills Drive
Wilmington, NC 28405
  $ 177,462     $ 3,554       .338 %
 
                       
Mark Murphy, M.D.
5109 Nicholas Creek Circle
Wilmington, NC 28409
  $ 177,462     $ 3,554       .338 %
 
                       
David Weaver, M.D.
2134 Harbor Way Drive
Wilmington, NC 28405
  $ 177,462     $ 3,554       .338 %
 
                       
Linda P. Calhoun, M.D.
106 Chimney Lane
Wilmington, NC 28409
  $ 177,462     $ 3,554       .338 %
 
                       
James R. Harper, Jr., M.D.
813 Gull Point Road
Wilmington, NC 28405-5264
  $ 177,462     $ 3,554       .338 %
 
                       
Peter J. Wiegman, M.D.
2403 N. Lumina Avenue
Wrightsville Beach, NC 28480
  $ 177,462     $ 3,554       .338 %
 
                       
Hemantkumar Patel, M.D.
2314 Tattersalls Drive
Wilmington, NC 28403
  $ 177,462     $ 3,554       .338 %
 
                       
James W. Snyder, M.D.
925 Rabbit Run Road
Wilmington, NC 28409
  $ 177,462     $ 3,554       .338 %
 
                       
Praful Patel, M.D.
2113 Forest Lagoon Place
Wilmington, NC 28405
  $ 177,462     $ 3,554       .338 %
 
                       
David T. Sawyer, M.D.
3617 St. Francis Drive
Wilmington, NC 28409
  $ 177,462     $ 3,554       .338 %
 
                       
Robert G. Everhart, M.D.
2015 Pembroke Jones Drive
Wilmington, NC 28405-4303
  $ 177,462     $ 3,554       .338 %

A-2

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                                      Maximum                 Mandatory        
        Additional         Effective Date   Capital   Percentage Name and
Address   Capital Accounts   Contributions   Membership Interest
Tim Winslow, M.D.
6 West Atlanta Street
Wrightsville Beach, NC 28480
  $ 177,462     $ 3,554       .338 %
 
                       
Damian A. Brezinski, M.D.
1604 Physicians Drive
Wilmington, NC 28401
  $ 177,462     $ 3,554       .338 %
 
                       
Christopher C. Barber, M.D.
6431 Shinnwood Road
Wilmington, NC 28409
  $ 177,462     $ 3,554       .338 %
 
                       
Frank A. Hobart, M.D.
2805 Oleander Drive
Wilmington, NC 28403
  $ 177,462     $ 3,554       .338 %
 
                       
Michael J. Moeller, M.D.
715 Colonial Drive
Wilmington, NC 28403
  $ 177,462     $ 3,554       .338 %
 
                       
William Crafford, M.D.
1515 Doctors Circle Bldg C
Wilmington, NC 28401
  $ 177,462     $ 3,554       .338 %
 
                       
William P. Buchanan, Sr., M.D.
P.O. Box 1107
Wrightsville Beach, NC 28480
  $ 177,462     $ 3,554       .338 %
 
                       
Martin James Conley, Jr., M.D.
920 Rabbit Run
Wilmington, NC 28409
  $ 177,462     $ 3,554       .338 %
 
                       
William R. Holt, Jr., M.D.
1825 Starfix Terrace
Wilmington, NC 28405

  $ 177,462     $ 3,554       .338 %
 
                       
Robert A. Ver Nooy, Jr., M.D.
6608 Carmel Trail
Wilmington, NC 28411-9796
  $ 177,462     $ 3,554       .338 %
 
                       
Andrew H. Bishop, M.D.
7530 Masonboro Sound Road
Wilmington, NC 28409
  $ 177,462     $ 3,554       .338 %

A-3

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                                      Maximum                 Mandatory        
        Additional         Effective Date   Capital   Percentage Name and
Address   Capital Accounts   Contributions   Membership Interest
Total: Investor Members
  $ 4,614,000     $ 92,400       8.8 %
 
