Exhibit 10.70



 





Exhibit 10.70




HMC REALTY, LLC

A Texas Limited Liability Company




AMENDED AND RESTATED OPERATING AGREEMENT




 









 





TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	ARTICLE I DEFINITIONS AND GLOSSARY OF TERMS
	 	 	5	 
	 
	 	 	 	 
	ARTICLE II FORMATION; NAME; PURPOSES; OFFICE; TERM
	 	 	7	 
	SECTION 2.1. Company Formation
	 	 	7	 
	SECTION 2.2. Name of Company
	 	 	7	 
	SECTION 2.3. Purposes
	 	 	7	 
	SECTION 2.4. Registered Office and Principal Place of Business
	 	 	8	 
	SECTION 2.5. Commencement and Term
	 	 	8	 
	SECTION 2.6. Representations and Warranties
	 	 	8	 
	 
	 	 	 	 
	ARTICLE III CAPITAL CONTRIBUTIONS, LIABILITY OF MEMBERS, CAPITAL ACCOUNTS, RETURN OF
CAPITAL AND INTEREST ON CAPITAL
	 	 	9	 
	SECTION 3.1. Initial Contributions
	 	 	9	 
	SECTION 3.2. Additional Capital Contributions
	 	 	10	 
	SECTION 3.3. Limited Liability of Members and Managers
	 	 	10	 
	SECTION 3.4. Maintenance of Capital Accounts; Withdrawals
	 	 	10	 
	SECTION 3.5. Percentage Interests
	 	 	10	 
	SECTION 3.6. Additional Members
	 	 	10	 
	SECTION 3.7. Member Loans
	 	 	11	 
	SECTION 3.8. Credit Support
	 	 	11	 
	 
	 	 	 	 
	ARTICLE IV MANAGEMENT OF THE COMPANY
	 	 	11	 
	SECTION 4.1. Management; Execution of Company Contracts
	 	 	11	 
	SECTION 4.2. Number, Tenure and Qualifications of Managers; Decisions by Managers
	 	 	12	 
	SECTION 4.3. Powers and Authority of Managers
	 	 	12	 
	SECTION 4.4. Managers to Act in Best Interests of Company
	 	 	14	 
	SECTION 4.5. Other Business of Members
	 	 	14	 
	SECTION 4.6. Maintenance of Tax Status
	 	 	15	 
	SECTION 4.7. Liability and Indemnification of the Managers; Expense
Advancement
	 	 	15	 
	 
	 	 	 	 
	ARTICLE V ALLOCATIONS
	 	 	17	 
	SECTION 5.1. Allocation of Income and Losses
	 	 	17	 
	SECTION 5.2. Miscellaneous
	 	 	18	 
	 
	 	 	 	 
	ARTICLE VI DISTRIBUTIONS
	 	 	18	 
	SECTION 6.1. Distributions
	 	 	18	 






 









 






	 	 	 	 	 
	 	 	Page	 
	SECTION 6.2. Tax Distributions
	 	 	19	 
	SECTION 6.3. Distributions In Kind
	 	 	19	 
	SECTION 6.4. Withholding
	 	 	19	 
	SECTION 6.5. Right of Offset
	 	 	20	 
	 
	 	 	 	 
	ARTICLE VII WINDING UP AND TERMINATION OF THE COMPANY
	 	 	20	 
	SECTION 7.1. Winding Up and Termination of the Company
	 	 	20	 
	SECTION 7.2. Winding-Up and Liquidation
	 	 	21	 
	 
	 	 	 	 
	ARTICLE VIII WITHDRAWAL OF MEMBERS AND TRANSFER OF MEMBERS’ INTERESTS
	 	 	22	 
	SECTION 8.1. Restriction on Transfer and Withdrawal
	 	 	22	 
	SECTION 8.2. Conditions Precedent to Transfer of Member’s Interest
	 	 	22	 
	SECTION 8.3. Substitute or Additional Member — Conditions to Fulfill
	 	 	23	 
	SECTION 8.4. Further Assignment by Assignee
	 	 	23	 
	SECTION 8.5. Rights and Liabilities of and Restrictions on Assignee
	 	 	23	 
	SECTION 8.6. Involuntary Transfers; Transfer of Interests in Members
	 	 	24	 
	 
	 	 	 	 
	ARTICLE IX BOOKS; DEPOSITORY ACCOUNTS; ACCOUNTING REPORTS; ELECTIONS
	 	 	24	 
	SECTION 9.1. Books of Account
	 	 	24	 
	SECTION 9.2. Access to Records; Audit
	 	 	24	 
	SECTION 9.3. Depository Accounts and Investment of Funds
	 	 	24	 
	SECTION 9.4. Reports
	 	 	25	 
	SECTION 9.5. Tax Accounting Methods; Periods; Elections
	 	 	25	 
	 
	 	 	 	 
	ARTICLE X MEETINGS OF MEMBERS
	 	 	25	 
	SECTION 10.1. Meetings of Members
	 	 	25	 
	SECTION 10.2. Notice of Meetings of Members
	 	 	26	 
	SECTION 10.3. Record Date
	 	 	26	 
	SECTION 10.4. Quorum
	 	 	26	 
	SECTION 10.5. Organization
	 	 	27	 
	SECTION 10.6. Actions by Members
	 	 	27	 
	SECTION 10.7. Proxies
	 	 	27	 
	SECTION 10.8. Action Without Meeting
	 	 	27	 
	SECTION 10.9. Meeting by Conference Telephone
	 	 	27	 
	SECTION 10.10. Registered Members
	 	 	28	 
	 
	 	 	 	 
	ARTICLE XI MISCELLANEOUS PROVISIONS
	 	 	28	 
	SECTION 11.1. Waiver of Provisions
	 	 	28	 
	SECTION 11.2. Amendment
	 	 	28	 






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	 	 	Page	 
	SECTION 11.3. Interpretation and Construction
	 	 	28	 
	SECTION 11.4. Governing Law; Jurisdiction
	 	 	28	 
	SECTION 11.5. Partial Invalidity
	 	 	28	 
	SECTION 11.6. Binding on Successors
	 	 	28	 
	SECTION 11.7. Notices and Delivery
	 	 	28	 
	SECTION 11.8. Counterparts
	 	 	29	 
	SECTION 11.9. Statutory Provisions
	 	 	29	 
	SECTION 11.10. Waiver of Partition
	 	 	29	 
	SECTION 11.11. Tax Matters Member
	 	 	29	 
	SECTION 11.12. Determination of Matters Not Provided For In This Agreement
	 	 	29	 
	SECTION 11.13. Further Assurances
	 	 	29	 
	SECTION 11.14. Arbitration
	 	 	29	 






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AMENDED AND RESTATED OPERATING AGREEMENT

OF

HMC REALTY, LLC

a Texas Limited Liability Company




     THIS AMENDED AND RESTATED OPERATING AGREEMENT, is made and entered into as of the ___day of
                    , 2007, by and among VALLEY BAPTIST REALTY CORPORATION, a Texas corporation
(“VB”), HARLINGEN HOSPITAL MANAGEMENT, INC., a North Carolina corporation
(“MedCath”), and HMC PHYSICIANS, LTD., a Texas limited partnership (the “Physician
Investor”) (VB, MedCath and the Physician Investor are referred to herein collectively as the
“Members”), and HARLINGEN MEDICAL CENTER, LIMITED PARTNERSHIP, a North Carolina limited
partnership (the “Hospital”), as the original member of the Company.



RECITALS





	 	A.	 	The Company has been formed by the Hospital by filing a Certificate of
Formation of HMC Realty, LLC with the Secretary of State of Texas. The Hospital has
executed an Operating Agreement of the Company effective as of the date of formation
(the “Original Agreement”).
	 
	 	B.	 	The Hospital contributed the Property (as defined herein) to the capital of the
Company, subject to an existing mortgage to HCPI Mortgage Corp. In connection with the
contribution of the Property, the Company also assumed $11,345,393 in obligations owed
by the Hospital to MedCath Finance Co., LLC, an affiliate of MedCath, and $2,944,607 in
principal amount of obligations owned by the Hospital to Valley Baptist Health System,
an affiliate of VB.
	 
	 	C.	 	The parties to this Amended and Restated Agreement wish to amend and restate
the Original Agreement in its entirety to provide for: (i) the admission of the
Physician Investor for a cash capital contribution as described herein; (ii) the
admission of VB as a Member in return for a cash capital contribution and the
conversion of certain obligations to equity as described herein; (iii) the admission of
MedCath as a Member in return for the conversion of a portion of the obligations to
equity as described herein; (iv) the withdrawal of the Hospital from membership in the
Company; and (v) such other provisions regarding the Company and its affairs as are set
forth herein.





     NOW, THEREFORE, the parties hereto hereby amend and restate the Original Agreement in its
entirety as follows:



 









 




ARTICLE I




DEFINITIONS AND GLOSSARY OF TERMS





     “Acquisition Loan” means a loan from Citicorp Vendor Finance, Inc. or other lender
selected by the Managers in the approximate principal amount of $39,000,000.



     “Adjusted Capital Account Deficit” means with respect to any Member, the deficit
balance, if any, in such Member’s Capital Account as of the end of the relevant fiscal year, after
giving effect to the following adjustments:




     (i) Credit to such Capital Account any amounts which the Member is obligated to
restore or is deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and




     (ii) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-2(b)(2)(ii)(d)(6) of the
Regulations.


The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the
provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.




     “Affiliate” with respect to a Member shall mean any person or entity controlling,
controlled by, or under common control with such Member.



     “Agreement” shall mean this Amended and Restated Operating Agreement as amended from
time to time, which is intended to constitute the “company agreement” of the Company as set forth
in the TLLCL.