                       
 
                       
Total:
  $ 52,416,000     $ 1,050,000       100 %

A-4

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EXHIBIT B
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, 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. §§ 57C-1-01 through 57C-10-07
(or any corresponding provisions of succeeding law).
     “Adjusted Capital Account” means, with respect to any Member, such Person’s
Capital Account (as defined below) as of the end of the relevant Fiscal Year
increased by any amounts which such Person is obligated to restore, or is deemed
to be obligated to restore pursuant to the 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. Affiliates shall also include each individual holding or owning an
ownership interest in the Investor Members or Investor Entities.
     “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

 

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the case may be, determined in accordance with the rules set forth in
Regulations Section 1.704-1(b)(2)(iv)(f) and (g).
     (d) The Agreed Values, as reduced by depreciation or amortization, of all
noncash assets of the Company, regardless of how those assets were acquired,
shall be adjusted from time to time to equal their gross fair market values
(taking Code Section 7701(g) into account), 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;
     (iii) the liquidation of the Company within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g); or
     (iv) in connection with the grant of Membership Interests in the Company
(other than a de minimis interest) as consideration for the provision of
services to or for the benefit of the Company.
     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.
     “Applicable Law” has the meaning set forth at Section 12.11 of the
Agreement.
     “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.
     “Board of Directors,” “Director” or “Directors” means those persons
appointed by the Members, pursuant to Section 3.9 of the Operating Agreement,
and given the power and authority under Article V of the Operating Agreement to
manage the Company. The terms “Director” or “Directors” is used for convenience,
but is intended to have the same meaning as the terms “Manager” or “Managers” in
the Act.
     “Bylaws, Rules and Regulations of the Medical Staff” means those bylaws,
rules and regulations adopted for each Hospital’s Medical Staff.

B-2

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     “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.
     In the event the Agreed Values of the Company assets are adjusted pursuant
to the definition of Agreed Value contained in this Agreement, the Capital
Accounts of all Members shall be adjusted simultaneously to reflect the
aggregate adjustments as if the Company recognized gain or loss equal to the
amount of such aggregate adjustment.
     The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such regulations. In the event the Board of Directors shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto, are computed to comply with such Regulation,
the Board of Directors may make such modification, provided that it is not
likely to have a material effect on the amounts distributable to any Member
pursuant to Articles VI or VII hereof upon the dissolution of the Company. In
the event the Board of Directors shall determine such adjustments are necessary
or appropriate to comply with Regulations Section 1.704-1(b)(2)(iv), the Board
of Directors shall adjust the amounts debited or credited to Capital Accounts
with respect to (i) any property contributed by the Members or distributed to
the Members and (ii) any liabilities secured by such contributed or distributed
property or assumed by the Members. The Board of Directors shall also make any
other appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations
Section 1.704-1(b). In the event any Membership Interest in the Company is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred Membership Interest.
     “Capital Contribution” means with respect to any Member, the amount of
money and the initial Agreed Value of any property (other than money)
contributed to the Company with respect to the Membership Interest of such
Member.

B-3

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     “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 Partners, LLC as its management fee for
services rendered pursuant to Article V hereof 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 the Board of
Directors reasonably determines to be necessary or appropriate and subject to
Loan Conditions.
     “Cash from Sales or Refinancing” means the net cash proceeds received by
the Company from or as a result of any Sale or Refinancing of property after
deducting (i) all expenses incurred in connection therewith, (ii) any amounts
applied by the Board of Directors in their sole and absolute discretion toward
the payment of any indebtedness and other obligations of the Company then due
and payable, including payments of principal and interest on mortgages,
(iii) the payment of any other expenses or amounts owed by the Company to other
parties to the extent then due and payable, and (iv) the establishment of any
reserves deemed necessary by the Board of Directors in their sole and absolute
discretion. If the proceeds of any sale or refinancing are paid in more than one
installment, each such installment shall be treated as a separate Sale or
Refinancing for the purposes of this definition.
     “Cath Labs” has the meaning set forth at Recital A of the Agreement.
     “Change of Law Event” has the meaning set forth at Section 12.11 of the
Agreement.
     “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.
     “Commitment” has the meaning set forth at Section 3.6 of the Agreement.
     “Company” means and shall refer to Coastal Carolina Heart, LLC, which was
created upon the filing of the Articles of Organization with the Office of the
Secretary of State of North Carolina and to be continued under this Agreement,
as amended from time to time.
     “Competing Business” has the meaning set forth at Section 5.10(b) of the
Agreement.
     “Conflicted Director” has the meaning set forth at Section 3.6 of the
Agreement.
     “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.

B-4

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     “Delinquent Member” has the meaning set forth at Section 3.6 of the
Agreement.
     “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 Articles 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 Owner is
admitted as a Substitute Member, it shall be a mere assignee of a Member.
     “Effective Date” has the meaning set forth at Section 2.1 of the Agreement.
     “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 required from time to time in
connection with the development and operation of the Cath Labs.
     “Federal Act” has the meaning set forth at Section 12.12(b) of the
Agreement.
     “Financing Members” has the meaning set forth at Section 5.6(c) of the
Agreement.
     “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.
     “Formula Purchase Price” has the meaning set forth at Section 8.1(c) of the
Agreement.
     “Guarantee and Financing Fee” has the meaning set forth at Section 5.6(c)
of the Agreement.
     “Hospital” means the general acute care hospital located at 2131 S. 17th
Street in Wilmington, North Carolina known as New Hanover Regional Medical
Center.
     “Initial Members” shall mean MedCath Partners, LLC, Hospital and those
Investor Members who make initial Capital Contributions to the Company under
Section 3.1.

B-5

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     “Investor Documents” has the meaning set forth at Section 3.7 of the
Agreement.
     “Investor Entity” means an Entity that has a direct or indirect ownership
interest in an Investor Member.
     “Investor Members” shall mean the parties admitted as investors in the
Company in accordance with the terms of this Agreement other than MedCath
Partners, LLC and Hospital.
     “Lender” has the meaning set forth at Section 8.1(d) of the Agreement.
     “Loan Conditions” has the meaning set forth at Section 6.1 of the
Agreement.
     “Management and Service Agreement” means the agreement by and between the
Hospital and the Company pursuant to which Company will manage the Cath Labs.
     “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
including amendments and renewals to same, exclusive of agreements or other
obligations (including those with MedCath) that are included in any budget,
development plan, financing or construction contract approved by the Board of
Directors as adjusted in Section 5.6(d) and Section 5.15(b). “Material
Agreement” shall also include any agreement between Company and MedCath;
provided, however that those agreements attached to this Agreement as exhibits
are deemed approved by the Board of Directors.
     “Material Decision” means any decisions regarding approvals of the annual
operating and capital budgets for the Company; the selection of the Cath Labs
and the Facility’s senior administrator; strategic planning for the Company; the
execution of managed care contracts for the Facility; the expansion of the
Company’s services provided at the Facility; the expansion of the Company’s
services within the Territory; and the approval on behalf of Company of quality
and other benchmarks for the Cath Labs, the schedule for implementation of such
benchmarks in the Cath Labs and the consequences, if any, under the Management
Services Agreement for failure to implement such benchmarks.
     “MedCath” shall mean MedCath Partners, LLC, who shall serve as 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 or admitted as a Member in accordance with
the terms of this Agreement.
     “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 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

B-6

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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.
     “NonFinancing Members” has the meaning set forth at Section 5.6(c) of the
Agreement.
     “Owner” means an individual who, through an Investor Entity or otherwise,
has a direct or indirect ownership interest in an Investor Member.
     “Payment Method” has the meaning set forth at Section 8.1(c) of the
Agreement.
     “Person” means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such
individual or Entity where the context so permits.
     “Practice” means the Entity or sole proprietorship through which an Owner
primarily conducts his medical office practice.
     “Prime Rate” means the rate of interest as of the relevant day or time
period as announced by the Bank of America, N.A. or its successor in interest
from time to time as its prime or reference rate.
     “Profits and Losses” means, for each Fiscal Year or other period, an amount
equal to the 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.