     “Assigned MedCath Loan” means a portion of the obligation owed to MedCath or its
affiliates by the Hospital which has been assigned to and assumed by the Company in the principal
amount of $11,345,393.



     “Assigned VB Loan” means a portion of the obligation owed to VB or its affiliates by
the Hospital which has been assigned to and assumed by the Company in the principal amount of
$2,944,607.



     “Capital Account” shall mean with respect to each Member a financial and tax
accounting account maintained and adjusted in accordance with the Treasury Regulations promulgated
under Section 704 of the Code.



     “Cash Flow” shall mean cash available to the Company as a result of the operations of
the Company and the sale or refinancing of Company property after (i) payment of all expenses,
costs, amortization of indebtedness of the Company, (ii) acquisition of investments or other
capital assets and (iii) the establishment by the Managers of reasonable reserves for working
capital, debt service, contingencies, investments, and replacements, subject however to
restrictions upon distribution which the Company agrees upon with its third party lenders.



5









 





     “Certificate of Formation” shall mean the certificate of formation, together with any
amendments thereto, required to be filed by the Company pursuant to the TLLCL and the TBOC.



     “Closing” shall mean the closing of the transaction pursuant to which the Company will
acquire the Property.



     “Closing Date” shall mean July 2, 2007, unless the Closing is extended by mutual
agreement of the Members.



     “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, or
any successor federal revenue law and any final treasury regulations, revenue rulings, and revenue
procedures thereunder or under any predecessor federal revenue law.



     “Company” shall refer to the limited liability company created under this Agreement
and the Certificate of Formation.



     “Credit Support” shall mean any letters of credit, guarantees or other forms of
collateral or credit that any Member provides to any lender to the Company.



     “Distributions” shall mean distributions of cash or other property made by the Company
to the Members from any source.



     “GAAP” shall mean generally accepted accounting principles, consistently applied.



     “Hospital” shall mean Harlingen Medical Center, Limited Partnership, a North Carolina
limited partnership.



     “Income” shall mean the net income (including tax exempt income) of the Company or any
separately allocable item thereof as determined in accordance with GAAP.



     “Interest” shall mean all of the rights created under this Agreement or under the
TLLCL of each Member with respect to the Company and the Company property.



     “Lease” shall mean the agreement to be entered into between the Company and the
Hospital pursuant to which the Hospital will lease the Property from the Company.



     “Loan Closing” shall mean the closing of the transaction pursuant to which the
Company, acting through the Managers, will incur the Acquisition Loan.



     “Losses” shall mean the net loss of the Company as determined in accordance with GAAP
or any separately allocable deduction of the Company, including expenditures of the Company not
deductible in computing its taxable income and not properly chargeable to a capital account.



6









 





     “Managers” shall refer to the persons appointed as Managers pursuant to Section 4.2
herein and any other persons or entities who may become Managers pursuant to the terms of this
Agreement.



     “Members” shall refer collectively to the entities the names of which are listed in
the preamble to this Agreement and, in accordance with this Agreement, their successors and
assigns.



     “Percentage Interest” shall refer to the entire ownership Interest of a Member,
expressed as a percentage.



     “Prime Rate” shall mean the prime rate then in effect at CitiBank, N.A.



     “Property” shall mean the real property and improvements thereon located in Harlingen,
Cameron County, Texas, and more particularly described on Exhibit D attached hereto.



     “TLLCL” shall mean the Texas Limited Liability Company Law set forth in the Texas
Business Organizations (“TBOC”).



     Certain other capitalized terms not defined above shall have the meanings given such terms in
the Agreement.



ARTICLE II




FORMATION; NAME; PURPOSES; OFFICE; TERM




     SECTION 2.1. Company Formation. The Company has been formed as a limited liability
company under and pursuant to the TLLCL. The Members shall cause to be executed and filed all such
instruments or documents and shall do or cause to be done all filing, recording, or other acts, as
may be necessary or appropriate from time to time to comply with the requirements of law for the
formation of a limited liability company in the State of Texas.



     SECTION 2.2. Name of Company. The name of the Company shall be HMC Realty, LLC.



     SECTION 2.3. Purposes. The purposes of the Company are as follows:




     (a) To own, operate, finance, improve, maintain, lease to the Hospital or other
tenants, and sell or otherwise dispose of the Property;




     (b) To do all things reasonably incidental to the purposes described in subsection (a);
and




     (c) All such other lawful purposes to which the Members may consent.



7









 





     The Company may execute, deliver and perform all contracts and other undertakings and engage
in all activities and transactions as may be necessary or advisable to carry out the foregoing
objects and purposes.



     SECTION 2.4. Registered Office and Principal Place of Business. The registered office
of the Company in Texas shall be maintained at Harlingen Medical Center, 5501 South Expressway 77,
Harlingen, TX  78550, or at such other place as the Managers may determine, and the initial
registered agent at such address shall be                     . The principal place of business of the
Company shall be maintained at the above referenced registered office or at such other place as the
Managers may determine.



     SECTION 2.5. Commencement and Term. The Company commenced upon the filing of the
Certificate of Formation in the office of the Secretary of State of the State of Texas, as required
by Section 2.1 hereof, and shall continue indefinitely until terminated as provided herein and the
TLLCL.



     SECTION 2.6 Representations and Warranties. Each member represents and warrants to
the other Members as follows:




	 	(a)	 	MedCath represents, warrants and covenants that (i) it is a corporation duly
formed and validly existing under the laws of the State of North Carolina and is duly
qualified to transact business in the State of Texas; (ii) the execution, delivery and
performance of this Agreement is within its company power and all requisite action has
been taken to authorize the execution, delivery and performance of this Agreement;
(iii) the execution, delivery and performance of this Agreement will not contravene any
provision of its articles of organization, operating agreement, or any contract or
agreement to which it is a party; (iv) it has consulted with its own tax and legal
advisors regarding its participation in the Company, including without limitation
specialists in health care law and regulation; and (v) it is in compliance and will
remain in compliance with all laws and regulations applicable to it in connection with
its participation in the Company, including without limitation health care laws and
regulations.
	 
	 	(b)	 	VB represents, warrants and covenants that (i) it is a corporation duly formed
and validly existing under the laws of the State of Texas; (ii) the execution, delivery
and performance of this Agreement is within its corporate power and all requisite
corporate action has been taken to authorize the execution, delivery and performance of
this Agreement; (iii) the execution, delivery and performance of this Agreement will
not contravene any provision of its articles of incorporation, bylaws, or any contract
or agreement to which it is a party; (iv) it has consulted
with its own tax and legal advisors regarding its participation in the Company,
including without limitation specialists in health care law and regulation; and (v)
it is in compliance and will remain in compliance with all laws and regulations
applicable to it in connection with its participation in the Company, including
without limitation health care laws and regulations.




8









 












	 	(c)	 	Physician Investor represents, warrants and covenants that (i) it is a limited
partnership duly formed and validly existing under the laws of the State of Texas; (ii)
the execution, delivery and performance of this Agreement is within its company power
and all requisite action has been taken to authorize the execution, delivery and
performance of this Agreement; (iii) the execution, delivery and performance of this
Agreement will not contravene any provision of its certificate of formation, agreement
of limited partnership, or any contract or agreement to which it is a party; (iv) it
has consulted with its own tax and legal advisors regarding its participation in the
Company, including without limitation specialists in health care law and regulation;
and (v) it is in compliance and will remain in compliance with all laws and regulations
applicable to it in connection with its participation in the Company, including without
limitation health care laws and regulations.
	 
	 	 	 	Physician Investor further covenants that it will give the Managers the right to
review all offering memoranda, prospectuses, subscription documents and other
materials which will be used in connection with the offering of interests in
Physician Investor to investors, and that it will incorporate the Managers’
reasonable comments into any such materials.
	 
	 	(d)	 	Each of the Members acknowledges and agrees that (i) MedCath, VB and certain
members of Physician Investor, including without limitation Dr. Hugo Blake, are also
direct or indirect owners of the Hospital and as such may be subject to certain
conflicts of interest; (ii) such Member has consulted its own counsel in connection
with its participation in the Company and has made its own evaluation of the risks
related thereto, including without limitation such potential conflicts of interest; and
(iii) the representatives of the Members shall be entitled to take all actions and vote
on all matters relating to the Lease and other agreements and arrangements relating to
the relationship between the Company and the Hospital, and the Company and its lenders,
and all other matters involving the Company, regardless of any such potential conflicts
of interest.





ARTICLE III




CAPITAL CONTRIBUTIONS, LIABILITY OF MEMBERS,

CAPITAL ACCOUNTS, RETURN OF CAPITAL AND INTEREST ON CAPITAL




     SECTION 3.1. Initial Contributions. The Hospital formed the Company and made an
initial capital contribution to the Company of the Property, subject to certain obligations as
described on Exhibit A attached hereto. Upon the execution and effectiveness of this
Agreement, the Hospital will withdraw from the Company. The other Members shall make the initial
capital contributions to the Company set forth on Exhibit A, including without limitation
the conversions of the VB Assigned Loan and a portion of the MedCath Assigned Loan to equity as
described on Exhibit A, and shall receive therefor the Interest in the Company set forth on
Exhibit A.



9









 





     SECTION 3.2. Additional Capital Contributions. If the Managers determine that
additional capital is required for Company purposes (and no Manager shall fail to vote to approve a
capital call which is necessary to fund payments of any type or nature due from the Company with
respect to the Acquisition Loan or any refinancing or replacement financing thereof, or other
indebtedness for borrowed money, or to enable the Company to fulfill its obligations under the
Lease), the existing Members shall make additional contributions to the Company pro rata based on
their respective Percentage Interests in an aggregate amount equal to the additional capital
required. In the event any Member fails to make the required additional contributions, the other
Members may, but shall not be obligated to, make the contribution of the defaulting Member, and in
any event if any Member fails to make such additional capital contributions, the Percentage
Interests of all of the Members will be adjusted so that each Member’s Percentage Interest shall
equal the Percentage determined by dividing the amount of all capital contributions made to the
Company by such Member by the total of all capital contributions made to the Company by all
Members.



     SECTION 3.3. Limited Liability of Members and Managers. No Member shall have any
personal liability for any debts or losses of the Company beyond its Interest, except as provided
by law. No Member or Manager shall be liable, responsible or accountable in damages or otherwise
to the Company or any other Member for any acts performed in good faith and reasonably believed by
the Member or Manager to be within the scope of this Agreement, unless such act or failure to act
is attributable to gross negligence, malfeasance, fraud or breach of a provision of this Agreement.
No Member shall be personally liable to restore any Adjusted Capital Account Deficit. Other than
as provided in Section 3.2 and as may be required under the TLLCL, no Member or Manager shall be
liable for any debts or losses of capital or profits of the Company or be required to contribute or
lend funds to the Company.



     SECTION 3.4. Maintenance of Capital Accounts; Withdrawals; Individual Capital
Accounts shall be maintained for each of the Members. No Member shall be entitled to withdraw any
part of his Capital Account or to receive any Distribution or to make any capital contribution
except as expressly provided herein. No Member shall be entitled to receive any interest on his
contributions to the capital of the Company or with respect to his Capital Account.



     SECTION 3.5. Percentage Interests. Whenever it shall be necessary for voting or other
purposes herein specified to determine the Interest of one or more Members in the Company relative
to a group of Members or to all Members, that interest shall be determined based on the Percentage
Interests of the Members as set forth on Exhibit A attached hereto. Percentage Interests
shall be adjusted and Exhibit A shall be amended by the Managers from time to time as may
be required to reflect any purchases, sales, withdrawals, additional capital contributions,
transfers or other events resulting in a change in Company Interests, including the application of
Section 3.2, provided that such events may occur only in accordance with the terms of this
Agreement.



     SECTION 3.6. Additional Members. Additional Members may be admitted from time to time
upon terms approved by the Managers.



10









 





     SECTION 3.7. Member Loans. If and only if all Members agree to make such a loan
proportionate to their respective Percentage Interests in the Company, and such loans are permitted
under the terms of loans to the Company, then all Members together may, but shall not be obligated
to, make loans to the Company (individually, an “Optional Loan,” and collectively, the “Optional
Loans”), from time to time, to cover Company obligations and operating cash deficits, but only with
the consent of all of the Managers. Such Optional Loans shall be evidenced by promissory notes
executed by the Company, which shall bear interest at a variable annual rate equal to the Prime
Rate or such other rate as the Managers and such lending Member may otherwise agree, which in all
events shall be at no less than a fair market rate (the “FMV Rate”). Such Optional Loans
shall be repaid by the Company in accordance with Sections 6.1 and 7.2.



     SECTION 3.8. Credit Support. The Members acknowledge and agree that each of the
Members or their respective Affiliates (individually, a “Guarantor,” and collectively, the
“Guarantors”), shall provide a letter of credit as of the date hereof in the amount set forth on
Exhibit A. In the event that any Guarantor is ever required to fund under any such letter
of credit described in this Section 3.8, or any collateral pledged by such Guarantor as additional
security for any loan is liquidated and applied in repayment of such loan, such funding or
application of collateral shall, as the sole and exclusive remedy of such Guarantor, be treated as
a loan to the Company made by such Guarantor (individually, a “Guarantor Loan,” and collectively,
the “Guarantor Loans”). The Guarantor Loans shall bear interest at the Prime Rate plus two percent
(2%), beginning as of the date that the Lender receives the loan funds from the Guarantor or
applies such Guarantor’s collateral to payment of the Loan, and shall be payable as provided in
Sections 6.1 and 7.2.



ARTICLE IV




MANAGEMENT OF THE COMPANY




     SECTION 4.1. Management; Execution of Company Contracts. The management of the
Company shall be vested in the Managers subject to the other terms hereof. All contracts and
agreements undertaken by the Company, and any other documents, instruments, certificates and
filings shall be executed by one or more of the Managers or such person or entity as may be
empowered by this Agreement or designated in writing by the Managers to execute any contract,
agreement, document, instrument, certificate or filing, and in such contracts the Company shall be
identified as a limited liability company.



     The Managers hereby delegate to and agree that MedCath shall have the duty and responsibility
to prepare and maintain the books and records of the Company in accordance with GAAP, to provide
all accounting and reporting services and obligations to of the Company to either the Members,
Managers or to third parties and to provide or to obtain from a qualified accounting firm tax
return preparation and other tax services. MedCath shall be paid annually a fee equal to $75,000
for such services, which fee shall be increased annually as of January 1 of each year by the
Consumer Price Index. MedCath may relinquish such duty and responsibility at any time by written
notice to the Company, and in such event MedCath will no longer be entitled to such fee and the
Managers will appoint another Member or representative of a Member to



11









 




undertake such functions. The Company also shall pay for any needed services from third party accounting firms approved by
the Managers.




     SECTION 4.2. Number, Tenure and Qualifications of Managers; Decisions by
Managers. The Company shall have three (3) Managers. Each Member shall have the right to
appoint one (1) Manager, and shall have the right to remove and replace its appointed Manager at
any time and from time to time. Each Manager shall serve until his or her (i) removal by the
Member that appointed such Manager, (ii) resignation as Manager, or (iii) death or total
disability. In such case the Member which appointed such Manager shall promptly appoint a
replacement Manager. Managers need not be residents of the State of Texas or Members of the
Company.



     The initial Managers of the Company shall be as follows:



	 	 	 
	MedCath appointment

	 	James A. Parker
	VB appointment

	 	James G. Springfield
	Physician Investor appointment

	 	Hugo Blake, M.D.






     Subject to the other terms of this Agreement, the Managers may take action only upon unanimous
consent of all Managers. The Managers may participate in any meeting of such Managers by means of
conference telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation in a meeting shall
constitute presence in person at such meeting.



     SECTION 4.3. Powers and Authority of Managers. Subject to the terms and conditions of
this Agreement, the Managers shall have exclusive management and control of the affairs of the
Company and shall have the power and authority to do all things necessary or appropriate, and to
take all steps and to execute all documents and agreements as are necessary or appropriate, to
carry out the purposes of the Company, including without limitation the power:




     (a) To cause the Company to acquire the Property at Closing, to incur the Acquisition
Loan at the Loan Closing and such indebtedness as may be necessary or desirable for the
maintenance, repair, reconstruction, upgrade or improvement of the Property or structures
from time to time located thereon, and to acquire the Property, and in connection therewith
to repay the remaining outstanding balance of the Assigned MedCath Loan to the holders
thereof, and to take all steps and to execute all documents and agreements as are necessary
or appropriate to complete all of such transactions;




     (b) To cause the Company to enter into and perform the Lease in such form and substance
as may be approved by the Managers, and to take all steps and to execute all documents and
agreements as are necessary or appropriate to complete all of such transactions;




     (c) To cause the Company to enter into agreements with respect to the management of the
Property upon terms approved by the Managers, and to take all steps and to execute all
documents and agreements as are necessary or appropriate to complete all of such
transactions;



12









 






     (d) To do such acts and incur such expenses on behalf of the Company as may be
reasonably necessary or advisable in connection with the conduct of the Company affairs,
specifically including doing acts and incurring expenses necessary to (i) acquire any
properties or assets necessary or appropriate for the conduct of the Company’s business,
including borrowing money for the acquisition of such properties (subject to the terms
hereof) and executing pledges, evidences of liens, mortgages and/or deeds of trust in
connection therewith; (ii) do such other acts and incur such costs and expenses as are
consistent with the purposes of the Company; and (iii) sell, transfer, exchange or otherwise
dispose of the Property or other Company properties or assets;




     (e) To engage such agents, attorneys, accountants, custodians and other advisers and
consultants as may be necessary or advisable for the affairs of the Company;




     (f) To open, maintain and close bank accounts and custodial accounts for the Company
and to draw checks and other orders for the payment of money;




     (g) To file on behalf of the Company, all required local, state and federal tax returns
and other documents relating to the Company, and if in the best interests of the Company,
cause the Company to make or revoke if permissible, any of the elections referred to in
Sections 108, 709, 754 and 1017 of the Code or any similar provisions enacted in lieu
thereof, or make or revoke other elections permitted by the Code.




     (h) To cause the Company to purchase or bear the cost of any insurance covering the
potential liabilities of any person indemnified under Section 4.7;




     (i) To commence or defend litigation that pertains to the Company or any Company
assets, provided that the Company shall not bear the expenses of any litigation which arose
as a result of the bad faith, gross negligence or willful misconduct of any party
indemnified under this Agreement;




     (j) To prepare and file on behalf of the Company any statement, report, return or
document required by any state or federal agency or other governmental agency;




     (k) Subject to the other provisions of this Agreement, to enter into, make and perform
such contracts, agreements and other undertakings, and to do such other acts, as it may deem
necessary or advisable for, or as may be incidental to, the conduct to the business
contemplated by Section 2.3, including, without in any manner limiting the generality of the
foregoing, contracts, agreements, undertakings and transactions with any Member or with any
other person, firm or corporation having any business, financial or other relationship with
any Member or Members; provided, however, such transactions with such persons and entities
shall be on terms no less favorable to the Company than are generally afforded to unrelated
third parties in comparable transactions;



13









 






     (l) To sign or endorse on behalf of the Company any contracts, deeds, mortgages, deeds
of trust, notes, stock or other security certificates or other documents or instruments;




     (n) To reimburse any Member, affiliate or related person for any reasonable cost or
expense incurred on behalf of the Company in a manner authorized by this Agreement;




     (o) To delegate authority to act for the Company and other duties and responsibilities
to officers or other agents as may be designated by the Managers;




     (p) To cause the Company to enter into any merger, consolidation or reorganization; and




     (q) To take such other acts as are incidental to the foregoing matters.