B-7

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     “Regulations” means rules, orders, and regulations issued pursuant to or
under the authority of the Code and shall include revisions to and succeeding
provisions as appropriate.
     “Regulatory Allocations” means those allocations of items of Company
income, gain, loss or deduction set forth on the Regulatory Allocations Exhibit
and designed to enable the Company to comply with the alternate test for
economic effect prescribed in Regulations Section 1.704-1(b)(2)(ii)(d), and the
safe-harbor rules for allocations attributable to nonrecourse liabilities
prescribed in Regulations Section 1.704-2.
     “Required Members” shall mean MedCath Partners, LLC, Hospital and a
majority of the percentage Membership Interests held by the Investor Members.
     “Right of First Refusal” has the meaning set forth at Section 8.1(b) of the
Agreement.
     “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 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.
     “Territory” has the meaning set forth at Section 5.10(b) of the Agreement.

B-8

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EXHIBIT C
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, LLC
A North Carolina Limited Liability Company
CHARITY POLICY
I. CHARITY CARE POLICY:
As part of our charitable mission, Coastal Carolina Heart, LLC (“Company”) is
committed to providing benefits to the Community. This policy addresses
financial assistance for the uninsured and the underinsured.
Company will provide medically necessary services at no charge to patients who
meet the specific criteria defined herein. These criteria are objectively
determined and shall be consistently applied. Company uses the Federal Poverty
Guidelines to qualify patients for the Financial Assistance Program.
Other payment resources (i.e., Medicaid, Crime Victims Assistance, Vocational
Rehabilitation, etc) must be reviewed and evaluated before an account is
considered for financial assistance to ensure that Company’s assets are
prudently managed in providing financial assistance. However, a financial
assistance application will be provided to all patients who demonstrate the
potential of non-payment due to financial need and as requested.
An applicant who is approved for financial assistance will be eligible for
services for a period of one year unless other resources are located to satisfy
the account or their financial situation improves. A new application would then
be requested. Accounts deemed bad debt, with the exception of those deemed
within the current fiscal year, are not covered by charity care
application/approval and will not be considered charity care.
Partial balances that cannot be settled due to financial hardship can be
adjusted to financial assistance if an application is completed and approved. It
is important to distinguish between individuals who can afford to pay and choose
not to (Bad Debt), and those who cannot afford to pay (Financial Assistance).
Company periodically reviews its financial assistance policy to ensure that our
mission is fulfilled to provide medically necessary health care to eligible
uninsured or underinsured patients in need of such services. Company reserves
the right to revise, modify or change this policy as necessary or appropriate.
II. PROCEDURE:

1.   If it becomes apparent that a patient account cannot be settled through
other means, then the patient will be given a Financial Assistance application
and as requested. Accompanying this application will be full, explicit
instructions for its completion, along with a request for the

 

--------------------------------------------------------------------------------

 

    documents necessary to support potential patient assets and liabilities.
These documents include:

A. Copy of a pay stub
B. Copy of most recent tax return
C. Copy of disability award
D. Unemployment payments
E. Statement of wages from employer
F. Current bank statements

2.   After the application has been received it will be documented as such on
the patient account. The application is then reviewed for completeness.
Completeness is defined as all pertinent information provided on the face of the
application and signed by the patient, guardian and or spouse. Incomplete
applications are documented in the patient account and are temporarily denied,
until completed. Normal billing procedures will continue. If a complete,
conforming application is approved, this will be noted on the patient account
and the balance will be adjusted using the appropriate adjustment code. Accounts
deemed bad debt, with the exception of those deemed within the current fiscal
year, are not covered by charity care application/approval and will not be
considered charity care.