     SECTION 4.4. Managers to Act in Best Interests of Company. In exercising any powers
hereunder or otherwise acting for the Company, each of the Managers shall exercise reasonable skill
and care and use his best judgment and shall act at all times in what he deems to be the best
interests of the Company. The Managers shall not be liable, responsible or accountable in damages
or otherwise to the Company or any Member for any acts performed or omitted by him in good faith
and within the scope of this Agreement. More specifically, but without limiting the generality of
the preceding sentence, the Managers shall not be liable for good faith mistakes of
judgment or for losses due to such mistakes or the good faith mistakes of judgment or losses due to
such mistakes of any employee, broker or other agent of the Company. Each Manager shall, however,
be liable for his actions to the extent they are attributable to gross negligence, willful
misconduct and/or fraud.



     Notwithstanding anything herein to the contrary, each Member acknowledges and agrees that (x)
each other Member is directly or indirectly also an owner of Harlingen Medical Center Limited
Partnership, the Tenant under the Lease, and (y) each Member and its designated Manager may vote on
any issue with respect to the business and affairs of the Company and the Tenant based upon its own
self-interest, subject to the express obligations set forth herein or in the Tenant’s agreement of
limited partnership.



     SECTION 4.5. Other Business of Members. Except as specifically provided to the
contrary in any separate written agreement with the Company, any Member may engage independently or
with others in other business ventures of any kind, render advice or services of any kind to other
investors or ventures, or make or manage other investments or ventures. Neither the Company nor
any Member shall have any right by virtue of this Agreement or the relationship created hereby in
or to such other ventures or activities or to the income or proceeds derived therefrom, and the
pursuit of such ventures, even if competitive with the business of the Company, shall not be deemed
wrongful or improper. Nothing herein shall be deemed to negate or modify any separate agreement
among the Members and the Company, or their respective Affiliates, or any of them, with respect to
restrictions on competition.



14









 





     SECTION 4.6. Maintenance of Tax Status. The Managers shall use their best efforts and
take all appropriate action to cause the Company to be classified, for federal income tax purposes,
as a partnership and to maintain the Company’s valid existence as a partnership for tax purposes.



     SECTION 4.7. Liability and Indemnification of the Managers; Expense Advancement.




     (a) Exculpation. No Covered Person (as defined in Section 4.7(h)) shall be
liable, responsible or accountable in damages or otherwise to the Company or any Member for
any acts or omissions performed or omitted by such Covered Person in good faith and
reasonably believed by such Covered Person to be in the best interest of the Company. More
specifically, but without limiting the generality of the preceding sentence, no Covered
Person shall be liable for (i) good faith mistakes of judgment, for any mistakes in fact or
law or for damages, claims or losses due to such mistakes or (ii) good faith mistakes of
judgment, for any mistakes in fact or law or for damages, claims or losses due to such
mistakes of any employee or agent of the Company. Notwithstanding the foregoing, each
Covered Person shall be liable for its actions to the extent they are attributable to such
Covered Person’s breach of fiduciary duty, gross negligence, willful misconduct and/or
fraud.




     (b) Indemnification. To the fullest extent permitted by applicable law, the
Company, its receiver or trustee shall indemnify and hold harmless each Covered Person from
any and all loss, damage, liability, or expense incurred by such Covered Person at any time
by reason of or arising out of any act or omission by such Covered Person for or on behalf
of the Company or in furtherance of the interest of the Company, except to the extent such
loss, damage, liability, or expense is attributable to such Covered Person’s breach of
fiduciary duty, gross negligence, willful misconduct and/or fraud; provided that the
satisfaction of any indemnification and any holding harmless shall be from and limited to
the Company’s assets and no Member shall have any personal liability on account thereof.




     (c) Advancement of Expenses. Unless otherwise restricted by the Certificate of
Formation or the TLLCL, expenses (including legal fees) incurred by a Covered Person in
defending any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Company prior to the final disposition of such claim, demand, action, suit
or proceeding upon receipt by the Company of an undertaking by or on behalf of such Covered
Person to repay such amount if it shall be determined that such Covered Person is not
entitled to be indemnified as authorized in Section 4.7(b). Notwithstanding the foregoing,
no advance shall be made by the Company to a Covered Person (other than a Covered Person who
is or was a Manager, in which event this sentence shall not apply to such Covered Person) in
any action, suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made by the Managers (or if there is no Manager,
or Managers to direct, by independent legal counsel (chosen by a majority in Percentage
Interest of the disinterested Members), as the case may be, the “Decision-Making
Party”) in a written opinion that the facts known to



15









 







the Decision-Making Party at the time such determination is made demonstrate clearly and convincingly that such Covered
Person acted in bad faith or in a manner that (i) was outside the scope of authority
conferred on such Covered Person, and (ii) was not in the best interests of the Company.




     (d) Enforcement Without the necessity of entering into an express contract,
all rights to indemnification and advances to Covered Persons under this Section 4.7 shall
be deemed, unless otherwise restricted by the Certificate of Formation or the TLLCL, to be
contractual rights and be effective to the same extent and as if provided for in a contract
between the Company and such Covered Person. Unless otherwise restricted by the Certificate
of Formation or the TLLCL, (i) any right to indemnification or advances granted by this
Section 4.7 to a Covered Person shall be enforceable by or on behalf of the person holding
such right in any court of competent jurisdiction if (A) the claim for indemnification or
advances is denied, in whole or in part, by the Company, or (B) no disposition of such claim
is made within ninety (90) days of request therefore, and (ii) the claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be paid also the
reasonable expense of prosecuting the claim. In connection with any claim for
indemnification, the Company shall be entitled to raise as a defense to any such action that
the claimant has not met the standards of conduct that make it permissible under this
Agreement or any applicable law for the Company to indemnify the claimant for the amount
claimed. Neither the failure of the Company (including the Decision-
Making Party) to have made a determination prior to the commencement of such action
that indemnification of the claimant is proper in the circumstances because he/she/it has
met the applicable standard of conduct set forth in this Agreement or any applicable law,
nor an actual determination by the Company (including the Decision-Making Party) that the
claimant has not met such applicable standard of conduct, shall be a defense to the action
or create a presumption that claimant has not met the applicable standard of conduct. In
any suit brought by a Covered Person to enforce a right to indemnification or to an
advancement of expenses hereunder, the burden of proving that the Covered Person is not
entitled to be indemnified, or to such advancement of expenses, under this Section 4.7 or
otherwise shall be on the Company.




     (e) Insurance. Unless otherwise restricted by the Certificate of Formation or
the TLLCL, the Company may purchase and maintain insurance on behalf of Covered Persons and
such other persons as the Managers shall determine against any liability that may be
asserted against or expenses that may be incurred by any such Covered Person in connection
with the activities of the Company or such other indemnitees, regardless of whether the
Company would have the power to indemnify any such Covered Person or such other indemnitees
against such liability under the terms of this Agreement. The Company may enter into
indemnity contracts with Covered Persons and such other legal entities and persons as the
Managers shall determine and may adopt written procedures pursuant to which arrangements are
made for the advancement of expenses and the funding of obligations hereunder and containing
such other procedures regarding indemnification as are appropriate.



16









 






     (f) Survival of Rights. The rights conferred on any Covered Person by this
Section 4.7 shall continue as to a Covered Person who has ceased to be a Member, Manager or
other agent of the Company and shall inure to the benefit of the successors, assigns, heirs,
executors and administrators of such Covered Person.




     (g) Amendments . Unless otherwise restricted by the Certificate of Formation
or the TLLCL, any repeal or modification of this Section 4.7 shall only be prospective and
shall not affect the rights under this Section 4.7 in effect at the time of the alleged
occurrence of any action or omission to act that is the cause of any proceeding against any
Covered Person.




     (h) Covered Person. For purposes of this Agreement, a “Covered Person”
means each Manager and any other entity or person to whom the Managers have delegated
management responsibilities.



ARTICLE V




ALLOCATIONS




     SECTION 5.1. Allocation of Income and Losses. After giving effect to the special
allocations set forth in Exhibit B hereto, Income and Losses for each calendar year, or fraction
thereof, as the case may be, shall be allocated to the Members (and for purposes of Articles V and
VI hereof, the term “Member” shall include a transferee of an Interest whether or not such
transferee has been admitted to membership in the Company) as follows:




     (a) Income shall be allocated in the following priorities:




          (i) First, to the Members in the amounts and proportions necessary to offset
any Losses previously allocated pursuant to Section 5.1(b);




          (ii) Second, to the Members in accordance with their relative Percentage
Interests.




     (b) Losses shall be allocated in the following priorities:




          (i) Except as provided in Section 5.1(b)(ii), Losses shall be allocated to the
Members in accordance with their relative Percentage Interests.




          (ii) Any Losses allocated pursuant to Section 5.1(b)(i) hereof shall not exceed
the maximum amount of Losses that can be so allocated without causing any Member to
have an Adjusted Capital Account Deficit at the end of any fiscal year. In the
event some but not all of the Members would have Adjusted Capital Account Deficits
as a consequence of an allocation of Losses pursuant to Section 5.1(b)(i), the
limitation set forth in this Section 5.1(b)(ii) shall be applied on a Member by
Member basis so as to allocate the maximum permissible Loss to each Member under
Section 1.704-1(b)(2)(ii)(d) of the Regulations. All Losses in



17









 







excess of the limitation set forth in this Section 5.1(b)(ii) shall be allocated to the Members in
accordance with their relative Percentage Interests.



     SECTION 5.2. Miscellaneous.




     (a) For purposes of determining Income, 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 Managers using any permissible method under Code Section 706 and the Treasury
Regulations thereunder.




     (b) Except as otherwise provided in this Agreement, all items of Company Income, gain,
Loss, deduction and any other allocations for any tax period not otherwise provided for,
shall be allocated among the Members in the same proportion as they share Income or Losses,
as the case may be, for such tax period.




     (c) Except as otherwise provided in Section B.4 of Exhibit B for income tax
purposes under the Code and the Regulations, each Company item of income, gain, loss, and
deduction shall be allocated among the Members in the same manner as its correlative item of
“book” income, gain, loss, or deduction is allocated pursuant to Section 5.1.




     (d) The Members are aware of the income tax consequences of the allocations made by
this Article V and hereby agree to be bound by this Article V as reflected on the income tax
returns of the Company in reporting their shares of Income and Losses for federal income tax
purposes.



ARTICLE VI




DISTRIBUTIONS




     SECTION 6.1. Distributions. Cash Flow shall be paid to the Members on a monthly basis
by the Managers as follows:




     (a) First, to any Guarantors, an amount equal to the amount of their respective
Guarantor Loans made pursuant to Section 4.7, if any, with such distributions to be applied
first to the Guarantor Loans of the most distant date and origin and then applied to the
Guarantor Loans of the second most distant date and origin, and so on, until the principal
and interest of all Guarantor Loans have been paid in full, and made pro rata among the
Guarantors based upon the total amount of Guarantor Loans of even date made by each, to be
applied first against interest, then against principal;




     (b) Second, to the Members, respectively, an amount equal to the amount of their
respective Optional Loans made pursuant to Section 4.5, if any, with such distributions to
be applied first to the Optional Loans of the most distant date and origin and then applied
to the Optional Loans of the second most distant date and origin, and so on, until the
principal and interest of all Optional Loans have been paid in full, and made



18









 







pro rata among the Members based upon the total amount of Optional Loans of even date made by each, to be
applied first against interest, then against principal; and




     c) Thereafter, to the Members in accordance with their respective Percentage Interests.



     Except as otherwise provided herein or unless otherwise agreed to by all of the Members, all
Distributions shall be paid to the Members in accordance with their respective Percentage
Interests. No Distribution shall be declared and paid if payment of such Distribution would cause
the Company to violate any limitation on distributions set forth in the TLLCL or the terms of any
financing.



     SECTION 6.2. Tax Distributions. Absent distributions pursuant to Section 6.1 above,
the Managers shall, to the extent permitted by the Company’s agreements with third party lenders
and subject to the availability of Cash Flow and using commercially reasonable efforts, distribute
cash annually to the Members in accordance with their respective Percentage Interests in an amount
which is sufficient to enable them to pay income taxes which arise from the taxable income of the
Company. In computing the taxable income of each Member for purposes of this Section 6.2, 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 federal and state tax rates applicable to any
Member with respect to its taxable income from the Company.



     SECTION 6.3. Distributions In Kind. Distributions in kind of the Company’s assets, in
liquidation or otherwise, may be made by the Managers in their sole discretion, and any
distributions in kind shall be valued at their then current fair market values, as determined in
good faith by the Managers. Prior to any such distribution in kind, the difference between such
fair market value of the property to be distributed and the value on the Company’s books for such
property shall be credited or charged, as is appropriate, to the Members’ Capital Accounts. Upon
the distribution of such property, such fair market value shall be charged to the Capital Account
of the Member or Members receiving such distribution.



     SECTION 6.4. Withholding. Each Member hereby authorizes the Company to withhold from
or pay on behalf of or with respect to such Member any amount of federal, state, local or foreign
taxes that the Managers determine that the Company is required to withhold or pay with respect to
any amount distributable or allocable to such Member pursuant to this Agreement, including, without
limitation, any taxes required to be withheld or paid by the Company pursuant to Code
Sections 1441, 1442, 1445 or 1446. Any amount paid on behalf of or with respect to a Member shall
constitute a loan by the Company to such Member, which loan shall be repaid by such Member within
15 days after notice from the Managers that such payment must be made unless (a) the Company
withholds such payment from a distribution that would otherwise be made to the Member or (b) the
Managers determine, in their sole and absolute discretion, that such payment may be satisfied out
of the Distributions of the Company that would, but for such payment, be distributed to the Member.
Each Member hereby unconditionally and irrevocably grants to the Company a security interest in
such Member’s Interest to secure such Member’s obligation to pay to the Company any amounts
required to be



19









 




paid pursuant to this Section 6.2. In the event that a Member fails to pay any
amounts owed to the Company pursuant to this Section 6.2 when due, the Managers may, in their sole
and absolute discretion, elect to make the payment to the Company on behalf of such defaulting
Member and shall succeed to all rights and remedies of the Company as against such defaulting
Member (including, without limitation, the right to receive Distributions otherwise distributable
to such defaulting Member). Any amounts payable by a Member hereunder shall bear interest at the
Prime Rate plus two percent (2%) (but not higher than the maximum lawful rate) from the date such
amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each
defaulting Member shall take such actions as the Company or the Manger shall request in order to
perfect or enforce the security interest created hereunder.




     SECTION 6.5. Right of Offset. Notwithstanding anything contained in this Agreement to
the contrary, unless expressly waived by the Managers, the Company shall retain and have a right of
offset against any and all Distributions or payments of cash (including all returns of capital)
related to the Interest of each Member respecting all obligations of such Member (and its
Affiliates or partners, members or shareholders or any entity owned by it or them) to the Company
or its Affiliates, including without limitation obligations to make Capital Contributions and other
payments required hereunder and any obligations of the Member (or its Affiliates or partners, members or
shareholders or any entity owned by it or them), whether as an obligor, guarantor or otherwise.
Such right of offset is exercisable by the Company without regard to any assignment, transfer or
other disposition of the Interest.



ARTICLE VII




WINDING UP AND TERMINATION OF THE COMPANY




     SECTION 7.1. Winding Up and Termination of the Company. The Company shall be wound up
upon the happening of any of the following events:




     (a) The written consent of the Members to terminate the Company;




     (b) The occurrence of any event which, under the TLLCL or any other applicable law,
causes the termination of the Company, except as expressly modified herein;




     (c) The sale of all or a substantial portion of the Company Property, unless the
Managers agree in writing at the time of such sale that the sale will not cause the
termination of the Company; or




     (d) The bankruptcy, death, termination, winding up, adjudication of incompetence, or
withdrawal of the last remaining Member or the transfer or conversion of the entire
Interests of the last remaining Member.



     Except as specifically set forth herein, the Company shall not be terminated by the death,
incapacity or other event of withdrawal of a Member.



20









 





     SECTION 7.2. Winding-Up and Liquidation.




     (a) Upon the termination of the Company, its assets shall be sold and liquidated, and
its affairs shall be wound up as soon as practicable thereafter by the Managers;
provided that a 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. In winding up the Company and liquidating the
assets thereof, the Managers, or other Person so designated for such purpose, may arrange
for the collection and disbursement to the Members of any future receipts from the Company’s
assets or other sums to which the Company may be entitled, or may sell the Company’s
interest in the Company’s assets to any person, including Affiliates of the Members , on
such terms and for such consideration as shall be consistent with obtaining the fair market
value thereof.




     (b) Upon the termination of the Company and after the Capital Accounts of the Members
have been adjusted to reflect the allocations described in Article V and Exhibit B
with respect to all Company transactions and operations occurring prior to final liquidating
Distributions, the assets, if any, of the Company available for distribution and any net
proceeds from the liquidation of any such assets, shall be applied and distributed in the
following manner or order, to the extent available:




          (i) First, to the discharge of debts and obligations of the Company,
including Guarantor Loans and Optional Loans from Members;




          (ii) Second, to fund reserves for contingent liabilities;




          (iii) Third, to the Members in accordance with their positive Capital
Accounts; and




          (iv) Fourth, to the Members in accordance with their Percentage
Interests.




     (c) Upon the termination and commencement of the winding-up of the Company, the
Managers or the remaining Members shall cause a certificate of termination to be executed on
behalf of the Company and filed with the Secretary of State of the State of Texas, and the
Managers and, at the request of the Managers or their designee, each Member shall execute,
acknowledge and file any and all other instruments necessary or appropriate to reflect the
termination of the Company. The termination of the Company shall be effective as of the day
in which the event occurs giving rise to the termination, but the Company shall not
terminate until there has been a winding-up the Company’s business and affairs, and the
assets of the Company have been distributed as provided in this Section 7.2.



21









 





ARTICLE VIII




WITHDRAWAL OF MEMBERS AND TRANSFER

OF MEMBERS’ INTERESTS




     SECTION 8.1. Restriction on Transfer and Withdrawal. Except as provided in this
Agreement, no Member shall transfer or assign its Interest at any time prior to the Company’s
winding-up and liquidation without the written consent of the other Members, nor shall any Member
voluntarily withdraw from the Company.



     Notwithstanding the foregoing, the following types of transfers (each, a “Permitted
Transfer”) shall be permitted and shall not be subject to the restrictions set forth in this
Section 8.1 (but shall be subject to the requirements of Sections 8.2 and 8.3):




     (a) Transfers to Affiliates. Each of MedCath and VB shall have the right to
assign or transfer all or a portion of its Interest to an Affiliate, provided however that
no such assignment or transfer shall relieve the assigning or transferring Member from its
obligations and responsibilities herein.