3.   When reviewing the application, the facility representative will use the
income guidelines provided along with all other available information. Credit
report will be acquired and used to validate the application. The decision to
grant or reject an application must be made on an objective basis with
documentation to support each decision. There will be no bias in this decision
based on any demographic information, such as race, gender, immigration status,
etc.

4.   Company uses the Federal poverty guidelines to determine eligibility for
financial assistance. The Federal poverty guidelines are published and updated
annually in February by the U.S. Department of Health and Human Services. The
Department of Health and Human Services updates on its web site
(http://aspe.os.dhhs.gov/poverty/Xxcomputations.htm — Xx meaning the specific
year; i.e., 04 for 2004). A patient’s income and family size must be at or below
200% of the Federal poverty guidelines to receive 100% financial assistance.

5.   There may be individuals that apply for Financial Assistance prior to
receiving medical services at Company. In these cases, a facility representative
will review the application as if the patient had an active Medical Record, and
will approve or deny based on the guidelines stated above. These applicants will
receive a Financial Assistance Card with their date of birth and name to serve
as an identifier.

6.   Patients may exceed the poverty guidelines but may still be eligible for
financial assistance when additional criteria such as catastrophic medical costs
are considered. If the total patient account balance is greater than the amount
exceeding the Federal poverty guidelines then the patient will qualify. Other
obligations will be evaluated to determine if they are for basic needs or luxury
items. This qualification may be a one time economic hardship or for ongoing
financial assistance depending upon the medical situation/debt.

C-2

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7.   If a patient is underinsured, they may also qualify for either economic
hardship or for ongoing financial assistance. These instances will be reviewed
on a case-by-case basis for eligibility under the guidelines stated in this
policy.

8.   The Manager or designee will make a determination on each application
within ten working days of the receipt of a completed application. If Manager
has questions, he may call the Hospital’s Controller. Approval is made upon
review of the following:

A. A completed financial assistance application
B. A copy of the patient’s credit report
C. Review of all income* sources
D. Homeless individuals may provide a statement from a shelter or other resource

9.   Patients will be notified of the decision regarding their application in
writing within twenty days.

10.   Performance Expectations: The thorough exploration of possible sources of
payment and proper and timely completion of applications are expected of all
team members. Failure to meet these expectations may negatively affect a team
member’s performance review.

11.   Conflict of Interest: A team member will not make financial assistance
decisions on patient accounts of relatives or friends. Any such account must be
transferred to an unrelated team member or a member of management.

 

*   INCOME: Refers to total cash receipts before taxes from all sources. This
includes but are not limited to: wages and salaries before any deductions,
receipts from self-employment or from own farm or business; regular payments
from public assistance, social security, unemployment and workmen’s
compensation, strike benefits from union funds, veteran’s allotments or other
regular support from an absent family member or someone not living in the
household; government employee pensions, private pensions and regular insurance
or annuity payments, and; income from dividends, interest, rents, royalties, or
income from estates and trusts, food stamps, savings, bank account, any assets
drawn down as withdrawals from a bank, sale of property, house or car, tax
refunds, gifts, one-time insurance payments or compensation for injury. Total
income from all household members** must be used, unless applicant is considered
an unrelated individual, i.e., border, lodger, ward, or an employee of
household.   **   Household members are any persons living in the same house
(unit) for the purpose of shelter, whether or not they are related by marriage,
blood, or adoption.