     (b) Transfers Approved by Managers. Any Member may transfer all or a portion
of its Interest pursuant to the prior written approval of all of the Managers, which may be
withheld or conditioned in the sole discretion of the Managers.




     (c) Transfers of Interests in Physician Investor. The owners and members of
the Physician Investor may transfer or assign the interests therein only with the prior
written approval of the Managers of the Company. The owners and members of the Physician
Investor may pledge or assign their interests in the Physician Investor to third-party
lenders, which lenders, upon foreclosure of any such interest, shall be subject to the terms
and conditions of the limited partnership agreement of the Physician Investor. The operating
agreement or limited partnership agreement of the Physician Investor shall be presented to
the Managers for approval and once so approved shall not be amended without the prior
written consent of the Managers.




     (d) Transfers as Collateral for Lenders. The Members of the Company are each
entitled to pledge or assign their interests in the Company to their third-party lenders,
which lenders, upon foreclosure of any such Interest, shall be subject to the terms and
conditions of this Agreement.



     SECTION 8.2. Conditions Precedent to Transfer of Member’s Interest. No transfer may
be made of all or a portion of any Member’s Interest (i) if such transfer constitutes a violation
of the registration provisions of the Securities Act of 1933, as amended, or the registration
provisions of any applicable state’s securities provisions; (ii) unless approved by all of the
Managers, if after such transfer the Company will be classified other than as a partnership for
federal income tax purposes; or (iii) unless approved by all of the Managers, if such transfer,
when taken together with other prior transfers, results in a “termination” of the Company for
federal income tax purposes. The Company may require, as a condition precedent to any transfer of
a Company Interest, delivery to the Company at the proposed transferor’s expense, an opinion



22









 




of counsel satisfactory (both as to the counsel and substance of the opinion) to the Managers that the
transfer will not result in the occurrence of any of the foregoing restrictions recited in clauses
(i), (ii) or (iii) above.




     SECTION 8.3. Substitute or Additional Member — Conditions to Fulfill. No assignee of
a Member’s Interest in the Company or additional Member shall have the right to become a Member in
place of his assignor or otherwise unless all of the following conditions are satisfied:




     (a) In the event of an assignment, a duly executed and acknowledged written instrument
of assignment has been filed with the Company and sets forth that the assignee becomes a
substitute Member in place of the assignor.




     (b) The assignor and assignee or additional Members execute and acknowledge such other
instruments as the existing Members may deem necessary or desirable to effect such
admission, including, but not limited to, the written acceptance and adoption by the
assignee or additional Members of the provisions of this Agreement.




     (c) The written consent of all of the Managers to such substitution or admission of a
Member shall be obtained.




     (d) The assignee shall have provided the Company with any notice that may be required
by Section 6050K of the Code or other applicable law.




     (e) Payment has been made to the Company of all costs and expenses of admitting any
such assignee or additional Members to the Company.



     SECTION 8.4. Further Assignment by Assignee. An assignee of any Interest who does not
become a Member and who desires to make a further assignment of such Interest shall be subject to
all the provisions of this Article VIII to the same extent and in the same manner as any Member
desiring to make an assignment of his Interest.



     SECTION 8.5. Rights and Liabilities of and Restrictions on Assignee. No person shall
be recognized as an assignee of an Interest if such Interest was transferred in violation of this
Article VII. No assignee of an Interest in the Company 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 until
admitted as a Member. Notwithstanding the failure of such assignee to be admitted as a Member,
such assignee shall be entitled to receive, with respect to the Interest validly assigned to it,
the allocations and distributive shares of Income, Losses, tax credits, and Distributions otherwise
pertaining thereto under this Agreement, and, upon demand, may receive copies of all reports
thereafter delivered pursuant to the requirements of this Agreement; provided, the Company shall
have first received notice of such assignment and all required consents thereto shall have been
obtained and other conditions precedent to transfer thereof, as set forth herein or otherwise
required by applicable law, shall have been satisfied. The Company’s tax returns shall be prepared
to reflect assignees as Members for tax purposes.



23









 





     SECTION 8.6. Involuntary Transfers; Transfer of Interests in Members. The prohibition
on transfers of Interests in the Company set forth in Section 8.1(a) shall include and apply to:
(i) involuntary transfers of Interests, including without limitation any purported transfer by or
pursuant to bankruptcy, attachment, divorce, equitable distribution, or operation of law, and (ii)
transfers of shares, membership interests, partnership interests, or other equity ownership
interests in the Members, provided however that such prohibition shall apply to a transfer by an
equity owner of MedCath or VB only to the extent that such transfer results in a change of
ultimate control of such Member. In addition to any other remedy available at law or in equity,
the Managers shall not be required to take any purported transfer in violation of this Agreement
into account for purposes of this Agreement, or to recognize any purported transferee as a Member
or an assignee of a Member.



ARTICLE IX




BOOKS; DEPOSITORY ACCOUNTS; ACCOUNTING REPORTS; ELECTIONS




     SECTION 9.1. Books of Account. At all times during the continuance of the Company,
the Company shall maintain or cause to be maintained true and full financial records and books of
account showing all receipts and expenditures, assets and liabilities, profits 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. MedCath shall have the administrative responsibility for maintaining the books of
account on behalf of the Company. MedCath may relinquish such responsibility at any time by
written notice to the Company, and in such event the Managers will appoint another Member or
representative of a Member to maintain the books of account on behalf of the Company.



     SECTION 9.2. Access to Records; Audit. The books of account, tax returns, reports,
records, this Agreement, and all documents and other writings of the Company, including the
Certificate of Formation, shall at all times be kept and maintained at the principal office of the
Company, or at such other place or places as the Managers may determine. Each Member or the
Member’s designated representatives shall, upon reasonable notice to the Company, have access to
such financial books, tax returns, reports, records, and documents during reasonable business hours
and may inspect and make copies of any of them.



     SECTION 9.3. Depository Accounts and Investment of Funds. The Managers may open and
maintain on behalf of the Company one or more depository or investment accounts at such times and
in such depositories or institutions as they shall determine, in which all monies received by or on
behalf of the Company shall be deposited. All withdrawals from such accounts shall be made upon
the signature of such person or persons as the Managers may from time to time designate in writing.
MedCath shall have the responsibility for maintaining such accounts and investments on behalf of
the Company. MedCath may relinquish such responsibility at any time by written notice to the
Company, and in such event the Managers will appoint another Member or representative of a Member
to maintain such accounts and investments.



24









 





     SECTION 9.4. Reports.




     (a) The Company shall prepare or cause to be prepared, at the end of each fiscal year
of the Company, annual financial statements showing the financial condition of the Company
at the end of such fiscal year and the results of its operations for the fiscal year then
ended, which annual financial statements shall be prepared in accordance with GAAP.




     (b) In addition to the financial statements provided for in Section 9.4(a), the Company
shall prepare or cause to be prepared:




     (i) income tax returns for the Company and shall timely file them with the
appropriate authorities; and




     (ii) a notice of each Member’s share of the Company
Income, Losses and tax credits for federal income tax purposes for each
year and any other information necessary or desirable for preparation
by each Member of such Member’s federal and state income tax return.



     MedCath shall have the administrative responsibility for preparing and distributing such
reports on behalf of the Company. MedCath may relinquish this responsibility at any time by
written notice to the Company, and in such event the Managers will appoint another Member or
representative of a Member to prepare and distribute such reports.



     SECTION 9.5. Tax Accounting Methods; Periods; Elections. The Company’s annual
financial accounting and tax accounting period shall be based upon a fiscal year ending December 31
of each year, unless another accounting period is required by the Code. The Managers may cause the
Company to make or refrain from making any election allowable to the Company under the Code,
including elections under Section 754 of the Code with respect to Company distributions described
in Section 734 of the Code and with respect to transfers of Interests described in Section 743 of
the Code. MedCath shall have the administrative responsibility for handling such tax matters on
behalf of the Company and pursuant to Section 11.11 herein, shall serve as the “Tax Matters
Partner” of the Company. MedCath may relinquish such responsibility upon written notice to the
Company and in such event the Managers shall appoint another “Tax Matters Partner.”



ARTICLE X




MEETINGS OF MEMBERS




     SECTION 10.1. Meetings of Members. Meetings of the Members (a) may be called by the
Managers and (b) shall be called by the Managers at the request, in writing, of the holders of not
less than fifteen percent (15%) in Percentage Interest of the Members, which request shall state
the purpose or purposes of the proposed meeting. Business transacted at all



25









 




meetings held pursuant to this Section 10.1 shall be confined to the purpose or purposes stated in the related notice as set
forth in Section 101.352(b) of the TLLCL.




     SECTION 10.2. Notice of Meetings of Members. Written notice stating the location, day
and hour of the meeting and, if required by Section 101.352 of the TLLCL, stating the business to
be transacted at the meeting, shall be delivered not less than ten (10) nor more than sixty (60)
days before the date of the meeting, to each Member of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the Member at its address as it appears on the records of the Company. Any duly
convened meeting may be adjourned by the Members to a later time without further notice other than
announcement at the meeting. Any Member may waive notice of any meeting before, during or after
the duly convened meeting. The waiver must be signed in writing by the Member entitled to notice
and delivered to the Company for inclusion in the Company’s records. A Member’s attendance at or
participation in a meeting, whether present in person or represented by proxy, shall constitute a
waiver of notice of such meeting, except when such Member or its proxy attends a meeting for the
sole and express purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, a meeting need be specified in any written waiver of notice.