C-3

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FINANCIAL ASSISTANCE SCALE
Updated FPG 01/24/06
Updated FPG 2/18/05
Revised as of 10/1/05

                              Corporation     Federal   Charity     Poverty  
Guidelines Family Size   Guidelines   (200% of FPG)
1
  $ 9,800     $ 19,600  
2
  $ 13,200     $ 26,400  
3
  $ 16,600     $ 33,200  
4
  $ 20,000     $ 40,000  
5
  $ 23,400     $ 46,800  
6
  $ 26,800     $ 53,600  
7
  $ 30,200     $ 60,400  
8
  $ 33,600     $ 67,200  
For each additional person, add
    3,400     $ 6,800  

SOURCE: Federal Register, Vol. 71, No. 15, January 24, 2006, pp. 3848-3849

C-4

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EXHIBIT D
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, LLC
A North Carolina Limited Liability Company
DESCRIPTION OF MEDCATH SERVICES INCLUDED IN FEE PAID PURSUANT TO
SECTION 5.6 (a)
     The day-to-day management and operation of the Company’s business and
affairs shall be the responsibility of MedCath, and in that regard shall include
the following services:

q   Services of MedCath Partners, LLC Executive Management Team located in
Charlotte, North Carolina   q   Facilitate strategic planning for Company   q  
Perform Clinical Management Services for Company, including:

      Assist the Company to implement a Preventive Maintenance Program
concerning equipment owned by the Company or Hospital equipment for which
Company is responsible for maintenance         Coordinate with Investor Members
the development of Policies and Procedures for Cath Labs, including without
limitation, incorporating Hospital Standards and Continual Updating as requested
from time to time         Provide support for Company and Hospital Clinical and
Administrative Staff providing services in the Cath Labs         Coordinate with
Investor Members, Hospital and the Company for the Performance Improvement
Program Design for the Cath labs         Provide access to MedCath
Incorporated’s Supply Procurement, Coordination & Negotiation and Inventory
Management         Assist Company in Design of Scheduling, Forms and Emergency
Protocols for the Cath Labs         Support the Company in providing services to
the Cath Labs for JCAHO Survey Preparation/Readiness and CLIA Compliance        
Order inventory for Cath Labs and Facility and coordinate receipt of supplies

 

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      Coordinate Physicist Inspection of Cath Labs

      Coordinate with Hospital on behalf of Company concerning Physician and
Patient Satisfaction Surveys Collection and Compilation in the Cath Labs        
Collection, Analysis and Reporting of Clinical and Financial Outcome Data for
the Company         Assist the Company in the development of Educational
Materials for Patients, Managed Care and Other Payor Organizations concerning
the Cath Labs         Prepare annual Report Card for the Program, including
outcomes         Provide proprietary materials of MedCath related to community
outreach initiatives for use by Company in providing services to the Hospital.

q   Perform Clinical Risk Management Services for Company, including:

      Evaluate Statistical Trends in the Cath Labs from variance Reporting and
Claims and Development of Action Plan         Coordinate with Hospital defense
of Reported Cases with the Insurance Carrier and Defense Attorneys

q   Perform Human Resource Management Services for Company Employees, including:

      Recruit, Screen and Hire Company Personnel consistent with MedCath
Incorporated’s policies and procedures         Health & Retirement Benefits
Management         Health & 401(k) Open Enrollment & Ongoing Plan Management    
    Reporting and Compliance         Individual Summary Annual Reports        
Employee Support: Claims Investigation, Employee Records         Workers’
Compensation reporting and claims administration         Management of leaves of
absence         Policy & Procedure Management for Human Resources function
(Compliance with JCAHO)

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      Human Resources Support of On-Site Manager

      Discipline Company employees and administer Employee Satisfaction Surveys
        Interpret MedCath Incorporated HR Policies & Procedures as applicable to
Company employees

q   Perform Information Technology Services for Company, including:

      Manage Telecommunications and Computer (Hardware, Software, and Internet)
Issues for Company systems, if any         Support Company Employees in use of
MedCath Incorporated information systems (E-mail, Software Training, Maintenance
Repairs, and Upgrades)

q   Provide Financial Reporting Function, including:

      Capital and Operating Budget Preparation for the Company        
Coordination of Audit Process as to Company’s financial statements        
Guidance/Coordination of Accounting Policies for Company         Financial
Reporting for Company to its Members         Monthly Income Statements and
Balance Sheets for Company

q   Perform Accounts Payable Function for Company, including:

      Compare/Validate Purchase Orders, Receivers, Invoices         Process all
invoices and Checks         Reconcile all Operating Bank Account        
Maintain Vendor Records and Transaction Files         Annual 1099 Preparation &
Filing with IRS

q   Perform Accounts Receivable Function for Company, including:

      Billing & Collections for amounts due Company by Hospital and Facility    
    Cooperate with Hospital to agree upon a mutually acceptable efficient and
effective system for the Company to submit invoices for services rendered to
Hospital

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q   Perform Payroll Services for Company, including:

      Process Bi-Monthly Payroll         Coordinate and Monitors Payroll Tax
Requirements         W-2 Processing for Company employees         Quarterly and
Annual Reporting Requirements w/State, Local, and Federal Agencies

q   Perform Tax Services for Company, including:

      Coordinate Preparation & Filing of State and Federal Tax Returns and K-1s
for Company and its members         Calculate and File Quarterly Estimated
Income Taxes for the Company         Coordinate Sales and Use Tax Returns for
the Company

q   Manage Corporate Compliance Program for Company, including:

      Manage Program and Educate Employees         Investigate and Report
Compliance Issues as Appropriate and in conjunction with the Hospital when
involving Hospital matters

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EXHIBIT E
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, LLC
A North Carolina Limited Liability Company
MOBILE CATHETERIZATION AGREEMENT

 

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EXHIBIT F
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, LLC
A North Carolina Limited Liability Company
MANAGEMENT AND SERVICES AGREEMENT

 

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EXHIBIT G
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, LLC
A North Carolina Limited Liability Company
BUDGET EXHIBIT

 

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NewCo — New Hanover
Year One Operating Budget

                                                                          Month
One   Month Two   Month Three   Quarter One     Quarter Two   Quarter Three  
Quarter Four     Year One
Patient revenue
  $ 2,494,598     $ 2,494,598     $ 2,494,598     $ 7,483,794.25       $
7,483,794.25     $ 7,483,794.25     $ 7,483,794.25       $ 29,935,177  
Other operating revenue
    4,841       4,841       4,841       14,523         14,523       14,523      
14,523         58,093                    
Net revenue
  $ 2,499,439     $ 2,499,439     $ 2,499,439     $ 7,498,318       $ 7,498,318
    $ 7,498,318     $ 7,498,318       $ 29,993,270  
 
                                                                   
Personnel expense
    252,842       252,842       252,842       758,525         758,525      
758,525       758,525         3,034,099  
Medical supplies expense
    953,415       953,415       953,415       2,860,246         2,860,246      
2,860,246       2,860,246         11,440,982  
Bad debt expense
    14,076       14,076       14,076       42,228         42,228       42,228  
    42,228         168,912  
Rent
    9,446       9,446       9,446       28,338         28,338       28,338      
28,338         113,352  
Equipment Lease
    64,363       64,363       64,363       193,090         193,090       193,090
      193,090         772,362  
Equipment Lease — Existing
    25,000       25,000       25,000       75,000         75,000       75,000  
    75,000         300,000  
Medical Director Fee
    5,271       5,271       5,271       15,814         15,814       15,814      
15,814         63,254  
Maintenance & Repair
    26,082       26,082       26,082       78,247         78,247       78,247  
    78,247         312,990  
Insurance
    15,268       15,268       15,268       45,804         45,804       45,804  
    45,804         183,217  
Other operating expenses
    46,419       46,419       46,419       139,257         139,257       139,257
      139,257         557,029  
Management Fees
    119,570       119,570       119,570       358,711         358,711      
358,711       358,711         1,434,844                    
EBITDAP
  $ 967,686     $ 967,686     $ 967,686     $ 2,903,058       $ 2,903,058     $
2,903,058     $ 2,903,058       $ 11,612,231  
 
                                                                   
Pre-Opening Costs
    100,000                                                           100,000  
                 