     SECTION 10.3. Record Date. In order that the Company may determine the Members
entitled to notice of or to vote at any meeting of the Members or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to receive payment of
any distribution or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of an Interest in the Company or for the purpose of any other lawful
action, the Managers may fix, in advance, a record date, which shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to
any other action. If no record date is fixed: (a) the record date for determining the Members
entitled to notice of or to vote at a meeting of such Members shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held; and (b) the record date
for determining Members for any other purpose shall be at the close of business on the day on which
the Members adopt the resolution relating thereto. A determination of the Members of record
entitled to notice of or to vote at a meeting of the Members shall apply to any adjournment of the
meeting; provided, however, that the Managers may fix a new record date for the
adjourned meeting.



     SECTION 10.4. Quorum. The attendance in person or by proxy of all of the Managers and
all of the Members shall constitute a quorum at all meetings of the Members. Once a quorum is
present at the meeting of the Members, the subsequent withdrawal from the meeting by any Member
prior to adjournment or the refusal of any Member to vote shall not affect any business that is
transacted at such meeting prior to such withdrawal. If, however, such quorum shall not be present
at the opening of any meeting of the Members, the Members entitled to vote at such meeting, whether
present in person or represented by proxy, shall have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until the holders of the requisite amount of
Interests shall be present or represented. At




26











 




such adjourned meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty (30) days or if, after the adjournment, a new record date is
fixed for the adjourned meeting by the Managers, a notice of the adjourned meeting shall be given
to each Member of record entitled to vote at the meeting.




     SECTION 10.5. Organization. Meetings of the Members shall be presided over by the
Managers, or their designee, and the Managers or their designee shall act as secretary of each
meeting.



     SECTION 10.6. Actions by Members. Except for a matter for which the affirmative vote
of Members is required by applicable law, the Certificate of Formation or this Agreement, the
Managers shall act for the Company in all respects. With respect to a matter for which the
affirmative vote of the Members is required by applicable law, the Certificate of Formation or this
Agreement, the unanimous vote of the Members shall be required for any act of the Members, whether
present in person or represented by proxy. Voting at meetings of the Members need not be by
written ballot and need not be conducted by inspectors unless the Managers shall so determine.



     SECTION 10.7. Proxies. Each Member entitled to vote at a meeting of the Members may
authorize another person or persons to act for such Member by proxy; provided,
however, that no proxy will be effective and recognized by the Managers unless such proxy:
(a) is in writing, (b) is signed by the Member authorizing another Person to act on his, her or its
behalf, (c) specifies the purpose for which the proxy is being given, and (d) indicates a specific
meeting for which the proxy has been authorized. A proxy shall only be effective for the specific
meeting (and any adjournments thereof) for which such proxy has been executed. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is
coupled with an interest sufficient in law to support an irrevocable power. A Member may revoke
any proxy which is not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing a later date with
the Managers.



     SECTION 10.8. Action Without Meeting. Any action required or permitted to be taken at
any meeting of the Members may be taken without a meeting, if a written consent thereto is signed
by the holders of an aggregate Percentage Interest sufficient to approve or consent to such action,
before or after such action, describing the action taken, and included in the minutes of the
meetings of the Members or filed with the Company’s records. A consent transmitted by electronic
transmission by a Member or by a person or persons authorized to act for a Member shall be deemed
to be written and signed for purposes of this Section 10.8.



     SECTION 10.9. Meeting by Conference Telephone. The Members may participate in any
meeting of such Members by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other and such participation
in a meeting shall constitute presence in person at such meeting.



27









 





     SECTION 10.10. Registered Members. The Company shall be entitled to treat the holder
of record of any Interest as the holder in fact of such Interest for all purposes, and accordingly
shall not be bound to recognize any equitable or other claim to or interest in such Interest on the
part of any other person, whether or not it shall have express or other notice of such claim or
interest, except as expressly provided by this Agreement or the laws of the State.



ARTICLE XI




MISCELLANEOUS PROVISIONS




     SECTION 11.1. Waiver of Provisions. The waiver of compliance at any time with respect
to any of the provisions, terms, or conditions of this Agreement shall not be considered a waiver
of such provision, term, or condition itself or of any of the other provisions, terms, or
conditions hereof or bar its enforcement at any time thereafter.



     SECTION 11.2. Amendment. This Agreement contains the entire agreement among the
Members and any modification or amendment thereto must be in writing signed by each of the Members.



     SECTION 11.3. Interpretation and Construction. 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 or intent of this Agreement or any
provision hereof. Unless otherwise specified, the references to Section and Article in this
Agreement are to the Sections and Articles of this Agreement.



     SECTION 11.4. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas. The parties hereto hereby submit to
the jurisdiction of the courts of the State of Texas for the adjudication of any matter arising
with respect to this Agreement.



     SECTION 11.5. 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
this Agreement which can be separated from the invalid, unenforceable provision or provisions shall
continue in full force and effect.



     SECTION 11.6. Binding on Successors. The terms, conditions, and provisions of this
Agreement shall inure to the benefit of, and be binding upon the parties hereto and their
respective permitted successors and assigns. However, none of the provisions of this Agreement
shall be for the benefit of or enforceable by any creditors of the Company (other than a Member who
is also a creditor).



     SECTION 11.7. Notices and Delivery.




     (a) To Members. Any notice to be given hereunder at any time to any Member, or
any documents, reports, or returns required by this Agreement to be



28









 







delivered to any Member,
may be delivered personally or mailed to such Member, postage prepaid, addressed to him at
the address set forth on Exhibit A or such other address as such Member shall by
notice to the Company have designated as his or her address for the mailing of all notices
hereunder. 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 delivered or mailed,
as the case may be.




     (b) To the Company. Any notice to be given to the Company hereunder may either
be delivered personally or mailed to the Company, by registered or certified mail, postage
prepaid, addressed to the Company at its principal office, and shall be copied to each other
Member. Any notice so delivered or mailed shall be deemed to have been given to the Company
at the time it is delivered or mailed, as the case may be.



     SECTION 11.8. Counterparts. This Agreement may be executed in any number of separate
counterparts, each of which shall be deemed an original document, and all counterparts taken
together shall constitute but one instrument.



     SECTION 11.9. Statutory Provisions. Any statutory or regulatory reference in this
Agreement shall include a reference to any successor to such statute or regulation and/or revision
thereof.



     SECTION 11.10. Waiver of Partition. Each party does hereby waive any right to
partition or the right to take any other action which might otherwise be available to such party
for the purpose of severing its relationship with the Company or its interest in the property held
by the Company from the interests of other Members.



     SECTION 11.11. Tax Matters Member. The Managers hereby elect MedCath to act as the
“Tax Matters Partner”” as that term is defined in Section 6231 of the Code.



     SECTION 11.12. Determination of Matters Not Provided For In This Agreement. The
Managers shall decide any questions arising with respect to the Company and this Agreement which
are not specifically or expressly provided for in this Agreement.



     SECTION 11.13. Further Assurances. The Members each agree to cooperate, and to execute
and deliver in a timely fashion
any and all additional documents necessary to effectuate the purposes of the Company and this
Agreement.



     SECTION 11.14. Arbitration. Any dispute, controversy or difference arising out of or
in connection with this Agreement or any transaction hereunder shall be finally settled under the
Commercial Arbitration Rules of the American Arbitration Association then in effect by three
arbitrators selected in accordance with such rules (provided, however, that if the amount in
controversy is less than $500,000, then such dispute, controversy or difference shall be finally
settled by one arbitrator selected in accordance with such Rules). The arbitrators’ award shall be
final and binding on the parties. The arbitration shall be administered by the American
Arbitration Association in English and shall take place in Houston, Texas.



29









 






     (a) Procedure. Once the arbitrators have been selected, a hearing date shall
be set within forty-five (45) days thereafter. Written submittals shall be presented and
exchanged by the parties no less than fifteen (15) days before the hearing date, including
reports prepared by experts upon whom either party intends to rely. At such time the
parties shall also exchange copies of all documentary evidence upon which they will rely at
the arbitration hearing and a list of the witnesses whom they intend to call to testify at
the hearing. Each party shall also make its respective experts available for deposition by
the other party prior to the hearing date. The arbitrators shall make their award as
promptly as practical after conclusion of the hearing.




     The arbitrators shall not be bound by any rules of evidence or civil procedure, but
rather may consider such writings and oral presentations as reasonable businessmen would use
in the conduct of their day-to-day affairs, and may require the parties to submit some or
all of their presentation orally or in written form as the arbitrator may deem appropriate.
It is the intention of the parties to limit live testimony and cross examination to the
extent necessary to insure a fair hearing to the parties on the matters submitted to
arbitration, and to provide neither party more than two complete business days to present
its position. The parties have included the foregoing provisions limiting the scope and
extent of the arbitration with the intention of providing for prompt, economic and fair
resolution of any dispute submitted to arbitration.




     (b) Award. The arbitrators shall have the discretion to award the costs of
arbitration, arbitrators’ fees and the respective attorneys’ fees of each party between the
parties as they see fit. Judgment upon the award entered by the arbitrators may be entered
in any court having jurisdiction thereof. The arbitrators shall make their award in
accordance with applicable law and based on the evidence presented by the parties, and shall
include in their written award findings of fact and conclusions of law. The arbitrators
shall have the power to award relief both in law and equity, which would be available in a
court having jurisdiction over the parties and over the subject matter of the dispute. Such
powers shall include, but not be limited to, the power to grant injunctions and require
specific performance.




     (c) Statute of Limitations. Any such dispute, controversy or difference
settled in arbitration shall be subject to the statute of limitations which would be
applicable to an action at law.