EBITDA
  $ 867,686     $ 967,686     $ 967,686     $ 2,903,058       $ 2,903,058     $
2,903,058     $ 2,903,058       $ 11,512,231  
 
                                                                   
Income (Loss) from operations
  $ 867,686     $ 967,686     $ 967,686     $ 2,903,058       $ 2,903,058     $
2,903,058     $ 2,903,058       $ 11,512,231  
 
                                                                   
Net income (loss)
  $ 867,686     $ 967,686     $ 967,686     $ 2,903,058       $ 2,903,058     $
2,903,058     $ 2,903,058       $ 11,512,231                    
 
                                                                   

 

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EXHIBIT H
TO THE
AMENDED AND RESTATED OPERATING AGREEMENT
OF
COASTAL CAROLINA HEART, 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
Partners, LLC.
     (ii) “Member Nonrecourse Deductions” means losses, deductions or Code
Section 705(a)(2)(B) expenditures attributable to Member Nonrecourse Debt under
the general principles applicable to “partner nonrecourse deductions” set forth
in Regulations Section 1.704-2(i)(2).
     (iii) “Member Nonrecourse Debt” means any Company liability with respect to
which one or more but not all of the Members or related Persons to one or more
but not all of the Members bears the economic risk of loss within the meaning of
Regulations Section 1.752-2 as a guarantor, lender or otherwise.
     (iv) “Member Nonrecourse Debt Minimum Gain” means the minimum gain
attributable to Member Nonrecourse Debt as determined pursuant to

 

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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 Partners,
LLC.
     (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 Code Section 754 adjustment provided in Paragraph (h) below.
     (b) Nonrecourse Deductions. All Nonrecourse Deductions for any Fiscal Year
shall be allocated to the Members in accordance with their percentage Membership
Interests.
     (c) Member Nonrecourse Deductions. All Member Nonrecourse Deductions for
any Fiscal Year shall be allocated to the Member who bears the economic risk of
loss under Regulations Section 1.752-2 with respect to the Member Nonrecourse
Debt to which such Member Nonrecourse Deductions are attributable.
     (d) Minimum Gain Chargeback. If there is a net decrease in Company Minimum
Gain for a Fiscal Year, each Member shall be allocated items of Company income
and gain for such year (and, if necessary, subsequent years) in an amount equal
to such Member’s share of such net decrease in Company Minimum Gain, determined
in accordance with Regulations Section 1.704-2(g)(2) and the definition of
Company Minimum Gain set forth above. This provision is intended to comply with
the minimum

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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) 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.
     (i) Curative Allocations. The Regulatory Allocations are intended to comply
with certain requirements of the Treasury Regulations. It is the intent of the
Members that, to the extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special allocations of other
items of Profits and Losses pursuant to this Paragraph (i). Therefore,
notwithstanding any other provision of this Exhibit F (other than the Regulatory
Allocations), the Members shall make such

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offsetting special allocations of Profits and Losses in whatever manner they
determine appropriate so that, after such offsetting allocations are made, each
Member’s Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Member would have had if the Regulatory Allocations
were not part of the Agreement and all Profits and Losses were allocated
pursuant to Article VI. In exercising such discretion under this Paragraph (i),
the Members shall take into account future Regulatory Allocations under this
Exhibit F that, although not yet made, are likely to offset other Regulatory
Allocations previously made.
     (j) 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.
     (k) Waiver of Minimum Gain Chargeback Provisions. If the Tax Matters
Partner 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 the Tax Matters Partner shall have the authority, but not the obligation,
after giving notice to the Members, to request on behalf of the Company the
Internal Revenue Service to waive the minimum gain chargeback or member
nonrecourse debt minimum gain chargeback requirements pursuant to Regulations
Sections 1.704-2(f)(4) and 1.704-2(i)(4). The Company shall pay the expenses
(including attorneys’ fees) incurred to apply for the waiver. The Tax Matters
Partner shall promptly copy all Members on all correspondence to and from the
Internal Revenue Service concerning the requested waiver.
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