30









 





     IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated Operating
Agreement as of the day and year first above written.



	 	 	 	 	 	 	 
	 	 	MEMBERS:	 	 
	 
	 	 	 	 	 	 
	 	 	VALLEY BAPTIST REALTY CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	James G. Springfield,	 	 
	 

	 	 	 	Chairman and President	 	 
	 
	 	 	 	 	 	 
	 	 	HARLINGEN HOSPITAL MANAGEMENT, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	HMC PHYSICIANS, LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	HOSPITAL:	 	 
	 
	 	 	 	 	 	 
	 	 	The Hospital, as sole initial Member, hereby
withdraws from the Company and relinquishes all
right, title and interest in and to its interest in
the Company:	 	 
	 
	 	 	 	 	 	 
	 	 	HARLINGEN MEDICAL CENTER, LIMITED PARTNERSHIP	 	 
	 
	 	 	 	 	 	 
	 	 	By: HMC Management Company, LLC, its General Partner	 	 
	 
	 	 	 	 	 	 
	 	 	By: Harlingen Hospital Management, Inc., its sole
Member	 	 






31









 






	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	MANAGERS:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	                    James G. Springfield	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	                    James A. Parker	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	                    Hugo Blake	 	 






32









 






EXHIBIT A

TO

AMENDED AND RESTATED OPERATING AGREEMENT

OF

HMC REALTY, LLC




	 	 	 	 	 	 	 	 	 	 	 	 	 
	Name, Address	 	 	 	 	 	Initial	 	 	 	 
	and Taxpayer	 	Percentage	 	 	Capital	 	 	Letter of Credit	 
	Identification Number	 	Interest	 	 	Contribution	 	 	Amount	 
	Harlingen Medical Center, Limited Partnership
	 	 	N/A	 	 	(Note 1)	 	 	N/A	 
	Valley Baptist Realty Corporation

	 	 	18.66	%	 	$	4,944,607	 	 	$	558,000	 
	P.O. Drawer 2588

	 	 	 	 	 	(Note 2)	 	 	 	 
	2101 Pease Street

Harlingen, Texas 78551

Attn: James G. Springfield, Chairman and President

#                                    
	 	 	 	 	 	 	 	 	 	 	 	 
	Harlingen Hospital Management, Inc.

	 	 	36.06	%	 	$	9,555,393	 	 	$	1,083,000	 
	10720 Sikes Place, Suite 300

	 	 	 	 	 	(Note 3)	 	 	 	 
	Charlotte, NC 28277

#56-2141739
	 	 	 	 	 	 	 	 	 	 	 
	HMC Physicians, Ltd. 
801 E. Fern #144

McAllen, TX 78501

Attn: Hugo G. Blake, M.D.

#26-0144229
	 	 	45.28	%	 	$	12,000,000	 	 	$	1,359,000
	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	100	%	 	$	26,500,000	 	 	$	3,000,000	 
	 
	 	 	 	 	 	 	 	 	 









 




			
	Notes:
	 
	(1)	 	The Hospital formed the Company and immediately prior to the effectiveness of this
Agreement contributed fee simple title to the Property to the Company, with an agreed gross
fair market value of approximately $57,790,000, and subject to certain mortgages and debts
in an aggregate principal amount of approximately $57,790,000, and assigned all of its
interest in the Company to Harlingen Hospital Management, Inc.. Upon the execution and
effectiveness of this Agreement, the Hospital shall have no further interest in the Company
or any items of income, loss, deduction, credit or distributions therefrom, and shall have
no further rights or obligations pursuant to this Agreement.




33









 









			
	(2)	 	Represents $2,000,000 cash contribution and conversion of $2,944,607 of debt
represented by the Assigned VB Loan.
	 
	(3)	 	Represents conversion of $9,555,393 of debt represented by a portion of the Assigned
MedCath Loan. The remaining principal balance of the Assigned MedCath Loan of $1,790,000
will be repaid in cash upon closing of the Acquisition Loan to the holders thereof (it
being acknowledged by the parties that $1,472,303 of such debt is held by Harlingen
Hospital Management Inc., by assignment from MedCath Finance Co., LLC and $317,696 of such
debt is held by the Hospital)




34









 










EXHIBIT B

TO

AMENDED AND RESTATED OPERATING AGREEMENT

OF

HMC REALTY, LLC




Special Tax Provisions



For purposes of this Exhibit B, references in the Code or the Regulations to “partner” and
“partnership” shall be deemed to refer to “Member” and “Company,” respectively.




     SECTION B.1. Definitions.



     “Company Minimum Gain” shall mean “partnership minimum gain” as defined in Regulations
Sections 1.704-2(b)(2) and 1.704-2(d).



     “Member Minimum Gain” means an amount, with respect to each Member Nonrecourse Debt,
equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as
a Nonrecourse Liability, determined in accordance with Section 1.704-2(i) of the Regulations.



     “Member Nonrecourse Debt” has the meaning set forth in Section 1.704-2(b)(4) of the
Regulations.



     “Member Nonrecourse Deductions” has the meaning set forth in Section 1.704-2(i)(2) of
the Regulations. The amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse
Debt for a Company fiscal year equals the excess, if any, of the net increase, if any, in the
amount of Member Minimum Gain attributable to such Member Nonrecourse Debt during that fiscal year
over the aggregate amount of any distributions during that fiscal year to the Member that bears the
economic risk of loss for such Member Nonrecourse Debt to the extent such distributions are from
the proceeds of such Member Nonrecourse Debt and are allocable to an increase in Member Minimum
Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section
1.704-2(i)(2) of the Regulations.



     “Nonrecourse Deductions” has the meaning set forth in Section 1.704-2(b) and 2(c) of
the Regulations. The amount of Nonrecourse Deductions for a Company fiscal year equals the excess,
if any, of the net increase, if any, in the amount of Company Minimum Gain during that fiscal year
over the aggregate amount of any distributions during that fiscal year of proceeds of a Nonrecourse
Liability that are allocable to an increase in Company Minimum Gain, determined according to the
provisions of Section 1.704-2(c) of the Regulations.



     “Nonrecourse Liability” has the meaning set forth in Section 1.704-2(b)(3) of the
Regulations.



35









 





     SECTION B.2 Special Allocations. The following special allocations shall be made in
the following order:




     (a) Minimum Gain Chargeback. Notwithstanding any other provision of this
Exhibit B, if there is a net decrease in Company Minimum Gain during any Company
fiscal year, each Member shall be specially allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to the portion of such
Member’s share of the net decrease in Company Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with Sections
1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section B.2(a) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations
and shall be interpreted consistently therewith.




     (b) Member Minimum Gain Chargeback. Notwithstanding any other provision of
this Exhibit B except Section B.2(a), if there is a net decrease in Member Minimum
Gain attributable to a Member Nonrecourse Debt during any Company fiscal year, each Member
who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Section 1.704-2(i)(5), shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent years) in an amount
equal to the portion of such Member’s share of the net decrease in Member Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section B.2(b) is intended to
comply with the minimum gain chargeback requirement in such Section of the Regulations and
shall be interpreted consistently therewith.




     (c) Qualified Income Offset. In the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of
Company income and gain shall be specially allocated to each such Member in an amount and
manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of such Member as quickly as possible; provided that an
allocation pursuant to this Section B.2(c) shall be made if and only to the extent that such
Member would have an Adjusted Capital Account Deficit after all other allocations provided
for in this Exhibit B have been tentatively made as if this Section B.2(c) were not
in the Agreement.




     (d) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or
other period shall be specially allocated to the Members in accordance with their Percentage
Interests.



36









 






     (e) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any
fiscal year or other period shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i).




     (f) Section 754 Adjustment. 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.



     SECTION B.3. Curative Allocations.




     (a) The allocations set forth in Section B.2 hereof (the “Regulatory
Allocations”) are intended to comply with certain regulatory requirements, including the
requirements of Regulations Sections 1.704-1(b) and 1.704-2. The Regulatory Allocations
shall be taken into account in the reasonable discretion of the Managers in allocating other
items of income, gain, loss and deduction among the Members so that to the extent possible
without violating the requirements giving rise to the Regulatory Allocations, the net amount
of such allocations of other items and the Regulatory Allocations to each Member shall be
equal to the net amount that would have been allocated to each such Member if the Regulatory
Allocations had not occurred.




     (b) Any income, gain, loss, or deduction realized as a direct or indirect result of the
issuance of a Company interest by the Company to a Member (the “Issuance Items”)
shall be allocated among the Members so that, to the extent possible, the net amount of such
Issuance Items, together with all other allocations under this agreement to each Member,
shall be equal to the net amount that would have been allocated to each such Member if the
Issuance Items had not been realized.



     SECTION B.4. Overriding Allocations for Contributed Property. In the event of
a contribution of property other than cash to the Company, income, gain, loss and deduction with
respect to such contributed property shall be shared among the Members for tax purposes so as to
take account of the variation between the basis of the property to the Company and its fair market
value at the time of contribution in accordance with Code Section 704(c) and Regulations
thereunder, with the Managers having authority to make any elections or choose any methods
thereunder; provided, that the remedial allocation method under Regulation Section 1.704-3(d) shall
be used.



     SECTION B.5. Varying Interest in Company. Allocations to any Member whose Interest
changes during a Company fiscal year or to any Member who is a Member for less than



37









 







a full Company fiscal year shall be made in accordance with Code Section 706(d) and the Treasury
Regulations promulgated thereunder to take into account the Member’s varying Interest in the
Company during the Company fiscal year.



38









 





EXHIBIT C

TO

OPERATING AGREEMENT

OF

HMC REALTY, LLC




Description of Property




39